ABC Analysis

A method of classifying inventory items into three categories (A, B, and C) based on their relative importance to business operations, typically measured by annual consumption value, sales volume, or profit contribution. Class A items represent the most critical 10-20% of products that generate 70-80% of total value, Class B items are moderately important (15-25% of items, 15-25% of value), and Class C items are the least critical but most numerous (60-70% of items, 5-10% of value).

This classification system enables warehouses to optimize storage locations, picking strategies, and inventory management policies. A-class items receive prime real estate near shipping areas and frequent cycle counting, while C-class items can be stored in less accessible locations with minimal monitoring. For example, a pharmaceutical distributor might classify life-saving medications as A-items requiring immediate availability, while basic supplies like bandages fall into C-class with standard replenishment cycles.