W1: Network Design Flashcards
Sustainability: 3 pillar model
Social
Environmental
Economic
Supply chain network design (SCND): diagram
Suppliers → plants → distribution centers → customers
Recovery plants
Collection centers
SCND goals
Design an effective network structure
design of a new chain
Re-engineer an existing network to increase its total value
SCND decisions
Number of chain tiers
Location and capacities of facilities in each tier
Flow of material/products throughout the network
SCND decision are influenced by
Market and business conditions
(Usually determine some of the variables)
SCND: decision levels
Strategic decisions
Tactical decisions
Operations decisions
SCND: strategic decisions
Characteristics of facilities: number, size, types, locations, capacity, quality, types of technology, decomposition point
Costly decisions with long lasting effects
SCND: tactical decisions
Material flow: shipment, inventory
Transportation mode
Inventory volume
IT
Knowledge management
SCND: operational decisions
Short term decisions
Pricing
Fulfillment of customer demands
Provided service level
SCND vs. Strategic supply chain planning
Synonyms
Tactical and operational decisions with regards to location decisions
No location decisions made on tactical or operational
Deacons are strongly related o and influenced by location decisions
inventory control prices
Chosen transportation modes and capacities
Warehouse layout and management
Vehicle routing
Role of the network design
Facility role assignment
Facility location
Capacity allocation to each facility
Market & supply allocation to each facility
- these decisions affects one another!
Facility role assignment
What role should each facility play
What processes are performed at each facility
Facility location
Long term impact
Where should facilities be located
Capacity allocation to each facility
Medium term impact
How much capacity should be allocated to each facility
Marker & supply allocation to each facility
Reconsider regularly
What markets should each facility serve which supply sources should feed each facility
Factors influencing network design
Strategies factors
Technological factors
Macroeconomic factors
Political factors
Customer response time and local presence
Infrastructure factors
Logistics and facility costs
Competitive factors
Factors influencing network design: strategic factors
Competitive strategy
Focus on cost leadership: low cost locations
Focus on responsiveness: locate facilities closer to market
Different facilities in different countries with different roles may best support strategic objectives (Zara)
Ex. Convenience store vs discount stores
Factors influencing network design: technological factors
Available production technology
Significant economies of scale: few high-capacity locations) (ex. Computer chips)
Low fixed costs: many local facilities (ex. bottling plants)
Factors influencing network design: macroeconomic factors
Factors that are not internal to an individual firm
Especially relevant for global trade
Tariffs and tax incentives
Exchange rate and demand risk
Tariffs, tax incentives, free trade zones
Tariffs: duties/payments for moving products across borders, high tariffs lead to more production locations
Tax incentives: encourage locating facilities in certain areas: very influential
Free trade zone: relax duties & tariffs for production used primarily for export, in developing countries
Exchange rate and demand risk
Limited risks/lossses via financial instruments
Take advantage of exchange rate fluctuations: rate rises=you earn less dollars per sale
Suitably designed SCN, overcapacity used in a flexible way
Freight and fuel costs
Factors influencing network design: political factors
Political stability (hard to quantify): cost effective to build in an insurable region but riskier)
Firms prefer to build in a stable region
GPRI: Global political risk index: indicator used when investing in emerging markets
Implement stability, take onto consideration tariffs
Factors influencing network design: customer response time and local presence
Locate close to customers if you are looking for short response times
Use of fast transportation may allow to build fewer facilities
Factors influencing network design: infrastructure factors
Availability of good infrastructure
Ex. Sites, labor, proximity to transportation terminals
Factors influencing network design: logistics and facility costs
Total logistics costs = inventory + transportation + facility costs
Number of facilities should equal at least number minimizing total logistics costs
You need less distribution centers than you think
Factors influencing network design: competitive factors
Strategy, size, and location of competitors
Fundamental decision: locate close to or far from competitor
Positive externalities or no positive externalities between firms
Positive externalities between firms
Collocation benefits them all, locate close to one another
Ex/ retail stores in a mall
No positive externalities between firms
No reason to locate together
Locate to capture largest possible market share
Simplistic model by Tirol
Simplistic model by Tirol
2 firms locate on a line, compete on distance to customer, customers are uniformly distributed
Optimal location based on distance: both in the middle
Optimal location based on price: position at 0 and 1
Framework for network design decisions
Phase 1: define a supply chain strategy/design
Phase 2: define the regional facility configuration
Phase 3: select a set of desirable potential sites
Phase 4: location choices
Network design decisions: phase 1 objective
Define a supply chain strategy/design
Objective: define brand supply chain design including determining
stages in the supply chain
In-house or outsourcing of supply chain functions
Network design decisions: phase 1 aspects and requirements
Definition of the firm’s competitive strategy (customer needs to satisfy)
Specify required capabilities of supply chain (support competitive strategy)
Forecast the likely evolution of global competition
Identify constraints on available capital and how growth will be accomplished (acquire or build facilities, partnering)
Network design decisions: phase 2 objective
Define the regional facility configuration
Objective:
identify regions where facilities will be located
Potential roles of facilities
Approximate number and capacities of facilities
Network design decisions: phase 2 aspects and requirements
Forecast of the demand by country or region: homogeneity or variability of customer requirements across regions, homogeneity favors large consolidated facilities
Economies of scale or scope (serve many markets)
Relevant risks of regional markets (demand, exchange rate, political)
Tariffs, requirements for local production, tax incentives, export/import restrictions
Identify competitors (proximity to them)
Desired response time and logistics costs per market
Network design decisions: phase 3 objective
Select a set of desirable potential sites
Objective: do this within each region where facilities are to be located
Network design decisions: phase 3 aspects and requirements
Hard infrastructure requirements: availability of suppliers, transportation services, warehousing facilities
Soft infrastructure requirements: availability of skilled workforce, workforce turnover
Network design decisions: phase 4 objective
Location choices
Objective: select precisely location and capacity allocation for each facility
Network design decisions: phase 4 aspects and requirements
Expected margin and demand per market
Various logistics and facility costs
Taxes and tariffs at each location
Overall goal for facility location and capacity allocation
Maximize profitability of the supply chain while providing customers with the appropriate responsiveness
Revenues: product sales
Costs: facilities, labor, transport, material, inventory
Network design models are used to
Decide on locations and capacities (long term)
Assign demand to facilities and identify transportation lanes (medium term)
Note: Many trade-offs must be considered during network design: facility costs vs. transportation costs & response time
Important information to know
Location of supply sources and markets
Location of potential facility sites
Facility, labor and material cost by site
Transportation costs between each pari of sites
Inventory costs by site and as a function of quantity
Sale price of products in different regions
Taxes and tariffs
Desired response tine and other service factors
