Strategic Alliances and Partnerships
Supply Chain Management
Chapter 5A:
Forming Partnerships & Strategic Alliances
A long-term, mutually beneficial business relationship containing specific elements unique to the relationship; an agreement detailing performance requirements and conditions, structures to promote successful interaction between parties, organizational alignment, clear measures of success, and a high level of mutual commitment
Creating Closer Relationships
Buyer-Supplier Relationships
Spectrum of Buyer-Supplier Relationships
Neutral Antagonistic
Parties work actively against the needs of the other Neither party takes responsibility for anything that happens in the relationship
Adversarial
Parties are engaged in competitive struggle Parties attempt to capture the maximum value for their side
Cooperative
Parties realize the benefit of working together Closer relations are a result of mutual goals Supplier input and involvement begins to increase
Collaborative
Congruence of goals exists Parties work together to satisfy the needs of each other and create new value Parties search for creative solutions jointly
Lose/Lose
Win/Lose
Win/Win
Types of Relationships
Strategic Alliance
Collaborative
Transactional/Arms Length Relationships Characteristics
An absence of concern about other partys wellbeing One of a series of independent deals Costs, data and forecasts are not shared Price is the focus of the relationship A minimum of purchasing time and energy is required to establish prices Transactional purchases lend themselves to eprocurement
Vendor/
transactional
Partnerships
Coordinated
Arms Length
Co-operative
Joint Ventures
Vertical Integration
Advantages of Transactional Relationships
Relatively less purchasing time and effort are required to establish priceMarket forces of supply and demand establish the price Lower skill levels of procurement personnel are requiredLess judgment needed
Disadvantages of Transactional Relationships
Potential for communication difficulties Customers are subject to more supply disruptions Expediting and monitoring of incoming quality Quality will be only as good as required Suppliers provide the minimum service required Inflexible when flexibility may be required Less effective performance by suppliers Suppliers have less to lose Supplier is not motivated to invest time and energy development of buyers products
Characteristics of Partnership Types
Partnership Type Activities Time Horizon Scope of Activities
Collaborative and Alliance Relationships
Collaborative and alliance relationships tend to result in lower total costs and improve performance of the supply chain
VA more likely with collaborative and alliance relationships Extended learning curve effect
Cooperation Coordination Collaboration
Fewer suppliers Longer term contracts Information linkages WIP linkages EDI exchange Supply chain integration Joint planning Technology sharing
Short-term
Single functional area Multiple functional areas
Long-term
Long-term with no fixed date
Firms see each other as extensions of their own firm
Collaborative Relationships
Typically used for the procurement of noncommodity items and services A collaborative relationship frequently is an appropriate first step on the road to a strategic alliance Collaborative relationships tend to foster
Longer term contracts Reduction of risk for suppliers Reducing total costs (e.g. contract writing, monitoring) Improvement of products and processes Increased investment in R&D Increased investment in training and equipment Better focus on customer needs
Supply Alliances
The fundamental difference between collaborative relationships and supply alliances is the presence of institutional trust in alliances Benefits:
Lower total costs Reduced time to market Improved quality Improved technology flow from suppliers Improved continuity of supply
Strategic Alliances
E.g. One firms output is used to manufacture another product by the alliance partner. One firm marketing channel is used to sell another firms products Strategic alliances are common in global marketing, where the creation of marketing channel is expensive and time consuming.
e.g. Nestle have an extensive marketing system that spans 70 countries and many companies use Nestl's marketing channel to market their products.
Differences in Relationship
Duration Obligations Expectations Interaction/ Communication Cooperation Planning Goal Performance Analysis Benefits & Burdens
Process Model for Logistics/SC Relationship
1. Perform Strategic Assessment
Strategic Assessment may take the form of an audit to include: Needs assessment to include requirement of customers, suppliers and key logistics providers Identification of gaps between current and desired measures of logistics performance Identification of strategic environmental factors and industry trends Overall business goals and objectives, including those from a corporate, divisional and logistics perspective.
Yes
No Decide on lower level of relationship such as transactional or preferred supplier
Trigger Events to Third Party Decision
Capacity (Space) Constraints Cost Pressures Lack of Needed Expertise Labor Issues Changing Customer Requirements New Products and Markets Mergers and Acquisitions Organizational Change; Reengineering
2. Decision to Form Relationship
Are the providers services needed? Do we have the core competency?
- expertise - strategic fit -ability to invest
What type of relationship will work?
For a relationship to succeed right drivers and facilitator should be present
(Lambert, Emmelhainz and Gardner)
Drivers & Facilitators of Relationships
Drivers Mutual benefits which would not be possible without a partnership. asset/cost efficiency, customer service, marketing advantage and profit growth Facilitators Supportive corporate environmental factors corporate compatibility, management philosophy, commitment to relationship formation, symmetry on key factors such as size, financial strength etc.
3. Evaluate Alternatives
If sufficient level of drivers & facilitators are not present a transactional level relationship is indicated Alternatively, when common drivers are present and facilitating factors are also present, a more formal structured relationship may be justified. In addition to the logistics/SC executives other operational managers also need to be involved in the selection process and partnership selection process
5. Structure Operating Model
The operating model ensures that the relationship begins on a common understanding of the commitment involved and includes: - Planning - Joint operating controls - Communication - Risk/ reward sharing - Trust & Commitment - Contract style - Scope of the relationship - Financial investment
Relationships often flounder
Strategic Risks Selection Risks Implementation Risks Management Risks
IMPLEMENT & IMPROVE RELATIONSHIP
Outsourcing/3PL
Traditionally subcontracting has been used to obtain materials and services from external parties. Subcontracting is of varying types and duration and often has conflicting interests, Outsourcing/ 3PL is an extension of the longlongstanding practice of subcontracting Outsourcing has become a major strategy as firms move toward specialization
The End
Types of 3PL
Standard 3PL provider Service developer The customer adapter The customer developer
Types of 3PL Providers
Standard 3PL provider This is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and distribution (business) the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity.
Types of 3PL Providers
Service developer This type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, crossdocking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.
Types of 3PL Providers
The customer adapter This type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the companys logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small.
Types of 3PL Providers
The customer developer This is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.
Reference: The Management of Business Logistics: A Supply Chain Perspective by John J Coyle, Edward J. Bardi and John Longley Jr., Published by South Western Canada, 2003
