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PART 3
SUPPLY CHAIN LOGISTICS DESIGN
Network Design
CHAPTER 12
INTRODUCTION
Enterprise Facility Network
The importance of facility location analysis has been
recognized since the middle of the 19th century.

Terms like Material index and locational weight are used to

assess and locate facilities to places near consumption. Weber

Spectrum of location decisions and Location presence are also

some of the earlier techniques used.
Warehouse Requirements

Warehouses are established in a logistical Economic justification and

system to lower total cost or to improve desired functionality of a
customer service.
warehouse are different
based on
Due to the specialized materials handling,
inventory process requirements and just-in-
• Procurement
time manufacturing process warehouses • Manufacturing
typically specialize in performing either • Customer relations
supply or demand facing functions.
 Systems Concept and Analysis

Systems concept is an analytical framework that seeks

total integration of components essential to achieving
stated objectives.

Systems analysis applied to logistics seeks to quantify trade

–offs between the seven functions i.e. order processing,
inventory, transportation, warehousing, materials
handling, packaging and facility network design.
Total Cost integration

1
Transportation
economics

3
Total cost network

2
Inventory economics
Formulating Logistical Strategy

Finalizing logistical strategy requires to evaluate the relationship

between alternative customer service levels and associated cost. The
general approach consists of
• Cost minimization (determining a total cost network).
• Threshold service (measuring service availability and capability
associated with the least total cost design).
• Service sensitivity analysis (conducting sensitivity analysis related to
incremental service and cost directly with revenue generation).
• Establishing Strategy (finalizing the plan).
Other considerations in logistics network design

Historically the major considerations driving logistics network

design re demand location, labor costs, material cost and
transportation in decreasing priority order.

Service levels must be improved by modifying

• Variation in the number of facilities

• Change in one or more aspects of performance cycle
• Change in safety stock.
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