ABC Analysis

An analysis of a range of items that have different levels of significance and should be handled or controlled differently. Items (such as activities, customers, documents, inventory items, sales territories) are grouped into three categories (A, B, and C) in order of their estimated importance. ‘A’ items are very important, ‘B’ items are important, ‘C’ items are marginally important. For example, retailers can split their SKU’s into three categories (1) SKUs that should never be allowed to go out of stock are given the ‘A’ rating, (2) SKUs that may sometimes be allowed to go out of stock would receive a ‘B’ rating, and (3) SKUs that are less important and would be excluded from ordering analysis.