6. strategic alliances

8/4/2019 6. Strategic Alliances

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Strategic Alliances

Presented by (In order of presentation):Piyali Kundu, Aveek Moitra, Anirban maitra, Rahul Saha, Rupak Guha & Shouv



In t roduct ion

Complexity in business environments increasing

Resources required to manage are becomingincreasingly scarce

Many functions need to be outsourced

Firms need to ensure that functions are performed

the other firms



Four Basic Ways to Ensure Tasks Are Co•

Internal activities – Activities that arecore strengths may be the best way to perform the activity. • Acquisitions

– Gives the acquiring firm full control over the way the particular busine performed

– Can be difficult and expensive. (Culture/Competitors)• Arm’s-length transactions

– Most business transactions are of this type. – Short-term arrangement that fulfills a particular business need but doesn’t lead to

long-term strategic advantages.• Strategic alliances

– Multifaceted, goal-oriented, long-term partnerships between two compan – Both risks and rewards are shared. –

Typically lead to long-term strategic benefits for both partners.



Framework for Strategic Alliances:When to Go for a Strategic Alliance?

Adding value to products

Improving market access

Strengthening operations

Adding technological strength

Enhancing strategic growth Enhancing organizational skills

Building financial strength



Downsides

Core competenciesshould not becompromised

Competitiveadvantages should

not becompromised



Three Types of Strategic Allia

Strategic

Alliances

Third Party Logistics

(3PL)

Retailer –Supplier

Partnerships (RSP)

Distributor

Integration (DI)



T h i r d P a r t y L o g i s t i c s ( 3 P L



3PL Advantages

• Allows a company to focus o

its core competencies

• Logistics expertise left to th

logistics experts

1) Focus

on Core

Strengths



3PL Advantages

• Technology advances adopted by bette

3PL providers• Adoption possible by 3PLs in a quicke

more cost-effective way

• 3PLs may have the capability to meet tneeds of afirm’spotential customers

2) ProvidesTechnological

Flexibility



3 P L A d v a n t a ge s

• Flexibility in geographiclocations.

• Flexibility in service offering

3) ProvidesOther

Flexibilities



3PL Disadvantages

Loss of control inherent in outsourcing a particular function.

• Outbound logistics 3PLs interact with a firm’s customers.

• Many third-party logistics firms work very hard to address these concerns.• Painting company logos on the sides of trucks, dressing 3PL employees in the un

the hiring company, and providing extensive reporting on each customer interactio

Logistics is one of the core competencies of a firm• Makes no sense to outsource these activities to a supplier who may not be as capa

firm’sin-house expertise

• Wal-Mart, pharmaceutical companies



3PL IssuesCosts and Customer Orientatio

• Compare with the cost of

using an outsourcing firm.

Know your own

costs

• Reliability.

• Flexibility of the provider

Customerorientation of the

3PL



3PL IssuesSpecialization of the 3PL

Consider firms whose roots lie in the particular

area of logistics that is most relevant to the

logistics requirements in question.

Firms may have even more specialized

requirements

Firms can use one of its trusted core carriers as its

third-party logistics provider.



3PL Issues Asset-Owning v/s Non-Asset-Ownin

Asset-owning companies

• Significant size, human resources, customer

base, economies of scope and scale, and

systems

• May be bureaucratic with a long decision-

making cycle.

Non-asset-owning

companies

• May have limited resources and barga

power

• May be more flexible

• Able to tailor services and have the free

mix and match providers.

• May have low overhead costs and spec

industry expertise at the same time



3PL Implementation Issues

Buying company

• Should devote enough t ime to s ta rup cons idera t ions (Fi rs t 6-12 mont

mos t c r i t i ca l )

• Mus t iden t i fy exac t ly wha t i t neefor the re la t ionsh ip to be success fu

• Be ab le to p rov ide spec i f i

per formance measures and



3PL Implementation Issues

3PL company:

• Must consider and discuss requirements honestly

completely, including their realism and relevance

Both parties:• Must dedicate time and effort for the relationship

• Treat as a mutually beneficial alliance

• “ ”



Other IssuesThe third party and its service providers must respect the conof the data.Specific performance measures must be agreed upon.

Specific criteria regarding subcontractors should be discusse

Arbitration issues should be considered before entering into

Escape clauses should be negotiated into the contract.Methods of ensuring that performance goals are being met

discussed



Retailer-Supplier Partnership

Cooperative relationship

between suppliers and retailers

to use oneanother’sknowledge

Suppliers have better

knowledge of lead times

and production

capacities

Retailers have better

knowledge of demands



Types of RSPQuick Response Strategy

Suppliers receive POS data from retailers

Suppliers use this information to synchroniz

production and inventory activities with actual sa

retailer.

POS data are used by suppliers to improve foreca

scheduling and to reduce lead time



Types of RSPContinuous Replenishment Strategy

Also called rapid replenishment

Suppliers receive POS data

Suppliers use these data to prepare shipment previously agreed-upon intervals to maintain sp

levels of inventory.Advanced form of continuous replenishmentSuppliers may gradually decrease inventory levels

retail store or distribution center as long as service lev

met.



Types of RSPVendor Managed Inventory (VMI) System



Main Characteristics of RSP

Criteria → Type↓

Decision maker Inventory Ownership

New skillsemployed by

vendors Quick response Retailer Retailer Forecasting skills

Continuousreplenishment

Contractually agreed-to levels

Either party Forecasting and inventory control

Advanced continuous

replenishment

Contractually

agreed-to and continuously improved levels

Either party Forecasting and inventory control

VMI Vendor Either party Retail

management



RSP Requirements

Presence of advanced information systems

Top management commitment

• Especially because information will be shared across

companiesA level of trust among partners

• Supplier manages retailer’s inventory

• Retailer provides sales information to supplier

• Reduced inventory leads to space savings



RSP Implementation

Performance measurement criteria must also be agre

• Non-financial measures as well as the traditional financial meInitial problems can be worked out throu

communication and cooperation.

Manufacturing technology or capacity at supplier may need t

modified/enhanced to respond to specifics in the contract:

• Fast response to emergencies



Steps in RSP Implementation

Initially, thecontractual terms

of the agreement

must benegotiated on the

following:

1) Inventory ownership2) Credit terms

3) Ordering responsibilities

4) Performance measures such as service or inventory levappropriate.

The following

three additionalsteps need to be

executed:

1) Development of integrated information systems

2) Development of effective forecasting techniques

3) Establishment of a tactical decision support tool to ass

coordinating inventory management and transportation pol



Advantages of RSP

Better

knowledge the

supplier has

• an ability to control the bullwhip ef

A variety of side benefits

• provides a good opportunity for the reengineeringretailer –supplier relationship.

• eliminate redundant order entries

• automate manual tasks can be automated

• reassign tasks for better efficiency

• Eliminate unnecessary control steps



Disadvantages of RSP

Necessary to employ advanced technology, which is often expensive.

Essential to develop trust in what once may have been an adversarial supplier – retailer

relationship.

Supplier often has much more responsibility than formerly.

• May force the supplier to add personnel to meet this responsibility.

Expenses at the supplier often increase as managerial responsibilities increase.

Consignment arrangement may increase inventory costs for the supplier.



Examples of RSP Successes and FaiVFCorporation’sMarket Response System:

– The VF Corporation, which has many well known bran(including Wrangler, Lee, Girbaud, and many others), began program in 1989.

– Currently, about 40 percent of its production is handled using sof automatic replenishment scheme.

– This is particularly notable because the program encompadifferent retailers, 40,000 store locations, and more than 1replenishment levels.

– VF’sprogram is considered one of the most successful in theindustry.

partan Stores



Examples of RSP Successes and Failurpartan 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 theydidn’t trust the

suppliers enough to be able to stop

carefully monitoring the inventories anddeliveries of the VMI items, and

intervening at the slightest hint of trouble.



Examples of RSP Successes and Failur

Spartan Stores (continued)

• Furthermore, the suppliersdidn’t do

much to allay these fears. The problems were not with thesuppliers’forecasts;

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

account for promotions, delivery levels



Dis t r ibu tor In tegra t ion (D

Distributors an important partner in the supply c

Distributors have a wealth of information aboutcustomer needs and wants

Distributors typically rely on manufacturers to s

the necessary parts and expertise



Changing View Regarding Distrib

Modern information technology leads to a third

In the past, issues were addressed by adding inventory

personnel

Strong and effective distribution network cannot always meet

T f D I



Ty p e s o f D I• Addresses both inventory-related and service-related issues

– Inventory pooling across the entire distributor network – Each distributor checks inventories of other distributors to loca

product or part. – Dealers are contractually bound to exchange the part und

conditions and for agreed-upon remuneration.•

lowers total inventory costs• increases service levels.• Can meet a customer’s specialized technical service requests

– Steer special requests to the distributors best suited to address the –

Centers of Excellence for Otra, a large Dutch holding company • 70 electrical wholesale subsidiaries• some designated ascenters of excellence • Other subsidiaries, as well as customers, are directed to these cente

excellence to meet particular requests

I i DI



I ssues in DI• D i s t r i b u t o r s m a y b e s k e p t i c a l o f t h e r e w a r d s o f p a r t i c

i n s u c h a s y s t e m • P a r t i c i p a t i n g d i s t r i b u t o r s w i l l b e f o r c e d t o r e l y u p o n

d i s t r i b u t o r s , s o m e o f w h o m t h e y m a y n o t k n o w, t o h e p r o v i d e g o o d c u s t o m e r s e r v i c e .

• Te n d s t o t a k e c e r t a i n r e s p o n s i b i l i t i e s a n d a r e a s o f e xa w a y f r o m c e r t a i n d i s t r i b u t o r s , a n d c o n c e n t r a t e t h e m od i s t r i b u t o r s . I t i s n o t s u r p r i s i n g t h a t d i s t r i b u t o r s m i gn e r v o u s a b o u t l o s i n g t h e s e s k i l l s a n d a b i l i t i es .

•

D I r e l a t i o n s h i p r e q u i r e s : – a large commitment of resources and effort for the manufacturer – a long-term alliance. – trust among the participants. – pledges and guarantees from the manufacturer to ensure distributor co



SUMMARY• Various types of partnerships can be used to manage the su

effectively.• Framework that can help in selecting the most appropriate way

particular logistics issue.• 3PLs are becoming more prevalent.• Both advantages and disadvantages to outsourcing the logistics fun• Many important issues to consider once the decision has been ma

agreement is being implemented.• RSPs are also becoming common.

– Issues and concerns relating to the implementation of RSP types of • Distributor Integration (DI)

– Create risk-pooling opportunities across the various distributors – Enable different distributors to develop different areas of expertise.

6. strategic alliances

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