5.2.sc network design

8/11/2019 5.2.SC Network Design

http://slidepdf.com/reader/full/52sc-network-design 1/24

Network Design in SC



Network Design in SC

Learning Objectives :Understanding the role of network design inSC

Factors influencing SC network design

Develop a framework for making networkdesign

Optimization of facility location and capacityallocation decisions



Facilities



SC Network design decisions

Facility Role - What role each facility play? What processesare performed at each facility?

Facility Location - Where should facilities be located?

Capacity Allocation – How much capacity should beallocated to each facility?

Market and Supply Allocation – What markets shouldeach facility serve? Which supply source should feed each facility?



Why these decisions areimportant?

It affects scm performanceResponsivenessCost efficiency

Capacity decisions – Utilization of resourcesExpensive to shut downImpact other drivers. Also set up constraintswithin which the other drivers have to work



Discuss the factors you will consider whilesetting up a facility for the following product

make suitable assumptions wherever required

1. Banking software2. Pesticide3. Cadbury Dairy Milk4. New Laptop model5. Washing machine6. People’s car 7. Jeans8. Medicine of Cancer9. Steel rods for building construction10. New brand of ice cream11. Soap / Toothpaste



Factors Influencing NetworkDesign

Strategic – Competitive strategyResponsiveness

Brand, closer to market - Boeing in US

Easy access to customers – convenience stores say7/11 v/s Mall

Cost leadership Toyota – US, India etc., Apparel producers – Asia



Factors Influencing NetworkDesign

Technological Factors – Flexible / Inflexibletechnological requirement

Petrol & / OR Diesel Cars

Macro-economic Factors – Tariffs, Tax incentives,exchange rate, demand risk

Army – Machine guns plants

Political FactorsRegulatory permissions – FDI allowed only in certainsectors



Strategic Factors

Offshore Facility : Low cost facility for export productioneg. Export zones, Marks & Spenser – Raymond India, L&T Mysore /Chennai plants , ITC Nepal packaging facility



Strategic Factors

Source Facility : Low cost facility for Global production eg. Apple Laptops in China, Bulk drugs – China, India, Indian leather / Apparel industry



Strategic Factors

Server Facility : Regional Production Facility. Facility’sobjective is to supply the market where it is located. Because of Taxincentives, tariff barriers, etc.- Factories in Himachal Pradesh,Gujarat etc. of Pharma cos., Auto – say Hyundai, Toyota,

Electronics – Samsung, HUL



Strategic Factors

Contributor Facility : Regional production facility withdevelopment skills. Facility serves local market but also involvedgreatly in product customization, process improvement, productmodification or product development.eg. – Maruti Udyog, Bata,

Cadbury, McDonald



Strategic Factors

Outpost Facility : Regional production facility built to gainlocal skills . Eg – India - Biotech cos, BPO, Software development,Many factories of Japan



Technological Factors

Flexible / Inflexible Technology - If technologicalrequirement is flexible, facilities can be consolidate tofew to take benefit of economies of scale & Visa Versa.

Eg – Production of CD/ DVD

Cost of setting up a facility - If facility set upinvolves huge investment, few facilities are set up with

huge capacity eg – manufacturing of computer chips butif it is a small investment, many facilities are set up tosave transportation cost. Eg – bottling plants of CocaCola.



Macro – Economic Factors

Tariffs & Tax Incentives – Tariffs, Tax incentives,Free Trade Zones, Restrictions / limitations eg. BHEL inHaridwar, ITC exports unit in Nepal

Exchange Rates and Demand Risk – ExchangeRate , demand fluctuations

manufacture in Japan (Yen) and sell in US. ($) / economic

slowdownInflexible facilities catering only the local demand - any steepreduction in demand will leave the facility ideal and visa versa



Other Factors

Political factors – Political stability

Infrastructure Factors – Availability of good infrastructure

eg. Telecom sector in India



Other Factors

Competitive Factors - Competitor’s strategy, sizeand location

Positive Externalities between firms eg. Silicon Valley in USA,Chemical plants in Gujrat, Pune Educational hub

Locating to Split Market eg. Service industry say Hospital

Customer Response Time & Local Presence eg. Ice-cream /

Textile

Logistics and Facility Costs eg. Sugar, Cement, Steel, Electricity

Socio Economic factors – backward areas – J&K



Framework

Competitive Strategy - responsive v/s efficiency

Supply Chain Strategy – based on competitive strategy

Regional Facility Configuration – markets, regional tariffs,etc.

Select Desirable Sites - Hard & soft infrastructure

Location Choices – Precise location and capacity



Network Design Issues

Do not underestimate the life span of facilities – Future demand , cost, technology change

Do not gloss over the cultural implications – meat processing unit in vegetarian locality

Do not ignore quality of life issues – A quality oflife for the workforce

Focus on Tariffs and Tax Incentives whenlocating facilities – Carefully consider tariffs and taxincentives.



Decision Models

Consider trade offs during network designUse design models for deciding

Facility locationFacility capacity

Network gravity or optimization models are

used to design the network.Wil l be co ve red in QT in Sem es t e r II



Tariffs refer to any duties that must be paid when productsare moved across international, state, or city boundaries. If atariff is excessive, it provides a strong disincentive to dobusiness across borders with entities in that area. The classic

workaround to a high tariff is adding a location inside thearea. Some regions have developed trade agreements thatlimit or eliminate the tariff on goods.Exchange rates specify how much one currency is worth interms of another. As one currency gains against another, itmay be beneficial to add/shift production to the area using thedevalued currency. This makes the goods more affordable forthe population. Companies with flexible productioncapabilities can shift some production from area to areadepending on the buying power of local markets

5.2.sc network design

Documents