What is the basis of ABC analysis in inventory control?

DSSSB -28 August 2019 (Shift-2)

Nursing Management & leadership

Easy

Appeared in: DSSSB -28 August 2019 (Shift-2)

Explanation

ABC analysis is an inventory categorization technique that classifies items based on their annual consumption value.
The annual consumption value is determined by multiplying the total number of items consumed per year by the cost of a single unit.
This method applies the Pareto principle (80/20 rule), where a small fraction of items (Class A) typically accounts for a large majority of the total expenditure.
Therefore, management focus and control are concentrated on these high-value Class A items.

Option A: Unit cost alone is not the basis for ABC analysis. A low-cost item with extremely high usage can have a higher annual consumption value than a high-cost item with low usage.
Option C: The term 'critical cost' is not standard. ABC analysis is based on monetary value, not criticality.
Option D: This is a vague and non-specific term. It does not describe a formal method or principle used in inventory management.

Clinical Relevance

Nursing practice connection: This is primarily an exam-oriented knowledge point with limited direct bedside application, so retain Basis of ABC Analysis in Inventory Control as background academic context rather than a clinical decision trigger.
Nurse managers use ABC analysis to optimize budget allocation and management efforts. They can apply stricter controls and more frequent monitoring to Class A items (e.g., expensive medications, high-cost surgical supplies) to prevent stockouts and minimize financial loss.
This method helps in streamlining the procurement process, reducing carrying costs, and ensuring that the most valuable resources are managed effectively.
A powerful strategy in healthcare is to combine ABC (value) and VED (criticality) analysis. This ensures that a low-cost but life-saving item (a 'CV' item - Class C, Vital) is always in stock, receiving the attention its criticality demands, not just its low cost.

How to Approach the Question

First, identify the key terms in the question: 'basis' and 'ABC analysis'. This signals a factual recall question about a specific management concept.
Recall the fundamental principle of ABC analysis. It's designed to classify inventory items to prioritize management efforts.
Evaluate each option against this principle. 'Unit cost' is only one part of the equation. 'Critical cost' relates to a different system (VED). 'Practice standard' is too generic.
Recognize that ABC analysis is based on the total value of an item over a period, which is best described as 'Annual consumption value' (calculated as Annual Demand × Unit Cost).
Select the option that most accurately and completely defines the foundation of the ABC method.

Concept Tested & Keywords

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