Set up item groups and item model groups
Item groups and item model groups are fundamental for effective inventory management in any organization. Item groups help categorize products based on their attributes, enabling streamlined accounting, detailed financial reporting, and accurate demand forecasting. They ensure each product is associated with the correct ledger accounts, simplifying inventory processes and enabling comprehensive analysis.
Item model groups, on the other hand, determine how items are handled in inventory and include settings for stock management, costing methods, and inventory policies. They streamline maintenance by allowing multiple items to be managed under one setup, which simplifies updates and ensures consistency across similar products.
Item groups
In every legal entity, you must set up at least one item group because it's a prerequisite that you use in inventory processing.
Item groups help you manage inventory by dividing inventory items into groups based on item characteristics. You can select main account numbers for the automatic ledger transactions that the system generates for item group receipt and issue transactions in inventory. You can also set up demand and supply forecasts for item groups.
Item groups serve three main purposes:
Defining sets of ledger accounts for accounting entries of a collection of products that are classified in the item group.
Using item groups to report detailed financial information and queries.
Creating other reports that are related to products.
To create an item group, go to Inventory management > Setup > Inventory > Item groups. Specify which accounts from the chart of accounts to use for the various account types in each area.
The Sales order FastTab shows the main accounts that are set up for the item group, in addition to the accounting that's related to the sales order document in the revenue cycle.
For products that are set up as stocked products, the system records an inventory transaction with the sales order line for the ordered quantity.
For example, when a stocked product is delivered for a sales order, the system generates accounting entries in the Order, packing slip main account (issue) and Sales, packing-slip offset main account (consumption) fields if the Post physical inventory checkbox on the Item model groups page and the Post packing slip in ledger option in Accounts receivable parameters are selected.
The Purchase order FastTab shows the main accounts that are set up for the item group, in addition to the accounting that's related to a purchase order document in the procurement cycle.
For a product that's set up as a stocked product, the system generates inventory transactions with the purchase order line for the ordered quantity.
The Inventory FastTab shows the accounts that the system uses for inventory-related posting for the item group.
For example, the system uses Inventory, fixed receipt price profit and Inventory, fixed receipt price loss account types to post gain or loss for variance to the Fixed receipt price of products that are set up with a Fixed receipt price inventory model in the inventory model group. It also uses Receipt and Issue to post receipts and issue inventory movements for stocked product.
The Production FastTab shows the accounts that the system uses for manufacturing-related posting for the item group.
On the Setup FastTab, you can set up default forecast and tax groups. The Forecast tab contains the Default item allocation key. Select the user-defined allocation key to serve as the proposed standard key when you create forecasts for the item group. You can create item allocation keys in the Item allocation keys setup of the Master planning module.
The Purchase tax and Sales tax groups contain the Item sales tax group field. This area is where you specify a default item sales tax group for items in the selected item groups.
Item model groups
Item model groups contain settings that determine how to control and handle items on item receipts and issues. These settings also determine how to calculate item consumption. This feature facilitates maintenance because the system frequently controls many items with the same setup.
You can attach several products to an item model group. Instead of providing detailed information for each item, one item model group collects all information. This approach links the items to the products in question and helps make updating easier because you can typically manage several items according to the same setup that only needs to be updated in one place. Therefore, you should create item model groups only as needed.
Item model groups are an important part of configuring product for stock, inventory management, and accounting.
To create an item model group, go to Inventory management > Setup > Inventory > Item model groups.
Item model groups determine the following stock and inventory policies:
Whether to stock or not stock the product
The cost flow assumption and cost measurement method for valuing inventory of stocked products
Whether to permit physical and financial negative inventory
Whether to post inventory transactions to the general ledger
The workflow to use when you send or receive items
The reservation rules
An item model group setup is important when you determine how the item integrates with other areas of Supply Chain Management. This module doesn't cover all fields because they apply to other areas of the system that other modules cover.
Costing method and cost recognition
The Costing method & cost recognition field group determines whether to track products that are in stock or not.
It contains the Stocked product parameter. If the Stocked product checkbox is cleared, the system doesn't maintain inventory-transactions for the product. Therefore, you can't use the product for production or inventory-related features, including inventory journals that rely on inventory transactions.
You can use the product that's not stocked on sales and purchase orders.
Select the Stocked product checkbox to indicate that the product should be handled in inventory. Products that are handled in inventory generate inventory transactions. You can include these products in cost calculations. You can also maintain available quantities for these products. Stocked products include items and services.
You can't add a service to stock. However, the system requires that you generate proforma stock transactions for services that contribute to the inventory value of tangible goods. For example, you must generate proforma stock transactions if you use a service to subcontract production steps.
Transactions that you would only use for stocked products are:
Production orders
Transfer orders
Inventory journals
Quarantine orders
Quality orders
Inventory blocking
Inventory forecasting
If you set up an item model group for a product that's not stocked, many parameters are irrelevant.
Ledger integration
The Ledger integration field group determines whether the system posts inventory transactions to the general ledger, physically or financially, and when to post them. The fields in this group are:
Post physical inventory
Post financial inventory
Post to deferred revenue account on sales delivery
Accrue liability on product receipt
Post physical inventory
The following list explains the effect of the Post physical inventory parameter when you select or clear the option:
If you select the Post physical inventory field, the system posts physical movements of stocked products in the ledger if:
On sales delivery, when the Post packing slip in ledger parameter is selected on the Accounts receivable parameters page.
On product receipt, when the Post product receipt in ledger parameter is selected on the Accounts payable parameters page.
On production report as finished, when the Post report as finished in ledger is selected on the Production control parameters page.
If you select the Post physical inventory parameter, the system posts packing lists from purchases or sales at cost in the ledger. Essentially, the value of physically received, delivered, or floating items is reflected in inventory and also in the ledger. When you update the same purchase or sales invoice, the system reverses the transactions from the packing slip update.
If you clear the Post physical inventory parameter, the system doesn't post physical movements of stocked products in the ledger, regardless of whether the Post packing slip in ledger, Post product receipt in ledger, and Post report as finished in ledger setup options are selected in the accounts receivable, accounts payable, and production control parameters.
Post financial inventory
The following list explains the effect of the Post financial inventory parameter when you select or clear the option:
If you select the Post financial inventory field, the system posts the updated financial value of items in the ledger when:
A purchase order is invoice-updated. The system posts the product expenditure to the inventory receipt account.
A sales order is invoice-updated. The system posts the cost of the product to the inventory issue and consumption accounts.
If you clear this parameter, the system posts purchases to the item purchase expenditure for the expense account when it matches the purchase to a vendor invoice.
Then, you can reconcile the posted inventory value with the related status accounts in the general ledger.
If you clear this option, when a purchase order is invoice-updated, the system posts the value of the items to the item consumption account, but not to the inventory receipt account. When a sales order is invoice-updated, no posting occurs in the item consumption account or the issue account. Clear this option for service items if the system shouldn't post the item consumption when you invoice sales orders. When you clear this option, journal lines for the items don't generate ledger postings.
Post to deferred revenue account on sales delivery
Select the Post to deferred revenue account on sales delivery parameter to post the expected revenue on sales delivery. Typically, a company would use this parameter when it recognizes revenue at the time of shipment instead of at the time of billing the customer. When they invoice the order, they relieve the accounting entries for deferred revenue.
Select this option to accrue the estimated revenue for the delivered quantity of packing slip updates. The accrued revenue that the system accounts for on the sales delivery is offset when it invoices the customer for the delivery.
Accrue liability on product receipt
Select the Accrue liability on product receipt parameter to post the expected expenditure and liability for purchase for packing slip updates to the general ledger. When the system matches the product receipt to the vendor invoice, it relieves the accounting entries for accrued liability.
Include physical value
Select the Include physical value option, which indicates that the system should include transactions that you physically update in the calculation of the average cost. At inventory close, you can use this parameter depending on the method that you use for inventory valuation. The following inventory valuation methods use this parameter during inventory close:
FIFO
LIFO
LIFO date
The following inventory valuation methods don't use this parameter during inventory close:
Weighted avg.
Weighted avg. date
Fixed receipt price
Select the Fixed receipt price option to adjust issues and receipts to a fixed receipt price. The fixed receipt price is a principle for inventory valuation that sets the price of receipts to the active planned cost or basic cost of a product.
You can define the fixed receipt price in the Price field on the Manage costs tab on the Released product details page.
When you select this option, the system posts receipts and issues as follows:
For purchase receipts, posting occurs at the actual cost.
For purchase invoices, the system posts the price difference between the actual cost and the fixed receipt price to the general ledger as a variance.
The system posts the amount to the loss or profit account for the fixed receipt price.
Inventory updates based on the fixed receipt price.
For sales order packing slips and sales invoices, posting occurs at the estimated cost.
When you run an inventory close or a recalculation, if you select the Fixed receipt price option, the system adjusts the value of issue transactions according to the price specified in the Price field. If you clear the Fixed receipt price option, the system doesn't adjust the value of issue transactions according to this price.
If the fixed receipt price changes, and you want all new issue transactions to use the new cost, follow these steps:
Run an inventory close.
Adjust the balance for on-hand inventory so that the balance matches the new cost.
Activate a new planned cost.
Inventory model
Select the inventory model that you want to use to close and perform adjustments on the Closing and adjustment page.