Strategic Partnership Relationship

8/2/2019 Strategic Partnership Relationship

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Strategic Partnering in

Supply Chain Management


2/25

Points Illustrated in ADS Case

Pressure for VMI

Need for POS for VMI

Pressure for direct shipment (to retailers)

General increase in ADS shipping costs (no

coherent shipping strategy)

Future of audio duplication industry


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Ways to Implement Logistics

1. Internal activities

2. Acquisitions

3. Arms-length transactions (short-term and

most common)

4. Strategic alliance (long-term; focus of the

chapter)


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Which SA Approach is for You?

Consider the following points

Does the SA add value to products?

Does the SA improve your market access?

Does the SA strengthen your operations?

Does the SA enhance your technological strength?

Does the SA enhance your strategic growth?

Does the SA help build up your financial strength? Will the SA weaken you core competencies

(strengths)?


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Types of Strategic Alliances

1. Third-Party Logistics (3PL)

2. Retailer-Supplier Partnership (RSP)

3. Distribution Integration (DI)


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3PL Traditional outsourcing characteristics:

Transaction based relationships

Single-function providers

3PL Characteristics: Long-term relationships Multi-function providers

Mostly prevalent among large firms

Advantages and disadvantage of 3PL Allows firms to focus on their core competencies

Provides technological flexibility

Provides other flexibility


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Advantages & Disadvantages of 3PL

Advantages:

Allows firms to focus on their core competencies

Provides technological flexibility Provides other flexibility

Disadvantages:

Loss of control

Potential conflict with core competencies if logistics is

one of firms competencies

Potential new competitor


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3PL Selection Issues

Know your costs

Customer orientation of the 3PL (toward the

hiring firm). This is cited as the most

important factor

Specialization of the 3PL

Asset-Owning vs. Non-Asset Owning 3PL


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Important SP Issues Inventory ownership:

Supplier owns the goods until they are sold

Retailer owns the goods

Performance measures: Fill rate, inventory level,

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 livingup to its agreement to keep two weeks of inventory

at all times. It turned out that this was due to thefact that the two companies employed differentforecasting methods.


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RSP Continuum

Refer to Page 137, Table 6.1

Quick Response VMIContinuous

Replenishment

Advanced

Continuous

Replenishment

Consignment Information

Sharing

Level of trust and cooperationLow High

Ownership of Inventory

Firm Supplier


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Main Characteristics of SP

CriteriaTypes DecisionMaker InventoryOwnership New SkillsEmployed by vendors

Quick

Response

Retailer Retailer Forecasting Skills

ContinuousReplenishme

nt

ContractuallyAgreed to Levels EitherParty Forecasting &Inventory Control

Advanced

Continuous

Replenishme

nt

Contractually

agreed to &

Continuously

Improved Levels

Either

Party

Forecasting &

Inventory Control

VMI Vendor Either

Party

Retail

Management


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Strategic Partnering

Quick Response: Vendors receive POS data from retailers,

and use this information to synchronize production and

inventory activities at the supplier. In this strategy, the

retailer still prepares individual orders, but the POS data isused by the supplier to improve forecasting and scheduling.

Milliken and Company: The lead time from order

receipt at Millikens textile plants to final clothing

receipt at several of the department stores involved wasreduced from eighteen weeks down to three weeks.


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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


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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.


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Requirements of RSP

Advanced Information Technology (the

most important)

Top management commitment

Trust (Remember Barilla SPA)

Which is the easiest to acquire?


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Steps in RSP Implementation

Contractual agreement

Ownership

Credit terms

Ordering responsibilities

Other

Establish IT

Establish effective forecasting techniques Develop coordinating tools for managing

inventory and transportation


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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 incoordinating inventory management and transportation policies


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Advantages and Disadvantages of SP

Advantages

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 accuratebecause they have a much more extensive

knowledge of their products than Kmart does.


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Advantages (continued)

Decrease required inventory levels

Improve service levels

Decrease work duplication

Improve forecasts


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Challenges:

Expensive advanced technology is required

Supplier/retailer trust must be developed.

Supplier responsibility increases.

Expenses at the supplier often increase.


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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 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 havebeen made.

In the case of Toys R Us, the company has even managed theentire book section for the retailer, including inventory fromsuppliers other than Western Publishing.


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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.


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Spartan Stores

Spartan Stores, a grocery chain, shut down its VMIeffort about one year after its inception

One problem was that buyers were not spending anyless time on reorders than they did before

This was because they didnt trust the suppliersenough to be able to stop carefully monitoring theinventories and deliveries of the VMI items, andintervening at the slightest hint of trouble.


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Spartan Stores (continued)

Furthermore, the suppliers didnt do much to allay

these fears. The problems were not with the suppliers

forecasts; instead, they were due to the suppliersinability 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.

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Strategic Partnership Relationship

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