Slack, Chambers and Johnston, Operations Management, 6

th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.1
6.1
Chapter 6
Supply network design
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.2
6.2
In Chapter 6 Supply network design Slack et al. identify
the following key questions:

Why should an organization take a total supply network
perspective?
What is involved in configuring a supply network?
Where should an operation be located?
How much capacity should an operation plan to have?
Key operations questions
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.3
6.3
Plastic
homeware
manufacturer
Operations network for a plastic homeware company
First tier
suppliers
Packaging
supplier
Plastic
stockist
First tier
customers
Wholesaler
Second tier
suppliers
Ink
supplier
Cardboard
company
Chemical
company
Second tier
customers
Retailer
Retailer
Direct supply
Information
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.4
6.4
Operations network for a shopping mall
First tier
suppliers
Cleaning
services
Security
services
Maintenance
services
Shopping
mall

First tier
customers
Retailers

Second tier
customers
Retail
customers
Direct supply
Information
Second tier
suppliers
Recruitment
agency
Cleaning
materials
supplier
Equipment
supplier
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.5
6.5
Direction, extent and balance of vertical integration
Extent Narrow process span
Extent Wide process span
Direction
Upstream vertical
integration
Direction
Downstream vertical
integration
Wholesaler
Raw
material
suppliers
Component
maker
Assembly
operation
Retailer
Balance should excess capacity
be used to supply other companies?
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.6
6.6
The decision logic of outsourcing
Is activity of
strategic
importance
Explore keeping this activity in-house
Yes Yes
Does
company have
specialized
knowledge
No
Is companys
operations
performance
superior?
Yes
No
Is significant
operations
performance
improvement
likely?
Yes
No
Explore
outsourcing
this activity
No
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.7
6.7
Supply-side and demand-side factors in location decisions
The
operation
Supply-side factors
which vary to influence
costs as location varies.

For example:
labour costs
land costs
energy costs
transportation costs
community factors
Demand-side factors
which vary to influence
customer service/revenue
as location varies.

For example:
labour skills
suitability of site
Image
convenience for
customers
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.8
6.8
Labour
Transport
Fabric
Supplies
Customs duties
15.55
France
14.33 Portugal
11.43
Turkey
11.43
Thailand
11.13
Morocco
10.82
Romania
10.37 China
9.60 Myanmar
Cost in euros
2 4 6 8 10 12 14 16 0
The cost breakdown of shirt made in various countries and
sold in France
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.9
6.9
The balance of capacity
Capacity can either lead or lag demand.
Inventory can be used to smooth out the peaks.
Spare capacity can be used to supply other
operations.
The danger of this is that the original operation
may receive a lower level of service.
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.10
6.10
Unit cost curves for service centres of varying capacities
5
10 15
Average number of bays in use
R
e
a
l

c
o
s
t

p
e
r

c
u
s
t
o
m
e
r

s
e
r
v
e
d

Cost curve for 5
bay service centre
Cost curve for 10
bay service centre
Cost curve for 15
bay service centre
Economy of scale
curve for hotel
capacity
Diseconomies
of scale
Economies
of scale
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.11
6.11
Capacity lags demand
V
o
l
u
m
e

Time
Capacity leads demand
V
o
l
u
m
e

Time
Capacity leading demand and capacity lagging demand
Demand Demand
Capacity
Capacity
Slack, Chambers and Johnston, Operations Management, 6
th
Edition,
Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.12
6.12
Smoothing with inventory
V
o
l
u
m
e

Time
Smoothing with inventory
Demand
Capacity