Chapter 6 Supply Network Design
Transcript of Chapter 6 Supply Network Design
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Chapter 6
Supply network design
Source: Getty Images
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply network design
Process design
Supply network design
Layout and flow
Process technology
Job design
Product/service design
Operations strategy
Design Improvement
Planning and control
Operations management
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations in practice
Michael Dell started in 1984 by cutting out the ‘middle man’ and delivering computers direct to the customer
Using its direct selling methods, Dell went on to become the number one computer maker
There are many reasons for Dell’s success but most of them comefrom the way Dell configures its supply networks
Source: Corbis/ Gianni Giansanti/ Sygma
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Plastic homeware
manufacturer
Operations network for a plastic homeware company
First-tier suppliers
Packaging supplier
Plastic stockist
First-tier customers
Wholesaler
Second-tier suppliers
Ink supplier
Cardboard company
Chemical company
Second-tier customers
Retailer
Retailer
Direct supplyInformation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations network for a shopping mall
First-tier suppliers
Cleaning services
Security services
Maintenance services
Shopping mall
First-tier customers
Retailers
Second-tier customers
Retail customers
Direct supplyInformation
Second-tier suppliers
Recruitment agency
Cleaning materials supplier
Equipment supplier
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations performance should be seenas a whole supply chain issue
Benefits of looking at the whole supply chain include
It helps an understanding of competitiveness
It helps to identify the significant links in the network
It helps focus on long-term issues
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Direction, extent and balance of vertical integration
Extent – Narrow process span
Extent – Wide process span
Direction – Upstream vertical integration
Direction – Downstream vertical
integration
WholesalerRaw
material suppliers
Component maker
Assembly operation
Retailer
Balance – Should excess capacity be used to supply other companies?
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The decision logic of outsourcing
Is activity of strategic
importance?
Explore keeping this activity in-house
Yes Yes
Does company have
specialized knowledge?
NoIs company’s
operations performance
superior?
Yes
NoIs significant operations
performance improvement
likely?
Yes
No Explore outsourcing this activity
No
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply-side and demand-side factorsin location decisions
Theoperation
Examples of supply-side factors that vary with location, influencing costs
labour costsland costsenergy coststransportation costscommunity factors
Examples of demand-sidefactors that vary withlocation, influencingcustomer service/revenue
labour skillssuitability of siteimageconvenience for customers
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Labour
Transport
Fabric
Supplies
Customs duties
€15.55France
€14.33Portugal
€11.43Turkey
€11.43Thailand
€11.13Morocco
€10.82Romania
€10.37China
€9.60Myanmar
Cost in euros2 4 6 8 10 12 14 160
Cost breakdown of a shirt made in various countriesand sold in France
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Location – Where is the market?
Population density
Low High
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The balance of capacity
Capacity can either lead or lag demand
Inventory can be used to smooth out the peaks
Spare capacity can be used to supply other operations
The danger of this is that the original operation may receive a lower level of service
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Unit cost curves for individual service centres of varying capacities
5 10 15Average number of bays in use
Re
al c
ost p
er
cust
om
er
serv
ed
Cost curve for 5 bay service centre
Cost curve for 10 bay service centre
Cost curve for 15 bay service centre
‘Economy of scale’ curve for hotel
capacityDiseconomies
of scaleEconomies
of scale
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Capacity lags demand
Vo
lum
eTime
Capacity leads demand
Vo
lum
e
Time
Capacity leading demand and capacity lagging demand
DemandDemand
Capacity
Capacity
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Vo
lum
e
Time
Smoothing with inventory
Demand
Capacity
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Demand sideThe chains of customers, customers’ customers, etc., that
receive the products and services produced by an operation.
First-tierThe description applied to suppliers and customers who are in
immediate relationships with an operation with no intermediary operations.
Second-tierThe description applied to suppliers and customers who are
separated from the operation only by first-tier suppliers and customers.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Immediate supply networkThe suppliers and customers who have direct contact with
an operation.
Total supply networkAll the suppliers and customers who are involved in supply
chains that ‘pass through’ an operation.
DownstreamThe other operations in a supply chain between the
operation being considered and the end customer.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
UpstreamThe other operations in a supply chain that are towards the
supply side of the operation.
OutsourcingThe practice of contracting out to a supplier work previously
done within the operation.
Vertical integrationThe extent to which an operation chooses to ‘own’ the
network of processes that produce a product or service; often associated with the ‘do or buy’ decision.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
LocationThe geographical position of an operation or process.
Long-term capacity managementThe set of decisions that determine the level of physical capacity
of an operation in whatever the operation considers to be ‘long-term’; this varies between industries, but is usually in excess of one year.
DisintermediationThe emergence of an operation in a supply network that
separates two operations that were previously in direct contact.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Spatially variable costsThe costs that are significant in the location decision that vary with
geographical position.
Weighted-score methodA technique for comparing the attractiveness of alternative locations
that allocates a score to the factors that are significant in the decision and weights each score by the significance of the factor.
Centre-of-gravity methodA technique that uses the physical analogy of balance to determine
the geographical location that balances the weighted importance of the other operations with which the one being located has a direct relationship.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Fixed-cost breaksThe volumes of output at which it is necessary to invest in
operations facilities that bear a fixed cost.
Economies of scaleThe manner in which the costs of running an operation
decrease as it gets larger.
Diseconomies of scaleA term used to describe the extra costs that are incurred in
running an operation as it gets larger.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Capacity leadingThe strategy of planning capacity levels such that they are
always greater than or equal to forecast demand.
Capacity laggingThe strategy of planning capacity levels such that they are
always less than or equal to forecast demand.