The ABC inventory classification system is criticized for prioritizing items by what criterion?

The ABC inventory classification system is criticized for prioritizing items by what criterion?

• A. Demand variability
• B. Dollar value
• C. Lead time
• D. Supplier reliability

Answer: (B)

ABC inventory classification concentrates on annual dollar value of usage to determine where to focus management effort. High-value items drive most of the cost even if they are few in number, while many low-value items may dominate in quantity but contribute little to total spend. The critique comes from this emphasis on dollar value alone, which can ignore other important factors like demand variability, lead times, and supplier reliability. For example, a inexpensive item with highly volatile demand or a long replenishment lead time can cause stockouts or production delays, yet it might receive little attention because its annual value is small. Conversely, a very valuable item with a long lead time demands tight controls regardless of how often it is ordered. So the system is criticized for prioritizing by dollar value rather than considering other dimensions that affect availability and risk.

ABC inventory classification concentrates on annual dollar value of usage to determine where to focus management effort. High-value items drive most of the cost even if they are few in number, while many low-value items may dominate in quantity but contribute little to total spend. The critique comes from this emphasis on dollar value alone, which can ignore other important factors like demand variability, lead times, and supplier reliability. For example, a inexpensive item with highly volatile demand or a long replenishment lead time can cause stockouts or production delays, yet it might receive little attention because its annual value is small. Conversely, a very valuable item with a long lead time demands tight controls regardless of how often it is ordered. So the system is criticized for prioritizing by dollar value rather than considering other dimensions that affect availability and risk.