ABC analysis categorizes suppliers into how many classes based on spend?

ABC analysis is a well-established inventory categorization technique that helps organizations prioritize their suppliers based on the value of their purchases. The method typically divides suppliers into three distinct classes:

1. Class A suppliers represent a small percentage of the total suppliers but account for a significant portion of total spend, usually around 70-80%. These suppliers are critical to the business, and managing them with priority and careful attention is essential.

2. Class B suppliers are intermediate, representing a moderate percentage of both suppliers and spending, usually around 15-25%. They require regular management but do not have the same level of criticality or value as Class A suppliers.

3. Class C suppliers constitute the remaining portion, accounting for a smaller percentage of total spend (approximately 5-10%) but making up the majority of suppliers. While these suppliers may be numerous, they require less intensive management compared to Classes A and B.

This three-tier categorization allows organizations to focus their efforts and resources on the most impactful relationships and streamline their procurement processes accordingly.