The Power matrix of Supplier-

Buyer Relationship
Buyer Dominance
Supplier Dominance

(moral hazard)
Independence

(adverse selection)
Inter-dependence
Low High
Relative utility and scarcity of supplier resources for buyers
Relative utility
and scarcity of
buyers
resources for
suppliers
High
Low
Source: Andrew Cox, 2000
Critical success factors to
SA
Trust
Cooperation
communication
Ways to Operate a
Company
Internal activities
Acquisition
Arms length transaction
Outsourcing
Strategic alliance
Stages of Strategic Alliance
Initial Euphoria
Honeymoon period
Dawning realization
Aftershock
Damage control
Conceptual model of alliance
development
Alliance conceptualization
Alliance pursuance
Alliance confirmation
Alliance implementation/continuity

Types of alliance
Opportunistic alliance
Complementary strategic alliance
Why Strategic Alliance?
Adding value to products/services
Improving market access
Strengthening operations
Adding technological strength
Enhancing strategic growth
Building financial strength
Types of Alliance
Third-party logistics (3PL)
Fourth-party logistics (4PL)
Retailer-supplier partnerships (RSP)
Distributor integration (DI)
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
3PL
Use of an outside company to
perform all or part of the forms
materials management and product
distribution function

Relationship vs. transactional based
Single-function vs. multi-function
Long-term vs. short-term
commitments
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
4PL
It refers to the evolution in logistics from
suppliers focused on warehousing and
transportation (third-party logistics
providers) to suppliers offering a more
integrated solution. Among other services,
fourth-party logistics providers include
supply chain management and solutions,
change management capabilities, and value
added services in their offering.
Strategic Alliance:
Types of SA
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.
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

Strategic Alliance:
Types of SA
Requirements for Effective
Strategic Alliance
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
Important SA 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,
inventory level, inventory turns

Important SA 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
this was due to the fact that the two
companies employed different
forecasting methods.
Steps in SA 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 and transportation policies
Main Characteristics of SA
Criteria
Types
Decision
Maker
Inventory
Ownership
New Skills
Employed by vendors
Quick
Response
Retailer Retailer Forecasting Skills
Continuous
Replenishment
Contractually Agreed
to Levels
Either
Party
Forecasting &
Inventory Control
Advanced
Continuous
Replenishment
Contractually agreed
to & Continuously
Improved Levels
Either
Party
Forecasting &
Inventory Control
VMI Vendor Either
Party
Retail
Management
Advantages of SA
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.
Advantages of SA
Decrease required inventory
levels
Improve service levels
Decrease work duplication
Improve forecasts
Disadvantages of SA
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?

Examples of SA Successes
and Failures
Western Publishing-Golden Books:
Western Publishing is using VMI for its Golden Books line
of childrens 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 have been made.
In the case of Toys R Us, the company has even
managed the entire book section for the retailer,
including inventory from suppliers other than Western
Publishing.
Extra sales, increased costs to Western
Examples of SA Successes
and Failures
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.

Examples of SA 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
they did before
This was because they didnt trust the
suppliers enough to be able to stop
carefully monitoring the inventories and
deliveries of the VMI items, and
intervening at the slightest hint of
trouble.
Examples of SA Successes
and Failures
Spartan Stores (continued)
Suppliers didnt do much to allay these
fears. The problems were not with the
suppliers forecasts; instead, they were
due to the suppliers inability 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.

Distributor Integration
Parts are shared across the distributor network
Specialized service requests are steered to
appropriate dealers 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
Information for Coordination
of Systems
Information is required to move from local
to global optimization
Questions:
Who will optimize?
How will savings be split?
Information is needed :
Production status and costs
Transportation availability and costs
Inventory information
Capacity information
Demand information
Role of Information in
Supply Chain Success
I nformation Global
Scope
Coordinated
Decisions
Supply Chain
Success
Information Technology in a
Supply Chain: Legacy
Systems
Supplier Customer Retailer Distributor Manufacturer
Strategic
Planning
Operational
Information Technology in a
Supply Chain: ERP Systems
Supplier Customer Retailer Distributor Manufacturer
Strategic
Planning
Operational
ERP Potential
ERP
Potential
ERP
Information Technology in a
Supply Chain: Analytical
Applications
Supplier Customer Retailer Distributor Manufacturer
Strategic
Planning
Operational
Supplier
Apps
SCM
MES
Dem Plan
Transport execution &
WMS
APS
Transport & Inventory
Planning
CRM/SFA