ABC analysis is a materials management tool that groups parts by number of issues or quantity on hand to help you determine which materials to manage closely. ABC analysis provides an efficient means of reordering and managing inventory items.
With ABC analysis, classify inventory items by cost and by usage: high (A), medium (B), and low (C). Base these categories either on quantity on hand or on usage history. The default values are 75% for A, 20% for B, and 5% for C, but you may change these values.
The following examples demonstrate uses of ABC analysis:
Purchasing—Assign purchase order approval levels based on ABC class. For example, require that purchase orders for A items be approved by the president or Chief Financial Officer (CFO), that purchase orders for B items be approved by department heads, and that purchase orders for C items be approved by project leaders.
Physical Inventory Counting—Count A items weekly or daily, B items monthly, and C items annually.
Forecasting—Forecast A items with resolution from a forecasting committee. Use simple trend projection for B items, and use the buyer’s best guess for C items.
The information in ABC analysis reports helps you to manage inventory more effectively.
A items represent the largest percentage of the total inventory value. Keep the quantity on hand for these items low, but guard against depleting your supply of these items. Manage them closely.
B items represent a moderate percentage of the total inventory value. Determine a fixed reorder point and a fixed reorder quantity for these items so that you can guard against depleted supplies and keep your management time for B items minimal.
C items represent a small percentage of the total inventory value. Keep the quantity on hand for these items high. Determine a high fixed reorder point and a high fixed reorder quantity for these items to guard against depleted supplies. Keeping this item available saves you time.
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Define stock prior to performing ABC analysis. |
Follow these steps to perform ABC analysis.
Open the ABC analysis form (SBABCA).
Store—Click to select the store for which to perform ABC analysis.
Update ABC class—Select to indicate that Datastream 7i retains calculated values in the R5STOCK table.
Select one of the following options:
Value based—Select for Datastream 7i to calculate ABC analysis based on values.
Usage based—Select for Datastream 7i to calculate ABC analysis based on usage.
Click . Datastream 7i calculates ABC analysis and prints the report.