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what is ABC analysis please describe briefly.
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Answer Posted / vasudevarao
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
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