The Triple-A Supply Chain

By Hau L.Lee Harvard Business Review

 The holy grails of supply chain are high speed and low cost.or are they? Though they are necessary, they are not just enough for sustainable competitive advantage

 The best supply chains are not just fast and cost-effective. They are also agile and adaptable, and they ensure that all their companies interests stay aligned

Traditionally
Speed and Cost cutting are the holy grails of Supply Chain When business booms, speed is the focus When business slows down, cost is the focus But statistics show that during 1980 and 2000, markdowns rose to 10% to 30% owing to excess inventory, while customer satisfaction has also decreased

 The best practice of FCL shipment to exploit economies of scale becomes the worst practice when demand fluctuates Markdowns are offered, resulting in decreased margin, also erode brand equity

The Perils of Efficiency Disability to respond to short term changes

The case of a an innovative electronic gadget

Firm decided not to create buffer or safety stock to reduce inventory Demand pattern was zig-zag Production of vendors went up and down accordingly Product defect rose to unacceptable levels In the end when all bugs are removed, innovation was dead

 Lucent electronic switching system Centralized inventory in America during 80 When 90 came, business moved to Asia, Lucent was paralyzed, because it could not modify to Asian continents

The Perils of Efficiency Disability of Efficient Supply Chains to adapt

Agility
Responding to sudden and unexpected changes in markets Agility is critical because in most industries, both demand and supply fluctuate more rapidly and widely Compaq failed to built agility in its design cycle, resulting being sold to HP

 By Contrast, Zara, Mango and H&M have become most profitable apparel brands This was achieved by building agile design processes 1999 Taiwan Earthquake and Dells strategy to manage demand

How to build agility in Supply Chains

Promote flow of information with suppliers and customers Develop collaborative relationships with suppliers Design for postponement Build inventory buffers by maintaining a stockpile of inexpensive but key components Have a dependable logistics partner Draw up contingency plans and develop crisis management teams

Adaptability
Adjusting supply chains design to meet structural shifts in markets; modify supply network to strategies, products and technologies

Lucents recovery
First to they raise of Asian Manufacturer Second to take advantage of oursourced manufacturer

Xbox Success Story

Flextronics helped Microsoft to gain 20% share of the video game market from PS2

Tailoring the supply chains

Smart companies do that to cater to the needs of different markets Cisco (low, mid, high value network devices) Gap (Old navy, Gapline, Banana Republic)

How to adjust supply chain design to accommodate market changes

Track economic changes, especially in developing countries Use intermediaries to find reliable vendors in unfamiliar parts of the world Design for supply principles-commonality, postponement, standardization of processes

Alignment
Establish incentives for supply chain partners to improve performance of the entire chain Lack of alignment causes the failure of man supply chain practices

How to build alignment in SC

Provide all partners with equal access to forecasts, sales data and plans Clarify partners roles and responsibilities to avoid conflict Redefine partnership terms to share risks (contracts), costs and rewards for improving supply chain performance Align incentives so that players maximize overall chain performance while also maximizing their returns from the partnership