Perspectives on Various Issues of Interest

Segmentating Supply Chains

In their article Swan, Pal and Lippert (2009) present some interesting perspectives on supply chain segmentation. The segmentation approach allows a firm to focus on aspects that are most important for a particular product, customer, or channel. The operational characteristics are tailored to meet this demand. For example, the products can be segmented into: high volume and low variability, high volume high variability, low volume low variability, low volume high variability. Customers can be segmented in 'A', 'B' and 'C' based on their contribution to firm profits. Channels also have different needs. For example, for a consumer packaged goods company the mass retailer was interested in increasing levels of customization, smaller case-count mix overall to improve retailer turns, ability to launch new products to reflect growth areas, and sustainability options. On the other hand price-sensitive club stores were keen on developing club-specific packs for seasonal items, partner-specific display pallets/pallet selling opportunities, and new products to address incomplete assortment issues. The grocery channel were interested in packaging that enables reduction of restocking labor, were not looking for smaller facings or pack-outs or on customization, and had a focus on seasonal needs for display-ready cases and quarter-pallets. The convenience channel focused on satisfying both wholesaler and convenience store outlet requirements, improving assortment and positioning of products in a limited shelf-space environment, enhancing speed-to-shelf for new products. For this channel, it is important to win in everyday sales and seasonality is not a major driver. The channel is interested in increasing off-shelf displays (e.g. counter top displays).

The article presents three steps as a part of creating the blueprint for segmented supply chain:

1) Identify supply chain pressures: In this step it is important to identify the sources of supply chain complexity and then to narrow the list to issues that are operationally relevant. 

2) Define the best segments: This step distinguishes unique segments based on the criteria identified in the previous step.

3) Build processes and infrastructure: In this step the segmented supply chain is defined, operational characteristics are established, and performance metrics are tailored by segment.

The following three points are important to succeed in implementing a segmentation strategy:

1) Pick the right number of segments

2) Let customer requirements determine your focus

3) Implement segmentation in steps

Rewards of supply chain segmentation:

(i) In high-tech segmentation a careful management of short product lifecycles, unpredictable trends, and component availability, improves service level by 5 to 10 percent while reducing inventory by 15 to 20 percent.

(ii) In the food processing industry, managing seasonality of supply and demand by means of supply chain segmentation can reduce inventory by up to 40 percent while at the same time improving customer service levels.

(iii) Successful implementation of segmentation in retail can help in improving margins by 5 to 15 percent on selected merchandise while lowering overall logistics and warehousing costs by as much as 15 to 20 percent.

Source: Swan, D., Pal, S., and Lippert, M. "Finding the perfect fit." CSCMP's Supply Chain Quarterly, Quarter 4/2009.

Managing Inventory and Replenishment after Mergers and Acquisitions

In the education session at CSCMP 2009 Annual Global Conference, Michael Maltz, director of global manufacturing and logistics for Business Efficiency Division, presented Johnson Controls approach to managing inventory and replenishment in light of the growth attained through acquisitions. The division lacked a consistent methodology and processes for managing build-to-stock, assemble-to-order, and build-to-order products. The division implemented a centralized control over strategic inventory issues, including sales and operations planning, management policies, and development of standards and procedures. The tactical processes, including purchasing and implementation of corporate directives were decentralized and managed by local managers. The division simplified data collection and decision making by using forecasting software that sits on top of multiple enterprise resource planning (ERP) systems. The software helps to integrate sales, marketing, and operational information from all of the component groups and produces forecasts at both the stock keeping unit (SKU) and product-family levels. The software also provides visibility for both domestic and international distribution centers.

Source: "Simplicity beats complexity in managing inventory," CSCMP Supply Chain Quarterly, Quarter 4/2009.

Supply Chain Management to Increase Cash Flow

In the educational session of CSCMP's annual conference in 2009, Philippe Lombotte, senior vice president of global customer services and logistics of Kraft foods, provided some examples of how Kraft frees up cash. These include:

- Linking managerial incentives to cash flow as well as to revenue

- Monitoring and reducing the number of stock-keeping units (SKUs).

- Creating a fixed, weekly production schedule that produces the same sequence of SKUs for the same length of time, and only in the quantities actually needed. This ensures more regulated flow of finished goods and reduces raw material and packaging costs.

- Phasing out SKU's with low revenue and high sales volatility after a careful evaluation.

- Reducing service levels for some product lines to operate with less inventory coverage.

Source: "Kraft uses SCM to increase cash flow," CSCMP's Supply Chain Quarterly, Quarter 4/2009.

Most popular green supply chain initiatives

Initiative Percentage reporting use

Energy efficiency 75

Emission measuring/reduction 53

Corporate green team 51

Reducing vehicle miles 47

Using more green logistics providers 45

Design for environment 44

Strategic warehouse/DC placement 44

Near and/or green sourcing 34

Alternative fuels 34

Greener manufacturing processes 29

Horizontal collaboration with other companies 27

Switching from air to other modes 24

Moving production closer to home 12

Source: Eyefortransport, Supply Chain Carbon and Sustainability Report - North America 2009, October 2009.

Load-matching services

Transportation brokers and online freight exchanges match empty trailers with backhaul loads. However, in early 2009 Voluntary Interindustry Commerce Solutions (VICS), GS1 Canada, and GS1 US, have come together and launched their "Empty Miles Service." The website www.emptymiles.org allows motor carriers and shippers to match empty trailers with available loads. Organizations, such as Macy's, are already reaping benefits from this service. Empty miles enabled Macy's to put together about 30 backhaul loads per week with Schneider National. Macy's receive about 30 percent rate reduction for these backhaul load moves, which is expected to save about $25,000 a year in transportation costs on each backhaul line. Schneider National also gets the benefit of the service as it helped to eliminate 11 percent of its empty miles and increase its backhaul freight by 22 percent. As of now the service is available in United States, but there are plans to expand it to Canada.

Source: "Associations offer new load-matching service." CSCMP's Supply Chain Quarterly, Quarter 4/2009.

Smart Supply Chains

According to a study titled, "The Smarter Supply Chain of the Future: Global Chief Supply Chain Officer Study," conducted by IBM Global Business Services' Supply Chain Management Practice in mid-2008, the supply chain of the future will have to be "instrumental, interconnected, and intelligent." Based on nearly 400 interviews with top-ranking supply chain executives representing 29 industries in 25 countries, the report suggests that supply chain professionals will be working in a highly automated world. The report states, "Inventory will count itself. Containers will detect their contents. Pallets will report if they end up in the wrong place." The respondents forecast that along with customers, suppliers, and information systems, other supply chain segments, i.e. parts, products, and the "smart" devices used to monitor the supply chain, will be tightly connected. Supply chain executives believe that in near future advanced analytics and modeling will help decision makers evaluate alternatives while taking complex risks and constraints into account. For instance, intelligent systems will make automatic decisions regarding reconfiguration of supply chain network in the event of disruptions (or for situations demanding additional manufacturing and distribution capacity), bypassing human intervention. The report says, "Equipped with sophisticated modeling and simulation capabilities, the smarter supply chain will move past sense-and-respond to predict-and-act." Chief supply chain officers will spend less time on tactical concerns and more time as strategic thinkers, collaborators, and orchestrators.

Source: "Future supply chains could be smarter that their designers." CSCMP's Supply Chain Quarterly, Quarter 4, 2009.