1. The Power matrix of Supplier-Buyer Relationship
Buyer Dominance
Inter-dependence
High
Relative utility and scarcity of buyer’s resources for suppliers
Independence
(adverse selection)
Supplier Dominance
(moral hazard)
Adverse Selection – refers to a process by which practitioners fail to understand the pre-contractual power situation. Because of this failure, managers make inappropriate sourcing decisions and select the wrong suppliers.
Moral Hazard – refers to a process by which managers fail initially to create effective contractual safeguards so that they find themselves highly dependent on opportunistic suppliers post-contractually.
Low
Low
High
Relative utility and scarcity of supplier resources for buyers
Source: Andrew Cox, 2000

2. Critical success factors to SA
Trust
Cooperation
communication
Trust involves a belief that each stage is interested in the other’s welfare and would not take actions without considering their impact on the other stages.

3. Ways to Operate a Company
Internal activities
Acquisition
Arm’s length transaction
Outsourcing
Strategic alliance

4. Stages of Strategic Alliance
Initial Euphoria
Honeymoon period
Dawning realization
Aftershock
Damage control

5. Conceptual model of alliance development
Alliance conceptualization
Alliance pursuance
Alliance confirmation
Alliance implementation/continuity
Alliance conceptualization – begins when a firm determines a collaborative arrangement has appeal and provides a potential alternative to the current arrangement.
Alliance pursuance – decision to form an alliance is finalized and the firm establishes the strategic and operational considerations that will be used to select the alliance partner.
Alliance confirmation – focuses on partner selection and confirmation.
Alliance implementation/continuity – creates a feedback mechanism to determine and assess performance continually to determine whether the alliance will be sustained, modified or terminated.

6. Types of alliance Opportunistic alliance
Complementary strategic alliance

7. Why Strategic Alliance?
Adding value to products/services
Improving market access
Strengthening operations
Adding technological strength
Enhancing strategic growth
Building financial strength

8. Types of Alliance Third-party logistics (3PL)
Fourth-party logistics (4PL)
Retailer-supplier partnerships (RSP)
Distributor integration (DI)

9. Third Party Logistics What is 3PL? What are the advantages of 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

10. 3PL
Use of an outside company to perform all or part of the form’s materials management and product distribution function
Relationship vs. transactional based
Single-function vs. multi-function
Long-term vs. short-term commitments

11. 3PL Disadvantages Examples Loss of control
3PL employees may interact with customers
3PL’s 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

12. 4PL
It refers to the evolution in logistics from suppliers focused on warehousing and transportation (third-party logistics providers) to suppliers offering a more integrated solution. Among other services, fourth-party logistics providers include supply chain management and solutions, change management capabilities, and value added services in their offering.

13. Strategic Alliance: Types of SA
Quick Response:
Vendors receive POS data from retailers, and use this information to synchronize production and inventory activities 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 Milliken’s textile plants to final clothing receipt at several of the department stores involved was reduced from eighteen weeks down to three weeks.

14. Strategic Alliance: Types of SA
Continuous Replenishment: Vendors receive POS data and use it prepare shipments at previously agreed upon intervals to maintain agreed to levels of inventory.
Wal-Mart, Kmart
Advanced Continuous Replenishment: Suppliers may gradually decrease inventory levels at the retailer’s store or distribution center as long as service levels are met. Inventory levels are thus continuously improved in a structured way.
Kmart

15. Requirements for Effective Strategic Alliance
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

16. Important SA 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, inventory level, inventory turns

17. Important SA 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 this was due to the fact that the two companies employed different forecasting methods.

18. Steps in SA 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 and transportation policies

19. Main Characteristics of SA

20. Advantages of SA 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.

21. Advantages of SA Decrease required inventory levels
Improve service levels
Decrease work duplication
Improve forecasts

22. Disadvantages of SA Expensive advanced technology is required.
Supplier/retailer trust must be developed.
Supplier responsibility increases.
Expenses at the supplier often increase.
Why? How can this be addressed?

23. Examples of SA Successes and Failures
Western Publishing-Golden Books:
Western Publishing is using VMI for its Golden Books line of children’s books at several retailers.
POS data automatically triggers re-orders when inventory falls below a reorder point.
This inventory is delivered either to a distribution center, or in many cases, directly to the store.
Ownership of the books shifts to the retailer once deliveries have been made.
In the case of Toys R Us, the company has even managed the entire book section for the retailer, including inventory from suppliers other than Western Publishing.
Extra sales, increased costs to Western

24. Examples of SA Successes and Failures
VF Corporation’s Market Response System:
The VF Corporation, which has many well known brand names (including Wrangler, Lee, Girbaud, and many others), began its VMI program in 1989.
Currently, about 40 percent of its production is handled using some type of automatic replenishment scheme.
This is particularly notable because the program encompasses 350 different retailers, 40,000 store locations, and more than 15 million replenishment levels.
VF’s program is considered one of the most successful in the apparel industry.

25. Examples of SA 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 they did before
This was because they didn’t trust the suppliers enough to be able to stop carefully monitoring the inventories and deliveries of the VMI items, and intervening at the slightest hint of trouble.

26. Examples of SA Successes and Failures
Spartan Stores (continued)
Suppliers didn’t do much to allay these fears. The problems were not with the suppliers’ forecasts; instead, they were due to the suppliers’ inability to deal with promotions, which are a key part of the grocery business.
Since they were unable to appropriately account for promotions, delivery levels were often unacceptably low during these periods of peak demand.

27. Distributor Integration
Parts are shared across the distributor network
Specialized service requests are steered to appropriate dealers 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

28. Information for Coordination of Systems
Information is required to move from local to global optimization
Questions:
Who will optimize?
How will savings be split?
Information is needed :
Production status and costs
Transportation availability and costs
Inventory information
Capacity information
Demand information

29. Role of Information in Supply Chain Success
When managers have good information, they have supply chain visibility, enabling them to take a global scope. With this global scope, they are able to make best decisions for the supply chain. Therefore, information is key to supply chain success.
Information is most important when it is used to create a global scope across all staged and drivers of a supply chain. This allows decision to be made that maximize total supply chain profitability.

30. Information Technology in a Supply Chain: Legacy Systems
Advantages of legacy system:
1) They tend to get the operational work done. Less risky than untested systems.
2) Less incremental investments to run.
Disadvantages:
1)They focus on a small part of the supply chain
2)Have only transactional capabilities
3) The are based on mainframe technologies

31. Information Technology in a Supply Chain: ERP Systems
Strategic
Planning
Potential
ERP
Potential
Operational
ERP
ERP
ERP systems provide an integrated view of information across functions within a company and with the potential to fo across companies.
They are good at providing real-time information.
Examples include:
SAP, Oracle, PeopleSoft, JD Edwards, Baan, etc.
Supplier
Manufacturer
Distributor
Retailer
Customer

32. Information Technology in a Supply Chain: Analytical Applications
Strategic
SCM
Planning
APS
Transport & Inventory
Dem Plan
Planning
Supplier
Apps
CRM/SFA
Transport execution &
MES
WMS
Operational
Information is the glue that holds the entire supply chain together and allows it to function, making information the most important supply chain driver.
Supplier
Manufacturer
Distributor
Retailer
Customer