Nigel Slack and Michael Lewis 2003

Quality
P
e
r
f
o
r
m
a
n
c
e

o
b
j
e
c
t
i
v
e
s

Dependability
Process
Technology
Development
and
Organization
Speed
Flexibility
Cost
Resource Usage
M
a
r
k
e
t

C
o
m
p
e
t
i
t
i
v
e
n
e
s
s

Decision areas
Capacity
Supply Network
Relationships
Issues include:
What should we
do ourselves
and what to
subcontract
When to use
market-based
purchasing
How to develop
partnership
supply
Issues covered in this chapter
Nigel Slack and Michael Lewis 2003
Supply network strategy
The concept of
supply networks
Vertical
integration
Partnerships
Market
trading
Supply
network
relationships
Supply network
behavior
The network
perspective
Network
management
Network
dynamics
Co-ordination
Differentiation
Reconfiguration
Quantitative
Qualitative
Supply network issues
Nigel Slack and Michael Lewis 2003
Second-tier
Suppliers
First-tier
Suppliers
Company A
Company B
Company C
x
Second-tier
Customers
First-tier
Customers
x
x
x
x
Focal
Level
Upstream Downstream
Supply side of
the network
Demand side
of the network
For Company A
Internal supply network
Immediate supply network
Total supply network
Flow of Products/Services
Flow of Information
Supply networks are the interconnections of
relationships between operations
Nigel Slack and Michael Lewis 2003
Total and Immediate Supply Networks
Second tier
Suppliers
First tier
Suppliers
Second tier
Customers
First tier
Customers
The Operation
Supply side of
the network
Demand side of
the network
The
Immediate
Supply
Network
The Total
Supply
Network
Internal Supply Networks
Slide 6.4
Nigel Slack and Michael Lewis 2003
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
Distribution
Chain of Parts
Manufacturer
Distribution
Chain of
V.M.
Manufacturing
Chain
Dealer
network
Vehicle
manufacturer
Installer
Local
distributor
Area
distributor
Prime
distributor
Supplier
Sub-supplier
Stockist
Raw materials
Nigel Slack and Michael Lewis 2003
Firms in the same industry may configure their supply
networks in different ways
Home
Office
Market
Corp.
Market
Suppliers
Retailers
COMPAQ
Home
Office
Market
Corp.
Market
Suppliers
Retailers
DELL
Nigel Slack and Michael Lewis 2003
Supply chain Management

The opportunities lie at the
boundaries
Nigel Slack and Michael Lewis 2003
Extent of Activity
(Quantitative)
Nature of Activity
(Qualitative)
Structure
Number of relationships
Posture
Closeness of relationships
Degree of activity
performed in-house
Importance of activity
performed in-house
Market Relationships
Resource Scope
The market and resource dimensions of supply networks
Nigel Slack and Michael Lewis 2003
Do
Nothing
Do
Everything
The character of internal operations activity
Types of supply relationship
Virtual
Spot
Trading
Traditional
Market
Supply
Resource Scope
Long-term
Virtual
Operation
Partnership
Supply
Relationships
Vertical
Integration
T
y
p
e

o
f

i
n
t
e
r
-
f
i
r
m

c
o
n
t
a
c
t

T
r
a
n
s
a
c
t
i
o
n
a
l

M
a
n
y

s
u
p
p
l
i
e
r
s


C
l
o
s
e

F
e
w

s
u
p
p
l
i
e
r
s


Nigel Slack and Michael Lewis 2003


Focal
operation





Extent of integration
Backward
Integration
Forward
Integration
Non-exclusive balance
between stages
Exclusive balance
between stages
Vertical integration decisions
Nigel Slack and Michael Lewis 2003
Low
High
Cost of changing suppliers
When is the use of pure market mechanisms
appropriate in buyer-supplier relationships?
Market
mechanisms
inappropriate
Resource Dimension
Market
mechanisms
appropriate
Leverage
needs
uncertainty
Leverage
market
uncertainty
N
u
m
b
e
r

o
f

s
u
p
p
l
y

a
l
t
e
r
n
a
t
i
v
e
s

F
e
w

M
a
n
y

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
Joint
learning
Joint co-
ordination of
activities
Multiple
points of
contact
Trust
Sharing
success
Few
relationships
Information
transparency
Dedicated
assets
Joint
problem
solving
Long-term
expectations
Attitudes
Actions
Closeness of
relationship
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
Mr. White gets 5 yrs
Mr. Orange gets 5 yrs
Mr. White goes free
Mr. Orange gets 10 yrs
Mr. White get 10 yrs
Mr. Orange goes free
Mr. White gets 3 yrs
Mr. Orange gets 3 yrs
Doesnt
confess
Confesses
Confesses
Doesnt
confess
The prisoners dilemma decision
Mr. White
Mr.
Orange
Nigel Slack and Michael Lewis 2003
Mr. White goes free
Mr. Orange gets 10 yrs
Mr. White gets 3 yrs
Mr. Orange gets 3 yrs
Doesnt
confess
Confesses
Confesses
Doesnt
confess
The prisoners dilemma decision
Mr. White gets 5 yrs
Mr. Orange gets 5 yrs
Mr. White get 10 yrs
Mr. Orange goes free
Mr. White
Mr.
Orange
Assume Mr. Orange confesses
Nigel Slack and Michael Lewis 2003
Mr. White gets 5 yrs
Mr. Orange gets 5 yrs
Doesnt
confess
Confesses
Mr. White
Confesses
Doesnt
confess
Mr.
Orange
The prisoners dilemma decision
Mr. White get 10 yrs
Mr. Orange goes free
Mr. White goes free
Mr. Orange gets 10 yrs
Mr. White gets 3 yrs
Mr. Orange gets 3 yrs
Assume Mr. Orange doesnt confess
Nigel Slack and Michael Lewis 2003
trusting you is likely to
give me more benefits
than not trusting you...
I believe I can trust you
because I think I know
you enough to be
confident you will behave
as I would wish...
I trust you because I
know that you know that I
wouldnt let you down and
you know that I know that
you wouldnt either......
Calculative
trust
Cognitive
trust
Bonding
trust
Based on
knowledge
Based on
feelings
C
u
m
u
l
a
t
i
v
e

p
o
s
i
t
i
v
e

e
x
p
e
r
i
e
n
c
e
s

Degrees of trust
Nigel Slack and Michael Lewis 2003
Market
position
Market
risks
Market
structure
Competitive
behavior
Economies
of scale
Transaction
costs
Learning
potential
Resource
deficiencies
Some factors influencing the nature of network
relationships
OPERATIONS
RESOURCES
MARKET
REQUIREMENTS
Nature of
network
relationship
Nigel Slack and Michael Lewis 2003
Will Desron find someone
else to single supply?
Turns down
Desrons offer
Accepts Desrons
offer
Minimises investment
but high vulnerability
Increases investment in
capacity but retains safety
net of other customers
Dedicate to
Desron
Retain some
other customers
Options for Aztec