STRATEGIC ALLIANCES

Why strategic alliances?

 Complexity in business environments

 Scarce resources to manage
 Many functions need to be outsourced
 No core functions performed by other firms

4 basic ways to complete tasks:

1. Internal activities -> Core strengths may be the best way to perform the activity

2. Acquisitions -> The acquiring firm take full control over the performances
business function

3. Arm’s-length transactions -> Short term arrangement that fulfils a particular

business need
4. Strategic alliances ->
 Long term partnership between companies
 Shared risks and rewards
 Typically, long-term strategic benefits for both
partners.

STRATEGIC ALLIANCES

a. 3PL - Third Party Logistics: Take over a company’s logistics functions

 Strategic partnership
What is?  Long term commitment
 Multi-function
 Process integration

 Allows to focus on its core competencies

 Logistics expertise (experts)
Advantages  Technological advantages
 Other flexibilities: Geographic, service
offering and resource and workforce size

 Loss of control inherent in outsourcing

Disadvantages  3PLs interact with a firm´s costumer
 No make sense if logistics represents the
core competence of the firm
Third party logistics firms work very hard to address these concerns. Painting company logos
on trucks, dressing 3PL employees and provide reports on each customer interaction.
  Assets owning - Significant size
- Bureaucratic

Owning - Limited resources and bargaining power

- Flexible
 Non-asset-owning - Tailor services
- Low overhead cost and specialized industry
expertise

4PL

 Dedicate time and effort for the relationship

 Respect the confidentiality
 Performance measures
Issues  Specific criteria should be discussed
 Arbitration issues considered before the contract
 Escape clauses should be negotiated
 Methods of ensuring that performance goals

 Non-asset-owning
SLA (Service level agreement)
Measurable terms of a contract between a logistics service provider and a costumer.

KPI

Transport and logistic activities

carried out by manufacturer

Manufacturer hire a warehouse

manager as a subcontractor for
transport operations.
Do and pay accordingly with
client instructs.

Integrated services.
Facilitate material movements

LLP: (Lead Logistics Provider)

 Separate entity established as a joint venture

 Single interface between the client and multiple logistics service
vs 3PL providers
 All aspects of the client’s SC are managed by the 4PL
organization

As a single management team to oversee and coordinate other 3PLs and carriers on their behalf.
 Non-asset-owning
 b. RSP (Retailer-Supplier Partnership)

a. Quick Response Strategy

Suppliers received POS (Point of sale) data from retailers

Synchronize production and inventory activities with actual sales
Retailers prepare individual orders
- Improve forecasting
POS data are used by suppliers to
- Improve scheduling (reduce lead time)

b. Continuous Replenishment strategy (“rapid replenishment”)

Supplier receive POS data

Prepare shipments at previously agreed-upon

c. Advanced Continuous Replenishment

d. Vendor Management Inventory/Replenishment (VMI-VMR)

- Set collaboration expectations

Three key areas for success - Sharing information
- Collaborate in an ongoing basis

- Advanced information systems

Requirements - Level of trust

- Retailer lowers inventory cost

- Supplier can manage inventory more effectively
Issues
- Higher costs to supplier
- Global vs local
 - Communication and cooperation
- Fast response to emergencies
- Manufacturing technology or capacity at
- Situational changes at the retailer
supplier need to be modified/enhanced

- Contractual terms of the agreement

- Integrated information
- Steps - Effective forecasting techniques
- Tactical decision support tool to assist in coordinating
inventory management and transportation policies
Implementation
- Better knowledge the supplier (control bullwhip effect)
Advantages
- Good opportunity for reengineering retailer-supplier

- Necessary to employ advanced technology

- Develop trust relation
Disadvantages - Expenses at the supplier increase
- Retailers 30-90 days to pay will be eliminated and they’ll
pay upon delivery

c. DI (Distributor Integration)

Definition: Inventory pooling across the entire distributor network

- Lowers total inventory costs
- Increases service levels

- Distributors are sceptical of the rewards of participating in such a system

- Concentrate them on a few distributors

- Large commitment of resources and effort for the manufacturer

Requires - Long term alliance