
Supply network strategy

The concept of supply networks

Vertical integration Partnerships Market

trading

Supply network

relationships

Supply network behavior

The network perspective

Network management

Network dynamics

Co-ordinationDifferentiationReconfiguration

QuantitativeQualitative

Supply network issues


Competitors

Focal Company

Complementors

Suppliers Customers

The value net


Materials manufacturer

Packaging manufacturer

Food manufacturer

Warehouse Retail store

InventoriesOperations processes

Multi echelon inventory chain


1

2

3

4

5

6

7

8

99 8 7 6 5 4 3 2 1

LOW IMPORTANCE HIGH

BA

D

P

ER

FO

RM

AN

CE

GO

OD

1

2

3

4

5

6

7

8

99 8 7 6 5 4 3 2 1

LOW IMPORTANCE HIGH

BA

D

P

ER

FO

RM

AN

CE

GO

OD

1

2

3

4

5

6

7

8

99 8 7 6 5 4 3 2 1

LOW IMPORTANCE HIGH

BA

D

P

ER

FO

RM

AN

CE

GO

OD

Trading the priority of objectives


Supply chain dynamics

“Hard” supply dynamics

Look for the causes of overreaction to volume

changes


6

5

4

3

2

1

Third-tier supplier

Second-tier supplier

First-tier supplier

Original equipment

manufacturer DEM

AN

D

PER

IOD

Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100100100

100100

100100

100100

100

95

95

95

95

95

3 2 1 OEM MARKET

Note - All operations keep one period’s inventory

20 60 80 90100

60100

80100

9010095

180 120 100 9560

12080

1009095

9595

60 90 9512090

10095

100 959095

9595

95 959595

9595

95

95

959595959595

95

95

95

959595959595

Orders Orders Orders Orders

Items Items Items Items

Fluctuations of production levels along supply chain in response to small change in end-customer demand


6

5

4

3

2

1

Third-tier supplier


First-tier supplier

Original equipment

manufacturer DEM

AN

D

PER

IOD


100 100 100 100100100

100100

100100

100100

100

95

3 2 1 OEM MARKET

100



All operations hold one periods stock

95

95

95

95


6

5

4

3

2

1

Third-tier supplier


First-tier supplier

Original equipment

manufacturer DEM

AN

D

PER

IOD


100 100 100 100100100

100100

100100

100100

100

95

3 2 1 OEM MARKET

100



All operations hold one periods stock

105

95

105

95



“Soft” supply dynamics

Look for the perception gaps


Supplier selection strategy

Supplier development strategy

Operation BOperation A Operation C

Operations performance

What Bthinks C wants

Market requirements

What Cthinks it wants

Gap?

How Bthinks it is performing

How C thinks B is performing

Gap?

Gap?

Gap?

Gap?

Gap?

Gap?

What Athinks B wants

What Bthinks it wants

Gap?

How Athinks it is performing

How B thinks A is performing

Linked?

Linked?


Ord

ers

0

10

Time

Manufacturer’s orders to its suppliers

Ord

ers

0

10

Time

Sales from store

Manufacturer

Wholesaler Retail Store

Ord

ers

0

10

Time

Wholesaler’s orders to manufacturer

Ord

ers

0

10

Time

Store’s orders to wholesaler

Consumers

Typical supply chain dynamics



Supply chains with different end objectives need to be managed in different ways


Products

InformationSupplier Manufacturer

Depot

Outlets

Depot

Supplier Manufacturer

Depot

Outlets

Depot

Efficient fast throughput supply

Customer responsive supply

Pro

du

cts

Info

rmat

ion

Two types of supply chain organisation


Pre

dic

tab

le

Few

ch

an

ges

Lo

w v

arie

ty

Pri

ce s

tab

le

Lo

ng

lea

d t

ime

Lo

w m

arg

in

Un

pre

dic

tab

le

Man

y c

han

ges

Hig

h v

arie

ty

Pri

ce m

ark

do

wn

s

Sh

ort

lea

d t

ime

Hig

h m

arg

in

FU

NC

TIO

NA

LIN

NO

VA

TIV

EMismatch Match

Match Mismatch

MA

RK

ET

RE

QU

IRE

ME

NT

S

OPERATIONS RESOURCES

Low cost

High utilization

Min. inventory

Low cost suppliers

Fast response

Low T/P time

Deployed inventory

Flexible suppliers

EFFICIENT PROCESSES

RESPONSIVE PROCESSES

Matching the operations resources in the supply chain with market requirements (after Fisher)


Customer 8

Customer 1

Customer 2

Customer 3

Customer 4

Customer 5

Customer 6

Customer 7

Plant 1

Plant 2

Plant 3

Ordering complexRouting complex

Customer contact complex

Plants have 8 contact

Network has 24 routes

Customers have 3 contacts

(a)


Warehouse 1

Ordering simpleRouting simple

Warehouse complex

Customer contact simple

Warehouse 2

Plants have 2 contact

Network still has 24 routes but

simplified

Customers have 1 contact

(b)

Customer 8

Customer 1

Customer 2

Customer 3

Customer 4

Customer 5

Customer 6

Customer 7

Plant 1

Plant 2

Plant 3


Customer 8

Customer 1

Customer 2

Customer 3

Customer 4

Customer 5

Customer 6

Customer 7

Plant 1

Plant 2

Plant 3

Ordering simpleRouting simpleCustomer contact complex

Plants have 3 or 2 contacts but make

all products

Network has 8 routes

Customers have 1 contacts

(c)

Manufacturing complex


A B C

Y

X

Z

Merging operations reduces response time

Mer

gin

g o

per

atio

ns

red

uce

s co

mp

lexi

ty

Generic supply network structure


Producer

Recording studio

Engineer

Songwriter

Singer

Instrumental-ists

Disc/tape manufacturer

Physical distribution

Retailer

Consumer

ConsumerArtist(s) Via the Internet

Technology can change the music business supply network


How A thinks it is performing

How Bperceives

A’s performance

Schweabstens Cloth

manufacturers A

Lopez Industries Garment

manufacturersB

ZentrillFashion retailers

C

What A thinks B

wants

What B

wants

What B thinks C

wants

What C

wants

How B thinks it is performing

How Cperceives

B’s performance

Market requirements

Quality and innovation

InnovationHigh qualityFlexible delivery

Use only very high quality fashion cloth

suppliers

Good qualityFlexibility during seasonWide capabilities Good quality

Fast availabilityFlexibility during seasonWide capabilities

Operations performance

Doesn’t know (or care?)

Great qualityInnovationVery inflexible

Too small to influence supplier?

Great quality, wide capabilities but inflexible within season

Great quality, wide capabilities but slow and inflexible within season

Supply Network Strategy

Business

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