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8/2/2019 2009 G5 Facility Decisions and Distribution Network CH4_6
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Distribution Network Design andDistribution Network Design and
Facility DecisionsFacility Decisions
G5
[Chopra & Meindl] CH. 4-6
Prof. Anthony Han
Prepared for GMBA Program, School of ManagementNational Chiao Tung University
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Distribution Network DesignDistribution Network Design (Ch 4)(Ch 4)
Cost Factors:InventoriesTransportationFacilitiesInformation
Customer Service Factors:Response timeProduct AvailabilityProduct VarietyOrder VisibilityReturnability
Customer Experience
Design Criterion: Customer Needs vs. Cost
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Manufacturer Storage withDirect ShippingDrop Shipping
Examples: Dell, eBags, Nordstorm, etc.
Advantages: Centralized inventory at manufacturers High level of product availability
Disadvantages:High (Less-than-Truck, LTL) transportation costsLong shipping time
Good for products of:High variationHigh valueSlow moving
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In-Transit Merge Network (Fig. 4.7)Factories
Retailer
Product Flow
Information Flow
In-Transit Merge byCarrier
Customers
p.100
Stock
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In-Transit Merge Network
Examples: Dell, Gateway, Sony etc.
Similar to drop-shipping:High level of product availabilityTransportation costs are lower Facility/Processing costs are higher Better customization opportunities
Good for:Medium demandHigh value itemsMedium-demand products
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Distributor Storage withCarrier Delivery (Fig. 4.8) p.102
Factories
Customers
Product FlowInformation Flow
Warehouse Storage by Distributor/Retailer FG Stock
(Package Carrier Delivery)
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Distributor Storage withCarrier Delivery
Examples: W.W. Gringer, McMaster Carr, etc.
Two levels inventory:Distributors carry inventory at warehouses or DCsRetailers carry inventory at retail stores
Performance characteristics see Table 4.3 (p.103)Observations: Slow moving items => Inventory storage upstream More faster moving => Storage moves more downstream
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Distributor Storage withLast Mile Delivery (Home Delivery)
Factories
Customers
Product Flow
Information Flow
Distributor/Retailer Warehouse
(Fig. 4.9), p.104
FG Stock
Milk-Run Delivery byDistributor/Retailer
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Manufacturer or Distributor Storagewith Customer Pickup (Fig. 4.10) p.106
Factories
Retailer
Pickup Sites
Product FlowInformation Flow
Cross Dock DC
Customer Flow
Customers
Mostly for B2B, company customers
FG Stock FG Stock
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Retail Storage with Customer Pickup(Individual Customers)
Factories
Retailer
Pickup Sites
Product FlowInformation Flow
Cross Dock DC
Customer Flow
Customers
Retail Stores Retail StoresRetail StoresFG Stock
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Factors InfluencingFactors InfluencingDistribution Network DesignDistribution Network Design
Elements of customer service influenced bynetwork structure:
Response timeProduct varietyProduct availability
Customer experienceOrder visibilityReturnability
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Facility DecisionsFacility Decisions (Ch 5)(Ch 5)
Distribution Network Facility DecisionsType (Warehouse, DC, Factory, X-Dock)
Number, Location, Capacity AllocationTrade-offs
The more DCsHigher facility/equipment costsHigher personnel costsLower transportation costs
higher safety inventory costsBetter customer service
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Costs and Number of FacilitiesCosts and Number of Facilities
Costs
Number of facilities
Inventory
Transportation
Facility costs
5-15
Percent Service
Level WithinPromised Time
TransportationTransportation
Cost Build-up as a function of facilities
C o s t o
f O p e r a t
i o n s
C o s t o
f O p e r a t
i o n s
Number of FacilitiesNumber of Facilities
InventoryInventoryFacilitiesFacilities
Total CostsTotal Costs
LaborLabor
5-16
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2004 Prentice-Hall, Inc. 1-17
Customer
DC
Where inventory needs to be for a one week orderWhere inventory needs to be for a one week orderresponse timeresponse time -- typical resultstypical results ---- > 1 DC> 1 DC
5-17
2004 Prentice-Hall, Inc. 1-18
Customer
DC
Where inventory needs to be for a 5 day orderWhere inventory needs to be for a 5 day orderresponse timeresponse time -- typical resultstypical results ----> 2> 2 DCsDCs
5-18
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2004 Prentice-Hall, Inc. 1-19
Customer
DC
Where inventory needs to be for a 3 day orderWhere inventory needs to be for a 3 day orderresponse timeresponse time -- typical resultstypical results ----> 5> 5 DCsDCs
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2004 Prentice-Hall, Inc. 1-20
Customer
DC
Where inventory needs to be for a next day orderWhere inventory needs to be for a next day orderresponse timeresponse time -- typical resultstypical results ----> 13> 13 DCsDCs
5-20
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Facility DecisionsFacility Decisions in Practice (I)in Practice (I)
Life Span of Different FacilitiesProduction Plants last for decades; Warehouses andOffices may change in a year
(An insurance company moved to reduce costs but then found hardto sell the facility in suburban area)
Cultural ImplicationsFord Lincoln Mark VIII though shared platform with
Mercury Cougar still locate in Wixom plant with other luxury cars to show consistent quality
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Facility DecisionsFacility Decisions in Practice (II)in Practice (II)Don t Ignore Quality of Life Issues
QOL has great impact on performance of workforce;
Cost-saving is not all
Tax/Tariff IncentivesHas Big Influence in Global SettingIreland attracted hi-tech firms to build European facilitiesthereLocal government s good offer made Toyota, BMW,Mercedes locate plants in some states of USA
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A Framework for Global 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
AVAILABLE
INFRASTRUCTURE
LOGISTICS COSTSTransport, inventory, coordination
[Chopra & Meindl, 2007] CH 5.2, p.138 5-23
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Location/Allocation ModelLocation/Allocation Modelyi = 1 if plant is located at site i,0 otherwise
xij = Quantity shipped fromplant site i to customer j
f i: Fixed cost of facility ic ij: Per unit transportation costfrom i to jKi: Capacity of facility i
Mixed Integer Programing Model (MIP)[Chopra & Meidl, 2007]
CH 5.4, pp.141-145Excel Example
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Distribution Operations DecisionsDistribution Operations DecisionsFleet Planning/Management
Fleet Size and Fleet MixOwn Fleet or Outsourcing
Vehicle Routing/SchedulingTSP, VRP, VRPTW, PVRP, .
Crew Scheduling / DispatchingHard problems need Decision Support
reduce cost and improve service reliability(See a DSS prototype system developed in 1995 )
Make-or-Buy:You dont have to do it all by yourself!
See research results of our Network ResearchLab on my website
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Network Design under UncertaintyNetwork Design under Uncertainty
(CH 6)
Use Decision Tree AnalysisTechniques usually taught in OR Courses
In practice:Keep alert of change of business/economic environmentBuild up good customer relationship
Build strategic alliances with LSP partners