1、Chapter 4 Strategic Alliances,4.1 Introduction 4.2 A Framework for Strategic Alliances 4.3 Third-Party Logistics 4.4 Retailer-Supplier Partnerships 4.5 Distributor Integration,4.1 Introduction,As with any business function,there are four basic ways for a firm to ensure that a logistics related busin
2、ess function is completed: Internal activities Acquisitions. Arms-length transactions. Strategic alliances.,This chapter focuses on strategic alliances related to supply chain management. In the next section,we introduce a framework for analyzing the advantages and disadvantages of strategic allianc
3、e. In Section6.3,6.4,and6.5,the three most important types of supply chain related strategic alliances are discussed in greater detail:retailer-supplier partnership(RSP),third-part logistics(3PL),distributor integration(DI).,4.2 A Framework for Strategic Alliances,There are many difficult strategic
4、issues that play a part in the selection of appropriate strategic alliances.In his classic book,Partnerships for Profit,Jordan Lewis introduces an effective general framework for analyzing strategic alliances.,To determine whether a particular strategic alliances is appropriate for your firm,conside
5、r how the alliances will help address the following issues:,Adding Value to Products. Improving Market Access. Strengthening Operations. Adding Technological Strength Enhancing Strategic Growth. Enhancing Organizational Skills. Building Financial Strength.,Strategic alliances have their downsides.Th
6、e list above is useful for determining these.Each company has its core strengths or competenciesspecific talents that differentiate the company from its competitors and give it an advantage in the eyes of its customers. These core strengths must not be weakened by the alliance, which can happen if r
7、esources are diverted from these strengths or if technological or strategic strengths are compromise to make the partnership successful.,Determining these core strengths is clearly very importantunfortunately,it is also very difficult. To determine a firms core strengths,consider how the firms inter
8、nal capabilities contribute to differentiating it from its competition in each of the seven key items listed above. The following example illustrates the advantages and disadvantages of Strategic Alliances.consider how IBM,Intel,and Microsoft benefited and were hurt by the relationships described in
9、 this example. Example 6.2.1(p125),Three types are typically significant in supply chain management. Third-party logistics(3PL), retailer supplier partnerships (RSP), and distributor integration (DI) are discussed in detail in the next three sections.,4.3 Third-Party Logistics,The third party logist
10、ics industry, which essentially began in the 1980s, was a $40 billion industry in 1998; experts predict that it will grow to $50 billion by 2000.,4.3.1 What is 3PL?,Third-party logistics is simply the use of an outside company to perform all or part of the firms materials management and product dist
11、ribution function. 3PL relationships are typically more complex than traditional logistics supplier relationshipsthey are true strategic alliances.,Although companies have used outside firms to provide particular services, such as trucking and warehousing, for many years, these relationships had two
12、 typical characteristics: they were transaction based, and the companies hired were often single function specific.,Modern 3PL arrangements involve long-term commitments and often multiple function or process management. For example, Ryder Dedicated Logistics has a five-year agreement to design, man
13、age, and operate all of Whirlpool Corporations inbound logistics.,Surprisingly, the use of third-party logistics is most prevalent among large companies. Firms like Minnesota Mining & Manufacturing Co.(3M), Eastman Kodak, Dow Chemical, Time Warner, and Sears Roebuck are turning over large portions o
14、f their logistics operations to outside suppliers.,Third party logistics providers are finding it hard to persuade small companies to employ their services, although this may change as the use of 3PL becomes more prevalent and as 3PL providers make a larger effort to develop relationships with small
15、er companies.,4.3.2 Advantages and Disadvantages of 3PL,Focus on Core Strengths Example 6.3.1(p127) Example 6.3.2(p127) Provides Technological Flexibility Provides Other Flexibilities,Provides Other FlexibilitiesOne example is flexibility in geographic locations. Increasingly suppliers are requiring
16、 rapid replenishment, which in turn may require regional warehousing, by utilizing third-party providers for this warehousing, a company can meet customer requirements without committing capital and limiting flexibility by constructing a new facility or committing to a long-term lease.,Also, flexibi
17、lity in service offerings may be achieved through the use of third parties, which may be equipped to offer retail customers a much larger variety of services than the hiring firm.In addition, flexibility in resource and workforce size can be achieved through outsourcing. Example 6.3.3(p128) Example
18、6.3.4(p128),The most obvious disadvantage of the use of 3PL providers is the loss of control inherent in outsourcing a particular function. This is especially true for outbound logistics where 3PL company employees themselves might interact with a firms customers. Many third party logistics firms wo
19、rk very hard to address these concerns. Efforts include 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.,Important Disadvantages of 3PL,Also, if logistics is one of the core co
20、mpetencies of a firm, it makes no sense to outsource these activities to a supplier who may not be as capable as the firms in-house expertise. For example, Wal-Mart built and manages its own distribution centers and Caterpillar runs its parts supply operations. These are competitive advantages and c
21、ore competencies of these firms, so outsourcing is unnecessary.,In particular, if certain logistics activities are within the core competencies of the firm and others are not, it might be wise to employ 3PL providers for only those areas that outside providers can handle better than the hiring firm.
22、 For example, if VMI replenishments strategies and materials handling are core competencies of a company but transportation is not, a 3PL firm could be contacted to handle shipments from the dock to the customer exclusively. Similarly, pharmaceutical companies build and own DCs for controlled drugs,
23、 but often use public warehoused located closer to the customer for items that are less expensive and easier to control.,4.3.3 3PL Issues and Requirements,Know your own cost.Among the most basic issues to consider in selecting a 3PL provider is to know your own costs so they can be compared with the
24、 cost of using an outsourcing firm.,Customer orientation of the 3PL.A 1995 survey of 3PL providers identified the following characteristics as most critical to the success of a 3PL agreement. The most important was the customer orientation of the provider; that is, the value of a 3PL relationship is
25、 directly related to the ability of the provider to understand the needs of the hiring firm and to adapt its services to the special requirements of that firm. The second most important factor was reliability. The flexibility of the provider, or its ability to react to the changing needs of the hiri
26、ng firm and the needs of that firms customers.,Specialization of the 3PL.When choosing a potential 3PL provider, some experts suggest that companies should consider firms whose roots lie in the particular area of logistics that is most relevant to the logistics requirements in question. For example,
27、 Roadway Logistics, Menlo Logistics, and Yellow Logistics evolved from major LTL carriers; Exel Logistics, GATX, and USCO started as warehouse managers; and UPS and Federal Express have expertise in the timely handling of small packages.,Some firms have even more specialized requirements, and these
28、should be considered carefully when choosing a 3PL partner. Sometimes, a firm can use one of its trusted core carriers as its third party logistics provider. For example, Schneider National, a firm that already worked closely with Baxter Healthcare Corp., recently agreed to take over Baxters dedicat
29、ed fleet routes.,Asset-owning versus non-asset-owning 3PL.There are also advantages and disadvantages to utilizing an asset-owning versus a non-asset-owning 3PL company.,Asset-owning companies have significant size, access to human resources, a large customer base, economies of scope and scale, and
30、systems in place, but they may tend to favor their own divisions in awarding work, to be bureaucratic, and to have a long decision-making cycle. Non-asset-owning companies may be more flexible and able to tailor services, and have the freedom to mix and match providers. They may also have low overhe
31、ad costs and specialized industry expertise at the same time, but limited resources and lower bargaining power.,Both parties must be committed to devoting the time and effort needed to making a success of the relationship. It is critical that both parties remember that this is a mutually beneficial
32、third party alliance, with shared risk and reward. The parties are partnersneither party can take a “transaction pricing” mentality.In general, effective communication is essential for any outsourcing project to succeed.,Other important issues to discuss with potential 3PL providers include the foll
33、owing: The third party and its service providers must respect the confidentiality of the data that you provide them. Specific performance measures must be agreed upon. Discuss specific criteria regarding sub contractors. Consider arbitration issues before entering into a contact. Negotiate escape cl
34、auses into the contract. Ensure that performance goals are being met through periodic reporting by the logistics provider.,4.4 Retailer-Supplier Partnerships,The formation of strategic alliances between retailers and their suppliers is becoming ubiquitous in many industries.,4.4.1 Types of RSP,The t
35、ypes of retailer-supplier partnerships can be viewed on a continuum. At one end is information sharing, which helps the vendor plan more efficiently, and at the other is a consignment scheme, where the vendor completely manages and owns the inventory until the retailer sells it.In a basic quick resp
36、onse strategy, suppliers receive POS data from retailers and use this information to synchronize their production and inventory activities with actual sales at the retailer. In this strategy, the retailer still prepares individual orders, but the POS data is used by the supplier to improve forecasti
37、ng and scheduling. Example 6.4.1(p132),In a continuous replenishment strategy, sometimes called rapid replenishment, vendors receive POS data and use these data to prepare shipments at previously agreed upon intervals to maintain specific levels of inventory.,In a vendor managed inventory(VMI) syste
38、m, sometimes called a vendor Managed Replenishment (VMR) system, the supplier decides on the appropriate inventory levels of each of the products (within previously agreed upon bounds), and the appropriate inventory policies to maintain these levels. This type of relationship is perhaps most famousl
39、y exemplified by Wal-Mart and Procter& Gamble, whose partnership, begun in 1985, has dramatically improved P&Gs on-time deliveries to Wal-Mart while increasing inventory turns. Example 6.4.2(P133),4.4.2 Requirements for RSP,The most important requirement for an effective retailer supplier partnershi
40、p, especially one toward the VMI end of the partnership spectrum, is advanced information systems, on both the supplier and retailer sides of the supply chain.,As in all initiatives that can radically change the way a company operates, top management commitment is required for the project to be succ
41、ess.It is also true because such a partnership may shift power within the organization from one group to another. For instance, when implementing a VMI partnership, the day-to-day contacts with retailers shift from sales and marketing personnel to logistics personnel. This change in power may requir
42、e significant involvement of top management.,4.4.2 Requirements for RSP,Finally, RSP requires the partners to develop a certain level of trust without which the alliance is going to fail. In VMI, for example, suppliers need to demonstrate that they can manage the entire supply chain; that is, they c
43、an manage not only their own inventory but also that of the retailer.,Similarly, in quick response, confidential information is provided to the supplier, which typically serves many competing retailers. In addition, strategic partnering in many cases results in significant reduction in inventory at
44、the retailer outlet. The supplier needs to make sure that the additional available space is not used to benefit the suppliers competitors. Furthermore, the top management at the supplier must understand that the immediate effect of decreased inventory at the retailer will be a one-time loss in sales
45、 revenue.,4.4.3 Inventory Ownership in RSP,One major issue is the decision concerning who makes the replenishment decisions. This places the partnership on the continuum of strategic partnership possibilities described above.,Example 6.4.3(p135)In addition to inventory and ownership issues, advanced
46、 strategic alliances can cover many different areas. Issues such as joint forecasting, meshed planning cycles, and even joint product development are sometimes considered.,4.4.4 Issues in RSP Implementation,For any agreement to be a success, performance measurement criteria must also be agreed to. T
47、hese criteria should include nonfinancial measures as well as the traditional financial measures. For example, nonfinancial measures could include point-of-scale (POS) accuracy, inventory accuracy, shipment and delivery accuracy, lead times, and customer fill rates.,When entering any kind of strateg
48、ic alliance, it is important for both parties to realize that there will initially be problems that can only be worked out through communication and cooperation.In many cases, the supplier in a partnership commits to fast response to emergencies and situational changes at the retailer.,4.4.5 Steps i
49、n RSP Implementation,The important points listed above can be summarized in the following steps in VMI implementation: Initially, the contractual terms of the agreement must be negotiated. These include decisions concerning ownership and when it is to be transferred, credit terms, ordering responsib
50、ilities and performance measures such as service or inventory levels, when appropriate.,Next, the following three tasks must be executed: If they do not exist, integrated information systems must be developed for both supplier and retailer. These information systems must provide easy access to both
51、parties. Effective forecasting techniques to be used by the vendor and the retailer must be developed. A tactical decision support tool to assist in coordinating inventory management and transportation policies must be developed. The system developed will of course depend on the particular nature of the partnership.,
