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Segmenting the Supply Chain

Today’s use of “omni-channel marketing,” which is an integrated approach of selling to consumers through multiple distribution channels (that is, brick-and-mortar, mobile Internet devices, computers, television, radio, direct mail, catalog, and so on) has created the need to handle multiple channels with separate warehouse picking operations, often replenished from a common inventory in a single facility.

This can lead many companies such as Dell Computer to segment their entire supply chains, whereby different channels and products are served through different supply chain processes. The ultimate goal is to determine the best supply chain processes and policies for individual customers and products that also maximize customer service and company profitability.

The rationale for this, according to an Ernst & Young white paper titled “Supply Chain Segmentation,” (2014) is that the “business environment is getting increasingly complex, especially for technology companies dealing with rapid innovation, globalization, and a growing number of business partners, business models, and differences in expectations from different markets and customers.”

E&Y suggest five ways to consider segmentation:

  • Product complexity based
  • Supply chain risk based
  • Manufacturing process and technology based
  • Customer service needs based
  • Market driven

The idea is that a “one size fits all” strategy will not usually work in today’s environment.

They suggest that while senior sponsorship is required for successful supply chain segmentation, you also need cross-functional support from multiple organizational disciplines. The team must provide supporting policies, segment-level processes, and IT infrastructure to both automate the processes and provide metrics.

In Dell’s case, over the past few years, they have expanded beyond their direct to customer model to 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” (Thomas, 2012).

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