As demonstrated in the example above, ABC analysis is great for breaking complex processes down to their essentials and presenting them in an easy-to-understand way. All companies have the key figures required for this analysis since they are needed for controlling and accounting anyway. This means that the preparation time needed is manageable and that the analysis can be easily conducted at any time. Another one of this method’s strengths is that it can be applied to a wide variety of business areas and can thus provide valuable information for future strategic business decisions.
Nevertheless, this method does have its disadvantages. For example, in some cases the use of three categories is too general. In addition, it does not make sense to use this method if the different items’ percentage shares of the total value barely differ from one another, since this makes categorization very difficult or even impossible. In this kind of situation, other analysis methods would be much more useful. Another disadvantage is that ABC analysis usually only compares a single factor within the categories. It also only takes quantitative factors into account. The ABC method does not examine how qualitative changes can affect revenue.
With just a little effort, however, you can modify ABC analysis to adapt it to the specific conditions within your company. For example, you could add additional categories or combine several factors together beforehand to create a new key figure to compare if needed.