Setting Up ABC Analysis Codes

Access the ABC Codes form.

ABC analysis is based on the principle that a small number of items (A) typically accounts for the largest part of a company's business. A slightly larger number of items (B) accounts for a smaller yet significant amount of business. The remaining large number of items (C), taken together, accounts for only a small amount of business.

You can use the ABC Analysis as the basis for inventory cycle counts (in which A items are counted more often than C items). Determine the natural breaks in the inventory item listing to determine where to define the percentage breaks in the branch/plant constants.

Sales %Gross Margin %and Average Investment % (percentage)

Enter a percentage that specifies how to define the A group, the B group, and the C group, during ABC analysis. For the A group, enter a number that is the total of the A percentage added to the percentage that you want the system to use when it assigns items to the A group.

For example, if you want items that make up the top 75 percent of the selling items in the A group and items that make up the next 20 percent in the B group, you enter .95 in this field, which is the total of 75 percent and 20 percent. You enter percentages as decimal amounts. For example, to specify 75 percent, enter .75.

During ABC analysis, the system compares the total sales of a single item to the total sales of all items to calculate the value of each item. An item's value is its percentage of the total sales. The system then arranges the values of all items from those of highest value to those of lowest value and adds the values together beginning with the highest. After it reaches the limit for A items, it continues to add values until it reaches the limit for B items. All items for which value is included in the total between the A limit and the B limit are B items. If an item's value causes the total to go over the B limit, the system assigns that item to the C group.