Capturing the effect of demand change on inventory classification via transition point method
by Qamar Iqbal; Don Malzahn; Lawrence E. Whitman
International Journal of Supply Chain and Inventory Management (IJSCIM), Vol. 2, No. 1, 2017

Abstract: ABC classification is widely used for efficient control of inventory. Traditionally, the classification has been solely based on single criterion i.e. annual dollar usage. Recently, multi-criteria methods are also used which consider more than one criterion while classifying inventory. Linear optimisation is one of the techniques that optimise an inventory score under multiple criteria. The criteria most commonly used are annual dollar usage, cost of the items, and lead-time. However, when demand changes, it may affect the classification status of the originally classified items. The paper studies the effect of a percentage change in a forecast on the classification of items. The paper suggests a method for determining the level of change in a forecast which can move an item from one class to another. This level is called the transition point which suggests to management when is the right time to revise the inventory classification of items. First, a modified linear optimisation model is presented to assist in inventory classification. Then a method is proposed to determine the transition points.

Online publication date: Mon, 04-Sep-2017

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