Executive Briefings

Secrets of Supply-Chain Segmentation

What is supply-chain segmentation? How can it help companies to better manage the flow of product and services, both upstream from suppliers and downstream to customers? Jennifer Loveland, research director of Gartner, has some answers.

Supply-chain segmentation allows manufacturers to design delivery channels in line with the requirements and profitability of individual groups of customers or regions. "It allows you to handle complexity more effectively," says Loveland. "You can create a menu of approaches, each targeted to a specific outcome."

Segmentation is not an end unto itself, she says. In theory, there are an infinite number of ways in which a supplier can segment its customers. The goal is to draw on a limited set of resources and apply them where they’ll be of greatest benefit. Examples include “ABC” inventory segmentation strategies within distribution centers, whereby the fastest-moving items are positioned closest to pickers, and kept in forward stocking locations nearest the end customer.

The most advanced version of the concept is end-to-end segmentation, whereby suppliers are guided by the goal of the perfect order, then create interactive supply-chain models that interact with various product groups. The routines of “plan, source, make and deliver” are adjusted accordingly, “to give a different, shaded experience,” says Loveland.

In the world of segmentation, there’s no “one-size-fits-all” approach, she says. “Not every customer is treated the same, or every order treated uniquely.” The solution depends in large part on how long a customer is willing to wait for an order, and pay for the premium treatment that hastens its arrival.

Segmentation takes on increasing importance with the growing complexity of retail supply chains. “There are more products, channels and markets,” says Loveland. “And customers are more opinionated.”

To view the video in its entirety, click here

Supply-chain segmentation allows manufacturers to design delivery channels in line with the requirements and profitability of individual groups of customers or regions. "It allows you to handle complexity more effectively," says Loveland. "You can create a menu of approaches, each targeted to a specific outcome."

Segmentation is not an end unto itself, she says. In theory, there are an infinite number of ways in which a supplier can segment its customers. The goal is to draw on a limited set of resources and apply them where they’ll be of greatest benefit. Examples include “ABC” inventory segmentation strategies within distribution centers, whereby the fastest-moving items are positioned closest to pickers, and kept in forward stocking locations nearest the end customer.

The most advanced version of the concept is end-to-end segmentation, whereby suppliers are guided by the goal of the perfect order, then create interactive supply-chain models that interact with various product groups. The routines of “plan, source, make and deliver” are adjusted accordingly, “to give a different, shaded experience,” says Loveland.

In the world of segmentation, there’s no “one-size-fits-all” approach, she says. “Not every customer is treated the same, or every order treated uniquely.” The solution depends in large part on how long a customer is willing to wait for an order, and pay for the premium treatment that hastens its arrival.

Segmentation takes on increasing importance with the growing complexity of retail supply chains. “There are more products, channels and markets,” says Loveland. “And customers are more opinionated.”

To view the video in its entirety, click here