Supply chain glossary
ABC Analysis
How ABC analysis splits an assortment into three value classes, where the thresholds come from and what has to differ between the classes for it to pay off.
10. august 2026
3 min
ABC analysis is a classification method that ranks items by their share of a chosen value – most often annual consumption value – and splits them into three classes, so that planning and control effort follows financial impact rather than item count. The split follows the Pareto pattern: a small group of A items usually carries most of the value, while a long tail of C items contributes a few percent.
The thresholds are a management decision, not a statistical result. A common starting point is A = the items making up the top 80 % of value, B = the next 15 %, C = the remaining 5 %, but the cut‑off that matters is the one that produces groups a team can genuinely treat differently. Classification belongs inside a category or planning group, not across the whole assortment – ranking a pallet of beverages against a spare part pushes every low‑value item into the same bucket and the analysis stops saying anything useful.
- Annual consumption value = annual demand in units × unit cost – the standard ranking criterion.
- A items – high value, tight control: frequent review, accurate forecasts, higher target service level.
- B items – moderate value: standard rules, periodic review.
- C items – low value and cheap to hold: larger order quantities, longer review cycles, minimal manual attention.
Two refinements decide whether the classification survives contact with operations. Classes are recalculated on a schedule – quarterly for fast‑moving retail assortments – because items migrate as demand shifts, and a class fixed at go‑live quietly becomes wrong. And value on its own is a thin criterion: an inexpensive component that halts a production line belongs in A whatever its consumption value, which is why ABC is usually paired with XYZ analysis of demand variability or with a criticality flag.
ABC analysis in practice
The classification pays off when the classes drive different parameters, not different reports. Veritico STOCK applies target service levels, review cycles and safety stock by class, so A items get the availability their margin justifies and C items stop consuming working capital and planner time. The same segmentation feeds assortment work: Veritico RANGE takes the same segmentation further: it clusters stores by shopping behaviour, proposes the range per cluster against shelf space and category rules, and shows the KPI impact of listing or delisting an item before it happens. See demand forecasting and inventory optimization, assortment strategy and rationalization and the Albert case study.
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