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Supply Chain Management: Designing the supply chain network Rajendran Ananda Krishnan https://www.facebook.com/ ialwaysthinkprettythings

Supply Chain Management, Designing the Supply Chain Network

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Supply Chain Management, Designing the Supply Chain Network , Presentations By Rajendran Ananda Krishnan, https://www.facebook.com/ialwaysthinkprettythings

Text of Supply Chain Management, Designing the Supply Chain Network

  • 1. Supply Chain Management:Designing the supply chainnetwork Rajendran Ananda Krishnanhttps://www.facebook.com/ialwaysthinkprettythings

2. Topics to be coveredDesigning the supply chain network Designing the distribution network- roleof distribution, factors influencingdistribution Design options, e-business and itsimpact Distribution networks in practice Network design in the supply chain, roleof network Factors affecting the network design https://www.facebook.com/ialwaysthinkdecisions, modeling for supply chain prettythings 3. Role of Distribution in the supplychainDistribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain. Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer experience directly.The appropriate distribution network can be used to achieve a variety of supply chain objectives ranging from low cost to high responsiveness. As a result, companies in the same industry often select very different distribution networks. https://www.facebook.com/ialwaysthink prettythings 4. Dell distributes its PCs directly to end consumers, whereas companies such as HP distribute through resellers. Dell customers wait several days to get a PC, whereas customers can walk away with an HP PC from a reseller.P&G has chosen to distribute directly to large supermarket chains while obligating smaller players to buy P&G products from distributors. Products move directly from P&G to the larger chains , but move through an additional stage when going to smaller supermarkets. https://www.facebook.com/ialwaysthink prettythings 5. Factors Influencing DistributionNetwork DesignPerformance of a distribution networkshould be evaluated along twodimensions: Customer needs that are met Cost of meeting customer needsThe customers needs that are metinfluence the companys revenues,which along with cost decide theprofitability of the delivery network. https://www.facebook.com/ialwaysthink prettythings 6. Customer service components: Response time Amount of time it takes for a customerto receive an order. Product variety Number ofdifferentproducts/configurations that are offered by thedistribution network. Product availability Probability of having a product instock when a customer order arrives. Customer experience includes the ease with whichcustomers can place and receive orders as well as theextent to which this experience is customized. Time to market Time it takes to bring a new product tothe market. Order visibility Ability of customers to track theirorders from placement to delivery. Returnability Ease with which a customer can returnunsatisfactory merchandise and the ability of thenetwork to handle such returns.https://www.facebook.com/ialwaysthinkprettythings 7. Firms that target customers who can tolerate a long response time require only a few locations that may be far from the customer. These companies can focus on increasing the capacity of each location. In contrast, firms that target customers who value short response times need to locate facilities close to them. These firms must have many facilities, each with a low capacity. Thus, a decrease in the response time customers desire increases the number of facilities required in the network.Changing the distribution network design affects the followingsupply chain costs: Inventories Transportation Facilities and handling InformationA decrease in the response time customers desire increases thenumber of facilities required in the network. As the number offacilities in a supply chain increases, the inventory andresulting inventory costs also increase.https://www.facebook.com/ialwaysthinkprettythings 8. Relationship between DesiredResponse Time and Number ofFacilitiesRequirednumber offacilities Desired Response Time https://www.facebook.com/ialwaysthink prettythings 9. Relationship between Number ofFacilities and Inventory Costs Inventory CostsNumber offacilitieshttps://www.facebook.com/ialwaysthinkprettythings 10. Inbound transportation costs are the costsincurred in bringing material into a facility. Outbound transportation costs are the costs ofsending material out of a facility. Outbound transportation costs per unit tend to behigher than inbound costs because inbound lotsizes are typically larger. Increasing the number of warehouse locationsdecreases the average outbound distance to thecustomer and makes outbound transportationdistance a smaller fraction of the total distancetravelled by the product. Thus, as long as inbound transportationeconomies of scale are maintained, increasingthe number of facilities decreases totaltransportation cost. https://www.facebook.com/ialwaysthink prettythings 11. Relationship between Number ofFacilities and Transportation Cost Transportation Cost Number of facilitieshttps://www.facebook.com/ialwaysthinkprettythings 12. If the number of facilities is increased to a point whereinbound lot sizes are also very small and result in asignificant loss of economies of scale in inboundtransportation, increasing the number of facilitiesincreases total transportation cost. Facility costs decrease as the number of facilities isreduced. Total logistics costs are the sum of inventory,transportation and facility costs for a supply chainnetwork. As the number of facilities increases, totallogistics costs first decrease and then increase. Eachfirm should have at least the number of facilities thatminimize total logistics costs. As a firm wants to reducethe response time to its customers further, it may haveto increase the number of facilities beyond the point thatminimizes logistics costs. A firm should add facilitiesbeyond the cost-minimizing point only if managers areconfident that the increase in revenues because ofbetter responsiveness is greater than the increase incosts because of the additional facilities. https://www.facebook.com/ialwaysthink prettythings 13. Relationship between Number ofFacilities and Facility CostFacility Cost Number of Facilities https://www.facebook.com/ialwaysthink prettythings 14. Variation in Logistics Cost andResponse time with Number ofFacilitiesResponseTime Total Logistics Cost Number of Facilitieshttps://www.facebook.com/ialwaysthinkprettythings 15. Design Options for a DistributionNetwork Manufacturer storage with directshipping Product is shipped directlyfrom the manufacturer to the endcustomer, bypassing the retailer ( whotakes the order and initiates the deliveryrequest). This option is also referred toas drop shipping, with product delivereddirectly from the manufacturer to thecustomer. It is best suited for a largevariety of low-demand, high-value itemsfor which customers are willing to wait fordelivery and accept several partialshipments.https://www.facebook.com/ialwaysthinkprettythings 16. Manufacturer Storage with Direct Shipping(Drop Shipping)MfrRetailer Customer Product Flow https://www.facebook.com/ialwaysthinkInformation prettythings 17. Performance Characteristics of Manufacturer Storage with DirectShipping NetworkCost FactorPerformanceInventoryLower costs because of aggregation. Benefits of aggregation are highest for low demand, high value items. Benefits are very large if product customization can be postponed ate manufacturer.TransportatioHigher transportation costs because of increasedndistance and disaggregate shipping.Facilities and Lower facility costs because of aggregation. Somehandling saving on handling costs if manufacturer can manage small shipments or ship from production line.InformationSignificant investment in information infrastructure to integrate manufacturer and retailer.https://www.facebook.com/ialwaysthinkprettythings 18. Service Factor PerformanceResponse TimeLong response time of one to two weeks because of increased distance and two stages for order processing. Response time may vary by product, thus complicating receiving.Product VarietyEasy to provide a very high level of variety.Product Availability Easy to provide a high level of product availability because of aggregation at manufacturer.Customer ExperienceGood in terms of home delivery but can suffer if order from several manufacturers is sent as partial shipments.Time to market Fast, with the product available as soon as the first unit is produced.Order visibility More difficult but also more important from a customer service perspective.ReturnabilityExpensive and difficult to implement. https://www.facebook.com/ialwaysthink prettythings 19. Manufacturer storage with direct shippingand in-transit merge Unlike pure drop-shipping, under which each product in theorder is sent directly from its manufacturer tothe end customer, in-transit merge combinespieces of the order coming from differentlocations so that the customer gets a singledelivery. For eg, when a customer orders a PC fromDell along with a Sony monitor, the packagecarrier picks up the PC from the Dell factoryand the monitor from the Sony factory; it thenmerges the two together at a hub beforemaking a single delivery to the customer. It is best suited for low-to medium demand,high value items the retailer is sourcing froma limited number of manufacturers.https://www.facebook.com/ialwaysthinkprettythings 20. In-transit merge Net workFactoriesIn-transit mergeRetailerBy Carrier CustomersCustomersProduct Flow https://www.facebook.com/ialwaysthinkInformation Flow prettythings 21. Performance Characteristics of In-Transit MergeCost FactorPerformanceInventorySimilar to drop shipping.Transportation Somewhat lower transportation costs than drop shipping.Facilities and Handling costs higher than drop shipping athandling carrier; receiving costs lower at customer.InformationInvestment is somewhat higher than for drop shipping.Service Factor PerformanceResponse TimeSimilar to drop-shipping; may be marginally higher.Product varietySimilar to drop shipping.Product Availability Similar to drop-shipping.Customer Better than drop-shipping because a single orderexperience has to be received.Time to market Similar to drop-shipping.Order visibility Similar to drop-shipping. https://www.facebook.com/ialwaysthink prettythingsReturnabilitySimilar to drop-shipping. 22. Distributor Storage with CarrierDelivery Under this option,inventory is not held by manufacturersat the factories but is held bydistributors/ retailers in intermediatewarehouses, and package carriers areused to transport products from theintermediate location to the finalcustomer. It is well suited for medium-to-fast moving items. It also makessense when customers want deliveryfaster than is offered by manufacturerstorage but do not need itimmediately. https://www.facebook.com/ialwaysthink prettythings 23. Distributor Storage with Carrier DeliveryFactoriesDistributorStorage Customer sProduct FlowInformation Flowhttps://www.facebook.com/ialwaysthinkprettythings 24. Performance Characteristics of Distributor storage with Carrier DeliveryCost FactorPerformanceInventoryHigher than manufacturer storage. Difference is not large for faster- moving items.Transportation Lower than manufacturer storage. Reduction is highest for faster- moving items.Facilities and Somewhat higher than manufacturer storage. The difference can behandling large for very slow-moving items.InformationSimpler infrastructure compared to manufacturer storage.Service Factor PerformanceResponse TimeFaster than manufacturer storage.Product varietyLower than manufacturer storage.ProductHigher cost to provide the same level of availability as manufactureravailability storage.Customer Better than manufacturer storage with drop-shipping.experienceTime to market Higher than manufacturer storage.Order visibility Easier than manufacturer storage. https://www.facebook.com/ialwaysthinkReturnabilityEasier than manufacturer storageprettythings 25. Distributor Storage with Last-MileDelivery- Last-mile delivery refers to thedistributor/retailer delivering the productto the customers home instead of usinga package carrier. In areas with high labor costs, it is veryhard to justify distributor storage with lastmile delivery on the basis of efficiency orimproved margin. It can only be justifiedif there is a large enough customersegment willing to pay for thisconvenience. An effort should be made to couple last-mile delivery with an existing distributionnetwork to exploit economies of scaleand improve utilization. https://www.facebook.com/ialwaysthink prettythings 26. Distributor Storage with Last-Mile DeliveryFactoriesDistributor/RetailerWarehouseProduct Flow CustomersInformationFlow https://www.facebook.com/ialwaysthink prettythings 27. Performance Characteristics of Distributor Storage with Last-MileDeliveryCost Factor PerformanceInventory Higher than distributor storage withpackage carrier delivery.TransportationVery high cost given minimal scaleeconomies. Higher than any otherdistribution option.Facilities and handling Facility costs higher than manufacturerstorage or distributor storage withpackage carrier delivery, but lower thana chain of retail stores.Information Similar to distributor storage withpackage carrier delivery.https://www.facebook.com/ialwaysthinkprettythings 28. Service factor PerformanceResponse timeVery quick. Same day to next-day delivery.Product varietySomewhat less than distributor storage with package carrier delivery but larger than retail stores.Product availability More expensive to provide availability than any other option except retail stores.Customer experienceVery good, particularly for bulky items.Time to market Slightly higher than distributor storage with package carrier delivery.Order traceability Less of an issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery.ReturnabilityEasier to implement than other options. Harder and more expensive than a retail network. https://www.facebook.com/ialwaysthink prettythings 29. Manufacturer or Distributor Storagewith Customer Pickup Inventory isstored at the manufacturer or distributorwarehouse but customers place theirorders online or on the phone and thentravel to designated pickup points tocollect their merchandise. Orders areshipped from the storage site to thepickup points as needed. Such a networkis likely to be most effective if existinglocations such as coffee shops,convenience stores, or grocery storesare used as pickup sites, because thistype of network improves the economiesfrom existing infrastructure. https://www.facebook.com/ialwaysthink prettythings 30. Manufacturer or Distributor Warehouse Storage with Consumer PickupCustomer Flow InformationProduct FlowFactoriesFlowRetailer Cross-Dock DC Pickup SitesCustomershttps://www.facebook.com/ialwaysthinkprettythings 31. Performance Characteristics of Network with Consumer PickupsitesCost Factor PerformanceInventory Can match any other option, dependingon the location of inventory.TransportationLower than the use of package carriers,especially if using an existing deliverynetwork.Facilities and handling Facility costs can be very high if newfacilities have to be built. Costs are lowerif existing facilities are used. Theincrease in handling cost at the pickupsite can be significant.Information Significant investment in infrastructurerequired. https://www.facebook.com/ialwaysthink prettythings 32. Service Factor PerformanceResponse timeSimilar to package carrier delivery with manufacturer or distributor storage. Same day delivery possible for items stored locally at pick-up sites.Product varietySimilar to other manufacturer or distributor storage options.Product availability Similar to other manufacturer or distributor storage options.Customer experienceLower than other options because of the lack of home delivery. In areas with high density of population, loss of convenience may be small.Time to market Similar to manufacturer storage options.Order visibility Difficult but essential.ReturnabilitySomewhat easier given that pickup location can handle returns.https://www.facebook.com/ialwaysthinkprettythings 33. Retailer storage with CustomerPickup Inventory is stored locally atretail stores. Customers walk into theretail store or place an order online orby phone and pick it up at the retailstore. It is best suited for fast-movingitems or items for which customersvalue rapid response.https://www.facebook.com/ialwaysthinkprettythings 34. Performance Characteristics of Local storage at Consumer Pickup sitesCost FactorPerformanceInventoryHigher than all other options.Transportation Lower than all other options.Facilities and Higher than other options. The increase in handling cost at pickuphandling site can be significant for online and phone orders.InformationSome investment in infrastructure required for online and phone orders.Service Factor PerformanceResponse timeSame-day pickup possible for items stored locally at pickup site.Product varietyLower than all other options.ProductMore expensive to provide than all other options.availabilityCustomer Related to whether shopping is viewed as a positive or negativeexperience experience by customer.Time to market Highest among distribution options.Order visibility Trivial for in-store orders. Difficult, but essential, for online & phone https://www.facebook.com/ialwaysthink orders. prettythings 35. E-Business and the DistributionNetworkImpact of E-Business on Customer Service Response time to customers- In sellingphysical products that cannot be downloaded, ane-business without a physical retail outlet takeslonger to fulfill a customer request than a retailstore because of the shipping time involved.There is no such delay, however, for productsthat can be downloaded like a mutual fundprospectus or music. Product Variety An e-business finds it easierto offer a large selection of products than abricks-and-mortar store. Offering the sameselection at a retail store would require a hugelocation with a correspondingly large amount ofinventory.https://www.facebook.com/ialwaysthinkprettythings 36. Product availability An e-business can greatlyincrease the speed with which information on customerdemand is disseminated throughout the supply chain,giving rise to more accurate forecasts. These improvedforecasts and the more accurate view of customerdemand leads to a better match between supply anddemand. Customer Experience An e-business affectscustomer experience in terms of access, customizationand convenience. Unlike most retail stores that areopen only during business hours, an e-business allowsaccess to customers who may not be able to placeorders during regular business hours. An e-businessallows a firm to access customers who aregeographically distant. Firms that focus on masscustomization can use the Internet to help customersselect a product that suits their needs. On internet,customers have the ease of not needing to leave homeor work to make a purchase.https://www.facebook.com/ialwaysthinkprettythings 37. Faster time to market A firm can use e-business tointroduce new products much more quickly than a firmthat uses physical channels. A firm that sells PCsthrough physical cannels must produce enough units tostock the shelves at its distributors and retailers beforeit starts to see revenue from the new product. An e-business in contrast, introduces a new product bymaking it available on the website- a distribution lag tofill the retail store is not present. Order Visibility The internet makes it possible toprovide visibility of order status, which is very crucial inonline order as it has no physical equivalent to acustomer shopping. Returnability - It is harder with online orders, whichtypically arrive from a centralized location. Theproportion of returns is also likely to be much higher foronline orders because the customers are unable totouch and feel the product before their purchase. https://www.facebook.com/ialwaysthink prettythings 38. Direct Sales to Customers An e-business allowsmanufacturers and other members of the supply chainthat do not have direct contact with customers intraditional channels to enhance revenues by bypassingintermediaries and selling directly to customers, therebycollecting the intermediarys incremental revenue. Flexible Pricing, Product Portfolio and Promotions An e-business can easily alter prices by changing oneentry in the database linked to its website. This abilityallows an e-business to maximize revenues by settingprices based on current inventories and demand. Foreg, the airlines make last-minute, low cost faresavailable on the Web on routes with unsold seats. Caneasily alter the product portfolio that it offers as well asthe promotions it is running. Efficient Funds Transfer An e-business canenhance revenues by speeding up collection. https://www.facebook.com/ialwaysthink prettythings 39. Impact of e-business on cost Inventory An e-business can lower inventory levelsand inventory cost by improving supply chaincoordination and creating a better match betweensupply and demand. Additionally, e-business enables afirm to aggregate inventories far from customers if mostcustomers are willing to wait for delivery of onlineorders. Facilities Two basic types of facilities costs must beincluded in the analysis: costs related to the numberand location of facilities in a network, and costsassociated with the operations that take place in thesefacilities. An e-business can reduce network facilitycosts by centralizing operations, thereby decreasing thenumber of facilities required. With regard to ongoingoperating costs, customer participation in selection andorder placement allows an e-business to lower itsresource costs. https://www.facebook.com/ialwaysthinkprettythings 40. Transportation If a firm can put its productin a form that can be downloaded, theinternet will allow it to save on the cost andtime for delivery. For eg, downloadable musicand software offer an opportunity to eliminateall costs associated with transporting CDs.For nondigital products,aggregatinginventories increases outbound transportationrelative to inbound transportation. Information An e-business can sharedemand information throughout its supplychain to improve visibility. The internet mayalso be used to share planning andforecasting information within the supplychain, further improving coordination. Thishelps reduce overall supply chain costs andbetter match supply and demand.https://www.facebook.com/ialwaysthinkprettythings 41. Distribution Networks in Practice The ownership structure of the distribution network canhave as big an impact as the type of distribution network Distribution networks that have exactly the same physicalflow but different ownership structures can have vastlydifferent performance. For eg, a manufacturer that owns itsdistribution network can control the networks actions.However, if the manufacturer does not own the distributionnetwork, a wide variety of issues need to be taken intoaccount to optimize over the network. The choice of a distribution network has very long termconsequences The structure of the distribution network isone of the most difficult decisions to change. The impact oftenlasts for decades, amplifying the importance of the choice.For eg, In the early days, PC manufacturers sold throughindependent distributors and retailers. Dells emergence wasa clear example of how the direct model was often superior tothe traditional model. Other PC manufacturers, such as HP,made forays into selling PCs directly. However, their existingdistribution channels reacted quite negatively to this- as itwould cannibalize their business. https://www.facebook.com/ialwaysthink prettythings 42. Consider whether an exclusive distribution strategyis advantageous A manufacturer of consumerelectronics such as Sony could choose to haverelationships with many distributors such as eZone,Spar etc. In this case, Sony would be interested inincreasing the availability of its products to customersand would certainly not mind if its distributors competedwith each other to sell Sony products to customers. Product price, commoditization, and criticalityaffect the type of distribution system preferred bycustomers Interactions between a buyer and a sellertake time and resources. Many buyers would like toestablish a relationship with a single enterprise that candeliver a full line of products. This can be accomplishedby a manufacturer with a broad line of products.However, this is often accomplished more effectively byadistributor carryingproductsfrommanymanufacturers.https://www.facebook.com/ialwaysthinkprettythings 43. Integrate the Internet with theexisting physical network Toextract maximum benefit from e-businesses, firms should integrate itwith their existing supply chainnetworks. Separating thetwonetworks often results in inefficiencieswithin the supply chain. This couplingof e-business with the existingphysical network has been referred toas clicks-and-mortar. For eg. Placingorder online and collecting goods fromthe physical store.https://www.facebook.com/ialwaysthinkprettythings 44. The Role of Network Design inthe Supply Chain Facility role What role should eachfacility play? What processes areperformed at each facility? Facility location Where shouldfacilities be located? Capacity allocation How muchcapacity should be allocated to eachfacility? Market and supply allocation Whatmarkets should each facility serve?Which supply sources should feed eachfacility? https://www.facebook.com/ialwaysthinkprettythings 45. Factors influencing Network Design Decisions Strategic Factors A firms competitive strategy has a significant impact on network design decisions within the supply chain. Firms that focus on cost leadership tend to find the lowest cost location for their manufacturing facilities, even if that means locating very far from the markets they serve. Firms that focus on responsiveness tend to locate facilities closer to the market and may select a high-cost location if this choice allows the firm to react quickly to changing market needs.https://www.facebook.com/ialwaysthink prettythings 46. Classification of possible strategic roles for variousfacilities: Offshore facility: low-cost facility for exportproduction Serves the role of being a low-costsupply source for markets located outside thecountry where the facility is located. Source facility: low-cost facility for globalproduction Often a primary source of productfor the entire global network. Server facility: regional production facility Objective is to supply the market where it islocated. A server facility is built because of taxincentives, tariff barriers or high logistics cost tosupply the region from elsewhere. For eg. Suzukigot into tie up with Maruti and establish amanufacturing unit in India to serve Indian market.https://www.facebook.com/ialwaysthinkprettythings 47. Contributor facility: regional productionfacility with development skills Servesthe market where it is located but alsoassumesresponsibilityforproductcustomization, processimprovements,productmodificationsorproductdevelopment. Outpost facility: regional productionfacility built to gain local skills Locatedprimarily to obtain access to knowledge orskills that may exist within a certain region. Lead facility: facility that leads indevelopment and process technologies Creates new products, processes andtechnologies for the entire network. https://www.facebook.com/ialwaysthink prettythings 48. Technological factors If production technology displayssignificant economies of scale, a few high-capacity locations aremost effective. If facilities have lower fixed costs, many localfacilities are preferred because this helps lower transportationcosts. If the fixed cost of setting up facility is high, few facilitylocation is a feasible option but if setting up fixed cost is low,more number of facilities should be established. Macroeconomic FactorsTariffs and Tax Incentives Tariffs refer to any duties that mustbe paid when product and/or equipment are moved acrossinternational, state, or city boundaries. If a country has very hightariffs, companies either do not serve the local market or set upmanufacturing plants within the country to save on duties.Tax incentives are a reduction in tariffs or taxes that countries,states and cities often provide to encourage firms to locate theirfacilities in specific areas. Trade Blocs like SAARC, BRIC,European Union are formed in order to promote trade amongstthe member countries.Developing countries often create Special Economic Zones inwhich duties and tariffs are relaxed as long as production isused primarily for export.https://www.facebook.com/ialwaysthinkprettythings 49. Exchange Rate and Demand Risk Fluctuations in exchange rates are common and have a significant impact on the profits of any supply chain serving global markets. A firm that sells its product in the United States with production in India is exposed to the risk of appreciation of the rupee.Companies must also take into account fluctuations in demand caused by changes in the economies of different countries. For eg. Firms with little production flexibility experienced unutilized capacity in Indian plants when Indian economies slowed down between 2008 and 2009. Firms with greater flexibility in their manufacturing facilities were able to use the extra capacity in their Indian plants to meet the needs of other countries where demand was high. https://www.facebook.com/ialwaysthink prettythings 50. Political factors Companies prefer tolocate facilities in politically stablecountries where the rules of commerceand ownership are well defined.Countries with independent and clearlegal systems allow firms to feel that theyhave recourse in the courts should theyneed it. Infrastructure Factors Keyinfrastructure elements to be consideredduring network design include availabilityof sites, labor availability, proximity totransportation terminals, rail service,proximity to airports and seaports,highway access, congestion and localhttps://www.facebook.com/ialwaysthinkprettythings 51. Competitive Factors Companies mustconsider competitors strategy, size andlocation when designing their supplychain networks. Positive externalities areinstances where the collocation ofmultiple firms benefits all of them. Itleads to competitors locating close toeach other. For eg, gas stations andretail stores tend to locate close to eachother because doing so increases theoverall demand, thus benefiting allparties. In malls, retailers are locatedclose to each other, thus providingconvenience to the customers andbenefitted themselves by increase in https://www.facebook.com/ialwaysthinksales. prettythings 52. Frame work for Network design DecisionsCompetitive StrategyPhase1Global Competition Internal ConstraintsSCStrategy Capital, Growth Strategy Tariffs & TaxProductionPhaseIncentivesTechnologies Cost,2scale/scope impactRegRegional Demand Competitive FacilitySize, growth, Environment Conifig homogeneityPhase Political, ExchangeAggregate Factors 3 Rate and Demandand Logistic s costsDesirabl e sitesRisk Available InfraProduction MethodsstructureFactor costs Phase 4 Logistics Cost Locatio nhttps://www.facebook.com/ialwaysthink Choice prettythings 53. Framework for Network Design Decisions Phase I: Design a Supply ChainStrategy Starts with a cleardefinition of the firms competitivestrategy as the set of customer needsthat the supply chain aims to satisfy.Managers must forecast the likelyevolution of global competition andwhether competitors in each marketwill be local or global players.Constraints on available capital andwhether growth will be accomplishedby acquiring existing facilities, buildingnew facilities or partnering. https://www.facebook.com/ialwaysthinkprettythings 54. Phase II: Define the Regional FacilityConfiguration Forecast of the demand bycountry. Include a measure of the size of thedemand as well as a determination ofwhether the customer requirements arehomogenous or variable across differentcountries. Homogenous requirements favorlarge consolidated facilities whereasrequirements that vary across countries favorsmaller, localized facilities. If economies ofscale are significant in reducing costs, it maybe better to have few facilities serving manymarkets. If economies of scale are notsignificant , it may be better for each marketto have its own facility. They must identifydemand risk, exchange rate risk, political risk,tax incentives and regional tariffs for localproduction. They must also decide whether afacility needs to be located close to or farfrom a competitors facility.https://www.facebook.com/ialwaysthinkprettythings 55. Phase III: Select a Set of DesirablePotential Sites Hard infrastructurerequirements include the availability ofsuppliers,transportation services,communication, utilities and warehousinginfrastructure. Soft infrastructure facilitiesinclude the availability of skilledworkforce, workforce turnover and thecommunity receptivity to business andindustry. PhaseIV: Location Choices Maximize total profits taking into accountthe expected margin and demand ineach market, various logistics andfacility costs, and the taxes and tariffs at https://www.facebook.com/ialwaysthink prettythings 56. Cost Minimization ModelData Needed:Plant Data: Capacity, Fixed Cost, Unit variable production cost.Market data : Quarterly Demand, Price per unit.Transportation Cost from one plant to another market.M = No. of plants; let i = 1,,mN = No. of markets; let j = 1,., nDem j = Quarterly demand at market jCap i = Quarterly production capacity at plant i.Cost ij = Cost of producing and transporting one unit from plant I to market jFcost i = Fixed cost of facility IQuant ij = Quantity shipped from plant i to market jObjective function will be :Minimize Cost ij x Quant ijConstraints : Quant ij = Dem j Quant ij Cap I Quant ij 0 https://www.facebook.com/ialwaysthink prettythings 57. Profit Maximization ModelGross Profit = Revenue VCNet Profit = Gross Profit Fixed CostObjective Function:Maximize Price j x Quant ij - Cost ij x Quant ijConstraints : Quant ij Dem j Quant ij Cap i Quant ij 0 https://www.facebook.com/ialwaysthink prettythings 58. Thank Youhttps://www.facebook.com/ialwaysthinkprettythings