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)

Background•Traditionally 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

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

1. Agility

•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.

Nokia robbing Ericsson

•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 suppliers3. 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

2. Adaptability

•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.

XBOX vs. Playstation

•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.

3. Alignment

Objective: The objective of aligning a supply chain is to establish incentives

for supply chain partners to improve performance of the entire chain.

HP vs. HP

•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

Conclusion

•Professor Martin Christopher (1992) in his seminal book “Logistics and Supply Chain Management” (1st edition)