Operations Strategy 4 - Supply Network Strategy

Supply chain edge - where discretion over operations end i.e. another company - but to some extent you can still manage the relationship albeit indirectly

Supply network relationships

• • Vertical integration
    • not fashionable - try to stick with what you know best, Can improve quality and can get closer to the customer. It reduces flexibility, distracts from core competency, cuts you off from innovation and EoS but secures supply
    • Exxon is vertically integrated. Some companies decide to expand vertically upstream. NewsCorp bought the satellite co that it films were run on and then sold them to customers
  • Virtual relationships
  • Partnership supply relationships
  • Traditional market relationships
    • Opposite of vertical - see elements of partnership relationships
    • Coping with buyer supplier uncertainties
    • Transaction costs between buyer supplier can be greater / more administration
    • Can be risky - Sumsung learnt so much about microwaves by manufacturing them for GE that they eventually became the largest manufacturer- Microsoft and IBM
    • Cost of changing suppliers and How many suppliers in the market will determine whether a partnership or more arms length relationship is required
    • The market requirements end of Network relationships
      • Market position -
      • Competitor behaviour
      • Market risks
      • Market structure

Asset specificity

The extent to which an asset can be used for limited number of uses - who has the most to lose the supplier or customer

Supply network trends

• • An increase in the % of goods outsourced
  • Fewer suppliers / closer relationships

Supplier selection

Based up

• • Their key critical items of expenditure
  • To single or dual source
  • number of suppliers
  • level of financial equipment in tooling for the supplier
  • degree of autonomy or otherwise in the supplier

e.g. HP single sourced parts and multi-sourced commodities

For existing suppliers the operation factors are:

• • Quality
  • design
  • product complexity
  • facilities and production flow

Relational factors were

• • Interpersonal relationship
  • shared experiences
  • empathy
  • familiarity
  • dedicated employees
  • responsiveness
  • trust

For new Suppliers

• • design capability
  • quality assurance
  • the same above

Relational factors

• • Recommendation
  • Reputation
  • Team structures
  • Dedicated individuals

Three types of supplier trust

• Competency
• Contractual
• Goodwill

Supply network behaviour

• • Network relationships change over time - its important to understand the nature and change of relationships - For instance see how the music industry has changed over thirty years
    • The bull whip effect - a change in demand at the top of the supply chain and have amplified effects at the other end of the supply chain - Quantitative effect Caused by
      • Order batching
      • Demand forecast updating
      • Price fluctuations
      • rationing
    • The three links in the relationships need to be understood and work well in a qualitative manner -
      • Understand the customers correctly
      • Understand the association between the operations customers needs and what the supplier is offering
      • Understanding whether the supplier really understands what is needed from them

Network management

• • Co-ordinating activities
    • synchronize actions and improve efficiency
  • Differentiation
    • SC policies are appropriate for the way the different products and services are competing
  • Reconfiguration activities
    • Changing the stages and relationship in the SC network

Dell

They are not outsourcing their problems to someone else. Their direct to customer model gets them closer to the customer. But also makes them vulnerable - battery recall

The Supply chain perspective

• • It enhances understanding of competitive forces -
  • And co-operative forces - complementors
  • It identifies significant relationships - those parts of the network which add most value to the customer
  • Promotes focus on l-t issues - see trends in the industry
  • Focuses operation on its strategic resources - what is it doing and what is the rest of the network doing - should they integrate or outsource further
  • Highlights the op to op nature of business relationships - what is flowing and how it is managed