ABC analysis

ABC analysis is frequently used in inventory management, where it is usually impracticable to devote equal resources to each item. It assumes that, in any inventory, a small number of items is vital to an organization's success and a majority is relatively unimportant.

ABC analysis can expose risk and help to control costs. For example, if sales of a small number of products account for the majority of your profits, any problem with those products has a larger effect than a problem with some other products. Similarly, the majority of customer support calls might result from a small number of recurring issues. Resources devoted to solving those issues could bring large benefits.

The purpose of this analysis is to highlight the most critical among a set of elements. Typically, a small number of values account for a large percentage of the total value. For example, 20% of products might account for 80% of total revenue.