An Evaluation of Managing Diversity in the Supply Chain: A Case Study of an Electrical Wholesale Distributor in the UK

The method of understanding and managing diversity within a business is at the heart of the reasoning behind the concept of „supply chain segmentation‟. The overarching principle is to find economic segments within the diverse product and customer mix and to match differentiated strategies accordingly. The aim is to prioritise resource to the products and customers which contribute the highest proportion of sales and to reduce operational costs to those that contribute the lowest proportion of sales, whilst matching service level requirements. In essence this strategy balances supply chain costs for individual products against their value to the business. As a result overall costs are reduced and subsequently profits are increased.

This research study pulls together the extensive documentation which is available regarding many supply chain concepts and principles into a single approach. A critical evaluation of the current research is undertaken which concludes that the majority of supply chain segmentation is currently focused within the area of supply chain design and has parallels with the established lean and agile concepts. It is shown that supply chain segmentation can be considered a holistic supply chain strategy and by following a structured framework can be applied to all planning levels, strategic, tactical and operational.

The drive of the research was to consider which factors can be used to segment both products and customers. This was tested within an operational environment and it is shown how different strategies can be applied accordingly to each segment. It is proposed by Smith and Slater (2001) that products can be assigned inventory strategies depending on which one of six segments they fall within. The results of a variability index and volume calculations are the determining factors for the segmentation process. It is proposed within this study that an added dimension of lead time variability and a coefficient correlation calculation to determine the level of variability will produce a more accurate inventory model.

A segmentation strategy, which combines different supply chain and research methodologies, was applied to a company called Newey and Eyre, which operates within the electrical industry. This is presented within the case study chapter. The practical research programme was designed as three separate research projects and these represent the different planning levels of the business. The first and second research project was carried out within the South West region of the business, where changes were made to the design of the supply chain and to the design and layout of a regional distribution centre (RDC) based at Avonmouth respectively. The third research project is based upon analysis which was undertaken of the company‟s purchasing and inventory system. A discrete event simulation (DES) model of this system was created and this provided the platform to test a number of segmentation strategies against the current system of operation.