Application of AHP to multicriteria inventory classification

Abstract

In this thesis, a new method based on the application of Analytic Hierarchy Process (AHP) to ABC inventory classification is investigated. The traditional ABC classification method utilizes only the unit price and the annual usage of inventory items. However, in some cases, the classification done using only these two criteria turns out to be insufficient. The method described in this thesis enables the integration of several criteria that can be organized in a hierarchy into ABC classification. The method can be summarized as follows: A matrix is constructed by the pairwise comparison of criteria on the highest level. The elements of the eigen vector of this matrix represent the weights (priorities) of the criteria. If a criterion has subcriteria in the hierarchy, the weights computed in the similar manner for the subcriteria are multiplied by the weight of the criterion and inserted in its place. Repetition of these steps for aU levels of the hierarchy, the weight of all criteria are determined. Using the criteria weights determined by the AHP technique, the weighted score of each inventory item is computed. The items sorted by that weighted score are grouped in three classes: A, B, and C, as in the classical ABC classification. This new method is applied to the classification of inventory items used in rock excavation jobs done using blasting by a construction company. The same inventory is also classified according to the classical ABC technique, and the results are compared.