Protean Supply Chains: Ten Dynamics of Supply and Demand Alignment

CHAPTER 5Splintering the Supply Chain

Simply put, all customers are not the same. Some customers generate more sales than others. Some customers generate more revenue than others. Most important of all, some customers provide more profits than others.

It follows then from that premise that good customers should not subsidize bad customers. Obviously, companies should focus their limited resources on customers who contribute the most money to the bottom line rather than those who chip in the least. It makes no economic sense to have a one-size-fits-all supply chain. Since supply chain operations consume considerable company resources, it's only logical that companies should divide their supply chain into segments, giving priority in production and distribution to the best customers or at least matching capabilities to what the customer values the most.

Supply chain segmentation acknowledges the fact that, in a global economy, supply chains have grown more complex as buyers and consumers place inexorable demands on manufacturers, distributors, and retailers. As a result, companies have to make and hold more types of products at a considerable cost and then get those products more rapidly into the market to satisfy demand. Up against the double whammy of increased product diversity and increased service demands, companies have to hold the line somewhere on costs or at least make informed decisions in weighing the trade-offs regarding service levels for individual customers.

Although ...