September 29, 2013

Facility Decisions: Network Design in the Supply Chain - Review Notes

Supply chain network design

During supply chainnetwork design facility related decisions are made. The decisions are
1. What is the role of the facility?

What processes are done at the facility.

2. Location Where should facilities be located?

3. Capacity decision How muchcapacity is to be created
4. Market and supply allocation What markets should each facility serve? Which supply sourcesshould feed each facility?

  Supply chain facilities are manufacturing, storage and transportation-related facities. We may need to think of adding information processing facilities also to them to have a wider view of the facilites used in supply chains. Location of these facilities, capacity of these facilities, capacity allocated to them in an period and role given to them etc. are facility related supply chain decisions. Facility decisions are referred to as supply chain network decision decisions.


Decision regarding role become important in providing flexibility. If facilities can serve demand in a region globally there is more flexibility. Similarly in a multi-product firm, if facilities can produce large number of products, there is flexibility.


Factors Influencing Facility Decisions

Strategic Focus of the Company

Technological Factors

Economic Incentives

Political Factors

Infrastructure

Competition

A Framework for Network Design Decisions

Phase I  Developing Supply Chain Strategy

Phase II. Regional Level Decisions

Phase III. Selecting Desirable Sites in Each Region

Phase IV. Choice of Location


Models for Facility Location and Capacity Allocation

Gravity Location Models
Gravity models are used to find locations thatminimize the cost of transporting raw materials from supply sources to conversion facilities and from them to market serving facilities.
Network Optimization Modesl
Locating plants and warehouses simultaneously
m  number ofmarkets or demand points
n  number of potential factory locations
l number of suppliers
t  number of potential warehouse locations

D annual demand customer j
K  annual capacity of factory at site I
S  annual supply capacity at sup h
W  annual warehouse capacity at site e
F  fixed ann cost of locating plant at site I
f  fixed an cost of locating warehouse
c hi  cost of shipping one unit of supply sourceha to site e
c ie factory I to warehouse e
c ej warehouse e to customer j

Minimize total cost
fixed cost factories fixed cost warehouses  totalcost warehousr to market  total cost factory to factories  total cost suppliers factories


Uncertainty and Network Design

Updated 29.9.2013

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