Inventory planning
ABC Analysis
By the Supply Chain Manager team · Updated October 16, 2026
ABC analysis ranks SKUs by their share of annual consumption value so planning effort goes to the few items that drive most of the value.
It applies the Pareto idea to inventory. Sort SKUs by annual consumption value (annual units × unit cost), add up their cumulative share, and band them. A typical split is A for the SKUs that make up the first 80% of value, B for the next 15% and C for the last 5%. Cut-offs vary by business.
ABC says how much an item matters, not how predictable it is. Pairing it with XYZ analysis gives a 3 × 3 grid that suggests a different policy for each cell.
How to calculate ABC analysis
Annual Consumption Value = Annual Units × Unit Cost Sort descending; cumulative share ≤ 80% → A, ≤ 95% → B, rest → C
ABC analysis example
Illustrative numbers: in a range of 2,000 SKUs, a few hundred might account for 80% of consumption value. Those A items deserve tight review and higher service levels; many C items can run on simple periodic rules.
Why ABC analysis matters for distributors
No planner can give 2,000 SKUs equal attention. ABC focuses reviews, cycle counts and supplier negotiations where the money is.
Common ABC analysis mistakes
- Ranking by unit price or units sold alone instead of consumption value.
- Never re-running the classification as the range and demand change.
- Treating every C item as unimportant, even when it is critical to a key customer's order.
ABC analysis in Supply Chain Manager
Supply Chain Manager's Forecast Accuracy page groups SKUs into A, B and C bands (top 80%, next 15%, last 5% of annual consumption value) and combines them with XYZ demand classes.
Open the live demoExamples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.