Segmenting Your Supply Chain May Save You Plenty

Today, it’s not a matter of “one-size fits all” in manufacturing. The world is too big, and products too complex. Plus, everyone is looking for a way to make more out of each product line. One way to do this is to consider segmenting your supply line.

Many of the big guys have done this with great results. Dell, for instance, recreated the supply chain and the computer industry itself in the 1990s when it launched its direct-to-the-consumer business model. But the revamp revolutionized the supply chain again years later when it developed a multichannel, segmented model. In this arrangement, the company created different policies for serving different customers—retail, corporate, distributors, and others. According to the company, this restructuring saved it US $1.5 billion in operational costs. It also brought the company up to a top spot (#2) on Garner’s “Top 25 Supply Chains List.”

The question becomes, are you big enough to do this? The answer is “yes,” as long as you have more than one product or market. It’s a matter of analyzing how you produce your product or products for that customer or market and then seeing if you can do it in a more efficient way and/or different way.

Segmenting your supply chain saves money a number of ways. The key element is that it can solve certain problems you face in a “one-size-fits all” world.  Take the question of  variability in demand and supply. These are hard to predict, and when predictions falter, it can lose you a lot of money. But closer analysis and restructuring the supply line can make these aspects of production and sales less risky.

Another area where this technique is useful is when it comes to responsiveness and efficiency. Manufacturers have many choices in how they produce certain products. But many times they don’t utilize them. Supply chain segmentation can change this. Take a  manufacturer of costume jewelry for instance. Say the company manufacturers both  traditional types of jewelry—items that sell year after year—and fashion items. In this case, the manufacturer could deliver the basic product through an efficient supply chain, and the fashion product through a supply chain that is dominated by responsiveness. The different approaches could make each line of business more efficient and less subject to losses.

How can you get started on segmentation? Here are a three recommendations from the experts:

1:  To start, consider the creation of a data-driven analysis of the demand for your products in different markets. That analysis will give you the information you need for customization of your supply chain. You will also need a system that keeps this analysis up to date, since the business landscape changes rapidly today.

2:  Update your inventory policies. Most companies don’t revise these policies frequently enough. A lot can change very rapidly in this area. You want your inventory policies to  match your segmentation closely.

3:  Explore new methods of finding out how your products are being sold. One developing trend in the retail world is using analytic information based on point-of-sale data. Years ago, this information wasn’t available. But now it is, and it can reduce the chances of having the wrong replenishment program for different customers.

These are only three of the techniques that are being developed to help companies of all sizes segment their supply chains. The benefits are multiple. When segmentation is done correctly, you will find best supply chain processes to serve each customer and manufacture each product at certain points in time, while also maximizing customer service and ensuring greater company profitability.