7.network design in the supply chain
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Network Design in the Supply Chain
Supply Chain Management
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Outline
A strategic framework for facility location Multi-echelon networks Gravity methods for location Plant location models
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Network Design Decisions
Facility role Facility location Capacity allocation Market and supply allocation
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Factors InfluencingNetwork Design Decisions
Strategic Technological Macroeconomic Political Infrastructure Competitive Logistics and facility costs
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Service and Number of Facilities
Number of Facilities
ResponseTime
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Customer
DC
Where inventory needs to be for a one week order Where inventory needs to be for a one week order response time - typical results --> 1 DCresponse time - typical results --> 1 DC
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Customer
DC
Where inventory needs to be for a 5 day order Where inventory needs to be for a 5 day order response time - typical results --> 2 DCsresponse time - typical results --> 2 DCs
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Customer
DC
Where inventory needs to be for a 3 day order Where inventory needs to be for a 3 day order response time - typical results --> 5 DCsresponse time - typical results --> 5 DCs
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Customer
DC
Where inventory needs to be for a next day order Where inventory needs to be for a next day order response time - typical results --> 13 DCsresponse time - typical results --> 13 DCs
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Customer
DC
Where inventory needs to be for a same day / next Where inventory needs to be for a same day / next day order response time - typical results --> 26 DCsday order response time - typical results --> 26 DCs
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Costs and Number of Facilities
Costs
Number of facilities
Inventory
Transportation
Facility costs
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Percent Service Percent Service Level Within Level Within
Promised TimePromised Time
TransportationTransportation
Cost Buildup as a Function of FacilitiesC
ost
of O
per
atio
ns
Cos
t of
Op
erat
ion
s
Number of FacilitiesNumber of Facilities
InventoryInventory
FacilitiesFacilities
Total CostsTotal Costs
LaborLabor
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A Framework forGlobal Site Location
PHASE ISupply Chain
Strategy
PHASE IIRegional Facility
Configuration
PHASE IIIDesirable Sites
PHASE IVLocation Choices
Competitive STRATEGY
INTERNAL CONSTRAINTSCapital, growth strategy,existing network
PRODUCTION TECHNOLOGIESCost, Scale/Scope impact, supportrequired, flexibility
COMPETITIVEENVIRONMENT
PRODUCTION METHODSSkill needs, response time
FACTOR COSTSLabor, materials, site specific
GLOBAL COMPETITION
TARIFFS AND TAXINCENTIVES
REGIONAL DEMANDSize, growth, homogeneity,local specifications
POLITICAL, EXCHANGERATE AND DEMAND RISK
AVAILABLEINFRASTRUCTURE
LOGISTICS COSTSTransport, inventory, coordination
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Conventional Network
CustomerCustomerStoreStore
MaterialsMaterialsDCDC
ComponentComponentManufacturingManufacturing
VendorVendorDCDC
Final Final AssemblyAssembly
FinishedFinishedGoods DCGoods DC
ComponentsComponentsDCDC
VendorVendorDCDC PlantPlant
WarehouseWarehouse
FinishedFinishedGoods DCGoods DC
CustomerCustomerDCDC
CustomerCustomerDCDC
CustomerCustomerDCDC
CustomerCustomerStoreStore
CustomerCustomerStoreStore
CustomerCustomerStoreStore
CustomerCustomerStoreStore
VendorVendorDCDC
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Tailored Network: Multi-Echelon Finished Goods Network
RegionalRegionalFinishedFinished
Goods DCGoods DC
RegionalRegionalFinishedFinished
Goods DCGoods DC
Customer 1Customer 1DCDC
Store 1Store 1
NationalNationalFinishedFinished
Goods DCGoods DC
Local DCLocal DCCross-DockCross-Dock
Local DC Local DC Cross-DockCross-Dock
Local DCLocal DCCross-DockCross-Dock
Customer 2Customer 2DCDC
Store 1Store 1
Store 2Store 2
Store 2Store 2
Store 3Store 3
Store 3Store 3
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Network Optimization Models
Allocating demand to production facilities Locating 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
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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
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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 Network optimization models are used for facility location and capacity
allocation decisions?
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