1. Designing & Managing the Supply Chain
Strategic Alliances
Designing & Managing the Supply Chain
Chapter 6
Yao yaxian

2. Outline How Kimberly-Clark keeps client Costco in diapers Introduction
A framework for strategic alliances
Third-party logistics
Retailer-supplier partnerships
Distributor integration

3. CASE: How Kimberly-Clark keeps client Costco in diapers
Introduction
Kimberly-Clark is a company which products diapers
Costco is a retailer who sales Kimberly-Clark’s productions
The retailer pressures their suppliers to make a more active role in shepherding products from factory to store shelves

4. CASE: How Kimberly-Clark keeps client Costco in diapers
Changing sizes
In some cases, suppliers shoulder the costs of warehousing excess merchandise.
In others, it means pushing suppliers to change product or package sizes.
In this case, the plan is officially called ”vendor-managed inventory,” Kimberly-Clark oversees and pays for everything involved with managing Costco’s inventory except the actual shelf-stockers in store aisles

5. CASE: How Kimberly-Clark keeps client Costco in diapers
Return to unisex
Less variety makes for easier inventory-tracking in its factories and trucks
Better cooperation between retailers and suppliers has been made possible by improved technology
Costco’ shelves are less likely to go empty under the new system
A “Pull” product
It means that shoppers make a trip to the store specifically to buy them

6. CASE: How Kimberly-Clark keeps client Costco in diapers
A canceled order
The drive for efficiency creates new problems
Costco store managers complain that some deliveries are incomplete
Some drivers accidentally unloading items intend for a later stop
Now, Kimberly-Clark uses a simple cardboard divider to separate each store’ order

7. Introduction
As with any business function, there are four basic ways for a firm to ensure that a logistics-related business function is completed:
1. internal activities. A firm can perform the activity using internal resources and expertise, if they are available.
2. acquisitions. If a firm doesn’t have the expertise or specialized resources internally, it can acquire another firm that does.

8. Introduction
3. arm’s-length transactions. This kind of short-term arrangement fulfills a particular business need but does not lead to long-term strategic advantages
4. strategic alliances. These are typically multifaceted, goal-oriented, long-term partnerships between two companies in which both risks and rewards are shared

9. A framework for strategic alliances
To determine whether a particular strategic alliance is appropriate for your firm, consider how the alliance will help address the following issues:
Adding value to products
Improving market access
Strengthening operations
Adding technological strength
Enhancing strategic growth
Enhancing organizational skills
Building financial strength

10. Third-party logistics
What is 3PL?
Third-party logistics is simply the use of an outside company to perform all or part of the firm’s management and product distribution
They are true strategic alliances
Advantages and disadvantages of 3PL
Focus on core strengths
Provides technological flexibility
Provides other flexibilities
Important disadvantages of 3PL
Loss of control inherent in outsourcing a particular function
No sense to out source these activities to a supplier if logistics is one of the core competencies of a firm
order stream

11. Third-party logistics
3PL issues and requirements
Know your own costs to compare with the cost of using an outsourcing firm
Customer orientation of the 3PL
Specialization of the 3PL
Asset-owning versus non-asset-owning 3PL
3PL implementation issues
Agreements need to be reached and appropriate efforts must be made by both companies to initiate the relationship effectively
Both parties must be committed to devoting the time and effort needed to making a success of the relationship

12. Third-party logistics
Other important issues to discuss with potential 3PL providers including the following:
The third party and its service providers must respect the confidentiality of the data that you provide them
Specific performance measures must be agreed upon
Specific criteria regarding subcontractors should be discussed
Arbitration issues should be considered before entering into a contract
Escape clauses should be negotiated into the contract
Methods of ensuring that performance goals are being met should be discussed

13. Retailer-supplier partnerships
Types of RSP
At one end is information sharing, which helps the vendor plan more efficiently
At the other is a consignment scheme, where the vendor completely manages and owns the inventory until the retailer sells it
Requirements for RSP
The most important requirement for an effective retailer-supplier partnership, especially one toward the VMI end of the partnership spectrum, is advanced information systems, on both the supplier and retailer sides of the supply chain

14. Retailer-supplier partnerships
Requirements for RSP
As in all initiatives that can radically change the way a company operates top management commitment is required for the project to success.
Finally, RSP requires the partners to develop a certain level of trust without which the alliance is going to fail.
Inventory ownership in RSP
Now, some VMI partnerships are moving to a consignment relationship in which the supplier owns the goods until they are sold
The benefit of this kind of relationship to the retailer is obvious: lower inventory cost

15. Retailer-supplier partnerships
Inventory ownership in RSP
In VMI, one tries to optimize the entire system by coordinating production and distribution.
In addition, the supplier can further decrease total cost by coordinating production and distribution for several retailers.
In addition to inventory and ownership issues, advanced strategic alliances can cover many different areas.
Issues such as joint forecasting, meshed planning cycles, and even joint product development are sometimes considered.

16. Retailer-supplier partnerships
Issues in RSP implementation
For any agreement to be a success, performance measurement criteria must also be agreed to
When information is being shared between retailers and suppliers, confidentiality becomes an issue
When entering any kind of strategic, it is important for both parties to realize that there will initially be problems that can only be worked out through communication and cooperation
The supplier in a partnership commits to fast response to emergencies and situational changes at the retailer

17. Steps in RSP implementation
1. the contractual terms of the agreement must be negotiated
2. if they do not exist, integrated information systems must be developed for both supplier and retailer
3. effective forecasting techniques to be used by the vendor and the retailer must be developed
4. a tactical decision support tool to assist in coordinating inventory management and transportation policies must be developed

18. Advantages and disadvantages of RSP
The knowledge the supplier has about order quantities, implying an ability to control the bullwhip effect
Through transfer of customer demand information that allows the supplier to reduce lead time
In VMI, controlling the variability in order quantities
Decrease managerial expenses and decreased inventory costs are obvious
Reduce forecast uncertainties and thus better coordinate production and distribution

19. Advantages and disadvantages of RSP
It is necessary to employ advanced technology, which is often expensive
It is essential to develop trust in what once may have been an adversarial supplier-retailer relationship
The supplier often has much more responsibility than formerly. This may force the supplier to add personnel to meet this responsibility
Finally, expenses at the supplier often increase as managerial responsibilities increase

20. Distributor integration
Types of distributor integration
In term of inventory, DI can be used to create a large pool of inventory across the entire distributor network, lowering total inventory costs while raising service levels
DI can be used to meet a customer’s specialized technical service requests by steering these requests to the distributors best suited to address them

21. Issues in Distributor Integration
First, distributors may be skeptical of the rewards of participating in such a system.
In addition, participating distributors will be forced to rely upon other distributors, some of whom may not know
This new kind of relationship also tends to take certain responsibilities and areas of expertise away from certain distributors, and concentrate them on a few distributors

22. Issues in Distributor Integration
Establishing a DI relationship requires a large commitment of resources and effort on the part of the manufacturing
Distributors must feel sure that this is a long-term alliance
Organizers must work hard to build trust among the participants
The manufacturer may have to provide pledges and guarantees
The manufacturer may have to provide pledges and guarantees to ensure distributor commitment

23. Summary
In this chapter, we examined various types of partnerships that can be used to manage the supply chain more effectively
Increasingly, third-party logistics providers are taking over some of a firm’s logistics responsibilities
Retailer-supplier partnerships, in which the supplier manages a portion of the retailer’s business-typically retail inventories-are also becoming common
Finally, we discussed a class of alliances, called distributor intergration