ABC analysis for CNC tools: how to cut excess stock

Why the tool stock grows without benefit

Tool stock often balloons not because production increased, but because of small, uncoordinated decisions. Shop load can stay steady for months while inventory still grows. Someone buys a little extra "just in case", leftovers from a one-off order sit unused, an old item isn't removed from records, or the same tool is entered under a different name — and shelves fill up quickly.

This happens especially fast on CNC shop floors. One setup operator keeps their own insert stock, a supervisor asks for another set to store in a drawer, procurement grabs an extra pack to avoid risking downtime. Each decision makes sense individually. Together they turn the warehouse into a mix of duplicates, rare items and random leftovers.

Rare tools freeze cash unnoticed. They can sit unused for months after a single batch of parts, an old drawing, or a trial run. Formally there is stock, but it brings little benefit: slots are occupied, accounting becomes harder, and money can't be spent on what is needed every day.

With high-turnover tools the problem is different. They don't disappear physically but get lost in the mass. When the system has dozens of similar names and the shelf holds old and new versions, operators waste time searching. Sometimes the required insert exists but can't be found in a few minutes, so an urgent purchase is raised.

Extra stock usually appears for the same reasons:

• items are added without a unified naming and coding rule;
• minimum balances are set once and then not reviewed;
• leftovers after rare orders are not removed from active stock;
• records are kept in several places at once—paper, Excel, 1C and in people’s heads;
• fear of stoppage pushes people to buy more than actually needed.

Hence the paradox: the warehouse is crowded, yet urgent purchases keep happening. Cash is tied up in slow-moving items, while high-turnover ones either run to zero or are duplicated. Without a proper review the warehouse looks full but doesn’t make work calmer. It only adds confusion, extra handling and rushed purchases.

What to include in an ABC analysis

You don’t need to include everything. Focus on items that the warehouse regularly spends money on and that actually participate in shop work. Otherwise the table fills with rare purchases and conclusions will be weak.

Typically you take cutting inserts, drills, endmills, taps, reamers, and small fixtures with noticeable consumption. Toolholders, collet chucks and spare parts can also be included if they are bought in series, not occasionally.

Separate consumables and long-life fixtures from the start. Inserts and drills are consumed continuously. A chuck, an expensive holder or an angular head may work for months or years. Mixing them in one sample will let a rare expensive purchase distort the picture.

For each item two basic metrics are usually enough: purchase price and consumption over the chosen period. In practice it’s convenient to take 6 or 12 months. Then calculate the total spending per item: how many units issued from stock multiplied by the purchase price. That total shows which items take the largest part of the budget.

But a single sum is not enough. It’s useful to add issue frequency as a separate attribute. Some items are cheap but taken daily. By money they might not fall into group A, but by impact on the shop they are important. If such a tool suddenly runs out, machines stop not because of price but because of consumption frequency.

One-off and emergency purchases should be flagged separately. For example, the shop may have urgently bought an expensive special cutter for a nonstandard order. It will spike in the table but say little about regular stock. The same applies to tools purchased for launching a new part, repair after a breakdown, or replacement due to a setup error.

A good data base for calculation is simple: name, SKU, item type, purchase price, quantity issued, spending amount, issue frequency and a note like "one-off" or "emergency". That’s enough to see where the warehouse grows without benefit.

How to collect data without long preparation

You don’t need perfect records for the first calculation. Take actual issues from stock over the last 3–6 months. That period already shows what goes constantly and what barely moves.

If records are in Excel, 1C or even a paper issue log, that’s enough. Don’t try to tidy the entire warehouse first. Collect a working dataset and clean it as you go.

It’s easier to start with one file. Put all issue lines into it: date, name, code, quantity and amount if present. If records include shop area, machine and operation, keep those fields — they’ll help later to see where the tool actually works and where it’s kept out of habit.

Most time is usually spent not on collection but on name confusion. The same insert can appear as "CNMG 120408", "insert CNMG120408" and "CNMG-120408". For analysis these must be one item with one code. Otherwise consumption splits across rows and conclusions are wrong.

Check units of measure separately. If a drill is issued in pieces in one line and in packs in another, totals break. The same happens with inserts, collets and holders. Convert everything to the single unit you use in daily work.

Before calculation do a few simple things:

• consolidate identical items under one code;
• remove duplicates from repeated exports;
• exclude returns from consumption;
• verify units of measure;
• keep data on shop, machine and operation if available.

Returns especially often spoil the numbers. A storekeeper might have issued 10 inserts, then 4 were returned, but both lines end up in the export as consumption. It looks like the shop used more than it did. It’s easier to subtract returns or put them in a separate column.

If data are limited, don’t wait half a year for an "ideal" sample. Take at least 3 months and check the result with common sense. Even at this stage you’ll see which items take most money and shelf space.

How to run an ABC analysis step by step

This analysis is better built on spending amounts rather than item counts. One expensive insert can account for more spending than a box of cheap drills. Looking only at piece counts gives a false picture.

The scheme is simple.

1. First calculate spending for each item in money over the same period. Common periods are 3, 6 or 12 months. If 40 inserts at 7,000 KZT each were issued in a quarter, use 280,000 KZT, not 40 pieces.
2. Then collect all items into one list and sort it by descending total spending. The top will show items that most affect the budget.
3. Next find each item’s share in total spending. If total spending for the period was 10 million KZT and one item accounts for 500,000 KZT, its share is 5%.
4. Then calculate the cumulative share. Move down the list adding each item’s percentage to the running total. This shows where the main mass of spending ends.
5. Finally split the list into A, B and C groups. A common split is: A — roughly up to 80% cumulative share, B — next 15%, C — the remainder.

These boundaries aren’t set in stone. If you have expensive special tools and many rare orders you can adjust them slightly. But don’t change rules every month, otherwise comparing results will be hard.

After calculation the list becomes clear. Group A requires the tightest control: precise norms, frequent stock reviews and special attention to replacements and losses. Group C usually hides excess stock that sits for years unused.

What to do with groups A, B and C

Sorting is only the start. Each group needs its own stock level, checking rhythm and purchasing rules.

Group A usually has two traits: it’s either expensive or consumed very quickly. Set an exact minimum for these items so the shop never runs out, and check balances frequently. If an insert is used daily, balances may be checked often, sometimes per shift. A mistake in this group is costly: cash freezes quickly and downtime follows even faster.

Group B is calmer. These items don’t need daily attention, but shouldn’t be left unattended. A scheduled check — for example weekly or biweekly — is usually enough. That keeps stock under control without counting everything constantly.

Group C is where the warehouse most often balloons. Items sit for months, take up space and hide the real picture. It’s wiser to cut stock more aggressively here and order only for a specific job, order or batch. If a tool is needed once a quarter, there’s no point keeping a year’s supply on the shelf.

Helpful rules:

• for A calculate exact minimums and check balances frequently;
• for B set scheduled reviews on the calendar;
• for C keep minimal stock or order to job;
• mark rare items that can still stop the machine separately.

The last point is often missed. A rare item is not always unnecessary. For example, a special drill used twice a year may be essential to finish an expensive part. Formally it’s group C, but in terms of downtime risk it’s different.

Therefore keep working stock and emergency reserves separate. Working stock is issued normally. Emergency reserves are stored separately with clear labeling and a rule: take them only when there is a real threat of stoppage. This keeps accounting cleaner and purchasing calmer and more accurate.

Example for a 6-machine cell

Imagine a cell with six CNC lathes making shafts, bushings and flanges. Operations repeat daily: roughing and finishing turning, grooves, cutoff, drilling and threading. The warehouse may hold around 90–100 SKUs, but not all consume most money.

If you take spending for 3 months, the skew appears immediately. The biggest part of the budget is eaten not by rare holders but by ordinary items that are replaced constantly.

Together these five items account for 2,320,000 KZT. If total tool spending for the same period was 3,200,000 KZT, these items alone take about 72% of costs. Yet by number of SKUs they are only a small part of the warehouse.

On the shelves you usually find a different picture: rare fixtures for an old order, spare boring holders, a second or third identical chuck, a set of collets for a part no longer produced. Each item seems useful alone. Together they occupy space and hold money idle.

After the first calculation duplicates often surface. For example, four identical boring holders when the real need is two working and one reserve. Or three identical holders for cut-off tools though machines don’t use them simultaneously. Sometimes a second hydraulic chuck of the same size sits unused for months but is still considered a "necessary stock".

Such items don’t need to be immediately sold off or written off. Often it’s enough to remove them from the replenishment plan and not automatically restock. That alone reduces the warehouse without risking production.

The point is simple: high-turnover inserts and drills require tight control because they form most spending. Rare fixtures look substantial but often obscure the real picture. Even for a six-machine cell one calculation quickly shows where stock is needed and where it’s excess.

Common mistakes

The most frequent mistake is looking only at item price. On the shop floor this almost always gives a skewed picture. An expensive holder can sit for six months, while cheap inserts are consumed weekly and in sum take a noticeable part of the budget. Count overall spending per period, not price alone.

Mixing regular nomenclature with special orders also confuses things. If the shop made a rare part under a one-off contract one month, unique drills, cutters or fixtures will appear in issues and then be unused for a long time. If you include them without marking, they’ll interfere with decisions about permanent stock.

Another mistake is too short a period. One good or bad month shows little. In metalworking loads change, materials change, orders come in waves. If you look only at the last 4 weeks, you can inflate stock on some items and cut it on others that are needed steadily but not daily. Usually it’s better to look 6–12 months or a full cycle of repeating orders.

Rough merging of items causes many problems. A name like "CNMG insert" may hide different grades, geometries and coatings. For a turner these are not the same item even if parts look similar. If the warehouse combines them into one row, analysis loses meaning: consumption seems present but you can’t tell what exactly is used.

Mistakes happen after the calculation too. A, B and C groups are not permanent. The range changes after a new order, material change, new machine or process adjustment. If the shop machines more stainless steel today, yesterday’s list quickly becomes obsolete.

Good records are easy to check in practice. The shop foreman opens the report and immediately understands why an item fell into group A and another into C. If the report needs long explanations, the analysis data are still too raw.

Checks before starting

Before calculation tidy the catalog. If the same insert is recorded under two codes, numbers immediately split: consumption fragments, balances look smaller and purchases seem random.

First check nomenclature. Each item should have one code and one clear name. No duplicates, old abbreviations or extra notes like "new", "old" or "urgent". If the storekeeper issues the same tool under different names, results will be wrong.

Then check the price. Use the latest purchase or an average of recent deliveries if cost changes noticeably. An old price from last year distorts priorities: an expensive item may drop down and a cheap one rise accidentally.

The same logic applies to consumption. Better use actual stock issues rather than "by memory" norms. Norms are useful for planning, but analysis needs the real picture: what the shop actually takes, how often and in what volume.

A short checklist before launch:

• ensure each item has one code and one name;
• reconcile prices with recent purchases;
• compare consumption with actual issues for the chosen period;
• assign a person responsible for group A;
• set the next review date.

A responsible person for group A is needed immediately, not after the report. Usually this is the foreman, process engineer or storekeeper who sees balances, understands downtime risk and can raise the purchasing question in time. Without such a person group A quickly becomes just a colored label in a table.

There’s a simple pre-start test. Take the 10 most expensive and the 10 most frequently issued items and show the list to the shop. If people argue about names, codes or quantities, clean the data first. The work is tedious, but it prevents false conclusions.

When codes, prices and issues match, stock review delivers results rather than a new debate about which insert is "the one".

Where to start on your shop floor

Don’t try to sort the whole warehouse at once. Such a start often stalls in the first week: many items, uneven records, and people short on time. Better take one clear group, for example turning inserts, common-diameter drills or the most used toolholders.

The first calculation doesn’t need a complex system. A table with four columns is enough: item, quantity issued, unit price and total spending for a month or quarter. When you sort rows by spending, it becomes clear what holds money and what is rarely used.

If the shop is small, don’t look for perfect data. At the start a log of issues, invoices and shelf balances is enough. For a six-lathe cell it’s often inserts CNMG, two drill types and one type of cut-off insert. That’s enough to test the method.

A simple first pass:

• pick one group of 20–50 items;
• collect issues for at least a month;
• calculate spending in money for each item;
• mark emergency purchases separately.

After a month open the table again and look not only at spending. Compare balances, actual issues and unplanned purchases. Often the pattern is clear: expensive items sit idle while small tools that stop machines run out first.

After this check it’s easier to set stock norms per group. Not one blanket norm for the whole warehouse, but real norms based on actual consumption. This removes excess without drastic steps and without risking missing needed tools.

If the shop is upgraded or new machines are launched, run this calculation in advance. EAST CNC and the east-cnc.kz blog often cover equipment selection, commissioning and metalworking practice. At the start that helps: the warehouse is built for real workload, not out of habit.

A good start is usually very simple: one group, one table, one month of observation. That’s enough to spot the first excess items and see where the warehouse grows without purpose.