ABC analysis of your inventory: how to do it in Exact Online
An ABC analysis divides your items into three classes: A items together make up about 80% of your consumption value, B items the next 15% and C items the last 5%. The A group is usually small: a fifth of the items or fewer. With that classification you know where to spend your attention, counting effort and best warehouse locations. This article explains how to make the analysis, with a worked example, which basis to choose and what to do per class.
The principle: a small share of items does most of the work
The ABC analysis is based on the Pareto principle, also known as the 80/20 rule: a small share of the causes is responsible for the largest share of the result. In a warehouse this means that a limited number of items accounts for most of the revenue, the stock value or the number of picks. If you treat all items the same, you spend too much time on items that matter little, and too little on the items that determine your result.
Worked example: an ABC analysis in four steps
Suppose you have ten items with a combined consumption value of 100,000 euro over the last 12 months. This is how you classify them:
- Calculate the consumption value per item: quantity delivered × cost price over 12 months.
- Sort the items from the highest to the lowest value.
- Calculate the cumulative share: add up the shares from top to bottom.
- Classify: an item is A as long as the cumulative share before that item is below 80%, B up to 95%, and C above that.
| Item | Consumption value | Share | Cumulative before | Cumulative after | Class |
|---|---|---|---|---|---|
| 1 | € 38,000 | 38% | 0% | 38% | A |
| 2 | € 22,000 | 22% | 38% | 60% | A |
| 3 | € 14,000 | 14% | 60% | 74% | A |
| 4 | € 9,000 | 9% | 74% | 83% | A |
| 5 | € 6,000 | 6% | 83% | 89% | B |
| 6 | € 4,000 | 4% | 89% | 93% | B |
| 7 | € 3,000 | 3% | 93% | 96% | B |
| 8 | € 2,000 | 2% | 96% | 98% | C |
| 9 | € 1,200 | 1.2% | 98% | 99.2% | C |
| 10 | € 800 | 0.8% | 99.2% | 100% | C |
The result: 4 of the 10 items (40%) together account for 83% of the value. Item 4 is still class A, because the cumulative share before that item (74%) was below 80%: the item is needed to reach 80%. In a real range of hundreds or thousands of items the A group is proportionally much smaller, often 10 to 20% of the items.
Value, quantity or picks: which basis do you choose?
The classic ABC analysis uses value, but that is not always the best choice. The basis depends on the question you want to answer:
| Basis | Measures | Use it for |
|---|---|---|
| Value | delivered value (quantity × cost price) | purchasing, stock policy, safety stock and counting: where is the money? |
| Quantity | units delivered | storage capacity and replenishment: what moves most in volume? |
| Picks | how often an item is picked | warehouse layout: what should be closest to the packing area? |
The difference can be large. A cheap fixing kit that is in almost every order is a C item by value, but an A item by picks. If it is stored at the back of the warehouse, your order picker walks back and forth dozens of times a day.
What do you do per class?
An ABC classification is only valuable when you act on it. These are the usual measures:
| A items | B items | C items | |
|---|---|---|---|
| Counting | often, for example monthly | quarterly | once or twice a year |
| Location (by picks) | close to the packing area, at grip height | middle area | at the back, high or low |
| Stock policy | tight control, smaller and more frequent orders, sharp safety stock | standard reorder point | larger, less frequent orders |
| Attention | actively monitor suppliers and lead times | review periodically | candidate for clearing out if also dead stock |
How to set up a counting schedule per class is explained in cycle counting in Exact Online. For the warehouse layout, combine the ABC analysis by picks with a picking route: put the A items at the front of the route.
Five pitfalls
- Analysing once. Sales change; last year’s classification is no longer right. Repeat the analysis at least every quarter.
- Looking only at value. For the warehouse layout the number of picks matters more than the value.
- Ignoring new items. An item introduced two months ago has little history and comes out too low. Assess new items separately.
- Forgetting seasonal items. Over 12 months a seasonal item may be a B, while it is an A in high season.
- Missing cost prices. An item without a cost price has value 0 and wrongly ends up in C. Check the cost prices in Exact Online.
Beyond ABC: the XYZ analysis
An ABC analysis tells you how important an item is, not how predictable its demand is. That is what the XYZ analysis is for: X items have stable demand, Z items very erratic demand. The combination gives a finer classification: an AX item (important and predictable) can be managed tightly with little stock, while an AZ item (important but erratic) needs more safety stock. The Barcode Scan App does the ABC analysis; you can make the XYZ classification yourself based on the sales history.
ABC analysis in Exact Online, without Excel
Exact Online has all the data for an ABC analysis, but no ready-made ABC classification of your inventory. The usual route is an export to Excel, pivot tables and formulas, repeated every quarter.
The Barcode Scan App does this automatically. Under Analytics → ABC analysis you see:
- the number of A, B and C items and the share of the A items;
- a Pareto chart with the value, quantity or picks per item and the cumulative share;
- the class per item, so you immediately see where action is needed.
With one click you choose the basis: Value, Quantity or Picks. The analysis covers the last 12 months and all warehouses, and is recalculated every night. Your classification is always up to date without anyone having to work on it. The ABC class by picks is also used in the Location usage analysis, so you see whether your A items are in the right place.
Want to know which other metrics to follow next to the ABC analysis? Read warehouse KPIs: 10 inventory metrics to track. Analytics is part of the advanced subscription.
Frequently asked questions
What is an ABC analysis?
An ABC analysis divides your items into three classes by importance. A items are the small group that together make up about 80% of the consumption value (or of the number of picks), B items the next 15% and C items the rest. The method is based on the Pareto principle: a small share of the items causes the largest share of the result.
How do I make an ABC analysis of my inventory?
Determine the value of each item over the last 12 months (quantity × cost price), sort the items from high to low, calculate the cumulative share and classify: up to 80% is A, up to 95% is B, the rest is C. In the Barcode Scan App for Exact Online this happens automatically, every night, by value, quantity or number of picks.
What is the difference between an ABC analysis by value and by picks?
An ABC analysis by value shows which items carry the most money; use it for purchasing, stock policy and counting. An ABC analysis by picks shows which items are picked most often; use it for the warehouse layout, so the most picked items are closest to the packing area.
How often should I make an ABC analysis?
An ABC classification changes with your sales: new items, seasons and items being phased out shift the classes. Repeat the analysis at least every quarter. The Barcode Scan App recalculates the ABC analysis every night over the last 12 months, so the classification is always up to date.
Can Exact Online make an ABC analysis itself?
Exact Online has the sales and stock data, but no ready-made ABC analysis of your inventory. With the Barcode Scan App you choose the ABC analysis under Analytics and see the class per item, a Pareto chart and the distribution over A, B and C, without exporting to Excel.