ABC Analysis in the Warehouse

As early as the 1950s, inquisitive economists searched for ways to use scarce resources more efficiently. This led to the development of the ABC method, which later found its way into warehouse logistics. Its core idea is simple: not all items are equally important. A few significantly influence sales and profit, while others tie up less capital and require less attention.

The ABC analysis immediately shows warehouse staff which goods they move frequently and should therefore store within easy reach, and which they only need occasionally. It highlights differences in sales share, turnover frequency, and priority.

ABC Analysis in Warehouse Management by A, B, and C

The ABC analysis in warehouse operations is based on the Pareto principle, also known as the 80/20 rule. It states that a small proportion of items (about 20%) is generally responsible for the majority of sales or inventory turnover (around 80%). However, it can also apply to consumption value, capital commitment, or other key figures. This results in a classification of inventory into three categories:

A-Goods

A-goods make up only a small part of the range—usually about 20%—but account for up to 80% of (e.g., sales). Typical examples can be found in companies in mechanical engineering and metal processing. There, high-value components, electrical goods, or spare parts play a central role. 

B-Goods

These goods fall in the middle range. They account for about 30% of the total quantity but, for example, generate less revenue. Employees regularly use standard components or tools, but not in every work cycle.

C-Goods

C-goods represent the largest number of items (often up to 50% of total inventory) but contribute only a small share of sales. They are mainly low-value or slow-moving products such as screws, small parts, or packaging materials.

Key Figures of the ABC Analysis

For the ABC analysis to deliver practical results rather than remain a theoretical exercise, it requires clear key figures and continuous inventory control. These can be roughly divided into business-relevant and operational indicators.

Business-Relevant Key Figures

Value Share

The value share describes how large an item’s proportion is of the total warehouse value. A-goods often make up only a small part of the quantity but represent the largest share of value. They tie up the most capital and thus have the greatest impact on sales and profit.

Total Value

The total value—also known as inventory value—includes the sum of all warehouse stocks. It forms the basis for classifying items into A, B, and C categories. Companies compare the value of individual item groups with the total stock value to determine their priority.

Capital Commitment

Every stock ties up capital. The higher the value of an item, the greater the capital commitment. A-goods are particularly significant here, as they often block large sums in storage. This indicator is important for liquidity planning and strategic management.

Profit Margin

In addition to pure sales, profit margin can also be relevant. Some products generate high sales but are less profitable due to high unit costs. Therefore, in practice, companies often also consider the contribution margin to keep truly profitable items in focus.

Operational Key Figures

Quantity Share

The quantity share indicates how many goods of a particular group exist compared to the total stock. Typically, C-goods make up the majority of items but have only a small value share. This figure helps to plan storage space efficiently and avoid overstocking.

Turnover Frequency

Turnover frequency shows how often an item is moved or sold within a certain period. Goods with high turnover frequency should therefore be stored near the goods issue area. Items with low turnover frequency can be stored compactly in peripheral zones.

Safety Stock

The safety stock describes the minimum quantity that must always be available in the warehouse to prevent delivery bottlenecks. Especially for goods that are essential to production or sales, maintaining an adequate safety stock is indispensable.

Storage Costs

Every storage location incurs costs—from electricity and personnel to rent. These are recorded as storage or holding costs. Especially for B- and C-goods with low value shares, a detailed analysis is worthwhile, as excessive stocks unnecessarily tie up capital and space.

Service Level

An important indicator for warehouse operations is the service level. It measures how reliably the warehouse can meet demand. Frequent shortages of A-goods immediately affect sales, while shortages of C-goods are usually less critical.

Applying the ABC Analysis in Daily Warehouse Operations

Only when companies consistently apply the results of the ABC analysis and organize their warehouse accordingly do they benefit from its advantages. Proper placement of A, B, and C goods shortens travel distances, speeds up processes, and saves valuable time. At the same time, this classification enables employees to work more efficiently.

Adjusting Warehouse Layout

A-goods should be placed near the goods issue and picking areas to ensure quick accessibility at all times. B-goods belong in intermediate zones, while C-goods can be stored on upper levels or in more distant rack areas.

Warehouse Zoning

In addition to classification into A, B, and C zones, many companies consider additional factors such as temperature zones, hazard level, or item volume. This creates a warehouse that is not only economical but also safe and practical.

Managing Goods Movement

Employees save time when they can retrieve goods via short routes, perform transports quickly, and follow clear paths. Automated structures support them by automatically moving stocks into the appropriate category.

Which Storage Systems Fit the ABC Method?

Even the best analysis remains ineffective if not implemented in practice. Only the right shelving systems allow A, B, and C goods to be placed in the warehouse according to their importance. Clear structures make orientation easier, speed up processes, and ensure optimal use of valuable space.

Directly at the Goods Issue

To ensure A-goods are always available, companies place them close to the dispatch area. Pallet racks located directly at the goods issue guarantee short access times, quick replenishment, and minimal transport routes. This saves employees valuable time and allows them to focus on the most important products.

In Intermediate Areas

B-goods require less attention than A-goods but must remain regularly available. Standard pallet racks or cantilever racks offer the necessary flexibility: employees can quickly retrieve goods, adjust racks when needed, and adapt to changing requirements. This ensures smooth operations without wasting space.

In Peripheral Areas

C-goods are rarely needed by employees, making them ideal for storage away from main routes. Rack halls or mezzanine floors provide the right solution: they create additional storage space vertically or along the edges of the warehouse and prevent valuable workspace from being blocked. This leaves enough room for more important items.

Automation and the ABC Analysis

The ABC analysis shows where companies should focus their attention. However, this doesn’t necessarily mean that workload decreases. Constantly updating data and manually managing goods movements takes time. With automation, these tasks can be completed faster, error-free, and more efficiently—allowing the analysis to reach its full potential.

Increasing Speed Through Automation

Shuttles and conveyor technology move goods automatically through the warehouse without manual intervention. Shuttles travel along rails through rack aisles, pick items, and deliver them directly to transfer points. Conveyor belts or roller tracks then move goods seamlessly on to picking or shipping. As a result, waiting times decrease and A-goods become available much faster.

Ensuring Flexibility with Mobile Racking Systems

Unlike fixed rack systems,  mobile racks can flexibly adjust their position. Motorized drives move the racks apart when needed and automatically open the aisle required for access. This minimizes unused space and increases efficiency for B- and C-goods, whose stock levels often change.

Intelligent Control Through Software

Without digital support, employees would have to manually monitor changes, update records, and set priorities themselves. A warehouse management system automates these tasks: it assigns items to appropriate zones, reports deviations immediately, and continuously adjusts classifications. This significantly reduces administrative workload and allows employees to focus on operational tasks.

Limits and Extensions in Warehouse Practice

Limits of the Method

In daily warehouse practice, it becomes evident that the ABC analysis alone is not always sufficient. While it provides clear classification, it overlooks key aspects. For instance, a low-value item can still be critical if it’s regularly required for production. The classic ABC analysis doesn’t account for seasonal demand peaks, fluctuating sales volumes, or supplier risks.

Practical Extensions

Therefore, many companies rely on extensions. A common method is combining the ABC analysis with the XYZ analysis, which reveals consumption fluctuations. Additionally, companies can place greater emphasis on factors like safety stock, service level, or storage costs to make decisions more realistic. With modern software, these criteria can be calculated automatically, keeping classification dynamic rather than based solely on static past data.

Conclusion: Successfully Implementing ABC Analysis in Logistics

The ABC analysis in warehouse management clearly shows which goods should be prioritized and where companies can save resources. For questions about optimizing warehouse management, the OHRA team is happy to help. Those who consistently apply the classification to warehouse layout, shelving systems, and automation shorten routes, reduce costs, and increase everyday efficiency.

Combined with sustainable strategies, the benefits grow even further. Discover which measures have the greatest impact in our blog post on sustainable warehousing.