The Procurement Glossary » ABC Analysis
ABC Analysis
Inventory & Logistics
Definition
A method of classifying inventory or spend into A, B and C groups by value, so effort is focused on the most important.
Explanation
Based on the Pareto principle, ABC analysis puts the vital few high-value items (A) under tight control and the many low-value ones (C) under lighter management. It guides counting frequency, stocking policy and category focus.
Example
Class-A items (10% of SKUs, 70% of value) get tight control; class-C items get simple min-max rules.
Related terms
- Cycle Counting — Regularly counting a subset of inventory items to keep stock records accurate without a full stocktake.
- Pareto Principle (80/20 Rule) — The observation that roughly 80% of effects come from 20% of causes — e.g. 80% of spend from 20% of suppliers.
- Inventory — The goods and materials a business holds for use, sale or production.
- Tail Spend — The large number of low-value transactions and suppliers that together make up a small share of total spend but a big share of effort.
Frequently Asked Questions
What is ABC Analysis?
A method of classifying inventory or spend into A, B and C groups by value, so effort is focused on the most important. Based on the Pareto principle, ABC analysis puts the vital few high-value items (A) under tight control and the many low-value ones (C) under lighter management. It guides counting frequency, stocking policy and category focus.
Can you give an example of ABC Analysis?
Class-A items (10% of SKUs, 70% of value) get tight control; class-C items get simple min-max rules.
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