The Structure And Scope Of Operations Chapter 5 Dr. Sua

The Structure And Scope Of Operations Chapter 5 Dr Sua

Lesson 4 - The Structure and Scope of Operations (Chapter 5) • Dr. Suanu Bliss Wikina 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? Structure and Scope of Operations’ Supply Networks • Structure relates to the shape and form of the network • Scope is the extent the operation performs the network’s activities by itself instead of requesting a supplier to do them • A supply network is setting an operation in terms of all the other operations with which it interacts • Materials, parts, ideas, information, and people flow through the network of customer-supplier relationships formed by these operations

Structure and Scope - Key points to note • Structure and scope are strongly related, and so decisions related to them are often interrelated • Decisions on both structure and scope are composed of a number of other constituent decisions • For structure: configuration, capacity, and location • For scope: vertical integration and outsourcing • Structure and scope decisions are strategic What determines an operation’s structure and scope? • Structure • How should the network be configured? • What physical capacity should each part of the network have? • Where should each part of the network be located? • Scope • The extent and nature of the operation’s vertical integration • The nature and degree of outsourcing it engages in Importance of Structure and Scope • It helps to provide an understanding of competitiveness • It helps identify significant links in the network • It helps focus on long-term issues What configuration should a supply network have? • Configuration is a determination of overall pattern, shape or arrangement of the operations of the network • Disintermediation – cutting out intermediaries – bypassing customers or suppliers to deal directly with customers’ customers or suppliers’ suppliers, ex. travel industry • Co-opetition – the idea of cooperation or competition between the four players within a network: suppliers, customers, competitors, and complementors Supply network configurations cont’d • The idea of a business ecosystem emanates from the linkages and interrelationships between the elements (businesses) if they must survive- they need to be flexible, adaptive, and innovative • Dyads and triads • Dyads – interaction between two specific operations in a network • Triads – especially relevant in a service supply network when an operation outsources the delivery of some aspects of their service to specialist providers, who then deals directly with customers on behalf of the focal operation.

How much capacity should operations plan to have? • How much capacity an operation will have depends on forecasting current and future demand • When there is need to address changes in demand, capacity decisions to be taken include: • Choosing the optimum capacity level for each site • Balancing the capacity levels of the operations in the network • Timing the changes in the capacity of each part of the network • Although large scale operations have cost advantages over smaller units, there are also advantages that smaller scale operations can exploit Where should operations be located? • Location decisions usually have an impact on operation’s costs and ability to serve its customers and therefore its revenues • Reasons for location decisions: • Changes in demand • Changes in supply • Location decisions are determined by: • Costs of labor, land, energy, and transportation • Labor skills availability • Community factors • The suitability of the site itself • Image of the location • Convenience for customers How vertically integrated should an operation’s network be? • Vertical integration is the extent to which an organization owns the network of which it is a part • An organization’s vertical integration strategy can be defined by: • The direction of the integration • The extent of the process span of integration • The balance among the vertically integrated stages • There are advantages and disadvantages with vertical integration How do operations decide what to do in-house and what to outsource?

Paper For Above instruction

The structure and scope of operations within supply networks are fundamental concepts that influence an organization’s competitiveness, efficiency, and adaptability. Transitioning from mere operational activities to strategic decision-making involves understanding how the configuration of supply networks and the extent of operational control shape the overall performance of a business. In this paper, we explore the key elements that define the structure and scope of supply networks, the strategic considerations involved in configuring these networks, and the decision criteria used to determine whether activities should be performed in-house or outsourced.

Understanding Structure and Scope

Structure refers to the physical and organizational configuration of a supply network, which includes the pattern, shape, and form of its operations. Different configurations, such as hub-and-spoke, linear, or networked arrangements, serve different strategic purposes depending on factors like flexibility, cost, and responsiveness. Scope, on the other hand, describes the extent of activities performed directly by the operation as opposed to those outsourced to suppliers. This differentiation impacts the degree of vertical integration and influences the level of control over quality, cost, and lead times.

The Strategic Importance of Structure and Scope

Decisions related to the structure and scope are inherently strategic because they directly affect a firm’s ability to compete and adapt to changing market conditions. For instance, a highly integrated, vertically supportive network enhances control but may lead to increased costs and rigidity. Conversely, outsourcing and disintermediation can increase flexibility and access specialized skills but may introduce coordination challenges. The strategic choice depends on long-term goals, industry dynamics, and customer expectations.

Configurations of Supply Networks

Supply network configuration determines the overall pattern of relationships and interactions. Disintermediation involves bypassing intermediaries to deal directly with end customers or suppliers, which can lead to cost savings and improved responsiveness. Co-opetition, which combines cooperation and competition among the network participants, facilitates innovation and mutual benefits within a complex ecosystem. The concept of business ecosystems emphasizes the importance of adaptability, resilience, and strong linkages among diverse entities, especially in dynamic markets.

Capacity Planning and Location Decisions

Capacity planning involves forecasting demand to determine the appropriate scale of operations at each network stage. Balancing capacity among different nodes ensures responsiveness while avoiding excess costs. Location decisions, which impact costs and service levels, depend heavily on factors such as labor costs, skills availability, infrastructure, community environment, and logistical considerations. Strategic location choices can provide competitive advantages by reducing transportation costs and enhancing customer accessibility.

Vertical Integration: Scale and Control

Vertical integration pertains to the extent an organization owns its supply chain stages. Strategies vary from full integration to minimal involvement, influenced by factors like cost control, quality management, and flexibility. While vertical integration can reduce dependency on suppliers and secure supply chains, it also entails increased investment and operational complexity. Deciding the level of integration involves weighing these trade-offs based on the firm's strategic objectives.

In-House vs. Outsourcing Decisions

Deciding what activities to perform internally versus outsourcing is complex but crucial. Factors influencing this decision include product or service quality, speed, dependability, flexibility, and cost. In-house activities generally allow better control over quality and speed but may lack the specialization or scale efficiencies that external suppliers possess. Outsourcing can benefit from economies of scale, innovation, and cost reductions but might introduce risks related to coordination, quality assurance, and loss of control.

Conclusion

In conclusion, the configuration and scope of supply networks are vital strategic choices that impact an organization’s competitiveness and operational flexibility. Making informed decisions about network configuration, capacity, location, vertical integration, and outsourcing requires a thorough understanding of both internal capabilities and external market conditions. As markets evolve rapidly, organizations must continuously evaluate and adapt their supply network structures to sustain competitive advantage in an increasingly complex and interconnected global economy.

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