How It Works
Sort items descending by annual value, then walk the list accumulating value. Each item is classified by where its running total lands as a percentage of the grand total:
- A items — cumulative percentage up to 80% (highest value, tightest control)
- B items — cumulative percentage from 80% to 95% (moderate value, normal control)
- C items — cumulative percentage from 95% to 100% (lowest value, loose control)
When to Use
Use ABC Analysis when you manage many SKUs and want to focus inventory control effort where it matters most. A-items typically make up a small fraction of your item count but drive the majority of your inventory value — they deserve tight tracking, frequent counts, and careful reorder planning. C-items can usually be managed with simpler, looser rules.
Example
Scenario: Four inventory items, total annual value $100,000
Item 1: $50,000 · Item 2: $30,000 · Item 3: $15,000 · Item 4: $5,000
Sorted and accumulated:
Item 1: 50% cumulative → A
Item 2: 80% cumulative → A
Item 3: 95% cumulative → B
Item 4: 100% cumulative → C
Items 1 and 2 make up just half your item count but 80% of total value — they're your priority for tight inventory control.