Supplier alliance
Success and Failure
Balestrieri Luca
Rossi Valeria
Santoro Flavia
IBD 2013-2014
How did we end up with supplier
alliances?
• Two main concepts led to the born
of supplier alliances:
– Specialization
– Comparative advantage
Adam Smith, 1776
Labour division
”One
man draws out the wire, another straights
it, a third cuts it, a fourth points it, a fifth
grinds it at the top for receiving the head: to
make the head requires two or three distinct
operations: to put it on is a particular
business, to whiten the pins is another ... and
the important business of making a pin is, in
this manner, divided into about eighteen
distinct operations, which in some
manufactories are all performed by distinct
hands, though in others the same man will
sometime perform two or three of them.”
Michael Porter, 1985
Specialization of stages
• Firms spent too much time and money
performing stages and activities where
they had no comparative/competitive
advantage
• Firms should focus on what they do best
and outsource the rest
2nd unbundling
• Functional specialization of firms was
made possible by ICT:
– Coordinate complexity at distance
– Tear down transactional costs
• Geographical unbundling to meet
comparative advantage (most abundant
resources)
Economies of specialization
extension of the division of labour
between firms thanks to trade
C
ACa
ACc
ACb
Q
Global Value Chain GVC
• Great increase of trade
• Hub-and-spoke asymmetry between
“factory” economies and “headquarter”
economies (dependency of the former)
• Trade especially about parts and
components: building up of Global Supply
Chain
• “Spoke” firms: need to strengthen
these links with suppliers
Walmart supply chain
Supplier alliances
• Supplier alliances: a form of IORs
• IOR: strategic relationships in which both
parties benefit in working together rather
than individually, in a medium-long term
• Alternative forms of IOR are: Joint
Ventures, Mergers, Acquisitions and Licensing
• This type of cooperation involves share of
capitals, technologies, human resources, knowhow and other assets
Why do they form?
• Technology development, risk management
and cost reduction (Dore, 1987; Mowery,
1988)
• Technological complexity and Technological
uncertainty (Dodgson, 1991)
• Attractive in situations where there is a need
for: reliable information, to provide stability
in contractual dealings and for large
organizations to become more dynamic (Powell
1987)
Dynamicity
• Each party’s objectives, contributions
and benefits might change over time
• Once established: they evolve to a more
informal and interpersonal relationship
• Nevertheless, trust and commitment
are at the base of supplier alliances
Research methodology
• 4 hypotheses:
– Strong alliances: higher level of
productivity and quality
– Relationship between trend alliance and use
of subordinated power
– Positive results with the development of
personal relationship
– Trends predictions (buyers and suppliers
perspectives)
Results
• Hypotheses 1, 3, 4 are supported by Ian
Stuart
• Hypotheses 2: any support that
subordinated power is able to explain
supplier alliance trends
• Finally, both parties gain satisfaction
from stable and long lasting alliances
Applications
• Article main points:
– Beyond common transactional-based
agreements
– Extreme cases of buyer-seller
relationships
• Case study: Mark&Spencer and Walmart
Mark&Spencer
“We’re only as strong as the communities in
which we trade, so it makes good sense for us
to be a fair partner – paying a fair price to
suppliers, supporting local communities and
ensuring good working conditions for
everyone involved in our supply chains.”
http://www.youtube.com/watch?v=ytbk3DHNrtQ
Achieved performance
Small suppliers
• Aim: Increasing M&S use of small local
suppliers by improving the
understanding of M&S buying teams of
the different needs of small producers
• To access the innovation that can be
provided by small suppliers, M&S has
actively provided extra support to a
range of new small suppliers of specialty
food and drink and regional breweries
• 2007: Mark&Spencer Business Plan A
• Pillar 6 deals with the topic of Fair Partner
 Successful cooperation with Kenya suppliers
of tea and coffee, able to share the profits
Failure in cotton agreements: only cover 1% of
M&S total cotton use, due to a combination of
poor availability of material and the
complexities of cotton supply chains
Achieved performance
Supplier exchange
• Aim: Launching a Supplier Exchange to drive
best practices, stimulate innovation and help
suppliers secure funds to develop more
sustainable production techniques and invest
in their workforces and local communities
• Progress summary: New guidelines on water
efficiency, wood sourcing, waste, bio-fuels,
‘green’ factories and social compliance
Walmart criticism
How is it possible?
• A $5,97 t-shirt journey: Factory-ShippingWarehouse-Store
– Factory: 30,000 Chinese factories are the
70% of the total production, poor wages,
high flexibility
– Warehouse: Stressful and dangerous
environment, low wages, no health insurance
– Store: $8,81 per hour X 34 hours X 52
weeks = $15,576 annual income (below
Federal Poverty Level)
Made in Bangladesh
•
•
•
•
•
5,000 factories
4,5 million workers
$0,32 per hour→$38 per month
7 days a week
November 2012: Fire in Tazreen factory, 117
workers died. Walmart refused to pay more
to upgrade Bangladeshis factory buildings
• April 2013: collapse of Rana Plaza buildings,
1129 workers died →companies signed the
UNI Fire&Building Accord, Walmart refused
Conclusions
• Main points we covered:
– Labour and stage specialization
– The born of Global Supply Chain GSC
– Supplier alliances as a way to deal with GSC
– How to make those alliances long-lasting,
profitable and therefore successful
– Social issues related to GSC: dark side of
GSC and the possibility to spread
standards of living and working also through
suppliers alliances.
THANKS FOR YOUR
ATTENTION
• References:
– http://www.youtube.com/watch?v=yZC4neLax5o
– http://www.youtube.com/watch?v=ytbk3DHNrtQ
– http://www.networkdessous.com/pdf_dossier/2008/Quando
%20i%20grandi%20si%20convertono%20al%20verde_Specia
le%20MARK&SP_LII_7-08.pdf
– www.marksandspencer.com/plana
– www.marksandspencer.com/thecompany
– www.walmart.com
– www.uniglobalunion.org
– www.cepr.org/pubs/dps/DP9103.asp