Supplier Coalition

The motivation for suppliers to form coalitions in supply chains can be strategic or operational. IBM teamed up with Siebel to provide hosted CRM software service that customers can deploy at the click of a button (Qiakravarty and Zhang 2007). Boulton (2003) describes this collaboration arrangement as the latest fruit of a partnership in which a leading applications provider and leading infrastructure provider teamed up to reach more customers, as neither makes what the other specializes in . 

In general, if a customer order contains a set of different products, the supplier must be able to produce all elements of the package, or else form a coalition with suppliers (Oshkai and Wu 2010). For example, consider General Motors car seats. The seat itself may contain many different parts, which could be produced by different suppliers and later assembled either by the one of the suppliers or by a separate assembler. 

The larger the package, the easier it becomes to involve multiple suppliers into production of parts for the package with subsequent assembly. Therefore, by forming a coalition, suppliers hope to increase their bargaining power and market share, and as a result, increase their profits. Coordinated supply is a major incentive for buyers to encourage formation of supplier coalitions. 

Operational goals of forming coalition include cost savings through shared resources and economies of scale, risk pooling, and improved capacity utilization. Granot and Sosic (2005) study the benefits of coalitions and explore conditions under which the formation of alliances is optimal. They also provide insights on the stability of these coahtions. However, the dynamics of such coalitions are not very well understood (Cattani et al. 2004) in terms of their stability. 

(2001). The effect of coUabOTative forecasting on supply chain performance. Management Science, 47 10), 1326-1343. 

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Jin and Wu (2001b) study the formation of supplier coalitions in the context of a buyer-centric procurement market. The buyer completely specifies an order (through quantity Q and reservation price R Q)) before the auction starts. Let Ci Q) denote the cost function of supplier i G S, where S is the set of all suppliers in the market. Each supplier computes pricing based on his own cost structure relative to the announced specifications and in a second-price seal-bid simultaneous descending auction, the buyer can reject any offer exceeding the reservation price. This auction scheme is incen-... 

Jin, M. and S. D. Wu. 2001b. Procurement auction with supplier coalitions Validity requirements and mechanism design. Working Paper. Lehigh University, Bethlehem, PA. 

It is possible that a company may not possess capabilities to satisfy the set of aU needs of its customers. If so, it can form alliances with other companies with complementary skills, and capture customer s order. Nagarajan and Sosic (2009) provide multiple examples of supplier coalitions from different industries. They cite Stallkamp (2001) who discusses consortium formation between Delphi (auto part manufacturer), Lear (interior trim manufacturer), and the suppliers of wiring, carpets, and molded plastic, to satisfy the total cockpit needs of one of the Big Three auto manufacturers. Similarly, the alliance between Symbol Technologies (scanner manufacturer) and Paxar/Monarch, a leader in bar code labeling enabled them to supply a bundle that included a bar code labeler and scanner and thus win valuable customer orders. 

Oshkai, S., Wu, D. (2010). Supplier coalition formation in buyer-oriented markets. Lehigh University. http //www.lehigh.edu/ sdwl/Oshkail.pdf... 

The CleanGredients development model engages a multi-stakeholder coalition of participants from government entities, environmental organizations, industry associations, cleaning product formulators and distributors, and chemical manufacturers and suppliers, working to shift the direction of industrial and institutional (I I) cleaning product... 

Association is a preeminent trade organization that caters to industrial scale manufacturers. SOCMA has nearly 275 members across several industries that include small specialty suppliers to large multinational corporations. The organization serves to promote innovative, yet safe and environmentally responsible chemical production methodologies. Recently, SOCMA formed a new coalition for start-ups and small businesses developing and manufacturing nanoscale materials. 

In early 2012, the Sustainable Apparel Coalition, an association of over 60 apparel and footwear brands, retailers and suppliers, and non-profit organizations, released the Higg Index 1.0 for Sustainable Apparel. 

The Sustainable Apparel Coalition is an industry wide group of over 80 leading apparel and footwear brands, retailers, suppliers, nonprofits, and NGOs working to reduce the envirorunental and social impacts of apparel and footwear products around the world. 

The automotive industry uses significant volumes of recycled plastics in the manufacture of automotive parts. The Vehicle Recycling Partnership (VRP), part of United States Center for Automotive Research (USCAR) [113], is a precompetitive coalition of US automakers and was established to conduct collaborative research to develop the technical and economic feasibility of vehicle recycling in North America. The Automotive Recyclers Association (ARA) represents the recyclers that serve the automotive industry [114]. The automotive industry has, in the past, specified minimum recycle content requirements to their suppliers. Although biobased plastics appear to be the current media focus, recycled plastics are used to help control costs and maximize profits. 

In summary, a supply base with a small number of suppliers decreases buyer s transaction cost. It also makes it harder for the suppliers to form coalitions for contractual decisions, and decreases the occurrence of opportunistic behavior by suppliers. Thus, it helps increase buyer-seller collaboration. With a small supply base, the probability of a supplier being chosen a preferred supplier increases. However, to remain a preferred supplier, suppliers must improve performance such as responsiveness. A small supply base increases the frequency of repeated transactions, reducing the supplier s risk. However, it may increase the supply risk due to over dependence on a small group of suppliers who may exploit the situation. 

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