Stop treating every product and customer the same.
One set of rules is simple to run. It also costs money in stockouts, excess stock and wasted effort.
When every product, storage location and customer is managed by the same rules, the everyday staple gets the same treatment as the Christmas-only line and the largest account gets the same service as an occasional buyer. It is simple to run but costs money in stockouts, excess stock and wasted effort. Managing them differently frees cash tied up in stock that doesn't earn its place, protects service on the products and customers that matter most and focuses warehouse and production effort where it adds most value.
A simple way to start is to compare everything on two characteristics. For products, ask how important each one is to the business and how predictable its demand is. Plotting the answers on a grid sorts products into groups needing different handling. Planners call this ABC/XYZ segmentation, but any two characteristics that matter to the decision will work.
The grid on its own changes nothing. The benefit comes when each group gets its own rules, priorities and improvement focus, which must still fit real constraints such as shelf life, lead times and capacity.
A few places it pays off
- Products: Give important, steady lines regular replenishment and predictable production schedules. Plan important, erratic lines more closely. Make minor, erratic lines to order or drop them. Plan seasonal lines around their predictable peaks rather than adding safety stock.
- Warehouse: Rank items by pick frequency and ease of handling. Put fast movers in the most accessible picking locations, heavy or awkward items near the right equipment and slow movers in less accessible spots. That cuts walking, handling and safety risk.
- Customers: Compare each account's net sales value with its cost to serve, including account manager time. Protect service for high-value, low-cost accounts. Reduce cost to serve for high-value, high-cost ones. Look for growth in low-value, low-cost accounts. Review pricing, minimum orders or the relationship itself for low-value, high-cost ones.
The same approach works for suppliers, range reviews and combined views, such as your biggest customers against your most erratic products to see who drives the volatility.
Three steps to try this week
- Pick one area where everything is treated the same, such as stock settings, warehouse layout or customer service.
- Use the data you already have to group each item by the two characteristics that matter most.
- Write down how each group should be managed, then compare it with what happens today. The gap is your starting point.
Where is your business still treating everything the same?
Questions this usually raises
What is ABC/XYZ segmentation?
A way of sorting products by comparing each one on two characteristics: how important it is to the business and how predictable its demand is. Plotting the answers on a grid sorts products into groups that need different handling. Any two characteristics that matter to the decision will work.
How do you segment customers by cost to serve?
Compare each account's net sales value with its cost to serve, including account manager time. Protect service for high-value, low-cost accounts. Reduce cost to serve for high-value, high-cost ones. Look for growth in low-value, low-cost accounts. Review pricing, minimum orders or the relationship itself for low-value, high-cost ones.
Where do you start with segmentation?
Pick one area where everything is treated the same, such as stock settings, warehouse layout or customer service. Use the data you already have to group each item by the two characteristics that matter most. Write down how each group should be managed, then compare it with what happens today. The gap is your starting point.
If one set of rules still covers everything, get in touch. A consultation is ninety minutes: we'll look at where treating everything the same is costing you.