What Is Supply Chain Segmentation?

Supply Chain Segmentation


The complexity of the nation's economy necessitates a new supply chain management strategy that can satisfy the ever-growing needs of the modern supply chain.

Supply chain segmentation is one novel approach that addresses this issue by breaking down all of the rather complicated problems that play into supply chain management hurdles into somewhat smaller and more digestible groupings. The process for doing so looks at every part of your supply chain management strategy related to all areas of your supply chain. This allows you to pinpoint weak areas in the chain and devise solutions to those parts of your operation.

In this article, we’ll take a closer look at supply chain segmentation and provide some tips on how to get started.


Supply Chain Segmentation Explained

To fully understand supply chain segmentation, let's use a hypothetical example. 

In our example, we will take a look at a fictional butcher’s shop and highlight how they could utilize a supply chain segmentation strategy in order to improve their processes for shipping their food products to where they need to go... efficiently.

Let’s call this imaginary butcher shop 'Mike’s Meats'. 

Mike’s Meats supplies the local grocery store with tons of cuts each week. They also sell specialty orders directly to consumers via online orders. 

Using the exact same process to address both of these needs could potentially lead to waste and less profit, as these two strategies both require a very different approach. Specifically, customers who are ordering directly from Mike’s online store will be looking for certain types of meat, and they will likely want to be able to select every cut they want. These customers may not order very frequently. In fact, there may be huge spikes in online sales around certain holidays and infrequent, unpredictable orders.

On the other hand, grocery stores will be looking for something very different. The grocer will want to have regular, potentially even daily, shipments of meat from Mike’s so that their shelves are constantly lined with the freshest possible meats. They will also want a large selection of meats so that shoppers can browse the cuts in person and pick what they prefer.

As you can see, a single supply chain approach to address both of these needs is unlikely to work very well. For this reason, Mike’s could benefit from supply chain segmentation.


Employing a Supply Chain Segmentation Strategy for Our Fictional Business

When it comes to online orders, Mike’s Meats would probably want to separate and sort their cuts. This way, when an order comes in, an employee or automated process can pick the products and initiate the delivery process so that the order is shipped directly to the consumer.

On the other hand, to meet the needs of the grocery store, the best solution might be to have a variety of cuts grouped together in an appropriate storage location, ready for regular delivery to the store.

And this is what true supply chain segmentation looks like at its most basic.


Benefits of Supply Chain Segmentation

As we previously mentioned, there are a variety of benefits inherent in the use of a supply chain segmentation model. Below, we’ve outlined some of the most important ones.


Less Waste

Especially when it comes to food, segmentation can drastically cut down on waste. The goods that spoil due to poor anticipation or faulty logistical models will never make their way to the customer, and the costs will have to be eaten by the business itself.


More Efficiency

One size does not fit all when it comes to supply chains. If you run a complex, multi-dimensional business, you need to find more than one way to get your products out the door and into the hands of your customers. Segmentation allows you to do just that.


Decreased Costs

For many businesses, supply chain segmentation will lead to decreased costs in terms of shipping and inventory, to name just a few areas. By improving efficiency and giving customers exactly what they need through a segmentation model, you can often grow your business substantially. 


How to Implement a Supply Chain Segmentation Model

To be fair, switching to segmentation from the standard model is quite the change. Therefore, you should really take your time and make sure that this is the right option for you before you jump in with both feet.


Step One: Ensure that You Have Transparency with Your Partners

Before making any significant operational change, it is always best to ensure that you know as much as possible about what is happening across all areas of your current supply chain.

You should aim to identify any areas where your processes are falling short. This will lead logically into the next step.


Step Two: Brainstorm About Changes That Can Fix Current Issues

Once you’ve figured out where problems are occurring, you need to develop a short list of ideas for how you can fix them. This may require a comprehensive approach from various areas of your business with the help of your partners. 

At the end of this step, you may decide that supply chain segmentation is just what the doctor ordered for your operations!


Step Three: Test Out a Segmentation Model

In all likelihood, you’ll want to implement your new model in pieces, not all at once. Start where you find the most glaring issues, and make small changes. Then allow some time to let those changes take effect and observe the outcomes. This will give you valuable data about how you should go about your segmentation strategy, if you should at all.



Supply chain segmentation is a strategy that works well for many different businesses who are trying to manage complex operations. This method allows companies to maximize profits, improve customer satisfaction, and move toward a better overall business model. However, it’s not the perfect solution for everyone. Be sure to take your time and analyze your needs before moving forward toward a supply chain segmentation strategy.

Need help with management of your supply chain or how to get started with supply chain segmentation, reach out to the team at Redwood today.