ABC Classification - Dollar usage

navgba

Has anyone customized items classification based on ABC analysis? The one criteria for classification is classify the inventory based on dollar usage of items for last 12 months? What is the logic should apply to calculate dollar usage of item for last 12 months?

tedcjohnston

I've built a routine to suggest ABC(D) coding of items based upon dollar usage.

Questions that typically come up are"
1. What cost number to use.
2. What is usage.

In our case usage is defined as a movement. So, if an item is sold on an order, it is increments the usage by 1, no matter what the quantity on the order is. This keeps items that move infrequently but in large quantity from having a high rating. You could just as easily increment by quantity. We count purchase, sale, and transfer as usage, not adjustments. Basically, any time the item is handled. We do not use WMS. If you do, warehouse moves may need to be factored in (your choice.).

I setup the following screen to allow for changes in management ideas as we worked through the process.


ABC Set method is an option field with Dollars, Count, or Transactions. In your case, you would want to take Dollars and multiply the usage by the dollar value field of the item.

Once you have a number (dollar usage/transaction count) for each item, you need to sort then then determine which are the As etc. I think the top 20% are A, the next 30% are B, the bottom 50% are Cs. In our case, if there is no movement, we give the item a D code.

You will typically run this by location and assign the ABC code at the Item/Location level (on the SKU).

Your mileage may vary.

Lots of information around the Web on calculating ABC codes. Varies a little between manufacturers and distributors. We are a retailer so adjust as management sees fit.