ABC Classification in Microsoft Dynamics AX 2012
Posted on: February 13, 2017 | By: Jarrod Kraemer | Microsoft Dynamics AX/365
Authored by: Rosey McAdams
In many organizations inventory is categorized into ABC classifications. Doing so allows a company to get a simple picture of how valuable each inventory item is as an asset which can drive business processes. Dynamics AX provides the functionality to automatically assign every item with an ABC classification with just the click of a button. The ABC classification functionality in AX gives your organization flexibility to categorize your items into A, B, and C buckets using different methodologies. This blog will get into how to use AX to categorize you products into ABC groups and how to utilize the classifications to perform other business processes such as cycle counts.
On released products form, under the manage costs fast tab, there are fields for ABC classification by value, margin, revenue and carrying cost. The values in the ABC classification fields can only be A, B, C, or None. These values cannot be manually assigned, they may only be assigned systematically through the periodic ABC classification job. When this job is run, AX will automatically assign each item with a classification for the model that is run. If the periodic ABC classification for the model has never been run, the ABC classification on the item master will say None. Once the job is run the classification will never change unless the job is run again. When the job is run again the classifications may or may not change based on your setup and item values, revenues, margins, etc. during the time period it is run for.
The screen shot above displays an item, where we can see, an ABC classification has only been run for the revenue model, since the rest of the values are blank. To get ABC classifications in the other models we must run the ABC classification periodic job to assign an ABC classification of each product in those model types. Let’s run through the steps on how we would run the periodic function for the value model.
1) Navigate to Inventory Management > Periodic > ABC Classification
2) The screen below will pop up for you to specify what model you want to use to run your calculation.
a. Choose a from date, and a to date – these dates are the range of time for which you want transactions on items to be considered for your calculation.
b. Fill in an internal interest rate % – this is basically the rate of return that you expect on your items
c. Choose the percent of items that you want to fall into each of your three categories, A, B, and C. I am choosing A-80%, B-25%, and C-15%, how you choose these percentages is up to your company and probably dictated by what the classifications are used for.
d. Choose your ABC model that you want to run the classification for, either margin, value, revenue, or carrying cost. You can run the ABC classification for all models, so you could run a separate job for each model, so that you have classifications for each. Which models you need and how you use them, again, are up to your company and probably dictated by what the classifications are used for.
3) Press okay and the classification will run.
4) Navigate back to your released products and notice that now values are filled in for the ABC Classification value model on all items. As you can see, the product shown below has different classifications for value and revenue.
In addition to classifying items on the released products form you can also run reporting to get ABC classification for items. Note that running ABC classification reports will not affect the ABC classification on your item master, the reporting is completely separate from the classification that is assigned to products. This allows you flexibility to report on any model setup you want, without affecting the way your products are classified on the item master in AX. You must also be careful that if you want the reports you are running to match what is on your item master, you must first run a classification periodic job and then run your report, making sure the setup of ABC percentages are identical. Below is a sample of an ABC classification report.
So, you may be wondering if you can do reporting on any setup you want, why would you ever want to do the ABC classification periodic job to assign products with a classification on the item master itself? Well having the classification on the item itself allows for other functionalities of AX to utilize the item grouping. One example is that ABC classification is a way to drive cycle counts in Dynamics AX which is something many businesses use ABC classification for. Having the ability to systematically drive cycle counts based on ABC values of items cuts down vastly on time reporting on ABC valuation and manually creating cycle count programs. To use ABC classification to setup a cycle count plan follow these steps:
1) Navigate to Warehouse Management > Setup > Cycle Counting > Cycle Count Plans
2) Create a new plan – In my example I am going to create a plan for counting items that are classified as A in the ABC value model, to be counted every 10 days.
a. Assign a name to the plan
b. Give an appropriate description
c. Choose the work pool ID
d. Choose the maximum number of cycle counts to create at a time
e. Choose the frequency with which you would like to perform cycle counts of items in this classification group
3) One you have created the new plan ID click on the Select Items button at the top
4) Now that we are in the select items screen we can choose to setup the cycle count by classification group. In the screen shot below I have chosen ABC – code value – so the value classification will be used, and group A.
If we were to continue this for the other classification groups we would probably setup a less frequent counting plan for items in group B and C, since these items are not as valuable.
Hopefully, this blog has answered most of your questions on ABC classification in Dynamics AX! For additional information please feel free to reach out to us at info@loganconsulting.com or (312) 345-8817.
All the best!
Logan Consulting
www.loganconsulting.com