1. Chapter 6
Supply network design
Digital Stock

2. 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

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?

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).

5. 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

6. 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

7. 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.

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
Direction – Downstream vertical integration

9. 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

10. 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

11. 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

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.

13. 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

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

15. Smoothing with inventory
Volume
Time
Demand
Capacity

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