Which statement best describes a disadvantage of the ABC inventory classification system?

Which statement best describes a disadvantage of the ABC inventory classification system?

• A. It focuses too much on demand forecasting.
• B. It is based on dollar value rather than item importance or volume.
• C. It treats all items as equal.
• D. It increases safety stock levels unnecessarily.

Answer: (B)

ABC classification ranks items by how much value they consume in a year to decide how tightly to control each item. The main drawback of this approach is that it relies on dollar value to judge importance, which can miss other factors that matter for decision-making. A high-value item isn’t automatically the most critical to operations, and an item with low value can still be essential if it’s needed in large quantities or has long lead times. By focusing on value alone, you may misallocate attention and resources, neglecting item importance to production or actual usage volume. That’s why describing ABC as based on dollar value rather than item importance or volume best captures the disadvantage.

ABC classification ranks items by how much value they consume in a year to decide how tightly to control each item. The main drawback of this approach is that it relies on dollar value to judge importance, which can miss other factors that matter for decision-making. A high-value item isn’t automatically the most critical to operations, and an item with low value can still be essential if it’s needed in large quantities or has long lead times. By focusing on value alone, you may misallocate attention and resources, neglecting item importance to production or actual usage volume. That’s why describing ABC as based on dollar value rather than item importance or volume best captures the disadvantage.