1. © Nigel Slack and Michael Lewis 2003 Quality Performance objectives Dependability Process Technology Development and Organization Speed Flexibility Cost Resource Usage Market Competitiveness Decision areas Capacity Supply Network Relationships Issues include: What should we do ourselves and what to subcontract When to use ‘market-based’ purchasing How to develop ‘partnership’ supply Issues covered in this chapter

2. © Nigel Slack and Michael Lewis 2003 Supply network strategy The concept of supply networks Vertical integration Partnerships Market trading Supply network relationships Supply network behavior The network perspective Network management Network dynamics Co-ordination Differentiation Reconfiguration Quantitative Qualitative Supply network issues

3. © Nigel Slack and Michael Lewis 2003 Second-tier Suppliers First-tier Suppliers Company A Company B Company C x Second-tier Customers First-tier Customers x x x x Focal Level Upstream Downstream Supply side of the network Demand side of the network For Company A Internal supply network Immediate supply network Total supply network Flow of Products/Services Flow of Information Supply networks are the interconnections of relationships between operations

4. © Nigel Slack and Michael Lewis 2003 Total and Immediate Supply Networks “Second tier” Suppliers “First tier” Suppliers “Second tier” Customers “First tier” Customers The Operation Supply side of the network Demand side of the network The Immediate Supply Network The Total Supply Network Internal Supply Networks Slide 6.4

5. © Nigel Slack and Michael Lewis 2003 Operations performance should be seen as a whole supply chain issue Benefits of looking at the whole supply chain include Puts the operation into its competitive context Helps to identify the key players Shifts emphasis to the long term Sensitizes the operation to macro changes Changes the nature of the ‘supplier-buyer’ relationship

6. © Nigel Slack and Michael Lewis 2003 Motor Vehicle Parts Distribution Chains Distribution Chain of Parts Manufacturer Distribution Chain of V.M. Manufacturing Chain Dealer network Vehicle manufacturer Installer Local distributor Area distributor Prime distributor Supplier Sub-supplier Stockist Raw materials

7. © Nigel Slack and Michael Lewis 2003 Firms in the same industry may configure their supply networks in different ways Home Office Market Corp. Market Suppliers Retailers COMPAQ Home Office Market Corp. Market Suppliers Retailers DELL

8. © Nigel Slack and Michael Lewis 2003 Supply chain Management The opportunities lie at the boundaries

9. © Nigel Slack and Michael Lewis 2003 Extent of Activity (Quantitative) Nature of Activity (Qualitative) ‘Structure’ Number of relationships ‘Posture’ Closeness of relationships Degree of activity performed ‘in-house’ Importance of activity performed ‘in-house’ Market Relationships Resource Scope The market and resource dimensions of supply networks

10. © Nigel Slack and Michael Lewis 2003 Do Nothing Do Everything The character of internal operations activity Types of supply relationship Virtual Spot Trading Traditional Market Supply Resource Scope Market Relationship Long-term Virtual Operation ‘Partnership’ Supply Relationships Vertical Integration Type of inter-firm contact Transactional – Many suppliers Close – Few suppliers

11. © Nigel Slack and Michael Lewis 2003 Focal operation Extent of integration Backward Integration Forward Integration Non-exclusive balance between stages Exclusive balance between stages Vertical integration decisions

12. © Nigel Slack and Michael Lewis 2003 Low High Cost of changing suppliers When is the use of pure market mechanisms appropriate in buyer-supplier relationships? Market mechanisms inappropriate Resource Dimension Market Dimension Market mechanisms appropriate Leverage needs uncertainty Leverage market uncertainty Number of supply alternatives Few Many

13. © Nigel Slack and Michael Lewis 2003 Supply chain Management Partnership relationships are seen as desirable because they can reduce the transaction costs of doing business

14. © Nigel Slack and Michael Lewis 2003 Joint learning Joint co- ordination of activities Multiple points of contact Trust Sharing success Few relationships Information transparency Dedicated assets Joint problem solving Long-term expectations Attitudes Actions Closeness of relationship Elements of partnership relationships

15. © Nigel Slack and Michael Lewis 2003 Supply chain Management There are strong forces acting against the maintenance of trust

16. © Nigel Slack and Michael Lewis 2003 Mr. White gets 5 yrs Mr. Orange gets 5 yrs Mr. White goes free Mr. Orange gets 10 yrs Mr. White get 10 yrs Mr. Orange goes free Mr. White gets 3 yrs Mr. Orange gets 3 yrs Doesn’t confess Confesses Doesn’t confess The “prisoner’s dilemma” decision Mr. White Mr. Orange

17. © Nigel Slack and Michael Lewis 2003 Mr. White goes free Mr. Orange gets 10 yrs Mr. White gets 3 yrs Mr. Orange gets 3 yrs Doesn’t confess Confesses Doesn’t confess The “prisoner’s dilemma” decision Mr. White gets 5 yrs Mr. Orange gets 5 yrs Mr. White get 10 yrs Mr. Orange goes free Mr. White Mr. Orange Assume Mr. Orange confesses

18. © Nigel Slack and Michael Lewis 2003 Mr. White gets 5 yrs Mr. Orange gets 5 yrs Doesn’t confess Confesses Mr. White Confesses Doesn’t confess Mr. Orange The “prisoner’s dilemma” decision Mr. White get 10 yrs Mr. Orange goes free Mr. White goes free Mr. Orange gets 10 yrs Mr. White gets 3 yrs Mr. Orange gets 3 yrs Assume Mr. Orange doesn’t confess

19. © Nigel Slack and Michael Lewis 2003 …trusting you is likely to give me more benefits than not trusting you... …I believe I can trust you because I think I know you enough to be confident you will behave as I would wish... …I trust you because I know that you know that I wouldn’t let you down and you know that I know that you wouldn’t either...... Calculative trust Cognitive trust Bonding trust Degree of closeness Based on knowledge Based on feelings Time Cumulative positive experiences Degrees of trust

20. © Nigel Slack and Michael Lewis 2003 Market position Market risks Market structure Competitive behavior Economies of scale Transaction costs Learning potential Resource deficiencies Some factors influencing the nature of network relationships OPERATIONS RESOURCES MARKET REQUIREMENTS Nature of network relationship

21. © Nigel Slack and Michael Lewis 2003 Will Desron find someone else to ‘single supply’? Turns down Desron’s offer Accepts Desron’s offer Minimises investment but high vulnerability Increases investment in capacity but retains ‘safety net’ of other customers Dedicate to Desron Retain some other customers Options for Aztec