What Is Freight Procurement and How Does It Work?
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 blog post, 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. What advantages can you expect when you implement this strategy? 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 grocery logistics 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. How do you know if this is the right move for your organization? 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 the ideal solution 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.
Final Thoughts
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 wondering how to get started with supply chain segmentation? Reach out to learn how Redwood's Modern 4PL approach can optimize your operations.
FAQs
What is supply chain segmentation?
Supply chain segmentation is the practice of breaking a complex supply chain into smaller, more manageable groups based on how different customers, products, or service needs operate. The goal is to identify weak points in the overall supply chain management strategy and apply the right process to each segment instead of using one approach for everything.
Why does supply chain segmentation matter for businesses?
Supply chain segmentation matters because one-size-fits-all logistics often creates waste, inefficiency, and unnecessary cost. By matching different supply chain processes to different customer needs, businesses can improve fulfillment, reduce inventory waste, and support better profit margins. It is especially useful when operations serve multiple channels or demand patterns.
How does supply chain segmentation work in practice?
In practice, supply chain segmentation separates products or demand streams into different handling models. For example, a business may process direct-to-consumer orders differently from regular retail or grocery shipments. One segment may need individualized picking and shipping, while another may work better with grouped inventory and scheduled deliveries.
What are the main benefits of supply chain segmentation?
The main benefits of supply chain segmentation are less waste, more efficiency, and lower costs. Businesses can reduce spoilage or overstock, move products through the supply chain more effectively, and better control shipping and inventory expenses. These gains come from using different processes for different operational needs.
When should a company consider supply chain segmentation?
A company should consider supply chain segmentation when its supply chain is complex, multi-dimensional, or serving very different customer groups. If different orders need different shipping speeds, inventory setups, or fulfillment methods, segmentation may be a better fit than a single standard process. It is worth evaluating before making major operational changes.
How do you start implementing a supply chain segmentation model?
Implementation should begin with transparency across partners and processes so you can see where the current supply chain is falling short. Next, identify the problems that need fixing and brainstorm possible solutions. Then test segmentation in small pieces, starting with the most obvious issues, and use the results to guide the next step.
What is the best way to test supply chain segmentation before rolling it out fully?
The best way to test supply chain segmentation is to pilot it in pieces rather than changing everything at once. Start with the areas causing the biggest operational problems, make small adjustments, and allow time to observe the results. That approach gives you data on whether the model improves performance before you commit more broadly.
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