Which statement is false for ABC analysis?

Option 4, 4. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

is the right answer.

Thank you for invitation, the following answer is false for ABC analysis.

 4. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

Rationale: In ABC analysis, a few most important "A" category items, which are in terms of value, accounts for more than sixty percent of total inventory cost.  So,  controlling 'A" category items produces the vast majority of savings. 

So, Option -4 is not accurate in terms of ABC analysis

Answer # 4 is false statement.

Hello Team,

In inventory management or in SCM in general, ABC Analysis is commonly used to classify or categorize inventory in three different classes – A Class, B Class and C Class. ‘A’ class items are those that account for 80% of the effects, ‘B’ Class are those that account for 15% of the effects whereas ‘C’ Class items account for the bottom 5% of the effects.

Example: A warehouse may classify all its SKUs based on daily average sales such that:

§  A Class SKUs – The ones accounting for 80% of the average daily sales will be classified as A Class SKUs i.e. Fast Moving SKUs.

§  B Class SKUs – The ones accounting for the next 15% of the average daily sales will be classified as B Class SKUs i.e. Medium Moving SKUs.

§  C Class SKUs – The ones accounting for the bottom 5% of the average daily sales will be classified as C Class SKUs i.e. Slow Moving SKUs.

On classifying these SKUs, you’ll often find that out of the total SKUs that are in the warehouse inventory, a very small number of SKUS will be A Class items and yet would be accounting for 80% of the average daily sales. Also, there would be large number of SKUs in the inventory accounting for just 5% of the average daily sales.

So, it naturally makes sense for the management to direct their focus on these small percentage but high impact A Class items and sort of spend less resources on managing the C Class SKUs.

Regards,

Saiyid

option 4 statement is false...............

As per available options, 4th options is false............................................

The answer with option #4 is false.

• The ABC analysis is used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. Policies based on ABC analysis:
• A ITEMS: very tight control and accurate records.
• B ITEMS: less tightly controlled and good records.
• C ITEMS: simplest controls possible and minimal records. 
• D ITEMS: We can catch the adjectly inventory analysis in this system. This show the buffer of  material which should be  Re-order or Non-moveing item. And the costing effect that can be verified.
• ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

4th option is the False one.

All these statements lead to some vague direction.

ABC analysis simply an analysis of consumption for particular period and subsequent period's demand control for optimal inventory management.  Decision maker can look into high value sold items for inventory keep up, adjust order management and inventory optimazation for next control period.

Further it will help to look at those slow moving items aka SKU's and monitoring, prepare for obsolete goods

It will also help to adjust location management for better location allocation and space management.