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

© 2007 Pearson Education

Chapter 5Network 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 Capacity allocation Market and supply allocation

5-3


Factors InfluencingNetwork Design Decisions

Strategic Technological Macroeconomic Political Infrastructure Competitive Logistics and facility costs

5-4


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

Low

Hi

5-5


Service and Number of Facilities

Number of Facilities

ResponseTime

5-6


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


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


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


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


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


Costs and Number of Facilities

Costs

Number of facilities

Inventory

Transportation

Facility costs

5-12


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

5-13


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







VendorVendorDCDC

5-15


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

5-16


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

k

n n

n

k

n n

nn

k

n n

n

k

n n

nn

n

dFD

dFyDd

FDd

FxD

yyxxd

n

n

y

n

n

x

nn

1

1

1

1

22 )()(

Min FDd nn n

5-17


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

5-18


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

0

,...,1,

,...,1,

..

1

1

1 1

x

Kx

Dx

xc

ij

i

m

jij

j

n

iij

n

i

m

jijij

ni

mj

ts

Min

5-19


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

}1,0{;

,...,1,

,...,1,

..

1

1

1

1 11

yy

yKx

Dx

xcyf

i

m

ii

ii

n

jij

j

n

iij

n

i

m

jijiji

n

ii

k

ni

mj

ts

Min

5-20


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

}1,0{

,...,1,

,...,1,1

..

,1

1

1 11

yx

yKxD

x

xcDyf

ij

nij

mj

ts

jMin

i

ii

n

jij

n

iij

n

i

m

jijiji

n

ii

5-21


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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