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T2: Supply Network Design (Ch3) (Characteristics of Supply network design,…
T2: Supply Network Design (Ch3)
Questions in supply network design
Where operations should be located?
How big each part of the network should be?
How to configure the supply network?
Characteristics of Supply network design
Components
Upstream 'supply side'; both first- and second-tier suppliers
Downstream 'demand side'; both first- and second-tier customers
'Immediate supply network' refers to the first-tier on each side
Competitors / Collaborators who sit in the middle with the 'focal' organisation
Flow
Downstream - goods and services
Upstream - information (i.e. orders / feedback / expertise)
Most complex and strategically relevant part of ops
'Design' is more a case of influencing and negotiating as most parts of the supply network are out of the designers control
Why consider the whole network?
It identifies which parties in the supply network have the most influence over the end-user experience.
Helps focus on long-term issues
It takes responsibility and gains understand of the orgs competitiveness, ensuring they are not 'at the whim' of more distant players
Configuration (p.80)
Current trends
Reducing number of organisations in the network
Disintermediation - cutting out the middle man (the travel industry is a good example of this)
Coopetition - Strategic alliances and competitor co-operation (pharmacies in the Aussie town / restaurants clustering together to increase the potential market)
Outsourcing v Vertical integration
What: owning more of the supply network, up and downstream
Factors
The extent of vertical integration - none to extensive (never complete)
The balance among stage - total balance = one supplier to one customer (doesn't often happen) - haigh to aqualine
The direction of the vertical integration - up and/or downstream
How does the decision impact on the 5 performance objectives? (See table 3.1, p.84)
Decision tree
Is the activity of strategic important?
Does the org have specialised knowledge?
Is orgs ops performance superior?
Is significant ops performance improvement likely?
If NO to all - explore outsourcing this activity
Ecosystems - e.g. Xero (adds to competitive force)
Offshoring
Related but different to outsourcing
Can be a form of outsourcing, but can also have in-house offshore ops
Influences on these trends
Move from product competition to price, brand and service competition, making availability and speed through the network more important
Internet
The arrangement (number and type) of organisations in the supply network, and the relationships between them
Location decisions (p.85)
Relocation drivers
Changes in demand (forced or chosen)
Expansion options
Move all operations
Open additional site
Expand site
Changes in supply (forced or chosen)
Steps
Identify potential options (including staying put)
Evaluate each option against set rational criteria
#
Five factors to consider in location or relocation (p.87)
Capital costs
Leasing
Establishment
Buying
Risk
Risk of losing flexibility by getting locked into a location
Risk examples
Military tension or social unrest
Changes in demand, operating costs or profitability
Environmental concerns
Financial risk
Physical risk
Types
Transition risk
Long-term risk
Operating costs
'Community factors' - social, political and economic environment
Transport / logistics costs
Cost of producing the good or service, i.e. labour costs
Market
Product availability
Speed of delivery
Competitive service
Labour market supply and attractiveness
Flexibility into the future
Future expansion
Changes to inputs or outputs
Capacity in the supply network (p.89)
The role of
forecasting
Short-term forecasts
Complex topic that is only touched on here, expect your first few forecasts will likely be a bit off
Methods (p.108)
Quantitative methods
Time-series forecasting
Exponential smoothing
moving-average
Causal modelling
Qualitative methods
Scenario planning
Delphi method
Panel approach
Long-term
capacity planning
The timing for capacity change (p.92)
Capacity
leads
demand
Capacity
lags
demand
Identifying
when
to expand
Suggested to bring a new facility online around 30-40%
The capacity
size
decision
Optimal capacity has been found to be about 70-80%, higher and you lose efficiencies and suffer issues of overuse (Diseconomies of scale)
How much capacity to have?
Advantages of small-scale (p.91)
Respond rapidly to regional customers
Potential to have a higher skilled, more autonomous workforce
Locate near 'hot spots', close to the action and innovation
Can act more entrepreneurial in terms of new tech
Smaller increments of capacity jumps will reduce over-capacity time and possibly reduce cost per unit across the period of expansion
Smoothing-with-inventory
Use over-capacity periods to meet the needs of under-capacity periods
Only applies to tangible and non-perishable goods
Risks
Carries cost of storage/transport etc related to inventory
Deterioration or obsolescence
Break-even analysis of capacity expansion (p.93)