Chapter 8.

Strategic Alliances

Chapter 8

Strategic alliance

Instructor: Dr. Son, Byung-Gak

logistics@city.ac.uk

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 Chapter 8. Strategic Alliances

Dealing with
Suppliers
SCM/Logistics
Service Providers

Manu 2 Manu 1 Retailer Consumers

Partnerships

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 Chapter 8. Strategic Alliances

1. Introduction
• Performing all business functions internally?
– May not be effective: Scarcity of financial and managerial
resources
– Even they have all: There can be someone who can do it
better (or/and) cheaper
• Four basic ways of doing logistics or SCM functions
– Internal activities
– Acquisitions
– Arm’s-length transactions
– Strategic alliance

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 Chapter 8. Strategic Alliances

2. Framework for Strategic Alliances

• How alliances can help
– Adding value to products
– Improving market access
– Strengthening operations
– Adding technological strength
– Enhancing strategic growth
– Enhancing organizational skills
– Building financial strength

• Make sure your core

competence is intact, if not
strategic alliances can be
more harm than benefits
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 Chapter 8. Strategic Alliances

3. Strategic Alliance in Supply Chain (Types)

• 3PL 3rd Party Logistics Service Provider
Anywhere in supply chains

• Quick Response

• Vendor Managed Inventory

Mainly between retailers
• Continuous Replenishment: and manufacturers
(suppliers)
• Adv. Continuous Replenishment

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 Chapter 8. Strategic Alliances

3. Third Party Logistics

• What is 3PL?
– Outside firms perform 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

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 Chapter 8. Strategic Alliances

3. Third Party Logistics

• Disadvantages
– Loss of control
– 3PL employees may interact with customers
• 3PL’s address this with uniforms, logos, etc
– Sharing of confidential info
• Examples
– Simmons and Ryder Integrated Logistics
• On site rep, all logistics managed by Ryder, JIT manufacturing
– SonicAir (now a part of UPS)
• Rapid delivery of spare parts
• 67 warehouses
• Sophisticated software for inventory and rapid delivery
Source: The Guardian, M. Brignall, Jan, 2015

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 Chapter 8. Strategic Alliances

3. Strategic Alliance in Supply Chain (Types)

• 3PL 3rd Party Logistics Service Provider
Anywhere in supply chains

• Quick Response

• Vendor Managed Inventory

Mainly between retailers
• Continuous Replenishment: and manufacturers
(suppliers)
• Adv. Continuous Replenishment

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 Chapter 8. Strategic Alliances

3. Retailer-Supplier Partnerships (QR)

• Quick Response:

– Vendors receive POS data from retailers, and use this

information to synchronize production and inventory activities
at the supplier.

– The retailer still prepares individual orders, but the POS data
is used by the supplier to improve forecasting and scheduling.

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 Chapter 8. Strategic Alliances

3. Retailer-Supplier Partnerships (CR and ACR)

• Continuous Replenishment:
– Vendors receive POS data and use it prepare shipments at
previously agreed upon intervals to maintain agreed to levels
of inventory.

• Advanced Continuous Replenishment:

– Suppliers may gradually decrease inventory levels at the
retailer’s store or distribution centre as long as service levels
are met. Inventory levels are thus continuously improved in a
structured way.

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 Chapter 8. Strategic Alliances

3. Retailer-Supplier Partnerships: VIM

• Vendor Managed Inventory (VMI): JITD

– Supplier decide on the appropriate level of inventory levels of each

of the products (within previously agreed-upon bounds) and the
appropriate inventory policies to maintain these level.

– VMI between Coca-Cola and Tesco

• In 2003, Britain experienced the hottest summer
• The average availability for soft drinks in Tesco was 67%
• Coca-Cola was at 98% availability due to VMI

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 Chapter 8. Strategic Alliances

4. Requirements for Effective RSP

• Advanced information systems

• Top management commitment

– Information must be shared
– Power and responsibility within an organization might change
(for example, contact with customers switches from sales and
marketing to logistics)

• Mutual trust
– Information sharing
– Management of the entire supply chain
– Initial loss of revenues

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 Chapter 8. Strategic Alliances

4. Important RSP Issues

• Inventory ownership:
– Retailer owns inventory
– Supplier owns the goods until they are sold (consignment)
• Why would a firm do this?

• 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. It turned out that this was due to
the fact that the two companies employed different forecasting
methods.

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 Chapter 8. Strategic Alliances

Quick revision
• Main objectives of SCM?
– Meeting customer demand
– At minimum total system cost

• Why managing a supply chain is not an easy job?

– Global optimisation is not easy
– Uncertainty

• What is service level?

– % of orders to be filled during a replenishment cycle
– % of customers without stock out during a replenishment cycle

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 Chapter 8. Strategic Alliances

Quick revision

Expected revenues

Costs

Expected Profits

SL*
50% 100%
Service level

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 Chapter 8. Strategic Alliances

Summary of RSPs

Criteria Decision Inventory New Skills

Types Maker Ownership Employed by vendors
Quick Retailer Retailer Forecasting Skills
Response
Continuous Contractually Agreed Either Forecasting & Inventory
Replenishment to Levels Party Control
Advanced Contractually agreed
Either Forecasting & Inventory
Continuous to & Continuously
Party Control
Replenishment Improved Levels
Either Retail
VMI Vendor
Party Management

Why?
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 Chapter 8. Strategic Alliances

5. Advantages of RSP
• Decrease required inventory levels Supplier and retailer
• Improve service levels Supplier and retailer
• Decrease work duplication Retailer
• Improve forecasts Supplier

POS
Supplier Retailer
(Demand
information)
Better
forecasting
Supplier can supply Less inventory
cheaper and
quicker Less stock out
Better
Production and Supplier manages
Less work
Inventory retailer’s inventory
Management 17
 Chapter 8. Strategic Alliances

6. Disadvantages of RSP
• Expensive, advanced technology is required.

• Supplier/retailer trust must be developed.

1. Managing
• Supplier responsibility increases. retailer’s
inventory
2. Retailer’s space
• Expenses at the supplier often increase. 3. Could carry the
inventory of the
– Why? How can this be addressed? retailer

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