Intermediate level · Module 3: Operations and Inventory Analytics · Lesson 1 of 3
ABC Analysis
Rank stock by value so control effort goes to the items that matter most.
In this lesson you will
- Classify items into A, B and C
- Set control policies by class
Key concepts
ABC analysisannual consumption valuecumulative sharecontrol policy
The lesson
ABC analysis ranks items by annual consumption value (units used × unit cost). A few items usually account for most value.
Class A items — the top roughly 70–80% of value — get tight control: frequent counts, careful forecasts and reorder points. C items get simple rules.
Classes guide effort, not importance alone: a cheap item can still be critical, such as malaria tests in a clinic, and needs its own rule.
Step by step
- Calculate consumption value per item.
- Sort and calculate cumulative share.
- Assign classes.
- Write a control policy per class.
ABC analysis of a pharmacy's stock
Two of eight items account for 73% of consumption value — that is where tight control pays off.
| Item | Value (thousand SSP) | Share | Cumulative share | Class |
|---|---|---|---|---|
| Paracetamol | 4,200 | 42.0% | 42.0% | A |
| Amoxicillin | 3,100 | 31.0% | 73.0% | A |
| ORS sachets | 1,200 | 12.0% | 85.0% | B |
| Malaria RDTs | 800 | 8.0% | 93.0% | B |
| Gloves | 300 | 3.0% | 96.0% | C |
| Bandages | 200 | 2.0% | 98.0% | C |
| Syringes | 120 | 1.2% | 99.2% | C |
| Cotton wool | 80 | 0.8% | 100.0% | C |
What the data shows
Paracetamol and amoxicillin — 25% of items — make up 73% of the 10 million SSP consumed. They get weekly counts and reorder points.
C items together are only 7% of value and can use simple rules, such as reordering a fixed quantity monthly.
Recommendation
Apply tight control to A items, but treat malaria RDTs as critical regardless of class: a stock-out stops diagnosis, so give them their own safety stock.
Practice activity
Classify the pharmacy's stock.
Expected result: An ABC table with control policies and any critical exceptions.
Check your understanding
-
How is annual consumption value calculated?
Show answer
Units used per year × unit cost.
-
Why might a C item still need close control?
Show answer
It may be critical even though its value is low.
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