C hapter 6

1. Chapter 6 Supplynetwork design Source: Getty Images

2. Operations strategy Operations management Improvement Design Planning and control Supply network design Process design Supply network design Layout and flow Process technology Job design Product/service design

3. 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 Operations in practice Source: Corbis/ Gianni Giansanti/ Sygma

4. Second-tier suppliers First-tier customers First-tier suppliers Second-tier customers Chemical company Wholesaler Retailer Plastic stockist Cardboard company Retailer Packaging supplier Ink supplier Direct supply Information Operations network for a plastic homeware company Plastic homeware manufacturer

5. Second-tier customers Second-tier suppliers First-tier customers First-tier suppliers Recruitment agency Security services Cleaning materials supplier Cleaning services Retail customers Retailers Equipment supplier Maintenance services Direct supply Information Operations network for a shopping mall Shopping mall

6. It helps an understanding of competitiveness It helps to identify the significant links in the network It helps focus on long-term issues Operations performance should be seenas a whole supply chain issue Benefits of looking at the whole supply chain include

7. Balance – Should excess capacity be used to supply other companies? Extent – Narrow process span Extent – Wide process span Direction – Downstream vertical integration Direction – Upstream vertical integration Direction, extent and balance of vertical integration Raw material suppliers Assembly operation Component maker Wholesaler Retailer

8. Does company have specialized knowledge? Is significant operations performance improvement likely? Is company’s operations performance superior? Explore outsourcing this activity Is activity of strategic importance? No No No No Yes Yes Yes Yes Explore keeping this activity in-house The decision logic of outsourcing

9. Examples of demand-sidefactors that vary withlocation, influencingcustomer service/revenue labour skills suitability of site image convenience for customers Examples of supply-side factors that vary with location, influencing costs labour costs land costs energy costs transportation costs community factors Supply-side and demand-side factorsin location decisions The operation

10. €15.55 France €14.33 Portugal €11.43 Turkey €11.43 Thailand €11.13 Morocco €10.82 Romania China €10.37 €9.60 Myanmar Cost breakdown of a shirt made in various countriesand sold in France Labour Transport Fabric Supplies Customs duties 4 8 12 16 2 0 6 10 14 Cost in euros

11. Location – Where is the market? Population density Low High

12. 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 The balance of capacity

13. 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 capacity Economies of scale Diseconomies of scale Unit cost curves for individual service centres of varying capacities Real cost per customer served 5 10 15 Average number of bays in use

14. Capacity leads demand Capacity lags demand Capacity Demand Demand Volume Volume Capacity Time Time Capacity leading demand and capacity lagging demand

15. Capacity Volume Demand Time Smoothing with inventory

16. Demand side The chains of customers, customers’ customers, etc., that receive the products and services produced by an operation. First-tier The description applied to suppliers and customers who are in immediate relationships with an operation with no intermediary operations. Second-tier The description applied to suppliers and customers who are separated from the operation only by first-tier suppliers and customers. Key Terms Test

17. Immediate supply network The suppliers and customers who have direct contact with an operation. Total supply network All the suppliers and customers who are involved in supply chains that ‘pass through’ an operation. Downstream The other operations in a supply chain between the operation being considered and the end customer. Key Terms Test

18. Upstream The other operations in a supply chain that are towards the supply side of the operation. Outsourcing The practice of contracting out to a supplier work previously done within the operation. Vertical integration The 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. Key Terms Test

19. Location The geographical position of an operation or process. Long-term capacity management The 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. Disintermediation The emergence of an operation in a supply network that separates two operations that were previously in direct contact. Key Terms Test

20. Spatially variable costs The costs that are significant in the location decision that vary with geographical position. Weighted-score method A 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 method A 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. Key Terms Test

21. Fixed-cost breaks The volumes of output at which it is necessary to invest in operations facilities that bear a fixed cost. Economies of scale The 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 in running an operation as it gets larger. Key Terms Test

22. Capacity leading The strategy of planning capacity levels such that they are always greater than or equal to forecast demand. Capacity lagging The strategy of planning capacity levels such that they are always less than or equal to forecast demand. Key Terms Test