OE- paper 1

Chapter511.pptx

Chapter 5

Niccole Hyatt, PhD

Key Questions

What do we mean by the ‘structure’ and ‘scope’ of operations’ supply networks?

What configuration should a supply network have?

How much capacity should operations plan to have?

Where should operations be located?

How vertically integrated should an operation’s network be?

How do operations decide what to do in-house and what to outsource?

Figure 5.2 Operations network for a plastic homeware company (1 of 2)

Figure 5.2 Operations network for a plastic homeware company (2 of 2)

Performance objective	‘Do it yourself’ In-house supply	‘Buy it in’ Outsourced supply
Quality	The origins of any quality problems usually easier to trace in-house and improvement can be more immediate but can be some risk of complacency.	Supplier may have specialized knowledge and more experience, also may be motivated through market pressures, but communication more difficult.
Speed	Can mean synchronized schedules which speeds throughput of materials and information, but if the operation has external customers, internal customers may be low priority.	Speed of response can be built into the supply contract where commercial pressures will encourage good performance, but there may be significant transport/delivery delays.

How outsourcing may affect performance objectives (1 of 3)

Performance objective	‘Do it yourself’ In-house supply	‘Buy it in’ Outsourced supply
Dependability	Easier communications can help dependability, but, if the operation also has external customers, internal customers may receive low priority.	Late delivery penalties in the supply contract can encourage good delivery performance, but organizational barriers may inhibit in communication.
Flexibility	Closeness to the real needs of a business can alert the in-house operation to required changes, but the ability to respond may be limited by the scale and scope of internal operations.	Outsource suppliers may be larger with wider capabilities than in-house suppliers and more ability to respond to changes, but may have to balance conflicting needs of different customers.

How outsourcing may affect performance objectives (2 of 3)

Performance objective	‘Do it yourself’ In-house supply	‘Buy it in’ Outsourced supply
Cost	In-house operations do not have to make the margin required by outside suppliers so the business can capture the profits which would otherwise be given to the supplier, but relatively low volumes may mean that it is difficult to gain economies of scale or the benefits of process innovation.	Probably the main reason why outsourcing is so popular. Outsourced companies can achieve economies of scale and they are motivated to reduce their own costs because it directly impacts on their profits, but costs of communication and coordination with supplier need to be taken into account.

How outsourcing may affect performance objectives (3 of 3)

Figure 5.11 The decision logic of outsourcing

Figure 5.12 Offshoring and outsourcing are related but different

Questions?

Niccole Hyatt, PhD