Facility+Location+and+Designing+the+Distribution+Network+in+Supply+Chain

8/13/2019 Facility+Location+and+Designing+the+Distribution+Network+in+Supply+Chain

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2007 Pearson Education

Supply Chain Management

Facility Location


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Facility Location

Where should a plant or service facility be located? Need to produce close to supplier as well as customers.

Need to locate near the appropriate labour pool to take advantage of lowwages and high technical skills

Profit-oriented organization Make decision on profit potential

Non-profit organization Balance between cost and level of customer service

Facilityo Places where inventory is stored, assembled or fabricated

o Production sites and storage sites


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Importance of Facility LocationFacility Location decisions are part of the companys strategy. Infrequent but expensive.Reasons for the importance: Facility Location requires large investment that can not be

recovered.

Facility Location decisions affect the competitive capacity of thecompany.

All areas of the company are affected by Facility Location: Operations,Business Development, Human Resources, Finance, etc.


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Importance of Facility Location The facility location decisions affect not only costs but the

companys income: For a service business, market proximity is critical to determine the

capacity to attract customers.

For a manufacturing business, facility location affects productdelivery time and level of customer service, which affects sales.

Regarding costs, facility location affects a greatvariety of them:

Land costs. Labor costs. Raw materials. Transportation and distribution

4-4


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Facility Location

Factors ffecting Location Decisions

Proximity to Customers

Proximity to Suppli ers

Business Cli mate

Total Cost

Infrastructure

Government Barr iers

Quali ty of L abour

Other F acili ties

Poli tical Stabili ty

Government Barriers

Environmental Regulation

H ost Community


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2007 Pearson Education 4-6

Designing the Distribution Networkin

Supply Chain


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Outline

The Role of Distribution in the Supply ChainFactors Influencing Distribution Network DesignDesign Options for a Distribution Network



The Role of Distributionin the Supply Chain

Distribution : the steps taken to move and store a product from the supplier stage to the customer stagein a supply chain

Distribution directly affects cost and the customerexperience and therefore drives profitabilityChoice of distribution network can achieve supplychain objectives from low cost to high responsivenessExamples: Wal-Mart & Dell



Factors InfluencingDistribution Network Design

Distribution network performance evaluated alongtwo dimensions at the highest level: Customer needs that are met

Cost of meeting customer needsDistribution network design options must therefore becompared according to their impact on customerservice and the cost to provide this level of service



Factors InfluencingDistribution Network Design

Elements of customer service influenced by network structure: Response time Product variety Product availability Customer experience Order visibility Returnability


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Supply chain costs affected bynetwork structure

Facilities and handling Inventories

Transportation Information

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Service and Number of Facilities

Number ofFacilities

Response Time



Facility Costs and Numberof Facilities

FacilityCosts

Number of facilities



Inventory Costs and Numberof Facilities

InventoryCosts




Transportation Costs andNumber of Facilities

TransportationCosts



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Transportation

Total Costs Related toNumber of Facilities

T o

t a l C o s t s

Number of Facilities

Inventory

Facilities

Total Costs


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Design Options for a Distribution Network

Manufacturer Storage with Direct Shipping

Manufacturer Storage with Direct Shipping and In-Transit Merge

Distributor Storage with Carrier Delivery

Distributor Storage with Last Mile Delivery

Manufacturer or Distributor Storage with Customer Pickup

Retail Storage with Consumer Pickup


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Manufacturer Storage withDirect Shipping

Manufacturer

Retailer

Customers

Product Flow

Information Flow


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Manufacturer Storage with Direct Shipping

Cost Factor Performance

Inventory Lowest Costs because of aggregation.

Transportation Higher Transportation Cost.

Facilities &Handling

Lower Facility Cost. Saving on handling cost ifmanufacturer can manage small shipment or can ship from

assembly line.

Information Significant investment to integrate manufacture and retailer


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Manufacture Storage with Direct Shippingand In-Transit Merge Network

Factories

Retailer

Product Flow

Information Flow

I n-Transit M erge byCarrier

Customers


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Inventory Similar to drop-shipping.

Transportation Somewhat lower cost than drop-shipping


Handling cost higher than drop-shipping at carrier.Receiving cost lower at customer.

Information Somewhat higher than drop-shipping.

Manufacture Storage with Direct Shippingand In-Transit Merge Network


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Distributor Storage withCarrier Delivery

Factories

Customers

Product FlowInformation Flow

Warehouse Storage byDistributor/Retailer


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Distributor Storage with Carrier Delivery


Inventory Higher than Manufacturer Storage.

Transportation Lower than manufacturer storage


Somewhat higher than manufacturer storage.

Information Simpler infrastructure compared to manufacturer storage


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Distributor Storage withLast Mile Delivery

Factories

Customers

Product Flow

Information Flow

Distributor/RetailerWarehouse


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Distributor Storage with Last Mile Delivery


Inventory Higher than distributor storage with package carrier delivery.

Transportation Higher than any other distribution option.


Facility costs is higher than manufacturer storage ordistributor storage with package carrier.

Information Similar to distributor storage with package carrier delivery.


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Manufacturer or Distributor Storagewith Customer Pickup

Factories

Retailer

Pickup Sites

Product FlowInformation Flow

Cross Dock DC

Customer Flow

Customers


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Inventory ?

Transportation ?


?

Information ?

Manufacturer or Distributor Storagewith Customer Pickup


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Retail Storage at Consumer Pickup Site

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Inventory Higher than all other options.

Transportation Lower than all other options.


Higher than all other options.

Information Some investment is required for online and phone order.

f f


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Comparative Performance of Delivery NetworkDesigns

Information

Facility & Handling

Transportation

Inventory

Returnability

Order Visibility

Customer Experience

Product Availability

Product Variety

Response Time

Manufacturerstorage with pickup

Distributorstorage with last

mile delivery

Distributor Storagewith Package

Carrier Delivery

ManufacturerStorage with In-Transit Merge

ManufacturerStorage with Direct

Shipping

Retail Storagewith Customer

Pickup

1 correspond to the strongest performance and 6 the weakest performance

f f l k


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Comparative Performance of Delivery NetworkDesigns

Information

Facility & Handling

Transportation

Inventory

Returnability

Order Visibility

Customer Experience

Product Availability

Product Variety

Response Time

Manufacturerstorage with pickup

Distributorstorage with last

mile delivery

Distributor Storagewith Package

Carrier Delivery


ManufacturerStorage with Direct

Shipping

Retail Storagewith Customer

Pickup

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

2

2

2

2

2

2

2

2

2

2

3

3

3

3

3

3

3

3

3

3

4

4

4

4

4

4

4

4

4

4

4

4

4

5

5

5

5

55

5

6

6

5

1 correspond to the strongest performance and 6 the weakest performance


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Linking Product Characteristics andCustomer Preferences to Network Design

Low customer effort

High product variety

Quick desired response

High product value

Many product sources

Very low demand product

Low demand product

Medium demand product

High demand product

Manufacturerstorage with

pickup

Distributor storagewith last mile delivery

Distributor Storagewith Package Carrier

Delivery


ManufacturerStorage with

Direct Shipping

Retail Storagewith

CustomerPickup

+2

+2

+1

+1

-1

-1

-1

-2

-2

+2= very suitable, +1= somewhat suitable, 0= natural -1= somewhat unsuitable , -2= very unsuitable


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Linking Product Characteristics andCustomer Preferences to Network Design

Low customer effort

High product variety

Quick desired response

High product value

Many product sources

Very low demand product

Low demand product

Medium demand product

High demand product

Manufacturerstorage with

pickup

Distributor storagewith last mile delivery

Distributor Storagewith Package Carrier

Delivery


ManufacturerStorage with

Direct Shipping

Retail Storagewith

CustomerPickup

+2

+2

+2

+2

+2

+2

+2 +2 +2

+2

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

0

0

0

0

0

0

0

0 0

0

-1

-1

-1

-1

-1 -1

-1

-1

-1

-1

-1

-2 -2

-2

-2

-2

-2 -2

-2

+2= very suitable +1= somewhat suitable 0= natural 1= somewhat unsuitable 2= very unsuitable

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Facility+Location+and+Designing+the+Distribution+Network+in+Supply+Chain