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High Buyer Dominance Relative utility and scarcity of buyer¶s resources for suppliers Inter-dependence
Independence (adverse selection)
Supplier Dominance (moral hazard)
Low Low High
Relative utility and scarcity of supplier resources for buyers Source: Andrew Cox, 2000
Critical success factors to SA
Trust Cooperation communication
Ways to Operate a Company
Internal activities Acquisition Arm¶s length transaction Outsourcing Strategic alliance
Stages of Strategic Alliance Initial Euphoria Honeymoon period Dawning realization Aftershock Damage control .
Conceptual model of alliance development Alliance Alliance Alliance Alliance conceptualization pursuance confirmation implementation/continuity .
Types of alliance Opportunistic alliance Complementary strategic alliance .
Why Strategic Alliance? Adding value to products/services Improving market access Strengthening operations Adding technological strength Enhancing strategic growth Building financial strength .
Types of Alliance Third-party logistics (3PL) Fourth-party logistics (4PL) Retailer-supplier partnerships (RSP) Distributor integration (DI) .
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 .
short-term commitments . multi-function Long-term vs.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.
etc ± Sharing of confidential info Examples ± Simmons and Ryder Integrated Logistics On site rep.3PL Disadvantages ± Loss of control ± 3PL employees may interact with customers 3PL¶s address this with uniforms. JIT manufacturing ± SonicAir Rapid delivery of spare parts 67 warehouses Sophisticated software for inventory and rapid delivery . all logistics managed by Ryder. logos.
fourthfourth-party logistics providers include supply chain management and solutions. . Among other services. and value added services in their offering.4PL It refers to the evolution in logistics from suppliers focused on warehousing and transportation (third-party logistics (thirdproviders) to suppliers offering a more integrated solution. change management capabilities.
but the POS data is used by the supplier to improve forecasting and scheduling. . ± The retailer still prepares individual orders.Strategic Alliance: Types of SA Quick Response: ± Vendors receive POS data from retailers. ± 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. and use this information to synchronize production and inventory activities at the supplier.
± Wal-Mart. Inventory levels are thus continuously improved in a structured way. 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. ± Kmart .Strategic Alliance: Types of SA Continuous Replenishment: Vendors receive POS data and use it prepare shipments at previously agreed upon intervals to maintain agreed to levels of inventory.
contact with customers switches from sales and marketing to logistics) Mutual trust ± Information sharing ± Management of the entire supply chain ± Initial loss of revenues .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.
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 .
It turned out that this was due to the fact that the two companies employed different forecasting methods. .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.
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 .
Main Characteristics of SA Criteria Decision Inventory New Skills Types Maker Ownership Employed by vendors Quick Retailer Retailer Forecasting Skills Response Continuous Contractually Agreed Either Forecasting & Replenishment to Levels Party Inventory Control Advanced Contractually agreed Either Forecasting & Party Inventory Control Continuous to & Continuously Improved Levels Replenishment VMI Vendor Either Retail Party Management .
and Kmart. who makes over-the-counter drugs such as Advil. . it turned out that W-R forecasts were more accurate because they have a much more extensive knowledge of their products than Kmart does. W-R initially disagreed with Kmart about forecasts.Advantages of SA Fully utilize system knowledge ± Consider the partnership between White-Hall Robbins (W-R). and in this case.
Advantages of SA Decrease required inventory levels Improve service levels Decrease work duplication Improve forecasts .
Supplier responsibility increases. Expenses at the supplier often increase.Disadvantages of SA Expensive advanced technology is required. Supplier/retailer trust must be developed. ±Why? How can this be addressed? .
± POS data automatically triggers re-orders when inventory falls below a reorder point. increased costs to Western . ± This inventory is delivered either to a distribution center. the company has even managed the entire book section for the retailer. directly to the store. ± Ownership of the books shifts to the retailer once deliveries have been made. ± Extra sales.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. or in many cases. including inventory from suppliers other than Western Publishing. ± In the case of Toys R Us.
. 40. ± This is particularly notable because the program encompasses 350 different retailers. and many others). ± VF¶s program is considered one of the most successful in the apparel industry. about 40 percent of its production is handled using some type of automatic replenishment scheme. Lee.000 store locations. which has many well known brand names (including Wrangler.Examples of SA Successes and Failures VF Corporation¶s Market Response System: ± The VF Corporation. began its VMI program in 1989. ± Currently. Girbaud. and more than 15 million replenishment levels.
and intervening at the slightest hint of trouble. 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. a grocery chain.Examples of SA Successes and Failures Spartan Stores ± Spartan Stores. .
they were due to the suppliers¶ inability to deal with promotions. . The problems were not with the suppliers¶ forecasts. delivery levels were often unacceptably low during these periods of peak demand. ± Since they were unable to appropriately account for promotions. instead.Examples of SA Successes and Failures Spartan Stores (continued) ± Suppliers didn¶t do much to allay these fears. which are a key part of the grocery business.
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. Okuma .Caterpillar. Examples .Distributor Integration Parts are shared across the distributor network Specialized service requests are steered to appropriate dealers or distributors.
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 .
Role of Information in Supply Chain Success Information Global Scope Coordinated Decisions Supply Chain Success .
Information Technology in a Supply Chain: Legacy Systems Strategic Pla i g Operatio al Supplier Ma ufacturer istributor Retailer ustomer .
Information Technology in a Supply Chain: ERP Systems Strategic Pla i g Potential ERP Potential ERP Operatio al ERP Supplier Ma ufacturer istributor Retailer ustomer .
Information Technology in a Supply Chain: Analytical Applications Strategic SCM Pla i g Supplier Apps APS Transport & Inventory Planning Transport execution & WMS Dem Plan MES CRM/SFA Operatio al Supplier Ma ufacturer istributor Retailer ustomer .
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