Hyundai's Decision to Location & Supply Networks

Table of Contents

Section-1: Background Context with Aims & Objectives
1.1. Background Context
1.2. Problem Statement
1.3. Research Aim & Objectives

Section-2: Literature Review
2.1. Perspective of Supply Network
2.1.1. Merits of Supply Network
2.1.2. Demerits of Supply Network
2.2. Location Decisions
2.2.1. Two Primary Reasons for Location Decision
2.2.1.1. Changes in Supply
2.2.1.2. Changes in Demand
2.2.2. Major Objectives of Location Decision
2.2.3. Supply-side Factors
2.2.3.1. Labour Costs
2.2.3.2. Land Costs
2.2.3.3. Energy Costs
2.2.3.4. Transportation Costs
2.2.3.5. Community Factors
2.2.4. Demand Side Factors
2.2.4.1. Labour Skills
2.2.4.2. Suitability Factor of Site
2.2.4.3. Location Image & Reputation
2.2.4.4. Customers’ Convenience
2.3. Five Contemporary Practices for Configuring the Supply Network
2.3.1. Reconfiguration (Changing the form of Supply Network)
2.3.2. Disintermediation
2.3.3. Co-opetition
2.3.4. In-Sourcing
2.3.5. Outsourcing

Section-3: Case Studies, Analysis & Discussion
3.1. Case Studies
3.1.1. Case Study on the Perspective of Supply Network
3.1.2. Case Study on the Location Decision Making
3.1.3. Case Study on Case Study on the Configuring of Supply Network (Reconfiguring)
3.1.4. Case Study on Case Study on the Configuring of Supply Network (Outsourcing)
3.2. Analysis
3.3. Discussion

Section-4: Conclusion & Recommendations
4.1. Conclusion
4.2. Recommendations

Executive Summary

This Applied Management Project is written on the concepts of Supply Network and Location. The scope of this report is broad as it would intend to accomplish its objectives with four different case studies. It is obvious that there is no operation in the world that exist in isolation. Each operation is seems to be an integral part of large and relatively interconnected network of various operations. This factor is known as Supply Network which involves two major stakeholders (Suppliers and Customers). The perspective of Supply Network refers to be as a concept of settling all given operations in a context by which it allows the company to interact with its suppliers and customers. It has been determined that of all aspects (Input Material, Raw Material, Other Information and even Individuals within an enterprise flow within the organisational network of customers-suppliers relationships build through all of the given operations. This concept assists company in understanding and realising its competitiveness within the specified industry. Major disadvantage of this concept of Supply Network is that it implied an organisation to create intimacy with few suppliers and it has been examined that this would be resulted in strengthening the company’s suppliers bargaining power as the switching cost would get increase. Specifically, there are two stimuli (supply-side factors and demand side factors) that frequently intend organisations in changing their existing locations. This stimulus of relocating (supply- side factors) is more related with the changes in term of available resources or in term of direct or indirect cost. Whereas, the other stimulus (demand side factors) is more focused on the convenience of company’s customers. Additionally, there are five contemporary practices (Reconfiguration, Disintermediation, Co-opetition, Insourcing and Outsourcing) that could be adopted for the configuring of supply network. It has been recommended that the concept of Supply Network is of great worth specifically in companies’ operations. The companies that recognised and realised its importance have been managed to outsmart its rival by offering innovative products or through the creative approach of selling. Therefore the aspect of location decision is important in relation to the exploration and evaluation of predictable outcome of specified operations. Five Contemporary practices that has been explained in this research report could be utilised as an effort of configuring companies’ operations in the supply network.

Section-1: Background Context with Aims & Objectives

1.1. Background Context

It is obvious that there is no operation in the world that exist in isolation. Each operation is seems to be an integral part of large and relatively interconnected network of various operations (Slack et al., 2007). This factor is known as Supply Network which involves two major stakeholders (Suppliers and Customers). And sometime it could be extended up to the company’s suppliers’ suppliers and customers’ customers (Barnes, 2008). It has been determined that operations managers are usually involved at strategic level for the designing of Supply Network’s shape and form (Watson et al., 2012). Moreover, the designing process of Supply Network starts with the formulation of certain strategic objectives that would assist an organisation to decide over certain approaches (how organisation wanted to make impact on its supply network overall shape, how it would locate its operations and how it would be possible to configure activities within the company’s existing supply network).

The perspective of Supply Network refers to be as a concept of settling all given operations in a context by which it allows the company to interact with its suppliers and customers. It has been determined that of all aspects (Input Material, Raw Material, Other Information and even Individuals within an enterprise flow within the organisational network of customers-suppliers relationships build through all of the given operations. This concept assists company in understanding and realising its competitiveness within the specified industry. It also helps company in signifying the important relationships (links) existing within its company’s supply chain network and also intends a company to orient more on long-term issues. Major disadvantage of this concept of Supply Network is that it implied an organisation to create intimacy with few suppliers and it has been examined that this would be resulted in strengthening the company’s suppliers bargaining power as the switching cost would get increase. Additionally, if this factor would not manage in a proper manner then it would incur more costs than the existing practices and in this manner it would also make negative impact on company’s profitability and quality aspects In relation to the Supply Network, it has been believed that the Location decisions would have direct influence on two aspects: Production cost and the specified company’s ability in regard to serve its existing customer base so that the company’s revenue and profitability would stay up to the satisfactory level. It has been discovered that the overall aim of location decision is to accomplish an adequate balance between three associated objectives (to reduce the operation’s variable costs, to meet the needs of customers in effective and efficient manner and to generate revenue stream). Specifically, there are two stimuli (supply-side factors and demand side factors) that frequently intend organisations in changing their existing locations. This stimulus of relocating (supply-side factors) is more related with the changes in term of available resources or in term of direct or indirect cost. Whereas, the other stimulus (demand side factors) is more focused on the convenience of company’s customers.

Additionally, there are five contemporary practices (Reconfiguration, Disintermediation, Co-opetition, Insourcing and Outsourcing) that could be adopted for the configuring of supply network. The practice of Reconfiguration is based an attempt in managing network behaviour with the reconfiguration of network so that it would make possible to change the scope of performed activities at each stage of production process and also to alter the relationships existing between these stages. Disintermediation is focused on the bypassing of company’s direct suppliers or different customers and urging the company to create direct link with its suppliers’ suppliers or company’s customers’ customers. Co-opetition is directed on the approach of viewing companies operations as a component which has been surrounded by four major players (suppliers, customers, complementors and competitots). In-Sourcing is also determined as a practice of supply network configuration. This could be practiced in two ways (backward integration and forward integration). The ultimate aim of doing in- sourcing is to reduce the cost of operation. Lastly, the approach of Outsourcing is the opposite of In-Sourcing. Through this supply network configuration approach, the company would able to give out its costly or problematic operations to other company in order to offset the given issue.

1.2. Problem Statement

During the period of 1990s, Hyundai had shifted its operations for the manufacturing of Personal Computer to US and as a result of that fact the company’s market share decreased from 5% (during 1980s) to only 1.5%. It was perceived as company suspicious decision with respect to move its operations in a country where the labour and accommodation costs are comparatively higher than other regions. In an actual term, Hyundai estimated that the factor of increasing in costs were counterbalance through the saving in delivery time and inventories hold by the company. Previously, the Personal Computers produced in Korea were taking over two months to US markets and then afterward it had been hold in stocks for three months more for sales. But after this company’s initiative of moving its operations in US, the company had been managed to reduce its inventories by large extend and in the way enhanced its responsiveness to market trend as by residing itself too close to the marketplace.

With respect to the case study of Hyundai, it is essential to answer certain questions that are listed below:

Describe the significance of the concept of Supply Network in relation to operations management and also explain its advantages and disadvantages? Examine in depth the main factors that would make an impact on location decisions as it has been pointed out in the Hyundai case study? Critically analyse five contemporary practices that could be capitalised by the companies in an effort of configuring its operations in the supply network?

1.3. Research Aim & Objectives

Major aim of this report is to outline the significance of the perspective of Supply Network within the organisational practices. Whereas the objectives of this report are mentioned below:

To identify the importance of Supply Network perspective and also to explore its advantages and disadvantages to the companies’ operations. To evaluate certain factors that could make direct and indirect influence on company’s location decision making.

To learn about 5 contemporary practices that could be pursued by the company for the configuring of supply network operations.

Section-2: Literature Review

2.1. Perspective of Supply Network

This perspective is meant to be as a concept of settling all given operations in a context by which it allows the company to interact with its suppliers and customers. It has been determined that of all aspects (Input Material, Raw Material, Other Information and even Individuals within an enterprise flow within the organisational network of customers-suppliers relationships build through all of the given operations (Flynn et al., 2010). On the company’s supply side, there is an operation of procuring raw material or input material from its suppliers. However these suppliers themselves have suppliers and who thereafter would have their own suppliers and this process continued. While on the demand side, the company has dealing with customers but these customers would not be the final consumers and they would have also have their own customers. The suppliers with whom the company deals on directly basis are known as first tier suppliers and hence the suppliers of first tier suppliers are termed as second tier suppliers. Correspondingly on demand side, the direct customers of a company are named as first tier customers and the customers of those first tier customers are called as second tier customer (Jones & Robinson, 2012). Therefore, suppliers and customers with whom the company has direction interaction is known operations of Immediate Supply Network whereas the overall operations which composed of network of company as well as the network of its suppliers’ suppliers and its customers’ customers are termed as the Total Supply Network (Gadde et al., 2010).

Figure 1 Total Supply Network for Two Companies (Homeware Plastic Company & A Shopping Mall), adopted from Slack et al. (2007)

The figure illustrated above shows the total supply network of two different businesses (Homeware Plastic Company & a Shopping Mall). The first business model is of plastic homeware company (the manufacturer of food containers and kitchen bowls. On the demand side of the supply network, the company has first tier customer (Wholesalers) to whom company directly supplies products and then these wholesalers supply those goods to the retailers who are determined as company’s second tier customers. When the stock level get finished or run low on retailers’ side then they place order to Wholesalers who then contact the manufacturing company for this purpose. Then the manufacturing company places order with to suppliers for the procurement of input and raw material. The company’s suppliers would contact its suppliers in order to meet the business requirements of manufacturing company. And in this way the whole process works. Specifically it has been observed that there are two things taking place in the total supply network: 1) the flowing of plastic goods (food containers and kitchen bowl) from the manufacturing company’s second tier suppliers to its second tier customers and 2) each entity (link) within the supply network feedback information and orders to its suppliers. Moreover, the second supply network model of a Shopping Mall also has suppliers as well as customers and carry on their business process in the same manner as it was explained in the model of Plastic Homeware manufacturing company’s supply network.

2.1.1. Merits of Supply Network

There are three major advantages of supply network that are outlined below:

a) It assists company in understanding and realising its competitiveness within the specified industry. Although company’s relationships with its immediate suppliers and customers are seems to be understandable and also determined as major concern for the company’s competitiveness but it has been discovered that supply network which intends more on in looking beyond the immediate suppliers and customers would incline to be more useful for the company’s own competitive health. Normally the manufacturing companies have two options for the purpose of identifying the needs of its ultimate customers: i) relying only on the information of its immediate customers who have direct link with the product’s consumers. Or ii) make direct relationships with the ultimate consumers so that it would intend consumers to understand and realise their needs in a more extensive manner (Schönsleben, 2010). So, in both ways the company would permit itself to remain competitive.

b) It helps company in signifies the important relationships (links) existing within its company’s supply chain network. Generally the major concept behind the understanding of supply network is to identify certain entities that contributes in align with the performance objectives valued by the company’s ultimate consumers (Toni, 2011). Usually the analysis of supply network initiates with the understanding of its downstream end of its operations and then with the analysis of upstream operations. And in this way, it will make possible for the company to understand the significance and contribution of each entity in regard to the identification of its customers’ needs. Moreover, it is not possible that all parts of company’s supply network contributes on equal basis. For example, the significant immediate customers for the production company of domestic plumbing products and parts are the installer of this service companies (which have direction interaction with its domestic consumers. The company in this case need to ensure all the time that their services companies must have all parts and appliances in their stock so that they would offer proactive services to the domestic consumers. In order to make this process efficient the manufacturing can contribute at its best by delivering all parts and appliance in a short time to the stock holders (which are in this manner are the services companies). Thereafter the services companies can offer competitiveness to their end consumers by offering short through put (lead time) mainly through dependable delivery. So in entire process, major players are seems to be stock holders and the only way of increasing the existing customer base by offering stock holders quick delivery which then directs company in keeping its transaction costs while having high availability of stocks. c) It intends company to orient more on long-term issues. There comes a time when certain circumstance within the supply network renders all parts in the given supply network and then force these links to be weaker than the existing adjacent links. The issue or dispute of lower labour might create disturbance in the whole network (Hübner, 2007). So, in this situation the company’s immediate suppliers and customers could go for the way of exploiting the given weakness and might try to enhance its competitive position within the existing supply network. So, the specified company could only defend its position by focusing more on the way of replacing or rendering the weakest link.

2.1.2. Demerits of Supply Network

a) Major disadvantage of this concept of Supply Network is that it implied an organisation to create intimacy with few suppliers and it has been examined that this would be resulted in strengthening the company’s suppliers bargaining power as the switching would get increase (Wu & Blackhurst, 2009).
b) If this factor would not manage in a proper manner then it would incur more costs than the existing practices and in this manner it would also make negative impact on company’s profitability and quality aspects (Minis, 2011).

Proposition-1: Why should an organisation need to consider strongly the perspective of Supply Network?

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