33:799:301 Lecture 4: 0002-IntrotoSupplyChain-2017-02-02

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Strategic alliance in sourcing - An agreement between a buyer and a supplier to pursue some
agreed upon objectives, while remaining independent organizations
- Companies agree to share information and resources to achieve a mutual benefit
- Preferred suppliers are potentially ideal candidates for a strategic alliance
Benefits of such arrangements include:
- Potential to increase revenue and profits for both parties
- Potential to create a competitive advantage or block a competitor for gaining marketing
share
- Mitigate risks and ensure a continuity of supply
- Position the partners for future strategic opportunities
Strategic Alliance Development - an extension of supplier development which refers to
increasing a key or strategic supplier’s capabilities
- Results in better market penetration access to new technologies and knowledge, and
higher return on investment
- Eventually extends to a firm’s second-tier suppliers as the firm’s key suppliers begin to
form their own alliances
Distributive Negotiations - Refers to a process that leads to self-interested, one-sided outcome
Collaborative Negotiations - Both sides work together to maximize the outcome or create a win-
win result, requires open discussions and a free-flow of information between parties
Confirming the alignment between parties regarding motivation, contribution, financial benefit,
and the management of the alliance are essential
Consequently, negotiations are not about each company obtaining the most value, negotiations
are more about establishing a relationship that works well for both parties
Recognition of a supplier for exceptional performance, contributions, and/or capabilities.
Rewarding suppliers for outstanding performance motivates and encourages them to continue
to strive for excellence in their products, services, and operations.
It also strengthens and fosters strong and productive supplier relationships.
Reward incentives can include:
- The promise of future business, longer term agreements
- Public recognition including any or all of the following:
- A plaque
- An awards dinner
- An honors ceremony
- A press release
- Formal communication to the supplier's senior leadership team.
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- Financial rewards for achieving performance-based objectives
- Strategic or preferred supplier status
A supplier rewards and recognition program is reflected as part of the formal supply agreement
in the form of pain and gain provisions
Agreements are negotiated to spell out in detail the gains (reward) and pains (penalty) that the
supplier will realize for either exceptional or poor performance
Both parties would mutually agree on the provisions and the positive and negative outcomes
Pain - Using a penalty or punishment is a native outcome for poor performance, cost overruns,
quality problems, etc.
- Buyer could impose a financial penalty on the supplier for poor performance
- Buyer could bill-back the incremental costs resulting from poor performance
- Buyer could reduce future business with the supplier for poor performance
Gain - Using a reward as a positive outcome from exceptional performance
- Buyer could award a financial bonus to the supplier for exceptional performance
- Buyer could share a portion of any cost reductions developed by the supplier which
benefit the buyer
- Buyer could provide access to in-house training seminars, conferences, tools and
information, or other resources to the supplier
- Buyer could publically recognize the supplier and/or confer a special status on the
supplier as as “Preferred Supplier”
A key to building a strong strategic supplier partnership is having a well-defined and established
Supplier Certification program
- Supplier certification programs are used to differentiate strategic supplier alliance
candidates from others
- Buyers can monitor quality assurance methods and specify the type of acceptance
sampling and statistical process control methods used
- Companies may choose to develop internal certification programs as well as require
external certifications such as International Organization for Standardization (ISO)
Supplier Evaluation and Certification
1. A process to identify best and most reliable suppliers
2. Sourcing decisions are made on facts and not on perception
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