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5 Benefits of Lifecycle Segmentation

If much of your time is spent addressing supply chain problems, a transition to supply chain product lifecycle segmentation will alleviate the pain. Based on our experience, you should expect to reap some combination of the following benefits:

  1. Revenue improvement
  2. of up to 4 percent of annual sales by focusing high availability where it's most valuable to your organization and customers.

  3. Stock writeoff or discount reductions
  4. of as much as 50 percent of current levels by exercising a clearer understanding of where inventory distress is likely to occur and applying expertise and tools accordingly.

  5. Reductions in logistics expediting costs
  6. of between 25 and 50 percent, facilitated by a move from unplanned rush shipments (a.k.a. firefighting) toward planned rush shipments (a.k.a. targeted stock positioning and redistribution).

  7. Reduced complexity
  8. in systems by automating where appropriate and applying analytics and planning expertise where they will provide the best result.

  9. Improvement in supply chain talent
  10. retention and recruitment due to the reduction in stressful firefighting and the refocusing on more interesting analytics and collaboration.

Globally, the combined annual revenue of the top 10 high-tech organizations is approximately half a trillion dollars. But this scale has created huge and hugely complex supply chains that often teeter on the edge of being out of control. By dividing the supply chain into manageable chunks, segmentation can reduce complexity and customization dramatically while delivering sizeable business benefits. But all segmentation is not created equal. Product lifecycle segmentation directly addresses high tech's greatest pain points. (See: The Cure for Chronic Inventory Distress .)

Supply chains should be subservient to product, but supply chain management has become a serious distraction in the high-tech industry. Lifecycle segmentation is an opportunity to reduce that distraction and free up time for your organization to do what it does best: Get bigger on big ideas.

6 comments on “5 Benefits of Lifecycle Segmentation

  1. mfbertozzi
    August 9, 2011

    I have appreciated present editorial, it follows the previous one on segmentation process. I agree the principle proposed that it allows me to outline a question I would like to share: could we assume segmentation is valid in general or it depends on market addressed by producer? For istance, focusing on shipment, it is very different operations for addressing consumer market instead of big enterprises or 1st distributors layer.

  2. Jay_Bond
    August 9, 2011

    From a quick glance it seems that your idea of breaking the supply chain into smaller parts could save large sums of money. It is hard to believe that more companies have not looked at adopting this sort of system when so much money could be saved. I'm sure there are many companies who are aware of potential savings, but need some consultation on what areas to best focus on and where they will receive the most savings.

  3. Eldredge
    August 9, 2011

    The segmentation approach makes a great deal of sense, and based on the inventment tied up in inventory and manufacturing, is bound to save a lot of operating capital.

  4. Chris Gordon
    August 9, 2011

    It is indeed surprising that an approach as compelling as segmentation hasn't already been more widely adopted. Much of this may be due to the organizations looking for the application that has the perfect fit accross the supply chain.

    I think segmentation is appropriate for most industry sectors. The key difference should be in the choice of parameters from which to segment. The parameters should align closely with major costs and value drivers within the sector 

     

  5. Hawk
    August 9, 2011

    Chris, I know you were talking about life cycle segmentation but is it possible this strategy could also be applied to product segmentation? By this, I mean, will it work for a company to decide early on what products it would support as it reaches end-of-life? Your description of life cycle segmentation tells me this is a possibility.

  6. Chris Gordon
    August 9, 2011

    Yes that is certainly the case. Segmentation will provide a view as to the relative cost and value of supporting each product segment through end of life. That gives the organization enough information to support an improvement in decision making. In many ways, its a move from unplanned to planned costs of carrying and eventual disposal. 

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