Hau L. LeeStanford University

AAA Value Chains:

Agility, Adaptability and Alignment

Strategies to Win

Increasing sources of uncertainties

Changing needs for products/markets/time

Trend to distributed supply chains

Challenges

Uncertainty drives need for flexibility

Supply chains to fit changing needs

Differential interests of multiple players

Implications

Agility

Adaptability

Alignment

Agility

• Information integration

• Sense and response• Design for postponement

• Agile logistics• Super-efficient• Supplier coordination• Supplier innovation• Contingency planning

Regular Supply Chains

• Visibility, transparency, communication

• Process monitoring• Design for Environment

• Smart logistics• Total waste elimination• Supplier collaboration• Supplier innovation• Contingency planning

SER Supply Chains

Adaptability

• Evolving journey• Adapt strategies for

different times, markets, and products

• Dynamic responses to changing regulations, industry standards, and trade agreements, etc.

• Product life cycle management

Regular Supply Chains

• Evolving journey• Adapt strategies for

different times, markets, and products

• Proactively mobilize industry-wide efforts to create standards and tools, and dynamically respond to changes

• PLC management

SER Supply Chains

Alignment

• Role realignment• Mission

synchronization• Incentive alignment• Integrated performance

measurement• Leadership

Regular Supply Chains

• Shared ownership of compliance, open sharing

• Common goals (+ vendors, business partners, NGOs)

• Cost, risk and gain sharing

• Integrated performance measurement; including business results

• Leadership, involving 3rd party support

SER Supply Chains

Examples of AAA Enterprises

Netafim

Seckler et al, 2002

Projected Water Shortage 2025

An irrigation dripper producer aiming at:

• Preserving water – one of the world’s most precious resources

• Increasing global food production to bring relief to many less privileged

• Supporting universal efforts to improve the quality of the environment and the beauty of the planet

Physical water scarcityEconomic water scarcity

Little/no water scarcityNot estimated

Netafim Afghanistan Corporate Car

Crop Management System: IrriWise

EC/pH Control

GSM

Radio

Water, fertilizer & energy management

• Technical & agronomist

education • International knowledge sharing• Professional studies programs• Local hands on instruction.

Netafim Irrigation University

Supply Chain Evolution

0

50

100

150

200

250

300

350

400

Revenues (Millions $)

450Manufacturing efficiency to be “best drip irrigation

equipment company”

Agility to mass customize equipment in expanded

but diverse market

Solution provider – “More yield with less water”

500

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

AAA Value Chain at Netafim

Agility

Adaptability

Alignment

Innovative technology for most efficient & effective irrigation,

manufacturing and order fulfillment excellence, use of IT

Mass customized products to adapt to different geographies, climate and products; greenhouse project

management offerings

Customer solutions for win-win higher yield with less water,

education of customers, migration from product to service

Soy Bean Supply Chain in India

Farmers Mandis

ITC

Other Buyers

Inbound logistics in bulk

• Display & visual inspection

• Auction (spot market)

Outbound logistics & payment

• Congestion at Mandis can hold up farmers for days.• Price uncertainty faced by farmers – material flow must precede price

information discovery.• Farmers rely on word of mouth or localized previous prices.• Farmers vulnerable to delayed payments.

Source: Anupindi & Suvakumar, 2007

ITC e-Choupal

Farmers ITC Processing

Other Buyers

• Selected farmers (Sanchalak) maintain computers and inspect products.• Price transparency provided to farmers.• Direct sales to ITC enabled.• Material flows occur only after sales to ITC or price discovery to Mandis.

Mandis

e-Choupal

Internet Kiosk Market conditions, prices, weather,

knowledge

Mandi Prices

Authorized Prices

Source: Anupindi & Suvakumar, 2007

Win-Win Value Proposition

370 375

120 215

0 200 400 600 800

Before

After

Farmer

ITC

Transaction Costs in Rupees per metric ton

Source: Anupindi & Suvakumar, 2007

ITC e-Choupal• 6,000 e-Choupals & more than

120 hubs in 9 states, 36,000 villages; empowering 3.5 million e-farmers. 6,000 e-Choupal installations

• Started with soya bean, now covering wheat, coffee, shrimp and other aqua products.

• Reverse flow of fertilizers, household goods, seeds, etc. back to farmers.

• Aims at extending to 100,000 villages and 10 million e-farmers in next decade.

AAA Value Chain at eChoupal

Agility

Adaptability

Alignment

Restructuring information, physical & financial flows for transaction

efficiency & supply/demand matching

Product & geography expansion; product quality differentiation; using reverse channel for new business offerings and service

Win-win for farmers and ITC, savings for consumers, higher quality with more variety for

consumers

AAA Value Chain at eChoupal

Agility

Adaptability

Alignment

Restructuring information, physical & financial flows for transaction

efficiency & supply/demand matching

Product & geography expansion; product quality differentiation; using reverse channel for new business offerings and service

Win-Win for farmers and ITC, savings for consumers, higher quality with more variety for

consumers

Abercrombie & Fitch Brooks Brothers

JCPenney Nike

Nordstrom

Polo Ralph LaurenTommy Hilfiger

GAP/Banana Republic

J.Crew

Nautica

Marks & Spencer LacosteHugo Boss Next Esprit

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 Culture

• Wrinkle-free garments

• High performance

• Antibacterial finishing

• Cashmere-like cotton

• Genetic engineering for cotton breeding

• Nanotechnology in fabric finishing

R&D Innovations

Sustainable Practices

• Organic cotton farms certified by OCIA (Organic Crop Improvement Association)

• New technologies to reduce dyeing cycle and chemical usage• Use of natural resources (clays & enzymes to replace

chemicals)• Water conservation by special irrigation methods in cotton

farms• Dust collection, power efficiency, recycled heat, water

treatment and reuse in manufacturing• Educating Xinjiang communities on environmental

preservation

HETIAN和田

BAYINGOLIN巴音郭楞

HAMI哈密

ALTAY阿勒泰

CHANGJI昌吉

TACHENG塔城

BORTALA博尔塔拉

YILI伊犁

AKESU阿克苏

KEZILSU KIRGIZ克孜勒苏

KASHI喀什

TURPAN吐鲁番

Kramay City

克拉玛依市

Shaya沙雅

Awati阿瓦提

URUMQI乌鲁木齐

Organic Farm

AEA/AEC

XJE/TPE

WFC丰达

Heboksel和布克赛尔

Organic Cotton Development

Organic Cotton Consumption (tons)

50% self-sufficient 050

100150200250300350400450500

03 04 05 06 07 08F

Innovative Organic Farming

• Cotton consumes 11% of pesticides while occupying 2.4% of world’s farm lands.

• Fertilizers create nitrate pollution.

• Esquel’s R&D developed innovative farming methods:– Soil and fertilizer

management– Cultivation technologies– Pest and disease control

• Turned organic cotton farms from yield of lower than 50% of conventional method to 20% higher.

• From 2005-7, yield increased from 40-50 kg/mu to 90-100 kg/mu.

• Highest yield in Xinjiang and China.

• Organic farms at 630 mu today with aim at 1,270 mu in 2012.

Micro Financing• An exploratory project

initiated by Esquel and Standard Chartered Bank

• Help farmers in remote area to increase their living standard and increase yield by investing in irrigation systems.

• From Dec 2007 to Nov 2008, RMB 3M to be loaned, at RMB 15,000 per capita.

Eco-Mobile Lab in Xinjiang

Schools in Farms & Factory Locations

Building Schools in Local Communities

New School Opening Ceremony

AAA Value Chain at Esquel

Agility

Adaptability

Alignment

Innovations for power efficiency, sustainable farming and

manufacturing practices, ethical treatment & education of

employeesContinuous R&D innovations in product functionalities, farming

methods, and manufacturing processes

Contributions to communities where farms and factories are, champion industry-wide social

responsibility in China

Summary World class value chains require

capabilities in Agility, Adaptability and Alignment.

AAA capabilities also required for socially and environmentally responsible supply chains.

AAA value chain is key to super-AAA business, social responsibility and sustainability performances.