1. © 2007 Pearson Education Chapter 5 Network Design in the Supply Chain Supply Chain Management (3rd Edition) 5-1

2. © 2007 Pearson Education Outline uA strategic framework for facility location uMulti-echelon networks uGravity methods for location uPlant location models 5-2

3. © 2007 Pearson Education Network Design Decisions uFacility role uFacility location uCapacity allocation uMarket and supply allocation 5-3

4. © 2007 Pearson Education Factors Influencing Network Design Decisions uStrategic uTechnological uMacroeconomic uPolitical uInfrastructure uCompetitive uLogistics and facility costs 5-4

5. © 2007 Pearson Education The Cost-Response Time Frontier Local FG Mix Regional FG Local WIP Central FG Central WIP Central Raw Material and Custom production Custom production with raw material at suppliers Cost Response Time HiLow Hi 5-5

6. © 2007 Pearson Education Service and Number of Facilities Number of Facilities Response Time 5-6

7. © 2007 Pearson Education Customer DC Where inventory needs to be for a one week order response time - typical results --> 1 DC

8. © 2007 Pearson Education Customer DC Where inventory needs to be for a 5 day order response time - typical results --> 2 DCs

9. © 2007 Pearson Education Customer DC Where inventory needs to be for a 3 day order response time - typical results --> 5 DCs

10. © 2007 Pearson Education Customer DC Where inventory needs to be for a next day order response time - typical results --> 13 DCs

11. © 2007 Pearson Education Customer DC Where inventory needs to be for a same day / next day order response time - typical results --> 26 DCs

12. © 2007 Pearson Education Costs and Number of Facilities Costs Number of facilities Inventory Transportation Facility costs 5-12

13. © 2007 Pearson Education Percent Service Level Within Promised Time Transportation Cost Buildup as a Function of Facilities Cost of Operations Number of Facilities Inventory Facilities Total Costs Labor 5-13

14. © 2007 Pearson Education A Framework for Global Site Location 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 5-14

15. © 2007 Pearson Education Conventional Network CustomerStore MaterialsDC ComponentManufacturing VendorDC Final Assembly Finished Goods DC ComponentsDC VendorDC PlantWarehouse Finished CustomerDC CustomerDC CustomerDC CustomerStore CustomerStore CustomerStore CustomerStore VendorDC 5-15

16. © 2007 Pearson Education Tailored Network: Multi-Echelon Finished Goods Network RegionalFinished Goods DC RegionalFinished Customer 1 DC Store 1 NationalFinished Goods DC Local DC Cross-Dock Cross-Dock Cross-Dock Customer 2 DC Store 1 Store 2 Store 3 5-16

17. © 2007 Pearson Education Gravity Methods for Location uTon Mile-Center Solution –x,y: Warehouse Coordinates –x n, y n : Coordinates of delivery location n –d n : Distance to delivery location n –F n : Annual tonnage to delivery location n Min 5-17

18. © 2007 Pearson Education 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 5-18

19. © 2007 Pearson Education Demand Allocation Model uWhich market is served by which plant? uWhich supply sources are used by a plant? x ij = Quantity shipped from plant site i to customer j 5-19

20. © 2007 Pearson Education Plant Location with Multiple Sourcing uy i = 1 if plant is located at site i, 0 otherwise ux ij = Quantity shipped from plant site i to customer j 5-20

21. © 2007 Pearson Education Plant Location with Single Sourcing uy i = 1 if plant is located at site i, 0 otherwise ux ij = 1 if market j is supplied by factory i, 0 otherwise 5-21

22. © 2007 Pearson Education 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 5-22