• Transactional Relationship: No formalized relationship; transactions made independently at arms length.

• Basic Alliance: Tactical relationship designed to establish basic level of trust & honest, open communication.

• Operational Alliance: Frequent communication regarding capacity & demand with joint problem solving.

• Business Alliance: Greater mutual dependence with specialized processes & unique products and services.

• Strategic Alliance: LT relationship involving shared commitment/resources that deals with strategic issues.

The Relationship Continuum

• Transitory• Cost-driven• Arms-length

• LT Relationship• Mutual Benefits• Shared Resources• Open Communication• Joint Planning• Shared Risks/Rewards• X-organizational Teams• Top Managers Involved

TransactionalRelationship

Strategic Alliance

BasicAlliance

OperationalAlliance

Business Alliance

PercentDollarsSpent

Percent of Items

100

75

50

25

00 25 50 75 100

ABC Classification can help define relationship intensity!!!

Understanding Relationship Importance

•Classify based on dollars spent.

•Re-classify based on strategic issues!!!

A simple process!!!

Which relationships are most important?Which relationships are most important?

C

B

A

Alliances enable the firm to . . .

. . . focus on its core capabilities/competencies

. . . leverage its resources

. . . learn from partners

. . . increase flexibility

. . . offer unique product/service packages

. . . offer unique satisfaction opportunities

. . . better manage the SC as a value system

. . . spread risk across the SC

Alliance Management in Theory

Why Do Companies Form Alliances?Why Do Companies Form Alliances?

Strategic alliances determine the amount & the form of value-added within the firm & within the SC.

Alliance Management in Practice

The Intangibles!!!The Intangibles!!!

Collaborative effort

Collaborative continuous improvement

Creativity, innovation, & idea generation

Cultural fit

Mutual dependence

Patience & perseverance

Mutual commitment to the relationship

Personal relationships

Shared vision & objectives

Trust

Understanding of each other’s businesses

Willingness to be flexible

Collaborative,Synergistic,Symbiotic,

Alliance

Collaborative,Synergistic,Symbiotic,

Alliance

True, synergistic alliances are rare. They are hard to achieve & hard to manage, but they can deliver real value!!!

TheGoalTheGoal

Alliance Management in Practice

• Formal mechanism used to identify alliance partners

• Formal guidelines use to manage alliances

• Clear roles & responsibilities are defined & communicated

• Risks & rewards are shared on a mutually acceptable basis

• Problem resolution methodology is established

• Clear & concise long-term contacts are established

• Technology linkages routinize information exchange

• Confidentiality agreements are employed

• Measures are aligned & measurement information is shared

• Continuous improvement clauses are utilized

• Dedicated alliance teams are established

• Exit criteria are spelled out at the very beginning

Twelve Pillars to Alliance success!!!Twelve Pillars to Alliance success!!!

Alliance Management in Practice

The Caveats of Alliances!!!The Caveats of Alliances!!!

• Channel power must not be “THE” primary governing force!!!

• Power asymmetry “always” threatens true collaboration!!!

• Fairness must not be defined locally & opportunistically!!!

• The supply side remains the lesser of two equals!!!

• Institutional memories are very short!!!

• Appropriateness rules!!!

Keys to Alliance Success

• Partnering is appropriate across the supply chain!

• View the arrangement as the implementation of a strategic plan.

• Evaluate partners’ roles in terms of a value-added process.

• Seek an arrangement that achieves scale benefits & spreads risk.

• Share information needed for both short- & long-term success.

• Build trust between the organizations by:

• setting unambiguous goals

• establishing clear roles

• laying down firm rules

• measuring performance rigorously

• Consider the contingencies--even long-term may not last forever.

Experience provides these guidelines!!!Experience provides these guidelines!!!

Consider Contingencies & Renewal Monitor changing market/technology trends Modify relationship as needed Renew collaboration

The Alliance Development Process

Establish Alliance Policy & Guidelines Number of Alliances Intensity of Relationships

Conduct Opportunity Analysis Analyze supply chain processes Identify collaboration opportunities Estimate potential benefits

Select Suppliers to Participate Discuss benefits of closer cooperation Validate (jointly quantify) benefits Obtain senior management approval Develop alliance strategy Establish alliance steering team Develop timeline to build relationship Conduct kick-off meetings

Establish Implementation Plans Recommend initial targeted activities Develop implementation plan Identify metrics Establish timeline with milestones Gain executive approval & obtain resources

Implement & Measure Implement solutions via joint teams Measure results from both sides Share rewards & risks Recognize accomplishments

Determine Exit Strategy Identify rationale for dissolution Establish rules to allocate joint resources

Internal Planning

Collaborative Planning

Day-to-day Management