Sunday, October 24, 2004

A+A+A Supply Chains

In an article in this months HBR (October 2004) Hau L. Lee (Standford SCM-Professor) argues that few companies are taking the right approach towards building a strong SC. Lee bases himzelf on 15 years studying more than 60 companies to gain insight into this and other SC dilemmas.

His conclusion: Only companies that build SCs that are Agile, Adaptable, and Aligned get ahead of their rivals. All three components are essential; without any one of them, SCs break down.

Great companies create SCs that respond to abrupt changes in markets. Agility is critical because in most industries, both demand and supply fluctuate rapidly and widely. SCs typically cope by playing speed against costs, but agile ones respond both quickly and cost-efficiently.

Great companies also Adapt their supply networks when markets or strategies change. The best SCs allow managers to identify structural shifts early by recording the latest data, filtering out noise, and tracking key patterns.

Finally, great companies Align the interests of the partners in their SCs with their own. That’s important because every firm is concerned solely with its own interests. If its goals are out of alignment with those of other partners in the SC, performance will suffer.

What I liked in particular about this comprehensive article is the list of methods to actually achieve the 3 A's plus an example how it worked out for a Japanese convenience store chain.

Lee's final words are also worth mentioning:

When I describe the triple-A SC to companies, most of them immediately assume it will require more technology and investment. Nothing could be further from the truth. Most firms already have the infrastructure in place to create triple-A SCs. What they need is a fresh attitude and a new culture to get their SCs to deliver triple-A performance. Companies must give up the efficiency mind-set, which is counterproductive; be prepared to keep changing networks; and, instead of looking out for their interests alone, take responsibility for the entire chain. This can be challenging for companies because there are no technologies that can do those things; only managers can make them happen.