I recently had the pleasure of visiting Gartner’s Supply Chain Executive Conference in London. One of the many interesting topics discussed was Supply Chain Segmentation. Segmentation lets companies boost profitability by tailoring multiple supply chains within one physical flow. This made me think about how ERP vendors such as IFS can support companies to implement segmented supply chains.
The supply chain segmentation example Gartner shared resonated with me. Commercial airlines offer Business Class tickets, including more space, later check-in, better service and more flexibility. All things that come at a cost and with a premium price tag attached. In parallel with this they offer Economy Class tickets – with fewer benefits, but at a more competitive price. This is an example of how two quite different supply chains co-exist within one physical channel. In the case of the commercial airline operator this is a very conscious decision well known by both seller and buyer.
In the manufacturing and distribution industries this is however not always the case. A lot of companies don’t differentiate their offering, or are not leveraging supply chain segmentation. Their supply chain is designed based on the idea that “one-size-fits-all” and usually designed with the sole intention of minimizing cost. For example, using a less mature supply chain model would make you sell Business Class seats at the same price as Economy, or maybe Economy at the price as Business. Not matter what – a less sophisticated supply chain will fail to deliver competitive advantage and at worse even jeopardize the success of a company.
So how can ERP vendors support supply chain segmentation?
I often work with our process manufacturing customers and two quite different approaches spring to mind:
Approach A: Let’s call the first example mixed-mode manufacturing. Here the company combines the benefits of cost efficient build-to-stock with flexible build-to-order. IFS offers a broad range of solutions that allows companies to easily and with a simple set-up, combine various strategies such as configure to order, multi-level build-to-order, repetitive production and more. This concept is very useful for companies with a basic, high volume, low cost offering that needs to co-exist with a parallel channel of products tailored to customer specification and with flexibility as their main competitive advantage.
Approach B: The second example is about differentiated inventory planning within spare parts, distribution, wholesale and process manufacturing. In this area we offer a solution where the demand forecast is directly linked with the calculation of inventory planning parameters. The set of rules (service level policy, cover times etc.) that governs the planning parameters is not as usual maintained by item, but instead based on groups defined by frequency, value, lifecycle stage. As products move between groups across their season or lifecycle they will also be planned differently to offer an optimal demand response at every point in time.
In future posts I intend to give a couple of examples of how these approaches have been successfully implemented by our customers together with my first line experiences from these projects.