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Demand for variety and customisation is exploding, adding huge complexity and cost. To compete, companies must find ways to identify and deliver value to profitable customer segments at an appropriate cost.

Micro supply chains are finite, decentralised and agile ‘mini operating models’, with flexible supplier contracts and relationships and manufacturing closer to the point of purchase. Most importantly, supply chain leaders should balance complexity and variety by understanding the sources of value from variety — like speed, service and cost — and optimising their delivery systems to offer value using standard processes.

Because micro supply chains are largely independent, mini operating models, the way in which one customer segment is served should not impact other segments. Companies can run multiple standard work processes in parallel, reducing the costs of complexity that would typically be associated with multiple variations of products.

Three key steps to building a micro supply chain are to:

  • identify and understand the sources of value in the market, such as speed, quality, price, convenience, service levels, product features and customisation
  • understand the drivers of cost along the supply chain by measuring the cost of complexity within each segment, including labour, infrastructure, supplier and logistics costs
  • produce models of different value streams to pinpoint the optimum balance of variety and cost, and to generate performance trade-offs.

To be competitive, future supply chains should aim to offer the variety that customers seek while achieving a lower cost to serve. By segmenting the market into ‘profit pools’, companies can gain greater value from the most attractive and fastest-growing market segments.


Rakesh Agarwal

Rakesh Agarwal
KPMG in Singapore

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