Supply chain segmentation: 10 steps to greater profits
The portfolio management approach
1. Perform regular demand and cost-to-serve analysis
Key practices in supply chain segmentation
2. Implement differentiated demand policies in core functions
3. Implement differentiated inventory policies
4. Implement differentiated customer replenishment programs
5. Implement differentiated supplier replenishment programs
6. Implement regular total-landed-cost sourcing analysis
7. Implement differentiated allocation and order promising
8. Incorporate monthly and weekly tradeoffs into S&OP
9. Implement a business optimization center for continuous learning
10. Automate policy management
Segmentation provides a means by which supply chain managers can tailor service agreements with customers to increase sales while reducing operating costs and both fixed and inventory assets.
To achieve maximum value from segmentation for both the customers and the enterprise, companies must have policies in each area that are coordinated to the value proposition offered to each customer/product combination.
This analysis provides the information needed to tailor service agreements and supply chain policies in order to raise the overall profitability of the portfolio while providing reliable and suitable service.
Demand signals can come in the form of orders, forecasts, and safety stock, and that they can come from different channels and from different sources
This process will include determining how much finished-goods inventory to carry downstream at regional distribution centers (DCs), upstream at central DCs, and at factory locations.
Different customers will have different replenishment relationships, based on the service required, the volume and profitability of that customer, and the channel used to support that customer.
Similar to customer replenishment programs, supplier replenishment programs should be segmented based on supplier/component dynamics.
Leading companies today have integrated workflows across engineering, procurement, and supply chain organizations to incorporate total-landed-cost analysis into engineering and procurement decisions.
Allocation and order promising are critical areas for implementing policies that enable segmented and profitable customer service strategies
Sales and operations planning (S&OP) is a tactical process for end-to-end coordination, collaboration, and alignment with a single plan for the enterprise.
This type of center typically comprises a small team that is responsible for creating the analytics behind segmentation and then sharing and gaining approval for the deployment of associated policies.
The business optimization center described above is responsible for policy analysis, deployment, and management.