Importance of Segmentation for Supply Chain Recovery

Importance of Segmentation for Supply Chain Recovery in Disruptive Environments

Disruptive events are nothing new. Hurricanes, war, political issues, the list of disruptions goes on and on. So when the disruptions occur, how does your business react and plan? Is your supply chain prepared for the ebbs and flows in the market?

An area that is often overlooked, but holds extreme value for future planning and properly recovering from current events, is segmentation. It is critical to understand the impacts of demand and supply on geography, your customer, your products, suppliers and transportation.

By segmenting data and dissecting your customer needs, your company can respond faster and more accurately to demand signals, demand pattern shifts and the supply disruptions. Our expert consultant with over 40 years of supply chain practitioner and technology experience, Andy Brisley, discusses the importance of 5 segmentation areas for supply chain recovery in disruptive environments.

5 Focus Areas of Segmentation in Supply Chain

When it comes to geography, start by looking at your customer, your industry, actual shipments and syndicated data elements.

To get the best geographical view of your customers, it’s important to get as specific as possible. You could use 3-digit zip codes, states or simply regions to segment the geography. Drilling down the hierarchical data will give you the best possible picture of how geography impacts supply and demand for your product.

It is also important to look at what industry you and your customers are serving, how big of a player you are, and is one product more important than another for a particular region.

Two major disruptors when we talk about geography are weather and regional regulations. Weather can play a huge role in disrupting your supply chain, especially in areas prone to extreme weather and natural disasters. For example, Hurricane Maria devastated Puerto Rico. This had a big impact on the pharmaceutical supply chain, and caused an incredible demand and transportation disruption for basic services, from electricity to telecommunications.

Specific regulations and laws per region, state or country may also affect your planning. In the current COVID pandemic, we are seeing certain states or regions being more restrictive with shelter in place orders and others being more lenient. For example, urban areas, such as New York City, may not have as fast of a demand return as rural areas, such upstate New York, that has less restrictions.

Depending on the nature of the disruption, historical data will be skewed, as nothing of the scale may have happened, however, you can look at actual shipments and combine syndicated data to determine a baseline and pattern for each region for moving forward

Knowing who your customer is and how your product is used in the products life cycle is critical to a proactive recovery. Data elements to consider are sales by customer, sales by geography, seasonal sales and causal behavior.

Segmenting your customers as emerging, strategic, category leaders or standard can help prioritize servicing in times of disruption, short supply or allocation environments. Some companies will start with a fair share allocation, but at times, that has to be adjusted.

Geography plays a big role in the customer segmentation, as well, as we discussed above. Being able to provide and divert precious resources where they will add value for you and your customers is critical to respond to any disruption.

Seasonal and weather patterns will impact each customer differently. Causal behaviors are usually overlooked in customer segmentations, but it will provide you insight on the customer volatility, along with factors important to the customer for the current climate.

Segmenting customer data will help each business answer: how can we serve these customers better during disruption and recovery, what is most important to these customers, and what segments of our customers should be prioritized.

Building upon the geographic and customer segmentation data, the product is an obvious factor to take into consideration. Many companies have segmented product data, but mostly around inventory value. Other areas to consider are lead time category, life cycle of the product, criticality of the product for your customers and market share for that particular product.

In times of disruption, there are questions you should ask prior to spending valuable resources. Do your customers really need to use this product now or after recovery? Is there a more important product for me to have available for this customer, at this time, in this geography? Is there are more profitable product that will allow me to improve cash flow, so I can fill more products to more customers?

By looking at cost per region, distribution capability, stocking and replenishment policies per customer for your finished products, you’ll be able to determine where to focus your particular product mix and investments by running several different scenarios.

Suppliers have typically been segmented based on measures, such as On Time - In Full, along with quality metrics, and sometimes lead times. Suppliers will have a large impact on how you are able to manage disruption.

For suppliers, you will want to take a look at their geography and how they may be impacted by the situation and recovery. Natural disasters and political climates can be disruptive as well. In the current market situation, we have the term “essential”. If your supplier is not an essential business, or is located in a very restrictive state or country, will they be able to serve you?

Your strategic relevance to this supplier will play a factor. Are you critical to them? Where has your company been segmented in their view? Determining where you rate in your supplier’s hierarchy can help you make strategic decisions on who to work with and who may be your best supply ally in recovering from a disruption.

Depending on your relevance, you may need to assess backup suppliers – do they have issues? Are you relevant to them? If so, you may need to determine if they should be included into your scenario planning.

Transportation of your products, inbound and outbound, will also play a role in recovering from any disruption. Data points to review include geography, mode and cost.

You’ll first need to take into consideration how your transportation network has been affected. Are your traffic partners still capable, as well as, reliable? Should you expect delays? What mode of transportation will be the most effective considering the current state? Will you need to expedite freight, either inbound or outbound, and what partners will provide you the best service?

Geographically, consider if you’re crossing borders, both inbound and outbound. Each company may be impacted differently, depending on their location, and the common dispatch points.

Cost volatility will play a big part of how to strategically transport your products during recovery and should be included in the different scenarios.

Segmentation Data Elements

The Importance of Segmentation
As a manufacturer, segmentation can help you make profitable near term actions to quickly and effectively prioritize products, customers, geographies, suppliers and change replenishment policies based on data in disruptive environments. Segmentation concepts have been around for some time and may seem simple, but it requires consistent maintenance for companies to use it when required.

At Accelytics, the biggest problem we see companies face with segmentation is data organization. Data is typically scattered across multiple systems, departments and processes. Due to this, companies have siloed data and are not able to get a clear picture of their customer, products and supply chain. They are then unable to see the impact of each on supply chain disruptions and recoveries.

The Segmentation Solution

Proper segmentation can give you a competitive advantage against your competitors, and help you strategically navigate any disruptive event. At Accelytics, we work with a technology solution called Anaplan to help the world’s largest companies plan better.

By implementing Anaplan, all of a company’s data can be merged into one platform and be seen across business departments in a cloud-based system. Anaplan has the ability to dynamically rank and re-rank data and readjust models for recovery, easily and quickly. You can pull data as often as you need.

Anaplan can help your company forecast accurately and be able to proactively plan for shifts in the economy. We’ve helped multiple Fortune 100 and 500 companies begin to properly segment their data for massive improvements in their supply chain and navigate many types of disruptive events. With Anaplan, your company can become a planning and forecasting powerhouse through the Connected Planning Platform.

Expert Consulting with Accelytics

Are you looking to implement or revise your current supply chain processes? Accelytics offers a free, process and technology analysis to determine your supply chain improvements.

About the Author

Andy has over 40 years of hands-on supply chain and technology practitioner and executive experience in High Tech and Consumer Goods, Automotive, Industrial Manufacturing and asset intensive industries. He has a long track record of successful project management leveraging technology for process improvements. Andy is an Anaplan and Oracle alumni with vast knowledge on connecting supply chain with digital resources. He is also a veteran of our US Submarine Service.

Connect with Andy on LinkedIn or email him here.

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