24594050 chapter 6 supply network design

7/29/2019 24594050 Chapter 6 Supply Network Design

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Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Chapter 6

Supplynetwork design

Source: Getty Images


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Supply network design

Process design

Supply network design

Layoutand flow

Process

technologyJob

design

Product/service

design

Operations

strategy

Design Improvement

Planning and

control

Operationsmanagement


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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 Dells success but most of them come

from the way Dell configures its supply networks

Source: Corbis/ Gianni Giansanti/ Sygma


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Plastichomeware

manufacturer

Operations network for a plastic homeware company

First-tier

suppliers

Packaging

supplier

Plastic

stockist

First-tier

customers

Wholesaler

Second-tier

suppliers

Ink

supplier

Cardboardcompany

Chemical

company

Second-tier

customers

Retailer

Retailer

Direct supplyInformation


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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

Cleaningmaterials

supplier

Equipment

supplier


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Operations performance should be seen

as 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


7/22Slack, 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

DirectionDownstream vertical

integration

Wholesaler

Raw

material

suppliers

Component

maker

Assembly

operation

Retailer

Balance Should excess capacity

be used to supply other companies?



The decision logic of outsourcing

Is activity of

strategic

importance?

Explore keeping this activity in-house

Yes Yes

Does

company have

specialized

knowledge?

NoIs companys

operations

performance

superior?

Yes

No

Is significant

operations

performance

improvementlikely?

Yes

No Explore

outsourcing

this activity

No



Supply-side and demand-side factors

in location decisions

The

operation

Examples ofsupply-sidefactors that vary with

location, influencing costs

labour costsland costs

energy costs

transportation costs

community factors

Examples ofdemand-sidefactors that vary with

location, influencing

customer service/revenue

labour skills

suitability of site

image

convenience for customers



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 countries

and sold in France



Location Where is the market?

Population

density

Low High



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



Unit cost curves for individual service centres of

varying capacities

5 10 15Average number of bays in use

Realcostpercu

stomerserved

Cost curve for 5

bay service centreCost curve for 10

bay service centreCost curve for 15

bay service centre

Economy of scale

curve for hotel

capacityDiseconomies

of scale

Economies

of scale



Capacity lags demand

Volume

Time

Capacity leads demand

Volume

Time

Capacity leading demand and capacity lagging demand

DemandDemand

Capacity

Capacity



Volum

e

Time

Smoothing with inventory

Demand

Capacity



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 nointermediary operations.

Second-tier

The description applied to suppliers and customers who areseparated from the operation only by first-tier suppliers andcustomers.



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.

Downstream

The other operations in a supply chain between theoperation being considered and the end customer.



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 integration

The extent to which an operation chooses to own thenetwork of processes that produce a product or service;often associated with the do or buy decision.



Key Terms Test

LocationThe geographical position of an operation or process.

Long-term capacity management

The set of decisions that determine the level of physical capacityof an operation in whatever the operation considers to belong-term; this varies between industries, but is usually inexcess of one year.

Disintermediation

The emergence of an operation in a supply network thatseparates two operations that were previously in directcontact.



Key Terms Test

Spatially variable costsThe costs that are significant in the location decision that vary with

geographical position.

Weighted-score method

A technique for comparing the attractiveness of alternative locationsthat allocates a score to the factors that are significant in thedecision and weights each score by the significance of the factor.

Centre-of-gravity method

A technique that uses the physical analogy of balance to determinethe geographical location that balances the weighted importanceof the other operations with which the one being located has adirect relationship.


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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 scale

A term used to describe the extra costs that are incurred inrunning an operation as it gets larger.


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Key Terms Test

Capacity leading

The strategy of planning capacity levels such that they arealways greater than or equal to forecast demand.

Capacity lagging

The strategy of planning capacity levels such that they arealways less than or equal to forecast demand.

24594050 chapter 6 supply network design

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