Supply Chain Segmentation

Contribution by Bharati Mathur – Senior Supply Chain Consultant at Bristlecone

Today’s supply chains – challenged continuously by globalization, outsourcing, product configurations, demand volatility, costs and varied SKUs – are increasingly complex. These pressures drive companies to find ways to satisfy customer needs in the most timely, efficient and profitable manner. But different products, customers and logistics flows require different strategies and objectives. There is no one supply chain strategy that will meet unique requirements of a wide range of customers from different segments and markets. It is very difficult to operate on a ‘one-size-fits-all’ supply chain strategy which over serves some customers and under serves others, affecting profitability and sales. The future belongs to companies who can match their supply chains to the specific needs of their customer segments, and therefore supply chain segmentation remains one of the key interests of supply chain leaders.

[blockquote style=”1″]Gartner defines Supply Chain Segmentation as “Designing and operating distinctly different end-to-end value chains (from customers to suppliers) optimized by a combination of unique customer value, product attribute, manufacturing and supply capabilities, and business value considerations.”[/blockquote] Segmentation is about maximizing customer service and company profitability, by having different supply chain strategies in place for serving different customers associated with different channels and different products, based on their value to the organization. Here value may be defined by volume, revenue, profit margin, strategic importance or a combination of these factors. The goal is to find the best supply chain processes and policies to serve each customer and each product at a given point in time, while also maximizing both customer service and company profitability.

There are multiple methodologies for approaching supply chain segmentation. Here are a few parameters to address segmentation.


Parameter Segmentation
  • Product Complexity (No. of product variants)
  • Volume Complexity (high-volume/low-mix ,low-volume/high-mix)
  • Pricing
  • Life Cycle
  • Quality expectations
  • Innovative products
  • Large highly profitable customer Vs. Small unprofitable customer
Production & Service strategies
  • Large highly profitable customer Vs. Small unprofitable customer
Market Driven
  • Make to Stock (MTS), Make to Order(MTO), Engineer to Order, Service Level Agreements (SLAs)
Lead time requirements Multi source Vs. Single source Channels
  • Retail, Web, Distributors


Supply chain segmentation is an iterative process as there is a constant change in customer requirements. To maximize effectiveness of supply chain segmentation, it is important to:

Perform regular Cost-to-Serve and demand analysis: Cost-to-Serve is the cost of all supply chain activities from taking the customer order upto delivering the order. For successful implementation of segmentation strategy, companies must monitor cost, profitability and demand.

Improve engagement with customers and alignment with suppliers, contract manufacturers and other trading partners.

Assess suppliers: Periodic supplier evaluations will help in segregating top contributing trading partners from the less contributing ones. It will help in identifying the low performing suppliers and providing assistance to them.

Keep up with Technology and Big Data: Companies should have right tools in place in order to maintain visibility within multiple segments, so that decision makers get the right business intelligence and real-time insights, much needed to evaluate the segmentation strategy.

[blockquote style=”2″]In short, supply chain segmentation is a powerful strategy to mitigate supply chain complexity. Companies that successfully deploy segmentation strategies will have improved customer service and sales, higher growth and margins and a deeper multi-channel penetration. However, in absence of the right decision-support tools, segmentation strategies will not yield the expected benefits.[/blockquote]