Supply Chain Management Chapter 5 Network Design in

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Supply Chain Management Chapter 5 Network Design in the Supply Chain 5 -1

Supply Chain Management Chapter 5 Network Design in the Supply Chain 5 -1

Network Design Decisions u Facility role u Facility location u Capacity allocation u Market

Network Design Decisions u Facility role u Facility location u Capacity allocation u Market and supply allocation Factors Influencing Network Design Decisions u u u u Strategic Technological Macroeconomic Political Infrastructure Competitive Logistics and facility costs 2 -2 5 -2

A Framework for Global Site Location Competitive STRATEGY INTERNAL CONSTRAINTS Capital, growth strategy, existing

A Framework for Global Site Location Competitive STRATEGY INTERNAL CONSTRAINTS Capital, growth strategy, existing network PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility COMPETITIVE ENVIRONMENT GLOBAL COMPETITION PHASE I Supply Chain Strategy PHASE II Regional Facility Configuration REGIONAL DEMAND Size, growth, homogeneity, local specifications POLITICAL, EXCHANGE RATE AND DEMAND RISK PHASE III Desirable Sites PRODUCTION METHODS Skill needs, response time FACTOR COSTS Labor, materials, site specific TARIFFS AND TAX INCENTIVES PHASE IV Location Choices AVAILABLE INFRASTRUCTURE LOGISTICS COSTS Transport, inventory, coordination 2 -3 5 -3

Network Optimization Models u. Allocating demand to production facilities u. Locating facilities and allocating

Network Optimization Models u. Allocating demand to production facilities u. 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? 2 -4 5 -4

Gravity Methods for Location u Ton Mile-Center Solution – x, y: Warehouse Coordinates –

Gravity Methods for Location u Ton Mile-Center Solution – x, y: Warehouse Coordinates – xn, yn : Coordinates of delivery location n – dn : Distance to delivery location n – Dn : Annual tonnage to delivery location n – Fn: cost of shipping one unit for one mile to location n Min 2 -5 5 -5

Demand Allocation Model u Which market is served by which plant? u Which supply

Demand Allocation Model u Which market is served by which plant? u Which supply sources are used by a plant? xij = Quantity shipped from plant site i to customer j 2 -6 5 -6

Plant Location with Multiple Sourcing u yi = 1 if plant is located at

Plant Location with Multiple Sourcing u yi = 1 if plant is located at site i, 0 otherwise u xij = Quantity shipped from plant site i to customer j 2 -7 5 -7

Plant Location with Single Sourcing u yi = 1 if plant is located at

Plant Location with Single Sourcing u yi = 1 if plant is located at site i, 0 otherwise u xij = 1 if market j is supplied by factory i, 0 otherwise 2 -8 5 -8

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