Direct answer. ABC analysis, also called Pareto analysis, is a method for classifying references (products, customers, suppliers) into three categories, A, B and C, based on their contribution to a given criterion (stock value, revenue, outbound volume). It lets you focus management effort on the references that carry the most weight.
Three categories, one prioritization principle
ABC analysis is based on the Pareto principle, often summed up as the "80/20 rule": a minority of references generally accounts for most of the value or volume, while the majority contributes only marginally. Specifically, category A groups a small number of references that account for the largest share of the criterion analyzed (revenue, stock value, number of outbound movements); category B covers intermediate references; category C gathers a mass of references that individually carry little weight. The exact thresholds (number of references per category, percentages used) vary by company and context: they should be adjusted for each analysis rather than applied mechanically.
In warehouse logistics, ABC analysis is mainly used to prioritize organizational decisions. It guides slotting and location addressing: fast-moving A references are placed near picking zones to limit travel, while C references can be stored further away. It also guides cycle-count frequency (more frequent checks on A references) and the sizing of safety stock, generally finer-tuned for high-stakes references. ABC analysis can be cross-referenced with the turnover rate to further refine segmentation (known as cross ABC analysis).
FAQ
How are the A, B and C categories defined?
References are ranked in descending order according to a criterion (value, volume, revenue), then grouped into three tiers. There is no universal threshold: each company adjusts the A/B/C boundaries to the actual structure of its business and its management goals.
What is ABC analysis used for in a warehouse?
It is used to prioritize: placing fast-moving references near picking zones (slotting), cycle-count frequency, and safety stock levels. The goal is to concentrate resources on the references with the greatest operational or financial impact.
Are ABC analysis and Pareto's law the same thing?
ABC analysis is the logistics application of the Pareto principle (a minority of causes explains the majority of effects). The two terms are used almost interchangeably in everyday logistics vocabulary, one naming the method, the other the statistical principle behind it.
Related terms
Slotting · Location addressing · SKU · Turnover rate · Safety stock · Cycle counting · Logistics KPI.
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