developing alliances

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  • Source: STRATEGIC ALLIANCES, Managing the Supply Chain

    PennWell Publishing Company, Copyright, 1996, Tim Underhill

    Developing

    Business Alliances

    along the supply chain

    1

  • Stage 1 focuses on determining the companys needs and requirements and how to best meet them.

    Three stages in alliance development

    Stage #2

    IMPLEMENTATION

    2

    Stage 2 deals with developing relationships in both organizations to fulfill both companies needs.

    Stage 3 involves the efforts required to keep the alliance improving and adding value.

  • 3

    Strategic

    Alliance

    Stage 2

    IMPLEMENTATION

    Stage 3

    MAINTENANCE

    Stage 1

    DISCOVERY

    Alliance objective

    planning

    Alliance Partner

    Evaluation

    Alliance Partner

    Selection

    Improvements,

    objectives agreed on

    Joint management

    team established

    Managing joint projects

    On-going evaluation

    Joint needs reviewed

    Modifications/adjustment

    executed

    Strategic alliance development stages

    The more detailed the information

    gathering, the high the chance of success.

  • 4

    Strategic

    Alliance

    Stage 1

    DISCOVERY

    Alliance objective

    planning

    Strategic alliance development stages

    First, a company has determine its goals and which items or processes to jointly work on with an alliance partner.

    What do you want to do?

  • 5

    Value chain and exploring company needs

    Operations

    &

    processing

    Outbound

    items

    &

    services

    Marketing

    &

    sales

    After

    sales

    support

    (Processing)

    End Users

    Technology Development

    Direct Activities

    Suppliers

    Human Resource Management

    Infrastructure

    Procurement

    Support

    Activities

    Inbound

    items

    &

    services

    (Shipping) (Marketing) (Service)(Receiving)

    Value Chain Activities

    Valued added, cost incurred over time and a profit margin

  • 6

    Value chain and exploring company needs

    Operations

    &

    processing

    Outbound

    items

    &

    services

    Marketing

    &

    sales

    After

    sales

    support

    Inbound

    items

    &

    services

    Direct Activities

    End UsersSuppliers

    (Processing) (Shipping) (Marketing) (Service)(Receiving)

    Valued added, cost incurred over time and a profit margin

    Supply Chain

    Management

    Information System

    Customer Relations

    Management

    Information System

  • 7

    Value chain and exploring company needs

    Operations

    &

    processing

    Outbound

    items

    &

    services

    Marketing

    &

    sales

    After

    sales

    support

    (Processing)

    End Users

    Technology Development

    Direct Activities

    Suppliers

    Human Resource Management

    Infrastructure

    Procurement

    Support

    Activities

    Inbound

    items

    &

    services

    (Shipping) (Marketing) (Service)(Receiving)

    Overhead,

    fixed asset control,

    management expertise

    and information

    systems

    Valued added, cost incurred over time and a profit margin

  • Firms Value chain

    8

    Value chain and exploring company needs

    Op

    era

    tio

    ns &

    pro

    ce

    ss

    ing

    Ou

    tbo

    un

    d i

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    Ma

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    g &

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    Aft

    er

    sa

    les

    su

    pp

    ort

    Inb

    ou

    nd

    ite

    ms

    & s

    erv

    ice

    s

    End UsersSuppliersValued added, cost incurred over time

    and a profit margin

    Op

    era

    tio

    ns &

    pro

    ce

    ss

    ing

    Ou

    tbo

    un

    d i

    tem

    s &

    se

    rvic

    es

    Ma

    rke

    tin

    g &

    sa

    les

    Aft

    er

    sa

    les

    su

    pp

    ort

    Inb

    ou

    nd

    ite

    ms

    & s

    erv

    ice

    s

    Customers Value chain

  • 9

    Collaboration & alliances along the supply chain

    Operations

    &

    processing

    Outbound

    items &

    services

    Marketing

    &

    sales

    After

    sales

    support

    Inbound

    items &

    services

    Company A Direct Activities

    Operations

    &

    processing

    Outbound

    items &

    services

    Marketing

    &

    sales

    After

    sales

    support

    (Processing) (Shipping) (Marketing) (Service)(Receiving)

    Company B Direct Activities

    Shared Logistics

    (Processing) (Shipping) (Marketing)(Receiving)

    Inbound

    items &

    services

    Shared Sales

    Activities/Sales Staff

    Shared

    Production

    Shared Service

    (Service)

  • 10

    Collaboration & alliances along the supply chain

    Company B

    Support

    Activities

    Technology Development

    Human Resource Management

    Infrastructure

    Procurement

    Company A

    Support

    Activities

    Technology Development

    Human Resource Management

    Infrastructure

    Procurement

    Shared buildings

    and facilities

    Shared personnel

    activitiesShared

    purchasing

    Shared research

    projects

  • Typical supply chain in the oil pipe supply

    There are 33 steps in this process. 23 of them are repeated steps. To reduce inventory, handling, inspection, and testing costs, these processes can be improved on.

    Notice just inventory only as an example.

    Pipe user

    11

  • Typical supply chain in the oil pipe supply

    The chain can be reduced from 33 steps to 15 steps. First, it can be done by improving communications and coordination along the line which will reducing needless inventory carrying. Next, inspection processes can be moved in-house and along the production line.

    Step reduction

    12

  • The potential cost iceberg

    13

    30% of costs are easy to identify

    and attack.

    70% of costs are Harder to find and harder to reduce.

    Price

    Late

    deliveriesExcess

    inventoryPoor

    product quality

    Too many companies only focus on what they see and only some costs are easy to see and be reduced. Others are very hard to see but can be very costly.

    If these costs are measured, they will

    become visible.

  • Clear alliance understanding = high success chance

    14

  • Clear alliance understanding = high success chance

    15

    Roles, assignments

    & expectations

    Training on alliance and new

    assignments

    Plan for alliance impact

    on current operations

    Need for change

    Supplier selection method

    Mission&

    Objective

    Working

    together

  • New skillsFeeling

    the rewardsPutting

    project into

    action

    Clear alliance understanding = high success chance

    16

    Put in action plan

    Secure our future

    Conducted detailed study

    Building a new team

    Taking on new responsibilities

  • Where to collaborate: Company activities review

    17

    Ideal

    resource

    use

    Explore

    complete

    alliances and

    perform joint

    total cost

    analysis

    Send out

    and negotiate

    special value

    added

    services

    Send out on a

    transactional

    basis only

    Completely

    do internally

    Just have

    a supplier

    do it all.

    We can do it

    in-house.

    Discuss with

    supplier what

    requirements

    we need.

    We need

    drastic costing

    collaboration.

  • 18

    There are several ways to greatly lower total costs through

    alliances. Each should be studied.

    Types of Alliances

    Single source

    To reduce the cost

    of certain itemsPartnership

    To reduce the total

    cost of processes,

    functions and items

    Integrated

    One-stop shopping

    to reduce

    acquisition cost.

    Outsourcing

    To send out work that

    specialists can do

    better than in-house.

    Supply chain

    To reduce supply

    chain process

    duplications.

    Working together

    18

  • 19

    Timeline moving through alliance development stages

    Proven Ideal timeline

    Typical timeline

    Implementation MaintenanceDiscovery

    9 - 12 months 6 months On going if survives

    Total cost measured and improvedProblems/barriers resolved quicklyFurther processes for improvement

    discovered

    Discovery Implementation Maintenance

    Full needs assessmentPurchasing /sales plan discoveredFull partner selection evaluationIdeal partner found

    Clear goals & directionSmooth executionQuick results

    3 months 18-24 months On going if survives

    Total cost no measuredProblems increaseDirection unclearAlliance fails or

    is weakened

    Quick push for resultsVague objective planningPoor partner studyRisks not considered

    During implementation new issues learnedTotal cost not fully reviewed

    focus on pricingBoth companys goals not clear & sharedMisunderstandings surface