Inventory classification enhancement with demand associations

Abstract

The most common method for classifying inventory items is the annual dollar usage ranking method (ABC classification), which assumes, accordingly to the Pareto principle, that a small number of items account for a large share of the cost-volume, an intermediate category of moderate cost-volume items and a large number of low cost or usage items. However, using only one criterion for decision making, in some cases, may lead to mismanaging the assets. To reconcile these conflicts, instead of using multiple criteria with analytic hierarchy process, we look at the alternative options available for improving the classification performance. The intent of this paper is to discuss several aspects of well-known inventory classification strategies, and to propose a demand association criterion for classification enhancement. Experimental results for two warehouse datasets are included and analyzed