A case-based distance model for multiple criteria ABC analysis

  • Authors:

  • Ye Chen;Kevin W. Li;D. Marc Kilgour;Keith W. Hipel

  • Affiliations:

  • Department of Systems Design Engineering, University of Waterloo, Waterloo, ON, Canada N2L 3G1;Odette School of Business, University of Windsor, Windsor, ON, Canada N9B 3P4;Department of Mathematics, Wilfrid Laurier University, Waterloo, ON, Canada N2L 3C5;Department of Systems Design Engineering, University of Waterloo, Waterloo, ON, Canada N2L 3G1

  • Venue:
  • Computers and Operations Research
  • Year:
  • 2008

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Abstract

In ABC analysis, a well-known inventory planning and control technique, stock-keeping units (SKUs) are sorted into three categories. Traditionally, the sorting is based solely on annual dollar usage. The aim of this paper is to introduce a case-based multiple-criteria ABC analysis that improves on this approach by accounting for additional criteria, such as lead time and criticality of SKUs, thereby providing more managerial flexibility. Using decisions from cases as input, preferences over alternatives are represented intuitively using weighted Euclidean distances which can be easily understood by a decision maker. Then a quadratic optimization program finds optimal classification thresholds. This system of multiple criteria decision aid is demonstrated using an illustrative case study.