Analysis ABC on the nomenclature of what it gives. An example of ABC analysis to optimize a company's assortment

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This article will focus on one of the key tasks that marketers solve, if not constantly, then certainly quite often. Today we’ll talk about carrying out an assortment analysis. Reader, how often is it held in your company? Write in the comments.

What is avs assortment analysis?

Avs assortment analysis is one of the key analyzes that distributes the assortment of any company engaged in trade, ranking it according to its importance for sales. The analysis of the assortment is based on the Pareto principle, in which 20% of the assortment brings 80% of the organization’s income, and the remaining 80% gives only a fifth of sales.

The classic or standard version of the ABC analysis of the company's assortment is divided as follows:

A - leading position - about 80% of income;
In - position relative to the average yield - 15% of the income;
C - the least profitable positions, giving only 5% of sales.

A brief definition of the assortment analysis analysis can be given as follows - this is the ranking of key indicators by certain parameters. Often, the assortment is taken as the basis, but ABC analysis can also be carried out by suppliers, customers, costs, etc.

Why do avs assortment analysis?

The answer, I think, does not need a detailed justification. Naturally, the AWS analysis is needed in order to understand and understand which assortment is most in demand among buyers and which goods are always in stock. As well as a clear definition of which products require the least attention from the supply department.

Very often on the network I come across statements that the conclusions obtained during the analysis of the assortment are quite primitive, but for more than 70 years this method has been constantly used by marketers and analysts of the world.

History of the origin of ABC analysis

The roots of this method can be found in the 80s of the XIX century. Back in 1883, during a discussion between the greatest economists of that time, F. Walker and G. George, the idea was born to take into account farm taxes, based on their share in the total amount of fees. This was the initial premise of the analysis.

Only a couple of decades later, Pareto described and proved his 20/80 theory (80% of the result gives only 20% of the effort), but this theory could be buried in the annals of economics and great thought, but Joseph M. Juran began to propagate, and very actively , this principle in the management system, as well as logistics.

And only in the 50s did the assortment analysis assortment become logical and formed as an independent assortment analysis tool in the company. It took about 70 years for global economists and marketers to turn this idea into a concrete model for analyzing various data, which is still used today.

An example of an ABC assortment analysis?

Before you start the assortment analysis analysis, you need to clearly understand the goals and the result that we want to get in the course of this analysis. What do we want to see in the end? And already, proceeding from this, the choice is made of the data that will be used in the analysis.

So let's get started. First, we need sales data for a month, quarter or year. In the standard version of the ABC assortment analysis, it is customary to use one key indicator. In my practice, I strive to always choose two parameters in a spike, for example, revenue and profit or profit and the amount of goods sold. It all depends on the job responsibilities of the marketer, which are delivered initially.

Also, periodically, I slightly change the classical type of analysis and use a different breakdown of categories, namely A-50%, B-35%, C-15%. Usually I use this principle if you need to significantly reduce the range.

Further. The data on the basis of which the avs analysis is built are ranked from maximum to minimum, and the share of each position in the total mass is considered. We fix the share of positions taking into account the cumulative total. After that, the categories of ABC analysis are determined.

Since, as I already said, in my practice I often use two key parameters, and sometimes even 3, the above actions are carried out several times. Excel in this case is almost an indispensable thing, with its help all this can be done in a short period of time and without thinking much. The resulting categories are combined into one cell (the benefit is in Jöksel and there is such an opportunity). As a result, an almost ideal picture of the world emerges, and to be precise, an ideal analysis of the assortment is perfect.

Frequency of carrying out assortment analysis?

I highly recommend performing an avs analysis on the entire assortment once a quarter. However, in retail, there are periodic tasks to analyze a product group, so I spend it on a truncated assortment much more often. And with some preparatory work on creating a template in Excel, I do the analysis as many times as I need.

Such manipulations allow you to "keep abreast", tracking changes and quickly taking the necessary measures. If suddenly someone needs this template, I will share it with pleasure (available for download in the marketer's templates).

I would like to warn you right away if the assortment analysis is used to reduce the assortment, and some items are displayed based on its results, then there are three things to remember:

If, immediately after the reduction of positions, the AW analysis is performed again, again there will be positions that can be excluded from the assortment;
Even if at the current moment we get rid of all essentially illiquid positions, after a while the positions that were left in the assortment may not be sold. Such examples are rare when the category "C" goes to "A", but on the contrary, it is quite common.
It is impossible to “cut” the assortment only on the basis of the numbers obtained in the course of this analysis. There is also logic, related types of analysis, for example, the same xyz analysis, production necessity, the availability of analogues (not even sold) and the possibility of providing a choice to the client.

On this article I will end. I really hope that I was able to easily convey the essence of one of the key tools - the assortment analysis analysis. In the future, it is planned to post several articles on the methodology of this or that analysis. So in order not to miss something interesting, subscribe to blog updates.

ABC-analysis (ABC-analysis) - a method that allows you to determine the most significant resources of the company in terms of gross sales and gross profit.

In marketing, the most popular is ABC assortment analysis. It is carried out both for an individual brand, and for the company as a whole. The method allows you to identify unprofitable or low-profitable groups of goods, timely improve and optimize the assortment portfolio.

Method Description

The purpose of ABC analysis is a simple, convenient and visual ranking of any resources in terms of their contribution to profit or sale. Thanks to such a ranking, it is possible to correctly prioritize activities, focus on the use of limited company resources (labor, time, investment, etc.), identify excessive use of resources and take timely corrective measures.

Frequency of ABC analysis: at least 1 time per year, strategically, on a quarterly basis.
To make strategically correct decisions, the results of this method are recommended to be watched in dynamics over several periods. A monthly analysis can be carried out, but this period of time is too small to implement the decisions made and too small to track the dynamics of the situation
Advantages of ABC analysis: versatility, simplicity and clarity.
Limitations of ABC analysis: the method is too mathematical, sometimes it may not take into account the strategic goals of the company.
For example: developing categories will always be in category “C”, as in the short term they will have a minimal contribution to the company's sales / profits

Do you know the theory and you only need practice?

The boundaries of the main groups

The ABC analysis method is based on the Pareto Rule, which reads as follows: 20% of the effort provides 80% of the result.

The method is built on the principle of classification of the analyzed resources into 3 groups A, B and C:

A-group: provides 80% of sales / profits, usually 15-20% of all resources
In the group: provides 15% of sales / profits, usually 35-20% of all resources
C-group: provides 5% of sales / profits, usually 50-60% of all resources

The boundaries of the groups 80% -15% -5% can be changed and can be set individually by each company.

Which indicator to use as the basis for ABC analysis - profit or gross sales - is also up to the analysis performer. In each case, it all depends on the objectives of the analysis.

For example, the goal is as follows - the company needs to increase profitability in a short time. In this case, it is advisable to conduct an analysis based on the contribution of each position to the total profit.

There may be another goal: to focus sales efforts on the best-selling goods — in this case, it is more expedient to choose gross sales.

Types of ABC Analysis

The ABC analysis technique is widely used in various industries and activities due to its versatility. It can be used in strategic and tactical management, planning and budgeting, logistics and company inventory management. Varieties of ABC analysis:

ABC analysis of goods of an individual brand or the entire range of the company
ABC analysis of company stocks
ABC analysis of raw materials and any purchased materials
ABC analysis of customers or consumer groups
ABC analysis of suppliers
ABC analysis of the performance of units and analysis of labor resources
ABC budget analysis. investment or any costs

What conclusions can be drawn based on ABC analysis

After dividing all the goods into ABC groups, decisions are made regarding each product group. The main directions of conclusions that can be made as a result of the ABC analysis:

1 Group A- The most important resources, the locomotives of the company, bring maximum profit or sales. The company will suffer heavy losses with a sharp decrease in the effectiveness of this group of resources, and therefore, the resources of group A should be tightly controlled, clearly predicted, often monitored, be as competitive as possible and not lose their strengths.

For this group of resources should be allocated maximum investment, the best resources. The successes of group A should be analyzed and maximally translated into other categories.

2 group B - a group of resources that provide good stable sales / profits of the company. These resources are also important for the company, but can be moderated at a calmer and more moderate pace.

These resources are usually relatively stable in the short term. Investments in this type of company resources are not significant and are necessary only to maintain the existing level.

3 group C - The least important group in the company. Usually, the resources of group C pull the company down or do not generate income. When analyzing this group, you need to be very careful and first of all understand the reason for the low contribution.

Prepared using source: P. Gopalakrishnan, M. SundaresanMaterials Management: An Integrated Approach, 2004

Ready-made solutions

We have a ready-made template with which you can easily put the theoretical knowledge of this article into practice. Download an example an example for conducting ABC analysis of the assortment can be in the section.

ABC-analysis (ABC-Analysis) is a way of classifying (ranking) company resources according to a specific parameter, most often of significance. Read how to do an abs analysis, where it is applied and what are its benefits.

What is this article about:

Scientific and applied progress in the field of economics and finance does not stand still and offers an increasing number of methods and techniques for optimizing various aspects of the business. Over the past decade, managerial tools have been enriched by state-of-the-art “hype” assessment methods based on neural networks and big data (“Big data”). But traditional methods are still relevant and practical, it is too early to discount them. One of these classic methods is ABC analysis.

The essence of ABC analysis

The avs analysis is based on the rule of thumb 80/20 or the Pareto principle. In the general case, the rule says that only a small part of the efforts made brings most of the effect - 80 percent of the result is achieved only through 20% of the actions. For us, this means that only 20% of customers give 80% of revenue, and 20% of goods generate 80% of revenue.

Goods or services should be divided into categories - A, B and C. It is customary to classify assets as group A that provide just 80 percent of the result. For example, if it is necessary to get rid of low liquid stocks, then goods with regularly high demand will be assigned to group A. If you need to distribute the limits by organization receivables between customers - buyers with a consistently high volume of purchases, paying on time. Next, we consider all categories in more detail.

Download and get to work:

What will help : The regulation allows to reduce stock balances of goods, increase inventory turnover and, as a result, reduce the cost of their storage. Planning is based on ABC analysis.

What will help : Useful for ABC customer analysis, analysis of the effectiveness of the existing system of discounts and bonuses and other sales conditions.

Category A

The most valuable customers or products in your portfolio fall into category A. Products in this category generate the lion's share of revenue without absorbing an equally large (proportionate) share of company resources. This category is likely to consist of a very small number of customers or money-makers.

What formed this category is a topic for careful control, manual control and an individual approach when it comes to customers. Category A also implies that the loss of a client or problems with a product from this category have a noticeable negative impact on the business as a whole.

Category B

Products or customers, ranked in ascending or descending order, who are in the middle of the list, most likely fall into category B. Many mistakenly believe that this is a sub-segment of goods, customers, resources, which contributes to the overall “basket”, but is not large enough, if we talk about its role in the total result. This approach is not true. Category B should be primarily attributed to the fact that under certain conditions, efforts and costs, it can move to category A. It is generally accepted that category B is formed by positions that give the next 15% contribution after category A to the overall result.

Category C

What will help : maximize profits by managing stocks and not store money in a warehouse.

How to help: identify and eliminate surplus stocks, implement a system for monitoring and optimizing stocks.

Application of the abs method for stock analysis

ABC analysis is a great tool for inventory control. Its use is useful in determining which of the storage units is most affected by storage costs. It also provides the basis for forming an inventory management strategy.

In fact, each product in the warehouse (or unit of storage of raw materials) generates costs - each storage location costs money: rent on a pallet, utility costs, salaries of warehouse personnel, depreciation of warehouse equipment, etc. Therefore, it is important to keep this source of costs under control.

The use of ABC analysis in inventory management is based on the same principles as the segmentation of customers or goods. We rank warehousing goods or product groups according to the parameters of interest and allocate them into groups according to the contribution to the overall result for the selected parameter. The parameter for this analysis is determined by the objectives:

if the goal is to reduce the use of warehouse space, then it is necessary to rank product categories according to the number of pallet spaces occupied;
if there is a need to evaluate the turnover of goods, then shipments to customers should be taken as a parameter;
information on the most quickly used stocks of raw materials can be very useful when the topic of “volume discounts” begins to appear in the procurement issue and then we analyze the turnover of stocks of raw materials with the parameter “shipment (vacation, write-off) to production”.

There is no standard threshold in abc analysis to determine which products fall into which category. Threshold categories as well as parameters should be determined specifically for the analytical problem. Even the number of categories can be greater than three. However, the basis for creating categories applies the same principles as for analyzing customers / products.

Category A is the category of the most valuable products.
Category B is slightly larger and contains products that are of less value.
Category C is the largest, with the least contribution to the total value of the analyzed parameter.

Here is an example of some threshold indicators for category A:

20% of products, accounting for 70–80% of the annual shipment to customers;
20% of the range of raw materials and materials, which make up 70–80% of the annual shipment to production;
20% of suppliers of raw materials, which account for 70–80% of the annual volume of purchases.

The traditional proportions for the categories - 80/15/5 - can also be used to assess stocks, but this is not an axiom as mentioned above.

ABC analysis is a method by which you can arrange an assortment of products or a customer base according to importance. This type of analysis can be used in any company. It is based on. This principle can be reformulated and applied to ABC analysis as: 80% of the entire system is controlled through the control of 20% of the goods.

During the ABC analysis, the studied units are divided into three categories:

Category A (most valuable): 20% of customers or assortment for 80% of sales;
Category B (medium): here the ratio is 30% to 15%, respectively;
In the latter category C, the least valuable units are located, where 50% of goods or customers account for only 5% of sales.

Most often, in this type of analysis, 3 groups are distinguished, occasionally the amount reaches 4-5.

ABC analysis, in essence, is a classification according to various parameters and can be applied to:

Assortment of goods;
To suppliers of products;
Stocks in stock;
Customer or customer audience;
Long periods of sales and so on.

Customer ABC Analysis

Understanding that the customer is satisfied is easy. It is much more difficult to understand whether it is profitable to give all the forces to a given buyer. If the company will spend money on all its customers to the maximum, offering everyone the same favorable conditions, this will lead to ruin. It is necessary to classify customers according to their profitability. To facilitate this task, we use ABC analysis.

Why is the ratio of 80% to 20% optimal? Consider other possible situations.

There are cases when 80% of the company's profits come from 15% or 7% of customers. This is definitely a minus. In this case, the company is very dependent on this small percentage of customers. We have to focus on them and obey their conditions, which will certainly deliver a lot of discomfort and cause losses.

The opposite situation, when 50-60% of buyers bring 80% of the profit, is also unacceptable. In this case, it turns out that half or even more than half of the customers belong to category A and they require a high level of service. To conduct such a business, you will have to have more sellers, technicians, expand your office, as a result, each of the buyers of the "elite" category will bring a small share of the profit to the company.

That is why it is necessary to strive to comply with the Pareto principle. 15-20% of profit for 80% of customers should be taken as the golden rule, and deviation from it should be considered an imbalance.

Assortment ABC Analysis

The main objective of any company is to increase profits. The most convenient and effective way to accomplish this task will be to optimize existing resources.

ABC analysis is an economically sound method for streamlining the assortment of goods or other resources, which makes it possible to reduce costs and increase profits.

This type of analysis allows you to find out which products are better to buy or the amount of which goods should be increased. In other words, the analysis allows you to determine the most or least profitable types of goods in the assortment of the company.

ABC analysis in management

The most relevant is the use of the ABC method in management, since it is this industry that uses the means and forms of production management in order to increase its efficiency. So a company with the following characteristics will undoubtedly benefit most from this accounting:

A wide range of products;
Wide operational functionality;
Large overhead;
A wide range of expensive installations;
The frequency of changes in spending.

ABC analysis: examples

We give an example that is universal in use and demonstrates a quick method of rating compilation. It can be used for ABC analysis:

Products of a specific manufacturer or the entire range;
Goods in stock;
Purchased raw materials;
Suppliers;
Customers or buyers;
Labor resources and department performance;
Any costs and investments.

First of all, you need to create a list of all the resources that need to be analyzed. Here there may be an assortment, a client audience, a list of raw materials, personnel, and so on.

Now organize all products from larger to smaller.

Calculate the contribution (share) of each unit. It is necessary to divide the amount of an individual product by the entire amount of sales.

Separately, in the column, you need to calculate the cumulative percentage, starting from the top row

Divide the goods into categories A, B and C, where category A will include goods up to the border of 80%, category B - 80-95%, everything remaining will be in category C.

It is important to remember that ABC analysis is a calculation that allows you to only generalize the available data and present them in a convenient way. This analysis method is one of the tools for developing a strategy. For a complete analysis, you should also study the reasons why a particular product was in category A, B or C.

Conclusions that can be drawn from the analysis, based on the obtained classification of goods in assortment or suppliers:

In category A, the most important resources are located that bring maximum profit (or sales). The effectiveness of this category directly affects the work of the company. The decrease in efficiency here will entail considerable losses for the organization. It is necessary to control the resources that are in this category, to predict possible changes and carry out continuous monitoring, not allowing you to lose strengths.
Category B includes resources that provide good returns to the firm. This is also an important category, bearing stable earnings, but it can be analyzed more calmly. Usually these resources are stable, but only in the short term. Invest in this group should be moderate, only maintaining the existing level.
The third group - category C - is the least important for the company. These include those resources that need to be reviewed and either get rid of them or try to improve.

It is necessary to find out the reason for falling into the last category of resources so that you can change something. So when analyzing the range of products and services provided, the following reasons are possible for which they ended up in group C:

Products are not purchased, because it is irrelevant, unclaimed by customers. In this case, you should generally remove the product from sale or improve it;
The product is new in the market and is at the stage of entering its niche;
Products satisfy only a certain group of customers, perhaps a small one, but it is the company's “specialty”, emphasizing its name, does not affect the decrease in sales of the main assortment from categories A and B. In this case, there is no need to get rid of the goods.

In business, for monitoring various areas abc andxyz analysis. The ABC method is used more often, since it allows you to break the list into small groups in order to determine each management strategy. Improving the efficiency and effectiveness of the company occurs mainly by identifying key positions that give the greatest result. The specified method is widely used due to its versatility and effectiveness.

Goals and areas of application of ABC analysis in management

The key goal of the business is to increase profits. ABC analysis it is used when it is necessary to minimize costs and ensure profit when working with a large number of positions that may be

Assortment of goods;
Suppliers
Distributors
Customers

Thanks to this technique, units are distinguished, the return on which is maximum and with the least return.

If we are talking about the product range, then a profit review is carried out in order to determine the best-selling goods. This is done to focus on profitable positions and to exclude products that do not bring the expected effect.

When analyzing suppliers, it is necessary to evaluate the volume of deliveries and identify the main contractors for carrying out activities to increase their loyalty, and formulate special offers for them.

By ranking distributors by the amount of debt, you identify less responsible partners and are working to reduce the level of debt.

Customers should be divided by the volume of orders to form a list of the main ones. Key customers show maximum brand loyalty and are ready to recommend it to their friends. That is why knowledge of key customers, holding meetings with them, receiving feedback from them, and the formation of special programs is the key to the success of any business.

Main goal aBC analysis of customer base, product range and other position is to classify them according to the degree of importance for developing a strategy for working with each of the categories.

Thus, it allows you to highlight the positions with the greatest weight, evaluate associations, not a complete list, and develop strategies for them.

How to do abc analysis?

The basis of this technique is the Pareto principle, which states that 80% of the result gives only 20% of the objects, while the remaining 80% gives only 20% of the result. To determine the items generating 80% of the result and created avs analysis.

The name contains an abbreviation for groups.

And - the most valuable units, of which the main return comes from - 80%. Considering the assortment, sales leaders will enter here. Key customers, suppliers and distributors will also be here.

B - positions of medium importance. Goods that are sold but are not market leaders, customers who periodically place orders, but for a small amount, etc. Such a combination gives up to 15% of the result.

C - the least important items that generate only 5% of the result. In relation to such products, it is worth considering the need for their production if we are talking about sales. They are less in demand and only take expensive resources.

If necessary, a larger number of groups are allocated. In practice, the allocation of a larger amount is encountered when grouping not by one parameter, but by several, for example, profit and sales. Then a greater number of categories AA, AB, VA, etc. are formed.

If you have a list, then about 20% of this list will fall into category A, not more than 30% in B, the rest - 50% will most likely be attributed to C.

Below is an algorithm for applying the technique

Determining the purpose of the process, the expected result, the need for its implementation;
The choice of the object of study, which may be the goods, suppliers, customers or distributors;
The choice of the parameter according to which the ranking will take place, as indicated above, there can be several, but do not take more than three in order not to complicate the process;
Rank the list according to the value of the selected parameter from larger to smaller;
Summarize the total value of the parameter in the list;
Calculate the share of each item in the total amount;
Determine the share for each unit on an accrual basis, where the last in the list will have 100%;
The value of the share on an accrual basis, as close as possible to 80%, acts as the lower boundary of group A, to 95% - group B, everything below is included in group C;
Count the number of positions in the list;
Determine the total number of units in each association;
Calculate their share in each category in the total volume;
Compare the obtained values \u200b\u200bwith the normative.

The result of the conduct should not only be formed lists, but also an action plan for working with each organization.

Abc analysis can be carried out both manually and using tools excel.

Advantages and disadvantages of ABC analysis

The technology under consideration is widespread due to its advantages.

Easy to use. It does not require a large amount of data and easily allows you to carry out the necessary calculations.
Speed \u200b\u200bof application. You do not need to collect information for a long time.
The results obtained are relevant for a long period of time and can serve as the basis for the formation of a development strategy.
Reduce costs and increase the efficiency of the use of available resources when abandoning class C.
It is applicable in various fields and for a variety of indicators, from the consideration of the assortment to the interaction with customers.

Despite the objective advantages, the presented technology has several drawbacks that you should remember when conducting it.

It is difficult to conduct a study of more than 3 indicators because of the need to form more than 100 associations.
Positions can only be grouped by measurable indicators; qualitative indicators are not taken into account in this methodology.
It does not allow highlighting unprofitable or problematic names.
Does not take into account the influence of seasonality factors, unevenness, purchasing power, etc.

Abc analysis example

Spend abc assortment analysisupholstered furniture store. This store has a limited range of products: sofas, armchairs, pillows, rugs and bedspreads, office chairs, chairs for the home.

You can order a detailed business plan for such a turnkey store from us, or buy an already fully prepared business plan with all the calculations.

Over the past month, revenue fell in the store, the manager decided that the matter was in the assortment and decided to follow the described methodology.

As a parameter for analysis, we select the sales volume for the previous month. Opposite each item, we indicate the number of pieces sold, we rank from maximum to minimum, we determine the share of sales of each product in the total volume and the share of the cumulative total.

Sofas - 30 pcs. (share separately 40%, cumulative - 40%)
Armchairs - 29 pcs. (share separately 40%, cumulative - 80%)
Chairs for the house - 11 pcs. (share separately 15%, cumulative - 95%)
Pillows - 2 pcs. (share separately 2%, cumulative - 97%)
Blankets and bedspreads - 2 pcs. (share separately 2%, cumulative - 99%)
Office chairs - 1 pc. (share separately 1%, cumulative - 100%)

We find the value of the share on an accrual basis, as close as possible to 80%, this is the boundary of category A. Border B is in the third position, since the value of 95% is reached, the remaining positions are included in class C.

And - sofas and armchairs - 80% of the result gives 20% of the items.

In - chairs for the home - 15% of the result gives 30% of the assortment.

C - pillows, rugs and bedspreads, office chairs - 5% of the result gives 50% of the assortment.

The results obtained are in compliance with the normative.

Thus, we can conclude that management needs to concentrate on the diversity and quality of the key position - sofas and armchairs and give part of the retail space of class C goods for their sale. As for office chairs, there is no need to implement this assortment in the absence of demand.

Carrying out abc analysisit is not difficult, however, some recommendations must be taken into account.

For research, you should choose homogeneous positions. If you are considering food, then divide them into product groups. Do not compare the sales volume of red caviar and a loaf of bread.

Pay attention to the choice of the parameter, in addition to the fact that it should be quantitatively measurable, it should give an objective assessment. The sales volume of seasonal goods in the summer months is increasing, try to take into account such nuances.

The frequency of application of the technology under consideration will make it possible to track the progress of the application of strategies for various categories.

It makes no sense to monitor the indicators manually, use the Excel program and the calculations will not take more than one minute.

conclusions

Methodabc analysis allows you to identify products that bring business maximum results and directly affect profits. Working with homogeneous associations according to a certain strategy increases productivity. This affects the effectiveness and financial stability of the company. The specified method is widely used not only in the field of trade, but also in the field of production, provision of services, and logistics.

You can order a detailed turnkey business plan with us, or buy a fully prepared business plan with all the calculations.