Network Design Decisions - Chapter 5

Chapter 5: NETWORK DESIGN DECISIONS: how many manufacturing plants, production lines, distribution centers & cross-dock facilities a firm should have, their location, Capacity, products, & markets location hard to change capacity can be altered easier define physical constraints within network operates →can increase profits if supporting supply chain strategy Revise network design decisions as market changes Competitive strategy often determines network design Low cost strategy low cost facility even if far responsive strategy close location even if $ COMPETITIVE FACTORS: must consider competitor's size, supply chain networks location when designing facilities close/far from competitors POSITIVE EXTERNALITIES: Collection of multiple firms benefit all of them, competitors close →retail stores together in mall increase demand & convenience OR presence of competitor leads to development of infrastructure in area POLITICAL FACTORS: political stability affects location INFRASTRUCTURE FACTORS: Key infrastwature elements Sites & labor. tion one proximity to terminals, congestion, & seaports, transporta- ervice, proximity nighway access, local utilities to airports & CUSTOMERS RESPONSE TIME & SERVICE LEVEL TOTAL LOGISTICS COST. Sum of inventory, transportation, & facility costs wi in network Inventory cost is cost of physical storage, cost of capital, & any obsolescence Transportation cost is inbound costs to bring supplies in & outbound casts to deliver Facility cost is cast of building, equipment + labor Inventory & facility costs increase as facilities increase but transport costs decrease MACROECONOMIC FACTORS: Such as taxes, tariffs, & exchange rates influence total costs & profits TARIFFS: duties/taxes paid on imports/exports high tariffs no local market set up, more prod- vation locations w/ lower cap. low tariffs NAFTA, EU, Mercosur consolidated their global production & distrib- ution facilities Network design decisions influenced by non-quan- tifiable factors including Ical, & infrastructure Strategic, competitive, polit- Also influenced by factors onse time/service levels, logistics tariffs resp- costs, taxest ors like FRAMEWORK GOAL: max overall profitability of supply chain network while being responsive to customers •helps decide locations helps determine capacity assign current demand to available facilities & decide transportation lanes PHASE 1: Define na supply Chain determine stages in "In Strategy Design & whether function win be outsourced or in-house clear definition of competitive strategy & bet of customer needs to satisfy then supply chain strat to satisfy competitive Strat •forecast global competition •existing network constraints like capital available growth acquisition means PHASE 2: Define the regional facility configuration identify regions where located, their potential city facilities will be roles, & approx. Capa- •forecast of demand by country or region identify fixed/variable costs w/ production, storage, or transportation ·identify regional tariffs, local production requireme- nts, tak incentives, export/import restrictions also identify risks (political, demand, exchange rate, etc.) associated wi negional marketis PHASE 3: Select a set of desivable potential Sites find site wlin each are to be located region where facilities models to minimize total cost are first used to find broad area for sites •sites based on analysis of infrastructure hard infrastructure requirements: include availability of suppliers, transportation services, communication, utilities, & warehousing facilities. Soft infrastructure requirements: availability of a skilled workforce, turnover, & communi- ty receptivity to the business PHASE 4: Location choices & market allocation: select from potential sites, a precise location + for each facility capacity allocation • given potential sites, precise estimation of location specific demand, fixed/variable logisticses facility costs, & tariffs & tax MODELS FOR DESIGNING A REGIONAL NETWORK CONFIG INPUTS REQUIRED: need info by region of demand, respon respon de time, cost, facility capacity fixed costs, variable costs, inventory cost, transportation EXCEL SOLVER Constraints: supply = demand supply units >=0 supplied units < = Capacity plant open? set objective: total cost & sum of fixed, variable & = binary transportation cost Solving method: Simplex LP Changing variable cells: plants open, d Supply units Finding costs →Fixed cost = sumproduct (open plants, fixed costs)