Hot Topics: Segmentation and Automotive Supply Chain

I had the pleasure of attending the Gartner Supply Chain Executive Conference last week. The conference was started by AMR Research a number of years ago and continues to be a strong draw for supply chain management professionals. The conference is largely focused on manufacturers and has a mix of sessions led by Gartner analysts and practitioners. The hottest topics followed closely the four key strategies I outlined in my first blog this year titled Four Key Strategies for Supply Chain Managers. Segmentation was probably the most talked about topic, with at least five sessions specifically addressing it. Likewise, driving operations from downstream data, and visibility and synchronization (including S&OP) were widely covered in various sessions.

My two most memorable presentations were held on Wednesday morning – the first by Ford Motor Company executive director Stephen Harley, and the second by Jim Cafone, vice president at Pfizer. The Ford presentation was interesting in two respects – after years of turmoil and hard work, Ford had just been upgraded to investment grade by Moody’s Investors Service. You may recall that just prior to the global financial crisis Ford mortgaged all of its assets, including the Ford Oval, to raise cash in anticipation of the downturn. This move turned out to be uncannily prescient and timely. This is a patriotic story for a great American company and also good news for the entire automotive industry (more to follow on the resurgence of the automotive industry in a future blog).

Second, Ford has been incrementally improving its supply chain over the years and is now moving to a true global order-to-delivery operation. The analysis I did late last year and published in a white paper titled The Automotive Supply Chain in the New Normal shows Ford leading the automotive industry in inventory turns. The cash that has been freed up by running a lean inventory profile has provided them with much more financial maneuverability.

My favorite presentation of the conference was the Pfizer presentation, which incorporated interesting vision along with execution. Mr. Cafone talked in depth about how Pfizer has segmented its customer, product, channel, and geographic portfolio and then has used this segmentation to drive what he referred to as “supply chain virtualization.” The term virtualization seems to be borrowed from the concept of virtualizing a network of computers by optimizing the use of capacity across them. In this way, multiple nodes act virtually as one. This is a particularly powerful concept for Pfizer because they have limited physical asset flexibility, due to rigid country-specific pharmaceutical industry regulations.

I like this concept because I believe it is where supply chain segmentation is evolving. I introduced the same concept in the March cover story on segmentation in Supply Chain Quarterly. In that article, I talk about how segmentation provides the ability to create multiple virtual supply chains across a single set of physical assets. This concept is shown pictorially below:

The end game is to create a one-to-one relationship between a customer-product-channel intersection and the supply chain based on the unique value proposition for that intersection. This is accomplished not through adding physical assets, but by deploying policies through advanced software capabilities across the spectrum from customer to supplier. This includes incorporating different policies for different customer-product-channel intersections within order promising, replenishment, inventory, transportation, forecasting, production planning and scheduling, and supplier replenishment.

Although segmentation is not a new concept, it has obviously become a hot topic in the past year and is rapidly evolving to very sophisticated deployments. I would be interested to know if any of you are deploying advanced segmentation techniques in your supply chains.

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