Supply Chain

Supply Chain Management
(5th Edition)
Chapter 5
Network Design in the Supply
Chain
© 2007 Pearson Education 5-1

Outline
A strategic framework for facility location

Multi-echelon networks
Gravity methods for location
Plant location models

© 2007 Pearson Education
Network Design Decisions
Facility role
Facility location
Capacity allocation
Market and supply allocation

Factors Influencing
Network Design Decisions
Strategic e.g. Foxconn, Zara, Costco

Technological e.g. Coca-Cola
Macroeconomic e.g. Taxes, exchange rates
Political (GPRI)
Infrastructure
Competitive
Logistics and facility costs e.g. Amazon

Service and Number of Facilities
Response
Time
Number of Facilities

Inventory Costs and Number
of Facilities
Inventory
Costs
Number of facilities

Facility Costs and Number
of Facilities (Fig. 4.4)
Facility
Costs

Transportation Costs and
Number of Facilities (Fig. 4.3)
Transportation
Costs

Total Costs Related to
Total Costs
Total Costs
Facilities
Inventory
Transportation
Where inventory needs to be for a one week order
response time - typical results --> 1 DC
Customer
DC

Where inventory needs to be for a 5 day order
response time - typical results --> 2 DCs
Customer
DC

Where inventory needs to be for a 3 day order
Customer
DC

Where inventory needs to be for a next day order
Customer
DC

Where inventory needs to be for a same day / next
day order response time - typical results --> 26 DCs
Customer
DC

A Framework for
Global Site Location
Competitive STRATEGY GLOBAL COMPETITION
PHASE I
Supply Chain
INTERNAL CONSTRAINTS Strategy
Capital, growth strategy, TARIFFS AND TAX
existing network INCENTIVES
PRODUCTION TECHNOLOGIES REGIONAL DEMAND

Cost, Scale/Scope impact, support PHASE II Size, growth, homogeneity,
required, flexibility
Regional Facility local specifications
Configuration
COMPETITIVE
ENVIRONMENT POLITICAL, EXCHANGE
RATE AND DEMAND RISK
PHASE III
Desirable Sites AVAILABLE
INFRASTRUCTURE
PRODUCTION METHODS
Skill needs, response time
FACTOR COSTS PHASE IV LOGISTICS COSTS

Labor, materials, site specific Location Choices Transport, inventory, coordination

Conventional Network
Materials Customer
Vendor Finished Customer
DC Store
DC Goods DC DC
Customer
Component Store
Vendor Manufacturing
DC Plant Customer Customer
Warehouse DC Store
Components
DC Customer
Vendor Store
DC Finished
Customer
Goods DC
Final DC Customer
Assembly Store

Tailored Network: Multi-Echelon
Finished Goods Network
Local DC
Cross-Dock Store 1
Regional Customer 1
Finished DC
Goods DC Store 1
Local DC
Cross-Dock
National Store 2
Customer 2
Finished
DC
Goods DC
Local DC Store 2
Cross-Dock
Regional
Finished Store 3
Goods DC
Store 3

Facility planning and design
Locating a single facility – simple

methods

Outline
Preference Matrix
Gravity method

Location
Health-Watch
Preference matrix
A new health facility is to be located in Erie, the
following table (see next slide) show all the
information related to factors and their scores (1-
poor, 5= excellent) for the potential site. How
good is this site?

Preference matrix
Six steps:
1. Develop a list of relevant factors.
2. Assign a weight to each factor reflecting its relative
importance to the firm.
3. Develop a rating scale for the factors.
4. Score each location on each factor based on the
scale.
5. Multiply the scores by the weights for each factor
and total the weighted scores for each location.
6. Make a recommendation based on the maximum
point score, considering other [quantitative?]
factors.
Location
North Health-Watch
Erie
Scranton
State College
Pittsburgh
Harrisburg
Philadelphia
Uniontown
Example 9.1
Location
North Health-Watch
Erie
Location Factor Weight Score

Scranton
Total Patient miles per month 25 4
Facility utilization 20
State College 3
Pittsburgh
Average time per emergency trip
Harrisburg
20 3
Expressway accessibility
Uniontown
15
Philadelphia 4
Land and construction costs 10 1
Employee preference 10 5
Example 9.1
Location
North Health-Watch
Erie
Location
WeightedFactor
Score Weight Score
Scranton
State College 3
Pittsburgh
Harrisburg
20 3
Uniontown
15
Philadelphia 4
Example 9.1
Location
North Health-Watch
Erie
Location
WeightedFactor
Score Weight Score
Scranton
WS= (25 x 4)
State College 3
Pittsburgh
Harrisburg
20 3
Uniontown
15
Philadelphia 4
Example 9.1
Location
North Health-Watch
Erie
Location
WeightedFactor
Score Weight Score
Scranton
WS= (25 x 4) + (20 x State College
Facility utilization 20 3
3)
Pittsburgh
Harrisburg
20 3
Uniontown
15
Philadelphia 4
Example 9.1
Location
North Health-Watch
Erie
Location
WeightedFactor
Score Weight Score
Scranton
3) + (20 x 3)
Pittsburgh
Harrisburg
20 3
Uniontown
15
Philadelphia 4
Example 9.1
Location
North Health-Watch
Erie
Location
WeightedFactorScore Weight Score
Scranton
3) + (20 x 3) +
Pittsburgh
Harrisburg
20 3
(15 x4) + (10 x
Uniontown
15
Philadelphia 4
1) + (10 x 5)
Example 9.1
Location
North Health-Watch
Erie
Location
WeightedFactor
Score Weight Score
Scranton
WS= 340
State College 3
Pittsburgh
Harrisburg
20 3
Uniontown
15
Philadelphia 4
Example 9.1
Center of gravity method
 An intuitive but non-optimal approach, because it does not
minimize the travel distances from each location to the
service facility.
 Center of gravity solution could serve as a starting point for

the previous, rather tedious, method.

Center of Gravity Approach
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4
[2]
y (miles)
3 B G
(2.5, 2.5) D F
2 (9, 2.5)
[5] (5, 2) (7, 2) [14]
[7] [20]
1
0
1 2 3 4 5 6 7 8 9 10
x (miles) East
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4 Census Population
[2]
y (miles)
Tract (x,y) (l) lx ly

3 B A (2.5, 4.5) G 2
(2.5, 2.5) DB F 2.5)
(2.5, 5
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) [14]10
[7]
D [20]
(5, 2) 7
1
E (8, 5) 10
0 F (7, 2) 20
1 2 3 4 G 5 6 (9, 7 2.5)8 9 14 10
x (miles) East
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4 Census Population
[2]
y (miles)

3 B A (2.5, 4.5) G 2 5
(2.5, 2.5) DB F 2.5)
(2.5,
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) [14]
[7]
D [20]
(5, 2)
1
E (8, 5)
0 F (7, 2)
1 2 3 4 G 5 6 (9, 7 2.5)8 9 10
x (miles) East
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4 Census Population
[2]
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5,
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) [14]
[7]
D [20]
(5, 2)
1
E (8, 5)
0 F (7, 2)
1 2 3 4 G 5 6 (9, 7 2.5)8 9 10
x (miles) East
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4 Census Population
[2]
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5,
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) [14]
[7]
D [20]
(5, 2)
1
E (8, 5)
0 F (7, 2)
1 2 3 4 G 5 6 (9, 7 2.5)8 9 10
x (miles) East
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4 Census Population
[2]
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5, 5 12.5 12.5
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) [14]10 55 45
[7]
D [20]
(5, 2) 7 35 14
1
E (8, 5) 10 80 50
0 F (7, 2) 20 140 40
1 2 3 4 G 5 6 (9, 7 2.5)8 9 14 10 126 35
x (miles) East
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4 Census Population
[2]
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5, 5 12.5 12.5
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) [14]10 55 45
[7]
D [20]
(5, 2) 7 35 14
1
E (8, 5) 10 80 50
0 F (7, 2) 20 140 40
1 2 3 4 G 5 6 (9, 7 2.5)8 9 14 10 126 35
x (miles) Totals 68East 453.5 205.5
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4
[2] Census x* =
Population
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5, 5 12.5 12.5
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) y* [14]10 55 45
[7]
D [20]
(5, 2)
=
7 35 14
1
E (8, 5) 10 80 50
0 F (7, 2) 20 140 40
1 2 3 4 G 5 6 (9, 7 2.5)8 9 14 10 126 35
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
4 (2.5, 4.5) [10]
x* = 453.5
[2] Census Population
68
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5, 5 12.5 12.5
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) y* [14]10
= 205.5
55 45
[7]
D [20]
(5, 2) 7 35 14
1
E (8, 5) 10
68 80 50
0 F (7, 2) 20 140 40
1 2 3 4 G 5 6 (9, 7 2.5)8 9 14 10 126 35
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
4 (2.5, 4.5) [10]
x* = 453.5
[2] Census Population
68
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5, 5 12.5 12.5
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) y* [14]10
= 205.5
55 45
[7]
D [20]
(5, 2) 7 35 14
1
E (8, 5) 10
68 80 50
0 F (7, 2) 20 140 40
1 2 3 4 G 5 6 (9, 7 2.5)8 9 14 10 126 35
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4
[2] Census x* = 6.67
Population
y (miles)

3 B A (2.5, 4.5) G 2 5 9
(2.5, 2.5) DB F 2.5)
(2.5, 5 12.5 12.5
2 (9, 2.5)
[5] (5,C2) (5.5,
(7, 2)4.5) y* [14]10 55 45
[7]
D [20]
(5, 2)
=
7
3.02
35 14
1
E (8, 5) 10 80 50
0 F (7, 2) 20 140 40
1 2 3 4 G 5 6 (9, 7 2.5)8 9 14 10 126 35
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4
[2] x* = 6.67
y (miles)
3 B G
(2.5, 2.5) D F
2 (9, 2.5)
[5] (5, 2)
[7]
(7, 2)
[20]
y*
[14]= 3.02
1
0
1 2 3 4 5 6 7 8 9 10
x (miles) East
Example 9.4
Location
North
Health-Watch
6
(5.5, 4.5)
[10] E
5 C
A (8, 5)
(2.5, 4.5) [10]
4
[2] x* = 6.67
y (miles)
3 B G
(2.5, 2.5) D F
2 (9, 2.5)
[5] (5, 2)
[7]
(7, 2)
[20]
y*
[14]= 2.96
1
0
1 2 3 4 5 6 7 8 9 10
x (miles) East
Figure 9.6
Gravity Methods for Location
Ton Mile-Center Solution
– x,y: Warehouse Coordinates ( x  xn)  ( y  y n)
2 2
d n

– xn, yn : Coordinates of delivery
D nx F
k
location n
 d
n n
– dn : Distance to delivery x n 1 n
D nF
k
location n
 d
n
– Fn : Annual tonnage to delivery n 1 n
ny F
location n
 D k
n n
y n 1 d n
D nF
k
Min  d n Dn F n  d n 1
n

Network Optimization Models
Allocating demand to production facilities

Locating facilities and allocating capacity
Key Costs:
• Fixed facility cost

• Transportation cost
• Production cost
• Inventory cost
• Coordination cost
Which plants to establish? How to configure the network?

Demand Allocation Model
Which market is served n m
by which plant? Min  cij xij

i 1 j 1
Which supply sources s.t.

are used by a plant? n
x
i 1
ij
 D j , j  1,..., m
xij = Quantity shipped from m
plant site i to customer j x  K

j 1
ij i
, i  1,..., n
x ij
0

Plant Location with Multiple Sourcing
yi = 1 if plant is located n n m
at site i, 0 otherwise Min  f y   c x ij ij

i i
i 1 i 1 j 1
xij = Quantity shipped s.t.
from plant site i to n
customer j  x  D , j  1,..., m
i 1
ij j
 x  K y , i  1,..., n
j 1
ij i i
 y  k ; y {0,1}
i 1
i i

Plant Location with Single Sourcing
yi = 1 if plant is located n n m
Min  f y   D j c x
at site i, 0 otherwise i 1
i i
i 1 j 1
ij ij
xij = 1 if market j is s.t.

supplied by factory i, 0 n
otherwise
x
i 1
ij
 1, j  1,..., m
n
 D j x  K y , i  1,..., n
j 1
ij i i
xij , y {0,1}i

Summary of Learning Objectives
What is the role of network design decisions in
the supply chain?
What are the factors influencing supply chain
network design decisions?
Describe a strategic framework for facility
location.
How are the following optimization methods used
for facility location and capacity allocation
decisions?
– Gravity methods for location
– Network optimization models

Supply Chain

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Supply Chain

Uploaded by

Copyright:

Available Formats

Supply Chain Management

© 2007 Pearson Education 5-1

A strategic framework for facility location

© 2007 Pearson Education 5-2

© 2007 Pearson Education 5-4

Strategic e.g. Foxconn, Zara, Costco

© 2007 Pearson Education 5-5

© 2007 Pearson Education 5-6

© 2007 Pearson Education 4-7

© 2007 Pearson Education 4-8

© 2007 Pearson Education 4-9

© 2007 Pearson Education

© 2007 Pearson Education

© 2007 Pearson Education

© 2007 Pearson Education

© 2007 Pearson Education

PRODUCTION TECHNOLOGIES REGIONAL DEMAND

FACTOR COSTS PHASE IV LOGISTICS COSTS

© 2007 Pearson Education 5-16

© 2007 Pearson Education 5-17

© 2007 Pearson Education 5-18

Locating a single facility – simple

© 2007 Pearson Education

© 2007 Pearson Education

© 2007 Pearson Education

Location Factor Weight Score

 Center of gravity solution could serve as a starting point for

© 2007 Pearson Education

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

Tract (x,y) (l) lx ly

– Fn : Annual tonnage to delivery n 1 n

© 2007 Pearson Education 5-45

Allocating demand to production facilities

• Fixed facility cost

Which plants to establish? How to configure the network?

© 2007 Pearson Education 5-46

by which plant? Min  cij xij

Which supply sources s.t.

plant site i to customer j x  K

© 2007 Pearson Education 5-47

at site i, 0 otherwise Min  f y   c x ij ij

© 2007 Pearson Education 5-48

xij = 1 if market j is s.t.

© 2007 Pearson Education 5-49

© 2007 Pearson Education 5-50

You might also like