One of the best strategy concepts that I have encountered in recent years is Dr. Hau Lee of Stanford University’s Triple-A Supply Chain. Dr. Lee originally published his research findings in a Harvard Business Review article back in October 2004.
Even though the concept is old now, I consider it to be extremely relevant in today’s environment. Dr. Lee contends that many companies become overly focused on cost savings and efficiency in their supply chain planning. But efficiency is not the key to success in today’s turbulent markets.
More important than efficiency are the concepts of Agility, Adaptability and Alignment (Triple-A).
- Agility – refers to a supply chain’s ability to respond to sudden changes in demand or supply. Furthermore, it refers to minimizing disruption from unforeseen events such as natural disasters, terrorism, wars, epidemics and computer viruses. Dr. Lee recommends using techniques such as late-stage postponement, buffer inventories and sharing of demand signals to enable higher levels of agility.
- Adaptability – refers to the ability to identify and plan for major structural changes in markets. Political, regulatory, economic, social and technological forces can dramatically transform markets in relatively short time periods. Dr. Lee recommends on-going country-level economic analysis; flexible product design models and needs analysis for ultimate consumers (rather than just immediate customers).
- Alignment – refers to aligning the interests of all parties in the supply chain from suppliers and OEMs to distributors and retailers. Dr. Lee recommends that all parties have equal access to demand planning data and that economic incentives align to maximize overall supply chain performance. Instead of company-to-company competition we have now entered an era of supply-chain to supply-chain competition.