Saturday, March 8, 2014

SUPPLY CHAIN SEGMENTATION APPROACHES


There are different approaches for supply chain segmentation. The methodology can vary depending upon the purpose.  These include—

·         Cost-based.  Some use cost-based.  Costs (and profits) cannot be ignored.  However cost-based analyses only do so much—and leave much unanswered.  The cost approach has shortcomings in being able to truly track costs directly to key parts of the business.  Estimating, allocating and assigning costs have flaws and do not adequately address critical topics.  Costs also infer there is an underlying conotation of dealing with problems, not opportunities.

 

·         Value-based.  This segments customers by economic value, such as total revenue which eliminates the somewhat arbitrary assigning of costs to customers and segments to determine profitability.  Companies can develop a hypothesis -- medium size companies are the best supply-chain customers. The segments should be large enough to complement the strategic importance.  It is not segmenting for the sake of segmenting.  You are looking for characteristics in each segment.  Where do customers in each segment differ from the other segments with regards to supply chain service; are there may be obvious characteristics or drivers to analyze? Some of this can be intuitive, but not all of it. 

 

·         Needs-based. This matches well with supply chain management.  Segmenting is done on differentiated drivers that customers have for a specific supply chain service.  Customers are grouped based on a common set of needs.  Internal resources, such as sales, can help with defining or validating the need, including any that are unmet, of each customer.  The purpose is to match sector needs with the correct supply chain service.  If the service in the sector is delivered better than the competition, then competitive advantage can be gained.

 

For some companies, segmenting should not be a one-cut, standalone view.  A multi-step segmentation may be best to give deeper insights.  This is especially true when a high degree of shared needs, complexity or uncertainty exists with the business, or when there is significant interrelationship among the company’s segments.