ABC Analysis in Inventory Management

1. Why ABC Analysis Matters

ABC Analysis is one of the simplest and most effective methods for improving inventory management.
By classifying products according to their value, movement, or importance, companies gain clarity on where to
focus attention and resources. This method helps reduce stockouts, prioritise replenishment, and improve picking speed.
For small and medium businesses, ABC Analysis is especially valuable because it allows better control with limited
manpower and without complex WMS tools.

Managers often wonder how ABC categories should be defined or whether frequency, value, or volume is more important.
The truth is that the ABC method is flexible — it adapts to the business model. What matters most is consistency and
using the results to guide layout, replenishment, and stockkeeping decisions.

2. What Is ABC Analysis?

ABC Analysis divides products into three categories:

  • A-items: the top 10–20% of items that represent the largest share of consumption or value
  • B-items: medium-frequency or medium-value products
  • C-items: low-frequency products or items with low value/slow movement

This classification helps companies prioritise attention where it matters the most.

Common criteria used:

  • consumption value
  • picking frequency
  • order lines per product
  • annual turnover
  • demand variability
  • number of replenishments

3. How to Perform ABC Analysis — Step-by-Step

A clear and simple approach for SMEs:

Step 1 — Extract data

At minimum:

  • product code
  • description
  • quantity issued
  • consumption value (optional)

Step 2 — Sort items

Sort descending by annual consumption or movement.

Step 3 — Calculate cumulative percentage

This reveals where the A, B, and C boundaries fall.

Step 4 — Assign categories

Typical distribution:

  • A = top 10–20%
  • B = next 20–30%
  • C = the rest

Step 5 — Use the results

  • improve layout
  • prioritise replenishment
  • plan counting cycles
  • control slow movers
  • reduce obsolete stock

4. Example of ABC Analysis (Simple SME Case)

Imagine a warehouse with 1,000 active products.

After sorting by movement:

  • 120 items represent 70% of total picks → Category A
  • 250 items represent 20% → Category B
  • 630 items represent only 10% → Category C

This distribution helps the warehouse assign priorities:

  • A-items → easiest access, lowest walking distance
  • B-items → medium access
  • C-items → upper levels or back-of-warehouse

This simple insight can increase picking efficiency by 20–35%.

5. Supervisor’s FAQ

Warehouse supervisors often ask whether ABC Analysis should be based on value or picking frequency.
The best practice is to choose the metric most relevant to your operation. For fast-moving warehouses, picking
frequency is better. For expensive goods, value-based ABC is more useful.

Another common question is how often ABC should be recalculated.
For SMEs, once every 3–6 months is enough. Seasonal businesses may need monthly updates.

Managers also ask whether ABC Analysis is needed without a WMS.
Absolutely—ABC works perfectly even in Excel or simple tools and prepares the layout for future digitalisation.

6. Using ABC Analysis for Inventory Control

ABC categories help define:

  • cycle counting frequency
  • replenishment priority
  • safety stock levels
  • monitoring slow movers
  • purchasing decisions

For example:

  • A-items → counted weekly
  • B-items → counted monthly
  • C-items → counted quarterly

This selective strategy reduces workload while improving accuracy.

7. See also :

Try our ABC Analysis Web-App to design your own warehouse layout quickly.

Web application for ABC Analysis

Even though ABC Analysis is about product behaviour, its results directly influence:

  • how products are placed in the warehouse
  • walking distances
  • replenishment effort
  • picking efficiency

A-items should ideally be placed in the most accessible areas, close to the dispatch zone.
B-items fill the medium-access locations.
C-items occupy reserve stock or upper levels.

This web application – made with the help of ChatGPT – allows importing, processing, and classifying items from
a CSV file using the “ABC Analysis method”.
The application identifies A, B, C type items based on sales and allows exporting the results to a new CSV file.

Features

  • Import .csv file containing product data.
  • ABC Classification (A = 80% of sales, B = 80-95%, C = 95-100%).
  • Tabular data display with sorting capabilities.
  • Export CSV file with processed data and ABC classification.

How to Use the Application

Upload a .csv file containing products ( max. 9,000 items) in the following format ( 3 columns) :
Product Code   Product Name    Quantity (sales)

BT4V534G        Laptop               116,625

IKPMVVN9        Mouse               114,144

UB1UKS3U       Keyboard           82,880

Note : use commas for thousands

  1. Click the “Calculate ABC” button to perform the classification.
  2. View the processed data in the table.
  3. Click “Export List” to download the file with the ABC classification.

The list is exported to csv, allowing it to be processed in Excel.

We have prepared one small test file to verify the functionalities of the web application. You can download it by following the link below :

ABC_TestList.csv

Access the web-app by pressing the button bellow : “ABC Analysis”

ABC Analysis

For more datails , watch the video :

Scroll to Top