Modified replenishment policy for multi-item inventory of imperfect quality items using ABC classification and cross-selling effect

Abstract

In high inventory scenario, it is difficult to set economic order quantity (EOQ) of every item. Therefore, items are grouped into categories (ABC classification) and one replenishment policy for each category is implemented. However, in ABC classification, the inter-relationship between items is not considered. But practically, the sale of one item could affect the sale of other items (cross selling effect). Hence, within categories also, the EOQ should be calculated by considering the dollar usage of the item itself and its effect on the sale/non sale of other items. In this paper, a modified approach is proposed considering both ABC classification and cross selling effect. The inventory of imperfect items is first classified into categories and then within each category cross selling effect is calculated to determine EOQ of each item. It is illustrated that by using this modified approach; the EOQ of items may get affected resulting in higher profit.