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ABC analysis: definition & all information for buyers
The most important points of the ABC analysis at a glance:
A-goods: High value, low volume share
B goods: medium value, medium volume share
C-goods: Low value, high volume share
Download our free template here.Contents
Introduction to ABC analysis
Why is ABC analysis indispensable in purchasing?
The ABC analysis enables purchasing departments to optimize their procurement strategies by classifying products according to their value share. This helps to focus purchasing on the most profitable goods and allocate resources wisely. By identifying the most important items, companies can ensure that they are always available and can be reordered quickly when needed. At the same time, less critical items can be handled with minimal administration, increasing overall efficiency.
The categories in detail
- A-goods: These account for around 70-80% of the total value, but only 10-20% of the total quantity. They require special attention and careful planning. A-goods are usually expensive, critical for production and have a high impact on the company's overall performance. Close cooperation with suppliers is essential here in order to avoid supply bottlenecks.
- B goods: They represent about 15-25% of the value and 30% of the quantity. Regular monitoring is appropriate here. B-goods are important but not as critical as A-goods. They require moderate attention to ensure that they are reordered on time and do not cause production delays.
- C-goods: With only 5% of the value but 50% of the quantity, these goods should be managed with minimal effort. C-goods are usually inexpensive and have a low impact on overall performance. They can be purchased in larger quantities to benefit from economies of scale and require less stringent monitoring.
Steps for carrying out the ABC analysis
- Collect data: Record all relevant data on purchased items, including quantities and costs. Comprehensive data collection is the basis for successful analysis.
- Calculate value shares: Determine the percentage value share of each item in the total value. This helps to understand the importance of each item in the context of the overall purchase.
- Sort and classify: Sort the items by descending value and divide them into A, B and C. This classification makes it easier to prioritize the procurement strategies.
- Develop strategies: Determine specific measures for each category. For example, A-goods may require closer supplier relationships and tighter inventory controls, while C-goods may require automated ordering systems.
Advantages of ABC analysis in purchasing
- Cost efficiency: Focusing on valuable goods reduces storage and procurement costs. By prioritizing the most important items, companies can use their financial resources in a more targeted manner and avoid unnecessary expenditure.
- Time savings: fewer important goods require less administrative effort. This allows purchasing departments to focus on critical areas and increase their efficiency.
- Improved supplier relationships: Focusing on key goods enables better negotiations with suppliers. By bundling their orders, companies can negotiate more favorable conditions and ensure a more reliable supply.
Start now with the ABC analysis!
Optimize your purchasing processes and increase your efficiency. Contact us for an individual consultation on implementing ABC analysis in your company. Our experts will help you develop and implement the best strategies for your specific needs so that you can realize the full potential of your purchasing department.
Discover solutionPractical examples for the ABC analysis
- A-goods Example: High-quality components for production that are expensive but essential for the end product. A car manufacturer could, for example, classify specialized engine parts as A-goods, as their quality and availability directly influence production performance and vehicle quality.
- B goods Example: Standardized parts that are needed regularly and represent a medium cost factor. An electronics company could classify screws and nuts as B goods, as they are needed regularly but are not as critical as the main components.
- C-goods Example: Office supplies such as paper clips and notepads that are purchased in large quantities but at a low price. A large company could classify these items as C-goods, as they are required in large quantities but have a low impact on the total cost of ownership.
Tips for successful implementation
- Regular updates: Check the classification regularly in order to react to market changes. The dynamics of the market can lead to the importance of individual items changing over time. A continuous review ensures that the analysis is always up to date.
- Integration into ERP systems: Use software solutions to automate the process. Modern ERP (Enterprise Resource Planning) systems offer integrated modules for carrying out ABC analysis, which significantly improves the accuracy and efficiency of the process.
- Staff training: Make sure your team understands the importance and application of ABC analysis. Thorough training of purchasing and warehouse staff is crucial to fully utilize the benefits of ABC analysis.
Limits of the ABC analysis
- One-sided focus: Concentrating on value can neglect other important factors such as delivery times or quality. A pure focus on the financial aspect can lead to critical qualitative aspects being overlooked.
- Dynamic markets: Changes in the market can quickly render the classification obsolete. In fast-moving industries, it may be necessary to carry out the ABC analysis more frequently in order to reflect current market conditions.
- Data dependency: Inaccurate or incomplete data leads to incorrect results. The quality of the analysis depends largely on the accuracy of the underlying data. It is therefore essential to ensure that the data is complete and correct.
Combination with the XYZ analysis
To overcome some limitations, the ABC analysis can be combined with the XYZ analysis, which evaluates consumption in terms of its predictability. The XYZ analysis divides the items into the categories X, Y and Z based on the fluctuation intensity of consumption:
- X-categories: Goods with stable and predictable consumption.
- Y categories: Goods with moderate fluctuation in consumption.
- Z-categories: Goods with a high degree of fluctuation in consumption.
By combining both analyses, companies can achieve even more precise planning and control of stock levels. For example, A-X goods can be monitored particularly carefully as they have both a high value and stable consumption. This enables an optimal balance between stock levels and procurement costs.
Conclusion: More efficient purchasing processes with the ABC analysis
ABC analysis is an effective tool for strategically aligning purchasing and making optimum use of resources. By prioritizing the most important goods, companies can reduce costs, increase efficiency and improve their competitiveness. Implement ABC analysis in your purchasing department to make informed decisions and ensure sustainable success.
Summary of the ABC analysis
- A-goods: High value, low volume share
- B goods: medium value, medium volume share
- C-goods: Low value, high volume share
