Title: Module 9: Strategic Partnering
1SUPPLY CHAIN MANAGEMENT
Dr Vinh Thai
- Module 9 Strategic Partnering Collaboration in
Supply Chain
2Topics
- Some initial observations
- A framework of strategic partnering
collaboration - Supply chain partnership models
- Manufacturer and supplier partnership
- Strategic partnering with logistics service
providers - RSP or retailer supplier partnership
- Distributor integration
3Learning Outcomes
- At the completion of this module you should be
able to - explain the role of strategic partnering in s
integrated supply chain management - explain what is vendor managed inventory and why
major retailers are moving towards it - outline the options available to firms when
deciding on outsourcing logistics functions of
the firm - outline the scope of strategic partnering in
improving supply chain performance - identify the major challenges for new business
models and how these challenges can be converted
into advantages for firms
4Textbook and Readings
- Textbook Chapter 6 (undergraduate) Chapter 1,
pp. 1-24 Chapter 5, p. 240, pp. 248-252 Chapter
7, pp. 324-325 - Readings
- Undergraduate 8.1-8.5 (N26726)
- Postgraduate 8.1-8.5 (N26726) 10.1-10.3 (N09726)
5Food for Thought...
-
- We have roughly 30,000 employees now, and 26
billion in revenue this year. If we were
vertically integrated, I dont know how many
employees I would have, but it would be some huge
numbers. - - Michael Dell in Ayers (2001)
6Food for Thought...
- Recall that SCM is built on the notion of
integration. So why are they, e.g. Dell, doing
that, e.g. virtual instead of vertical
integration? - And what is the value to the supply chain?
7Some Initial Observations
- Recall that it is supply chain competing against
supply chain, not individual firm against firm in
business world today - It thus makes sense for firms to collaborate so
as to maximise strength of SC - Four basic ways to assure business function
completion (Simchi-Levi et al. 2003) - Internal activities vertical integration
- Perform activities in-house using internal
resources expertise - Require large capable firms
8Some Initial Observations (C)
- Acquisitions
- Acquire another firm that has expertise
resources in other areas - Full control gained, but culture may clash,
effectiveness of acquired company may be lost - Management is more important than ownership in
achieving goals - Arms-length transactions
- For many times, this is the most effective
arrangement as specialised firms (suppliers) have
economies of scale - Goals strategies may not match
- Does not lead to long-term strategic advantage
9Some Initial Observations (C)
- Strategic alliances
- Multifaceted, goal-oriented, long-term
partnership between companies - Risks and rewards are shared
- Aiming at achieving long-term supply chain goals
- Eliminating acquisition downsides, while more
resources committed for mutual goals - Leading to long-term strategic benefits for both
partners
So why is it critical to supply chain success?
10A Framework for Strategic Partnering and
Collaboration
- The most obvious purposes of strategic partnering
collaboration are to reduce cost enhance
better product quality - This takes advantage of learning innovation
(coordination collaboration) between partners - With partnering firm would be able to focus more
on their core competence - activities in which it can achieve definable
pre-eminence and provide unique value for
customers - activities which are central to a companys
business, and which it can perform more
effectively than its competitors
11A Framework for Strategic Partnering and
Collaboration (C)
- What Does It Take to Have an Area of Core
Competency?
Source Coyle e al. (2003)
12A Framework for Strategic Partnering and
Collaboration (C)
- Strategic alliance or partnership may help
achieve benefits in the followings (Simchi-Levi
et al. 2003) - Adding value to products Ex improved time to
market, distribution times, partnerships between
companies with complementary product lines can
add value to both companies products - Improving market access Ex better advertising
or increased access to new market channels, e. g.
consumer product manufacturers cooperate to
address the needs of major retailers, increasing
sales for everyone
13A Framework for Strategic Partnering and
Collaboration (C)
- Strengthening operations Ex improve operations
by lowering system costs and cycle times,
efficiently and effectively use facilities and
resources - Adding technological strength Partnerships in
which technology is shared can help add to the
skills base of both partners - Enhancing strategic growth Partnerships might
enable firms to pool expertise and resources to
explore new opportunities by overcoming high
entry barriers
14A Framework for Strategic Partnering and
Collaboration (C)
- Enhancing organisational skills Alliances
provide a tremendous opportunity for
organisational learning (Recall Module 8?) - Building financial strength
- Ex income can be increased and administrative
costs can be shared between partners or even
reduced owing to the expertise of one or both of
the partners. - But, alliances also limit investment exposure by
sharing risk
15A Framework for Strategic Partnering and
Collaboration (C)
Source McLaren, Head Yuan (2002, p. 355)
16A Framework for Strategic Partnering and
Collaboration The Value of Information
- What and how information is shared?
Source Matchette and Siekel (2005, p. 1)
17Supply Chain Partnership Models
- Two types of partnership (Ayers 2002)
- Vertical partnerships spanning different
businesses in a common supply chain - Ex partnership between suppliers retailers,
manufacturer 3PL, etc. - Streamlining existing capabilities
- Horizontal partnerships spanning different
supply chains - Ex partnership between shipping companies,
airlines, 3PLs, etc. - Creating new strategic capabilities, access to
new markets, new products and services, and the
like
18Supply Chain Partnership Models (C)
Source Ayers (2002)
19Supply Chain Partnership Models (C)
- Four types of vertical partnership in
consideration are - manufacturer and supplier partnership
- manufacturer and 3PL service providers
partnership - manufacturer and distributor partnership
- suppliers and retailers partnership
20Supply Chain Partnership Models
Manufacturer-Supplier Partnership
- Traditional adversarial relationship between
manufacturer and supplier shifted to a
collaborative relationship - manufacturer and supplier interact like partners
- Main tangible benefits
- integrated SCM through integration of business
processes information - transparency in information and cooperation
in activities
21Supply Chain Partnership Models
Manufacturer-Supplier Partnership (C)
- Partnership with suppliers came originally from
Japanese business culture, keiretsu, a sort of
supplier cooperative or association, was found to
be linked with each major manufacturer - Examples
- Dell with virtual integration
- HP
- Chrysler Corporation (Reading 8.1 N26 726)
22Supply Chain Partnership Models Partnership with
3PL
- The use of an outside company to perform all or
part of the firms material management and
distribution functions - 3PL relationships are truly strategic alliances
long-term commitment, not based on transactions,
multi-functional - Not simply trucking or warehousing
- Most prevalent among large companies
- Ex Whirlpool Corporations inbound logistics
handled by Ryder Dedicated Logistics, IKEA
Maersk, NIKE PONL (Now MAERSK), etc.
23Supply Chain Partnership Models Partnership with
3PL (C)
Source Brown Allen (2001)
24Supply Chain Partnership Models Partnership with
3PL (C)
Source Carding (1998)
25Supply Chain Partnership Models Partnership with
3PL (C)
Source Adapted from European Distribution
Logistics, January 2001
26Supply Chain Partnership Models Partnership with
3PL (C)
- Advantages of 3PL partnership (Simchi-Levi 2003,
Brown and Allen 2001) - Concentrating capital investment management on
core competencies - Gaining access to the latest technology and
equipment employed by the third-party provider - Proving other flexibilities, i.e. geographic
locations, in service offerings, etc. - The need for investment in new equipment and
premises is avoided
27Supply Chain Partnership Models Partnership with
3PL (C)
- There are potential cost reductions, for example
- shared use may give better utilisation of
vehicles and warehouses, leading to lower unit
costs due to the consolidation of different
customers demands - the specialisation of the contractor may allow
volume buying of vehicles, warehouses, and
mechanical handling equipment and systems - the labour costs of a third-party operator may be
lower
28Supply Chain Partnership Models Partnership with
3PL (C)
- Disadvantages of 3PL partnership (Simchi-Levi
2003, Fernie 1990) - Cost issue
- Operations at cost plus could be run more cheaply
in-house, assuming other variables remain equal,
because the third-party logistics company needs
to make a profit on its operations - Monitoring and control of costs is easier when
the distribution function remains in-house - The cost of monitoring the performance of the
logistics can be high and is also sometimes
difficult to achieve effectively - Some companies do not have the necessary
information or expertise to assess which
logistics providers are offering good services at
competitive prices
29Supply Chain Partnership Models Partnership with
3PL (C)
- Control issue
- In-house logistics and distribution operations
can provide the company with more control over
important customer service considerations - Flexibility of operations is also seen as a
possible advantage of retaining an in-house
distribution function, with the loyalty of the
distribution operation not torn between several
customers - There is also the concern that outsourcing could
result in a loss of security and that
confidential information will be passed to
competitors
30Supply Chain Partnership Models Partnership with
3PL (C)
- Fourth-party Logistics (4PL) or supply chain
logistics, or Lead Logistics Provider (LLP) - Manages and runs complex logistics operations
including resources, control room, and
architecture/integrator function - Thought of as supply chain integrator, a firm
that assembles and manages
the resources, capabilities,
and technology of its own organization with
those of complementary service providers to
deliver a comprehensive supply chain solution. - Developed from 3PL but covering the broader scope
including 3PL, information technology (IT)
services, and business process management - A single contact that manages and integrates all
kinds of resources and oversees 3PL functions
throughout the supply chain for the reach of
global market, strategic advantages, and long
-term relationship
31Supply Chain Partnership Models Partnership with
3PL (C)
Source Coyle e al. (2003)
32Supply Chain Partnership Models Partnership with
3PL (C)
- Fifth-party Logistics (5PL)
- Developed to serve the e-business market. They
are those 3PL and 4PL providers managing all the
parties in the supply chain on e-commerce. The
key to success in this area is the information
technology and system
33Supply Chain Partnership Models Issues
Requirements in Partnership with 3PL
- Know your own cost, compared with cost of using
outsourcing firm - Customer orientation of the 3PL how a 3PL fits
into the firms strategic logistics plan, e.g.
flexibility, reliability, cost saving, etc. - Specialisation of 3PL 3PL whose roots lie in
particular area relevant to logistics requirement
in question should be considered - Asset-owning versus non-asset-owning 3PL
- Asset-owning 3PL significant size, access to HR,
large customer base, economies of scale scope,
etc. but bureaucratic, long decision-making cycle - Non-asset-owning 3PL limited resources, lower
bargaining power, but more flexible, be able to
tailor service, etc.
34Supply Chain Partnership Models Implementation
Issues in 3PL Partnership
- Enough time to start-up considerations should be
devoted - The firm must identify exactly what it needs
- The firm must provide specific performance
measures requirements - The 3PL must discuss these requirements,
(including their realism relevance) - Effective communication is essential
- Within the firm, managers must communicate to
each other employees on why to outsource what
to expect - Communication between the firm and its 3PL is
critical, e.g. between information systems, etc.
35Supply Chain Partnership Models Implementation
Issues in 3PL Partnership(C)
- Other important issues for successful
implementation (Simchi-Levi et al. 2003) - Respect of confidentiality of data shared
- Specific performance measures must be agreed upon
- Specific criteria regarding subcontractors should
be discussed - Arbitration issues should be considered.
- Escape clauses should be negotiated
- Methods to assure achievement of performance
goals should be discussed
36Supply Chain Partnership Models Factors for
Success in 3PL Partnership
- Five factors that are critical to the success of
a logistics partnership (Bowersox 1992) - Selective matching All organisations have
compatible corporate cultures and values - Information sharing Partners openly share
strategic and operational information - Role specification Each party in the partnership
is clear about the specifics of its role - Ground rules Procedures and policies are clearly
spelled out - Exit provisions A method for terminating the
partnership is defined
37Supply Chain Partnership Models Other Factors
for Success in 3PL Partnership
- Trust
- the most significant factor to succeed in
outsourcing logistics because companies have to
share information, benefits, and risks to each
other - Performance evaluation
- the major factor to measure the success and
maintain the achievement after outsourcing starts - If the performance is not satisfied, the
outsourcing can be ceased or failed because the
objective of outsourcing is not achieved - To maintain the alliance and succeed in the long
term, it is necessary to measure or evaluate the
performance regularly
38Supply Chain Partnership Models Other Factors
for Success in 3PL Partnership (C)
- Sharing information maintaining communication
- This leverages the efficiency and effectiveness
in logistics outsourcing because both partners
know what they want and provide the relevant
information - Lack of information sharing and communication
maintaining can fail the outsourcing especially
in strategic partnership - Top managements commitment support
- If top management are fully committed and support
staff in performing their jobs, the whole company
will function in a defined direction and thus
achieve concrete goals - The lack of commitment and support from top
management will discourage the operations levels
decision in management, sharing information, and
communication
39Supply Chain Partnership Models Other Factors
for Success in 3PL Partnership (C)
- Having clear goals, vision, and roles
- Goal, vision and roles are required to avoid
confusion between staff and staff, and between
two companies - They should be clarified at the early stage and
updated from time to time to prevent the risks
that the partners may work in the different
directions - Other key critical factors can be relationship
commitment, sharing benefits and risks,
flexibility, etc. - Both sides may have to consider these issues in
their specific condition and context
40Supply Chain Partnership Models
Retailer-Supplier Partnerships (RSP)
- Types of RSL Quick response, Continuous
Replenishment, Advance Continuous Replenishment,
VMI (Simchi-Levi et al. 2003) - 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
41Supply Chain Partnership Models
Retailer-Supplier Partnerships (C)
- Continuous Replenishment Vendors receive POS
data and use it to prepare shipments at
previously agreed upon intervals to maintain
agreed-upon 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
42Supply Chain Partnership Models
Retailer-Supplier Partnerships (C)
- Vendor Managed Inventory (VMI)
- Supplier/vendor is usually manufacturer, but can
also be a distributor - Supplier/vendor is in charge of ordering
inventory replenishment decisions, thus reduce
cost improve service level through information
sharing eliminating factors of bullwhip effect - It also leads to better manufacturing scheduling,
supplies to retailers, improved service level
with coordinated distribution transshipment of
inventory between retailers - 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
43Supply Chain Partnership Models Requirements for
Effective RSP
- Advanced information systems on both sides
- 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 manufacturer serves many
competing retailers - Management of the entire supply chain inventory
of manufacturer and retailers - Initial loss of revenues
44Supply Chain Partnership Models Important RSP
Issues
- Inventory ownership
- Traditionally retailer owns inventory when
received - In VMI supplier owns the goods until they are
sold (consignment relationship) - Why would a firm do this?
- Performance measures must be agreed upon POS
accuracy, fill rate, inventory level, inventory
turns, lead time - Confidentiality
- Communication cooperation
- Ex the case of First Brands Kmart
45Supply Chain Partnership Models Advantages and
Disadvantages of RSP
- 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 - This implies the ability to control the bullwhip
effect
46Supply Chain Partnership Models Advantages and
Disadvantages of RSP (C)
- Other advantages
- Decrease required inventory levels
- Improve service levels
- Decrease work duplication
- Improve forecasts
- Disadvantages
- 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?
47Supply Chain Partnership Models Distributor
Integration (DI)
- Manufacturers treat their distributors as
partners - Value of distributors their relationship with
end users are appreciated - Manufacturer can use information about customer
needs wants acquired by distributors - Necessary support, i.e. parts services are
provided to distributors by manufacturer - In modern distributor integration, expertise
inventory located at one distributor is available
to the others (Simchi-Levi et al. 2003) - Examples Caterpillar their dealers
48Supply Chain Partnership Models Distributor
Integration (C)
- DI is used to address both inventory-related
service-related issues - Parts are shared across the distributor network
- Specialized service requests are steered to
appropriate dealers or distributors - Each distributor can check inventories of others
they are also contractually bound to exchange
parts for agreed-upon remuneration - How does this improve supply chain performance?
- What does it need to be realised?
49Supply Chain Partnership Models Distributor
Integration (C)
- Issues in DI
- Incentives for dealers are they giving away
competitive advantages? - Skills and responsibilities are taken from some
dealers/distributors - What is required?
- Trust, e.g. be assured about long-term alliance
- Pledges
- Guarantees from the manufacturer, in terms of
commitment of resources effort - Advanced information systems
50References
- Ayers, J. B. 2001, Handbook of supply chain
management, CRC Press. - Ayers, J.B. 2002, Supply Chain Management (SCM),
the Wheel and the Manufacturing Engineer,
CASA/SMA Blue Book Series, http//www.ayers-consul
ting.com/download/SME20Blue20Book20for20Postin
g.pdf - Bowersox, D. 1992, Logistical Excellence, Digital
Press, Burlington Quinn, J. Hilmer, F. 1994,
Strategic outsourcing, Sloan Management Review,
vol. 35, pp, 4355. - Brown, M. Allen, J. 2001, Logistics
out-sourcing, Handbook of Logistics and Supply
Chain Management, Elsevier Science. - Carding, T. 1998, Centralized sites serve
Pan-European distribution needs,
http//www.supplychainbrain.com/archives/1.98.PanE
uropean.htm?adcode50 - Coyle, J. J., Bardi, E. J. Langley, C. J. 2003,
The Management of Business Logistics A Supply
Chain Perspective, 7th edn, South-Western/Thomson
Learning, Mason, OH. - Kim, B. 2005, Supply Chain Management, Mastering
Business in Asia, John Wiley Sons (Asia). - Matchette, J. Seikel, M.A. 2005, Inquiries and
insights on supply chain collaboration, ASCET,
vol. 7, http//www.ascet.com/documents.asp?d_id34
72 - McLaren, T., Head, M. Yuan, Y. 2002, Supply
chain collaboration alternatives Understanding
the expected costs and benefits, Internet
Research, vol. 12, no. 4. - Simchi-Levi, D., Kaminsky, P. Simchi-Levi, E.
2003, Designing and Managing the Supply Chain,
2nd edition, McGraw-Hill, USA.
51Preparation for next Module Supply Chain and
Product Design Issues
- Textbook Chapter 9 (undergraduate) Chapter 4
(postgraduate) - Readings
- Undergraduate 10.1-10.5 (N26726)
- Postgraduate 10.1-10.5 (N26726)