ABC Ranking

1. ABC Ranking Using ranking to improve your business

2. A brief history of The Pareto Principle? In 1906 Vilfredo Pareto created a formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. While it may be misnamed, Pareto's Principle or Pareto's Law as it is sometimes called, can be a very effective tool to help you manage effectively. Where It Came From Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the "vital few and trivial many that 20% of something always are responsible for 80 % of the results, became known as Pareto's Principle or the 80/20 Rule. What It Means The 80/20 Rule means that in anything a few (20 percent) are vital and many (80 percent) are trivial. 20% of the defects causing 80% of your warehouse space 80% of your stock comes from 20% of your suppliers. 80% of your sales come from 20% of your customers. Also 80% of your sales will come from 20% of your stock items How It Can Help You The value of the Pareto Principle for a manager is that it reminds you to focus on the 20% that matters. Those 20% produce 80% of your results. The Aware Enterprise System of ABC Ranking helps you to identify and report on those things that matter.

3. What is ABC Ranking While the Pareto principle only looks at two groups � Top 20% and bottom 80%, in Aware you are able to use up to 5 ranking levels, A,B,C,D and E. You can also determine what the value of each rank will be.

4. What is ABC Ranking A represents the top group, B the 2nd, C the 3rd and so on. You can use as many or as few of these groups as you want. You can set up your groups as you wish, for example, A could represent the top 10%, 15%, 50%.....it�s up to you�..as long as all the groups add up to 100%

5. What can be Analysed? You can assign a rank to Items, Customers or Suppliers. You can set up a different ranking for each � eg A may represent the top 30% of items, but A may also represent the top 50% of Customers � it�s up to you!

6. What is the basis for ranking ? Value � always a $ amount Quantity � this is only useful if there is a consistent unit of measure � eg kg. Margin � the difference between the cost price and the selling price. COGS (cost of goods sold) � this is the quantity X the unit cost of an item. Movements � the number of transactions that take place, often referred to as VELOCITY.

7. What if we produce different types of products? You can define up to three different groups of products, eg metal, glass, plastic or made to order and stock items etc.

8. To summarise: 1. You can identify up to three different product groups 2. Three different things that can be analysed in each group: a. Customers b. Items c. Suppliers 3. Up to five ranking levels (A to E) can be assigned. 4. There are five different choices for your basis for analysis: a. Value b. Quantity c. Margin d. COGS e. Movements

9. Getting it into the aware enterprise system