Segmentation to the Rescue of SC Biggest Problems

By all means, Supply Chain (SC) is the core of our enterprises, but not all SCs are suitable for all...

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Posted by Dave Food on Dec 19, 2018 4:57:28 PM
Dave Food

By all means, Supply Chain (SC) is the core of our enterprises, but not all SCs are suitable for all enterprise. Therefore, Segmentation comes to the rescue!

Supply Chain Segmentation is “the correlation of customer channel demands and supply response capabilities” within the expanded value chain. You can segment by customers, products, channels, or regions, and by suppliers as well.

Segmentation helps enterprises enhance profitability by shaping their SC strategy to each customer and product in their portfolio. It’s a procedure by which your businesses can build one-to-one relationships between their customers and their SCs. The goal is to find the rightest SC processes and policies to serve each customer and each product in time while getting the most out of both customer service and company profitability.

Segmentation has repercussions in many areas, from the supplier through to the customer. With the purpose of gaining the higher value from Segmentation for both the customers and the enterprise, companies must have policies in each area that are coordinated to the value proposition offered to each customer/product combination.

The groundwork of Segmentation is the data-driven analysis of demand and the profitability of customers and products, which provides the information needed to outline service agreements and SC policies to raise the total profitability of the portfolio, while delivering reliable and suitable service; this analysis must be established and operated on a standard pace.

It essentially means that there will be multiple, virtual supply chains running against one physical SC boost by unique value propositions for groups of customer/product crossings, and will be reflected through policies that are managed and administered by SC professionals.

Key practices in Supply Chain Segmentation

1. Perform regular demand and cost-to-serve analysis - begin with an easy model designed for ordering cost, inventory and transportation of products based on their volume and other ordering changing aspects, and which delivers data that can be carried on into a decision-making framework.

2. Implement differentiated demand policies in core functions - Demand indicators can come from orders, forecasts, and safety stock, as well as from different channels (retail, Web, distributors, or enterprise); from various sources (Original Equipment Manufacturers [OEMs], and aftermarket/spares). Furthermore, they can come from different customer types, as large, highly profitable customers or small, unprofitable customers.

For the SC to align with Segmentation strategies, the demand signals such as master planning, transportation, and factory planning must be arranged in a way that aligns with those strategies, tied to the service/profitability framework, smart enough to integrate and make decisions using these priorities.

 3. Apply differentiated inventory policies, regulating what inventories to carry, where, in what form, and in what quantities across a multilevel network, and to understand the value propositions offered for each customer/product intersection.  

4. Use Analytics tools to evaluate the entire network, the stocking policies for each product at each stocking location, determining how much finished-goods or semi-finished inventory to carry downstream or upstream at regional distribution centres (DCs), and at factory locations.

5. Deciding where to incorporate postponement strategies, to help balance higher demand variability or to reduce costs for products that have different service requirements.

6. Apply differentiated customer replenishment programs - different replenishment for different customers’ relationships, according to the service demand, the volume and profitability of that customer, and the channel used to support that customer (retail, distributor, enterprise, or Web). These channels should have different replenishment programs.

SUMMING UP: a differentiated supplier replenishment program should be segmented based on supplier/component dynamics. Use a blend of owned and outsourced factories, as well as a mixture of shorter-lead-time and longer-lead-time (the latency between the initiation and execution of a process,) nearshore and offshore capacity. Synchronised with the ordering and customer replenishment programs on the front end of your Supply Chain.

Dave Food


Prophetic Technology

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