Khandkar Imran Bin Khaled

Title: The Triple-A Supply Chain

Table of Contents

Acknowledgement.......................................................................................................................................3

Letter of Transmittal....................................................................................................................................4

Executive Summary.....................................................................................................................................5

INTRODUCTION...........................................................................................................................................6

A Brief Overview..........................................................................................................................................7

Summarizing the concept............................................................................................................................7

PUTTING THE IDEAS TO WORK..................................................................................................................10

Agility:....................................................................................................................................................10

Adaptable:.............................................................................................................................................11

Aligned:.................................................................................................................................................11

A COMPANY THAT HAS GOT IT ALL............................................................................................................12

A PROPOSED MODEL OF THE TRIPLE-A SUPPLY CHAIN.............................................................................13

Conclusion.................................................................................................................................................14

References.................................................................................................................................................15

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Acknowledgement

We begin by thanking the Almighty for seeing the successful completion of our report. Thanks

go to my family members, who always kept supporting us. Warm thanks go to our honorable

course instructor Dilara Afroz Khan for being so nice and helping us throughout the semester

with the course and also guiding about the report. All these well wishers together helped and

motivated me to do the report successfully.

I would also like to thank the rest, including the class members for being so helpful throughout

the semester at any sorts of needs. And lastly team members for being cooperative, responsive

and hard working. I have given my best efforts to make this paper a successful one.

However, keeping my limitations in mind, I have tried my best to present an in depth and timely

report. Hope you enjoy reading it as much as I have we have enjoyed working on it.

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Title: The Triple-A Supply Chain

Letter of Transmittal

5th January, 2011

To

Dilara Afroz Khan

Senior Lecturer, School of Business

North South University

Basundhara, Dhaka -1212

In this report I have tried to implement our learning in the course “MGT 489” with due sincerity and we

would like to thank you for giving us the opportunity to have the chance to work on this topic. Despite

many limitations I have tried our best to address the major and in depth issues in making this report

accurate and reliable.

If you have any further enquiry concerning any additional information we would be very pleased to

clarify that. Thank you.

4 | P a g eKhandkar Imran Bin Khaled

Title: The Triple-A Supply Chain

Sincerely yours,

Executive Summary

Building a strong supply chain is essential for business success. But when it comes to improving

their supply chains, few companies take the right approach. Many businesses work to make their

chains faster or more cost-effective, assuming that those steps are the keys to competitive

advantage. To the contrary: Supply chains that focus on speed and costs tend to deteriorate over

time. The author has spent 15 years studying more than 60 companies to gain insight into this

and other supply chain dilemmas. His conclusion: Only companies that build supply chains that

are agile, adaptable, and aligned get ahead of their rivals. All three components are essential;

without any one of them, supply chains break down. Great companies create supply chains that

respond to abrupt changes in markets. Agility is critical because in most industries, both demand

and supply fluctuate rapidly and widely. Supply chains typically cope by playing speed against

costs, but agile ones respond both quickly and cost-efficiently. Great companies also adapt their

supply networks when markets or strategies change. The best supply chains allow managers to

identify structural shifts early by recording the latest data, filtering out noise, and tracking key

patterns. Finally, great companies align the interests of the partners in their supply chains with

their own. That's important because every firm is concerned solely with its own interests. If its

goals are out of alignment with those of other partners in the supply chain, performance will

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Khandkar Imran Bin Khaled

“A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer.”

Council of Supply Chain Management Professionals (CSCMP)

Title: The Triple-A Supply Chain

suffer. When companies hear about the triple-A supply chain, they assume that building one will

require increased technology and investment. But most firms already have the infrastructure in

place to create one. A fresh attitude alone can go a long way toward making it happen.

INTRODUCTION

Managing the modern supply chain is a job that involves specialists in manufacturing,

purchasing, and distribution, of course. But today it is also vital to the work of chief financial

officers, chief information officers, operations and customer service executives, and certainly

chief executives. Changes in supply chain management have been truly revolutionary, and the

pace of progress shows no sign of moderating. In our increasingly interconnected and

interdependent global economy, the process of delivering supplies and finished goods (and

information and other business services) from one place to another is accomplished by means of

mind-boggling technological innovations, clever new applications of old ideas, seemingly

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Title: The Triple-A Supply Chain

magical mathematics, powerful software, and old-fashioned concrete, steel, and muscle. An end-

to-end, top-to-bottom transformation of the twenty-first-century supply chain is shaping the

agenda for senior managers now and will continue to do so for years to come. With this special

series of articles, Harvard Business Review examines how corporations’ strategies and structures

are changing and how those changes are manifest in their supply chains.

A Brief Overview

Traditionally companies persistently aimed at attaining greater speed and cost-effectiveness in

their supply chain management system. A lot of companies had succeeded attaining that,

however, not many could sustain the competitive advantage for long. In fact, the performance of

supply chains steadily deteriorated for those companies. According to Lee(2004), “… despite the

increased efficiency of many companies’ supply chains, the percentage of products that were

marked down in the United States rose from less than 10% in 1980 to more than 30% in 2000,

and surveys show that consumer satisfaction with product availability fell sharply during the

same period…”(p.1). Evidently, it isn’t by becoming more efficient that the supply chains of

Wal-Mart, Dell, and Amazon have given those companies an edge over their competitors; their

supply chain had something more to it. According to Lee (2004), top-performing supply chains

possess three very different qualities- agility, adaptability and alignment- which he referred to as

the “Triple-A Supply Chain” (pp.1-2).

Summarizing the concept

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To begin with, superior supply chains must be agile i.e. they must be capable of adapting to

sudden changes in demand or supply without long lead times. Consider an example regarding

how Nokia and Ericsson reacted to a major crisis cased by one of their suppliers. In March 2000,

a facility of Philips in Albuquerque, New Mexico, went up in flames. As an aftermath, the

company couldn’t supply radio frequency (RF) chips to the two mobile phone manufacturing

giants. In response, Nokia’s managers contacted two of their backup suppliers - one in US and

the other in Japan, who asked for just a 5 days lead time. On the contrary, Ericsson managers

only started an exhausting expedition to find a suitable supplier for their RF chips. The

consequence, Nokia stole the market share from Ericsson.

Secondly, supply chains should have the ability to adapt as market structures and

company strategies evolve over time. Most companies don’t realize that in addition to

unexpected changes in supply and demand, supply chains also face near-permanent changes in

markets. Those structural shifts usually occur because of economic progress, political and social

change, demographic trends, and technological advances. Unless companies adapt their supply

chains, they won’t stay competitive for very long. For instance during 2000, when Microsoft

decided to enter the video game market, it chose to outsource hardware production to Singapore-

based Flextronics. In early 2001, the vendor learned that the Xbox had to be in stores before

December because Microsoft wanted to target Christmas shoppers. Flextronics reckoned that

speed to market and technical support would be crucial for ensuring the product’s successful

launch. So it decided to make the Xbox at facilities in Mexico and Hungary. The sites were

relatively expensive, but they boasted engineers who could help Microsoft make design changes

and modify engineering specs quickly. Mexico and Hungary were also close to the Xbox’s

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biggest target markets, the United States and Europe. Microsoft was able to launch the product in

record time and mounted a stiff challenge to market leader Sony’s PlayStation 2. Sony fought

back by offering deep discounts on the product. Realizing that speed would not be as critical for

medium-term survival as costs would be, Flextronics shifted the Xbox’s supply chain to China.

The resulting cost savings allowed Microsoft to match Sony’s discounts and gave it a fighting

chance. By 2003, the Xbox had wrested a 20% share of the video game market from PlayStation

2.

Last but not the least, companies should take care to align the interests of all the firms in

their supply chain with their own. That’s critical, because every firm—be it a supplier, an

assembler, a distributor, or a retailer—tries to maximize only its own interests. 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. “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.”

Misaligned interests can cause havoc even if supply chain partners are divisions of the same

company, as HP discovered. In the late 1980s, HP’s integrated circuit (IC) division tried to carry

as little inventory as possible, partly because that was one of its key success factors. Those low

inventory levels often resulted in long lead times in the supply of ICs to HP’s ink-jet printer

division. Since the division couldn’t afford to keep customers waiting, it created a large

inventory of printers to cope with the lead times in supplies. Both divisions were content, but

from HP’s viewpoint, it would have been far less expensive to have a greater inventory of lower-

cost ICs and fewer stocks of expensive printers. That didn’t happen, simply because HP’s supply

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chain didn’t align the interests of the divisions with those of the company. To create the right

alignment is to provide incentives for better performance.

It all boils down to this- in addition to being efficient, supply chain of a company must be

agile, adaptive and aligned in order to create a sustainable competitive advantage. It is natural for

companies to assume that it will require more technology and investment to attain a Triple-A

Supply Chain. But the truth is, most firms already have the infrastructure in place to create triple-

A supply chains. What they need is a fresh attitude and a new culture to get their supply chains to

deliver triple-A performance. Companies must give up the efficiency 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 chain. This can be challenging for companies

because there are no technologies that can do those things; only managers can make them

happen.

PUTTING THE IDEAS TO WORK

In this section of my paper I will be discussing about how to put these ideas of Supply Chain

Management in to action. Each of the qualities of supply chain- agility, adaptability and

alignment requires distinctive measures. They are discussed below-

Agility: As mentioned earlier, it means to respond quickly to sudden changes in supply or demand.

It enables a company to handle unexpected external disruptions smoothly and cost-efficiently and to

recover promptly from shocks such as natural disasters, epidemics, and computer viruses.

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Objective: The main objective of agility is to respond to short-term changes in demand or supply quickly.

There are 6 rules of thumb following which companies can attain agility-

1. Promote flow of information with suppliers and customers.

2. Develop collaborative relationship with suppliers

3. Design for postponement.

4. Build inventory buffer by maintaining a stockpile of inexpensive but key components.

5. Have a dependable logistics system or partner.

6. Draw up contingency plans and develop crisis management teams.

Adaptable: An adaptive supply chain enables a company to evolve over time as economic

progress, political shifts, demographic trends, and technological advances reshape markets.

Objective: The primary objective of adaptability is to adjust supply chain design to accommodate

market changes.

To make a company’s supply chain adaptive, there are 5 golden rules-

1. Monitor economies all over the world to spot new supply bases and markets.

2. Use intermediaries to develop fresh suppliers and logistics infrastructure.

3. Evaluate needs of ultimate consumers- not just immediate customers.

4. Create flexible product designs.

5. Determine where company’s products stand in terms of technology cycles and product

life cycles.

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Aligned: Companies must 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.

Objectives: The objective of aligning a supply chain is to establish incentives for supply chain

partners to improve performance of the entire chain.

Companies can attain this ability by following 3 simple rules-

1. Exchange information and knowledge freely with vendors and customers.

2. Lay down roles, tasks and responsibilities clearly for suppliers and customers.

3. Equitably share risks, costs, and gains of improvement initiatives.

To achieve sustainable competitive advantage, your supply chain needs all three of these qualities.

Apply the following practices to create agility, adaptability, and alignment.

A COMPANY THAT HAS GOT IT ALL

Convenience-store chain Seven Eleven Japan (SEJ) builds supply chain agility by using real-time

systems to detect changes in customer preferences and track sales and customer data at every

store. Satellite connections link stores with distribution centers, suppliers, and logistics providers.

SEJ reallocates inventory among stores and reconfigures store shelves three times daily to cater to

different customer groups at different hours.

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SEJ's adaptability is legendary. Within six hours after the 1995 Kobe earthquake, SEJ overcame

highway gridlock by mobilizing helicopters and motorcycles to deliver 64,000 rice balls to its stores in

the beleaguered city.

SEJ fosters alignment by making partners' incentives and disincentives clear. For example, when

carriers fail to deliver on time, they pay a penalty. But SEJ also helps carriers save money by forgoing

the typical time-consuming requirement that store managers verify all contents of each delivery truck.

A PROPOSED MODEL OF THE TRIPLE-A SUPPLY CHAIN

In this whole report, I have discussed about the various factors that influences the supply

chain of a company. Now,

it is time to propose a

model for creating a supply

chain of triple-a

performance. From the

model it is observed that

the three qualities- agility,

adaptability and alignment

are playing an important

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role to develop a Triple-A supply chain. However, in addition to being agile, adaptive and

aligned, a supply chain should be endowed with speed and cost-efficiency. If a company can

attain all 5 of these qualities then it can easily develop a competitive advantage that is profitable,

effective and sustainable. The model that I am proposing here is shown below-

Conclusion

The idea of supply chains competing was put forward by Professor Martin Christopher in his

seminal book Logistics and Supply Chain Management, the first edition of which appeared in

1992. It is a powerful concept, and one that is becoming more and more relevant as we see the

way that companies structure their supply chains often being a key determinant of success. A

company can have the best and most sophisticated product in the world, but if it doesn’t have a

good supply chain behind it, then it will likely not be able to compete, especially in terms of cost

and speed, and indeed many other attributes also.

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References

http://www.scdigest.com/assets/FirstThoughts/09-04-23.php

http://www.ncbi.nlm.nih.gov/pubmed/15559579

http://smartmoneysuccess.com/2010/07/triple-a-supply-chain-critical-factors-to-consider-in-supply-

chain-planning/

http://www.mbadepot.com/content/15061/

http://hbr.org/2004/10/the-triple-a-supply-chain/ar/1

http://www.bnet.com/cp/the-triple-a-supply-chain/174992

http://hbr.org/product/fast-global-and-entrepreneurial-supply-chain-manag/an/98507-PDF-ENG

http://hbr.org/product/supply-chain-challenges-building-relationships/an/R0307E-PDF-ENG

http://hbr.org/product/leading-a-supply-chain-turnaround/an/R0410G-PDF-ENG

http://en.wikipedia.org/wiki/Supply_chain_management

http://scm.ncsu.edu/scm-articles/article/what-is-supply-chain-management

http://cscmp.org/digital/glossary/glossary.asp

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