A Supply Alliance is a business relationship between a buyer and supplier.  They both focus on achieving continuous improvements while squeezing cost out.  These alliances put major emphasis on the inflow of innovation from the supplier partner and fostering a relationship based upon mutual trust and the pursuit of common goals.

The primary benefits of a supply alliance include: [1]

  • Lower Total Costs: Synergies can be created in alliances that cannot happen in transactional or even collaborative relationship.  The synergies results in reduction of direct and indirect cost associated with labor, machinery, materials, and overhead.
  • Reduced Time to Market: Reducing the time to design, develop, and distributed products and services is a key driver that leads to improved market share and better profit margins.
  • Improve Quality: The use of both the design of experiments and supplier certification is the norm with supply alliances.  These two activities design and manufacturing quality in rather than inspecting for errors. The result is improved quality at a lower level of cost.
  • Improve Technology Flow from Suppliers: Openness and institutional trust enhance an inflow of technology from alliances partners that leads to many successful new products.
  • Improved Continuity of Supply: Alliances customers are the group least likely to experiences supply disruption.

Alliances Share Several Attributes:[1]

  • High level of commitment
  • An atmosphere of cooperation
  • There is an openness in all areas of the relationship
  • Ethics are more important than expediency
  • The alliance share a common vision Executive level commitment

Alliances also have a downside.  Alliances are a very resource-intense approach to supply management and tend to be reserved for the most critical relationship.

AcqLinks and References:

  • [1] Burt, Petcavage, and Pinkerton, (2010) “Supply Management” McGraw-Hill

Updated: 7/19/2017

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