What are the greatest supply chain and logistics articles of all time?
I have often thought about that question over the years without really putting much time or mental energy into coming up with the answers to the question, which I’ve not seen anyone else tackle either.
So I hope to come up with a top 10, based on my subjective criteria of innovation, quality and influence. Most will come from journals such as the Harvard Business Review, but other sources as well. I am reaching out to others for their input. I would welcome reader input.
But I am starting with just one that will certainly be in that list of ten, and that is “A Triple A Supply Chain” by Dr. Hau Lee of Stanford University and published in 2004 in the Harvard Business Review.
Let me summarize this influential work from Hau Lee.
Gilmore Says.... |
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| 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. |
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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 offered 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 said it is not enough to deliver any sort of real or lasting competitive advantage.
Instead, Lee said 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 said, 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.
So how do you get there? Lee offered six principles:
1. Improve connections with partners to share changes in supply and demand more quickly .
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, Lee wrote.
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 in 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 said.
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 of the three A’s.
“Great firms take care to align the interests of all the firms in their supply chain with their own,” Lee said. “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, in 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 said 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 have always liked the Triple-A framework of agility, adaptability, and alignment, and agree that there is a difference between short-term responsiveness to supply/demand changes and disruptions, versus more strategic adaptability.
And it clearly is in the top 10 supply chain articles of all-time. Hope you agree.
What do you think of Lee’s Triple-A supply chain framework? Is the article in the top 10 of all time? What would you put on that list? Let us know your thoughts at the Feedback button below.
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