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  1. 1. The development of supply chain strategy alliances Ya-Ling Tsai Department of Marketing, University of Stirling, Stirling FK9 4LA, Scotland, UK Yt1@stir.ac.uk Jenkins C. H. Chen Department of management information system Far East University 49 Chung-Hua Rd, 74448 Hsin-Shih, Tainan County, Taiwan ROC mmcc.uk@gmail.com Abstract This paper is going to review of the alliances with suppliers in several categories, namely, the content of development; strategic and integrated supply chain alliances. The objectives need to be transferred into alliance metrics and should be feedback from customers. The check is for suppliers’ alliance to develop and how to operate more efficient strategic alliances. Also the strategic and integrated supply chain alliances are significant for strategic alliances, as a coalition of two or more organizations to achieve strategically significant goals and objectives are mutually beneficial. An important focus has been analyzed how successful strategic alliances compare with ineffective alliances. In this paper, it extends the description of management thinking by arguing that the strategic alliance concept, integration of strategic alliance has been the topic in research works recently. Keywords: Supply chain management, supply chain strategy, supply chain alliances Introduction In today’s complex business environment, alliances present an obvious effectiveness within a market and represent the important practice of being able to assert corporate strategic control (Drucker, 2001). Bronder and Pritzl (1992) stated that a strategic alliance exists when at least two organizations with well-matched goal structures are combined to support and achieve significant competitive advantages. The alliance is not only a link on the vertical supplier’s alliance but also on the horizontal supplier’s alliance in the study. The argument of Townsend (2003) criticized the relational of constitute an alliance; some people considered both vertical and horizontal linkages within the area of alliances, whereas others considered only horizontal linkages to be true alliances because vertical linkages were taken into consideration to be part of the traditional buyer-seller, or principal-agent relationship. The development of supply chain strategy alliances Type of alliances
  2. 2. Das and Teng (1998) stated that alliances involved joint venture, minority equity, non- equity, co-production and R&D , with Callahan and Mackenzie (1999), as well as Geringer and Hebert (1991) establishing that alliances are not joint ventures, which are a legally distinct organization. Hennart (1998) divided alliances into two types: capital contribution and agreements without capital. Anand and Khanna (2000) suggested that alliances are deficient contracts between firms. Stanek et al., (2004) considered alliances to be a voluntarily initiated cooperative agreement between firms that involved exchange, co-development and contributions by partners for capital, technology or firm specific assets. From the above types of alliances, the goals and objectives have to be explored and expressed. Dyer et al., (2001) pointed out that by determining the goals and objectives, firms can ensure that each partner’s expected outcomes are fitting and not adversarial towards one another. However, objectives need to be transferred into alliance metrics and should be set up by parties with matching feedback mechanisms, incentives and authorization while remaining manageable in number which are based on the achieved results. Development of supply chain alliance Gulati et al., (1994) argued that alliance activity was no longer on the edge of corporate strategy. Alliance formations had been increasing at about 25% per year since 1985 (Mol, 2000). Marketing scholars like Kondra and Hinings (1998) found the first established framework for institutional theory in 1913, where the marketing channels role facilitated inter-organizational connections. In 1987 and 1992, the studies of Booz Allen and Hamilton indicated that over 20,000 new alliances were formed with a growth of 25% in just one year (Harbison and Pekar, 1994). In addition, Hunt and Morgan (1994) said that by the 1990s marketing professionals and scholars were able to identify a business from its foundation of relationships and exemplified by the greater than used of strategic alliances beforehand. For example, IBM engaged in or more than 400 alliances in their home country and abroad in 1995 (Day, 1995). Furthermore, Coopers and Lybrand surveyed 400 companies, finding that 55% indicated they were presently drawn in to at least three strategic alliances (Fedor and Werther, 1996). Cravens et al., (2002) highlighted that between 1996 and 1998 alone, 20,000 inter organizational alliances were formed. Recently, Townsend (2003) also criticized in his research, which showed evidence of the market increasingly using strategic alliances as a business instrument. And Naumenko et al., (2005) agreed that strategic alliances take place everywhere as a result of economic globalization.
  3. 3. A Strategic and Integrated Supply Chain alliance The concept of supply chain, firstly suggested in 1985 by Houlihan (Cooper and Ellram 1994), who recommended that management is "all difference processes and activities that produce value in the hands of the ultimate customer ″ (Lummus et al., 1998, p. 49) and that supply chain management is "the process for building improved and stronger upstream and downstream business linkages″ (McAfee et al., 2002, pp. 1). In recent years supplier alliances became more and more important to both buyers and suppliers to help them respond to sharp competitive pressures. The cooperative relationship may help them to achieve a competitive advantage. Buyer interest in alliances is typically driven by efforts to reduce prices, increase supply dependability, and influence supplier quality and delivery schedules (Ellram, 1995). Companies are looking for solutions to make their supply more efficient and develop close ties with suppliers, for certain purchases, determine that long relationships are more preferable than an alliance. According to Currie (2000), three major forces influence the formation of alliances between organizations: globalization, deregulation, and consolidation. Mandal et al., (2003) suggested that to improve a strategic alliance is that managers conduct a pre- alliance planning exercise to point the finger at the compatibility of the business goals of their partners, settle on a method of completion, and state the key challenges that may arise throughout the alliances period. This planning should provide mangers with a perspective on deciding how an alliance can benefit their organization. Strategic alliances on the other hand are an agreement between two or more independent firms. For example, telecommunication organizations could form an alliance for an international joint venture, or an alliance can be established between a banking organization and software supplier. In addition, Segil (2000) suggested that revenue may not be approached in these types of arrangements but that the main position may help them to establish or maintain market leadership. Conversely, Perks and Easton (2000) believed that organizational marketing perspective identify market exchange based strategic alliances in the form of resource exchanges and being competitor based. All companies are involved in supply chain networks; even though it does not mean that they can manage them effectively. Cox’s (2004; p410) findings demonstrated that such a sourcing approach is possible. The idea is that future business success will primarily be based on competition between companies and their supply chains will become more agile. Bringing down the cost of the supply chain to improve the productivity and profit is the most important decision for manufacturers. (Matthews, 2000). Gradually, make-or-buy decisions comprise enormous strategic implications. It became even more of a prominent situation given the difficulty of the purchasing and supply environments. Research by Sturgeon (2002) focused on strategic and organizational topics, such as core competence and organizational flexibility, which directly addressed the significance of make-or-buy
  4. 4. decisions. More specifically, Hoyt and Lee (2001) discussed the evolution of outsourcing and the resulting strategic implications, from the viewpoint of a particular industry.Donald (2002) challenged the basic notion of the integrated management is to redirect the traditional stress on functionality to focus more on process achievement. Gattorna and Walters (1996; pp. 21) also pointed out that an important element in the development of supply chain management concerns the channel strategy and the alliances and partnerships that are created within the channels, which enhance the channel’s effectiveness. It seems clear, therefore, that considerations of supply chain management has made a significant contribution to sourcing practices, with the idea that the success of future business will primarily be based on competition between companies and their supply chains is somewhat over blown. Carr and Smeltzer (1998) recognized the integration of strategic purchasing by developing an empirical definition, which emphasizes integration. Some researchers’definitions of the consistent sourcing processes tends to define strategic purchasing as an integrated process (see Anderson and Katz, 1998; Stimpson 1998).It highlights that the supply chain is a mixture of processes, which integrates the raw materials manufactured into the final products, before they are delivered to their customers (Rafele, 2004). As Walters and Rainbird (2004) suggested, it is based on a basic statement originating from the managing of organizational operations, which in turn can be traced back to channels and systems integration research during the 1960s and more recently work on information management and inventory control. The chain usually implies a line, where relationships connect from one link to the next. However, there are two more problems. Firstly, not all goods run along the direct line’s chain. For example, Dell’s monitors are shipped with its computers. Secondly, the information flow is managed to gain a competitive advantage in the supply chain but it does not always flow sequentially. In fact, information is shared with many nodes at once results in faster and quicker supply chains. The nature and the direction of the linkage are unclear in the definition. Lee and Whang’s (2001) critical integration cannot be completed without a tight linkage of the organizational relationships between companies. Mockler (2001) said that the success of any supply chain integration is on the close cooperation that is motivated by mutual benefit. Strategic alliances have become one of the most important organizational forms in modern society and are well known tools which are available to and used by international business management. Ordinary definitions suggest that strategic alliances share compatible goals, strive for mutual benefits, and accept a high level of common dependence (Kale et al., 2000). According to Tyler and Steensma (1998), alliances are not only limited to one-way transfers of know-how, such as licensing and marketing agreements but also are arrangements where partners share their expertise and output. Clarke-Hill et al. (1998) recognized that a strategic alliance is a partnership of two or more organizations that achieve strategically significant goals and objectives, which are mutually beneficial. They
  5. 5. argued that a strategic alliance is different from other types of collaborative arrangement because they take place in the context of a company’s long-term plan and seek to improve an organization’s competitive standing in either their domestic or international markets. Success factors for alliance’s advantages Several studies (McCutcheon and Stuart, 2000; Whipple and Frankel, 2000) have examined the drivers of successful alliances and the implications of their arrangements. Successful alliances are in terms of improving product availability, customer satisfaction, responsiveness to customer needs, delivery performance, and lower costs (Stank et al., 2001; Scannell et al., 2000). "The advantage of strategic alliances over single-firm strategies is the ability to draw upon the strengths of more than one firm and therefore to ensure that the alliances have better odds for success″ (Das and Teng, 2000). Townsend (2003) said there are three critical success factors for alliances: partner selection, relational capital, and management. Choosing a partner is a critical factor for success in international strategic alliances, although the criteria for partner selection may vary between developed and transitional markets (Hitt et al., 2000). Whipple and Frankel (2000) stated that it is important for firms to share their managerial and relationship insights. Although the literature has basically focused on analyzing successful strategic alliances, there is no doubt that the supplier obtains important benefits as well. Mandal et al. (2003) outlined that the main success factor for adopting such a strategy is that an organization can easily use its competencies and strategic material goods to generate a strategic competitive advantage (Markides and Williamson, 1997)/ In addition, Segil (1998) suggested a checklist of factors for successful alliances: including having a compatible culture, monitoring customer responses, implementing processes to build strong relationships, open communication, the collaborative and competitive predicament, linking rewards to success, flexibility, managing personality, and the need to measure, monitor and review. Some scholars highlighted that the benefits of alliances should be quantifiable (Cao,2002; Anderson, 2002; Rich, 2003). According to Rich (2003), it showed that companies with successful alliances can get more than 20% of their revenues from alliance relationships. Harbison and Pekar (1998) indicated that some companies expect their alliances to contribute up to 35% of their overall revenues, up to 21% in 1998 and 15% in 1995. Parise and Sasson (2002) said that the ″make versus buy" decision has expanded and is now a more comprehensive "make versus buy versus partner″ decision. Those companies have learnt from their alliance experience, and then shared and augmented the knowledge throughout their organization for greater success (Kale and Singh, 1999). Supplier alliances are wide and one aspect of alliances that has not been examined is whether firms following alliances are somehow different from those are not. Investigative differences between adopters and non-adopters of supplier alliances are important, since it provides additional insight into how supply management can fix their performance.
  6. 6. The Ineffective Alliance The alliances are difficult (Anand and Khanna, 2000) and often lead to a poor performance (Killing, 1983). The Economist in 1999 showed a 60% However, most researches indicated the failure rates between 50% and 80% (Dyer et al., 2001; Mol, 2000). One research (CMA Management, 2000) found that only 39% of alliances met or went alliance opportunity. A better known reason for failure is the observation gap between expectations and results. It is important that firms engaging in a new alliance to avoid ″Love at first sight" (Ring, 2000) and to focus on their objectives. Elmuti and Kathawala (2001) identified the following problems facing alliances: Fight of culture and 〝 incompatible personal chemistry〞 Lack of harmonization between management teams. Differences in operating , events and the attitudes among partners. Strategic alliances might create a future local or global competitor. Lack of clear goals and objectives, the lack of trust, and opportunistic behavior. Performance risks as a result of external, market and internal factors based on another study, Zineldin (2000) offered the following dark sides of alliances: Strategic alliance relationships can be resource- demanding. They require experience in working with new partners, which will probably put considerable demands on the managerial time, efforts, and energy, which may lead to neglect in running the organizational core activities. Sharing activities with others means giving up control over one’s own resources, which seems to be more or less an automatic effect of close relationships. Power and dependence can also be viewed as conflict sources. There are many functioning problems. Zineldin and Bredenlow (2003) said that strategic alliances often fail and referred dissatisfaction with the alliance relationship. The failure rate of strategic alliances is about 70% (Kalmbach and Roussel, 1999) and the failure rate is beginning to be discussed in business periodicals. Finally, a strategic alliance is attractive but it is not simple or easy to create, develop, or support. Conclusion With increased levels of global competition, marketing should benefit from alliances, with the alliance partners being able to provide greater knowledge that will place the alliance in a stronger competitive position when compared to the situation of the individual company in its targeted market. Rich (2003) suggested that evaluating an alliance for a comprehensive business permitting a company to evaluate current resource allocations with a focus on identifying alliance concentrations, duplications and gaps. However, businesses are complex entities that requiring significant resources and time to develop effectively. Companies are challenged to enter new markets, fill strategic gaps, and increase technological
  7. 7. capabilities. Almedia et al. (2002) criticized that the process of developing alliances should require fewer resources, although the level of commitment required appears to be related and just as critical.
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