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Strategic Alliances
Presented by (In order of presentation):Piyali Kundu, Aveek Moitra, Anirban maitra, Rahul Saha, Rupak Guha & Shouv
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In t roduct ion
Complexity in business environments increasing
Resources required to manage are becomingincreasingly scarce
Many functions need to be outsourced
Firms need to ensure that functions are performed
the other firms
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Four Basic Ways to Ensure Tasks Are Co•
Internal activities – Activities that arecore strengths may be the best way to perform the activity. • Acquisitions
– Gives the acquiring firm full control over the way the particular busine performed
– Can be difficult and expensive. (Culture/Competitors)• Arm’s-length transactions
– Most business transactions are of this type. – Short-term arrangement that fulfills a particular business need but doesn’t lead to
long-term strategic advantages.• Strategic alliances
– Multifaceted, goal-oriented, long-term partnerships between two compan – Both risks and rewards are shared. –
Typically lead to long-term strategic benefits for both partners.
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Framework for Strategic Alliances:When to Go for a Strategic Alliance?
Adding value to products
Improving market access
Strengthening operations
Adding technological strength
Enhancing strategic growth Enhancing organizational skills
Building financial strength
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Downsides
Core competenciesshould not becompromised
Competitiveadvantages should
not becompromised
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Three Types of Strategic Allia
Strategic
Alliances
Third Party Logistics
(3PL)
Retailer –Supplier
Partnerships (RSP)
Distributor
Integration (DI)
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T h i r d P a r t y L o g i s t i c s ( 3 P L
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3PL Advantages
• Allows a company to focus o
its core competencies
• Logistics expertise left to th
logistics experts
1) Focus
on Core
Strengths
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3PL Advantages
• Technology advances adopted by bette
3PL providers• Adoption possible by 3PLs in a quicke
more cost-effective way
• 3PLs may have the capability to meet tneeds of afirm’spotential customers
2) ProvidesTechnological
Flexibility
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3 P L A d v a n t a ge s
• Flexibility in geographiclocations.
• Flexibility in service offering
3) ProvidesOther
Flexibilities
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3PL Disadvantages
Loss of control inherent in outsourcing a particular function.
• Outbound logistics 3PLs interact with a firm’s customers.
• Many third-party logistics firms work very hard to address these concerns.• Painting company logos on the sides of trucks, dressing 3PL employees in the un
the hiring company, and providing extensive reporting on each customer interactio
Logistics is one of the core competencies of a firm• Makes no sense to outsource these activities to a supplier who may not be as capa
firm’sin-house expertise
• Wal-Mart, pharmaceutical companies
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3PL IssuesCosts and Customer Orientatio
• Compare with the cost of
using an outsourcing firm.
Know your own
costs
• Reliability.
• Flexibility of the provider
Customerorientation of the
3PL
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3PL IssuesSpecialization of the 3PL
Consider firms whose roots lie in the particular
area of logistics that is most relevant to the
logistics requirements in question.
Firms may have even more specialized
requirements
Firms can use one of its trusted core carriers as its
third-party logistics provider.
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3PL Issues Asset-Owning v/s Non-Asset-Ownin
Asset-owning companies
• Significant size, human resources, customer
base, economies of scope and scale, and
systems
• May be bureaucratic with a long decision-
making cycle.
Non-asset-owning
companies
• May have limited resources and barga
power
• May be more flexible
• Able to tailor services and have the free
mix and match providers.
• May have low overhead costs and spec
industry expertise at the same time
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3PL Implementation Issues
Buying company
• Should devote enough t ime to s ta rup cons idera t ions (Fi rs t 6-12 mont
mos t c r i t i ca l )
• Mus t iden t i fy exac t ly wha t i t neefor the re la t ionsh ip to be success fu
• Be ab le to p rov ide spec i f i
per formance measures and
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3PL Implementation Issues
3PL company:
• Must consider and discuss requirements honestly
completely, including their realism and relevance
Both parties:• Must dedicate time and effort for the relationship
• Treat as a mutually beneficial alliance
• “ ”
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Other IssuesThe third party and its service providers must respect the conof the data.Specific performance measures must be agreed upon.
Specific criteria regarding subcontractors should be discusse
Arbitration issues should be considered before entering into
Escape clauses should be negotiated into the contract.Methods of ensuring that performance goals are being met
discussed
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Retailer-Supplier Partnership
Cooperative relationship
between suppliers and retailers
to use oneanother’sknowledge
Suppliers have better
knowledge of lead times
and production
capacities
Retailers have better
knowledge of demands
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Types of RSPQuick Response Strategy
Suppliers receive POS data from retailers
Suppliers use this information to synchroniz
production and inventory activities with actual sa
retailer.
POS data are used by suppliers to improve foreca
scheduling and to reduce lead time
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Types of RSPContinuous Replenishment Strategy
Also called rapid replenishment
Suppliers receive POS data
Suppliers use these data to prepare shipment previously agreed-upon intervals to maintain sp
levels of inventory.Advanced form of continuous replenishmentSuppliers may gradually decrease inventory levels
retail store or distribution center as long as service lev
met.
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Types of RSPVendor Managed Inventory (VMI) System
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Main Characteristics of RSP
Criteria → Type↓
Decision maker Inventory Ownership
New skillsemployed by
vendors Quick response Retailer Retailer Forecasting skills
Continuousreplenishment
Contractually agreed-to levels
Either party Forecasting and inventory control
Advanced continuous
replenishment
Contractually
agreed-to and continuously improved levels
Either party Forecasting and inventory control
VMI Vendor Either party Retail
management
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RSP Requirements
Presence of advanced information systems
Top management commitment
• Especially because information will be shared across
companiesA level of trust among partners
• Supplier manages retailer’s inventory
• Retailer provides sales information to supplier
• Reduced inventory leads to space savings
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RSP Implementation
Performance measurement criteria must also be agre
• Non-financial measures as well as the traditional financial meInitial problems can be worked out throu
communication and cooperation.
Manufacturing technology or capacity at supplier may need t
modified/enhanced to respond to specifics in the contract:
• Fast response to emergencies
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Steps in RSP Implementation
Initially, thecontractual terms
of the agreement
must benegotiated on the
following:
1) Inventory ownership2) Credit terms
3) Ordering responsibilities
4) Performance measures such as service or inventory levappropriate.
The following
three additionalsteps need to be
executed:
1) Development of integrated information systems
2) Development of effective forecasting techniques
3) Establishment of a tactical decision support tool to ass
coordinating inventory management and transportation pol
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Advantages of RSP
Better
knowledge the
supplier has
• an ability to control the bullwhip ef
A variety of side benefits
• provides a good opportunity for the reengineeringretailer –supplier relationship.
• eliminate redundant order entries
• automate manual tasks can be automated
• reassign tasks for better efficiency
• Eliminate unnecessary control steps
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Disadvantages of RSP
Necessary to employ advanced technology, which is often expensive.
Essential to develop trust in what once may have been an adversarial supplier – retailer
relationship.
Supplier often has much more responsibility than formerly.
• May force the supplier to add personnel to meet this responsibility.
Expenses at the supplier often increase as managerial responsibilities increase.
Consignment arrangement may increase inventory costs for the supplier.
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Examples of RSP Successes and FaiVFCorporation’sMarket Response System:
– The VF Corporation, which has many well known bran(including Wrangler, Lee, Girbaud, and many others), began program in 1989.
– Currently, about 40 percent of its production is handled using sof automatic replenishment scheme.
– This is particularly notable because the program encompadifferent retailers, 40,000 store locations, and more than 1replenishment levels.
– VF’sprogram is considered one of the most successful in theindustry.
partan Stores
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Examples of RSP Successes and Failurpartan 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 theydidn’t trust the
suppliers enough to be able to stop
carefully monitoring the inventories anddeliveries of the VMI items, and
intervening at the slightest hint of trouble.
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Examples of RSP Successes and Failur
Spartan Stores (continued)
• Furthermore, the suppliersdidn’t do
much to allay these fears. The problems were not with thesuppliers’forecasts;
instead, they were due to thesuppliers’
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
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Dis t r ibu tor In tegra t ion (D
Distributors an important partner in the supply c
Distributors have a wealth of information aboutcustomer needs and wants
Distributors typically rely on manufacturers to s
the necessary parts and expertise
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Changing View Regarding Distrib
Modern information technology leads to a third
In the past, issues were addressed by adding inventory
personnel
Strong and effective distribution network cannot always meet
T f D I
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Ty p e s o f D I• Addresses both inventory-related and service-related issues
– Inventory pooling across the entire distributor network – Each distributor checks inventories of other distributors to loca
product or part. – Dealers are contractually bound to exchange the part und
conditions and for agreed-upon remuneration.•
lowers total inventory costs• increases service levels.• Can meet a customer’s specialized technical service requests
– Steer special requests to the distributors best suited to address the –
Centers of Excellence for Otra, a large Dutch holding company • 70 electrical wholesale subsidiaries• some designated ascenters of excellence • Other subsidiaries, as well as customers, are directed to these cente
excellence to meet particular requests
I i DI
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I ssues in DI• D i s t r i b u t o r s m a y b e s k e p t i c a l o f t h e r e w a r d s o f p a r t i c
i n s u c h a s y s t e m • P a r t i c i p a t i n g d i s t r i b u t o r s w i l l b e f o r c e d t o r e l y u p o n
d i s t r i b u t o r s , s o m e o f w h o m t h e y m a y n o t k n o w, t o h e p r o v i d e g o o d c u s t o m e r s e r v i c e .
• Te n d s t o t a k e c e r t a i n r e s p o n s i b i l i t i e s a n d a r e a s o f e xa w a y f r o m c e r t a i n d i s t r i b u t o r s , a n d c o n c e n t r a t e t h e m od i s t r i b u t o r s . I t i s n o t s u r p r i s i n g t h a t d i s t r i b u t o r s m i gn e r v o u s a b o u t l o s i n g t h e s e s k i l l s a n d a b i l i t i es .
•
D I r e l a t i o n s h i p r e q u i r e s : – a large commitment of resources and effort for the manufacturer – a long-term alliance. – trust among the participants. – pledges and guarantees from the manufacturer to ensure distributor co
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SUMMARY• Various types of partnerships can be used to manage the su
effectively.• Framework that can help in selecting the most appropriate way
particular logistics issue.• 3PLs are becoming more prevalent.• Both advantages and disadvantages to outsourcing the logistics fun• Many important issues to consider once the decision has been ma
agreement is being implemented.• RSPs are also becoming common.
– Issues and concerns relating to the implementation of RSP types of • Distributor Integration (DI)
– Create risk-pooling opportunities across the various distributors – Enable different distributors to develop different areas of expertise.