The Abc Analysis: What Is It?
The ABC Analysis
What is it?
ABC analysis, Pareto’s law or “80/20 rule” are all-synonymous of the same tool which basically states that 20% of a given population represents 80% of a specific characteristic. In purchasing, the basic ABC analysis is used to identify which segments represent most of the spend in a given category or portfolio. Most of the time, few segments in a portfolio constitute the largest part of the total spend. Usually, - The A segments represent approximately 80% of the total spend within a category - The B segments represent the following 15% of the total spend within a category - The C segments are the remaining (most of the time several segments) which represents the final 5% of the total spend The ABC approach can also be used in other analyses such as: Spend per supplier in a portfolio: few suppliers will represent most of the spend Number of orders per supplier: few suppliers will have most of the orders in a portfolio Number of items bought per supplier: few suppliers will deliver most of the articles in a portfolio
When and why to use it?
The ABC analysis can be also be useful in several steps of the Sourcing Value Chan: ! Demand Identification, to gather the annual spend of a site ! Demand Aggregation, to gather the annual spend of several sites ! Opportunity Assessment, to identify leveraging opportunities The ABC tool is used to identify the “vital few” from the “trivial many”, according to a defined set of criteria (e.g. annual expenditure, number of orders, number of claims, occupied space in the inventory, etc.). Different decisions may be taken from the result of the ABC analysis. The basic utilization of the ABC analysis for a buyer is to use it with the spend as a criterion. It helps the buyer to identify the few A segments which will require special attention due to the “large amount of money” they represent. A small “mistake” in managing the few A segments may cost a lot to your company. The C segments will require a
What is it?
ABC analysis, Pareto’s law or “80/20 rule” are all-synonymous of the same tool which basically states that 20% of a given population represents 80% of a specific characteristic. In purchasing, the basic ABC analysis is used to identify which segments represent most of the spend in a given category or portfolio. Most of the time, few segments in a portfolio constitute the largest part of the total spend. Usually, - The A segments represent approximately 80% of the total spend within a category - The B segments represent the following 15% of the total spend within a category - The C segments are the remaining (most of the time several segments) which represents the final 5% of the total spend The ABC approach can also be used in other analyses such as: Spend per supplier in a portfolio: few suppliers will represent most of the spend Number of orders per supplier: few suppliers will have most of the orders in a portfolio Number of items bought per supplier: few suppliers will deliver most of the articles in a portfolio
When and why to use it?
The ABC analysis can be also be useful in several steps of the Sourcing Value Chan: ! Demand Identification, to gather the annual spend of a site ! Demand Aggregation, to gather the annual spend of several sites ! Opportunity Assessment, to identify leveraging opportunities The ABC tool is used to identify the “vital few” from the “trivial many”, according to a defined set of criteria (e.g. annual expenditure, number of orders, number of claims, occupied space in the inventory, etc.). Different decisions may be taken from the result of the ABC analysis. The basic utilization of the ABC analysis for a buyer is to use it with the spend as a criterion. It helps the buyer to identify the few A segments which will require special attention due to the “large amount of money” they represent. A small “mistake” in managing the few A segments may cost a lot to your company. The C segments will require a