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# ABC Softwork

This tutorial will walk you through your first ABC analysis, in which you will learn to classify customers based on two parameters. It takes approximate 10 min to complete the tutorial, which will take you through the following:

A conceptual understanding of the ABC classification method Part 1 Step by step guide to create a double ABC analysis on customers Part 2 Conclusions - Part 3

Our starting point is the demo data set named demodata.abc. Find it from your welcoming e-mail and double-click the abc-file. If you have not created a test data set as a part of the download demo flow, please visit http://static.abcsoftwork.com/free to obtain one.

Understanding ABC classification starts by understanding the 80/20 rule, also known as Paretos rule.

The Pareto 80/20 rule has evolved into a handy method of dividing any type of items into three different categories based on how well they perform: A, B and C, also known as ABC classification.

CUSTOMERS

CUSTOMERS

Basically, the rule outlines a phenomenon known throughout the world of business:

The method separates The critical few, and the trivial many: As being the most important: Few customers representing your core business with a high impact on your button line, generating 80 % of your sales Bs being less important: Customers generating 15 % of your sales Cs being least important: The majority of your customers are slow movers generating close to nothing of your sales.

## 80% of a companys sale is generated by 20 % of its customers

Meaning that time, money and resources spend on the remaining 80 % of the customers create very little value.

Several ABC classifications can be performed in order to map the behaviour of customers, customers and suppliers.

A customer buying 100 times a month might generate the same as a customer buying only 4 times a month however single ABC analysis cannot separate these two customers for you.

Variations in sales:

Variations in frequency: A: Customers buying often and regularly B: Customers buying regularly, but less frequently C: Customers buying irregularly and rarely

However, the traditional single ABC analysis will only provide a snapshot of the current situation based on one parameter, e.g., sales. If you wish to have a better understanding of your customers, more advanced mapping techniques are required.

## A: Profitable customers B: Less profitable customers C: Least profitable customers

Double ABC classification allows you to combine two single ABC categorisations in one. Hence, you are able to classify any type of item based on two parameters, instead of one. Map your entire customer portfolio in the powerful double ABC grid, by dividing it into the nine different categories, and adjust your management control accordingly. Some characteristics of the four corners: AA customers are, in this example, the customers that generate most of your sales - and are buying most frequently. CC customers are defined as the least profitable ones, buying rarely. AC customers define the group of customers who are buying less frequently, with a high impact on your sales CA customers are buying often, but are less profitable.

Once you have categorized your items, you may start optimising your current management policies: Make policies so you spend most of your time and resources on your AA customers. This particular group often accounts for less than 8% of your entire customer portfolio, however, it generates more than 50% of your sales.

The ABC Analyzer is flexible. Create any type of analysis based on the parameters present within your data set. Use any type of parameter to categorize your data:

CUSTOMERS

Sales Value Gross Profit Cost value Order Lines ..and even more

Review your CC customers, often they account for less than 5% of your sales. If you dont differentiate your resources, you are probably spending 50% of your time and resources on optimizing less than 5% of your sales labelled CC.

You are about to perform your first double ABC analysis and categorize your customers based on sales and frequency. In order to perform the analysis you will be using three of the seven tabs present within the ABC Analyzer: Overview Graph MyAnalysis

The tabs provide you different views of your data and based on the information obtained, conclusions and guidelines for managing your customers can be made. Well return to these in part 3 of this guide.

Go to your inbox, find your welcoming e-mail and double-click the file customers.abc. ABC Analyzer opens.

The ABC interface consists of a large workspace placed in the center of the screen. Above seven workspace tabs provide access to different views of your data. The controls panel to your right relates to the current workspace tab Overview. Each tab has unique controls allowing you to interact with your data.

The box labeled Total in the workspace area shows you the total number of customers in your data set: These are the customers you are about to classify into nine different categories, based on the parameters you choose. Lets have a look at the Top Menu placed above the workspace area.

The Top Menu Tab named Categorization will be referred to as the Categorizer. Click the button to your far left labelled Method and choose Double now you have defined the type of analysis you are about to perform. From Fields parameters choose the two parameters you wish to use when categorizing your customers: Vertical (Parameter 1): Sales Value Horizontal (Parameter 2): Sales order lines Click Categorize to execute the categorization. The categorizer allows you to specify your categorisation even further. Please refer to our online learning videos for more information about the different categorization principles and targets.

## Link to learning videos http://static.abcsoftwork.com/videos/

Once you have clicked Categorize nine different boxes corresponding to the nine categories in the double ABC classification emerge. All of your customers are automatically divided into these boxes based on the targets you have chosen. The five red boxes display customers generating 80% of your sales. This is equivalent to the value for Red in the categorizer Target box. Target always refers to the vertical parameter Sales Value. The 3 green boxes contain customers generating 15% of your sales etc. The number in each box indicates how many customers it contains, e.g., 600 customers have been identified as AA customers.

Click the tab labelled Graph to observe your data using the visual representation. Each dot represents a customer. Data are plotted according to your parameters in the Top Menu named Categorization. We have chosen to categorize using Sales Value as the Vertical parameter and Sales order lines as the Horizontal parameter. This is also shown on each axis in the Graph. A customer in the upper left corner, the AA category, has High Sales Value and High Sales Order Lines. A customer in the lower left corner, the CA category, has Low Sales Value and High Sales Order Lines.

If you wish to zoom in your graph simply hold down your mouse button and drawn a square. Try zooming in on your AA customers. These customers are your most profitable ones, hence you want to keep a close eye on them. To view customer details, click on a dot. A pop-up window will show you the specific data related to this customer. Close the pop-up. To zoom out, right click on the screen and choose zoom out

Click the tab labelled MyAnalysis to gain a detailed view of your data. Once you click it, youll find the nine-grid in the upper left corner. This grid shows the same as the Overview. Check Show ID percentage and another nine-grid will appear to the right. This grid shows the percentage of customers in each category. From the categorization you are now able to read that 600 customers equal 8% of your entire customer portfolio.

The MyAnalysis allows you to compare different attributes of your customers. Use this tab to observe your customers based on several different parameters simultaneously: Click the dropdown menu in the control panel to your right, choose Sales Value and check Show ID percentage.

Now the sales value for each customer category is displayed. Observe that the 600 customers generate sales of 84.292.830, meaning that 8% of the customer portfolio generates 54 % of the sales value. The MyAnalysis allows you to view your data using up to four different parameters simultaneously. If you wish to see how your customers perform in relation to frequency, choose Sales Order Lines from the dropdown menu.

Congratulations! By now you have performed your very first ABC analysis using ABC Analyzer. If you are curios to learn more about the ABC Analyzer and the double ABC classification method - visit our Learning Center at http://static.abcsoftwork.com/learning

You have learned to categorize your customers based on two parameters, and are able to apply other parameters free of choice You have identified the most profitable customers and can easily communicate your findings using the Overview and Graph You have gained a full overview of your customers which enables you to differentiate management policies accordingly By categorizing your data you have taken an important step towards understanding your business based on facts - not emotions ABC Analyzer has provided you with a fact-based starting point for prioritizing your time, money and resources

Your ABC Demo includes all features of the ABC Analyzer and will run for another 14 days. However, the ABC Demo is limited to read ABC-files only. If you wish to import Excel-, txt-, cvs- or xml-files, upgrade your ABC Demo to ABC Analyzer for 950 Euros. We offer all new users a special support package: File conversion: E-mail us a sample of your Excel file and we will create your first .abc-file ready to import to ABC Analyzer Remote Assistance to ensure 100% success with your first data import