Inventory & logistics
ABC Inventory Analysis: Rank Annual Usage Value and Apply Cutoffs
ABC analysis in inventory management groups items using a chosen importance measure. This exercise ranks annual usage value, calculated as annual units used × unit cost. It then applies explicit cumulative-value cutoffs so you can see how a classification is produced and why its boundary rule matters.
Define the measure and the classroom rule
Zoho Inventory describes ABC analysis using annual consumption value. Our original fictional worksheet uses one year, a supplied constant cost per item and six item IDs. It measures cost-based usage value, not profit, revenue, demand variability or safety criticality.
The teaching rule assigns A when cumulative value after including the row is at most 80%; B when it is above 80% and at most 95%; C when it is above 95%. These are supplied worksheet rules, not mandatory industry cutoffs. Sort descending before applying them.
Calculate each value and cumulative share
The total annual usage value is 10,000. Divide each running total by 10,000 to get its cumulative share. The rows below are already in descending value order.
Original completed ABC worksheet
AX: 100 units × 40 = 4,000; cumulative 40%; A.
BY: 250 units × 10 = 2,500; cumulative 65%; A.
CZ: 150 units × 10 = 1,500; cumulative 80%; A.
DK: 100 units × 10 = 1,000; cumulative 90%; B.
EL: 100 units × 6 = 600; cumulative 96%; C.
FM: 100 units × 4 = 400; cumulative 100%; C.
Explain the crossing row
CZ finishes exactly at 80%, so it remains A under the stated inclusive rule. EL moves the running percentage from 90% to 96%; because this worksheet uses the percentage after including the row, EL is C.
A different rule could put a crossing row into the earlier band. That is why an unexplained A/B/C output is not enough. State both the threshold and the treatment of a row that crosses it. If two items tie, define a consistent tie rule or review them together rather than allowing arbitrary input order to decide silently.
Read what this classification can and cannot show
The three A items carry 8,000, or 80% of value, but represent 3 of 6 items: 50% of the SKU count. This original data therefore does not produce an 80/20 split. Do not force the labels to satisfy a slogan.
A low-value item can still stop production if unavailable. This value-only worksheet has no evidence about substitutability, lead times or consequences of shortage. It can guide a review queue, but it does not establish a complete stocking policy or guarantee an appropriate count frequency.
Give an auditable explanation
For a useful variation, double EL’s annual usage to 200. Its value becomes 1,200 and its rank changes, so rebuild the sorted table and every following cumulative share. Changing only EL’s label while retaining the old order would not be a fresh analysis.
Original practice answer
“I ranked annual usage value, totaling 10,000. With the supplied after-row cutoffs, AX/BY/CZ are A, DK is B and EL/FM are C. EL crosses 95% and becomes C under that rule. I would retain the measure and boundary definition, then consider criticality separately before changing an operating policy.”
Questions, answered
Does ABC always mean 20% of items carry 80% of value?
No. This fixture places 80% of value in 50% of its items. Actual shares depend on the data and rule.
Is a C item safe to ignore?
No. This classification measures supplied usage value only; it does not establish operational criticality.
Sources and examples
ResumizeAI team. Examples are fictional teaching material, not customer results. Replace sample details with your own facts.
Your experience. A complete resume.
Build in Resumize with ATS-friendly templates, guided editing and a live preview. Start free, then upgrade when you need more.
Free account required. Free-plan PDF exports include a watermark.