Chapter 6. Strategic Alliances

1. Chapter 6. Strategic Alliances Park Eun-Jung May.17.2007

2. Contents • Case> How Kimberly-Clark Keeps Client Costco in Diapers • Introduction • Framework for strategic alliances • Third-party Logistics • Retailer-supplier Partnerships • Distributor Integration

3. Strategies for SCM • all of the advanced strategies, techniques, and approaches for Supply Chain Management focus on : ◈ Global Optimization ◈ Managing Uncertainty

4. Dealing with Uncertainty • Pull systems • Risk Pooling • Centralization • Postponement • Strategic Alliances • Collaborative Forecasting

5. Case> How Kimberly-Clark Keeps Client Costco in Diapers • Kimberly-Clark : manufacturer • Costco : retailer • Kimberly-Clark replenished stock of Costco in diapers  Costco didn’t need to manage the stock. • Shared information about individual stores’ sales • Kimberly-Clark used the computer link and employed data analyst

6. Case> How Kimberly-Clark Keeps Client Costco in Diapers • Kimberly-Clark and Costco used VMI(Vender-Managed Inventory) • Effect : Reduce inventory levels of Costco, Saving costs, increase sales of Kimberly-Clark, improve service levels

7. 6.1 Introduction • Internal activities A firm can perform the activity using internal resources and expertise • Acquisitions Acquire a firm which have the expertise or specialized resources • Arm’s-length transactions • Strategic alliances

8. 6.2 Framework for Strategic Alliances • To determine whether a particular strategic alliance is appropriate for your firm, consider following issues : • Adding value to products • Improving market access • Strengthening operations • Adding technological strength • Enhancing strategic growth • Enhancing organizational skills • Building financial strength

9. 6.3 Third-Party Logistics • What is 3PL? Take over some for all of company’s logistics responsibilities Outside company to perform all or part of the firm’s materials management and product distribution functions

10. 6.3 Third-Party Logistics • Advantages and Disadvantages of 3PL • Advantages • 3PL allows a company to focus on its core competencies • 3PL provider constantly update their information technology and equipment • Flexibility in geographic locations, service, resource and workforce • Disadvantages • Loss of control

11. 6.3 Third-Party Logistics • 3PL Issues and Requirements- Consider following issues when a firm contract with 3PL provider : • Know firm’s own cost • Customer orientation of the 3PL • Specialization of the 3PL • Asset-owning versus non-asset-owning 3PL

12. 6.4 Retailer-Supplier Partnerships • Types of RSP • Quick Response Strategy- Supplier receives POS data from retailer and uses this information- Improve forecasting and scheduling and reduce lead timeEx 6-6) Milliken and Company uses POS data  synchronize their ordering and manufacturing plans  reduce the lead time • Continuous Replenishment Strategy- POS data are used to prepare shipments- Maintain specific levels of inventory

13. 6.4 Retailer-Supplier Partnerships • Advanced Continuous Replenishment Strategy- Improve the inventory levels continuously- Inventory levels change the appropriate level • Vendor-Managed Inventory(VMI) System- The Goal is to eliminate retailer oversight on specific orders- Inventory turnover of Wal-Mart was increased through the VMI system- P&G deliveries improved dramatically

14. 6.4 Retailer-Supplier Partnerships

15. 6.4 Retailer-Supplier Partnerships • Requirements for RSP • Advanced Information System- EDI(Electronic Data Interchange) and POS - Bar Coding and Scanning • Top Management Commitment • Partners to develop a certain level of trust

16. 6.4 Retailer-Supplier Partnerships • Inventory Ownership in RSP- Inventory ownership must be cleared to the success of this kind of strategic alliance effort- In VMI system, supplier owns the goods until they are sold  retailer reduce inventory cost, supplier manage inventory effectively

17. 6.4 Retailer-Supplier Partnerships • Steps in RSP Implementation • The contractual terms of the agreement must be negotiated- decisions concerning ownership, credit terms, ordering responsibilities, performance measures • Developing the integrated information system, effective forecasting technique and a tactical decision support tool

18. 6.4 Retailer-Supplier Partnerships • Advantages and Disadvantages of RSP • Advantages- Supplier controls the bullwhip effect- Reduce overall system cost and improve overall system service levels- Reduce forecast uncertainties- Reduce safety stocks, storage costs and delivery costs • Disadvantages- Employ advanced technology- Develop trust- Supplier has much more responsibility in strategic partnership- Increase supplier’s managerial responsibilities and inventory costs

19. 6.4 Retailer-Supplier Partnerships • Successes and Failures • Successes- VMI program of between Wal-Mart and Mead-Johnson increased inventory turns - Scott Paper Company’s VMI program improved inventory turns • Failures- Schering-Plough Healthcare Products and Kmart’s Partnership didn’t improve sales or profits, but decreased stockouts at Kmart- Spartan Store’s lead time was not decrease and didn’t trust supplier

20. 6.5 Distributor Integration • Use the expertise and inventory at the others • Types of Distributor Integration • Inventory-related- a large pool of inventory , lowering total inventory costs, raising service levels • Service-related- Meet a customer’s specialized technical service requests

21. 6.5 Distributor Integration • Issues in Distributor Integration • Distributor may be skeptical of the rewards of participating in such as a system • Distributor might be nervous about losing these skills and abilities • A large commitment of resources and effort on the part of the manufacturing company