ABC Analysis

The ABC analysis divides objects into three categories in descending order:

• A category These are the most important objects. They make up a large part of the total value, although they often only represent a small part of the total. The Pareto principle states that these are 20 per cent of the items that make up 80 per cent of sales. This is a classic 80/20 distribution.
• B category These objects are of medium importance. They often represent 30 per cent of the elements that make up 15 per cent of the value.
• C category These objects are of the least importance, but make up a large part of the total quantity. They often make up around 50 per cent of the elements, but only 5 per cent of the value.

Benefits of ABC analysis: The results of ABC analysis help companies to utilise their resources efficiently by focusing on the elements that offer the greatest value. For example, in warehousing, it may make sense to check and replenish A categories more frequently, while C categories are checked less often.