Description
Network design in supply chain. It explains The Role of Facility Decisions in a Supply Chain and Factors Influencing Network Design Decisions.
? The
Role of Facility Decision in a Supply Chain ? Factors Influencing Network Design Decisions ? A framework for Network Design Decisions ? Models for Facility Location and Capacity Allocation ? Making Network Design Decisions in Practice ? Summary
? Location
of manufacturing, storage or
transportation related facilities and the allocation of capacity and roles to each facility
? Also
referred as supply chain network
design decisions
Facility role
Facility location
Capacity allocation
Market and supply allocation
? Determine
the amount of flexibility the supply chain has in changing the way it meets demand ? E.g. Toyota had plants worldwide, capable of serving only its local market which hurt Toyota when Asian economy went into recession as Asian plants could not be used to serve markets other than the local one
?A
good location can help a supply chain be responsive while keeping its cost low while poorly located facility makes it difficult for a supply chain to perform efficiently ? E.g. Toyota built its assembly plant in US which proved to be useful when the yen strengthened and cars produced in Japan were too expensive to be cost competitive with cars produced in US
? Allocating
too much capacity to a location too little capacity results in poor
results in poor utilization and higher cost
? Allocating
responsiveness if demand is not satisfied or high cost if demand is filled from a distant facility
? Market
and supply allocation affects total production, inventory and transportation cost ? E.g. As Amazon.com has grown its customer base, the company has built new warehouses and changed the markets supplied by each warehouse so that cost was lowered and responsiveness was improved
? Identify
the strategic role or mission of each facility when designing the global network ? Firms focusing on responsiveness choose facility closer to market, firms focusing on cost tend to find the lowest cost location, convenience stores provide easy access to customers as a part of their strategy
Offshore facility
Source facility Server facility Contributor facility
Outpost facility Lead facility
? Serves
the role of being a low cost supply source for markets located outside the country where the facility is located ? Location for an offshore facility should have low labor and other costs to facilitate low cost production
? Primary
source of product for the entire global network with low cost as its primary objective ? Located in places where production cost is lower, infrastructure is well developed and skilled workforce is available ? Good offshore facility evolve over time into source facility
? Supplies
the market where it is located ? Built because of tax incentives, local content requirement, tariff barriers, high logistic cost to supply the region from elsewhere ? E.g. Maruti was a server facility for Indian market, Suzuki partnered with Indian government to set up Maruti Udyog so that high tariffs for imported cars were lowered
? Serves
the market where it is located but also assumes responsibility for product customization, process improvements, product modifications, product developments ? Most well managed facilities become contributor facilities over time ? E.g. Maruti facility in India develops many new products for both the Indian and the overseas market and has become a contributor facility in the Suzuki network
? Obtains
access to knowledge or skills that may exist within a certain region ? Given its location, also plays the role of server facility ? Primary objective is to be a source of knowledge and skills for the entire network
? Creates
new products, processes and technologies for the entire network ? Located in areas with good access to a skilled workforce and technological resources
? If
production technology displays significant economies of scale, few high capacity locations are effective ? E.g. manufacture of computer chips where factories require large investments. Many companies build few chip production facilities and each one has a very large capacity
? If
facility have lower fixed cost, many local facilities are preferred ? E.g. bottling plants for Coca-Cola do not have high fixed cost, so to reduce transportation cost Coca-Cola sets up many plants all over the world, each serving its local market
? Taxes,
tariffs, exchange rates other economic factors significantly influence supply chain networks ? External factors need to be taken into consideration while making network design decision
? Tariffs
• Any duties that must be paid when products are
moved across international, state or city boundaries
? High
tariffs lead to more production locations within a supply chain, with each location having a lower allocated capacity
? Tax
Incentives
• Reduction in tariffs or taxes that countries, states
and cities often provide to encourage firms to locate their facilities in specific areas
? Free
trade zones are areas where duties and tariffs are relaxed as long as production is used primarily for export
? Tariffs
may vary based on training, meals, transportation, product’s level of technology etc ? Some countries place minimum requirements on local content and limits on imports which leads companies to set up many facilities and source from local suppliers
? Fluctuations
in Exchange Rates
• build some overcapacity in the network and make
the capacity flexible so that it can be used to supply different markets • flexibility allows the firm to alter production flows within the supply chain to produce more in facilities that have a lower cost based on current exchange rates
? Fluctuations
in demand
• Appropriate flexibility should be built to help
counter fluctuations in demand caused by fluctuations in the economies of different countries • Greater flexibility in manufacturing facility enables to use the extra capacity to meet the needs of other countries where demand is high
? Politically
stable countries where the rules of commerce are well defined are preferred ? Independent and clear legal system allows firms to invest in facilities ? Essential subjective evaluation is done while designing the supply chain network about political stability
? One
of the main factors for locating a facility as poor infrastructure adds to the cost of doing business from a given location ? Key infrastructure elements include availability of sites, labor availability, proximity to transport terminals, rail service, proximity to airports and seaports, highway access, congestion and local utilities.
? Whether
to locate the facility close to the competitors or far from them ? Factors such as competitor’s strategy, size and location, how the firms compete, whether external factors such as raw material or labor availability
? Instances
in which the collocation of multiple firms benefits all of them ? Lead to competitors locating close to each other ? E.g. gas stations and retail stores tend to locate together in a mall since competing retail stores make it more convenient for customers who need only drive to one location and find everything they are looking for
? When
presence of a competitor leads to the development of appropriate infrastructure in a developing area ? E.g. Foreign company Suzuki first built a local supplier network in India which was used by its competitors to build assembly plants there because they now find it more effective to build cars in India rather than import them to the country
doc_318453186.pptx
Network design in supply chain. It explains The Role of Facility Decisions in a Supply Chain and Factors Influencing Network Design Decisions.
? The
Role of Facility Decision in a Supply Chain ? Factors Influencing Network Design Decisions ? A framework for Network Design Decisions ? Models for Facility Location and Capacity Allocation ? Making Network Design Decisions in Practice ? Summary
? Location
of manufacturing, storage or
transportation related facilities and the allocation of capacity and roles to each facility
? Also
referred as supply chain network
design decisions
Facility role
Facility location
Capacity allocation
Market and supply allocation
? Determine
the amount of flexibility the supply chain has in changing the way it meets demand ? E.g. Toyota had plants worldwide, capable of serving only its local market which hurt Toyota when Asian economy went into recession as Asian plants could not be used to serve markets other than the local one
?A
good location can help a supply chain be responsive while keeping its cost low while poorly located facility makes it difficult for a supply chain to perform efficiently ? E.g. Toyota built its assembly plant in US which proved to be useful when the yen strengthened and cars produced in Japan were too expensive to be cost competitive with cars produced in US
? Allocating
too much capacity to a location too little capacity results in poor
results in poor utilization and higher cost
? Allocating
responsiveness if demand is not satisfied or high cost if demand is filled from a distant facility
? Market
and supply allocation affects total production, inventory and transportation cost ? E.g. As Amazon.com has grown its customer base, the company has built new warehouses and changed the markets supplied by each warehouse so that cost was lowered and responsiveness was improved
? Identify
the strategic role or mission of each facility when designing the global network ? Firms focusing on responsiveness choose facility closer to market, firms focusing on cost tend to find the lowest cost location, convenience stores provide easy access to customers as a part of their strategy
Offshore facility
Source facility Server facility Contributor facility
Outpost facility Lead facility
? Serves
the role of being a low cost supply source for markets located outside the country where the facility is located ? Location for an offshore facility should have low labor and other costs to facilitate low cost production
? Primary
source of product for the entire global network with low cost as its primary objective ? Located in places where production cost is lower, infrastructure is well developed and skilled workforce is available ? Good offshore facility evolve over time into source facility
? Supplies
the market where it is located ? Built because of tax incentives, local content requirement, tariff barriers, high logistic cost to supply the region from elsewhere ? E.g. Maruti was a server facility for Indian market, Suzuki partnered with Indian government to set up Maruti Udyog so that high tariffs for imported cars were lowered
? Serves
the market where it is located but also assumes responsibility for product customization, process improvements, product modifications, product developments ? Most well managed facilities become contributor facilities over time ? E.g. Maruti facility in India develops many new products for both the Indian and the overseas market and has become a contributor facility in the Suzuki network
? Obtains
access to knowledge or skills that may exist within a certain region ? Given its location, also plays the role of server facility ? Primary objective is to be a source of knowledge and skills for the entire network
? Creates
new products, processes and technologies for the entire network ? Located in areas with good access to a skilled workforce and technological resources
? If
production technology displays significant economies of scale, few high capacity locations are effective ? E.g. manufacture of computer chips where factories require large investments. Many companies build few chip production facilities and each one has a very large capacity
? If
facility have lower fixed cost, many local facilities are preferred ? E.g. bottling plants for Coca-Cola do not have high fixed cost, so to reduce transportation cost Coca-Cola sets up many plants all over the world, each serving its local market
? Taxes,
tariffs, exchange rates other economic factors significantly influence supply chain networks ? External factors need to be taken into consideration while making network design decision
? Tariffs
• Any duties that must be paid when products are
moved across international, state or city boundaries
? High
tariffs lead to more production locations within a supply chain, with each location having a lower allocated capacity
? Tax
Incentives
• Reduction in tariffs or taxes that countries, states
and cities often provide to encourage firms to locate their facilities in specific areas
? Free
trade zones are areas where duties and tariffs are relaxed as long as production is used primarily for export
? Tariffs
may vary based on training, meals, transportation, product’s level of technology etc ? Some countries place minimum requirements on local content and limits on imports which leads companies to set up many facilities and source from local suppliers
? Fluctuations
in Exchange Rates
• build some overcapacity in the network and make
the capacity flexible so that it can be used to supply different markets • flexibility allows the firm to alter production flows within the supply chain to produce more in facilities that have a lower cost based on current exchange rates
? Fluctuations
in demand
• Appropriate flexibility should be built to help
counter fluctuations in demand caused by fluctuations in the economies of different countries • Greater flexibility in manufacturing facility enables to use the extra capacity to meet the needs of other countries where demand is high
? Politically
stable countries where the rules of commerce are well defined are preferred ? Independent and clear legal system allows firms to invest in facilities ? Essential subjective evaluation is done while designing the supply chain network about political stability
? One
of the main factors for locating a facility as poor infrastructure adds to the cost of doing business from a given location ? Key infrastructure elements include availability of sites, labor availability, proximity to transport terminals, rail service, proximity to airports and seaports, highway access, congestion and local utilities.
? Whether
to locate the facility close to the competitors or far from them ? Factors such as competitor’s strategy, size and location, how the firms compete, whether external factors such as raw material or labor availability
? Instances
in which the collocation of multiple firms benefits all of them ? Lead to competitors locating close to each other ? E.g. gas stations and retail stores tend to locate together in a mall since competing retail stores make it more convenient for customers who need only drive to one location and find everything they are looking for
? When
presence of a competitor leads to the development of appropriate infrastructure in a developing area ? E.g. Foreign company Suzuki first built a local supplier network in India which was used by its competitors to build assembly plants there because they now find it more effective to build cars in India rather than import them to the country
doc_318453186.pptx