Laura Ashley is a global clothing and furnishings retailer based in the United Kingdom. They have grown at a very fast rate from operating 231 retail stores in 1986 to 481 stores in 1990. Unfortunately, its profits were not increasing as expected due to the inefficiency of its logistics management. There was an over dependence on in-house manufacturing, SBUs operated as stand-alone businesses with independent inventory and systems which means duplicated systems that are not integrated, and dysfunctional distribution operations such as outdated inventory ordering methods and inefficient movement of goods along the supply chain. Based on these problems, Jim Maxmin decided to form an alliance with Federal Express BLS, to let them handle the logistics of LA’s business since that is what BLS does best, while at the same time also benefiting Federal Express.
The contract between LA and BSI for the strategic alliance was not your typical contract with specific rules, price, penalties, etc. The alliance was a “win-win business partnership,” with no defined end point and lasting at least for 10 years. The contract had a very relatively loose structure, and it was based on trust and focuses on areas of mutual interest. There were no specifics on defining issues since it may conflict with the mutual interest that this alliance is based on. Both sides have agreed to be transparent and share information with each other, and have mechanisms built in to deal with matters that could not be agreed upon.
When it comes to forming a strategic alliance, this kind of contract is good because it is based on a high level of trust and the focus of mutual interests, to help each other gain competitive advantage in the market. Trust is very important in every relationship, even in business. Also, having a loose structure makes more sense in a fast changing environment because specifics changes over time. In other words, the contract was very simple. And by having it to be open-ended, meaning there is no defined end to this partnership. Therefore, if this partnership is successful, they will be able to continue being an alliance and benefit from it. The only problem with this type of contract is that it will be more difficult to assess any conflicts that may arise between the two companies in the future.
From LA’s point of view, I believe this alliance will be very beneficial to them. Currently they are very inefficient with the distribution area of the business, which is costing them a lot more money. It will be difficult and will take a long time for LA to try and reengineer its processes and form a distribution system that will work. So instead of trying to invest all that time and money into reorganizing and developing a working system, forming an alliance with FedEx and having them take over that function will be better since FedEx is known for its logistics expertise. Also, they have one of the best tracking systems in place, and that can definitely benefit LA. By integrating LA’s current systems to FedEx’s systems, it will allow LA to access FedEx’s efficient tracking system, and eliminate the duplicate and independent systems that LA currently have with the SBUs, all in a much shorter time. With the new infrastructure, information is transparent and flows throughout the supply chain, and everyone will be able to see it.
Also, FedEx’s dependable delivery services will get goods to destinations quickly and efficiently, reducing lead time (products shipped anywhere in 24hrs-48hrs), transportation costs, and inventory costs. All this will improve LA’s customer service, better informed front-line employees due to the transparency, reduce costs, improve efficiency in its operations, rebuild its reputation and relationships with its customers, and be more competitive globally. The only downside of this for LA is that they will lose complete control of the distribution part of the business, but at the rate LA is growing with the increasing inefficiency that it’s facing, that is a small price to pay because LA’s current distribution operations needs help.
As for FedEx BLS, I believe this alliance is beneficial overall, but it is much more risky for them than it is for LA. For FedEx, it allows them to expand and utilize its capabilities on a global basis. This type of alliance was one of the first, and if successful, FedEx BLS can set a new trend and have a tremendous future. It will improve its current performance in Europe and gain market share due to the increased reputation that this will bring. Also, this could mean alliances with other companies and industries in the future.
FedEx will be able to use the success with LA to form alliances with other companies, which will allow them to gain competitiveness and business. Even if other carriers try to do this in the future, it will be more difficult for those other carriers because businesses will know FedEx BLS are experienced and dependable, and will more likely go to them. But on the other hand, if this alliance was to fail, it would ruin FedEx’s reputation for reliability, which is the most important factor for FedEx in its industry. Also, it would cause FedEx to rethink the strategic-alliances idea, possibly damaging BLS’s potential future.