European manufacturers failing on supply chain segmentation, report reveals

By Dale Benton
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European manufacturers are failing to effectively use data and analytics when it comes to supply chain planning and segmentation, according to a new rep...

European manufacturers are failing to effectively use data and analytics when it comes to supply chain planning and segmentation, according to a new report from JDA Software Group, Inc., and WMG, at the University of Warwick.

The ‘Supply Chain Segmentation: A Window of Opportunity for European Manufacturing’ report surveyed 100 manufacturing organisations across Europe to benchmark their supply chain segmentation practices. The report revealed that only 18 per cent of respondents considered historic, present and future data in the supply chain planning process, while only 39 per cent of respondents stated that their segmentation models were data-driven. In fact, nearly a quarter (23 per cent) of organisations stated they simply utilise ‘rules of thumb’ over any kind of data-driven methodology.

“The survey highlights that the majority of organisations are not using dynamic or data-driven models. Indeed, more organisations are driving their supply chains forward by looking in the rear-view mirror, rather than looking at the road ahead. It is not just that there’s an over reliance on historic data, it is quite possible that organisations are being driven along the wrong road altogether,” said Hans-Georg Kaltenbrunner, vice president manufacturing industry strategy, EMEA at JDA.

“The research suggests that some organisations may not have the capability to accurately navigate their supply chain along the business roadmap, and a lack of analytics capabilities is widespread, along with a consistent end-to-end analytics approach. Given the apparent general lack of maturity across the space, the first movers will quickly gain competitive advantage.”

 

Strategic alignment or mis-alignment?

When it comes to implementing supply chain segmentation practices, only 29 per cent of respondents stated they did this in a ‘top down’ manner, indicating that the strategic nature of segmentation is not being recognised in practice. From a business process perspective, the need to bring together core supply chain processes (plan source, make, deliver and return) under one umbrella, and to use them to seamlessly connect customers and suppliers has long-been recognised. However, the results show that departmental and functional approaches continue to dominate.

 

Business process orientation isn’t well established

Only 8 per cent of European manufacturers have reached level three segmentation (out of four) while no firms demonstrated level four capability. An effective segmentation strategy should be informed by business rules from Integrated Business Planning (IBP), however the research revealed that only 5 per cent of organisations were at level three (of four) maturity. It is not unrelated that only 17 per cent reported a business process orientation was part of their operational design. This indicates that there remains significant room for improvement for manufacturers when it comes to keeping their supply chain management, new product development and customer relationship management aligned. Ultimately this lack of conformance is hindering overall business performance.

“Segmentation is not a new practice for supply chain management, yet our study reveals that it remains relatively under-developed. Supply chain segmentation should be the lens that focuses complex signals from the market, so that organisations can configure their supply chain assets, ensuring they are consistent with business strategy and deliver maximum profitability,” said Professor Janet Godsell from WMG, University of Warwick. “In theory, segmentation is a key business process and capability, to ensure business goals are realised in the hurly-burly of operation.

So, it is surprising to find that only 17 per cent of respondents had business process orientation as part of their operational design. Ultimately, business processes provide a way to connect the end-to-end supply chain, create integration, enable flow and deliver customer value at the lowest supply chain cost.”

 

Segmentation criteria is limited at best

The survey revealed that one third of organisations (33 per cent) are utilising just a single criteria to model segmentation, while over half (51 per cent) are only employing two. As a result, organisations are making important day-to-day commercial prioritisation decisions based on limited criteria. Furthermore, the criteria being using is often inconsistent between functions, meaning there is no end-to end commercial perspective driving supply chain and business decisions.

 Supply chain segmentation can become a significant contributor towards bottom-line profitability and service differentiation. Yet, the survey found that only in rare cases, for ‘product’ and ‘customer’ dimensions, margin was a goal at all – even then, as a goal, it was ranked fourth or lower. In general, volume and geographic measures dominated, further indicating a low level of supply segmentation sophistication.

 Franck Lheureux, regional vice president EMEA at JDA, added: “Manufacturers are facing ever more demanding customers.  For CPG organisations, this may even include developing profitable omni-channel fulfilment to support direct-selling models.  This requires a heightened focus on customer centricity, which in turn implies an unprecedented level of connectivity within the supply chain.

Segmentation has always had the potential to make a significant difference to an organisation’s profitability and agility, however it lacked the underpinning technology to make it happen.  However, this is no longer the case as the emergence of the digital supply chain means that segmentation has come of age.”

 Study Methodology

The study was conducted by WMG in August and September 2016, surveying online 101 large European manufacturing organisations.

You can access the study here - The ‘Supply Chain Segmentation: A Window of Opportunity for European Manufacturing’ report.

 

Supply Chain Digital's December issue is now live. 

Follow @SupplyChainD on Twitter.

Supply Chain Digital is also on Facebook.

 

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