Global Supply Chain Management Lecture 4.pptx

7/30/2019 Global Supply Chain Management Lecture 4.pptx

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Supply Chain Management: Strategy,Planning, Operations (3/e)

Sunil Chopra & Peter Meindl

Chapter 4 & 5

Lecture 4Designing the Distribution Network in a

Supply Chain

1Global Supply Chain Management: Lecture 4

EMBA IB



The Role of Distribution

in the Supply Chain

Distr ibut ion : the steps taken to move and store aproduct from the supplier stage to the customer

stage in a supply chain

Distribution directly affects cost and the customer

experience and therefore drives profitability

Choice of distribution network can achieve supply

chain objectives from low cost to high

responsiveness


EMBA IB



Factors Influencing

Distribution Network Design

Distribution network performance evaluated alongtwo dimensions at the highest level:

Customer needs that are met

Cost of meeting customer needs

Distribution network design options must

therefore be compared according to their impact

on customer service and the cost to provide this

level of service


EMBA IB



Factors Influencing

Distribution Network Design

Elements of customer service influenced by networkstructure:

Response time

Product variety

Product availability Customer experience

Time to Market

Order visibility

Returnability

Supply chain costs affected by network structure: Inventories

Transportation

Facilities and handling

Information4Global Supply Chain Management: Lecture 4

EMBA IB



Service and Number of Facilities

(Fig. 4.1)

Number of

Facilities

Response

Time5Global Supply Chain Management: Lecture 4

EMBA IB



The Cost-Response Time

Frontier

Local FG

Mix

Regional FG

Local WIP

Central FG

Central WIP

Central Raw Material and Custom production

Custom production with raw material at suppliers

Cost

Response Time Hi Low

Low

Hi


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Inventory Costs and Number

of Facilities (Fig. 4.2)

Inventory

Costs

Number of facilities


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Transportation Costs and

Number of Facilities (Fig. 4.3)

Transportation

Costs



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Facility Costs and Number

of Facilities (Fig. 4.4)

Facility

Costs



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Transportatio

n

Total Costs Related to

Number of Facilities

T o t a l C o s t s


Inventory

Facilities

Total Costs


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Response Time

Variation in Logistics Costs and Response

Time with Number of Facilities (Fig. 4.5)


Total Logistics Costs


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Design Options for a

Distribution Network

1. Manufacturer Storage with Direct Shipping

2. Manufacturer Storage with Direct Shipping and

In-Transit Merge

3. Distributor Storage with Carrier Delivery

4. Distributor Storage with Last Mile Delivery

5. Manufacturer or Distributor Storage with

Consumer Pickup

6. Retail Storage with Consumer Pickup7. Selecting a Distribution Network Design

12

Global Supply Chain Management: Lecture 4

EMBA IB



Manufacturer Storage with

Direct Shipping (Fig. 4.6)

Manufactur

er

Retailer

Customers

Product

FlowInformation

Flow13


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Manufacturer Storage with Direct

Shipping

Product is shipped directly from the manufacturer to the end customer bypassing the retailer.

Advantage:

Ability to centralize inventories at the manufacturer

Opportunity to postpone customization until after a

customer has placed an order

14


EMBA IB



Manufacturer Storage with Direct

Shipping

Inventory cost low but transportation cost high

Supply chain saves fixed costs

A good information infrastructure is necessary

between manufacturer and retailer

Response time tends to be long

Manufacturer storage allows a high level of

product variety

Home delivery Expensive – suitable for large variety low

demand items

15


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In-Transit Merge Network (Fig.

4.7)

Factories

Retaile r

Product

FlowInformation

Flow

In-Transit Merge by Carrier

Customer

s

16


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Manufacturers storage with direct

shipping and in-transit merge

Transportation cost lower

Facilities and handling cost higher

Investment in informationinfrastructure is higher

17


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Distributor Storage with

Carrier Delivery (Fig. 4.8)

Factories

Customers

Product

FlowInformation

Flow

Warehous e Storage

by

Distr ibutor/Retai ler

18


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Carrier Delivery

Lower transportation cost

Higher inventory cost

Higher handling cost

Simple information

infrastructure

19


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Last Mile Delivery (Fig. 4.9)

Factories

Customers

Product

Flow

InformationFlow

Distr ibutor/Retai ler

Warehouse

20


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Last Mile Delivery

Higher level of inventory

High transportation and inventory cost

Facilities costs higher

Response time quick Less variety of products

More expensive to make product available

21


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Manufacturer or Distributor Storage with

Customer Pickup (Fig. 4.10)

Factories

Retaile r

Pickup

Sites

ProductFlowInformation

Cross Dock DC

Customer Flow

Customer

s

22


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Comparative Performance of Delivery

Network Designs (Table 4.7)

Information

Facility & Handling

Transportation

Inventory

Returnability

Order Visibility

Customer Experience

Product Availability

Product Variety

Response Time

Manufacturer

storage with

pickup

Distributor

storage with

last mile

delivery

Distributor

Storage with

Package Carrier

Delivery

Manufacturer

Storage with In-

Transit Merge

Manufacturer

Storage with Direct

Shipping

Retail Storage

with 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

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4

4

4

4

4

4

4

4

4

4

4

4

5

5

5

5

55

5

6

6

5

4-23



Linking Product Characteristics and Customer

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

Manufacturer

storage with

pickup

Distributor storage

with last mile

delivery

Distributor Storage

with Package Carrier

Delivery

Manufacturer

Storage with In-

Transit Merge

Manufacturer

Storage with

Direct Shipping

Retail

Storage with

Customer

Pickup

+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

4-24



E-Business and the Distribution

Network

Impact of E-Business on Customer Service

Impact of E-Business on Cost

25


EMBA IB



Impact of E-Business on Customer

Service

Response time Product variety

Product availability

Customer experience

Time to Market Order visibility

Returnability

Direct sales to customer

Flexible pricing, product portfolio and promotions Efficient fund transfer

26


EMBA IB



Impact of E-Business on Cost

InventoriesTransportation

Facilities and handling

Costs related to the number andlocations of facilities in a network

Costs associated with the operations

that take place in these facilities Information

27


EMBA IB



Distribution Networks in Practice

The ownership structure of the distributionnetwork can have as big as an impact as the type

of distribution network

The choice of a distribution network has very

long-term consequences

Consider whether an exclusive distribution

strategy is advantageous

Product, price, commoditization, and criticalityhave an impact on the type of distribution system

preferred by customers

28


EMBA IB



Network Design Decisions

Facility role What role should each facility play?

What processes are performed at each facility?

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?

Which supply sources should feed each facility?

5-2929


EMBA IB



Factors Influencing

Network Design Decisions

Strategic

Technological

Macroeconomic

Political

Infrastructure

Competitive

Customer response time and local preference Logistics and facility costs

5-3030


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Strategic

1. Offshore facility: low cost facility for exportproduction

2. Source facility: low cost facility for global

production

3. Server facility: regional production facility

4. Contributor facility: regional production facility

with development skill

5. Outpost facility: regional production facility builtto gain local skills

6. Lead facility: facility that leads in development

and process technologies

31


EMBA IB



Technological

Economies of scale

Lower fixed cost

Flexibility

32


EMBA IB



Macroeconomic Factors

Tariffs and Tax Incentives

Exchange Risk

Demand Risk

33


EMBA IB



Competitive Factors

Positive externalities between firms Locating to split the market

Firm 1 locate at a and firm 2 at 1 – b; demand for

both firm d1

and d2

d1 = a +(1-b-a)/2 and d2 = (1+b-a)/s {Hotelling}

34


EMBA IB



A Framework for

Global Site Location

PHASE I

Supply Chain

Strategy

PHASE IIRegional Facility

Configuration

PHASE III

Desirable Sites

PHASE IV

Location Choices

Competitive STRATEGY

INTERNAL CONSTRAINTS

Capital, growth strategy,

existing network

PRODUCTION TECHNOLOGIES

Cost, Scale/Scope impact, supportrequired, flexibility

COMPETITIVE

ENVIRONMENT

PRODUCTION METHODS

Skill needs, response time

FACTOR COSTS

Labor, materials, site specific

GLOBAL COMPETITION

TARIFFS AND TAX

INCENTIVES

REGIONAL DEMAND

Size, growth, homogeneity,

local specifications

POLITICAL, EXCHANGE

RATE AND DEMAND RISK

AVAILABLE

INFRASTRUCTURE

LOGISTICS COSTS

Transport, inventory, coordination

5-3535


EMBA IB



Conventional Network

Customer

Store

Materials

DC

ComponentManufacturin

g

Vendor

DC

Final

Assembly

Finished

Goods DC

Components

DC

Vendor

DC Plant

Warehouse

Finished

Goods DC

Customer

DC

Customer

DC

Customer

DC

Customer Store

Customer

Store

Customer

Store

Customer

Store

Vendor

DC

5-3636


EMBA IB



Tailored Network: Multi-Echelon

Finished Goods Network

Regional

Finished

Goods DC

RegionalFinished

Goods DC

Customer 1

DC

Store 1

National

Finished

Goods DC

Local DC

Cross-Dock

Local DC

Cross-Dock

Local DC

Cross-Dock

Customer 2

DC

Store 1

Store 2

Store 2

Store 3

Store 3

5-3737


EMBA IB



Gravity Methods for Location

Ton Mile-Center

Solution

x,y: Warehouse Coordinates

xn, yn : Coordinates of deliverylocation n

dn : Distance to delivery

location n

Fn : Annual tonnage to delivery

location n

k

n n

n

k

n n

nn

k

n n

n

k

n n

nn

n

d F D

d F y

D

d F D

d F x D

y y x xd

n

n y

n

n

x

nn

1

1

1

1

22

)()(

Min F Dd nn n

5-381-38



Network Optimization Models

Allocating demand to production facilities

Locating facilities and allocating capacity

Which p lants to establ ish? How to con f igure the network

Key Costs:

• Fixed facility cost

• Transportation cost

• Production cost

• Inventory cost

• Coordination cost

5-3939


EMBA IB



Demand Allocation Model

Which market is served

by which plant?

Which supply sources

are used by a plant? x ij = Quantity shipped from

plant site i to customer j

0

,...,1,

,...,1,

..

1

1

1 1

x

K x

D x

xc

ij

i

m

jij

j

n

iij

n

i

m

jijij

ni

m j

t s

Min

5-4040


EMBA IB

Plant Location with Multiple



Plant Location with Multiple

Sourcing

yi = 1 if plant is located

at site i, 0 otherwise

xij = Quantity shipped

from plant site i tocustomer j

}1,0{;

,...,1,

,...,1,

..

1

1

1

1 11

y y

y K x

D x

xc y f

i

m

ii

ii

n

jij

j

n

iij

n

i

m

jijiji

n

ii

k

ni

m j

t s

Min

5-411-41



Plant Location with Single Sourcing

yi = 1 if plant is located

at site i, 0 otherwise

xij = 1 if market j is

supplied by factory i, 0otherwise

}1,0{

,...,1,

,...,1,1

..

,

1

1

1 11

y x

y K x D

x

xc D y f

ij

ni j

m j

t s

j Min

i

ii

n

jij

n

iij

n

i

m

jijiji

n

ii

Documents

Global Supply Chain Management Lecture 4.pptx