ABC – Analysis

What is an ABC – Analysis?

An ABC – analysis is an instrument of the economical planning and control. It is used to classify objects in terms of their importance for the company. The ABC – analysis is based on the Pareto – principle, according to which the frequency of events decreases according to the law of the decreasing importance. This means that the few objects that make up the largest percentage of the total require the most attention.

In the ABC – analysis therefore first all objects are sorted according to their portion of the total value. The first 10% of the objects are then called “A” objects, the next 20% are called “B” objects, and the remaining 70% are called “C” objects. The allocation of properties to the respective groups is usually based on criteria such as sales, profit or inventory. In practice, however, it often happens that other criteria are also taken into account, for example the strategic importance of a product or the frequency of orders.

The ABC – analysis is a very useful tool to classify the different objects of a company and thus to use the resources optimally.