Segmentation: Shift from One-Size-Fits-All Supply Chain

In January, I identified segmentation as one of key strategies for supply chain managers in 2012. Segmentation is a powerful data- and analytics-driven approach for creating one-to-one relationships between your customers and your supply chains. It establishes the policies for how best to serve each customer with each product in a company’s portfolio. Segmentation promises to set the foundation for improving the overall profitability of a company’s product and customer portfolio while increasing reliability and agility.

Last week, CSCMP’s Supply Chain Quarterly magazine published a cover story I wrote titled “Supply Chain Segmentation: 10 Steps to Greater Profits.” I hope you have the opportunity to read the article and give me your feedback. Below is a quick overview of some of the important points:

The goal of segmentation is to find the best supply chain processes and policies to serve each customer and each product at a given point in time to maximize customer service and company profitability. Many companies today still operate using one-size-fits-all supply chain model, with some customers being over-served and others under-served. Research shows that 30-40 percent of a typical company’s customer and product portfolio is unprofitable. By understanding the profit profile of customers and products, companies can tailor a more profitable and reliable supply chain capability for each customer and product.

In the Supply Chain Quarterly article, I address segmentation as an end-to-end strategy that touches policies associated with business processes from customer through supplier. This includes policies associated with the following supply chain areas:

  • Allocation and order promising
  • Customer replenishment / fulfillment
  • Inventory
  • Transportation
  • Demand management
  • Manufacturing
  • Supplier sourcing
  • Supplier replenishment

The foundational underpinning to establishing the best policies for each of these areas is to understand supply chain cost-to-serve. Cost-to-serve is the cost of all supply chain activities associated with taking a customer order and delivering a product associated with that order. Segmentation seeks to create supply chains with an appropriate level of service for a given cost profile. Cost-to-serve is also dynamic so companies must have processes and analytics for regularly evaluating it and ensuring policy alignment.

It is also critical to monitor segmentation policies as part of the monthly S&OP process and to evaluate them more strategically as part of a company’s supply chain center of excellence or business optimization center. Once all of this is in place segmentation policy administration can be automated across various functional areas through master data management and associated workflows.

Segmentation is not a new concept. Over the years it has been implemented in various functional areas such as inventory and fulfillment. I believe it is seeing renewed interest because of a confluence of factors, including growing product and customer portfolios, private label competition, globalization, demand uncertainty, and the ability of technology to meet and scale to end-to-end requirements. Additionally, leading companies are now reaching levels of supply chain maturity where segmentation is becoming both possible and necessary to continue to improve.

CSCMP is hosting a special webinar with Dell and JDA to further discuss some of the principles behind supply chain segmentation and to provide insights into the foundational concepts behind Dell’s segmentation initiatives. Join me, Donna Warton, Vice President of Global Operations at Dell Computer and James Cooke, Editor of Supply Chain Quarterly as we discuss four key policy areas necessary for aligning the supply chain to unique customer and product value propositions. To sign up for the webinar use this link: “Segmenting Your Supply Chain for Success.

About CSCMP

CSCMP publishes Supply Chain Quarterly. CSCMP was founded as the Council of Physical Distribution Management nearly 50 years ago. Since then the organization has been instrumental in elevating the collective science and discipline of supply chain management and in creating a global community of supply chain management professionals. I applaud CSCMP in its continuing journey of advancing our field.

  2 Comments   Comment

  1. Great article. I found it interesting that such an article should appear in a JDA sponsored blog. Most JDA applications are plain vanilla, one-size-fits-all. At least that is usually how the consultants advise.

    Each business need is different, each company has different goals, and each company has different cost structures. One size can not fit all. Competition does not happen with everyone being plain vanilla.

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