Network Design

Chapter 05

PGDSCMPost Graduate Diploma in Supply Chain Management

5.1 The role of network design in the supply chain

5.2 Factors influencing network design decisions

5.3 Framework for network design decisions

5.4 Making network design decisions in practice

5.5 Global supply chain network design

5.6 Managing risk in global supply chain

Network Design

Facility role What role, what processes?

Facility location Where should facilities be located?

Capacity allocation How much capacity at each facility?

Market and supply allocation What markets? Which supply sources?

Network Design Decisions

Strategic factors

Technological factors

Macroeconomic factors Tariffs and tax incentives

Exchange-rate and demand risk

Freight and fuel costs

Political

Contd…

Factors Influencing

Network Design Decisions

Factors Influencing

Network Design Decisions

Infrastructure factors

Competitive factors

Positive externalities between firms

Locating to split the market

Customer response time and local presence

Logistics and facility costs

Factors Influencing

Network Design Decisions

Framework for Network Design Decisions

Framework for Network Design Decisions

Phase I: Define a supply chain strategy/design

Clear definition of the firm’s competitive strategy

Forecast the likely evolution of global competition

Identify constraints on available capital

Determine growth strategy

What role do socio-economic factors play in the selection of the

facility location?

How do state policies aimed at promoting balanced regional

development, shape the supply chain network designs?

Socio Economic Factors in Choice of Facility

Location

Phase II: Define the regional facility configuration

Forecast of the demand by country or region

Economies of scale or scope

Identify demand risk, exchange-rate risk, political risk, tariffs,

requirements for local production, tax incentives, and export or

import restrictions

Identify competitors

Framework for Network Design Decisions

Phase III: Select a set of desirable potential sites

Hard infrastructure requirements

Soft infrastructure requirements

Phase IV: Location choices

Framework for Network Design Decisions

Maximise the overall profitability of the supply chain network

while providing customers with the appropriate responsiveness

Many trade-offs during network design

Network design models used to decide on locations and

capacities and to assign current demand to facilities

Models for Facility Location and Capacity

Allocation

Do not underestimate the life span of facilities

Do not gloss over the cultural implications

Do not ignore quality-of-life issues

Focus on tariffs and tax incentives when locating facilities

Making Network Design Decisions in

Practice

Extends the definition of domestic supply chain network design to include

selection of facilities at international locations, and

the special globalisation factors this involves.

Global supply chains are more difficult to manage than domestic supply chains

Carry unique risks that influence performance, including variability and uncertainty in currency exchange rates, economic and political instability, and changes in the regulatory environment

GLOBAL SUPPLY CHAIN NETWORK

DESIGN

Year Country Event Impact

2002 United states West coast port strike $11-$22 billion

2008 Thailand Airport closure $8.5 billion

2010 Worldwide Piracy and hijacking of ships $7-$12 billion

2011 Japan Earthquake/tsunami $210 billion

2011 Thailand Floods $30 billion

2011 New Zealand Earthquake $20 billion

2011 United states Tornado $15 billion

2011 Australia Floods $7 billion

2012 Egypt Ship re-routed to avoid piracy $642 million from suez

canal fees

MANAGING RISK IN GLOBAL SUPPLY

CHAIN

Table 1: Disruptive events and their financial impacts

Supply Chain Risks

STRATEGY FOR MANAGING SUPPLY

CHAIN MANAGEMENT RISK

Thank you!