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Should you Consider Supply Chain Segmentation?

Supply-Chain-SegmentationBusiness success is contingent on maintaining a competitive edge.  Maximizing supply chain activities allows businesses to operate at highly proficient and effective levels.  Supply chain management integrates all facets of business operation and production, including product development, procurement, construction, and logistics.  Businesses are discovering that they are unable to maximize customer value using a single supply chain strategy.  The same supply chain stratagem will satisfy some customers but the desires of other consumers may go unfulfilled, and for others, the costs may be too great. As a business owner, should you consider supply chain segmentation?  The answer is yes.

Supply chain segmentation means grouping services or faculties together to meet an explicit set of requirements.   Segmentation allows businesses to meet their customer needs at the lowest cost.  It provides an organizational framework that consistently delivers value and business control the complete life progression of a product.  Supply chain segmentation generally follows these steps:

Step One – Group Products and Delivery Channels

The first step for segmentation involves grouping products and delivery methods and creating a matrix, where all combinations are represented.  Each combination is considered an individual supply chain.  The distinct supply chains are rated using business revenue factors of gross profitability and sales. 

Step Two – Simplify

Supply chain segmentation entails separating the supply chain into specific divisions.  Generally this process requires a thorough analysis of customers buying habits.  What are customers buying?  How are customers buying products and services?  What groupings are profitable?  What are customers preferred delivery methods?  The analysis leads to specific information that reduces the complexity of providing distinctive customer value, product quality, and delivery capabilities.

Analysis provides a business with customer segments that leads to advantageous supply chain strategies and operational plans that are in sync with customer demand.  Some parts may be eliminated because they do not contribute to the bottom line.  Operational procedures will include a responsive strategy that combines customer satisfaction, customer service, speed, and order completion.

Step Three – Prioritize

The third step involves combining the findings from the first two steps.  Using the matrix prioritization and the results from the customer analysis, determine the various trade-offs between cost, speed, and service.

Step Four – Alignment

Aligning the individual supply chains is the fourth, and most difficult, step.  This step involves merging suppliers, product manufacturers, inventory management, product warehousing, and business procedures.  Fortunately, supply chain segmentation incorporates the use of standard parts in most product design.  Segmentation involves increasing the level of configurability in the design for the purposes of increasing customer value.  Standard components are the common base for a wide variety of product configurations. The segmentation allows businesses to use the same manufacturing base for all supply chains eliminating the use of different production facilities for different customer segments.  This leveraging of production reduces costs.

There is a solid relationship between badly managed supply chains and profit loss.  Global supply chains are particularly challenging to administer because of the fluctuating demands for products.  Supply chain segmentation offers a tremendous opportunity for increasing customer satisfaction and reducing costs.  Third party logistics companies can help businesses obtain the competitive edge with supply chain segmentation by lowering operational and administrative costs.  Some of the services provided include:

  • Complete order fulfillment
  • On-line inventory management
  • Detailed management reports
  • Complete consolidation and de-consolidation procedures
  • Complete transportation services
  • Dependable warehouse services

Many companies don’t realize that they need to segment their customers and they currently treat everyone with the same supply chain strategy. Supply chain segmentation is the effective management of supply chain events to increase customer value and realize a viable competitive advantage. If you’re looking for supply chain management & logistics solutions in the US, Canadian or Mexican markets, give 3PL Links a call today!

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