The Triple-A Supply Chain
Key ideas from the Harvard Business Review article By Hau L. Lee
The Idea in Brief
The holy grails of supply chain management are high speed and low cost--or are they? Though necessary, they aren't sufficient to give companies a sustainable competitive advantage over rivals. Consider these disturbing statistics: Though U.S. supply chains became significantly faster and cheaper between 1980 and 2000, product markdowns owing to excess inventory jumped from 10% to 30% of total units sold--while customer satisfaction with product availability plummeted. But some companies--Wal-Mart, Amazon.com, Dell Computer--have bucked these trends. How? Their supply chains aren't just fast and cost-effective. They're also: Agile: They respond quickly to sudden changes in supply or demand. They handle unexpected external disruptions smoothly and cost-efficiently. And they recover promptly from shocks such as natural disasters, epidemics, and computer viruses.
Adaptable: They evolve over time as economic progress, political shifts, demographic trends, and technological advances reshape markets.
Aligned: They align the interests of all participating firms in the supply chain with their own. As each player maximizes its own interests, it optimizes the chain's performance as well.
To achieve sustainable competitive advantage, your supply chain needs all three of these qualities. Apply the following practices to create agility, adaptability, and alignment.
The Idea in Practice
Objective: Respond to short-term changes in demand or supply quickly. Methods:
• Continuously provide supply chain partners with data on changes in supply and demand so they can respond promptly.
• Collaborate with suppliers and customers to redesign processes, components, and products in ways that give you a head start over rivals.
• Finish products only when you have accurate information on customer preferences. • Keep a small inventory of...
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