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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 5 Network Design in the Supply Chain 5-1.

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Presentation on theme: "Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 5 Network Design in the Supply Chain 5-1."— Presentation transcript:

1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 5 Network Design in the Supply Chain 5-1

2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Outline uThe Role of Network Design in the Supply Chain uFactors Influencing Network Design Decisions uFramework for Network Design Decisions uModels for Facility Location and Capacity Allocation uThe Role of IT in Network Design uMaking Network Design Decisions in Practice 5-2

3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Network Design Decisions uFacility role uFacility location uCapacity allocation uMarket and supply allocation 5-3

4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

5 Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-5

6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Strategic Factors uFirms competitive strategy –Cost –Responsiveness

7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-7

8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-8

9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-9

10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-10

11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-11

12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Competitor location 01 A1-B

13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Competitor location 01 A1-B

14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Competitor location 01 A1-B D 1 = A + (1 – B – A)/2 D 2 = (1+ B – A)/2

15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-15

16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Service and Number of Facilities Number of Facilities Response Time 5-16

17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Costs and Number of Facilities Costs Number of facilities Inventory Transportation Facility costs 5-17

18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Transportation Cost Buildup as a Function of Facilities Cost of Operations Number of Facilities Inventory Facilities Total Costs Labor 5-18

19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Framework for Network Design Decisions uPhase I – Supply Chain Strategy uPhase II – Regional Facility Configuration uPhase III – Desirable Sites uPhase IV – Location Choices 5-19

20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Framework for Network Design Decisions PHASE I Supply Chain Strategy PHASE II Regional Facility Configuration PHASE III Desirable Sites PHASE IV Location Choices Competitive STRATEGY INTERNAL CONSTRAINTS Capital, growth strategy, existing network PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility COMPETITIVE ENVIRONMENT PRODUCTION METHODS Skill needs, response time FACTOR COSTS Labor, materials, site specific GLOBAL COMPETITION TARIFFS AND TAX INCENTIVES REGIONAL DEMAND Size, growth, homogeneity, local specifications POLITICAL, EXCHANGE RATE AND DEMAND RISK AVAILABLE INFRASTRUCTURE LOGISTICS COSTS Transport, inventory, coordination 5-20

21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Linear programming (LP) uOptimization of linear objective functions uNormally formulated: –Maximize X –Subject to y < z

22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP example (Joes chop shop) uJoe takes plain vans and converts them into custom vans and can produce either fine or fancy vans. Both types require a $25,000 plain van. Fancy vans sell for $37,000 and Joe uses $10,000 in parts to customize them yielding a profit margin of $2,000. Fine vans use $6,000 in parts and sell for $32,700 yielding profits of $1,700. Joe figures the shop can work on no more than 12 vans in a week. Joe hires 7 people including himself and operates 8 hours per day, 5 days a week and thus has at most 280 hours of labor available in a week. Joe also estimates that a fancy van will take 25 hours of labor, while a fine van will take 20 hours. uTo maximize profit, how many of each van should Joe produce?

23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP Example (Joes chop shop) uMaximize Z = 2000 X fancy X fine

24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP example (Joes chop shop) uJoe takes plain vans and converts them into custom vans and can produce either fine or fancy vans. Both types require a $25,000 plain van. Fancy vans sell for $37,000 and Joe uses $10,000 in parts to customize them yielding a profit margin of $2,000. Fine vans use $6,000 in parts and sell for $32,700 yielding profits of $1,700. Joe figures the shop can work on no more than 12 vans in a week. Joe hires 7 people including himself and operates 8 hours per day, 5 days a week and thus has at most 280 hours of labor available in a week. Joe also estimates that a fancy van will take 25 hours of labor, while a fine van will take 20 hours. uTo maximize profit, how many of each van should Joe produce?

25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP Example (Joes chop shop) uMaximize Z = 2000 X fancy X fine uSubject to: X fancy 0 X fine 0

26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP example (Joes chop shop) uJoe takes plain vans and converts them into custom vans and can produce either fine or fancy vans. Both types require a $25,000 plain van. Fancy vans sell for $37,000 and Joe uses $10,000 in parts to customize them yielding a profit margin of $2,000. Fine vans use $6,000 in parts and sell for $32,700 yielding profits of $1,700. Joe figures the shop can work on no more than 12 vans in a week. Joe hires 7 people including himself and operates 8 hours per day, 5 days a week and thus has at most 280 hours of labor available in a week. Joe also estimates that a fancy van will take 25 hours of labor, while a fine van will take 20 hours. uTo maximize profit, how many of each van should Joe produce?

27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP Example (Joes chop shop) uMaximize Z = 2000 X fancy X fine uSubject to: X fancy 0 X fine 0 X fancy + X fine X fancy + 20 X fine 280

28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall X fancy + X fine 12 Xfancy Xfine

29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall X fancy + 20 X fine 280 Xfancy Xfine

30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Xfancy Xfine

31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall X fancy X fine Xfancy Xfine

32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Xfancy Xfine

33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Steps to add the Solver add-in in Excel Click the Microsoft Office Button, and then click Excel Options. 2. Click Add-Ins, and then in the Manage box, select Excel Add-ins. 3. Click Go. 4. In the Add-Ins available box, select the Solver Add-in check box, and then click OK. Tip: If Solver Add-in is not listed in the Add-Ins available box, click Browse to locate the add-in. If you get prompted that the Solver Add-in is not currently installed on your computer, click Yes to install it. After you load the Solver Add-in, the Solver command is available in the Analysis group on the Data tab LP Example- Excel Solver

34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP Example Maximize Z = 2000 Xfancy Xfine # of Fancy produced # of Fine produced Subject to Xfancy + Xfine <= Xfancy + 20Xfine <= 2800

35 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP Example Maximize Z = 2000 Xfancy Xfine22800 # of Fancy produced8 # of Fine produced4 Subject to Xfancy + Xfine <= Xfancy + 20Xfine <=

36 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP example #2 (calculators) uA calculator company produces a scientific calculator and a graphing calculator. Long-term projections indicate an expected demand of at least 100 scientific and 80 graphing calculators each day. Because of limitations on production capacity, no more than 200 scientific and 170 graphing calculators can be made daily. To satisfy a shipping contract, a total of at least 200 calculators much be shipped each day. uIf each scientific calculator sold results in a $2 loss, but each graphing calculator produces a $5 profit, how many of each type should be made daily to maximize net profits?

37 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP Example #2 (Calculators) uMaximize Z = -2 X scientific + 5 X graphing uSubject to: X scientific 100 X graphing 80 X scientific + X graphing 200 X scientific 200 X graphing 170

38 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. LP Example #2 (Calculators) Maximize Z = -2 Xsci + 5 Xgraph650 # of Sci produced100 # of Graph produced170 Subject to Xsci + Xgraph <=

39 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Network Optimization Models uAllocating demand to production facilities uLocating facilities and allocating capacity Which plants to establish? How to configure the network? Key Costs: Fixed facility cost Transportation cost Production cost Inventory cost Coordination cost 5-39

40 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Plant Location with Multiple Sourcing 5-40

41 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Figure 5-3 Inputs - Costs, Capacities, Demands Demand Region Production and Transportation Cost per 1,000,000 UnitsFixedLowFixedHigh Supply RegionN. AmericaS. AmericaEuropeAsiaAfricaCost ($)CapacityCost ($)Capacity N. America , ,00020 S. America , ,75020 Europe , ,75020 Asia , ,15020 Africa , ,00020 Demand

42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Figure 5-4 Decision Variables Demand Region - Production Allocation (1000 Units)Plants Supply RegionN. AmericaS. AmericaEuropeAsiaAfrica(1=open) N. America S. America Europe Asia Africa

43 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Figure 5-5 Constraints Supply RegionExcess Capacity N. America0 S. America0 Europe0 Asia0 Africa0 N. AmericaS. AmericaEuropeAsiaAfrica Unmet Demand Objective Function Cost = $ -

44 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Figure 5-6 uConstraints: All decision variables are 0 All excess capacity is 0 All unmet demand = 0 Plants are open or closed (0,1)

45 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Figure 5-7 Inputs - Costs, Capacities, Demands Demand Region Production and Transportation Cost per 1,000,000 UnitsFixedLowFixedHigh Supply RegionN. AmericaS. AmericaEuropeAsiaAfricaCost ($)CapacityCost ($)Capacity N. America , ,00020 S. America , ,75020 Europe , ,75020 Asia , ,15020 Africa , ,00020 Demand Decision Variables Demand Region - Production Allocation (1000 Units)Plants Supply RegionN. AmericaS. AmericaEuropeAsiaAfrica(1=open) N. America S. America Europe Asia Africa Constraints Supply RegionExcess Capacity N. America0 S. America0 Europe0 Asia0 Africa3 N. AmericaS. AmericaEuropeAsiaAfrica Unmet Demand00000 Objective Function Cost = $ 23,751

46 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gravity Method C C C C

47 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. ux = (60x5000) + (15x1000) + (80x3000) uy = (15x5000) + (70x1000) + (110x3000) ux = / uy = /

48 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gravity Method C C C C

49 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gravity Method C C C C Customerxydemand Idaho Arizona Texas Ohio

50 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gravity Method uTon Mile-Center Solution –x : X coordinate center of gravity –y : Y coordinate center of gravity –d nx : X coordinate of the n th location –d ny : Y coordinate of the n th location –V n : Annual tonnage to delivery location n 5-50

51 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. ux = (75x500) + (35x2000) + (25x1200) + (65x600) uy = (40x500) + (40x2000) + (80x1200) + (105x600) ux = /4300 = 41 uy = /4300 = 60

52 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gravity Method C C C

53 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Customerxydemand California Texas New York

54 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. QUESTION>>> uQUESTION…. uWhat is the location u41/70 Oklahoma u(62/53 Colorado)XX u55/71 Kansas u73/82 Iowa

55 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gravity Method C C C C

56 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. ux = (60x5000) + (15x1000) + (80x3000) uy = (15x5000) + (70x1000) + (110x3000) ux = / uy = /

57 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Exercise #2 uDryIce, Inc., is a manufacturer of air conditioners that ha seen its demand grow significantly. The company anticipates nationwide demand for the year 2010 to be 180,000 in the South, 120,000 units in the Midwest, 110,000 in the East, and 100,000 units in the West. Managers at DryIce are designing the manufacturing network and have selected four potential sites- New York, Atlanta, Chicago, and San Diego. Plants could have a capacity of either 200,000 or 400,000 units. The annual fixed costs are the four locations are shown in the table below, along with the cost of producing and shipping an air conditioner to each of the four markets. Where should DryIce build its factories and how large should they be? New York Atlanta Chicago San Diego Fixed Costs 200k 6,000,000 5,500,000 5,600,000 6,100, k 10,000,000 9,200,000 9,300,000 10,200,000 Variable Costs East South Midwest West

58 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Exercise #2 uObjective function: Minimize Z = fixed costs + Variable costs uSubject to : All shipments are positive integers (0) All shipments are All shipment add up to the 2010 requirements.

59 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Question uQuestion uAnswer is: u** u u u276090

60 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Exercise #2 New York Shipped from NY Atlanta Shipped from Atlanta Chicago Shipped from Chicago San Diego Shipped from San Diego Requirements Supply Fixed Costs 200k 6,000,000 5,500,000 5,600,000 6,100, k 10,000,000 9,200,000 9,300,000 10,200,000 Variable Costs East , ,000 South , ,000 Midwest , ,000 West ,000 23,210, ,000 38,160, ,000 25,800, ,000 22,500, ,000 Fixed 6,000,000 5,500,000 5,600,000 6,100,000 29,210,000 43,660,000 31,400,000 28,600, ,870,000 TOTAL SYSTEM COST 265,740,000 Cells that are changed All non negative integers

61 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Exercise #2 New York Shipped from NY Atlanta Shipped from Atlanta Chicago Shipped from Chicago San Diego Shipped from San Diego Requirements Supply Fixed Costs 200k 6,000,000 5,500,000 5,600,000 6,100, k 10,000,000 9,200,000 9,300,000 10,200,000 Variable Costs East , ,000 South , ,000 Midwest , ,000 West ,000 23,210, ,000 38,160, ,000 25,800, ,000 22,500, ,000 Fixed 6,000,000 5,500,000 5,600,000 6,100,000 29,210,000 43,660,000 31,400,000 28,600, ,870,000 TOTAL SYSTEM COST 265,740,000 Cells that are changed All non negative integers

62 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Role of IT in Network Design uIT systems help with network design by: 1.Making the modeling of the network design problems easier 2.Containing high-performance optimization technologies 3.Allowing for what-if scenarios 4.Interfacing with planning and operational software 5-62

63 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Making Network Design Decisions In Practice uDo not underestimate the life span of facilities uDo not gloss over the cultural implications uDo not ignore quality of life issues uFocus on tariffs and tax incentives when locating facilities 5-63

64 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Summary of Learning Objectives uWhat is the role of network design decisions in the supply chain? uWhat are the factors influencing supply chain network design decisions? uDescribe a strategic framework for facility location. uHow are the following optimization methods used for facility location and capacity allocation decisions? –Gravity methods for location –Network optimization models 5-64


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