What is ABC analysis?
ABC analysis is a prioritisation method that divides items into three classes according to economic importance. A items normally represent the largest share of value, B items the middle range, and C items a low share per item.
How the classes are created
Calculate annual value for every item, sort descending, and calculate each item’s cumulative share. A common starting point is A up to about 80 percent of total value, B from 80 to 95 percent, and C for the remaining value. Thresholds should be adapted to the business.
Example
If ten items have a combined annual value of 1 million, two may account for 800,000 and become A items. Three more may bring the cumulative value to 950,000 and become B items, while the remaining five become C items.
Turning classes into policies
A items justify frequent reviews, accurate forecasts, and active supplier management. B items can use standardised controls. C items often suit simplified replenishment. Complement value with supply risk, criticality, lead time, and availability.
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ABC analysis