Triple-A Supply Chains

In 2004 Dr Hau Lee released some surprising research results.  Companies that have low-cost and high-speed supply chains have historically failed to gain a sustained competitive advantage.  Given the huge amount of work that has gone into making supply chains as cost-effective as possible, this was unwelcome news for many.  What he found gave real competitive advantage was a combination of factors that few supply-chain practitioners were addressing.  Dr Lee described these as Triple-A Supply Chains, which were Agile, Aligned and Adaptable.  So what do these characteristics look like in the real world?

Agility, in supply chain terms, is the ability to respond to the unexpected.  It is more than just flexibility, which implies reactions to known issues and possibilities.  Agility also requires alertness to detect when an unexpected change has occurred, and to be able to act with speed to address the change.  Decision-making in an agile supply-chain is fast because the planning systems have been developed to provide regular customer-focused forums on what to produce, and when to produce it.  Agile supply-chains also are prepared for the worst, they keep inventories of low-value items that may become bottlenecks in the case of disruptions.  They have clear back-up plans in case of catastrophic failures to parts of their supply chain, and have multiple providers for key services to minimize vulnerability if one supplier fails.

Alignment behind the key purposes of the organisation is essential.  Supply chains that are developed to meet the needs of the customer first, and are then optimised for cost provide better customer value than those aligned on cost alone.  In practice this means developing a collaborative supply chain, in which all participants in the process are aligned behind creating value for the end customer.  The process must also fairly share the costs and rewards between the different firms that comprise the supply chain.  The keys to successfully aligning the elements centre around information, incentives and performance.  Aligned supply chains are working on the same information, and all the companies involved understand that to improve returns, performance of the supply chain to the end consumer has to also increase.

Adaptability to quickly changing consumer demands or competitive pressures is the last element that distinguishes truly excellent supply chains.  Companies with adaptable supply chains are constantly developing them, retiring parts that are no longer relevant and putting in place new ones that better suit customer needs.  They don’t rely on one single supply chain, and often have multiple ways of serving their customers that are segmented to meet different consumer preferences.  This also adds in resiliency to the supply chain as multiple supply chains can be re-directed to support customers if one element fails.  Out-sourcing of the supply chain parts is also seen as a way of building resilience as it enables rapid switching between different specialist suppliers as customer needs change.

Triple-A supply chains are not necessarily the lowest cost, but as Dr Lee found, cost is not a predictor of competitive advantage.  Supply chains need to be more than just low cost and efficient, they must be both evolutionary and revolutionary as the situation requires.  This is not an information technology challenge, although good data is essential.  Counter-intuitively, it is also not about efficiency.  Instead it is a management and leadership imperative to take charge of the supply chain from end to end, and to be agile enough to adapt and align to new opportunities and threats as they arise.

Are you working towards a Triple-A supply chain?  Please do share your experience in the comments section so all readers can benefit from your knowledge.

If you want to learn more about the Cosmapec approach to supply chain development, visit us at http://www.cosmapecsupplychainmanagement.com or contact usTriple A Supply Chains

About :  Rob Ward has extensive global experience working in supply chain organisations.  He co-founded Cosmapec to help companies and executive teams establish, develop and optimise their supply chains.

Outsourcing, Insourcing and the War for Talent

Much has been written about the merits of outsourcing and insourcing of operations and services.  At a strategic level there are as many arguments for each option as there are against.  Rather than re-hashing these I am going to look at the merits of outsourcing or insourcing in the context of business expansion, particularly in developing markets.

Rapid business expansion into new geographies is an imperative for many companies.  Establishing a brand before competitors gain a foothold often gives significant long-term marketing advantages.  High levels of brand recognition and trust in product quality for ‘first movers’ can enable pricing power and margins that are difficult to compete against.  These advantages are not guaranteed however and there are multiple examples of failed market entries, including those by leading global businesses and brands.

So why do some market entries succeed and others fail?   There are of course multiple reasons, but there is a common thread that holds them together, and that is talent. The right team for a new market entry requires a mix of talent that has the skills, local knowledge and experience to create a new business in unfamiliar surroundings.  The traditional approach, insourcing, is to assemble a mix of current employees, with some working full-time on the project and some part-time.   However ‘on the ground’ presence for these team members in the new market is often sporadic and can be compromised by other business priorities.  Full-time on the ground support is dependent on how long it takes to appoint a leader who will base themselves in the new market.   Supply chain expertise for new market entries is particularly in short supply, as the globalisation of supply chains has put a premium on these skills.  In the longer term, employing local talent in developing markets has further challenges for international companies.  The skills these employees gain are highly valuable in the job market and high turnover is the rule rather than the exception.  In short, getting the right talent, at the right time, at an acceptable cost is never easy, especially when a business is growing quickly.

Insourcing then has its challenges, but what are the alternatives?  Even with a mainly insourced business model, it is usually necessary to outsource some specific services such as logistics, or construction management for new facilities.   However outsourcing can now be extended to cover a much broader range of operations and services. It can bring advantage through immediate availability of skilled resources, deep knowledge of local conditions and a wide experience of the range of potential business solutions.  Long-term employment contracts, particularly for expatriates, can be minimized and this greatly simplifies cost control.  And most importantly, outsourcing support functions can free up the market entry team to focus on the key activities to attract consumers to the brand.

 Whether insourcing or outsourcing, availability of the right people to drive a new market entry is critical to success.  Outsourcing, either on a short term or long-term basis can be a key tactic in winning the ‘war for talent’

 

Cosmapec Supply Chain Management has been established to provide retailers, marketers and manufacturers a reliable, high quality alternative to in-house resources for sourcing, manufacturing and supply chain processes in developing markets.  Our new website will soon be available, check back here next Tuesday for further details!