Essay: The Triple-A Supply Chain

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  • The Triple-A Supply Chain
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The Triple-A Supply Chain article contains three components that will help organisations to build or strengthen their supply chain better and faster than their competitors. These three components are agility, adaptability and alignment. According to Lee, adapting the Triple – A in the supply chain from a company will finally offer a sustainable competitive advantages.

During the research there are three hypotheses Lee had been investigating about leading to a better and faster supply chain. These hypotheses are connected with the components from the Triple –A model. The first hypothesis relates fostering agility. Many companies failed on agility, because they were playing speed against costs. While an requirement of an agile supply chain is that they are able respond to both speed and fast- and cos-efficiency. The second hypothesis is related with the flexibility of adapting a supply chain. Adapting a supply chain based on the market conditions or changes in the strategy can be tough, but this is essential to establish or maintain a supply chain which offers durable advantages against competitors. The last hypothesis implies creating the right alignment. In order to create a right alignment and maximize the supply chain performance, it is necessary that the interest from all parties in the supply chain are aligned with each other.

The results in the article has been established by qualitative research and in particular longitudinal research. This can be concluded as follow: Through observing and studied more than 60 companies, Lee has found a fundamental problem which seems to be ignored by most companies and experts. The observation and study took about 15 years, which is a long period of time, this is an indication of a longitudinal study. Another indicator of a longitudinal researches is that the variables of the research is mostly observational or can be repeatedly being observed over a long period of time.

The results of the desk research consists of the old situation and the issues Lee found during the research. In order to answer the question why companies haven’t been able to establish a successful (efficient) supply chain, the question is underpinned by the following three issues:
Firstly, supply chains that focus on high-speed and low cost are mostly unable to respond in sudden changes in offers and demands. Secondly, by focussing on high-speed and low-cost companies can cause a breakdown of the supply chain when it comes to launching new products. Thirdly, by having an efficient supply chain could cause an uncompetitive environment due inflexibility of adapting the changes in the market. Eventually, the solutions of these issues will lead to the Triple- A: Agility, Adaptability & Alignment.

Fostering Agility

Great companies are the ones who are able to build or strengthen a supply chain which are agile to react to sudden and unexpected changes in markets. Many companies use to put their focus on high-speed and low-cost supply chain, but Lee is trying to convince the reader with practical examples that ‘’the old low cost, high speed supply chain model’’ isn’t that sufficient as it sounds. An agile supply chain can be recognized by responding both quickly and cost-efficiently to unexpected changes. By focussing on being agile, companies are more able to distinguish themselves from competitors.

Moreover, why agility is became so critical, is because there are so many unexpected events what will affect the supply chain. In order to recover more quickly, supply chains have to be agile. How can companies establish a more agile supply chain? This could be achieved by implementing the following six steps. Firstly, companies have to ensure that the data must continuously spread among partners in the supply chain in order to create a more efficient and effective way of communication, so they are able to respond more quickly. Secondly, companies have to create collaborations between partners, suppliers and consumers who work together on design and redesign processes, back-up plans and products. Thirdly, companies should design products that contain the same parts which are only different at the end of the production process. The fourth step Lee is suggesting companies to keep small stock of inexpensive components in case of solving bottlenecks. The fifth step is about creating a dependable logical system that ensures reliability in unforeseen events. The sixth and last step implies that is crucial to set up a team that are able to create back-up plans.

Adapting your supply chain

The flexibility to adapt sudden or unexpected changes in the market can be tough, but it is crucial in order to develop a sustainable competitive advantages. If companies are not flexible with adapting changes in their supply chain, they will stay behind or can’t gather advantages over their competitors.

Since an important goal from supply chains is being able to recognize changes before they arise, it is crucial to make adjustments in the supply chain. Adapting does not contain any tactical reasons. By flexible adapting new abilities to invent new or modified strategies to reach new markets can be created, which leads to new products launchings. In order to build an flexible supply chain, two key elements are required. Firstly companies must have the ability to spot movements. Secondly companies must be capable to shift from supply networks. All in all in order to recognize future movements, companies must be aware of the developing countries, the demands/wishes from the customers, new suppliers who also aware of the complexity within the supply chain.

Creating the right Alignment
Needless to say, almost every company in the supply chain are trying to maximize their own interest. However, great companies are trying to align all the interest of all parties in the supply chain with their own. In case of difference of the interest from the parties in the supply chain, there is a chance that the whole supply chain won’t achieve a maximum performance. Lack of alignment is one of the issues what can cause failure of supply chains.

In order prevent failures of supply chains, companies have to ensure that they are sharing the same risks, costs and revenues. An aligned interest contains two advantages. (1) The whole supply chain have the same goal and objectives. (2) Since they share the similar risks, they will try their best to make the most matching decision for the supply chain. Further, it is important to notice how alignment can be created. First, companies needs to creating alignment of information. Hereby, the information stream is transparent, and all parties in the supply chain have equal access to it. Then companies should align their roles and responsibility of each party in the supply chain. After that, companies should define their behaviour and align their incentives in the supply chain. At the end while companies are aligning their incentives, they must redesign their incentives in order to corporate and work closer with each other.

The article describes a correlation between adapting the Triple-A in the supply chain and other variables. Companies must fulfil some changes when it comes to adapting the Triple-A. Some external movements are almost permanent, which affect the whole market and supply chain. These external movements are related with economic, political, social, demographic or technological changes.

According to the conclusions from the article about the necessary in further development in the supply chain. The scientific relevance will be explained as follow: More technological improvements or investments are not necessary, due the fact most companies already have the capability to create a Triple – A supply chain. Adapting the Triple – A in a supply chain can be achieved in several ways. For instance, redesigning a whole new company culture and attitude which is focused on creating a Triple – A supply chain. Another way is abandon the high-speed and low-costs mindset and being flexible to change from networks. In addition companies must put their collective responsibilities first over the their own interest in the supply chain. Somehow adapting the Triple – A method is a role for managers who need to be prepared and trained for it.

What are the advantages of establishing a Triple – A supply chain? Although high-speed and low-cost
Supply chains are important, they are not sufficient enough to provide companies durable advantages over competitors. While by adapting the Triple – A method in the supply chain this problem can solved and success will be assured. Only so supply chains are able to being agile to respond to sudden changes, being flexible to adapting changes, and being able to align all interests for a better supply chain performance.

2 The Core Competence of the Corporation
By C.K. Prahalad and Gary Hamel, 1990
During the last twenty years thoughts about the business concepts has been changed and the visibility of powerful ways to dominate global competition is to many companies still an issue. During the 80’s the top management of most corporations were assessed on the ability to restructure, declutter and delayer their corporation. The business concepts must be redesigned, because the ability to identify, cultivate and to exploit the core competences can establish opportunities for growth.

The authors have investigated six hypotheses related with identification, cultivation and exploitation. The first two hypotheses are related with identification. In the past, managers were afraid of low coast and high quality. Nowadays the issues most corporates are facing are related with the speed of rivals in contriving markets, product developments and – enhancements. It is crucial to identify the roots of the competitive advantage and avoid thoughts of competences when it comes to identifying the core competences. Corporates are confronting each other to establish competences which define global leadership. Successful corporates stop defining themselves as groups of business that produce products, due changes in the business portfolios. The next two hypotheses are related with the cultivation of the core competences. Important to know is that core competences must provide access to potential markets, before identifying them. The products must be distinctive and able to contribute to the benefits of the on the final product. Beside this it is also necessary that the product is hard to imitate by their competitors. All in all, it is necessary to start with identification of the core competencies, then develop them in core products. During the development of core products is it important to focus on differentiation of the brand – and fabrication share. At last the final two hypotheses are related with the exploitation of the core competences. All facets of the corporates must lead to the same direction and these corporates must establish or maintain a wide strategic architecture which provide objectives for building competencies.

The results in the article has been established by qualitative research and in particular longitudinal research. A conclusion can made as follow: The authors have observed the same objects over long period of time. The research exist out of a comparison between two companies NEC and GTE. The authors underpin their results with clear practical examples of the experience in of core competences from the two corporates. Therefore, the research is formed in a combination of a case study and a particular longitudinal study.

The authors did desk research in order to analyze the issues and the possible solutions. At first, corporates can encourage their business units to become global leaders by directing them to specific end markets. Unfortunately this is not enough, due the quick changing boundaries and targets. In the other hand there are numerous examples of corporates which have proven themselves to become global leaders (in new markets) by rapidly penetrating in new markets and with dealing with quick changing demands from consumers. The task of the management is to control an organization which is able to produce long functional and irresistible products. Even better is when an organization can produce products whose demands haven’t determined yet. Of course this task could be a very challenging or though. Finally, keep in mind that this will require some radical changes in the management, because it must settle a responsibility for the competitive decline while the reforming the principles.

As mentioned before the results of the research are based on six hypotheses which will be further explained.
Competiveness arises when there is a case of the ability to build at low cost combined with rapid growth. The important sources of creating advantages starts with the management, because they have the ability to hide developed core competences, so they can adapt flexible in rapidly changing markets and opportunities. Collective learning in the organization exists of core competences with value that does not change and which also must be cherished and protected.

Since successful corporates stop defining themselves as groups of business that produce products, they often focus more on the cost and quality of products from their competitors. They try to gather insights about how these competences can be recruited at low cost. When it comes to developing core competences it is not only about researching the competitor about their developments and shared cost. Also managers to investigate the final product, instead of only adapting and applying the skills from their competitors.

In the identification process of the core competences, organizations can make use of three test. The first test suggest core competences to provide access to wide variety of markets. The second test implies a significant contribution to the customer’s benefits. The third test involves the difficulty of imitation for competitors.
The competitive ability of the final products are depended on the core competences and not on the prices or performances. In order to guarantee the core competences or avoid weakening during market changes, they should set clear objectives to develop and expand the core competences. There is a chance that competences might lose their skills if they are not able to respond to opportunities in the market. Identifying the importance of core competences is a continuous process, with just a few limited chances.

The core products are linked between the core competences and the final products. They exist out of one or more core competences which add value(s) to the final products. It is necessary to create distinctions between core competences, core products, and the final products, because the global competition have influence with other rules among each part.

Moreover, an important goal of core competences is to establish global leadership the product design and -functional development. Being able to control the core products is necessary for the following two reasons: First, domination in core products ensures the company’s evolution of applications and end-markets will be controlled by own hands. Second, costs, time, and risks can be reduced for the developments of new products when an organization multiplies its number of application areas for its final products. In short, targeted core products provides scale and scope advantages.

Corporates must invest in developing their core competences and core products. Numerous corporates invest in not suitable product lines or don’t even invest at all. Without investments the core competences can’t develop and competitive advantages can be lost. SBU’s has the most influence at this point, because managers in the SBU’s are usually the ones who can resource for core competences and core products which provides growth of the corporate. For this purpose managers must use their skills to discover and create opportunities to establish a stronger position.

Corporates need to establish a wide strategic architecture with clear competences objectives. This can be served as a roadmap with futuristic insights about the developments and technologies which are required to create competences. Also very important to know, is when the strategy is being designed, the corporation must be organized around the core competences and core products, so they can provide defined distinctive competitive advantages. Besides that, an architecture is also a great communication tool with customers and other business parts. All in all it defines a clear view of the organization, without being very detailed about every single step.

In the article two correlational relationships are described, which are both not depended on the research. The first one is about the competitive ability from the corporate. In short term, the competitive ability is depended on prices and performance characteristics from the current products. Since there is case of globalization, the corporate must be aware and prepare of global competition. All similar standards for quality and product cost move to the same point. At the long-term competition quality and cost delivers less differential advantage. The second correlation is about the relation between core competences and external factors. Products are more vulnerable when there is no focus on core competences. Harmful changes could be established by technological changes and when suppliers become competitors, which can cause decline in investments, marketing, and distribution.

The scientific relevance will be explained as follow: Core competences are critical resources of the corporate. Core competences should be acknowledged and given the same values by the SBU’s as they give to capital values. After the identification, It is important to keep them further developed and exploited. Core competences increase the competitive ability, but it can also decrease when one of the core competence is lost in performance. By focusing on them, a strong and loyal community can be created. It also directs to new sources of business developments and opportunities. Ulitmately, they can create distinctive competitive advantages which competitors can’t imitate.

In conclusion when an organization clarifies their core competences, the whole organization must aware of, and support the competitive advantages. Clarification can be completed in two steps. First, formulate a strategic commitment which defines the company and market. Second, is identification of the core competences which supports the strategy. After the clarification, necessary investments should be made in technology and critical resources and strategic partnerships. At last is a core competency mindset must build. By completing these steps, distinctive competitive advantages can be established.

3 Purchasing must become Supply management
By Peter Kraljic, 1983
Purchasing has become a routine in many organizations. Nowadays, purchasing departments plays a very important role, but they are also very vulnerable to the external environment. Kraljic provides a strategy that the management can use to spot and prevent weaknesses and threats.
Due the quick changing environment, organisations needs to increase their abilities to adopt the changes. How can organizations prevent themselves from unexpected/external changes and deal with new types of economics ,new technologies, and opportunities? In order to ensure that necessary goods at competitive cost are available for a long time, organizations need to consider risks and the complexity of international trade. International trading organizations are often facing with uncertain changes in price and supply. So this is how purchasing must be become supply management is arise.
According to the general question, the author has set the following hypothesis. Supply management is needed for necessary good in a competitive environment. Supply management becomes more important when there is case of big uncertainty in supply relationships, technological developments and availability of necessary goods.
Kraljic has investigated two hypotheses. The first one is related with the formation of a supply strategy. By creating a successful strategy, vulnerabilities could be minimized and potential purchasing power could be increased. The supply strategy provides a frame of gaining marketing and business ideas, prediction of futuristic supply scenarios, and the opportunity to identify the availability of purchasing options and individual strategies of supply goods. The second hypothesis is related with strengthening the organization. In order to develop effective organizational relationships, some concrete changes in the organization are required. So they are able to provide proper support systems and able to upgrade the skills, knowledge and experience of the staff.
The research method of Kraljic has used is most likely a qualitative case study. Kraljic is explaining why and how things happens in this article. For example he is wondering why purchasing must become supply management and then he has given examples of how it is applied. The arguments he use is underpinned by the experience and handlings from companies. Besides that, it is also a longitudinal study, because Kraljic has observed several companies over a long time to discover their similarities in behavior. Finally due this research he has found strategy which can solve the problems in an effective way.
In order to answer why it is necessary to have a supply strategy and what the old situations were, Kraljic did some desk research. The results will be further described.
To find out if a company needs a supply strategy, is based on two factors: First, the importance of strategic purchasing of the added value from the product, the amount of semi-finished products, raw material costs, and the impact on the profitability. Second, the complexity in the supply market, think about logistic costs, trade barriers etc.
Determined on the current situation, companies can check what type of strategic supply strategy they can apply. Also they can check if it is necessary to exploit the purchasing power combined with suppliers and decreasing the risks to an acceptable minimum. Hereby new options or weaknesses may arise, such as: preventions in supply obstacles and interruptions, make-or-buy policy, minimum acceptable risks, and collaboration between suppliers.

In order to form a successful supply strategy Kraljic recommends companies to follow a framework based on four phases:
Phase 1: Classification
In the first phase, companies should classify and reorganize all their purchased materials or components in terms of profit impacts and supply risks. After this progress these materials must be classified in categories as: Bottleneck, leverage, strategic items, and noncritical items. Hereby, organizations can adjust their purchasing decisions based on those categories. Also organizations must keep in mind that they must update their purchasing portfolio continuously due the changes in supply and demand.

Phase 2: Market Analysis
In the second phase, companies should analyse the supply market conditions for those materials. So they can estimate the availability of strategic items. Further they can review the supply market measured both quality as quantity and as the strength of the existing suppliers. Besides this, the organization must also analyse the supply lines and the need of the organizations, so they can find out if they are meeting the supply requirements. For each industry there are different criteria’s. Therefore, it is crucial to precisely to establish the criteria for as well the supplier as the company for a concrete market analysis.

Phase 3: Strategic positioning
After the classification the companies should determine their strategic supply position. After the items or materials have been classified as strategic, changes and vulnerabilities will be identified. For these items it is necessary to prevent supply risks and to establish a strategic direction. The purchasing portfolio puts commercial purchasing against the dominant position of the supply market. Hereby companies are able to approach reverse marketing to develop measures against the main suppliers. Strategic lines likes exploitation, diversification and balancing becomes necessary in this phase.

Phase 4: Action plans
In the fourth and the final phase, companies should set up actions plans based on their strategies. Like mentioned before the three strategic lines are: exploitation, diversify and balance. All them have their own ways to implicate the purchasing strategy. During this phase companies should examine the supply scenarios as for the short term and for the long term by defining risks, revenues and strategic implications. The strategic implications must develop detailed and desired options with actions, responsibilities, emergency and objectives measures for the implementation and adoption of the top management. The final product contains a series of strategies for critical purchasing materials which can indicate the future actions measured by criteria’s.

After followed these four phase, it is necessary to strengthen the organization. Firstly, it is important to maintain good and effective relations with the division/departments of the corporation. Secondly, it is important to keep the system support up-to-date, user friendly, and aligned with all divisions/ departments. The final phase is to upgrade the skills, knowledge and experience of the staff. Kraljic is convinced that by using these methods, companies will be well-prepared for incoming threats.

In the article two correlational relationships are described, which are both not depended on the research. The first one is related with the quick changing purchasing environment. The role of purchasing got influenced by threats such as: political pressure, scarcity, increasing competition and technological changes. The second hypothesis is related with the criteria from the core competences. Not every frame of criteria can be applied in every industry. The variation in criteria is related with technological and economic changes or structure and the dynamics of competition. Therefore, it is crucial to precisely to establish the criteria for as well the supplier as the company for a concrete market analysis.
According to the above mentioned, some question are arise about what further developments are needed. This can be explained the scientific relevance from the article: In order to fit the demands of the new supply strategy, companies must also perceive and applying greater demands on skills and experience of the purchasing staff. Before the implementing radical changes in the organization, there is an important task for the top management, which is promoting a constructive atmosphere and attitude of the purchasing staff, so they will create better business relationships. Needless to say, forming an effective supply management strategy must done gradually. The company must overcome their obstacles in order to deliver optimum performances. All in all strategic awareness, flexibility ,and a strong entrepreneurial mindset in the supply environment, will improve the supply security and reduce input costs.
By applying the purchasing portfolio from Kraljic, organizations can create several advantages. Also the position of the organization can be clarified by analyzing the supply market. Uncertainties and threats could be discovered and prevented on an earlier stage when organizations exanimate the supply market continuously. Hereby, the position of the organization can be strengthened. Organizations can use the purchasing portfolio to analyze different strategic supply scenarios to discover new opportunities and areas where they can strengthen them. At the end is important to organizations to set up actions plans and continuously improving their new purchasing strategy. Only so organizations take the maximum out of the purchasing from Kraljic.

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