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    Chapter 5 The Structure and Scope of Operations

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    Chapter 5 The Structure and Scope of Operations

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    Renalyn Gomez
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    Chapter 5 the Structure and Scope of Operations

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    22 views40 pages

    Chapter 5 The Structure and Scope of Operations

    Uploaded by

    Renalyn Gomez

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    CHAPTER 5

    The Structure and


    Scope of Operations
    WHAT DO WE MEAN BY THE STRUCTURE' AND
    'SCOPE' OF OPERATIONS' SUPPLY NETWORKS?

    The 'structure' Of an operation's supply network


    relates to the shape and form of the network.

    The scope of an operation's supply network


    relates to the extent that an operation decides
    to do the activities performed by the network
    itself, as opposed to requesting a supplier to do
    them.
    SUPPLY NETWORK

    Supply network is an interconnection of


    organizations that relate to each other through
    upstream and downstream linkages between the
    different processes and activities that produce
    value in the form of products and services to the
    ultimate consumer.
    Figure 5.2 Operations
    network for a plastic
    homeware company
    and a shopping mall

    4
    WHY IS THE STRUCTURE AND SCOPE OF AN
    OPERATIONS SUPPLY NETWORK IMPORTANT?

    • It helps an understanding of competitiveness

    • It helps identify significant links in the


    network

    • It helps focus on long-term issues


    STRUCTURE AND SCOPE
    Figure 5.3 Three options for the shopping
    mall's supply network

    7
    Figure 5.4 What determines an operation's
    structure and scope?

    7
    WHAT CONFIGURATION SHOULD A SUPPLY
    NETWORK HAVE?

    'Configuring a supply network means deciding how


    to arrange and connect the different operations and
    entities involved in producing and delivering
    products or services.
    Reconfiguring a supply network sometimes
    involves parts of the operation being merged —
    not necessarily in the sense Of a change Of
    ownership Of any parts Of an operation, but
    rather in the Way responsibility is allocated for
    carrying out activities.
    DISINTERMEDIATION

    Another trend in some supply networks is that of


    companies within a network bypassing customers
    or suppliers to make contact directly with
    customers' customers or suppliers' suppliers.
    Cutting out the intermediaries' in this way is
    called disintermediation.
    CO-OPETITION

    One approach to thinking about supply networks


    sees any business as being surrounded by four
    types of players: suppliers, customers,
    competitors and complementors. Complementors
    enable one's products or services to be valued
    more by customers because they also can have
    the complementor's products or services, as
    opposed to when they have yours alone.
    DESCRIBING SUPPLY NETWORKS
    — DYADS AND TRIADS

    Dyads
    Supply network academics and professionals
    often choose to focus on the individual
    interaction between two specific operations
    in the network. This is called a ‘dyadic’•
    (simply meaning two) interaction, or dyadic
    relationship, and the two operations are
    referred to as a 'dyad'.
    Triads
    The idea of triads is especially relevant in
    service supply networks. Operations are
    increasingly outsourcing the delivery of some
    aspects of their service to specialist
    providers, who deal directly with customers
    on behalf of the focal operation
    Figure 5.5 Dyadic and triadic relationships
    in two simple supply networks and
    examples
    HOW MUCH CAPACITY SHOULD OPERATIONS PLAN TO
    HAVE?

    The optimum capacity


    level
    The ideal size of a facility that minimizes costs while
    effectively meeting customer demand. It balances
    fixed costs and service levels to avoid inefficiencies
    and high costs associated with both underutilization
    and overutilization.
    Figure 5.6 unit cost curves for individual
    truck service centres of varying capacities
    The timing of capacity change
    Changing the capacity of any operation in a supply
    network is not just a matter of deciding on its
    optimum capacity. The operation also needs to
    decide when to bring new capacity 'on-stream'.
    Figure 5.7 (a) Capacity-leading and capacity-lagging strategies. (b)
    Smoothing With inventories means usingthe excess capacity in one
    period to produce inventory that supplies the under-ca pacity period
    Break-even analysis of capacity
    expansion
    Break-even analysis assesses the impact of
    increasing capacity on profitability by examining how
    additional fixed costs affect the point at which total
    revenue equals total costs. It helps determine
    whether expanding capacity will result in profitability
    or losses, considering that each increment in
    capacity introduces new fixed costs that must be
    covered before achieving profitability.
    Figure5: The arguments for and against pure leading, pure
    lagging, and smoothing with inventory, strategies of capacity
    timing
    Figure5: The arguments for and against pure leading, pure
    lagging, and smoothing with inventory, strategies of capacity
    timing
    Figure 5.8 Repeated incurring of fixed costs can
    raise total costs above revenue
    WHERE SHOULD OPERATIONS BE LOCATED?

    Reasons for location


    decisions
    • Changes in demand
    A change in location may be prompted by customer
    demand shifting.

    • Changes in supply
    The other stimulus for relocation is changes in the cost,
    or availability, of the supply of inputs to the operation.
    13
    The objectives of the location
    decision
    • The spatially variable costs of the operation
    (spatially variable means that something changes with
    geographical location).

    • The service the operation is able to provide to its


    customers.

    • The revenue potential of the operation.


    13
    Services, on the other hand, often have both costs and
    revenues affected by location. The location decision for any
    operation is determined by the relative strength of a number of
    factors, as follows:
    •Labour costs -
    exert a major influence on the location decisions
    especially in industries (such as clothing) where labour
    costs, as a proportion of total costs, are relatively high.

    • Labour skills availability-


    The skills abilities of a local population are clearly
    important.

    • Land costs -
    The cost of acquiring or leasing the site itself can be
    • Energy costs
    Operations that use large amounts of energy, such as
    aluminium smelters, can be influenced in their location
    decisions by the availability of relatively inexpensive
    energy.
    • Image Of the location
    Some locations are firmly associated in customers'
    minds with a particular image

    • Convenience for customers


    This is often the most important factor when service is
    important to customers.
    • The suitability of the site
    Different sites may have different intrinsic
    itself
    characteristics that can affect an operation's ability to
    serve customers and generate revenue.

    • Transportation costs
    Transportation costs include both the cost of
    transporting inputs from their source to the operation
    and the cost of transporting outputs to customers.

    • Community factors
    are those influences on an operation's costs that derive
    from the social, political and economic environment of
    its site.
    HOW VERTICALLY I NTEGRATED SHOULD AN
    OPERATION'S NETWORK BE?

    • The direction of integration


    The strategy of expanding on the supply side of the network is
    sometimes called backward or ‘upstream’ vertical
    integration, and expanding on the demand side is sometimes
    called forward or downstream' vertical integration.

    Backward vertical integration


    by allowing an organization to take control of its suppliers, is
    often used either to gain cost advantages or to prevent
    competitors gaining control of important suppliers.
    Forward vertical integration
    takes an organization closer to its markets and allows more
    freedom for an organization to make contact directly with its
    customers, and possibly sell complementary products and
    services
    • The extent of the process span of
    describes the range of stages a company controls within its
    integration
    supply chain, from raw material sourcing to final product
    distribution.

    • The balance among the vertically integrated


    stages
    It refers to the amount of the capacity at each stage in the
    network that is devoted to supplying the next stage.
    THE PERCEIVED ADVANTAGES OF VERTICAL
    INTEGRATION

    • It secures dependable access to supply


    or markets
    • It may reduce costs

    • It may help to improve product or service


    quality
    • It helps in understanding other activities in
    the supply network
    Figure 5.10 The direction, extent and balance of an operation's
    vertical integration
    THE PERCEIVED DISADVANTAGES OF VERTICAL
    INTEGRATION

    • It creates an internal monopoly

    • You cannot exploit economies of


    scale
    • It results in loss of flexibility
    • It cuts you off from innovation

    • It distracts you from core activities (loss of


    focus)
    HOW DO OPERATIONS DECIDE WHAT TO DO IN-
    HOUSE AND WHAT TO OUTSOURCE?

    Difference between vertical integration and


    outsourcing?

    Vertical integration

    • is the extent to which an organization owns


    the network of which it is a part'.
    • is a term that is usually (but not always)
    applied to whole operations.
    Difference between vertical integration and
    outsourcing?

    Outsourcing

    • is ‘an arrangement in which one company


    provides services for another company that
    could also be, or usually have been,
    • provided in-house'
    usually applies to smaller sets of activities
    that have previously been performed in-
    house.
    Table 5.2 How in-house and outsourced supply may affect an
    operation's performance objectives
    Table 5.2 How in-house and outsourced supply may affect an
    operation's performance objectives
    Outsourcing and offshoring

    Outsourcing
    • Outsourcing means deciding to buy in
    products or services rather than perform
    the activities in-house.

    Offshoring
    • means obtaining products and services from
    oppartions that are based outside one’s own
    country
    Figure 5.12 Offshoring and outsourcing are related but different
    Fauget University | 2024

    THANK YOU
    Presented By : Claudia Alves

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