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.
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.