How does ABC Analysis categorize inventory?

ABC Analysis categorizes inventory primarily by value or importance, allowing businesses to prioritize their management efforts based on the significance of different items in their inventory. This method segments inventory into three categories: 'A' items are the most valuable, representing a small portion of the total inventory but a large portion of the inventory value; 'B' items are of moderate value; and 'C' items are the least valuable but may comprise a large portion of the total items in stock.

By focusing on value or importance, organizations can allocate resources more efficiently, ensuring that high-value items receive more attention in terms of inventory control, replenishment, and management practices. This prioritization supports better decision-making and can lead to cost reductions, improved service levels, and overall enhanced inventory management.

In contrast, other options like shipment frequency, storage location, or supplier reliability, while important aspects of inventory management, do not define the primary focus of ABC Analysis, which is centered around valuing inventory based on its impact on the organization's finances.