What is ABC analysis?
ABC analysis ranks inventory items by their share of revenue or consumption value: A items are the few that make up about 80% of value, B items the next 15%, and C items the long tail that makes up the rest.
The ABC classification shows where tight control pays for itself and where a simple rule is good enough.
How to do ABC analysis
- Take 12 months of sales by item and multiply units by unit cost or price.
- Sort the items from highest value to lowest.
- Work out each item’s cumulative share of the total.
- Label items up to 80% as A, up to 95% as B and the rest as C.
An ABC analysis example
A shop has 1,000 SKUs. Sorted by annual revenue, the top 120 make up 80% of the total, the next 280 another 15%, and the remaining 600 only 5%. The 120 A items deserve weekly review, high service levels and close supplier management; the 600 C items can run on simple reorder rules.
ABC vs XYZ analysis
ABC sorts items by value; XYZ sorts them by how predictable demand is, from X (steady) to Z (erratic). Combined, they give nine groups: an AX item is valuable and easy to forecast, while an AZ item is valuable and volatile and needs the most safety stock and attention.
Using it day to day
Re-run the analysis every quarter, because items move between classes as demand changes. Smart Inventory Forecasting classifies items for you, so review effort goes where the money is.
Last reviewed 2026-11-01.