Supply Chain Segmentation

supply chain segmentation

In the majority of cases, a one-size-fits-all strategy to logistics is ineffective. Therefore, segmentation of the supply chain is required for a business to meet its consumers’ various service and cost requirements.

For instance, one supply chain may be ideal for massive, bulky materials, while another may be appropriate for little parcels. Similarly, a supply chain different from that available to the general market may be required for highly demanding customers. There are numerous ways to segment supply chains, and this blog discusses three prevalent segmentation grounds.

1. Product Segmentation

Due to the nature of the products, it may be necessary to have distinct supply chains. Several significant product features for supply chain segmentation include the following:

  • Size: Depending on the size of the product, it may be appropriate to distribute it via a palletised delivery network, a parcel carrier, or the postal service.
  • Temperature range: There are three primary temperature regimes for food products: frozen (about –18 to –25 °C), chilled (approximately +2 to +5 °C), and ambient temperatures. These are frequently used as the basis for segmented supply chains, however refrigerated and ambient items are frequently blended.
  • Bulk Handling: Certain items (e.g. liquids, powders, and granules) are ideally suited to bulk handling and thus require specialised storage, handling, and transportation facilities.
  • Hazardous: Hazardous commodities may require a distinct supply chain in order to perform all necessary safety precautions.
  • Value: The price of goods is relevant for segmentation reasons because it influences the cost of inventory management in the supply chain. For instance, low-value commodities may be stored in numerous locations near customers, and high-value goods may be centralised to reduce safety stocks.
  • Variety: Certain commodities are marketed in a variety of ways due to their nature. For instance, a single product line of shirts may include various collar sizes, colours, and sleeve lengths.

2. Supply - Demand Segmentation

Along with physical traits, there may be a distinction between products that categorises them as ‘functional’ or ‘innovative,’ as Fisher noted in 1997. Thus, functional items may experience consistent demand and necessitate a cost-effective supply chain. On the other hand, innovative items are often fresh to the market, have a high degree of demand volatility and require a far more responsive supply chain.

However, demand is just one aspect of the supply chain. Additionally, one must consider the source of supply. On the supply side, a critical part is the supplier lead time — the time it takes from the time orders are placed with the supplier to the time the goods are physically received.

Lean supply chain principles are implementable in any location with predictable demand. To save money on lead times, you should plan ahead for sourcing, production, storage, and movement of items. A quick reaction and continual replenishment approach result in goods being supplied on a ‘just-in-time’ basis, shortening lead times.
However, agile policies are only truly applied where supplier lead times are short. In this instance, supplies will flex to match market demands, and low inventory levels will be maintained. As lead times are long, this might cause an overstock of items that would lead to huge inventories or undersupply, leading to lost sales.

3. Marketing Segmentation

For decades, marketing has incorporated segmentation. It is used to generate demand, and it has long been known that distinct consumer classifications necessitate distinct marketing strategies. Given that supply chains exist to serve the client, it makes sense to investigate if marketing segmentation concepts apply to supply chain design.

The customer’s geographic location is plainly crucial to supply chain management and marketing segmentation. For instance, export goods are usually split within warehouses for specialised packing and frequently shipped via distinct logistics providers than domestic orders. Similarly, some businesses deliver to major urban conurbations using their trucks, while others outsource logistics to third-party providers for more remote locales.

Behavioural segments may also be critical for supply chain design. For example, Stockarea employed personality types to study purchasing behaviour and discovered three categories:

  1. Collaborative – Customers search for a close working partnership in which both parties may gain. It is a regular phenomenon with mature products, in which demand is predictable and is usually linked to a supply chain.
  2. Demanding – In this fast-paced market, fast responses are essential due to uncertain supply and demand scenarios. An agile supply chain is essential.
  3. Innovation – Customers keep seeking fresh advancements and ideas from vendors. This necessitates innovation and responsiveness in supply chain solutions.

Many other marketing segmentation theories may apply to the supply chain, as each group represents a particular demand feature that must be delivered differently.

Final Thought

Segmented supply chains involve judgments based on various components. For instance, a lean supply chain may rely on off-shore sourcing, cross-docking via warehouses to fulfil predictable demand, and shipping by sea freight, which is very inexpensive. On the other hand, an agile supply chain may involve responsive local suppliers, a network of local depots storing small buffer supplies to service customers’ urgent needs, and the utilisation of road freight, which is typically quite rapid and flexible.

Segmentation of the supply chain can be quite complex as many criteria can be utilised as a foundation for segmentation. If a corporation were to use all of these alternative segmentation bases, it would end up with many unmanageable supply chains. It is critical to select segmentation frameworks that are pertinent to the specific product, supply, demand, and purchasing characteristics encountered. Numerous distinct segments that may be identified will require similar or identical supply chain designs and can be grouped together. The purpose is to maintain a manageable number of efficient supply chain networks capable of meeting the market’s diverse expectations.