Triple a Supply Chain (1)

7/31/2019 Triple a Supply Chain (1)

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THE TRIPLE A SUPPLY CHAIN

Hau Lee


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The Triple A Supply Chain

The holy grail of supplychain management arehigh speed and low cost.

Or, are they?

Though necessary, they

arent sufficient to givecompanies a sustainablecompetitive advantageover rivals.

2The Triple A Supply Chain


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The Triple A Supply Chain

1980-2000 US supply

chains became faster

and cheaper

But product mark

downs owing to excess

inventory up from 10to 30%

0

5

10

15

20

25

30

35

1980199019952000

speed

cost

markdown

s



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Outstanding Examples of companies

that bucked the trend

Agile Adaptable Aligned



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The Perils of Efficiency

Many companies havecentralized manufacturingand distribution facilities to

generate economies ofscale.

Deliver only containerloads

On demand surge, unableto react even if item is instock


Decentralized Operations


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The Perils of Efficiency

Required merchandise in factory stockready to ship awaiting full container

When companies announce productpromotions, stock outs rise 15%

When deliveries come eventually, itresults in excess inventory. Thus

leading to markdowns and affectingprofits.

The Triple A Supply Chain 6


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Lucents Electronic Switching

Systems- Perils of Efficiency


~1980MktsMfgSuppliers

~1990 mkts &suppliers shift

to Asia

~ 2000outsourcing


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The 21st Century Supply Chain

Supply Chain efficiencynecessary but not enough

Only companies that build agile,adaptable & aligned supply

chains, get ahead

Any two of these dimensions arenot enough. All three needed.



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AAA- Definitions


Agile- they react speedily to suddenchanges in demand or supply.

Adaptable- they adapt over time asmarket structures and strategiesevolve

Aligned they align the interests of all firms inthe supply network so that companiesoptimize the chains performance when theymaximize their interests.


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1. Agile

respond quickly tosudden changes insupply or demand

handle unexpectedexternal disruptions

smoothly and costeffectively

recover promptlyfrom shocks such asnatural disasters,

epidemics, andcomputer viruses.



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Importance of Being Agile - HP Example

HP-Canon Laserjetcollaboration

Canon wanted 6mths to change prodschedule. HP cudpredict dmnd 3 mths

ahead unexpected drop indemand at EOL leftHP with hugeinventory

Having adaptable &aligned supply chain

did not help HPovercome otherdisability



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Importance of Being Agile Compaq Example

In 1990s whenever Intelunveiled newmicroprocessors, Compaq

took more time than rivalsto launch new PCs.

Compaq unable tocompete on price- lostmarket share

Also slow to adoptengineering changes whenvendors made changes

DesignManufa

ctureDistribu

tion



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2. Adaptable

Political

Environmental

Technological

Social

Economic

Supply chains face nearpermanent changes inmarkets

Structural shifts usuallyoccur because of advancesin TEMPLES factors

Recall how Lucent woke

up to industry shifts : Asianmarkets & Outsourcedmanufacturing



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Importance of Adaptability Lucent Example

Shut down Taiwan factory in 2002

Adaptationcame late

Was agile &aligned but

Aligned interests of parents & subsidiaries

Transfer pricereasonable

Captured mktshare in China &

Mid 1990s when Asian markets grew

Set up local mfg Overhauled SC



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CISCOs Adaptable Supply Chain

Contract manufacturers

In low cost countriesHigh Volume

Networking Products

Core products in low cost countries

Customizing in US & EuropeMid Value Items

Vendors close to main markets Mexico for USA, E. Europe for Europe

Customized, lowvolume



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TOYOTA Adaptability

In 2000 Toyota launched Prius uncertainties too greatto allocate it to dealers based on past trends

Toyotas transportation costs rose, however it

customized products to demand and managed inventoryflawlessly.

In 2002 number of Toyotas on road in Northern California& Southeast were 7% & 20% resply.

However, Toyota sold 25% of its Prius in NorthernCalifornia and only 6% in Southeast

Had Toyota not adapted its distribution system to theproduct it would have stockouts / excess inventories.



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Use Design-for-Supply principles to gain

adaptability.

Standardization use ofcatalogue items

Commonality productsshare components

Postponement delays the

step at which productsbecome different Standardization

Commonality

Postponement



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3. Aligned

Great companies align theinterests of all firms in theirsupply chain with their

own. If any companys interests

differ from those of otherorganizations in the supplychain, its actions will notmaximize the chainsperformance.



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Nonalignment at CISCO

Why did CISCO have to write off $2.25 billion ininventories in 2001?

The main culprit was misalignment of Ciscos interests

with those of its contract manufacturers. Contractors accumulated large inventories for months

without factoring in demand for Ciscos products.

Cisco worked closely with vendors to ensure that the

supply chain was agile and adaptable, but overlookedalignment!



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HP-shooting itself in the foot!

IC division carried low

inventory

Ink-jet printer division

had to carry high

inventory

HPs supply chain did

not align the interestsof the divisions with

those of the company.



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Agility in Practice

Objectives:

Respond to short-term changes in demand or supply quickly, and

Handle external disruptions smoothly

Methods Recommended: Promote flow of information with suppliers & customers

Develop collaborative relationships with suppliers

Design for postponement

Build inventory buffers by maintaining a stockpile of inexpensivebut key components

Have a dependable logistics system or partner

Draw up contingency plans and develop crisis managementteams



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Adaptability in Practice

Objectives:

Adjust supply chains design to meet structural shifts in markets

Modify supply network to strategies, products and technologies.

Methods Recommended: Monitor economies all over the world to spot new supply bases &

markets

Use intermediaries to develop fresh suppliers & logisticsinfrastructure

Evaluate needs of ultimate consumers not just customers

Create flexible product designs

Determine where companies products stand in terms oftechnology cycles and product life cycles.



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Alignment in Practice

Objective:

Create incentives for better performance

Recommended Methods:

Exchange information and knowledge freely with vendors andcustomers

Lay down roles, tasks and responsibilities clearly for suppliers &customers

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



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7-Eleven Japans 3 Aces

Exploits triple As to stayahead of rivals

The $21 billion conveniencestore has low stock out ratesand in 2004 had an inventoryturnover of 55

With gross profit margin of 30% SEJ is one of the mostprofitable retailers in theworld

Just how has the 9000 storeretailer managed to sustainperformance for more than adecade?



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7-Elevens Agility

Real time systems todetect changes incustomer preference &tracks data on sales &

consumers Relocates inventory among

stores. Restocks at righttime

Store shelves reconfiguredthree times daily to caterto different customersegments.



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7dream.com (Example of Alignment)

Allows customers to orderproducts on line/ via kiosksand pick up from any 7-11

store Partners benefit from SEJs

logistic network

7-Eleven has become a

manufacturing outlet forpartners (multimediakiosks for games, tickets,CDs etc

Th T i l A S l Ch i 8

Triple a Supply Chain (1)

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