Manufacturers ignoring supply chain segmentation

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Segmentation is a key business process and capability to ensure business goals are realised.

Manufacturers are failing to effectively leverage data and analytics when it comes to supply chain planning and segmentation, according to new research from University of Warwick’s WMG and JDA Software Group.

The new report – Supply Chain Segmentation: A Window of Opportunity for European Manufacturing – reveals that less than a fifth (18%) of the more than 100 European manufacturing organisations surveyed considered historic, present and future data in the supply chain planning process

Aiming to benchmark supply chain segmentation practices across Europe, the research also found that just 39% of respondents stated that their segmentation models were data-driven.

In fact, nearly a quarter (23%) stated they simply utilise ‘rules of thumb’ over any kind of dynamic or data-driven methodology.

JDA vice president, manufacturing industry strategy, EMEA, Hans-Georg Kaltenbrunner explained: “Organisations are driving their supply chains forward by looking in the rear-view mirror, rather than looking at the road ahead.Supply Chain Segmentation: A Window of Opportunity for European Manufacturing - image courtesy of JDA & WMG.

“It is not just that there’s an over reliance on historic data, it is quite possible that organisations are being driven along the wrong road altogether.

He continued: “The research suggests that some organisations may not have the capability to accurately navigate their supply chain along the business roadmap, and a lack of analytics capabilities is widespread, along with a consistent end-to-end analytics approach. Given the apparent general lack of maturity across the space, the first movers will quickly gain competitive advantage.”

When it comes to implementing supply chain segmentation practices, only 29% of respondents stated they did this in a ‘top down’ manner, indicating that the strategic nature of segmentation is not being recognised in practice.

Business process orientation

Only 8% of European manufacturers have reached level three segmentation (out of four), while no firms demonstrated level four capability. According to the report, an effective supply segmentation strategy should be informed by business rules from Integrated Business Planning (IBP), however the research revealed that only 5% of organisations were at level three (of four) maturity.

It’s not unrelated that only 17% reported a business process orientation was part of their operational design. This indicates that there remains significant room for improvement for manufacturers when it comes to keeping their supply chain management, new product development and customer relationship management aligned.

WMG – University of Warwick, Professor Janet Godsell commented: “Segmentation is not a new practice for supply chain management, yet our study reveals that it remains relatively under-developed.

“Supply chain segmentation should be the lens that focuses complex signals from the market, so that organisations can configure their supply chain assets, ensuring they are consistent with business strategy and deliver maximum profitability.

Supply Chain Segmentation: A Window of Opportunity for European Manufacturing - Graph 2 - image courtesy of JDA & WMG.“In theory, segmentation is a key business process and capability, to ensure business goals are realised in the hurly-burly of operation. So it is surprising to find that only 17% of respondents had business process orientation as part of their operational design. Ultimately, business processes provide a way to connect the end-to-end supply chain, create integration, enable flow and deliver customer value at the lowest supply chain cost.”

Limited segmentation criteria

The survey revealed that one third of organisations (33%) are utilising just a single criteria to model segmentation, while just over half (51%) are only employing two. As a result, organisations are making important day-to-day commercial prioritisation decisions based on limited measures.

Furthermore, the criteria being using is often inconsistent between functions, meaning there is no end-to end commercial perspective driving supply chain and business decisions.

Supply chain segmentation can become a significant contributor towards bottom-line profitability and service differentiation. Yet, the survey found that only in rare cases, for ‘product’ and ‘customer’ dimensions, margin was a goal at all – even then, as a goal, it was ranked fourth or lower.

In general, volume and geographic measures dominated, further indicating a low level of supply segmentation sophistication.