The Power matrix of SupplierBuyer Relationship

High Buyer Dominance Relative utility and scarcity of buyers resources for suppliers Inter-dependence

Independence

Supplier Dominance

(adverse selection)
Low Low

(moral hazard)

High

Relative utility and scarcity of supplier resources for buyers Source: Andrew Cox, 2000

Critical success factors to SA

Trust Cooperation communication

Ways to Operate a Company

Internal activities Acquisition Arms length transaction Outsourcing Strategic alliance

Stages of Strategic Alliance

Initial Euphoria Honeymoon period Dawning realization Aftershock Damage control

Conceptual model of alliance development

Alliance Alliance Alliance Alliance conceptualization pursuance confirmation implementation/continuity

Types of alliance
Opportunistic alliance Complementary strategic alliance

Why Strategic Alliance?

Adding value to products/services Improving market access Strengthening operations Adding technological strength Enhancing strategic growth Building financial strength

Types of Alliance
Third-party logistics (3PL) Fourth-party logistics (4PL) Retailer-supplier partnerships (RSP) Distributor integration (DI)

Third Party Logistics

What is 3PL?
Outside firms perform materials management and logistics functions Long term commitments and multiple functions Focus on core strengths Provides technological flexibility Provides flexibility in
geography workforce size additional services resource flexibility

What are the advantages of 3PL?

3PL
Use of an outside company to perform all or part of the forms materials management and product distribution function Relationship vs. transactional based Single-function vs. multi-function Long-term vs. short-term commitments

3PL
Disadvantages
Loss of control 3PL employees may interact with customers
Sharing of confidential info
3PLs address this with uniforms, logos, etc

Examples

Simmons and Ryder Integrated Logistics SonicAir

On site rep, all logistics managed by Ryder, JIT manufacturing Rapid delivery of spare parts 67 warehouses Sophisticated software for inventory and rapid delivery

4PL
It refers to the evolution in logistics from suppliers focused on warehousing and transportation (third-party logistics providers) to suppliers offering a more integrated solution. Among other services, fourth-party logistics providers include supply chain management and solutions, change management capabilities, and value added services in their offering.

Strategic Alliance: Types of SA

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. Example: Milliken and Company: The lead time from order receipt at Millikens textile plants to final clothing receipt at several of the department stores involved was reduced from eighteen weeks down to three weeks.

Strategic Alliance: Types of SA

Continuous Replenishment: Vendors receive POS data and use it prepare shipments at previously agreed upon intervals to maintain agreed to levels of inventory.
Wal-Mart, Kmart

Advanced Continuous Replenishment: Suppliers may gradually decrease inventory levels at the retailers store or distribution center as long as service levels are met. Inventory levels are thus continuously improved in a structured way.

Requirements for Effective Strategic Alliance

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

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

Performance measures: Fill rate, inventory level, inventory turns

Important SA Issues
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.

Steps in SA Implementation
Contractual negotiations
Ownership Credit terms Ordering decisions Performance measures

Develop or integrate information systems Develop effective forecasting techniques Develop a tactical decision support tool to assist in coordinating inventory management and transportation policies

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

Advantages of SA
Fully utilize system knowledge
Consider the partnership between White-Hall Robbins (W-R), who makes over-the-counter drugs such as Advil, and Kmart. W-R initially disagreed with Kmart about forecasts, and in this case, it turned out that W-R forecasts were more accurate because they have a much more extensive knowledge of their products than Kmart does.

Advantages of SA
Decrease required inventory levels Improve service levels Decrease work duplication Improve forecasts

Disadvantages of SA
Expensive advanced technology is required. Supplier/retailer trust must be developed. Supplier responsibility increases. Expenses at the supplier often increase.
Why? How can this be addressed?

Examples of SA Successes and Failures

Western Publishing-Golden Books:
Western Publishing is using VMI for its Golden Books line of childrens books at several retailers. POS data automatically triggers re-orders when inventory falls below a reorder point. This inventory is delivered either to a distribution center, or in many cases, directly to the store. Ownership of the books shifts to the retailer once deliveries have been made. In the case of Toys R Us, the company has even managed the entire book section for the retailer, including inventory from suppliers other than Western Publishing. Extra sales, increased costs to Western

Examples of SA Successes and Failures

VF Corporations Market Response System:
The VF Corporation, which has many well known brand names (including Wrangler, Lee, Girbaud, and many others), began its VMI program in 1989. Currently, about 40 percent of its production is handled using some type of automatic replenishment scheme. This is particularly notable because the program encompasses 350 different retailers, 40,000 store locations, and more than 15 million replenishment levels. VFs program is considered one of the most

Examples of SA Successes and Failures

Spartan Stores
Spartan Stores, a grocery chain, shut down its VMI effort about one year after its inception. One problem was that buyers were not spending any less time on reorders than they did before This was because they didnt trust the suppliers enough to be able to stop carefully monitoring the inventories and deliveries of the VMI items, and intervening at the slightest hint of

Examples of SA Successes and Failures

Spartan Stores (continued)
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.

Distributor Integration
Parts are shared across the distributor network Specialized service requests are steered to appropriate dealers or distributors. What is required?
Trust Pledges Guarantees from the manufacturer Advanced information systems

Disadvantages

Examples - Caterpillar, Okuma

Incentives for dealers are they giving away competitive advantages? Skills and responsibilities are taken from some dealers/distributors.

Information for Coordination of Systems

Information is required to move from local to global optimization Questions:
Who will optimize? How will savings be split?

Information is needed :

Production status and costs Transportation availability and costs Inventory information Capacity information Demand information

Role of Information in Supply Chain Success

Information

Global Scope

Coordinated Decisions

Supply Chain Success

Information Technology in a Supply Chain: Legacy Systems

Strategic

Planning

Operational

Supplier

Manufacturer

Distributor

Retailer

Customer

Information Technology in a Supply Chain: ERP Systems

Strategic

Planning

Potential

ERP

Potential
ERP

Operational

ERP

Supplier

Manufacturer

Distributor

Retailer

Customer

Information Technology in a Supply Chain: Analytical Applications

Strategic
SCM

Planning
Supplier Apps

APS

Transport & Inventory Planning Transport execution & WMS

Dem Plan

MES

CRM/SFA

Operational

Supplier

Manufacturer

Distributor

Retailer

Customer