How Businesses Can Optimise Class C Purchases

Company purchases can generally be categorised into 3 classes. Classes A and B are already integrated into corporate purchasing strategies. Class C, by contrast, is often under-estimated; and yet, if properly optimised, it can generate savings of up to 20%.

Classes A and B

Class A – covers all products and services directly related to the company’s core business. It generally represents 75% of the total purchasing volume.

Class B – covers products and services that are peripheral to the core business but highly recurrent. It accounts for 20% of the total volume.

For both, there are strong incentives to secure and optimise purchasing. Companies tend to consolidate these categories with a small number of strategic suppliers by standardising and specifying their needs in detail.

Class C purchases

All of the other, more diffuse, purchases are grouped together in Class C. It encompasses a wide range of products that are purchased in a much more irregular and unstructured way.

They make up only 5% of purchasing volume, but account for the majority of administrative costs as they involve 60% of the order volume and 75% of the total supplier base.

Approaches that can be used to rationalise these purchases include: reducing the supplier base, deploying electronic ordering solutions, and promoting suppliers that are listed on every site. This type of approach can generate savings of up to 20%.

Optimising Class C products

Once a company has clear visibility of its Class C consumption, it can become evident that some of these products are ordered on a regular basis. They represent large spending volumes, but are dispersed over so many different product lines that they are hard to identify.

These products could easily be treated as Class A or B purchases, with standardisation of requirements, annual volume forecasts, optimisation of the supply chain, and concentration on one or two suppliers to reduce costs.

How have Manutan achieved this for customers?

After rationalising the supplier portfolio for a food industry customer, Manutan identified widespread fragmentation in the consumption of plastic trays within the business.

In total, several hundred thousand Euros were being spent at 4 factories on trays that were similar, but manufactured by different suppliers. To streamline this, Manutan drew up specs for a tray which could be used at all sites and put out a call for tenders with their customer; then they organised the supply chain.

These actions generated an annual saving in the order of 100,000 euros.

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  • Becky

  • Posted on 26 April 2017