Page 168 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 8: Supply Chain Management

participated together in process control and process improvement. Pelzer was connected through Notes
an information system with GM. Both parties used cross-functional teams that would meet from
time to time. In return, Pelzer willingly invested in redesigning the insulative package to Indian
conditions.
An alliance is a living system that progressively evolves with the objective of creating new
benefits for both parties. The alliance partners share a vision of the future in the area of the
interface. Ethics take precedence over expediency. The relationship is adaptable in the face of
changing economics, competition, technology, and environmental issues.
In most supply alliances, the use of supplier certification is common. By improving the process,
the manufacturing quality is raised, which reduces requirements to inspect for errors. The result
is improved quality at lower total cost.
Executive level commitment and alliance champions protect the alliance from incursions by
non-believers.

Advantages of Supply Alliances

The primary benefits of supply alliances include lower total costs. Synergies are created in
alliances that cannot happen in transactional or even collaborative relationships. The synergies
result in reductions of direct and indirect costs associated with labour, machinery, materials,
and overhead. Alliance customers are the least likely to experience quality problems or supply
disruptions.
Buyers enjoy the benefits of Early Supplier Involvement (ESI) in the development of new
components. Reducing the time to design, develop, and distribute products and services becomes
a competitive advantage and leads to improved market share and better profit margins.
Openness and institutional trust enhance the inflow of technology from alliance partners that
leads to many successful new products. For example, in the case of GM and Pelzer, Pelzer
invested in R&D to bring down the cost of the entire insulative package for GM. They were able
to reduce their costs by nearly 20 percent in a period of two years and passed on the cost benefit
on to GM so that their product could be priced competitively. The result was higher volumes for
Corsa, which benefited both the alliance partners.
Alliance relationships help cushion bad times. Both customers and suppliers who value each
other, based on long-term relations and respect, are more likely to come to each other’s aid
during times of adversity.

Disadvantages of Supply Alliances

The major disadvantage of alliance relationships is the amount of human resources and thought
that is required to develop and manage such relationships. Alliances are a very resource-intense
approach to supply management.
The focus on relationship management requires that all elements of relationship management,
including trust building, communications, joint efforts, and planning and fostering
interdependency, will be increasingly studied and managed to achieve competitive advantage
in the relationship.
It takes cross-functional teams, early supplier involvement, target costing, improved
communications through techniques such as co-location of supplier engineers, and a constant
contact with the supplier. This requires a lot of time and energy, judgment and a very high level
of managerial expertise to make collaborative relationships successful.

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