GREAT ZIMBABWE UNIVERSITY

MUNHUMUTAPA SCHOOL OF COMMERCE

DEPARTMENT OF MANAGEMENT STUDIES

NAME: FARAI KABA

REG NUMBER: M203027

MODULE TITLE: SUPPLY CHAIN MANAGEMENT

MODULE CODE: HLT 211

LEVEL: 2:1

PROGRAMME: TRANSPORT AND LOGISTICS

QUESTION: (a) Define the term strategic alliance and highlight the structural types that organisations
can adopt in strategic alliance (8)

(b) explain the bull whip effect and show how it is a source of risk (10)

(c) discuss the rational behind firms in corporating strategic alliance as a risk management technique
(12)
(a) Define the term strategic alliance and highlight the structural types that organisations can adopt
in strategic alliance

A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon
objectives needed while remaining independent organizations. The alliance is a cooperation or
collaboration which aims for a synergy where each partner hopes that the benefits from the alliance
will be greater than those from individual efforts. The alliance often involves technology
transfer (access to knowledge and expertise), economic specialisation shared expenses and shared
risk. A strategic alliance will usually fall short of a legal partnership entity, agency, or corporate
affiliate relationship. Typically, two companies form a strategic alliance when each possesses one or
more business assets or have expertise that will help the other by enhancing their businesses.
Strategic alliances can develop in outsourcing relationships where the parties desire to achieve long-
term win-win benefits and innovation based on mutually desired outcomes. This form of cooperation
lies between mergers and organic growth. Strategic alliances occur when two or more organizations
join together to pursue mutual benefits. Partners may provide the strategic alliance with resources
such as products, distribution channels, manufacturing capability, project funding, capital equipment,
knowledge, expertise, or intellectual property. A good example of strategic alliance in Zimbabwe is
that of dairibord and the largest raw milk supplier tavistock eastate private.
There are structural types that firms can adopt in the strategic alliance which are bhut not limited to,
joint venture, equity strategic alliance, non equity strategic alliance, only to mention a few.
To start with, joint venture is a child company of two parent companies. It is maintained by sharing
resources and equity with a binding agreement. A joint venture has a clear objective, and profits are
split between the two companies. A good example is that in 2016 google’s parent company Alphabet
announced a joint venture with Glaxosmithkline to research treating diseases with electrical signals.
The joint venture, Galvani Bioelectronics, has continued to grow, bringing on more partners to build
devices and further research in the emerging field of bioelectronics.
Secondly, equity strategic alliance occurs when one company purchase equity in other business
(partial acquisition) or each business purchases equity in each other (cross equity transactions). An
example of strategic alliance is Tesla’s relationships with Panasonic. Their relationship begun with a
30 million investment from Panasonic to accelerate the battery technology for electric vehicles and
grew to include building a lithium-ion battery plant in Nevada.
Lastly, non-equity strategic alliance this is where organisations create an agreement to share
resources without creating a separating the entity or sharing equity. Non-equity alliances are often
more loose and informal than a partnership involving equity. These make up the vast majority of
business alliances.
Technology Licensing. This is a contractual arrangement whereby trade marks, intellectual
property and trade secrets are licensed to an external firm. It is used mainly as a low cost way to
enter foreign markets. The main downside of licensing is the loss of control over the technology
– as soon as it enters other hands the possibility of exploitation arises.
Product Licensing. This is similar to technology licensing except that the license provided is only
to manufacture and sell a certain product. Usually each licensee will be given an exclusive
geographic area to which they can sell to. It is a lower-risk way of expanding the reach of your
product compared to building your manufacturing base and distribution reach. Franchising.
Franchisi
Each of these types of alliances is selected based on the scope and needs of the goal.
(b)explain the bull whip effect and show how it is a source of risk

The bullwhip effect is a supply chain phenomenon describing how small

fluctuations in demand at the retail level can cause progressively larger
fluctuations in demand at the wholesale, distributor, manufacturer and raw
material supplier levels. The effect is named after the physics involved in
cracking a whip. When the person holding the whip snaps their wrist, the
relatively small movement causes the whip's wave patterns to increasingly
amplify in a chain reaction.

A good example of bullwhip effect is that, if often occurs when retailers

become highly reactive to demand, and in turn, amplify expectations around it,
which causes a domino effect along the supply chain. Suppose, for example,
a retailer typically keeps 100 six-packs of one soda brand in stock. If it
normally sells 20 six-packs a day, it would order that replacement amount
from the distributor. But one day, the retailer sells 70 six-packs and assumes
customers will start buying more product, and responds by ordering 100 six-
packs to meet this higher forecasted demand.

The distributor may then respond by ordering double, or 200 six-packs, from
the manufacturer to ensure they do not run out. The manufacturer then
produces 250 six-packs to be on the safe side. In the end, the increased
demand has been amplified up the supply chain from to 100 six-packs at the
customer level to 250 at the manufacturer.

This example is highly simplified but conveys the sense of exponentially

increasing misalignment as actions and reactions continue up and down the
chain. The bullwhip effect also occurs as a result of lowered demand at the
customer level (which causes shortages when inaccurate) and can be caused
at other places along the chain.

It is a source of risk because of distorted information from one end of a

supply chain to the other can lead to tremendous inefficiencies: excessive
inventory investment, poor customer service, lost revenues, misguided
capacity plans, ineffective transportation, and missed production schedules

(c) discuss the rational behind firms in corporating strategic alliance as a risk management technique
(12)

Shared risks: Risk sharing is another common rationale for undertaking a cooperative arrangement -
when a market has just opened up, or when there is much uncertainty and instability in a particular
market, sharing risks becomes particularly important. The competitive nature of business makes it
difficult for business entering a new market or launching a new product, and forming a strategic alliance
is one way to reduce or control a firm’s risks.

In addition, Shared knowledge and expertise, most firms are competent in some areas and lack expertise
in other areas; as such, forming a strategic alliance can allow ready access to knowledge and expertise in
an area that a company lacks. The information, knowledge and expertise that a firm gains can be used,
not just in the joint venture project, but for other projects and purposes. The expertise and knowledge
can range from learning to deal with government regulations, production knowledge, or learning how to
acquire resources. A learning organization is a growing organization.

Synergy and competitive advantage: Achieving synergy and a competitive advantage may be another
reason why firms enter into a strategic alliance. As compared to entering a market alone, forming a
strategic alliance becomes a way to decrease the risk of market entry, international expansion, research
and development etc. Competition becomes more effective when partners leverage off each other’s
strengths, bringing synergy into the process that would be hard to achieve if attempting to enter a new
market or industry alone.

In retail, entering a new market is an expensive and time consuming process. Forming strategic alliances
with an established company with a good reputation can help create favourable brand image and
efficient distribution networks. Even established reputable companies need to introduce new brands to
market. Most times smaller companies can achieve speed to market quicker than bigger, more
established companies. Leveraging off the alliance will help to capture the shelf space which is vital for
the success of any brand.

However, sharing In a strategic alliance the partners must share resources and profits and often
skills and know-how. This can be critical if business secrets are included in this knowledge.
Agreements can protect these secrets but the partner might not be willing to stick to such an
agreement. Also, creating a competitor The partner in a strategic alliance might become a
competitor one day, if it profited enough from the alliance and grew enough to end the partnership
and then is able to operate on its own in the same market segment.

Again, Opportunity costs: Focusing and committing is necessary to run a Strategic Alliance
successfully but might discourage from taking other opportunities, which might be beneficial as
well.Uneven alliances: When the decision powers are distributed unevenly, the weaker partner
might be forced to act according to the will of the more powerful partner(s), even if he or she is
actually not willing to do so.
Lastly, Foreign confiscation: If a company is engaged in a foreign country, there is the risk that the
government of this country might try to seize this local business so that the domestic company can
have all the market on its own. Risk of losing control over proprietary information, especially
regarding complex transactions requiring extensive coordination and intensive information sharing.
Coordination difficulties due to informal cooperation settings and highly costly dispute resolution.
 REFERENCES

1.  David C. Mowery, Joanne E. Oxley, Brian S. Silverman, Strategic Alliances and Interfirm

Knowledge Transfer (1996) Strategic Management Journal, Vol. 17, Special Issue:
Knowledge and the Firm (Winter, 1996), pp. 77-91
2. ^ Jump up to:a b c d McGovern, Brian. http://brianmcgovern.com. [Online]
2014. http://brianmcgovern.com/joint-ventures-strategic-alliances-and-co-marketing/.
3. ^ Jump up to:a b http://tbmdb.blogspot.de/. [Online] 29. August
2009. http://tbmdb.blogspot.de/2009/08/strategic-alliances-important-part-of.html.
4. ^ http://www.businessdictionary.com.
[Online] http://www.businessdictionary.com/definition/strategic-alliance.html.
5. ^ Emanuela Todeva, David Knoke. Strategic Alliances & Models of Collaboration. University
of Surrey, Guildford, UK : s.n.
6. ^ Thompson, David S.; Twait, Steven; Fill, Kim (August 2011). "Measuring Alliance
Management: Quantify your Value by Showing how you Mitigate Risk and Solve
Problems". Strategic Alliance Magazine (Q3): 22–25.
7. ^ Thompson, David S.; Twait, Steven (August 2011). "High Risk to High Reward: How to Dig
In, Solve Problems, and Create a Valued Alliance Management Function". Strategic Alliance
Magazine  (Q3): 37–41.
8. ^ Rigsbee, Ed (2000).  Developing Strategic Alliances, First Edition. Library of Congress
Cataloging-in Publication Data. ISBN 1-56052-550-9.
9. ^ Jump up to:a b c d e Cummings, Stevan R. Holmberg and Jeffrey L. Building Successful
Strategic Alliances. 2009.
10. ^ Shawn Grimsley. http://education-portal.com. [Online]
2014. http://education-portal.com/academy/lesson/strategic-alliance-in-business-definition-
advantages-disadvantages.html#lesson.