ABC Analysis – definition, calculation and application

ABC analysis is a business management method that enables companies to classify products, materials, customers or tasks according to their economic importance.

The aim is to allocate resources specifically where they deliver the greatest benefit. Particularly in logistics, warehousing and procurement, the method helps to manage stock levels, prioritise processes and reduce costs.

The basis of the ABC analysis is the division into three classes:

• A-goods account for a high proportion of value, although they usually make up only a small part of the stock.
• B-items have medium economic relevance in terms of their value and form the category between A- and C-items.
• C items generally have a low value share, but often account for a large proportion of the total volume.

How does the ABC analysis calculation work?

The calculation is usually carried out in three steps:

• Determine the total value of all goods
• Sort items by value share
• Classify into A, B and C categories

In practice, percentage and cumulative shares are frequently used, for example in Excel. The Lorenz curve is suitable for graphical representation, as it clearly illustrates the distribution of quantity and value.

Application of the ABC analysis in logistics

In logistics, the analysis primarily supports structured warehouse planning. A-goods are usually placed in easily accessible storage zones, as they are particularly relevant to the company's success.

C-items can be stored in areas with lower access frequency, as they account for a comparatively low proportion of value within the ABC analysis and are generally of lower priority for the company's success.

In logistics, ABC analysis helps to organise warehouse space effectively according to value and relevance. Whilst A-grade goods are placed in easily accessible storage zones, C-grade goods can also be stored in more remote areas.

This reduces walking distances to particularly important items, improves picking processes and optimises storage costs in the long term.

Also in procurement, the method helps to prioritise procurement processes more effectively. Companies can identify more quickly which materials tie up significant capital or are particularly important for security of supply.

A comparison of ABC and XYZ analysis

ABC analysis is often combined with XYZ analysis. Whilst ABC analysis focuses on the proportion of value, XYZ analysis assesses the regularity of consumption. Together, both methods enable a more precise warehousing and stock strategy.

Advantages of the ABC analysis

• Companies can use this analysis to plan and manage their stock more effectively.
• The method helps to systematically reduce warehousing and procurement costs.
• Clear priorities can be established more easily by categorising goods into A, B and C groups.
• This allows operational processes to be organised more efficiently and resources to be deployed in a more targeted manner.

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FAQ

What is the aim of the ABC analysis?

It helps companies to prioritise key goods, materials or tasks and to deploy resources in a targeted manner.

How does the ABC analysis differ from the XYZ analysis?

ABC analysis assesses the proportion of value, whilst XYZ analysis assesses consumption patterns. Together, they improve stock planning.

Where is the ABC analysis used?

The analysis is primarily used in logistics, warehousing, procurement, production and time management.