A Supply Alliance is a business relationship between a buyer and a supplier. They both focus on achieving continuous improvements while squeezing costs out. These alliances emphasize the inflow of innovation from the supplier partner and foster a relationship based upon mutual trust and the pursuit of common goals. The alliance members may share information, resources, and best practices to achieve mutual benefits and competitive advantages.
Definition: A Supply Alliance is collaborative relationship formed between two or more entities, typically organizations or companies, to enhance their supply chain efficiencies and overall business performance.
Primary Benefits of a Supply Alliance include: [1]
- Lower Total Costs: Synergies can be created in alliances that cannot happen in transactional or collaborative relationships. The synergies reduce direct and indirect labor, machinery, materials, and overhead costs.
- Reduced Time to Market: Reducing the time to design, develop, and distribute 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 are 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 alliance partners, leading to many successful new products.
- Improved Continuity of Supply: Alliances customers are the group least likely to experience supply disruption.
Supply Alliance Key Attributes
Key traits of a supply alliance could consist of the following:
- Mutual Goals: The participating organizations align their strategic goals and objectives to establish a shared vision and purpose for the alliance.
- Collective decision-making: The alliance’s members decide on supply chain operations, including sourcing, distribution, and logistics together.
- Sharing of Information: The readiness of the parties to exchange important data and information about supply chain activities promotes openness and confidence.
- Sharing of Risks and Rewards: The alliance members may split the risks and rewards related to the effectiveness and results of the supply chain.
- Long-Term Commitment: Supplier alliances frequently involve long-term collaborations to promote supply chain stability and continual improvement.
- Operational Integration: To streamline procedures and reduce inefficiencies, the organizations may integrate some operational elements, such as cooperative inventory management.
- Efficiency and Cost-Reduction: By cooperating, the alliance hopes to realize cost savings, economies of scale, and increased operational efficiency.
Downside of Supply Alliance
Alliances also have a downside. Alliances are a resource-intense supply management approach and tend to be reserved for the most critical relationship.
AcqLinks and References:
- [1] Burt, Petcavage, and Pinkerton, (2010) “Supply Management” McGraw-Hill
Updated: 7/16/2023
Rank: G1
