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6.

Chapter 6 Supply network design

Digital Stock

6.1

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.2

Supply network design


Operations strategy

Supply Network Design network design Layout and flow

Design Planning and control

Improvement

Process technology

People, jobs and organization Product/service design

6.2

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.3

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?

6.3

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.4

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 Dells success come from the way Dell configures its supply networks. Dells supply network model being adapted to take account of market changes (products now available in stores).
6.4

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.5

Operations network for a plastic homeware company


Second tier suppliers Chemical company First tier suppliers First tier customers Wholesaler Plastic stockist Retailer Plastic homeware manufacturer Second tier customers

Cardboard company Ink supplier Packaging supplier

Retailer

Direct supply Information


Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.5

6.6

Operations network for a shopping mall


Second tier suppliers Recruitment agency First tier suppliers First tier customers Second tier customers

Security services Cleaning services Retailers Retail customers

Cleaning materials supplier

Shopping mall

Equipment supplier

Maintenance services
Direct supply Information
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.6

6.7

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.
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.7

6.8

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

6.8

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.9

The decision logic of outsourcing

Is activity of strategic importance

Does No company have No specialized knowledge

Is companys operations performance superior?

No

Is significant operations No performance improvement likely? Yes

Explore outsourcing this activity

Yes

Yes

Yes

Explore keeping this activity in-house

6.9

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.10

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 The operation

Demand-side factors which vary to influence customer service/revenue as location varies. For example: labour skills suitability of site Image convenience for customers

6.10

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.11

The cost breakdown of shirt made in various countries and sold in France

France Portugal Turkey Thailand Morocco Romania China Myanmar 0 2 4 8 6 Cost in euros 11.43 11.43

15.55 14.33

Labour 11.13 Transport 10.82 10.37 9.60 10 12 14 16 Fabric Supplies Customs duties

6.11

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.12

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.

6.12

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.13

Unit cost curves for service centres of varying capacities

Real cost per customer served

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

Economies of scale

Diseconomies of scale

5 10 Average number of bays in use

15

6.13

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.14

Capacity leading demand and capacity lagging demand

Capacity leads demand

Capacity lags demand

Capacity Volume Demand Volume Demand Capacity

Time

Time

6.14

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.15

Smoothing with inventory


Smoothing with inventory

Capacity Volume

Demand

Time

6.15

Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.16

Disney Resort Paris

What were the main network design decisions taken by Disney Resort Paris?
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010

6.16