Designing the Supply Chain Network

Models from Chapter 4, 5 of Chopra & Meindl Byung-Hyun Ha

bhha@pusan.ac.kr

Outline
 Designing the Distribution Network in Supply Chain
 Factors Influencing Distribution Network Design  Design Options for Distribution Network  Selecting Distribution Network Design

 Models for Facility Location and Capacity Allocation

Designing Distribution Network  Factors Influencing Distribution Network Design  Customer needs that are met  Cost of meeting customer needs Required Number of Facilities Response Time Total Logistics Costs Response Time Cost Inventory Transportation Number of Facilities Facility Number of Facilities .

Designing Distribution Network  Elements of customer service influenced by network structure  Response time  Product variety  Product availability  Customer experience • Ease with which customer can place and receive order  Order visibility • Ability of customer to track their order from placement to delivery  Returnability • Ease with which customer can return unsatisfactory merchandise and ability of logistics network to handle such returns .

Designing Distribution Network  Supply chain costs affected by network structure  Inventories  Transportation  Facilities and handling  Information infrastructure .

Design Options for Distribution Network  Possible distribution network design       Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit merge Distributor storage with carrier delivery Distributor storage with last mile delivery Manufacturer or distributor storage with consumer pickup Retail storage with consumer pickup • Customers walking into store or ordering online .

postpone customization  Slow-moving/low-demand/high-value items Manufacturer Inventory L H L H H Retailer Transportation Facilities and handling Information Response time Customers Product variety Product availability Customer experience H H M L L Product Flow Information Flow Order visibility Returnability . demand aggregation.Design Options for Distribution Network  Manufacturer storage with direct shipping  Drop-shipping.

PC from Dell along with Sony monitor  low.Design Options for Distribution Network  Manufacturer storage with direct shipping and intransit merge  e.g.to medium-demand and high-value items Factories Inventory Transportation Facilities and handling L M M H H H Retailer In-Transit Merge by Carrier Information Response time Product variety Product availability H H L L Customers Product Flow Information Flow Customer experience Order visibility Returnability .

loss of aggregation Factories Inventory Transportation Facilities and handling M L M M M M Warehouse Storage by Distributor/Retailer Information Response time Product variety Product availability M H M M Customers Product Flow Information Flow Customer experience Order visibility Returnability .to fast-moving items at distributor.Design Options for Distribution Network  Distributor storage with carrier delivery  High-level inventory at distributor  Medium.

bag of rice at dense city Factories Inventory Transportation Facilities and handling H H H M L L Distributor/Retailer Warehouse Information Response time Product variety Product availability L H M M Customers Product Flow Information Flow Customer experience Order visibility Returnability .g.Design Options for Distribution Network  Distributor storage with last mile delivery  Delivering to customer’s home instead of using package carrier  e. water. grocery industry.

Design Options for Distribution Network  Manufacturer or distributor storage with consumer pickup  Reusing existing pick-up site. customer participation Factories Inventory Transportation ? L ? H L H Retailer Cross Dock DC Facilities and handling Information Pickup Sites Response time Product variety Product availability Customer experience H L H H Customers Order visibility Returnability Product Flow Information Flow Customer Flow .

Selecting Distribution Network Design  Comparative performance  1: best performance Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit merge 1 3 2 4 4 1 1 Distributor storage with carrier delivery Distributor storage with last mile delivery Manufacturer or distributor storage with consumer pickup 1 1 5 5 4 1 1 Retail storage with consumer pickup Inventory Transportation Facilities and handling Information Response time Product variety Product availability 1 4 1 4 4 1 1 2 2 3 3 3 2 2 3 5 4 2 2 3 3 4 1 6 1 1 4 4 Customer experience Order visibility Returnability 4 5 5 3 4 5 2 3 4 1 2 3 5 6 2 5 1 1 .

Selecting Distribution Network Design  Performance for different product/customer char. ….  +2: Very suitable. -2: very unsuitable Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit merge -1 0 0 +1 -1 +1 -2 0 +2 Distributor storage with carrier delivery Distributor storage with last mile delivery Manufacturer or distributor storage with consumer pickup -1 0 +1 +1 0 -1 -2 +2 -1 Retail storage with consumer pickup High-demand product Medium-demand product Low-demand product Very low-demand product Many product source High product value Quick desired response High product variety Low customer effort -2 -1 +1 +2 -1 +2 -2 +2 +1 0 +1 +1 0 +2 +1 -1 +1 +2 +1 0 -1 -2 +1 0 +1 0 +2 +2 +1 -1 -2 +1 -1 +2 -1 -2 .

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

Human Resources New Product Development Marketing and Sales Operations Distribution Services The Value Chain in a Company . Wal-Mart. Information Technology.g. Dell Finance.Phase I: Supply Chain Strategy  A company’s competitive strategy  Defining set of customer needs that it seek to satisfy through its products and services  Value chain perspective  Product development strategy/marketing and sales strategy  Supply chain strategy and achieving strategic fit  e. McMaster Carr. Accounting.

production cost. competition  Phase IV involves selecting specific facilities and allocating capacity within those selected.  Regional demand.Network Optimization Models  Useful tools for both Phase II and Phase IV  Questions for Phase II: “What regions to source demand in and how to configure network?” given. given. inventory cost.  Fixed facility cost. transportation cost. coordination cost . economics of scale. tariffs. aggregate factor costs  Not necessary to go to detail of specific plant locations  Need to also consider less quantifiable factors such as political and regulatory climate.

transport costs. Europe. a global energy company • The world is divvied into 5 different regions: N. America. should they locate a facility there . S.Phase II: Regional Facility Configuration  Capacitated plant location model  Example: SunOil. and assume all demand must be met (so we can focus on minimizing costs)  Question: • Where to locate facilities to service their demand • What size to build in the region (small or large). Africa • SunOil has regional demand figures. America. Asia. facility costs and capacities • We will ignore tariffs and exchange rate fluctuations for now.

1} for i  1. n = 10      m: number of markets Dj: demand from market j Ki: capacity of plant i fi: fixed cost of keeping plant i open cij: variable cost of sourcing market j from plant i  yi = 1 if plant is located at site i. n x j 1 ij yi  {0.  .t.  .  . n . x i 1 m n ij  Dj  K i yi for j  1.Phase II: Regional Facility Configuration  Capacitated plant location model  n: number of potential plant location • As we are considering two different type plants (small. large) for each region. = 0 otherwise  xij: quantity shipped from plant i to market j min  f i yi   cij xij i 1 i 1 j 1 n n m s. m for i  1.

Phase II: Regional Facility Configuration .

yn: Coordinates of delivery location n  Dn: Quantity to be shipped to delivery location n  Fn: Annual tonnage to delivery location n d n  ( x  xn ) 2  ( y  y n ) 2 min d n 1 k n Dn Fn Limitions? . y: Warehouse Coordinates  xn.Phase III: Desirable Sites  Gravity methods for location  x.

Cheyenne (24K). Boston (6K). Memphis (22K) and Wichita (31K) • Monthly regional demands • Atlanta (demand 10K). Chicago (14K).Phase IV: Location Choices  Network optimization model  Example: TelecomOne merged with High Optic • They have plants in different cities and service several regions • Supply cities • Baltimore (capacity 18K). Denver (6K). Salt Lake City (27K). Omaha (7K) • They will consider consolidating facilities .

m for i  1.t..Phase IV: Location Choices  Network optimization model      n: number of plant location m: number of markets Dj: demand from market j Ki: capacity of plant i cij: variable cost of sourcing market j from plant i  xij: quantity shipped from plant i to market j min  cij xij i 1 j 1 n m s. . n x j 1 ij xij  0 . x i 1 m n ij  Dj  Ki for j  1.

  f y  f i 1 i i e 1 n t e ye   chi xhi   cie xie   cej xej h 1 i 1 i 1 e 1 e 1 j 1 l n n t t m .Phase IV: Location Choices  Considering additional layers: simultaneously locating plants and DCs suppliers plants DCs customer1 customer2 customer3 min s.t.

Sign up to vote on this title
UsefulNot useful