White Paper ABC Analysis and Purchasing Automation

White Paper:
Automated Purchase Order Generation
with use of ABC Category Coding in MAS90/200
By Olias Lynch
InSync Technologies, LLC
January 2009



Introduction
Automated Purchase Order Generation with the use of ABC Category Coding has proven time and time again to save the end user time, mistakes, over ordering, under ordering and the business money. Automation of Purchase Orders will eliminate the headache of the purchaser and correctly replenish Inventory according to the ABC Analysis with a just in time functionality.
Headline
The use of ABC Analysis tied directly to Automated Purchase Order Generation is becoming more and more popular and has become an extremely useful tool for many manufacturing companies worldwide. Recent studies with our clients have proven that time, management, and money have drastically improved with the implementation of this newly recognized and credible procedure.
The companies that have implemented Automation combined with the ABC Category Coding have been positioned to benefit from this and stay ahead of their competition so that Sales that are coming in are Shipping in a timely manner without the depletion of the Supply Chain.
ABC Analysis?
ABC analysis is a basic supply chain technique, often carried out by inventory controllers/materials managers, and is the starting point in inventory control.
A system of categorization, with similarities to Pareto analysis, the method usually categorizes inventory into three bands with each band having a different management control associated. Although different criteria may be applied to each category the typical method of “scoring” an inventory item is that of annual consumption value of said item (qty consumed X cost of item) with the result then ranked and then scored (A, B or C).
Bandings may be specific to the industry but typically follow a 70%, 90%, 100% banding in that A class items represent 70% of the value, B class items fall between 70% and 90% of the annual value with C class the remaining. In practical terms the complex high cost materials typically fall into the A class items, with the consumable, low cost (and typically fast moving) classed as C class.
Not all stock is equally valuable and therefore doesn’t require the same management focus. The results of the ABC analysis provide information that helps evaluate how each inventory part should be monitored and controlled.
These controls are typically:
A class items which are critically important and require close monitoring and tight control – while this may account for large value these will typically comprise a small percentage of the overall inventory count.
B class are of lower criticality requiring standard controls and periodic reviews of usage.
C class require the least controls, are sometimes issues as “free stock” or forward holding.
In summary, ABC Analysis is the basis for material management processes and helps define how stock is managed. It can form the basis of various activity including leading plans on alternative stocking arrangements (consignment stock), reorder calculations and can help determine at what intervals inventory checks are carried out (for example A class items may be required to be checked more frequently than c class stores.

Automation of Purchase Orders?
Automatic Reorder Selection is used to generate purchase orders for items that have an on-hand quantity at or below the reorder point specified in the Inventory master file.
Every time you order goods from your vendors, contracts to buy and contracts to sell are created. The Purchase Order module for Sage MAS 90/200 ERP systems helps you keep accurate records of these very important transactions. With every order, you need to specify (and keep track of) shipping method, date required, and the name of the person with whom the order was placed. In addition, you need to confirm the quantities ordered and price per item. This module streamlines and organizes the entire purchasing process.
When your on-hand quantity falls below a specified minimum level, purchase orders can be automatically generated to ensure that you never run out of key items. You can process partial receipts, update your inventory records when goods are received, and monitor cost variances between goods received and goods invoiced.
When this module is integrated with the ABC Analysis, Accounts Payable, Inventory Management, and Sales Order modules, you will have a comprehensive, fully integrated purchasing system. Receipt of goods will automatically adjust inventory quantities and produce a Back Order Fill Report. Furthermore, invoices received will automatically update Accounts Payable records. With the implementation of the Purchase Order module, you will be able to make more informed purchasing decisions, and all of your purchasing and receiving information will be readily available as needed.



Key Findings

· ABC Analysis has proven to reduce time spent on analyzing what needs to be ordered and in the quantity needed.
· Auto Generated Purchase Orders have proven to drastically eliminate Purchasing errors due to fat fingers, bad eyesight, or not enough of the right information syndrome.
· Combining ABC Analysis with the Auto Generation of Purchase Orders will indefinitely save the Employees mistakes, the Company money, and produce time for Employees to focus their attention in other areas of their job functions that need to be addressed.
· Customers will be extremely satisfied with the new level of service from your Company due to having key Inventory in stock, and Shipping these items to them on time.
· Stock items that are low in demand will not need to be ordered constantly and stock items that are in high demand will be readily available as buying trends change from your customers.



Conslusion
A common thread throughout this white paper is the ease of use and time well saved, while money is definitely well spent on product that is well needed just in time. The headaches and confusion of creating Purchase Orders shall be completely taken out of the equation and Automatically generated through a thoroughly thought out system that integrates the ABC Analysis to the end user. Mistakes and “out of stock” items will wither away while the Sales are Shipping smoothly and making it to your customers on time.