Ch 06 Stragetic Alliances
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Transcript of Ch 06 Stragetic Alliances
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Strategic Alliances
Phil Kaminsky
David Simchi-Levi
Philip Kaminsky
Edith Simchi-Levi
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Strategic Partnering:
Types of SP
Quick Response:
Vendors receive POS data from retailers, and use this
information to synchronize production and inventoryactivities 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.
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Continuous Replenishment: Vendors receivePOS data and use it prepare shipments at
previously agreed upon intervals to maintainagreed to levels of inventory. Wal-Mart, Kmart
AdvancedContinuous Replenishment:
Suppliers may gradually decrease inventory levelsat the retailers store or distribution center as longas service levels are met. Inventory levels are thuscontinuously improved in a structured way. Kmart
Strategic Partnering:
Types of SP
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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.
Strategic Partnering:
Types of SP
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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
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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, inventorylevel, inventory turns
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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 thiswas due to the fact that the two companies
employed different forecasting methods.
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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 andtransportation policies
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Main Characteristics of SP
Criteria
Types
Decision
Maker
Inventory
Ownership
New Skills
Employed by vendorsQuick
Response
Retailer Retailer Forecasting Skills
ContinuousReplenishment
Contractually Agreedto Levels
EitherParty
Forecasting &Inventory Control
Advanced
ContinuousReplenishment
Contractually agreed
to & ContinuouslyImproved Levels
Either
Party
Forecasting &
Inventory Control
VMI Vendor Either Party
RetailManagement
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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.
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Advantages of SP
Decrease required inventory levels
Improve service levels Decrease work duplication
Improve forecasts
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Disadvantages of SP
Expensive advanced technology isrequired.
Supplier/retailer trust must bedeveloped.
Supplier responsibility increases.
Expenses at the supplier oftenincrease.
Why? How can this be addressed?
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Examples of SP
Successes and Failures Western Publishing-Golden Books:
Western Publishing is using VMI for its Golden Books line ofchildrens books at several retailers.
POS data automatically triggers re-orders when inventory fallsbelow a reorder point.
This inventory is delivered either to a distribution center, or in manycases, directly to the store.
Ownership of the books shifts to the retailer once deliveries havebeen made.
In the case ofToys R Us, the company has even managed theentire book section for the retailer, including inventory fromsuppliers other than Western Publishing.
Extra sales, increased costs to Western
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Examples of SP
Successes and Failures VF Corporations Market Response System:
The VF Corporation, which has many well known brand
names (includingW
rangler, Lee, Girbaud, and manyothers), began its VMI program in 1989.
Currently, about 40 percent of its production is handledusing some type of automatic replenishment scheme.
This is particularly notable because the program
encompasses 350 different retailers, 40,000 storelocations, and more than 15 million replenishmentlevels.
VFs program is considered one of the most successfulin the apparel industry.
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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 theydid before
This was because they didnt trust the suppliersenough to be able to stop carefully monitoringthe inventories and deliveries of the VMI items,and intervening at the slightest hint of trouble.
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Examples of SP
Successes and Failures Spartan Stores (continued)
Suppliers didnt do much to allay these fears.
The problems were not with the suppliersforecasts; 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 accountfor promotions, delivery levels were oftenunacceptably low during these periods of peakdemand.
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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
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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
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DistributorIntegration
Parts are shared across the distributor network
Specialized service requests are steered to appropriatedealers 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