ABC Class Codes are user-defined inventory movement codes assigned to stock parts used to indicate slow, medium, and fast moving parts for the purpose of reordering those parts, specifically this pertains to automatic reordering. If you are using the manual reordering option, ABC Class Codes will not need to be setup unless you want to use them to help control Physical Inventory Counting.
ABC Class Codes are setup at the inventory location level, meaning each location designated as an inventory location will have its own set of ABC Class Codes.
M5 supports up to 36 ABC Class Codes, but for the purposes of this example, we will use just three: A, B, and C.
Enter a valid inventory location in the Location Code field. Enter in a code ( for example A, B, or C). This field has a limit of one character.
Traditionally, an A part would indicate the most important parts, the high value parts. In a traditional model A parts account for a large portion of the overall value but a small percentage of the total count of stock parts moved out of inventory.
Ultimately, it is up to the organization to decide how they wish to implement the ABC Class Codes and which codes will indicate which type of value to the organization.
The values entered in this section will designate the importance of each ABC Class Code for the inventory location.
Line Item – This value is based on count. It will reflect the percentage of all parts actually being moved, such as transferred or issued, out of inventory for the location.
Usage Value – This value represents the percentage of the total amount of money spent on the parts moved out of inventory, such as everything issued or transferred at the inventory location.
Here is an example of ABC Class Coding with A parts as the highest value parts:
A Parts – 20% (Line Item) of parts moved for 70% (Usage Value) of the total value of the parts moved.
B Parts – 30% (Line Item) of parts moved for 25% (Usage Value) of the total value of the parts moved.
C Parts – 50% (Line Item) of parts moved for 5% (Usage Value) of the total value of the parts moved.
Another example of ABC Class Coding with A parts as the most frequently moved parts:
A Parts – 70% (Line Item) of parts moved for 10% (Usage Value) of the total value of the parts moved.
B Parts – 20% (Line Item) of parts moved for 25% (Usage Value) of the total value of the parts moved.
C Parts – 10% (Line Item) of parts moved for 65% (Usage Value) of the total value of the parts moved.
There should be an inverse relationship between the Line Item and Usage Values at the high and low ends, and your middle codes,such as B parts in this example, should have values much closer to each other.
Note: These values for both Line Item and Usage Value for all ABC Codes must add up to 100%.
The ABC Class also has two “smoothing” factors that will be factored in to the automatic reorder calculation.
Usage Factor – This value how much the calculated usage can bend the forecast. As an example, a part is order exactly ten times a month for two years. The forecasted usage for next month will also be to use ten parts. But what should the forecasted usage be if zero parts are used for the month? If the usage factor is 10%, then the forecasted usage will be bent 10% towards the actual usage.
Service Level Factor – When a part is needed, what percentage of the time should it be in stock? Parts of the highest importance should have higher service levels. For example, ‘A’ parts might be expected to be in stock 95% of the time when one is needed. There is a cost associated with establishing high service levels in that more parts needing to be on the shelf “just in case”, will drive up inventory costs.
Physical Inventory parameters can also be setup for ABC Class Codes that will be associated with parts that are designated with the ABC Class Code.
Recount Quantity – If a count is off by this number, it triggers a recount.
Recount Percentage – If a count is off by this percentage, it triggers a recount.
Recount Dollars – If a count is off by this amount of money, it triggers a recount.
Cycle Count Days –Selects the parts to be counted based on a particular number of days since the last part was counted. For example, a 7 in this field would mean that if a part has not been counted for 7 days it would be included in the next count.
These values will carry over to the Part Inventory Parameters frame for individual parts designated with the ABC Class Code.
Set Random Date for All New Parts – Select the radio button to set a random cycle count date for new parts.
Set Fixed Date for All Parts – Select the radio button to set a fix date for the next cycle count.
Use as Default for New Parts – Select the checkbox to use these physical inventory parameters for new parts with this ABC Class Code at this location.
5038 – Update ABC Class Codes to the Part Inventory Location frame? (Y/N) – If the user sets the flag to ‘Y’, then the ABC Class Codes will be updated at the location level via the End of Period (EOP) process and following the Physical Inventory Count.
Last Update: 06/06/2016
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Additional training and technical documents on this subject may be available in the Resource Files area.