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

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.