SAP Software Knowledge: Physical Inventory Item Class

Monday, May 4, 2009

Physical Inventory Item Class

My question is about Physical Inventory. In general we do PI once in a year. Well for which item class ( A, B, C or none) we mostly do this excercise and why. I know what PI is but as far as industrial practice and logic behind selection of the item is concerned, I have a doubt.

Dakshita

Managing your physical inventory is a crucial part of running your business, if it is not monitored correctly you could have large variances, both negative or positive. A physical inventory count is carried out to determine the exact physical quantity of an article that is in your store at a particular time.

Stock quantities are then updated based on the actual level determined during the physical count.

It is important to monitor the accuracy of your stock levels, not only to identify any stock loss that may be occurring, but also to avoid processing sales against stock that you physically do not have, also to know when it is necessary to replenish stocks that run low.

George Sewmungal

I think you are asking about the stratification analysis: i.e.: after the unit cost X annual volume is calculated for all items, you sort the list and mark off the strata from the top down:

A = 70% - 85% of accumulated value
B = 10% - 20% of accumulated value
C = 5% - 10% of accumulated value
D or Blank = fasteners, no cost/low cost items etc.

The logic is that the A items will be comprised of costly or high volume items that account for the majority of the company’s inventory assets. These are usually only about 15 – 20% of the material numbers in the database. They are usually counted 4 times or more per year. Some companies count these every month. Mismanaging these items can bankrupt the company and they deserve special attention. Anyway that is the conventional wisdom.

B items are middle value/volume and are usually counted twice a year or thereabouts.

C items are low cost/volume items and are usually counted only once per year. They usually account for about 80% of the number of items in inventory but only 20% of the value. The most important thing about C items is to keep them in stock so you don’t run out.

The selection within each stratum is usually random but not necessarily. Some companies will store the items in segregated shelving and count by shelf, for example.

I hope this more completely answers your question. If not, please ask for clarification.