NETWORK DESIGN IN THE SUPPLY CHAIN

By-Prof.P.K.Shah

CHAPTER-5
&
Supplementar y
material

THE ROLE OF NET WORK DESIGN IN SUPPLY CHAIN

Facility Role- What role each facility should play
Facility Location- Where should facilities be located
Capacity allocation- How much capacity should be allocated to
each facility
Market and supply allocation- What market should each
facility serve

By-Prof.P.K.Shah

THE ROLE OF NET WORK DESIGN IN SUPPLY CHAIN

Set constraints within which SCM drivers can be used either
decrease the cost or increase the supply chain
Impacts the amount of flexibility
Impacts supply chain performance

By-Prof.P.K.Shah

By-Prof.P.K.Shah

FACTORS INFLUENCING NETWORK

DESIGNING DECISIONS

STRATEGIC FACTORS-LOW COST LEADERSHIP

TECHNOLOGICAL FACTORS
MACRO ECONOMIC FACTORS-TAXES
TARIFFS & TAX INCENTIVES
EXCHANGE RATE
POLITICAL FACTORS/SPECIAL INTEREST GROUPS
INFRASTRUCTURE COST & LABOR
COMPETITION
GOVERNMENT INTERVENTION
SOCIOECONOMIC FACTORS
FREIGHT AND FUEL COSTS
CUSTOMER PROXIMIT Y
LOGISTIC/TRANSPORTATION COST
FACILIT Y COST
CULTURAL DIVERSIT Y
CUSTOMER RESPONSE TIME AND LOCAL PRESENCE
By-Prof.P.K.Shah

NET WORK DESIGN MODELS

By-Prof.P.K.Shah

MODELS/TECHNIQUES

Location factor rating

Center-of-gravity
Load-distance

By-Prof.P.K.Shah

LOCATION FACTOR RATING

Identify important factors

Weight factors (0.00 - 1.00)
Subjectively score each factor (0 - 100)
Sum weighted scores

By-Prof.P.K.Shah

LOCATION FACTOR RATING

SCORES (0 TO 100)
LOCATION FACTOR
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service

WEIGHT

Site 1

Site 2

Site 3

.30
.20
.15
.15
.10
.05
.05

80
100
60
75
65
85
50

65
91
95
80
90
92
65

90
75
72
80
95
65
90

Weighted Score for Labor pool and climate for

Site 1 = (0.30)(80) = 24
By-Prof.P.K.Shah

LOCATION FACTOR RATING

WEIGHTED SCORES
Site 1

Site 2

Site 3

24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50

19.50
18.20
14.25
12.00
9.00
4.60
3.25
80.80

27.00
15.00
10.80
12.00
9.50
3.25
4.50
82.05

By-Prof.P.K.Shah

Site 3 has the

highest factor rating

LOCATION FACTOR RATING WITH

EXCEL

By-Prof.P.K.Shah

LOCATION FACTOR RATING WITH OM

TOOLS

By-Prof.P.K.Shah

CENTER-OF-GRAVITY
TECHNIQUE
Locate facility at center of movement in
geographic area
Based on weight and distance traveled;
establishes grid-map of area
Identify coordinates and weights shipped for
each location

By-Prof.P.K.Shah

GRID-MAP COORDINATES
y

x=

i=1

1 (x1, y1), W1

yiWi

i=1
y=

y1

xiWi

i=1

2 (x2, y2), W2

y2

Wi

Wi

i=1

where,
x, y = coordinates of new facility at
3 (x3, y3), W3
center of gravity
xi, yi = coordinates of existing facility i
Wi = annual weight shipped from
facility i

y3

x1

x2

x3

x
By-Prof.P.K.Shah

CENTER-OF-GRAVIT Y TECHNIQUE
y
700

x
y
W

C
600

Miles

500

(135)

B
(105)

400
300
200

A
200
200
75

D
(60)

A
(75)

100
0

100 200 300 400 500 600 700 x

Miles

By-Prof.P.K.Shah

B
100
500
105

C
250
600
135

D
500
300
60

CENTER-OF-GRAVIT Y TECHNIQUE

xW
i i

x=

i=1
n

W
i

(200)(75) + (100)(105) + (250)(135) + (500)(60)

=
= 238
75 + 105 + 135 + 60

i=1
n

yW
i i

y=

i=1
n

W
i

(200)(75) + (500)(105) + (600)(135) + (300)(60)

=
= 444
75 + 105 + 135 + 60

i=1

By-Prof.P.K.Shah

CENTER-OF-GRAVIT Y TECHNIQUE
y
700

C
600

Miles

500

(135)

B
(105)

400
300
200

x
y
W

A
200
200
75

Center of gravity (238, 444)

D
(60)

(75)

100
0

B
100
500
105

100 200 300 400 500 600 700 x

Miles

By-Prof.P.K.Shah

C
250
600
135

D
500
300
60

CENTER-OF-GRAVIT Y WITH EXCEL

Formula for
x coordinate

By-Prof.P.K.Shah

CENTER-OF-GRAVIT Y WITH OM TOOLS

By-Prof.P.K.Shah

LOAD-DISTANCE TECHNIQUE

Compute (Load x Distance) for each site

Choose site with lowest (Load x Distance)
Distance can be actual or straight-line

By-Prof.P.K.Shah

LOAD-DISTANCE CALCULATIONS
n

LD =

ld
i

i=1
where,
LD =

load-distance value

li =

load expressed as a weight, number of trips or units

being shipped from proposed site and location i
distance between proposed site and location i

di

di

(xi - x)2 + (yi - y)2

where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility
By-Prof.P.K.Shah

LOAD-DISTANCE
Potential Sites
Site
X
1
360
2
420
3
250

Y
180
450
400

A
200
200
75

X
Y
Wt

Suppliers
B
C
100
250
500
600
105
135

D
500
300
60

Compute distance from each site to each supplier

Site 1 dA =

(xA - x1)2 + (yA - y1)2

(200-360)2 + (200-180)2 = 161.2

dB =

(xB - x1)2 + (yB - y1)2

(100-360)2 + (500-180)2 = 412.3

dC = 434.2

dD = 184.4

By-Prof.P.K.Shah

LOAD-DISTANCE
Site 2 dA = 333

dB = 323.9 dC = 226.7 dD = 170

Site 3 dA = 206.2 dB = 180.3 dC = 200

Compute load-distance

dD = 269.3

LD =

ld
i

i=1

Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063

Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3
By-Prof.P.K.Shah

LOAD-DISTANCE WITH EXCEL

=B7*C11+C7*C12+D7*C13+E7*C14

By-Prof.P.K.Shah

LOAD-DISTANCE WITH OM TOOLS

By-Prof.P.K.Shah

EXAMPLE-SELECT THE LOCATION

Location factor

Weight

Shanghai

Hongkong

Singapore

Political stability 0.25

50

80

90

Economic
growth

0.18

90

80

75

Port facilities

0.15

60

95

90

Container
support

0.10

50

80

90

Land cost

0.08

90

50

30

Transportation

0.08

50

80

70

Trade Duties

0.07

70

90

90

Trade
regulations

0.05

70

95

95

Airline services

0.02

60

80

70

Area roads

0.02

60

70

80

By-Prof.P.K.Shah

EXAMPLE DECIDE ABOUT THE

DISTRIBUTION LOCATION
Federal parcel service wants to build a new
distribution centre. The centre needs to be in the
vicinity of uncongested interstate-77, interstate -85
and international airport. The co-ordinates are given
below. Determine the best site
1-77

1-85

Airport

X=14

X=20

X=30

Y=30

Y=8

Y=14

W=17000

W=12000

W=9000

By-Prof.P.K.Shah

EXAMPLE-SELECT THE SITE FOR SUPPLY

DEPOT
Division commanders are limited to three possible sites for
the supply depot . The co-ordinates are site 1(400,250),
site2(100,200) and site 3(200,500). Determine the best site
1-77

1-85

Airport

X=14

X=20

X=30

Y=30

Y=8

Y=14

W=17000

W=12000

W=9000

By-Prof.P.K.Shah