SAP Integrated Business Planning (IBP) ABC/XYZ Segmentation

[lingaiahvanam]

It is easy to share my experience with ABC segmentation but not with XYZ segmentation.

When I started my SAP career (a decade ago) with master data review and upload every time business will not provide the ABC indicators, to be honest, I do not know what it is or how it function. At the end of the master data ownership ABC indicator in ECC means the Material Management (MM) team is responsible sometimes Production Planning (PP) team has to take responsibility and it depends on the client to the client.

You might think why you are sharing the ECC experience when we are talking about IBP, Yes you are right ABC classification was introduced in SAP ECC first and later in APO however same feature is available in ECC - > S/4HANA & APO -> IBP.

We were presting a demand planning process demo to one of the customers, our agenda was to cover all the features in SAP IBP Demand in that ABC/XYZ segmentation. One of the planners asked I knew ABC segmentation but what is XYZ segmentation I did not hear that words in the planning process. They are more interested to learn XYZ and its importance.

We shared the process demo for ABC segmentation, global planner said that we are doing the same process in Excel (custom macros) it is not a big deal to implement the same process in SAP IBP. XYZ segmentation also can be implemented if we hire the right talent to code it in Excel.

I agree with his comments however if you are working offline in excel it would be difficult to have available data all the time and sharing with multiple groups. If each group works on different spreadsheets they never come to a consensus view. Immediately, the same point is one of the business challenges not with ABC but the overall process. The consensus plan/view is super important to review and agree on the final forecast/demand figures.

The overall demo went well and everyone was happy with IB demand features. Now we will start with ABC/XYZ segmentation process in IBP.

1. ABC segmentation will group or prioritize attribute values based on the specific key figure.


2. XYZ segmentation will classify the attribute values based on the specific key figure.

The customer wants to categorize product groups based on revenue and sales quantity key figures.

ABC Analysis

Classify planning objects according to their usage value. During ABC analysis, the system assigns each object one of the following indicators:

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  A - The most value, or given number of objects that produce the greatest value

  
  


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  B - Less value, or given number of objects that produce less value

  
  


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  C - The least value, or given number of objects that produce the least value

  
  

XYZ Analysis

Classify planning objects according to the variance in a specific coefficient. During XYZ analysis, the system assigns each object one of the following indicators:

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  X - Very little variation

  
  


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  Y - Some variation

  
  


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  Z - The most variation

  
  

ABC and XYZ segments

 

How to implement this process in IBP?

It is simple and easy and follows as,

1. Creation of segmentation profile


2. Schedule or run segmentation application job


3. Review results in Excel UI and Dashboards

Wha are the methods avaialble for ABC and XYZ segementation?

6 methods are available for ABC segmentation.

1. By Pareto principle (sorted and cumulated %)


2. By Pareto principle (sorted and cumulated values)


3. By number of items (sorted %)


4. By number of items (sorted values)


5. By segmentation measure (single values)


6. K-means

I would recommend viewing this video for a detailed explanation of the methods.



XYZ segmentation using two different calculation strategies.

1. Calculate variation


2. Aggregate over periods

The main difference between the two strategies is that Calculate Variation calculates the variance values during the segmentation runs, while Aggregate over Periods works with values that were previously calculated by other tools such as the Manage Forecast Error Calculations app.

Business users can use this feature with minimum effort and it has a greater visibility of product segmentation and classification.

Sometimes we may not know everything but we have the opportunity to learn and support businesses to plan better.

I thank you for reading this blog and soon will catch up with another interesting topic.

Best Regards,

Lingaiah