Professional Documents
Culture Documents
Chapter 8
Strategic g Alliances
McGraw-Hill/Irwin
8.1 Introduction
Complexity in business environments increasing Resources required to manage are becoming increasingly scarce Many functions need to be outsourced Firms need to ensure that functions are performed by the other firms
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Acquisitions
Gives the acquiring firm full control over the way the particular business function is performed Can be difficult and expensive. (Culture/Competitors)
Arms-length transactions
Most business transactions are of this type. Short term Short-term arrangement that fulfills a particular business need but doesnt lead to long-term strategic advantages.
Strategic alliances
Multifaceted, goal-oriented, long-term partnerships between two companies Both risks and rewards are shared. Typically lead to long-term strategic benefits for both partners.
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Downsides
Core competencies should not be compromised Competitive advantages should not be compromised
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What Is 3PL?
Strategic partnership Long term commitment Multi-function arrangement M lti f ti t Process integration Large range of 3PL companies
Non-asset owning 3PL companies called 4PL
Provide services but not trucks, warehouses
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3PL Advantages
Focus on Core Strengths
Allows a company to focus on its core competencies t i Logistics expertise left to the logistics experts
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3PL Advantages
Provides Technological Flexibility
Technology advances adopted by better 3PL providers Adoption possible by 3PLs in a quicker, more cost-effective way 3PLs may have the capability to meet the needs of a firms potential customers
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3PL Advantages
Provides Other Flexibilities
Flexibility in g g p y geographic locations. Flexibility in service offerings Flexibility in resource and workforce size
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3PL Disadvantages
Loss of control inherent in outsourcing a particular function.
Outbound logistics 3PLs interact with a firms customers. Many third-party logistics firms work very hard to address these concerns.
Painting company logos on the sides of trucks, dressing 3PL employees in the uniforms of the hiring company, and providing extensive reporting on each customer interaction.
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3PL Issues
Asset-Owning vs Non-Asset-Owning 3PL
Asset-owning companies
Significant size, human resources, customer base size resources base, economies of scope and scale, and systems May be bureaucratic with a long decision-making cycle.
Non-asset-owning companies
May have limited resources and bargaining power May be more flexible Able to tailor services and have the freedom to mix and match providers. May have low overhead costs and specialized industry expertise at the same time
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Both parties:
Must dedicate time and effort for the relationship Treat as a mutually beneficial alliance No transaction pricing mentality
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Other Issues
The third party and its service providers must respect the confidentiality of the data. Specific performance measures must be agreed upon. Specific criteria regarding subcontractors should be discussed. Arbitration issues should be considered before entering into a contract. Escape clauses should be negotiated into the p g contract. Methods of ensuring that performance goals are being met should be discussed
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Either party
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RSP Requirements
Presence of advanced information systems Top management commitment
Especially because information will be shared across companies
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RSP Implementation
Performance measurement criteria must also be agreed to.
Non-financial measures as well as the traditional financial measures.
Initial problems can be worked out through communication and cooperation. Manufacturing technology or capacity at supplier may need to be modified/enhanced to respond to specifics in the contract:
Fast response to emergencies p g Situational changes at the retailer
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Advantages of RSP
Better knowledge the supplier has about order quantities
an ability to control the bullwhip effect
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Necessary to employ advanced technology, which is often expensive. Essential to develop trust in what once may have been an adversarial supplier retailer relationship. Supplier often has much more responsibility than formerly.
May force the supplier to add personnel to meet this responsibility.
Disadvantages of RSP
Expenses at the supplier often increase as managerial responsibilities increase. Consignment arrangement may increase inventory costs for the supplier. Float
Retailers accustomed to waiting 30 to 90 days to pay for goods may now have to pay upon delivery
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Furthermore, Furthermore the suppliers didnt 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.
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Distributors typically rely on manufacturers to supply the necessary parts and expertise
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In the past, issues were addressed by adding inventory and personnel Modern information technology leads to a third solution
Distributor Integration
Expertise and inventory located at one distributor is available to the others.
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Types of DI
Addresses both inventory-related and service-related issues
Inventory pooling across the entire distributor network Each distributor checks inventories of other distributors to locate a needed product or part part. Dealers are contractually bound to exchange the part under certain conditions and for agreed-upon remuneration.
lowers total inventory costs increases service levels.
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Issues in DI
Distributors may be skeptical of the rewards of participating in such a system Participating distributors will be forced to rely upon other , y y , p distributors, some of whom they may not know, to help them provide good customer service. Tends to take certain responsibilities and areas of expertise away from certain distributors, and concentrate them on a few distributors. It is not surprising that distributors might be nervous about losing these skills and abilities. DI relationship req ires requires:
a large commitment of resources and effort for the manufacturer a long-term alliance. trust among the participants. pledges and guarantees from the manufacturer to ensure distributor commitment.
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SUMMARY
Various types of partnerships can be used to manage the supply chain effectively. Framework that can help in selecting the most appropriate way to address a particular logistics issue. 3PLs are becoming more prevalent prevalent. Both advantages and disadvantages to outsourcing the logistics function Many important issues to consider once the decision has been made and a 3PL agreement is being implemented. RSPs are also becoming common.
Issues and concerns relating to the implementation of RSP types of arrangements
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