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Gartner Supply Chain Top 25 and Supply Chain Segmentation

by Matt Davis  |  April 1, 2013  |  Comments Off on Gartner Supply Chain Top 25 and Supply Chain Segmentation

Our Supply Chain research organization is in full swing of our annual Top 25 data gathering, assessment and voting cycle for 2013.  Having just completed many briefings with leading organizations across every supply chain industry, I decided to sit down with Debra Hofman who leads our Top 25 research practice to discuss why so many companies are talking about supply chain segmentation.  Below is a transcript from the conversation we had…

Matt: Before we get into the conversation on supply chain segmentation, can you explain for readers who aren’t familiar with Gartner’s Supply Chain Top 25, what is, why we do it and how we make the list?

Debra: Sure.  The Top 25 is our annual ranking of demand driven leaders – which companies, globally, are furthest along that journey.  Our goal?  To foster innovation in supply chain practices by providing a forum to debate and discuss what it means to be “excellent” in supply chain – when you really dig down into the concept of excellence, you start to realize quickly what a rich discussion it is.   The way we come up with the ranking each year is through a combination of objective financial data for each company, coupled with a more subjective opinion component by supply chain executives from around the world. For anyone who is interested in the details, our methodology is very transparent by design, detailed in the report which is publicly available at

Matt: We just completed briefings with companies from industrial manufacturing, healthcare, chemical and process manufacturing, retail, consumer products and high tech on their 2012 results and future strategies.  I’d say that more than half and at least one company in every one of those industries mentioned supply chain segmentation at some degree.  I’ll readily admit a bias toward the topic given my coverage, so did you hear this as much as I did?  Given you’ve run the Top 25 analysis for 8 years now, have you heard an increase in interest on the topic or is it always on the radar?

Debra:  Absolutely an increase, not only in interest but in companies actually working on segmentation.  Companies have been talking about it for awhile, but more and more are doing something about it now.

Matt: I just looked back at 2012’s Top 25 and 19 of the top 25 companies on the global list are doing some form of segmentation in their supply chain and 11 of those 19 are actively maturing end-to-end supply chain segmentation.  Is supply chain segmentation a differentiator that helps get you into the Top 25?  If not today, do you think it will become that differentiator in the near future?

Debra:  I do see supply chain segmentation as a differentiator for companies.   The “one size fits all” approach almost guarantees that you’re sub-optimizing in some aspect of your supply chain performance. With segmentation, you are identifying the different end to end supply chains that you operate, setting supply chain targets that are aligned with the business goals for each one, and then measuring against those differentiated targets.  It makes sense the benefits of doing that are going to show up in your financial performance.   

Matt: Back in 2010, we analysts went through several sessions to align our positioning on supply chain segmentation.  At that point, we agreed that supply chain segmentation and cost-to-serve were complimentary but NOT interdependent.  Has that positioned changed based on how companies have progressed the last three years?

Debra:  Yes.  We started to find, both through the Top 25 analysis and in our in-depth research on supply chain segmentation that companies who were working on supply chain segmentation also had initiatives for customer segmentation and cost-to-serve as part of the process.  So we asked why…  We uncovered that supply chain segmentation is the process by which companies change parts of their supply networks, business processes or metrics targets to get differentiated outcomes from the supply chain.  Without an understanding of the costs of those changes, the value generated for a customer or what value characteristics customers wanted – and would pay for – supply chain segmentation was like a ship without direction or control.  Customer segmentation identifies the value characteristics which will dictate the needed outcomes from supply chain segmentation (the direction of the ship) and cost-to-serve analysis identifies the impact of designed changes and can estimate the new net profitability (the control of the ship).  Essentially, when supply chain people say they want to do “segmentation”, they will have to address all three of these areas. 

(Matt: by the way, shameless plug… we’ve written a 7 step process by which to do this in “The Seven Steps of the Supply Chain Segmentation Journey”)

Matt: Is supply chain segmentation a fad?  And, if it’s been around as a concept for more than 10/15 years, why are so many companies working on it now?

Debra:  It is not a fad.  Companies have been doing inventory segmentation through item classification, market segmentation in pieces as they’ve grown globally and segmented supplier relationship management for a couple years now.  End-to-end supply chain segmentation extends the benefits from these activities by aligning processes across all supply chain functions rather than just in pockets.  In our demand-driven maturity model, companies at higher levels of maturity are focused on generating profitable value for customers by making tradeoffs, and you can’t do this without segmentation.  It’s emerged – quite rapidly and broadly – because many companies have now integrated their supply chains strongly enough that managing the end-to-end, rather than just silo’ed functions, is finally possible.  The theory always made sense, now it is becoming practical – it’s  a question of evolutionary growth occurring in and across supply chain.

Matt: Should everyone be working on supply chain segmentation?

Debra: No. Well at least not yet.  Supply chain segmentation is a fairly advanced concept and can create a new form of complexity to govern when processes and parts of the physical supply network are split.  Only an advanced company which has strong integration across functions and visibility across the end-to-end network, to cost data and to how decisions are being made will be successful in managing a segmented supply chain.  Even the initial design of a segmented supply chain requires a certain base level of maturity.  As part of the tradeoff analysis which shapes segmentation, companies will need to model impacts to end-to-end inventory, perfect order fulfillment, manufacturing lead time, lead time to customers and profitability.  Many aren’t ready for this yet.  After the design, piloting the segmentation design only works when there is collaboration across supply chain and between supply chain, sales and parts of the product organization.  So, no, not everyone is ready to start working on it.  We tell companies to assess the current supply chain capability and then address any foundational gaps before starting the segmentation design.  Using the value of a segmented supply chain for differentiated business models as a long-term vision can definitely help move along the foundational work, but it doesn’t mean that every company should be working on it now.

Matt: I’m sure you get this all the time… I often hear from people that the peer voting process is a secret, that it’s exclusive or that we selectively filter who actually votes.  It’s a pretty straight-forward process… can you tell people how to vote if they’re interested?

Debra: Yes, we hear all kinds of things about it!  We’d love to hear from anyone who is interested in being a voter – just go to and click on “become a voter”.  It’s true that we can’t take all applicants – we only allow one voter per company, for example, so we have to check and make sure that we don’t already have a voter from your company.  Besides the “1 voter per company rule”, the requirements are pretty simple:  voters have to be in a supply chain or related role at a manufacturer, retailer or distributor.   You don’t have to be at one of the companies being voted on in order to vote, and you most certainly don’t have to be a Gartner client! Voting starts this year on April 3, so let us know.

Some background… Debra and I are both analysts in Gartner’s Supply Chain Research group and work cross-industry with leaders of supply chain organizations globally.  In addition to managing the annual Top 25 methodology and analysis, Debra specializes in metrics, performance management and demand-driven best practices.  My area of coverage is supply chain strategy planning and governance, supply chain segmentation, customer segmentation and cost-to-serve.

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Category: gartner-supply-chain-top-25  supply-chain-segmentation  

Tags: gartner-supply-chain-top-25  supply-chain-segmentation  

Matthew Davis
Research Director
3 years at Gartner
12 years IT Industry

Matt Davis is a Supply Chain Research Director and lead analyst for Supply Chain Strategy. Read Full Bio

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