ABC Analysis

ABC analysis applies the Pareto principle to inventory, sorting items into Class A (few items, most of the value), Class B (moderate items and value) and Class C (many items, little value). By spend or usage value, a small share of SKUs typically accounts for the bulk of inventory investment, so those A items deserve tighter control, forecasting and review.

The classification guides how each group is managed: A items get frequent counts, close supplier attention and careful reorder policies; C items are managed with lighter touch and larger, less frequent orders. Applied to procurement more broadly, the same logic focuses sourcing effort on high-value categories while streamlining low-value tail spend.