What is ABC analysis?

ABC analysis applies an old observation to the shelf: a small share of SKUs drives most of the value. Class A items are the roughly 20% of SKUs that account for about 80% of annual spend or sales. Class B is the middle band. Class C is the long tail of cheap, slow items that fills most of the shelf space but little of the budget. The classes drive different treatment. A items get tight reorder points, frequent cycle counts, and supplier attention. B items get standard controls. C items get loose controls and bulk ordering, because spending an hour reconciling a $4 variance on washers is a loss even when the count comes out right. To run one: export a year of usage or sales by SKU, multiply units by unit cost, sort descending, and draw the lines at roughly 80% and 95% of cumulative value. Where teams trip: classifying once and never again. Items migrate. A part that was C-class becomes A-class when a new product line starts consuming it, and last year's bestseller drifts toward dead stock. Re-run the analysis at least annually, or let the system reclassify from live usage data.