6.

Chapter 6

Supply network design

Digital Stock

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.1
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
 Supply network design
6.2

Operations
strategy

Process design
Supply Network Design
network design Design Improvement

Layout
and flow Planning and
control

Process People, jobs

technology and
organization

Product/service
design

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.2
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
 Key operations questions
6.3

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?

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.3
© 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 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).
Slack, Chambers and Johnston, Operations Management, 6th Edition,
6.4
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.5
Operations network for a plastic homeware company

Second tier First tier First tier Second tier

suppliers suppliers customers customers

Chemical Wholesaler
company Plastic Retailer
stockist
Plastic
Cardboard homeware
company manufacturer
Retailer
Packaging
Ink
supplier
supplier

Direct supply
Information

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.5
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.6

Operations network for a shopping mall

Second tier First tier First tier Second tier

suppliers suppliers customers customers

Recruitment
agency Security
services

Cleaning
materials Cleaning Shopping Retailers Retail
supplier services mall customers

Equipment Maintenance
supplier services

Direct supply
Information

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.6
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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,

6.7
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.8

Direction, extent and balance of vertical integration

Balance — should excess capacity

be used to supply other companies?

Raw
material Component Assembly Wholesaler Retailer
suppliers maker operation

Extent – Narrow process span

Extent – Wide process span

Direction – Direction –
Upstream vertical Downstream vertical
integration integration

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.8
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.9

The decision logic of outsourcing

Does Is company’s Is significant

Is activity of No company have No operations No operations No Explore
strategic specialized performance
performance outsourcing
importance knowledge improvement
superior? this activity
likely?

Yes Yes Yes Yes

Explore keeping this activity in-house

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.9
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
 Supply-side and demand-side factors in location decisions
6.10

Supply-side factors Demand-side factors

which vary to influence which vary to influence
costs as location customer service/revenue
varies. as location varies.
The
For example: operation For example:
• labour costs • labour skills
• land costs • suitability of site
• energy costs • Image
• transportation costs • convenience for
• community factors customers

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.10
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.11 The cost breakdown of shirt made in various countries and
sold in France

France 15.55€

Portugal 14.33€

Turkey 11.43€

Thailand 11.43€
Labour
Morocco 11.13€
Transport
Romania 10.82€
Fabric
China 10.37€ Supplies

Myanmar 9.60€ Customs duties

0 2 4 6 8 10 12 14 16
Cost in euros

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.11
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
 The balance of capacity
6.12

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.

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.12
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.13
Unit cost curves for service centres of varying capacities

Cost curve for 5

bay service centre
Real cost per customer served

Cost curve for 10

Cost curve for 15
bay service centre
bay service centre

‘Economy of scale’
curve for hotel
Economies Diseconomies
capacity
of scale of scale

5 10 15
Average number of bays in use

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.13
© 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

Volume
Demand Demand
Capacity

Time Time

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.14
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
 Smoothing with inventory
6.15

Smoothing with inventory

Capacity
Volume

Demand

Time

Slack, Chambers and Johnston, Operations Management, 6th Edition,

6.15
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010
 Disney Resort Paris
6.16

What were the main ‘network design’ decisions

taken by Disney Resort Paris?
Slack, Chambers and Johnston, Operations Management, 6th Edition,
6.16
© Nigel Slack, Stuart Chambers, and Robert Johnston 2010