designing the supply chain nsupply chainetwork3936

7/29/2019 Designing the Supply Chain NSupply chainetwork3936

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Designing the Supply Chain

Network

Models from Chapter 4, 5 of Chopra & Meindl

Byung-Hyun [email protected]
mailto:[email protected]:[email protected]


2/23

Outline

Designing the Distribution Network in Supply Chain Factors Influencing Distribution Network Design

Design Options for Distribution Network

Selecting Distribution Network Design

Models for Facility Location and Capacity Allocation


3/23

Designing Distribution Network

Factors Influencing Distribution Network Design Customer needs that are met

Cost of meeting customer needs

Required

Number ofFacilities

Response Time

Number of Facilities

Cost Inventory

Transportation

Facility

Response Time

Total Logistics Costs

Number of Facilities


4/23


Elements of customer service influenced by networkstructure

Response time

Product variety

Product availability Customer experience

Ease with which customer can place and receive order

Order visibility Ability of customer to track their order from placement to

delivery

Returnability Ease with which customer can return unsatisfactory merchandise

and ability of logistics network to handle such returns


5/23


Supply chain costs affected by network structure Inventories

Transportation

Facilities and handling

Information infrastructure


6/23


Possible distribution network design 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 consumer pickup

Retail storage with consumer pickup

Customers walking into store or ordering online


7/23


Manufacturer storage with direct shipping Drop-shipping, demand aggregation, postpone customization

Slow-moving/low-demand/high-value items

Manufacturer

Retailer

Customers

Product Flow Information Flow

Inventory

Transportation


Information

L

H

L

H

Response time

Product variety

Product availability

Customer experience

Order visibility

Returnability

H

H

H

M

L

L


8/23


Manufacturer storage with direct shipping and in-transit merge

e.g. PC from Dell along with Sony monitor

low- to medium-demand and high-value items

Factories

Retailer In-Transit Merge by Carrier

Customers


Inventory

Transportation


Information

L

M

M

H

Response time

Product variety


Customer experience

Order visibility

Returnability

H

H

H

H

L

L


9/23


Distributor storage with carrier delivery High-level inventory at distributor

Medium- to fast-moving items at distributor, loss of aggregation

Factories

Customers

Warehouse Storage byDistributor/Retailer


Inventory

Transportation


Information

M

L

M

M

Response time

Product variety


Customer experience

Order visibility

Returnability

M

M

M

H

M

M


10/23


Distributor storage with last mile delivery Delivering to customers home instead of using package carrier

e.g. grocery industry, water, bag of rice at dense city

Factories

Customers

Distributor/Retailer

Warehouse


Inventory

Transportation


Information

H

H

H

M

Response time

Product variety


Customer experience

Order visibility

Returnability

L

L

L

H

M

M


11/23


Manufacturer or distributor storage with consumerpickup

Reusing existing pick-up site, customer participation

Factories

Retailer

Pickup Sites

Cross Dock DC

Customer Flow

Customers


Inventory

Transportation


Information

?

L

?

H

Response time

Product variety


Customer experience

Order visibility

Returnability

L

H

H

L

H

H


12/23


Comparative performance 1: best performance

Manufacturer

storage with

direct

shipping

Manufacturer

storage with

direct

shipping and

in-transitmerge

Distributor

storage with

carrier

delivery

Distributor

storage with

last mile

delivery

Manufacturer

or distributor

storage with

consumerpickup

Retail

storage with

consumer

pickup

Inventory

Transportation


Information

Response time

Product variety


Customer experience

Order visibility

Returnability

1

4

1

4

4

1

1

4

5

5

1

3

2

4

4

1

1

3

4

5

2

2

3

3

3

2

2

2

3

4

3

5

4

2

2

3

3

1

2

3

1

1

5

5

4

1

1

5

6

2

4

1

6

1

1

4

4

5

1

1


13/23


Performance for different product/customer char. +2: Very suitable, , -2: very unsuitable

Manufacturer

storage with

directshipping

Manufacturer

storage with

direct

shipping andin-transit

merge

Distributor

storage with

carrierdelivery

Distributor

storage with

last miledelivery

Manufacturer

or distributor

storage with

consumerpickup

Retail

storage with

consumerpickup

High-demand product

Medium-demand product

Low-demand product

Very low-demand productMany product source

High product value

Quick desired response

High product variety

Low customer effort

-2

-1

+1

+2-1

+2

-2

+2

+1

-1

0

0

+1-1

+1

-2

0

+2

0

+1

+1

0+2

+1

-1

+1

+2

+1

0

-1

-2+1

0

+1

0

+2

-1

0

+1

+10

-1

-2

+2

-1

+2

+1

-1

-2+1

-1

+2

-1

-2


14/23

Network Design in the Supply Chain

A framework for network design decision

PHASE I

Supply Chain

Strategy

PHASE II

Regional

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, support

required, 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


15/23

Phase I: Supply Chain Strategy

A companys competitive strategy Defining set of customer needs that it seek to satisfy through its

products and services

Value chain perspective

Product development strategy/marketing and sales strategy Supply chain strategyand achieving strategic fit

e.g. Wal-Mart, McMaster Carr, Dell

New

Product

Development

Marketing

and

Sales

Operations Distribution Services

Finance, Accounting, Information Technology, Human Resources

The Value Chain in a Company


16/23

Network Optimization Models

Useful tools for both Phase II and Phase IV

Questions for Phase II: What regions to source

demand in and how to configure network? given,

Regional demand, tariffs, economics of scale, aggregate factor

costs Not necessary to go to detail of specific plant locations

Need to also consider less quantifiable factors such as political

and regulatory climate, competition

Phase IV involves selecting specific facilities andallocating capacity within those selected, given,

Fixed facility cost, transportation cost, production cost, inventory

cost, coordination cost


17/23

Phase II: Regional Facility Configuration

Capacitated plant location model Example: SunOil, a global energy company

The world is divvied into 5 different regions: N. America, S. America,

Europe, Asia, Africa

SunOil has regional demand figures, transport costs, facility costs

and capacities We will ignore tariffs and exchange rate fluctuations for now, and

assume all demand must be met (so we can focus on minimizing

costs)

Question:

Where to locate facilities to service their demand What size to build in the region (small or large), should they locate a

facility there


18/23


Capacitated plant location model n: number of potential plant location

As we are considering two different type

plants (small, large) for each region, n= 10

m: number of markets

Dj: demand from marketj

Ki: capacity of plant i

fi: fixed cost of keeping plant i open

cij: variable cost of sourcing marketj

from plant i

yi = 1 if plant is located at site i,

= 0 otherwise

xij: quantity shipped from plant i to

marketj niy

niyKx

mjDx

ts

xcyf

i

ii

m

jij

j

n

i

ij

n

i

m

j

ijij

n

i

ii

,,1for}1,0{

,,1for

,,1for

..

min

1

1

1 11


19/23



20/23

Phase III: Desirable Sites

Gravity methods for location x,y: Warehouse Coordinates

xn,yn: Coordinates of delivery location n

Dn: Quantity to be shipped to delivery location n

Fn:Annual tonnage to delivery location n

k

n

nnn

nnn

FDd

yyxxd

1

22

min

)()(

Limitions?


21/23

Phase IV: Location Choices

Network optimization model Example: TelecomOne merged with High Optic

They have plants in different cities and service several regions

Supply cities

Baltimore (capacity 18K), Cheyenne (24K), Salt Lake City (27K),

Memphis (22K) and Wichita (31K)

Monthly regional demands

Atlanta (demand 10K), Boston (6K), Chicago (14K), Denver

(6K), Omaha (7K)

They will consider consolidating facilities


22/23


Network optimization model n: number of plant location

m: number of markets

Dj: demand from marketj

Ki: capacity of plant i

cij: variable cost of sourcing

marketj from plant i

xij: quantity shipped from plant i to

marketj

0

,,1for

,,1for

..

min

1

1

1 1

ij

i

m

jij

j

n

i

ij

n

i

m

j

ijij

x

niKx

mjDx

ts

xc


23/23


Considering additional layers: simultaneouslylocating plants and DCs

suppliers plantsDCs

customer1

customer2

customer3

..

min1 11 11 111

ts

xcxcxcyfyft

e

m

j

ejej

n

i

t

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