Questions and Answers
What is the average wage of a top-class graduate software engineer in China compared to the USA?
Around one fifth of that in the USA.
Multinational companies have little experience in India.
False
The abilities of a local labour force can affect customer reaction to the products or services produced. For example, ‘science parks’ are usually located close to universities to attract _____ companies.
companies interested in using university skills
Which factors influence the intrinsic characteristics of a location?
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Why are general hospitals typically located close to centres of demand?
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What is an example of a factor that can influence the cost of a location?
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The weighted-score method for location evaluation involves identifying criteria, establishing their relative importance with weighting factors, and _____ each location according to each criterion.
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What are the two systematic techniques mentioned for location decision making?
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What is the best location in the centre-of-gravity method represented by?
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What happens to average costs at activity levels below a plant’s capacity?
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What are economies of scale?
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Larger operations always lead to lower transportation costs.
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Match the following strategies with their descriptions:
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What does 'smoothing' with inventory allow a company to achieve?
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Why should an organization take a total supply network perspective?
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What is involved in configuring a supply network?
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Where should an operation be located?
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How much capacity should an operation plan to have?
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What are the three important design decisions in supply networks?
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Which of the following is an advantage of a smoothing-with-inventory strategy? (Select all that apply)
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Relying on immediate contacts is beneficial for understanding the market.
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The risks of obsolescence and deterioration are advantages of carrying inventories.
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What does outsourcing involve?
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What is the estimated cost of running a single processing center per quarter?
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What is co-opetition?
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The maximum funding required occurs in quarter _____ and is _____ million.
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How much business can a fully utilized processing center generate per quarter?
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What is vertical integration?
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When is the second processing center expected to be operational?
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What are potential reasons for outsourcing?
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What are the capital costs of building a single processing center?
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Disintermediation involves cutting out intermediaries in supply chains.
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What are some benefits of outsourcing?
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What is the difference between outsourcing and offshoring?
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The main reason companies choose to outsource is to ensure high product quality.
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What did Tata encounter when seeking a site for the Nano production?
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Outsourcing involves deciding to buy-in products or services rather than perform the activities in-_____
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List two stimuli that can cause organizations to change locations.
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Which of the following is NOT a community factor influencing operation costs?
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High visibility operations can choose to expand on the same site to meet rising demand.
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What are the three objectives that should be balanced in location decisions?
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Two supply network strategies often confused are outsourcing and _____
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Study Notes
Introduction to Supply Network Design
- Organizations must take a total supply network perspective, recognizing their role within a larger interconnected system comprising various suppliers and customers.
- Strategic decisions in supply network design include determining network objectives, operation locations, and capacity planning.
Dell's Operations Case Study
- Michael Dell founded Dell Computer, initially buying and upgrading PCs for resale, leading to significant changes in supply network management.
- Outsourcing became a cornerstone of Dell's strategy, allowing them to focus on customer value rather than manufacturing components.
- Direct sales to consumers bypassed retailer margins, enabling Dell to offer lower prices and greater customer insights.
- Dell's focus shifted from business customers to home users, realizing the need for a more consumer-centric approach as market dynamics evolved.
- Expansion into retail became necessary to address market demands and improve product visibility.
Supply Network Perspective
- A supply network encompasses the flow of materials, information, and services through customer-supplier relationships.
- Operations can be classified into immediate supply networks (direct operations) and total supply networks (including all connected suppliers and customers).
- Understanding competitiveness necessitates looking beyond immediate suppliers to anticipate end-customer needs effectively.
Importance of Analyzing Supply Networks
- Identifying significant links within the supply network is essential for performance objectives and competitive advantage.
- A long-term perspective aids in recognizing and mitigating risks within supply networks, such as machine breakdowns or labor disputes.
Critical Design Decisions in Supply Networks
- Configuration Decision: How to influence the network's shape and determine ownership of network components (outsourcing vs. vertical integration).
- Location Decision: Choosing optimal locations for operations considering proximity to suppliers or customers.
- Capacity Management Decision: Determining appropriate physical capacity at each network part and the approach to expansion.
Changing the Supply Network Shape
- Reconfiguration of supply networks can occur without changing ownership by altering activities and relationships within the network.
- Companies often reduce the number of suppliers to enhance relationships and operational efficiency.
Key Trends in Supply Networks
- Disintermediation: Bypassing traditional intermediaries to create direct links between suppliers and customers, particularly enabled by the Internet, altering industry dynamics.
- Co-opetition: Recognizes suppliers, customers, competitors, and complementors as critical players in the supply network ecosystem.
Further Considerations
- The strategic nature of supply network design necessitates consideration of future demand forecasts and their implications on operational capabilities and resource management.### Complementors and Competitors
- Complementors enhance the value of products or services when combined, compared to their standalone value.
- Competitors reduce the perceived value of products or services when alternative offerings are available.
- Some entities can serve dual roles as both complementors and competitors, leading to a dynamic market environment.
Market Dynamics
- Nearby restaurants can be competitors for customer business but also act as complementors by fostering a lively dining scene.
- Industries commonly see cooperation among similar offerings to expand the overall market size while competing for individual market shares.
- Relationships among customers, suppliers, and competitors should be seen as 'symmetric', with equal importance given to both suppliers and customers.
Co-opetition
- The term "co-opetition" describes the coexistence of competition and cooperation among businesses in a network.
Outsourcing vs. In-House Production
- Businesses frequently outsource activities to achieve cost reductions and leverage specialized expertise.
- Outsourcing has grown across industries, particularly within financial services and human resource functions.
- Business Process Outsourcing (BPO) involves transferring back-office functions to outside specialists.
Vertical Integration
- Vertical integration involves owning a wider network, including suppliers or customers.
- Direction of vertical integration can either be backward (toward suppliers) or forward (toward customers).
- Decisions about vertical integration also consider the extent, whether to fully integrate or maintain some independence within operations.
Do-or-Buy Decision
- Organizations evaluate performance objectives when deciding between in-house and outsourced supply.
- Factors to assess include quality, speed, dependability, flexibility, and cost implications of in-house versus outsourced operations.
Performance Objectives
- Quality improvements are often more manageable in-house, but external suppliers can bring specialized knowledge.
- Speed can be enhanced through internal synchronization, while outsourcing contracts may incentivize rapid responses.
- Dependability can benefit from easier communication within in-house operations but can suffer from organizational barriers externally.
- Flexibility depends on proximity to business needs in-house, while larger outsourced suppliers may adapt better.
- Costs can be lower with outsourcing due to economies of scale, although internal operations retain profit margins by avoiding supplier cuts.
Strategic Outsourcing Decisions
- Companies often retain critical, long-term strategic activities in-house, such as website design for future developments.
- Specialized skills, such as those in laser printer production, are usually kept internal to maintain competitive advantage.
- Outsourcing decisions involve weighing operational performance against supplier capabilities.
Outsourcing and Offshoring
- Outsourcing refers to buying products or services from external sources, while offshoring involves sourcing from outside the home country.
- Both strategies aim to reduce costs and leverage expertise, often overlapping in execution.
Critique of Outsourcing
- Outsourcing initiatives can face backlash from trade unions, citing lower salaries and job security as potential downsides.
- Critics highlight the risks of outsourcing problems rather than addressing underlying issues internally.
- Initial costs may rise during the transition to outsourcing as organizations navigate new arrangements.
Importance of Location
- Location is crucial in retail; poor location choices can adversely affect profits and service delivery.### Location Impact on Operations
- Mislocating a fire service station can significantly delay fire crew response times.
- Location choices affect operational efficiency and costs, impacting customer service and revenue potential.
- Once a location decision is made, it is often costly and disruptive to relocate.
Reasons for Location Decisions
- Historical reasons often dictate current operation locations, but organizations implicitly choose not to relocate due to potential costs and disruptions.
- Changes in customer demand can lead to shifts in operation locations, illustrated by garment manufacturing moving to Asia, prompting suppliers to follow.
- Rising demand may require expansion or moving operations to new sites for better service delivery.
Changes in Supply as a Relocation Driver
- Resource depletion (e.g., minerals, oil) forces companies to relocate operations.
- Companies may relocate to regions with lower labor costs when original sites become too expensive.
- Land value may prompt relocation if the current location appreciates significantly compared to alternatives.
Case Study: Tata Nano
- Tata Nano was designed as the world’s cheapest car with a basic price of 100,000 rupees ($2,500).
- The original location in Singur, West Bengal faced political and public opposition, leading Tata to reconsider the investment.
- Eventually, Tata relocated the plant to Gujarat, which offered a more supportive environment and available land.
Strategic Objectives in Location Decisions
- The balance between spatially variable costs, service capabilities, and revenue potential is crucial in determining location.
- For profit-driven organizations, customer service enhancement directly correlates with revenue generation.
Factors Influencing Labor and Land Costs
- Labour costs vary significantly across countries and regions, impacting operational costs.
- Unit labor costs consider productivity differences and exchange rates, particularly relevant in labor-intensive industries like clothing manufacturing.
- Land and rental expenses can greatly influence retail location decisions, especially impacting potential revenue generation.
Energy and Transportation Costs
- Energy-intensive operations favor locations with cheaper energy sources, such as hydroelectric power.
- Transportation expenses include costs of delivering inputs and shipping final products to customers, necessitating careful location planning.
Community Influence on Operations
- Local factors, including tax rates, political stability, and support services impact operational costs.
- Historical labor relations and availability of amenities also play crucial roles in location decisions.
Case Study: Tesco Thailand
- Tesco operates in Thailand under the “Tesco Lotus” brand, adapting strategies to local conditions with 476 stores and over 36,000 employees.
- Local adaptations include understanding customer preferences, offering lower prices, and engaging in community support initiatives.
- The introduction of eco-friendly stores highlights the importance of sustainability in operations.
Silicon Valley and Emerging Competitors
- Silicon Valley is a prominent tech hub, facing competition from Bangalore, India, and Shanghai, China, known for their skilled labor forces.
- Bangalore has attracted major tech companies due to its pool of low-cost, high-quality software engineers.
- Shanghai's growing high-tech sector signals a shift in global technology competition, indicating potential challenges to established hubs.
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Description
This chapter focuses on supply network design, discussing the importance of considering the entire supply network and how to configure it.
