CIM ABC Analysis & Classification 5 — Questions and Answers
Question 1: Which inventory control system is most compatible with Class A item management under ABC analysis?
- Periodic review system with annual orders
- Continuous review (Q) system with fixed reorder point (Correct answer)
- Visual reorder (two-bin) system
- No formal system — order on intuition
Correct answer: Continuous review (Q) system with fixed reorder point
Class A items warrant a continuous review system so that inventory levels are monitored constantly and replenishment is triggered at a precise reorder point.
Question 2: ABCD analysis extends traditional ABC by adding a 'D' category. What do 'D' items typically represent?
- High-demand, high-value items
- Dangerous or hazardous materials
- Dead stock or obsolete items with zero or near-zero movement (Correct answer)
- Discounted promotional items
Correct answer: Dead stock or obsolete items with zero or near-zero movement
In ABCD analysis, 'D' items are dead or dormant stock — items with no or negligible movement that may need liquidation or disposal.
Question 3: A purchasing manager wants to reduce the number of active suppliers. Which ABC class should she target first for supplier consolidation?
- Class A — consolidate to strengthen key relationships
- Class C — low-value items with many small suppliers are easy targets (Correct answer)
- Class B — medium value allows greatest savings
- All classes simultaneously
Correct answer: Class C — low-value items with many small suppliers are easy targets
Class C items often involve numerous small purchases from many suppliers, making them prime candidates for consolidation to reduce transaction costs.
Question 4: When ABC analysis is combined with XYZ analysis, what does the 'XYZ' dimension measure?
- Supplier performance (X=excellent, Y=average, Z=poor)
- Demand variability (X=stable, Y=variable, Z=highly irregular) (Correct answer)
- Geographic location of warehouses
- Item size (X=small, Y=medium, Z=large)
Correct answer: Demand variability (X=stable, Y=variable, Z=highly irregular)
XYZ analysis classifies items by demand variability: X items have stable demand, Y items have moderate variability, and Z items have highly irregular demand.
Question 5: An AX item (Class A value + X demand stability) should be managed with which strategy?
- High safety stock due to unpredictable demand
- Lean, precise replenishment leveraging stable demand forecasts (Correct answer)
- Minimal tracking since the item is low-value
- Outsource to consignment stock
Correct answer: Lean, precise replenishment leveraging stable demand forecasts
AX items are high-value with stable demand, enabling lean replenishment with accurate forecasts and low safety stock requirements.
Question 6: Which department outside of inventory management most benefits from ABC classification data?
- Human Resources
- Accounts Payable / Finance — for prioritizing payment terms and cash flow (Correct answer)
- Legal — for contract prioritization
- Marketing — for pricing strategy only
Correct answer: Accounts Payable / Finance — for prioritizing payment terms and cash flow
Finance and Accounts Payable can use ABC data to negotiate better payment terms for Class A high-value items and optimize working capital allocation.
Question 7: A company transitions from a single ABC classification to a multi-criteria approach including value, lead time, and criticality. What is the expected outcome?
- Fewer items will be classified as Class A
- Some previously Class C items will be elevated due to criticality or long lead time (Correct answer)
- The total number of inventory items will decrease
- Cycle counting frequency will decrease across all items
Correct answer: Some previously Class C items will be elevated due to criticality or long lead time
Multi-criteria ABC analysis typically elevates some low-value items to higher classes when they have long lead times or high operational criticality.
CIM ABC Analysis & Classification 5
Which inventory control system is most compatible with Class A item management under ABC analysis?