Towards an understanding of supply chain differentiation in the process industry

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Towards an understanding of supply chain

differentiation in the process industry

MASTER THESIS

MSc. Double Degree in Supply Chain and Technology & Operations Management

Author Student number

Paul Zugmann

University of Groningen: S3189430

Newcastle University: 160621541

Word count: 11.965

Supervisors and assessors

Dr. Onur Kilic (University of Groningen) Dr. Ying Yang. (Newcastle University)

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ACKNOWLEDGMENT

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LIST OF TABLES

Table 1: Overview of product and demand characteristics (adapted from Fisher 1997; Christopher & Towill 2002; Lovell et al. 2005; Alicke & Forsting 2017) ... 5

Table 2: Overview market and customer characteristics (adapted from Walters 2006b; Freeman et al. 2000; Chopra & Meindl 2012; Beck et al. 2012; Hofmann & Knébel 2016; Alicke & Forsting 2017) . 6

Table 3: Overview of process and discrete production characteristics (Noroozi & Wikner 2017) ... 8 Table 4: Overview of interviewees’ details ... 12

Table 5: Categories and sub-themes definitions ... 14

Table 6: Identified customer characteristics mentioned by interviewees and perceived as important for a SCS ... 21

Table 7: Identified customer characteristics from the literature, which were perceived as important for a SCS ... 22

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LIST OF ABBREVIATIONS

CODP Customer order decoupling point

MNC Multinational company

MTC Make to contract

MTO Make to order

MTS Make to stock

HQ Headquarter

OQ Order qualifiers

OW Order winners

SC Supply chain

SCD Supply chain differentiation

SCM Supply chain management

SCS Supply chain segmentation

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ABSTRACT

Over the past years, the process industry has been facing an increase in global competition and structural changes in the markets which lead towards a need for differentiated supply chain (SC) strategies. Such a supply chain differentiation (SCD) can be achieved by defining a supply chain segmentation (SCS) via different product, demand or market characteristics. Despite the interest of SCD in the process in-dustry, the SC literature has not yet considered this industry in detail. Via a single case study, this research investigated aspects which impact SCS and SCD approches in the process industry. The re-search identified that process industry-focused characteristics affect the way of conducting SCD due to production constraints and specific demand and customer characteristics. The most prominent insights of this research are that (1) a market-driven approach is seen more suitable in the process industry, since customer and demand characteristics affect the SC complexity, while product characteristics seem to be of minor importance for a SCS. (2) Differentiated SC strategies are deployed in the process industry, but have their limitations within manufacturing due to industry-focused production constraints. (3) A SCD within packaging and distribution via differentiated SC strategies is seen more effective, due to special customer requirements and constraints affecting these SC processes. By identifying relevant process industry-focused characteristics and constraints as well as suitable differentiated SC strategies, a SCD approach in the process industry could be introduced to the literature. However, further research is required to investigate whether the identified criteria are applicable in other process industries.

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1 INTRODUCTION

Nowadays companies have to address many challenges such as with a wide variety of customer require-ments and reducing costs while enhancing service to satisfy their customers (Handfield et al. 2015). Hence a "one size fits all" strategy is therefore no longer suitable for a modern supply chain (SC). Companies in all industries are in need to find approaches to differentiate their SC according to their customers and/or products. Since many years’ companies within all industries are struggling with identifying the main drivers on how to segment their SC to match the customer needs with their operational strategy (Simchi-Levi 2011). Not only but also the discrete manufacturing industry has al-ready realized the changing business environment and need for change. Over the last years, the process industry has experienced an increase in global competition and more dynamic markets, which resulted in a switch from being more supply oriented towards a more demand-focused SC (Shah 2005). Such a demand orientation can be described as the ability to react quickly and reliable to customer requirements (Jüttner et al. 2007). Such a demand-oriented SC needs to consider market or product-driven SC activ-ities within manufacturing, logistics, and distribution, which are essential to meet the customer needs while taking the limited capabilities of a SC into account. This can be achieved by conducting a supply chain segmentation (SCS) and deploying different SC strategies via supply chain differentiation (SCD) (Godsell et al. 2006). Hence, the goal is to define characteristics suitable for a SCS and differentiate the SC according to them to optimize processes and fill the gap between the company's operational objec-tives and the customer needs.

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2 THEORETICAL FRAMEWORK

First, different SCS, SCD and SC strategy approaches are introduced. Therefore, a variety of differen-tiation characteristics used in the literature are presented. Secondly, a review of the literature on process industry characteristics in the context of production, demand, and products are discussed. By consider-ing all the aspects of this chapter, the research question is presented.

Supply Chain segmentation, differentiation & strategies

Alicke & Forsting (p. 5, 2017) define SCS as “an approach for developing differentiated SC strategies. This differentiation is based on the creation of distinct segments.”. Such a SCS is used to group either customers or/and products and define different SC strategies according to them. SCD describes the approach to execute and adopt distinct SC strategies to fulfill the customer or market needs and require-ments (Hofmann & Knébel 2016). These SC strategies can be defined by applying either product or customer/market characteristics (Christopher & Towill 2002; Godsell et al. 2006; Walters 2006a). Ap-proaches determining different SC strategies have been divided into two main perspectives in the liter-ature, namely product and market-driven. On the one hand, a product-driven approach defines suitable product characteristics to define different SC processes, such as lean and agile strategies. On the other hand, market-driven approaches seek to align the SC design according to customer and market require-ments (Godsell et al. 2011; Hofmann & Knébel 2016). Both describe a SCS where differentiated supply chain strategies derive from different characteristics. The approaches are elaborated in the following.

Product-driven approach

This approach focuses on product and demand characteristics to segment and differentiate the SC. Fisher (1997) was the first who provided practical SC strategies based on the concept of differentiating the SC via the type of products, namely functional products which require a lean strategy, whereas a more responsive SC should be used for innovative products. Mason-Jones et al. (2000), introduced three SC strategies lean, agile or leagile according to these product characteristics. Lovell et al. (2005) ex-tended the set of demand characteristics, which influence the selection of SC design and SCD within a product-driven approach.

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5 to determine SC strategies can vary according to the industry and case. That is because industries differ in the way how production and inventory are managed. Other product characteristics may be more relevant than others; in other words, their importance for a SCS can vary (Lovell et al. 2005; Alicke & Forsting 2017). Thus, the relevance of individual product and demand characteristics can differ significantly from the industry. It is argued that this product-driven approach is useful in applying lean, agile and leagile SC strategies, while it lacks specific SC strategical actions and the customer's influence on the SC (Godsell 2008). An overview of product and demand characteristics, mentioned in product- driven approaches in the literature, is presented in Table 1.

Demand characteristics • Demand variability • Demand volume • Demand volatility • Demand uncertainty • Demand predictability

• Demand level (throughput)

• Time window for delivery

Customer characteristics

• Product relevance and value

• Product complexity

• Product lifecycle

• Product shelf life

• Product type: functional or innovative • Product handling characteristics

• Physical size and weight value

Table 1: Overview of product and demand characteristics (adapted from Fisher 1997; Christopher & Towill 2002; Lovell et al. 2005; Alicke & Forsting 2017)

Market-driven approach

This approach is seen to be more customer oriented since it extends the scope of a product-driven SCS, by analyzing market and customer characteristics, such as service expectations, customer profitability and type (Gattorna & Walters 1996; Walters 2006b). This approach to fulfilling market and customer needs is also often referred to as SC effectiveness and can show considerable differences due to its implications concerning industry-specific characteristics and the SC (Hjort et al. 2013).

Hill (1985) was one of the first who presented a concept of SC segments via market criteria within operations by using so-called order winners (OW) and order qualifiers (OQ) to determine different manufacturing strategies. OQ are characteristics which a supplier needs to have to compete in a partic-ular market, while OW are critical criteria which make the customers choose the company over another (Godsell et al. 2011), OQ and OW can be for example cost, quality, service level or lead-time. Godsell et al. (2006) state that by using this approach it is possible to match a company’s strategy with this operational strategy. This concept is often referred to in the literature as demand chain management (Jüttner et al. 2007; Hilletofth et al. 2008).

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6 They provide a list of recommended customer characteristics influencing a SCS. Walters (2006b) ex-tends this research by adding customer value drivers, which describe how customer needs can impact SC activities. While these proposed approaches display different market and customer characteristics regarding a SCS, it is argued that they lack evidence and validation on how it can be applied in practice (Godsell et al. 2011)

Freeman et al. (2000) provide an analysis of SC actions influenced by the customer need, namely order processing, logistical, distribution, and warehousing activities. These range from the ease of order pro-cessing to stock availability, order customization, special operations and delivery. Zeithaml et al. (2001) initiated a segmentation approach of linking such customer driven SC actions with the profitability of a customer, where customers with high profitability and low-price sensitivity should receive a high service and vice versa. Chopra and Meindl (2012) extended the list of SC activities regarding different customer requirements impacting operations. They state that the number of packaging and distribution units or more specific labeling, delivery frequency, lead time and delivery frequency and slots are SC services, which are influenced by customers. The SCD approach of Beck et al. (2012) reviews different SC strategies from the literature to serve the individual needs of customers optimally. These SC strate-gies include manufacturing, distribution, and logistical stratestrate-gies, such as MTO/MTS, mass customiza-tion, postponement, differentiated services and multi-channel distribution. They recommend that further research should be conducted on SCS and SCD while taking physical and non-physical SC criteria into account. Current research on SCS regarding differentiated SC services is conducted by Hofmann and Knébel (2016). They provide a framework with differentiated services according to SC and customer characteristic, which was applied to discrete industry companies such as Adidas and LEGO. They state that when using SC services in the context of SCD, respective SC capabilities and constraints need to be taken into account while considering which of the SC activities are directly perceived and influenced by the customer. This framework represents a shared understanding of connecting SC activities with differentiated service offerings. However, Hofmann and Knébel (2016) suggest that more research on SCD variables influenced by customer requirements and other operational processes needs to be conducted. Table 2 provides a summary of the different customer characteristics mentioned in the market-driven approaches within the SCS literature.

Customer and market characteristics

• Profitability

• Order processing (documentation)

• Price sensitivity

• Standard/customized service requirements

• Order cycle time

• Order type (variety, volume)

• Lead time

• Delivery frequency and slots

• Single/multiple distribution channels

• Geographical characteristics

• Transport mode availability

• Customs/duties/trade legislation

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7 Product and market-driven approach

The SCS and SCD literature offers a variety of different frameworks from a SC and demand chain perspective. Hence it has been argued that the approaches described above, share similarities and can be combined. Godsell et al. (2011), for example, attempted to define SC strategies by combining and implementing the two above mentioned approaches, by using product and demand characteristics to define product groups and OQ/OW criteria that consider the customer needs. This segmentation ap-proach has been applied in a few consulting assignment case studies in the fast-moving consumer good industry, but Godsell et al. (2011) argue themselves that this approach lacks substantial empirical evi-dence. In general, researchers in this field agree that further research regarding the individualization of a SCS, differentiated SC strategies and existing approaches, in the form of case studies, is needed (Christopher et al. 2009; Godsell et al. 2011; Alicke & Forsting 2017; Hofmann & Knébel 2016). By looking at the current SC literature, a combination of different characteristics, namely product, de-mand and customer characteristics, are used to determine a SCS and differentiated SC strategies. How-ever, there is a universal consensus that suitable characteristics to define a SCD vary according to in-dustries and operations, and they emphasize on further research in the context to industry focused dif-ferentiation attributes within this field (Godsell et al. 2011; Beck et al. 2012; Hofmann & Knébel 2016).

Process industry

In this part, characteristics of process industries are discussed. By identifying specific characteristics, one must deal with in this industry, a better insight on how these aspects might influence a SCS and differentiated SC strategies in the process industry can be provided.

Process industry-focused production characteristics

The process industry can be defined as follows “Process Industry is production industry using (raw) materials to manufacture non-assembled products in a production process where the (raw) materials are processed in a production plant where different unit operations often take place in a fluid form, and the different processes are connected in a continuous flow.” (Lager 2000, p.322). The definition focuses on the process characteristics of the industry, thus provides a good example of the uniqueness of its characteristics.

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8 Table 3: Overview of process and discrete production characteristics (Noroozi & Wikner 2017)

As seen in Table 3 process industry shows different characteristics within production as compared to discrete industry. Manufacturing in the process industry, for example, requires fixed assets with a high share of specialized equipment and fixed cost, while discrete production commonly involves less fixed capital-intensive activities and more manual processes (Abdulmalek et al. 2006). Hence companies in the process industry strive for continuous production with high volume and minimized changeover and setup time to gain economies of scale, making it hard for them to be flexible within the production (Noroozi & Wikner 2017). Also, the labor intensity within the processing stage in the process industry is seen to be low, whereas in the packaging stage it is intensive (Abdulmalek et al. 2006). The low flexibility within production in process industry makes it harder for operations to react quickly to de-mand changes (Noroozi & Wikner 2017). Thus, process industry compared to discrete manufacturing has a lower latitude in organizing manufacturing and inventory policies due to the inflexibility of pro-duction. Lastly, the materials used in process industry play a more significant role in the planning and scheduling tasks compared to other industries due to their use of raw materials. That is because aspects such as material availability and quality consistency can vary and the rate of perishability influences the way of production in process industry more than in others (Taylor et al. 1981).

Process industry-focused demand, product and customer characteristics

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9 of stock keeping units (SKU) is seen to be high in the process industry, due to different types and sizes of packaging (Abdulmalek et al. 2006).

Demand characteristics can as well have a different impact and importance in industries and hence on the way how a SC is designed. The complexity and the setup of production in the process industry compared to others is seen to be high. This also affects the demand level and volume and hence, should be taken into account (Wikner & Noroozi 2016). The usage as well as limitations of the raw material, which is used in many sectors of the process industry, influence the choice of the SC strategy, since seasonality or other uncontrollable factors, such as product decay, weather conditions, pests, need to be considered (Verdouw et al. 2010). Last but not least, the type of customer (e.g., small/big customers, direct customers/distributors) and markets (e.g., different buying behaviors and requirements) can in-fluence the production and inventory of industries differently, and hence the SC strategy (Alicke & Forsting 2017). Manufacturing in the process industry is mostly done in batch or continuous flow due to high change over, and setup costs are resulting in a limited flexibility within production (Abdulmalek et al. 2006). Specific customer requirements can be costly and time-consuming due to the reason that the process industry has in general long set up times and therefore only a limited capability to change between products. Such aspects influence the SC design and might lead to specific constraints and lim-itations within SCD. Hence there is a need to investigate which characteristics are essential to a seg-mented SC and define suitable differentiated SC strategies while considering process industry aspects.

Summary

In this chapter, approaches of SCS and SCD existing the literature have been presented. Different SC strategies, which are used to adopt a SCD as well as product, demand and customer characteristics used to segment and differentiate a SC have been discussed. At last, process industry-focused characteristics which differ from the discrete industry in the context of production, demand, and product were mentioned. From this literature review an emerging trend within SCD, where approaches have moved towards being more demand-oriented with a customized SC, can be seen. Furthermore, the need for further research in the field of SCS and SCD within different industries has been emphasized. Thus, the key findings of the theoretical framework can be summarized as followed:

 SCS and SCD have been discussed sufficiently in the literature, while the impact of different industry aspects on operations, demand and product characteristics have been widely neglected (Lovell et al. 2005; Godsell et al. 2011; Alicke & Forsting 2017).

 There is a lack of alignment between SC activities and customer/demand characteristics to de-fine proper SC strategies (Walters 2006b; Hofmann & Knébel 2016).

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10 Wikner 2017). A lot of SCS and SCD case studies have been conducted within the discrete industry, but not much attention has been paid to other industries (Godsell et al. 2011; Hilletofth 2012; Beck et al. 2012).

 Process industry has different characteristics than the discrete manufacturing industry. Hence they may affect/influence a SCS and SCD approaches.

Research question

By looking at the summary of the literature review, it was found that no in-depth investigation of SCS and SCD in the process industry has been conducted. Process industry differs from the well-researched discrete industry in the context of product, demand, customer and production characteristics. However, these industry-focused aspects have yet not been considered in the SCD process. Therefore, there is need to investigate whether the mentioned approaches and characteristics within the current literature are relevant within the process industry to determine a SCD. In the light of this, the research question is stated as follows:

How do demand/customer/product characteristics drive supply chain differentiation in the process industry?

To answer the primary research question, supporting sub-questions were formulated:

 What approaches of SCD, segmentation and SC strategies are currently existing in the process industry?

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3 METHODOLOGY

This chapter presents the methodology chosen for the proposed research approach. The whole research design is introduced to the reader. Along the different subsections of this chapter measures to ensure validity and reliability are mentioned. Limitations, as well as the credibility of the research, are dis-cussed at last.

For this research, a qualitative approach was applied via the use of a single case study, because it al-lowed exploring this specific topic in depth(Karlsson 2016). This research method was suitable for this study due to the novelty of this research topic within the process industry. Hence by analyzing one case in depth, it was possible to provide informative data from a specific case and interesting insights in a field which has yet not sufficiently been researched (Yin 2003).

Case selection & introduction

This research is based on a single case study. To ensure that the chosen case company is qualified to serve as a single case study, the researched organization needed to incorporate characteristics of process industry mentioned in the literature review as well as adopt knowledge about SCD and SCS or differ-entiated SC strategies. Furthermore, the case company had to allow the researcher to conduct interviews with their employees and grant access to data during the time of the research to ensure data accuracy during the research.

By considering the criteria above, a global manufacturer of natural and modified potato starch in the process industry, based in the Netherlands, was seen to be suitable for this research. The case organization was selected because it fits the criteria mentioned above as well as the purpose of this research. It incorporates the necessary process industry characteristics, such as continuous production, high volume production, long changeover time and small labor intensity in the processing stage and high in the packaging and logistics stage. Moreover, the focal company is confronted with several process industry aspects, such as inflexible production and demand requirements regarding product variety, services, and quality. The market in which the company is operating in fits the selection criteria, because the starch industry implies process industry market characteristics, such as uncertainty of sup-ply, due to the vulnerability of product decay, weather conditions and primarily stable and relatively predictable demand. Also, the competition within the starch business is seen to be high and competitive, where advantages are more likely to be achieved via a focus on service and price.

Data collection

Focus of the research

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12 “procurement” process in the SC was not incorporated. Therefore, the unit of analysis can be described as the whole SC, excluding the procurement aspects of the focal case company's SC.

Qualitative data collection

For this research, data was collected via different methods to assure its validity. On the on the hand, documents and data from the SAP system of the case company were used. On the other hand, informal as well as semi-structured interviews, either via face-to-face or Skype, with multiple employees were conducted. Additional information was derived via personal observation, note making and visits to the factory and sales headquarter of the focal case company.

For the semi-structured interviews, 13 employees from different hierarchical positions and different departments of operations and sales within the focal company were selected. These people are appro-priate respondents for this research since they not only have sufficient knowledge about SC and expe-rience within process industry but are also experts in the field they are operating in. By interviewing people from different departments and with different viewpoints insightful data on the specific case study topic could be ensured (Yin 2003). Moreover, by performing a within-analysis of the interviews, the validity of the research and the richness of the data could be ensured (Voss et al., 2016). The function titles, as well as other information related to the interviewees, are presented in Table 4.

Suitable questions on the topic being researched were elaborated before the interviews took place. This collection of questions was later divided into two interview protocols since different questions for in-terviewees from sales and operations were asked (see Appendix 1, 2). The interview protocols contained open questions, whereas further questions were not included but asked if necessary. Two days in ad-vance of the interviews a comprehensive summary and introduction of the research were sent to the

Interviewees from departments of sales

Title of interviewee No. of Interviewees Location Ø Duration

Sales director 1 Headquarter (HQ) 60min

Regional sales manager 5 HQ, sales office & via Skype 90min

Order manager 1 HQ 60min

Interviewees from departments of operations

Title of interviewee No. of Interviewees Location Ø Duration

SC director 1 HQ 60min

SC manager 1 HQ 60min

Logistics manager 2 HQ 60min

Sales planning manager 1 HQ 60min

Production line manager 1 HQ 60min

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13 participants. Before the start of each interview a consent form, describing how the data is gathered and used, was presented to interviewee which he or she had to read and sign before recording. Interviewees were also encouraged to provide in-depth answers and examples from their previous work experience regarding SCD. The interviews were conducted in a timeframe of approximately 60 min or longer. 12 out of 13 of the interviewees were conducted in person in a meeting room of the focal company. One interviewee was interviewed via Skype due to his job location. All interviews were held in English and 12 out of 13 recorded by the researcher. To ensure the quality of the data, interviews were transcribed within the next 24 hours after they took place (Karlsson 2016). Moreover, by letting the interviewees review the transcripts and quotes, internal validity was improved (Yin 2003). the research’s reliability was ensured by providing a comprehensive research protocol, which offered proper documentation of the necessary information and assured transparency of the whole research process.

Data analysis

The data was managed and analyzed by using software for qualitative data analysis (MAXQDA) since the use of software, and data coding within qualitative research ensured a more systematic and less biasing approach within the data processing (Miles & Huberman 1994). For the data analysis, the coding scheme suggested by Corbin and Strauss (1990) was used. Therefore, the data was reduced by rereading the transcripts and filtering out relevant quotes from the interviews for this research via open coding. Based on an inductive manner, pattern matching within the filtered data was conducted, and different sub-themes were established by which the remaining quotes were coded. Later, some sub-themes were refined based on new emerging data and the finished sub-themes grouped into categories.

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14 Particular attention was put on such quotes during the data reduction. When something was unclear, interviewees were asked afterward to clarify on the specific quote. By doing so an increase of the data reliability could be achieved.

Categories Sub-themes Description Codes

SCS and SCD

Segmentation approaches

Statements and insights that refer to seg-mentation approaches via product, cus-tomer, and market characteristics.

SCS_A

Purpose of SCD and current approach

Mentions, comments, and insights that refer to the current SCS/SCD approach.

SCS_C

Examples of other compa-nies

Expressions from interviewees about SCS/SCD from other companies.

SCS_E

Differentiated SC strategy

Service strategy Statements and insights that refer to

dif-ferentiated service possibilities.

SC_S

Manufacturing strategy Mentioned manufacturing strategies as

differentiated SC strategies possible.

SC_M

Logistics & distribution strategies

Logistical and distribution strategies which were mentioned by interviewees.

SC_O

SCS strategy criteria

Customer requirements Description of the customer

require-ments that needed to be fulfilled.

CS_CR

Constraints and capabilities

Expressions from interviewees on the constraints and capabilities of the com-pany to develop SCS.

CS_C

SC activities Described impact of demand or customer

requirements on SC activities.

CS_A

External segmentation characteristics

Demand characteristics Quotes from the interviewees about

important demand characteristics.

EC_D

Customer characteristics Answers provided by the interviewees

about important customer characteristics. EC_C

Internal segmentation Characteristics

Production characteristics Quotes from interviewees about

important production characteristics.

IC_PD

Product characteristics Answers provided by the interviewees

about important product characteristics.

IC_P

Table 5: Categories and sub-themes definitions

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4 FINDINGS

This section first provides findings on the current SCD approaches, the differences between sales and supply chain management (SCM) on the value and purpose of SCD within the case company. Findings in context to process industry-focused criteria and constraints on SCD are presented. Second, the current segmentation framework of the case company and its specific characteristics are provided. Last, de-mand/product/customer characteristics, which are seen to influence and be important within SCD are introduced and compared to the mentioned attributes from the literature. In that way, an overview of suitable characteristics influencing a SCS and defining a SCD within the process industry can be provided.

Supply chain differentiation

This subsection presents the findings regarding the current SCD approaches of the focal company and the criteria and constraints of the process industry influencing the SC design, which were mentioned by the interviewees. The findings provide answers to the first and second research sub-questions on what approaches of SCD, and SC strategies currently exist within the process industry, and how do process industry-focused characteristics impact a differentiated SC design.

Current SCD in the focal case company

The company is currently at the beginning of evaluating approaches of SCD and has not yet determined how a fully differentiated SC can be achieved. At the moment, they aim to explore characteristics of SCD and develop suitable SC strategies. Different approaches are in place which indicates a differenti-ated SC driven by demand. To the question, if the company is already differentiating their SC, the answers commonly referred to limited approaches of SCD. This is also underpinned by the SCM direc-tor, who provided the following answer: “We are trying, but it does not succeed that well now. Cur-rently, we are busy to differentiate in our production strategy. That means to differentiate between make to stock, make to contract and make to order.”

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16 When asked about other differentiated SC strategies, a standard answer was that “The variety of demand and customer aspects influencing SC is mostly affecting the distribution and logistical operations.” Thus, the use of a multiple distribution channel strategy was mentioned during the interviews. The company created a differentiated SC for customers, which order small volumes or more than five ma-terials per delivery. As an interviewee from sales stated, “Such customers who order more mama-terials per delivery, are delivered via the distributors. That is also what we agreed on with the supply chain.” SC strategies such as indirect and direct distribution and MTS/MTO/MTC have been deployed for certain customer patterns. However, they stated that both internal logistical activities, such special packaging, and labeling, as well as external measures, such as the use of external warehouses and bulk terminals, have no defined rules on when they should be performed or not. Interviewees from operations expressed that their current way is unstructured and designed in such a way that sometimes unneces-sarily high service is delivered. These statements are underpinned by interviewee W, who stated, “We have different concepts, so for example, we store the products close to the customer, but in most cases, these agreements are grown naturally over time, not that we really thought on how we should do that." The findings above show that the company applies SCD, for example, via indirect and direct distribu-tion. A differentiated strategy within production, via MTS/MTO/MTC, is used by the focal company, due to process industry-focused production characteristics, such as long minimum run lengths and set up times, as well as inflexibility and high fixed costs. Within internal and external logistical activities, characteristics to when to perform specific actions, are missing. Therefore, their current differentiation approaches within packaging and logistics were perceived to be unstructured and naturally occurred over time.

Differences between sales and SCM on the purpose and value of SCD

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17 hence should be treated individually and cannot be grouped. As, Interviewee P also stated: “I guess what we need to have is a full pallet of services to be able to serve the customer the best experience, which is different from customer to customer.”

By looking at the findings, interviewees within operations see SCD as an approach which helps to optimize operations and provide demand needs, while sales share mixed opinions on the value and positive effect of SCD on customer satisfaction. This is because they see more value in fulfilling the customer needs individually, case by case, and not via differentiated SC strategies since they empha-sized the unique requirements each customer has.

Process industry-focused criteria and constraints

Since the research focuses on the differences of process industry within SCD, limitations, and capabil-ities within production, particular criteria regarding customer and products have been found, which influence such an approach.

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18 oriented and flexible. T highlights this by stating, “If you talk about operations, you talk about two parts, the production part, and the supply chain part. So, for me, production is efficiency and the supply chain is flexibility."

Once asked about which aspects can influence SCD, interviewees emphasized on the influence of so-called recipes (non-packed materials) and total finished materials on the operational processes and in-dicated this aspect influences the so-called customer order decoupling point (CODP). The interviewees argued that since the customization of the products mostly takes place within the packaging and distri-bution, the CODP is automatically set far more upstream of the chain compared to discrete industry. By looking at the findings above it can be seen that the focal company is currently applying differenti-ated SC strategies within production and distribution. The aspects, such as continuous production, long changeovers, a small variety of non-finished materials, and the far upstream CODP, mentioned by the interviewees point in the direction that SCD has limited capabilities within production processes. Inter-viewees agree that process industry-focused constraints on manufacturing and inventory management affect the SCD capabilities. Therefore, they stated that SCD is more applicable within distribution, lo-gistics and the packaging stage, due to different distribution channels and the influence of the high variety within finished materials, in context of packaging, labeling, and documentation. Also, it was found that process industry-focused production objectives, such as, to be efficient and the focus on cost reduction, due to high costs and inflexibility imply a supply-driven manufacturing strategy. This results in a misalignment with the commercial strategy since they want to be demand-driven and flexible. Moreover, this study indicates that a misaligned understanding of the applicability and purpose to apply SCD exists within sales and SCM. This is due to the reason that the commerce department sees no value for the customer and only little value for the whole organization.

Segmentation framework and approaches

This section describes the findings on the current segmentation of customers, product, and markets which is conducted by the focal company. The findings on the approach and characteristics used for segmentation within the focal company provide insights for the first sub-question of this research.

Current segmentation framework

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19 are filled. Profitability is considered in the current segmentation, as it represents the contribution of each customer to the profit the company is making. By considering these characteristics, A-customers are defined by their high volumes. This customer group is associated with a low contribution margin, due to a lower price per volume. B and C-customers are more profitable but have less demand volume; the company distinguishes these customers by their fit with their long-term strategy. Hence, B custom-ers are seen as more critical to the long-term success than C-customcustom-ers. Another differentiation is made between ordinary customers and distributors, due to the reason that they share different characteristics than normal customers. Distributors characteristics, such as a higher product variety within orders, as well as a higher order frequency compared to ordinary customers, were mentioned by the interviewees. Moreover, since distributors are partners of the focal company, the degree of collaboration with them differs compared to other customers.

Supply chain focused segmentation

Demand volume, a criterion representing an implication on SCM, is considered in the company's seg-mentation. However, the current approach is perceived to be more marketing oriented and lacks further integration of relevant criteria for the SC. This is highlighted by the statement from the SC manager, “We only do customer segmentation from the marketing point of view, and it is not clear to me; we expect from sales, what is important and what is not important for a customer and influences the supply chain. An interviewee from sales emphasized on this by stating “Of course you have some customers to which you pay more attention, but in the end, we do not really differentiate on the basis of supply chain management.". When asked about more in-depth customer segmentation in the context of SC activities, interviewees shared the common opinion of it being limited. This is also emphasized by the SC director, who replied,” If you look at whether we actually have a different supply chain service execution for segments, for example, distributors or direct customers, there is none."

Both agree that the current segmentation approach is mainly marketing driven., but they share different opinions on the approach necessary to be taken. Operations aim to apply a segmentation via character-istics within customers or demand and group them to offer a differentiated SC. This is highlighted by the statement of Interviewee W, "When you are talking about SC segmentation and differentiation, my first question is what kind of groups do we identify and what their specific needs are." Meanwhile, sales do not see the need to segment customers according to specific requirements which influence SC be-cause interviewees from this department argued that each customer requires different SC actions and, thus cannot be grouped.

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20 and ordinary customers was found since their characteristics differ significantly. Nonetheless, the cur-rent segmentation of these customer groups does not provide any indication for SCM.

Key customer, demand and product characteristics influencing a SCS and SCD

This section provides relevant findings on customer, demand and product characteristics impacting a differentiated SC design within the process industry. Albeit the negative or positive perception of the interviewees towards using specific characteristics to conduct a SCS, people from both, sales and oper-ations, could provide attributes which influence such an approach. This sub-chapter provides answers to the central research question on how customer, demand and product characteristics can be linked to SCD within the process industry, and further insights on the second sub-question.

Customer characteristics

When asked about suitable customer characteristics for a SCS, one significant difference was stated by interviewees regarding distributors, who have specific characteristics, which are seen to have an enor-mous impact on the company’s SC. Interviewee P describes the needs of a distributor as followed: "They always want to have fresh products, because distributors want to sell again to the customer and they want only two or three bags of different products."; Interviewee K added, "What I see is that the distributors, in general speaking, are sometimes asking many services, which we do not have in place." Also, interviewees from operations added that the customer's capabilities should be considered within a SCS, due to its influence on different SC activities. The logistics manager, for example, stated, “Capabilities of customers regarding their inventory size, warehouse manpower and setup need to be considered.” Interviewees from sales highlighted the aspect of being a sole or shared supplier for a customer, as one mentioned: “When you are sole supplier, you have to really value the importance of being a sole supplier with a long-term customer and put extra effort in.” According to the interviews the variety of products of the customer, where the company's product is used, plays an important role. J provided an example of this particular characteristic, “If I think about paper bags for example. First, I look at the paper bag makers. If they only make paper bags for cement, then the differentiation should be different, then if they make paper bags for various industries.”

By looking at the answers of the interviewees, distributors are the customers who create the most complexity within the SC, because of their high service expectations and their differing characteristics to ordinary customers, for example, high product variety and order frequency. Other customer charac-teristics regarding customer constraints and product variety as well as being a sole supplier were found to affect a SCS.

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21 Customers product variety and the aspect of being sole supplier where mentioned to be important. The differentiation criteria of ordinary customers and distributors as well as the customer constraints were found to be most applicable. This is because, they have been mentioned and highlighted by more than half of interviewees to have a significant influence on the company’s SC, especially within the packag-ing and logistics. Hence, they were seen to be essential to consider in a SCS.

Customer characteristics mentioned by interviewees (not in the literature)

Ranking Customer characteristics Mentioned

1 Normal customers/distributors 12/13

2 Customer constraints 10/13

3 Customers product variety 6/13

4 Sole supplier/shared supplier of customers 5/13

Table 6: Identified customer characteristics mentioned by interviewees and perceived as important for a SCS Also, more marketing related customer characteristics such as brand and reputation of a customer or the country-specific cultures were mentioned, as, interviewee L stated: "Cultural aspects of the customer are important because customers within different countries have different requirements." Other inter-viewees highlighted the degree of the customers understanding as a way to differentiate between them, K stated “Big companies are willing to discuss what we do for them and what not. However, you have some small customers; they expect maximal service because they are not familiar with certain opera-tional complexities.” Nonetheless, interviewees thought that such aspects are less useful for SCD, due to their minor influence on the SC

Customer characteristics which have been mentioned in the literature, such as customer location, deliv-ery frequency, and channel type were seen as necessary by the interviewees. Many interviewees have also emphasized the specific order type as a suitable SCS differentiator. For instance, by interviewee M stated, “We have customers who are buying one to three pallets per delivery, that is too small for us, and we try to give this to the distributors.” Interviewees within sales emphasized on the difference of special requirements of customers. So, for example, they highlighted that MNCs and distributors de-mand more than other customers, regarding the quality of transportation, packaging, and labeling. In-terviewee M further indicated that certain customers do not want to be supplied via distributors, but only directly. Moreover, the geographical aspect regarding special customer requirements was also considered as an important characteristic by another interviewee. J added, "Customers are stricter (have more special requirements) here (in Europe) than in the Middle East or Mexico for example."

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deter-22 mined by the customer location, the time needed to prepare the order and product availability. Espe-cially interviewees from sales stated, that due to their long-lasting relationships and repetitive business, customer adjusted to the denoted lead time of the company. By taking the findings of the above into consideration, Table 7 provides an overview of the characteristics mentioned in the literature and by the interviewees, which were seen as necessary for a SCS. The characteristics are ranked according to their importance and frequency and mentioned by the different interviewees.

Customer characteristics from the literature mentioned by interviewees

Ranking Customer characteristics Mentioned

1 Channel type (direct/indirect) 13/13

2 Customer’s location 13/13

3 Special service requirements 12/13

4 Delivery frequency & delivery slot 11/13

5 Order type (variety, volume) 10/13

Table 7: Identified customer characteristics from the literature, which were perceived as important for a SCS As seen in Table 7, a variety of customer characteristics from the literature have been mentioned by the interviewees. Only five characteristics were mentioned by more than half of the interviewees to affect a SCS. Channel type and customer's location were seen as one of the most important differentiators within a SCS. Since these criteria are also mentioned in the current SCD approach of the company, the emphasis on them was foreseeable. Other customer attributes, such as their special requirements within logistical and packaging activities, as well as the frequency of delivery and order volume of a customer, were found to be essential segmentation attributes for a SCS. This is because of their high impact on the company’s SC complexity and the need for extra SC activities occurring due to these characteristics.

Demand characteristics

As seen in the theoretical framework, demand characteristics mentioned in the SCS literature and SCD approaches always related to different products. However, interviewees always related demand to the customer and not to specific products. By considering this, demand volume was seen to be most rele-vant. One interviewee wanted to especially highlight this because of its high relevancy within the pro-cess industry; he stated, “Demand volume is critical for us because we need all the volume to fill our production lines,” “but this volume also influences our SC activities in packaging and logistics.” Interviewees mentioned differences within the delivery time window of customers. For example, by interviewee M, who indicated “one customer needs a day at a time when the truck is arriving the other would say OK please supply within one week.” Therefore, a differentiation between an exact-day de-livery and a weekly dede-livery slot is seen as suitable for a SCS.

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23 on individual demand characteristics, namely demand predictability, demand volatility, and variability. Interviewee P, for instance, stated that “Due to the long-lasting relations, lasting already up to 25 years, demand forecast is mostly stable and continuous.” Another interviewee stated that “while demand vol-atility sometimes comes because of the customer's own demand, in general, it is quite low."

As seen in Table 8, only two out of seven demand characteristics, mentioned in the SCD literature, were seen as necessary by the interviewees. It should be noted, that demand was related to the customer, whereas the proposed demand characteristics in the literature are linked to products. By considering this, demand volume was seen as essential, because high volume customers are crucial within their industry, due to the production characteristic of high volume production. The aspect of differentiating within delivery time windows was seen to be necessary, since special day deliveries result in more complexity within their SC, whereas a delivery time on a day within a particular week, enables the company to be more flexible. The findings show that characteristics such as demand variability and volatility have been mentioned, but interviewees indicated that these aspects were not relevant, because of the company and industry-specific characteristics such as long-lasting relationships and their repeti-tive forecast-driven business.

Demand characteristics from the literature mentioned by interviewees

Ranking Demand characteristics Mentioned

Important Demand volume 13/13

Important Delivery time window 10/13

Not important Demand level (throughput) -

Not important Demand uncertainty -

Not important Demand predictability -

Not important Demand variability -

Table 8: Identified demand characteristics from the literature, which were perceived as important for a SCS Product characteristics

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24 When interviewees talked about SCD, they mentioned that it is essential to distinguish between unfin-ished (recipes) and finunfin-ished (packaged) materials. Hence, they saw limited differentiation possibilities within unfished products due to a slightly small product variety. When asked about finished product characteristics, they stated that the variety of finished materials are significantly high. Interviewees indicated that a differentiation within finished materials is more applicable because of their high number of SKUs generated via different packaging and labeling demanded from customers. This is highlighted by interviewee K, who stated: “We produce almost 90 percent of our products in stock, and then all the activities of customization are done within the packaging and logistics.". This implies that the produc-tion of the unfinished material is seen as supply driven, while processes become demand-driven via different SC activities within packaging and logistics. It was found that the focal company offers stand-ard wooden pallets as well as a variety of standstand-ard packaging types, such as small, medium and big bags and bulk. However, customers sometimes require individual bags, labels or pallets. Such special requirements result in creating a new item and thus in an even higher number of SKUs. By considering these aspects, interviewees saw product characteristics less suitable for a SCS, because, in the end, the customer requirements influence the number of SKUs of the finished materials.

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5 DISCUSSION

This section first presents a discussion on which SCS approach is most suitable within the process industry. Second, process industry-focused characteristics, which influence a SCS and SCD are discussed. At last, a discussion on the applicability of differentiated SC strategies within the process industry is presented, which provides an answer to the third and last sub-question of this research.

Market or product-driven approach

This research presents constraints and characteristics which influence the approach of defining differ-entiated SC strategies and the design of a SCD within the process industry. The findings indicate that a market-driven SCS approach is more suitable in the process industry due to the high variety of customer requirements and the limited differences within unfinished materials. It was found that a differentiation of innovative and functional products was mentioned by the focal company. Nonetheless, a SCS ac-cording to these characteristics, as proposed by Fisher (1997) does not seem applicable, because the products share many similar attributes, such as low product variety, predictable demand, and long prod-uct life cycles. Furthermore, the findings reveal that demand characteristics, such as demand volatility and variability, which are considered in many product-driven SCS frameworks as differentiation criteria (Christopher & Towill 2002; Childerhouse et al. 2002; Aitken et al. 2005) have minor relevance within the SCS of the focal company. Whereas characteristics, such as demand volume and window delivery time, mentioned by Christopher & Towill (2002) were shown as necessary to differentiate. However, the demand attributes within these approaches relate to products, while interviewees associated them with the customer. This implies that a market-driven approach is more suitable.

Furthermore, it was found that not much customization takes place within unfinished materials, while activities in the packaging and distribution of finished materials are influenced by the customer needs and requirements. This also indicates that a market-driven SCS approach is seen as more applicable in the process industry. These findings are in line with previous research (Lovell et al. 2005; Walters 2006b; Beck et al. 2012), which lay emphasis on identifying market and customer aspects for a differ-entiated SC. The results of the research show that a product and market approach, as proposed by Godsell et al. (2011), is not suitable since the customer is the main driver of SC activities, while product characteristics seem to have a minor influence.

Process industry-focused characteristics influencing a SCS and SCD

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26 these characteristics result in limited capabilities of SCD within manufacturing. Process industry-fo-cused product characteristics, such as a low variety of recipes and a high number of SKUs within fin-ished materials as well as the aspect of a labor-intensive packaging stage mentioned by Abdulmalek et al. (2006) have been found to impact SCD. This is because special requirements of customers within the packaging have been identified to result in more complexity within logistics and distribution. Also, customers constraints were found to influence SCD. Such constraints can for example be warehouses sizes, different types of storage and equipment, which limit the capabilities of customers within pro-duction and inventory. Due to the impact of these aspects on the SC complexity, they should be considered in a SCS.

The research also shows that industry-specific characteristics of the case company influence the SCD. Characteristics of long-lasting relationships and the forecast-driven and repetitive business with cus-tomers was found to have an impact on the SCS. These aspects result in a stable and foreseeable de-mand, which makes differentiation characteristics, such as demand volatility and variability circum-stantial. Furthermore, by looking at the results, it was found that the risk of availability and reliability in the order fulfillment within the case industry was seen as very important. This is because customers need to use the supplied material to produce their products. A delay in delivery would result in high costs for customers due to production stops. It was also found that the aspect of the raw material, to be more precise the viscosity of the potato starch, can make processes within logistics more complicated and less standardizable compared to other process industries. As one interviewee, with previous expe-rience, stated, “What I was used to in the tobacco industry was, if you order a box, the size is always the same, now it is different, the product makes it difficult to know how many finished goods fit on a pallet or trailer.”

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27 focal company than ordinary customers. Therefore, an approach of conducting SCD should consider these differences within the process.

Differentiated SC strategies applicable in the process industry

When looking at the process industry-focused characteristics, proposed differentiated SC strategies in the literature and the findings of this research, a differentiation approach of lean and agile SC strategies as indicated by Fisher (1997) and Aitken et al. (2005) does not seem applicable. This is because of a standard lean strategy approach within the process industry, due to the strategical orientation within manufacturing. An agile SC strategy is seen to be not applicable, because of continuous production and its constraints of long set-up times and changeovers. The findings also show that differentiated SC strategies within manufacturing are present within the process industry. A differentiated SC strategy between MTO and MTS, which are mentioned by Hilletofth et al. (2008) and Hofmann & Knébel (2013) are seen to be limited due to process industry-focused production constraints and capabilities. That is why the company applies the strategy MTC as mentioned in the findings. Such an approach has not been mentioned in the literature, but it seems more suitable for the process industry than a differentiated strategy via MTC and MTS due to producing mainly on stock and the risk of obsolete stock.

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6 CONCLUSION

An overall conclusion of the conducted research is provided in this chapter. By looking at the findings of the qualitative study and the analysis regarding the research question, managerial implications, as well as limitations and recommendations for further research, are presented.

This research investigated process industry-focused attributes influencing SCD. The objective of this research was to analyze suitable differentiated SC strategies and SCD approaches in the process indus-try. It was identified that process industry-focused characteristics affect the way of conducting SCD and defining a SCS due to production constraints and specific demand and customer characteristics. This research concludes that process industry characteristics, such as continuous and inflexible produc-tion, and a low variety of non-finished materials, make a product-driven SCS approach less applicable. A Market-driven approach via customer and demand characteristics, was found to be more suitable for a SCS in the process industry, due to their effect on the SC complexity and activities. In this research, customer characteristics, such as customer requirements, constraints and location, as well as delivery frequency and order volume, were identified to be most qualified to define a SCS. Differentiated SC strategies within manufacturing and distribution have been identified in the focal company. A MTS/MTO strategy was found to have its limitations, because of process industry-focused production constraints, for example, continuous and inflexible production, and long changeover and setup times. Due to these constraints an approach, namely MTC, is deployed by the company and was found be more effective, due to the aspect of long delivery times and risk of obsolete stock. Other differentiation strategies within manufacturing, such as postponement or mass customization, were seen to have their limitations due to the production constraints within the process industry. A SCD within the packaging stage and distribution was found to be more efficient, due to the high impact of customer requirements and constraints within these SC activities and the SC complexity.

Overall, current case studies on SCS and SCD, which were conducted within the discrete industry (Childerhouse et al. 2002; Aitken et al. 2005; Godsell et al. 2011; Hofmann & Knébel 2016), neglected industry-specific aspects and their impact on SCD. This research could provide a more in-depth analy-sis, and investigation of industry-focused characteristics influencing a SCD and differentiated SC strat-egy approaches via a single case study in the process industry.

Managerial implications

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29 views of operation and sales when it comes to defining and valuing SCD. This might be important for managers within the process industry when they want to introduce a SCD within their organization. Secondly, this research presents an in-depth investigation of process industry constraint and capabilities regarding a SCS and SCD. The information derived from this research also provides other companies within the process industry with guidance on how to apply SCD and differentiated SC strategies and what constraints need to be considered.

Limitations and further research

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