ABC analysis for inventory: Pareto thinking for your warehouse
ABC analysis is the Pareto principle wearing a warehouse uniform. Rank your SKUs by annual consumption value, and the top sliver — class A — earns a completely different level of attention than the tail.
· 6 min read
Example annual consumption value by SKU group
| SKU group | Annual value |
|---|---|
| Fast movers | 340,000 |
| Core range | 150,000 |
| Seasonal | 60,000 |
| Spares | 28,000 |
| Slow movers | 14,000 |
| Obsolete stock | 6,000 |
Illustrative values. Compute consumption value as unit cost × annual units for your own SKUs.
Rank by value, not by units
The metric is annual consumption value: unit cost times units moved per year. A cheap fast-moving item and an expensive slow one can land in the same class — that is the point.
Class A is roughly the top 10–20% of SKUs carrying 70–80% of value. Class B is the middle. Class C is the long tail: many items, little value.
Different classes, different rules
The classification only matters because each class gets different treatment. Managing every SKU identically is the expensive habit ABC analysis breaks.
- A items: tight stock control, frequent counts, negotiated supply, demand forecasting
- B items: standard reorder points, periodic review
- C items: bulk ordering, high safety stock relative to value, minimal counting — or delisting
Re-classify on a schedule
Products move between classes as demand shifts. Re-run the analysis quarterly or at season changes with the same method, so a rising SKU gets promoted before it stock-outs.
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Example annual consumption value by SKU group
- Total
- 598,000
- Categories
- 6
- Vital few
- 2
- Top 20% share
- 81.9%
Priority #1
Fast movers
56.86% of total · 340,000
| # | Category | Value | Share | Cumulative |
|---|---|---|---|---|
| 1 | Fast movers Vital few | 340,000 | 56.86% | 56.86% |
| 2 | Core range Vital few | 150,000 | 25.08% | 81.94% |
| 3 | Seasonal | 60,000 | 10.03% | 91.97% |
| 4 | Spares | 28,000 | 4.68% | 96.66% |
| 5 | Slow movers | 14,000 | 2.34% | 99% |
| 6 | Obsolete stock | 6,000 | 1% | 100% |
2 of 6 categories account for 81.9% of total impact.
Vital few: Fast movers, Core range.
Fast movers is the largest contributor at 56.86%.
Fast movers represents 340,000 of a total of 598,000.
Strong concentration: the top 20% of categories hold 81.9% of the total.
A small number of categories drives most of the outcome.
4 categories share the remaining 18.1%.
These are the trivial many under the Pareto principle.
Review Fast movers first.
It is the single largest contributor at 56.86% of total impact.
Concentrate resources on Fast movers, Core range.
2 categories already cover 81.9% of the total, so they offer the largest area to investigate.
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Key takeaways
- Value = unit cost × annual units, not unit count.
- A items get attention; C items get policy.
- Re-classify quarterly — classes drift with demand.