When Cost-Based ABC Fails: Inventory Prioritisation in Perishable Food Manufacturing

Abstract

Changes in demand, short product lifespans, strict quality control requirements, and temperature sensitivity are challenges in the perishable food manufacturing environment. Many businesses continue to use cost-based ABC inventory classification systems, which assume stable demand patterns and fixed item priorities, even though operating conditions are constantly changing. However, these static methods often do not directly reflect changing operational risks. How are inventory priorities determined when cost-based ABC systems no longer meet operational needs? Practitioners from three food manufacturing companies in Malaysia were interviewed using semi-structured interviews in this study, employing a qualitative exploratory design. Inductive thematic analysis was used to examine the data to identify decision patterns and elements that influence inventory criticality. The study found three main aspects: instability of inventory priorities due to demand fluctuations, risks arising from the production process, and the perishable nature of products. The study's findings also included implicit consideration of various criteria based on the practitioners' experience. The results of the study indicate that inventory priorities change according to the risks of the current situation and are not solely based on historical costs. An adaptive priority cycle model is proposed to organize this decision-making logic in a more systematic way.