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AAA Supply Chains:

Agility, Adaptability and


Alignment
Hau L. Lee
Stanford University

High Tech Supply Chain


Environment
Demand
and supply
uncertainties

Fashion like product


Strong competitive forces
Increasing product variety
Potential of external disruptions

Short product
and
technology
cycles

Fast changing hardware and software


Multiple sources of technological advances
Frequent product transitions
Manufacturing cost pressures

Multiple
supply chain
partners

Outsourced manufacturing partners


Outsourced design partners
Consumer electronics channel
Other associated product providers

Challenges
Challenges

Implications

Increasing demand and


supply uncertainties

Uncertainty drives
need for flexibility

Shortening product and


technology cycles

Dynamic instead of
static supply chains

Multiple outsourced
supply chain partners

Differential interests
of multiple players

Strategies To Win
Challenges

Implications

Increasing demand and


supply uncertainties

Uncertainty drives
need for flexibility

Shortening product and


technology cycles

Dynamic instead of
static supply chains

Multiple outsourced
supply chain partners

Differential interests
of multiple players

Agility
Adaptabilit
y
Alignme
nt

Strategies To Win
Challenges

Implications

Increasing demand and


supply uncertainties

Uncertainty drives
need for flexibility

Shortening product and


technology cycles

Dynamic instead of
static supply chains

Multiple outsourced
supply chain partners

Differential interests
of multiple players

Agility
Adaptabilit
y
Alignme
nt

Seven-Eleven Japan
Largest convenience
store chain in Japan
($23.3B annual
sales) with 10,853
outlets (1,200 sq. ft
each)
#1 in fast foods
#1 in battery,
ladies stocking sales
#2 in paperback/
magazine sales

55 Inventory
turns/year

Value of $1 Investment

SEJ

Year

Nikkei

Total Information System


Network
Multimedia
distribution

Multimedia
distribution
Multimedia
Host transmissio
computer
n

7-11
Japan
HQ

Satellite
center
Dedicate
d line
Stor
e

Combined
distribution
center

ISDN
ISDN
Networ
Networ
k
k
Manufacture
r

7-11 Japan
district
office
OFC mobile
computer

Seven-Eleven Japans
Sense And Respond
Trust-based agile logistics
Dynamic shelving
Supplier collaborations

Measure

Act
Localized promotions
Shelf & merchandizing
New product development

POS+
Total visibility

Identify

Analyze

Correlation and
Substitution Local events
Product transitions

Speedy NPI With


Collaboration
General Design
Strategic Sourcing
Marketing & Distribution
New product release data
General design changes
Mechanical design data
Mfg. Design changes
Sourcing changes

Mechanical Design
Plastics
Component
Procurement
PCBA Mfg.
Testing
System Build & Test
Final Packaging

Chip design data


Chip design changes

California

Texas

Chip Design (GPU & MCP)


Chip Supply

Mexico
Hungary

2001 Product launch in 14 months


(versus 20 months for Sony Playstation
2), winning 3.6% market share in 4
months.

Agility And Xbox 360

Chip Packaging
Chip Design (GPU &
MCP)
Chip
Design
Transportation
customs
clearance

3rd Source
Manufacturing

2nd Source
Manufacturing

Mechanical Design
Services
Procure
Components
Plastics
PCBA Mfg.
Testing
Final Packaging

In November and December 2005, Xbox launched


Xbox 360
simultaneously in N America and Europe,
beating Sonys Playstation 3 by close to a year.

Supply Chain Excellence At


Xilinx
Product postponement:
field-programmable integrated circuits
Process postponement: die-bank as
decoupling point and customize to order.
IRL (Internet-Reconfigurable Logic) allows
reconfiguration remotely via the Internet
Postponement strategy supports NPI and
upgrades
Number 1 market leader

Wafer fabrication

Die-bank

FA&T

Crisis Bared Ones Weakness, Others


Strength
Wall Street Journal, January 29, 2001

March 17, 2000,


lightning-induced
fire at Philips
radio-frequency
chips factory in
Albuquerque,
New Mexico

B2B Outsourcing As Business


Differentiator
Percent of Respondents
40

37

37

35
30
25
20
15
10

11

11
5

5
0

Strongly Agree

Agree

Neutral

Disagree Strongly Disagree

Based on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007

B2B Outsourcing
Accelerated B2B Integration

Percent of trading partners integrated via B2B solutions


60
50

Before
outsourcin
g

40
30
20
10
0

Americas

EMEA

ASPAC

Based on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007

IT Savings From B2B


Outsourcing
Avg data processing time
B2B technical capabilities
Network changes
Softwae upgrades
Software initial cost
Hardware maintenance
Harware purchase & setup

Average Percent
Improvement

10

20

30

40

50

60

70

80

Based on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007

Building Agility
Sensible
Sense

Responsive
Response

Deep
Efficient
Intelligence
Execution
Local
Empowerment
Decentralized
Control
Integrated Information
Systems
Centralized Command

Strategies To Win
Challenges

Implications

Increasing demand and


supply uncertainties

Uncertainty drives
need for flexibility

Shortening product and


technology cycles

Dynamic instead of
static supply chains

Multiple outsourced
supply chain partners

Differential interests
of multiple players

Agility
Adaptabilit
y
Alignme
nt

Lucent Technologies 5ESS


80-90
Complex technology
with Lucent as leader
Primary market
in North America
Supply base in Asia
not well developed
Oklahoma City as central
procurement, stocking,
kitting and assembly site
for North America and
Asia.

91-00
Response time a
competitive pressure
Fast growing
market in Asia
Bulk of supply
base in Asia
1996: Taiwan and Qingdao
as engineering,
procurement and final
assembly hub for Asia,
backed up by OKC.

Dynamic Supply Chain


Strategies
Technology

Market

Focus

Strategy

Leadership

Concentrated
supply/deman
d

Margin
and control

Centralization

Maturity

Regionally
distributed
supply/deman
d

Responsivenes
s

Expanded
network

Decline

Globally
distributed
supply/deman
d

Agility

Value
chain redesign

Supply Chain Evolutions At


Lucent
2000
5*
No. of plants

29

5*

No. of suppliers

3,000

900

No. of
enclosures

47

Inventory turn

6-7

Heavy losses

Profitable for 4
consecutive
quarters

Profitability

*24 plants were sold off or closed. Celestica, Jabil,


Sanmina and Solectron now handle 95% of total production
needs

Worlds Most Admired Company In


Steel
Fortune 2003
2005

Sales Profit
($B)
(%)

Arcelo
r

40.57

13

Mittal

28.13

12

JFE

24.37

12

NSC

22.93

POSC
O

21.42

18

POSCO

S&P500
NYSE (February 04 to January 07)

Integrated Steel
Manufacturing
Blast Furnace
Blast Furnace
Iron Ore (Remove
Oxygen
& Impurities)

Crude
(Pig) Iron

Liquid Steel
Casting

Slab
Ingots

Reheating
Ingots

Continuous casting to save energy


Factory layout to cut cycle time
from days to hours
Real time production control
Innovative FINEX process
Source of national pride

Residual
Carbon
Removal,
Other
Alloys Added
Rollin
g
Rolled wires,
plates, pipes

Current Industry Challenges


Steel consumption (tons/person)
450
400
350
300
250
200
150
100
50
0

US

China

Projected worldwide
steel shortage
In 2004-2005
Iron ore cost
rose by 20%
Coking coal cost
rose by 80%
Freight cost
rose significantly
Increasing pressures
of trade barriers

Dis-integration Strategy
Crude steel manufacturing near iron ore
mines; finishing plants near customers.
Crude
Slabs Finishing
Steel
Iron Ore
Productio
Supply
Plants
n
JV and
strategic
alliances
with iron ore
suppliers in
India, Brazil
and Australia

Plans to build
crude steel
plants in Brazil
12 M-ton steel
plant ($12B) in
Orissa, India;
Phase I by Dec
2010 with
investment of
$3.7B

JV with US Steel in 2002


on finishing plant in
Pittsburgh
Thailand: Cold Roll plant
for Auto steel sheets
(1/06)
Nagoya, Japan: Cold Roll
plant for Auto (2/06)
Kunsan China: Cold Roll
plant for Auto (02/04)
Maharashtra, India: Plant

Building Adaptability
Flexible
Network
Relationships

People-ready
Change Mgmt

Architect Supply Chain for


Right Product, Market &
Time
Market
Intelligenc
e

Product
PLC Needs

Technology
Evolution

Strategies To Win
Challenges

Implications

Increasing demand and


supply uncertainties

Uncertainty drives
need for flexibility

Shortening product and


technology cycles

Dynamic instead of
static supply chains

Multiple outsourced
supply chain partners

Differential interests
of multiple players

Agility
Adaptabilit
y
Alignme
nt

Supply Chain Principles


The weakest link of the supply
chain defines the supply chain.
Instead of company to company
competition, we are now in an era of
supply chain to supply chain
competition.
Win-win relationship is the
cornerstone of supply chain success.

Traditional Demand Chain For


Prius
Inventory

Toyota
Distribution

Dealers

Inventory risk
Facility
Investmen
t

Incentive Alignment For


Prius
Inventory

Toyota
Distributio
n

Inventor
Risk

Dealers

Facility
Investment

Extended Performance
Measures

Organizational Boundary

Dimension

Single
Enterprise
Single
Dimensional

MultiDimensional

CrossEnterprise

Extended Performance
Measures
Time from
landing to
departure

Transit time

What about time from landing to destination?

Supply Chain Alignment


Dimension

Alignment

Decisions, roles,
responsibilities

Re-assignment
and empowerment

Risks, costs, rewards

Adjusted for incentives


with win-win interests

Performance measures

Extended, joint,
stretched
to reflect alignment

Some Keys For Alignment


Empowerment of decisions
and responsibilities requires
provision of capabilities
Alignment ultimately
demands behavioral change
Successful alignment across
organizations is based on building
trust in a supply chain

Impacts of B2B Outsourcing


Supplier satisfaction

Customer satisfaction

No. of value-added services offered to trading partners

10

20

30

40

50

60

70

Average Percent Improvement


Based on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007

TSMC Sales Trend


2005 sales: US$8.2B (7.5% YoY
G.R.)

10,000
9,000
8,000
7,000

1995 2005 CAGR: 22.4%

US$M

6,000
5,000
4,000
3,000
2,000
1,000
0

'95

'96

'97

'98
Q4

Source: TSMC

'99
Q3

'00

'01
Q2

'02
Q1

'03

'04

'05

The Collaboration Foundry


Worlds largest foundry
(contract semiconductor
fabrication
manufacturer)
Emphasizes customer
relationship as
First and Last Look
Invests in E-SCM to help
internal and customers
supply chain process
eFoundry
Design collaboration
Engineering collaboration
Logistics collaboration

E-SCM Architecture
Demand
Demand
Planning
Planning

Allocation
Allocation
Planning
Planning

Capacity
Capacity
Modeling
Modeling

Allocation
Allocation
Manageme
Manageme
nt
nt

Order
Order
Manageme
Manageme
nt
nt

Availabl
Availabl
eeToToPromise
Promise

Output
Output
Planning
Planning

CyberShuttle

Iterative design verification and improvement process

Sharing common mask set with different chips


Diamond lane treatment
Great cost and time savings for customers
Helps customers NPI
Win for both TSMC and customers

Service-Oriented Mindset
TSMC Solution

Service
Focus
Technology
Focus
Manufacturin
g Focus

Schedule
ahead of ITRS

Capacity
Leadership

Complete SoC
portfolio

Production
Excellence

World-class
quality

1987

1997

Customer-centric
total solution
Web-based design
engineering and
logistic service
Comprehensive
design service
Integrated
backend service

2000

AAA Supply Chain


Agility

Extensive information integration


Optimization-based applications
Highly efficient manufacturing processes
Centralized command, decentralized
control

Adaptabilit
y

Fab expansion based on technology


and market changes
Evolution to service-focus business
Optimized product/fab assignment

Alignment

Information sharing across supply chain


Collaborative relationships with customers
Tight connectivity with assembly and test
Trust-based, people-oriented organization

Building Agility
Sensible
Sense

Responsive
Response

Deep
Efficient
Intelligence
Execution
Local
Empowerment
Decentralized
Control
Integrated Information
Systems
Centralized Command

Building Adaptability
Flexible
Network
Relationships

People-ready
Change Mgmt

Architect Supply Chain for


Right Product, Market &
Time
Market
Intelligenc
e

Product
PLC Needs

Technology
Evolution

Supply Chain Alignment


Dimension

Alignment

Decisions, roles,
responsibilities

Assignment to best run


overall supply chain

Risks, costs, rewards

Adjusted for incentives


with win-win interests

Performance measures

Extended, joint,
stretched
to reflect alignment

Summary
World class supply chains require
capabilities in agility, adaptability and
alignment
Sensible Sense and Responsive
Response to gain agility
Right supply chain for the
right product and right time
Winning with the whole supply chain

AAA supply chain management is the


key for super-AAA performance and
values

2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S.
and/or other countries.
The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond
to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after
the date of this presentation.
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