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Chapter 5 Network Design in the Supply Chain

Chapter 5 Network Design in the Supply Chain. Supply Chain Management (3rd Edition). 5- 1. Outline. A strategic framework for facility location Multi-echelon networks Gravity methods for location Plant location models. 5- 2. Network Design Decisions. Facility role Facility location

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Chapter 5 Network Design in the Supply Chain

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

  2. Outline • A strategic framework for facility location • Multi-echelon networks • Gravity methods for location • Plant location models 5-2

  3. Network Design Decisions • Facility role • Facility location • Capacity allocation • Market and supply allocation 5-3

  4. Factors InfluencingNetwork Design Decisions • Strategic • Technological • Macroeconomic • Political • Infrastructure • Competitive • Logistics and facility costs 5-4

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

  6. Service and Number of Facilities Response Time Number of Facilities 5-6

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

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

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

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

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

  12. Inventory Facility costs Transportation Costs and Number of Facilities Costs Number of facilities 5-12

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

  14. A Framework forGlobal Site Location GLOBAL COMPETITION Competitive STRATEGY 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 PHASE III Desirable Sites AVAILABLE INFRASTRUCTURE PRODUCTION METHODS Skill needs, response time PHASE IV Location Choices FACTOR COSTS Labor, materials, site specific LOGISTICS COSTS Transport, inventory, coordination 5-14

  15. Materials DC Customer DC Finished Goods DC Vendor DC Customer Store Component Manufacturing Vendor DC Customer DC Customer Store Plant Warehouse Components DC Customer Store Vendor DC Finished Goods DC Customer DC Final Assembly Customer Store Conventional Network Customer Store 5-15

  16. Local DC Cross-Dock Store 1 Regional Finished Goods DC Customer 1 DC Store 1 Local DC Cross-Dock National Finished Goods DC Store 2 Customer 2 DC Local DC Cross-Dock Store 2 Regional Finished Goods DC Store 3 Store 3 Tailored Network: Multi-Echelon Finished Goods Network 5-16

  17. 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 Min 5-17

  18. 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 Which plants to establish? How to configure the network? 5-18

  19. 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 Demand Allocation Model 5-19

  20. 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 5-20

  21. 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 5-21

  22. 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 5-22

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