Supply chain segmentation for technology companies

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Five ways to segment

There are numerous ways to approach supply chain segmentation, but five broad categories are particularly relevant when addressing segmentation strategy with technology companies.

Have an important subset of customers who are willing to pay more for customized products or faster-than-usual delivery? A supply chain segment can be tuned to meet that need.

  • Product complexity-based segmentation takes into account the many potential variants of a given product — the volume mix (e.g., high-volume, low-margin products and/or low-volume, high margin products) — pricing and even life cycle variability.

  • Supply chain risk and resilience-based segmentation examines resiliency of the supply chain itself and plans for risk mitigation strategies. For example, companies faced with catastrophic disasters such as the hurricanes, earthquakes and tsunamis of the recent past would benefit greatly from a segmented supply chain capable of providing options.

  • Manufacturing process and technology-based segmentation tunes for different production and execution methods and can be helpful in achieving synergies among multiple divisions.

  • Customer service needs-based segmentation groups customers with similar fulfillment needs and then develops distinct supply chain operations to meet those particular requirements. For example, for some products, customers expect instant availability and require a build-to-stock (BTS) process path; for others, the focus is more on configurability and a configure-to-order (CTO) path.

  • A typical way to look at this could be through the lens of service-level agreements (SLAs), differentiated by standard, high-quality and premium service levels. Another might be demand predictability; some customers may buy products for which demand is volatile and unpredictable, while another group may buy products for which replenishment characteristics are relatively consistent.

  • Market-driven segmentation differentiates based on the geopolitical nature of the markets, peculiarities of the channels, characteristics of consumers versus business-to-business (B2B) customers, whether markets are volatile or stable, and other demand patterns, e.g., seasonal versus constant.

Supply chain segmentation — no “one-size-fits-all” strategy

Why do companies segment their supply chains? Examples
1 Product complexity-based • Product complexity (number of product variants)
• Volume complexity (high-volume/low-mix versus low-volume/high-mix)
• Product pricing and related economic activity-based segmentation
• Leading handset manufacturer differentiated high-end product from commodity product line
2 Risk- and resiliency-based • What is the risk appetite and ability to shield against unexpected disruptions
• Impact of events on supply chain and corporate performance
• Centralized versus decentralized
• Multiple geographical locations
3 Manufacturing process- and technology-based • Based on different production technology and execution methods (multiple planning and execution methodologies)
• Often used to build up a divisional structure to achieve synergy level
• Pharmaceutical companies
• Consumer packaged goods (CPG) companies
4 Customer service needs-based • Service-level-based: build-to-stock (BTS), build-to-order (BTO), engineer-to-order (ETO)
• Segmentation into standard, high-quality and premium service levels
• High-tech OEM services
• Global available-to-promise (ATP) and allocation to ensure SLA adherence
5 Market-driven • Markets needs (consumer, B2B or volatile markets and stable markets)
• Demand patterns (seasonal, constant, etc.)
• Customer groups/segments
• Home entertainment division of leading studio
• Fashion apparel retailers Why do companies segment their supply chains?
Source: EY analysis.

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