ABC analysis

Percentage
Percentage
value of
of items
annual usage
Close day
Class A items About 20% About 80% to day
control

Regular
Class B items About 30% About 15%
review

Class C Infrequent
About 50% About 5%
items review
Example 1

Percentage
Percentage
value of
of items
annual usage
Close day
Class A items About 20% About 80% to day
control
Regular
Class B items About 30% About 15%
review
Infrequent
Class C items About 50% About 5%
review
Step 1

Calculate the total spending per year

Item number Unit cost Annual demand Total cost per year
101 5 48,000 240,000
102 11 2,000 22,000
103 15 300 4,500
104 8 800 6,400
105 7 4,800 33,600
106 16 1,200 19,200
107 20 18,000 360,000
108 4 300 1,200
109 9 5,000 45,000
110 12 500 6,000
Total usage 737,900

Total cost per year: Unit cost * total cost per year
Step 2

Calculate the usage of item in total usage

Usage as a
Item Unit Annual Total cost
% of total
number cost demand per year
usage
101 5 48,000 240,000 32,5%
102 11 2,000 22,000 3%
103 15 300 4,500 0.6%
104 8 800 6,400 0.9%
105 7 4,800 33,600 4,6%
106 16 1,200 19,200 2.6%
107 20 18,000 360,000 48.8%
108 4 300 1,200 0.2%
109 9 5,000 45,000 6.1%
110 12 500 6,000 0.8%
Total usage 737,900 100%

Usage as a % of total usage = usage of item/total usage

Step 3
Sort the items by usage
Item Cumulative Unit Annual Total cost per Usage as a % of Cumulative % of
number % of items cost demand year total usage total

107 10% 20 18,000 360,000 48.8% 48.8%

101 20% 5 48,000 240,000 32.5% 81.3%

109 30% 9 5,000 45,000 6.1% 87.4%

105 40% 7 4,800 33,600 4.6% 92%

102 50% 11 2,000 22,000 3.0% 94.9%

106 60% 16 1,200 19,200 2.6% 97.5%

104 70% 8 800 6,400 0.9% 98.4%

110 80% 12 500 6,000 0.8% 99.2%

103 90% 15 300 4,500 0.6% 99.8%

108 100% 4 300 1,200 0.2% 100%

Total usage 737,900 100%

Step 4

Results of calculation

Percentage of Percentage
Cathegory Items Action
items usage (%)

Class A 107, 101 20% 81,6% Close control

109, 105, 102, Regular

Class B 40% 16,2%
106 review

104, 110, 103, Infrequent

Class C 40% 2,5%
108 review
Additional rules for ABC analysis

Percentage of Percentage of
Cathegory
items usage

Class A items 5-25% 40-80%

Class B items 20–40% 15-40%

Class C items 40-75% 5-20%

A≤B≤C
Example 2

Item number Annual quantity used Unit value

1 75 80

2 150,000 0.9

3 500 3.0

4 18,000 0.20

5 3,000 0.30

6 20,000 0.10

7 10,000 2
Step 1

Item Annual quantity

Unit value Usage per year
number used

1 75 80 6,000

2 150,000 0.9 135,000

3 500 3.0 1,500

4 18,000 0.20 3,600

5 3,000 0.30 900

6 20,000 0.10 2,000

7 10,000 2 20,000

Total usage 169,000

Step 2

Item Annual quantity Percentage in total

Unit value Usage per year
number used usage (%)

1 75 80 6,000 3.51%

2 150,000 0.9 135,000 79.8%

3 500 3.0 1,500 0.87%

4 18,000 0.20 3,600 2.1%

5 3,000 0.30 900 0.53%

6 20,000 0.10 2,000 1.18%

7 10,000 2 20,000 11.8%

Total usage 169,000

 Step 3

Percentage in
Item Cumulative Annual Usage Cumulative
Unit value total usage
number % of items quantity used per year % of total
(%)

2 14% 150,000 0.9 135,000 79.8% 79.8%

7 29% 10,000 2 20,000 11.8% 91.6%

1 42% 75 80 6,000 3.51% 95.11%

4 56% 18,000 0.20 3,600 2.1% 97.21%

6 71% 20,000 0.10 2,000 1.18% 98.39%

3 84% 500 3.0 1,500 0.87% 99.46%

5 100% 3,000 0.30 900 0.53% 100%

Total usage 169,000

Step 4

Percentage Percentage of
Cathegory Items Action
of items usage (%)

Class A Close
2 15% 79,8%
items control

Class B Regular
7, 1 30% 15,31%
items review

Class C Infreque
3, 4, 5, 6 55% 4,89%
items nt review
Conclusion
 The boundary between class A and
class B might not be as sharply defined;
 The purpose of this classification is to
ensure that purchasing staff use
resources to maximum efficiency by
concentrating on those items that have
the greatest potential savings →
selective control will be more effective
than an approach that treats all items
identically.