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Collaboration Game & Advanced TopicsThe Triple A Supply Chain (Lee)
Problem that companies and experts ignore: ceteris paribus = companies whose supply chains became more efcient and cost –
effective didn’tt gain a sustainable advantage over their rivalse
Top performing supply chains possess three qualities:
- Agile: they respond quickly to sudden changes in supply or demande They handle unexpected external disruptions
smoothly and cost-efcientlye And they recover promptly from shocks such as natural disasters, epidemics, and
computer viruses
Objective: respond to short-term changes in demand and supply
- Adapt: they evolve over time as economic progress, political shifs, demographic trends, and technological advances
reshape markets
Objective: adjust supply chain design to accommodate market changes
- Align: they align the interest of all the frms in the supply network so that companies optimize the chain’ts performance
when they maximize their interests
Objective: establish incentives for supply chain partners to improve performance of the entire chain
Competitive advantage
High-speed, low-cost supply chains are unable to respond to unexpected changes in demand or supplye It also causes supply
chains to break down during the launch of new products (because they want do to at fast and low cost as possible which causes
problems)e They become uncompetitive because they don’tt adapt to changes in the structure of marketse
But supply chain efciency is necessary, only it isn’tt enough to ensure competitive advantagee Only companies that build agile,
adaptable and aligned supply chains get ahead of the competitione Companies can build them in without a trade-offe Only two of
these aren’tt enough, all three are necessarye
Agility: agility is critical, because both demand and supply fuctuate more rapidly and widely than beforee Most supply chains
cope by playing speed against costs, but agile ones respond both quickly and cost-efcientlye Agility had become more critical in
the past few years because sudden shocks to supply chain have become more frequente The threat from natural disasters,
terrorism, wars, epidemics, and computer viruses has intensifed in recent years, partly because supply chains are around the
worlde
Agility is ofen overlooked because adaptability and alignment are more novel conceptse
Companies can build agility into supply chains by adhering to six rules:
- Provide data on changes in supply and demand to partners continuously so they can respond quickly
- Develop collaborative relationships with suppliers and customers so that companies work together do design or
redesign processes, component, and products in ways that give you a head start as well as to prepare backup planse
- Design products so that they share common parts and processes initially and differ substantially only by the end of the
production processe This is ofen the best way to respond quickly to demand fuctuations because it allows frms to
fnish products only when they have accurate information on consumer preferencese
- Keep a small inventory of inexpensive, non-bulky components that are ofen the cause of botleneckse
- Build a dependable logistics system or partner that can enable your company to regroup quickly in response to
unexpected needse
- Put together a team that know how to invoke backup planse
Adaptability: companies must not stick to the same supply networks when markets or strategies change, they must keep
adapting their supply chains so they can adjust to changing needse There are near-permanent changes in marketse Those shifs
usually occur because of economic progress, political and social change, demographic trends, and technological advancese They
need to be identifed before they occur, by capturing the latest data, fltering out noise, and tracking key paternse Companies
that adapt supply chains when they modify strategies ofen succeed in launching new products or breaking into new marketse
Smart companies tailor supply chains to the nature of markets for productse They usually end up with more than one supply
chain, which can be expensive, but they also get the best manufacturing and distribution capabilities for each offeringe
Building an adaptable supply chain requires two key components:
- The ability to spot trends:
Track economic changes, especially in developing countries, because as nations open up their economies to
global competition, the costs, skills, and risks of global supply chain operations changee
Decipher the needs of your ultimate consumers – not just you immediate customerse
, - The capability to change supply networks:
They must develop new suppliers that complement existing ones
They must ensure that product design team are aware of the supply chain implications of their designs
Use intermediaries to fnd reliable vendors in unfamiliar parts of the word
Create fexibility by ensuring that different products use the same components and production processes
Create different supply chains for different product lines, to optimize capabilities for each
Determine where companies’t products stand in terms of technology cycles and product life cyclese
Alignment: align the interests of all frms in their supply chains with their owne That’ts critical because every frm tries to
maximize only its own interestse How to do so?
- Redefning the terms of their relationships so that frms share risks, costs, and rewards equitablye
- Sometimes it involves the use of intermediaries, for example: fnancial institutions
- Alignment of information, so that all companies in a supply chain have equal access to forecasts, sales date, and planse
- Align identities: the manufacturer must defne the roles and responsibilities of each partner so that there is no scope
for conficte
- Then companies must align incentives, so that when companies try to maximize returns, they also maximize the supply
chain’ts performancee To ensure that happens, companies must try to predict the possible behaviour of supply chain
partners in the light of their current incentivese Then they must redesign incentives so partners act in way that are
closer to what’ts best for the entire supply chaine
The triple-A supply chain does not require more technology and investmente Most frms already have the infrastructure in place
to create triple-A supply chainse What they need is a fresh attude and a new culture to get their supply chains to deliver triple-
A performancee Companies must give up the efciency mind-set, which is counterproductive; be prepared to keep changing
networks; and, instead of looking out for their interests alone, take responsibility for the entire chaine This can be challenging for
companies because there are no technologies that can do those things; only managers can make them happene
Realities of supply chain collaboration (Kampstra et al.)
Effective collaboration within each entity (cross-functional) and between chain entities (cross-enterprise) is essential to achieve
competitive advantage (improve customer service, proft generation, asset utilization and cost reduction) individually and
collectivelye But be careful with choosing the right party, some lack of desire to collaboratee
Collaboration is difcult to achieve, because:
- Time span: building relationships takes time
- Lack of IT infrastructure
- Lack of trust
- Organization design
- Competition: afraid that integration might limit responsiveness or are anxious that current supplier may become
competitors, or that a customer will integrate into their domain
- Fear of external pressure: that the larger party has more power
- Powerhouses within the organization: functional departments are eager to maintain their bargaining power
- Financial: short-term thinking instead of long-term thinking
- Other reasons like conficting business cultures, conficting goals and values etce
Collaboration is important since sub-optimization occurs when each organization in the supply chain atempts to optimize its
own results rather than integrate its goals and activities with other organizations for the beneft of the whole chain
formulation appropriate strategye
Types of relationships:
- Arms-length: purely transactional
- Joint ventures
- Vertical integration (is not seen as SCC)
- Partnerships: special case of SCC since it may involve fnancial linkages that are not collaborative
Different ways of SCC:
- Dyadic approach: many organizations will in their early atempts focus on the channel member with whom they have
immediate contact
- Use of Channel integration: the channel leader plays the key role in setng the overall strategy for the channel and in
getng the channel members involved in and commited to the strategy
- Use of fourth party logistics ((PL): uses (PL as a centralized “optimization tool” to coordinate and control the channel
The depth of relationships can vary (level of collaboration or intensity), the goal will only be achieves when parties are
treated equivalent and undifferentiated
, Realties of supply chain collaboration
- Equality between partners: Collaboration is not always voluntarye Some may be forced, or do not fully support the
ideas or desire more infuence in the collaboration processe Power does play a role in collaboratione
Three main roles: collaboration leader (most powerful),i collaborations coordinator (most knowledge and experience),i
and remaining collaboration members.
- Ongoing or limited: SCC can be seen as an ongoing effort for dealing with supply chain constraintse An ongoing
collaboration requires:
A generative dialogue among entities to ensure alignment
Individual entities with group concerns to guarantee balanced priorities
A creative and innovative chain to avoid merely the fulflment of the set of business initiatives; otherwise the
collaboration will be limited
Three types of constraints (TOC): physical constraints, market constraints and policy constraintse Constraints can block
SCCe Adding capacity when the investment benefts are not justifable, shortage of raw materials, size of the market,
when the policy constraint lies within the leader entity, the type/nature of the market does not argue for collaboratione
- Potentially collaboratiie: Too much effort in the wrong place by assuming that all supply chains have the potential to
be collaborativee Some supply chains may not be suitablee Overall, being deeply aware of the customer and supplier
base is critical to successe Got all customers or suppliers deserve to be treated equally because not all of them will have
collaborative valuese
- Balancing priorities: Expensive SCC programs should be preceded by a thorough supply chain analysis that properly
balances global versus local prioritiese All parties should follow the same goal and optimize results of the overall chaine
Difculties lie with: identifcation of the weak spots in current supply chain and fnding the balance between global
chain effectiveness versus local efcienciese
Loops of SCC
Strategy loop: how the
roles are dividede
Change loop: every entity
performing below target
chain must be included,
measures on lead-time,
quality DIFOT and costse
Control loop: governance
and control close the
loops and basically keep
SCC an ongoing processe
Strategic partners should start by developing their vision and strategy and as such choose the market segments that their supply
chain will aim ate The upstream side of the supply chain can be forecast-driven for more efciency, the downstream
responsiveness since the critical time path (CTP), which is measured as customer lead-time from CODP (customer order
decoupling point) to the end-customere
Supply chain coordination addresses risk control (where should uncertainty of supply or demand be reduced frst?); production
policies (eege outsourcing decisions, scheduling, planning); replenishment policies (eege inventory management); and distribution
policies (eege outsourcing decisions, planning, routing)e
Climbing the ladder of collaboration different levels of collaboration:
- Communication: goal is to improve productivity and enable information sharing through simple IT applications
- Coordination: focuses on the coordination of intra- and inter-entity processese Synchronize fows and automate certain
decision-making processes to improve speed and accuracy
- Intensive collaboration: increased involvement of the collaboration members to improve the strategic management
decision-making and enhance innovation in the chaine
- Partnerships: extended fnancial linkages such as sharing of investments and proftse Aim is to drastically improve
knowledge sharing between member and a reduction in R&D timee
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