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Strategic Alliances . Ways to ensure that a logistics-related business function is completed Internal activities (“in-house”) Acquisitions Arm’s-length transactions Strategic alliances Strategic alliances Third party logistics Retailer-supplier partnerships Distributor integration .

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strategic alliances
Strategic Alliances
  • Ways to ensure that a logistics-related business function is completed
    • Internal activities (“in-house”)
    • Acquisitions
    • Arm’s-length transactions
    • Strategic alliances
  • Strategic alliances
    • Third party logistics
    • Retailer-supplier partnerships
    • Distributor integration
a framework for strategic alliances
A framework for strategic alliances
  • Benefits of strategic alliances
    • Adding value to the products
    • Improving market access
    • Strengthening operations
    • Adding technological strength
    • Enhancing strategic growth
    • Enhancing organizational strength
    • Building financial strength
  • Core strengths (or competencies) should not be weakened by strategic alliances
    • Resources should not be diverted from core strengths
    • Key technology should not be shared as a result of an alliance
example ibm
Example – IBM
  • Apple dominates the PC market since the introduction of its first PC, Apple I, in 1976
  • IBM decides to enter the PC market in late 1981
    • No infrastructure for personal computers
    • Alliances with
      • Intel for microprocessors (4.77 MHz 8088 processor)
      • Microsoft for operating system (MS-DOS)
      • First IBM PC ($1,565=>$4,000 value in 2003), time to market – 15 months
  • In 1985, IBM reaches a market share of 40%, dominating Apple
  • Competitors like Compaq (founded in 1982) and Dell (founded 1984) soon used the same suppliers Intel and Microsoft and take away the market share from IBM
  • In 2001, IBM has a market share of only 8% falling behind Compaq
third party logistics 3pl
Third party logistics (3PL)
  • 3PL: use of an outside company to perform all or part of the firm’s materials management and production distribution functions
  • 3PL arrangements involve long term commitments and often multiple functions, as opposed to transaction based and single-function specific
  • 3PL is most prevalent among large companies
    • 3M, Eastman Kodak, General Motors, BP, Fiat
  • Example: Exel offering 3PL services to Gillette in Turkey
    • Warehousing
    • Distribution (inbound and outbound)
    • Customs clearance
    • Sub-contracting for packaging and re-labeling
3pl examples turkey
3PL examples – Turkey
  • Ekol logistics
    • Founded in 1990
    • 67 M DM revenue, 500 employees, in 2001
    • 200 vehicles, 60,000 m2 warehouse space
    • Specializes in textiles, provides 3PL services for
      • Beymen, Carsi, Benetton, Adidas, Marks and Spencer
  • TNT logistics
  • Horoz logistics
  • Aras Kargo
  • Yurtici Kargo
3pl advantages and disadvantages
3PL advantages and disadvantages
  • Advantages
    • Focus on core strengths
    • Provides technological flexibility
      • 3PL providers are better able to constantly update their information technology and equipment
      • 3PL providers may already have the capability to meet the needs of a firm’s potential customers
    • Provides other flexibilities
      • Economies of scale: warehousing, distribution
  • Disadvantages
    • Loss of control: 3PL companies face the firm’s customers
    • Core competency: e.g., Wal-Mart, Caterpillar
retailer supplier partnerships
Retailer-supplier partnerships
  • Quick response: Suppliers receive POS data from retailers to synchronize their production and inventory activities with actual sales at the retailers
  • Continuous replenishment: Suppliers receive POS data and use these data to prepare shipments at previously agreed-upon intervals to maintain specific levels of inventory
  • Advanced continuous replenishment: Continuous replenishment with targeted, gradual decrease in inventory levels
  • Vendor managed inventory: Supplier decides on the appropriate inventory levels of each of the product and the appropriate inventory policies
requirements for effective sp
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
important sp issues
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, inventory level, inventory turns
  • Confidentiality
  • Communication and cooperation
advantages and disadvantages of retailer supplier partnerships
Advantages and disadvantages of retailer-supplier partnerships
  • Advantages
    • Fully utilize system knowledge (retailer)
      • Manufacturer may predict demand better
    • Reduce bullwhip effect (vendor)
      • Reduced inventory and/or increased service level
    • Focus on retailing rather than logistics (retailer)
    • Ability to coordinate replenishments to different retailers (vendor)
  • Disadvantages
    • Expensive advanced information technology is required.
    • Supplier/retailer trust must be developed.
    • Supplier responsibility increases.
    • Expenses at the supplier often increase.
      • Why? How can this be addressed?
distributor integration
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
  • An “easy way” to increase profits
  • Nike, Cisco, Apple outsource most of their manufacturing
    • Each could focus on research, marketing
    • Each has gotten into trouble
      • 2001 – Nike reported unexpected profit shortfalls due to inventory problems
      • 2000 – Cisco had to write down billions in obsolete inventory
      • 1999 – Apple was unable to meet customer demand for new products
outsourcing benefits and risks
Outsourcing Benefits and Risks
  • Benefits
    • Economies of scale reduce manufacturing costs
    • Risk pooling – demand uncertainties are transferred
    • Reduced capital investment
    • Focus on core competencies
    • Increased flexibility
      • Ability to better react to changes in customer demand
      • Ability to use the supplier’s technical knowledge to accelerate product development cycle time
      • Ability to gain access to new technologies and innovation
  • Risks
    • Loss of competitive knowledge
    • Conflicting objectives
      • Flexibility vs. long-term, stable commitments, etc.
a framework for outsourcing
A Framework for Outsourcing
  • Reasons for outsourcing
    • Dependency on capacity
    • Dependency on knowledge
  • Product architecture
    • Integral products – components are tightly related
      • Designed as a system
      • Not off-the-shelf components
      • Evaluated based on system performance
      • E.g. Automobile engine
    • Modular products –independent components
      • Components are interchangeable
      • Standard interfaces are used
      • Component can be designed or upgraded independently
      • E.g. Automobile stereo system