Smart Segmentation To Reduce Complexity- A Supply Chain Perspective

Ramesh Doraiswami

June 12, 2012

Global Leader inHealth Care

More than 250 Operating Companies

In 60 Countries

Selling Products in More Than 175 Countries

118,000 EmployeesWorldwide

Contents

•C

ustomer Segmentation

•S

upply Chain Segmentation- a conceptual framework

•E

nablers

•B

est Practices

3

Segmentation

4

Sea of customers

Segmentation

5

Interest Behavior

Spend

Age

Gender Location

Income

Need

Different customer segments

Supply Chain Segmentation to manage complexity identified as one of the top 3 trends for Supply Chain excellence in the Gartner study of supply chains of top 25 global companies

Customer SegmentationHospitals as Customers in the Medical Devices Industry

6

Specialized High-end care from trained manpower Use of High-end technology

Performing Secondary care procedures, requiring short hospitalizationLimited use of basic Med technology

Basic Healthcare facilities for common and minor ailments

Tertiary Care

Secondary Care

Primary Care

Tier I

Tier II

Tier III

Government Private

Medical colleges/ Teaching hospitals

District hospitals

Community health centers

Primary health centers

Corporate/ Trust hospitals

Mid size hospitals (50-100 bedded)

Nursing homes< 50 bedded

Clinics

‘One Size Fits All’ Approach is Less Effective

7

Distribution Channel

Product Customer

Supply Channel

•Volumes•Prices•Lead Times•Growth Rates•Service Expectations

• Product or Process Technology

• Life Cycle Stage• Criticality of Use • Demand Accuracy• Volumes• Mfg Strategy• Cold chain

• Wholesaler vs. Direct• Emerging vs. Developed

Market• Shelf Life

• Lead & Cycle Times• Supply Constraints• Supplier Maturity & Risk

Value Chain Characteristics

Business Considerations

•Complexity•Tax Optimization•Sustainability•Market Maturity

What drives variability?

…the time for Segmentation is now!

Source:

Three Key Areas for Better Customer Value Alignment

8

Customer Segmentation

Supply Chain Segmentation

Market driven

Outside-in focus

Maximize profitability

Agility / efficiency balance

Align demand requirements with supply constraints

Test tradeoff of customer value

attributes vs. cost of creation

• Understand the unique requirements of different

customers

• Identify clusters of demand for value chain capability

Allocation of cost of

business decisions

Cost-to-Serve

• Forecasting

• Service

• Inventory Policy

• Distribution network

• Channel

• Value adds

• Calculate the profitability of products, customers and routes to

market. Fact-based focus for service mix and operational changes for

each customer.

Source:

Create multiple ‘virtual’ supply chains off a common asset base / infrastructure

Create multiple ‘virtual’ supply chains off a common asset base / infrastructure

Supply Chain Segmentation Enablers

9

Strong Analytics“Outside In” ie based on customer “use” rather than “purchase”Use patterns by customer type/channelCausal drivers /Bottlenecks to maximizing value to customers

End to End Value Chain by Customer-type (External focus) and Infrastructure/Technology( Internal focus)Channel /Distribution by Customer type

Direct to Large Hospital chains Distributors to small nursing homes in Tier 2/3 towns

Manufacturing by Technology type Orthopedic implants vs Diabetes care products

Seamless, Collaborative organization though Structures do not need to mimic Segmentation“ Value stream” teams across organizational boundariesComplete transparency of data eg One Source of Truth - Robust IT

Balanced Scorecard of Metrics to reflect segment priorities and customer valueUtilize “Perfect Order”

Collaborative “Value Stream” team

Best Practices in SC SegmentationA ‘Plan’ Example

A Healthcare company created a COE (Centre of Excellence) for Demand Analytics & Planning

Initiatives– Master data to capture customer & order types

– Sales analytics by customer segment; pick seasonality & one-off (tenders) in the data

– Differentiated forecasting process

Best Practices in SC SegmentationA ‘Make’ Example

A FMCG company reconfigured its manufacturing / sourcing by segmenting production lines based on productivity, flexibility & skills

Line Type Capability Capacity Planning

1 Low cost/High benefits

First generation labour

Long, continuous runs with minimum

change-over

2

Skilled Labour

Reliable lines

Higher cost

Short runs of products with high variability

Multiple change-overs

3 New technology Outsource till skills, scale stabilized

Best Practices in SC SegmentationA ‘Deliver’ Example

A PC manufacturer developed distribution to cater to a new customer base – retail

Analysis showed retail needs were different

Attribute Retail Online

Product variety Low High

Customization Limited High

Forecast accuracy High Low

Margins Low High

Response

Retail Online

Efficient SC (Push)

Match Mismatch

Responsive SC (Pull)

Mismatch Match

Let the “Customer” drive the choice

13

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