Implementing multiple criteria ABC analysis

The classification of the items into the A, B, and C categories has generally been based on just one criterion, just as Pareto did. For inventory items, that criterion is often the dollar-usage (value times annual usage) of the item, although it is sometimes just the item’s cost. For many items, however, there may be other criteria that represent important considerations for management. The certainty of supply, the rate of obsolescence and the impact of a stock out of the item are all examples of such considerations. Some of these may even weigh more heavily than dollar-usage in the management of the item-much like the proverbial cobbler’s nail. This paper addresses both the need to use multiple criteria in classifying each item and the lack of specificity in the guidelines for managing each classification. Two samples of maintenance inventory items, one from the service sector and one from industry, are used to illustrate multiple-criteria classification. In the industrial example, the specific procedures developed to manage the items in each category are presented. The results indicate that ABC theory can be expanded rather simply to incorporate multiple criteria and that specific treatment rules for managing the inventory items can be developed. In addition, the rules can be used to help classify the items.