L6M9 Tutor Notes 1.0 AUG19

CIPS Level 6 Professional Diploma in Procurement and Supply
Tutor Notes
Module title: Supply Network Design [L6M9]
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Learning Outcome 1: Understand the strategic nature and influence of supply
network design
These notes are designed to support teaching staff using the CIPS Teaching Resources PPT slides. Teaching
staff are advised to cross reference against the relevant module content and learner resources (e.g., study
guide). Supplementary resources are available on cips.org in the Student Zone, CIPS Knowledge and Supply
Management online journal (www.cips.org).
SLIDE TUTOR NOTES
1 Not applicable
2 The location of operations should include infrastructures of the supply network, including
suppliers, manufacturing plants, warehouses, distribution centres, etc.
To reduce the customers’ waiting time for their finished products/services, most
organisations improve their supply network by doing the following.
• Connecting more raw materials suppliers
• Setting up new assembly lines
• Moving their warehouses
Location analysis helps supply chain practitioners to find an optimal location that is close
to their suppliers and markets.
• It should also consider budget limitations.
• Many tools can be applied to help perform a location analysis, the following, for
example.
• Propriety analysis
• Site selection mapping
• Information from multiple databases
• Once potential sites have been identified, they can be rated against relevant
weighted criteria, such as the following.
• Local labour wage
• Distance to suppliers
• Community environment
• Distance to customers
• Transportation modes
• The site with the highest weighted score is likely to be the optimal location.
Good supply network design should improve the performance of companies and their
suppliers from the following perspectives (Christopher, 2016) (refer to the points on the
slide).
• Stable relationships with suppliers
• Reduced logistics costs
• Improved communication
• Shorter lead times
• Low inventory volumes
• Fast fulfilment of market demands
2
SLIDE TUTOR NOTES
Learner activity
Evaluate your organisation’s supply network design.
Is it effective?
Could it be improved? If so, how?
3 Supply networks with more connections can obtain multiple levels (refer to the diagram
on the slide) and have a higher level of complexity in their structure.
• Businesses comprise a reticular network, rather than a linear relationship (refer to
the diagram on the slide).
• There are three essential structural dimensions in supply networks used for
describing, analysing and managing supply chains.
• Horizontal
• Vertical
• The horizontal position of the focal organisations
The dimensions of a supply network include the following factors.

• Types and complexity of products or services
• Number of available suppliers
• Raw materials required
• Number of logistical routes
• Geographical distance to buyers/demand locations
As the numbers of suppliers and buyers in a reticular network increases, supply chain
managers in all organisations should understand how many chains need to be managed
and controlled.
This is where supply network design (a practice for allocating resources within supply
chains) is needed.
Supply network design considers the following main activities.
• Locating facilities
• Determining the capacity of facilities
• Determining sources and demand
• (Refer to the diagram on the slide) Selecting modes of transportation to minimise
cost
Learner activity
In small groups, create a supply network design for your own organisation or for an
organisation with which you are familiar.
Present your design to the class.
3
4 Disintermediation – the elimination of intermediaries in supply networks.
• Made possible by the creation and development of the Internet.
Advantages of disintermediation:
• Promotes openness and transparency between suppliers and customers.
• Leads to more efficient transfer of information between suppliers and customers.
• Can increase the timeliness of information available to both suppliers and
customers.
Flow of materials and information in a disintermediated supply network. (Refer to the

diagram on the slide.)
• Customers are classified as e-commerce or traditional customers.
• The dashed lines represent the information, including the orders, amounts of
materials required, available assembly lines, numbers of trucks, etc. - this
information is gathered on an information sharing system and is shared in real
time.
• E-commerce customers have a shorter route through the network than the
traditional customers. From preparation to delivery, their products go through only
three levels – suppliers, manufacturers and customers.
Information-sharing systems in e-commerce:

• Enables the different levels of suppliers and manufacturers (assembly lines) to
start the preparation and set-up when orders are placed by the customers.
• Saves time as raw materials can start to be produced or assembled once they
arrive at the manufacturer’s site, rather than having to wait as raw material
inventory while the assembly lines are set up.
• Means products can be delivered to the customers straightaway rather than being
transported from the distributors and the retailers.
• Enables practitioners to share in the decision-making process.
Class discussion
As a class, discuss the advantages and disadvantages of disintermediation.
Write the pros and cons on a flip chart then compare with the reasons listed above.
5 Porter’s Value Chain – illustrates the relationship between support activities and primary
activities. (Refer to the diagram on the slide.)
• Primary activities and support activities are used by all organisations as the
essential building blocks to create their value chains.
• All business activities in the support categories facilitate the primary activities,
e.g., HR is needed to allocate suitable employees for operating the business and
procurement supports operations.
• The building blocks aim to help the organisations maintain their competitiveness
and create value, which will result in the margin achieved for each organisation.
• Margin = value created and received - overall cost of creating value
4
• The more value that an organisation creates, the more margin that will be received
if the organisation is able to control the investment on value creation (cost).
• The more value that can be offered to customers, the more competitive the
organisation will be.
A value chain and a supply chain are both extensions of organisations; there are
similarities and differences between them.
• The value chain is described from the perspective of business activities.
• The supply chain is described from the perspective of business functions.
• Both aim to work together to create value for the organisations and to provide
products to customers.
• In both chains, demand is generated from the customers and financial flows are
transferred from customers to suppliers.
• A network can hold and maximise value, but it is difficult to achieve a maximum
level of margin in a value chain.
Learner activity
Apply Porter’s Value Chain to your organisation.
Can your organisation relate to this?
What are your primary activities, operations etc?
Does each activity add value?
6 A value net – a framework for connecting different but relevant organisations.

• Organisations exchange their created value in order to generate a specific value to
the end customer.
• All the organisations involved will benefit from the exchange process.
• Value net can be visualised by mapping nodes and connectors.
• Nodes represent organisations
• Connectors represent the relationships between organisations.
• The following are two types of value net.
• Internal value networks
• External value networks
• Four essential business players in a value net include the following.
• Suppliers
• Customers
• Competitors
• Complementors
For example, software companies work with PC manufacturers to install the required
software before the products are finished.
• In this instance, the software company is the complementor for the PC
manufacturer.
• Together, the two businesses make customers value the finished PC more than if
the PC manufacturer had provided only the hardware.
5
Bovel and Martha identified five characteristics of a good value net.
• Agile and scalable, with flexible production, inventory management, distribution
and information flows.
• Customer-driven, with customers’ demands triggering business activities in the
value net.
• Fast flowing, with fast order-to-delivery cycles.
• Collaborative and systemic, with companies engaging in value-creating
relationships.
• Digital, with digital technologies adopted in the management of the value net.
Learner activity/class discussion

In pairs, research organisations that use value nets.
Understand the reasons why the value nets are used and what benefits they create for all
parties.
Present your findings to the class.
7 Optimum capacity brings benefit the organisation.

Large-capacity strategy – seeks to ensure that an organisation has sufficient capacity to
meet demand, producing more product than optimal capacity.
(Refer to advantages and disadvantages shown on slide)
• Advantages include the following.
• The full but economic use of resources.
• Labour resource and raw materials.
• Economies of scale that result from bulk buying and selling.
• Disadvantages include the following.
• The inability to personalise or customise orders.
• The negative effect on the workforce due to performing the same tasks.
• Having competitive advantage focused on price and cost rather than added
value.
A small-capacity strategy, on the other hand, seeks to ensure that there is sufficient
demand to keep the supply chain working to full capacity, producing less product than
optimal capacity.
(Refer to the advantages and disadvantages shown on the slide.)
• Advantages include the following.
• Lower levels of capital required.
• A direct relationship between the customers and the producers.
• Disadvantages include the following.
• Costly raw materials and high production costs due to being unable to
access economies of scale.
• Wastage of materials and resources.
• Being unable to compete with large-capacity businesses on price.

Which type of capacity strategy works best in your industry?
Does one organisation have to use one style, if so, why?
6
8 Break-even analysis – used in capacity planning to identify the following.
• The amount of sales required in order to break even
• The point at which total revenues equal total costs
• How much of a product or service an organisation needs to sell in a certain period
in order to cover the total cost of doing business.
Key formulae:
• Total cost = F + cQ
• Total revenue = pQ
• Break-even point (where total cost equals total revenue) F + cQ = pQ
• Formula for finding quantity at the break-even point:
𝐹
Q =
𝑃−𝐶
Where
• F = Fixed cost
• c = Variable cost
• Q = quantities of serviced customer
• P = the revenue from selling a unit of the product

Research the following terms to ensure understanding when working to calculate break
even.
 Fixed costs
 Variable costs
 Quantities of serviced customer
 Revenue
9 Answers: Break-even is $900,000/5000 units
7
Learning Outcome 2: Understand operations strategy and its contribution to overall
business success
SLIDE TUTOR NOTES
10 Not applicable
11 A strategy:
• Determines the long-term direction of the operations function.
• Helps the operations function understand which factors should form the strategic
objectives.
Two indicators of whether an organisation has a functioning operations strategy include

the following.
1. How the operations function positions itself in terms of its understanding of
market requirements.
This will include the articulation of customers’ requirements, the positioning of the
organisation within the market and clarity regarding competitors’ actions, expressed in
terms of the following performance objectives.
• Cost – efficiency, measured as the cost per transaction completed or price and
discounts.
• Quality – accuracy, measured as a percentage of products manufactured to
specification, or accuracy of information.
• Speed – timeliness of action, measured as the time it takes for a customer call to
be answered by a call centre, or responsiveness.
• Dependability – right first time, measured as the percentage of deliveries that
arrive on-time-in-full, or reliability.
• Flexibility – ability to change, measured as rate of innovation, or customisation.
2. How the organisation responds to the identified market requirements.

Examples of operations strategy decision areas include the following. (Refer to the
diagram on the slide.)
• Capacity – the operations function capacity level, utilisation of resources, number
of locations, distribution of operations activity, facilities management, speed of
capacity increase or decrease.
• Supply network design – the interconnection and interdependence in the supply
chain, asset management, working capital, level of outsourcing, risk analysis of
possible areas of disruption, outsourcing, inventory management and
management of supplier and stakeholder relationships.
8
SLIDE TUTOR NOTES
• Process technology – the choice of information management systems, machines

and processes used to support the procedures required to execute operations
tasks and activities, automation, integrated technology solutions and productivity.
• Development and organisation design – the management of the lines of
reporting, team structure, roles, responsibilities and accountabilities, physical
infrastructure of operation’s function, organisation of governance and processes,
continuous improvement and management of revenue and cost.
Learner activity/Class discussion
Using the methods explained above, evaluate the functionality of your organisation’s
strategy.
Present your findings back to the class.
Engage the class in a discussion about their organisation’s strategies and their
effectiveness.
12 There are three core levels of organisational strategy including the following.
• Corporate strategy – ‘the master plan’
• Outlines the mission, vision and values of the organisation as a whole.
• Usually high-level ambitions for the organisation
• Purpose: to determine the goal of the organisation; the industry, markets
and regions that the organisation will be operating in; and how the
organisation will be managed in terms of values.
• Business-level strategy
• Determined by the operating unit
• For example, in a multi-national enterprise there will be a global corporate
strategy, supported by regional business strategies, such as Europe or the
Middle East.
• Helps co-ordinate product and service market niches, developing strategies
competing in distinctive markets and developing competitive advantage by
conforming to the needs of particular markets based on their current
economic development.
• Functional/Operations strategy
• Relate to a particular area of activity within the business, such as
procurement and supply, human resources, finance, marketing and sales.
• Helps to ensure that functional expertise is developed to deliver the
strategic direction of the organisation as whole and the capabilities and
capacity exist to deliver on corporate strategic objectives.
For the operations strategy to be relevant and aligned to the overall business strategy
there needs to be vertical integration among the three core levels of organisational
strategy.
• Effective horizontal alignment between operations and other functions, such as
human resources, sales and finance is equally important to ensure that internal
functional processes are supportive and integrated to deliver an effective internal
process network.
9
SLIDE TUTOR NOTES
• There may be tensions between the goals and activities of different business units,
e.g., different routes to market, or products and services operating under different
trading regulations.
• An operations strategy needs to be able to offer multiple strategies that will vary
depending on the needs of the different parts of the organisation.
An overall business strategy that provides a broad scope of direction will provide more
room for the operations function to develop an innovative and creative strategy to carry
the organisation in the general direction of its purposeful endeavour.
Learner activity
Prepare a short presentation to share with the class based on your organisation’s strategy
at each of the three levels.
Is the strategy aligned throughout the organisation?
If yes, how is this done successfully?
13 The market requirements are determined by the following two distinct elements.
• The task environment – the factors that directly relate to the business in which the
organisation is engaged and which have a direct impact on the organisation’s
ability to achieve its strategic goals.
• The general environment – STEEPLED factors such as the following.
• Socio-cultural factors – influence social and cultural attitudes to work and
organisations, driven by factors such as demography, age, growth rates and
social class.
• Technological factors – impact the rate of change due to technological
advancements, types of work and methods of communication.
• Ecological/environmental factors – how the operations of the organisation
affect and are affected by the environment.
• Economic factors – e.g., levels of employment and economic indicators,
which impact the organisational climate positively or negatively depending
on whether the economy is growing or in recession.
• Political factors – determine how partisan policies and political movements
influence the attitudes and values of people within the organisation.
• Legal factors – often linked with political factors, includes regulations and
statutory laws that impact the operations of the organisation, incorporating
employment law, international trade regulations, monopolies and mergers,
business taxation, consumer protection and data protection.
• Ethical factors – factors that are linked to social values that are the basis for
organisational decision-making.
• Demographic factors – factors can include details about markets and the
consumers within them, such as population, education, gender, age, marital
status and language.
10
SLIDE TUTOR NOTES
Class discussion
Discuss STEEPLE and what external factors are currently influencing business.
What are these effects and how can they be mitigated against?
14 The four-stage model of operations – Hayes and Wheelwright (1984)

Four categories of operations function that reflect an organisation’s approach to their
operational system.
Designed to help evaluate the contribution that the operations function is making to the
organisation’s strategic performance goals in terms of competitive advantage.
• Stage 1: internally neutral. This operations function is focused on its internal
environment and responds to external environmental events reactively.
• Stage 2: externally neutral. This operations function seeks to emulate best
practice learned from competitors in the marketplace or industry norms in order
to prevent problems within the organisation. Practices, such as Lean operations,
total quality management, Six Sigma, and business process engineering, may be
adopted as operations strategy.
• Stage 3: internally supportive. This operations function seeks to contribute to the
organisation’s strategic objectives, through the strategic alignment of operations’
performance objectives, offering the scope for operations to contribute to
competitive advantage. The organisation seeks to be an industry leader with
regard to its operations function.
• Stage 4: externally supportive. This operations function provides the organisation
with the basis for competitive advantage, shapes operations standards in its
industry and seeks to set world-class standards where its practices are emulated
by others. It provides input into the formation of the overall business strategy.
Hayes and Wheelwright argue that organisations should aspire to achieve the highest
level (Stage 4) of the strategic role of operations.
The four-stage model of operations has contributed to the evolution of the operations
function, but perhaps is now a historical, critical milestone in the development of modern
procurement and supply as a strategic function.

In small groups, prepare a four-stage model of operations for your organisation or for one
with which you are familiar.
Discuss how the operations functions are successfully contributing to the overall strategy.
11
15 Porter (1985) set out four generic strategies that will feed into an operations cost strategy
(refer to the diagram on the slide).
Cost leadership – organisation seeks to become a low-cost producer in order to attract a

broad customer base, attributed to a lower-cost pricing strategy.
• Purpose: determined by access to rare VRIO resources making it difficult for
another producer to access raw materials or proprietary technology cost
effectively.
• Organisation seeks to take advantage of economies of scale in order to achieve and
sustain cost leadership.
• More likely with products or services that are easy to imitate.
• Relies on the operations function being organised to deliver products and services
in cost efficient quantities.
Differentiation – uniqueness allows the organisation to set a premium price for its
product, enabling the organisation to access higher margins.
• Provides the opportunity for managing costs without necessarily seeking to be the
cheapest in the marketplace.
• From an operations perspective, cost is measured by value – and what customers
and clients value.
• Focus is on producing products and services that are valued by the end users.
• Price and cost are less important performance objectives.
Cost focus – requires the operations function to seek a cost advantage in an identified
target segment (e.g., could be in some products, but not necessarily all).
• For example, supermarkets have a ‘low cost’ range on groceries considered as
staples, such as milk and bread, which are often considered as loss leaders.
• Procurement and supply function must negotiate with suppliers to deliver a
tailored pricing strategy.
Differentiation focus – requires the organisation to deliver uniqueness in a particular

target segment.
• Organisations may often customise their pricing due to unique and desirable
features, which are focused on a particular set of needs.
• They seek to deliver specific products to customers and clients that have highly
specific needs.
• For example, vegan wine, manufactured without traditional fining agents, such as
milk protein, egg whites and animal protein, also is promoted as an excellent
accompaniment to vegan dishes.
Learner activity
Individually, research organisations that operate using each of the four cost performance
objectives.
Find at least two organisations for each category.
Come together as a class and write down the organisations that fall into each category on
a flip chart.
12
Are there any synergies between industries/sectors within each of the quadrants on the
model?
16 Trade-offs:
• Needed in order to position operations performance objectives to deliver an
increase in both efficiency and effectiveness within the operational system.
• May be made between cost, dependability, quality, speed and flexibility.
• Often discussed in terms of two competing variables, e.g., cost and quality, or
dependability and speed, but usually have multiple factors involved.
• Performance objectives within each operations decision should be continually
evaluated to determine which will best lead to the achievement of the operations
strategy and its performance objectives.
• For example, in an organisation with a cost leadership strategy, cost will be a
consideration when sourcing from suppliers, but quality and dependability will also
be important, because if the cheap raw material is not delivered on time, that
could end up costing the organisation more in the long-term.
Mapes et al. (1997) suggested the only trade-off is that of product or service variety.
Boston Consultancy Group (BCG) Matrix

Determines which products and services are most beneficial by assessing relative market
share and market growth.
Identifies products and services under the following four categories. (Refer to the diagram
on the slide.)
• Stars – high relative market share and high growth, stars have the opportunity to
become a market leader, but require investment to retain their position.
• Problem child – can be difficult to manage, since they have the opportunity to
become stars in a growth market but are struggling to gain market share.
• Cash cow – with high relative market share but low growth, these products and
services dominate the market position and deliver efficiency, through large
economies of scale, and effectiveness, through the generation of significant
revenue with little cost to maintain.
• Dog – these products and services have low relative market share and low growth,
and are inefficient to maintain due to the resources needed to manage the
product and service.
BCG matrix can be used to help the organisation make decisions about what mix of
products and services it should invest in, and which products and services it should divest.
There will be trade-offs between high-growth products and services and relative high
market share, with a balance needed regarding investment levels and resource
availability.
13
These trade-offs in the BCG matrix ask similar questions to those demanded of operations
management: what mix of performance objectives would help the organisation to do the
following.
• Achieve market share gains
• Generate a cash surplus
• Position the organisation for competitive advantage and long-term sustainable
performance?

In pairs, select one of the following organisations and discuss where their products belong
in the Boston Matrix.
 APPLE
 Virgin Media
 McDonald’s
 Volkswagen
 CIPS
17 From an organisational perspective, there are three efficient frontiers.

• One models the return on investment and risk of the current operational system.
• Another represents what is achievable should the organisation engage in
improvements in supply network design through continuous improvement efforts.
• A third examines the long-term vision of the organisation.
Modelling more than one curve helps to give an understanding of which trade-off
portfolio combinations will help to move the operational system from the current state
towards the future state.
Improvement Gap Analysis (IGA) – The Improvement Gap Analysis – Picolo et al. (2016)
• Used to manage trade-offs in operational strategy.
• Considers changes that need to be made to the operations function in the short,
medium and long term.
• Prioritises operational strategies by examining how current operational
performance is contributing to levels of dissatisfaction and to a lower performance
of the operational strategy.
• A two-dimensional matrix divides positive operating strategies with priorities for
improvement and produces four quadrants. (Refer to the diagram on the slide).
• Quadrant 1: Critical for Improvement – delivering a high level of customer
dissatisfaction, with a significant improvement gap of operational
strategies.
• Improvements in this area are critical to the future survival of the
organisation and should not be ignored.
• Quadrant 2: Keep up the good performance – these operations strategies
deliver good performance but have the capacity to create high levels of
customer dissatisfaction if performance falls. Therefore, monitoring and
control activities are recommended to ensure that performance remains
consistent.
14
• Quadrant 3: To evaluate if necessary – these operations strategies provide
an opportunity for the organisation to manage reduced performance if
required. They do not endanger the operation by contributing to
dissatisfaction and presenting low improvement gaps.
• Quadrant 4: Attractive – these operations strategies avoid causing
dissatisfaction if missing but can contribute to improved customer
satisfaction if they are improved.
IGA enables the procurement professional to do the following.

• Determine which areas of the operations function need to improve to avoid a
competitive advantage penalty.
• Make recommendations for operational strategy improvement by identifying areas
that have the greatest potential to deliver improved performance levels and
increased customer satisfaction.

Create an IGA for your organisation and present your findings to the class.
Engage in a discussion after each presentation to come up with a recommendation for
improvement on the organisation’s current strategy.
18 Ask the learners to answer the questions from the slide individually and then come
together as a class to discuss the answers.
Allow no more than 10 minutes for this exercise.
1. What is the four-stage model of operations used for?

2. Which model includes dog and cash cow?
3. Why should an organisational strategy be aligned?
4. What are the three core levels of organisational strategy?
5. What is the name of the model devised by Picolo et al (2016) which is used to
manage trade-offs?
6. Who created the four-stage model of operations?
7. What are the four generic strategies for cost performance objectives?
8. What does STEEPLE represent?
Answers:
1. Approaches to operations
2. Boston Matrix
3. To ensure everyone is working to the same objective
4. Corporate, business, functional
5. Improvement Gap Analysis
6. Hayes and Wheelwright
7. Cost leadership, differentiation, cost focus, differentiation focus
8. Social, Technological, Economic, Environmental, Political, Legal and Ethical
15
Learning Outcome 3: Assess strategic value of resource planning and control
SLIDE TUTOR NOTES
19 Not applicable
20 Every organisation needs to control their resources, such as premises, stock, equipment,
staff and suppliers, in some way.
Strategic resource planning is required in order to meet strategic objectives, such as
quality, speed, dependability, flexibility and cost performance.
Operations strategy will normally be based around an intended capacity or capability.
Important questions considered may include the following.

• What capacity, capability and resources are required?
• When will they will be required?
• How will they be made available?
• Where should they be located?
• Who should be the provider, owner or responsible party for each resource?
Suppliers and their supply chains should be considered as a resource.

• The supply chain network should be evaluated to establish whether or not
resources are effective and can support the organisation.
The requirements for strategic resource planning depend on the strategy.

• Organisations may be led or dominated by the strategy first, with effort then made
to create a resource to meet the requirement as a later activity.
• In other cases, the organisation may create the strategy to fit its resource
capability and limitations.
• Some organisations may follow an emergent strategy principle, where little
advance planning takes place and the organisation reacts to performance and
market changes. This approach may limit their ability to create an effective
strategic change as a result of resource constraints.
Learner activity
Research the meaning of capacity, capability and resources in relation to procurement and
how they can affect the function.
Why is understanding capacity and capability important when working with suppliers?
Why should capacity, capability and resources be regularly reviewed?
16
21 • Some organisations may be led or dominated by the strategy first, with effort then
made to create a resource to meet the requirement as a later activity. (Refer to the
first diagram on the slide.)
• Other organisations may create the strategy to fit its resource capability (now or in
the future), and limitations (either known now or realistically assessed for the
future). (Refer to the second diagram on the slide.)
Organisations may establish a ‘generic strategy’, ‘specific strategy’ and/or ‘strategic
objectives’.
General strategies deal with how an organisation competes or the nature of the service
offered.
Porter created an overview of how organisations may achieve competitive advantage by

the following.
• Becoming the lowest cost producer – can be achieved by the following.
• Establishing a long-term low-cost source of materials or products.
• Using low cost premises.
• Using automation to eliminate high labour cost elements).
• Becoming an organisation that is meaningfully different from competitors – by
the following.
• Providing immediate stock compared to competitors requiring a lead time.
• Providing differently designed products.
• Offering demonstrably better customer service.
• Providing supplementary products or services.
• Becoming a specialised, focus or niche provider – Porter suggested the focus
strategy could be based on either low cost or differentiation. Examples include the
following.
• Specialising in one type of product or service.
• Using one specific technology.
• Being a source of reference or excellence in the chosen specialism).
Each generic strategy will involve the following.

• A procurement professional will be required to consider resource requirements
and to ensure these can be put in place at the appropriate time.
• An appropriate supply network (or undertaking network changes to achieve the
desired strategy) will also need putting together.
Class discussion
Discuss the benefits and problems associated with the following strategies.
 Low cost producer
 Differentiation
 Niche
If you had a business, which strategy would you opt for and why?
17
22 Customer expectation can be created from a variety of sources. (Refer to the diagram on
the slide.)
• Some sources which are outside the control of a supplier (for example, other
supplier performance and the relative power of the customer and the supplier).
• Some sources that can be directly influenced (for example, contract contents and
promises made).
It may be possible for an organisation to do the following.
• Meet the customer expectations entirely from standard operations and/or
resources.
• Meet the customer expectations entirely by changing standard operations and/or
resources.
• Offer the customer its standard performance using standard operations and
planned resources.
Managing customer expectations.
• Organisations should not contract to meet a customer performance expectation
unless it has considered the operational implications – there may be legal
consequences if commitment is not delivered.
• Unrealistic customer expectations need to be addressed.
• Customer expectations can be managed by providing regular updates and
requesting information relating to customer plans and any changes in performance
that may be required.
• Customer expectations can also be managed by the open reporting of key
performance indicators (KPIs) and/or service level agreements (SLAs) whether or
not these form part of contractual obligations.
• Customer expectations may also be driven by perceptions rather than facts, based
on previous incidents or dealing with a different industry but expecting a similar
performance from all suppliers.
• The network members need to understand expectations and perceptions, which
can adversely affect relationships.
Learner activity
As a customer to your suppliers – consider what forms your expectation of them.
How has this expectation been created?
Share your experiences with the class.
23 Loading is the volume of work undertaken or allocated to any stated resource.

• An individual
• A group of individuals
• A department
• A machine
• A warehouse or logistics facility
18
The principle of loading is directly linked to capacity and, in many cases, capability.
A system or process may have a designed loading capability. (Refer to the diagram on the
slide.)
• Maximum loading – the maximum volume or amount that it is possible to
undertake in a given period.
• Variable loading – if there are variations to processes or type of work undertaken
• Finite loading – managers place limits on work volumes or capacity, delaying or
declining work that exceeds the limits.
• Infinite loading – there are no stated or designed-in volumes or capacity limits in
place, but this can result in delays, possible quality problems, and increased
pressure on the staff involved.
The factors that affect loading include the following.

• Efficiency
• Effectiveness
• Training and experience
• Time available
• Range of activities and repeat or one-off requirements
The monitoring of loading is often undertaken by the provision of appropriate data and
the creation of reporting and trend information.
Targets may be established but the reasons for out of range results need to be
investigated so that causes can be potentially reduced or removed.
Class discussion
What are the benefits of the loading principle?
Are there any disadvantages?
Does your organisation use this approach?
What are your experiences of loading?
24 Strategic planning is often undertaken/dominated by senior management in an

organisation.
• Depending on the organisation, it is possible that external non-executive
shareholders or trustees may also be directly involved in both decision-making and
the monitoring of plans.
• Many organisations make staff aware of strategic plans, particularly where these
are integrated within operations.
• Some staff may have specific roles in strategic planning or implementation.
Three approaches to planning include the following.

• Top-down – where higher-level management plan and make decisions and direct
managers and staff to allocate resources in a specific way. This may result in staff
dissatisfaction as there is a lack of involvement at operational level.
19
• Bottom-up – where operational staff and managers create plans (or identify
priority areas for change) and inform, request or compete for their plans to be
adopted and resources made available. This may result in many unrealistic
requirements or a need to prioritise and co-ordinate which may mean some plans
cannot be enacted.
• Top-down/bottom-up – where the general objective and direction are decided at
senior management level but detailing and refinement contributions are made
which can enhance the strategy and make implementation more effective.
Many changes require collaboration internally across departments.

• The formation of teams from different departments to work on changes is
generally preferable to individual staff working on changes.
• For example, a project for a change of IT infrastructure may well involve a team
comprising of a higher-level manager, the IT manager and staff, a user
representative and representative(s) from the supplier(s). Each would have a role
and contribution to the planning and control of the project.
• Many staff have job descriptions that include requirements to contribute to some
aspects of management and control.
• Some planning decisions may require the development of a range of options and
an evaluation of the options against criteria.
• This technique helps to lift recommendations or decisions away from simple
opinions and establish a means for direct comparison of options.
• In some cases, a planning group could provide proposals and request feedback
contributions from staff and managers prior to formal reporting and acceptance of
plans.
• This consultation pattern may also be extended to suppliers and/or customers,
where changes proposed may affect supply network members.
• Lower-level decisions (perhaps those not having a significant cost, time implication
or change of objective) may be made by those planning or implementing a plan.
• Referral to senior management would normally be expected where there is a
significant deviation from the plan or overall objective.
Learner activity
Split into three groups.
Each group should create a list of advantages and disadvantages for their allocated
approach to planning.
Groups should write their work on a flip chart sheet and be prepared to present it to the
class and discuss their work.
Group 1: Top-down
Group 2: Bottom-up
Group 3: Top-down/bottom-up
20
25 In any organisation, some activities can be easily controlled but others can be difficult to
control.
The ability to control operations can depend on the following.

• The extent to which an organisation can influence operations capacity,
compliance, or performance.
• The nature of the activity.
• The size and complexity of the activity
Force field diagram, created by Kurt Lewin, can be used to simplify complex and inter-
related situations. It shows the following. (Refer to the diagram on the slide.)
• Factors that positively influence, promote or make a change necessary
• Factors which negatively influence, resist or suggest that change may not be
necessary.
There are various approaches including the following.

• Some organisations or managers use only factual forces
• Others include assumptions and opinions relating to current and future situations.
Force field diagrams can be based on the following.

• The current situation.
• An overall proposed strategy (incorporating a range of resource issues).
• Or concentrate on specific resource(s).
They can be prepared at the start of a process and reviewed as the project develops with
the potential for more diverse and specific issues replacing those which have been
resolved.
Learner activity
Create a list of operations that occur within your organisation.
Think of the forces that link to the change of these operations as well as the resisting
forces.
How are these conflicts managed?
26 Materials requirements planning (MRP) – a system-based approach to planning.

• Most often used in manufacturing (or assembly) planning.
• Designed for dependant-demand products – items that require multiple elements,
assemblies and/or materials.
21
MRP requires many inputs (files and information) in order to produce accurate outputs
(reports, etc.) to support the business (refer to the diagram on the slide).
Inputs
• Strategic plan – expected orders
• Live customer orders
• Updated forecast orders
• Production constraint rules
• Master production schedule
• Inventory files, e.g., stock held, stock on order, lead times
• Bill of materials
Outputs
• Purchase orders
• Reports
• Recommendations
Modern MRP systems tend to integrate information, which may extend to receiving
information from supplier and customer databases of usage, sales and stock.
MRP system reporting may include the ability to create the following reports or alert
examples.
• Excess and short stock internal and network predictions based on trend
information.
• Dead stock reports internally and across the network highlighting opportunities to
reduce or dispose of stock.
Class discussion
Discuss learners’ experiences and understanding of MRP systems.
Does MRP work?
What factors affect its effectiveness?
27 Ask the class to work in pairs to complete the loading spreadsheet.
Answers:
Monday: 12
Tuesday: 61
Wednesday: 9 and 70%
Thursday: 62
Average: 61%
22

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CIPS Level 6 Professional Diploma in Procurement and Supply

Leading global excellence in procurement and supply

SLIDE TUTOR NOTES

The dimensions of a supply network include the following factors.

Flow of materials and information in a disintermediated supply network. (Refer to the

Information-sharing systems in e-commerce:

6 A value net – a framework for connecting different but relevant organisations.

Learner activity/class discussion

7 Optimum capacity brings benefit the organisation.

Learner activity/class discussion

Learner activity/class discussion

9 Answers: Break-even is $900,000/5000 units

SLIDE TUTOR NOTES

Two indicators of whether an organisation has a functioning operations strategy include

2. How the organisation responds to the identified market requirements.

• Process technology – the choice of information management systems, machines

14 The four-stage model of operations – Hayes and Wheelwright (1984)

Learner activity/Class discussion

Cost leadership – organisation seeks to become a low-cost producer in order to attract a

Differentiation focus – requires the organisation to deliver uniqueness in a particular

Boston Consultancy Group (BCG) Matrix

Learner activity/Class discussion

17 From an organisational perspective, there are three efficient frontiers.

IGA enables the procurement professional to do the following.

Learner activity/Class discussion

1. What is the four-stage model of operations used for?

SLIDE TUTOR NOTES

Important questions considered may include the following.

Suppliers and their supply chains should be considered as a resource.

The requirements for strategic resource planning depend on the strategy.

Porter created an overview of how organisations may achieve competitive advantage by

Each generic strategy will involve the following.

23 Loading is the volume of work undertaken or allocated to any stated resource.

The factors that affect loading include the following.

24 Strategic planning is often undertaken/dominated by senior management in an

Three approaches to planning include the following.

Many changes require collaboration internally across departments.

The ability to control operations can depend on the following.

There are various approaches including the following.

Force field diagrams can be based on the following.

26 Materials requirements planning (MRP) – a system-based approach to planning.

27 Ask the class to work in pairs to complete the loading spreadsheet.

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