ABC Analysis
Also called: ABC classification
What is ABC Analysis?
ABC analysis sorts inventory into three classes by annual consumption value: a small group of A items that account for most of the value, a middle B group, and a long tail of C items worth little individually.
Why ABC Analysis matters
Attention is finite. ABC analysis says where to spend it — tight counting and negotiation on A items, light-touch rules on C items — instead of treating every SKU as equally important.
ABC Analysis formula
Annual consumption value = Annual units used × Unit cost
Rank descending and take the cumulative share to draw the class boundaries.
How ABC Analysis works in practice
Rank items by annual usage value, take the cumulative percentage, and cut at roughly 70–80% for A and the next 15–20% for B. Set counting frequency, safety stock and review cadence by class.
Frequently asked questions
Twice a year is usually enough, unless the range changes substantially.