DC Velocity - IdeaBook 2014

approaches are necessary for other segments.

5. Implement differentiated supplier replenishment programs

Similar to customer replenishment programs, supplier replenishment programs should be segmented based on supplier/component dynamics.

Many companies today use a combination of owned and outsourced factories as well as a combination of short-er-lead-time, nearshore capacity and longer-lead-time, offshore capacity. These different supply modes must also be synchronized with the ordering and customer replenishment programs on the front end of the supply chain.

For example, nearshore capacity can be used for enterprise customers requiring configure-to-order capabilities with short lead times, while offshore capacity with longer lead times can be used for make-to-stock retail channels. Lead-time responses using offshore capacity will be driven by the transportation mode—ocean freight (long lead times, low cost) versus air freight (short lead times, high cost). A company with high-gross-margin products can afford the flexibility provided by air freight; however, for low-gross-margin, commodity products, moving from ocean freight to air freight will mean the difference between making and losing money.

6. Implement regular total-landed-cost analysis

One of the challenges confronting supply chain managers is that supply chain cost structures have become very dynamic. Labor costs, fuel costs, and currency exchange rates for low-cost countries all fluctuate significantly, causing profitable sourcing strategies to turn unprofitable much more quickly than they have in the past.

Historically, sourcing strategies were largely based on unit price, and they were executed that way for years.

Leading companies today have integrated workflows across
engineering, procurement, and supply chain organizations
to incorporate total-landed-cost analysis into engineering
and procurement decisions. These decisions are based on a
holistic view of cost, including:
Furthermore, sourcing decisions have a large impact
on the cost to serve discussed earlier. Accordingly, supply
chain managers are ensuring that sourcing decisions are
made within the overall segmentation strategy for serving
customers profitably.

7. Implement differentiated allocation/order promising Allocation and order promising are critical areas for implementing policies that enable segmented and profitable customer service strategies. Allocation is the process of reserving inventory and/or capacity for certain customers or groups of customers, or for other entities, such as sales groups or geographies. The intention is to provide preference for certain customers based on objective criteria such as volume, profit, and service-level agreements. Order promising is the process of providing a date by which a product will be delivered, with a high level of reliability.

With integrated allocation and order promising, companies can achieve many of the operational goals of supply chain segmentation. Leading companies, in fact, have employed integrated allocation and order-promising techniques to provide highly reliable and profit-driven customer service. As shown in Figure 6, companies have employed a multidimensional approach to create sophisticated, differentiated customer service strategies for individual customers. These leaders are creating a specific approach for each product/customer intersection, and they have integrated this with configurable search mechanisms that define how to examine the entire supply chain network to determine the best fulfillment point.

As Figure 6 indicates, allocation can occur at different levels of product and customer hierarchies. Promising will then respect these allocations and promise from an appropriate fulfillment point within the supply chain in order to achieve the desired level of service for a given customer. This provides a tailored allocation and promising technique at each intersection of a customer/product hierarchy, integrated with a tailored fulfillment program for that intersection.

The figure also shows a thread that connects the product, customer, and supply chain. This is an example of a tailored allocation and promising approach in which large, strategic customers can get preferential allocation of a critical component for desktop computers, with fulfillment coming from the manufacturing location within the supply chain. This is an example of what is called allocated capa-ble-to-promise (ACTP).