OPSM 305 Supply Chain Management Koç University OPSM 305 Supply Chain Management Class 23: Strategic Alliances Zeynep Aksin zaksin@ku.edu.tr

Next class Vestel case Read the case before class Please e-mail presentation slides before class

Relating to practice Efes: solved transportation problem using LP Vestel: Will see application involving other transportation related issues we will talk about today: vehicle selection, routing

Data for routing Mileage Estimation Street Network Straight line distances This is of course an underestimate of the road distance. To estimate the road distance we multiply the straight line distance by a scale factor, . Typically =1.3.

Vehicle Routing The fleet : Customer : types location sizes demand costs Customer : location demand accessibility Delivery zone

Vehicle routing problem Given the demand at i clients determine the itineraries of K vehicles with a given capacity Q

VRP : heuristic approach Savings algorithm (Clarke and Wright 1964) Initial phase : create n routes (0,i,0), where 0 is the transit point (or DC or depot) calculate the savings sij = ci0 + c0j - cij and order them in decreasing order Go over the savings list trying to combine the routes : Find a route that terminates with i and another that starts with j Verify capacity constraints Initial solution : Combine :

VRP : heuristic approach Savings algorithm: example 0 1 2 3 4 1 18 2 7 15 3 10 7 6 4 22 13 22 19 5 20 11 6 4 20 Demand 1 : 6 2 : 4 3 : 4 4 : 6 5 : 5 Capacity 14 Distances : Savings list : 0-1-4-0 0-2-0 0-3-0 0-5-0 (1,4) (1,5) (3,5) (4,5) (1,3) (2,5) (3,4) (2,3) (1,2) (2,4) 27 27 26 22 21 21 13 11 10 7 0-1-4-0 0-2-0 0-3-5-0 0-1-4-0 0-3-5-2-0 Solution : 0-1-0 0-2-0 0-3-0 0-4-0 0-5-0

Objectives of a strategic alliance Adding value to products: improving time to market, distribution times, etc. Improving market access: better advertising, more channels, etc. Strengthening operations: lowering system costs, cycle times, etc. Adding technological strength Enhancing strategic growth: overcoming entry barriers Enhancing organizational skills: learning, self-learning Building financial strength: risk sharing, increasing income, etc.

Retailer-supplier partnerships SPs in SCs 3PL Retailer-supplier partnerships Quick response Continuous replenishment Advanced continous replenishment VMI Distributor integration Transshipment Technical expertise sharing

Main Characteristics of RSP

Example: 3PL Focus on core strengths Provides technological flexibility Provides other flexibilities: geographic locations, regional warehousing, etc. Disadvantages: loss of control, 3PL interacting with customers A form of outsourcing

3PL Success factors Know your own costs Measurability-data availability Activity based costing Customer orientation of the 3PL Specialization of the 3PL import-export Small package Warehousing Ship logistics Etc. Asset-owning versus non-asset-owning

3PL Implementation Issues Effective communication Performance measures Detailed contracts/agreements Performance follow-up procedures

Distributor integration: transshipment “shipment of items between different facilities at the same level in the supply chain to meet some immediate need” Between retailers Between separately owned distributors: requires distributor integration, typically orchestrated by the manufacturer Information system to enable inventory visibility Incentives both ways so that distributors are willing to share their inventory