1. SCM (Supply Chain Management)
  2. Inventory Management
  3. Advanced Inventory Management
  4. Inventory Optimization
  5. Calculating Inventory Segmentation
  6. Inventory Segmentation Calculation Process

Inventory Segmentation Calculation Process

When you submit a manual calculation, NetSuite starts the segmentation process and opens the Inventory Segmentation Event Log. Each run includes a calculation process and an assignment process. After the calculation completes successfully, NetSuite starts the assignment process. Use the event log to monitor both processes and open their results.

When scheduling is enabled, NetSuite uses the recurrence, day, and time set in the Schedule Inventory Segmentation section to run this process.

Only one inventory segmentation process can run at a time. If another segmentation run is active, NetSuite blocks a manual run and skips a scheduled run.

This topic covers the following:

ABC Categorization

ABC categorization ranks active Inventory and Assembly items with these replenishment methods:

  • Reorder Point

  • Master Production Scheduling

  • Material Requirements Planning

  • Time Phased

ABC categorization includes these items even when Include in Inventory Optimization is cleared.

The ABC category calculation steps:

  1. Calculate Annual Consumption Value (ACV) = Annual Usage x Unit Cost , for each Item or Item-Location, depending on the segmentation preference in Inventory Management Preferences.( If Multiple Units of Measure is enabled, Annual Usage is summed up in Base Unit.)

  2. Sort all items by Annual Consumption Value in descending order, from high to low

  3. Calculate the total value as a sum of all Annual Consumption Values

  4. Count the total number of list items

  5. For each list item, calculate:

    • % of total value

    • Cumulative % of total value

    • % of total number of items

    • Cumulative % of total number of items

  6. Assign ABC categories to items using the thresholds in Inventory Management Preferences:

    • Category A: where the Cumulative % of total value <= A Category Cumulative % Threshold

    • Category B: list items, which didn't qualify as Category A AND the Cumulative % of total value <= B Category Cumulative % Threshold

    • Category C: All remaining list items that didn't qualify as Category A or B

123 Categorization

123 categorization only applies to Reorder Point items that are included in Inventory Optimization.

The 123 category calculation steps:

  1. Calculate Coefficient of Variation (CV) = Standard Deviation of Demand / Mean of Demand, on a monthly basis, for each Item or Item-Location, depending on the segmentation preference in Inventory Management Preferences.

    If Multiple Units of Measure is enabled, Annual Usage is summed up in Base Unit.

    For example, the following calculation uses six illustrative monthly demand values:

    • Monthly Sales: 100, 110, 95, 105, 100, 115

    • Mean = (100 + 110 + 95 + 105 + 100 + 115) / 6 = 104.1667

    • Variance = ((100 - 104.1667)^2 + (110 - 104.1667)^2 + (95 - 104.1667)^2 + (105 - 104.1667)^2 + (100 - 104.1667)^2 + (115 - 104.1667)^2) / 6 = 45.1389

    • Standard Deviation = sqrt(45.1389) = 6.7185

    • Coefficient of Variation (CV) = 6.7185 / 104.1667 = 0.0645

  2. Sort all items by Coefficient of Variation (CV) in ascending order, from low to high

  3. Assign 123 categories to items using the thresholds in Inventory Management Preferences:

    • Category 1: where the Coefficient of Variation (CV) <= 1 Category CV Threshold

    • Category 2: list items, which didn't qualify as Category 1 AND the Coefficient of Variation (CV) <= 2 Category CV Threshold

    • Category 3: All remaining list items that didn't qualify as Category 1 or 2

Segment Assignment

Segment assignment only applies to Reorder Point items that are included in Inventory Optimization.

When segmentation runs, NetSuite updates the Inventory Optimization Segment field on each item or item-location, depending on the segmentation preference in Inventory Management Preferences.

The segment is assigned based on the combination of ABC and 123 categories.

For example, when Calculate Inventory Segmentation per Location is checked:

  • Item 1 - Location 1: Category "A"; Category "1"; Segment "A - 1" is assigned.

  • Item 1 - Location 2: Category "C"; Category "1"; Segment "C - 1" is assigned.

The segment assignment also updates the Service Level field when Override Service Level is cleared, but if it is checked, NetSuite keeps the overridden service level.

Zero and Missing Input Values

Numeric zero is valid. Zero, missing, or insufficient input values can affect segmentation:

  • When annual usage is zero, NetSuite assigns ABC category C and 123 category 3.

  • When unit cost is zero or missing, NetSuite assigns ABC category C and calculates the 123 category from available demand.

  • When monthly demand is identical in at least three usable months, coefficient of variation is zero, and NetSuite assigns 123 category 1.

  • With fewer than three usable monthly demand values, NetSuite assigns 123 category 3 and calculates ABC from available cost and usage.

Tip:

From the Inventory Segmentation Event Log, open the calculation results to review warnings for these conditions.

To update Safety Stock Level, Reorder Point, and Preferred Stock Level values, run Calculate Inventory Levels after segmentation is current.

Related Topics

General Notices