CIM ABC Analysis & Classification 2 — Questions and Answers
Question 1: A company finds that 5% of its SKUs account for 70% of annual inventory value. How should these items be classified?
- Class C — low value, minimal control
- Class A — high value, tight control (Correct answer)
- Class B — moderate value, standard control
- Class D — obsolete, schedule for disposal
Correct answer: Class A — high value, tight control
Items representing the top tier of inventory value (typically 70-80%) are classified as Class A and require the most rigorous control.
Question 2: Which metric is primarily used to rank SKUs when performing a traditional ABC analysis?
- Unit purchase price
- Annual demand quantity
- Annual dollar usage (price × annual demand) (Correct answer)
- Supplier lead time
Correct answer: Annual dollar usage (price × annual demand)
Annual dollar usage — calculated as unit cost multiplied by annual demand — is the standard ranking metric in ABC analysis.
Question 3: In ABC analysis, Class C items typically represent what share of annual inventory value?
- 50–60%
- 15–25%
- 5–10% (Correct answer)
- 70–80%
Correct answer: 5–10%
Class C items usually account for only about 5–10% of total annual inventory value despite often being the most numerous SKUs.
Question 4: A warehouse manager wants to reduce cycle count frequency for low-priority items. Which ABC class should be counted least often?
- Class A
- Class B
- Class C (Correct answer)
- All classes equally
Correct answer: Class C
Class C items carry the least inventory value risk, so they require the lowest cycle count frequency.
Question 5: Which of the following best describes a limitation of traditional single-criterion ABC analysis?
- It requires expensive software to implement
- It ignores item lead time, criticality, and supply risk (Correct answer)
- It cannot be applied to raw materials
- It overestimates Class B item importance
Correct answer: It ignores item lead time, criticality, and supply risk
Single-criterion ABC analysis based only on dollar usage ignores other important factors like lead time, scarcity, and operational criticality.
Question 6: A company applies ABC analysis and discovers a $2 item that causes production shutdowns when stocked out. What approach should be used?
- Classify it as Class C and maintain minimal stock
- Reclassify it as Class A due to operational criticality (Correct answer)
- Eliminate it from inventory to reduce SKU count
- Outsource procurement to a third party
Correct answer: Reclassify it as Class A due to operational criticality
Multi-criteria ABC analysis allows reclassification based on operational criticality, even if the item's dollar value is low.
Question 7: The Pareto principle underlying ABC analysis suggests that approximately what percentage of causes produce 80% of effects?
- 50%
- 30%
- 20% (Correct answer)
- 10%
Correct answer: 20%
The Pareto principle (80/20 rule) states that roughly 20% of items account for 80% of the total value or effect.
CIM ABC Analysis & Classification 2
A company finds that 5% of its SKUs account for 70% of annual inventory value.
How should these items be classified?