SMRP BoK Review Workbook

Figure 19 : ABC Classification Example

Cycle counting inventory can be managed through ABC classification.

Once MRO items are coded with the ABC classification in the computerized
maintenance management system (CMMS), they can be sorted for cycle
counting. Class ‘A’ items are typically reviewed, i.e. “counted”, every two
months. Therefore, the CMMS randomly selects a fixed quantity of ‘A’ items
each week to ensure that all class ‘A’s can be processed on time. Class ‘B’
items should be processed over a six-month period and ‘C’ items annually.

Storage areas are managed through ABC classification.

Class ‘A’ items need more security, they need to be more closely watched and
reviewed due to their dollar value and importance to the facility. Normally,
‘A’ items are stored at the lower levels of the bin and are often within a secure
area of the warehouse or storeroom. Class ‘B’ items are stored in the middle
levels of the bin where they can be easily inspected and retrieved as these
items are typically used as routine maintenance spare parts. Class ‘C’ items

are stored randomly to maximize warehouse space as ‘C’ items require the

lowest level of security.

Obsolescence budgeting also takes the management of ABC classifications

into consideration.

The obsolescence process begins with the identification of slow moving

inventory. However, with the help of ABC classifications, “slow movers” can

be quickly evaluated with confidence. Class ‘A’ items have the most impact

on the budget if the item is determined to be obsolete and needing to be

removed from inventory. Also, Class ‘A’ items may not move for several years,

but, due to their critical importance, may be required to be held in inventory.

The slow-moving activity report itself would not detect this need. Warehouse

management and the asset owner must consider all aspects of inventory item

before the decision is made to flag as “obsolete”. ABC classifications provide

perspective that enhances this decision making.

ABC classification even effects lot-sizing considerations.

When it comes to purchasing inventory for stock, ABC classifications again

assist with decision making. The goal of every MRO buyer is to minimize

transactional costs (the total purchase price, logistical cost and carrying cost

per unit). MRO items that move infrequently, such as class ‘A’ items, have

higher carrying costs. Conversely, items that move quickly, such as class ‘C’

items, have an insignificant carrying cost but could have higher logistical costs

if not purchased in bulk. Economic purchasing is a balancing act. ABC

classifications help to identify where Buyers need to focus their negotiations

and how best to optimize economic order quantities (EOQ).

ABC classification is a fundamental principle of MRO materials management.

Inventory managers that utilize ABC classification are more efficient in their

day-to-day decision making, inventory control and cost management

practices. Although the initial analysis may be cumbersome, the benefits are

endless.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

A B C

ITEMS % DOLLARS%