The IUP Journal of Operations Management
Hybrid Methodology for Inventory Control by Combined Analytical Hierarchy Process and Always Better Control: A Case Study

Article Details
Pub. Date :Feb, 2020
Product Name : The IUP Journal of Operations Management
Product Type : Article
Product Code : IJOM10220
Author Name : Jagdeep Singh, Harwinder Singh, Aprinder Singh, Ravinderpal Singh
Availability : YES
Subject/Domain : Management
Download Format : PDF Format
No. of Pages : 14

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Abstract

Inventory consists of all types of consumable and non-consumable items such as raw materials, finished products, work in process and store items. In this case study, a hybrid approach has been presented, in which two methods have been employed for inventory control. Analytical Hierarchy Process (AHP) has been applied to rank the factors identified from the literature. The results reveal that Production Order (PO) contributes 30% and Quantity of Product (Q) 20% in accumulation of inventory in store rooms. Further, the results of AHP have been taken as the basis to classify inventory items. 20 items of inventory have been sorted by focusing on the highly ranked factor, i.e., PO versus cost. Based upon Always Better Control (ABC) classification, it has been observed that A class contains only 5 items and B contains 6, whereas C class contains 9 items. The present work also suggests the optimum level of these items in the store room to make remarkable monetary savings.


Description

Inventory control is an extremely important function in most businesses. The purpose of inventory control is to develop policies that will achieve an optimal inventory investment. A company can maximize its rate of return and minimize its liquidity and business risk by optimally managing inventory. It involves comparison between the costs associated with keeping inventory versus the benefits of holding inventory. Successful inventory management minimizes inventory, lowers cost and improves profitability. An optimal inventory level can be based on consideration of the incremental profitability to the opportunity cost of carrying the higher inventory balances (Kontus, 2014). Inventory control touches almost every facet of operations. A proper balance must be struck to maintain proper inventory with the minimum financial impact on the customer. Inventory control involves the activities that maintain stock keeping items at desired levels. Since the focus in manufacturing is on physical product, inventory control focuses on material control (Tom et al., 2013).


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