Scottsdale, Az.—Dec. 20, 2011—Increasing product and customer complexity, a diversified manufacturing landscape featuring a broad range of product categories, multiple channels and fulfillment modes, along with volatile and unpredictable demand pose real challenges for companies. Yet, many still rely on one-size-fits-all supply chain processes and policies —where some customers are over-served and others under-served —resulting in significant profitability and cash flow leakage and potential lost sales.
To help companies achieve maximum value for their customers and their enterprise, JDA Software Group, Inc., recommends using supply chain segmentation policies to get on the right track.
”Supply chain complexity has increased significantly over the last few years, yet many companies address their supply chain infrastructure – assets, people and technology – using a single approach based on costs or operational considerations. This results in little or no differentiation or ability to cope with the changing needs of their customers or their unique company value propositions,” said Kelly Thomas, senior vice president, manufacturing, JDA. “The key to success lies in a company’s ability to meet the demands of different customer and product segments without excessively increasing supply chain costs.”
According to Thomas, supply chain segmentation allows supply chain managers to tailor service agreements with customers to increase sales, while lowering operating costs, fixed assets and inventory assets. This essentially means creating multiple virtual supply chains running against one physical supply chain. These multiple virtual supply chains are driven by unique value propositions for a group of customer-product intersections and are reflected through policies that are managed and administered by supply chain professionals.
To help companies meet the diverse customer-segmented demands with a single supply chain —and without increasing supply chain costs —JDA has identified four areas for implementing differentiated policies that support an end-to-end segmentation strategy:
- Demand policies in core functions: Demand signals come in the form of orders, forecasts and safety stock, from different channels (retail, web, distributors, and enterprise), and from different sources (OEM, aftermarkets/spares). Furthermore, these signals can come from different customer types (large highly profitable customers or small unprofitable customers). For the supply chain to be aligned to segmentation strategies, prioritization of demand signals within core supply chain management functions must align to these strategies.
- Inventory policies Inventory optimization has progressed significantly to become a process-driven discipline of regularly determining what inventories to carry, where, in what form, and how much across a multi-echelon network. This starts with the foundational step of understanding the value propositions offered for each customer-product intersection. Based on this, analytic tools can be used to evaluate the entire network and determine stocking policies for each product at each stocking location.
- Customer replenishment programs: Different customers have different replenishment relationships based on the service required, the volume and profitability of that customer, and the channel used to support that customer. For example, a high tech consumer electronics company typically deals with multiple channels (retail, distributor, enterprise and Web). Each channel should have different replenishment programs with further segmentation done within each channel to provide differentiated service based on customer-product dynamics.
- Supplier replenishment programs: Similar to customer replenishment programs, supplier replenishment programs need to be segmented based on supplier-component dynamics. Companies today make use of a combination of owned and outsourced factories, as well as shorter lead-time near-shore capacity and longer lead-time offshore capacity. These different supply modes must also be synchronized with the ordering and customer replenishment programs on the front end of the supply chain.
To be successful, organizations should not only segment their customer base and products within markets and channels, but extend this thinking into their supply chain processes, policies and operations, with the ultimate goal of creating a number of supply chain configurations capable of delivering differentiated value propositions across multiple channels and products.
“Creating a segmented supply chain empowers and enables companies to identify, focus, and prioritize key sectors and to tier, align, and if needed, build supply chain resources and capabilities to successfully serve or deliver the sectored customers, cross channels or markets,” said Thomas. “Instead of applying a one-size-fits-all approach across all segments, this approach enables companies to match supply chain service with each segment’s characteristics and requirements. Successfully deployed segmentation strategies will improve the customer service reliability while increasing profitability across the product portfolio.”