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PowerPoint presentation to accompany Chopra and Meindl Supply Chain Management, 5e 1-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

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Presentation on theme: "PowerPoint presentation to accompany Chopra and Meindl Supply Chain Management, 5e 1-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall."— Presentation transcript:

1 PowerPoint presentation to accompany Chopra and Meindl Supply Chain Management, 5e 1-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 1-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 1-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 5-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Network Design in the Supply Chain 5

2 5-2Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Learning Objectives 1.Understand the role of network design in a supply chain. 2.Identify factors influencing supply chain network design decisions. 3.Develop a framework for making network design decisions. 4.Use optimization for facility location and capacity allocation decisions.

3 5-3Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Network Design Decisions Facility role –What role, what processes? Facility location –Where should facilities be located? Capacity allocation –How much capacity at each facility? Market and supply allocation –What markets? Which supply sources?

4 5-4Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Factors Influencing Network Design Decisions Strategic factors Technological factors Macroeconomic factors –Tariffs and tax incentives –Exchange-rate and demand risk –Freight and fuel costs Political

5 5-5Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Factors Influencing Network Design Decisions Infrastructure factors Competitive factors –Positive externalities between firms –Locating to split the market Customer response time and local presence Logistics and facility costs

6 5-6Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Competitive Factors –Positive externalities between firms Collocation benefits all –Locating to split the market Locate to capture largest market share Figure 5-1

7 5-7Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Framework for Network Design Decisions Phase I: Define a Supply Chain Strategy/Design –Clear definition of the firm’s competitive strategy –Forecast the likely evolution of global competition –Identify constraints on available capital –Determine growth strategy

8 5-8Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Framework for Network Design Decisions Figure 5-2

9 5-9Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Framework for Network Design Decisions Phase II: Define the Regional Facility Configuration –Forecast of the demand by country or region –Economies of scale or scope –Identify demand risk, exchange-rate risk, political risk, tariffs, requirements for local production, tax incentives, and export or import restrictions –Identify competitors

10 5-10Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Framework for Network Design Decisions Phase III: Select a Set of Desirable Potential Sites –Hard infrastructure requirements –Soft infrastructure requirements Phase IV: Location Choices

11 5-11Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Models for Facility Location and Capacity Allocation Maximize the overall profitability of the supply chain network while providing customers with the appropriate responsiveness Many trade-offs during network design Network design models used to decide on locations and capacities and to assign current demand to facilities

12 5-12Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Models for Facility Location and Capacity Allocation Important information –Location of supply sources and markets –Location of potential facility sites –Demand forecast by market –Facility, labor, and material costs by site –Transportation costs between each pair of sites –Inventory costs by site and as a function of quantity –Sale price of product in different regions –Taxes and tariffs –Desired response time and other service factors

13 5-13Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Phase II: Network Optimization Models Figure 5-3

14 5-14Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model =number of potential plant locations/capacity =number of markets or demand points =annual demand from market j =potential capacity of plant i =annualized fixed cost of keeping plant i open =cost of producing and shipping one unit from plant i to market j (cost includes production, inventory, transportation, and tariffs) =quantity shipped from plant i to market j =1 if plant i is open, 0 otherwise subject to

15 5-15Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Figure 5-4

16 5-16Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Figure 5-5

17 5-17Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Figure 5-5

18 5-18Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Phase III: Gravity Location Models Figure 5-6

19 5-19Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Gravity Location Model x n, y n :coordinate location of either a market or supply source n F n :cost of shipping one unit for one mile between the facility and either market or supply source n D n :quantity to be shipped between facility and market or supply source n ( x, y ) is the location selected for the facility, the distance d n between the facility at location ( x, y ) and the supply source or market n is given by

20 5-20Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Gravity Location Model Figure 5-7

21 5-21Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Gravity Location Model Table 5-1 Sources/Market s Transportation Cost $/Ton Mile ( F n ) Quantity in Tons ( D n ) Coordinates xnxn ynyn Supply sources Buffalo ,200 Memphis St. Louis Markets Atlanta Boston ,0501,200 Jacksonville Philadelphia New York ,0001,080 Total transportation cost

22 5-22Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Gravity Location Model Figure 5-8

23 5-23Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Gravity Location Model Figure 5-8

24 5-24Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Gravity Location Model 1.For each supply source or market n, evaluate d n 2.Obtain a new location ( x’, y ’) for the facility, where 3.If the new location ( x ’, y ’ ) is almost the same as ( x, y ) stop. Otherwise, set ( x, y ) = ( x ’, y ’ ) and go to step 1

25 5-25Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Phase IV: Network Optimization Models Supply City Demand City Production and Transportation Cost per Thousand Units (Thousand $) Monthly Capacity (Thousand Units) K Monthly Fixed Cost (Thousand $) f AtlantaBoston Chicag oDenverOmahaPortland Baltimore1, ,6301,1602,800187,650 Cheyenne1,4601, ,200243,500 Salt Lake City 1,9252,4001, ,000 Memphis3801, , ,321224,100 Wichita9221, ,797312,200 Monthly demand (thousand units) D j Table 5-2

26 5-26Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Network Optimization Models Allocating demand to production facilities =number of factory locations =number of markets or demand points =annual demand from market j =capacity of factory i =cost of producing and shipping one unit from factory i to market j x ij =quantity shipped from factory i to market j subject to

27 5-27Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Network Optimization Models Optimal demand allocation AtlantaBostonChicagoDenverOmahaPortland TelecomOneBaltimore082 Memphis10012 Wichita000 HighOpticSalt Lake0011 Cheyenne670 Table 5-3

28 5-28Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Merge the companies Solve using location-specific costs y i =1 if factory i is open, 0 otherwise x ij =quantity shipped from factory i to market j

29 5-29Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Figure 5-9

30 5-30Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Figure 5-10

31 5-31Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Figure 5-10

32 5-32Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Plant Location Model Figure 5-11

33 5-33Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Model With Single Sourcing Market supplied by only one factory Modify decision variables y i =1 if factory i is open, 0 otherwise x ij =1 if market j is supplied by factory i, 0 otherwise subject to

34 5-34Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Model With Single Sourcing Figure 5-12

35 5-35Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Capacitated Model With Single Sourcing Optimal network configuration with single sourcing Open/ ClosedAtlantaBostonChicagoDenverOmahaPortland BaltimoreClosed CheyenneClosed Salt LakeOpen MemphisOpen WichitaOpen Table 5-4

36 5-36Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Locating Plants and Warehouses Simultaneously Figure 5-13

37 5-37Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Locating Plants and Warehouses Simultaneously Model inputs m =number of markets or demand points n =number of potential factory locations l =number of suppliers t =number of potential warehouse locations D j =annual demand from customer j K i =potential capacity of factory at site i S h =supply capacity at supplier h W e =potential warehouse capacity at site e F i =fixed cost of locating a plant at site i f e =fixed cost of locating a warehouse at site e c hi =cost of shipping one unit from supply source h to factory i c ie =cost of producing and shipping one unit from factory i to warehouse e c ej =cost of shipping one unit from warehouse e to customer j

38 5-38Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Locating Plants and Warehouses Simultaneously Goal is to identify plant and warehouse locations and quantities shipped that minimize the total fixed and variable costs Y i =1 if factory is located at site i, 0 otherwise Y e =1 if warehouse is located at site e, 0 otherwise x ej =quantity shipped from warehouse e to market j x ie =quantity shipped from factory at site i to warehouse e x hi =quantity shipped from supplier h to factory at site i

39 5-39Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Locating Plants and Warehouses Simultaneously subject to

40 5-40Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Accounting for Taxes, Tariffs, and Customer Requirements A supply chain network should maximize profits after tariffs and taxes while meeting customer service requirements Modified objective and constraint

41 5-41Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Making Network Design Decisions In Practice Do not underestimate the life span of facilities Do not gloss over the cultural implications Do not ignore quality-of-life issues Focus on tariffs and tax incentives when locating facilities

42 5-42Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Summary of Learning Objectives 1.Understand the role of network design in a supply chain 2.Identify factors influencing supply chain network design decisions 3.Develop a framework for making network design decisions 4.Use optimization for facility location and capacity allocation decisions

43 5-43Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.


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