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18 views

Lecture_10

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jayantascribe
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Supply Chain Digitization

Module I: Week – 02, Lecture – 10


has been launched by IIM MUMBAI, under the directives of the Ministry of Education, Government of India and as a
Supply Chain Segmentation:
part of our role as the nodal institute for PM GATI Shakti.
Case Study on Inventory Segmentation
Prof. Priyanka Verma
GENPACT Associate Chair Professor
Operations & Supply Chain Management Area
Indian Institute of Management Mumbai
*This course has been launched under the directives of the Ministry of Education, Government of India and as a part
Module - 2 of IIM Mumbai’s role as the
NPTEL: nodal
Supply institute
Chain for PM Gati Shakti Master Plan.
Digitization
Inventory Segmentation

Inventory segmentation - Categorize a company's inventory


into distinct groups or segments based on specific criteria.

Optimize cost
Enhance service level
Inventory segmentation: Type of storage systems & picking strategy
Inventory related operational performance

Module - 2 NPTEL: Supply Chain Digitization


Popular Approaches - Inventory Segmentation
FSN Analysis: Classifying inventory by rate of consumption
ABC analysis: Classifying inventory by value
o Fast moving, Slow moving and Non-moving based on their
o Classified into (A, B & C) based on revenue generated.
rate of consumption/usage.
o Segment A - Approximately 20% of the total products
o Fast moving - Constitute 10% of inventory items and have
with 80% of revenue generation.
less than 10% of average cumulative stay.
o Segment B - Approximately 30% of the total products
o Slow moving - 30% of inventory items and have less than
with 15% of revenue generation.
20% of average cumulative stay.
o Segment C - Approximately 50% of the total products
o Non-moving - 50% of inventory items and have inventory
with 5% of revenue generation.
turnover ratio less than 1.

VED Analysis: functional importance to a business XYZ Analysis: Classifying inventory by demand variability
o Vital Items: Items that are crucial for any business. o Segment X - have little or no variation in demand.
o Essential Items: Inventory next to vital for your o Segment Y - have unsteady demand, but their demand can be
business. reliably predicted to an extent.
o Desirable Items: Optional goods not necessary to o Segment Z - have high variation in demand, which is also
run business operations. difficult to predict because there is no trend or predictable
causal factors.

Module - 2 NPTEL: Supply Chain Digitization


Limitation of Approaches

Combine 2 methods, Actual business Application of


Segment based on
segment based on 2 scenarios involve advanced
single criterion.
criterion. multiple criterion. approaches.

Advanced Inventory Segmentation Approaches

Multi-Criteria
Mathematical Meta
AI & ML Decision Hybrid
Programming heuristics
Making

Module - 2 NPTEL: Supply Chain Digitization


Analytic Hierarchy Process

Multi Criterion Decision-Making method

Hierarchically organizes complex problems,

Pairwise comparisons of elements

Mathematical calculations

Derive prioritized
outcomes

Quantitative
and consistent
decision-
making.

Module - 2 NPTEL: Supply Chain Digitization


Inventory Segmentation
XYZ e-tail Ltd is an e-commerce retailer operating on a popular e-commerce website.

Entered into a 3-year agreement with an e-commerce company to secure a fixed amount of space in their
fulfilment centre.
XYZ e-tail follows a practice of listing a product as "available" only when it is physically present in their
warehouse inventory.
Unavailability of an SKU in storage leads to lost sales.

Management at XYZ e-tail has decided to expand their product portfolio.

Due to inventory space limitations, they have realized that maintaining the previously achieved service level of
95% for all SKUs is not feasible.
Chosen to categorize the SKUs into three distinct groups, each with a designated service level: 95%, 90%, and
85%.
Use the Analytic Hierarchy Process (AHP) and segment the SKUs into three clusters (A, B & C)

Based on the SKU wise data provided corresponding to six factors, and the pairwise importance of factors.

Module - 2 NPTEL: Supply Chain Digitization


Inventory Segmentation

Module - 2 NPTEL: Supply Chain Digitization


Inventory Segmentation

Module - 2 NPTEL: Supply Chain Digitization


Analysis
A class -
28% SKUs
– 95%
service
level

ABC
classification
using AHP

C class – B class -
40% SKUs 32% SKUs
–85% – 90%
service service
level level

Module - 2 NPTEL: Supply Chain Digitization

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