Framework for Network Design Decisions
In this lesson, you’re expected to learn:
– a basic overview of the framework
– models for facility location and capacity allocation
When designing an effective supply chain network, a manager needs to consider all the internal and external factors that we previously discussed.
When designing a supply chain network, we want to minimize the organization’s cost, while satisfying the customers’ needs in terms of demand and responsiveness.
Phase II: define the regional facility configuration
Phase III: select a set of potentially desirable sites
Phase IV: choose the locations
Enlarged version: http://bit.ly/2otmjPR
Enlarged version: http://bit.ly/2plf54q
The six major types of distribution networks can come in handy in this phase.
Then the manager can identify opportunities for cost reduction using economies of scale or scope. Such information should be used to determine capacity allocation decisions.
Managers should also consider macroeconomic, political, and competitive factors (as we previously saw).
– Available infrastructure: accessibility to suppliers, transportation services, communication, utilities, and warehouse facilities.
– “Soft” factors: availability of skilled workforce, community receptivity.
– Here we add in the cost components into our decision model, such as labor, materials, site-specifics, transport, inventory, and coordination costs.
From the profit side, we have a significant cost component that, in a supply chain network, is driven by the characteristics of the facilities (such as location and capacity), the cost of labor, transportation, material, inventories, and also taxes and tariffs.
Managers have to decide between several trade-offs when designing a network. For example, building many facilities to serve local markets can reduce transportation costs and increase responsiveness, however it increases facility and inventory costs.
Network optimization models: good for defining a regional facility configuration (phase II) and setting specific location choices (phase IV)
Gravity location models: helpful on defining a set of desirable sites (phase III)