Network planning

1

Network Planning

Dr A. Agarwal

Case: The Bis Corporation

• The Bis Corporation is a company that produces and distribute paints.

• Currently, eight manufacturing plants located in cities such as Atlanta and Denver serve about 2000 retails stores including home Depot, Walmart as well Bisowned stores.

Distribution System

• The current distribution system is a single-tier network where all products are shipped from the plants to 17 warehouses, located all over the United States, and from there to retail accounts.

Company History

• The company was established in 1964 as a family venture and grew in the 1970s and 1980s at a fairly steady rate.

• Bis is now owned by 12 shareholders and run by newly appointed CEO.

Supply Chain Management

• Bis produces and sells about 4,000 different SKUs and a similar price and the gross margin in the paint industry is about 20%.

• Despite high profitability, the new CEO is concerned that supply chain is not the most efficient one.

• Inbound truck utilization, inventory turns and service levels are just too low.

Current Distribution Strategy

• Produce and store at the manufacturing plants

• Pick, load and ship to a warehouse centres.

• Unload and store at the warehouse

• Pick ,load, and deliver to stores.

2

Points need to be addressed

• What is the best network configuration that the Bis corporation should use?

• Given the new network configuration, where should the company position inventory? How much?

• Which plant should produce which product?

Today’s session

• How a company can develop a model representing its logistics network.

• How a company can validate this model.

• How aggregating customers and products affects the accuracy of the model.

• How a company decides on where to position inventory.

• How a company knows whether, when, and where to expand its production capacity.

Why Supply Chain and Logistics Management

• One of the most important challenge in organized retail in India is faced by ?

Poor supply chain and logistics management.

Importance of Supply Chain and Logistics Management

• The importance can be understood by the fact that the logistics management cost component in India is as high as 7% -10% against the global average of 4% - 5% of the total retail price.

Future of Supply Chain and Logistics Management

• Therefore, the margins in the retail sector can be improved by 3% - 5% by just improving the supply chain and logistics management.


• In India, with demand for end-to-end logistics solutions far outstripping supply, the logistics market for organized retail is pegged at $50 million and is growing at 16%.

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• It is expected to reach $120-$130 million by 2010-2011. Organized retail on the other hand is growing at 400% and is expected to reach around $30 billion by 2010-2011.

The Logistics Network

The Logistics Network consists of:

• Facilities:Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers

• Raw materials and finished products that flow between the facilities.

Supply

Sources:plantsvendorsports

RegionalWarehouses:stocking points

Field Warehouses:stockingpoints

Customers,demandcenterssinks

Production/purchase costs

Inventory &warehousing costs

Transportation costs

Inventory &warehousing costs

Transportation costs

Movement of Materials within Factories

Incoming

Vehicles

Incoming Incoming

VehiclesVehiclesReceiving

Dock

ReceivingReceiving

DockDockQuality

Control

QualityQuality

ControlControlWarehouseWarehouseWarehouse

Work

Center

Work Work

CenterCenterOther Work

Centers

Other Work Other Work

CentersCentersPackagingPackagingPackaging

Finished

Goods

FinishedFinished

GoodsGoods

ShippingShippingShippingShipping

Dock

ShippingShipping

DockDockOutgoing

Vehicles

OutgoingOutgoing

VehiclesVehicles

The typical locations from/to which material is moved:The typical locations from/to which material is moved:

Why Network Planning?

• Find the right balance between inventory, transportation and manufacturing costs,

• Match supply and demand under uncertainty by positioning and managing inventory effectively,

• Utilize resources effectively by sourcing products from the most appropriate manufacturing facility

Three Hierarchical Steps• Network design

– Number, locations and size of manufacturing plants and warehouses

– Assignment of retail outlets to warehouses– Major sourcing decisions – Typical planning horizon is a few years.

• Inventory positioning: – Identifying stocking points – Selecting facilities that will produce to stock and thus keep

inventory– Facilities that will produce to order and hence keep no inventory– Related to the inventory management strategies

• Resource allocation:– Determine whether production and packaging of different

products is done at the right facility– What should be the plants sourcing strategies? – How much capacity each plant should have to meet seasonal

demand?

4

Network Design

• determines physical configuration and infrastructure of the supply chain.

• is a strategic decision with long-lasting effects on the firm.

• involves decisions relating to plant and warehouse location as well as distribution and sourcing

Reevaluation of Infrastructure

• Changes in:

– demand patterns

– product mix

– production processes

– sourcing strategies

– cost of running facilities.

• Mergers and acquisitions may mandate the integration of different logistics networks

Strategic Decisions

• Determining the appropriate number of facilities such as plants and warehouses.

• Determining the location of each facility.

• Determining the size of each facility.

• Allotting space for products in each facility.

• Determining sourcing requirements.

• Determining distribution strategies, that is, the allocation of customers to each warehouse.

Objective of Logistics Management

•is to design or re-configure the logistics network in order to minimize annual system-wide cost, including production and purchasing costs, inventory holding costs, facility costs (storage, handling, and fixed costs) and transportation costs, subject to a variety of service level requirements

Warehouse location decision

• A firm must balance the cost of opening new warehouses with the advantages of being close to the customer.

Network Design Tools: Major Components

• Mapping

– Mapping allows you to visualize your supply chain and solutions

– Mapping the solutions allows you to better understand different scenarios

– Color coding, sizing, and utilization indicators allow for further analysis

• Data

– Data specifies the costs of your supply chain

– The baseline cost data should match your accounting data

– The output data allows you to quantify changes to the supply chain

• Engine

– Optimization Techniques

5

Data collection for Network Design

1. Locations of customers, retailers, existing warehouses and distribution centres, manufacturing facilities, and suppliers.

2. All products including volumes, and special transport modes (e.g. refrigerated).

3. Annual demand for each product by customer location.

Data Collection

5. Warehousing costs including labour, inventory carrying charges, and fixed operating costs

6. Shipment sizes and frequencies for customer delivery

7. Order processing costs8. Customer service requirements and

goals9. Production and sourcing costs and

capacities.

Data Aggregation

• Amount of data involved in any optimization model is overhelming.

• A typical soft drink distribution system has between 10,000 and 120,000 accounts (customers).

• In a retail logistics network, such as Wal-Mart or JC Penney, the number of items that flow through the network is in the thousands or even hundreds of thousands.

An essential first step is data aggregation

• Customers

–Grid network

–Clustering technique

• Items

–Distribution pattern

–Product type

Logistics Network DesignLogistics Network Design

6

Too Much Information

Customers and Geo-coding

• Sales data is typically collected on a by-customer basis

• Network planning is facilitated if sales data is in a geographic database rather than accounting database

1. Distances

2. Transportation costs

• New technology exists for Geocoding the data based on Geographic Information System (GIS)

Aggregating Customers

• Customers located in close proximity are aggregated using a grid network or clustering techniques. All customers within a single cell or a single cluster are replaced by a single customer located at the centroid of the cell or cluster.

We refer to a cell or a cluster as a customer zone.

Impact of Aggregating Customers

• The customer zone balances

– Loss of accuracy due to over aggregation

– Needless complexity

• What effects the efficiency of the aggregation?

– The number of aggregated points, that is the number of different zones

– The distribution of customers in each zone.

Why Aggregate?

• The cost of obtaining and processing data

• The form in which data is available

• The size of the resulting location model

• The accuracy of forecast demand

0.1506.75745.14249.80339.44250.31440.181Total

0.1733.42720.90524.34619.87521.76517.835Cust. B

0.1924.65824.23725.45719.56728.54922.346Cust. A

Coeff. of Var.

STD.Dev.

Avg. Annual Demand

2007200620052004Year

Historical Data for the two customers

The variability faced by the aggregated customer, measured usingeither the standard deviation or the coefficient of variation, is smaller than the combined variabilities faced by the two existing customers

Recommended Approach

• Use at least 300 aggregated points

• Make sure each zone has an equal amount of total demand

• Place the aggregated point at the center of the zone

• In this case, the error is typically no more than 1%

7

Testing Customer Aggregation

• 1 Plant; 1 Product

• Considering transportation costs only

• Customer data

– Original Data had 18,000 5-digit zip code ship-to locations

– Aggregated Data had 800 3-digit ship-to locations

– Total demand was the same in both cases

Comparing Output

Total Cost:$5,796,000Total Customers: 18,000

Total Cost:$5,793,000Total Customers: 800

Cost Difference < 0.05%

Product Grouping

• Companies may have hundreds to thousands of individual items in their production line

– Variations in product models and style

– Same products are packaged in many sizes

• Collecting all data and analyzing it is impractical for so many product groups

Aggregating Items/Products

• Items are aggregated into a reasonable number of products groups based on

– Distribution Pattern: All products picked up at the same source and destined to the same customers are aggregated together.

– Product Type: In many cases, products might simply be variations in product models or style or might differ only in the type of packaging.

A Strategy for Product Aggregation

• Place all SKU’s into a source-group– A source group is a group of SKU’s all

sourced from the same place(s)

• Within each of the source-groups, aggregate the SKU’s by similar logistics characteristics– Weight

– Volume

– Holding Cost

Test Case for Product Aggregation

• 5 Plants

• 25 Potential Warehouse Locations

• Distance-based Service Constraints

• Inventory Holding Costs

• Fixed Warehouse Costs

• Product Aggregation– 46 Original products

– 4 Aggregated products

– Aggregated products were created using weighted averages

8

Sample Aggregation Test:Product Aggregation

Total Cost:$104,564,000Total Products: 46

Total Cost:$104,599,000Total Products: 4

Cost Difference: 0.03%

Transportation Rates

• The next step in constructing an effective distribution network design model is to estimate transportation cost.

• An important characteristics of most transportation rates, including truck, rail, and others, is that the rates are almost linear with distance but not with volume.

Transportation Costs associated with an internal fleet

• Estimating transportation costs for company-owned trucks is typically quite simple.

• It involves annual costs per truck, annual mileage per truck, annual amount delivered, and the truck’s effective capacity.

• All this information can be used to easily calculate cost per mile per SKU.

Transportation Costs associated with an external fleet

• Incorporating transportation rates for an external fleet into the model is more complex.

• Two modes of transportation: truck load (TL), and less than truck load (LTL)

Transportation cost related to TL

• The country is divided into zones.

• The carriers provide zone-to-zone table costs.

• This database provided the costs per mile per truckload between any two zones.

For Example

• To calculate TL cost from one city A of one zone Z1 to another city B of second zone Z2, one needs to get the cost per mile for this pair and multiply it by the distance between the two cities (A and B).

• TL cost structure is not symmetric. Cost is more for moving A to B than from B to A.

9

Transportation cost related to LTL

• In the LTL industry, the rates typically belong to one of three basic types of freight rates:

– Class (Standard Rates that can be found for almost all products or commodities)

– Exception (Specialized rates used to provide either less expensive rate or commodity-specific rates )

– Commodity

Industry Benchmarks:Transportation Costs

• Transportation Rates (typical values)

– Truck Load: $0.10 per ton-mile

– LTL: $0.31 per ton-mile

– Small Package: 3X LTL rates- more for express

– Rail: 50-80% of TL rates

LTL Freight Rates

• Each shipment is given a class ranging from 500 to 50

• The higher the class the greater the relative charge for transporting the commodity.

• A number of factors are involved in determining a product’s specific class. These include

– Density

– Ease or difficulty of handling

– Liability for damage

Other Issues

• Mileage Estimation

– Street Network

– Straight line distances

• This is of course an underestimate of the road distance. To estimate the road distance we multiply the straight line distance by a scale factor, ρ. Typically ρ=1.3.

Mileage Estimation

• Straight line distances

• Example: Suppose we want to estimate the distance between two points a and b where Lona

and Lata are the longitude and latitude of the point a and similarly for b.

Then

where Dab is the straight line distance (miles) from a to b.

2269 )lat(lat)lon(lonD babaab −+−=

Mileage Estimation

Straight line distances:

The previous equation is accurate only for short

distances; otherwise we use

This is of course an underestimate of the road

distance. To estimate the road distance we

multiply Dab by a scale factor, ρ.

Typically ρ = 1.3 or 1.14.

2

ba

ba

2

ba1

ab2

lon-lonsin)cos(lat)cos(lat

2

lat-latsinsin)69(2D

××+

= −

10

Warehousing

• Warehousing is the management of materials while they are in storage.

• Warehousing activities include:

– Storing

– Dispersing

– Ordering

– Accounting

Warehousing

• Record keeping within warehousing requires a stock record for each item that is carried in inventories.

• The individual item is called a stock-keeping unit (SKU).

• Stock records are running accounts that show:

– On-hand balance

– Receipts and expected receipts

– Disbursements, promises, and allocations

Warehouse Costs

• Facility costs

1. Fixed costs; not proportional to the

amount of material the flows through the warehouse

2. Handling costs; labor costs, utility costs

3. Storage costs; proportional to the inventory level

• Facilities capacities

Warehouse Costs• How to measure storage costs?

Define Inventory turnover ratio

In our case it is the ratio of the total flow through the warehouse to the average inventory level. If the ratio is λ then the average inventory level is total flow divided by λ.

Multiplying the average inventory level by the inventory holding cost gives the annual storage costs.

levelinventory Average

sales Annual=λ

Warehouse Costs Fixed costs is a function of warehouse capacity Other Issues

• Future demand

• Facility costs

– Fixed costs; not proportional to the amount of material the flows through the warehouse

– Handling costs; labor costs, utility costs

– Storage costs; proportional to the inventory level

• Facilities capacities

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Warehouse Capacities

• Required storage space is about twice the average inventory level.

Warehouse Capacities

• A multiple factor of 3 to product space to account for access and handling space

• Example

Annual flow is 1,000 units; inventory turnover rate is 10.0. Then, the average inventory level is about 100 units. If each unit takes 10 ft2, the required space for the product is 2,000 ft2. The total space required for the warehouse is about 6,000 ft2.

Industry Benchmarks:Number of Distribution Centers

Avg.# ofWH 3 14 25

Pharmaceuticals Food Companies Chemicals

- High margin product- Service not important (or easy to ship express)- Inventory expensiverelative to transportation

- Low margin product- Service very important- Outbound transportationexpensive relative to inbound

Warehouse LocationsWhen locating new facilities such as warehouses, a number of requirements have to be satisfied:

1. Geographical and infrastructure conditions

2. Natural resources and labor availability

3. Local industry and tax regulations

4. Public interest

As a result, there is only a limited number of locations that would meet all the requirements. These are the potential location sites for the new facilities.

Service Level Requirements

• Example

– Maximum distance

– Proportion of customers whose distance to their assigned warehouse is no more than a given distance. For example, we might require that 95 percent of the customers be situated within 200 miles of the warehouse serving them.

Future Demands

• Decision regarding the number, location, and size of warehouse have an impact on the firm for at least the next three to five years.

12

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

0 2 4 6 8 10

Number of Warehouses

Co

st

(millio

ns

$)

Total Cost

Transportation Cost

Fixed Cost

Inventory Cost

Minimize the cost of your logistics network without compromising service levels

Optimal Number

of Warehouses

The Impact of Increasing the Number of Warehouses

• Improve service level due to reduction of average service time to customers

• Increase inventory costs due to a larger safety stock

• Increase overhead and set-up costs

• Reduce transportation costs in a certain range

– Reduce outbound transportation costs

– Increase inbound transportation costs

Components of Customer Service which are influenced by the structure of

the distribution network

• Response Time

•Product Variety

•Product Availability

•Customer Experience

•Order Visibility

•Returnability

A Typical Network Design Model

• Several products are produced at several plants.

• Each plant has a known production capacity.

• There is a known demand for each product at each customer zone.

• The demand is satisfied by shipping the products via regional distribution centers.

• There may be an upper bound on total throughput at each distribution center.

A Typical Location Model

• There may be an upper bound on the distance between a distribution center and a market area served by it

• A set of potential location sites for the new facilities was identified

• Costs:– Set-up costs

– Transportation cost is proportional to the distance

– Storage and handling costs

– Production/supply costs

Complexity of Network Design Problems

• Location problems are, in general, very difficult problems.

• The complexity increases with

– the number of customers,

– the number of products,

– the number of potential locations for warehouses, and

– the number of warehouses located.

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Solution Techniques

• Mathematical optimization techniques:

– Exact algorithms: find optimal solutions

– Heuristics: find “good” solutions, not necessarily optimal

• Simulation models: provide a mechanism to evaluate specified design alternatives created by the designer.

Heuristics andthe Need for Exact Algorithms

• Single product

• Two plants p1 and p2– Plant P1 has an annual capacity of 200,000 units.

– Plant p2 has an annual capacity of 60,000 units.

• The two plants have the same production costs.

• There are two warehouses w1 and w2 with identical warehouse handling costs.

• There are three markets areas c1,c2 and c3 with demands of 50,000, 100,000 and 50,000, respectively.

Heuristics andthe Need for Exact Algorithms

Table 1

Distribution costs per unitFacility

WarehouseP1 P2 C1 C2 C3

W1

W2

0

5

4

2

3

2

4

1

5

2

Why Optimization Matters?

D = 50,000

D = 100,000

D = 50,000

Cap = 60,000

Cap = 200,000

$4

$5

$2

$3

$4

$5

$2

$1

$2

Production costs are the same, warehousing costs are the same

$0

Traditional Approach #1:Assign each market to closet WH. Then assign

each plant based on cost.

D = 50,000

D = 100,000

D = 50,000

Cap = 60,000

Cap = 200,000

$5 x 140,000

$2 x 60,000

$2 x 50,000

$1 x 100,000

$2 x 50,000

Total Costs = $1,120,000

Heuristic 1: For each market we choose the cheapest warehouse to source demand. Thus, c1, c2 and c3 would be supplied by w2.

Now for every warehouse choose the cheapest plant, i.e., get 60,000 units from p2 and the remaining 140,000 from p1. The total cost is:

2×50000 + 1×100000 + 2*50000

+ 2×60000 + 5×140000 = 1,120,000.

Example - Heuristics 1

14

Traditional Approach #2:Assign each market based on total landed cost

D = 50,000

D = 100,000

D = 50,000

Cap = 60,000

Cap = 200,000

$4

$5

$2

$3

$4

$5

$2

$1

$2

$0

P1 to WH1 $3P1 to WH2 $7P2 to WH1 $7P2 to WH 2 $4




D = 50,000

D = 100,000

D = 50,000

Cap = 60,000

Cap = 200,000

$4

$5

$2

$3

$4

$5

$2

$1

$2

$0




Market #1 is served by WH1, Markets 2 and 3are served by WH2


D = 50,000

D = 100,000

D = 50,000

Cap = 60,000

Cap = 200,000

$5 x 90,000

$2 x 60,000

$3 x 50,000

$1 x 100,000

$2 x 50,000

$0 x 50,000




Total Cost = $920,000

Heuristic 2: For each market area, choose the warehouse such that the total costs to get delivery from the warehouse is the cheapest, that is, consider the source and the distribution.

Thus, for market area c1, consider the paths p1→w1→c1, p1→w2→c1, p2→ w1→c1, p2→w2→c1. Of these the cheapest is p1→w1→c1 and so choose w1 for c1.

Similarly, choose w2 for c2 and w2 for c3.

The total cost for this strategy is 920,000.

The H The H Example Example -- Heuristics 2 AHeuristics 2 Approachpproach

What is the LP?

kjx

jix

wm

jk

pw

ij

market to warehousefrom flow the

warehouse toplant from flow the

:Let

=

=

What is the LP?

negative-non flows All

000,50

000,100

000,50

000,60

s.t.

225

432450 :min

2,23,1

2,22,1

1,21,1

3,22,21,22,22,1

3,12,11,11,21,1

2,21,2

3,21,23,1

2,11,12,21,22,11,1

=+

=+

=+

++=+

++=+

≤+

+++

+++++

wmwm

wmwm

wmwm

wmwmwmpwpw

wmwmwmpwpw

pwpw

wmwmwm

wmwmpwpwpwpw

xx

xx

xx

xxxxx

xxxxx

xx

xxx

xxxxxx

15

Example – Optimal Solution

The problem described earlier can be framed as the following linear programming problem.

Let

• x(p1,w1), x(p1,w2), x(p2,w1) and x(p2,w2) be the flows from the plants to the warehouses.

• x(w1,c1), x(w1,c2), x(w1,c3) be the flows from the warehouse w1 to customer zones c1, c2 and c3.

• x(w2,c1), x(w2,c2), x(w2,c3) be the flows from warehouse w2 to customer zones c1, c2 and c3

The problem we want to solve is: min 0x(p1,w1) + 5x(p1,w2) + 4x(p2,w1)

+ 2x(p2,w2) + 3x(w1,c1) + 4x(w1,c2)

+ 5x(w1,c3) + 2x(w2,c1) + 2x(w2,c3)

subject to the following constraints:x(p2,w1) + x(p2,w2) ≤ 60000

x(p1,w1) + x(p2,w1) = x(w1,c1) + x(w1,c2) + x(w1,c3)

x(p1,w2) + x(p2,w2) = x(w2,c1) + x(w2,c2) + x(w2,c3)

x(w1,c1) + x(w2,c1) = 50000

x(w1,c2) + x(w2,c2) = 100000

x(w1,c3) + x(w2,c3) = 50000

all flows greater than or equal to zero.

Example – Optimal Solution

The Optimal Strategy

Table 2

Distribution strategy

Facility

Warehouse

P1 P2 C1 C2 C3

W1

W2

140000

0

0

60000

50000

0

40000

60000

50000

0

The total cost for the optimal strategy is 740,000.

Total Cost from plant to warehouse=0x140+2x60=120

60140Requirement

6024P2

20050P1

CapacityW2W1

140

60

Total Cost=3x50+4x40+5x50+1x60=620

5010050Demand

60212W2

140543W1

SupplyC3C2C1

50 50

60

Total Cost=120+620=740,000

40

Simulation Models and Optimization Techniques

• Optimization techniques deal with static models:

1. Deal with averages.

2. Does not take into account changes over time

• Simulation takes into account the dynamics of the system

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• Simulation models allow for a micro-level analysis:

1. Individual ordering pattern analysis

2. Transportation rates structure

3. Specific inventory policies

4. Inter-warehouse movement of inventory

5. Unlimited number of products, plants, warehouses and customers


• The main disadvantage of a simulation model is that it fails to support warehouse location decisions; only a limited number of alternatives are considered

• The nature of location decisions is that they are taken when only limited information is available on customers, demands, inventory policies, etc, thus preventing the use of micro level analysis.


Recommended approach

• Use an optimization model first to solve the problem at the macro level, taking into account the most important cost components

1. Aggregate customers located in close proximity

2. Estimate total distance traveled by radial distance to the market area

3. Estimate inventory costs using the EOQ model

• Use a simulation model to evaluate optimal solutions generated in the first phase.

Supply Chain Benefits and Drawbacks

Less varietyAble to match supply and demand

Shorter lead times, better forecasts

Variability

Loss of controlReduced cost, higher quality

OutsourcingCostQuality

Less varietyFewer partsSimpler ordering

Modular Large number of parts

May not be feasibleMay need absorb functions

Quick responseDelayed differentiationDisintermediation

Long lead times

Traffic congestionIncreased costs

Reduced holding costs

Smaller, more frequent deliveries

Large inventories

Possible

Drawbacks

BenefitsPotential

Improvement

Problem

Table 1

FACILITIES LOCATION

• When does a location decision arise?

• Steps in the facility location study

• Qualitative Facility location techniques

• Quantitative Facility location techniques

• Case Examples

Facility Location

Location of Facilities is a problem associated with the planning phase of a

factory or even a service sector

Facility Location is first planning activity.

It is vital decision so that no change is

needed for years to come

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Why it is so difficult

•Uncertainty in future

•Complexity and conflicting factors associated with the site selection

•Constraints and limitations of resources to produce a site

Example

•Two site locations for a new factory

•Site A is nearer to market but far from the raw material location; site B is otherwise,

•Site A is in rural location with cheap availability of labor; site B is in urban location with better availability of power

Question: Which site should be selected?

Considerations in Plant Location

•No plant can be located at a place, which fulfills all the criteria of perfect location.

•Some factors are to be compromised to take advantage of the other factors

•If raw material is quite bulky and difficult to transport, the plant must be located near to raw material resource: Jamshedpur, Bokaro, Rourkela, NTPC

Following considerations are needed in a plant location:

•Nearness to raw material source

•Nearness to market or consumer

•Good transportation facility

•Availability of fuel and power

•Availability of water

•Cheap availability of land

•Suitable climatic conditions

•Construction cost

•Taxes and Government regulations

•Waste disposal and environment regulations

Comparative Study of rural and urban site

Factors Urban Sub-urban Rural

Land availability less moderate plenty

Connectivity high good less

Labour less moderate plenty

Communication network better good poor

Wages high moderate less

Power better moderate poor

Water good moderate poor

Supporting Industries near by near by far

Market near by moderate far

Training facility available available not available

Security better moderate poor

Expansion difficult moderate easy

Taxes more moderate less

Government support less moderate more

Union problem more moderate less

Waste disposal difficult moderate easy

Environment constraints more moderate less

Financial Incentives less moderate more

Insights

•Urban and rural site have their own strengths and weaknesses

•A compromise could be the sub-urban site which are located near big cities.

•Examples of sub-urban sites are Faridabad, Gurgaon, Sahibabad, Nainietc.

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Selection of Site for XYZ company

Scoring scheme

Comparison Score

If the factor X scores a major factor as compared to factor Y X3

If the factor Y scores a major factor as compared to factor X Y3

If the factor X scores a medium as compared to factor Y X2

If the factor Y scores a medium as compared to factor X Y2

If the factor X scores a minor as compared to factor Y X1

If the factor Y scores a minor as compared to factor X Y1

Factors identified for site selection

Factors Description

A Nearness to market

B Transport facility and logistics support

C Availability of water

D Adequacy in labor availability

E Quality of life

F Competition in local market

G Nearness to market

H Incentive from financial institutions

I Cost of land

B C D E F G H I Scores Percentage

A A3 A1 A3 A3 F2 A2 A2 A3 17 0.218

B C2 B1 B3 F3 G1 H2 I1 4 0.051

C C2 C2 F2 G2 H1 C2 8 0.103

D D3 F3 G2 H2 I2 3 0.038

E E2 G2 H3 I2 2 0.026

F F1 F3 I1 14 0.179

G H2 I1 7 0.090

H H3 13 0.167

I 10 0.128

Total 78 1

A B C D E F G H I Weights

Sites 0.218 0.051 0.103 0.038 0.026 0.179 0.090 0.167 0.128

City1 70 75 80 65 25 65 90 90 80 75.445

City2 40 80 80 60 20 90 80 70 80 65.48

City3 100 90 80 70 30 85 60 90 90 85.24

City4 70 100 45 80 100 40 95 50 70 63.71

City5 55 80 80 70 50 30 30 30 60 48.51

Inventory Positioning and Logistics Cooperation

• Managing inventory in complex supply chain is typically difficult.

• Managing inventory has a significant impact on the customer service level and supply chain systemwide cost.

Types of form of Inventory

• Raw material inventory

• Work-in-process (WIP) inventory

• Finished product inventory

19

Managing Inventory

• Make-to-order

• Make-to-stock

Thank You !

Documents

Network planning