SUPPLY NETWORK DESIGN

The Supply Network Perspective

Why consider the whole supply network
There are 3 important reasons for taking a supply network perspective.
It helps an understanding of competitiveness.
It helps identify significant links in the network.
It helps focus on long-term issues.
Design decisions in supply networks
The 3 decisions are:
1) How should the network be configured
a) Outsourcing
b) Vertical Integration
c) Do-or-buy decisions
2) Where should each part of the network be located
a) Operations Location Decision
3) What physical capacity should each part of the network have

All these 3 decisions rely on assumptions regarding the level of future demand.
Configuring the supply network
Changing the shape of the supply network
Disintermediation
Co-opetition
Destroying value in a supplier in order to create it in a customer does not
increase the value of the network as a whole.
All players in the supply network, whether they are customers, suppliers,
competitors or complimentors, can both be friends and enemies at different
times.
In-house or Outsource, Do or Buy, The Vertical Integration
Outsourcing Handing over one of the business process to a third party
to perform the functions.
Do or Buy This question of whether to do or whether to buy comes in
when individual components or activities are considered.
Vertical Integration It is the extent to which an organization owns the
network of which it is a part.
Vertical Integration
It can be defined in terms of 3 factors.
1) The direction of vertical integration
1) Backward or Upstream
2) Forward or Downstream
2) The extent of vertical integration
3) The balance among stages
1) Totally balanced network relationship where one operation produces only for the
next stage in the network and totally satisfies its requirements
2) Less than full balance allows each operation to sell its output to other companies
or to buy in some of its supplies from other companies.
The decision logic of outsourcing
Outsourcing and Offshoring
Outsourcing Deciding to buy-in products or services rather than
perform the activities in-house.
Offshoring Obtaining products and services from operations that are
based outside ones own country.
The location of capacity
Location is the most significant factor in any retail outlet.
Location decisions will usually have an effect on an operations costs as
well as its ability to serve its customers.
Location decisions once taken are difficult to undo.
Reasons for location decisions
Change in demand A change in location may be prompted by customer
demand shifting.
Change in supply A change in the cost, availability of the supply of
inputs to the operations.
The objectives of location decision
The aim of the location decision is to achieve an appropriate balance
between these objectives.
The specially variable costs of the operation It means that something
changes with geographical location.
The service the operation is able to provide to its customers.
The revenue potential of the operation.
Supply-side influences
Labour costs
Hourly cost pay workers on per hour basis
Unit cost pay workers on per unit of production
Land costs
Energy costs
Transportation costs
Community factors
Community factors
Local tax rates
Capital movement restrictions
Government financial assistance
Government planning assistance
Political stability
Local attitudes to inward
investment
Language
Local amenities (schools, theaters,
shops, etc.)
Availability of support services
History of labour relations and
behaviour
Environmental restrictions and
waste disposal
Planning procedures and
restrictions
Demand-side influences
Labour skills
The suitability of the site itself
Image of the location
Convenience for customers