Business value

Microsoft Dynamics 365 for Finance and Operations  standard offers ABC classification from a financial and commercial perspective, but not from a logistical perspective!

Warehouse Management  adds logistical ABC classification, created for the warehouse manager.

In a warehouse, typically more than 60% of the costs is picking related. By optimizing the pick locations of frequently picked items, it is possible to handle pick work in a more efficient way.

Three new ABC calculation types are added: ABC pick frequency, ABC pick volume, ABC pick weight.

These ABC codes can be auto-calculated, and the put away strategy and replenish to optimal pick locations can automatically follow the actual ABC codes of the item.

 

Warehouse ABC classification

Warehouse management > Periodic tasks > Warehouse ABC classification

Calculates the logistical A, B, and C values, and number of picks per period, and updates these on the released products.

Some items may be picked very often, but are small and light weight. Based on number of hits these are A items, but based on cubic velocity and weight these are C items. Therefor the ABC calculation discerns between:

• ABC based on frequency (number of picks)
• ABC based on volume (cubic velocity)
• ABC based on weight

Depending on characteristics of the data (normal distribution, kurtosis and skewness of hits among the items in the assortment), some experimenting with the A, B and C percentages might be needed. E.g. start with setting upper 20 % for A items, middle 30 % for B items and lowest 50 % for C items.

 

Location directives can be set up for put away, e.g.:

Field	Description	Remark
A items	High cubic velocity	Flow rack

A-items	Medium cubic velocity	Shelf racks, front pick zone
A-items	Low cubic velocity	Drawer locations, front pick zone
B-items	High weight, high cubic velocity	Pallet locations on floor

C-items

High weight

Floor level, rear pick zone

C-items

Low weight

Higher levels, rear pick zone

 

 

The pick module selection matrix of OPS design indicates what type of picking and storage type is optimal for different levels of daily hits, average pick unit size, daily cubic velocity, etc. http://www.distributiongroup.com/articles/piecepickingwhichmethod.pdf

The ABC classification calculates the input data for this and similar matrices. 

ABC classification and analysis is based on:

• Historic closed warehouse transactions
• Open sales order lines (remaining quantity)
• Demand forecast

For an optimal performance the quantity that remains to be delivered on open sales order lines is considered as not picked yet. But if the line is already picked but not delivered, this transactions is already present in the closed picking transactions that are used in the ABC calculation.

All picked items should therefor be packing slip posted before the ABC calculation is executed. This is to avoid double counting of closed pick transactions on open sales lines.  

 

Assumptions:

• Per item, the periods before the very first pick of the item are discarded automatically. So if the item is very new, and first pick was 30 days ago, and the calculation is based on the past 365 days, only the last month is regarded as period. The reason to determine the average number of picks per period is to be able to compare longer existing products with new assortment products with only a short history.
• The time frame that will be selected in the Warehouse ABC classification dialog does not have to be a full number of periods.
• If the ABC calculation should be based on last year’s transactions, e.g. between 12 and 10 months ago, it is possible to use negative days: Days back = 365 and days forward = -305.
• Variants (color, configuration, size, style) are aggregated automatically.
• The volume and weight are always based on the inventory unit. E.g. if “nestable” products like buckets are picked, the total volume is calculated based on the inventory unit, even if a pallet with stacked buckets was picked.
• The used forecast model is the model linked to the current static master plan, including its sub models.
• Forecast is normally on an aggregated level. The average quantity per pick line for the forecast quantities is estimated based on historic average quantity per pick line and open sales lines. If there is no historic pick line or open sales line, the average quantity per pick is the maximum of 1, the sales order multiple or the sales minimum order quantity.
• The definition which warehouses and work types are relevant is made through checkmarks on warehouse and work class. If full pallet picking from bulk should not be included, set up a different work class that is not active for ABC calculation.
• Open transfer lines are not taken into account, because they tend to be regenerated each night for the next day. Normally there are no transfers planned for the future.
• Advice is to run ABC classification over all items.

 

Warehouse ABC classification overview

Warehouse management > Inquiries and reports > Warehouse ABC classification overview

This screen displays the results of the ABC classification.

Field	Description	Remark
Item number	Released item	Just like the standard ABC classification, the warehouse ABC classification does not take into account differences between the product variants.

Product name	Item name
Gross item volume	Gross length * gross width * gross height of one inventory unit	This is more precise (4 decimals) than the field gross volume
Gross item weight	Net weight + tare weight per inventory unit
Number of picks	Number of picks for ABC active warehouses and ABC active work classes	Total number of "hits", pick work lines in the selected time frame
Total quantity	Total quantity in inventory unit
Unit	Inventory unit

Nr. of periods	Number of periods in selected time frame, based on parameter ABC period length	The time frame starts at the first pick for this item.
Picks/period	Number of picks per period, as defined in the parameter ABC period length
Volume/period	Total volume that is picked per period	Based on the volume per inventory unit
Weight/period	Total weight that is picked per period	Based on the weight per inventory unit
Avg. quantity per pick	Average inventory quantity per pick	Based on inventory units
Avg. volume per pick	Average volume per pick	Based on volume per inventory unit

Avg. weight per pick	Average weight per pick	Based on weight per inventory unit
ABC frequency	Frequency based ABC code
ABC volume	Volume based ABC code	A = high cubic velocity
ABC weight	Weight based ABC code
Start date	Start date of the calculation time frame	To give comparable results for new items, the earliest start date cannot be before the first pick.
End date	End date of the calculation time frame

 

From this ABC calculation overview form, it is possible to open:

• On hand inventory
• Fixed locations
• Physical dimensions
• Open sales order lines
• Work line overview
• Inventory forecast

 

If a pallet was picked, the gross volume and gross weight of one item is multiplied with the number of items on the pallet. The gross volume and weight that is specified for the pallet is not used. Especially in case of items that are nested on a pallet, this can cause some deviations, but will not be decisive for the ABC code calculation.