 Hello everyone, welcome to the course on supply chain digitization. This course is offered by faculty from IIM Mumbai. This module is going to focus on supply chain segmentation. If you remember our previous discussions, we have started our initial discussions about supply chain challenges, what are their types and how they keep on changing depending upon the different types of supply chains. So as supply chains are getting complex, are getting bigger, how these challenges keeps emerging in different ways. So one of the very easy way of looking into this challenge is can we break these challenges into smaller segments and that is what we are proposing over here that we can have supply chain segmentation as a very interesting strategy where the supply chains can be taken as segments and accordingly the corresponding supply chain strategies can be implemented to manage that particular segment. We have seen in previous sessions about the need of supply chain segmentation and also the various ways in this, the various ways by which we can have strategies for making supply chain segmentations. You can see from this figure that while creating the different types of segmentation, we can follow different types of strategies. We can have an inventory based segmentation or a demand based segmentation, value chain based segmentation, channel segmentation, geographic segmentation, product segmentation or customer segmentation. This is just a very broad list of the ways by which the segmentation can be done. However, remember that while trying to propose the strategies for this, we do not have to consider only one type of segmentation and then provide the solution. Instead of that, there should always be a consideration of including all the possible ways of segmenting the supply chains and trying to understand the need of the supply chains and that helps us in critically deciding the type of requirement for managing that particular segment in a given supply chain. So, we understand that particular characteristics. It can be easily translated into the roles and responsibilities of the different supply chain drivers which are associated with the supply chains. So, if we look into the type of segments which are being created, it can be translated in deciding the role of facilities, transportation, inventory, sourcing, pricing and information which are our key drivers and which we have already discussed in our previous module. So, we understand now that segmentation can be done in different possible ways in a given supply chain. However, for deciding the right strategy for managing your supply chain, it is always important to see the combination of the segmentations and trying to understand the behavior of the supply chain and this can be translated in deciding the role of the different drivers of the supply chain. Going forward, it is a very interesting concept which has already been covered in past and we will try to reiterate the fundamentals for the same. So, if we have to decide what is the right supply chain for a given product, this is a very interesting and a very important question for looking into the supply chain requirement. So, when the question is about what is the right supply chain, it is very interesting or very important that we look into the type of product that is required to be flowing in your supply chain and parallely what are your priorities which are decided by the supply chain. Remember, the type of the product and the priority of the supply chain is somewhere being linked with the strategy or the competitive strategy that we have discussed in our previous session. So, if we can create this product segmentation as functional or innovative which can help us in understanding the nature of the product, maybe it can help us in deciding the type of supply chain which can be offered for the same. If you remember from the previous sessions, we have already done lot of discussions around efficient and responsive supply chain. So, do we have any solution over here which tries to match the type of product or the nature of the product and or what type of supply chain is suitable for that particular type of product whether it is efficient or whether it is responsive. So, we are trying to match two concepts right now, one is coming from the segmentation that is your supply chain segmentation and we are trying to say over here that we are working on product segmentation which divides our product as functional or innovative products and once we understand the type of the product, what are the priorities in the supply chain that can be provided to manage that particular product. So, if we see over here, let us first try to segment our product as functional or innovative by following certain characteristics. Again, this is a very standard way of looking into our products or looking into the nature of the products and here the businesses can be very creative to add more and more parameters. So, following some basics around it, if we understand the nature of the demand and we can see that the product has got a very stable demand which remains constant and has got very low uncertainty, then we can say that this type of product belongs to a functional product whereas if the product has got a volatile demand or uncertain demand then this is having the characteristic of an innovative product. The functional product have always got a longer product lifecycle and that is why this can easily be seen that for managing a product which is quite stable, have got longer lifecycle, what should be the supply chains for that and similarly if we talk about innovative products, these products are something which has recently been introduced in the market, maybe there is some change in the technology, maybe there is a introduction of new material or quality has improved or so on which typically does not last for a very long time and that is why it generally ends up with the shorter lifecycle. So, we can compare very easily these two options with a small example but as we know all our electronic products that we are using nowadays especially our mobile phones, the companies keep offering new varieties of mobile phones with improved technology and the time gap between the two products being offered is reducing nowadays and every new product which is being offered has got better characteristics, has got better technology and this is leading to the shorter product lifecycle for the same and that is why this product can be easily categorized as an innovative product over here whereas the functional products as it is this majorly belongs for products which has got very long life cycles, a simple example can be like steels which are standard products have got very stable demands mostly and obviously they are in use in different forms this which is leading to longer life cycle for them. So, going forward what about lead time for these products again for stable products lot of efforts goes on in consolidation and coordination and the focus is always on cost. So, this adds to the lead time and the lead time increases for the for functional products whereas innovative products being the life cycle as very short for the innovative products these are generally having shorter lead times and it is always expected that they are available to the customer as soon as the demand is there for it. The stockout rate for the functional products are quite low so sufficient amount of inventory is always available to ensure that the product never goes unavailable for the customers whereas the innovative products as the demand is quite uncertain, quite volatile there is a high possibility that the stockout rate is high for them because of the simple reason of higher uncertainty in demand and for shorter product life cycle. The product varieties that are being offered for the functional products are quite low because of the stable demand the same products are being used again and again by the customers and not much variations are expected in these products as I already mentioned to you about the example of steel that can be quoted over here and similarly when we talk about innovative products as the product life cycle is short the demand is getting uncertain and because of the reasons like introduction of new technology, introduction of new material or so on the innovative products has to be offered with higher varieties so that the companies can sustain in the market and that is their strategy at the end. So if we compare now the strategies for these two type of products we can very easily say that the functional products are focused more on cost and innovative products are focused more on flexibility or responsiveness. Let us try to connect all our discussion so far about segmentation and then what is the supply chain for it. So we have already discussed about the possible product segmentation and if we can refer to our previous discussions we can see that depending upon the type of the product which is there we can decide that whether our supply chain is required to be efficient or responsive. The efficient and responsive supply chains we have already discussed in our previous sessions also so we know that the efficient supply chains are always cost efficient and their production strategy is actually forecast driven because of stable demands not much uncertainty in such products the production strategy is forecast driven the lead time is generally wrong and a very simple example like your everyday household products which has got a very stable demand and accordingly the whole characteristics can be seen how it is applicable. Whereas if we have products like consumer electronics which are offered with high technology for such type of products the responsive supply chains are more suitable and here a responsive supply chain is expected to be more flexible and responsive and it is driven by the demand not by the forecast as the demand is or is highly uncertain for these type of for particularly for this particular product. The lead time is expected to be short so going forward if we combine all of our discussions that we have done so far what is the match between the functional products and the type of supply chain and similarly for innovative product what is the best type of supply chain. So we can see from this figure that for the functional products which are for quite stable products and which has got a stable demand the match is that the best type of supply chains for them is the efficient supply chain whereas for the innovative products where demand are not quite stable have got higher uncertainty the product life cycle is generally short. So we can see that for such innovative products the best strategy is to have a responsive supply chain. So if we convert this efficient and responsive supply chain in a way this strategy which is talking about efficient supply chain is a push strategy and for having a responsive supply chain the strategy which a supply chain can follow is a pull strategy. We have seen that the innovative product is actually looking for the responsive supply chain and we can see that having there is a huge benefit of having a responsive supply chain for innovative products because it is able to fulfill the requirement on a timely basis whereas when we talk about the functional products which has got stable demand the best solution is to have is to have efficient supply chain which which does not need high flexibility but it is focusing more on ensuring that the product is made available to the customer with minimum cost. So let us try to look into this push and pull strategy which we have discussed in the previous slide and this is quite a popular strategy. Let us see a push and a pull how these strategy works and what is the difference between these two strategies. So when we talk about push strategy this is nothing but all the processes in the supply chain are actually driven by the forecast and they are working or functioning as per the information that they have received about the demand in a continuous manner. So we can see that the goods are being produced at the production side and they are transported or you can say it is pushed throughout the supply chain which is actually driven by the forecast or the predictions of the demand. So we have already seen in the previous slide that the push strategy is beneficial for the efficient type of supply chain and which can be implemented easily for a functional product where the demand is quite stable and it is forecast driven. So we have connected everything so far we have understood about the supply chain segmentation, the product segmentation, the type of supply chain which is used for it and now we are trying to connect it with the push and pull strategy. So talking about the characteristics of push strategy, it is forecast driven, it is very beneficial in case your product has got high volume requirement. So basically it is for mass production, inventory accumulation is an important characteristics for it. There is very limited scope of customization as already seen with the definition of pensioner products but the initial investment is quite high for this case. In terms of its implementation, what challenges can be seen is that it has very limited scope for managing the variability in the demand as it is mainly applied for products which has got stable demands and one of the challenge associated with it is that if the products are not being sold they are carried for a very long duration of time and this results into the inventory being obsolete. There is not very high scope of being responsive in this case and that is why I always remember when there is not a focus on responsiveness then push strategy is the best strategy. Talking about the pull strategy is the opposite of the push strategy as you can see from here and in this strategy all the functions in the supply chain whether it is production or whether it is distribution everything is driven by the customer demand and depending upon the demand which the supply chain receives the goods will get manufactured at these production sites and accordingly the distribution will also be planned. So, we can see that the complete processes are generally demand driven the focus over here is more on providing customization to the consumers. The responsiveness is again a very important characteristic of the pull strategy and there is a very low risk associated with the obsolescence of the inventory. The resources utilization the resources are required to be efficient for managing the pull strategies. In terms of the challenges over here it is very important to manage the lead time for this particular strategy and the coordination is important the demands are uncertain whereas sometimes there is a challenge related to the availability of the production there are certain limitations on the production which again becomes a challenge for managing the pull strategy. So, if we integrate everything now the push and pull strategy can we apply a push and pull in combination for a given supply chain then we can see that this can be done, but it totally depends upon the demand which or the product which are required to be fulfilled. So, if we have a supply chain which starts from the suppliers and then ends at the consumers it is important that we understand that what is the requirement of the customers and accordingly how the whole supply chain should work to complete this customer's requirement. If the demand has got higher stability the overall supply chain can work with the push strategy where all the players in the supply chain can simply follow a push strategy and every function can keep doing their work and the product once manufactured will be pushed to the distributor once the distributor will again push it towards the retailer and again because the customers are having a steady demand the products are getting consumed at the retailer end as well. So, we can see that this is a very simple push strategy which is being implemented throughout the supply chain. The opposite of it will happen through the pull strategy where the customers have a requirement which needs to be fulfilled by the supply chain and depending upon the demand that the customer is looking for depending upon the level of customization the consumer is looking for the whole supply chain has to accordingly react and accordingly according to that demand the every player every player in the supply chain has to decide their role. But in reality in practice there is never a pure push strategy or a pull strategy there is always required to be a combination of push and pull strategy. So, it is very interesting to see that from which side of the supply chain we can have a push strategy or which part of the supply chain can have a pull strategy. So, we can see that there is a boundary in a given supply chain which actually clearly divides the whole supply chain into two parts the one part over here of the supply chain we can see from this figure is following a push strategy and the other part of it is actually following a pull strategy. So, when to follow for the push strategy and again the next question is when to look for pull strategy. So, in a supply chain that part of the supply chain which is associated with the low uncertainty will have a push strategy whereas the remaining part which has got higher uncertainty will follow a pull strategy. To understand this push and pull boundary let us look into this two examples and let us look into the definition of this push and pull boundary into more detail. So, we are we are looking into the push and pull boundary where this boundary exists and how do we understand that which part of the supply chain is following a push strategy and which part of the supply chain is following a pull strategy. Let us consider this example where we have a type of vehicle which is being offered by the company in different colors. So, we know that starting from the suppliers to the manufacturing or the assembly lines and till the distributors the business or the company can follow simply a push strategy where the vehicle type remains same and because the vehicle type is same or constant the suppliers know that what is expected accordingly they will keep their raw material and the components ready. Parallely the manufacturing is also responding to that the whole demand is the the demand information is available at the manufacturing as well it is properly forecasted and the assembly line is accordingly preparing for the same and again they can easily implement a push strategy at the assembly lines as well and the product or the vehicle is made available at the distributor end. But after the distributor what is happening next? So, we know that the vehicle is now available at the distributor, but it is available in a simple color in one color only. So, what can be done over here to offer more and more customization to the customers? So, from this point as you can see from here there is a push and pull boundary till distributors the product are the whole supply chain is following a push strategy. But once the distributors have received a standard vehicle which has got standard characteristics here the customers can add their requirement and that can be passed on to the distributors. Suppose customers want the vehicles to be want their vehicle to be painted in a specific color or there is a requirement that the customer want some specific seat type or some other type of related product requirement is there. So, that requirement is being translated into the level of customization which customer want that information is actually leading to the pull strategy which is being translated to the distributor. The distributor is fixing those elements is trying to color the vehicle in the choice of the customer is trying to put on those additional component which customers want and then the delivery is made to the customer. So, we can see that till the distributor everything is was everything was following a very standard process all the suppliers manufacturers and distributors were knowing their roles pretty well and they were ensuring that they are able to offer the standardized products standardized vehicle till the till the distributor end. But as soon as the distributor has received the standard vehicle all the customization requirement from the customer end is passed and is implemented at the vehicle which is then being done and then the product is given to the customer. So, we can clearly see from here that how push and pull boundary is helping us in managing the customization requirement from the customers as well. Now, the question is can where can where to put this push and pull boundary it is totally driven by the level of the customization requirement. This is one key element which helps us in deciding the push and pull boundary. The second part is how do we manage this? So, if we the closer this push and pull boundary is towards customers it is the complexity involved with the supply chain considerably reduces. Though it is complex, but still the closer this push pull boundary is towards customers the complexity is considerably less. But if we are moving this push pull boundary towards the suppliers that is we are trying to introduce more and more customization into the products that leads to higher level of complexity we can see. This is just one example. However, there are different ways of deciding the push pull boundary where it can be kept. So, this is about customization. Let us look into one more example to understand the push pull boundary. So, we are referring back to the example of automobiles once again and here you can see that the push and pull boundary is between suppliers and manufacturing or the assembly lines. Now, this particular automobile company is following a very different approach. Now, their strategy is to offer different vehicles in different type point of time which are customized as per the customer requirements. And accordingly the whole production schedule is made and the complete supply chain is designed to take care of this. So, we can see from here that the requirement about the customer is more dependent upon the type of components or the raw materials which are being used which ensures that the process which ensures that the customers get their products as per the requirements. So, here when we are bringing the different type of the different type of components to be managed, the suppliers have to follow a pull strategy which they need to ensure that they are making the components available as per the customer requirements as per the type of product which are required to be made to be made. But when we look into the manufacturing or assembly lines and then to the distributors and then to the customers, the processes at these levels are quite standardized. The assembly lines knows that which knows how to make that particular automobile and that is why depending upon the components that they have received with the standard set of activities which is required to be done. And that is why we can say that it is continuously working following a push strategy. The distributor knows their role very well and once they have got the vehicles to be delivered, they just have to follow their schedule of transportation and without any specific requirements to be seen, they just simply can push the vehicles or they can simply push the automobiles to the respective customers. So, we can see from this example that the pull strategy is at the suppliers side between that is the push and pull boundary is between the suppliers and the manufacturing whereas, the other components whereas, the other players of the supply chain are quite stable and they are having a push strategy throughout the supply chains. With the help of these two examples, we can find it out very easily that both push pull boundary can exist between any two players in a given supply chain and depending upon the type of the customization requirement, the position of the push and pull boundaries can be decided. In terms of managing this, what is the best strategy? So, this can be effectively managed by carrying buffer inventory at those supply chain players which are a key party to this push pull boundary. So, we can say that the critical role is played by the buffer inventory which can also be looked as following your postponement strategies for ensuring that you are able to provide customized services. So, we have linked so far the different types of segmentation which are the different types of supply chain segmentation strategies, how product segmentation can be connected with the right type of supply chain and knowing the type of supply chain, which type of strategy is beneficial, whether it is push strategy or pull strategy and in any given supply chain, where can we have the boundary that is the push pull boundary which helps us in achieving the target of fulfilling the customized demand from the customers by managing buffer inventory between these players across these boundaries. So, this is the summary for today's session. With this, we will close this part. Thank you everyone. Have a nice day.