Applying Segmentation Principles to Sales and Operations Planning

The Summary:

Being all things to all people isn’t always the best business strategy. Sometimes, channelling slight variations of different products and services to different groups of your customer base helps to increase market share, improve revenues, and reduce costs. This differentiation process is called “Segmentation,” and when applied to products it is known as ‘Product Segmentation’. In the context to supply chain planning, an increasing challenge is to manage many items with unreliable demand forecasts. While improving demand forecast accuracy in general leads to a more efficient supply response, the business value of accurate forecasting is not uniform for all items that a company carries. Therefore, an obsessive focus on forecast accuracy alone sometimes leads to diminishing returns. The product segmentation principle leads us to NOT treat all products as equally important and apply different operational strategies for a different group of products. In this brief video, Sarbajit discusses practical pitfalls, methods, and results of applying product segmentation that we have seen from past experiences. Tune into this short session for more.