Most organizations dissect their supply chains on a category basis, says Gordon. But there are big benefits to drilling down further, with an eye toward understanding how products attract costs and which customers are the most valuable to a seller. The idea, he says, is to "focus your resources on where you can get the best return."
Gordon has often seen 4-percent improvements in revenue, significant reductions in inventory and less product obsolescence deriving from supply-chain segmentation. The concept has its roots in the notion of "cost to serve," developed in the 1980s. A few retailers, especially in Europe, embraced it early. But only in the last two to three years has it been widely adopted by high-tech and other companies in the U.S. and globally.
Segmenting one's customers can be a challenge, Gordon acknowledges. Many organizations will take the first step, identifying their tier-one customers. But they need to go further, to the second and third tiers, in order to determine who should receive the best level of service.
The conclusions aren't always obvious. "Segmentation can help identify what's not profitable to serve at tier-one levels," Gordon says, "but with longer lead times, you may be able to serve a tier-three 3 customer profitably."
Segmentation isn't an IT solution, he stresses. "You can implement it with something as simple as analytical support, running parallel to existing systems, and allowing planners to adjust their behavior accordingly."
The journey from concept to realization can take place as quickly as eight to 12 weeks. "You work on hypothesis-building from day one," Gordon says. "Then you push the segmentation model."
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