The Power matrix of Supplier-

Buyer Relationship

High

Buyer Dominance Inter-dependence

Relative utility
and scarcity of
buyer’s
resources for
suppliers
Independence Supplier Dominance

(adverse selection) (moral hazard)

Low

Low 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
• Arm’s length transaction
• Outsourcing
• Strategic alliance
Stages of Strategic Alliance
• Initial Euphoria
• Honeymoon period
• Dawning realization
• Aftershock
• Damage control
 Conceptual model of alliance
development
• Alliance conceptualization
• Alliance pursuance
• Alliance confirmation
• Alliance 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
• What are the advantages of 3PL?
– Focus on core strengths
– Provides technological flexibility
– Provides flexibility in
• geography
• workforce size
• additional services
• resource flexibility
 3PL
• Use of an outside company to perform
all or part of the form’s 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
• 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
• 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 Milliken’s 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 retailer’s store or distribution
center as long as service levels are met.
Inventory levels are thus continuously
improved in a structured way.
– Kmart
 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 New Skills

Types Maker Ownership Employed by vendors
Quick Retailer Retailer Forecasting Skills
Response
Continuous Contractually Agreed Either Forecasting &
Replenishment to Levels Party Inventory Control
Advanced Contractually agreed Either Forecasting &
Continuous to & Continuously Party Inventory Control
Replenishment Improved Levels
VMI Vendor Either Retail
Party 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 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.
– Extra sales, increased costs to Western
 Examples of SA 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 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 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 SA Successes
and Failures
• Spartan Stores (continued)
– 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
• 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
– Incentives for dealers – are they giving away competitive
advantages?
– Skills and responsibilities are taken from some
dealers/distributors.
• Examples - Caterpillar, Okuma
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 Coordinated Supply Chain

Scope Decisions 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

Operational ERP ERP

Supplier Manufacturer Distributor Retailer Customer

 Information Technology in a
Supply Chain: Analytical
Applications

Strategic

SCM

Planning APS Transport & Inventory Dem Plan

Planning
Supplier
Apps
Transport execution & CRM/SFA
MES
WMS
Operational

Supplier Manufacturer Distributor Retailer Customer