Supply Chain Excellence in a Turbulent World

Hau L. Lee Stanford University

International Logistic Summit & Expo Mexico 2013

Strategies to Win

Increasing demand & supply uncertainties

Dynamic markets and technologies

Multiple stakeholders in value chains

Challenges

Uncertainty drives need for flexibility

Adaptive instead of static value chains

Differential interests of multiple players

Implications

Agility

Adaptability

Alignment

Appreciation of Alignment of Business and Supply Chain Strategy by CEO and Executives

% of 1,362 Respondents

31.1%

7.5%

58.9%

2.5%

Absolutely, supply chain is understood as an equally important part of business success as other functions

No, supply chain is strictly seen as a function to service the business

Not really, supply chain is understood as a cost center that affects margins

Yes, but only as an enabler of product or sales-driven business strategies

Defensive Supply Chain Strategies

Agility

Adaptability

Alignment

Cost efficiency, information integration, design for postponement, lean processes and lean inventory, flexibilities, cycle time reduction, tight partner relationships

Adapt network to exploit offshoring and outsourcing trends for sourcing & manufacturing, and changing government regulations and trade agreements

Streamline work flows with partners, re-assign responsibilities, shared risks, costs and rewards, stretched goals, extended performance measurement

Offensive Supply Chain Strategies

Agility

Adaptability

Alignment

Super-agility for fast response to opportunities, risk management and responses to disruptions

New environmental and social responsibility needs, serving emerging market needs

Collaborative partnerships for new product introduction, new business models for e-commerce

Offensive Supply Chain Strategies

Agility

Adaptability

Alignment

Super-agility for fast response to opportunities, risk management and responses to disruptions

New environmental and social responsibility needs, serving emerging market needs

Collaborative partnerships for new product introduction, new business models for e-commerce

China’s E-Commerce Industry

Source: Goldman Sachs report 2010.01

e-Commerce volume Ratio of e-Commerce/Retail sales

4,170 46,000 805,000

3,000,000

8,000,000 Integrated IS

• Front-end order processing • Financial analysis • Customer service • Product management • Auto ordering • Supplier management • WMS • TMS • Promotion management • CRM

Revenue (‘000 RMB)

2008 2009 2010 2011 2012 (est)

Source: Dr. Gang Yu, Chairman of Yihaodian, Presentation, 2011

Efficiency Example：How much time does a warehouse employee take to pick an order of 16 items from 70,000SKU and from a 25,000 square meters warehouse?

Source: Dr. Gang Yu, Chairman of Yihaodian, Presentation, 2011

Agile Value Chains

Efficiency Example：How much time does a warehouse employee take to pick an order of 16 items from 70,000SKU and from a 25,000 square meters warehouse?

127秒

• E-commerce is entering a rapid growth phase in China, there are ample opportunities.

• Success of e-commerce is heavily depending on supply chain management.

• Customer experience and scalability are critical success factors.

• Speed is everything!

Source: Dr. Gang Yu, Chairman of Yihaodian, Presentation, 2011

Shanzhai Imitation Phones

Hi Phone

Nckia Phone

Louis Vuiitton

Phone

Obama’s BlockBerry

Lonevo Phone

Ferrari Phones

Cell Phones for

Smokers

Super Bass Phones

Paparazzi Phone

Phones with Infra-red Lights

Currency Detector

Hyper-Efficient Supply Chains

Days

Conceptual design

Final design, material procurement

Mass production

• Speedy design process • Flexible and highly efficient manufacturing,

outsourcing appropriately • Leverage core turn-key technology (chipset

by Mediatek) and postponement • Understanding of needs of mass market, and

innovations in the right dimensions

Breakdowns in Supply Chain Responsibility

• 90% of Chinese factories audited by the FLA in 2011 had overtime violations1

• 70% of rivers, lakes and reservoirs in China affected by industry pollution2

• US Senate uncovered 1,800 cases of suspected counterfeit electronic components in contracts with defense companies3

1. Fair Labor Association (FLA). “2011 Annual Report.” June, 2012 2. Greenpeace. “The Detox Campaign.” Greenpeace 2012 3. Committee on Armed Services, US Senate. “Inquiry into Counterfeit

Electronic Parts in the DoD Supply Chain. May 21, 2012

Supply Chain Risks

SCM World CSCO Survey 2012

Total respondents: 1,312 0 10 20 30 40 50 60 70 80

Material supply shortage

Logistics disruptions

Supplier facilities disruptions

Supplier financial failure

Legal/regulatory issues

Customer missing demand targets

Customer financial failure

Counterfeit products

Data/IP security

IP rights breaches

Supplier ethical problems

Percentage answering “Very or Somewhat Concerned”

Six Sigma Risk Management

Identify

Analyze

Act

Measure

Sense

Respond

Identifying Supply Chain Risks

Total Respondents: 1,289

SCM World CSCO Survey 2012

Risk Mitigation

SCM World CSCO Survey 2012

Total Respondents: 1,285

Offensive Supply Chain Strategies

Agility

Adaptability

Alignment

Super-agility for fast response to opportunities, risk management and responses to disruptions

New environmental and social responsibility needs, serving emerging market needs

Collaborative partnerships for new product introduction, new business models for e-commerce

Motivation for Sustainability Investments

Total Respondents: 1,281

SCM World CSCO Survey 2012

Visibility of SER Violations

25%

28%

39%

8% Extended Supply Network Immediate Suppliers Internally

None

Environmental Violations

24%

29%

38%

9%

Social Sustainability Violations

Total Respondents: 1,352 Total Respondents: 1,346

SCM World CSCO Survey 2012

Monitoring of SER Performances

19%

26% 45%

10% Extended Supply Network Immediate Suppliers Internally

None

Environment

19%

27% 44%

10%

Social Sustainability

Total Respondents: 1,340 Total Respondents: 1,346

SCM World CSCO Survey 2012

Reactive Responses to SER Violations

(Total Respondents: 834)

(Total Respondents: 393)

SCM World CSCO Survey 2012

Incentives for SER Performances Total Respondents: 1,288

SCM World CSCO Survey 2012

Riders for Health • Motorcycles:

– Ability to access difficult terrain. – Lower cost to purchase and

operate, and simpler to maintain. – Less abuse by corrupt officials.

• Preventive maintenance for longer life, lower cost & increased up-time.

• Complete service logistics solutions developed.

Offensive Supply Chain Strategies

Agility

Adaptability

Alignment

Super-agility for fast response to opportunities, risk management and responses to disruptions

New environmental and social responsibility needs, serving emerging market needs

Collaborative partnerships for new product introduction, new business models for e-commerce

Abercrombie & Fitch Brooks Brothers

JCPenney Nike

Nordstrom

Polo Ralph Lauren Tommy Hilfiger

GAP/Banana Republic

J.Crew

Nautica

Marks & Spencer Lacoste Hugo Boss Next Esprit

Value Chain Integration

Retail in China

Spinning

Knitting Weaving Dyeing & Finishing

Garment Manufacturing

Accessories

Cotton Farming

Environment • Cherish the Environment

Excellence • Reduce Waste through Functional Excellence

Exploration • Explore and Embrace Innovative Solutions

Education • Dare to Err but Quick to Learn

Ethics • Be a Good Citizen and a Good Employer

Esquel Weaves Tight Web Wall Street Journal, March 26-28, 2004

• Apr 2002: Curled collar problem identified by Nike

• Apr 2002: R&D on new fabric began at Esquel

• May 2002: Prototypes sent to Nike for field testing

• Oct 2002: Stitch length & knitting adjustment, and yarn content & dyeing method changes by Esquel for quality improvement

• 2003: Order from Nike; collar quality set as standard for all other golf vendors

Cisco’s Viking • ASR 9000: a new

generation of “edge” router.

• Leveraging Foxconn: • Scale and agility • Vertical integration • Clustering advantage in

Shenzhen • Design capabilities • No need to transition later

• Target launch date was Nov., 2008; achieved on Nov 11, 2008.

Manufacturing Postponement Fulfillment

PCH’s Material Flow Services

Supply Chain of Startups

Supply Chain of Startups

Summary • In the world of turbulence, supply chain leaders

must move from defensive supply chain strategies to offensive supply chain strategies

• Offensive supply chain strategies make use of agility, adaptability and alignment to create values and build competitive positions

• Offensive supply chain strategies allow supply chain to be integral part of overall business strategies