AN EMPIRICAL CLASSIFICATION OF ABC INVENTORY SYSTEM WITH CRITICAL ITEMS AND EXPONENTIAL SMOOTHING WEIGHTS

Hossein Jamshidi
Alabama A&M University
Ajeet Jain
Alabama A&M University

ABSTRACT

Inventory classification is an effective way to manage a large number of items. The purpose of ABC analysis is to classify the inventory into different groups of A, B, or C, according to importance based on measure of a criterion. Traditionally, the classification of inventory into the A, B, or C categories have generally been based on dollar value per unit multiplied by annual usage rate, commonly known as dollar usage. In recent years, several multi criteria inventory classification technique have been introduced. Apart from unit price and usage, other criteria like lead-time, number of hits, average per hit, ordering cost, scarcity, durability, substitutability, reparability, commonality, criticality etc. have been taken into consideration. In this study, the authors have introduced a factor of “criticality” into a multi-criteria ABC inventory classification and obtained the actual data from a local business and used a methodology to standardize each criterion and weigh it by the exponential smoothing technique for classification.

Keywords: ABC inventory, critical items, classification