I n the 1990s Dell revolutionized both the comput- er industry and supply chain management with its direct-to-consumerbusinessmodel. Forthepastseveral
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. Through this transformation, Dell has saved US $1.5 billion in operational costs1
and has moved to the number two spot on Gartner’s “Top
25 Supply Chains” list.
Dell is one of a number of enterprises that are benefit-
ing 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 dif-
ferent 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.
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 under-serving others—a practice that leads to significant profitability and cash-flow leakages and potentially lost sales.
Indeed, research shows that on average, 30–40 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. 2 Properly structured segmentation policies for customers and products can significantly
reduce the impact of demand variability. (For a look at how
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.
BY KELLY THOMAS
Supply chain
segmentation:
10 steps to
greater profits
