ABC analysis sorts inventory items into three categories by value and importance: A (20% of items, 80% of value), B (30% of items, 15% of value) and C (50% of items, 5% of value).
ABC analysis is an inventory management method based on the Pareto principle (80/20) that sorts product lines into three categories according to their value or importance to the business. Category A products are 15-20% of the lines but account for 70-80% of the value of inventory or consumption; they need strict control, frequent counts and priority attention. Category B products are 25-35% of the lines and account for 15-20% of the value; they need moderate control. Category C products are 50-60% of the lines but account for only 5-10% of the value; they can be managed less intensively.
In restaurants, ABC analysis is typically applied to annual consumption value (price × quantity consumed), although it can also be done by contribution margin, frequency of use or operational criticality. The result of the analysis sets different management policies: for A products, counts are done weekly or even daily, prices are negotiated hard with suppliers, several sources of supply are sought to avoid dependence, and wastage is tightly controlled. For C products, a monthly count is enough, with less frequent but larger orders (taking advantage of volume discounts) and tolerance of a larger safety stock. This differentiated approach makes the most of the time spent on inventory: instead of treating all 200 lines the same, you focus 80% of the effort on the 40 lines that really matter.
Consumption value = Unit price × Annual quantity consumed
To carry out ABC analysis, you first calculate the annual consumption value of each line by multiplying its unit price by the quantity consumed in a year. You sort all the lines from highest to lowest consumption value. Then you calculate the cumulative percentage of the total value. The lines that make up the first 80% of the value are Category A, those from 80% to 95% are Category B, and the rest (from 95% to 100%) are Category C.
For example, if your inventory has 100 lines and total annual consumption of €100,000, the first 15-20 lines (sorted by value) will probably add up to €80,000 (80%) and be A; the next 25-30 will add up to €15,000 (15%) and be B; the remaining 50-55 will add up to just €5,000 (5%) and be C.
Your restaurant has 120 product lines with annual consumption of €180,000. You carry out ABC analysis: Category A (18 lines, 15%): meat (beef tenderloin, entrecôte, chicken breast), fresh fish and seafood (sea bass, hake, prawns), premium olive oil and the main cheeses. They add up to €144,000 of consumption (80%). Category B (36 lines, 30%): the main vegetables, pasta, rice, wines on the list, dairy products.
They add up to €27,000 (15%). Category C (66 lines, 55%): spices, sauces, cleaning products, small equipment, specific condiments. They add up to €9,000 (5%). You put different policies in place: A products are counted twice a week, prices are negotiated every quarter and every bit of wastage is controlled; B products are counted weekly and prices reviewed every six months; C products are counted monthly and reordered when they fall below minimum stock without further analysis.
ABC analysis turns inventory management from an overwhelming exercise into a focused, efficient one. Without this classification, managers tend to spend as much time controlling parsley (category C) as beef tenderloin (category A), when the financial impact is radically different. A 10% error in controlling tenderloin can cost €500 a month; the same error on parsley costs €5. ABC analysis also guides negotiations with suppliers: it makes sense to spend time renegotiating the price of the 18 A lines because every 1% saved is worth €1,440 a year; renegotiating the 66 C lines would save €90 a year, which does not justify the effort.
ABC classification also helps you lay out the store room: A products should be easy to reach and have a precisely calculated safety stock; C products can be kept in less accessible areas with more generous stock levels to reduce how often you order.
Zindra carries out ABC analysis of your inventory automatically based on actual consumption, shows you the category of each product and applies different control policies: more frequent alerts for A products and order suggestions optimised by category.
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