The Triple-A Supply Chain

Outline of discussion
 Introduction
 Perils of efficiency
 Fostering agility
 Adapting your SC
 Creating the right alignment
 7-Eleven Japan’s three aces
 Conclusion
Three A’s
 Agile
 React speedily to sudden changes in demand & supply
 Adaptable
 Adapt supply networks when markets or strategies change
 Aligned
 Align interest of SC partners with their own
Perils of efficiency
 Focus on economies of scale
 Inability to respond quickly to changes
 Discounts
 New product launch
 Cannot adapt to change in market structures
 Lucent’s Electronic Switching Systems
Agile chains
 Both quick & cost efficient
 ‘…big price for disregarding agility’
 Compaq
 Exemplary chains
 H&M, Mango, Zara
 Better quipped to recover from sudden shocks
 Dell vs. Compaq, Apple & Gateway
 Nokia vs. Ericsson
Fostering agility
 Rules of thumb
 Share real time data with partners
 Collaborate with suppliers and partners
 Postponement
 Keep small inventory of inexpensive, non-bulky materials
 Build dependable logistics system by 3 PL collaborations
 Have contingency plans
Adapting your supply chain
 Identify structural shifts by capturing latest data & tracking key
patterns
 HP ink-jet printers supply chain
 New products or new markets
 More than one supply chain
 Cisco
 Gap
 Defining appropriate markets
 Level of technology
 Stage of PLC
 Toyota
Adapting your supply chain
 Spot changes/ future patterns
 Track economic changes, specially in developing countries
 Decipher needs of ultimate customers to avoid bullwhip effect
 Change supply networks
 Develop new suppliers to complement existing ones
 DFS (commonality, postponement and standardization)
Creating the right alignment
 Problem of misalignment
 Cisco supply chain
 Why VMI has not reduced costs?
 Aligning interests
Redefine terms of relationship to share risks, costs & rewards
 Align information
 Align identities
 Align incentives
 Predict possible behavior of partners
 RR Donnelley
 Saturn service parts chain
Supply chain of 7-Eleven Japan
 Competitive strategy
 Micro-matching supply and demand
 Replenishment cycle time less than 12 hours for fresh & fast-food
(3 times a day delivery for rice dishes)
 Supply chain design
 Rapid replenishment for responsiveness
 Transportation
 High cost of transportation and receiving at stores
 Aims to aggregate transportation and receiving to make both
cheaper
 Transfleet Ltd. (set up by Mitsui & Co.) for exclusive use of 7-
eleven Japan
 Flexible to get both efficiency and responsiveness
Supply chain of 7-Eleven Japan
 Location: Area dominance strategy
 Both franchise & Co. owned network of stores
 Small size of stores
 Lowers cost of replenishment
 Centralized facilities
 Dedicated manufacturing plants
 Dedicated Distribution Centers (DCs) which carried no
inventory
Supply chain of 7-Eleven Japan
 Combined distribution system
 All suppliers deliver to the DC where products are sorted by
temperature
 Maximum benefit of aggregation of capacity & demand
 Reduces outbound transportation cost from DC because of
aggregation of deliveries across multiple suppliers & retail stores
 Lowers receiving cost & minimizes disruption at retail outlets
 Lower transportation cost to DC from manufacturer
 Better utilization of trucks
Supply chain of 7-Eleven Japan
 Direct store delivery by suppliers appropriate if
 Items being delivered do not need bulk broken at a DC
(stores are large and nearly-full truck load quantities are
coming from a supplier to a store)
 Have special handling requirements
 Supplier has information system integrated with stores
Supply chain of 7-Eleven Japan
 Inventory
 Aggregation, run on information system
 Minimize total system inventory
 Information infrastructure
 Allow store managers to place orders based on analysis of
consumption data
 Transmits POS information directly to the supplier and
distribution center
 Goods are produced using a pull system to replace what has been
sold during that delivery period
 Facilitates the sorting of an order at the DC and receiving of the
order at the store
Supply chain of 7-Eleven Japan
 7dream.com
 Are customers ready to take deliveries from store?
 Can use existing distribution network
 Better utilization of trucks
 Use storage space
 Extra work at stores
 More successful in Japan
 given the existing distribution network
 the frequency of visits by customers
Supply chain of 7-Eleven Japan
 Duplicating structure of supply chain in US
 Lower density of stores
 Larger distance between stores
 getting both direct store deliveries as well as wholesaler
deliveries to its stores
 Customers have many other options
 Cost of operating in suburban/ rural regions will be extremely
high
Supply chain of 7-Eleven Japan
 Distributors add more value in US
 Lower store density in US – distributors aggregate bulk
 Advantages
 less transportation, material handling, and labor costs for 7-
Eleven system
 Disadvantages
 overall loss of control
 increased number of deliveries to each store
 difficulty of integrating information flows across disparate
systems
7-Eleven Japan’s three aces
 Agility
 Through real-time information sharing supported by location,
transport, inventory strategies
 Adaptability
 Changed strategy with time & location
 Alignment
 Clear incentives and disincentives
 Works with suppliers to develop products & share revenues
 7dream.com created with 6 partners
Conclusion
 Adopting triple A
 Does not necessarily need more technology & investment
 Needs a change of mind-set
 Look beyond efficiency
 Keep changing network
 Look beyond organizational boundaries & take care of entire network