Analytic hierarchy process for inventory classification and purchasing order policy for class A inventory: A case study

Abstract

This research presents an inventory classification method based on Analytic Hierarchy Process (AHP) and lot
sizing policy for purchasing materials in group A for a case study factory. Conventionally, ABC inventory
classification is used to classify material in the store. This method considers annual usage and annual Baht usage
criteria. However, the importance criteria for the case study factory are unit price of raw materials, annual Baht
usage, and lead time. So, the inventory classification method based on AHP is applied to find weight for each
criterion and found that weights of each criterion of the case study factory are 0.622, 0.279, and 0.099, respectively.
It can appropriately and clearly classify materials so inventory management is better than using ABC classification.
Moreover, lot sizing policy for purchasing each type of material in group A is considered. These materials are
highly important. Three lot sizing policies; Economic Order Quantity (EOQ), Periodic Order Quantity (POQ) and
Lot for Lot (L4L) are compared and selected for each item. Normally, one of these policies is selected for the
whole group of material group A. The results showed that if the appropriate purchasing policy is deployed for
each item then the inventory cost can be reduced by 72.56% or 1,056,063.72 Baht from the current purchasing
policy and the total inventory cost is lower than EOQ policy up to 56.71% or 523,132.97 Baht.