Reengineering Supply Chain for Improved Performance

Supply chain Segmentation

•Supply chain segmentation – Case study
•Steps to segmenting a supply Chain and example
From a one-size-fits-all SC strategy to multiple sizes of SC
strategies
for different customer/product profiles.
O strategie unica de supply chain nu aduce performanta
operationala unei companii.
Organizations tend to want their supply chains to have simultaneous capabilities:
efficient, fast, agile, custom-configured, and flexible, among others. Each of these
capabilities requires different skills, and in the majority of cases, these skill sets are
incompatible within the same supply chain (aceste seturi de competențe sunt
incompatibile în cadrul aceluiași SC).
Capabilități simultane ale unui SC implica segmentarea.
 Segmentation- definition
What exactly is supply chain segmentation?
• Any manager should keep in mind that not all customers and products are the
same, there are differences. It is imperative that the managers developing the
supply chain strategy understand the business, i.e. the product range(gama de
produse), the supply base (baza de aprovizionare), and the customers’
requirements
• Segmentation is an organizational strategy process that involves dividing a set of
resources (like customers, products, distribution channel, suppliers, locations, etc.)
into subsets (segments) where each subset (segment) has common characteristics
or common needs .
• After segmentation there will be multiple virtual supply chains running against
one physical supply chain and each virtual SC (each segment) will have
differentiated operating modes to optimize the goals of that segment, such as
customer satisfaction, response time, on-time delivery, inventory optimization,
cost minimization, profitability maximization, etc.
EACH VIRTUAL SEGMENT OF SUPPLY CHAIN NEEDS ITS OWN SUPPLY CHAIN
STRATEGY.
 Supply Chain Segmentation
Why do we segment a SC and on what criteria?
Why do we segment a SC ?
We realize in our company that not all customers and products are the same importance,
there are differences and need alternative SC strategies.
First step. What criteria for segmentation?
We have several criteria for segmentation of a supply chain, such as:
a) Product-Driven Segmentation – segmentarea bazata pe caracteristicile produselor si
cererii. Define supply chain segments according to product and demand characteristics.
b) Market or Customers-Driven Segmentation – segmentarea bazata pe cerintele clientilor.
Define supply chain segments according to customers’ requirements and address them
through differentiated services.
c) Hybrid Segmentation: Market- and Product-Driven Segmentation - segment products
based on a combination of product characteristics and customer requirements. Customers
are not the only dimension that brings different requirements; products also have different
characteristics that require a certain strategic fit.
d) Supply Segmentation – segmentarea bazata pe caracteristicile procesului de
aprovizionare. Define supply chain segments according to supply characteristics.

There is no generic approach to supply chain segmentation, circumstances differ greatly

among various industries and organizations.
Supply Chain segmentation refutes the concept of a “one size fits all” approach. It recognizes
that different product types or customer groups need alternative strategies in order to
achieve the maximum value.

EACH VIRTUAL SEGMENT OF SUPPLY CHAIN NEEDS ITS OWN SUPPLY CHAIN STRATEGY.
Supply Chain Segmentation Criteria

After obtaining the segmentation criteria, the supply chain

segments are defined based on these criteria.
 Supply Chain Segmentation Criteria
Product & demand characteristics:
• Demand volume; Demand volatility; Product lifecycle ;
Forecasting ability; Product complexity; Product value; Product
relevance; Contribution margin
Demand volatility is an important driver that affects the positioning of the
decoupling point. For example, a high volatility product might require an
agile supply chain with the decoupling point positioned close to the
customer. This supply chain could respond flexibly to demand changes.
However, a product’s demand does not necessarily need to be either
high/low or volatile/stable. The demand volume and volatility can vary with
the product’s stage in the product lifecycle (PLC). It may be necessary to
monitor the PLC stage and the according changes in the demand
characteristics.
The length of the PLC is also considered a segmentation criterion. For
example, products with a short PLC require rapid time-to-market, as
opposed to products with a long PLC.
 Supply Chain Segmentation Criteria
Product & demand characteristics: Demand volume; Demand volatility; Product lifecycle ;
Forecasting ability; Product complexity; Product value; Product relevance; Contribution margin
• Demand characteristics, especially demand volatility, also influence organisations’ ability to
forecast. Ways to measure this forecasting ability include the average forecast error, the
average stock-out rate, and/or the average forced end of-season markdowns. Whether or
not a company is capable of forecasting (especially in the face of highly volatile demand)
strongly influences its replenishment strategies inventory targets.
• Various product characteristics also contribute to product complexity. Complex products
might come with higher handling requirements than less complex ones. For instance,
hazardous goods require special handling. Other goods might have special regulations with
regard to exporting and the tracking of batch and serial numbers, or might require value-
adding activities such as labelling. The number of product variants and the level of
customisation affect the production set-up, the positioning of the decoupling point, and the
forecasting accuracy. Moreover, the production set-up is influenced by the complexity of the
production process and the raw materials and components, as well as production capacity
constraints and the process’s production risk/vulnerability.
• Another important product characteristic is the product value or the product value density
(PVD). The value density influences the product stock risk, which has an impact on target
inventory levels.
• Furthermore, product relevance can affect the service level (SL) targets. For example, critical
products might be more relevant because they come with certain availability requirements.
The product’s contribution margin is also relevant.
 Supply Chain Segmentation Criteria
Channel and customer characteristics
Customer type; Customer specifics; Customer priority; Customer
requirements; Channel type; Order type
The customer types (i.e., government or private) and specifics (i.e.,
demographics, region/country, lifestyle, and behaviour) influence the
organization’s relationship and interaction with the customer.
Furthermore, the customer’s priority level may also require a differentiated
customer service offering. The characteristics that help determine customers’
importance include: sales volume; the customer’s profitability/margin; their
market (focus/non-focus); and their strategic importance.
Regardless of the customer’s priority, different customers might require
different service level or lead-time agreements. For example, some
customers might depend on express deliveries, rush orders, or flexible
delivery. Livrari urgente, rapide vs. livrari flexibile.
The channel (indirect, direct, online, value-added resellers, multi-channel)
and order types (single/multiple SKU(s) from the same or different SKU
groups) are also considered (linii multiple de produse din aceeasi grupa sau
grupe diferite, caracteristici fizice diferite).
 Supply Chain Segmentation Criteria
Supply characteristics
Component supply flexibility; Component lead-time (LT);
Component supply reliability; Supply process volatility; Supply
capacity constraints; Component value
Supply characteristics influence the choice of suppliers and the ways
that the company interacts with suppliers to minimize supply risk.
Because the production process directly depends on supply, these
characteristics also impact production and vice versa.
 Supply Chain Segmentation
Second step: How to define supply chain segments?

After obtaining the segmentation criteria, the supply chain segments are defined
based on these criteria.
In this slide we explain how determines the segments and how they allocate
products to these segments.
First, the organization defines the number of categories per segmentation criterion.
For example, if the segmentation criterion is demand volume, the scale could be
segmented into three categories (e.g., low, medium, and high).
After that, the parameter value that marks the boundaries between the segments
is defined. These segment boundaries set the value up to which a product is
assigned to a specific segment. The complexity of the segment (i.e., the number of
SKUs) should be low. This ensures that one segment contains similar products for
which a suitable strategy can be derived. At the same time, the sales volume of the
segment should be high enough for the segment to have significant impact. To
analyze the optimal breakpoint, the parameter value of the threshold is gradually
increased. For each parameter value, the number of SKUs and the volume share for
the segment is calculated and evaluated.
Third step: How to develop Supply Chain Strategy per Segment
After the segments are defined, a differentiated supply chain strategy is developed
that addresses the needs of each supply chain segment. The strategy is based on:
(a) Segmenting and integrating suppliers,
(b) Producing according to segment needs,
(c) Designing the distribution network to balance service needs and cost, and
(d) Planning and forecasting according to segment needs.
 Supply Chain Strategy per Segment
Source - Supply
In terms of supply, the delivery lead-time and frequency varies per supply chain
segment.
Segments with rather stable demand could align their delivery frequency
with the production plan through standardized deliveries in a fixed schedule.
Segments with critical products that require a responsive strategy, short
committed lead-times and/or short-term flexible deliveries are more
appropriate.
However, it may not always be possible to agree on short replenishment-delivery
lead-times with a supplier. In these cases, the downstream production lead-
time is longer than the supply replenishment lead-time and a sufficient
component/raw material inventory needs to be created.
It is also important to monitor the supplier’s reliability (fiabilitatea) in fulfilling
delivery agreements.
 Supply Chain Strategy per Segment
MAKE
The general production set-up should be differentiated based on segment needs.
Product design and portfolio - fundamental decisions about the degree of customization
and number of product variants. Although a differentiated supply chain strategy helps
manage complexity, it does not justify maintaining non-value-adding complexity. The
product portfolio should be rationalized and needless product variants eliminated. The
SKUs that are going to be delisted should be verified by sales and marketing.
Implementing the consequences of these decisions in production requires close
coordination with operations.
Late customization and software-based customization is often an appropriate
way to manage the remaining complexity. Late customization means that the point
of customization is moved closer to the customer, which increases agility. A
platform product-design approach should also be introduced to manage complexity.
Operational focus - on either efficiency or flexibility, two basic supply chain model. An
efficient supply chain optimizes utilization and minimizes cost, even if this reduces the
supply chain’s speed. This strategy is suitable for functional products with relatively low
margins and predictable demand. For innovative products with volatile demand and
higher margins, a responsive supply chain is more suitable. The focus on flexibility ensures
that the supply chain can adapt to rapid demand changes.
The concept of supply chain segmentation was introduced for
the first time in 1997 by Marshall Fisher in his famous article
"What is the right supply chain for your product?

The above segmentation criteria is called Product Driven Segmentation.

But still, using Hybrid Market and Product Driven segmentation to
match products/customers clusters with appropriate supply chains
strategy will better balance customers service and supply chains costs.
Source: THE HARVARD BUSINESS REVIEW, 1997 “What is the right supply chain for your
product? “ by Marshall Fisher
 Supply Chain Strategy per Segment
MAKE
PRODUCTION STRATEGIES
However, a continuum of strategies exists because many products combine functional and
innovative traits. Such products require more customized strategies.
The operational focus does not have to be on just cost or speed, but can align the
production strategy, production planning, inventory levels, and the general set-up of the
production and distribution network. The following paragraphs explain these elements in
more detail.
The production strategy relates to the positioning of the customization point in the
supply chain where a product receives its final characteristics based on the order.
For make-to-stock (MTS) policies, the customization point is placed at the finished product
level and is triggered by a forecast. For MTS-driven production, the replenishment is pull-
based and triggered by a sales order. MTS should be used for stable demand products with
low forecast accuracy.
In contrast to the MTS production strategies, production-to-order MTO, and ATO
production strategies place the customization point further upstream in the supply chain.
MTO production strategies place the customization significantly further upstream, the
company has already designed the product, but starts to manufacture it when the order is
placed.
Ideal, the final customization should be postponed closer to the customer. For example, an
ATO production strategy based on semi-finished stock can postpone customization.
Because products are assembled to order, this strategy avoids high inventory levels. This is
especially important for product segments with high demand volatility, which require high
safety stock. Product segments with a high degree of SKU variety also result in high
inventory levels because each product variant has to be kept in stock.
 Supply Chain Strategy per Segment
PLAN
Planning and forecasting processes should be as standardized and simple as
possible for each segment. By evaluating the purpose of the forecast (e.g., to
predict market changes), the company can determine how accurate the forecast
needs to be. The forecasting time horizon (e.g., weekly/monthly/seasonal), level
(e.g., component, SKU, and product group), and method (e.g., bottom-up/top-
down, etc) are chosen based on the required accuracy.

DELIVER
A well-defined distribution and sales strategy balances (echilibreaza) distribution
costs with customer requirements.
The customer requirements include service level, customer-order lead-time,
delivery reliability rates (indicele fiabilitatii de livrare), and delivery frequency.
The distribution cost drivers are items like the set-up of the distribution network,
transportation modes, delivery types (direct/indirect), and delivery speed. The
order management processes, including order taking, minimum order quantities
(MOQ), first-in-first-out order processing, and spot order management, are also
considered.
 Supply Chain Strategy per Segment
1. Criteriile de segmentare:
Demand volume;
Demand volatility.

2. Definirea segmentelor:
cate doua segmente pe
fiecare criteriu, in total
4 segmente de SC

3. Stabilirea strategiei de
SC/segment. Sunt
definite 4 strategii SC
pentru cresterea
performantei
operationale a
companiei

LT – lead time
Decoupling point - punctul de customizare a produsului final in supply chain dupa primirea
unei cereri reale din partea clientului
 Supply Chain Segmentation
Case study
Un exemplu practic al procesului de segmentare a produselor

• Micul dejun:
– Oua, Sunca, Branza, Ceai, Miere, Unt, Paine, Sare, Cafea, Zahar
Aceste produse au :
a)multiple utilizari:
– Utilizam painea, untul si mierea impreuna cu ceaiul, cafeaua impreuna cu zaharul, ceaiul
impreuna cu zaharul…etc. conform cerintelor(gusturilor noastre)
b) ciclu de viata diferit:
Zaharul si mierea pot sta pe raft, fara sa expire.
Untul si sunca trebuie consumate in 10 zile de la cumparare pentru a evita degradarea
acestora.
c) un consum diferit
Oul o data la 3/7 zile, painea zilnic de aprox. 3 ori pe zi (o viteza de rotatie diferita/frecventa
de utilizare).
d) conditii de pastrare diferite
Painea, sarea, zaharul, plicurile de ceai si cafeaua la temperatura camerei (15-25 grade C)
Oua, branza, unt la temperatura de refrigerare (2-8 grade C) – Cold Chain Product.

Caracteristicile diferite ale produselor enuntate mai sus influenteaza decizia noastra de
achizitie, aprovizionare: cat de mult si cand (frecventa), cum le transportam si apoi
depozitam pentru a satisface cerintele clientilor nostri.
 Analytics and SCS
Tipuri de instrumente analitice
Analytics- instrumente analitice pentru analiza inteligenta (BI) a volumelor mari de
date.
Ca urmare a creşterii explozive a volumului de date structurate şi nestructurate
provenite din mai multe surse, companiile caută o modalitate de a obţine din
acestea informaţiile utile.
Tipuri de instrumente analitice:
Instrumente de analiză descriptivă. Ajuta la elaborarea rapoartelor de
prezentare a starii actuale a lucrurilor. Nu ne spune de ce exista aceasta stare.
De exemplu, stim ca a scazut stocul dar nu stim de ce.

Instrumente de analiza predictivă. Ne permite pornind de la evaluarea starii

actuale a lucrurilor oferita de analiza descriptiva să intelegem de ce avem
aceasta situatie și ce s-ar putea întâmpla în continuare.

Instrumente de analiză prescriptivă. Acesta este punctul culminant al setului

de instrumente pentru analiză. Preia informații din analiza predictivă și ne
spune ce ar trebui să facem, astfel încât să putem implementa soluțiile
manageriale.
 Analytics Opportunity
1. Supply Chain Segmentation
2. Advanced Forecasting
3. Price Optimization
4. Supply Chain Risk
5. Speed to Market
6. Markdown Analytics (between ‘too much too soon’ and
‘too little too late’)
7. Omnichannel Network Optimization (the configuration
of this network of assets (physical supply chain), and
their operational design)
8. Assortment Planning Optimization
Benefits of applying analytics
 Key reasons to perform
Supply Chain Segmentation
1. Reduce Complexity: In order to segment the supply chain
companies need to go through an extensive customer
analysis. This requires understanding of how customers are
purchasing products and services, and what combinations
are profitable*. Therefore this provides an opportunity to
reduce complexity.
Opportunities to reduce complexity may also be found in
product design and in the delivery methods.

* Combined segmentation frameworks

Most segmentation policies involve some combinations of
the various frameworks.
 Discover Synergies
Descopera efectele sinergice favorabile economic
2. Discover Synergies
There is no need to dedicate production facilities
to serve a specific customer segment.
Allow companies to drive economies of scale by:
– Design standard components to use the
manufacturing infrastructure by all supply chains.
– Use procurement across segment
– Use distribution facility across segment
Pentru a obtine efectele sinergice (rezultate economice foarte favorabile) ale
principiului economiei de scala, utilizati in comun pentru toate segmentele
SC capacitatile de productie, achizitie si facilitatile de distributie, etc.
 Increase Standardization

3. Increase Standardization
Often, customer segmentation is driven by the level of
configurability. For example:
a) the corporate segment, each customer has its own
configuration but with large batch sizes and the final
product usually is a combination of standardized and
custom items to meet the customer's specific needs.
b)the online segment where customers can configure
their own solution, is based on standard components.
While the corporate business might be best served by a
Configure-to-Order strategy (Assemble to Order – ATO)
and the online segment by a Make-to-Order strategy-
MTO, both can be based on a product design in large
with common parts.
 Expand Integration
Integrarea extinsa
4. Expand Integration
In order to coordinate manufacturing capacity for
the different supply chains, companies need a
single process on the planning side.

A single, integrated Sales and Operations Planning

(S&OP) process across all supply chain segments
will align demand, supply and inventory, and
allocate production capacity to the various supply
chains based on actual and forecasted demand.
 Match Customer Value
5. Customer Value – Crearea de valoare adaugata
clientului
The most important reason, however, is the customer value. It is the
key driver for the right operational strategy, balancing the need for
efficiency with customer needs. SC segmentation recognizes that
different customer segments have different needs; it provides a
responsive strategy focused on speed, order fulfillment, service
level and customer satisfaction. This will help any company achieve
lower inventory costs by increased responsiveness.
See SC Segmentation project with Dell, where with the help of
advanced analytics and optimization techniques Dell identified four
customer segments resulting in three different SC strategies.
As a result:
– the product portfolio was optimized by cutting off a long-tail of parts;
– product configurations were reduced;
– net income grew by 85%;
– forecast accuracy increased by a factor of three and product availability
by 37%.
The Segmentation - a key principle of
working capital reduction
6. Working capital reduction
A third key principle of working capital reduction is
segmentation or, the recognition that one size does
not fit all. Leaders in working capital management
take steps to differentiate between strategic and non-
strategic suppliers, partners, customers, and SKUs.
Once categorized, the segments are targeted for
working capital reduction in ways which best suit their
importance and value to the organization.
The choice of segmentation is therefore fairly complex
and a total cost/service level analysis needs to be
conducted.
 Ten Keys TO Successful Segmentation
1. Perform regular demand and cost-to-serve analysis
• Financial systems typically do not provide an accurate view of profitability by customer
and product.
• Leading companies have started with a simple model that assigns transportation,
inventory, and ordering costs to products based on their volume and other ordering
dynamics. This type of analysis typically produces data that can be plugged into a
decision-making framework such as the one shown in next slide.
• This involves dividing customers into groups depending on the products or
services they buy.
• From this framework, you can see that the A and B customers are profitable and the C and
D customers are unprofitable. When you look more closely at a profitable customer like
A2, you can see that even among profitable customers there are "winners" and "losers."
This is shown on the right side of Figure, where customer A2 is further analyzed using a
product-profitability matrix, which shows that products P1 and P2 are profitable, while P3
and P4 are not.
• 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.
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.
Example Profitability Decision
Framework
 3. Implement differentiated inventory policies
-multiple strategies for different customer/product profiles-

Based on value propositions (customer/product intersection),

companies use analytic tools to evaluate the entire network and
determine the stocking policies for each product at each stocking
location.
• This process will include determining how much finished-goods
inventory to carry downstream at regional distribution centers
(RDCs), upstream at central DCs, and at factory locations. It will also
include deciding where to incorporate postponement strategies by
determining how much inventory to carry in semifinished mode or
as components to help offset higher demand variability or to
reduce costs for products that have different service requirements.
• Next slide shows a simplified example of a company moving away
from a one-size-fits-all fulfillment strategy to multiple strategies
for different customer/product profiles. This simple example
illustrates the ability to reduce downstream inventories by serving
some customer/product segments from upstream sources, thus
taking advantage of the pooling effect.
 4. Implement differentiated customer replenishment programs
-segmentarea pe canale de distributie-

Different customers will have different replenishment relationships,

based on:
a) the service required
b) the volume and profitability of that customer
c) the channel used to support that customer.
For example, a high-tech consumer electronics company typically deals
with multiple channels: retail, distributor, enterprise and Web. Each of
these channels should have different replenishment programs.
Enterprise customers might be served through a combination of configure-
to-order and build-to-stock strategies (Push-Pull).
Retail customers, meanwhile, could be served through build-to-stock along
with a combination of distribution resource planning (DRP); vendor-
managed inventory (VMI); collaborative planning, forecasting, and
replenishment (CPFR); point-of-sale (POS), analytics-driven collaboration.
Further segmentation within each of these channels would provide
differentiated service based on customer/product dynamics. The type of
replenishment relationship between a manufacturer and a giant, big-box
retail chain will be different than that with smaller retailers.
 Case Study
Segmenting a global manufacturer’s supply chain (I)
Producatorul trebuie sa faca fata:
a) Declinului cotei de piata in Europa de Vest
b) Diversitatii si variatiei cererii care au condus la scaderea nivelului de servire
Managementul decide urmatoarele initiative:
• Cresterea eficientei operationale (reducerea costurilor de fabricatie, stocare,
distributie, etc) pentru cresterea marjei profitului operational
• Imbunatatirea interfetei cu clientii (canale inovative apropiate strategiei de piata)
• Simplificarea lantului ofertei - sistemului de ofertare a cererii (cresterea
disponibilitatii produselor conform acordurilor de servire stabilite)
Pentru realizarea initiativelor compania initiaza un proiect de colectare a informatiilor
(worksopuri, sesiuni de brainstorming, studierea altor proiecte similare externe) si
identifica urmatoarele solutii de realizare a initiativelor sus-mentionate:
– segmentarea SC pentru cresterea adaptarii la cerintele pietei
– reducerea costurilor de productie
– dezvoltarea de noi canale de distributie
– managementul eficient al riscului
– accelerarea procesului de integrare virtuala (extinderea proiectelor IT)
 Case Study
Segmentarea SC pentru cresterea adaptarii la cerintele pietei (II)
The company decided to design two types of supply chain segments:
• Build-to-stock segment prioritized around efficiency ( lowest possible cost to
serve)
• Build-to-demand segment prioritized around flexibility (to increase market
presence)
Aligning company teams to the segments
• First segment serves transaction-oriented customers – cost efficient
– Customers profile : buyers of low-cost products that allowed the company to maximize its
production capacity.
– Products profile: a small subset of the company’s full product range, demand is
“highvolume/low-mix” meaning could be predicted with great accuracy and there was low
variability in the mix of products sold.
• Second segment serves relationship-oriented customers – flexibility and
response time
– Customers profile – buyers of customized and more expensive products with short lead
times (livrabile rapid dar intr-un interval de timp agreat).
– Products profile - a broader range of products, demand is low-volume/high-mix products,
higher product costs, greater variation of demand
• The result: improved customer satisfaction and lower risk
Segmenting of Food Distribution Company
Create an efficient Supply Chain
that serves highly dynamic
distribution points :
DDS (Drive Darkstore System)
includes highly dynamic
distribution points (drive-
throughs, dark stores, and pick-
up points).
direct home supply of items
Store delivery with
Click&Collect (orders the goods
on internet, receive an online
shipping notification, go to store
and take your order to the car by
a friendly drive-through
employee pick op location )
 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 of shorter-lead-time, nearshore
capacity (neighbouring country) and longer-lead-time, offshore capacity.
These different supply modes must also be synchronized with the ordering
and customer replenishment programs on the front end of the supply
chain.
• For example, nearshore capacity can be used for enterprise customers
requiring configure-to-order capabilities with short lead times, while
offshore capacity with longer lead times can be used for make-to-stock
retail channels. Lead-time responses using offshore capacity will be driven
by the transportation mode—ocean freight (long lead times, low cost)
versus air freight (short lead times, high cost). A company with high-gross-
margin products can afford the flexibility provided by air freight; however,
for low-gross-margin, commodity products, moving from ocean freight to
air freight will mean the difference between making and losing money.
 6. Implement regular total-landed-cost
sourcing analysis
Total-landed-cost includes:

• Unit price
• Transportation costs, including fuel surcharges
• Expediting costs
• Handling costs
• Inventory carrying costs
• Inventory obsolescence costs
• Duties and taxes
• Product rework and damage costs
• Customer service penalties
VAT calculation CHINA=(10,000+4,000+1,000)x0.076 = 1,140 CHF
 8. Incorporate monthly and weekly tradeoffs into S&OP
Dell’s Case study

• Sales and operations planning (S&OP) is a tactical process

for end-to-end coordination, collaboration, and
alignment with a single plan for the enterprise.
• The process occurs over a monthly cycle, with weekly
updates and adjustments.
• S&OP is critical to the success of a segmentation strategy
because it is the process by which an enterprise aligns its
decisions with profit and customer service plans. These
plans are then executed within the policies that have
been deployed to support the segmentation strategy.