Chapter 6.
Strategic Alliances
Park Eun-Jung
May.17.2007
Contents
1. Case> How Kimberly-Clark Keeps Client
Costco in Diapers
2. Introduction
3. Framework for strategic alliances
4. Third-party Logistics
5. Retailer-supplier Partnerships
6. Distributor Integration
Strategies for SCM
 all of the advanced strategies, techniques, and
approaches for Supply Chain Management
focus on :
◈ Global Optimization
◈ Managing Uncertainty
Dealing with Uncertainty
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Pull systems
Risk Pooling
Centralization
Postponement
Strategic Alliances
Collaborative Forecasting
Case> How Kimberly-Clark Keeps
Client Costco in Diapers
 Kimberly-Clark : manufacturer
 Costco : retailer
 Kimberly-Clark replenished stock of Costco in
diapers  Costco didn’t need to manage the
stock.
 Shared information about individual stores’
sales
 Kimberly-Clark used the computer link and
employed data analyst
Case> How Kimberly-Clark Keeps
Client Costco in Diapers
 Kimberly-Clark and Costco used VMI(VenderManaged Inventory)
 Effect : Reduce inventory levels of Costco,
Saving costs, increase sales of Kimberly-Clark,
improve service levels
6.1 Introduction
 Internal activities
 A firm can perform the activity using internal
resources and expertise
 Acquisitions
 Acquire a firm which have the expertise or
specialized resources
 Arm’s-length transactions
 Strategic alliances
6.2 Framework for Strategic Alliances
 To determine whether a particular strategic
alliance is appropriate for your firm, consider
following issues :
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Adding value to products
Improving market access
Strengthening operations
Adding technological strength
Enhancing strategic growth
Enhancing organizational skills
Building financial strength
6.3 Third-Party Logistics
 What is 3PL?
 Take over some for all of company’s logistics
responsibilities
 Outside company to perform all or part of
the firm’s materials management and product
distribution functions
6.3 Third-Party Logistics
 Advantages and Disadvantages of 3PL
 Advantages
① 3PL allows a company to focus on its core
competencies
② 3PL provider constantly update their information
technology and equipment
③ Flexibility in geographic locations, service,
resource and workforce
 Disadvantages
① Loss of control
6.3 Third-Party Logistics
 3PL Issues and Requirements
- Consider following issues when a firm contract
with 3PL provider :
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Know firm’s own cost
Customer orientation of the 3PL
Specialization of the 3PL
Asset-owning versus non-asset-owning 3PL
6.4 Retailer-Supplier Partnerships
 Types of RSP
 Quick Response Strategy
- Supplier receives POS data from retailer and uses
this information
- Improve forecasting and scheduling and reduce
lead time
Ex 6-6) Milliken and Company uses POS data 
synchronize their ordering and manufacturing plans
 reduce the lead time
 Continuous Replenishment Strategy
- POS data are used to prepare shipments
- Maintain specific levels of inventory
6.4 Retailer-Supplier Partnerships
 Advanced Continuous Replenishment Strategy
- Improve the inventory levels continuously
- Inventory levels change the appropriate level
 Vendor-Managed Inventory(VMI) System
- The Goal is to eliminate retailer oversight on
specific orders
- Inventory turnover of Wal-Mart was increased
through the VMI system
- P&G deliveries improved dramatically
6.4 Retailer-Supplier Partnerships
6.4 Retailer-Supplier Partnerships
 Requirements for RSP
 Advanced Information System
- EDI(Electronic Data Interchange) and POS
- Bar Coding and Scanning
 Top Management Commitment
 Partners to develop a certain level of trust
6.4 Retailer-Supplier Partnerships
 Inventory Ownership in RSP
- Inventory ownership must be cleared to the
success of this kind of strategic alliance effort
- In VMI system, supplier owns the goods until
they are sold  retailer reduce inventory cost,
supplier manage inventory effectively
6.4 Retailer-Supplier Partnerships
 Steps in RSP Implementation
 The contractual terms of the agreement must be
negotiated
- decisions concerning ownership, credit terms,
ordering responsibilities, performance measures
 Developing the integrated information system,
effective forecasting technique and a tactical
decision support tool
6.4 Retailer-Supplier Partnerships
 Advantages and Disadvantages of RSP
 Advantages
- Supplier controls the bullwhip effect
- Reduce overall system cost and improve overall
system service levels
- Reduce forecast uncertainties
- Reduce safety stocks, storage costs and delivery
costs
 Disadvantages
- Employ advanced technology
- Develop trust
- Supplier has much more responsibility in strategic
partnership
- Increase supplier’s managerial responsibilities and
inventory costs
6.4 Retailer-Supplier Partnerships
 Successes and Failures
 Successes
- VMI program of between Wal-Mart and MeadJohnson increased inventory turns
- Scott Paper Company’s VMI program improved
inventory turns
 Failures
- Schering-Plough Healthcare Products and Kmart’s
Partnership didn’t improve sales or profits, but
decreased stockouts at Kmart
- Spartan Store’s lead time was not decrease and
didn’t trust supplier
6.5 Distributor Integration
Use the expertise and inventory at the others
Types of Distributor Integration
 Inventory-related
- a large pool of inventory , lowering total inventory
costs, raising service levels
 Service-related
- Meet a customer’s specialized technical service
requests
6.5 Distributor Integration
Issues in Distributor Integration
 Distributor may be skeptical of the rewards of
participating in such as a system
 Distributor might be nervous about losing these
skills and abilities
 A large commitment of resources and effort on the
part of the manufacturing company