ABC Classification: Service Levels and Inventory Costs
By Ruud H. Teunter, M. Babai, A. Syntetos. 2009
201 citations recorded by the source corpus.
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.
Subfields: Management Information Systems, Management Science and Operations Research, Statistics and Probability
View Paper: https://www.semanticscholar.org/paper/62bb17e7a220e983380e88bca48cab058aa28f86
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In Management Information Systems
In Management Science and Operations Research
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Citations in the corpus
- The impact of inventory management practice on firms’ competitiveness and organizational performance: Empirical evidence from micro and small enterprises in Ethiopia (2018, methodology): “Whereas, the observation by Teunter et al. (2012) was that ABC analysis is commonly used as an inventory management practice in SMEs worldwide.”