ABC analysis: grouping goods by importance
In nearly every warehouse a small number of items generate most of the turnover, and a long tail of items generates very little. ABC analysis is a simple way of making this visible, so that your time and control are spent where they matter.
The idea
Items are ranked by their share of annual turnover, or by consumption value. They are then split into three groups.
- A items: the few items that produce most of the value, often around 70 to 80 percent.
- B items: a middle group with moderate value.
- C items: the many items with low value, which together make up a small share.
The exact limits are not fixed. What matters is that the groups are different enough to deserve different treatment.
How to do it
Take a list of all items with their annual turnover or usage value. Sort from highest to lowest. Add up the share as you go down the list and mark where you cross the limits for A and B. A spreadsheet is enough for a small warehouse.
How to use the result
- **Counting:** count A items most often, B items less often and C items rarely.
- **Purchasing:** order A items in smaller, more frequent batches with careful forecasting; buy C items in bulk with simple rules.
- **Storage:** keep A items close to the dispatch area, with tighter access control.
- **Security:** apply stricter control to A items, which carry the most value.
Combine with other views
Value alone can be misleading. An inexpensive component may stop an entire production line if it is missing. Add a second view based on how critical an item is, and treat critical C items with extra care.
Review regularly
A small worked example
A warehouse holds 100 items. After ranking by annual turnover, 10 of them account for about 70 percent of the value. These are the A items. The next 25 add another 20 percent and are the B items. The remaining 65 produce only around 10 percent and are the C items. Counting the A group every month, B quarterly and C once a year takes much less effort than counting everything equally, and covers the risk where it matters.
Do not forget critical items
Add a flag for items that are essential even if they are cheap, such as a small component without which production stops. Treat them like A items for stock availability, whatever their value.
Demand changes. Repeat the analysis once or twice a year so that items that have grown or faded move between groups.