Segmentation in the supply chain helps companies enhance profitability through tailoring the strategy to suit each customer and product in the portfolio. Here is a list of key practices that will ensure the success of such segmentation and redesigning of the supply chain.
Supply chain segmentation is a process by which profitable one-to-one relationships can be created through which different customers associated with different channels and products, policies, processes and operation modes can be served. The goal at any time is to find the best and viable supply chain policies and processes that can serve each customer and each product while also enhancing the customer service.
In essence, the concept aims at dynamic alignment of supply response capabilities to the customer channel demands optimised to ensure that there is net profitability across segments. However, this may be complex as it requires different skills from the same company and reduce its ability to use synergies of the supply chain of the company.
Dell is a popular example of supply chain segmentation. It introduced a revolution in supply chain management in the 1990s through a direct-to-customer consumer model. However, Dell has been transforming its supply chain into a segmented, multi-channel model with corporate customers, consumers, retailers and distributors for the past several years. Through this transformation,
Dell has been able to save US $ 1.5 billion in operational costs.
The overall profitability can be increased through tailoring products and services to consumer profiles. There are still companies that use ‘one size fits all’ approach within supply chain policies and processes which hampers cash flow and reduces considerable sales. It may help keep the things simple but the needs of some customers may not be sufficiently met or the cost of meeting the needs may be too high.
Instead, structured segmentation can help products and customers reduce demand variability and its impact. Further, problems of efficiency and responsiveness can be solved through segmentation which can also help in discovering synergies. For instance, in order to maximise profits and sales, some products can be served through a responsive supply chain such as fashion products while others can be served through an efficient supply chain such as basic clothing supply chain. This leads to a creation of a segment for unpredictable products or fashion products and another segment for standard or predictable products with each segment containing different stocking policies and forecasting plans.
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Author – Aval Sethi, Founder