Pushing inventory upstream is not just a network strategy, or an inventory strategy, or a fulfillment or manufacturing strategy. Rather, it is an end-to-end strategy for the supply chain that has implications for many areas, from the customer through to the supplier. To achieve maximum value from segmentation for both the customers and the enterprise, companies must have policies in each area that are coordinated to the value proposition offered to each customer/product combination.
1. Perform regular demand and cost-to-serve analysis
The objective here is to understand which customer/product combinations are winners and which are losers, and then to structure supply chain policies such that some or all of the losers are turned into winners. This may require changing the replenishment model and service-level agreements for a specific customer/product combination. For example, a tire manufacturer that provides the same one-day lead time for both A customers and D customers may want to change the policy to three days for the D customers. This would move the inventory buffer point upstream in the supply chain, reducing overall inventory. The upstream buffer would hold a larger pool of inventory, thus increasing the odds that downstream demand will be satisfied with the exact product required. This change may have the effect of turning D customers into B customers.
2. Implement differentiated demand policies in core functions
In order for the supply chain to align with segmentation strategies, the demand signals within core supply chain management functions—such as master planning, transportation planning, distribution planning, and factory planning—must be prioritized in a way that aligns with those strategies. The demand priorities must be driven by the overall segmentation strategy that is tied to the service/profitability framework discussed in the previous section. Supply chain management systems for these core functions must be intelligent enough to incorporate and make decisions using these priorities. The systems must also be easy to configure and be able to adapt to changing priorities.
3. Implement differentiated inventory policies
Inventory may be the area where supply chain segmentation has been employed most often in the past five years. Inventory optimization has progressed during that period to become a process-driven discipline of regularly determining what inventories to carry, where, in what form, and in what quantities across a multiechelon network. Once again, this starts with the foundational step of understanding the value propositions offered for each customer/product intersection. Based on this information, companies use analytic tools to evaluate the entire network and determine the stocking policies for each product at each stocking location.
4. Implement differentiated customer replenishment programs
An emerging trend in retail replenishment is the increasing use of analytical information based on point-of-sale data to drive orders from the retailer to the manufacturer. This is part of a larger trend toward manufacturers looking further downstream to leverage independent demand (demand for an actual end product that is bought and used by a consumer or customer) to drive their upstream operations. The intention is to reduce the "bullwhip effect" that comes from using dependent demand, which is derived from independent demand.
Sony Electronics has successfully used this POS-analytic-driven replenishment approach with its customer Wal-Mart Stores to improve its in-store availability while reducing channel inventories.
5. Implement differentiated supplier replenishment programs
Similar to customer replenishment programs, supplier replenishment programs should be segmented based on supplier/component dynamics.
Many companies today use a combination of owned and outsourced factories as well as a combination...
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