There are three approaches to establishing ABC codes. 

The FIRST is Manual where there is no calculation involved.  Whatever the user selects at the time an item is added to inventory (or anytime thereafter) will be the ABC code, and it won't be changed.

The SECOND approach is to calculate the ABC codes based on inventory value AND usage.  The Usage is also calculated in the ABC code setup and works like this:  The usage is based on how much material is issued to the kits, or out of the stockroom, and it checks the data for the last 30 days.  So the first time the calculation is done, the total amount of issues are gathered, and become the usage for the last 30 days, and become the estimated usage.  This number is multiplied by 12 and assigned as the EAU (Estimated Annual Usage).  The NEXT month, the calculation is repeated.  Only this time, if the user wishes, the data can be averaged with the previous months calculation to give a two month picture of usage.  This is done by giving the second calculation a weight of 50% (2 months).  The two months are averaged, and extended by 12 to establish a new EAU.  In the third month, the process is repeated, except that the weighted would not be 33%, to average three months.  The user can decide if they want to stop at a three-month rolling average, and use 30% each month thereafter, or go for a four-month rolling average and keep it at 25%.  Or, if the user has an unusual month, they can change the weighted for that month up or down, depending on whether it was a good or bad month.

The THIRD approach is to calculate the ABC codes based on inventory value at the time of the calculation.  This is done by extending the cost of all inventory items into a list, with the highest value at the top of the list.  The part at the top of the list might be Large PCB, with only one in stock valued at $1,000,000.  Or it could be a Small PCB, with 100,000 in stock valued at $10 each.  It is the extension of the value that is sorted by the highest number first.  The total value of all of the stock is then calculated.  In the setup, if the "$ On Hand" is selected, each ABC code must be assigned a percentage, and the total of the percentages assigned to each code must total 100%.  Typically, A codes are assigned around 80%, B codes are 15% , and C codes are 5%, but each User can make their own choices.  Then the inventory list ordered by the highest value is examined and the first 80% (cumulative) are assigned A codes, the next 15% assigned B codes, and the last 5% assigned C Codes.  The codes are then reviewed again, to see if there are any long leadtime conditions attached to the ABC codes.  If there are, the code may be increased (towards A) depending on the leadtime entered in the setup for the code.  The reason for this is that some users may wish to count very long leadtime items more frequently than the ABC code would suggest.  You may have a $0.25 part that would normally be a C code, but has a 26 week leadtime.  So you would want to keep a closer eye on that part, because it would not be good to have everything but a $0.25 part to build an assembly.  So the ABC code would be increased to B or A (depending on the ABC setup) so the part is counted more frequently than it would if it stayed a C code part. 

In ManEx, we allow more than the standard ABC codes, so it the user wanted a finer cut at the distribution, they could have up to 26 ABC codes if they had a need, and all of this would still apply.

Once the EAU is calculated, the EAU is used to extend the inventory value of each item, and the stacked values are assigned ABC codes as described in the THIRD approach.  The leatime consideratiion also is applied after that.