FREE INVENTORY ANALYSIS TOOL
ABC Inventory Analysis Tool
Classify SKUs by value contribution to focus management attention where it matters most.
- Free to use
- No sign-up required
- Built for real inventory decisions
Calculator
Results
CalculatedA-Class Value Share80%
3 A-class SKUs account for 80% of total analyzed inventory value.
Decision metrics
Decision Insight
Your top 3 A-class SKUs account for 80% of the analyzed value. The top 20% of SKUs account for 65%, describing how inventory value is distributed across this portfolio.
ABC Summary
Value and SKU count by management class.
Pareto Chart
Bars show analysis value by ranked SKU; the line shows cumulative value share.
Analysis valueCumulative share
ABC Classification
SKUs are ranked from highest to lowest analysis value.
Class Strategy
ABC describes value contribution, not whether an SKU is good or bad inventory.
- Review more frequently
- Maintain tighter service levels
- Monitor supplier risk closely
- Keep inventory records accurate
- Review on a regular schedule
- Monitor movement and changes in importance
- Use balanced replenishment controls
- Use simpler controls where appropriate
- Review order frequency and minimum quantities
- Watch for slow-moving or excess stock
- Consider Dead Stock or SKU Rationalization analysis
Key Takeaways
- ABC analysis ranks SKUs by their contribution to inventory value or another selected business-value measure.
- A items usually deserve tighter control because they account for a large share of analyzed value.
- C items are lower-value contributors, not automatically obsolete or unprofitable products.
- Review classification as demand, cost, revenue, margins, and product mix change.
How It Works
ABC analysis applies the Pareto principle to inventory management. It calculates an analysis value for every SKU, ranks SKUs from highest to lowest value, then calculates value share and cumulative share.
Consumption Value uses Annual Usage × Unit Cost. Revenue uses Annual Revenue. Gross Profit Contribution uses Annual Revenue × Gross Margin % so the ranking reflects gross-profit contribution rather than revenue alone.
SKUs are not split between classes. An SKU that completes a threshold range remains in that class, so actual class shares can move slightly beyond the selected 80% and 95% guidance.
Formula
Formula 1
Annual Consumption ValueAnnual Usage × Unit CostFormula 2
Gross Profit ContributionAnnual Revenue × Gross Margin %Formula 3
Value ShareSKU Analysis Value ÷ Total Analysis Value × 100Formula 4
Cumulative SharePrevious Cumulative Share + Current SKU Value ShareFormula 5
Top 20% SKU ShareValue of Top ceil(SKU Count × 20%) SKUs ÷ Total Value × 100Where:
- Analysis Value: the value used to rank a SKU under the selected method.
- Value Share: a SKU’s analysis value as a percentage of all analyzed value.
- Cumulative Share: the running value share after ranked SKUs are added together.
- Thresholds: the A and B cumulative-share settings used to group the ranked portfolio.
Example Calculation
Let’s say:
- SKU-A: 800 units × $50 = $40,000; share 40%; cumulative 40%; A class
- SKU-B: 500 units × $50 = $25,000; share 25%; cumulative 65%; A class
- SKU-C: 500 units × $30 = $15,000; share 15%; cumulative 80%; A class
With the default 80% and 95% thresholds, the three highest-value SKUs complete the A-class range without splitting any SKU between classes.
How to Use the Result
- Review A-class SKUs more frequently because they represent a large share of analyzed value.
- Use B-class items as a middle management tier with regular review.
- Consider simpler controls for C-class items, but do not automatically discontinue them.
- Combine ABC results with demand variability, stockout risk, aging, and dead-stock analysis before making assortment decisions.
- Re-run ABC analysis when costs, revenue, margins, or product mix change materially.
Limitations
- ABC classification reflects the selected ranking metric and does not measure every dimension of SKU importance.
- Low-value C items may still be operationally critical.
- Revenue-based ABC analysis does not account for profitability unless gross-profit contribution is selected.
- Gross-margin percentages depend on accurate cost and revenue data.
- Thresholds such as 80% and 95% are common guidelines, not universal rules.
- ABC analysis does not automatically account for demand variability, stockout impact, supplier risk, shelf life, or strategic importance.
- Small SKU portfolios can produce classes that do not closely match selected thresholds because individual SKUs cannot be split.
- Classification should be reviewed periodically.
Frequently Asked Questions
What is ABC inventory analysis?
ABC inventory analysis ranks SKUs by a selected value measure and groups them into A, B, and C classes based on cumulative value share.
What do A, B, and C classes mean?
A items make up the leading value range, B items make up the next range, and C items make up the remainder. The classes describe value contribution, not product quality.
What thresholds should I use for ABC analysis?
80% for A and 95% for B are common starting points. Adjust them when your operating model or portfolio requires different control tiers.
Should ABC analysis use consumption value or revenue?
Consumption value is useful for inventory investment decisions. Revenue is useful for sales contribution. Choose the metric that matches the decision you are making.
Can I use gross profit for ABC analysis?
Yes. Gross Profit Contribution ranks annual revenue multiplied by gross margin percentage, so it distinguishes profit contribution from revenue alone.
Are C-class items bad inventory?
No. C class means lower contribution under the chosen value measure. A C-class SKU can still be operationally or strategically important.
How often should ABC analysis be updated?
Review it whenever demand, cost, revenue, margin, assortment, or product mix changes materially; many teams also set a regular review cadence.
What is the Pareto principle in inventory management?
The Pareto principle describes how a relatively small share of items can contribute a large share of value. ABC analysis makes that distribution visible for a SKU portfolio.
Can an A-class SKU become a C-class SKU?
Yes. A SKU’s class can change when its demand, cost, revenue, margin, or the rest of the portfolio changes.
What should I do with A-class inventory?
Review it more frequently, maintain accurate records, protect service levels, and monitor supplier or stockout risk closely.
How many SKUs should be in each ABC class?
There is no fixed SKU-count rule. Classes are based on cumulative value share, so the number of SKUs in each group depends on your value distribution.
What is the difference between ABC analysis and SKU rationalization?
ABC analysis ranks value contribution. SKU rationalization makes a broader assortment decision using additional factors such as demand, profitability, strategy, and overlap.