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Most companies have volumes of data about the general buying categories of its customers. You likely have buyer personas for your customers, allowing you to tailor a more personal approach for each of them. This has been one of the most common approaches to running a business (and thus, creating a supply chain) for the longest time.

Recently, however, organizations in nearly every industry that you can think of have been enjoying a great deal of success with a concept called micro-segmentation. Not only does this offer a better, more holistic look into who you're actually selling to, but it may just be your key to future success.

What is Micro-Segmentation?

A micro segment is defined as the exact part of a particular buying category that often leads to a purchasing decision, NOT the category itself. Essentially, what you're doing is increasing the number of "groupings" that you're serving to in the supply chain - thus optimizing your supply chain as well.

It's important to note that while B2B customers have been experimenting with and enjoying great success via micro-segmentation for the last several years, it's actually something that rose to prominence in the B2C space decades ago. Perhaps the most clear-cut example of this is Dell, which managed to revolutionize both the personal computer industry and the very concept of supply chain management at the same time with a sophisticated direct-to-consumer business model during the 1990’s.

Quickly thereafter, Dell began to segment its supply chain into a variety of smaller chunks, creating dedicated policies and procedures for serving corporate customers versus home users versus distributors, retailers and more. Based on this transformation, Dell has saved over $1.5 billion in operating costs over the last decade alone.

The Art of Micro-Segmentation

One of the reasons why this type of micro-segmentation is so effective has to do with the ways in which it shatters the myth of the "one size fits all" approach to supply chain management. When you try to fit all types of customers into the same basic framework, this naturally leads to over serving some while underserving others. Not only does this create situations where you're potentially losing sales (and investing too much money in the ones that you do acquire), but it often contributes to issues like cash-flow problems, ineffective policies, and so much more.

Simply put, micro-segmentation allows you to develop a better understanding of both your customers and your products, allowing you to create a much more organic, profitable supply chain strategy for each of them. This in turn reduces operating costs (as was the case with Dell) because you're spending the right money in the right places at the right times and also increases your overall profitability as well.

To get started with micro-segmentation, one must first map out their end-to-end supply chain to gain as much visibility as possible into the spine of their business. Based on that, they can identify a number of key factors:

  • The arc of integration that the chain should actively manage
  • The primary customer base
  • The customer demand signal to which the supply chain must respond

Once a demand profile analysis is then conducted, all of this data can be used to identify key supply chain micro segments - at which point tailored practices for each segment can then be cultivated.

Again, the fact that micro-segmentation was first developed for the B2C space doesn't actually matter in this situation. It all comes back to the larger idea that if you know as much about your audience as possible, it will allow you to make more actionable, targeted decisions that will have a ripple effect up and down your supply chain in the best possible way.

Flip The Script

As stated, micro-segmentation is also hugely valuable in terms of reducing costs - just not in the ways that you're probably used to. When most B2B companies try to reduce operating costs, they're normally making decisions in a vacuum. HOW you're going to reduce costs becomes the focus, instead of WHY. Micro-segmentation can be an effective way to "flip the script," so to speak, by better connecting your supply chain strategy to the actual marketplace you're serving to make sure that you're A) successfully meeting those needs, but B) in the most cost effective way possible.

From a larger perspective, micro-segmentation is about thinking about your business not in terms of a broad series of categories, but based on individual customers or small, niche groups of customers. This will undoubtedly lead to the creation of newer categories that you likely weren't aware existed - but make no mistake, this is a good thing. Any strategic move that allows you to gain valuable insight into who you are serving, why they are important, what they are trying to do, and how you can help them is very much a move worth making.

Not only does this allow your supply chain to better address the actual needs of today, but it also allows it to remain agile and fluid enough to welcome the challenges of tomorrow. This is why micro-segmentation is the key to success both current and future - as it is likely to remain for years to come.

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About Michael Wilson

Michael Wilson is AFFLINK'S Vice President of Marketing and Communications. He has been with the organization since 2005 and provides strategic leadership for the entire supply chain team. In his free time, Michael enjoys working with the Wounded Warrior Project, fishing, and improving his cooking skills.

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