ABC analysis is a method of grouping inventory into three classes based on importance, usually sales or stock value. Class A items are the small share of products that contribute most of the value, B items are moderate, and C items are the long tail of many low-value products.
The analysis sorts products by annual sales or usage value, then splits them using cut-offs, often an 80/15/5 type pattern. This reflects the Pareto principle, the observation that a small number of items often drive most of the results, though the exact split varies by business.
Retailers use ABC classes to decide how often to count and review. A items get frequent cycle counts, tight reorder points and careful forecasting, while C items may be ordered in bulk and counted rarely. Venues use the same logic for stock such as premium spirits versus low-cost mixers or paper goods.
Pitfalls include treating the classes as fixed when sales change, ignoring items that are low value but critical, such as a part needed to keep trading, and relying on a single measure. Reclassify regularly and review the C list for items that should be dropped.
ABC analysis focuses limited staff time and money where it matters, and works well alongside cycle counting and demand forecasting.