How to segment your products and enable differentiated planning

By using the segmentation app in IBP, you are able to segment your products by predictability and volume.

December 2017


Preben Holst Nielsen

By using the segmentation app in IBP, you are able to segment your products by predictability and volume. A company’s portfolio of products usually has different characteristics. Different characteristics require different planning approaches, which is why differentiated planning should be considered.

Improve focus and prioritisation of planning tasks by using segmentation

One planning solution is not optimal for materials with different forecast errors and volumes. Often all materials are planned in the same way, which leads to lack of prioritisation and makes it difficult for the planner to focus and plan their product portfolio effectively. By using product segmentation, you can greatly improve focus and prioritisation for planning tasks.

Segmentation is a well-known methodology used to define groups of entities with the same characteristics. In IBP you can set up a segmentation job that segments your products based on thresholds that you define and updates the master data to avoid manual maintenance. The output from the segmentation model is a set of planning segments, and we recommend defining a planning principle to use for each segment. For example, for high volume and high predictability, cycle planning could be used where focus is on stabilising the plan, reducing lot sizes and monitoring stock limits. For products with low predictability but significant volume, focus should be on getting input from Sales to improve the forecast, and the planning principle should be manual planning or make-to-order.

Review your planning segments in IBP

In IBP you can add attributes to your products to identify what segments they belong to. You can use these segmentation attributes for filtering, which makes it easier for the planner to adapt different planning approaches for different segments. When creating the segmentation profile, you decide whether you want to segment on volume (ABC segmentation), predictability (XYZ segmentation) or both (ABC/XYZ segmentation).

Example of an abs segmentation in IBP, where the target attributes, the segmentation measure key figure, the calculation horizon and the thresholds are defined.

In the segmentation profile, you should define which attribute you will store the segmentation results in and what key figure the segmentation measure should be calculated on. Furthermore, both the calculation horizon and the threshold values can be configured to fit into your business requirements.

Reviewing the planning segments should be performed in an interval that suits the behaviour of your supply chain, for example, many seasonal products or many new product introductions. As a starting point, we recommend a quarterly review. When the segmentation has been done in IBP, the products are automatically maintained with their updated segments.

Using the segmentation in IBP enables you to segment your products by predictability and volume and helps the planner to focus and prioritise the planning tasks. Based on the different characteristics, different planning approaches should be adapted.

Would you like to learn more about why you should do this? Read more here