Inventory segmentation is the practice of categorizing inventory into distinct groups based on shared characteristics such as demand frequency, value, volatility, lead time, or strategic importance. This enables differentiated management strategies for each segment rather than a one-size-fits-all approach. Common methods include ABC analysis, XYZ analysis, and multi-criteria segmentation. Segmentation helps optimize inventory levels by applying tailored policies for forecasting, replenishment, and safety stock. For instance, fast-moving, high-value items may require tight control and frequent reviews, while slow-moving or low-cost items might be managed with looser thresholds or less frequent ordering. Segmentation also aids in prioritizing which items need more attention or should be closely monitored. Advanced inventory optimization tools use dynamic segmentation that adapts over time based on demand patterns, lifecycle stage, or market changes. This leads to better allocation of working capital, improved service levels, and reduced obsolescence risk. Inventory segmentation supports data-driven decision-making and allows supply chain managers to allocate resources more effectively across diverse product portfolios.
