By Christine Parizo
Supply chain segmentation is an approach companies can use to manage all that complexity. Global professional services firm EY explains that segmenting supply chain management processes “aligns specific corporate goals with focused virtual pathways through a larger, more complex supply chain.” Per EY:1
“In the end, segmenting a complex global supply chain to create a series of clear pathways, defined by performance metrics that align with specific goals, not only cuts through the complexity associated with achieving those goals (in essence, reducing it), but also generates better information to support corporate decision-making and increases the organization’s overall flexibility. Segmentation achieves all this by aligning and engaging organizational resources optimally to obtain the desired results.”2
While segmenting supply chain management processes is not new, it is “re-emerging as a core capability for competitiveness,” according to a joint study released in December 2016 by U.S.-based JDA Software and the U.K.’s University of Warwick.3 But their report suggests that too few companies use segmentation. The survey of 100 European manufacturers notes that only 8 percent of the participating companies achieved level 3 (out of 4) in terms of the maturity of their global supply chain management process segmentation. None reached level 4.
Given the low level of segmentation in today’s global supply chains, managers who move quickly to develop their segmentation capability will capitalize on important “first mover” advantage, according to the joint report. “There is a significant opportunity for organizations that develop their capability,” it notes. But it’s a challenging road: most organizations that are segmenting their supply chain management processes are being held back by their organizations’ lack of process orientation, data analytics, and “top-down” thinking. The report points out that top-down thinking is a requisite for aligning segments with strategic corporate goals.
One way to segment the supply chain focuses purely on the customer, and it segments the supply chain based on service capabilities. According to an article in Supply Chain Brain magazine, the ways this method of global supply chain management delivers more value to the customer are by meeting different customers’ needs at the lowest possible cost, creating an organizational framework for focusing on the customer, and effectively managing the lifecycle of each customer.4 This can also lay the foundation for optimizing other business processes around the customer, allowing the organization to provide better service overall.
The approach also can help supply chain managers meet the varied timelines of different customers and identify the manufacturing process to best serve their needs. For example, a company might choose a make-to-order process for its distributor customers, who generally do not want to carry a lot of inventory. According to Industrial Engineer, it’s also important to consider customer impact from the common volume-based supply chain method of consolidating shipments of various products into containers and shipping all at once, separating the shipments only at the destination points. While this will save on transport costs, it may be too inflexible to meet the needs of customers who must wait for infrequent shipments.5 This is particularly concerning for B2B customers with their own timelines and customers to satisfy
One of the biggest benefits of supply chain segmentation is being able to keep up with omnichannel trends. Functions like ship to home/return to store and order online/pick up in-store mean that the supply chain must be flexible and, from customers’ perspective, seamless. This requires supply chain segmentation that can isolate inventory levels against plans, constantly balance inventory among multiple locations to prevent understocking or overstocking in any given locale, and use of digital analytics to assist in picking up cross-channel shifts.6For example, a customer might place an order, and the order might be fulfilled by a retail location instead of a warehouse due to understocking.
The Home Depot, with more than 2,000 retail locations throughout North America, has publicly discussed the way it segmented its supply chain management processes to achieve omnichannel success. A case study in the Industrial Engineer article describes how The Home Depot improved its order fulfillment processes and developed rapid deployment centers to meet the needs of customers shopping online, and revamped its operations strategy to segment its supply chain in alignment.7 Inventory reductions, a better view of in-stock items, more efficient distribution, improved demand planning, labor savings, and lower markdowns all stemmed from The Home Depot’s supply chain segmentation strategy.
When done with an eye toward balancing customer needs and corporate goals, segmentation of global supply chain management processes can increase customer satisfaction while improving an organization’s business processes – and, therefore, its profitability. The caveat is that most organizations find it difficult to bring to bear the executional rigor necessary to take full advantage of segmentation. Nonetheless, those that do have found success including labor savings, better inventory management, and improved demand planning.
1. “Supply Chain Segmentation,” EY ;http://performance.ey.com/wp-content/uploads/downloads/2013/02/Supply-chain-segmentation_DC0121.pdf
3. "Supply Chain Segmentation: A Window of Opportunity for European Manufacturing", JDA Software & The University of Warwick; http://now.jda.com/rs/366-TWM-779/images/Segmentation-Report-Warwick_2711.pdf
4. Steps to Successful Supply Chain Segmentation.” Supply Chain Brainhttp://www.supplychainbrain.com/content/general-scm/sc-analysis-consulting/single-article-page/article/steps-to-successful-supply-chain-segmentation-1/
5. Parting the Ways for Supply Chain Excellence,” Industrial Engineer
6. "The Omni-Channel Effect: How Retail, Distribution, and Manufacturing Are Evolving", Aberdeen Group; http://aberdeenessentials.com/opspro-essentials/the-omni-channel-effect-how-retail-distribution-and-manufacturing-are-evolving/
7. "Parting the Ways for Supply Chain Excellence",Industrial Engineer; http://www.inflation.eu/inflation-rates/canada/historic-inflation/cpi-inflation-canada-2016.aspx