Three by Three Supply Chain Management (3×3 SCM™)
Framework for 3 x 3 Approach to Supply Chain Management
Alba Logistics Consultants Ireland (3×3 SCM™)
International supply chain partners are myriad, and include suppliers, sister companies, carriers, service providers, distributors, agents, and brokers as well the compliance, regulatory and fiscal authorities in all the jurisdictions where the business operates. Managing this multiplicity of relationships and connections is complex and challenging, even for the largest of organizations with substantial resources at their disposal, and a one-size-fits-all approach and model is simply neither effective nor efficient – a differentiated approach is required.
To create a differentiated framework for how to effectively manage the governance, control and integration of the supply chain, we find it extremely useful and powerful to characterize and qualify the relationships with supply chain partners along three distinct dimensions to create a profile for each. The is the first “Three” of the 3 x 3 approach and works as follows:
- Power Asymmetry
The Duration dimension refers to whether the relationship is short-term or long-term, finite, recurring or indefinite.
The Complexity dimension refers to where the relationship fits on a scale that goes from single-point, single-level, transactional at one end, to multi-point, multi-level, collaboration at the other extreme.
The Power Asymmetry dimension refers to whether we and the supply chain partner view each other as peers in terms of size and influence or whether there is a high degree of asymmetry, whether positive or negative, from our point of view with respect to the supply chain partner.
How each supply chain partner scores on the three dimensions, together with some other considerations, informs what type of governance, control and integration regime will be most appropriate for that relationship.
These additional considerations referred to include:
- how critical the relationship is to your business
- what risks the relationship is exposed to
- how stable the relationship is likely to be in the future
- how easy it would be to replace.
In this way, the full range of supply chain relationships can be triaged into groups. This is the second “Three” of the 3 x 3 approach. These three groups are those that are in the mission critical group, those that in the value-add group and those that are in the commodity group.
Each of these triaged groups would operate under regimes with differentiated governance rules, performance metrics, communications protocols. The contract review frequencies and performance improvement mechanisms would also be differentiated. This helps to ensure maximum effectiveness of the relationship while allowing you to mainatin an efficient use of finite resources to managing your supply chain.
Supply Chain Partner Profiling
For example, in the graph below, the profile of Supply Chain Partner 1 is characterized by high complexity, long duration and low power asymmetry. This means that this is a partner that we view as a peer in terms of power and influence. If this were a mission critical relationship, that is difficult to replace, it would drive us to nurture and cultivate this relationship, dedicating considerable effort in a collaborative way.
Supply Chain Partners Profiled Along Three Dimensions of Duration, Complexity, and Power Asymmetry
In the relationship with Supply Chain Partner 2, the power relationship is quite asymmetrical. If we are on the negative end of this asymmetry, that is, that the partner has far more power and influence in the relationship, than we do, and the relationship is also mission critical, then we can see that we are in a very vulnerable position and might be best advised to put in place preventive and contingent actions to guard against an unforeseen breakdown of the relationship. If we are on the positive end of the asymmetry, we might be able to devolve a good deal of the responsibility for the effective management of the relationship to the partner and save ourselves considerable resource allocation.
The relationship with Supply Chain Partner 3 is short term and low complexity with high power asymmetry. If we are on the positive end of this asymmetry, and the partner is easily replaceable, this is one that could be operated under standard and automated format of the “rules of the game”, again freeing up resource on our side.
Future Vision and Business Value
A successful transition to a profiled and triaged set of supply chain relationships with differentiated operating and management regimes and frameworks will deliver significant value to your business on an annualized basis.
Some of these business benefits would include, among others, the following:
- Enabling of the appropriate allocation of the finite resources of time, effort and attention to where they will have the greatest positive impact leading to greater efficiency and increased capacity to manage the growing complexity of the supply chain.
- Providing focus, structure and clarity of purpose in the day-to-day management of supply chain partner relationships leading to increased effectiveness, decreased attrition, and improved performance.
- Ensuring the avoidance of crises arising from unforeseen supply chain interruptions and relationship friction and breakdown.
- Improving control, visibility and transparency of performance and the ability to rapidly implement preventive and contingent actions when and where needed.
- Providing the basis for continuous improvement with mutually aligned incentives and benefits for your business and your supply chain partners.
Contact Patrick on email@example.com
Check out his book International Supply Chain