Multicriteria ABC classification with AHP method: an application

Abstract

The traditional ABC classification is an inventory management technique that is applied by many companies in different industries. The method classifies the items in the inventory as class A. B. and C. The classification enables the managers to exert different levels of control on each class according to their importance for the company. Class A is constituted of the most important items and class C is constituted of the least important ones. Class B items have intermediate importance for the company. The Traditional ABC Classification method uses only one criterion in order to classify the items, however management may need to consider multiple criteria. The Multicriteria ABC Classification method provides a solution to this problem. This method also enables the managers to incorporate their judgments into the analysis. In this thesis both the traditional and the multicriteria ABC classification methods are applied to the inventory of a Turkish pharmaceutical company and the results are compared. The Analytic Hierarchy Process (AHP) technique is utilized in order to conduct the multicriteria inventory classification.