There’s an old business maxim that says that around 80 percent of revenues come from 20 percent of a firm’s product line. Or that 80 percent of business’s revenue come from 20 percent of its customers.
It’s called the 80/20 rule, and you’re no doubt familiar with it. It’s a rule which, when applied, has helped countless companies boost profits by sharpening their focus on their most profitable products, services and customers to ultimately boost their bottom line.
The Glenday Sieve (GS)
Some years ago management consultant Ian Glenday made a discovery that builds on the 80/20 rule. And its application may prove useful to your company. It’s called the Glenday Sieve (GS). It was developed after Glenday discovered that for a high proportion of businesses 50 percent of sales come from a mere six percent of products (or SKUs). He also found that 95 percent of sales typically come from around 50 percent of products.
While that’s pretty useful to know, the real beauty of the GS is that can be applied not just to products and services, but to a variety of business processes, units and activities that make a company tick. The insights gained from a GS analysis can be used to make capability improvements, identify weak spots and eliminate waste and under-performance.
If there are areas within your business that are not adding value, but you’re not aware of them, you have a problem.
The GS can bring these problem areas to light and serve as a springboard for a strategy for their resolution. It can also highlight where already high-performing business processes can be further improved to maximise their bottom-line impact.
At its core, the GS provides an easy-to-decipher means through which tasks for business processes can be prioritised and reviewed as the company evolves.
So what does a GS look like?
Here is a simplified version of the GS, identifying the highest to the lowest performing SKU categories via a colour coding that labels processes by output volume. Using this as a guide, the SKUs in the high-volume green category would be focused on for quality and efficiency improvements as that’s where the greatest opportunities lie. As for those in the red category, decisions would need to be made as to whether it’s worth maintaining those SKUS. Perhaps it would be best to ditch them altogether if there’s not the potential make worthwhile improvements.
GS and the Jiwa user
For Jiwa users a highly detailed analysis of the GS, using a customer-by-customer breakdown, can be easily performed. What you need to do is enter data from highest to lowest, adding cumulative columns and cumulative values down the list and adding a cumulative percentage column and a calculation of the corresponding percentage to the cumulative value. From there (for example) mark the top five or six percent in green, the bottom one percent in red, and middle two streams in yellow or blue (as per the above graph) depending on what you believe makes most sense to you from an analysis perspective.
The top third of your graph (a full one is too long to include here) may look something like this:
So now that you have your Jiwa-generated GS data, what to do with it? Here’s where project management comes in. Management should use to the data to generate discussion of what to tackle first – improving what already works, scrapping what doesn’t work (and is draining your business of valuable resources), improving what should be working but isn’t, etc. Maybe the SKUs in the yellow and blue categories require a heavier focus on sales and marketing. Perhaps those products and customers in the green category need to be treated with even more love and care so their high revenue performance can be guaranteed over the long term. And which customers and product lines in the red category have the potential to move up the stream, and how can you go about achieving that? You may find that green customers are in the green stream because they experience a higher quality of customer service than those in other categories.
Why are SKU’s positioned where they are?
- Is it influenced by your customers?
- Is it the product itself or its features?
- Do your processes for these customers/products differ?
Your analysis may even reveal that there’s strong potential for some reds to turn into greens with the right approach. Maybe many of your red customers are stuck in the red because they’re feeling neglected, or are unaware of other things your business has to offer. Ditto the blues and the yellows.
As can be seen, creating a Jiwa-generated Glenday Sieve for your business is not an end in itself but a beginning; a beginning with the potential to secure and boost your business’s future prosperity. Give it a try and see what happens.