ABC Classification
Classify items by contribution (A/B/C).
These tools are provided for educational and operational guidance only. Results are estimates and may not reflect all factors in your business. Always review calculations and use your own professional judgement before making decisions.
What is this tool?
The ABC Classification tool helps you group items into A, B, and C classes based on their contribution to total value (for example, annual consumption in currency). It is a simple way to decide where to focus attention, inventory, and service-level targets.
Formula
The tool interprets your CSV as SKU, value pairs, where value is typically annual demand × unit cost. It then:
- Sorts items from highest to lowest value.
- Computes each item's cumulative share of total value.
- Labels items up to ~80% of value as A, next ~15% as B, and the rest as C.
These thresholds are common in practice, but you can adapt them to your own policy by reinterpreting the output.
Example
With the default data, a few SKUs contribute most of the total value:
sku,value A,5000 B,3000 C,500 D,500 E,50
SKUs A and B will likely be classed as A items, C and D as B, and E as C. This mirrors the common pattern where a small number of items drive most of the value.
When should you use this tool?
- When you want to prioritize which SKUs deserve tighter control and more analysis.
- When defining different inventory policies for A, B, and C classes.
- When planning cycle counting or audit frequencies in a warehouse.
- When explaining to stakeholders why some items get more attention or stock than others.
How this tool helps your business
- Focuses energy and resources on the SKUs that truly matter.
- Supports differentiated service levels and safety-stock policies.
- Helps reduce effort spent micro-managing low-impact items.
- Provides a data-based lens for discussions about assortment and SKU rationalization.
Related tools
- Safety Stock Calculator – assign higher buffers to A items and leaner ones to C items.
- Inventory Turnover Calculator – monitor how quickly different classes move.
- CSV Profit Analyzer – link ABC value classifications with realised profit by SKU or group.
Frequently Asked Questions
What should I use as the “value” field?
A common choice is annual usage multiplied by unit cost, but you can also use revenue, margin contribution, or any other measure that reflects business impact.
Are the 80/15/5% thresholds mandatory?
No. They are widely used heuristics. You can interpret the A/B/C labels more flexibly or adjust the thresholds to better match your assortment and risk appetite.
How often should I refresh the ABC classification?
Many teams update ABC classes quarterly or biannually, and whenever there are major assortment or demand changes, so policies stay aligned with reality.
Can I combine ABC analysis with other segmentation?
Yes. Many companies layer ABC with XYZ (variability), criticality, or supplier risk to design more nuanced inventory and service strategies.