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ABC Analysis is an inventory management technique used to classify items based on their importance and annual consumption value. It helps organizations focus their time and resources on the items that have the greatest financial impact.

Items are generally divided into three categories:

A Items: High-value items that represent a small percentage of total inventory but a large percentage of inventory value. They require strict control and regular monitoring.
B Items: Medium-value items that require moderate control and monitoring.
C Items: Low-value items that make up a large proportion of inventory but account for a small percentage of total value. They can be managed with simpler controls.

ABC analysis helps businesses reduce inventory costs, improve stock control, and use management resources efficiently.