Supply chain segmentation refers to a process where suppliers and customers are segmented into groups depending upon certain factors. Such segmentation allows supply chain management the ability to allocate resources appropriately to meet the needs of different supply chain segments.
Supply chain segmentation is not new. In the 1980’s, Peter Kraljic developed a two-by-two matrix that segmented suppliers by risk and profitability. While effective at the time, this form of static analysis proves difficult today with highly complex and dynamic supply chains. In its place, our team at MCDA CCG recommend that users adopt dynamic segmentation.
Dynamic segmentation uses advanced analytics to determine appropriate supply chain responses to the needs of different customer channels such as is the case with omni-channel marketing. Here are three ways toward an effective supply chain segmentation.
1) Implement Dynamic Supply Chain Modeling
The fundamental weakness of static supply chain modeling lies in its inflexibility and inability to reflect changing realities. In addition to this is the practical impossibility of visualizing supply chain performance without a mathematical model that reflects the supply chain in every material respect. Recognized as a digital twin, such a model is calibrated to respond exactly as the real supply chain does to inputs and disturbances. Taking into account constraints and limitations, and working with real data, a digital twin allows supply chain managers to better understand supply chain behavior and to quickly evaluate different supply chain scenarios.
2) Utilize Machine Learning to Determine Supply Chain Segmentation
Due to the complexity of supply chain networks, it’s practically impossible to effectively analyze them without some form of machine learning. Machine learning uses algorithms (computer scripts) to analyze data and identify hidden patterns in both structured and unstructured data from the supply chain. By applying machine learning, it’s possible to determine logical groupings and break the supply chain into segments with similar characteristics. Supply chain segmentation examples include:
-Supplier size, volume and price
-Regional and geographic differences
-Sales channels such as omnichannel, online and bricks-and-mortar
-Risk and vulnerability
-Revenue, cost and profitability
3) Optimize Supply Chain Segmentation using Prescriptive Analytics
The third step towards supply chain segmentation is determining the most effective strategies for each segment and, at the same time, maximizing overall business performance. When using prescriptive analytics, supply chain managers can determine scenarios that maximize overall revenue for each segment. At the same time, they can determine how these scenarios affect other supply chain segments and determine the right balance.
Using the digital supply chain model and corporate data, prescriptive analytics allows supply chain planners to determine the bottom-line impact of decisions to maximize segmented supply chain performance. Not only that, but prescriptive analytics can evaluate thousands of scenarios to determine which maximize profitability and how they impact each segment of your supply chain.
Realizing the Benefits of Supply Chain Segmentation Modeling
A dynamic, data-driven approach to supply chain segmentation using prescriptive analytics means supply chain managers make better supply chain decisions. Because they’re able to assess the full impact of these decisions on the entire organization, managers avoid the nightmare scenario of losing market share and business because of poor supply chain segmentation decisions.
Why is this important for you?
While today’s supply chain chaos is real, the complex operations and advanced networking skills required to effectively complete these sequences have generally remained the same.
And while there was no way to explicitly predict the Covid-19 pandemic and its lasting impacts on supply chain across the country, we strongly recommend that your systems are designed, built, and maintained to withstand any potential storm.
Some factors may be completely out of your control, however, if the majority of your activities demonstrate credible self sufficiency, you not only retain your company’s composure, you also prove your worth in the market.
For example, with the end of the year rapidly approaching, now is the time to reinforce your supply chain to minimize a potential flood of consequences which can make or break your year.
One of the worst mistakes you can continue to make is assuming you will know what to do when the time comes. This always results in a state of distressed panic.
With demonstrated success in supply chain management among various industries, we can help you in any of your planning services, such as supply chain evaluation, optimization, audits, and performance. And while our experts’ experience comprises a wide range of industries, our specialty lies in Aerospace and manufacturing. Contact our team at MCDA CCG, INC. (headquartered in Placentia, Orange County, California) for a no-obligation phone call, where we will assess the cruciality of your situation and further determine where you need help.
Don’t wait until the calendar points closer to the end of the year, call us today!