Segmentation Strategies for Success

In their IdeaBook 2014, the editors of DC Velocity and Supply Chain Quarterly published a piece on Supply Chain Segmentation: 10 Steps to Greater Profits that stated that segmentation lets companies boost profitability by tailoring their supply chain strategy to each customer and product in their portfolio. The paper aimed to outline 10 key practices that would ensure success.

The purpose of segmentation is to align supply chain policies to the customer value proposition as well as to the value proposition for the company as a whole.
A company that adopts segmentation will develop multiple virtual supply chains that run against each physical supply chain and move towards a portfolio management approach where they have a portfolio of customers and channels, a portfolio of products, and a portfolio of suppliers and supply modes.

Success depends on doing it right. The ten keys to successful segmentation presented in the paper are good ones.

1. Regular Demand and Cost-to-Serve Analysis.
The goal is to tailor service agreements and supply chain policies in order to raise the overall profitability of the portfolio. It also helps you to provide value to the business by highlighting both profitable and unprofitable product and service lines. A truly valuable Supply Management department can guide the organization down a more profitable path in addition to saving coin.

2. Differentiated Demand Policies in Core Functions.
Not all products are as equally profitable, or equally critical to business operation. While a company can’t stock-out on critical pats to keep a production line running and shouldn’t stock-out on the products that are in the highest demand by its customers, there will be little or no detriment to occasionally running out of office supplies or forcing a customer to wait an extra few days for a part that is rarely bought. Thus, expedited orders should not be placed promptly when (potential) stock-outs are detected for non-critical products but should be when a critical part is out of stock and production or profit will be impacted considerably.

3. Differentiated Inventory Policies.
Just like non-critical parts and products should not be unnecessarily expedited, stock-levels of non-critical parts and products shouldn’t be unnecessarily high. An occasional stock-out on a non-critical product is worth the shipping savings obtained by buying an appropriate volume that generates the appropriate product and shipping discounts.

4. Differentiated Customer Replenishment Programs.
Just like some products and services will be much more valuable than others, some customers will be much more valuable than others. In addition, your contracts will dictate that some customers receive higher service levels (and, if the person executing the contract did her job right, the service level each customer receives corresponds to the value of the customer).

5. Differentiated Supplier Allocation Programs.
Just like some customers will be much more valuable than others, some suppliers will be much more valuable than others as each supplier has different capabilities. For example, nearshore facilities will provide opportunities for quick replenishment, but offshore facilities will often provide opportunities for low-cost high-volume replenishment. Use the right supplier for the right order at the right time.

6. Regular Total-Landed-Cost Sourcing Analysis.
As SI continually insists, it’s important to do a total cost analysis before making a sourcing decision because it’s not what you pay per unit, it’s what the buy costs you overall! If you’re having difficulty, obtain a real strategic sourcing decision optimization solution.

7. Differentiated Allocation and Order Processing.
Allocation is the process of reserving inventory and/or capacity for certain customers or groups of customers. The intention is to make sure that the needs of preferential customers are always met. Similarly, orders are processed in order of customer preference.

8. Incorporate Monthly and Weekly Tradeoffs into S&OP.
S&OP once a month isn’t enough — demand patterns change weekly, and in some fast-moving verticals, even daily. Be sure to update forecasts, inventory levels, and allocation strategies at least weekly.

9. Business Optimization Centre for Continuous Learning.
In order to progress to the next level on your Supply Management journey, your organization will need a Supply Chain Center of Excellence whose mission includes establishing, implementing, and monitoring segmentation policies, and then continuously learning as such policies are executed over time.

10. Automated Policy Management.
Not only is the supply chain centre of excellence responsible for policy analysis, deployment, and management but it is also responsible for ensuring that the various policies related to promising, fulfillment, inventory, transportation, manufacturing, and sourcing are coordinated, aligned and synchronized in time. In order to succeed in any strategy, segmentation or otherwise, it’s critical that the organization continuously improve.

Furthermore, even if your organization isn’t looking to apply (much) segmentation, it’s all good advice for any Supply Management operation.

65 Years Ago Today the Microfilm Revolution Began!

65 years ago today, the first microfilm magazine was offered to subscribers. Newsweek, by offering its publication on microfilm, sparked a microfilm revolution and within a few decades, libraries everywhere were storing large collections of newspapers and magazines on tiny microfilm collections. This allowing libraries to maintain large collections of historical documents in limited space and was the precursor to the current digital revolution, which saw micro-films replaced with (optical) disks, which were soon replaced by storage area networks.

Why Is This Poor Little LOLCat Begging You?

As per our post on April 26, this poor little LOLCat is Begging You to Stop Harper.

Why is this poor little LOLCat begging you to Stop Harper? Because when even the leading academics of China call your prime minister “Canada’s George W. Bush” and a leader who has overseen a sullying of the country’s international reputation, you know things are bad. (This quote is from Nathan Vanderklippe’s article in the Friday, May 16 edition of The Globe and Mail print edition, page A9, in the article headlined Canada’s image in decline, say Chinese.

You have to admit, they do look very much alike in this picture!

The Board Gamers Guide to Supply Management Part XXII: Thurn and Taxis

Thurn and Taxis, by Rio Grande Games, is a very interesting game. In this game, each player is trying to build a competing postal system in Bavaria (which is now a southeast German state) in the 17th century when travel relied on (horse-drawn) carriages. In order to do this, she must build post offices in as many of the 22 major cities as she is able to, before someone else builds her 20th, and last, post office or acquires a carriage worth 7 points (which will be the 17th carriage acquired in the game). Like Ticket to Ride and Camelot, the Build, the game is very easy to learn, and the basic rules can be picked up by a new player in just a few minutes. But also like both of these games, mastery is considerably more difficult as your options depend not only on the cards available to you but what your opponents choose to do as well.

In Thurn and Taxis, you are trying to build post offices that establish a postal system, and you do so by building postal routes of three or more cities. When you have a route of 3 or more cities, you may close the route and place post offices in every city on the route that is contained in one province or in one city from every province that is covered by the route. A “good” route, when closed, will allow you to place a post office in every city on the route, but a “poor” route will only let you place post offices in some of the cities. Furthermore, the identification of the “right” route is hampered by the fact that the first player to build a post office in every city in a province gets a high score for doing so, the first player to build a post office in every province gets a high score for doing so, the first player to close a route of length 5, 6, and 7 also gets a high score for doing so, and the player to trigger the game end condition gets an additional 1 point. (Subsequent players to do the same score less.) Not only do you have to build routes, like in Ticket to Ride, but you have to build effective routes. Furthermore, to add an extra level of complexity, once you begin to build a route you must add to the route on every turn (until you close it) or you lose the route. (If you have a route of 6 you can close but decide to go for the route of length 7 for the biggest bonus, and you aren’t able to extend it in your next turn, your gamble could cost you everything, and anywhere between 3 and 6 turns of effort will vanish.)

The rules of Thurn and Taxi are easily summed up as follows. On her turn, a player, who can only use the special ability of one of the four postal officials (Administrator, PostMaster, Postal Carrier, and Cartwright) on her turn, will:

  1. Optionally use the special ability of the Administrator to replace the six cards available to him to build a route.
  2. Add a city card to her hand, and, optionally (unless it is the player’s first turn, then she must), use the special ability of the PostMaster to add a second city card to her hand.
  3. Play a city card from her hand to create a new, or add to an existing, route, and, optionally, use the Postal Carrier to play a second city card to her route.
    If she has no cards in play, or cannot add to an existing route, she starts a new route and the previous route, if there was one, is discarded.
  4. If the route is of length 3 or more, close and score her current route (by placing post offices and collecting any bonus tiles and/or carriages earned) and, optionally, use the Cartwright to acquire a carriage that is associated with a route up to two cities longer than the route she closed. If the player has more than three cards in her hand when she closes a route, she must discard down to three cards.

The only other rule is that the carriages must be acquired in value order, even if a player closes a longer route. (And that is why the first carriage of value 7, for a route of length 7, will always be the 17th carriage acquired.)

It’s simple, but just like in real supply chains, timing is everything. It mimics some of the intricacies and complexities of trying to coordinate shipments through multiple cross-docks and stops across multiple carriers. With capacity tight, do you try to acquire extra options (by taking a second city card) to guarantee capacity later? When you have extra capacity, do you expedite some goods (by playing a second city card) in the hopes of preventing inventory build-ups and storefront stock-outs later? If your current options look less-than promising, do you instead focus efforts on finding new options (by wiping the board and turning up six new city cards) instead of trying to develop your current options? Or, do you maximize the one option available to you and give a marquis customer better than expected service in exchange for goodwill and quicker payment (by using the ability of the Cartwright to score more). Like Ticket to Ride and Camelot, the Build, this game can also be played during lunch-hour and also exercises your strategic thinking, because each opponent is trying to do what’s best for them, and in doing so might undermine your best efforts (just like a competitor can swoop in and tie up all remaining capacity on a lane if you don’t get the paperwork in before them).

Plus, the base game supports a couple of expansions, including All Roads Lead to Rome which includes two mini-expansions to the game that give you even more options to balance. In the mini “Offices of Honor” expansion, nothing changes in the base gameplay but if a player balances her usage of the different postal staff members, she will occasionally get extra help. Each time a player uses a postal staff member, she gets a token indicating her use thereof. When the tokens for a particular staff member run out, each player must turn in 1 to 4 different tiles to the supply. If a player returns 2 different tiles, she gets to take an extra face-up city card. If a player returns 3 different tiles, she gets a victory point. And if a player returns a set of 4 different tiles, she may place one of her post offices anywhere on the game board, even if such placement triggers the generation of victory points in her favour. (In real life, if you use each of your carriers for routes and modes they are best at, and use them wisely, your on-time delivery percentage shoots up.)

In “The Audience”, in addition to having to build postal routes, you are also transporting 5 clergymen to attend an audience with the Pope in 5 different carriages. When a route is closed, for each city card in the close route in which a post office was not built, the corresponding carriage transporting a clergyman is moved one city closer to Rome. Your goal is to not only get your clergymen to Rome, but get them their in the right order. The ministrant should arrive before the priest who should arrive before the deacon who should arrive before the bishop who should arrive before the cardinals. Sounds easy, but your clergyman share a carriage with one clergyman of each other player, and you don’t know which clergyman the other players have assigned to each carriage. In other words, while you are trying to advance a particular carriage to get your ministrant there first, the other player is trying to hold it back because it contains her cardinal whom she wants to get there last. So the choice of routes gets even more strategic because if you build a route that ends up advancing the carriage with your cardinal and bishop too fast, you’re not going to score many bonus points at the end of the game. This expansion serves to add another element of randomness to the game, just like unexpected disruptions add another element of randomness to logistics planning.

It’s a good, simple, logistics-themed game to play when you have a lunch hour to spare.

Screening Questions to ask Prospective Suppliers

A recent article over on Supply Chain Digital on “nine crucial questions to ask prospective suppliers” was in the right direction when it presented a small set of questions to screen prospective suppliers. Before inviting a supplier to an RFP, the following questions should be included on every RFI:

Can we have a copy of your Code of Ethics?
If the vendor doesn’t have one, or won’t give it to you, sound all the sirens and run for the hills. No organization can afford a publicity disaster these days.

Can you provide 3rd party proof that you live up to it?
It’s one thing to say you have an ethics policy, it’s another to follow it — and another yet to have true third party proof that you do. Make sure the certification is from a true third party and not from a small consortium of vendors that fund the certification agency.

Can we have a copy of your Quality Assurance Process?
If the vendor doesn’t have one, or won’t give it to you, then you need to ask yourself what kind of quality you can expect.

What certifications do you have with regards to this process? ISO? ASQ? etc.
If the vendor doesn’t have any certifications, how much faith can you put into the process the vendor is using?

Can you provide references from current AND former clients who did business with you for at least 2 years?
You don’t want references who have been with the vendor less than a year because the blush is still on the rose and they will be full of peace and love for the vendor. You need a real review from an experienced customer who can tell you what’s good and not so good. No vendor is perfect, and if the not so good is not relevant to your business, then their imperfection is irrelevant. Plus, if customers’ left, why? Was it due to a change in business? Or poor performance? If the customer left for due to a change in business, and they still have a good reference for the former supplier, then that speaks volumes. If the customer left due to continuously poor performance, that also speaks volumes.

Do you understand our business? Explain!

If the supplier has never supplied a customer in your vertical, and you have special needs, this could be an issue. It could also be an issue if they have never supplied a customer with special needs in your vertical or you have considerably different requirements than the average company in your vertical. Make sure the vendor has a good understanding of who you are as a company by asking this open ended question.

Who are your top competitors? Why are you better for us?

Everyone has competitors. If they don’t, then they are misguided or selling a product or service no one needs. There are no Blue Oceans any more, just open oceans that are only sparsely sailed (by a few companies who are eager explorers). Make sure they give you a few real competitors as well as a good reason as to why they are better, as this will serve to not only enforce their answer to the previous question (and let you know if they really understand your business) but let you know that they have attempted to be honest in their assessment.