Optimizing inventory classification: a multi-criteria approach based on ordinal sums of conjunctive and disjunctive functions

Abstract

Inventory management plays a significant role in manufacturing organizations as it balances supply and demand, i.e. ensures the continuity of production, the satisfaction of customer demand and the minimization of costs inventory level optimization. Efficient inventory management highly depends on the categorization of inventory items to simplify the management process and decide on an appropriate inventory management policy. In this paper, two different methods are used to classify 290 inventory items with the aim of examining the differences between them. The first method is the classical single-criteria ABC analysis based on consumption value, while the second is a multi-criteria ABC classification based on ordinal sums. Both classification methods categorize items into three classes, A, B and C, based on their importance. Although both classification methods have a relatively high agreement rate (73.84%), a third of all misclassification cases are cases that could lead inventory managers to neglect the items of the highest importance. Therefore, it is recommended to pay special attention to these items and make a timely decision on an appropriate inventory management policy for them. Finally, this article discusses topics for the future improvements of this first attempt to apply ordinal sums in this field.