Supply Network Design Flashcards
Supply Network Design decisions:
Network configuration
Location and
Capacity
What does network configuration entail?
Downstream/Upstream Disintermediation Outsourcing Offshoring Vertical Integration
define outsourcing
ownership = don't own assets location = domestic
Domestic supplier delivers products and/or services
an arrangement in which one company provides services for another company that could also be, or usually have been, provided in-house
define offshore outsourcing
ownership = don't own assets location = international
Overseas supplier delivers products and/or services
define domestic operations
ownership = own assets location = domestic
focal company performs activities themselves
define offshore operations
ownership = own assets location = international
Focal company’s overseas operation delivers products and/or services
Supply-side factors in location decisions
vary to influence costs as location varies: e.g. labour costs land costs energy costs transportation costs community factors
Demand-side factors in location decisions
vary to influence customer service / revenue as location varies: e.g. labour skills suitability of site image convenience for customers
Balance of capacity
Capacity can either lead (luxury products) or lag (lower segment) demand
Inventory can be used to smooth out the peaks
Spare capacity can be used to supply other operations.
Capacity is associated with economies of scale
define structure
the shape and form of the network
define scope
the extent that an operation decides to do the activities performed by the network itself, as opposed to requesting a supplier to do them.
define supply network
an interconnection of organizations that relate to each other through upstream and downstream linkages between different processes and activities that produce value in the form of products and services to the ultimate consumer.
Who is on the supple/demand side of an operation
Supply side
-Suppliers of parts/ services
first-tier suppliers
Second tier suppliers-
Demand side
- Customers
First-tier customers, main consumer group for the operation
Second-tier customers, but an operation may supply second tier directly
define immediate supply network
the supplier and customers who have direct contact with an operation
define total supply network
the operations that form the network of suppliers’ suppliers and customers’ customers
define upstream
refers to the material inputs needed for production
define downstream
is the opposite end, where products get produced and distributed
Why is the structure and scope of an operation’s supply network important?
- It helps and understanding of competitiveness
- It helps to identify significant links in the network
- It helps focus on long-term issues
The scope of an operation activities within the network is determined by two decisions
- The extent and nature of the operations vertical integration
- The nature and degree of outsourcing it engages in
define disintermediation
companies within a network bypassing customer or suppliers to make contact directly with customers’ customers or suppliers’ suppliers
‘cutting out the intermediaries’
Develops new linkages in the supply network
what is co-opetition
Competitors can be complementors and vice versa
Companies cooperate in increasing the total size of the market and compete for a share of that market
All the players in the network can be friends and enemies at different times
define business ecosystem
an economic community supported by a foundation of interacting organizations an individuals- the organisms of the business world
difference between business ecosystem and supply network
The inclusion in the idea of the ecosystem of businesses that may have no or little direct relationship with the main supply network, yet exist only because of that network.
They interact, complementing or contributing significant components of the value proposition for customers
define dyadic interaction
the individual interaction between two specific operations in the network
How much capacity should operations have?
high levels of capacity utilization; longer customer waiting time; reduced customer service
As the nominal capacity increases, the lowest cost point at first reduces
3 strategies when deciding when to change capacity
• Capacity introduced generally to lead demand
-there is always sufficient capacity to meet forecast demand
• Capacity is introduced generally to lag demand
- demand is always equal to or greater than capacity
• Capacity is introduced to sometimes lead and sometimes lag demand
- inventory built up during the ‘lead’ times used to help meet demand during the ‘lag’ times
aka inventory soothing
Advantages and disadvantages of capacity leading strategy
Advantages
• Always sufficient capacity to meet demand; revenue is maximized and customers satisfied
- ‘capacity cushion’ can absorb extra demand if forecasts are pessimistic
- Any critical start-up problems less likely to affect supply
Disadvantages
• Utilization of the plants is always relatively low, therefore costs will be high
• Risks of even greater over-capacity if demand does not reach forecast levels
• Capital spending on capacity will be early
Advantages and disadvantages of capacity lagging strategy
advantages
• Always sufficient demand to keep the operation working at full capacity, therefore unit costs are minimized
• Over-capacity problems are minimized if forecasts prove optimistic
• Capital spending on the operation is delayed
disadvantages
• insufficient capacity to meet demand fully, = reduced revenue and dissatisfied customers
• No ability to exploit short-term increases in demand
• Under-supply position even worse if there are start-up problems with the new operations
advantages and disadvantages of smoothing with inventory
advantages
• all demand is satisfied, = customers are satisfied and revenue is maximized
• Utilization of capacity is high and therefore costs are low
• Very short-term surges in demand can be met from inventories
disadvantages
• The cost of inventories can be high. This is especially serious at a time when the company requires funds for its capital expansion
• Risks of product deterioration and obsolescence
Location decision determined by the relative strength of a number of factors:
Labour costs
Labour skills availability
- Skill abilities of a local population
Land costs
- Cost of acquiring site
Energy costs
- availability of inexpensive energy
Transportation costs
- inputs from source and output to customers
Community factors
- operation costs from social/ political/ economic environment e.g. tax
The suitability of the site itself
Image of the location
Convenience for customers
- close to demand?
define vertical integration
extent to which an organization owns the network of which it is a part of
factors of vertical integration
• The direction of integration
○ Strategy of expanding on the supply side is called backward or ‘upstream’ vertical integration
○ Expanding on the demand side is called forward or ‘downstream’ vertical integration
• The extent of the process span of integration
• The balance among the vertically integrated stages
○ amount of capacity in the network owned by the org.
advantages of vertical integration
It secures dependable access to supply or markets
e.g. Downstream vertical integration can give a firm greater control over its market positioning
It may reduce costs
e.g. reduced transaction costs
It may help to improve product or service quality
It helps in understanding other activities in the supply network
disadvantages of vertical integration
- Creates and internal monopoly
- Cannot exploit economies of scale
- Results in loss of flexibility
- Cuts you off from innovation
- Distracts you from core activities (loss of focus)
define offshoring
means obtaining products and services from operations that are based outside one’s own country
