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Strategic alliances
Third party logistics Retailer-supplier partnerships Distributor integration
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
Disadvantages
Loss of control: 3PL companies face the firms customers Core competency: e.g., Wal-Mart, Caterpillar
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
Main characteristics
Alliance type Decision maker Inventory ownership
Retailer
Quick response
Retailer
Continuous replenishment
Advanced continuous replenishment Vendor managed inventory
Mutual trust
Information sharing Management of the entire supply chain Initial loss of revenues
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
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
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.
Outsourcing
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
Risks
Loss of competitive knowledge Conflicting objectives
Flexibility vs. long-term, stable commitments, etc.
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 Components are interchangeable Standard interfaces are used Component can be designed or upgraded independently E.g. Automobile stereo system
Product
Modular
Integral