Optimizing Inventory Classification and Service Levels Under Budget and Warehouse Space Control

Abstract

There are several techniques of inventory classification and prioritization based on a single criteria, bi-criteria, or multiple criteria; however, managing inventory can fail when trying to fit inventory classes into the operating budget and available warehouse space. This research focuses on optimizing inventory classes and determining an optimal service level of each class while simultaneously satisfying operating budget and space constraints. The idea is to help decision makers to effectively rank and group SKUs and manage them within the constraints while satisfying customers. This proposed methodology is an optimality-based approach that uses mixed integer linear programing to solve the problem. Computational experiments are conducted to illustrate the proposed method. Results are compared with a classical ABC inventory analysis.

Inventory Classification with Limitations in the Number of Changeovers and Space for Inventory

“…Ly & Raweewan (2021) refer to the mathematical model proposed by Millstein et al (2014) to deal with an inventory classification problem. However, Ly & Raweewan (2021) extend the mathematical model to consider the total number of pallets required as the constraint. Moreover, they modified the objective function to maximize the service levels under limited budget and limited warehouse space by optimizing the assignment of product items to groups.…”

“…The above literature takes the total volume of inventory as the restriction. Especially, Ly & Raweewan (2017) and Ly and Raweewan (2021) translate the volume of inventory into the number of pallets to be stored. However, they all assume that the size of all storage spaces are the same and all product items can be stored in any storage space.…”

Forecasting and Inventory Planning for Irregular Demand Patterns

“…Nevertheless, effective inventory planning and control should balance inventory cost, customer service level, and space for inventory keeping (Ly & Raweewan, 2021). Teunter & Sani (2009) proposed a scheme that linked the forecasting method with inventory control and used the CR method as a forecasting procedure and the order-up-to-level inventory control policy.…”

Determining (s, S) Inventory Policy for Healthcare System

“…This search has recently been of great interest for Thai healthcare industry, especially hospital (Srizongkhram et al 2021). In addition to inventory policy, it is important to perform inventory classification and determine optimal service level for items with different characteristics such that the right policy is applied for the right item (Ly & Raweewan, 2021).…”