Strategic Alliance Development

A strategic alliance is an arrangement between two companies to undertake a mutually

beneficial project while each retains its independence. The agreement is less complex and less
binding than a joint venture, in which two businesses pool resources to create a separate
business entity.

A company may enter into a strategic alliance to expand into a new market, improve its product
line, or develop an edge over a competitor. The arrangement allows two businesses to work
toward a common goal that will benefit both.

While the strategic alliance can be an informal alliance, the responsibilities of each member are
clearly defined. The needs and benefits gained by the partnered businesses will dictate how
long the coalition is in effect.

 A strategic alliance is an arrangement between two companies that have decided to

share resources to undertake a specific, mutually beneficial project.
 A strategic alliance agreement could help a company develop a more effective process.
 Strategic alliances allow two organizations, individuals or other entities to work toward
common or correlating goals.

Example of a Strategic Alliance

The deal between Starbucks and Barnes&Noble is a classic example of a strategic alliance.
Starbucks brews the coffee. Barnes&Noble stocks the books. Both companies do what they do
best while sharing the costs of space to the benefit of both companies.

Strategic alliances can come in many sizes and forms:

 An oil and natural gas company might form a strategic alliance with a research
laboratory to develop more commercially viable recovery processes.
 A clothing retailer might form a strategic alliance with a single manufacturer to ensure
consistent quality and sizing.
 A website could form a strategic alliance with an analytics company to improve its
marketing efforts.

Types of Strategic Alliances

There are three types of strategic alliances: Joint Venture, Equity Strategic Alliance, and Non-
equity Strategic Alliance.

1. Joint Venture: A joint venture is established when the parent companies establish a
new child company. For example, Company A and Company B (parent companies) can
 form a joint venture by creating Company C (child company). In addition, if Company A
and Company B each own 50% of the child company, it is defined as a 50-50 Joint
Venture. If Company A owns 70% and Company B owns 30%, the joint venture is
classified as a Majority-owned Venture.

2. Equity Strategic Alliance

An equity strategic alliance is created when one company purchases a certain equity
percentage of the other company. If Company A purchases 40% of the equity in Company B, an
equity strategic alliance would be formed.

3. Non-equity Strategic Alliance

A non-equity strategic alliance is created when two or more companies sign a contractual
relationship to pool their resources and capabilities together.

Value Creation in Strategic Alliances

Strategic alliances create value by:

1. Improving current operations.

2. Changing the competitive environment.

3. Ease of entry and exit.

Challenges
Although strategic alliances create value, there are many challenges to consider:

 Partners may misrepresent what they bring to the table (lie about competencies that
they do not have).
 Partners may fail to commit resources and capabilities to the other partners.
 One partner may commit heavily to the alliance while the other partner does not.
 Partners may fail to use their complementary resources effectively.

E-procurement system
E-procurement is the process of buying and selling supplies and services over the Internet. It
differs from e-commerce in that it makes use of a supplier’s closed system typically available
only to registered users.

When implemented properly, e-procurement opens the lines of communication between a

company and a supplier by creating a direct link and facilitating interactions such as bids,
purchase orders and emails.

Benefits of E-Procurement
E-procurement offers substantial benefits to the function of procurement management within a
purchasing organization, including:

Cost Savings

Built-in monitoring tools help control costs and maximize performance, reducing overhead and
paperwork. Fully automated systems streamline processes and can result in a faster cycle from
creating an order to fulfillment. There also is an opportunity for a larger selection of products
and services.

Shorter Purchasing Cycles

Centralized transaction tracking simplifies reporting on orders, payments, and requisitions, as

well as ensuring contract compliance, all of which can reduce delivery time. Buyers have
electronic access to available products, services, and prices.

Improved Inventory Control

Procurement professionals can quickly locate products from preferred suppliers and are limited
to the purchases they can make, so inventory is better controlled.

Transparency

All information is centralized and can be made available to management, stakeholders,

shareholders or the public, as appropriate.

Contract Management Software

Contract management has a huge role in procurement. With procurement professionals
constantly working on new deals, finding new suppliers, vetting bids, and other daily tasks;
contract management is often overseen by a specific person or team of people. 

Implementing e-procurement practices into your supply chain management, like incorporating
a cloud-based procurement platform, however, will alleviate some of the activities your team
performs around contract tracking, evaluation, and management. By bringing an e-
procurement solution into your contract management process, your team will have stronger
insights into which contracts are valuable contracts, areas where cost savings can be achieved,
and access to other data that yields powerful insight. 

Additionally, contract management software practices will allow your team to have an

automated review schedule, with reminders, keeping the entire organization on track, making
sure extension/termination decisions are made in a timely manner and allowing the wheels of
supply chain management to turn smoothly. 

Automation
Keeping track of the contract review schedule and mining cost-savings data aren’t the only
places where automation and e-procurement meet at an intersection with supply chain
management. 

Automation isn’t really a new concept in any industry, however, it is an evolving one. The new
ways in which procurement professionals and e-procurement software are implementing
automated activities work in concert with traditional procurement lifecycles. Managing manual
activities like vetting potential suppliers, sending out RFPs (request for proposals), and other
tasks that free up the procurement staff to focus on more meaningful organization actions.

Efficiency Boosts
E-procurement has many roles in the context of supply chain management, they all, however,
lead to the same overarching goal: a boost in operational efficiency. By implementing e-
procurement practices into your organization, and alongside your supply chain management
efforts, the procurement process is streamlined throughout the entire organization. From
communications internally and externally, to supply chain management, and the procurement
lifecycle as a whole; e-procurement practices are seen as vital to keeping a procurement team
modern and competitive. 

E-procurement and supply chain management go hand-in-hand with one another. Equipping
your procurement team with both will not only elevate the procurement department, but
elevate the entire business as a whole. 

Wrapping Up
E-procurement is essentially just the digitization of the procurement process. Making use of the
internet and other virtual tools and networking techniques to fulfill the needs of the
organization in terms of acquiring goods and services. This begins with the sourcing and
contracting of goods and services, to payment in accounting and finance, and ultimately storage
as well. 

Supply chain management narrows this scope a bit further and is responsible for the flow of
goods and services in and out of the organization. Implement e-procurement practices to
enhance and elevate your procurement team, and ultimately, your business. For more
information on everything and anything procurement, keep browsing Procure port’s impressive
content library.