An item’s available quantity is the On Hand quantity - Committed quantity.

The costing method that values items at an average cost. The average unit cost computed is affected by the number of units purchased at various costs. The total of the number of units purchased plus the units on hand prior to the purchase is divided into total cost of goods available for sale. Cost of goods sold is stated at an amount less than obtained under LIFO but more than obtained under FIFO. The middle-of-the-road approach to costing. FIFO LIFO AVERAGE SALES 500,000 500,000 500,000 COST OF GOODS SOLD 285,000 310,000 295,000 GROSS MARGIN 215,000 190,000 205,000 EXPENSES115,000 115,000 115,000 NET OPERATING100,000 75,000 90,000 FEDERAL INCOME TAX 50,000 37,500 45,000 NET EARNINGS 50,000 37,500 45,000

The average usage is calculated for an item as the sum of all usage for a given number of months divided by the number of months.

A purchase order document which contains open items that were not received on the original shipment. The items on the document are backordered.

Contract price basis and multiplier are used to create a pricing structure for a customer, customer price class, or all customers by an item, item price class, vendor or all items by pricing unit of measure.

Bill of Materials, the combining of component items, labor, packaging, and overhead to create a new finished item.

Branches are created/maintained through System Management Branch F/M. Branches may be referred to as stores or profit centers. The length of the branch is two-digits (01-99).

Buyer codes are created/maintained through Purchase Order Buyer Code F/M. The buyer code is used to track an authorized purchase of goods on a purchase order.

Catalog items are goods that are provided by a vendor but are not carried in inventory. A record tracking price information exists in a catalog file.

The cost of carrying or storing inventory in a warehouse, including storage, overhead, insurance, taxes, obsolescence and loss, handling and the cost of money. The “K” cost is expressed as a percentage and is used in the EOQ calculation. The “K” cost is generally 20% plus the prime rate for borrowing money.

The cost of going through the replenishment cycle per item ordered. This cost may include the purchasing department making buying decisions, entering purchase orders or transfers, the warehouse personnel placing the items on the shelves when merchandise is delivered, the accounts payable department processing the bills to pay for the merchandise, and overhead associated with these departments (i.e., office space, telephones, etc.) The “R” cost is usually between $4-$6. The “R” cost is used in the EOQ calculation.

A partial physical inventory where a portion of the warehouse is counted daily (after all paperwork has stopped and quantities are still). Counting is performed from warehouse shelf to count sheet. It is recommended that the number of items counted each day result in all items being counted four times a year (once each quarter). For example, if a warehouse contains 5000 items and there are approximately 22 working days a month, i.e., 66 working days a quarter, 5000 divided by 66 is 75 indicating that 75 items are counted a day. By performing cycle counting, no item is ever greater than 3 months from its last physical and usually obviates an annual physical inventory.

Items whose percentage of sales are so small that an investment in inventory cannot be justified. Dead stock items are discontinued for replenishment.

GL departments are used to track revenues and expenses by division. The GL department is imbedded in the G/L number for posting purposes. General ledger financial reports may be printed by department.

A direct shipment is the shipment of goods from the vendor to the customer, as opposed to, a warehouse shipment where the goods are shipped by the distributor to the customer. This is also referred to as a drop shipment.

A formula used for determining the quantity of an item to order which best balances the cost of replenishment and the cost of carrying inventory to create the lowest possible outgoing cost with the greatest number of inventory turns.

The “First-in/First-out” accounting and costing method. Each receipt of an item is stored as a layer of stock with the received cost and number of units. The unit cost (incoming) of the oldest material on hand is used to value all sales of a stocked item until that layer of stock is exhausted. The next oldest stock’s layer cost is then used, etc. The costs of the first goods purchased are the first costs charged to cost of goods sold. Inventory consists of the newest units and their related costs since the older units are the first units removed from inventory. The balance sheet amounts for inventory are likely to approximate current market values. A smaller cost of goods sold is recorded because the oldest costs that are charged out of inventory are also the lowest costs. FIFO produces a heavier tax burden: the smaller cost of goods sold, the larger the net income, resulting in higher income taxes. The assumed flow of costs corresponds with the physical flow of goods. FIFO produces a more precise matching of historical cost of goods sold with sales revenue. FIFO offers an automatic increase in inventory value during periods when prices are rising (inflation). FIFO appreciates the value since the cost of replacing an item is greater than its actual cost.

An item is flagged during the End-of-Period Update if there is abnormal usage or during the PO Receipt Register update if there were abnormal lead times. Flagged items are displayed through the Flagged Item Report.

The cost associated with the transportation of goods by means of a carrier.

Freight on board indicates at what point freight is charged. If FOB is destination, the seller bears the freight cost. If FOB is shipping point, the buyer bears the freight cost.

Frozen controls are used to prevent the system from automatically recalculating restocking amounts and order quantities of an item. Items are frozen manually by the user through the Warehouse/Item F/M. The following controls may be frozen : • Restocking amounts (order point/line point or min/max stocking) • Order quantity • Lead Time • Safety allowance Items may be flagged as frozen for a variable number of periods or permanently. The Flagged Item Report lists frozen items.

The warehouse that originate the order is the initiating warehouse.

The interchange number is a means of identifying an item by other references other than the item number. The interchange number is used in inquiries and entry programs throughout the Inventory Control, Purchase Order, and Sales Order modules.

Item classes are created/maintained through Inventory Control Item Class F/M. Item classes are used to group items.

Item price classes are created/maintained through Inventory Control Item Price Class F/M Program. Item price classes are used as a way of categorizing items for pricing purposes.

Journal numbers are used for separating journal entries in general ledger by type of entry (example: sales, payroll, receivables, etc.). Each module determines the journal number to post the transactions of that module to in general ledger.

The costing method normally used in a manufacturing environment that is considered the replacement method. Last cost reflects the cost of replacing inventory at current market prices. Last cost is used when jointly produced output proportions are changed from a previously established mix of components. Joint cost allocation is based on the change in costs arising from a change in the mix of these components. Since inventory is valued at replacement cost versus actual cost, reconciliation of Inventory to the GL is often impossible with this method.

Lead time is the number of days from the date a purchase order is placed for an item until the date the item is received. Average lead time is the sum of the lead times of the two most recent non-flagged receipts divided by two, where non-flagged means not ignored and not abnormal. An item will be flagged for lead time if the new average is 50% less or greater than the previous average lead time.

Item ledgercards provide a detailed history by date of every transaction of an item which affects the on hand quantity in a warehouse (i.e., any adjustments, sales, receipts, production or warehouse transfers). Each warehouse/item combination may store ledgercards. Ledgercards include information for each transaction such as date, transaction type and debit or credit amount. Ledgercard information is available for display through the Item Inquiry and may be printed through the Item Ledgercard Listing. Ledgercards may be removed through the Item Ledgercard Removal program.

There may be up to 6 (six) contract price levels per item. The level price used when the item is sold is based on the price level assigned to the customer. Level price may be entered as a basis and multiplier, a set price or a change % from the previously entered price. Level price may be based on list price, manual cost, sales order entry cost, standard price or any price level.

The “Last-in/First-out” accounting and costing method. Each receipt of an item is stored as a layer of stock with the received cost and number of units. The incoming unit cost of the newest material on hand is used to value all sales of a stocked item until that layer of stock is exhausted. The next newest stock’s layer cost is then used, etc. The costs of the last goods purchased are the first costs sold. The latest costs are the first costs removed form inventory and charged to the cost of goods sold. Item costs are normally closer to replacement costs, and selling prices are frequently based on replacement costs. Inventory consists of the older units and their related costs since the newer units are the first units removed from inventory. Reported profits are considered more “real”. LIFO shows the largest cost of goods sold because the newest costs that are charged out of inventory are also the highest costs. LIFO produces a lighter tax burden: the larger the cost of goods sold, the smaller net income, resulting in lower taxes. LIFO results in a more precise matching of current cost of goods sold with sales revenue. LIFO depreciates the value of inventory when prices are rising.

The practice of purchasing an assortment of items from a supplier’s product line so as to meet buying requirements which qualify for a discount.

The replenishment-timing control set higher than the order point on all stock items in a product line where line buying is required. The line point establishes the upper limit for an item for an item to be included in the purchase order: on hand + on order must be below the line point.

The location, or bin, is the physical place in the warehouse where the item is stored.

A lot item is an item whose quantity is maintained through batches. An item which is flagged as a lot item through the Item F/M is one which when received or sold must be assigned a lot number. Examples of lots are reels of wire and batches of mixed paint or rug dye.

The costing method normally used in a manufacturing environment that is considered the standard method. Manual cost reflects an anticipated cost of producing and/or selling a unit. All manufacturing costs are charged to cost objects at standard cost. Every time a unit is produced, its standard (manual) cost is entered. Standards are pre-established per cost object, predetermined (standard) hourly rates are established for each job. Manual cost is used often by companies that use mass-production methods. Standard costs are used to reflect the transfer of units between work in process inventory to finished goods inventory and from finished goods inventory to cost of goods sold. Detailed (actual) costs are not kept per unit and not normally used for managerial purposes. Since detailed costs are not kept per unit, reconciliation of Inventory to the GL is often impossible with this method.

An order quantity method which indicates the order quantity is not automatically recalculated during the End-of-Period Update. The user manually sets the order quantity.

The markup is the amount over the cost which determines the price. The % of markup is the percentage of this amount. For example, if the cost of an item is $100.00 and the markup % is 30%, the price is calculated at $130.00.

An ordering control often used for stock in a branch when it is re-supplied from one of the distributor’s master warehouses. When available stock reaches the “Minimum,” an amount is ordered to bring the balance up to the “Maximum.”

The order-timing control under a Min/Max system. Used in place of an order point, since the branch has a short lead time in which to get an item from a master warehouse within the company.

The Minimum/Maximum restocking method is used to protect against unpredictable vendor lead times and erratic usage rates. This method uses the minimum stocking to determine when to reorder along with the % above minimum set for the vendor/warehouse. If a manual min/max system is desired, the user may freeze the restocking amounts in the Warehouse/Item F/M. For each item the minimum stocking is the quantity below which the available quantity should never reach. When an item reaches it’s minimum on hand quantity (plus the percentage above minimum set for the warehouse/vendor) the item needs to be replenished. Minimum stocking = (usage rate x lead time) + safety stock For each item the maximum stocking is the quantity above which the available quantity should never reach. When available stock reaches the minimum an amount is ordered to bring the balance up to the maximum. Maximum stocking = minimum stock + the percent above minimum + the order quantity

A movement class is a categorization of stocked items based on how many dollars move through the inventory in a year. This is (re)set by the optional update in the Movement Class Report. A movement class may be used (as an option) in the calculation of order quantity for stock replenishment. The following table is the default table programmed into the inventory system. Top 7½% of the items.........Class1 Next 7½% of the items.........Class 2 Next 10% of the items.........Class 3 Next 10% of the items.........Class 4 Next 8% of the items.........Class 5 Next 8% of the items.........Class 6 Next 8% of the items.........Class 7 Next 8% of the items.........Class 8 Next 8% of the items.........Class 9 Next 8% of the items.........Class 10 Next 8% of the items.........Class 11 Last 9% of the items.........Class 12 Dead Stock 0% of the items.........Class 13 Unassigned 0% of the items.........Class 14 100% The first step to be able to purchase by movement class is to classify the inventory stock in a similar way. The above percentages are of the total number of items. Example: if the total number of items is 5000 Class 1 would have 7½% of 5000 or 375 items. Class 2 would also have 375 and Class 3 would have 500 items, etc. Items are assigned to class 1-12, class 13 (dead stock) or class 14 (not assigned yet). The class number determines the number of month’s supply to purchase for. When purchasing items belonging to class 1, one month’s supply is purchased, class 2, two month’s supply, class 13, no purchases due to dead stock.

A non inventoried item is an item that exists in the item file but is not kept in inventory, (i.e., not in the Warehouse/Item file such as labor).

Nonstocked items are those items that are not replenished but exist in the warehouse and in the item file.

When restocking, order point tells the system how much of an item to order. The order quantity method is assigned to each warehouse/item. Order quantity methods include EOQ (economic order quantity), Movement class, or Manual.

The Order Point/Line Point restocking method is used to protect against unpredictable vendor lead times and erratic usage rates. This restocking method strictly adheres to Gordon Graham’s principles. When an item’s on hand plus on order quantity reaches the order point, the replenishment cycle for the item begins. It is the lowest amount the user would risk of stock on hand plus on order when starting the replenishment cycle (reordering). Order Point = (usage rate x lead time) + safety allowance The line point is the point at which the item is ordered when line buying is practiced. If the on hand plus on order is below line point, the item is eligible for replenishment. For example, if the line point of an item is set to 50 and the item’s on hand is 45 and the on order is 0, the item may be replenished. Line Point = order point + usage rate during the review cycle

An actual count of items and quantities per warehouse location. A full-warehouse or full-company physical inventory is often required by auditors at fiscal year end unless cycle counting is used.

Qualified usage is a term which refers to usage of an item for a period used to calculate the usage rate. Usage may be disqualified (not used to calculate usage rate) when a period has high sales (the usage for a period is greater than the last five period’s sales combined), low sales (the usage for the period is less than 1/2 unit), or a stockout (when the item is out of stock for a time period of greater than 13 days).

The replenishment cycle includes determining to buy the item, placing the order, expediting if needed, receiving, putting material away, paying the invoice and posting all records. The “R” cost (cost to replenish an item) used in the EOQ calculation is developed to consider the cost of going through the replenishment cycle.

The method used to calculate when it is time to start replenishment of an item. The two restocking methods are Order Point/Line Point and Minimum/Maximum.

The review cycle determines how often a product line is purchased when the supplier offers a minimum order discount. The review cycle is determined by taking the total years purchases ($) for a vendor and divides by the buying target ($) for one purchase order in order to take advantage of any applicable discounts; the review cycle becomes a planned frequency for the system to scan all items in the product line in order to find the proper items for replenishment. The review cycle is used to calculate an item’s line point. For example, a vendor gives a discount when more than $5,000 is purchased; items purchased annually total $60,000. Review Cycle = 60,000 / 5,000 = 12 times a year or approximately every 30 days.

A measured amount of “pad” incorporated into the order point calculation to protect for a reasonable variance in anticipated usage or lead time when next replenishing a stock item. The safety allowance is used to calculate the amount of safety stock. It is generally recommended as 50% of usage rate X lead time.

The stocking amount to store for a reasonable variance in anticipated usage or lead time when next replenishing a stock item. Safety stock = safety allowance x usage rate x lead time.

The percentage of the safety stock of an item used. Each item has a safety stock to guard against vendors’ variance in lead times and unusually high usage rates. The percentage used of this safety stock is the safety stock dip %.

Products that sell more during one time of the year than another. A high seasonal item is one in which 80% of annual sales occur within a consecutive three month period. A low seasonal item is one which 80% of annual sales occur within a consecutive six month period.

Sequence numbers are used to assign the order in which items print when printing by item class or by vendor. This allows items to print in an order other than alphanumerically within item class. Each item may be assigned a sequence number through the Item F/M.

An item which is flagged as a serial item through the Item F/M is one which when received or sold must be assigned a serial number per unit.

Ship-From records are set up through Purchase Order Ship-From F/M. Purchase orders can be sent to the vendor’s address stored in the AP Vendor File or to a different billing and shipping (warehouse) address.

The standard price may be entered as a basis and multiplier, a set price or a change % from the previously entered price. Standard price may be based on list price, manual cost, sales order entry cost, a set price (standard price), or any price level.

An inventory stockout exists when an item’s available quantity reaches zero for a time period of greater than 13 days.

A substitute item is one which may be sold as a replacement or alternate if the requested item is not available. Each item may be assigned up to three substitute items.

Surplus stock is an excess amount of inventory. The calculation of surplus depends on the replenishment method for the item. Surplus stock exists when the available quantity is greater than (line point + order point) or the maximum stock point. Order Point/Line Point Surplus = (On Hand - Committed) - (Line Point + Order Point) Min/Max Surplus = (On Hand - Committed) - Maximum stock level

Goods offered to your customer as a value added service but are not carried in inventory. Temporary items do not exist in the item file.

The rate of usage (sales, transfers out, manufacturing components) for a stocked item in a given period. Usage rates form the basis for replenishment control calculations. For highly seasonal items the usage rate is the anticipated average usage of the upcoming 3 periods based on those 3 periods as of a year ago. For low seasonal items the usage rate is the anticipated average usage of the upcoming 6 periods based on those 6 periods a year ago. For non-seasonal items the usage rate is calculated as the average usage of the last six periods. In a multi-warehouse environment where centralized purchasing is used, sales by the “satellite” warehouses (02, 03, 04, etc...) posts to usage for the “central” warehouse (01).

The vendor-item number is the code number that the manufacturer uses to identify this item. This number may print on the purchase order in addition to the user’s item number.

The space allocated for the storage of merchandise.

A warehouse shipment is the shipment of goods from a warehouse to the receiving customer.