ABC Inventory Analysis

Sort your items into A, B, and C tiers so you spend control effort where the money is.

4 lessons 35 min 5-question assessment 75% to pass

What you’ll learn

Explain the 80/20 principle behind ABC analysis

Classify items into A, B, and C tiers by value

Apply different controls to each tier

Set count frequency by class

Lesson 1 of 4 Reading 8 min

The 80/20 idea

ABC analysis is built on the Pareto principle: a small slice of your items usually accounts for most of your inventory value or sales. Roughly 20% of SKUs drive 80% of the money.

This matters because you cannot watch every item with equal care. Treating a KES 5 sachet with the same scrutiny as a KES 80,000 appliance wastes effort where it does not pay and starves attention where it does.

Imagine 1,000 SKUs worth KES 10,000,000 of stock in total. Often around 200 of them (the A items) hold KES 8,000,000 of that value. Knowing this lets you put your tightest counting, security, and reorder discipline on those 200 rather than spreading thin across all 1,000.

Key takeaways

ABC analysis applies the Pareto 80/20 principle to stock.
About 20% of SKUs drive about 80% of value or sales.
You cannot watch every item with equal care.
Example: 200 of 1,000 SKUs may hold KES 8M of KES 10M value.

Lesson 2 of 4 Practice 9 min

Classifying A, B, and C

To classify, rank every SKU by annual usage value (units sold × cost) from highest to lowest. The top band that makes up ~80% of value is A, the next ~15% is B, and the long tail of ~5% is C.

Ranking by value, not by count or by gut feel, is what makes the tiers honest. A cheap item that flies off the shelf can out-rank an expensive one that barely moves.

Suppose a fast-selling KES 200 phone case sells 5,000 units a year — that is KES 1,000,000 of usage value, landing it in A, while a KES 50,000 display unit you sell twice a year (KES 100,000) sits in B or C. Ranking by value × volume, not sticker price, puts the case in the tier that matches the money it moves.

Key takeaways

Rank SKUs by annual usage value (units × cost).
Top ~80% of value is A, next ~15% B, last ~5% C.
Classify by value, not by count or sticker price.
Example: a high-volume KES 200 case can out-rank a rare KES 50,000 unit.

Lesson 3 of 4 Reading 9 min

Different controls per tier

Each tier gets a control level that matches its stakes. A items get tight reorder points, frequent review, and close security; C items get loose, bulk handling and rare review.

Matching effort to value is the whole point — you free up management time and cash by not micro-managing the trivial many, while never letting the vital few drift.

For your A-tier appliances you might review stock weekly, keep a small lean buffer, and lock them in a secured aisle; for C-tier sachets you order in big batches a couple of times a year and barely watch them. The same staff hours then produce far tighter control over the KES 8M that actually matters.

Key takeaways

Controls match each tier’s stakes.
A items: tight reorder, frequent review, close security.
C items: bulk handling and rare review.
Example: weekly review for A appliances, twice-a-year bulk orders for C sachets.

Lesson 4 of 4 Reading 9 min

Counting by class

ABC also drives how often you count. Instead of one disruptive full stocktake, you cycle-count A items often, B items occasionally, and C items rarely — spreading the work and catching errors fast where they cost most.

Counting frequency follows value because an error in an A item is an error in real money, while a miscount of cheap C sachets barely moves the books.

You might count your A items monthly, B items quarterly, and C items once a year. A 10-unit discrepancy in an A appliance worth KES 80,000 each is an KES 800,000 problem caught within a month; the same gap in C sachets is pocket change found at year end. Frequency follows the money.

Key takeaways

Count frequency follows ABC class.
A items counted often, B occasionally, C rarely.
Errors in A items are errors in real money.
Example: monthly A counts catch an KES 800,000 gap fast.

| AWRA OpsHub

ABC Inventory Analysis

What you’ll learn

Course content

The 80/20 idea

Classifying A, B, and C

Different controls per tier

Counting by class

Finished the material?

More in this path

Inventory Foundations

Warehouse & Locations

Units of Measure & Conversions

Need a quick answer while you read?

AwraIQ