ABC analysis

Definition:

an arrangement of items in order of value of some quantitative characteristic, putting them into three classes, those with the highest values in class A, those with medium values in class B and those with the lowest values in class C. Also called ‘Pareto analysis’ because it is reminiscent of work by Vilfredo Pareto (1848-1923), an Italian economist, who studied the distribution of wealth in various countries by considering, for various values of x, the number of individuals within a country whose income exceeded x. Pareto suggested that the distribution of wealth is the same in every country and users of ABC analysis claim that the distribution of the quantitative characteristic among items is the same in many situations, in particular, that 20% of the items will account for 80% of the total value of a quantitative characteristic.



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