What is ABC Analysis?
ABC Analysis classifies inventory items into three categories by annual consumption value: A (top 20% items driving 80% of value), B (middle), and C (remaining items with low value).
ABC Classification
A items: high value, tight control, frequent review, accurate demand forecasting required. B items: moderate value and control — periodic review. C items: low value, bulk ordering, minimal management effort. The 80/20 rule (Pareto principle) means 20% of SKUs typically account for 80% of total inventory value.
ABC Analysis in ERPNext
Run the Stock Analytics or Inventory Turnover report in ERPNext, export to Excel, and sort by annual consumption value (quantity × average cost). Items in the top 80% of cumulative value are A items, the next 15% are B, and the bottom 5% are C. Use this classification to set different reorder policies per category.
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