6.1
Chapter 6
Supply network design
Digital Stock
6.1
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.2
Supply network design
Operations
strategy
Supply Network
Design
network design
Design
Layout
and flow
Process
technology
Improvement
Planning and
control
People, jobs
and
organization
Product/service
design
6.2
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.3
Key operations questions
In Chapter 6 – Supply network design – Slack et al. identify
the following key questions:
• Why should an organization take a total supply network
perspective?
• What is involved in configuring a supply network?
• Where should an operation be located?
• How much capacity should an operation plan to have?
6.3
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.4
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.
Most of the reasons for Dell’s success come from the way Dell configures
its supply networks.
Dell’s supply network model being adapted to take account of market
changes (products now available in stores).
6.4
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.5
Operations network for a plastic homeware company
Second tier
suppliers
Chemical
company
Second tier
customers
Wholesaler
Plastic
stockist
Cardboard
company
Ink
supplier
First tier
customers
First tier
suppliers
Retailer
Plastic
homeware
manufacturer
Retailer
Packaging
supplier
Direct supply
Information
6.5
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.6
Operations network for a shopping mall
Second tier
suppliers
Recruitment
agency
First tier
suppliers
First tier
customers
Second tier
customers
Retailers
Retail
customers
Security
services
Cleaning
materials
supplier
Cleaning
services
Equipment
supplier
Maintenance
services
Shopping
mall
Direct supply
Information
6.6
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.7
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.
6.7
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.8
Direction, extent and balance of vertical integration
Balance — should excess capacity
be used to supply other companies?
Raw
material
suppliers
Component
maker
Assembly
operation
Wholesaler
Retailer
Extent – Narrow process span
Extent – Wide process span
Direction –
Upstream vertical
integration
6.8
Direction –
Downstream vertical
integration
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.9
The decision logic of outsourcing
Is activity of
strategic
importance
Yes
Does
No company have No
specialized
knowledge
Yes
Is company’s
operations
performance
superior?
No
Yes
Is significant
operations No
performance
improvement
likely?
Explore
outsourcing
this activity
Yes
Explore keeping this activity in-house
6.9
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.10
Supply-side and demand-side factors in location decisions
Demand-side factors
which vary to influence
customer service/revenue
as location varies.
Supply-side factors
which vary to influence
costs as location varies.
For example:
• labour costs
• land costs
• energy costs
• transportation costs
• community factors
6.10
The
operation
For example:
• labour skills
• suitability of site
• Image
• convenience for
customers
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.11
The cost breakdown of shirt made in various countries and
sold in France
15.55€
France
14.33€
Portugal
Turkey
11.43€
Thailand
11.43€
Labour
11.13€
Morocco
Transport
10.82€
Romania
China
10.37€
Supplies
Customs duties
9.60€
Myanmar
0
6.11
Fabric
2
4
8
6
Cost in euros
10
12
14
16
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.12
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.
6.12
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
Unit cost curves for service centres of varying capacities
Real cost per customer served
6.13
Cost curve for 5
bay service centre
Cost curve for 10
bay service centre
‘Economy of scale’
curve for hotel
capacity
Economies
of scale
Cost curve for 15
bay service centre
Diseconomies
of scale
5
10
Average number of bays in use
6.13
15
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.14
Capacity leading demand and capacity lagging demand
Capacity leads demand
Capacity lags demand
Demand
Time
6.14
Volume
Volume
Capacity
Demand
Capacity
Time
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.15
Smoothing with inventory
Smoothing with inventory
Volume
Capacity
Demand
Time
6.15
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.16
Disney Resort Paris
What were the main ‘network design’ decisions
taken by Disney Resort Paris?
6.16
Slack, Chambers and Johnston, Operations Management, 6th Edition,
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010