CPIM Practice Exam

What is the first step in the ABC inventory control process?

1. Ranking the products by their annual dollar usage

2. Calculating the cumulative percentage of total items

3. Multiplying annual unit usage by unit cost

4. Assigning A, B, and C classifications

The correct answer is: Multiplying annual unit usage by unit cost

The correct first step in the ABC inventory control process is to rank the products by their annual dollar usage, which is accurately represented by option A. This step is crucial because it helps identify which items have the highest impact on overall inventory costs. By calculating the annual dollar usage for each item (which involves multiplying annual unit usage by unit cost), organizations can establish a basis for determining their importance and prioritize inventory management efforts. Ranking products allows companies to focus their attention on the most significant items—those that consume the largest portion of resources through either cost or volume. This strategic approach aligns inventory management practices with financial impact, ultimately leading to better decision-making regarding stock levels, replenishment strategies, and resource allocation. Therefore, the other choices relate to subsequent steps in the process. After identifying the annual dollar usage, cumulative percentages of total items are calculated to further categorize the inventory into classes (A, B, and C), contributing to a more effective inventory management strategy.