AAA Supply Chains:Agility, Adaptability and Alignment

By Allen Thomas KannattuNidhi DesaiRaghav SamdaniVishak Sharma

Is efficient supply chain the ultimate?

Having a quick and cost effective supply chain has best practicesAt times these best practices are the itself the perils of efficiency

High Tech Supply Chain Environment

Fast changing hardware and softwareMultiple sources of technological advancesFrequent product transitionsManufacturing cost pressures

Short product and

technology cycles

Outsourced manufacturing partnersOutsourced design partnersConsumer electronics channelOther associated product providers

Multiple supply chain

partners

Fashion like productStrong competitive forcesIncreasing product varietyPotential of external disruptions

Demand and supply

uncertainties

Challenges

Challenges Implications

Increasing demand and supply uncertainties

Uncertainty drives need for flexibility

Shortening product and technology cycles

Dynamic instead of static supply chains

Multiple outsourced supply chain partners

Differential interests of multiple players

AAA Supply Chain

 Agility:Respond quickly to sudden changes in supply or demand. It enables a company to handle unexpected external disruptions smoothly and cost-efficiently and to cover promptly from shocks such as natural disasters, epidemics, and computer viruses.

Objective:The main objective of agility is to respond to short-term changes in demand or supply quickly.There are 6 rules of thumb following which companies can attain agility-

• Promote flow of information with suppliers and customers.

• Develop collaborative relationship with suppliers.

• Design for postponement.

• Build inventory buffer by maintaining a stockpile of inexpensive but key components.

• Have a dependable logistics system or partner.

• Draw up contingency plans and develop crisis management teams.  

“Crisis Bared One’s Weakness, Other’s Strength”Wall Street Journal, January 29, 2001

March 17, 2000, lightning-induced fire at Philips’ radio-frequency chips factory in Albuquerque, New Mexico

Adaptability:An adaptive supply chain enables a company to evolve over time as economic progress, political shifts, demographic trends, and technological advances reshape markets.

Objective:The primary objective of adaptability is to adjust supply chain design to accommodate market changes.To make a company's supply chain adaptive, there are 5 golden rules- 

• Monitor economies all over the world to spot new supply bases and markets.

• Use intermediaries to develop fresh suppliers and logistics infrastructure.

• Evaluate needs of ultimate consumers- not just immediate customers.

• Create flexible product designs.

• Determine where company's products stand in terms of technology cycles and product life cycles.

Toyota Distribution

Dealers

Inventory

Inventory risk

Facility Investmen

t

Traditional Demand Chain For Prius

Toyota Distributio

n

Dealers

Inventory

Facility Investment

Inventory Risk

Incentive Alignment For Prius

 Alignment:Companies must align the interests of all participating firms in the supply chain with their own. As each player maximizes its own interests, it optimizes the chain's performance as well.

Objectives:The objective of aligning a supply chain is to establish incentives for supply chain partners to improve performance of the entire chain.

Companies can attain this ability by following 3 simple rules- 

• Exchange information and knowledge freely with vendors and customers.

 • Lay down roles, tasks and responsibilities clearly for suppliers and

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

Supply Chain Alignment

Dimension AlignmentDecisions, roles, responsibilities

Assignment to best run overall supply chain

Risks, costs, rewards Adjusted for incentives with win-win interests

Performance measuresExtended, joint,

stretched to reflect alignment

Some Keys For Alignment

Empowerment of decisions and responsibilities requires provision of capabilitiesAlignment ultimately demands behavioral changeSuccessful alignment across organizations is based on building trust in a supply chain

Seven-Eleven Japan

Largest convenience store chain in Japan ($23.3B annual sales) with 10,853 outlets (1,200 sq. ft each)

#1 in fast foods #1 in battery, ladies stocking sales#2 in paperback/magazine sales

55 Inventory turns/year

Year

Value of $1 Investment

SEJNikkei

Seven-Eleven Japan’s Sense And Respond

Identify

Analyze

Act

Measure POS+Total visibility

Correlation and Substitution Local events

Product transitions

Localized promotionsShelf & merchandizing

New product development

Trust-based agile logisticsDynamic shelving

Supplier collaborations

Seven-Eleven Japan (SEJ)Respond to quick changes in demand

Real time systems to detect changes in customer preferenceStores in key locations instead of outlets across the country

Minimizing number of delivery trucksUse of trucks, boats, motorcycles and helicopters125 motorcylces + 7 helicopters to deliver 64000 rice balls during Kobe earthquake

Alignment of interests between Seven-Eleven and its partners

Rewards and Penalty systemE-commerce company 7dream.com with 6 partners

AAA Supply Chain

Fab expansion based on technology and market changesEvolution to service-focus businessOptimized product/fab assignment

Adaptability

Information sharing across supply chainCollaborative relationships with customersTight connectivity with assembly and testTrust-based, people-oriented organization

Alignment

Extensive information integrationOptimization-based applicationsHighly efficient manufacturing processesCentralized command, decentralized control

Agility

Summary

World class supply chains require capabilities in agility, adaptability and alignment

Sensible Sense and Responsive Response to gain agilityRight supply chain for the right product and right timeWinning with the whole supply chain

AAA supply chain management is the key for super-AAA performance and values

Thank You