Other Types of Items

Purchased material represents one type of item with information defined and maintained in the item master. There are other types of items, such as item variants, non-stock items, kit items, resources, and service items.

Item Variants

Some purchased items have variations that can be uniquely identified by item number and a variant code. Typical examples involve variations in color and size, such as baseball hats or colored pens. An item with two variations of color (red and blue) and size (small and large) would require four variant codes (small red, small blue, large red, large blue). Creation of item variants involves two steps after defining the item. The authorized variant codes are first defined for the item, and a separate function generates the combinations of items and variant codes. These combinations are also termed stockkeeping units. Further explanation focuses on items and coverage of item variants will be limited to special cases. Cases #4 (in this chapter) and #12 (in Chapter 3) provide illustrations of item variants.

Variant codes often provide the starting point for customizations since they differentiate supplies , demands, costs, and prices for an item. For example, customizations have extended item variant functionality to handle significant revision levels and identification of custom configurations.

Non-Stock Items

A non-stock item typically represents a special order item. A non-stock item is similar to a material item with its own item master record and inventory tracking. However, a non-stock item has a slightly different approach to its creation and item numbering. A separate screen is used to define a non-stock item, where a vendor, vendor item number, and manufacturer s code must be specified. An additional function creates the non-stock item in the item master, using the vendor item number (or the vendor item plus a manufacturer s code) as the item number. It is flagged as a non-stock item in the item master to facilitate filter and finder capabilities, but acts like a material item in all other respects. A non-stock item can have costing and pricing data, multiple approved vendors and price quotes, extended text, a bill of material, and routing. It is included in standard cost calculations and MRP calculations. The planning data for a non-stock item can be defined, but it initially defaults to manual planning.

Kit Items

A kit item (termed a BOM item ) typically represents a product requiring light assembly of its components prior to shipment. Two common scenarios involve selling a kit item as a single item or a set of component items. A kit item is defined on the item master just like other material items but it requires additional information about its components . Termed an assembly list , the kit s components can be material items, resource items, or other kit items. The system automatically flags a kit item on the item master after its assembly list has been created. Further explanation of kit items falls outside the scope of this book.

Resource Items

A resource represents an internal work center, such as a manufacturing cell , a group of similar machines, or a group of people with similar skills. A resource item provides one approach for selling time (rather than material), such as engineering services time or manufacturing time to perform a value-added operation on customer-supplied material. A resource item can be identified on a sales document line, and subsequently shipped and invoiced without requiring an inventory balance (unlike material items). Definition of a resource item includes costing and pricing information. The ability to sell time represents one purpose of a resource item. A second purpose involves resource components to represent routing operations for a kit item. Further explanation of resources falls outside the scope of this book.

Service Items

A service item represents a shipped product that requires service management. It can be mapped to an internal item number and serial number. A service item can be manually added, or automatically added based on a sales order shipment of an internal item number. The material and resource requirements to repair a service item are defined for a service order, and the item s assembly list can be used to initially define component requirements. Service items and their related service orders fall outside the scope of this book.

Case Studies

Case #1: Daily Usage Rates

The All-and-Anything company extended the types of reordering policies to include replenishment methods based on daily usage rates. Two daily usage rates were automatically calculated for each item, one based on historical usage and another on projected usage. The new reordering policies employed an item s designated daily usage rate so that order point logic automatically calculated the item s reorder point and quantity, while MRP logic calculated the item s safety stock. Additional purposes are served by daily usages rate, such as Kanban coordination of production activities as described in Case # 21 (Chapter 4).

[4] See Maximizing Your ERP System for further explanation of daily usage rates, including fixed versus variable usage rates (p. 112), how to use daily usage rates in replenishment methods (pp. 117 “120), and Kanban coordination of production activities (pp. 282 “284).

Case #2: Lot-Specific Costing

The Batch Process company produced a food product line ”bottles of mustard ”from purchased lots of different types of mustard seeds. The purchased seeds required lot tracking, with quality and taste attributes associated with each lot. The manufacturing process involved mixing batches of mustard seeds into a paste that was packaged in various bottle types with different labels and cases. The lots of purchased material could be tracked to a daily production run, with the lot number assigned to each case and bottle representing the daily production run. This date serves as the basis for indicating shelf life. With a minor customization, the system supported a lot-specific costing method for the purchased lots of raw material.

Case#3: Rules-Based Pricing in Consumer Products

The Consumer Products company extended the sales price worksheet and invoice discount capabilities to include rules for each entry. Examples of rules-based pricing included buy 10 and get one free and buy $1000 and get a free display case, where the rule automatically created an additional line item on the sales order. Additional price worksheet considerations included pricing based on delivery date (to promote early delivery of seasonal items) and different payment terms and free freight (to promote larger order value).

Case #4: Item Variants in Wholesale Distribution

The Distribution company carried several product lines involving item variants, ranging from t-shirts (with color and size variants) to industrial hardware (lengths, finish, and head type for variants of bolts and screws ). Authorized variants were defined for each item, and SKU planning data defined for each item variant. The sales prices were different for each variant code, and for selling each variant code in different units of measure. For example, a lower price was offered for buying t-shirts in dozens. The sales price and line discount worksheets included the item variant code and sales UM to reflect these variations.

Case #5: Replacement Parts for Equipment

The Equipment company stocks and sells purchased material that serves as replacement parts (or service parts) for previously sold equipment. These purchased materials are also used in manufacturing the equipment. A separate location was defined for the service parts function, and each replacement part had two authorized locations ”one for manufacturing and one for the service parts function. The SKUs for the separate service parts location had separate planning data reflecting min-max quantities to support customer service objectives.

Case #6: Actual Costing for Fabricated Products

The Fabricated Products company purchased several commodities such as precious metals with purchase prices that varied widely on a day-to-day basis. A FIFO actual costing method was assigned to these items, and the vendor invoice information was entered upon material receipt to keep actual costs up-to-date.