ABC Inventory Analysis in Practice: A Story About What Happens When You Treat All Stock the Same
This account describes a composite of real situations, with identifying details changed.
Treating all SKUs with the same ordering frequency, the same safety stock calculation, and the same replenishment discipline is administratively simple and operationally expensive. In 2022, with purchasing teams thinned by labour shortages and supply volatility running high, the cost of misallocated procurement attention is higher than ever. The following account describes what one building materials distributor found when it ran its first ABC analysis and what changed as a result.
The Situation Before the Analysis
The distributor carried 1,200 active SKUs across four product categories: structural timber, fasteners, insulation, and finishing materials. Their purchasing team of three people placed orders on a fixed weekly cycle for every SKU, used the same safety stock formula regardless of item value or demand volatility, and reviewed all supplier performance at the same monthly meeting. Stockouts were occurring most frequently on structural timber -- the highest-value, highest-demand items. The purchasing team was spending most of its time managing fasteners and finishing materials -- which were low-cost, easy to source, and rarely caused a service failure even when stock ran low. Nobody had put those two facts together.
What the ABC Analysis Showed
Class A items (the top 8 percent of SKUs by annual spend value): structural timber grades and specialty insulation. These 96 SKUs represented 71 percent of total inventory value. They were being ordered weekly on the same cycle as everything else.
Class B items (the next 22 percent of SKUs): standard fastener packs and a range of finishing materials. These 264 SKUs represented 24 percent of inventory value.
Class C items (the remaining 70 percent of SKUs): specialty fasteners, decorative trim, and low-volume custom items. These 840 SKUs represented only 5 percent of inventory value — but were consuming roughly 60 percent of the purchasing team's weekly ordering time.
The mismatch was stark. The items driving most of the revenue and customer service risk were getting the same attention as items that could be stocked out for a week without anyone noticing.
What Changed
Class A items moved to a dedicated weekly review with vendor-managed inventory agreements for the two largest structural timber suppliers. Stock positions were reviewed daily by software trigger; any Class A item below its reorder point generated an automatic alert. The purchasing team's weekly meeting was restructured: Class A items occupied the first 45 minutes; B and C items were handled in 15.
Class C items moved to a monthly order cycle with higher safety stock multiples. The logic: if a Class C item costs $2 per unit and you carry 60 days of stock instead of 30, the additional carrying cost is negligible. The risk of a stockout on a Class C item is also low, but managing it weekly wastes time better spent on Class A.
Three months after the restructure, structural timber stockouts had dropped by 80 percent. The purchasing team reported that they felt they were managing their highest-risk items properly for the first time. The weekly order cycle for C items was eliminated without a single customer complaint.
XNM helps public-sector and capital-project clients build procurement frameworks that allocate purchasing attention and inventory investment where they create the most value. Reach out to XNM's procurement, sourcing & contract management team to discuss how ABC analysis could improve your inventory management.