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Segmentation Enables Supply Chain Trifecta: Lower Cost, Higher Revenue & Greater Flexibility

The competitive pressure on members of the global electronics sector has never been greater.

While electronics OEMs recognize that their supply chains represent a significant opportunity to gain efficiencies, reduce cost, and boost market share, many struggle to take their supply chain process improvement efforts beyond the proverbial low-hanging fruit. At Avnet, we recommend customers consider inbound supply chain segmentation as a logical step in their journey toward supply chain excellence.

Segmentation, as you have likely heard or read, is a strategy that replaces the typical “one-size-fits-all” supply chain model with multiple configurations customized to satisfy more targeted goals. These objectives can be based on end-to-end metrics such as cost, expected service levels, and both manufacturing and final delivery locations.

At this point you are probably thinking: “If I replace one supply chain model with several models, doesn't that increase the complexity of an already complicated process?” You would think so, but in actuality, segmentation can help to simplify your supply chain. Through segmentation, OEMs can better align their resources so that they are not, for example, spending money delivering commodity products ahead of demand or holding up production waiting for custom parts to arrive with a consolidated shipment of standard products from overseas.

If you are considering a segmented supply chain approach, one of the first steps you might consider is to profile the kinds of products you are procuring. This analysis will help to identify risks associated with the sourcing of the parts, and therefore provide direction into the type of supply chain model you will want to execute (e.g., one focused on efficiency, responsiveness, or agility). Among the characteristics you should consider to create a practical profile are volume, lifecycle, configurations, transportation requirements, regional customs and tax requirements, and lead time.

At Avnet, we recommend customers consider not only projected sales when evaluating their sourcing, but also look at trending based on historical usage. This typically yields a more true demand picture, allowing for more accurate planning.

For smaller OEMs or those with highly decentralized global operations, limited visibility into this type of data can impede progress, but don't give up. The potential benefits of a strategically segmented supply chain are well worth the effort.

Working with a partner like Avnet can help OEMs drill further down into the finer points of the supply chain requirements, such as the best kinds of connectivity and information flow (e.g., forecast frequency, pipeline requirements) for the supply chain in question.

Once a clear picture of the supply chain, its risks, opportunities, and objectives are established and an appropriate model is put in place, it is important to regularly reevaluate the process to make sure the model is adapting to changes in demand.

As your segmentation strategy matures, you can continue to improve your results by expanding support from sourcing to product development. In my experience, the most successful segmentation strategies are supported from the very earliest stages of design. When product teams consider the impact of design and development decisions on the on total landed cost portfolio, they can build greater efficiency into their designs. This approach has been widely recognized as a lifesaver for the once-struggling Dell brand. A 2012 study of Dell Corp.'s segmentation effort was published in the December 2012 edition of the MIT Sloan Management Review. According to the article, through segmentation, Dell was able to reduce the number of product configurations that were not contributing to the bottom line by 99%, while increasing forecast accuracy by a factor of three and boosting product availability by 37%.

What's great about segmentation is that it is not something that only the big guys can afford to do. Its success isn't limited to certain markets or industries. It really can work for anyone. Of course, how it is implemented will vary, but the bottom line is any time you segment, you get a more robust supply chain. You are improving your time to market, driving efficiency, reducing cost, and generally cultivating your company's value proposition.

6 comments on “Segmentation Enables Supply Chain Trifecta: Lower Cost, Higher Revenue & Greater Flexibility

  1. FLYINGSCOT
    February 4, 2014

    You make a very good point concerning small OEMs and SMEs who may not have the wherewithal to collect and analyze historical date to make optiimal decisions.  This is a great opportunity for the large supply chain partners to help out and add value.

  2. Hailey Lynne McKeefry
    February 5, 2014

    In the trifecta, i think that flexiblity may be the most important…all though all have their place. what do you think?

  3. Benjamin
    November 28, 2016

    Excellent article plus its information and I positively bookmark to this site because here I always get an amazing knowledge as I expect.

  4. ClaireEllison
    December 4, 2016

    You shared me the best information which I need, really appreciate your great article, you are professional, I am your fans now, waiting for your update~ Thanks much!

  5. SEO Marketing
    January 12, 2017

    This is a fantastic site.  I love the articles that are posted here like this one.  Still working on hitting our Trifecta…

  6. MrPhen375
    May 17, 2017

    Great idea. Maybe we should adopt your strategies in our activities.

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