In inventory management, what does ABC analysis categorize?

The classification of inventory into three distinct categories based on importance is the core principle of ABC analysis. This method recognizes that not all inventory items contribute equally to overall value and management efforts.

In ABC analysis, items are typically grouped into three categories:

1. 'A' items represent a small percentage of the total number of items but account for a large percentage of the overall inventory value. These are the most critical items and require careful control and monitoring.

2. 'B' items are of moderate value and importance; they require a balanced approach in terms of inventory management practices.

3. 'C' items cover the majority of the inventory in terms of volume but make up a small percentage of the total value. These items are generally managed with simpler controls due to their lower impact on total inventory costs.

This categorization helps managers prioritize their focus and resources on the items that will most significantly affect profitability, making it a fundamental concept in effective inventory management. Thus, B captures the essence of ABC analysis accurately.