This Week in SCDigest:
A "Triple-A" Supply Chain
Supply Chain Graphic of the Week, plus more Supply Chain News Bites
SCDigest On Target e-Magazine
Guest Expert Insight - Managing Supply Chain Complexity and Sustained Differentiation
Expert Insight - Managing SCM Performance: Inventory Metrics, Part 3: Shrinkage - - Into Thin Air
This Week on "Distribution Digest"
Your Supply Chain Questions Answered! This Week's Question - How to Calculate Freight Discount for Customer Pick-Up?
Trivia, Supply Chain Stock Index
Reader Feedback
Can't View this E-mail?  
Become a sponsor
April 23, 2009 - Supply Chain Digest Newsletter



A "Triple-A" Supply Chain

Is now the time to develop a “Triple-A” supply chain?

I wonder how many of us believe that we have a real Triple-A supply chain, but instead have something more like the Triple-A ratings that Moody’s and Standard and Poor’s were slapping on all manner of housing-backed bonds that we now know were substantially over rated.

Something in the back of my mind during these times told me it might be time to review the classic Harvard Business Review article “The Triple-A Supply Chain,” by Stanford’s Dr. Hau Lee, published back in 2004. I am glad I did – it offers some great insights very apropos for today – and the future.

Gilmore Says:  

"If accurate, the fact that those companies which focused primarily on supply chain efficiency don’t gain any real competitive advantage over time and may even under-perform in the long term – that is a very interesting proposition."

What do you say?

Send us your Feedback here


Lee said that he had studied in-depth the supply chains of more than 60 companies from around the globe.

“All those companies…at greater speed and cost-effectiveness – the popular grails of supply chain management,” Lee wrote. “Of course, companies’ quests changed with the industrial cycle. When business was booming, executives concentrated on maximizing speed, and when the economy headed south, firms desperately tried to minimize supply chain costs.”

That sounds about right, supported by events after this article was written.

But then Dr. Lee offers this provocative statement: “Companies whose supply chains became more efficient and cost-effective didn’t gain a substantial advantage over rivals.” In fact, Lee says that often, the supply chain performance of those companies deteriorated.

Why? Because high-speed, low-cost supply chains are unable to respond to unexpected changes in supply and demand.

I found this thought worth pondering: “Efficient supply chains often become uncompetitive because they don’t adapt to changes in the structure of markets.”

Lee, of course, isn’t against supply chain efficiency. He simply says it is not enough to deliver any sort of real or lasting competitive advantage.

Instead, Lee says that what matters more are three other attributes – the “triple-A’s” of agility, adaptability, and alignment. While I could argue that efficiency and speed are often wrapped into the dimension, let’s look at each one.

Agility: I don’t think hardly anyone would dispute that each year, markets, supply and demand are becoming more dynamic and volatile.

Many companies, he says, play off speed against cost, but the winners respond both quickly and cost efficiently.

Of course, this is especially true for the increasing number of industries bedeviled by increasingly shortened product lifecycles, where slowness of response versus rivals can deliver an often fatal blow to the product line or even the entire company.

Lee equates “agility” with being able to respond rapidly to changes in supply, demand, market conditions, etc. It is, in a sense, similar to the notion of “sense and respond” that is increasingly driving the strategies of supply chain leaders (See Time to Integrate Supply Chain Planning and Execution)

So how do you get there? Lee offers six principles:

1. Improve connections with partners to share changes in supply and demand more quickly (harking back to his seminal work previously on “the Bullwhip Effect”);

2. Improve collaboration with suppliers on product design;

3. Increase use of postponement strategies to delay adding value or differentiation as late as possible in the supply chain process.

4. “Bulk up” a bit more on small, inexpensive components that often cause supply chain bottlenecks;

5. Build more flexibility into logistics systems that can react to disruptions, using third parties as appropriate;

6. Build a small team that is skilled in enacting contingency and back-up plans.

Adaptability: Agility can be thought of as relating to fairly short-time horizons. Adaptability, on the other hand, has a more strategic orientation.

Leading companies “keep adapting their supply chain networks so they can adjust to changing needs [and I would add “strategies],” Lee writes. “Adaptation can be tough, but it’s critical in developing a supply chain that delivers a sustainable advantage.”

In addition to short-term fluctuations to supply, demand and product lifecycles, markets themselves are constantly changing, and more rapidly than before, especially with the global economy. The supply chain strategies and networks that once served the company well can soon become obsolete as the market shifts occur.

“The best supply chains identify structural shifts, sometimes before they occur, by capturing the latest data, filtering out noise, and tracking key patterns,” Lee says.  

Keys to getting there:

  • Monitor global supply chain economics more closely
  • Outsource more where you can, as outsourcing can allow more rapid adaptation
  • Make sure the supply chain impact on new product design is well understood
  • Build different supply chains for specific market and product characteristics

Alignment: Perhaps the toughest dimension.

“Great firms take care to align the interests of all the firms in their supply chain with their own,” Lee says. “If any company’s interests differ from those of the other organizations in the supply chain, its actions will not maximize the chain’s performance.”

That can happen even within a company, of course. Lee says that in one point in the early 1990s, HP’s chip division went on a very low inventory strategy, which lengthened lead times. That impacted even its own internal customer, the printer division. As a result, the printer division kept high inventories as a buffer, when it would have been less expensive for HP as a whole to keep more chip inventory than the more expensive printers.

Of course, getting this cross supply chain is not easy and, from my view, rarely done in any meaningful way. Toyota is one example of a company that is thought to practice this approach, but it’s hard to find many other examples. Lee says printer RR Donnelly encourages paper and ink suppliers to innovate and shares any resulting savings with them.

Lee says that failure to reconcile these conflicting interests is a key reason the Vendor Management Inventory (VMI) programs fail to work, when VMI could really be a key strategy to reduce total supply chain costs.

So, how are the challenges of alignment overcome? First, you start with alignment of information, “so that all companies in the supply chain have equal access to forecasts, sales data, and plans.”

Second, the channel master needs to more clearly define supply chain “identities” – in other words, making very clear the roles and responsibilities of each partner in a way that minimizes conflict.

Third, set up the relationships so that when any one company tries to “maximize returns, they also maximize the supply chain’s total performance.” Companies must try to understand and predict how partners will react given current incentives, and make changes to get better alignment to overall supply chain goals.

My thoughts: if accurate, the fact that those companies which focused primarily on supply chain efficiency don’t gain any real competitive advantage over time and may even under-perform in the long term – that is a very interesting proposition.

I like the Triple-A framework of agility, adaptability, and alignment, but may have taken a slightly different approach to discussing each. But, I agree that there is a difference between short-term responsiveness to supply/demand changes and disruptions, versus more strategic adaptability.

Can we really get to the level of total supply chain alignment in the way Lee describes it? It will be a long journey for most, but I do think it is possible to move increasingly closer to the goal.

What do you think of Lee’s Triple-A supply chain framework? Does it surprise you – or would you disagree – that a focus largely on supply chain efficiency doesn’t really pay off in the end?

Let us know your thoughts.

Web Page/Printable Version of Column

***Upcoming Videocasts***


Global Order Management
in the Heavy & Industrial
Equipment Sectors

April 29, 2009

Why Leading Firms are
Selecting Best-in-Class
Software over Large Single
Instance ERP for Business
Critical Global Order
Management Capabilities

The Next Generation
Supply Chain: Integrated
Planning & Execution

May 6, 2009

Part 1: Reviewing the Data

Quickly Reduce Manufacturing and Logistics Costs with Dynamic Safety Stock Optimization

May 12, 2009

***Transportunities 2009***
On-Line Expo & Conference



This Week's Supply Chain News Bites Only from SCDigest

Supply Chain Graphic of the Week: Transportation Management as a Bridge Function

This Week's Supply Chain by the Numbers - Strategic Suppliers, Wal-Mart, JDA Software, JB Hunt


It was another week of positive movement on Wall Street with most of our Supply Chain and Logistics stock index recording moderate gains.  The software group was the exception with i2 falling 7.7%; however, JDA emerged at the end of last week up 4.9%.  In the hardware group, Intermec saw an improvement of 4.4%, while Zebra was off a very slight 0.4%.  In the transportation and logistics group, Expeditors’ International climbed another 6.2%.  Others within the group with gains were Prologis (up 5.8%), CSX (up 5.5% and despite an industry trade group report that weekly U.S. rail shipments have fallen 24.5%), and FedEx (up 4.6%).

See full stock report.

Each Week:

-Global Supply Chain
-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
April 21, 2009 Edition


Guest Column by
Manohar Venkatagiri
Infosys Technologies Ltd.

Managing Supply Chain Complexity and Sustained Differentiation

Industry Leadership Achieved by Creation of Insight-Driven Enterprises, Risk Management and Governance Practices

Managing SCM Performance
by Kate Vitasek, Supply Chain Visions

Inventory Metrics, Part 3: Shrinkage -- Into Thin Air

Just where does that Missing Inventory Go? Here is the List of Most Common Culprits

THIS WEEK ON Distribution Digest


HolsteHolste's Blog:

A Consultant Might Just Help you Save your Automation Project

What is the Relationship between Material Handling System Performance and Actual ROI?

>> Top Stories:
Keys to Making Simplified Gainsharing in Distribution Work
>> Gainsharing Your Way to Productivity Gains in Distribution

How does Wal-Mart measure its progress in improving "fleet efficiency" as part of its sustainability strategies?

A. Click to find the answer below

Have supply chain or logistics-related questions you need answered?
Ask our panel of experts.
Share your insight!

Featured Question and Answer:

How to Calculate Discount for Customer Freight Pick-Up?

Do you use an RSS reader? Do you have a MyYahoo! or personalized Google page? For these and more you can have SCDigest delivered right to your personal pages, all week long.
You can subscribe to our RSS feeds in two ways:
  1. Copy our RSS link into your RSS reader - it's easy!
  2. Click on a button below to quickly add it to your favorite readers.

We received a ton of feedback on all sides on a series of articles we wrote on the struggles of YRC Worldwide (Yellow Roadway) – with big debates about the quality of YRC management, whether the unions are to blame, and more. Many of the responders currently work for YRC, on both the union and white collar sides, and asked to remain anonymous, which we respected.

Very interesting debate – take a look.

Feedback on YRC Worldwide Struggles

I was employed by Roadway Express for 34 years in management from 2/69 to 2/2002, and had very few problems with the Teamster workforce.

I considered some of them as close friends, and still do. I worked in terminals, which employed as few as 5 to as many as 500 employees and always had a good working relationship with all employees.

In my long career, I found that it was always that 10 to 15 percent that failed to carry their load. Managers, sales and teamsters, and I am sure it still is.

Until everyone pulls together due to the size of the company and the condition of the economy, it will fail without some quick intervention from ALL. In 2002, I discussed the combining of trailers, freight, eliminating duplicate terminals and combining the sales force with Yellow to reduce cost, and increase efficiency. It only took the company 6 years to see this.

Maybe they need to bring back some of the older management employees that have retired. Most have been through the bad times, and know how to help the company and employees have a future.


More on YRC Worldwide Struggles:

I have worked for YRC for ten years now. I worked my way up from the dock to management. Since being a part of the management team, I am shocked to see how poorly our company operates. Many of us employees were hoping to see big changes in our business dealings in 2009 due to the fact we are being forced to give the company 10% of our paychecks.

The thanks we received for the 10% charity for bad business dealings is the opportunity to buy company stock at a fixed price of $3.39. The stock closed on Friday for $2.20. The different brands of the business are still cut throating each other, which baffles me. The terminal I work for just lost its biggest account to New Penn (part of the YRC family). New Penn underbid us. How does this make any sense?? The company, as a whole, will retain the account, but will ultimately generate less revenue and net less profit.

We also have another account at the terminal I work for in which the pricing is so bad we are losing six figures a month. That is more than a million dollars a year loss just from this one account/facility. When the issue of how much money was being lost on the account is brought to anyone's attention in corporate, the response is 'We don't care about the money, we need to service this client.'

Maybe it is just me, but perhaps upper management wants this company to fail.

YRC Logistics

For your Information, the Teamsters built this industry to what it is today.

While semi-educated people like some of the people who have responded have never gotten their hands dirty, they have made a good living off of our blood, sweat and tears.

For over a 100 years, the Teamsters have fought for your rights, pay benefits, and your job. While you sit back and say a FEW get it.

How dare you!

We will make it. Why, because we weed out most of the lazy and sorry people that have always thought the world owes them something, and don't want to work.

Management, friends and neighbors, and golf buddies. Probably just like your sons or daughters.

Mitchell Anderson
Yellow Freight

I have been through both buyouts of Roadway and Holland. Both companies were doing well until struggling Yellow moves in, which has dragged both companies into this pitiful situation.

I hope YRC survives because I still have my Roadway pride and keep my head up everyday.

Gene Taylor

Yes they will make it.

I have worked for Yellow for 30 years and we have some of the best people in freight working there. We are in bad times right now, but the moves that YRC is doing right now will make the company stronger and I believe our management team is the best in freight.

The people that work there care about this company. Managers and Teamsters are working side by side now to make it happen. This is the best it has been, in that regard, in the 30 years I have been here. We all just (need to) get in there and get it done.

So, good times are ahead and God Bless America.

YRC Worldwide

As an employee, since 2004, I have seen the steady decline of Roadway, after having been taken over by Yellow. I have watched as many knowledgeable, and quite capable behind-the-counter personnel have either taken a buyout offer, or, been escorted off the premises by security, only to be replaced with mainly incompetent children.

Then, there is the fact that Yellow sales personnel underbid freight against Roadway, essentially, robbing the hand that has fed them since their takeover of Roadway.

Randall Knight

As a former employee, I hope YRC does make it, as jobs are people.

I believe the integration was inevitable, but greatly accelerated when ground zero was viewed from a higher altitude. When the purchase of Roadway and USF was completed, we were told each company would carry its own brand and operate independently.

What took place for those couple years was salesperson vs. salesperson from each operating unit with pricing vs. pricing also. We would have, in a sense, 'mediation sessions' between company 'heads' trying to figure out if we were cutting each other or not and how to handle the situation.

I personally had competitor sales people walk into my prospective client's location, then secure business immediately simply because we were so slow in responding due to the above.

I felt that put a bull's-eye on our back immediately.

Gary Woodthorpe


Q. How does Wal-Mart measure its progress in improving "fleet efficiency" as part of its sustainability strategies?

A. Cases shipped per gallon of fuel used.

Copyrights © SupplyChainDigestTM 2003-2009. All Rights Reserved.
To Unsubscribe: Click Here
PO Box 714
Springboro, Ohio 45066