In the era of digital manufacturing and highly competitive environment, it is desirable to deliver the right item, right quantity at right time at minimal cost. Under this volatile market environment, the inventory should be readily available at the manufacturing level at the lowest possible cost. Many industries have been conventionally employing traditional ABC analyses based on a single criterion of annual consumption cost for classification of inventory items in spite of other criteria such as unit cost, consumption rate, average inventory cost that may be important in inventory classification. To address such problems, incorporation of Multi-criteria decision making (MCDM) methods is considered an advantage. The present article focuses on a new approach to categorize inventory items using Modified similarity-based method. The proposed method is applied to the inventory data of raw materials from a renowned conveyor belt manufacturing company of West Bengal, India. By using Modified similarity-based method, the items are classified in A, B and C categories. Results obtained from the said method using R program are compared with those of well recognized TOPSIS and AHP methodologies to validate the application of this method for inventory classification.