What "ABC Classification" means
ABC classification is a standard Pareto (80/20) inventory method. Every item Pro Exteriors buys is ranked by how much we actually spend on it, then bucketed:
Class A
The vital few
High-spend items that make up the large majority of dollars. A small number of SKUs, a big share of spend. Negotiating these moves the needle.
Class B
The useful many
Mid-spend items. Worth negotiating, but each matters less than an A item.
Class C
The trivial many
Low-spend long-tail items. Lots of SKUs, a tiny share of spend. Generally not worth negotiating individually.
How we compute it
- Basis: trailing 36-month spend per item, from actual ABC invoice history, aggregated by item number.
- Ranking: items sorted high→low by spend; cumulative spend share assigns the class.
- Negotiable set = A + B — together ~87% of 36-month spend in roughly ~857 SKUs across ~454 families. We negotiate the ~half of the catalog that drives ~all of the cost and skip the C tail.
- Items group into families (a base product) that expand to variations (color/size SKUs), so you work at the family level and only drill into variations when a specific SKU needs its own price.
Why it matters for negotiation
- Focuses the agreement on items where a price concession is actually material.
- Keeps the worksheet human-sized — hundreds of lines, not thousands.
- Makes coverage measurable: "are our A+B items under a current negotiated price at this branch?" is what the Price Agreement Audit answers.
Caveats
- Spend is historical; a brand-new product can be under-classified until it has purchase history.
- Class is recomputed as invoice history grows — an item can move between B and C over time.
- The A+B threshold (~87%) is a tunable policy, not a law; revisit if the catalog mix shifts.
Live source: v_negotiable_items (schema 109).