Executive Briefings

Segmenting Supply Chains for High-Impact Analysis

Analyst Insight: Innovative and strategic supply chain segmentation is a key strategy for effective supply chain analysis, enabling greater responsiveness and the ability to focus resources. Competition requires a better identification of key supply chain segments, considering that 80 percent of results come from 20 percent of items. An additional factor adding complexity is that increasingly manufacturers are adding services as part of their offerings - termed "servitization." Effective segmentation is the key to managing these complexities. - Nada R. Sanders, Professor of Supply Chain Management and Iacocca Chair, Lehigh University

A recent survey of 214 senior executives and managers finds that managers are placing greater focus on customer service and investing in technologies to support their strategy (68 percent expect to make some degree of investment in technology). In addition, this study finds that many (42 percent) are focusing on innovative ways to segment their supply chains for better performance, targeting specific resources for each segment, and building in flexibility to move between segments based on risk and disruptions. The segmentation criteria include product and market characteristics, customer service drivers, supplier availability, risk assessment and financial performance. This also requires breaking down internal organizational silos to more effectively connect with supply chain partners. Specifically:

"¢ Supply Chain Segmentation.  A key strategy for high responsiveness and effective performance is to segment supply chains based on performance criteria and structure, and apply different management strategies based on supply chain criticality, risk, cost and availability of alternative sources of supply. Key dimensions for segmentation include product characteristics (life cycle stage, luxury versus commodity, degree of perishability), supplier characteristics (length of lead time, number of suppliers), technological characteristics (high versus low innovation), and financial performance (high versus low gross margin). This type of segmentation permits better anticipation of disruptions, better response when disruptions occur, and superior management of resources. Analytical software can further help segmentation by better understanding key performance drivers. Further, leading companies recognize that segmentation is dynamic and must be performed on an ongoing basis.

"¢ Customer Service Drivers.  Leading companies are increasingly focusing on customer service as a competitive strategy. In fact, a large percentage of companies today are placing greater importance on enhancing the customer experience as a driver of growth, rather than merely cutting costs. Leading manufacturers are expanding their product offerings to include a service component - called "servitization" - which is adding additional supply chain complexities. Segmenting supply chains based on identified customer service drivers and the criticality of customer service to specific market segments is an important element of performance. Analytical tools can help identify key elements of the product-service bundle customers consider most important.

"¢ Breaking Down Silos. One the greatest barriers to performance are the internal organizational silos, internal competition, and the resulting suboptimal performance. Effective supply chain performance comes from unification of these islands of performance through the creation of a unifying "big picture," use of technology to unify disparate organizational areas - purchasing, production, and distribution -  into a single data base everyone can use, the creation of joint decision making processes, and the use of unifying performance metrics.

The Outlook

In 2013, expect to see greater segmentation of supply chains to enhance analysis, including market segmentation and supply base segmentation.  Analytics and technology will be increasingly used to help understand key performance drivers, help fine-tune the segmentation process, and help identify best utilization of resources per segment. Lastly, expect to see leading-edge companies increasingly redesign internal processes, such as breaking down internal silos, in order to more effectively collaborate with their supply chain partners.


Keywords: supply chain consulting, supply chain supply chain management, supply chain solutions, breaking down silos, customer service levels, customer satisfaction, servitization

A recent survey of 214 senior executives and managers finds that managers are placing greater focus on customer service and investing in technologies to support their strategy (68 percent expect to make some degree of investment in technology). In addition, this study finds that many (42 percent) are focusing on innovative ways to segment their supply chains for better performance, targeting specific resources for each segment, and building in flexibility to move between segments based on risk and disruptions. The segmentation criteria include product and market characteristics, customer service drivers, supplier availability, risk assessment and financial performance. This also requires breaking down internal organizational silos to more effectively connect with supply chain partners. Specifically:

"¢ Supply Chain Segmentation.  A key strategy for high responsiveness and effective performance is to segment supply chains based on performance criteria and structure, and apply different management strategies based on supply chain criticality, risk, cost and availability of alternative sources of supply. Key dimensions for segmentation include product characteristics (life cycle stage, luxury versus commodity, degree of perishability), supplier characteristics (length of lead time, number of suppliers), technological characteristics (high versus low innovation), and financial performance (high versus low gross margin). This type of segmentation permits better anticipation of disruptions, better response when disruptions occur, and superior management of resources. Analytical software can further help segmentation by better understanding key performance drivers. Further, leading companies recognize that segmentation is dynamic and must be performed on an ongoing basis.

"¢ Customer Service Drivers.  Leading companies are increasingly focusing on customer service as a competitive strategy. In fact, a large percentage of companies today are placing greater importance on enhancing the customer experience as a driver of growth, rather than merely cutting costs. Leading manufacturers are expanding their product offerings to include a service component - called "servitization" - which is adding additional supply chain complexities. Segmenting supply chains based on identified customer service drivers and the criticality of customer service to specific market segments is an important element of performance. Analytical tools can help identify key elements of the product-service bundle customers consider most important.

"¢ Breaking Down Silos. One the greatest barriers to performance are the internal organizational silos, internal competition, and the resulting suboptimal performance. Effective supply chain performance comes from unification of these islands of performance through the creation of a unifying "big picture," use of technology to unify disparate organizational areas - purchasing, production, and distribution -  into a single data base everyone can use, the creation of joint decision making processes, and the use of unifying performance metrics.

The Outlook

In 2013, expect to see greater segmentation of supply chains to enhance analysis, including market segmentation and supply base segmentation.  Analytics and technology will be increasingly used to help understand key performance drivers, help fine-tune the segmentation process, and help identify best utilization of resources per segment. Lastly, expect to see leading-edge companies increasingly redesign internal processes, such as breaking down internal silos, in order to more effectively collaborate with their supply chain partners.


Keywords: supply chain consulting, supply chain supply chain management, supply chain solutions, breaking down silos, customer service levels, customer satisfaction, servitization