ABC analysis categorizes inventory into which three groups?

ABC analysis is a method used in inventory management to prioritize items based on their importance, typically measured in terms of sales volume, cost, or impact on cash flow. This approach divides inventory into three distinct categories: A, B, and C.

The A category comprises the most critical items, which represent a small percentage of the total items but a large share of the overall value or impact. These items are often subject to stricter control and monitoring because they can significantly affect the company's overall performance.

The B category includes items of moderate importance, which require less stringent control than A items but still warrant attention. These items might constitute a larger quantity than A items but represent a smaller portion of the total value.

Finally, the C category encompasses the least valuable items, which, while numerous, have a minimal impact on overall value. These items often require less management focus and can be ordered less frequently.

Understanding the ABC classification helps businesses to allocate resources and attention efficiently, ensuring that the most critical items receive appropriate levels of management and oversight.