Chapter 6 Supply network design Digital Stock

Supply network design Operations strategy Process design Design Improvement Process design Supply Network Design Layout and flow Process technology People, jobs and organization Product/service design Supply network design Planning and control

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?

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).

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

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

Benefits of looking at the whole supply chain include: 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.

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 Direction – Downstream vertical integration

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

Supply-side and demand-side factors in location decisions Supply-side factors which vary to influence costs as location varies. For example: labour costs land costs energy costs transportation costs community factors Demand-side factors which vary to influence customer service/revenue as location varies. For example: labour skills suitability of site Image convenience for customers The operation

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

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 service centres of varying capacities 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 Real cost per customer served Economies of scale Diseconomies of scale 5 10 15 Average number of bays in use

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

Smoothing with inventory Volume Time Demand Capacity

Disney Resort Paris What were the main ‘network design’ decisions taken by Disney Resort Paris?