Supply Chain Segmentation - Dreams and Reality

Written by Dave Alberts, Director, Crimson & Co

There is a standard remedy being prescribed to big global companies, it is called supply chain segmentation. It is being pushed by academics and experts along with a big dose of theory on the need to be both lean and agile, and customer aligned - but does it all sound a bit thin?

If segmentation is the right answer, how do you adopt a more rigorous approach to defining your supply chain segments?

Let’s start with a little scene setting. We are all experiencing an explosion of new pressures on the supply chain driven by increasing diversity in markets and customer demands. The resultant penetration of the central supply chain into local markets means that products have to be managed, manufactured, sold, delivered and then paid for in a number of locations and in many different ways, both online and offline.

All this needs to be accomplished in a way that provides enough flexibility to handle all the market conditions and customer requirements in a joined up single method. This is whilst recognising the need for different performance measures, skills, systems support and ways of operating per region and per market.

Enter supply chain segmentation (which of course is not new). There have been lots of attempts to provide clarity on how to segment and then implement such a strategy. Unfortunately most of the resultant programmes go through a typical lifecycle that starts with lots of enthusiasm with some early clear wins, often in manufacturing with a focus on lean and agile cells, or on tender business versus continuous flows. This produces some good early results but is often followed by a waning of interest as everybody starts to run out of ideas on what to do next despite the intellectual argument remaining strong

Simplification and focus is key - but how can you simplify without losing track of reality?

The key to achieving segmentation is not to lose control of the key things that deliver real business value.This requires a laser focus on the capabilities, processes, people, infrastructure and control that is needed, and it requires a much deeper approach than most people adopt. Simply looking at product volume versus volatility to decide where you need to be lean and where you need to be agile is never going to be the answer – it is too shallow an approach.

The question is what sort of agility is needed; agility to respond to erratic demand, or agility to launch new products; agility to configure products to individual customer requirements, or agility to flex the physical supply chain in response to changing costs?  

Each of the different types of agility requires different skills, measures and solutions. Some of these will apply right along a product’s supply chain but others may only really produce a different way of organising certain parts of the supply chain.

The starting point is to recognise that setting a course for your future segmented supply chain is unlikely to be based on some intuitive and obvious opportunities, and you need to start with a clean sheet of paper. Then you have to work through all the factors that are likely to require different management techniques along the supply chain: as well as a product’s volume and its erratic nature, most businesses have ten or more relevant factors out of possibly hundreds. Why wouldn’t the customer types be relevant? Why not product lifecycle, or profitability? There are a whole range of features that are bound to be relevant to the management of products. You have to use a comprehensive approach to grouping products and identifying how they inevitably move from one grouping to another.

Once the clusters have been identified, plans can then be developed per group to focus on the real actions that can be taken to improve performance. Will these be novel? Perhaps, but more importantly they need to be comprehensive with all products having a strategy, working process and appropriate performance measure, and this cannot be restricted to a few obvious candidates. For many the required actions may be obvious but the big prizes come from the less spectacular groups where effective refinement of focus and the management approach will produce valuable results in inventory, service and cost. As always the devil lies in in the detail and not in academic dreams!