Supply Chain Seg­menta­tion: Oper­ational Reality or Just a Pipe Dream?

Few companies will disagree, at this point, that segmentation can do wonders for a supply chain’s ability to reliably and profitably meet the needs of their customers.

But the reality of implementing a segmentation strategy can be a harsh wake-up call when there’s no real infrastructure in place.

Assume a company has decided to employ a segmentation strategy. The team in charge has mapped out their customer base, grouping them by need or product and decided what the focal point for each will be.

For example, they may have a supply chain for a high-volume, low-variability market segment that’s geared for efficiency and another for a high-volume, high-variability segment that’s designed for agility and responsiveness.

Each will have very different definitions of acceptable performance levels and lead times.

They’re ready to move away from the “one-size-fits-all” approach, but it’s during the execution phase when the biggest hurdles appear.

The company must be ready to deal with:

• Capturing detailed cost-to-serve data that’s always changing. Few companies have the IT capabilities to build a clear picture of cost-to-serve tradeoffs, but decisions can’t be made without it.
• Overhauling customer, supplier, and service provider contracts to support segmentation. Current contracts may not include the right protocols for handling dynamic allocation or modal shift decision, or offer the rate flexibility needed to serve each segment.
• Structuring teams and getting organized. Will teams be segment-focused? Or functionally oriented for specific functions in the supply, like “Deliver”. Will the right people be available? How much will it cost to hire and train?
• Implement smart supply chain strategies with external trading partners. The company may have hundreds of trading partners that need to collaborate on the new segmented strategy, and they’ll need a way to get everyone on the same information page.
• Adopt the right technology that enables operational orchestration. Existing systems that weren’t designed for highly orchestrated network will fall short in handling the data needed in complex segmentation strategies.

To implement the company’s blueprints for segmentation, these challenges must be overcome with a heavy focus on operations coupled with a cloud-based visibility and control system that was designed for a network, not a single enterprise.

“Must haves” include the ability to define and legislate different rules and thresholds for each supply chain segment, to allow exception-based monitoring that lessens the strain on managers’ manual workload, to provide a detailed record of performance, and to improve analysis on the front end tied to landed cost data.

Successful supply chain segmentation can be a reality, but not without careful consideration of a company’s capabilities and the challenges that will present themselves throughout the entire lifecycle.

Related: 6 Reasons to Consider Supply Chain Segmentation