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Comment Segmentation lets Supply chain management and dell 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.
Typical Working of Dell’s Supply Chain; Five key strategies in Dell’s successful Direct Model; A supply chain with old technology is of little value; Restructuring at Dell; New Distribution Channels – Direct Model and Retail Strategy; Integrating the Supply Chain; Related Reading; View sample pages of this case study; Case Study Abstract. The focus of this case study is the supply chain management practices of . At Dell, we hold ourselves and our suppliers to a high standard of excellence, prioritizing responsibility and sustainability. We work with our suppliers and through groups like the Responsible Business Alliance to set and abide by high standards that respect and protect our workers, communities, and the environment. We know customers have questions about our supply chain. Download Case Study on Dell's Supply Chain Strategy (PDF), SCM Case Studies, Dell Direct Model. Case Study resources in Business Strategy and other Management Education Subjects.
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.
Rather, it is an end-to-end strategy for the supply chain that has implications for many areas, from the customer through to the supplier. Figure 3 summarizes 10 key practices that support a successful segmentation strategy. The discussion that follows describes these practices and their importance in aligning the supply chain to the unique value propositions offered to customers.
Perform regular demand and cost-to-serve analysis The foundation of segmentation is data-driven analysis of demand dynamics and the profitability of customers and products.
This analysis provides the information needed to tailor service agreements and supply chain policies in order to raise the overall profitability of the portfolio while providing reliable and suitable service.
Because the dynamics of demand and profitability change frequently, particularly in today's rapidly changing business landscape, this analysis must be institutionalized and performed on a standard cadence. There are a number of ways to perform demand and cost-to-serve analyses.
Financial systems typically do not provide an accurate view of profitability by customer and product, so other tools may be needed. It's important, however, to avoid complex costing models for the purpose of setting appropriate supply chain policies.
Leading companies have started with a simple model that assigns transportation, inventory, and ordering costs to products based on their volume and other ordering dynamics. This type of analysis typically produces data that can be plugged into a decision-making framework such as the one shown in Figure 4.What Is Supply Chain Integration?
To understand integrated supply chains, it’s first important to grasp just what a supply chain is.
A supply chain is a collection of suppliers required to create one specific product for a company. Provides procurement expertise to ensure optimized supply chain strategies and business plans are in place for assigned products and to ensure best cost and COS.
Leads World-Wide Procurement and . Supply Chain Management is one of those research domains that will always have research opportunities and research topics for dissertation and thesis.
Tesla Supply Chain – HOW IT’S MADE TESLA. Only time will tell if the Tesla Supply Chain will become one of the best in the world. This video takes you from the start of building the Tesla factory to all the innovations inside.
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.
Sandra MacQuillan is Senior Vice President and Chief Supply Chain Officer for Kimberly-Clark Corporation, leading their Global Supply Chain organization with global responsibilities for Procurement, Manufacturing, Logistics, Sustainability, Safety, Quality and Regulatory.