Supply Network Design Chapter 6
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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?

<p>All of the above</p> Signup and view all the answers

Why are general hospitals typically located close to centres of demand?

<p>To provide convenience for customers.</p> Signup and view all the answers

What is an example of a factor that can influence the cost of a location?

<p>Local property taxation</p> Signup and view all the answers

The weighted-score method for location evaluation involves identifying criteria, establishing their relative importance with weighting factors, and _____ each location according to each criterion.

<p>rating</p> Signup and view all the answers

What are the two systematic techniques mentioned for location decision making?

<p>Weighted-score method and centre-of-gravity method.</p> Signup and view all the answers

What is the best location in the centre-of-gravity method represented by?

<p>The weighted centre of gravity of all points to and from which goods are transported.</p> Signup and view all the answers

What happens to average costs at activity levels below a plant’s capacity?

<p>The average cost of producing each unit will increase.</p> Signup and view all the answers

What are economies of scale?

<p>Decreased unit costs as capacity increases</p> Signup and view all the answers

Larger operations always lead to lower transportation costs.

<p>False</p> Signup and view all the answers

Match the following strategies with their descriptions:

<p>Capacity-leading = Timing the introduction of capacity to meet forecast demand always Capacity-lagging = Timing the introduction of capacity so that demand equals or exceeds capacity</p> Signup and view all the answers

What does 'smoothing' with inventory allow a company to achieve?

<p>It allows the company to meet demand continuously while maintaining utilization of capacity.</p> Signup and view all the answers

Why should an organization take a total supply network perspective?

<p>To understand how it interacts with other operations and to optimize its competitiveness.</p> Signup and view all the answers

What is involved in configuring a supply network?

<p>Deciding on the shape, ownership, and management of the network.</p> Signup and view all the answers

Where should an operation be located?

<p>It should be strategically positioned based on its supplies and customer proximity.</p> Signup and view all the answers

How much capacity should an operation plan to have?

<p>An operation should plan capacity based on forecasted demand.</p> Signup and view all the answers

What are the three important design decisions in supply networks?

<p>What physical capacity to have</p> Signup and view all the answers

Which of the following is an advantage of a smoothing-with-inventory strategy? (Select all that apply)

<p>All demand is satisfied</p> Signup and view all the answers

Relying on immediate contacts is beneficial for understanding the market.

<p>False</p> Signup and view all the answers

The risks of obsolescence and deterioration are advantages of carrying inventories.

<p>False</p> Signup and view all the answers

What does outsourcing involve?

<p>Buying services or products from suppliers</p> Signup and view all the answers

What is the estimated cost of running a single processing center per quarter?

<p>$5 million</p> Signup and view all the answers

What is co-opetition?

<p>A concept where competitors also cooperate to enhance market value.</p> Signup and view all the answers

The maximum funding required occurs in quarter _____ and is _____ million.

<p>2, 10</p> Signup and view all the answers

How much business can a fully utilized processing center generate per quarter?

<p>$10 million</p> Signup and view all the answers

What is vertical integration?

<p>The extent to which an organization owns its suppliers or customers.</p> Signup and view all the answers

When is the second processing center expected to be operational?

<p>Beginning of quarter 6</p> Signup and view all the answers

What are potential reasons for outsourcing?

<p>Cost reduction</p> Signup and view all the answers

What are the capital costs of building a single processing center?

<p>$10 million</p> Signup and view all the answers

Disintermediation involves cutting out intermediaries in supply chains.

<p>True</p> Signup and view all the answers

What are some benefits of outsourcing?

<p>Outsourcing can achieve economies of scale, reduce costs, and allow companies to focus on their core competencies.</p> Signup and view all the answers

What is the difference between outsourcing and offshoring?

<p>Outsourcing means buying products or services from external suppliers instead of doing it in-house; offshoring refers to sourcing products or services from operations outside one's own country.</p> Signup and view all the answers

The main reason companies choose to outsource is to ensure high product quality.

<p>False</p> Signup and view all the answers

What did Tata encounter when seeking a site for the Nano production?

<p>Tata faced political opposition and protests from local farmers regarding land acquisition.</p> Signup and view all the answers

Outsourcing involves deciding to buy-in products or services rather than perform the activities in-_____

<p>house</p> Signup and view all the answers

List two stimuli that can cause organizations to change locations.

<p>Changes in demand for goods and services; changes in supply of inputs.</p> Signup and view all the answers

Which of the following is NOT a community factor influencing operation costs?

<p>Immediate customer feedback</p> Signup and view all the answers

High visibility operations can choose to expand on the same site to meet rising demand.

<p>False</p> Signup and view all the answers

What are the three objectives that should be balanced in location decisions?

<p>Spatially variable costs, customer service, revenue potential.</p> Signup and view all the answers

Two supply network strategies often confused are outsourcing and _____

<p>offshoring</p> Signup and view all the answers

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.
  • 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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Chapter 6 Supply Network Design PDF

Description

This chapter focuses on supply network design, discussing the importance of considering the entire supply network and how to configure it.

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