Triple A Supply Chain

RAHUL BABAR

What is a Supply Chain?

A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer.

-Council of Supply Chain Management Professionals (CSCMP)

BackgroundTraditionally companies aim for- greater speed and cost-effectiveness

Companies couldn’t sustain that competitive advantage

Mark down in USA in 1980s was 10% and 30% in 2000s

Wal-mart, Dell and Amazon were successful to maintain a competitive advantage through supply chain management

Fast changing hardware and softwareMultiple sources of technological advancesFrequent product transitionsManufacturing cost pressures

Short product

and technology cycles Outsourced manufacturing

partnersOutsourced design partnersConsumer electronics channelOther associated product providers

Multiple supply chain

partners

Fashion like productStrong competitive forcesIncreasing product varietyPotential of external disruptions

Demand and

supply uncertain

ties

Challenges Implications

Increasing demand and supply uncertainties

Uncertainty drives need for flexibility

Shortening product and technology cycles

Dynamic instead of static supply chains

Multiple outsourced supply chain partners

Differential interests of multiple players

Agility

Adaptability

Alignment

Challenges Implications

Increasing demand and supply uncertainties

Uncertainty drives need for flexibility

Shortening product and technology cycles

Dynamic instead of static supply chains

Multiple outsourced supply chain partners

Differential interests of multiple players

According to Lee, H. (2003)… In addition to being efficient supply chains should possess three very different qualities- agility, adaptability and alignment- which he referred to as the “Triple-A Supply Chain”

Agility

Adaptability

Alignment

It enables a company to handle unexpected external disruptions smoothly and cost-efficiently and to recover promptly from shocks such as natural disasters, epidemics, and computer viruses.

Objective: to respond to short-term changes in demand or supply quickly.

Agility

In March 2000, a facility of Philips in Albuquerque, New Mexico, went up in flames

Philips couldn’t supply Radio Frequency(RF) Chips to Nokia or Ericsson

Nokia’s Response: Back up suppliers demanded only 5 days lead time

Ericsson’s Response: Started an expedition to find a suitable supplier

The Aftermath: Nokia stole the market share from Ericsson

1. Promote flow of information with suppliers and customers.

2. Develop collaborative relationship with suppliers

3. Design for postponement.

4. Build inventory buffer by maintaining a stockpile of inexpensive but key components.

5. Have a dependable logistics system or partner.

6. Draw up contingency plans and develop crisis management teams.

Ways to make a company Agile

Ability to adjust to structural shifts in market demand or supply, modify supply network to company strategies, products and technologies

Enables a company to evolve over time as economic progress, political shifts, demographic trends, and technological advances reshape markets.

Objective: to adjust supply chain design to accommodate market changes.

Adaptability

In 2000, MS outsourced hardware production to Flexotronics.

MS announced the deadline - December 1, 2001 to target Christmas shoppers

Flexotronics shifted production to Mexico and Hungary

MS launched the product in record time

Sony’s Response: Deep discount

Flexotronics’s Response: Shift production to China

The Aftermath: MS engulfed 20% market share of Playstation.

1. Monitor economies all over the world to spot new supply bases and markets.

2. Use intermediaries to develop fresh suppliers and logistics infrastructure.

3. Evaluate needs of ultimate consumers- not just immediate customers.

4. Create flexible product designs.

5. Determine where company’s products stand in terms of technology cycles and product life cycles.

Making a company ‘Adaptable’

To encourage free flow of information with suppliers and customers on a regular basis.

Objective: The objective of aligning a supply chain is to establish incentives for supply chain partners to improve performance of the entire

chain.

Alignment

HP’s integrated circuit division carried as little inventory as possible- to keep inventory holding cost minimum

HP’s ink-jet printer division had buffered inventory- to lower the lead time

The aftermath: HP as a company had long lead times with high inventory holding cost

1.Exchange information and knowledge freely with vendors and customers.

2.Lay down roles, tasks and responsibilities clearly for suppliers and customers.

3.Equitably share risks, costs, and gains of improvement initiatives.

Making a company ‘Aligned’

A Proposed Model

A company that has got it all

1. Agility

• Real-time systems to detect changes in customer preferences and track sales and customer data at every store

• Satellite connections link stores with distribution centers, suppliers, and logistics providers

• Reallocates inventory among stores and reconfigures store shelves three times daily to cater to different customer groups at different hours

• Within six hours after the 1995 Kobe earthquake, SEJ overcame highway gridlock by mobilizing helicopters and motorcycles to deliver 64,000 rice balls to its stores in the beleaguered city.

2. Adaptability

• Making partners' incentives and disincentives clear

• When carriers fail to deliver on time, they pay a penalty

• Helps carriers save money by forgoing the typical time-consuming requirement that store managers verify all contents of each delivery truck

3. Alignment

SENSIBLE SENSE( Making Sense out of Sense )

RESPONSE

ConclusionCompanies need fresh attitude and new culture to their supply chain to deliver a Triple A performance.

Companies must give up efficiency mind set and be prepared to keep changing networks.

Instead of taking care of your own interests take responsibility of whole chain.

Technologies can’t alone make this changes, only managers can make this happen.