CIM ABC Analysis & Classification 3 — Questions and Answers
Question 1: When applying ABC analysis to spare parts inventory, which additional factor beyond dollar usage is most critical?
- Color coding of parts
- Equipment downtime risk if the part is unavailable (Correct answer)
- Number of suppliers for the part
- Physical size of the part
Correct answer: Equipment downtime risk if the part is unavailable
For spare parts, equipment downtime risk (criticality) must supplement dollar usage to ensure operationally vital parts receive adequate stock coverage.
Question 2: A buyer manages 1,000 SKUs. After ABC analysis, she dedicates 80% of her purchasing time to Class A items. This approach is best described as:
- Uniform resource allocation
- Selective inventory control (Correct answer)
- Random stock replenishment
- Economic order quantity optimization
Correct answer: Selective inventory control
ABC analysis enables selective inventory control by directing disproportionate management effort toward the highest-value items.
Question 3: How often should ABC classifications typically be reviewed and updated?
- Once, at initial implementation only
- Every 5–10 years
- Periodically (e.g., annually or when demand patterns change significantly) (Correct answer)
- Daily, using real-time POS data
Correct answer: Periodically (e.g., annually or when demand patterns change significantly)
ABC classifications should be reviewed periodically — commonly annually — or whenever significant changes in demand, price, or product mix occur.
Question 4: A firm uses multi-criteria ABC analysis combining annual value and lead time. An item with low annual value but a 16-week lead time would likely be reclassified from C to:
- Remain Class C
- Class A (Correct answer)
- Class B
- Write-off category
Correct answer: Class A
Long lead times increase supply risk significantly, and multi-criteria analysis can elevate such items to Class A for tighter management.
Question 5: In ABC analysis, which class typically has the highest reorder point (ROP) relative to its consumption rate?
- Class C
- Class B
- Class A (Correct answer)
- All classes have the same ROP ratio
Correct answer: Class A
Class A items, due to their high value and tight control requirements, are often managed with higher reorder points to minimize stockout risk.
Question 6: Which graphical tool is most commonly used to visualize the cumulative value distribution in ABC analysis?
- Scatter plot
- Lorenz curve / ABC curve (Correct answer)
- Fishbone diagram
- Control chart
Correct answer: Lorenz curve / ABC curve
A Lorenz curve (or ABC cumulative curve) plots cumulative percentage of SKUs against cumulative percentage of value to reveal classification boundaries.
Question 7: A company with 500 SKUs performs ABC analysis. Class A = 25 items, Class B = 100 items, Class C = 375 items. What percentage of SKUs are Class A?
- 10%
- 5% (Correct answer)
- 20%
- 25%
Correct answer: 5%
25 Class A items out of 500 total SKUs equals 5%, which aligns with the typical Pareto-based ABC distribution.
CIM ABC Analysis & Classification 3
When applying ABC analysis to spare parts inventory, which additional factor beyond dollar usage is most critical?