Multi-criteria inventory classification considering demand stability

Abstract

Abstract This paper focuses on the demand stability criterion for inventory classification. Unstable demand may lead to inventory obsolescence or emergency purchasing. A case study of multi-criteria inventory classification (MCIC) for a tunnel boring machine manufacturer is conducted. An MCIC method based on a classical MCIC model is proposed. The proposed method first evaluates demand criticality using the mean, standard deviation and range of demand. And then, the proposed method calculates the final criticality scores for Stock Keeping Units (SKUs) based on demand criticality and other criteria, e.g., unit price or lead-time. Finally, SKUs are ranked in descending order and classified by the ABC principle. The classification results can draw the attention of inventory managers to the unstable SKUs. The inventory performance analysis shows that inventory classification considering demand stability can achieve higher fill rates at lower cost.