Go beyond the ABC method: How a WMS refines your inventory management strategy?

Is your warehouse a profit driver or a cost center?

The answer lies almost entirely in your inventory management. Indeed, according to an analysis by Gartner, more than 43% of surveyed companies still cite poor inventory visibility as their main supply chain challenge.

In logistics, poor inventory management is unforgivable. It leads to stockouts, frustrates customers, ties up capital, and causes operating costs to skyrocket. To avoid this, most warehouse managers rely on one key principle: the ABC method.

It's a classic. The logistical equivalent of the Pareto principle (80/20).

But here's the hard truth: in the age of e-commerce, relying solely on static ABC analysis is like trying to win a Formula 1 race without the right car.

You know the symptoms: "C" (low value) products constantly out of stock, blocking important customer orders, or "A" (high value) products that are overstocked and monopolizing valuable space.

The problem isn't the ABC method itself. The problem is implementing it manually, or treating it as an immutable truth set in stone once a year.

True performance is unlocked when this proven method meets the power of warehouse management . Indeed, a Warehouse Management System (WMS) does not simply apply the ABC method; it transforms it and makes it dynamic, intelligent, and predictive.

The ABC Method: A reminder of a pillar of inventory management

Before you can surpass it, you must master it. The ABC method is the most fundamental and widely used inventory classification technique in logistics.

(H3) What is ABC analysis? The Pareto principle applied to the warehouse

The ABC method, or "Pareto analysis", starts from a simple observation, theorized by the economist Vilfredo Pareto: approximately 80% of the effects are the product of 20% of the causes .

Applied to storage management, this means that:

• A small portion of your product references (SKUs) represents the majority of your inventory value.
• Conversely, a large part of your references represents only a small portion of this value.

The objective is therefore to classify the items not by their volume or quantity, but by their value .

This value is most often calculated by multiplying the unit cost of an item by its sales volume or demand over a given period (usually one year).

The ABC classification in detail

Once this calculation has been performed for each item, they are classified into three categories:

• Class A: These are your "star" products. They represent approximately stocked items 80% of the total value (or revenue).
• Class B: "Follower" products. They represent approximately 30% of your product references and 15% of the value .
• Class C: The "long tail". They represent the majority of items, i.e. 50% of your SKUs , but only account for total stock value

These ratios (80/15/5) are a guideline. Depending on your sector, they may vary (70/20/10, for example), but the principle of value concentration remains the same.

The tangible benefits of a well-conducted ABC classification

Why make this effort? Because you don't manage a bolt worth €0.05 (Class C) the same way you manage an engine part worth €2000 (Class A).

Applying the ABC method allows you to:

• Optimize control efforts: You concentrate your resources (cycle counts, quality controls upon receipt of goods) on Class A products, where the financial stakes are highest.
• Improving picking efficiency: By placing Class A items (often the most in demand in value, and sometimes in frequency) in the most accessible locations, you reduce travel time for order preparation.
• Reducing storage costs: You can apply different replenishment strategies. For example, accepting a temporary stockout of item C is less critical than for item A.
• Securing revenue: By ensuring real-time traceability and monitoring of A-list items, you avoid stockouts of your most profitable products.

Checklist: Set up your first ABC analysis (the manual method)

For those who are starting out or who wish to audit their current system, here are the steps of a classic ABC analysis, often performed in Excel:

1. Collect the data: Extract the list of all your stock references (SKU).
2. Identify the criteria: For each SKU, you need two pieces of information from the last 12 months:
   • The quantity sold (or consumed).
   • The unit purchase cost (or cost price).
3. Calculate the annual value: Multiply (Quantity sold) x (Unit cost) for each SKU.
4. Sort the products: Sort your SKUs in descending order of this annual value.
5. Calculate the cumulative totals: Calculate the cumulative percentage of the total value and the cumulative percentage of the number of references for each line.
6. Define the classes:
   • Identify the SKUs that represent the first 80% of the cumulative value. These are your "Class A".
   • Identify the following SKUs that bring you up to 95% of the value (the next 15%). These are your "Class B" SKUs.
   • The remainder (the remaining 5% of value) constitutes your "Class C".
7. Apply the strategies: Define separate management rules for each class (inventory frequency, safety stock level, location in the warehouse).

This process is excellent… if it's done regularly. But who has the time to recalculate every month when the warehouse is running at full capacity?

The limitations of the traditional ABC method in the era of e-commerce and omnichannel

The manual ABC method, based on spreadsheets, suffers from flaws that are violently exposed by the demands of today's logistics.

The "photo syndrome": A static and rigid analysis

An ABC analysis performed in January on data from the previous year (N-1) is simply a snapshot. It is already outdated by February.

It does not take into account:

• Seasonality: A Class C product in January (e.g., a fan) can become a Class A product in July.
• Product launches: A new product has no history. It will be classified as C by default, even if it is strategic.
• End-of-life issues: A product A that becomes obsolete will remain classified as A for months, monopolizing a prime location.

In e-commerce, where trends change in a few weeks and where peak activity (Black Friday, Sales) is the norm, static analysis is an operational handicap.

Value isn't everything: The blind spot of the criteria

The second major problem is that traditional ABC is single-criterion: the value .

However, managing a logistics flow is more complex than that. Classical ABC analysis completely ignores:

• Issue frequency (Turnover): A product may be Class C (low value, e.g., a €1 accessory) but be ordered 100 times a day! Placing it at the back of the warehouse is a disaster for picking productivity .
• Size and dimensions: A Class A item can be tiny (e.g., a memory card). A Class C item can be enormous (e.g., polystyrene packing material). The ABCs don't specify where they should be physically stored.
• Profitability (Margin): Product A (high value) may have a very low margin, while product B (medium value) may be your cash cow in terms of profit.
• Interdependence: What about products C that are systematically sold with products A (e.g., screws for furniture)? A shortage of product C blocks the sale of product A.

The impact on hidden costs and customer experience

This is where the hidden costs associated with inefficient storage management explode.

What appeared to be a simple order preparation error (the wrong item in the package) is not just a simple error.

According to analysis by the trade press, the average cost of a picking error is estimated to range from €15 to €50 per order . This cost includes double shipping, return processing , stock reintegration, administrative costs, and, most critically, the loss of customer confidence.

The result? Skyrocketing preparation costs, errors, and longer delivery times.

How a WMS automates and enhances ABC analysis for intelligent slotting

Warehouse Management System software comes in. It doesn't replace ABC, it profoundly transforms it.

Automation: From Excel spreadsheets to WMS software

The first revolution is automation .

WMS software continuously records every stock movement: receiving goods, putting into stock, picking, packing, shipping, return.

Thanks to this, the warehouse management software can recalculate the ABC classification of entire catalog, not once a year, but monthly, weekly, or even daily.

No more estimates. The WMS uses fresh data to reflect real demand . A product that goes viral on social media will be upgraded from C to A in a few days, not next year.

Beyond ABC: ABC/D Analysis (Sales Velocity)

The functionalities of a WMS , like our EGO WMS solution, go further. They understand that the value (ABC) is only part of the equation. The most important criterion for operational efficiency is the rotation (the output frequency).

Many WMS offer multi-criteria analysis, often called ABC/D (where "D" represents demand or velocity).

• Class AD: High value, high turnover. Your star products. Top priority.
• Class CD: Low value, high rotation. Popular "accessories".
• AX class: High value, low turnover. "Luxury products" or expensive spare parts.

This segmentation is infinitely more precise for organizing the warehouse.

Intelligent "Slotting": Optimizing the placement of each product

This is the most visible consequence of the WMS. "Slotting" is the art of assigning the correct storage location to each product.

Thanks to dynamic ABC/D analysis, the WMS will actively optimize your warehouse.

The WMS will direct the operators to place:

• AD and CD products (high turnover) in the "Golden Zone": at eye level, on dynamic shelving or pallet racks, and as close as possible to the packing areas or the delivery dock.
• AX products (high value, low turnover) in secure areas, perhaps higher up.
• CX products (low value, low turnover) in the least accessible areas (end of aisle, upper levels).

This dynamic optimization of locations, managed by the WMS platform, drastically reduces distances traveled, increases order preparation productivity and reduces physical strain.

Field experience: The impact of dynamic ABC on picking

Performance is measured in time saved.

Let's take the example of a company distributing various parts, a sector characterized by a multitude of references (SKUs). The company used an annual ABC.

Implementing a WMS solution changed everything. The system first recalculated the ABC based on the order velocity of the last 30 days. The WMS then triggered a readdressing (dynamic slotting) to bring the "CD" items (low value, but ordered dozens of times a day) closer to the picking area.

The concrete result for the company? A 40% reduction in operators' travel time , which directly translates into an increase in picking productivity of more than 25%.

The role of WMS in global logistics flows

The WMS doesn't just classify. It directs.

• Cross-docking: If a goods receipt corresponds to a Class A product that is out of stock, the WMS can trigger a cross-docking flow : the product will not be stored, but directly transferred from the receipt to the delivery dock for a pending order.
• Picking: The WMS organizes picking routes according to the slotting (e.g., "snake path") to minimize movement.
• Quality control: It can impose stricter quality controls on A items, or even impose poka-yoke rules via scanning to avoid errors on sensitive items.

Palletizing and Co-packing: The WMS can optimize palletizing based on product weight and class, or manage complex co-packing operations (batch assembly) by ensuring that all components (A, B or C) are available.

Towards predictive inventory management: Using WMS data to go beyond ABC classification

While the WMS enhances ABC (Analysis, Cost, and Budgeting), its true added value lies in allowing you to look to the future . The warehouse of the future is not only automated, it is predictive.

Your WMS: A goldmine of data for the Supply Chain

Every scan, every movement, every order is a data point. A Warehouse Management System centralizes a colossal volume of information about your logistics flows.

This data is the fuel of intelligence. You no longer base your decisions on the past (the historical ABCs), but on trends.

You can analyze seasonality, inventory turnover rates, supplier replenishment times, and even the efficiency of each order picker. McKinsey analysts point out that companies leveraging this data for their supply chain see significant efficiency gains as they massively adopt automation to reduce costs and improve productivity.

Anticipate demand instead of reacting to it

By analyzing this data, WMS software, sometimes coupled with AI modules, can begin to predict demand.

It can see that product C is starting to accelerate its sales (turnover) and alert buyers before it runs out of stock.

It helps you anticipate peak activity not by looking at the calendar, but by analyzing micro-trends in orders from previous weeks.

ABC analysis then becomes predictive: you no longer classify products based on what they have done , but on what they will do . This is what the Gartner Magic Quadrant for WMS identifies as a "visionary" capability : the ability to move from "recorded" management to "orchestrated" and predictive management, which notably allows for a shift from a production-to-inventory (MTS) model to a more efficient production-to-order (MTO) model.

Integration with other tools: the WMS platform and the TMS software

The warehouse is not an island. Supply chain performance depends on perfect synchronization between warehouse management (WMS) and transportation management (TMS) .

Why? If your transport management software alerts you to a truck delay, your WMS can instantly recalculate order picking priorities to optimize loading for other trucks at the loading dock. This complete visibility is the key to a sustainable and resilient supply chain .

Preparing the warehouse of the future: Automation and mechanization

This data intelligence is the prerequisite for warehouse automation.

Whether you are considering warehouse mechanization (conveyors) or advanced solutions such as AMR and AVG robots (autonomous mobile robots) or Goods to man solutions (such as stacker cranes), these systems are "blind".

They need the WMS's brain to function.

It is the WMS, with its dynamic ABC/D analysis and predictive data, that will tell the AMR robot where to get the product, and that will tell the "Goods to man" system which bin of "A" products to present to the operator.

Checklist: Building your WMS specifications for optimized inventory management

You're convinced, but where do you start? Choosing a WMS solution is a strategic project. Your WMS specifications must be precise.

Here are the key points to check to ensure your future WMS handles ABC management and beyond:

1. Analysis of flows and needs:
   • Map your current logistics flows (receiving, storage, picking, cross-docking, returns management).
   • What are your pain points? (Pickling errors? Ghost stock? Excessive preparation times? Etc.)
2. Essential WMS features:
   • Multi-criteria inventory management: Should the WMS allow you to configure your own ABC method (based on value, turnover, margin, volume…)?
   • Dynamic slotting: Does the software actively offer to reorganize the stock to optimize locations based on turnover?
   • Location management: Can the WMS manage different types of storage (bulk, pallet racking, dynamic)?
   • Real-time traceability: Demand full traceability (SSCC, batches, serial numbers), especially for your A products.
   • Returns management: Is returns logistics natively managed? (Control, restocking, destruction…).
   • Picking methods: Does the WMS handle multiple methods (voice, scan, "put-to-light", mass picking…)?
3. Technology and Architecture:
   • SaaS vs. On-premise WMS solution : Do you prefer a cloud subscription (SaaS WMS software) for greater flexibility and constant updates, or a license purchase?
   • Interoperability: The WMS must have robust connectors (APIs) to integrate with your ERP and TMS software .
4. Cost and ROI (WMS Price):
   • Request a clear breakdown of the WMS price . Look at the different cost items (integration, training, support).
   • The WMS solution must be weighed against the expected gains (reduced stockouts, increased picking productivity, reduced inventory).

The WMS must translate into revenue. A well-designed, appropriately sized WMS project can very quickly become self-financing through the profits it generates.

You need to assess: the productivity gains in picking, the reduction in errors (costing between €15 and €50 per error avoided), and the optimization of tied-up inventory. The return on investment for purely software-related solutions is often one of the fastest in the supply chain.

From ABC management to "intelligent" warehouse management

The ABC method is not dead. It remains a solid concept in inventory management .

But stopping at a static ABC analysis on Excel in 2025 is to condemn oneself to being in permanent reaction, to suffer disruptions and to leave productivity gains on the warehouse floor.

True performance no longer comes from knowing your ABCs, but from your ability to act on them, in real time.

Warehouse management system (WMS) software is the tool that makes this leap. It transforms ABC analysis of a historical report into a dynamic and predictive optimization engine.

It doesn't just tell you what (your products A, B, C), it tells you how to manage them (slotting), when to replenish them (prediction) and where they are (traceability).

By refining your inventory strategy with a WMS, you are no longer just managing products; you are orchestrating an agile, profitable logistics flow ready for the challenges of the warehouse of the future.

Take action!

Are you ready to transform your warehouse into a strategic profit center?

Contact us for an audit of your logistics flows to identify the productivity gains that our EGO WMS solution could bring you.

FAQ: Everything you need to know about the ABC method and its link with a WMS

What is the ABC method in logistics?

This is a stock classification method based on the Pareto principle (80/20). It divides products into three classes (A, B, C) according to their value (unit cost x sales). Class A (20% of items) represents 80% of the value, allowing management efforts to be focused on the highest-value products.

Is WMS software mandatory for performing ABC analysis?

No, you can perform an ABC analysis manually using a spreadsheet. However, this analysis will be static (a "snapshot" at a specific point in time) and based solely on historical data. A WMS (Warehouse Management System) automates this calculation, making it dynamic (daily, weekly), and allowing you to cross-reference it with other criteria such as rotation (velocity).

How does a WMS use ABC analysis for slotting?

The WMS uses ABC classification (often enhanced by turnover, known as ABC/D) to optimize slotting . It places high-turnover items (even if they are of low value, Class CD) in the "Golden Zone" of the warehouse to minimize operator travel time during order picking.

What is cross-docking and how does ABC influence it?

Cross-docking is a logistics flow where received goods are not stored but immediately transferred to the delivery dock for shipment. A WMS can use ABC classification to trigger this flow: if received goods are a Class A product in high demand and expected for a customer order, the WMS will prioritize cross-docking them.

Is ABC sufficient to optimize the warehouse?

No, this is just a starting point. Full optimization must take into account slotting, mechanics, returns, cross-docking, synchronization with the TMS, etc.