ABC analysis
Also called ABC classification
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is ABC analysis?
ABC analysis is a way of ranking inventory items by importance, such as sales or gross profit, and sorting them into classes A, B and C. A items are the small group that produces most of the results, B items the middle and C items the long tail, and distributors use the classes to decide how closely to manage each item.
How it works
A items get higher fill-rate targets, more safety stock and more frequent cycle counts, because a stockout on them costs the most. Some distributors also rank by the number of order lines, since an item that appears on many orders matters to many customers even when each line is small.
ABC analysis example
Ranked by last year’s gross profit, the top 800 of a branch’s 8,000 SKUs become A items and are counted every month, while the bottom 4,000 are counted once a year.
Related terms
- Cycle countA cycle count is a count of a small set of inventory items, done on a rolling schedule through the year to keep the ERP’s stock numbers accurate.
- Safety stockSafety stock is extra inventory a distributor keeps to cover unexpected demand or late supplier deliveries, so it doesn’t run out before the next shipment.
- Dead stockDead stock is inventory that hasn’t sold for a long time and probably won’t sell at its normal price.
- Stock keeping unit (SKU)A stock keeping unit (SKU) is the unique code a distributor gives each item it sells, so each size, color and pack can be stocked and priced separately.
