ABC Analysis: 20% of SKUs (Category A) Generate 80% of Revenue (Focus Here)

ABC Classification Framework#

Rank SKUs by annual revenue: (1) Sort all SKUs by revenue (highest → lowest). (2) Calculate cumulative % of revenue. (3) Category A: first 20% of SKUs representing 80% revenue. (4) Category B: next 30% SKUs representing 15% revenue. (5) Category C: last 50% SKUs representing 5% revenue. (Note: exact percentages vary, but 80-15-5 is typical.)

Stocking Strategy by Category#

Category A (high revenue): stock aggressively, never stock-out (lost sale = lost revenue). Reorder point: high (order when stock hits 2 weeks). Safety stock: high (buffer for demand spikes). Category B: stock moderately, tolerate occasional stock-out. Reorder point: medium (1 week). Safety stock: medium. Category C: stock minimally, accept frequent stock-out. Reorder: order-to-demand (customer asks, you order).

The Financial Impact#

If Category A stock-out = SGD 1K daily revenue lost = unacceptable. Justify high inventory. If Category C stock-out = SGD 20 daily loss = acceptable, don't justify inventory (cost of holding > cost of occasional loss). Category A might be 50% of inventory holding SGD 1M, Category C 5% holding SGD 20K = total SGD 1.2M. Carrying cost 4% = SGD 48K/year. Without ABC, you might stock all equally = waste on Category C, shortages on Category A (wrong balance).

AskBiz ABC Classification#

Auto-ranks all SKUs by revenue. "Category A (top 200 SKUs): 80% revenue, recommended 50% inventory budget (SGD 600K). Category B (next 300): 15% revenue, 30% budget. Category C (last 500): 5% revenue, 20% budget. Current allocation: A 40%, B 35%, C 25% (misaligned). Recommendation: reallocate SGD 60K from C to A. Expected: prevent stockouts on high-revenue items, reduce waste on low-movers."

• Store 1000 SKUs.
• By revenue: Top 200 SKUs (Category A, 20%) = SGD 800K revenue (80% of total).
• Next 300 SKUs (Category B, 30%) = SGD 150K (15%).