ch 06 stragetic alliances

8/8/2019 Ch 06 Stragetic Alliances

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Strategic Alliances

Phil Kaminsky

[email protected]

David Simchi-Levi

Philip Kaminsky

Edith Simchi-Levi


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McGraw-Hill/Irwin 2003 Simchi-Levi, Kaminsky, Simchi-Levi

Strategic Partnering:

Types of SP

Quick Response:

Vendors receive POS data from retailers, and use this

information to synchronize production and inventoryactivities 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 Millikens textile plants to final clothing

receipt at several of the department stores involved was

reduced from eighteen weeks down to three weeks.


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Continuous Replenishment: Vendors receivePOS data and use it prepare shipments at

previously agreed upon intervals to maintainagreed to levels of inventory. Wal-Mart, Kmart

AdvancedContinuous Replenishment:

Suppliers may gradually decrease inventory levelsat the retailers store or distribution center as longas service levels are met. Inventory levels are thuscontinuously improved in a structured way. Kmart


Types of SP


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Vendor Managed Inventory (VMI):JITD

VMI Projects at Dillard Department Stores, J.C.

Penney, and Wal-Mart have shown sales

increases of 20 to 25 percent, and 30 percent

inventory turnover improvements.


Types of SP


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Requirements for Effective

SP 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


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Important SP 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, inventorylevel, inventory turns


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Important SP 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 thiswas due to the fact that the two companies

employed different forecasting methods.


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Steps in SP

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 andtransportation policies


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Main Characteristics of SP

Criteria

Types

Decision

Maker

Inventory

Ownership

New Skills

Employed by vendorsQuick

Response

Retailer Retailer Forecasting Skills

ContinuousReplenishment

Contractually Agreedto Levels

EitherParty

Forecasting &Inventory Control

Advanced

ContinuousReplenishment

Contractually agreed

to & ContinuouslyImproved Levels

Either

Party

Forecasting &

Inventory Control

VMI Vendor Either Party

RetailManagement


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Advantages of SP

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.


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Advantages of SP

Decrease required inventory levels

Improve service levels Decrease work duplication

Improve forecasts


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Disadvantages of SP

Expensive advanced technology isrequired.

Supplier/retailer trust must bedeveloped.

Supplier responsibility increases.

Expenses at the supplier oftenincrease.

Why? How can this be addressed?


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Examples of SP

Successes and Failures Western Publishing-Golden Books:

Western Publishing is using VMI for its Golden Books line ofchildrens books at several retailers.

POS data automatically triggers re-orders when inventory fallsbelow a reorder point.

This inventory is delivered either to a distribution center, or in manycases, directly to the store.

Ownership of the books shifts to the retailer once deliveries havebeen made.

In the case ofToys R Us, the company has even managed theentire book section for the retailer, including inventory fromsuppliers other than Western Publishing.

Extra sales, increased costs to Western


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Examples of SP

Successes and Failures VF Corporations Market Response System:

The VF Corporation, which has many well known brand

names (includingW

rangler, Lee, Girbaud, and manyothers), began its VMI program in 1989.

Currently, about 40 percent of its production is handledusing some type of automatic replenishment scheme.

This is particularly notable because the program

encompasses 350 different retailers, 40,000 storelocations, and more than 15 million replenishmentlevels.

VFs program is considered one of the most successfulin the apparel industry.


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Examples of SP

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 theydid before

This was because they didnt trust the suppliersenough to be able to stop carefully monitoringthe inventories and deliveries of the VMI items,and intervening at the slightest hint of trouble.


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Examples of SP

Successes and Failures Spartan Stores (continued)

Suppliers didnt do much to allay these fears.

The problems were not with the suppliersforecasts; 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 accountfor promotions, delivery levels were oftenunacceptably low during these periods of peakdemand.


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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


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3PL

Disadvantages Loss of control

3PL employees may interact with customers 3PLs 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


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DistributorIntegration

Parts are shared across the distributor network

Specialized service requests are steered to appropriatedealers 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

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