Supply Chain Analytics

Supply Chain Analytics
Predictive and Prescriptive Analytics for operations, logistics and managing
the supply chain
Week 9: Network Design and facility location models (mixed integer
programs)

Supply Chain Management: Strategy,
Planning, and Operation
Seventh Edition, Global Edition
Chapter 5
Network Design in the
Supply Chain
Copyright © 2019 Pearson Education, Ltd.
Copyright © 2019 Pearson Education, Ltd.
Learning Objectives (1 of 2)
5.1 Understand the role of network design in a supply
chain.
5.2 Identify factors influencing supply chain network design
decisions.
5.3 Discuss a framework for making network design
decisions.
5.4 Develop an optimization model to design an regional
network configuration.

Copyright © 2019 Pearson Education, Ltd.
The Role of Network Design (1 of 2)
Network design decisions
How many manufacturing plants, production lines,
distribution centers, cross-docking facilities?
Where should facilities be located?
How much capacity at each facility?
Which products?
What markets?
Copyright © 2019 Pearson Education, Ltd.
Factors Influencing Network Design
Decisions
(1 of 2)
Strategic Factors
Competitive Factors
Positive externalities
Locating to split the market
Political Factors
Infrastructure Factors
Copyright © 2019 Pearson Education, Ltd.
Factors Influencing Network Design
Decisions
(2 of 2)
Customer Response Time and Service Level
Total Logistics Cost
Macroeconomic Factors
Tariffs and tax incentives
Exchange-rate and demand risk
Copyright © 2019 Pearson Education, Ltd.
Framework for Network Design
Decisions
(1 of 4)
Maximize 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
to assign current demand to facilities and identify
transportation lanes

Copyright © 2019 Pearson Education, Ltd.
Framework for Network Design
Decisions
(2 of 4)
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 broad supply strategy
Copyright © 2019 Pearson Education, Ltd.
Framework for Network Design
Decisions
(3 of 4)
Phase II: Define the Regional Facility Configuration
Forecast of the demand by country or region
Identify fixed and variable costs, economies of scale
or scope
Identify regional tariffs, requirements for local
production, tax incentives, and export or import
restrictions
Identify competitors
Identify demand risk, exchange-rate risk, political risk
Copyright © 2019 Pearson Education, Ltd.
Framework for Network Design
Decisions
(4 of 4)
Phase III: Select a Set of Desirable Potential Sites
Hard infrastructure requirements
Soft infrastructure requirements
Phase IV: Location Choices and Market Allocation
Copyright © 2019 Pearson Education, Ltd.
Models for Designing a Regional Network
Configuration
(1 of 2)
Inputs Required By Region
Demand
Desired response time
Fixed cost of opening a facility
Variable cost of labor and material
Inventory holding cost
Transportation cost between pairs of regions
Sale price of product
Taxes and tariffs
Potential facility capacity
Copyright © 2019 Pearson Education, Ltd.
Models for Designing a Regional Network
Configuration
(2 of 2)
Figure 5-3 Cost Data (in Thousands of Dollars) and Demand Data
(in Millions of Units) for SunOil

Copyright © 2019 Pearson Education, Ltd.
Capacitated Plant Location Model (1 of 9)
n = number of potential plant locations/capacity
m = number of markets or demand points
D
j = annual demand from market j
K
i
= potential capacity of plant i
f
i = annualized fixed cost of keeping plant i open
c
ij = cost of producing and shipping one unit from plant i to market j
(cost includes production, inventory, transportation, and tariffs)
yi = 1 if plant i is open, 0 otherwise
x
ij = quantity shipped from plant i to market j
Copyright © 2019 Pearson Education, Ltd.
Capacitated Plant Location Model
= = =
∑ ∑∑ +
n n m
i i ij ij
i i j
Min f y c x
1 1 1
Subject to
{ }
=
=
= =
= =
∈ = ≥
∑ ∑
 

n
ij j
i m
ij i i
j 1
i ij
x D j m
x K y i n
y i n,x
1
for 1, ,
for 1, ,
0,1 for 1, , 0

Copyright © 2019 Pearson Education, Ltd.
Capacitated Plant Location Model (3 of 9)
Figure 5-4 Spreadsheet Area for Decision Variables for SunOil
Copyright © 2019 Pearson Education, Ltd.
Capacitated Plant Location Model (7 of 9)
Copyright © 2019 Pearson Education, Ltd.
Locating Plants and Warehouses
Simultaneously
(1 of 5)
Figure 5-13 Stages in a Supply Network