ABC analysis ranks inventory items by their share of annual consumption value: A items are the few that make up most of the value, B items the middle, and C items the many that make up little.
A common split is roughly 10–20% of items as A (about 70–80% of value), 30% as B, and the remaining 50–60% as C. The cut-offs are a guide, not a rule.
It tells you where to spend attention: count, forecast and review A items often, and manage C items with simple rules. Pairing it with XYZ analysis adds how predictable each item's demand is.
FORMULA
Consumption value = annual units sold × unit cost. Sort descending, then classify by cumulative share of total value.