✓ Supply Chain Method
10 Questions about Supply Chain Segmentation Is One Supply Chain Enough?
The increasing fragmentation of today’s markets implies that supply chains need to handle very different products and serve customers with different needs.
Nevertheless, a lot of companies still work based on the ‘one-size-fits-all’ principle. In reality, several different customer value propositions are often needed, each requiring a different supply chain strategy. Supply chain segmentation can provide the answer… but when should you segment your supply chain, and how many supply chains do you need? Supply Chain Movement and Chainalytics, a global provider of supply chain consulting and market intelligence, have created this supply chain segmen- tation checklist to help you find out whether one supply chain is enough in your case.
Differentiated approaches
A company’s existing supply chain is most often an evolution of the original design, which was equipped to best serve the requirements of the business at that time. But businesses change over time, and there is no one-size-fits-all supply chain design that meets every requirement. Differentiated approaches to customers, products and supplier bases help to reduce the challenges of supply chain management and make it possible to respond to varying needs in an efficient and timely manner. If it is not done properly, however, segmentation can create an additional layer of complexity and costs.
Answer these 10 questions to find out whether you could benefit from segmenting your supply chain.
RESULTS:
0-2 questions answered with “no”: You have a remarkably homogeneous sup- ply chain so it is relatively easy to manage effectively. There is no need for supply chain segmentation.
3-6 questions answered with “no”: Like most companies, you face some degree of differentiation across your value chain. The best course of action in this
situation is to implement targeted segmen- tation, meaning you differentiate some processes – namely the ones which can most impact an effective and cost-efficient differentiated approach – and continue to pursue a one-size-fits-all approach for others.
7-8 questions answered with “no”: There is a lot of differentiation across your
supply chain and it is not limited to one domain. Targeted segmentation will not go far enough to meet the varying require- ments. You should spend sufficient time on defining your segments and on understand- ing the critical supply chain performance and cost drivers before determining your segmentation criteria.
9-10 questions answered with “no”:
There is a clear need to segment your supply chain. Companies with this level of differentiation need to ensure that the seg- mentation is broadly understood/applied throughout the company (i.e. you should involve colleagues in customer service, commercial departments, quality, etc.). It is important to monitor the business per- formance via segment-specific KPIs and to review the segments regularly.
Product & Supply
Customer & Market Checklist for Supply Chain Segmentation:
CUSTOMER AND MARKET CHARACTERISTICS: 1. Our customers all have similar order qualifiers and order winners (e.g. price sensitiv- ity, need for product availability, delivery lead time, volume flexibility, etc.).
2. We can attribute the same level of priority and importance to all of our customers. 3. The Cost to Serve is similar across all customers.
DEMAND CHARACTERISTICS: 4. The demand predictability is relatively consistent across all products and customers. 5. We have mostly only low-volume or only high-volume product demand, not a mixture of both.
PRODUCT AND SUPPLY CHARACTERISTICS: 6. We sell either mostly standardized products or mostly specialized products, not a mixture of both. Our standardized products typically have low variety, a lower level of innovation and a lower margin.
7. We have a homogeneous set of products in terms of product value density. 8. The life cycles of our products are relatively consistent across the portfolio. 9. Our supplier base (including internal manufacturing) is either consistently stable (few breakdowns, high reliability and few capacity constraints) or consistently unstable (thus increasing our supply chain vulnerability), not a mixture of both. 10. Our supplier base (including internal manufacturing) is either totally responsive (capa- ble of guaranteeing short delivery lead times) or totally unresponsive, not a mixture of both.
Yes No
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SUPPLY CHAIN MOVEMENT, No.29, Q2 2018
Demand
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