Information about material items provides the foundation for managing supply chain activities. Item information can be divided into company-wide and location-specific information. For example, company-wide information includes the item number, description, tracking policies, and pricing data, whereas location-specific information includes planning data for replenishing the location s inventory. Certain location-specific information must be defined whether a company operates as a single site or as multiple sites.
This chapter covers company-wide and location-specific information about purchased material items, including quality data, pricing data, costing data, planning data for suggested purchases, and warehouse stocking data. It also introduces other types of saleable items, such as item variants, non-stock items, kits of components , and resources of people or machine time.
The item number represents the starting point for company-wide information about material items. Other considerations include the item description and item- related text. Company-wide information can be defined for quality, sales, and cost data. Some of the item s cost data, and additional data about planning and warehouse stocking, act as defaults for location-specific information.
The item number provides a unique internal identifier for each material item, up to 20 characters in length. An item number can be manually or automatically assigned. Auto-numbering reflects a counter and optional prefix, and more than one auto-numbering scheme can be defined and used to assign item numbers .
In terms of item maintenance, a new item s information can be copied from an existing item and an existing item number can be changed or deleted prior to creation of ledger entries for the item. Changing (renaming) an existing item number will result in automatic updates to related information, such as changing the item number on a purchase order.
Several other considerations apply to item identification, including authorized units of measure, alternative identifiers for sales, purchasing, and warehousing purposes, and the significance of an item s revision level.
Authorized Units of Measure Each item can be assigned one or more authorized units of measure, or UM for short. However, one UM must be designated as the base UM for costing and inventory purposes. Examples of the user -defined UM codes include piece, box, kilogram, and liter. An item s base UM cannot be changed after ledger entries have been created. This single UM is sufficient for many environments.
Some environments require more than one authorized UM for an item. A different UM may be required for pricing, selling, or buying the item, defining vendor or customer item numbers, or for warehouse transactions. For example, an item s pricing may be expressed per piece and per box of 10. Each additional UM must be assigned to an item with an item-specific UM conversion factor expressed as a multiple or a fraction of the item s base UM. Entry of a fraction is translated to a decimal with precision up to five decimal places, so that an entry of 1/2000 translates to .0005.
Each authorized UM for an item can have physical dimensions, including length, width, height, volume, and weight. This optional information provides the basis for suggested warehouse put-aways that account for bin limitations of volume and weight. It could also be used for other purposes, such as calculating the total volume and weight for all lines on a sales order or purchase order.
An item s inventory can be stocked in multiple UM such as pallets and pieces. Planning and costing calculations understand the different inventory quantities in terms of the item s base UM. An item s inventory quantity in a given UM may need to be combined into a larger UM (or divided into a smaller UM) to satisfy a given requirement such as a sales order. The system can communicate the need for combining or dividing existing inventory quantities. For example, a pick document can communicate the need to break-bulk existing inventory for sales order shipment purposes.
Alternative Item Identifiers for Sales and Procurement Purposes An internal item number can be associated with other item identifiers for sales and procurement purposes. These are termed item cross-references. Each cross-reference number can be mapped to an internal item number and UM, and have a separate UM and description.
Sales Purpose . The cross-reference number can be specified for a single customer to reflect a customer item number, or for all customers to reflect a catalog item. This mapping allows entry of the cross-reference number on a sales document rather than the internal item, with find capabilities based on the cross-reference number.
Procurement Purpose . The cross-reference number can be specified for a single vendor to reflect a vendor item number, or for all vendors to reflect an industry standard. This mapping allows entry of the cross-reference number on a purchase document rather than the internal item, with find capabilities based on the cross-reference number.
Multiple cross-reference numbers can be defined for the same internal item number. For example, a customer may be changing their customer item numbers, or require different customer item numbers representing different units of measure.
Some industries have established a set of standardized or common item numbers, such as the Universal Product Code (UPC) or European Article Number (EAN) identifier. A common item number can be defined for each item, and subsequently used in exchanging information with customers and/or vendors in the supply chain. For example, it can identify items in inbound and outbound Biztalk documents.
Alternative Item Identifier for Warehouse Management Purposes Some warehousing environments require a different item number or UM for the purpose of inventory put-aways and picking. This requires a mapping between the internal item number (and base UM) and the warehouse item number and UM.
Significance of Revision Level An item s revision level generally represents a level of documentation, and several terms (such as engineering change level) refer to the same concept. The significance of an item s revision level differs among firms, especially in terms of a change in form, fit, or function and the impact on interchangeability. One viewpoint treats revision levels as interchangeable, and revision level can be treated as an item attribute for reference purposes. A second viewpoint considers revision level as part of the item s unique identifier (such as embedding it in the item number) so that revision levels are not interchangeable.
 A Biztalk document provides an electronic method of exchanging information with a customer or vendor, such as an order or quote. Chapter 10 summarizes the types of Biztalk documents, and they are also described for sales documents (Chapter 5) and purchasing documents (Chapter 6).
So far the explanation of material items has focused on item identification. Additional considerations include the item description, item-related text, and item attributes.
Item Description The item description represents one of the key attributes of an item. It is used for finding an item and for communicating to internal and external personnel. The basic approach for defining an item s description ”a single, 30-character field ”is sufficient for many environments, whereas other situations require more detailed description information.
Description Line 1. A description field consists of 30 characters.
Description Line 2. A second description field consists of 30 characters.
Search Description. A separate search description field of 50 characters defaults to the item description line 1, and can be overridden.
Language-Specific Description. Two description lines can be defined for each alternative language code
Extended Text. Extended text consists of multiple lines of freeform text, as described in the next section.
Item-Related Text Item-related text in Navision can be specified in two ways: as comments or as extended text.
Comments. Item comments are generally used for internal purposes, and can be defined with multiple lines of free-form text. Each line may be assigned a user-defined code to sort and filter comments, such as filtering comments related to engineering or quality specifications.
Extended Text. Extended text for an item is generally used for external purposes, and can be defined with multiple lines of free-form text. You can selectively designate whether the extended text will appear on various types of sales and purchasing documents, such as quotes, orders, blanket orders, return orders, invoices, and credit memos. Effectivity dates and a language code can be assigned to an extended text. The extended text can be automatically added to line items on sales and purchase documents (based on an item policy), or you can manually request insertion of extended text on a line item. The extended text description can be overridden on the document.
Item Attributes and Analytic Dimensions Item attributes help differentiate items and serve multiple purposes. For example, they can be used to find items, to filter information displayed on a screen, and as parameters that filter information displayed on reports . Examples of item attributes include the duty class, country of origin, and picture number.
An analytical dimension represents a unique type of item attribute for the purpose of business analytics or business intelligence. The term does not represent a physical dimension of the item. Rather, it supports multidimensional reporting capabilities such as sales analysis by product group and customer group . Dimensions are also assigned to other entities, such as customers, salespeople, and sales campaigns , to support multidimensional reporting.
Quality management for material items involves many facets, including vendor approval and policies about lot and serial tracking. These represent company-wide policies for supporting quality management concerns.
Quality management policies identify which items require enforcement of lot tracking, serial tracking, and expiration tracking. They are collectively termed item tracking policies.
Lot Tracking . Lot tracking can be enforced across all transaction types or selectively enforced by transaction type. The transaction types include purchase order receipts and returns, sales order shipments and returns, inventory adjustments, transfers, warehouse transactions, and production order completions. For example, some items only require lot assignment upon sales order shipment. You can optionally enforce recording of quality metrics for each lot number.
Serial Tracking . Serial tracking can be similarly enforced across all transaction types or selectively enforced by transaction type such as serialization upon shipment. You can optionally enforce recording of quality metrics for each serial number.
Expiration Tracking and Warranty Date . An expiration date can be manually assigned to incoming material and enforced so that the material cannot be issued after the expiration date. At time of shipment, a warranty date can also be assigned manually or automatically based on a date formula such as one year or 18 months. The policies concerning expiration tracking and warranty dates can apply to items that are not lot or serial traced.
These policies ensure that the system prevents transaction posting until the item tracking information has been recorded. The posted transactions are retained in an audit trail termed item tracking entries . The system also prevents a change in item tracking policies after item ledger entries exist. For example, a lot-traced item cannot have its policies changed to non-tracked. A set of item tracking policies is identified with a user-defined item tracking code, and the code is subsequently assigned to relevant items.
Approved Vendors Quality management typically assists in identifying an item s approved vendors, or conversely a vendor s approved items. Approved vendors are identified in terms of cross-reference information about the vendor item. The approved vendors (and cross-reference information) can be viewed and selected as part of purchase order processing.
The company-wide information for sales purposes includes the definition of an item s price and applicable discounts. Some firms focus on item pricing without discounts, while others focus on discounts off a list price and/or discounts related to total order value. Sales-related data also includes the identification of substitute items and policies about reservations and capable-to-promise logic.
Sales Price Data Standardized item pricing can be defined using three different approaches: a single base price, a sales price worksheet, and a campaign price worksheet. Other approaches to defining an item s price include a sales quote and blanket order, as explained in Chapter 5.
Base Price and Default Sales UM . Each item can have a single base price expressed in its base UM. The item s base price can be entered directly or calculated in terms of the item s cost and profit percentage. The item s base price provides a simple approach to automatic pricing on sales orders. It acts as the default price on a sales order when other sources of information do not exist, such as a sales price worksheet.
In some cases, an item is priced and sold in different units of measure than its base UM. These must be defined as authorized UM for the item, and one of these units of measure can be designated as the default sales UM. This means it acts as a default on sales orders; it can be optionally overridden on the sales order with another one of the item s UM.
Sales Price Worksheet . A sales price worksheet provides a more comprehensive approach to item pricing, and supports automatic pricing during sales document entry. Entries in the sales price worksheet typically represent a predefined price book or negotiated prices with specific customers. Item pricing often reflects one or more factors, as shown in Figure 2.1 and illustrated below.
Pricing by item and unit of measure, such as different prices per item and per pallet.
Pricing for a single customer, all customers, or a group of customers. The customer price groups, for example, could represent wholesalers and retailers.
Pricing by currency code, such as separate pricing for foreign sales.
Pricing with date effectivities, for supporting annual price updates or seasonal price promotions. Price assignment reflects the order date on a sales document.
Figure 2.1: Sales Prices and Line Discounts
A simple pricing scheme that represents this year s list price, for example, would require one worksheet entry for each saleable item, with date effectivities for each entry. A second set of worksheet entries would be required for defining next year s list price. Each worksheet entry also indicates policy information, such as whether the price includes tax.
The system automatically assigns an item s price during sales document entry, using the lowest price of applicable worksheet entries. The user can view available prices, such as quantity breakpoints or future pricing to guide customer decisions, but cannot select a price that does not match criteria such as the order quantity and date.
Campaign Price Worksheet. A campaign serves several purposes with respect to customer interactions. It also provides a named price book approach to defining sales prices and line discounts. Each campaign has a unique identifier and date effectivities, and must be activated (and deactivated) to allow usage. A campaign has two worksheets, one for sales prices and one for line discounts.
Each entry in the campaign price worksheet defines an item and price, and other factors as shown in Figure 2.1. Campaign price worksheet entries act just like sales price worksheet entries. For example, the system automatically assigns the lowest price of applicable worksheet entries within either worksheet, and the user can view applicable entries from either worksheet. The campaign identifier can be entered on the sales order header, but it does not affect the use of price worksheets.
Sales Line Discounts Once an item s price has been identified on a sales document, discounts can be optionally applied to the line item and/or the order total value. The discount related to total order value is termed an invoice discount . Invoice discounts are defined by customer and further explained in Chapter 5.
A line item discount can be manually or automatically assigned to a sales order line item. A manually entered discount can be expressed as a percentage or an amount (per the specified sales UM). Automatic assignment reflects a discount percentage defined in a sales line discount worksheet or a campaign worksheet.
Sales Line Discount Worksheet . The definition and use of a sales line discount worksheet are very similar to a price worksheet. Line discounts often reflect one or more factors, as shown in Figure 2.1 and illustrated below.
Discounts for a single customer, all customers, or a group of customers. The customer discount groups, for example, could be large and small accounts.
Discounts for a single item or group of items. The item discount groups, for example, could represent different product lines.
A simple discounting scheme involving a discount percent by customer group, for example, would require one worksheet entry for each customer group. A policy defined for sales price worksheet entries determines whether line discounts can be applied. For example, line discounts may be excluded for price worksheet entries that define special pricing. A customer policy also determines whether line discounts apply to the customer.
Campaign Line Discount Worksheet. As described above, a campaign has a unique identifier and date effectivities, and must be activated (and deactivated) to allow usage. A campaign has one worksheet for sales prices and another one for line discounts. Each entry in the campaign line discount worksheet defines a discount percentage for an item or item discount group, and other factors as shown in Figure 2.1. The campaign line discount worksheet entries act just like other worksheet entries. For example, the user can view and select applicable worksheet entries from either worksheet.
Substitute Items for Sales Purposes A substitute item typically represents an alternative product that can be suggested during sales order entry when the desired item is unavailable. One or more substitute items can be defined for a product, with information about interchangeability and textual explanation about its conditions for usability. When the substitute item is flagged as interchangeable, it gets assigned the equivalent substitute item information. The sales order window flags a line item when the product has substitutes; this notifies users to view information and availability about the substitute item(s). The user s selection of a substitute item will update information on the sales order line item, and the system automatically retains the originally entered item.
Supporting Reservations and Capable-to-Promise An item s reservation policy determines whether its inventory can be reserved for a sales order. The policies are never, optional, and always. The optional reserve policy allows manual or automatic reservations of the item s inventory. The always reserve policy means the item s inventory gets reserved automatically. The optional policy is most commonly used. A similar reservation policy can be defined for a customer, and this acts as a default on sales orders to the customer. Reservations represent hard allocations of inventory to sales orders. The use of reservations should be balanced against the loss of flexibility (such as using the inventory for another sales order) and the associated complexity of reserving (and unreserving) material.
One policy (termed the critical policy ) determines whether an item can be checked for available-to-promise and/or capable-to-promise during sales order entry. This policy is normally assigned to just saleable end-items and/or to make-to-order components of a manufactured item.
Item costs provide the basis for valuing inventory transactions. An item s costs can be based on a standard costing or actual costing approach, and each item can be assigned its own costing method. This explanation of costing data focuses on standard costing since it since it is a common and easily understood method of cost accounting.
Standard Cost for a Purchased Item The standard cost for a purchased item consists of a direct material cost and an optional overhead cost. An item s direct material cost provides the basis for calculating purchase price variances, while the combined costs of material and overhead are used for valuing inventory transactions. Entry of an item s standard cost data reflects the combined costs. A separate entry identifies the material-related overhead factor, expressed as an amount or percentage or both. Hence, subtracting overhead cost from the combined costs derives an item s direct material cost.
Standard costs for purchased material represent company-wide information for cost roll-up purposes. The system maintains one set of standard cost data with one cost per item. Additional sets of costing data can be defined and maintained on a costing worksheet. On a periodic basis, the information in a costing worksheet can be used to update the items standard costs. Note that standard costs can be manually maintained for an item s authorized locations, as described in the next section concerning location-specific information.
The system can automatically maintain additional sets of data for an item s average cost and last purchase cost, termed the last direct cost. The last direct cost and average cost are automatically updated based on posting of vendor invoices.
Actual Costing for a Purchased Item An actual costing method is typically required because of widely varying purchase costs for an item. Typical examples include precious metals or commodities. Actual costing can be handled by several different methods, where the method determines the basis for valuing inventory. The actual costing method for an item can be based on average cost, last-in, first-out (LIFO), first-in, first-out (FIFO), and a serial-number specific cost. Actual costs get updated after posting a vendor s invoice. The actual costing methods handle situations where some inventory must be valued at zero cost, such as customer-supplied material or a customer return.
Actual costing methods involve increased system complexity in any ERP system, especially when the material is used or sold prior to posting the vendor s invoice. Further explanation of actual costing methods falls outside the scope of this book, although two case studies (see Cases #2 and #6) illustrate actual costing.
G/L Account Number Assignment for an Item An item s general ledger (G/L) account numbers are based on several user-defined posting groups assigned to the item. For example, the item s General Product Posting Group (in conjunction with a General Business Posting Group assigned to a customer or vendor) identifies the sales revenue and cost of sales account numbers, and the purchase and purchase price variance account numbers. The item s Inventory Posting Group identifies the location-specific balance sheet account for inventory.
Purchase Price Data Various forms of vendor agreements define pricing and/or discounts for purchased material. For example, a vendor agreement often specifies company-wide item prices and discount percentages. A vendor agreement may also be expressed as a purchase quote or blanket purchase order. Chapter 6 provides further explanation of vendor agreements.