Strategic%20Partnering%20in%20Supply-Chain%20Management - PowerPoint PPT Presentation

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Strategic%20Partnering%20in%20Supply-Chain%20Management

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Wal-Mart, Kmart ... Kmart. Strategic Partnering: Types of SP. McGraw-Hill/Irwin ... W-R initially disagreed with Kmart about forecasts, and in this case, it turned ... – PowerPoint PPT presentation

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Title: Strategic%20Partnering%20in%20Supply-Chain%20Management


1
Strategic Alliances
Phil Kaminskykaminsky_at_ieor.berkeley.edu
David Simchi-Levi Philip Kaminsky Edith
Simchi-Levi
2
Strategic PartneringTypes of SP
  • 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 Millikens textile plants to
    final clothing receipt at several of the
    department stores involved was reduced from
    eighteen weeks down to three weeks.

3
Strategic PartneringTypes of SP
  • 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
    retailers store or distribution center as long
    as service levels are met. Inventory levels are
    thus continuously improved in a structured way.
  • Kmart

4
Strategic PartneringTypes of SP
  • Vendor Managed Inventory (VMI)JITD
  • VMI Projects at Dillard Department Stores, J.C.
    Penney, and Wal-Mart have shown sales increases
    of 20 to 25 percent, and 30 percent inventory
    turnover improvements.

5
Requirements for Effective SP
  • 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

6
Important SP 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

7
Important SP 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.

8
Steps in SP 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

9
Main Characteristics of SP
10
Advantages of SP
  • 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.

11
Advantages of SP
  • Decrease required inventory levels
  • Improve service levels
  • Decrease work duplication
  • Improve forecasts

12
Disadvantages of SP
  • 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?

13
Examples of SP Successes and Failures
  • Western Publishing-Golden Books
  • Western Publishing is using VMI for its Golden
    Books line of childrens 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

14
Examples of SP Successes and Failures
  • VF Corporations 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.
  • VFs program is considered one of the most
    successful in the apparel industry.

15
Examples of SP 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 didnt 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.

16
Examples of SP Successes and Failures
  • Spartan Stores (continued)
  • Suppliers didnt 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.

17
Third Party Logistics
  • What is 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

18
3PL
  • Disadvantages
  • Loss of control
  • 3PL employees may interact with customers
  • 3PLs 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

19
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
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