WEEK 2
CHAPTER 5
5.1 - What is the structure and scope of supply?
Supply network = an interconnected set of operations
- The structure of a supply network relates to its shape and form
- The scope of an operation’s supply network relates to the extent to which an operations
decides to do the activities performed by the network itself
The supply network includes the chains of suppliers providing inputs to the operation, the
chains of customers who receive outputs from the operation and sometimes other
operations that may at times compete or cooperate
- Materials, parts, information, ideas and sometimes people all ow through the network
of customer-suppliers relationships
- First-tier suppliers have their own suppliers (second-tier who may also supply an
operation directly)
- First-tier customers are the main customer group of the operation (these may also
have their own set of customers “second-tier”)
Immediate supply network = the suppliers and customers who have a direct contact with
an operation
Total supply network = all operations that form the network of supplier’s suppliers etc
Some in a supply network can have more in uence than others -> analysis of networks
needs to understand the downstream and upstream operations that contribute most to
end-customer service
A long-term supply network view would involve constantly examining technology and
market changes to see how each operation in the supply network might be a ected ->
helps to make sense of competitive, relationship and longer-term operations issues
Scope and structure are very related - so decisions relating them are o en interrelated
Scope and structure decisions comprise a number of other “constituent” decisions
-> The structure of an operation’s supply network is determined by three decisions:
1. How should the network be con gured?
2. What physical capacity should each part of the network have
3. Where should each part of the network be located?
fi fl fl ft ff
, -> The scope of an operation’s activities within the network is determined by two
decisions:
1. The extent and nature of the operation’s vertical integration
2. The nature and degree of outsourcing it engages in
5.2 - How should the supply network be con gured?
Con guring a supply network = determining the overall pa ern, shape or arrangement of
the various operations that make up the supply network
- e.g. reducing the number of direct suppliers that organisations work with - expensive
and can prevent operations from developing close relationships with suppliers
Con guration decisions:
(1) Disintermediation
= “cu ing out the middle men”
-> bypassing customers or suppliers to make contact directly with customers’ customers
or suppliers’ suppliers
e.g. services in the travel industry, airline, hotel
(2) Coopetition
= the idea that businesses can both cooperate and compete with the same players in
their supply network
-> Businesses interact with four key players: suppliers, customers, competitors and
complementors
- Complementors enhance a product’s value when used alongside theirs
- Competitors reduce your product’s perceived value when they use theirs
The roles of customers and suppliers are seen as equally important, and relationships
within the network are uid, involving both collaboration and competition
(3) Network hubs versus direct connection
fi tt fl tt fi
, -> As supply networks grow more complex, a hub structure can simplify connections by
routing all operations through a central point (e.g. a warehouse or airport), rather than
linking each operation directly
- This hub-and-spoke model reduces the number of routes, simpli es coordination, and is
easier to scale.
->Direct connections: do not use a central hub -> shorter travel times, avoidance of
delays and transfers, greater resilience (no single point of failure)
The choice between the two depends on factors like cost, tra c volume and reliability
- Direct routes need consistent demand
- Hubs o en more e cient when volumes drop (like during the COVID-19 pandemic)
(4) Business ecosystems
= expands on the idea of a supply network by including not just suppliers and customers,
but also a wide range of external stakeholders who contribute to the overall value
proposition, even if they are not directly linked to the supply chain.
-> Common in technology industries, where innovation depends on collaborative networks
involving developers, capital providers, and other partners (e.g. app developers may not
be direct suppliers of a mobile device, but they add value by creating products that
increase the device’s appeal)
-> Building such an ecosystem enhances product value, supports market expansion and
creates high barriers to entry for competitors, who must rival not just the core product
but the entire network of complementary o erings
(5) The triadic perspective on supply networks
= involves three interconnected parties
- Re ects the reality of today’s supply environments be er
- Dyadic relationships e.g. buyer-customer oversimpli es how modern networks operate
-> Triads are increasingly common due to outsourcing, where a supplier provides services
directly to the customer on behalf of the buyer (e.g. an airline using a third-party
baggage handler)
- Emphasises the dependence of organisations on their suppliers’ performance when
they outsource service delivery + their reputation
fl ft ffi ff fi tt ffi fi
, - Loss of control: The buyer cannot easily intervene before the service reaches the
customer.
- Shi ing power: Over time, suppliers may gain in uence through their direct link with
customers.
- Reduced visibility:Buyers may not fully know what occurs between the supplier and the
customer.
- Loss of learning: Direct supplier–customer interaction may prevent the buyer from
gaining insights and feedback that could improve products or services.
Thus, thinking in terms of triads highlights the strategic and operational implications of
outsourcing and customer interaction in modern supply networks.
Structural complexity in retail supply networks
-> Retail supply networks range from simple to highly complex - Complexity increases as
networks shi from basic dyadic relationships to interconnected triadic structures,
particularly when customers have multiple ways to interact with the network.
-> Omnichannel retailing: Initially, retailers used a single-channel model (in-store only),
then adopted multichannel approaches with separate pla orms like websites and apps,
each targeting speci c customer groups.
- The omnichannel model goes further by fully integrating all communication and sales
channels—stores, apps, websites, social media to deliver a seamless and exible
customer experience
- This structural complexity requires advanced coordination between various internal
functions, including marketing, IT, operations and distribution.
5.3 - How much capacity should operations have?
Amount of capacity an organisation will have depends on its view of current and future
demand
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CHAPTER 5
5.1 - What is the structure and scope of supply?
Supply network = an interconnected set of operations
- The structure of a supply network relates to its shape and form
- The scope of an operation’s supply network relates to the extent to which an operations
decides to do the activities performed by the network itself
The supply network includes the chains of suppliers providing inputs to the operation, the
chains of customers who receive outputs from the operation and sometimes other
operations that may at times compete or cooperate
- Materials, parts, information, ideas and sometimes people all ow through the network
of customer-suppliers relationships
- First-tier suppliers have their own suppliers (second-tier who may also supply an
operation directly)
- First-tier customers are the main customer group of the operation (these may also
have their own set of customers “second-tier”)
Immediate supply network = the suppliers and customers who have a direct contact with
an operation
Total supply network = all operations that form the network of supplier’s suppliers etc
Some in a supply network can have more in uence than others -> analysis of networks
needs to understand the downstream and upstream operations that contribute most to
end-customer service
A long-term supply network view would involve constantly examining technology and
market changes to see how each operation in the supply network might be a ected ->
helps to make sense of competitive, relationship and longer-term operations issues
Scope and structure are very related - so decisions relating them are o en interrelated
Scope and structure decisions comprise a number of other “constituent” decisions
-> The structure of an operation’s supply network is determined by three decisions:
1. How should the network be con gured?
2. What physical capacity should each part of the network have
3. Where should each part of the network be located?
fi fl fl ft ff
, -> The scope of an operation’s activities within the network is determined by two
decisions:
1. The extent and nature of the operation’s vertical integration
2. The nature and degree of outsourcing it engages in
5.2 - How should the supply network be con gured?
Con guring a supply network = determining the overall pa ern, shape or arrangement of
the various operations that make up the supply network
- e.g. reducing the number of direct suppliers that organisations work with - expensive
and can prevent operations from developing close relationships with suppliers
Con guration decisions:
(1) Disintermediation
= “cu ing out the middle men”
-> bypassing customers or suppliers to make contact directly with customers’ customers
or suppliers’ suppliers
e.g. services in the travel industry, airline, hotel
(2) Coopetition
= the idea that businesses can both cooperate and compete with the same players in
their supply network
-> Businesses interact with four key players: suppliers, customers, competitors and
complementors
- Complementors enhance a product’s value when used alongside theirs
- Competitors reduce your product’s perceived value when they use theirs
The roles of customers and suppliers are seen as equally important, and relationships
within the network are uid, involving both collaboration and competition
(3) Network hubs versus direct connection
fi tt fl tt fi
, -> As supply networks grow more complex, a hub structure can simplify connections by
routing all operations through a central point (e.g. a warehouse or airport), rather than
linking each operation directly
- This hub-and-spoke model reduces the number of routes, simpli es coordination, and is
easier to scale.
->Direct connections: do not use a central hub -> shorter travel times, avoidance of
delays and transfers, greater resilience (no single point of failure)
The choice between the two depends on factors like cost, tra c volume and reliability
- Direct routes need consistent demand
- Hubs o en more e cient when volumes drop (like during the COVID-19 pandemic)
(4) Business ecosystems
= expands on the idea of a supply network by including not just suppliers and customers,
but also a wide range of external stakeholders who contribute to the overall value
proposition, even if they are not directly linked to the supply chain.
-> Common in technology industries, where innovation depends on collaborative networks
involving developers, capital providers, and other partners (e.g. app developers may not
be direct suppliers of a mobile device, but they add value by creating products that
increase the device’s appeal)
-> Building such an ecosystem enhances product value, supports market expansion and
creates high barriers to entry for competitors, who must rival not just the core product
but the entire network of complementary o erings
(5) The triadic perspective on supply networks
= involves three interconnected parties
- Re ects the reality of today’s supply environments be er
- Dyadic relationships e.g. buyer-customer oversimpli es how modern networks operate
-> Triads are increasingly common due to outsourcing, where a supplier provides services
directly to the customer on behalf of the buyer (e.g. an airline using a third-party
baggage handler)
- Emphasises the dependence of organisations on their suppliers’ performance when
they outsource service delivery + their reputation
fl ft ffi ff fi tt ffi fi
, - Loss of control: The buyer cannot easily intervene before the service reaches the
customer.
- Shi ing power: Over time, suppliers may gain in uence through their direct link with
customers.
- Reduced visibility:Buyers may not fully know what occurs between the supplier and the
customer.
- Loss of learning: Direct supplier–customer interaction may prevent the buyer from
gaining insights and feedback that could improve products or services.
Thus, thinking in terms of triads highlights the strategic and operational implications of
outsourcing and customer interaction in modern supply networks.
Structural complexity in retail supply networks
-> Retail supply networks range from simple to highly complex - Complexity increases as
networks shi from basic dyadic relationships to interconnected triadic structures,
particularly when customers have multiple ways to interact with the network.
-> Omnichannel retailing: Initially, retailers used a single-channel model (in-store only),
then adopted multichannel approaches with separate pla orms like websites and apps,
each targeting speci c customer groups.
- The omnichannel model goes further by fully integrating all communication and sales
channels—stores, apps, websites, social media to deliver a seamless and exible
customer experience
- This structural complexity requires advanced coordination between various internal
functions, including marketing, IT, operations and distribution.
5.3 - How much capacity should operations have?
Amount of capacity an organisation will have depends on its view of current and future
demand
ft
ft fi fl tf fl
