Supply Chain

Product value-density: managing diversity through supply chain segmentation

Antony Lovell, Clearpepper Ltd. Richard Saw, CLSCM Jennifer Stimson, formerly CLSCM

Abstract

Supply chain management is now recognised as a major contributor to competitive advantage and to cost efficiency in major businesses. In the current environment these targets are becoming more difficult to achieve as the level of competition increases and product variety proliferates. Increasingly, an important factor in the quest for supply chain excellence is the quality of the supply chain design and selection; no longer can products be allowed to flow along the wrong channel.

In this paper, the importance of segmentation is identified; both as part of the network design process and as an operational tool for correctly allocating products to one of the available supply chains. By considering a wide range of possible factors, a logical basis for segmentation is derived. From the segmentation scheme, a framework for an operational process is developed, which highlights the importance of product value density (PVD), throughput volume and product availability.

Finally, the concepts of segmentation and the framework developed in the paper are used in a case study based on Sony BPE distribution activities in Europe, Africa and the Middle East.

The Need to Segment Supply Chains

Supply chains have to service a very wide range of products and markets. This diversity has long been recognised, and an oft-repeated caution by lecturers, consultants and practitioners is the concept that “one size does not fit all”. First suggested within the supply chain arena by Fuller et al.[1], the theme has more recently been developed by Fisher [2] to identify two main categories of products: functional or innovative. These two types of product should be treated differently in segmented supply chains. The supply chain, which matches each category, is “an efficient supply chain for functional products and...