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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.2
Improvement
Process technology
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Introduction
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.6
Operations in practice
Michael Dell started in 1984 by cutting out the middle man and delivering computers direct to the customer.
Using its direct selling methods, Dell went on to become the number one computer maker.
Most of the reasons for Dells success come from the way Dell configures its supply networks. Dells supply network model being adapted to take account of market changes (products now available in stores).
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.7
Case study: Dell - no operating model lasts forever How did Dell gain advantage from its original operating model? networks
The purpose of this example is to demonstrate that capabilities can be developed notwithstanding what may seem like unpromising circumstances. Dell were forced into adopting a different supply network configuration (bypassing conventional retailer channels) as the only way that they could compete with the low prices being offered by their more established rivals. However, rather than simply seeing this strategy as the only feasible option, they actively explored whether it would be possible to gain benefits from having no retail outlets. The lesson here is that, there are often potential positives and negatives to every strategic option. Just because one is forced into an unorthodox competitive stance does not necessarily mean that the potential negatives of a strategy outweigh the more obvious positives. By being both energetic and creative, Dell managed to turn the disadvantages of having no retail outlets into a set of advantages built upon having direct contact with their consumers. Why did it have to change its original operating model? Clearly its investment in a radically different supply chain configuration, although it gave it significant advantage in its early days, is now proving to be less than ideal for the new markets. When the radical supply chain model was set up, it was not at all obvious that the market would change in the way that it has with a far greater emphasis on design aesthetics and the merging of computing and entertainment products. To some extent, the market has changed because of the action of competitors, most notably Apple who have educated consumers to the importance of good aesthetic design. It is difficult to untangle two issues, both of which may explain Dells dilemma. The first is the lack of fit between the companys supply chain configuration and the way markets are moving (as mentioned previously). The second is that Dell, unlike its early days, is a large and mature company which may have lost some of its cutting edge simply because of the growth that has come from its previous success. But dont write off Dell yet. This example in the text should be taken as a warning of how core rigidities go along with core competencies. It is certainly intended to be Dells obituary . Nevertheless, there are some points which are worth thinking about from Dells dilemma. Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Cardboard company
Ink supplier Packaging supplier
Retailer
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6.9
Recruitment agency
Shopping mall
Equipment supplier
Maintenance services
Direct supply Information
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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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.
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Design decisions in supply network networks The supply-network view is useful because it prompts three
particularly important design decisions:
1. How should the network be configured? This means, first, how can an operation influence the shape which the network might take? Second, how much of the network should the operation own? This may be called the outsourcing, vertical integration or do-or-buy decision. Where should each part of the network be located? If the homeware company builds a new factory, should it be close to its suppliers or close to its customers, or somewhere in between? This decision is called the operations location decision. What physical capacity should each part of the network have? How large should the homeware factory be? Should it expand in large-capacity steps or small ones? These type of decisions are called long-term capacity management decisions.
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
2.
3.
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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 middlemen 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.
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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In-house or outsource? Do or buy? The vertical integration decision No single business does everything that is required to produce its products and services: Bakers do not grow wheat or even mill it into flour.
Banks do not usually do their own credit checking: they retain the services of specialist credit checking agencies that have the specialized information systems and expertise to do it better. This process is called business process outsourcing (BPO). The reason for doing this is often primarily to reduce cost. The outsourcing decision determines the operation should do itself and what should it buy in? This is often referred to as the do-or-buy decision when individual components or activities are being considered, or vertical integration when it is the ownership of whole operations that is being decided. Vertical integration is the extent to which an organization owns the network of which it is a part. It usually involves an organization assessing the wisdom of acquiring suppliers or customers.
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Balance should excess capacity be used to supply other companies? Raw material suppliers
Component maker
Assembly operation
Wholesaler
Retailer
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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No
Yes
Yes
Yes
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Facility Location
There are three important things in retailing location, location and location, Lord Sieff - Marks and Spenser boss. Location of a facility is critical to the success of any business. For example, mis-locating a fire service station can slow down the average journey time of the fire crews in getting to the fires; locating a factory where there is difficulty attracting labour with appropriate skills will affect the effectiveness of the factorys operations. Location decisions will usually have an effect on an operations costs as well as its ability to serve its customers (and therefore its revenues). Also, location decisions, once taken, are difficult to undo. The costs of moving an operation can be hugely expensive and the risks of inconveniencing customers very high. No operation wants to move very often.
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Importance of Location
o Up to 25% of the products selling cost
o Once a company commits to a location, many costs are fixed and difficult to change, e.g. Energy Labor o Location depends on the type of business
Manufacturing minimizing cost Retail and professional services maximizing revenue Warehouse cost and speed of delivery
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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A: Changes in demand 1. A shift in customer demand. For example, as garment manufacture moved to Asia, suppliers of zips, threads, etc. started to follow them.
2. Changes in the volume of demand To meet higher demand, an operation could expand its existing site, or choose a larger site in another location, or keep its existing location and find a second location for an additional operation;
.
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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B: Changes in supply. 1. Changes in the availability of the supply of inputs to the operation.
For example, a mining or oil company will need to relocate as the minerals it is extracting become depleted.
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Shut down of a facility and (or not) starting of a new one somewhere else. Moving production from one plant to other.
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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LOCATION DECISIONS
PROXIMITY TO MARKETSS
Service organizations (drug stores, restaurants, post offices) find proximity to market is the primary location factor Manufacturing useful to be close to customers when transporting finished goods is expensive or difficult
PROXIMITY TO SUPPLIERS
Firms locate near their raw materials and suppliers because of: Perishability of goods, Transportation costs, Bulkness of goods
PROXIMITY TO COMPETITORS
Clustering the location of competing companies near each other, often because of a critical mass of information, talent, venture capital, or natural resources
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Supply-Side Factors
Labour costs. The costs of employing people with particular skills can vary between different
areas in any country, but are likely to be more significant when international comparisons are made.
Land costs. The cost of acquiring the site itself is sometimes a relevant factor in choosing a
location. Land and rental costs vary between countries and cities. At a more local level, land costs are also important. A retail operation, when choosing high-street sites, will pay a particular level of rent only if it believes it can generate a certain level of revenue from the site.
Energy costs. Operations which use large amounts of energy, such as aluminium smelters, can
be influenced in their location decisions by the availability of relatively inexpensive energy.
Transportation costs. Transportation costs include both the cost of transporting inputs from
their source to the site of the operation, and the cost of transporting goods from the site to customers. Whereas almost all operations are concerned to some extent with the former, not all operations transport goods to customers; rather, customers come to them (for example, hotels).
Community factors. Community factors are those influences on an operations costs which
derive from the social, political and economic environment of its site. These include: local tax rates, capital movement restrictions, government financial assistance government planning assistance, political stability, local attitudes to inward investment language, local amenities (schools, theatres, shops, etc.), availability of support services history of labour relations and behaviour, environmental restrictions and waste disposal planning procedures and restrictions. Slack, Chambers and Johnston, Operations Management, 6th Edition,
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Demand-Side Factors
Labour skills. The abilities of a local labour force can have an effect on customer reaction to
the products or services which the operation produces. For example, science parks are usually located close to universities because they hope to attract companies that are interested in using the skills available at the university.
The suitability of the site itself. Different sites are likely to have different intrinsic
characteristics which can affect an operations ability to serve customers and generate revenue. For example, the location of a luxury resort hotel which offers up-market holiday accommodation is very largely dependent on the intrinsic characteristics of the site. Located next to the beach, surrounded by waving palm trees and overlooking a picturesque bay, the hotel is very attractive to its customers. Move it a few kilometres away into the centre of an industrial estate and it rapidly loses its attraction.
Image of the location. Some locations are firmly associated in customers minds with a
particular image. Suits from Savile Row (the centre of the up-market bespoke tailoring district in London) may be no better than high-quality suits made elsewhere but, by locating its operation there, a tailor has probably enhanced its reputation and therefore its revenue. Convenience for customers. Of all the demand-side factors, this is, for many operations, the most important. Locating a general hospital, for instance, in the middle of the countryside may have many advantages for its staff, and even perhaps for its costs, but it clearly would be very inconvenient to its customers. Because of this, general hospitals are located close to centres of demand. Similarly with other public services and restaurants, stores, banks, petrol filling stations etc., location determines the effort to which customers have to go in order to use the operation.
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Location Techniques
Although operations managers must exercise considerable judgement in the choice of alternative locations, there are some systematic and quantitative techniques which can help the decision process. We describe three here the weighted-score method and the centre-of-gravity, and locational break-even analysis method.
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11-27
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30
60
90
120
150
Cx =
d V V
ix i
Cy =
d V V
iy i
Cx , Cy = Gravity Center co-ordinates dix , diy = coordinates of existing facilities Vi = Volume of goods moved from/to i
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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S ho wro o m
D
(250,580)
A D
A
(100,200) (0,0)
Q
X
Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month? Slack, Chambers and Johnston, Operations Management, 6th Edition,
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11-31
To begin, you must identify the existing facilities on a twodimensional plane or grid and determine their coordinates.
(0,0)
D
(250,580)
A
(100,200)
S ho wro o m
You must also have the volume information on the business activity at the existing facilities.
A D Q
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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You then take the coordinates and place them on the map:
Y Q
(790,900)
D
(250,580)
A
(100,200) (0,0)
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S ho wro o m
A D
Q Operations Management 2300 , 6th Edition, XSlack, Chambers and Johnston, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.33
Factor-Rating Method
Most widely used location technique Useful for service & industrial locations Rates locations using factors (critical success factors)
Intangible (qualitative) factors
Example: Education quality, labor skills
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Factor-Rating Method
Most popular because a wide variety of factors can be included in the analysis Six steps in the method
Develop a list of relevant factors called critical success factors Assign a weight to each factor (which should add up to 1 or 100 % ) Develop a scale / rating for each factor (1-5) (1 = poor, 5 = excellent) Score each location for each factor (out of 100%) Multiply score by weights for each factor for each location Recommend the location with the highest point score
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
6.35
Factor-Rating Example
Critical Success Factor Scores (out of 100) Weight France Denmark
70 50 85 75 60
60 60 80 70 70
(.10)(85) = 8.5 (.10)(80) = 8.0 (.39)(75) = 29.3 (.39)(70) = 27.3 (.21)(60) = 12.6 (.21)(70) = 14.7 70.4 68.0
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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City
Fixed Cost
Akron $30,000 Bowling Green $60,000 Chicago $110,000 Selling price = $120 Expected volume = 2,000 units
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Annual cost
500
1,000
1,500
2,000
2,500
3,000
Volume
Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010
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End
End
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Slack, Chambers and Johnston, Operations Management, 6th Edition, Nigel Slack, Stuart Chambers, and Robert Johnston 2010