ABC Analysis

Applications of Pareto's Law or the 80/20 rule. ABC analysis, as related to inventory, is simply a determination of the relative ratios between the number of items and the dollar value of items purchased repetitively for stock. Typically 5-10% of the items ( "A " items) account for 75-80% of the investment, 20-25% of the items ( "B " items) account for 15-20% of the investment, and 70-75% of the items ( "C " items) account for 5-10% of the investment. Inventories should be managed accordingly, with more emphasis placed on the strategic management of the "A " items.