A Conversation with "Father of Supply Chain" Hau Lee: Future Competition Won't Be Between Companies, But Between Ecosystems | Waves World View

"The new imperative for supply chains." By Ren Qian

In an era of intertwined globalization and geopolitics, the term "supply chain" has never carried such weight — representing both the resilience of economic lifelines and their fragility and uncertainty. The old globalization was built on fluid supply chains that prioritized efficiency and cost-driven flows. Now, with national identity layered on top, rearranging the pieces has become consensus.

In this field, Professor Hau Lee of Stanford Graduate School of Business is among the most closely watched scholars. He has spent 40 years studying supply chains, and his classic "3A" theory — Agility, Adaptability, and Alignment — has become a critical reference for countless companies and governments in crafting strategy. This theory was brutally and accurately validated during the 2004 financial crisis, the 2011 Great East Japan Earthquake, and other events.

"Many people back then only cared about efficiency, pursuing the extreme of 'lean,'" Lee recalls. "But the longer and tighter you stretch a chain, the more easily it breaks." Thus, "Agility" is for responding to sudden disruptions; "Adaptability" is for responding to structural changes; "Alignment" is so that every link in the chain is no longer an isolated profit-seeker, but part of a community with shared fate. But in recent years, he has observed a deeper shift:

"Our world is moving from a 'globalized world' to a 'coexistence of multiple world systems.'" He analyzes that the pandemic, trade friction, climate crisis, and other events are not isolated — they all point to one core problem: the old model of global supply chains with cost as the sole orientation, stretched excessively thin, is no longer sustainable.

In 2023, this scholar known as the "father of supply chain management" devoted the golden period of his academic career to the Integral Institute, serving as chair of its board. Along the scenic highway from Guilin to Yangshuo stands a sustainable development garden — "Shiru" (十如, "Integral"). Every plant, every design, every water- and energy-saving facility, even every dish in its restaurant, practices "sustainable development."

This campus, built by the Esquel Group, has just received a "Zero-Carbon Campus" certificate from the China Energy Conservation Association, becoming one of the first in the industry to pass certification. For Lee, this campus coincides with the supply chain ideal he pursues — an ecosystem that truly integrates economic development, environmental protection, and social harmony. The annual "Shiru Dialogue" hosted by the Integral Institute is held at Shiru, and it was during this event that "Waves" recently arranged a conversation with Lee.

In the conversation, he frankly admitted that "the challenge of achieving the ideal is enormous" — for example, persuading partners to make upfront investments for longer-term environmental benefits, changing deeply entrenched "fast fashion" consumption habits, and pushing industrial chains toward sustainable fashion. He believes that future competition will no longer be between individual enterprises, but between supply chain ecosystems. "A healthy, sustainable, resilient ecosystem is the most powerful competitiveness."

The conversation follows:

Waves: Why did you choose to join the Integral Institute?

Lee: I have deep ties with Esquel; I previously served as an independent non-executive director. Esquel's industrial chain runs from cotton to yarn, then to garment manufacturing and retail — a very complete vertically integrated supply chain. Over 10 years ago, the reason Esquel came to Guilin was to use this place (Shiru) to build a "sustainable development garden," to create a demonstration model for Chinese manufacturing. This aligns with my academic direction.

Waves: What is the most critical academic practice you are pursuing here?

Lee: I came here to see whether there are replicable technical pathways for greening supply chains — from Esquel Group's cotton and cottonseed R&D (such as organic cotton certification), to spinning (water-saving processes), to garment production (low-carbon manufacturing), to logistics (green packaging) — the entire chain needs to transform in sync.

Waves: What results have you seen so far?

Lee: We are conducting experiments at three levels, corresponding to the three dimensions of the 3A theory.

First is the environmental "closed loop." Researching the recycling of industrial water, the regeneration of discarded textiles, and the comprehensive application of clean energy such as solar power, to build a "cradle to cradle" material circulation system. This is the ultimate test of an "Adaptable" supply chain when facing resource scarcity.

Second is social "Alignment." The work that Shiru promotes extends beyond the campus itself. How to empower upstream and downstream partners including farmers through the supply chain, providing them with stable orders and advanced technology; how to design workflows that guarantee efficiency while respecting employees' physical and mental health. This is an interrogation of "Alignment" relationships inside and outside the supply chain, truly internalizing social responsibility as part of the business model.

Third is technological "Agility." Shiru is also a testing ground for cutting-edge technology. Using IoT, big data, and artificial intelligence to attempt to build a "digital twin" supply chain system, capable of sensing, predicting, and responding to internal and external changes in real time. This is the highest expression of "Agility" in the digital age.

Waves: So the ultimate goal of supply chains is not pursuing static efficiency optimization, but achieving a dynamic balance among economy, environment, and society.

Lee: Twenty years ago, as China grew into a massive market, many enterprises began considering entry, and they certainly needed to adapt to the transformation of the market economic system. But now supply chains are more complex. Supply chains are the "blood vessels" of civilization — what they transport is not merely goods, but values. In the past they drove globalization; today they must answer: How to meet human needs without overdrawing the planet's future?

Waves: The "3A theory" you proposed in 2005 is still widely applied today. The world and environment have changed enormously. Does it need to evolve?

Lee: The core logic of the 3A theory has not changed, but the application scenarios have evolved profoundly. The 3A theory is essentially a correction to the traditional "lean supply chain." At the peak of globalization, enterprises pursued extreme efficiency such as zero inventory and just-in-time production, while neglecting supply chain fragility. But now, with U.S.-China decoupling and regionalized production (such as the "China Plus One" strategy), supply chains are shifting from globalization toward regionalization and localization. "The coexistence of multiple world systems" is the deep logic of supply chain restructuring.

The 3A theory reconstructs supply chain resilience through three dimensions — first, Agility: establishing rapid response mechanisms, such as multi-sourcing and safety stock buffers, to cope with sudden shocks (such as pandemic-induced supply disruptions). Second, Adaptability: through modular design and flexible capacity allocation, responding to structural changes (such as trade barriers, technological iteration). Third, Alignment: promoting information sharing and risk sharing across the industrial chain upstream and downstream, forming a "community with shared fate" (such as the joint R&D between automakers and chip makers during the automotive chip crisis).

Waves: What do you think Chinese manufacturing should prioritize most in the process of global supply chain restructuring?

Lee: Supply chains divide into two parts: R&D and production. Moving from the former single production link to R&D plus production creates a very powerful supply chain.

For example, at the start of COVID, a prominent problem China faced was the lack of specialized isolation ward hospitals, and prevention experience was very scarce. Although many hospitals rapidly added isolation rooms, building isolation wards within fixed hospitals was not optimal — because viral spread is dynamic, and fixed hospitals cannot be relocated. At that time, Haier developed an IoT biosafety cloud ecosystem within two weeks, networking ultra-low temperature freezers, biosafety cabinets, and other equipment to achieve real-time monitoring and traceability across the entire process of sample storage, transport, and testing. It turned out that a good supply chain can break through geographical limitations.

In China, there are not yet enough enterprises like Haier. Huawei and JD.com also do very well. For Chinese manufacturing, only R&D holds hope.

Waves: Many Chinese manufacturing enterprises don't avoid R&D because they don't want to, but because it's a massive cost center.

Lee: I tell enterprises that they need to leverage their own advantages for R&D. As manufacturers, they should understand very well which materials to use for new products, and which methods to employ to obtain them.

Take Esquel as an example. Through continuous research into manufacturing processes, the enterprise accumulated profound technical capabilities and developed technologically functional fabrics, such as waterproof and stain-resistant fabric — if you accidentally spill coffee, it won't stain your clothes.

Another example is their "waterless dyeing" technology. Traditional dyeing processes consume enormous amounts of water. Esquel spent nearly 10 years developing a technology that uses reactive dyes in non-aqueous media. Producing one shirt can save 40 liters of water, equivalent to an adult's drinking water for 20 days. The advantage of Chinese manufacturing is that you understand the production process better than anyone — this is the best starting point for R&D.

Waves: In the environment of "coexistence of multiple world systems" that you mentioned, the pressure on Chinese enterprises is self-evident. Is it still possible to actively embrace sustainable development? What external support is needed?

Lee: I believe this is an inevitable trend, not a choice. Sustainable development is not an optional question, but a survival question.

First, consumers are changing. New-generation consumers increasingly care about the story behind products — how were they produced? What is their environmental impact? This is not a uniquely Western trend; young Chinese consumers care just as much. Second, regulation is tightening. The EU's Carbon Border Adjustment Mechanism (CBAM) has already begun implementation. If your product has high carbon emissions, you will face tariff barriers. Third, competitiveness is being reconstituted. Past competition was "who has lower costs"; future competition is "who is more sustainable."

But enterprises do need external support: policy support (green credit, tax incentives, carbon trading market improvement); technical support (R&D institutions collaborating with enterprises to lower technical barriers); standards support (establishing clear sustainable standards and certification systems); ecosystem support (building industrial clusters so upstream and downstream enterprises transform together). A single enterprise can hardly complete transformation alone, but if industrial clusters and ecosystems form, costs will drop substantially. This is why I keep emphasizing: future competition is between ecosystems.

Waves: Past globalization was built on fluid supply chains that prioritized efficiency and cost-driven flows. Today, against a backdrop of geopolitical tension, climate crisis, and technological waves, how should we redefine "globalization"? What is the new picture of future global supply chains?

Lee: The past globalization model centered on efficiency and cost is no longer viable. In my view, new globalization should be globalization that achieves efficiency under the premises of security, resilience, and sustainability — a transformation from a single global supply chain toward multi-layered, regional supply chain ecosystems.

Future global supply chains will exhibit three major shifts.

First, regionalization and refinement. In the past we concentrated all production in China because logistics were simple and efficiency was highest. Now enterprises need to adopt a "China Plus N" layout, perhaps placing some segments in Vietnam, Bangladesh, or East Africa. They must build regional supply chain networks that can withstand risks, according to each location's tariff policies, logistics conditions, and capital environment.

Second, from "cost-driven" to "value collaboration" — this can be explained through my "3A" theory. Agility is not just fast production; it should be fast across the entire process, full-chain agility from design to sales — designed this morning, available online this afternoon. Adaptability means enterprises must adapt to different regions' tariffs, technical, and environmental standards. This is not a choice, but a survival necessity. Alignment is no longer just between buyer and seller relationships, but alignment of the entire ecosystem. For example, if we produce in Guilin, we cannot damage Guilin's environment, and we must contribute to the local community, achieving true "harmony between heaven, earth, and humanity." These three aspects actually pursue value collaboration.

Third, greater resilience. Enterprises need to continuously elevate their position in the value chain. More and more enterprises that do OEM for well-known brands are realizing that their core value is not manufacturing capability, but contributing 60% of R&D, providing materials and process innovations that the brands themselves lack. Future supply chain competition is competition in R&D capability.

Waves: Technologies such as AI, IoT, and blockchain are profoundly changing supply chains. In your view, which technology is most disruptive for building the "demand-driven supply chain" you advocate? Meanwhile, how should enterprises respond to the challenges of data silos, technology investment, and talent shortages?

Lee: In my view, what is most disruptive for building a "demand-driven supply chain" is digitization and AI. Supply chains are far more complex than before; we can no longer rely solely on human labor to inspect and solve problems. We must use data to operate. AI can observe technical problems and details that are difficult for human eyes to detect, and through analysis warn of abnormal situations. This is why I say that leveraging technology is the best solution to help ensure operational safety and achieve agile response.

For the challenges enterprises face, my recommendations are:

To address data silos, the core is "Alignment." Alignment today is no longer just between suppliers and buyers, but coordination of the entire ecosystem. Enterprises cannot care only about their own data; they must form an aligned network with trading partners and even their environmental communities, allowing data and value to flow within it.

To address technology investment, a long-term perspective is needed. Chinese people have a far-sighted view of things. Investment doesn't need returns in one year; long-term development is more beneficial. Investment in AI and data is the same — it is investment in future competitiveness. Enterprises should value its long-term returns, not short-term financial pressure.

To address talent shortages, on one hand "shared vision" is needed; on the other hand, cross-disciplinary cultivation. I now oversee supply chain leadership training, and the core is teaching them "how to get your suppliers and partners to share your vision." If they themselves feel this is good for employees and good for their own profits, they will do it proactively. And what we most lack is cross-disciplinary talent. Future experts must understand both technology and management, so I suggest collaborating with different institutions to jointly identify and cultivate such talent.

Waves: Enterprise supply chain performance measurement is shifting from traditional financial indicators toward a "triple bottom line" encompassing profit, planet, and people. At the operational level, how should global enterprises set and track these non-financial indicators?

Lee: Enterprises need to recognize that employee well-being, environmental protection, and business profit are inseparable. When employees are physically and mentally healthy, work in safe environments, and have no family worries, injury rates drop, turnover decreases, and productivity naturally rises. This itself is the most important performance.

Operationally, this can be divided into three dimensions: Employee well-being: tracking turnover rates, injury accident rates, and measuring employee satisfaction through surveys. Environmental protection: monitoring water and energy consumption, waste recycling rates, and committing to carbon reduction targets. Community contribution: evaluating positive impacts such as educational opportunities and economic development that the enterprise brings to local communities.

Ultimately, tracking these indicators is to achieve a balance: while pursuing reasonable profit, ensuring positive contributions to the planet and to people.

Waves: If you could summarize your vision for the future of supply chains in one phrase, what would it be?

Lee: Zero carbon, zero waste, zero inequality. Through technological innovation, institutional reconstruction, and behavioral change, supply chains will become a bridge for harmonious coexistence between humanity and nature.

Layout by Yao Nan | Image source: Unsplash

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