In brief
ABC analysis is a method that divides items into A, B and C classes according to their share of consumption value in order to target effort.
Contents
What is ABC analysis?
ABC analysis is based on the Pareto principle: a small proportion of items accounts for a large proportion of consumption value. The basis is an item's annual consumption multiplied by its price. The items are sorted in descending order of this value and considered cumulatively.
As a rule of thumb, around 70 to 80 per cent of consumption value is accounted for by A items, which make up only around 10 to 20 per cent of line items. B items are in the middle range, while C items make up the bulk of line items with a low share of value. The thresholds are not a standard but are set by each company. ABC analysis is often combined with XYZ analysis, which assesses how regular consumption is.
For spare parts, the method has a clear limitation: consumption value says nothing about criticality. An inexpensive, rarely needed part can bring an entire line to a standstill. In spare parts management, ABC classification is therefore usually supplemented by a criticality assessment. Only both perspectives together provide a solid basis for stockholding and procurement.
In practice: maintenance and procurement
A items are suitable for framework agreements, price negotiations and close inventory control, C items for simplified ordering processes. Spare parts should additionally be classified by the consequences of failure, so that an inexpensive but critical part does not drop out of stock.
Synonyms and abbreviations: ABC classification · Pareto analysis · ABC inventory analysis · consumption value analysis
Frequently asked questions
How do you carry out an ABC analysis?
The consumption value is calculated for each item, i.e. annual quantity times price. The items are then sorted in descending order, their share of the total value is accumulated and class thresholds are set. A typical classification has the few highest-value items forming the A class and the many low-value items forming the C class.
What is the difference between ABC and XYZ analysis?
ABC analysis ranks items according to their share of total consumption value. XYZ analysis, by contrast, assesses how evenly or erratically an item is consumed. Combined, the two produce a matrix from which planning methods can be derived, for example consumption-based reordering for parts needed at a steady rate.
Is ABC analysis sufficient for spare parts planning?
No. It only measures economic value, not the consequences of a missing part. Many critical spare parts are rarely consumed and therefore end up in the C class. An additional assessment based on the consequences of failure, replenishment lead time and the availability of sources of supply makes sense.