ABC analysis

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Fig. 1 ABC Analysis. The Pareto curve.

ABC analysis


Pareto analysis

a means of classifying items such as sales, stock, etc., in which items are ranked according to their relative importance to the firm. For example, products may be ranked according to their sales value, as in Fig. 1, with sales items plotted cumulatively on the horizontal axis and sales cumulated on the vertical axis to show a Pareto curve. Using this curve it is possible to place items into three classes: A items, often the first 10% of items, which may account for up to 60% of sales value; B items, often the second 30% accounting for perhaps 30% of sales value; and finally C items. Having classified items in this manner it is possible to develop STOCK CONTROL procedures which are appropriate for each class of item.

In retailing, for example, products could be ranked according to their profit margins and the speed at which they sell, for example a high margin, fast-moving product could be ranked A and at the other extreme a low margin, slow-moving product could be ranked C. The rankings can assist management to decide the frequency with which the items will be monitored, for example A items daily, B items weekly and C items monthly. See PARETO DISTRIBUTION.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
Inventory classification using ABC analysis is one of the most widely used techniques in organizations.
Activity in the sector dipped 1 percent in June, a third consecutive month of contraction, according to an ABC analysis of U.S.
The ABC analysis is a well-known and practical classification of inventory items based on the Pareto principle.
A number of papers presented in the literature were dealing with the problem of items classification in uncertain environments for inventory control purposes and proposed fuzzy multicriteria ABC classification approaches after realizing the importance of considering multiple criteria in the ABC analysis [18].
Tokyo, Japan, January 07, 2015 --( "BISCUE App" and "BISCUE e-Learning", a business skills application and e-learning provided by the Shubiki Corporation of Japan, has released a new course entitled "ABC Analysis", for smartphones, tablets and PCs in 7 languages including Japanese, English, Chinese, Spanish, Portuguese and French.
Table 3 is an ABC analysis that calculates how much of each resource is consumed by each of the different lines.
The results of the ABC analysis revealed that TEC's largest customer generated losses equal to almost 200% of the company's total profits and that more than 70% of TEC's customers were generating losses.
The results of the ABC analysis will assist in evaluating which technology, if any, suits your warehouse.
Toward this end, the authors strongly recommend such techniques as employing an inventory tree method to classify inventory according to its characteristics and using an ABC analysis. As a result, readers will walk away from the book with effective rules of thumb that will help them focus on those inventories that need the most help.
The ABC analysis revealed the fundamental differences that existed between the different mixes of product characteristics.