How to use product segmentation curves?
Supply Chain Planning, or translating, supply chain planning has become increasingly complex and critical for industries. In this article , you will have the opportunity to delve into this matter.
One of the steps contained in SCP (Supply Chain Planning) is inventory planning, or inventory planning, a process fully linked to the service level and responsiveness we want from the operation and, objectively, is a complete and updated view of inventory.
Managing stocks is a constant challenge in industries as it involves various factors with totally different characteristics. The most accurate way to perform this management is to use inventory categorization methods to reduce costs and optimize business results.
The inventory classification, according to Gasnier (2002), translates into a process of systematically categorization to prioritize, through the stratification of the population by classes, different treatments (Pareto Method).
By categorizing stocks we take into account three attributes:
1. Scope
2. Flexibility
3. Practicality
In view of the essential attributes of categorization we can count on various ways to perform this classification. These are the so -called product segmentation curves . Below, we compile the main curves used as well as the advantages and limitations of each.
ABC curve
The ABC curve classifies product groups according to the revenue they represent. 20% of products that have the most output represent 80% of revenues and therefore occupy column A. Another 30% of products occupy column B and represent 10% of revenues together. The final 50%, are in column C and, also together, total 10% of revenues.
Advantages:
· Easy implementation
· Simple method
· Flexible (more classes such as D, E, F, etc) can be inserted
Limitations:
· Demand periodic review
· Needs support from other areas (financial)
Xyz curve
The XYZ curve classifies product groups based on criticality, ie the impact that the lack of these items may have on the organization. N GROUP X, are the lowest critical products that, if they are missing do not paralyze activities and can be easily replaced. In Group Y, medium -critical products are allocated, those necessary to perform the activities, but still find available substitutes. In Group Z we have the vital products that, if missing, interrupt operations and there is no possibility of replacement.
Advantages:
· Focused from the customer's point of view
· Helps in the stock purchase decision making process
Limitations:
· Method subject to subjectivity (qualitative)
· Difficulty in determining objective evaluation criteria
· Needs support from other areas or even the formation of a commission
Curve 123
Curve 123 classifies product groups according to the difficulty-or not, in acquiring them. In group 1, the items with more complex acquisition (eg imported). In Group 2, items that are difficult to acquire, but with fewer factors compared to Group 1. And in Group 3, the easy -to -obtain materials in the market.
Advantages:
· Provides acquisition priority view
· Can offer more quality to the purchase process
Limitations:
· Method subject to subjectivity (qualitative)
· Demand periodic review
· Quite susceptible to external factors
Pqr curve
The PQR curve classifies product groups according to their popularity, ie the frequency of items in a given period. In Group P, we have the most used products. In group Q, products with frequent median use and group R, the less popular products.
Advantages:
· Provides vision on amounts of acquisition to be made
· Provides insights if any product (or product group) is in obsolescence or excessive use
Limitations:
· Demand periodic review
· Focused only on the operational process
Now that you know what they are and what are the advantages and disadvantages of each of the main product segmentation curves, you can use the strategy to better think about managing your inventories bringing more intelligence to your supply chain planning operations.
NPLAN is an advanced planning platform for manufacturing industries and complex supply chain. One of its modules is precisely the "NPLAN for Inventory" ie NPLAN technology in favor of inventory planning.
Learn more about NPLAN. Visit the technology page on our site and request your free demonstration right now!