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Operations Management

8th edition

Chapter 5

The Structure and

Scope of Operations

In Chapter 5 – The structure and scope of operations –

Slack et al. identify the following 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?

Key questions

Operations performance should be seen as a

whole supply chain issue

Benefits of looking at the whole supply chain include:

It helps an understanding of competitiveness.

It helps to identify the significant links in the network.

It helps focus on long-term issues.

Design Manufacture

nacelle parts

Assemble

nacelle Install Operate

Manufacture

tower/blades

Company A

One wind turbine company's vertical integration

position (1 of 3)

Blades

Tower

Nacelle details

Parts of the supply chain

owned by this company

Design Manufacture

nacelle parts

Assemble

nacelle Install Operate

Manufacture

tower/blades

Company B

One wind turbine company's vertical integration

position (2 of 3)

Blades

Tower

Nacelle details

Parts of the supply chain

owned by this company

Design Manufacture

nacelle parts Assemble

nacelle Install Operate

Manufacture

tower/blades

Company C

One wind turbine company's vertical integration

position (3 of 3)

Blades

Tower

Nacelle details

Parts of the supply chain

owned by this company

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

The direction, extent and balance of an

operation’s vertical integration

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.

Figure 5.7

(a) Capacity-leading and capacity-lagging

strategies

Figure 5.7

(b) Smoothing with inventories means using the excess

capacity in one period to produce inventory that supplies

the under-capacity period