Many companies find that value-added logistics services help give their supply chain a competitive edge. Once limited to services such as shrink-wrapping, display building, and rainbow pallets, value-added capabilities now include everything from inscription and embroidery to configuring kits for e-commerce or inserting coupons or brochures in packages. Wondering if it's time to add value to your supply chain? Duane Sizemore, senior vice president, marketing and business development with Saddle Creek Logistics Services, examines how value-added services can benefit your business.
Comment Segmentation lets companies boost profitability by tailoring their supply chain strategy to each customer and product in their portfolio.
Here are 10 key practices that will ensure success. In the s 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.
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.
Article Figures [Figure 1] Return on assets ROA equation Enlarge this image [Figure 2] One physical supply chain, multiple virtual supply chains Enlarge this image [Figure 3] Ten keys to successful sementation Enlarge this image [Figure 5] Moving toward differentiated fulfillment Enlarge this image [Figure 6] Multi-dimensional allocation and order promising Enlarge this image [Figure 7] Example of segmented service Enlarge this image 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, 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.
For a look at how one manufacturer used segmentation to reduce the impact of demand variability, see the sidebar. Another significant challenge for supply chain managers is to simultaneously provide high levels of responsiveness and efficiency. Again, segmentation can provide a solution.
In order to maximize sales and profits, some products within a portfolio could be served through an efficient supply chain while others are served through a responsive supply chain.
For example, companies that make both basic and fashion clothing will want to deliver their basic products through an efficient supply chain and deliver their fashion products through a highly responsive supply chain. This creates one segment for standard predictable products and another for fashion unpredictable products.
Each segment will have different forecasting and stocking policies. For many companies, then, supply chain segmentation would offer significant financial benefits. This article will outline the general principles involved as well as offer 10 recommendations for achieving supply chain segmentation and its goals.
The portfolio management approach The overarching challenge faced by supply chain managers—providing excellent customer service while reducing the cost of goods sold COGS and minimizing investment in new fixed assets and inventory—can be summarized in a return-on-investment ROI equation that considers such factors as return on assets ROAreturn on invested capital ROICor economic profit EP.
Figure 1 shows the ROA version, which is commonly used as an indicator of a company's effectiveness in delivering profit against its invested assets. Segmentation provides a means by which supply chain managers can tailor service agreements with customers to increase sales while reducing operating costs and both fixed and inventory assets.
It does this by aligning supply chain policies to the customer value proposition as well as to the value proposition for the company as a whole.
Segmentation is driven by a unique value proposition offered to a given customer for a given product. The supply chain must be aligned to this value proposition with different policies, as shown in Figure 2.
This may include unique policies for one or more of the following: It will also be reflected in the supply chain network and transportation design. This essentially means that there will be multiple, virtual supply chains running against one physical supply chain.
Segmentation shows that supply chain management is evolving toward a process similar to portfolio management. Companies have a portfolio of customers and channels, a portfolio of products, and a portfolio of suppliers and supply modes.
By matching those portfolios based on the best way at a given time to reliably and profitably serve each customer, companies will see tremendous value potential. Key practices in supply chain segmentation Segmentation is not just a network strategy, or an inventory strategy, or a fulfillment or manufacturing strategy.Supply chain organizations must cope with growing demand, supply and product disruption.
To do this, supply chain leaders must transform their process. In the s 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.
Social media can - and should - play a central role in supply chain management. After all, social networking is not really about socializing, but about facilitating people-to-people communication and collaboration. Global supply chain leaders consistently cite talent as the No. 1 short- and long-term risk to achieving their business goals.
Executive teams are experiencing a diminishing ability to forecast the future of their competitive environments, markets and value chains, on an almost quarterly basis. This new normal creates a constantly escalating expectation that graduates of top supply chain programs will be ready upon.
In commerce, supply chain management (SCM), the management of the flow of goods and services, involves the movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of initiativeblog.comonnected or interlinked networks, channels and node businesses .