Last time, we discussed the principles of supply chain in brief and its time, we dig a little more on the details of these principles so that they can be practiced practically.
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Principle 1: Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
Segmentation has traditionally grouped customers by industry, product, or trade channel and then taken a one-size-fits-all approach to serving them, averaging costs and profitability within and across segments. The typical result, as I witnessed a manager admitting: "We don't fully understand the relative value customers place on our service offerings."
Segmentation has traditionally grouped customers by industry, product, or trade channel and then taken a one-size-fits-all approach to serving them, averaging costs and profitability within and across segments. The typical result, as I witnessed a manager admitting: "We don't fully understand the relative value customers place on our service offerings."
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But segmenting customers by their particular needs equips a company to develop a portfolio of services tailored to various segments. Surveys, interviews, and industry research have been the traditional tools for defining key segmentation criteria.
But segmenting customers by their particular needs equips a company to develop a portfolio of services tailored to various segments. Surveys, interviews, and industry research have been the traditional tools for defining key segmentation criteria.
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Today, progressive manufacturers are turning to such advanced analytical techniques as cluster and conjoint analysis to measure customer tradeoffs and predict the marginal profitability of each segment. One manufacturer of home improvement and building products might base segmentation on sales and merchandising needs and order fulfillment requirements. Others may find that criteria such as technical support and account planning activities drive more accurate segmentation.
Today, progressive manufacturers are turning to such advanced analytical techniques as cluster and conjoint analysis to measure customer tradeoffs and predict the marginal profitability of each segment. One manufacturer of home improvement and building products might base segmentation on sales and merchandising needs and order fulfillment requirements. Others may find that criteria such as technical support and account planning activities drive more accurate segmentation.
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Research also can establish the services valued by all customers versus those valued only by certain segments. Then the company should apply a disciplined, cross-functional process to develop a menu of supply chain programs and create segment-specific service packages that combine basic services for everyone with the services from the menu that will have the greatest appeal to particular segments. This does not mean tailoring for the sake of tailoring. The goal is to find the degree of segmentation and variation needed to maximize profitability.
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Principle 2: Customize the logistics network to the service requirements and profitability of customer segments.
Companies have traditionally taken a monolithic approach to logistics network design in organizing their inventory, warehouse, and transportation activities to meet a single standard. For some, the logistics network has been designed to meet the average service requirements of all customers; for others, to satisfy the toughest requirements of a single customer segment.
Companies have traditionally taken a monolithic approach to logistics network design in organizing their inventory, warehouse, and transportation activities to meet a single standard. For some, the logistics network has been designed to meet the average service requirements of all customers; for others, to satisfy the toughest requirements of a single customer segment.
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Neither approach can achieve superior asset utilization or accommodatethe segment-specific logistics necessary for excellent supply chain management. In many industries, especially such commodity industries as fine paper, tailoring distribution assets to meet individual logistics requirements is a greater source of differentiation for a manufacturer than the actual products, which are largely undifferentiated.
Neither approach can achieve superior asset utilization or accommodatethe segment-specific logistics necessary for excellent supply chain management. In many industries, especially such commodity industries as fine paper, tailoring distribution assets to meet individual logistics requirements is a greater source of differentiation for a manufacturer than the actual products, which are largely undifferentiated.
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One paper company may find radically different customer service demands in two key segments—large publishers with long leadtimes and small regional printers needing delivery within 24 hours. To serve both segments well and achieve profitable growth, let us assume that the manufacturer will need to design a multi-level logistics network with three full-stocking distribution centers and 46 quick-response cross-docks, stocking only fast-moving items, located near the regional printers.
One paper company may find radically different customer service demands in two key segments—large publishers with long leadtimes and small regional printers needing delivery within 24 hours. To serve both segments well and achieve profitable growth, let us assume that the manufacturer will need to design a multi-level logistics network with three full-stocking distribution centers and 46 quick-response cross-docks, stocking only fast-moving items, located near the regional printers.
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They will certainly see return on assets and revenues improvement thanks to the new inventory deployment strategy, supported by outsourcing of management of the quick response centers and the transportation activities. The logistics network in this case, probably will be more complex, involving alliances with third-party logistics providers, and will certainly have to be more flexible than the traditional network. As a result, fundamental changes in the mission, number, location, and ownership structure of warehouses are typically necessary. Finally, the network will require more robust logistics planning enabled by "real-time" decision-support tools that can handle flow-through distribution and more time-sensitive approaches to managing transportation. Even less conventional thinking about logistics is emerging in some industries, where shared customers and similar geographic approaches result in redundant networks. Combining logistics for both complementary and competing firms under third-party ownershipcan provide a lower-cost industrywide solution.
They will certainly see return on assets and revenues improvement thanks to the new inventory deployment strategy, supported by outsourcing of management of the quick response centers and the transportation activities. The logistics network in this case, probably will be more complex, involving alliances with third-party logistics providers, and will certainly have to be more flexible than the traditional network. As a result, fundamental changes in the mission, number, location, and ownership structure of warehouses are typically necessary. Finally, the network will require more robust logistics planning enabled by "real-time" decision-support tools that can handle flow-through distribution and more time-sensitive approaches to managing transportation. Even less conventional thinking about logistics is emerging in some industries, where shared customers and similar geographic approaches result in redundant networks. Combining logistics for both complementary and competing firms under third-party ownershipcan provide a lower-cost industrywide solution.
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We will talk about the rest of principles in the next post
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