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Network Design in a Supply Chain

Students should read pages: 107 – 116, 131-134 Prior to next class. Network Design in a Supply Chain. Outline. A strategic framework for facility location Multi-echelon networks Plant location models . Network Design Decisions. Facility role Facility location Capacity allocation

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Network Design in a Supply Chain

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  1. Students should read pages: 107 – 116, 131-134 Prior to next class Network Design in a Supply Chain

  2. Outline • A strategic framework for facility location • Multi-echelon networks • Plant location models

  3. Network Design Decisions • Facility role • Facility location • Capacity allocation • Market and supply allocation

  4. The Cost-Response Time Frontier Hi Local FG Mix Regional FG Local WIP Cost Central FG Central WIP Central Raw Material and Custom production Custom production with raw material at suppliers Low Low Hi Response Time

  5. Service and Number of Facilities Response Time Number of Facilities

  6. Inventory Facility costs Transportation Costs and Number of Facilities Costs Number of facilities

  7. Total Costs Cost of Operations Facilities Inventory Labor Number of Facilities Cost Build-up as a function of facilities Percent Service Level Within Promised Time Transportation

  8. A Framework for Global Site Location GLOBAL COMPETITION Competitive STRATEGY PHASE I Supply Chain Strategy INTERNAL CONSTRAINTS Capital, growth strategy, existing network TARIFFS AND TAX INCENTIVES PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility REGIONAL DEMAND Size, growth, homogeneity, local specifications PHASE II Regional Facility Configuration COMPETITIVE ENVIRONMENT POLITICAL, EXCHANGE RATE AND DEMAND RISK PHASE III Desirable Sites AVAILABLE INFRASTRUCTURE PRODUCTION METHODS Skill needs, response time PHASE IV Location Choices FACTOR COSTS Labor, materials, site specific LOGISTICS COSTS Transport, inventory, coordination

  9. Network Optimization Models • Allocating demand to production facilities • Locating facilities and allocating capacity • Key Costs: • Fixed facility cost • Transportation cost • Production cost • Inventory cost • Coordination cost Which plants to establish? How to configure the network?

  10. Demand Allocation Model • Which market is served by which plant? xij= Quantity shipped from plant i to customer j cij=cost of producing and shipping one unit from plant i to customer j Dj = Annual demand from market j Ki = capacity of plant i n= number of plants m= number of markets

  11. Plant Location with Single Sourcing yi =1 if plant is located in site i, 0 o/w xij = 1 if market j is supplied by factory i, 0 o/w cij=cost of producing and shipping one unit from site i to customer j Dj = Annual demand from market j Ki = capacity of site i fi = annualized fixed cost of factory i n= number of plants m= number of markets k = max number of plants

  12. Plant Location with Multiple Sourcing Where should we locate plants and which market should each serve? yi =1 if plant is located in site i, 0 o/w xij = Quantity shipped from plant site i to customer j cij=cost of producing and shipping one unit from site i to customer j Dj = Annual demand from market j Ki = capacity of site i fi = annualized fixed cost of factory i n= number of plants m= number of markets k = max number of plants

  13. Locating Plants and Warehouses Simultaneously • How to design the whole supply chain network? Inputs: m= number of markets n= number of potential factories l= number of suppliers t= number of potential warehouse locations Dj= annual demand from customer j Ki = potential capacity of factory at site I Sh = supply capacity at supplier h We= potential warehouse capacity at e Fi = fixed cost of locating a plant at i fe = fixed cost of locating a warehouse at e

  14. Locating Plants and Warehouses Simultaneously… Inputs (cont): chi= cost of shipping one unit from supplier h to plant i cie =cost of producing and shipping one unit from plant i to warehouse e cej =cost of shipping one unit from warehouse e to customer j Decision Variables yi = 1 if factory is located in site i, 0 o/w ye= 1 if warehouse is located in site e, 0 o/w xhi= quantity shipped from supplier h to plant i xie= quantity shipped from plant i to warehouse j xej= quantity shipped from warehouse e to market j

  15. Locating Plants and Warehouses Simultaneously… Objective Function Min:

  16. Locating Plants and Warehouses Simultaneously… Subject To:

  17. Locating Plants and Warehouses Simultaneously… Subject To: (cont)

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