Conducting An ABC Analysis

Mark K. Williams, CFPIM, CSCP

Williams Supply Chain Group, Inc.
www.w-scg.com
mwilliams@w-scg.com
One of the first things a company should do in order to determine
its inventory and sales profile is to conduct an ABC analysis.
There are 8 steps to conduct an ABC Analysis, as demonstrated
below.
Step 1 - Determine the Annual Usage (or sales) for each
item. I stress the word ANNUAL, if you take a one week or
one month snapshot of usage (or sales), you could pick a
month where an unusual demand from one customer could
render your entire analysis worthless.

Item
#

Annual
Usage

X-10

200

$1.20

$240

X-20

3,000

$0.40

$1,200

X-30

90

$50.00

$4,500

X-40

900

$32.00

$28,800

X-50

300

$10.00

$3,000

X-60

2,200

$2.00

$4,400

X-70

500

$1.30

$650

X-80

40

$35.00

$1,400

X-90

1,400

$25.00

$35,000

X-100

400

$2.00

$800

10

9,030

Unit
Cost

Annual
Dollar
Usage

Part
Number

$79,990

Williams Supply Chain Group, Inc.

www.w-scg.com

Step 2 - Determine the Unit Cost (not selling price) for

each item.

Item
#

Annual
Usage

X-10

200

$1.20

$240

X-20

3,000

$0.40

$1,200

X-30

90

$50.00

$4,500

X-40

900

$32.00

$28,800

X-50

300

$10.00

$3,000

X-60

2,200

$2.00

$4,400

X-70

500

$1.30

$650

X-80

40

$35.00

$1,400

X-90

1,400

$25.00

$35,000

X-100

400

$2.00

$800

10

9,030

Unit
Cost

Annual
Dollar
Usage

Part
Number

$79,990

Williams Supply Chain Group, Inc.

www.w-scg.com

Step 3 - Multiply the annual usage by the Unit Cost to

determine the Annual Dollar Usage

Item
#

Annual
Usage

X-10

200

$1.20

$240

X-20

3,000

$0.40

$1,200

X-30

90

$50.00

$4,500

X-40

900

$32.00

$28,800

X-50

300

$10.00

$3,000

X-60

2,200

$2.00

$4,400

X-70

500

$1.30

$650

X-80

40

$35.00

$1,400

X-90

1,400

$25.00

$35,000

X-100

400

$2.00

$800

10

9,030

Unit
Cost

Annual
Dollar
Usage

Part
Number

$79,990

Williams Supply Chain Group, Inc.

www.w-scg.com

Step 4 - Sort the items based on their Annual Dollar Usage

from highest to lowest.

Item
#

Annual
Usage

X-90

1,400

$25.00

$35,000

X-40

900

$32.00

$28,800

X-30

90

$50.00

$4,500

X-60

2,200

$2.00

$4,400

X-50

300

$10.00

$3,000

X-80

40

$35.00

$1,400

X-20

3,000

$0.40

$1,200

X-100

400

$2.00

$800

X-70

500

$1.30

$650

10

X-10

200

$1.20

$240

9,030

Unit
Cost

Annual
Dollar
Usage

Part
Number

$79,990

Williams Supply Chain Group, Inc.

www.w-scg.com

Step 5 - Determine the percentage of sales (usage) that

each item represents

Item
#

Annual
Usage

X-90

1,400

$25.00

$35,000

44%

X-40

900

$32.00

$28,800

36%

X-30

90

$50.00

$4,500

6%

X-60

2,200

$2.00

$4,400

6%

X-50

300

$10.00

$3,000

4%

X-80

40

$35.00

$1,400

2%

X-20

3,000

$0.40

$1,200

2%

X-100

400

$2.00

$800

1%

X-70

500

$1.30

$650

1%

10

X-10

200

$1.20

$240

0%

9,030

Unit
Cost

Annual
Dollar
Usage

Part
Number

% of
Sales

Cumulative
%

% of
Items

ABC
Code

$79,990

Williams Supply Chain Group, Inc.

www.w-scg.com

Step 6 - Determine the cumulative percentage of sales

% of
Sales

Cumulative
%

$35,000

44%

44%

$32.00

$28,800

36%

80%

90

$50.00

$4,500

6%

85%

X-60

2,200

$2.00

$4,400

6%

91%

X-50

300

$10.00

$3,000

4%

95%

X-80

40

$35.00

$1,400

2%

96%

X-20

3,000

$0.40

$1,200

2%

98%

X-100

400

$2.00

$800

1%

99%

X-70

500

$1.30

$650

1%

100%

10

X-10

200

$1.20

$240

0%

100%

Item
#

Part
Number

Annual
Usage

X-90

1,400

$25.00

X-40

900

X-30

9,030

Unit
Cost

Annual
Dollar
Usage

% of
Items

ABC
Code

$79,990

Williams Supply Chain Group, Inc.

www.w-scg.com

Step 7 - Determine the cumulative percentage of items

% of
Sales

Cumulative
%

% of
Items

$35,000

44%

44%

10%

$32.00

$28,800

36%

80%

20%

90

$50.00

$4,500

6%

85%

30%

X-60

2,200

$2.00

$4,400

6%

91%

40%

X-50

300

$10.00

$3,000

4%

95%

50%

X-80

40

$35.00

$1,400

2%

96%

60%

X-20

3,000

$0.40

$1,200

2%

98%

70%

X-100

400

$2.00

$800

1%

99%

80%

X-70

500

$1.30

$650

1%

100%

90%

10

X-10

200

$1.20

$240

0%

100% 100%

Item
#

Part
Number

Annual
Usage

X-90

1,400

$25.00

X-40

900

X-30

9,030

Unit
Cost

Annual
Dollar
Usage

ABC
Code

$79,990

Williams Supply Chain Group, Inc.

www.w-scg.com

Step 8 Assign ABC Codes:

A = approximately 20% of Items = approximately 80% of
sales (usage)
B - approximately 30% of Items = approximately 15% of
sales (usage)
C - approximately 50% of Items = approximately 5% of
sales (usage)
% of
Sales

Cumulative
%

% of
Items

$35,000

44%

44%

10%

$32.00

$28,800

36%

80%

20%

90

$50.00

$4,500

6%

85%

30%

X-60

2,200

$2.00

$4,400

6%

91%

40%

X-50

300

$10.00

$3,000

4%

95%

50%

X-80

40

$35.00

$1,400

2%

96%

60%

X-20

3,000

$0.40

$1,200

2%

98%

70%

X-100

400

$2.00

$800

1%

99%

80%

X-70

500

$1.30

$650

1%

100%

90%

10

X-10

200

$1.20

$240

0%

100% 100%

Item
#

Part
Number

Annual
Usage

X-90

1,400

$25.00

X-40

900

X-30

9,030

Unit
Cost

Annual
Dollar
Usage

ABC
Code

$79,990

After conducting an ABC Analysis, read 10 Keys to

Inventory Reduction by Mark K. Williams, CFPIM, CSCP for
ideas on how to use the information.

Williams Supply Chain Group, Inc.

www.w-scg.com