A Supplier Alliance at Quaker Oats
A Supplier Alliance at Quaker Oats
Summary
Quaker Oats Company of Chicago, IL formed an alliance with Graham Packaging of York, PA. Graham is a leading global manufacturer of custom blow molded plastic containers. Plastic bottles are the largest single quantity and cost item purchased by Quaker Oats. Gatorade had captured over 82% of the global market share in the sports beverage industry. The purchasing department established a goal of lowering the bottling cost $10 million to $15 million per year in order to bring a lower priced product to market.
To achieve this goal, Quaker Oats developed a strategy of seeking supplier relationships that would help it do that. In 1997 the company was single sourced; dual sourcing became the strategy it pursued. Quaker wanted to create a competitive environment in which it would reap the benefits of the competitive bottling market. Not only could competition improve service, quality and cost, it would drive continuous improvement in those areas.
The original supplier was resistant to Quaker’s attempts to improve its position with the supplier. Because the initial emphasis had been on bottle supply and performance, the supplier had negotiated a price based on new investment and defined quantities. Over the 12-year period new negotiations had taken place, but the supplier had managed to increase/retain its high start-up margins. The incumbent supplier did offered various means of cost reduction which were not sufficient. Although the existing contract contained clauses that created difficulties, Quaker Oats learned from its mistakes. The trust building process Quaker Oats had employed in searching for a second source resulted in an alliance between Quaker Oats Company and Graham Packaging. This resulted in an in-plant bottling facility at the Gatorade plant in Atlanta. Quaker supplied the capital for the plant expansion and Graham covered the cost of equipment in the facility. Graham also agreed to operate the plant and
Summary
Quaker Oats Company of Chicago, IL formed an alliance with Graham Packaging of York, PA. Graham is a leading global manufacturer of custom blow molded plastic containers. Plastic bottles are the largest single quantity and cost item purchased by Quaker Oats. Gatorade had captured over 82% of the global market share in the sports beverage industry. The purchasing department established a goal of lowering the bottling cost $10 million to $15 million per year in order to bring a lower priced product to market.
To achieve this goal, Quaker Oats developed a strategy of seeking supplier relationships that would help it do that. In 1997 the company was single sourced; dual sourcing became the strategy it pursued. Quaker wanted to create a competitive environment in which it would reap the benefits of the competitive bottling market. Not only could competition improve service, quality and cost, it would drive continuous improvement in those areas.
The original supplier was resistant to Quaker’s attempts to improve its position with the supplier. Because the initial emphasis had been on bottle supply and performance, the supplier had negotiated a price based on new investment and defined quantities. Over the 12-year period new negotiations had taken place, but the supplier had managed to increase/retain its high start-up margins. The incumbent supplier did offered various means of cost reduction which were not sufficient. Although the existing contract contained clauses that created difficulties, Quaker Oats learned from its mistakes. The trust building process Quaker Oats had employed in searching for a second source resulted in an alliance between Quaker Oats Company and Graham Packaging. This resulted in an in-plant bottling facility at the Gatorade plant in Atlanta. Quaker supplied the capital for the plant expansion and Graham covered the cost of equipment in the facility. Graham also agreed to operate the plant and
References: Burt, D. N., Petcavage, S. D., & Pinkerton, R. L. (2010). Supply management (8th ed.). New York, NY: McGraw-Hill/Irwin. http://www.ism.ws/pubs/proceedings/confproceedingsdetail.cfm?ItemNumber=11549