Inventory control method that groups items by dollar value and criticality is known as what?

Inventory control method that groups items by dollar value and criticality is known as what?

• A. Inventory Segmentation
• B. ABC Classification
• C. Demand Forecasting
• D. Lead Time Analysis

Answer: (B)

ABC classification is a method that groups inventory items by their annual dollar value and their importance to operations, so management focuses on the items that matter most. It uses the Pareto principle—most of the value comes from a relatively small number of items—so those high-value (and often high-criticality) items receive tighter controls, more accurate records, and more frequent monitoring. Middle-value items get moderate controls, while low-value items can be managed with simpler processes and larger batch purchases. This prioritization helps set policies for reorder points, safety stock, and review frequency, ensuring procurement resources are directed where they have the greatest impact. Demand forecasting and lead time analysis address different aspects (future demand and supplier timelines), and inventory segmentation is a broader concept that can include ABC as a method.

ABC classification is a method that groups inventory items by their annual dollar value and their importance to operations, so management focuses on the items that matter most. It uses the Pareto principle—most of the value comes from a relatively small number of items—so those high-value (and often high-criticality) items receive tighter controls, more accurate records, and more frequent monitoring. Middle-value items get moderate controls, while low-value items can be managed with simpler processes and larger batch purchases. This prioritization helps set policies for reorder points, safety stock, and review frequency, ensuring procurement resources are directed where they have the greatest impact. Demand forecasting and lead time analysis address different aspects (future demand and supplier timelines), and inventory segmentation is a broader concept that can include ABC as a method.