Resource Usage

Issues include:

Market Competitiveness
• What should we
Quality do ourselves
Performance
objectives

Speed and what to

subcontract
Dependability
• When to use
Flexibility ‘market-based’
purchasing
Cost
• How to develop
‘partnership’
supply

Supply Network Process Development

Capacity Relationships Technology and
Organization
Decision areas

Issues covered in this chapter

© Nigel Slack and Michael Lewis 2003

 Supply network strategy

The concept of
supply networks

Supply Supply network

network behavior
relationships

The network
Vertical Partnerships Market perspective
integration trading

Network Network
dynamics management

Quantitative Co-ordination
Qualitative Differentiation
Reconfiguration

Supply network issues

© Nigel Slack and Michael Lewis 2003

 Upstream Focal Downstream
Second-tier First-tier Level First-tier Second-tier
Suppliers Suppliers Customers Customers

Company A

Company B

Company C x
x
x

x x
Supply side of Demand side
For Company A the network of the network
Internal supply network Flow of Products/Services
Immediate supply network Flow of Information
Total supply network
Supply networks are the interconnections of
© Nigel Slack and Michael Lewis 2003 relationships between operations
 “Second tier” “First tier” “First tier” “Second tier”
Suppliers Suppliers Customers Customers

The Operation

Supply side of Demand side of

the network the network

The Total
Supply
The Network
Immediate
Supply
Network

Internal Supply Networks

Total and Immediate Supply Networks

© Nigel Slack and Michael Lewis 2003 Slide 6.4
 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

© Nigel Slack and Michael Lewis 2003

 Motor Vehicle Parts Distribution Chains

Installer
Dealer
network
Local
distributor

Area
Vehicle distributor
manufacturer
Prime
Distribution distributor Distribution
Chain of Chain of Parts
V.M. Manufacturer
Supplier

Sub-supplier

Manufacturing Stockist
Chain

Raw materials

© Nigel Slack and Michael Lewis 2003

 COMPAQ Corp.
Market

Suppliers Home
Office
Market

Retailers

Corp.
Market
DELL

Home
Office
Market
Retailers
Suppliers

Firms in the same industry may configure their supply

networks in different ways
© Nigel Slack and Michael Lewis 2003
 Supply chain Management

The opportunities lie at the

boundaries

© Nigel Slack and Michael Lewis 2003

 Extent of Activity Nature of Activity
(Quantitative) (Qualitative)

‘Structure’ ‘Posture’
Market Relationships
Number of relationships Closeness of relationships

Degree of activity Importance of activity

Resource Scope
performed ‘in-house’ performed ‘in-house’

The market and resource dimensions of supply networks

© Nigel Slack and Michael Lewis 2003

 suppliers
Long-term

– Few
Close
Virtual Vertical
Operation Integration
‘Partnership’

Type of inter-firm contact

Supply
Relationships

Traditional
Market
Supply
Transactional

Virtual
suppliers
– Many

Spot
Trading
Resource Scope
The character of internal operations activity
Do Do
Nothing Everything

Types of supply relationship

© Nigel Slack and Michael Lewis 2003

 Exclusive balance Non-exclusive balance
between stages between stages

Backward Forward
Integration Integration

Focal
operation

Extent of integration

Vertical integration decisions

© Nigel Slack and Michael Lewis 2003

 Many
Market
mechanisms Leverage
market

Number of supply alternatives

appropriate
uncertainty

Leverage
needs Market
uncertainty mechanisms
inappropriate
Few

Resource Dimension
Low Cost of changing suppliers High

When is the use of pure market mechanisms

appropriate in buyer-supplier relationships?

© 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

© Nigel Slack and Michael Lewis 2003

 Trust

Long-term Sharing
expectations success

Joint Attitudes Multiple

learning points of
contact
Closeness of
relationship
Joint co- Few
ordination of relationships
activities Actions

Joint
Information
problem
transparency
solving
Dedicated
assets

Elements of partnership relationships

© Nigel Slack and Michael Lewis 2003

 Supply chain Management

There are strong forces

acting against the
maintenance of trust

© Nigel Slack and Michael Lewis 2003

 The “prisoner’s dilemma” decision

Mr. Doesn’t
Confesses Orange confess

Confesses Mr. White gets 5 yrs Mr. White goes free

Mr. Orange gets 5 yrs Mr. Orange gets 10 yrs

Mr. White

Doesn’t Mr. White get 10 yrs Mr. White gets 3 yrs

confess Mr. Orange goes free Mr. Orange gets 3 yrs

© Nigel Slack and Michael Lewis 2003

 The “prisoner’s dilemma” decision
Assume Mr. Orange confesses

Mr. Doesn’t
Confesses Orange confess

Confesses Mr. White gets 5 yrs Mr. White goes free

Mr. Orange gets 5 yrs Mr. Orange gets 10 yrs

Mr. White

Doesn’t Mr. White get 10 yrs Mr. White gets 3 yrs

confess Mr. Orange goes free Mr. Orange gets 3 yrs

© Nigel Slack and Michael Lewis 2003

 The “prisoner’s dilemma” decision
Assume Mr. Orange doesn’t confess

Mr. Doesn’t
Confesses Orange confess

Confesses Mr. White gets 5 yrs Mr. White goes free

Mr. Orange gets 5 yrs Mr. Orange gets 10 yrs

Mr. White

Doesn’t Mr. White get 10 yrs Mr. White gets 3 yrs

confess Mr. Orange goes free Mr. Orange gets 3 yrs

© Nigel Slack and Michael Lewis 2003

 Calculative …trusting you is likely to
Based on
trust give me more benefits
knowledge
than not trusting you...

Cumulative positive experiences

Cognitive …I believe I can trust you
trust because I think I know
you enough to be
confident you will behave
as I would wish...

Bonding …I trust you because I

trust know that you know that I
wouldn’t let you down and
you know that I know that
Based on
you wouldn’t either......
feelings

Degrees of trust
© Nigel Slack and Michael Lewis 2003
 Economies Market
of scale position

Transaction Market
costs risks
Nature of
OPERATIONS network MARKET
RESOURCES relationship REQUIREMENTS
Learning Market
potential structure

Resource Competitive
deficiencies behavior

Some factors influencing the nature of network

relationships

© Nigel Slack and Michael Lewis 2003

 Will Desron find someone
else to ‘single supply’?
Turns down
Desron’s offer

Minimises investment
Dedicate to but high vulnerability
Accepts Desron’s
offer Desron

Retain some Increases investment in

other customers capacity but retains ‘safety
net’ of other customers

Options for Aztec

© Nigel Slack and Michael Lewis 2003