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Chapter 6 Supply network design 161
Summary answers to key questions
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➤ Why should an organization take a total supply network perspective?
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The main advantage is that it helps any operation to understand how it can compete effectively
within the network. This is because a supply network approach requires operations managers
to think about their suppliers and their customers as operations. It can also help to identify
particularly significant links within the network and hence identify long-term strategic changes
which will affect the operation.
➤ What is involved in configuring a supply network?
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There are two main issues involved in configuring the supply network. The first concerns the
overall shape of the supply network. The second concerns the nature and extent of outsourcing
or vertical integration.
Changing the shape of the supply network may involve reducing the number of suppliers to the
operation so as to develop closer relationships, any bypassing or disintermediating operations
in the network.
Outsourcing or vertical integration concerns the nature of the ownership of the operations within
a supply network. The direction of vertical integration refers to whether an organization wants
to own operations on its supply side or demand side (backwards or forwards integration). The
extent of vertical integration relates to whether an organization wants to own a wide span of
the stage in the supply network. The balance of vertical integration refers to whether operations
can trade with only their vertically integrated partners or with any other organizations.
➤ Where should an operation be located?
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The stimuli which act on an organization during the location decision can be divided into
supply-side and demand-side influences. Supply-side influences are the factors such as labour,
land and utility costs which change as location changes. Demand-side influences include such
things as the image of the location, its convenience for customers and the suitability of the site
itself.
➤ How much capacity should an operation plan to have?
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The amount of capacity an organization will have depends on its view of current and future
demand. It is when its view of future demand is different from current demand that this issue
becomes important.
When an organization has to cope with changing demand, a number of capacity decisions need
to be taken. These include choosing the optimum capacity for each site, balancing the various
capacity levels of the operation in the network, and timing the changes in the capacity of each
part of the network.
Important influences on these decisions include the concepts of economy and diseconomy
of scale, supply flexibility if demand is different from that forecast, and the profitability and
cash-flow implications of capacity timing changes.