Warehouse ABC analysis: what it is, how to calculate it step by step and where to place each class
The same thing happens in almost every warehouse: a few items take most of the movement and many are hardly touched. ABC analysis is the way to put numbers on that and to draw conclusions: what goes in the best place in the building, what is counted more often and what can wait at the back. This article explains what it is, how it is calculated step by step with an example, how to place items according to their class and how often to review it.
What ABC analysis in a warehouse is
It is a classification of the items into three classes according to how much they weigh in a chosen criterion. Class A gathers the few items that account for most of the total; B, the ones in between; C, the many that add up to little. It rests on a general observation —a few causes explain most of the result, the so-called Pareto rule— which in a warehouse has to be checked against your own data, not taken for granted.
ABC does not say which items are important to the business. It says which ones move most, or are worth most, in a period. A C item can be essential to a client; it just does not need to be in the front row.
Which criterion to use for ABC classification
| Criterion | What it measures | What it is for |
|---|---|---|
| Number of picks (order lines) | How many trips to the bin the item generates | Deciding where it is placed: this is what determines the meters walked |
| Units that go out | How much volume it moves | Sizing the picking bin and replenishment |
| Value of stock or of consumption | How much money it represents | Deciding what is watched and counted more often |
For organizing the building, turnover rules. An item that ships a thousand units in a single order a month generates one trip; another that ships two hundred, one at a time, generates two hundred. If your software only gives units, that works as an approximation, as long as you know that difference.
How ABC analysis is calculated step by step
- →Choose the criterion and the period. The period has to be long enough that one odd week does not dominate and short enough to reflect what is selling now.
- →Get the figure for each item in that period: picks, units or value.
- →Sort the items from highest to lowest.
- →Calculate each one's percentage: its figure divided by the total, times one hundred.
- →Calculate the cumulative percentage: each item's percentage added to those of all the previous ones.
- →Cut. The usual way: class A until the cumulative figure reaches 80%, class B up to 95% and class C the rest. Anything that has not moved in the period is C.
The 80% and 95% cut-offs are a convention, not a rule. What matters is keeping them from one review to the next so you can compare.
Example of an ABC calculation
The table below is an example with made-up figures, only to show the arithmetic: ten items and the number of times each has been picked in a period, a thousand in total. They are not data from any warehouse.
| Item (example) | Picks | % of total | Cumulative % | Class |
|---|---|---|---|---|
| Item 1 | 400 | 40% | 40% | A |
| Item 2 | 250 | 25% | 65% | A |
| Item 3 | 150 | 15% | 80% | A |
| Item 4 | 60 | 6% | 86% | B |
| Item 5 | 50 | 5% | 91% | B |
| Item 6 | 40 | 4% | 95% | B |
| Item 7 | 25 | 2.5% | 97.5% | C |
| Item 8 | 15 | 1.5% | 99% | C |
| Item 9 | 7 | 0.7% | 99.7% | C |
| Item 10 | 3 | 0.3% | 100% | C |
In this example, three items account for 80% of the picks and are class A; the next three take the cumulative figure to 95% and are B; the last four are C. With your data the split will be different: it may come out more concentrated or flatter, and that is exactly the information you are looking for. If it comes out very flat, moving items around will save little.
How to place items according to their ABC class
- →Class A: in the bins nearest to picking and dispatch, and at hand height, between the waist and the shoulder. No bending and no ladder.
- →Class B: next to the A items, or on the low and high levels of that same area.
- →Class C: at the back and up high. It takes longer to get there, but you go there seldom.
Class is not the only thing that counts. Heavy goods go at the bottom even if they are C. Bulky goods need a bin where they fit. Batches, clients and families that cannot be mixed still cannot be mixed. And it is worth spreading the A items over several aisles: if they are all together, the pickers get in each other's way at the same meter of rack.
In a warehouse with picking and reserve, ABC mainly decides which items get a picking bin in the best area; the rest of their stock stays in the reserve. This is explained in fixed, chaotic or mixed storage, and its effect on routes, in how to reduce picking errors.
What else ABC is for: counts and replenishment
The same split orders other jobs. In cycle counting, A items are counted more often than C items, because a mismatch in them shows sooner and in more orders. In replenishment, the bins of the A items are the ones that empty most: their minimum has to be well set so that the picker does not find them empty.
How often to review ABC analysis
ABC goes out of date. What was A in peak season can be C two months later. It is worth recalculating it before and after each peak season, at a change of season, when a significant part of the catalog or a new client comes in or goes out, and in any case on a fixed schedule that is actually kept, for example every quarter.
Recalculating is cheap; moving is what costs. That is why after each review you do not rearrange the whole building: you move only the items that have changed class, starting with the A items that are far away, and you use the quiet moments. Looking at more than one period helps you avoid chasing one-week spikes. How to get ready for those peaks is in peak season.
How we do it at Ubika
Ubika classifies items by the units picked in orders: class A, the ones that account for the first 80% of the turnover; class B, up to 95%; class C, the rest and anything that has not moved. The classification is recalculated whenever you want with the “Recompute ABC” button on the heat map screen, which shows how many items have ended up in each class and when it was calculated.
The heat map paints turnover bin by bin on the building, with an analysis window of 7, 14, 30, 60 or 90 days, the list of the hottest aisles and the class of each bin; there, class A is the bins that account for 80% of the turnover. This is explained in 3D WMS.
The class is used at put-away: with the “By ABC rotation” criterion, the PDA proposes low, nearby bins for what sells most and bins up high for what sells least. Also in counts: the ones the software suggests are prioritized by turnover. And to relocate what has changed class, stock is moved from one bin to another.
The heat map is included from the Pro plan up, and the 3D warehouse, in the Max plan. You can ask for the demo with your data or first see what it does in warehouse management software and in WMS for e-commerce.
Frequently asked questions
Keep reading
- Batch traceability in the warehouse: what to record and how to locate a batch in a recall
- Fixed, chaotic or mixed location storage in the warehouse: what each one is and when to use it
- Cloud WMS: what it is, how it differs from an installed one and what to ask before signing up
- Warehouse quality control with a PDA: receiving, blocking stock and returns
What Ubika does: warehouse management software · software for 3PLs · WMS for e-commerce