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Supply Chain Segmentation in Practice

In a previous Velocity post, I talked about the theory of segmentation and how tailoring supply chain solutions for each customer or product in a company's portfolio could boost overall supply chain effectiveness and balance sheet performance.

It's more than a good idea, and various companies across many industries, including high-tech, retail, and apparel, have gone in this direction. In the high-tech space, the most definitive examples of breaking the “one supply chain fits all” mold are in the computer segment.

{complink 1544|Dell Inc.}, a granddaddy in the PC space that has always had a good reputation for its supply chain management finesse, is one company that uses segmentation. As noted in this Supply Chain Quarterly article, the company has transformed its direct-to-customer business model “into a multichannel, segmented model, with different policies for serving consumers, corporate customers, distributors, and retailers.”

By setting up more of a one-to-one relationship with customers and using the supply chain as a way to strengthen that relationship, Dell has saved $1.5 billion in operational costs, the article notes.

Another company that has started to use segmentation in part of its supply chain is {complink 5114|Sony Corp.}. Focusing on differentiated customer replenishment programs, Sony closely analyzes point-of-sale data from at least one of its customers, Wal-Mart Stores, and uses that data to improve its in-store product availability and reduce channel inventories, the above cited article mentions.

Gartner's Matthew Davis speculated in a 2010 blog post that {complink 38|Acer Inc.}, another big PC player, was moving towards more segmentation based on the company's product launches at the time. Davis muses:

    Why are they pursuing a fundamental shift to notebook design that is ahead of consumer expectations? Even if the product is a success, the demand will be low and likely variable. A highly demand variable, low volume platform? Sounds a lot like customization that will require supply chain agility. So this announcement could be a first step toward supply chain segmentation.

More recently, Lenovo, the Chinese PC maker that has muscled itself into a top worldwide brand, attributes much of its success to its “Protect and Attack” strategy. Using this strategy, launched in 2009 and based on delivering speed and agility, the company protects its core mature markets (namely its Chinese home turf) and key enterprise relationships, but also aggressively enters — or attacks — other consumer and emerging markets, according to Lenovo documents. To pull that strategy off well means having not only a focus on products but also an efficient supply chain and strong business model, as mentioned in the company's 2011-2012 annual report.

As segmentation garners more attention and companies try to make their supply chains a stronger competitive tool, Gartner's Davis did a follow-up earlier this month, pointing out practices that could lend themselves to this kind of approach and the inherent challenges companies should consider. He expects to see many more companies moving in this direction in 2013 and 2014. Why? Because it's the next step, he writes:

    [Supply chain segmentation] is a concept that has had to wait for the rest of the supply chain discipline to catch up in order to become viable. Many companies have broken down the functional silos, have enabled collaboration with their network partners and have translated customer value requirements into tangible supply chain needs.

    All of this activity was needed to show that supply chain could, in fact, manage trade-offs without undoing years of work on cost reductions. Product / supply network segmentation is a natural extension of this journey as processes and resources are aligned to the complexity needed based on which quadrant they land in.

Where are you in this supply chain journey? Has your company segmented supply chain solutions by products and customers on a wide-scale base? Is it working? Or is this just a fad?

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1 comment on “Supply Chain Segmentation in Practice

  1. JulianBl
    January 11, 2013

    I enjoyed the article and the comments. One thought, it is really not easy for companies to find its most profitable customers.  Alas, highest revenue is too easy to look for. So before you get to supply chain segmentation, the company must be sure it is has a good handle on revenues and costs. Costs are particularly difficult as they always involve assumptions and assigning fixed costs.

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