About the ABC Inventory Analysis Tool
ABC analysis applies the Pareto principle to inventory: a small share of items usually accounts for most of the money tied up in stock or flowing through it. This tool ranks your SKUs by annual usage value (annual units × unit cost), calculates each item’s cumulative share of total value, and assigns A, B and C classes using cut-offs you choose — by default A items make up the first 80% of value, B items the next 15% and C items the last 5%.
Paste one SKU per line as "SKU, annual units, unit cost" — copied straight from a spreadsheet works, with commas or tabs — or as "SKU, annual value" if you already have the dollar figure. The results show how many SKUs fall into each class, the share of value they represent, a full ranked table and the Pareto curve.
Inventory planners, buyers and warehouse managers use ABC classes to decide where to spend attention: tight control, frequent cycle counts and careful forecasting for A items; simpler rules and bigger, less frequent orders for C items. Revisit the classification every quarter or year as demand changes.
How to use the abc inventory analysis tool
- 1Export SKUs with annual units sold or used and unit cost from your system.
- 2Paste them one per line as SKU, units, cost (or SKU, annual value).
- 3Adjust the A and B cut-offs if your company uses a different split.
- 4Review the counts and value share for each class.
- 5Use the ranked table to set count frequency and stocking rules per class.
Formula and method
Each item’s annual usage value is its annual demand in units multiplied by its unit cost (or the value you paste directly). Items are sorted from highest to lowest value and a running total is kept. An item is classed A if the cumulative share of value before it is below the A cut-off, so the item that crosses the 80% line is still an A item; B items continue until the B cut-off, and the rest are C.
The default 80/95 split is the classic Pareto rule, but many companies use 70/90 or 75/95, or classify by count of SKUs instead. ABC by value can be combined with an XYZ analysis of demand variability, or adjusted manually for critical items with low value but long lead times.
- Usage value
- Annual units × unit cost
- A cut-off
- Cumulative share of value covered by A items (default 80%)
- B cut-off
- Cumulative share covered by A + B items (default 95%)
Worked examples
12 SKUs with the default 80/95 split
Usage values range from $54,000 (SKU-101) to $800 (SKU-112) and total $155,000. The top three items reach 72.6%, so SKU-104 crosses 80% and is the last A item (81.9% cumulative). The next four bring the total to 96.1%, and the last four are C items worth 3.9% of value.
Annual values pasted directly, 70/90 split
The motor is 50% of value and the gearbox starts at 50% (below the 70% cut-off), so both are A items worth 80% together. The bearing starts at 80% and the seal kit at 88%, both below 90%, so they are B items (14%). The fastener pack and label roll start at 94% and 98% and are C items worth 6%.
Frequently asked questions
What is ABC analysis in inventory management?+
ABC analysis ranks inventory items by annual usage value and groups them into classes: A items are the few that make up most of the value (often about 20% of SKUs and 80% of value), B items are the middle group and C items are the many low-value items.
How do you calculate ABC analysis?+
Multiply each item’s annual demand by its unit cost, sort from highest to lowest, compute the cumulative percentage of total value, and assign A to items up to about 80%, B up to about 95% and C to the rest.
What percentages are used for A, B and C?+
The classic split is 80% / 15% / 5% of value, but there is no fixed rule. Common alternatives are 70/20/10 and 75/20/5. Choose cut-offs that give you a manageable number of A items to control closely.
How should A, B and C items be managed differently?+
A items get the tightest control: accurate forecasts, frequent reviews, safety stock tuned carefully and cycle counts monthly or more often. B items get moderate attention, while C items can use simple reorder rules, larger orders and annual or semi-annual counts.
Can I do ABC analysis in Excel?+
Yes — add a column for units × cost, sort descending, add a running total and a cumulative % column, then use an IF formula on the cumulative % to assign classes. This tool does the same steps instantly from pasted spreadsheet data.