A–B–C analysis in inventory control Which statements correctly describe A–B–C analysis used in materials management?

Introduction / Context:A–B–C analysis is a selective control technique that classifies inventory items into three categories (A, B, and C) based on their annual consumption value to prioritize control efforts and optimize working capital.

Given Data / Assumptions:

• A-items: few in number, high annual consumption value.
• B-items: moderate in number and value.
• C-items: many in number, low annual consumption value.

Concept / Approach:The key metric is annual consumption value = unit cost * annual usage. Items are ranked by this value, not by cost or quantity alone. The technique is central to materials management and provides relative inventory control focus: tighter control for A, moderate for B, and simpler procedures for C.

Step-by-Step Solution:Compute annual consumption value for each item.Sort items in descending order of consumption value.Divide into A, B, C groups based on cumulative percentage (e.g., A ≈ top 10–20% of items contributing ≈ 70–80% value).Apply differentiated control policies (e.g., review frequencies, safety stocks, approval levels).

Verification / Alternative check:Comparing stockouts and carrying costs before and after A–B–C implementation shows improved service levels and reduced capital tied in inventory.

Why Other Options Are Wrong:Classifying only by physical size is irrelevant to value-based control. Each of the first three statements accurately reflects A–B–C analysis, so “All of the above” is correct.

Common Pitfalls:Using unit cost alone, ignoring usage rate, or failing to review classifications periodically as demand changes.

Final Answer:All of the above