Product class

All products except frozen class products, inactive products, labor products, and those with less than 6 months of history are classified. Some distribution companies refer to product class as product ranking. Product class is used for classification and min/max when determining the quantity of the product to order. Even if you are not using classification as an order method, your products should be classified correctly.

Product classes are defined in SA Administrator Options-Products-Replenishment. A product class is assigned to a product in Product Warehouse Product Setup-Ordering. Product classifications are updated by the Product Administration Inventory Classification and Rank Report, which should be run at each month end.

Using product classification as an ordering control approximates the results you get with the Economic Order Quantity (EOQ) method of ordering. Product classification is often easier to understand, although EOQ may offer a more precise turnover result on most products. EOQ develops about one more turn per year than classification. Even if you do not use the product classification method for ordering products, run Product Administration Inventory Classification and Rank Report monthly. It may affect the results of the PO RRAR and can be a valuable tool to identify the best sellers in each warehouse.

A product will fall into one of 13 classes. The class determines the quantity of products to order. Class 1, 2, 3, and 4 only account for 35% of your total inventory, but they represent 90% of the annual movement of money through inventory. To determine if a product has enough history to be classified, the first and last merge dates are verified in Product Replenishment Inquiry. This table shows the breakdown of your products into each class. Class percentages are defined in SA Administrator Options-Products-Replenishment.


Top	7 1/2% of all products	Class 1
Next	7 1/2%	Class 2
Next	10%	Class 3
Next	10%	Class 4
Next	8%	Class 5
Next	8%	Class 6
Next	8%	Class 7
Next	8%	Class 8
Next	8%	Class 9
Next	8%	Class 10
Next	8%	Class 11
Bottom	9%	Class 12

Seasonal products require at least 12 months of history before being classified. Non-seasonal products require only 6 months history. If a product's usage for the month is zero, Product Administration Inventory Classification and Rank Report looks for an override reason. If a reason exists, the usage is used. If there is no override reason, the usage is ignored.

Products are classified according to the annual usage amount per warehouse. The annual usage amount is calculated based on the normal usage or override usage for a 12-month period times the current unit cost. The unit cost is based on the Post to G.L By or Post to S/M By and Include Addons field in SA Administrator Options-Products-Costs. You can use Average, Replacement, Standard, FIFO, or Last cost, and include the addon cost. The unit cost may also be affected by the special cost type in Product Setup.

This table shows each classification based on the months supply to purchase, and how many inventory turns per year you can expect.


Class	Months supply to purchase	Turns per year
1	1	12
2	2	6
3	3	4
4	4	3
5	5	2.4
6	6	2
7	7	1.7
8	8	1.5
9	9	1.3
10	10	1.2
11	11	1.1
12	12	1

For example, a product has 7 months of usage and the annual usage is 355:


Period	Monthly usage
1	55
2	45
3	55
4	4
5	55
6	45
7	55

The annual usage is calculated as Usage to Date * (12 / Months of History) or 355 * (12/7) = 608.

If the unit cost is based on replacement cost and is $132.50, the annual amount is calculated as Annual Usage * Unit Cost or 608 * 132.50 = $80,560.00.