1. Chapter Eight “Strategic Alliances”
Logistics and
Supply Chain Management

2. 8.1 Introduction Complexity in business environments increasing
Resources required to manage are becoming increasingly scarce
Many functions need to be outsourced
Firms need to ensure that functions are performed by the other firms
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

3. 8.2 Framework for Strategic Alliances: When to Go for a Strategic Alliance?
Adding value to products
Improving market access
Strengthening operations
Adding technological strength
Enhancing strategic growth
Enhancing organizational skills
Building financial strength
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

4. Downsides Core competencies should not be compromised
Competitive advantages should not be compromised
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

5. Internal Activities
If we have core competencies
in this business function, doing
it as an internal activity may be the
best way to do it.
Firm A

6. Internal Activities
Acquisitions
Firm A can control how Firm B does
the business function.
However, it might be expensive, there
may be problems blending the cultures
of the two firms and Firm B may have
had past dealings with Firm A’s competitors
Firm B
Firm A .

7. Arm’s Length transactions
Firm B
Firm A $

8. Arm’s Length transactions
Firm B
Firm A

9. Arm’s Length transactions
Firm B
Firm A $

10. Strategic Alliances
Multifaceted, goal-oriented, long-term partnerships between
two companies.
Both risks and rewards are shared.
Typically lead to long-term strategic benefits for both partners.
Order
Firm B
Firm A

11. Extreme Alliances – the strange story of virtual airlines
Owned no aircraft
Contracted maintenance
Leased airport gates
Leased reservation systems
Mainly provided cash flow for owners – companies involved in things like real estate

12. Three Types of Strategic Alliances
Third Party Logistics (3PL)
Retailer–Supplier Partnerships (RSP)
Distributor Integration (DI)
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

13. 8.3 Third Party Logistics (3PL)
Use of 3PL providers to take over a company’s logistics functions
Almost a $85 billion industry by 2004
8% of all logistics costs attributed to 3PL
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

14. Key Logistics Activities
Customer service.
Demand forecasting.
Inventory management.
Logistics communication.
Materials handling.
Order processing.
Packaging.
Parts and service support.
Plant and warehouse site selection.
Procurement.
Reverse logistics.
Traffic, transportation
Warehousing, storage.
We have the key activities of logistics. Let’s see how they fit into supply chain management.

15. “…internal and external components of the supply system…”
Supply Chain
Management:
“…internal and external
components of the supply
system…”
Customers
Suppliers
Organization
Demand forecasting. Plant and warehouse site selection. Inventory management. Materials handling. Warehousing, storage. Packaging. Order processing.
And let’s focus on the internal components.

16. …internal and external components of the supply system…
Supply Chain
Management:
…internal and external
components of the supply
system…
Customers
Suppliers
Organization
Procurement.
Parts and service
Support. Traffic.
Transportation.
Customer service
Parts and service support
Reverse logistics
Traffic, transportation
And there are external dimensions, things outside the organization. . .

17. Two Basic Types of Third Party Logistics Providers
Asset-based
Trucks
Warehouses
Information systems
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

18. Two Basic Types of Third Party Logistics Providers
Asset-based
Trucks
Warehouses
Information systems
Non-asset based
Primarily are coordinators.
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

19. Reasons for Third Party Logistics
Allows company to focus on its core competencies.
Business – including logistics – is becoming so complicated it is difficult to keep up with all developments.
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

20. What Is 3PL? Strategic partnership Long term commitment
Multi-function arrangement
Process integration
Large range of 3PL companies
Non-asset owning 3PL companies called 4PL
Provide services but not trucks, warehouses
Prevalent usage with larger companies
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

21. 3PL Advantages Focus on Core Strengths
Allows a company to focus on its core competencies
Logistics expertise left to the logistics experts
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

22. 3PL Advantages Provides Technological Flexibility
Technology advances adopted by better 3PL providers
Adoption possible by 3PLs in a quicker, more cost-effective way
3PLs may have the capability to meet the needs of a firm’s potential customers
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

23. 3PL Advantages Provides Other Flexibilities
Flexibility in geographic locations.
Flexibility in service offerings
Flexibility in resource and workforce size
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

24. 3PL Disadvantages
Loss of control inherent in outsourcing a particular function.
Outbound logistics 3PLs interact with a firm’s customers.
Many third-party logistics firms work very hard to address these concerns.
Painting company logos on the sides of trucks, dressing 3PL employees in the uniforms of the hiring company, and providing extensive reporting on each customer interaction.
Logistics is one of the core competencies of a firm
Makes no sense to outsource these activities to a supplier who may not be as capable as the firm’s in-house expertise
Wal-Mart, pharmaceutical companies
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”

25. 3PL Issues Costs and Customer Orientation
Know your own costs
Compare with the cost of using an outsourcing firm.
Use activity-based costing techniques
Customer orientation of the 3PL
Ability of provider to understand the needs of the hiring firm and to adapt its services to the special requirements of that firm.
Reliability.
Flexibility of the provider
Simchi-Levi, Kaminsky, Simchi-Levi “Designing and Managing the Supply Chain.”