The document discusses the structure and scope of supply networks in operations management, focusing on configuration, capacity, location, vertical integration, and outsourcing decisions. It emphasizes the interrelatedness of these decisions, which are crucial for competitiveness and operational effectiveness. Key elements include the strategic significance of structure and scope, the impact of location on costs and service, and the balance of in-house capabilities versus outsourced services.

1. 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

2. • 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 opersation 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

3. • How should the network be configured?
• What physical capacity should each part of the network have?
• Where should each part of the newtwork 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,

4. 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:

5. • 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

6. • 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?
Figure 5.11
The decision logic of outsourcing source: Slack, Brandon-
Jones & Johnston (2016)
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7. Rights Reserved
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

8. 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)
Copyright © 2016, 2013, 2010 Pearson Education, Inc. All
Rights Reserved

9. 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-

10. 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)
Copyright © 2016, 2013, 2010 Pearson Education, Inc. All
Rights Reserved
Performance

11. 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.

12. 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)
Copyright © 2016, 2013, 2010 Pearson Education, Inc. All
Rights Reserved