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Unit-II Network design in the supply chain

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Role of network design

For a trade-off between efficiency and responsiveness:

• How to get the supply and which suppliers should deliver which facility

• !here to produce and with what capacities

• !here to store and how to transport

• How to "arket and which facility should deliver or "eet the de"and for

which "arket

• !hat are the constraints in each function

• How to e#ploit econo"ies of scale and scope

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 Network design decisions

• Facility role

• Facility location

• %apacity allocation

• &arket and supply allocation

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Factors influencing network design decisions

• (trategic issues

• )echnology

• &acroecono"ic conditions• *olitical situations

• Infrastructure

• %o"petition

• +ogistics and facility costs

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)he cost-response ti"e frontier 

+ocal F

&i#

Regional F

+ocal !I*%entral F

%entral !I*

%entral Raw &aterial and %usto" production

%usto" production with raw "aterial at suppliers

%ost

Response ti"e   Hi  Low

 Low

 Hi 

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(ervice and nu"ber of facilities

 Nu"ber of facilities

Responseti"e

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*ercent service levelwithin pro"ised ti"e

)ransportation

%ost build-up as a function of facilities

   %  o  s   t  o   f  o  p  e

  r  a   t   i  o  n  s

 Nu"ber of facilities

Inventory

Facilities

)otal costs

+abour 

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Facility location and de"and allocation

1 Factor rating "ethod 2site selection3

$ %entre of gravity "ethod 2site selection3

' +oad-distance "ethod 2site selection3

, )ransportation "odel 2de"and allocation3

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Factor rating "ethod

1 Identify and list out all relevant factors for location decision

$ 5stablish the relative i"portance of each factor 2nor"ali6ation3

' Rate the perfor"ance of each location using a rating"echanis"

, %o"pute a total score and rank the"7 819 being the highest

 Note: %ost based analysis7 in addition to the above7 will help

"aking better decisions

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%entre of gravity "ethod

!hen 8distance 2pro#i"ity to the "arket39 is a pri"e concern 2"ini"i6es the distance

travelled3:

 de"and or supply points are represented on %artesian coordinate

 weights are assigned to the" in ter"s of ;uantu" of supply or de"and per unit ti"e

)he coordinates of centre of gravity are:

<c = > #iwi ? > wi  and @c = > yiwi ? > wi  7 i = 1 to n

 Note: infeasible site 2land ac;uisition?govt regulation etc3 "ay co"e up as a result so a

few alternatives near that area should be evaluated to co"e to a decision

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+oad-distance "ethod

!hen 8distance 2pro#i"ity to the "arket39 is a pri"e concern 2"ini"i6es the

distance travelled3 and have few proposed locations which need to be evaluated:

BiC = D2#i E < C3$  2yi E @ C3$

+B C 2total load-distance3 = > BiC!i

!here7

BiC is the distance between e#isting de"and?supply point and proposed facility

2#i7 yi3 are the de"and or supply points

2< C7 @ C3 are the proposed locations

!i is the de"and at ith "arket

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Gpti"i6ation 2transportation3 "odel

%apacity?de"and allocation "odel:

 obCective is to "ini"i6e cost?"a#i"i6e profit?capacity utili6ation etc

 de"and?re;uire"ent and supply?availability should "atch 2balanced3

  unbalanced cases - if de"and?supply is "ore than supply?de"and

then du""y supply?de"and point should be added with 6ero

transportation costs and assigned value with the difference between

de"and and supply

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Uncertainties in network design•

(upply chain design decisions include invest"ents in nu"ber and si6eof plants7 nu"ber of trucks7 nu"ber of warehouses etc

• )hese decisions cannot be easily changed in the short- ter"

• )here will be a good deal of uncertainty in de"and7 prices7 e#change

rates and the co"petitive "arket over the lifeti"e of a supply chain

network 

(trategy to deal with uncertainties 2de"and7 supply7 price etc3: building

fle#ibility into supply chain operations allows the supply chain to deal

with uncertainty in a "anner that will "a#i"i6e profits1'

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&aking supply chain designdecisions under uncertainty

• %o"bine strategic planning and financial planning

during network design

• Use "ultiple "etrics to evaluate supply chain networks

• Use financial analysis as an input to decision "aking7

not as the decision-"aking process• Use esti"ates along with sensitivity analysis

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