Companies often group inventory items into classes in order to manage them more efficiently. Managers routinely use these clusters or segmentations in their inventory replenishment planning decisions. However, as companies grow and their operations expand, these classifications can become outdated. If this problem is not addressed, products can become misclassified. Inaccurate SKU classifications add cost to supply chains and hurt service levels as inventory managers misallocate resources to meet demand.
The segmentation practices of a major CPG company were studied to find out whether the enterprise was experiencing these problems, and to assess the impact of these problems as well as possible solutions.