A form of Pareto analysis applied to a group of products in order to apply selective inventory management controls. The inventory value for each item is obtained by multiplying the annual demand by unit cost and the entire inventory is then ranked in descending order of cost. However, the classification parameter can be varied; for example, it is possible to use the velocity of turnover rather than annual demand value.
This method of analysis determines which customers or territories contribute to which percentage to certain target figures, e.g. turnover. By means of the ABC analysis it can e.g. be determined which customer contributes 80% of a company's turnover.
Classification of items in an inventory according to importance defined in terms of criteria such as sales volume and purchase volume.