3. Supply chain segmentation.
In the 1990s Dell revolutionized both the computer industry and supply chain
management with its direct-to-consumer business model. For the past several years, however, the
company has been transforming its supply chain into a multichannel, segmented model, with
different policies for serving consumers, corporate customers, distributors, and retailers. Through
this transformation, Dell has saved US $1.5 billion in operational costs
1
and has moved to the
number two spot on Gartner's "Top 25 Supply Chains" list.
Dell is one of a number of enterprises that are benefiting from supply chain segmentation,
a process by which companies can create profitable one-to-one relationships between their
customers and their supply chains. Under this model, different customers associated with
different channels and different products are served through different supply chain processes,
policies, and operational modes. The goal is to find the best supply chain processes and policies
to serve each customer and each product at a given point in time while also maximizing both
customer service and company profitability.
By understanding the profit profiles of their customers and products, companies can tailor
a more profitable supply chain strategy to each of them and thus increase the overall profitability
of their portfolios. Many companies today, however, still use "one size fits all" supply chain
processes and policies, overserving some customers and underserving others—a practice that
leads to significant profitability and cash-flow leakages and potentially lost sales. Indeed,
research shows that on average, 30-40 percent of a company's customer and product portfolio is
unprofitable.
Segmentation can also help supply chain managers address some of their biggest
problems. One example is demand variability, cited by respondents to a recent survey of chief
supply chain officers as the biggest challenge driving the supply chain agenda.
Properly
structured segmentation policies for customers and products can significantly reduce the impact
of demand variability. (For a look at how one manufacturer used segmentation to reduce the
impact of demand variability, see the sidebar.)
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