Strategic Alliances 1 Slides 4 Strategic Alliances Global Supply Chain Management
Jan 19, 2016
Strategic Alliances 1
Slides 4
Strategic Alliances
Global Supply Chain Management
Strategic Alliances Slide 2
Introduction
Complexity business environments is up Resources required to manage are becoming
increasingly scarce Flexibility is required, so: focus on core
competencies and meanwhile build alliances
Strategic Alliances Slide 3
Why strategic alliances? Adding value to products (adding services) Improving access to markets Strengthening operations (quality, efficiency) Adding technological strength (efficiency,
opportunities) Enhancing/allowing strategic growth
Downside 1: core competencies should not be compromised
Downside 2: competitive advantages should not be compromised
Strategic Alliances Slide 4
Main Types of Strategic Alliances
Third Party Logistics (3PL) Retailer–Supplier Partnerships (RSP) Distributor Integration (DI)
Strategic Alliances Slide 5
Third Party Logistics (3PL)
Use of 3PL providers to take over a company’s logistics functions and even more……
About 40% (20%) of all logistics efforts (expenses) in 2013 (2008) due to 3PL
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What Is 3PL? Strategic partnership Long term commitment, multi-function
arrangement, process get integrated Large range of 3PL companies, some are
in trucking, other in DCs or WHs, or in containers, or in DC or WH technologies
Non-asset owning 3PL companies: 4PL– More holistic, on top, managing a whole network– Provide services, so no trucks or warehouses– Marketing/sales, IT-services/web sites, payment
(example: Amazon !), but could also entail reverse logistics, e.g. for repair or maintenance
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3PL Advantages Focus on Core Strengths
– Allows a company to focus on its core competencies
– Logistics expertise left to the logistics experts
Provides Technological Flexibility – Technology advances are adopted by 3PL
providers, company can benefit – So by using technology (IT and other
technologies) 3PLs may help meeting needs of a company’s potential customers
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3PL Advantages
Provides Other Flexibilities – Flexibility in geographic locations – Flexibility in capacities/infrastructure– Flexibility in service offerings – Flexibility in resource and workforce size
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3PL Disadvantages Loss of control inherent in outsourcing a
particular function. – In case of outbound logistics the 3PLs interact
with a firm’s customers..…..– Company and 3PL can address this:
• Painting company logos on the sides of trucks, dressing 3PL employees in the uniforms of the hiring company, providing extensive reporting on each customer interaction.
In case Logistics is one of the core competencies of a firm– It makes no sense to outsource these activities to a
supplier who may not be as capable as the firm’s in-house expertise• Large groceries, pharmaceutical companies
Strategic Alliances Slide 10
Retailer-Supplier Partnerships
Cooperative relationship between suppliers and retailers to use one another’s knowledge
Suppliers have better knowledge of lead times and production capacities
Retailers have better knowledge of demands
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Types of RSPQuick Response
Suppliers receive POS data from retailers Suppliers use this information to
synchronize their production and inventory activities with actual sales at the retailer
Retailers still prepare individual orders POS data are used by suppliers to improve
forecasting and scheduling and to reduce lead time
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Types of RSPContinuous Replenishment
Also called rapid replenishment Suppliers receive POS data Suppliers use these data to prepare
shipments at agreed-upon intervals to maintain specific levels of inventory
Advanced form of continuous replenishment– Suppliers may gradually decrease inventory
levels at the retail store or distribution center as long as service levels are met.
Strategic Alliances Slide 13
Types of RSPVendor Managed System (VMI)
Often called vendor-managed replenishment (VMR) Supplier decides on the appropriate inventory levels and
on the inventory policies to maintain these levels Supplier suggestions initially approved by retailer Wal-Mart and Procter & Gamble VMI
– Partnership, begun already in 1985– Has improved P&G’s on-time deliveries to Wal-Mart while
increasing inventory turns
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Main Characteristics of RSP
Criteria →Type ↓ Decision maker Inventory Ownership
New skills employed by vendors
Quick response Retailer Retailer Forecasting skills
Continuous replenishment
Contractually agreed-to levels Either party
Forecasting and inventory control
Advanced continuous replenishment
Contractually agreed-to and continuously improved levels Either party
Forecasting and inventory control
VMI Vendor Either party Retail management
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RSP Requirements Presence of advanced information systems Top management commitment
– Especially because information will be shared across companies
A level of trust among partners– Supplier manages retailer’s inventory– Retailer provides sales information to supplier– Reduced inventory leads to space savings etc.
• Can it be given to competitors ?
Strategic Alliances Slide 16
RSP Inventory Ownership Who makes the replenishment decisions? Who owns the inventory until it is sold?
– Consignment relationship in VMI programs• Supplier owns the inventory until it is sold
Issues with consignment relationship:– Retailer lowers inventory cost– Supplier can manage inventory more effectively, but
also higher costs because of longer inventory holding– Supplier can move as much inventory as allowed– Power relationship between supplier and retailer may
influence supply contract when addressing savings
Strategic Alliances Slide 17
Positive aspects of RSP Better knowledge the supplier has
about order quantities gives– an ability to control the bullwhip effect– Shorter LTs, lower stock levels
Provides an option for reengineering of the retailer–supplier relationship.
• eliminate redundant order entries • manual tasks can be automated• reassign tasks for better efficiency• eliminate unnecessary control steps
Strategic Alliances Slide 18
Difficult aspects of RSP (1) It is necessary to use advanced, expensive
technology It is essential to develop trust Often the supplier ends up having more
tasks than before, forcing the supplier to build new capabilities and/or add personnel to meet this responsibility, all leading to higher expenses as well
Strategic Alliances Slide 19
Difficult aspects of RSP (2) Arrangement may increase inventory
costs for the supplier as retailers may force the supplier to own the inventory until goods are sold
Retailers may more easily monitor suppliers and make decision on their performance. Leading to enhanced competition between suppliers
Forward integration (e.g. DE) Backward integration (e.g. AH)
Strategic Alliances Slide 20
Example Tesco Tesco
– What are the advantages and disadvantages of the VMI for Tesco?
– What are the advantages and disadvantages of the VMI for Tesco’s suppliers?
– Why did only a few suppliers fundamentally change the way they work?
– Success or Failure?
Distributor Integration (DI) Distributors an important partner in the
supply chain Distributors have a wealth of information
about customer needs and wants– Successful manufacturers use this information
when developing new products, product lines.
Distributors typically rely on manufacturers to supply the necessary parts and expertise
Slide 21Strategic Alliances
Changing views on Distributors
Strong and effective distribution network cannot always meet challenges– Rush orders cannot be met by the inventory….– Customer might require some specialized technical
expertise that the distributor does not have…. In the past, issues were addressed by adding
inventory and by adding personnel Modern IT now may offer another solution:
– Distributor Integration• Expertise and inventory located at one distributor is
available to the other distributors.
Slide 22Strategic Alliances
Types of Distributor Integration Addresses inventory-related and service-related issues
– Inventory pooling across the entire distributor network– Each distributor checks inventories of other distributors to
locate a needed product or part. – Dealers are contractually bound to exchange the part under
certain conditions and for agreed-upon remuneration. • lowers total inventory costs • increases service levels.
Addresses customer’s specialized technical service requests– Steer such requests to those distributors best suited to handle them – Example: Centers of Excellence at Otra
(a large Dutch holding company now part of Sonepar, see http://www.sonepar.com/group/sonepars-history)• electrical wholesale subsidiaries• some designated as centers of excellence • other subsidiaries, as well as customers, are directed to these
centers of excellence to meet particular requests– Services/capabilities pooling: you do not need to have all services
in house in order to offer them
Slide 23Strategic Alliances
Issues in Distributor Integration Distributors may be skeptical of the rewards of
participating in such a system– Participating distributors will be forced to rely upon other
distributors, some of whom they may not know, to help them provide good customer service.
– Tends to take certain responsibilities and areas of expertise away from certain distributors, and concentrate them on a few other distributors. It is not surprising that distributors might be nervous about losing these skills and abilities.
The Distributor Integration relationship requires fulfillment of a challenging set of conditions:– large commitment of resources/effort by the manufacturer– pledges and guarantees from the manufacturer to ensure
distributor commitment– a long-term alliance – trust among the different participants (the distributors)
Slide 24Strategic Alliances
SUMMARY Various types of partnerships can be used to manage the
supply chain effectively. 3PLs are becoming more prevalent:
– Both advantages and disadvantages to outsourcing the logistics function
– Many important issues to consider once the decision has been made and a 3PL agreement is being implemented.
RSPs are also becoming common:– Issues and concerns relating to the implementation of RSP
types of arrangements Distributor Integration (DI):
– Risk-pooling opportunities are created across the various distributors,
– Enables different distributors to develop different areas of expertise.
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