AAA Value Chains:
Agility, Adaptability and Alignment
Hau L. Lee
Stanford University
Strategies to Win
Agility
Challenges
Implications
Increasing sources of
uncertainties
Uncertainty drives
need for flexibility
Changing needs for
products/markets/time
Supply chains to fit
changing needs
Trend to distributed
supply chains
Differential interests
of multiple players
Adaptability
Alignment
Agility
Regular Supply Chains
SER Supply Chains
• Information integration
• Visibility, transparency,
communication
• Sense and response
• Process monitoring
• Design for postponement
• Design for Environment
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Agile logistics
Super-efficient
Supplier coordination
Supplier innovation
Contingency planning
Smart logistics
Total waste elimination
Supplier collaboration
Supplier innovation
Contingency planning
Adaptability
Regular Supply Chains
SER Supply Chains
• 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
• 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
Alignment
Regular Supply Chains
• Role realignment
• Mission
synchronization
• Incentive alignment
• Integrated performance
measurement
• Leadership
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
Examples of AAA Enterprises
Netafim
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
Projected Water Shortage 2025
Physical water scarcity
Economic water scarcity
Little/no water scarcity
Not estimated
Seckler et al, 2002
Netafim Afghanistan Corporate Car
Water, fertilizer &
energy management
Crop Management
System: IrriWise
Radio
GSM
EC/pH Control
Netafim Irrigation University
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•
•
•
Technical & agronomist education
International knowledge sharing
Professional studies programs
Local hands on instruction.
Supply Chain Evolution
Revenues (Millions $)
Manufacturing efficiency
to be “best drip irrigation
equipment company”
500
450
400
350
Agility to mass customize
equipment in expanded
but diverse market
300
250
200
150
100
50
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Solution provider – “More
yield with less water”
AAA Value Chain at Netafim
Agility
Innovative technology for most
efficient & effective irrigation,
manufacturing and order fulfillment
excellence, use of IT
Adaptability
Mass customized products to adapt
to different geographies, climate
and products; greenhouse project
management offerings
Alignment
Customer solutions for win-win
higher yield with less water,
education of customers, migration
from product to service
Soy Bean Supply Chain in India
ITC
Farmers
Inbound
logistics
in bulk
Mandis
Outbound logistics
& payment
• 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
ITC e-Choupal
Internet Kiosk
e-Choupal
Market conditions,
prices, weather,
knowledge
Farmers
ITC
Mandi
Prices
Processing
Authorized
Prices
Mandis
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•
•
•
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
Win-Win Value Proposition
120
After
Farmer
ITC
215
370
Before
0
375
200
400
600
Transaction Costs in Rupees per metric ton
Source: Anupindi & Suvakumar, 2007
800
ITC e-Choupal
• 6,000 e-Choupals & more than
120 hubs in 9 states, 36,000
villages; empowering 3.5
million e-farmers. 6,000 eChoupal 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.
AAA Value Chain at eChoupal
Agility
Restructuring information, physical
& financial flows for transaction
efficiency & supply/demand
matching
Adaptability
Product & geography expansion;
product quality differentiation;
using reverse channel for new
business offerings and service
Alignment
Win-win for farmers and ITC,
savings for consumers, higher
quality with more variety for
consumers
AAA Value Chain at eChoupal
Agility
Restructuring information, physical
& financial flows for transaction
efficiency & supply/demand
matching
Adaptability
Product & geography expansion;
product quality differentiation;
using reverse channel for new
business offerings and service
Alignment
Win-Win for farmers and ITC,
savings for consumers, higher
quality with more variety for
consumers
Hugo Boss
Marks & Spencer
Next
Lacoste
Esprit
Abercrombie & Fitch
GAP/Banana
Republic
Brooks Brothers
Nautica
Nordstrom
JCPenney
Tommy Hilfiger
J.Crew
Nike
Polo Ralph Lauren
Esquel Culture
Ethics
• Be a Good Citizen and a Good Employer
Environment
• Cherish the Environment
Exploration
R&D Innovations
• Wrinkle-free garments
• High performance
• Antibacterial finishing
• Explore and Embrace Innovative Solutions
• Cashmere-like cotton
Excellence
• Genetic engineering
for cotton breeding
• Reduce Waste through Functional Excellence
Education
• Dare to Err but Quick to Learn
• Nanotechnology in
fabric finishing
Sustainable Practices
• 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
Organic Farm
AEA/AEC
ALTAY
阿勒泰
TACHENG
塔城
Kramay
City
BORTALA
克拉玛依
博尔塔拉
Organic Cotton
Development
市
XJE/TPE
YILI
伊犁
Organic Cotton
Consumption (tons)
CHANGJI
昌吉
Heboksel
和布克赛尔
URUMQI
乌鲁木齐
KEZILSU KIRGIZ
克孜勒苏
KASHI
喀什
WFC
丰达
AKESU
阿克苏
TURPAN
吐鲁番
Shaya
沙雅
Awati
阿瓦提
HETIAN
和田
BAYINGOLIN
巴音郭楞
50% self-sufficient
HAMI
哈密
500
450
400
350
300
250
200
150
100
50
0
03
04
05 06 07
08F
Innovative Organic Farming
• 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
• 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.
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.
Eco-Mobile Lab in Xinjiang
Schools in Farms & Factory Locations
Building Schools in Local Communities
New School Opening Ceremony
AAA Value Chain at Esquel
Agility
Innovations for power efficiency,
sustainable farming and
manufacturing practices, ethical
treatment & education of employees
Adaptability
Continuous R&D innovations in
product functionalities, farming
methods, and manufacturing
processes
Alignment
Contributions to communities
where farms and factories are,
champion industry-wide social
responsibility in China
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.