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Finance General
Finance General
Topic Overview
Topic Overview
Useful Business Analysis Tools
ABC Analysis
Pareto Principle
Product Life Cycle
Benchmarking
Core Competencies
The 5 Cs of Credit
The Business Model Canvas
The Balanced Scorecard
The Cynefin Framework
Kotter Change Management Model
The Capability Maturity Model (CMM)
The Competing Values Framework
SMART Goals in Consulting
Public Value Strategic Triangle
GROW Model
Hoshin Kanri Matrix
The Stacey Matrix
The Influence Model
ADKAR Model
McKinsey Growth Pyramid
Qualitative and Quantitative Analysis
Correlation and Causality
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ABC Analysis

The ABC analysis is based on the pareto principle and helps in the prioritization of key issues. The method creates transparency showing the significance of various revenue segments. For instance, an ABC analysis can be used to segment product lines as important/less important according to their share of sales or the overall value they provide to the company.

Using the ABC analysis, a company's material selection can be divided into A-, B- and C-goods. Let's assume that “A-goods” are materials that are often scarce and have a high value per unit. Consequently, a few units of "A-goods" account for significant revenues (as a share of the total revenues). In addition, “C-goods” have a low value per unit with no scarcity within the company. Thus, whenever you are asked which materials are “strategic” or worth being looked at, your answer should be: “Let’s focus on A-goods first” to focus on items with the highest impact with minimal efforts.

Table of contents
Conduct an ABC analysis to tackle the right cost blocks within a supply chain optimization
Key Takeaways

Conduct an ABC analysis to tackle the right cost blocks within a supply chain optimization

Suppose you have determined that an automotive company is making losses due to high working capital within the supply chain (see value chain for more info). What could you do to reduce the working capital?

Since you need to cut costs you should first focus on the right cost blocks. Try to cluster your inventory based on its stock quantity and value by conducting an ABC analysis. You will quickly notice that most of your working capital is tied up for the purchase or production of motors. Compared to other materials such as screws, there an only a few motors on stock, but they are extremely expensive. In addition, because they are considered as “important”, the head of production insisted on high safety stock. But, through advanced demand planning and just-in-time delivery, you determine that you could reduce the inventory level and cut costs significantly. Moreover, you can possibly even increase the availability (reducing stock-out events).

ABC analysis table showing inventory categories (A, B, C) with percentages of SKUs and inventory value, along with automotive examples.

Key Takeaways

  • ABC analysis is a simple method of prioritizing issues.
  • The analysis classifies different kinds of products based on their value or share of sales.
  • This differentiation provides a better understanding of the anatomy of the cost structure and a good foundation for further analysis.

Let's Move On With the Next Articles:

Pareto Principle
Useful Business Analysis Tools
Pareto's 80-20 principle is a general rule of thumb that describes an unequal distribution between causes and effects. The principle states that 80% of overall results are driven by 20% of inputs. For example: 80% of work requires 20% effort, 80% of a project requires 20% of the time, and 80% of revenue comes from 20% of clients. When analyzing case problems, the Pareto rule can be utilized to diagnose big issues that might be caused by a much smaller problem. On the other hand, problems that seemingly look huge might result in only a small issue.
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Product Life Cycle
Useful Business Analysis Tools
The product life cycle is a way to map the common stages a product undergoes throughout its lifespan. The product life cycle is typically divided into 5 different stages, each having specific strategic decisions affecting profits and revenues.
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Benchmarking
Useful Business Analysis Tools
Benchmarking, as a strategic process, involves organizations analyzing their performance, products, services, or processes in comparison to those of industry leaders. This process, serving as a mirror, allows organizations to recognize their position in the competitive landscape. It plays a vital role in defining performance standards and identifying areas of improvement, thereby offering avenues to emulate best practices and enhance overall performance.The execution of benchmarking, requires the utilization of certain tools that allow for systematic data collection, analysis, and interpretation. The methodical approach empowers organizations to close performance gaps, implement industry-leading practices, and strive for superior performance, positioning themselves favorably in their industry.Synonyms: Performance Comparison, Competitive Analysis, Peer Comparison
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