Also called Pareto analysis, ABC classification, 80/20
What is ABC analysis?
Sorting parts into three classes by how much of your annual spend they account for, so attention goes where the money is.
What else it is called
- Other names
- Pareto analysis, ABC classification, 80/20
- In French
- analyse ABC
Related entries
Understanding ABC analysis
Annual usage multiplied by unit cost, sorted high to low, then cut into three classes. The familiar pattern appears almost everywhere: a small number of parts account for most of the money, and a long tail accounts for very little.
The classes then drive different treatment. Class A gets tight planning, frequent counting, close supplier management and carefully sized safety stock. Class C gets a simple two-bin or min-max arrangement and an annual count, because the effort of planning it properly costs more than the stock it would save.
The refinement worth making is a second dimension for criticality. A three-dollar seal available only from one supplier in Germany is a class C part by value and a class A part by consequence. Plants that sort by dollars alone end up managing their expensive castings beautifully and stopping the line over a fastener.
In practice
Run the sort on your own part list, then move anything up to class A if running out would stop production, whatever it costs. That second pass is where the value is.
Frequently asked
How often should the classification be redone?
Annually for most plants, and after any significant change in product mix. Parts migrate between classes as products launch and retire, and a classification nobody has revisited in five years is describing a business that no longer exists.