Strategic Alliances

Chap 06 王仁宏 助理教授

國立中正大學企業管理學系

©Copyright 2001 製商整合科技中心

Four Ways to Complete the Logistics Function

• Internal activities• Acquisitions

– difficult and expensive– culture conflicts– effectiveness lost in the assimilation process

• Arm’s-length transactions: short-term• Strategic alliances: multifaceted, goal-oriented,

long-term, risk and rewards shared

Advantages of Alliance (1/2)

• Adding value to product– Improve time to market, distribution times, repair time

s, – complementary product lines

• Improving market access– better advertising– new market channels

• Strengthening operations– complementary seasonal products

Advantages of Alliance (2/2)

• Adding technological strength• Enhancing strategic growth: overcome

barriers• Enhancing organizational skills: organization

learning• Building financial strength

– shared administrative costs– reduced owing to the expertise– risk sharing

Disadvantages of Alliance

• IBM entered the PC market in 1981.

• Outsourcing:– CPU: Intel– OS: Microsoft

• Market share:– 1985: 40%– 1995: 8%; Compaq: 10%

Types of Strategic Alliances

• Third-Party Logistics (3PL)

• Retailer-Supplier Partnerships (RSP)

• Distributor Integration (DI)

Third-Party Logistics (3PL)

• Modern 3PL arrangements involve long-term commitments and often multiple function or process management.

• Advantages:– Allow a company to focus on its core competencies.– Increasing need for technology flexibility– flexibility in geographic locations, warehouses

Third-Party Logistics (3PL)

• Disadvantages– loss of control: 3PL company employees

might interact with a firm’s customers– if logistics is one of the core competencies of

a firm, it makes no sense to outsource these activities

3PL Issues and Requirements

• Know your own costs

• Customer orientation of the 3PL– customization– reliability– flexibility

• Specialization of the 3PL

• Asset-owing vs. non-asset owning 3PL

3PL Implementation Issues

• Starting the relationship effectively during the first six months

• Effective communication

• Communication technology

• respect the confidentiality of the data

Types of Retailer-Supplier Partnerships (RSP)

Quick Response: Vendors receive POS data from retailers, and use this information to synchronize production and inventory activities at the supplier. In this strategy, the retailer still prepares individual orders, but the POS data is used by the supplier to improve forecasting and scheduling.

Types of Retailer-Supplier Partnerships (RSP)

• Continuous Replenishment (rapid 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

Types of Retailer-Supplier Partnerships (RSP)

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

– Kmart

Types of Retailer-Supplier Partnerships (RSP)

• Vendor Managed Inventory (VMI) (Vendor Managed Replenishment, VMR) :– The supplier decide on the appropriate inventor

y levels of each products and the appropriate inventory policies.

– The goal of VME is to eliminate retailers’ orders.– VMI Projects at Dillard Department Stores, J.C.

Penney, and Wal-Mart have shown sales increases of 20 to 25 percent, and 30 percent inventory turnover improvements.

Requirements for Effective RSP

• Advanced information systems:

– EDI

– Bar Code & Scanner

• Top management commitment

• Mutual trust

Important RSP Issues (1/2)

• Inventory ownership:– Retailer owns the goods– Supplier owns the goods until they are sold (VMI)

• Performance measures: – financial measures– non-financial measures: customer fill rates,

inventory & POS accuracy, inventory turns, lead time, delivery accuracy

Important RSP Issues (2/2)

• 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 SP 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 RSP

CriteriaTypes

DecisionMaker

InventoryOwnership

New SkillsEmployed by vendors

QuickResponse

Retailer Retailer Forecasting Skills

ContinuousReplenishment

Contractually Agreedto Levels

EitherParty

Forecasting &Inventory Control

AdvancedContinuous

Replenishment

Contractually agreedto & ContinuouslyImproved Levels

EitherParty

Forecasting &Inventory Control

VMI Vendor EitherParty

RetailManagement

Advantages of RSP

• Fully utilize system knowledge to control bullwhip effect.– 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 RSP

• Decrease inventory levels & costs• Decrease managerial expenses• Reduce safety stocks, shortage costs• Decrease redundant orders• Improve service levels• Better forecasts & coordinate production and

distribution• Good opportunity for reengineering of the

retailer-supplier relationships

Disadvantages of RSP

• Expensive advanced technology is required

• Supplier/retailer trust must be developed.

• Supplier responsibility increases.

• Expenses at the supplier often increase.– Managerial responsibilities– inventory

Examples of SP Successes and Failures

• Western Publishing-Golden Books:

– Western Publishing is using VMI for its Golden Books line of children’s 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.

Examples of SP Successes and Failures

• VF Corporation’s 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.

– VF’s program is considered one of the most successful in the apparel industry.

Examples of SP 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 didn’t 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 trouble.

Examples of SP Successes and Failures

• Spartan Stores (continued)

– Furthermore, the suppliers didn’t 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 (DI)

• Manufacturer - Distributor:– adding inventory– adding personnel– distributor integration

• DI can:– create a large pool of inventory– lowering total inventory costs– raising service levels– meet specialized technical service requests

Issues of DI

• In a DI arrangement, every distributor can check the inventories of other distributors.

• Centers of excellence in particular areas• skeptical of rewards of participating DI• distributors might be nervous about losing

skills and abilities• build a long-term alliance, trust

Memo