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Chapter 7

Supply network management

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Slack et als model of operations management


Direct

Design

Operations
Management

Develop
Supply
network
management

Deliver
Capacity
management

Planning
and control

Inventory
management

Lean
synchronisation

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Key operations questions


In Chapter 7 - Supply network management Slack et. al.
identify the following key questions.
Why should an organization take a supply network
perspective?
What is involved in managing supply networks?
What is involved in designing a supply network?
What are the types of relationships between operations in
supply networks?
What is the natural dynamic of a supply network?
How can supply networks be improved?
Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

What is supply chain management?

Supply chain management is the management


of the interconnection of organizations that relate
to each other through upstream and downstream
linkages between the processes that produce
value to the ultimate consumer in the form of
products and services.

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Operations network for a plastic homeware company


Second tier
suppliers
Chemical
company

Second tier
customers

Wholesaler
Plastic
stockist

Cardboard
company
Ink
supplier

First tier
customers

First tier
suppliers

Plastic
homeware
manufacturer

Packaging
supplier

Direct supply
Information

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Retailer

Retailer

Operations network for a shopping mall


Second tier
suppliers
Recruitment
agency

First tier
suppliers

First tier
customers

Second tier
customers

Retailers

Retail
customers

Security
services

Cleaning
materials
supplier

Cleaning
services

Equipment
supplier

Maintenance
services

Shopping
mall

Direct supply
Information

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Supply chain planning and control


.......is concerned with managing the flow of materials and information between
a string of operations, that form the strands or chains of a supply network
Flow between processes
Flow between processes

Flow between processes

Supply network
management concerns
flow between operations

Flow between processes

Flow between processes

Flow between processes

Flow between processes

Supply chain
management concerns
flow between a string of
operations
Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Supply chains management is concerned with the flow


of information and the flow of products and services

Upstream flow of
customer
Requirements
Flow between
processes

Long-term plans and requirements


Market research information
Individual orders
Payment
Potential new products and services

Flow between
processes

Flow between
processes
Consumer

Operation 1

Operation 2

Products and services


New products and services
Delivery information
Payment request / Credit

Operation 3
Downstream flow of products
and services for customer
Fulfilment

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Supply chain planning and control


Second tier
supplier

First tier
supplier

First tier
customer

Supply side

Information
flow
Physical
flow

Purchasing and
supply
management

Second tier
customer

Demand
side
Physical distribution
management
Logistics

Materials management
Supply chain management

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

End
customer

Taking a customer perspective of supply performance


can lead to very different conclusions
Customer
requirements
100

Customer
satisfaction

20
Product/
Y
service
80
appropriate?
Product/
service
available?

N
N

10
70

N
50

Y
Y

Meets price
and delivery 20
requirements?

40

N
1

10
N

10
Customer
orders?

10

N
1

8
N

Received
as
Produced as
N
promised?
9 Y promised?
1
From the operations perspective
90% satisfaction
Y
From the customers perspective
8
8% satisfaction
1

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

The decision logic of outsourcing

Is activity of No
strategic
importance

Yes

Does
company
have
specialized
knowledge
Yes

Is significant
Is companys
Explore
No operations No
operations No
outsourcing
performance
performance
improvement
this activity
superior?
likely?
Yes

Yes

Explore keeping this activity in-house

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Matching the supply chain with market requirements


Nature of Demand
Functional products
Innovative products

Low
Low cost
cost -- Low
Low throughput
throughput times
times
High
High utilization
utilization -- Low
Low utilization
utilization
Minimum
Minimum inventory
inventory -- Deployed
Deployed inventory
inventory
Low
Low cost
cost suppliers
suppliers -- Flexible
Flexible suppliers
suppliers

Supply Chain Objectives


Efficient
Responsive

Predictable
Few changes
Low variety
Price stable
Long lead-times
Low margin

Unpredictable
Many changes
High variety
Price markdowns
Short lead-times
High margins

Lean supply
chain
management

Mismatch

Mismatch

Agile supply
chain
management

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Supply chain relationships


To......

Business

Business to business (B2B)


Most common, all but the last
link in the supply chain
Business

Consumer
Business to consumer (B2C)
Retail operations
Catalogue operations, etc.

E-commerce examples:
EDI networks
Business information
exchanges

E-commerce examples:
Internet retailers
Amazon.com, etc.

Consumer to consumer (C2B)


or peer to peer (P2P)

Consumer to business (C2B)

From....

Consumer

Consumer offer, business


responds

Trading swap and auction


transactions

E-commerce examples:
Some airline ticket
operators
Priceline.com, etc.

E-commerce examples:
Specialist collector sites
Ebay.com, etc.

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Do
Everything

Vertically
Integrated
Operation
Traditional Supply
Management

Do
Nothing

Do
Everything
Important

The character of Internal Operations Activity

Types of supply relationship

Partnership
Supply
Management
Virtual
Spot
Trading
Transactional Many Suppliers

Long-term
Virtual
Operation

Type of Inter-firm Contact

Close Few Suppliers

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Factors for rating alternative suppliers


Short-term ability to supply

Longer-term ability to supply

Range of products or services


provided

Potential for innovation

Quality of products or services


Responsiveness

Ease of doing business


Willingness to share risk

Dependability of supply
Delivery and volume flexibility

Long-term commitment to supply


Ability to transfer knowledge as
well as products and services

Total cost of being supplied


Ability to supply in the required
quantity

Technical capability
Operations capability
Financial capability
Managerial capability

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Weighted supplier selection criteria for a hotel chain


Factor

Weight

Supplier A
score

Supplier B
score

Cost performance

10

8 (8x10=80)

5 (5x10=50)

Quality record

10

7 (7x10=70)

9 (9x10=90)

Delivery speed
promised

5 (5x7=35)

5 (5x7=35)

Delivery speed
achieved

4 (4x7=28)

8 (8x7=56)

Dependability record

6 (6x8=48)

8 (8x8=64)

Range provided

8 (8x5=40)

5 (5x5=25)

Innovation capability

6 (6x4=24)

9 (9x4=36)

325

356

Total weighted score

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Prodn.

Stock

1
2

100

3
4

180
60

100
100
100
60
60
120
120
90

100

95

20

2nd LEVEL
SUPPLIER
Prodn.

Stock

90

100
100
100
80
80
100
100
95

90
95

95

95
95

95

100
60
120

1st LEVEL
SUPPLIER
Prodn.

Stock

ORIGINAL
EQUIPMENT
MFG.
Prodn.

Stock

95

100
100
100
90
90
95
95
95

95
95

95

95
95

95

100
100
100
95
95
95
95
95
95
95

95
95

95

95
95

95

95
95

100
80
100

100
90
95
95

3rd LEVEL
SUPPLIER

DE
MA
N

PE
RI
O

The bullwhip effect

OEM

ALL OPERATIONS HOLD ONE PERIODS STOCK


Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

100
95
95
95
95
95
MARKET

Prodn.

1
2

Stock
100
100

100

2nd LEVEL
SUPPLIER
Prodn.

Stock
100
100

100

1st LEVEL
SUPPLIER
Prodn.

Stock
100
100

100

ORIGINAL
EQUIPMENT
MFG.
Prodn.

100

3rd LEVEL
SUPPLIER

DE
MA
N

PE
RI
O

The bullwhip effect

Stock
100
100

100
95

3
4

105
95

105

95
3

OEM

ALL OPERATIONS HOLD ONE PERIODS STOCK


Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

MARKET

The bullwhip effect

Supplier

Time

Manuf
-acturer

Time

Whole
-saler

Sales from
store

Orders

Stores orders to
wholesaler

Orders

Wholesalers
orders to
manufacturer
Orders

Orders

Manufacturers
orders to its
suppliers

Time

Retail
Store

Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Time

Consumers

The effects of supply chain compression


Supply chain time compression
Schedule
changes impact
market faster

so can
respond to
market changes
better

so revenues
are maximized

Forecasts
made closer to
demand time

Defects are
detected faster

so improved
forecasts
so easier to
improve quality

New products
and service
faster to market

so fewer lost
sales from
delayed launch

so reduced
risk of
obsolescence

so revenues
are maximized

so less
discounted
sales

so less need for


safety stocks

so reduced
stockholding
costs

so reduced
wastage costs

Improved profitability
Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

The structure of supply chains implicit in the SCOR model


showing the relationship between Plan, Source, Make, Deliver,
Return elements of the model
Plan
Plan

Deliver Source

Make

Return
Suppliers
supplier

Plan

Deliver

Source

Make

Deliver Source

Return
Supplier

Make

Deliver Source

Return
Focal
company

Return
Customer

Scope of the SCOR model


Slack, Brandon-Jones and Johnston, Essentials of Operations Management, 1st Edition, Slack, Brandon-Jones and Johnston, 2011

Customers
customer