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Chapter 5 Network Design in the Supply Chain
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Outline The Role of Network Design in the Supply Chain
Factors Influencing Network Design Decisions Framework for Network Design Decisions Models for Facility Location and Capacity Allocation The Role of IT in Network Design Making Network Design Decisions in Practice Notes: 5-2
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Network Design Decisions
Facility role Facility location Capacity allocation Market and supply allocation 5-3
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Factors Influencing Network Design Decisions
Strategic Technological Macroeconomic Political Infrastructure Competitive Logistics and facility costs 5-4
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The Cost-Response Time Frontier
Hi Local FG Mix Regional FG Local WIP Cost Central FG Central WIP Central Raw Material and Custom production Notes: Custom production with raw material at suppliers Low Low Hi Response Time 5-5
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Service and Number of Facilities
Response Time Notes: Number of Facilities 5-6
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Costs and Number of Facilities
Inventory Facility costs Costs Transportation Notes: Number of facilities 5-7
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Cost Buildup as a Function of Facilities
Total Costs Percent Service Level Within Promised Time Cost of Operations Facilities Inventory Notes: Transportation Labor Number of Facilities 5-8
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Framework for Network Design Decisions
Phase I – Supply Chain Strategy Phase II – Regional Facility Configuration Phase III – Desirable Sites Phase IV – Location Choices 5-9
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A Framework for Network Design Decisions
Competitive STRATEGY GLOBAL COMPETITION PHASE I Supply Chain Strategy INTERNAL CONSTRAINTS Capital, growth strategy, existing network TARIFFS AND TAX INCENTIVES PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility REGIONAL DEMAND Size, growth, homogeneity, local specifications PHASE II Regional Facility Configuration COMPETITIVE ENVIRONMENT POLITICAL, EXCHANGE RATE AND DEMAND RISK Notes: PHASE III Desirable Sites AVAILABLE INFRASTRUCTURE PRODUCTION METHODS Skill needs, response time FACTOR COSTS Labor, materials, site specific PHASE IV Location Choices LOGISTICS COSTS Transport, inventory, coordination 5-10
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Conventional Network Materials DC Vendor DC Finished Goods DC Customer
Store Customer Store Component Manufacturing Vendor DC Customer Store Plant Warehouse Customer DC Components DC Customer Store Notes: Vendor DC Finished Goods DC Final Assembly Customer DC Customer Store 5-11
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Tailored Network: Multi-Echelon Finished Goods Network
Local DC Cross-Dock Store 1 Regional Finished Goods DC Customer 1 DC Store 1 Local DC Cross-Dock Store 2 National Finished Goods DC Customer 2 DC Store 2 Local DC Cross-Dock Notes: Regional Finished Goods DC Store 3 Store 3 5-12
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Gravity Methods for Location
Ton Mile-Center Solution x,y: Warehouse Coordinates xn, yn : Coordinates of delivery location n dn : Distance to delivery location n Fn : Annual tonnage to delivery location n Notes: Min 5-13
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Models for Facility Location and Capacity Allocation
Phase II Capacitated Plant location model Phase III Gravity location models 5-14
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Network Optimization Models
Allocating demand to production facilities Locating facilities and allocating capacity Key Costs: Fixed facility cost Transportation cost Production cost Inventory cost Coordination cost Notes: Which plants to establish? How to configure the network? 5-15
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Demand Allocation Model
Which market is served by which plant? Which supply sources are used by a plant? xij = Quantity shipped from plant site i to customer j 5-16
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Plant Location with Multiple Sourcing
yi = 1 if plant is located at site i, 0 otherwise xij = Quantity shipped from plant site i to customer j Notes: 5-17
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Plant Location with Single Sourcing
yi = 1 if plant is located at site i, 0 otherwise xij = 1 if market j is supplied by factory i, 0 otherwise Notes: 5-18
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The Role of IT in Network Design
IT systems help with network design by: Making the modeling of the network design problems easier Containing high-performance optimization technologies Allowing for “what-if” scenarios Interfacing with planning and operational software 5-19
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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 5-20
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SOCIO ECONOMIC FACTORS IN CHOICE OF FACILITY LOCATION
What role do socio-economic factors play in the selection of the facility location? How do state policies aimed at promoting balanced regional development, shape the supply chain network designs?
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JAIPUR RUGS How has Jaipur Rugs knitted together the traditional skills of widely dispersed rural workforce, through innovative adaptation of supply chain practices that best fit the Indian socio economic conditions to bring quality products to the international market and ensure fair returns to the artisans?
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Summary of Learning Objectives
What is the role of network design decisions in the supply chain? What are the factors influencing supply chain network design decisions? Describe a strategic framework for facility location. How are the following optimization methods used for facility location and capacity allocation decisions? Gravity methods for location Network optimization models Notes: 5-23
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