Chap06

© Nigel Slack and Michael Lewis 2003

Quality

Per

form

ance

o

bje

ctiv

es

Dependability

Process Technology

Developmentand

Organization

Speed

Flexibility

Cost

Resource Usage

Mar

ket

Co

mp

etit

iven

ess

Decision areas

Capacity Supply Network Relationships

Issues include:

• What should we do ourselves and what to subcontract

• When to use ‘market-based’ purchasing

• How to develop ‘partnership’ supply

Issues covered in this chapter


Supply network strategy

The concept of supply networks

Vertical integration Partnerships Market

trading

Supply network

relationships

Supply network behavior

The network perspective

Network management

Network dynamics

Co-ordinationDifferentiationReconfiguration

QuantitativeQualitative

Supply network issues


Second-tier Suppliers

First-tier Suppliers

Company A

Company B

Company C

x

Second-tier Customers

First-tier Customers

x

xx

x

Focal Level

Upstream Downstream

Supply side of the network

Demand side of the networkFor Company A

Internal supply network

Immediate supply network

Total supply network

Flow of Products/ServicesFlow of Information

Supply networks are the interconnections of relationships between operations

© Nigel Slack and Michael Lewis 2003Total and Immediate Supply Networks

“Second tier” Suppliers

“First tier” Suppliers

“Second tier” Customers

“First tier” Customers

The Operation

Supply side of the network

Demand side of the network

The Immediate Supply Network

The Total Supply Network

Internal Supply Networks

Slide 6.4


Operations performance should be seen as a whole supply chain issue

Benefits of looking at the whole supply chain include

Puts the operation into its competitive context

Helps to identify the key players

Shifts emphasis to the long term

Sensitizes the operation to macro changes

Changes the nature of the ‘supplier-buyer’ relationship


Motor Vehicle Parts Distribution Chains

Distribution Chain of Parts Manufacturer

Distribution Chain of

V.M.

Manufacturing Chain

Dealer network

Vehicle manufacturer

Installer

Local distributor

Area distributor

Prime distributor

Supplier

Sub-supplier

Stockist

Raw materials


Firms in the same industry may configure their supply networks in different ways

Home Office Market

Corp. Market

Suppliers

Retailers

COMPAQ

Home Office Market

Corp. Market

Suppliers

Retailers

DELL


Supply chain Management

The opportunities lie at the boundaries


Extent of Activity (Quantitative)

Nature of Activity (Qualitative)

‘Structure’

Number of relationships

‘Posture’

Closeness of relationships

Degree of activity performed ‘in-house’

Importance of activity performed ‘in-house’

Market Relationships

Resource Scope

The market and resource dimensions of supply networks


Do Nothing

Do Everything

The character of internal operations activity

Types of supply relationship

Virtual Spot

Trading

Traditional Market Supply

Resource Scope

Mar

ket

Rel

atio

nsh

ip

Long-term Virtual

Operation

‘Partnership’ Supply

Relationships

Vertical Integration

Typ

e o

f in

ter-

firm

co

nta

ct

Tra

nsa

ctio

nal

–

Man

y su

pp

liers

Clo

se –

Few

su

pp

liers


Focal operation

Extent of integration

Backward Integration

Forward Integration

Non-exclusive balance between stages

Exclusive balance between stages

Vertical integration decisions


Low HighCost of changing suppliers

When is the use of pure market mechanisms appropriate in buyer-supplier relationships?

Market mechanisms inappropriate

Resource Dimension

Mar

ket

Dim

ensi

on

Market mechanisms appropriate

Leverage needs

uncertainty

Leverage market

uncertainty

Nu

mb

er o

f su

pp

ly a

lter

nat

ives

Few

Man

y



Partnership relationships are seen as desirable

because they can reduce the transaction costs of

doing business


Joint learning

Joint co-ordination of

activities

Multiple points of contact

Trust

Sharing success

Few relationships

Information transparency

Dedicated assets

Joint problem solving

Long-term expectations

Attitudes

Actions

Closeness of relationship

Elements of partnership relationships



There are strong forces acting against the

maintenance of trust


Mr. White gets 5 yrs

Mr. Orange gets 5 yrs

Mr. White goes free


Mr. White get 10 yrs

Mr. Orange goes free



Doesn’t confess

Confesses

Confesses

Doesn’t confess

The “prisoner’s dilemma” decision

Mr. White

Mr. Orange


Mr. White goes free




Doesn’t confess

Confesses

Confesses

Doesn’t confess






Mr. White

Mr. Orange

Assume Mr. Orange confesses




Doesn’t confess

Confesses

Mr. White

Confesses

Doesn’t confess

Mr. Orange




Mr. White goes free




Assume Mr. Orange doesn’t confess


…trusting you is likely to give me more benefits than not trusting you...

…I believe I can trust you because I think I know

you enough to be confident you will behave

as I would wish...

…I trust you because I know that you know that I wouldn’t let you down and you know that I know that

you wouldn’t either......

Calculative trust

Cognitive trust

Bonding trust

Deg

ree

of

clo

sen

ess

Based on knowledge

Based on feelings

Tim

e

Cu

mu

lati

ve p

osi

tive

exp

erie

nce

s

Degrees of trust


Market position

Market risks

Market structure

Competitive behavior

Economies of scale

Transaction costs

Learning potential

Resource deficiencies

Some factors influencing the nature of network relationships

OPERATIONS RESOURCES

MARKET REQUIREMENTS

Nature of network

relationship


Will Desron find someone else to ‘single supply’?

Turns down Desron’s offer

Accepts Desron’s offer

Minimises investment but high vulnerability

Increases investment in capacity but retains ‘safety net’ of other customers

Dedicate to Desron

Retain some other customers

Options for Aztec

Chap06

Business

operation supply

supply network strategy

yrs doesnt

immediate supply networks

supply chain issue benefits

network demand

tier suppliers company

buyersupplier relationships