Supply Chain Management: Facility Location

Supply Chain Management
Facility Location
2007 Pearson Education
Facility Location
Facility
oPlaces where inventory is stored, assembled or fabricated oProduction sites and storage sites
Where should a plant or service facility be located?

Need to produce close to supplier as well as customers.
Need to locate near the appropriate labour pool to take advantage of low wages and high technical skills
Profit-oriented organization Non-profit organization

Make decision on profit potential

Balance between cost and level of customer service
Importance of Facility Location

Facility Location decisions are part of the companys strategy. Infrequent but expensive. Reasons for the importance: Facility Location requires large investment that can not be recovered.
Facility Location decisions affect the competitive capacity of the company.

All areas of the company are affected by Facility Location: Operations, Business Development, Human Resources, Finance, etc.
Importance of Facility Location

The facility location decisions affect not only costs but the companys income:
For a service business, market proximity is critical to determine the capacity to attract customers. For a manufacturing business, facility location affects product delivery time and level of customer service, which affects sales.
Regarding costs, facility location affects a great variety of them:

Land costs. Labor costs. Raw materials. Transportation and distribution
2007 Pearson Education 4-4
Facility Location
Factors Affecting Location Decisions
Proximity to Customers Proximity to Suppliers Business Climate Total Cost Infrastructure Quality of Labour Other Facilities Political Stability Government Barriers Environmental Regulation
Government Barriers
Host Community
Designing the Distribution Network in Supply Chain
4-6
Outline
The Role of Distribution in the Supply Chain Factors Influencing Distribution Network Design Design Options for a Distribution Network
4-7
The Role of Distribution in the Supply Chain

Distribution: the steps taken to move and store a product from the supplier stage to the customer stage in a supply chain Distribution directly affects cost and the customer experience and therefore drives profitability Choice of distribution network can achieve supply chain objectives from low cost to high responsiveness Examples: Wal-Mart & Dell
4-8
Factors Influencing Distribution Network Design

Distribution network performance evaluated along two dimensions at the highest level:
Customer needs that are met Cost of meeting customer needs
Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service
4-9
Factors Influencing Distribution Network Design

Elements of customer service influenced by network structure:
Response time Product variety Product availability Customer experience Order visibility Returnability
4-10
Supply chain costs affected by network structure

Facilities and handling Inventories Transportation Information
4-11
Service and Number of Facilities

Number of Facilities
Response Time
Facility Costs and Number of Facilities

Facility Costs
Number of facilities
Inventory Costs and Number of Facilities

Inventory Costs
Transportation Costs and Number of Facilities

Transportation Costs
Total Costs Related to Number of Facilities

Total Costs
Total Costs
Facilities Inventory
Transportation
Number of Facilities
Design Options for a Distribution Network

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 Customer Pickup
Retail Storage with Consumer Pickup
4-17

Manufacturer
Retailer
Customers
Product Flow Information Flow


Cost Factor
Inventory
Performance
Lowest Costs because of aggregation.
Transportation
Facilities & Handling
Higher Transportation Cost.

Lower Facility Cost. Saving on handling cost if manufacturer can manage small shipment or can ship from assembly line.
Information
Significant investment to integrate manufacture and retailer
4-19
Manufacture Storage with Direct Shipping and In-Transit Merge Network

Factories
Retailer
In-Transit Merge by Carrier
Customers

Manufacture Storage with Direct Shipping and In-Transit Merge Network Cost Factor
Inventory
Performance
Similar to drop-shipping.
Transportation
Somewhat lower cost than drop-shipping

Handling cost higher than drop-shipping at carrier. Receiving cost lower at customer.
Information
Somewhat higher than drop-shipping.
4-21

Factories
Warehouse Storage by Distributor/Retailer
Customers

Cost Factor
Inventory Transportation
Performance
Higher than Manufacturer Storage. Lower than manufacturer storage
Somewhat higher than manufacturer storage.
Information
Simpler infrastructure compared to manufacturer storage
4-23

Factories
Distributor/Retailer Warehouse
Customers
Cost Factor
Performance
Higher than distributor storage with package carrier delivery. Higher than any other distribution option.
Facility costs is higher than manufacturer storage or distributor storage with package carrier.
Information
Similar to distributor storage with package carrier delivery.
4-25

Factories
Retailer
Cross Dock DC
Pickup Sites
Customers Customer Flow Product Flow Information Flow
4-26

Cost Factor
Performance
? ?
Information
4-27
Retail Storage at Consumer Pickup Site
Cost Factor
Inventory Transportation Facilities & Handling
Performance
Higher than all other options. Lower than all other options. Higher than all other options.
Information
Some investment is required for online and phone order.
4-28
Comparative Performance of Delivery Network Designs

Retail Storage with Customer Pickup Manufacturer Storage with Direct Shipping Manufacturer Storage with InTransit Merge Distributor Storage with Package Carrier Delivery Distributor storage with last mile delivery Manufacturer storage with pickup
Response Time
Product Variety Product Availability Customer Experience Order Visibility Returnability Inventory Transportation Facility & Handling Information 2007 Pearson Education
1 correspond to the strongest performance and 6 the weakest performance
4-29
Comparative Performance of Delivery Network Designs

Response Time
Product Variety Product Availability Customer Experience Order Visibility Returnability Inventory Transportation Facility & Handling Information 2007 Pearson Education
1
4 4
4
1 1
4
1 1
3
2 2
2
3 3
4
1 1 5 6 2 1 1 5 5
4-30
5
1 1 4 1 6 1
4
5 5 1 4 1 4
3
4 5 1 3 2 4
2
3 4 2 2 3 3
1
2 3 3 5 4 2
1 correspond to the strongest performance and 6 the weakest performance
Linking Product Characteristics and Customer Preferences to Network Design

High demand product
+2 +1 -1 -2 +1 -1 +2 -1 -2
4-31
Medium demand product
Low demand product
Very low demand product
Many product sources
High product value
Quick desired response
High product variety
Low customer effort
+2= very suitable, +1= somewhat suitable, 0= natural -1= somewhat unsuitable , -2= very unsuitable
Linking Product Characteristics and Customer Preferences to Network Design

High demand product
+2 +1 -1 -2 +1 -1 +2 -1 -2
-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 +1 0 -2 -2 +2 -1
4-32
Medium demand product
Low demand product
Very low demand product
Many product sources
High product value
Quick desired response
High product variety
Low customer effort
+2= very suitable, +1= somewhat suitable, 0= natural -1= somewhat unsuitable , -2= very unsuitable

Supply Chain Management: Facility Location

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Supply Chain Management

2007 Pearson Education

Where should a plant or service facility be located?

Profit-oriented organization Non-profit organization

Make decision on profit potential

Importance of Facility Location

Facility Location decisions affect the competitive capacity of the company.

2007 Pearson Education

Importance of Facility Location

Regarding costs, facility location affects a great variety of them:

2007 Pearson Education

Designing the Distribution Network in Supply Chain

2007 Pearson Education

2007 Pearson Education

The Role of Distribution in the Supply Chain

2007 Pearson Education

Factors Influencing Distribution Network Design

2007 Pearson Education

Factors Influencing Distribution Network Design

2007 Pearson Education

Supply chain costs affected by network structure

2007 Pearson Education

Service and Number of Facilities

Facility Costs and Number of Facilities

Inventory Costs and Number of Facilities

Transportation Costs and Number of Facilities

Total Costs Related to Number of Facilities

Design Options for a Distribution Network

Distributor Storage with Carrier Delivery

Distributor Storage with Last Mile Delivery

Retail Storage with Consumer Pickup

2007 Pearson Education

Manufacturer Storage with Direct Shipping

Product Flow Information Flow

Manufacturer Storage with Direct Shipping

Higher Transportation Cost.

Significant investment to integrate manufacture and retailer

2007 Pearson Education

Manufacture Storage with Direct Shipping and In-Transit Merge Network

In-Transit Merge by Carrier

Product Flow Information Flow

Somewhat lower cost than drop-shipping

Somewhat higher than drop-shipping.

2007 Pearson Education

Distributor Storage with Carrier Delivery

Warehouse Storage by Distributor/Retailer

Distributor Storage with Carrier Delivery

Facilities & Handling

Somewhat higher than manufacturer storage.

Simpler infrastructure compared to manufacturer storage

2007 Pearson Education

Distributor Storage with Last Mile Delivery

Distributor Storage with Last Mile Delivery

Facilities & Handling

Similar to distributor storage with package carrier delivery.

2007 Pearson Education

Manufacturer or Distributor Storage with Customer Pickup

Customers Customer Flow Product Flow Information Flow

2007 Pearson Education

Manufacturer or Distributor Storage with Customer Pickup

Facilities & Handling

2007 Pearson Education

Retail Storage at Consumer Pickup Site