Transcript Inventory Management and Risk Pooling (1)

Strategic Alliances
Designing & Managing the Supply Chain
Chapter 6
Yao yaxian
[email protected]
Outline
 How Kimberly-Clark keeps client Costco in diapers
 Introduction
 A framework for strategic alliances
 Third-party logistics
 Retailer-supplier partnerships
 Distributor integration
CASE: How Kimberly-Clark keeps client
Costco in diapers
 Introduction
 Kimberly-Clark is a company which products diapers
 Costco is a retailer who sales Kimberly-Clark’s
productions
 The retailer pressures their suppliers to make a more
active role in shepherding products from factory to
store shelves
CASE: How Kimberly-Clark keeps client
Costco in diapers
 Changing sizes
 In some cases, suppliers shoulder the costs of
warehousing excess merchandise.
 In others, it means pushing suppliers to change
product or package sizes.
 In this case, the plan is officially called ”vendormanaged inventory,” Kimberly-Clark oversees and
pays for everything involved with managing Costco’s
inventory except the actual shelf-stockers in store
aisles
CASE: How Kimberly-Clark keeps client
Costco in diapers
 Return to unisex
 Less variety makes for easier inventory-tracking in its
factories and trucks
 Better cooperation between retailers and suppliers
has been made possible by improved technology
 Costco’ shelves are less likely to go empty under the
new system
 A “Pull” product
 It means that shoppers make a trip to the store
specifically to buy them
CASE: How Kimberly-Clark keeps client
Costco in diapers
 A canceled order
 The drive for efficiency creates new problems
 Costco store managers complain that some deliveries
are incomplete
 Some drivers accidentally unloading items intend for
a later stop
 Now, Kimberly-Clark uses a simple cardboard divider
to separate each store’ order
Introduction
 As with any business function, there are four basic
ways for a firm to ensure that a logistics-related
business function is completed:
 1. internal activities. A firm can perform the activity
using internal resources and expertise, if they are
available.
 2. acquisitions. If a firm doesn’t have the expertise or
specialized resources internally, it can acquire
another firm that does.
Introduction
 3. arm’s-length transactions. This kind of short-term
arrangement fulfills a particular business need but
does not lead to long-term strategic advantages
 4. strategic alliances. These are typically
multifaceted, goal-oriented, long-term partnerships
between two companies in which both risks and
rewards are shared
A framework for strategic alliances
 To determine whether a particular strategic alliance
is appropriate for your firm, consider how the
alliance will help address the following issues:
 Adding value to products
 Improving market access
 Strengthening operations
 Adding technological strength
 Enhancing strategic growth
 Enhancing organizational skills
 Building financial strength
Third-party logistics
 What is 3PL?
 Third-party logistics is simply the use of an outside
company to perform all or part of the firm’s management
and product distribution
 They are true strategic alliances
 Advantages and disadvantages of 3PL
 Focus on core strengths
 Provides technological flexibility
 Provides other flexibilities
 Important disadvantages of 3PL
 Loss of control inherent in outsourcing a particular function
 No sense to out source these activities to a supplier if
logistics is one of the core competencies of a firm
order stream
Third-party logistics
 3PL issues and requirements
 Know your own costs to compare with the cost of using an
outsourcing firm
 Customer orientation of the 3PL
 Specialization of the 3PL
 Asset-owning versus non-asset-owning 3PL
 3PL implementation issues
 Agreements need to be reached and appropriate efforts
must be made by both companies to initiate the relationship
effectively
 Both parties must be committed to devoting the time and
effort needed to making a success of the relationship
Third-party logistics
 Other important issues to discuss with potential 3PL
providers including the following:
 The third party and its service providers must respect the
confidentiality of the data that you provide them
 Specific performance measures must be agreed upon
 Specific criteria regarding subcontractors should be
discussed
 Arbitration issues should be considered before entering
into a contract
 Escape clauses should be negotiated into the contract
 Methods of ensuring that performance goals are being met
should be discussed
Retailer-supplier partnerships
 Types of RSP
 At one end is information sharing, which helps the vendor
plan more efficiently
 At the other is a consignment scheme, where the vendor
completely manages and owns the inventory until the
retailer sells it
 Requirements for RSP
 The most important requirement for an effective retailersupplier partnership, especially one toward the VMI end of
the partnership spectrum, is advanced information systems,
on both the supplier and retailer sides of the supply chain
Retailer-supplier partnerships
 Requirements for RSP
 As in all initiatives that can radically change the way a
company operates top management commitment is required
for the project to success.
 Finally, RSP requires the partners to develop a certain level
of trust without which the alliance is going to fail.
 Inventory ownership in RSP
 Now, some VMI partnerships are moving to a consignment
relationship in which the supplier owns the goods until they
are sold
 The benefit of this kind of relationship to the retailer is
obvious: lower inventory cost
Retailer-supplier partnerships
 Inventory ownership in RSP
 In VMI, one tries to optimize the entire system by
coordinating production and distribution.
 In addition, the supplier can further decrease total
cost by coordinating production and distribution
for several retailers.
 In addition to inventory and ownership issues,
advanced strategic alliances can cover many
different areas.
 Issues such as joint forecasting, meshed planning
cycles, and even joint product development are
sometimes considered.
Retailer-supplier partnerships
 Issues in RSP implementation
 For any agreement to be a success, performance
measurement criteria must also be agreed to
 When information is being shared between retailers
and suppliers, confidentiality becomes an issue
 When entering any kind of strategic, it is important
for both parties to realize that there will initially be
problems that can only be worked out through
communication and cooperation
 The supplier in a partnership commits to fast
response to emergencies and situational changes at
the retailer
Steps in RSP implementation
 1. the contractual terms of the agreement must be
negotiated
 2. if they do not exist, integrated information
systems must be developed for both supplier and
retailer
 3. effective forecasting techniques to be used by the
vendor and the retailer must be developed
 4. a tactical decision support tool to assist in
coordinating inventory management and
transportation policies must be developed
Advantages and disadvantages of RSP
 Advantages
 The knowledge the supplier has about order
quantities, implying an ability to control the
bullwhip effect
 Through transfer of customer demand information
that allows the supplier to reduce lead time
 In VMI, controlling the variability in order
quantities
 Decrease managerial expenses and decreased
inventory costs are obvious
 Reduce forecast uncertainties and thus better
coordinate production and distribution
Advantages and disadvantages of RSP
 Disadvantages
 It is necessary to employ advanced technology,
which is often expensive
 It is essential to develop trust in what once may
have been an adversarial supplier-retailer
relationship
 The supplier often has much more responsibility
than formerly. This may force the supplier to add
personnel to meet this responsibility
 Finally, expenses at the supplier often increase as
managerial responsibilities increase
Distributor integration
 Types of distributor integration
 In term of inventory, DI can be used to create a
large pool of inventory across the entire
distributor network, lowering total inventory costs
while raising service levels
 DI can be used to meet a customer’s specialized
technical service requests by steering these
requests to the distributors best suited to address
them
Issues in Distributor Integration
 First, distributors may be skeptical of the rewards of
participating in such a system.
 In addition, participating distributors will be forced
to rely upon other distributors, some of whom may
not know
 This new kind of relationship also tends to take
certain responsibilities and areas of expertise away
from certain distributors, and concentrate them on a
few distributors
Issues in Distributor Integration
 Establishing a DI relationship requires a large
commitment of resources and effort on the part of
the manufacturing
 Distributors must feel sure that this is a long-term
alliance
 Organizers must work hard to build trust among the
participants
 The manufacturer may have to provide pledges and
guarantees
 The manufacturer may have to provide pledges and
guarantees to ensure distributor commitment
Summary
 In this chapter, we examined various types of partner
ships that can be used to manage the supply chain
more effectively
 Increasingly, third-party logistics providers are takin
g over some of a firm’s logistics responsibilities
 Retailer-supplier partnerships, in which the supplier
manages a portion of the retailer’s business-typically
retail inventories-are also becoming common
 Finally, we discussed a class of alliances, called
distributor intergration