PSG COLLEGE OF TECHNOLOGY

SUPPLY CHAIN MANAGEMENT

STRATEGIC ALLIANCE
Presented by
ANCHAL SHARMA
17m104

FACULTY-IN-CHARGE,
Dr. PRASANTH A S,
ASSISTANT PROFESSOR,
DEPARTMENT OF MECHANICAL ENGINEERING,
PSG COLLEGE OF TECHNOLOGY.
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STRATEGIC ALLIANCE :
A strategic alliance is an agreement between two or more parties to pursue a set of
agreed upon objectives needed while remaining independent organizations.

It’s a joint venture that bolsters a core business strategy, creates a competitive
advantage, and abates competitors from moving in on a marketplace. It allows
individual companies to achieve more together than they would have on their own.

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TYPES OF STRATEGIC ALLIANCE :

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TYPES OF STRATEGIC ALLIANCE :
Third party logistics is simply the use of
an outside company to perform all or part
of the firm’s materials management and
product distribution .

It allows the company to focus on its core

strength.
Eg: Ecommerce sites

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TYPES OF STRATEGIC ALLIANCE :
The cooperative efforts between the
supplier and the retailers in order to
leverage the knowledge of both parties .

At one end is information sharing and at

other is consignment scheme where
vendor manages the inventory.
Eg : Toyota

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TYPES OF STRATEGIC ALLIANCE :
This means appreciating the values of
the of distributors and appreciating their
relationship with the end users .

Manufacturers coordinates the efforts of

their distributors to create risk pooling
opportunities and enable different
distributors to develop different areas of
expertise.

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NEED FOR DISTRIBUTOR INTEGRATION:
The modern customer service poses new challenges to the industries and
manufacturers . Hence even a strong and effective distributor network won’t always
meet the needs of the customer .
• A rush order might be impossible to complete from the inventory .
• A customer might need some specialized technical expertise which the distributor
does not have .
PAST SOLUTION :
Adding inventory or personnel either to each distributor or the manufacturer.

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THE THIRD SOLUTION :
The distributors are integrated so that the expertise and the inventories at one
distributor is available to other distributor.
EXAMPLE :
Machine tool builder okuma america corporation:
They carried many expensive machine tools and repair parts . But it was causing
high cost to carry full line for all its 46 distributors in North and South America .

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Solution
The company requires each of its distributor to carry a minimum amount of
machine tools and equipment .
The company manages the entire system so that the tool and the part is in stock
somewhere in the system .
A system called OKUMALINK allows each of the distributor to check the warehouse
inventories and to communicate with other distributors in finding required part.
Once the part is found the company ensures that it is delivered quickly to respective
dealer .

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ISSUES IN DISTRIBUTOR INTEGRATION :
• The distributors might be nervous about the outcomes of joining in such a system.
• The distributors might think that they are sharing their expertise to less skilled
parteners.
• Participating distributors may be forced to rely upon other distributors , some of
which might not be able to do so.
• A sense of trust and long term alliance have to be established.
• Manufacturer have to make pledges and gurantees to ensure distributor
commintment .

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PROCUREMENT AND OUTSOURCING
STRATEGIES

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OUTSOURCING

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 OUTSOURCING :
• Outsourcing is an agreement in which one
company hires another company to be
responsible for a planned or existing activity
that is or could be done internally.
• Outsourcing is a practice usually undertaken by
companies as a cost-cutting measure.
• Outsourcing is also used by companies to dial
down and focus on the core aspects of the
business, spinning off the less critical operations
to outside organizations.

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 SOME TYPES OF OUTSOURCING:

Professional Manufacturing Process-Specific Operational

Services Outsourcing Outsourcing Outsourcing
Outsourcing Service

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BENEFITS OF OUTSOURCING :
Economies of scale :
The greater economies of scale that can be gained by a third
party that is able to pool the activity of a large number of firms. . Companies can
achieve economies of scale by increasing production and lowering costs.
Risk pooling :
Outsourcing allows buyers to shift demand uncertainty on the
outsourcing service providers . They aggregate demand from various buying
companies and thus reduce uncertainty through risk pooling.

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Continued ….
Focus on core competency :
By choosing carefully what to outsource a company
can focus on its core strengths i.e specific skills , talents and knowledge that sets it
apart from the other competitors.
Increased flexibility :
With its focus on core strength the company can accelerate
product development and bringing new technologies and innovations.

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RISKS OF OUTSOURCING :
Loss of competitive knowledge :
Outsourcing critical parts implies that company
may lose its ability to introduce new design ideas based on their agendas rather
than supplier’s agenda.
Conflicting objectives :
Suppliers and buyers have different and conflicting
objectives . Buyers wants flexibility whereas the suppliers wants long term stable
commitment .

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FRAMEWORK FOR BUY/MAKE DECISION
How can a firm decide which product to manufacture
and which to outsource ?
Consultant and supply chain pundits suggest to
focusing on core competencies , but how to find out
what is core and the firm should make it internally?
Charles H. Fine, Daniel E. Whitney
MIT Center for Technology, Policy, and Industrial
Development ,February 1996

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 REASONS FOR OUTSOURCING:
• The firm has the knowledge and skill
DEPENDENCY to produce the component but still
ON CAPACITY : decides to outsource it
The more strategically
important the product is , the
smaller the dependency on
knowledge and capacity

DEPENDENCY • The company does not have the skill

ON and knowledge to develop the
product hence it outsource it .
KNOWLEDGE :

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MODULAR AND INTEGRAL PRODUCTS :
Modular
• Made by combining different
components
• Components are independent of each
other
• Components are interchangeable
• Standard interfaces are used
• Customer preference determines the
product configuration.
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Integral
• Made up from components whose
functionalities are tightly related.
• Not made from off-the-shelf
components.
• Designed as a system by taking a top-
down design approach.
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Supply chain management 21
FRAMEWORK FOR MAKE/BUY DECISIONS

Product Dependency on Independent for Independent for

knowledge and knowledge, knowledge and
capacity dependent for capacity
capacity
Modular Outsourcing is risky Outsourcing is an Opportunity to
opportunity reduce cost
through
outsourcing
Integral Outsourcing is very Outsourcing is an Keep production
risky option internal
 HIERARCHICAL MODEL
• Customer Importance
• How important is the component to the customer?
• What is the impact of the component on customer experience?
• Does the component affect customer choice?

• Component Clock speed

• How fast does the component’s technology change relative to other components in the
system?

• Competitive Position
• Does the firm have a competitive advantage producing this component?

• Capable Suppliers
• How many capable suppliers exist?

• Architecture
• How modular or integral is this element to the overall architecture of the system?
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PROCUREMENT

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DEFINITION:
Procurement is the act of obtaining goods or services, typically for business
purposes. Procurement is most commonly associated with businesses
because companies need to solicit services or purchase goods, usually on a
relatively large scale.

Companies can be on both sides of the procurement process as buyers or sellers

though here we mainly focus on the side of the soliciting company.

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 APPROPRIATE STRATEGY:
Depends on:
• Type of products the firm is purchasing
• Level of risk
• Uncertainty involved

Issues:
• How can the firm develop an effective purchasing strategy?
• What are the capabilities needed for a successful procurement
function?
• What are the drivers of effective procurement strategies?
• How can the firm ensure continuous supply of material without
increasing its risks?

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 KRALJIC’S SUPPLY MATRIX
Top right quadrant:

• Strategic items where supply risk and

impact on profit are high
• Highest impact on customer experience
• Price is a large portion of the system cost
• Typically have a single supplier
• Focus on long-term partnerships with
suppliers
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 KRALJIC’S SUPPLY MATRIX
Bottom right quadrant
• Items with high impact on profit
• Low supply risk (leverage items)
• Many suppliers
• Small percentage of cost savings will have
a large impact on bottom line
• Focus on cost reduction by competition
between suppliers
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 KRALJIC’S SUPPLY MATRIX
Top left quadrant:
• High supply risk but low profit impact items.
• Bottleneck components
• Do not contribute a large portion of the
product cost
• Ensure continuous supply, even possibly at a
premium cost
• Focus on long-term contracts or by carrying
stock (or both) Supply chain management 29
 KRALJIC’S SUPPLY MATRIX

Bottom left quadrant:

• Non-critical items
• Simplify and automate the procurement
process as much as possible
• Use a decentralized procurement policy with
no formal requisition and approval process

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THANK YOU

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