Supply Chain Segmentation Is Back!

By Simon Ellis, IDC Manufacturing Insights

Supply Chain segmentation is not new, despite recent articles to the contrary, as manufacturing companies have explored ways to manage parts of the supply chain differently for the varied requirements of product lines or categories for decades. Yet, as was true for Sales & Operations Planning in 2010, seems true for supply chain segmentation in 2011 – new life is being breathed into an old concept.

There appear to be a few reasons, and most relate either directly or indirectly to the 2008-2009 global recession. As we move into 2011, the business landscape has changed. The demand side of the supply chain is far more volatile and unpredictable, with forecast accuracy becoming even more of a challenge than it has historically been, and the conversation is starting to move to topics like fast planning and responsiveness. The supply side of the supply chain is also experiencing some seismic shocks (one literal, others figurative) that are causing manufacturing companies to relook at their supply networks through the lens of risk management and lead-time assessment. Whether these changes, on both the demand and supply side of the supply chain, prove to be short or long lived, there is little question that fundamentally, the complexity level that supply chain organizations are asked to manage has increased significantly over the last few years.

Driven by complexity, and an increasingly diversified manufacturing industry (where many companies have a broad range of product categories, often crossing B-to-B/B-to-C lines), segmentation is a way to address complexity where and when it is necessary, but reject it where it is unnecessary. At its core, supply chain segmentations is quite simple, in that it is about designing supply chains at a product category or family level based on the unique needs of those product groupings. Some examples of where segmentation lines might be drawn:

• Short versus long-lead time products, where the former hold some level of fashion element and the latter do not
• High versus low gross-margin products, where the former may obligate higher service levels (and a greater tolerance for returns) than the latter.
• High versus low innovation churn categories, where the former may require a more collaborative supply network than the latter that is characterized more as 'set it and forget it'.
• SKU proliferation, particularly with 'flavors and fragrances' may drive higher levels of postponement for some product categories (consumer products) than others (chemicals).
• Global versus regional demand products, where the former will require global fulfillment capabilities and the latter will not.

These are just a few possible demarcation lines for segmentation, and as we observed above, companies have been taking this approach for decades; yet, the evolving business marketplace is putting new pressure on supply chains and segmentations is a useful concept to dust off.

What do you think?

SOURCE: IDC Manufacturing Insights