Revisiting Supply Chain Segmentation

Supply chain segmentation has become a common way for companies to organize their product portfolios, sales channels, and revenue streams.

And, for the last 20 to 25 years or so, the strategy–and philosophy behind it–worked for many companies in the high-tech supply chain. Dell, for instance, was the poster child of supply chain segmentation. It created the direct-to-consumer approach that changed how computers are sold to the masses and how supply chain partners reacted to sales triggers from different channels for different, and more customized, products.

In a changing world where social media, corporate social responsibility, and a widening global consumer base adds increased pressure to improve sales and operational performance, maybe it's time to look give the strategy another once-over and see how it further drive supply chain profitability. How, for instance, could segmentation work beyond the outbound sales channel and be better applied to production planning? Or inventory optimization or demand planning? How can segmentation be optimized for a digital world where around-the-clock accountability, responsiveness and flexibility are the norm and the channels of communications have been expanded beyond a laptop, a server, and a spreadsheet to now include many different device and application formats?

As noted in the JDA Vision 2015 Supply Chain Study (download available after registration), complexity management, operational improvements centered on customers' needs and demand, and business model innovation are some of the things supply chain executives have top of mind this year.

The study highlights several key findings, including these:

  • More than three in 10 large companies (with more than $5 billion U.S. in annual revenue) do not have a defined consensus demand management process, suggesting they may be somewhat siloed and aren't bringing together the viewpoints of sales and marketing and supply chain teams to develop a solid, accurate forecast.
  • More than eight in 10 firms have deployed, or are deploying, a segmented production strategy. All of the largest firms, those over $5 billion in revenue, said they use this strategy, underscoring that as companies scale, they are forced to pursue segmentation.
  • Just over one-third of organizations indicate they optimize production plans either regionally or across their entire network. That leaves two-thirds of companies that address production planning on a plant-by-plant basis.
  • The top initiatives companies are pursuing, or plan to pursue, in the next 12 months include integrating best-in-class sales and operations planning processes, and increasing agility in production planning.

What's also becoming clear is that a “one-size-fits-all” segmentation strategy no longer may be the only – or best– strategy.

As Puneet Saxena, JDA Software Group's vice president of manufacturing industry strategy writes in the company’s blog post:

As supply chain professionals, our efforts are intended to drive up the sales of our products or services, deliver effectively and cost efficiently and  lower the cost of goods and sales and admin expenses – all  while optimizing the use of our assets – whether that means manufacturing assets or work in process inventory. However, with increased products and customers comes complexity, and with complexity comes the risk of misalignment issues. Previous one-size-fits-all supply chain strategies cannot adequately or profitably achieve this goal. Therefore, companies must segment their supply chain strategies and operations to balance cost-to-serve with the value to the business for each segment.

What's your company's take on this? How do you see supply chain segmentation evolving?

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