ITPEC IP October 2019 Question 72

Ranking items by the cumulative percentage of sales to find those to control first — that is ABC analysis.

Items such as products are sorted in descending order of sales (or stock value, profit), and the cumulative percentage is plotted as a Pareto chart. Items up to about 70–80% of the cumulative total form group A, the next ones up to about 90–95% group B, and the rest group C. Group A is usually a small number of items that accounts for most of the total, so it is managed most closely: stocked carefully, promoted, checked often.

Answer (d)

Why not others:

• •(a) — a diagram shaped like a fish skeleton that traces a problem to its causes is the cause and effect (fishbone, Ishikawa) diagram
• •(b) — checking whether two variables are related from collected data is correlation analysis, drawn as a scatter diagram
• •(c) — testing samples from a population and judging its quality by the number of defects is sampling inspection

Key rule: ABC analysis is the Pareto principle applied to management: rank, accumulate, cut into A, B and C, and concentrate on A.

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