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f+h Intralogistics 5/2014

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f+h Intralogistics 5/2014

Logistics management

Logistics management Increased profitability with segmented supply chains Klaus Wenger, Simon Bowes End users expect their orders to be processed immediately. The associated higher level of flexibility this brings about usually also adds to the costs based on the increasingly complex supply chains. As a result, the key to success lies in companies’ abilities to meet customer and product segment requirements without excessively burdening supply chain costs. Klaus Wenger is the Head of Central & Eastern Europe at JDA Simon Bowes is the Vice President Manufacturing & Transportation Solutions Consulting EMEA in the same company As a rule, more flexible internal and external processes also incur more costs on the basis of increasingly complex supply chains and higher logistics costs, deviating throughput times as well as bottlenecks. In light of this situation, it is hardly surprising that the research and development community has come to the conclusion that after detailed analysis 30 to 40 % of all customers and products within an average company are unprofitable. An impressive figure that should give us all something to think about. Consequently, the issue is how companies ensure that they not only maintain good relationships with their custom- ers, but that they also financially benefit from said relationships. In a first step, companies must gain a better insight into their customers’ and projects’ profit profiles to be able to adapt their services accordingly. This means they must move away from uniform supply chains towards a more individual approach. On the one hand, there may be a few, important customers that demand individual products and/or premium supply. On the other hand, there are mass products with tight profit margins that are only profitable if costs are kept to a minimum. The solution lies in configuring or segmenting the supply chain. Balancing differentiated services and all associated costs with business requirements is at the core of the issue. For this purpose, companies must fall back on their data and analyze it to obtain new findings. Only then will they be able to group their customers, regions and products and define a certain market. As a result, it will be possible to establish the most profitable and effective way to handle a certain type of customer. 18 f+h Intralogistics 5/2014

Logistics management Segment-specific transformation Computer manufacturer Dell followed a similar strategy which was mainly responsible for enhancing their promise of benefits and develop various, new market segments – moving away from the traditional order production model towards an approach that lives up to the change in customers’ purchasing habits. The key to this transition was knowing that specific supply chain strategies and resources within various customer segments (e.g. end user, corporate customer, distributors and retailers) must be different from each other. The company was hence able to save USD 1.5 billion in operating costs and improve their customer services in the process. With this in mind, an important criterion for economic success is that companies must take the right measures to ideally provide each individual customer with each individual product. Only by rethinking their future strategies will companies be able to enhance their promise of benefits and customer services as well as boost their profitability. The foundation for this idea is built around a correct understanding of how the service costs are related to the supply chain. This means the costs of all supply chain activities resulting from accepting customer orders and delivering products. If companies invest in a growing market (for instance in the form of marketing) with the aim of selling a product to a certain customer group, high availability, fast processing times and dynamic pricing are paramount. The supply chain must be configured accordingly to safeguard all the aforementioned aspects. However, alternative analyses may also come to the conclusion that there is no economically sustainable way to offer certain products in certain market segments. If this is the case, companies should withdraw from the affected market. It is also not uncommon for companies to provide the same product in various market segments. In these cases, they are forced to promote it separately and take into account any specific product requirements that certain customer groups may have. From an inventory management perspective, combinations of customers and products with a highly variable demand represent great challenges for companies. Once the supply chain has undergone segmentation, customers can choose between various order methods that differ with regard to their delivery terms and prices and are di- vided into configuration levels. Product characteristics, such as dimensions, weight and delivery lead times are examples of such criteria. However, segmentation criteria are not fixed and may vary. The costs incurred to handle a product and supply it have the potential to influence the margin. Said processes also lead to more precise demand forecasts and demand control. Assuming an equal level of demand variability from customers, the forecast can potentially reason for this lies in a profitable and very promising method: each incoming customer order is analyzed with regard to whether the ordered products are available now and will be in the future. Further, the order is analyzed to determine whether or not the order can be handled as per the customer segmentation hierarchy. This differentiated approach enables companies to improve their reactive customer service capacities and adhere to delivery terms – without incurring Segmentation must not be compared to dividing a company into different, physically separate units. be significantly more precise if the forecast points within the supply chain are configured in different ways. Such measures also reduce the factor of uncertainty for the corresponding forecast point. As a result, service costs drop and customer services as well as the promise of benefits simultaneously improve. In practical application – profitable order confirmations The ancillary industry is a sector that has identified the trend towards segmentation and adapted accordingly. For instance, a worldwide leader in the automotive and industrial sector has introduced a transformation process to create a customer-based supply chain. This strategy allows customer service employees to confirm delivery terms that their company can precisely adhere to – and this boosts profitability. The About JDA additional costs which would normally be triggered by required changes to production and logistics. A customer-based supply chain does not mean prioritizing is the be all and end all. What customers demand must always match companies’ abilities to supply and their way of profitably supplying their orders. Segmentation is by no means equal to dividing a company into different, physically separate units. Integrated business planning remains vital to synchronize and coordinate processes and segments to be able to meet strategic, corporate targets. As a result, the key to success lies in companies’ abilities to meet different customer and product segment requirements without excessively burdening supply chain costs. Photographs: Fotolia/processing: VFV Grafik JDA Software Group, Inc. (NASDAQ: JDAS), is one of the leading providers of innovative supply chain management, merchandising and pricing excellence solutions worldwide. The company was founded in 1978. Today the group of companies empowers more than 2,700 companies of all sizes to make perfect decisions that boost profitability and achieve real results in the manufacturing, wholesale distribution, transportation, retail and services industries. With integrated solutions range that spans the entire supply chain from materials to consumers, JDA leverages the powerful heritage and knowledge capital of acquired market leaders including i2 Technologies, Manugistics, E3, Intactix and Arthur. JDA’s robust range of services, including complete solution life cycle management via cloud services, provides customers with leading-edge industry practices and supply chain expertise, lowers the total cost of ownership, boosts the long-term business value, and provides 24/7 functional and technical support. f+h Intralogistics 5/2014 19


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