2. 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 Transactional Relationship Strategic Alliance Basic Alliance Operational Alliance Business Alliance

3. Percent Dollars Spent Percent of Items 100 75 50 25 0 0 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?

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

5. Alliance Management in Practice 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!!! The Goal The Goal

6. 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!!!

7. Alliance Management in Practice 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!!!

8. 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!!!

9. The Alliance Development Process Internal Planning Collaborative Planning Day-to-day Management