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Supply Chain Segmentation: What You Need to Know

(First off, a disclaimer: supply chain segmentation can take a myriad of forms depending on the industry we are talking about. For the purpose of this article, I’m going to focus on FMCG (Fast-Moving Consumer Goods).

The more data you can collect about your supply chain, the better equipped you will be. Studying the various areas of your supply chain can give you information about where you are excelling, and more importantly, where you can improve. Understanding all the segments of your supply chain is essential, so I’ve put together a list of the different metrics that a supply chain analysis should focus on.

Broadly speaking, there are two main categories in FMCG operations:

LEAN SUPPLY CHAINS. These typically support high-volume, mass-market products with a greater emphasis on value.

AGILE-FULLY FLEXIBLE SUPPLY CHAINS. These typically deliver premium goods, and service overrides cost considerations.

Depending on the type of FMCG operation you are running, you will be more concerned about some metrics over others. Some of the more common metrics used in these supply chains are listed below.

Cash-to-cash cycle time: measures the amount of time capital is tied up. During this time, cash is not available for other purposes. A fast cash-to-cash cycle time usually indicates a profitable supply chain.

Customer order cycle: measures how long it takes to deliver the customer’s order after the purchase order (PO) is received.

Fill rate: the percentage of a customer’s order that is filled on the first shipment, usually represented as a percentage of SKUs or percentage of order value. This is a good measure of customer satisfaction, as well as an indicator of transport efficiency.

Inventory days of supply: the number of days it would take to run out of supply if it was not replenished. Good supply chain management practice is to reduce days of supply, because it helps reduce the risk of SLOB (Slow and obsolete) inventory.

Freight cost per unit: total freight cost divided by number of items. Supply chain managers should always strive to minimize this cost.

Inventory turnover: the number of times that your inventory cycles in a year. The higher the inventory turn number, the more efficient the supply chain.

Days sales outstanding (DSO): measures how quickly you get paid. A low DSO indicates a more efficient business.

On-time shipping rate: the percentage of items, SKUs, or order value that arrives on or before the requested ship date. This is a customer satisfaction measure; a high rate equals an efficient supply chain.

These are just a few of the specific metrics that are important to measure to make the most of your supply chain. As we all know, if you don’t measure you can’t understand, and the more you understand the easier it will be for you to get to “What Good Looks Like” (WGL2) in your world.