A 25-year high-tech supply chain veteran, Wade McDaniel is vice president of Solutions Architecture for Avnet Velocity, Avnet, Inc.’s global supply chain solutions business unit.
Tradeoffs! When you hear this term, you typically think of giving something up; settling for less. But when we talk about tradeoffs in supply chain segmentation, what we are really talking about are priorities. For some companies, speed is paramount while others may place a higher value on service or differentiation. For others cost may be the singular target. Whatever the value characteristic may be, supply chain segmentation is about managing multiple supply chain configurations to assure each customer gets what they most value.
A basic example of segmentation would be grouping high-volume, low-mix customers in a supply chain built for efficiency, while the supply chain for low-volume, high-mix customers would focus on maximizing flexibility. OEMs that configure their supply chains based on these trade-offs can consistently satisfy customer demands without adding cost or risk to the supply chain.
One of the most common misconceptions about supply chain segmentation is that replacing a standard supply chain model with several customized models will strain an already complicated process. In reality, however, segmentation can help in that it can simplify your supply chain. Business advisor McKinsey & Co. reported that in high tech, segmentation typically improves service levels by 5 to 10 percent while reducing inventory levels by 15 to 20 percent. In my professional experience, I’ve seen results that are even more significant. Through segmentation, companies can better align their resources so that they are not, for example, spending money delivering commodity products ahead of demand or holding up production waiting for custom parts to arrive with a consolidated shipment of standard products from overseas.
Establishing an effective segmentation strategy requires a deep understanding of how customer and product complexity drive cost and service levels. To assure that you are starting with the most accurate picture of the supply chain, it is important to include inputs from across the organization’s business disciplines, including marketing, sales, manufacturing, planning and procurement.
At Avnet, we recommend customers use the Supply Chain Council’s SCOR methodology to define their current supply chain activity. We then help them to analyze this information in conjunction with the results of a Supply Chain Maturity Monitor (SCM2) survey, a self-assessment questionnaire that helps to identify their organization’s current supply chain reliability, responsiveness and agility levels.
What’s great about segmentation is that it is a method most companies of any size can do. As customer needs continue to diversify, the ability to effectively managed segmented supply chains will become a significant differentiator. So, if you haven’t thought about segmenting your supply chain, I’d suggest you start now, before you find your company skirting along the trailing edge of the competitive landscape.
Vice President of Solutions Architecture
Wade McDaniel is an upcoming presenter at the 2014 Best Practices Conference at Disney’s Yacht & Beach Club Resort. For more information please click on the link below.
Business Planning & Forecasting: Best Practices Conference w/ Leadership Forum
Disney’s Yacht & Beach Club Resort
Orlando, Florida USA
October 26-29, 2014