Supply Chain Management: Contracts & Strategic Alliances

Posted on Sep 7, 2024 in Economy

Chapter 4: Supply Contracts

Question 1: Buy-Back, Pay-Back, and Option Contracts

These contracts aim to increase retailer purchases from suppliers, ultimately boosting customer sales. Without a contract, retailers face high risks if items remain unsold. Contracts share this risk with suppliers, increasing the probability of higher sales despite uncertain demand.

Question 5: Make-to-Order and Make-to-Stock

Factors influencing supply contract type include:

  1. Business Convention: Companies often choose contracts common in their industry.
  2. Information Availability: Contract implementation depends on accessible information. Different contract types require varying information access, which may be easier for one party (supplier or retailer) to obtain.
  3. Decision Making and Incentives: Collaborative decision-making is crucial for optimal system profit and allocation. Parties must accept shared control, and contract type depends on the level of control they’re willing to share.

Buy-Back Contracts

Advantages:
  • Commonly used.
  • Coordinating prices are less sensitive to demand fluctuations.
Disadvantages:
  • Suppliers may buy back large quantities during low demand.
  • Increased transportation and restocking costs for returns.

Revenue-Sharing Contracts

Advantages:
  • Easy to understand.
  • Optimal decision variables are less sensitive to demand fluctuations.
Disadvantages:
  • Requires monitoring total revenue.

Quantity-Flexible Contracts

Advantages:
  • Commonly used.
Disadvantages:
  • Optimal decision variables are sensitive to demand fluctuations.
  • Increased transportation and restocking costs for returns.

Sale-Rebate Contracts

Advantages:
  • Directly incentivizes retailers to increase sales.
Disadvantages:
  • Difficult to track and implement.

Chapter 8: Strategic Alliances and 3PL Growth

Question 2: The Rise of 3PLs

Logistics is complex, demanding resources, expertise, software, and IT investment. Unless logistics is a core competency with dedicated resources, it’s challenging to design and implement effectively. Consequently, companies increasingly outsource to third-party logistics providers (3PLs) with expertise, software, and resources for up-to-date information systems. 3PLs leverage economies of scale from multiple customers to make necessary capital investments for advanced logistics systems.

Question 3: Quick Response, Continuous Replenishment, and Vendor Management

  1. Quick Response: Retailers determine order quantities and replenishment times, while suppliers analyze point-of-sale (POS) data to improve forecasting and production. Preferred for new retailer-supplier relationships with limited trust. Retailers control inventory but aid suppliers by sharing POS data. Suitable when resources for integrated relationships are limited.
  2. Continuous Replenishment: Vendors receive POS data and ship at agreed-upon intervals to maintain inventory levels. A middle ground between quick response and vendor-managed inventory (VMI). Suppliers and buyers agree on inventory and service levels. Less risky for retailers than VMI and fosters more stable, long-term relationships than quick response.
  3. Vendor-Managed Inventory (VMI): Suppliers determine inventory levels and policies for each product. Retailers grant full inventory management authority to vendors. More integrated than other partnerships, requiring high trust. VMI can yield significant system savings but demands commitment and initial investment in information infrastructure, time, and personnel.