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Hau L. Lee Stanford University

AAA Value Chains: Agility, Adaptability and Alignment. Hau L. Lee Stanford University. Strategies to Win. Increasing sources of uncertainties Changing needs for products/markets/time Trend to distributed supply chains. A gility. Challenges. Implications. A daptability.

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Hau L. Lee Stanford University

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  1. AAAValue Chains: Agility, Adaptability and Alignment Hau L. Lee Stanford University

  2. Strategies to Win Increasing sources of uncertainties Changing needs for products/markets/time Trend to distributed supply chains Agility Challenges Implications Adaptability Uncertainty drives need for flexibility Supply chains to fit changing needs Differential interests of multiple players Alignment

  3. Information integration Sense and response Design for postponement Agile logistics Super-efficient Supplier coordination Supplier innovation Contingency planning Agility Regular Supply Chains SER Supply Chains • Visibility, transparency, communication • Process monitoring • Design for Environment • Smart logistics • Total waste elimination • Supplier collaboration • Supplier innovation • Contingency planning

  4. Evolving journey Adapt strategies for different times, markets, and products Dynamic responses to changing regulations, industry standards, and trade agreements, etc. Product life cycle management Adaptability Regular Supply Chains SER Supply Chains • Evolving journey • Adapt strategies for different times, markets, and products • Proactively mobilize industry-wide efforts to create standards and tools, and dynamically respond to changes • PLC management

  5. Role realignment Mission synchronization Incentive alignment Integrated performance measurement Leadership Alignment Regular Supply Chains SER Supply Chains • Shared ownership of compliance, open sharing • Common goals (+ vendors, business partners, NGOs) • Cost, risk and gain sharing • Integrated performance measurement; including business results • Leadership, involving 3rd party support

  6. Examples of AAA Enterprises

  7. Netafim Projected Water Shortage 2025 • An irrigation dripper producer aiming at: • Preserving water – one of the world’s most precious resources • Increasing global food production to bring relief to many less privileged • Supporting universal efforts to improve the quality of the environment and the beauty of the planet Physical water scarcity Little/no water scarcity Economic water scarcity Not estimated Seckler et al, 2002

  8. Netafim Afghanistan Corporate Car

  9. Radio GSM EC/pH Control Crop Management System: IrriWise Water, fertilizer & energy management

  10. Netafim Irrigation University • Technical & agronomist education • International knowledge sharing • Professional studies programs • Local hands on instruction.

  11. Supply Chain Evolution Revenues (Millions $) Manufacturing efficiency to be “best drip irrigation equipment company” 500 450 400 350 300 Agility to mass customize equipment in expanded but diverse market 250 200 150 100 Solution provider – “More yield with less water” 50 0 2006 2007 2005 2003 2004 1997 2001 1996 1998 1999 2000 2002

  12. AAA Value Chain at Netafim Innovative technology for most efficient & effective irrigation, manufacturing and order fulfillment excellence, use of IT Agility Mass customized products to adapt to different geographies, climate and products; greenhouse project management offerings Adaptability Customer solutions for win-win higher yield with less water, education of customers, migration from product to service Alignment

  13. Soy Bean Supply Chain in India ITC Farmers Mandis Outbound logistics & payment Inbound logistics in bulk • Display & visual inspection • Auction (spot market) Other Buyers • Congestion at Mandis can hold up farmers for days. • Price uncertainty faced by farmers – material flow must precede price information discovery. • Farmers rely on word of mouth or localized previous prices. • Farmers vulnerable to delayed payments. Source: Anupindi & Suvakumar, 2007

  14. ITC e-Choupal Internet Kiosk Market conditions, prices, weather, knowledge e-Choupal Farmers ITC Processing Mandi Prices Authorized Prices Mandis Other Buyers • Selected farmers (Sanchalak) maintain computers and inspect products. • Price transparency provided to farmers. • Direct sales to ITC enabled. • Material flows occur only after sales to ITC or price discovery to Mandis. Source: Anupindi & Suvakumar, 2007

  15. Win-Win Value Proposition Transaction Costs in Rupees per metric ton Source: Anupindi & Suvakumar, 2007

  16. 6,000 e-Choupals & more than 120 hubs in 9 states, 36,000 villages; empowering 3.5 million e-farmers. 6,000 e-Choupal installations Started with soya bean, now covering wheat, coffee, shrimp and other aqua products. Reverse flow of fertilizers, household goods, seeds, etc. back to farmers. Aims at extending to 100,000 villages and 10 million e-farmers in next decade. ITC e-Choupal

  17. AAA Value Chain at eChoupal Restructuring information, physical & financial flows for transaction efficiency & supply/demand matching Agility Product & geography expansion; product quality differentiation; using reverse channel for new business offerings and service Adaptability Win-win for farmers and ITC, savings for consumers, higher quality with more variety for consumers Alignment

  18. AAA Value Chain at eChoupal Restructuring information, physical & financial flows for transaction efficiency & supply/demand matching Agility Product & geography expansion; product quality differentiation; using reverse channel for new business offerings and service Adaptability Win-Win for farmers and ITC, savings for consumers, higher quality with more variety for consumers Alignment

  19. Hugo Boss Marks & Spencer Next Lacoste Esprit GAP/Banana Republic Abercrombie & Fitch Brooks Brothers Nautica Nordstrom J.Crew JCPenney Tommy Hilfiger Nike Polo Ralph Lauren

  20. Esquel Culture • Ethics • Be a Good Citizen and a Good Employer R&D Innovations • Wrinkle-free garments • High performance • Antibacterial finishing • Cashmere-like cotton • Genetic engineering for cotton breeding • Nanotechnology in fabric finishing • Environment • Cherish the Environment • Exploration • Explore and Embrace Innovative Solutions • Excellence • Reduce Waste through Functional Excellence • Education • Dare to Err but Quick to Learn

  21. Organic cotton farms certified by OCIA (Organic Crop Improvement Association) New technologies to reduce dyeing cycle and chemical usage Use of natural resources (clays & enzymes to replace chemicals) Water conservation by special irrigation methods in cotton farms Dust collection, power efficiency, recycled heat, water treatment and reuse in manufacturing Educating Xinjiang communities on environmental preservation Sustainable Practices

  22. Organic Cotton Development Organic Farm AEA/AEC XJE/TPE ALTAY 阿勒泰 TACHENG 塔城 Kramay City 克拉玛依市 BORTALA 博尔塔拉 Organic Cotton Consumption (tons) CHANGJI 昌吉 Heboksel 和布克赛尔 YILI 伊犁 URUMQI 乌鲁木齐 500 AKESU 阿克苏 KEZILSU KIRGIZ 克孜勒苏 TURPAN 吐鲁番 HAMI 哈密 450 Shaya 沙雅 400 Awati 阿瓦提 KASHI 喀什 350 300 BAYINGOLIN 巴音郭楞 HETIAN 和田 WFC 丰达 250 200 150 100 50 0 50% self-sufficient 03 04 05 06 07 08F

  23. Cotton consumes 11% of pesticides while occupying 2.4% of world’s farm lands. Fertilizers create nitrate pollution. Esquel’s R&D developed innovative farming methods: Soil and fertilizer management Cultivation technologies Pest and disease control Innovative Organic Farming • Turned organic cotton farms from yield of lower than 50% of conventional method to 20% higher. • From 2005-7, yield increased from 40-50 kg/mu to 90-100 kg/mu. • Highest yield in Xinjiang and China. • Organic farms at 630 mu today with aim at 1,270 mu in 2012.

  24. Micro Financing • An exploratory project initiated by Esquel and Standard Chartered Bank • Help farmers in remote area to increase their living standard and increase yield by investing in irrigation systems. • From Dec 2007 to Nov 2008, RMB 3M to be loaned, at RMB 15,000 per capita.

  25. Eco-Mobile Lab in Xinjiang

  26. Schools in Farms & Factory Locations

  27. Building Schools in Local Communities

  28. New School Opening Ceremony

  29. AAA Value Chain at Esquel Innovations for power efficiency, sustainable farming and manufacturing practices, ethical treatment & education of employees Agility Continuous R&D innovations in product functionalities, farming methods, and manufacturing processes Adaptability Contributions to communities where farms and factories are, champion industry-wide social responsibility in China Alignment

  30. Summary • World class value chains require capabilities in Agility, Adaptability and Alignment. • AAA capabilities also required for socially and environmentally responsible supply chains. • AAA value chain is key to super-AAA business, social responsibility and sustainability performances.

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