The Supplier Alliance at Quaker Oats

Case 1

The Supplier alliance at Quaker Oats

Quaker Oats formed an alliance with Graham Packaging Company to supply the increasing demand on bottles. Quaker had realized they were previously over paying for the bottles and needed a solution to make a better profit. An in-house plant was chosen because it was the best cost (no freight) and best opportunity to institutionalize continuous improvements. Quaker and Graham agreed to be as one company on each other's behalf. Quaker spent $10 million in plant expansion and Graham spent $28 million on equipment and had ownership and operates the plant.

They reached a contract with the following:

1. Evergreen from one fixed period to another.

2. Completely open book- Quaker pays all expenses and a fixed return on invested capital (which was mutually costed).

3. Cancelable for failure to perform.

4. Volume sensitive.

Completing this alliance the bottle production in the in-house plant is the lowest cost bottles in the Quaker system. The alliance now produces much more accurate forecast which helps lower cost. After working out the small kinks the delivery and other service aspects are operating correctly. The alliance is generating impressive results on the Quaker Oats filling lines which has increased productivity, reduced scrap, and most importantly lowered cost. With the "open book" approach Quaker exceeded project goals by over $1 million annually.