Classification Rules  

ABC classification provides the following four types of classification rules:

o        Absolute Values of Classification Criterion: Each record in the dataset is classified based on the absolute value of its referred key figure value.

You need to classify your Customers according to the Sales Revenue they generated last year. You require the customers with sales revenue of:

§         At least $ 80,000 and more to be classified as A

§         Less than $ 80,000 but more than $ 20,000 to be classified as B, and 

§         Less than $ 20,000 to be classified as C

This classification can be done using classification rule type Absolute Values of Classification Criterion containing the corresponding mappings. Each mapping specifies which key figure value interval (Sales Revenue in this case) maps to which classification value.

o        Cumulated Percentage of Classification Criterion: All data records are ranked by their key figure value and starting with the record with maximum key figure value. In the order of descending key figure values, each record is classified based on the ratio:

Cumulated Key Figure Value / Total of Key Figure Values.

This is in terms of percentage. The Cumulated Key Figure Value denotes the sum of all key figure values up to and including the record to be classified. The Total of key figure values denotes the sum of all key figure values.

You want the most profitable customers with highest sales revenue and together generating sales revenue of at most 10 percent of the total sales revenue to be classified as A.

The medium profit customers with next highest sales revenue and together generating the next 50 percent of the total sales revenue last year are to be classified as B.

The remaining low profit customers with lowest sales revenue are to be classified as C.

You can do this classification by using classification rule type Cumulated Percentage of Classification Criterion.

A single record hitting the border line, that is, a record falling in between classes is always assigned to the class with the higher threshold. The following example illustrates this.

Following is the table of classification rules for an ABC classification of type Cumulative Percentage of Classification Criterion.

Threshold	Class
10	A
40	B
100	C

The first line specifies that  those customers with highest revenue and together leading to 10 percent of total revenue map to class A. If we assume that the following three customers have to be classified according to these rules:

Customer	Revenue
Miller	10.000 $
Smith	5.000 $
Green	5.000 $

In this case, the result of this classification is that all the three customers are classified to class C. This is because Miller contributes 50 percent to total revenue, Miller and Smith together contribute 75 percent of total revenue and all three customers together contribute to 100 percent of total revenue. All percentages of cumulated revenues are higher than 10 percent and even higher than 40 percent and so they are all classified to class C.

o        Cumulated Percentage of Classified Object: All data records are ranked by their key figure value and starting with the top-ranked record with maximum key figure value. In the order of descending key figure values, each record is classified based on the ratio

Ranking Position / Number of Records

This is in terms of percentage. The Ranking Position denotes position in the key-figure-based ranking while the top-ranked has ranking position 1; the secondly best-ranked record has ranking position 2 and so on.  The Number of Records denotes the total number of records to be classified.

As in the example used in type Cumulated Percentage of Classification Criterion, you can classify your customers into top 10% as class A, next 50% as B and the remaining as C profitability customers. 

o        Absolute Values of Classified Object: All data records are ranked by their key figure value, and starting with the top-ranked record with maximum key figure value in the descending order. Each record is classified based on the absolute ranking position.

In this case, the top 10 records, depicting the top 10 most profitable customers with highest sales revenue will be classified as A. The next 2000 records depicting the medium profit customers will be under class B and the remaining low profit customers generating the least sales revenue would be classified as C.