Certified Supply Chain Professional (CSCP) Practice Exam

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What does ABC classification represent?

  1. Classification based on supplier ratings

  2. Classification of items in decreasing order of annual dollar volume

  3. Classification by expiration dates

  4. Classification of items by production speed

The correct answer is: Classification of items in decreasing order of annual dollar volume

ABC classification is a method used in inventory management that segments items based on their importance, typically measured in terms of annual dollar volume. This approach is grounded in the principle that a small number of items usually accounts for a significant portion of the total value of inventory. In this context, items categorized as 'A' represent high-value products that require tight inventory control due to their significance in contributing to overall profitability. Conversely, 'B' items are of moderate value, and 'C' items are low-value products that can be managed with less stringent controls. By arranging items in decreasing order of annual dollar volume, organizations can prioritize their focus on the most critical inventory items, thereby optimizing resources and improving overall supply chain efficiency. This classification helps businesses make informed decisions regarding inventory purchasing, management, and stocking strategies, ensuring that they allocate appropriate levels of effort and attention to items that will impact their financial performance the most.