Supplyu Chain Essay

The 21st-century Supply Chain

The best supply chains aren't just fast and cost-effective. They are also agile and adaptable, and they ensure that all their companies' interests stay aligned.

by Hau L. Lee

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uring the past decade and a half, I've studied from the inside

Supply Chain

I more than 60 leading companies that focused on building and re' building supply chains to deliver goods and services to consumers as quickly and inexpensively as possible. Those firms invested in state-ofthe-art technologies, and when that proved to be inadequate, they hired top-notch talent to boost supply chain performance. Many companies also teamed up to streamline processes, lay down technical standards, and invest in infrastructure they could share. For instance, in the early 1990s, American apparel companies started a Quick Response initiative, grocery companies in Europe and the United States touted a program called Efficient Consumer Response, and the U.S. food service industry embarked on an Efficient Foodservice Response program. All those companies and initiatives persistently aimed at greater speed and costeffectiveness-the popular grails of supply chain management. Of course, companies'quests changed with the industrial cycle: When business was booming, executives concentrated on maximizing speed, and when the economy headed south, firms desperately tried to minimize supply costs. As time went by, however, I observed one fundamental problem that most companies and experts seemed to ignore: Ceteris paribus, companies whose supply chains became more efficient and cost-effective didn't gain a sustainable advantage over their rivals. In fact, the performance of those supply chains steadily deteriorated. For instance, despite the increased efficiency of many companies' supply

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HARVARD BUSINESS REVIEW

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The 21st-Ceiitury Supply

chains, the percentage of products that were marked down in the United States rose from less than 10% in...