The ABC classification method was first proposed by Italian economist Vilfredo Pareto, which divides things into three categories according to their importance, based on their economic, technical and other characteristics. Later, management scientist HFDickie applied it to inventory management and named it the ABC classification method. Then, Joseph Juran applied the ABC classification method to quality management in order to analyze the quality of products. In 1963, Peter Drucker promoted this method to the whole society, making it an effective means to improve efficiency.
In the field of procurement, the ABC classification method is to arrange goods according to their value. The proportion of the types of Class A goods is about 10%, and the proportion of the amount is as high as 70%. E-commerce companies need to strictly manage and focus on tracking such goods. The proportion of the types of Class C goods is about 70%, but the proportion of the amount is only 5%. Such goods are of many varieties and not of high value. E-commerce companies can relax their control and management. Class B goods are between Class A and Class C goods. The proportion of varieties and amounts are both within the normal range. E-commerce companies only need to manage them normally.
E-commerce companies can use the ABC classification method, that is, control costs according to the value of goods. In actual operation, e-commerce companies should manage the most valuable Class A goods in accordance with strict regulations, and only perform routine control on the low-value Class C goods. The importance of Class B goods with relatively ordinary value should be slightly weaker than that of Class A goods and stronger than that of Class C goods.
Everything seems complicated, but in fact there is a relationship between “the critical minority and the general majority”. This relationship is particularly evident when there are many types of goods and e-commerce companies want to purchase Class A goods but have to purchase Class B goods quickly, while Class C goods are in overstock.
In this seemingly impossible situation, e-commerce companies can use their limited resources to focus on Class A goods, which have a decisive impact. At the same time, e-commerce companies should also invest energy in purchasing general Class B and Class C goods. This is the strict management of Class A goods emphasized by the ABC classification method.
When an e-commerce company plans to purchase a batch of goods, it should use the ABC classification method to analyze the existing inventory in advance and investigate the inventory status to guide procurement work. The actual operation of the ABC classification method can be divided into the following four steps.
(1) Collect data
E-commerce companies should organize some important data, including annual data, unit price, existing inventory status, etc. of each product. Of course, the scope of data collection can be expanded. In short, for e-commerce companies, the more detailed the data collection, the better.
(2) List a table
E-commerce companies should list a table for the value of each type of goods based on the existing data. The specific statistical content can be determined according to the actual situation.
(3) ABC classification of goods
E-commerce companies should arrange goods according to the sales volume, analyze the sales of goods, and calculate the percentage. For example, according to the cumulative sales volume in a unit time period, the first 70% of goods are Class A, the last 20% of goods are Class B, and the remaining goods are Class C.
(4) Manage goods according to the results
E-commerce companies should draw an ABC classification table based on the results, and then formulate different procurement and management strategies.
After obtaining the ABC classification table, e-commerce companies can manage goods based on it and understand which goods should be purchased, how much of each type of goods should be purchased, how to connect with relevant personnel, etc. Of course, these are all operations at the execution level and will not be repeated here.
Tips
ABC classification of goods means to divide the goods into “three, six, nine grades”. For Class A goods, e-commerce companies must strictly manage, and the purchase quantity, purchase date, use of funds and other information must be accurately recorded. For Class C goods, e-commerce companies can appropriately increase the purchase quantity each time and reduce the number of purchases throughout the year: For Class B goods, e-commerce companies should make purchase plans in advance and conduct regular inspections.