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Strategic alliance
1. The Power matrix of Supplier-
Buyer Relationship
Buyer Dominance
Supplier Dominance
(moral hazard)
Independence
(adverse selection)
Inter-dependence
Low High
Relative utility and scarcity of supplier resources for buyers
Relative utility
and scarcity of
buyer’s
resources for
suppliers
High
Low
Source: Andrew Cox, 2000
9. Third Party Logistics
• What is 3PL?
– Outside firms perform materials management
and logistics functions
– Long term commitments and multiple functions
• What are the advantages of 3PL?
– Focus on core strengths
– Provides technological flexibility
– Provides flexibility in
• geography
• workforce size
• additional services
• resource flexibility
10. 3PL
• Use of an outside company to
perform all or part of the form’s
materials management and product
distribution function
• Relationship vs. transactional based
• Single-function vs. multi-function
• Long-term vs. short-term
commitments
11. 3PL
• Disadvantages
– Loss of control
– 3PL employees may interact with customers
• 3PL’s address this with uniforms, logos, etc
– Sharing of confidential info
• Examples
– Simmons and Ryder Integrated Logistics
• On site rep, all logistics managed by Ryder, JIT
manufacturing
– SonicAir
• Rapid delivery of spare parts
• 67 warehouses
• Sophisticated software for inventory and rapid
delivery
12. 4PL
It refers to the evolution in logistics from
suppliers focused on warehousing and
transportation (third-party logistics
providers) to suppliers offering a more
integrated solution. Among other services,
fourth-party logistics providers include
supply chain management and solutions,
change management capabilities, and value
added services in their offering.
13. Strategic Alliance:
Types of SA
• Quick Response:
– Vendors receive POS data from retailers, and
use this information to synchronize production
and inventory activities at the supplier.
– The retailer still prepares individual orders, but
the POS data is used by the supplier to
improve forecasting and scheduling.
– Example: Milliken and Company: The lead time
from order receipt at Milliken’s textile plants to
final clothing receipt at several of the
department stores involved was reduced from
eighteen weeks down to three weeks.
14. • Continuous Replenishment: Vendors
receive POS data and use it prepare
shipments at previously agreed upon
intervals to maintain agreed to levels of
inventory.
– Wal-Mart, Kmart
• Advanced Continuous Replenishment:
Suppliers may gradually decrease
inventory levels at the retailer’s store or
distribution center as long as service
levels are met. Inventory levels are thus
continuously improved in a structured
way.
Strategic Alliance:
Types of SA
15. Requirements for Effective
Strategic Alliance
• Advanced information systems
• Top management commitment
– Information must be shared
– Power and responsibility within an organization
might change (for example, contact with
customers switches from sales and marketing
to logistics)
• Mutual trust
– Information sharing
– Management of the entire supply chain
– Initial loss of revenues
16. Important SA Issues
• Inventory ownership:
– Retailer owns inventory
– Supplier owns the goods until they are
sold (consignment)
• Why would a firm do this?
• Performance measures: Fill rate,
inventory level, inventory turns
17. Important SA Issues
• Confidentiality
• Communication and cooperation
– When First Brands started partnering
with Kmart, Kmart often claimed that its
supplier was not living up to its
agreement to keep two weeks of
inventory at all times. It turned out that
this was due to the fact that the two
companies employed different
forecasting methods.
18. Steps in SA Implementation
• Contractual negotiations
– Ownership
– Credit terms
– Ordering decisions
– Performance measures
• Develop or integrate information systems
• Develop effective forecasting techniques
• Develop a tactical decision support tool to
assist in coordinating inventory
management and transportation policies
19. Main Characteristics of SA
Criteria
Types
Decision
Maker
Inventory
Ownership
New Skills
Employed by vendors
Quick
Response
Retailer Retailer Forecasting Skills
Continuous
Replenishment
Contractually Agreed
to Levels
Either
Party
Forecasting &
Inventory Control
Advanced
Continuous
Replenishment
Contractually agreed
to & Continuously
Improved Levels
Either
Party
Forecasting &
Inventory Control
VMI Vendor Either
Party
Retail
Management
20. Advantages of SA
• Fully utilize system knowledge
– Consider the partnership between
White-Hall Robbins (W-R), who makes
over-the-counter drugs such as Advil,
and Kmart. W-R initially disagreed with
Kmart about forecasts, and in this case,
it turned out that W-R forecasts were
more accurate because they have a
much more extensive knowledge of
their products than Kmart does.
21. Advantages of SA
• Decrease required inventory
levels
• Improve service levels
• Decrease work duplication
• Improve forecasts
22. Disadvantages of SA
• Expensive advanced technology
is required.
• Supplier/retailer trust must be
developed.
• Supplier responsibility increases.
• Expenses at the supplier
often increase.
–Why? How can this be
addressed?
23. Examples of SA Successes
and Failures
• Western Publishing-Golden Books:
– Western Publishing is using VMI for its Golden Books line
of children’s books at several retailers.
– POS data automatically triggers re-orders when
inventory falls below a reorder point.
– This inventory is delivered either to a distribution center,
or in many cases, directly to the store.
– Ownership of the books shifts to the retailer once
deliveries have been made.
– In the case of Toys R Us, the company has even
managed the entire book section for the retailer,
including inventory from suppliers other than Western
Publishing.
– Extra sales, increased costs to Western
24. Examples of SA Successes
and Failures
• VF Corporation’s Market Response
System:
– The VF Corporation, which has many well
known brand names (including Wrangler, Lee,
Girbaud, and many others), began its VMI
program in 1989.
– Currently, about 40 percent of its production is
handled using some type of automatic
replenishment scheme.
– This is particularly notable because the
program encompasses 350 different retailers,
40,000 store locations, and more than 15
million replenishment levels.
– VF’s program is considered one of the most
25. Examples of SA Successes
and Failures
• Spartan Stores
– Spartan Stores, a grocery chain, shut
down its VMI effort about one year after
its inception.
– One problem was that buyers were not
spending any less time on reorders than
they did before
– This was because they didn’t trust the
suppliers enough to be able to stop
carefully monitoring the inventories and
deliveries of the VMI items, and
intervening at the slightest hint of
26. Examples of SA Successes
and Failures
• Spartan Stores (continued)
– Suppliers didn’t do much to allay these
fears. The problems were not with the
suppliers’ forecasts; instead, they were
due to the suppliers’ inability to deal
with promotions, which are a key part of
the grocery business.
– Since they were unable to appropriately
account for promotions, delivery levels
were often unacceptably low during
these periods of peak demand.
27. Distributor Integration
• Parts are shared across the distributor network
• Specialized service requests are steered to
appropriate dealers or distributors.
• What is required?
– Trust
– Pledges
– Guarantees from the manufacturer
– Advanced information systems
• Disadvantages
– Incentives for dealers – are they giving away
competitive advantages?
– Skills and responsibilities are taken from some
dealers/distributors.
• Examples - Caterpillar, Okuma
28. Information for Coordination
of Systems
• Information is required to move from local
to global optimization
• Questions:
– Who will optimize?
– How will savings be split?
• Information is needed :
– Production status and costs
– Transportation availability and costs
– Inventory information
– Capacity information
– Demand information
29. Role of Information in
Supply Chain Success
Information Global
Scope
Coordinated
Decisions
Supply Chain
Success
30. Information Technology in a
Supply Chain: Legacy
Systems
Supplier CustomerRetailerDistributorManufacturer
Strategic
Planning
Operational
31. Information Technology in a
Supply Chain: ERP Systems
Supplier CustomerRetailerDistributorManufacturer
Strategic
Planning
Operational
ERPPotential
ERP
Potential
ERP
32. Information Technology in a
Supply Chain: Analytical
Applications
Supplier CustomerRetailerDistributorManufacturer
Strategic
Planning
Operational
Supplier
Apps
SCM
MES
Dem Plan
Transport execution &
WMS
APS Transport & Inventory
Planning
CRM/SFA
