Technology Implications of Supply Chain Segmentation

Companies achieving best-practice in supply chain segmentation management are twice as likely to be top service performers and two-and-a-half times as likely to be top inventory performers, while keeping the cost of this additional flexibility under control.

This article will review how successful companies define supply chain segmentation and the varying criteria that fall under each of these segments. For example, distribution strategies and supply constraints call for different supply responses as well as different network designs to deliver those responses.

A computer manufacturer for instance, may have different products in various market segments that are at different stages in their product life cycles and therefore require hybrid supply chain approaches. The supply chain requirements vary, depending upon whether the company is selling directly to businesses or consumers.

A supply chain geared towards supporting other companies (B2B), for instance, would be primed to sell high-mix products through direct and indirect channels or custom configured products that require more costly build-to-order processes. Such a supply chain would require attribute-based forecasting of key features and options, customer order postponement, vendor-managed inventory (VMI), and replenishment based on sell-through demand signals.

A supply chain created to sell products directly to end customers (B2C), on the other hand, must be able to serve retail and consumer markets where unit manufacturing cost is the key differentiator and lower-cost supply strategies and networks are required. Such a system would also require statistical forecasting to support a make-to-stock model, with predefined configurations and options. Its inventory policies would also have to support the lower-cost model and perhaps lean manufacturing.

From a technology perspective, the deployment of these diverse supply chain systems would require the deployment of a broad set of customer and supplier collaboration capabilities within the organization. On the demand side, the essential tools and skills set include forecasting, sales order collaboration, and visibility into channel inventory as well as shipments to customers. On the supply side, the company must institute a supply chain system that can communicate demand to multiple supplier tiers, collaborate on purchase orders, and provide visibility to implement VMI programs while offering better visibility into supplier shipments.

In the area of product lifecycle management, the system deployed must be flexible enough to support transitions from one supply chain model to another as the product progresses through the critical stages of its life. These include the early stage, when demand is hard to predict and the network must be designed to deliver the appropriate supply response; and the second stage, when the product lifecycle matures, and demand and volume typically stabilize, allowing the response to be tailored for lower costs and lower inventory while still achieving optimal service levels.

The managed service approach provides the flexibility to easily migrate from one supply chain model to another. The transition typically involves the following steps:

  • Deploying new systems
  • Provisioning various suppliers and customers with new collaboration services
  • Visibility capabilities
  • On-boarding suppliers
  • Training supply chain and IT support resources on new techniques
  • Managing the updated infrastructure to support business-mandated uptime

Deploying the new infrastructure internally, as well as hiring and training internal resources to support this transition, may take too long. To avoid this, a company should consider using managed services, which would allow the management to focus on its business timelines, knowing it can count on new technology and on-boarding capabilities to be there when needed.

Using managed services would also help a company quickly redeploy the right supply and demand side collaboration technique to support the needed supply chain segment model. Finally, a best-in-class company would be able to deploy multiple supply chain strategies to support requirements in different industry sectors.

4 comments on “Technology Implications of Supply Chain Segmentation

  1. mfbertozzi
    January 8, 2011

    Thanks Rich for your very professional article. I was wondering if we could assume Customer Care is definitely within the chain and if there are positive experiences on segmentation (or re-assembling) also about it.

  2. Hawk
    January 10, 2011

    Rich, Supply chain segmentation to service different markets sounds like a good idea when a company is really big and has numerous products with varying volumes. A smaller OEM may not be able to do this even when it has many products because it may lack the resources to support a segmented supply chain.

    How should companies vary the model you discussed based on their size? I assume a smaller OEM may be more inclined to use a managed service provider than a bigger OEM. Would this be a correct assumption or can a large OEM also benefit from using managed services?

  3. stochastic excursion
    January 10, 2011

    Early in the product lifecycle, too, engineering changes tend to be more frequent.  Supply chain planning would have to be integrated well into the design depending on what kind of quantities are involved.

  4. mfbertozzi
    January 10, 2011

    I fully agree especially these days, market competion stresses a lot design back and customizations during production in progress, isn't it Rich?

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