What is ABC Analysis
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ABC Analysis is an intrinsic part of supply chain management and is the categorization of products into groups sorted by their spend volume. Given Pareto analysis a typical ABC analysis might find that 20% of a products equate for 70% of the value, these are termed A’s and are the more expensive group (often comprised of complex assets) . Cheap consumable (and often easily replaceable items) fall into the “C” class.
There is no doubt that we’re currently in an age where we have access to unprecedented quantities of both information and communication methods. Supply Chain is now dominated by the power of these technologies from internet, e-procurement, portals XML. Information brings with it huge power and influence whether that might be in stock forecasting through to equipment reliability.
Information, its accuracy and availability can have significant impact on the design of our operation and the management controls we levy on it. Readily available information can facilitate lowering inventory levels through to reducing lead times. However different organizations may harness the power of these tools in different ways and efficiency gains can be levied from optimizing information flows. These can be characterised by some of the following opportunities
• Improved forecasting
• Reduced variability
• Increased collaboration between manufacturers and distributors
• Increased sales channels between buyer and seller
• Increased flexibility within the supply chain
• Reduce lead times.
For many organizations ensuring an effective link between Information systems and supply chain strategy is become increasingly vital. Certainly the internet is not the same as it was 5 years ago – and in 5 years time it will no doubt be unrecognizable from today. The reality for supply chain executives is that there is a pressing need to ensure an appropriate IS strategy is in place to support procurement aspirations.