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ABC inventory classification: service levels and inventory costs

Teunter, R, Babai, MZ and Syntetos, A 2010, 'ABC inventory classification: service levels and inventory costs' , Production and Operations Management, 19 (3) , pp. 343-352.

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Abstract

ABC inventory classifications are widely used in practice, with demand value and demand volume as the most common ranking criteria. The standard approach in ABC applications is to set the same service level for all stock keeping units (SKUs) in a class. In this paper, we show (for three large real life datasets) that the application of both demand value and demand volume as ABC ranking criteria, with fixed service levels per class, leads to solutions that are far from cost optimal. An alternative criterion proposed by Zhang et al. performs much better, but is still considerably outperformed by a new criterion proposed in this paper. The new criterion is also more general in that it can take criticality of SKUs into account. Managerial insights are obtained into what class should have the highest/lowest service level, a topic that has been disputed in the literature.

Item Type: Article
Themes: Subjects outside of the University Themes
Schools: Colleges and Schools > College of Business & Law > Salford Business School > Operations and Global Logistics Management
Journal or Publication Title: Production and Operations Management
Publisher: Production and Operations Management Society
Refereed: Yes
ISSN: 1059-1478
Funders: Engineering and Physical Sciences Research Council (EPSRC)
Depositing User: Professor Aris Syntetos
Date Deposited: 13 Oct 2011 12:13
Last Modified: 20 Jan 2014 20:53
URI: http://usir.salford.ac.uk/id/eprint/18306

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