Page 88 - DMGT525_MATERIALS_MANAGEMENT

Unit 6: Supply Chain Management

needs and order fulfillment requirements. Others are finding that criteria such as technical Notes
support and account planning activities drive segmentation.
Research also can be established by the services valued by all customers versus those valued
only by certain segments. Then the company should apply a disciplined, cross-functional process
to develop a menu of supply chain programs and create segment-specific service packages that
combine basic services for everyone with the services from the menu that will have the greatest
appeal to particular segments. This does not mean tailoring for the sake of tailoring. The goal is
to find the degree of segmentation and variation needed to maximize profitability.

Figure 6.1: Need-based Segmentation

High

Innovators
-grainger
Sales & merchandising needs Traditionalists Developing Logistics
-home depot
-wal-mart

-auto zone
-staples

Optimizers
-small retail stores
-small industrial
wholesale -westinghouse
-maytag
distributors -chrysler
Low
Low Order fulfillment requirements High

Source: Anderson Consulting
All the segments in Figure 6.1 value consistent delivery. But those in the lower left quadrant
have little interest in the advanced supply chain management programs, such as customized
packaging and advance shipment notification, that appeal greatly to those in the upper right
quadrant.
Most companies have a significant untapped opportunity to better align their investment in a
particular customer relationship with the return that customer generates. To do so, companies
must analyze the profitability of segments, plus the costs and benefits of alternate service
packages, to ensure a reasonable return on their investment and the most profitable allocation
of resources. To strike and sustain the appropriate balance between service and profitability,
most companies will need to set priorities—sequencing the rollout of tailored programs to
capitalize on existing capabilities and maximize customer impact.

Principle 2: Customize the logistics network to the service requirements and profitability
of customer segments.

Companies have traditionally taken a monolithic approach to logistics network design in
organizing their inventory, warehouse, and transportation activities to meet a single standard.
For some, the logistics network has been designed to meet the average service requirements of
all customers; for others, to satisfy the toughest requirements of a single customer segment.

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