Supply Chain Trends: Segmentation Adds Value

Strategy in supply chain is becoming more diverse, reversing the trend for tactics to converge around ‘big’ solutions such as Enterprise Resource Planning (ERP) systems.  Over the last few years the emphasis on driving costs out of supply chain has been changing to one of driving customer value in.  The recent shift from off-shoring to re-shoring is just one example where manufacturing locally supports customers more effectively through increased service levels.  Technology is also creating supply chain opportunities at all levels at an unnerving speed, and new players are responding to customer needs and creating products and services at a pace that can be utterly disruptive to previously dominant suppliers.  Apps like Uber has completely over-turned the logistics of moving people around in cities, and the established licensed taxi systems are struggling to respond. It is hard to imagine that a similar technology will not disrupt other logistics systems.  Indeed, Uber-style apps for parcel deliveries are already in use and being tested by big players such as Amazon.  How are supply chain professionals going to adapt their strategies to cope with these rapidly evolving trends?

The point in any trade between individuals or groups is to maximise value for the seller and buyer, in other words, both get what they want from the transaction.  In the Uber example, it has turned on its head the concept that taxis need to be licensed and controlled.  This safety-driven system severely restricted supply of licensed taxi services and gave the providers a significant pricing advantage at the expense of the consumer.  Uber, by providing visibility and accessibility to private-hire cars has significantly improved supply to the point they are a viable alternative to the licensed taxis.  So the first point in this case is no matter how good your customer value is at the moment, improving it is always essential because eventually someone else will.

The second point is that the reasons taxis were licenced and controlled haven’t gone away either.  Their drivers are background checked and tested to ensure they can drive safely, will keep you safe and (in London) have an encyclopaedic knowledge of the city.  Getting in a Uber car has fewer such safeguards, however they have worked hard to minimise the risks with the technology they deploy.  Licensed taxis do still have customer value, it is not all about cost.  They will however need to focus on that customer value because the Uber genie is not going back in the bottle.  What Uber has done for private hire is to segment and add a supply of services at higher value than their telephone–based service, and which the traditional licensed services were not interested in fulfilling.  Yes the services may not be as safe, secure and reliable, but it is now in the hands of the customer to make the choice and buy what they want, when they need it.  A bold strategy, deployed at an astonishing speed.

Supply chains, are going to face similar revolutions, and not just in logistics as shown by the example above.  Enterprise wide ERP systems are specifically designed to be safe and secure.  They are engineered for repeatability and reliability and will still be needed by many suppliers.  It is hard to imagine how the economies of scale that have driven the significant reduction in real prices for almost all consumer goods could be maintained without them.  However customer value is not just price.  Supply chains also add value by being able to provide solutions for where, how quickly and when the product gets to the customer.  Or by making it possible for them to touch it, feel it and try it before they buy it.  And to fix it if necessary, send it back if they don’t like it, and upgrade it if they want to do more with it.  Who segments to do this best will keep existing customers and attract more.

The mix of solutions that supply chains provide to a business look set to increase rapidly.  Cost reductions will remain a part, but are not the only component.  ERP solutions that take years or even decades to implement are facing some tough competition.

Is your supply chain being segmented or disrupted?  Please do let me know in the comments section, it would be great to hear your thoughts.

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