W1: Network Design

Question 1

Sustainability: 3 pillar model

Answer 1

Social
Environmental
Economic

Question 2

Supply chain network design (SCND): diagram

Answer 2

Suppliers → plants → distribution centers → customers
Recovery plants
Collection centers

Question 3

SCND goals

Answer 3

Design an effective network structure
design of a new chain
Re-engineer an existing network to increase its total value

Question 4

SCND decisions

Answer 4

Number of chain tiers
Location and capacities of facilities in each tier
Flow of material/products throughout the network

Question 5

SCND decision are influenced by

Answer 5

Market and business conditions
(Usually determine some of the variables)

Question 6

SCND: decision levels

Answer 6

Strategic decisions
Tactical decisions
Operations decisions

Question 7

SCND: strategic decisions

Answer 7

Characteristics of facilities: number, size, types, locations, capacity, quality, types of technology, decomposition point
Costly decisions with long lasting effects

Question 8

SCND: tactical decisions

Answer 8

Material flow: shipment, inventory
Transportation mode
Inventory volume
IT
Knowledge management

Question 9

SCND: operational decisions

Answer 9

Short term decisions
Pricing
Fulfillment of customer demands
Provided service level

Question 10

SCND vs. Strategic supply chain planning

Answer 10

Synonyms

Question 11

Tactical and operational decisions with regards to location decisions

Answer 11

No location decisions made on tactical or operational
Deacons are strongly related o and influenced by location decisions
inventory control prices
Chosen transportation modes and capacities
Warehouse layout and management
Vehicle routing

Question 12

Role of the network design

Answer 12

Facility role assignment
Facility location
Capacity allocation to each facility
Market & supply allocation to each facility
- these decisions affects one another!

Question 13

Facility role assignment

Answer 13

What role should each facility play
What processes are performed at each facility

Question 14

Facility location

Answer 14

Long term impact
Where should facilities be located

Question 15

Capacity allocation to each facility

Answer 15

Medium term impact
How much capacity should be allocated to each facility

Question 16

Marker & supply allocation to each facility

Answer 16

Reconsider regularly
What markets should each facility serve which supply sources should feed each facility

Question 17

Factors influencing network design

Answer 17

Strategies factors
Technological factors
Macroeconomic factors
Political factors
Customer response time and local presence
Infrastructure factors
Logistics and facility costs
Competitive factors

Question 18

Factors influencing network design: strategic factors

Answer 18

Competitive strategy
Focus on cost leadership: low cost locations
Focus on responsiveness: locate facilities closer to market
Different facilities in different countries with different roles may best support strategic objectives (Zara)
Ex. Convenience store vs discount stores

Question 19

Factors influencing network design: technological factors

Answer 19

Available production technology
Significant economies of scale: few high-capacity locations) (ex. Computer chips)
Low fixed costs: many local facilities (ex. bottling plants)

Question 20

Factors influencing network design: macroeconomic factors

Answer 20

Factors that are not internal to an individual firm
Especially relevant for global trade
Tariffs and tax incentives
Exchange rate and demand risk

Question 21

Tariffs, tax incentives, free trade zones

Answer 21

Tariffs: duties/payments for moving products across borders, high tariffs lead to more production locations
Tax incentives: encourage locating facilities in certain areas: very influential
Free trade zone: relax duties & tariffs for production used primarily for export, in developing countries

Question 22

Exchange rate and demand risk

Answer 22

Limited risks/lossses via financial instruments
Take advantage of exchange rate fluctuations: rate rises=you earn less dollars per sale
Suitably designed SCN, overcapacity used in a flexible way
Freight and fuel costs

Question 23

Factors influencing network design: political factors

Answer 23

Political stability (hard to quantify): cost effective to build in an insurable region but riskier)
Firms prefer to build in a stable region
GPRI: Global political risk index: indicator used when investing in emerging markets
Implement stability, take onto consideration tariffs

Question 24

Factors influencing network design: customer response time and local presence

Answer 24

Locate close to customers if you are looking for short response times
Use of fast transportation may allow to build fewer facilities

Question 25

Factors influencing network design: infrastructure factors

Answer 25

Availability of good infrastructure Ex. Sites, labor, proximity to transportation terminals

Question 26

Factors influencing network design: logistics and facility costs

Answer 26

Total logistics costs = inventory + transportation + facility costs Number of facilities should equal at least number minimizing total logistics costs You need less distribution centers than you think

Question 27

Factors influencing network design: competitive factors

Answer 27

Strategy, size, and location of competitors Fundamental decision: locate close to or far from competitor Positive externalities or no positive externalities between firms

Question 28

Positive externalities between firms

Answer 28

Collocation benefits them all, locate close to one another Ex/ retail stores in a mall

Question 29

No positive externalities between firms

Answer 29

No reason to locate together Locate to capture largest possible market share Simplistic model by Tirol

Question 30

Simplistic model by Tirol

Answer 30

2 firms locate on a line, compete on distance to customer, customers are uniformly distributed Optimal location based on distance: both in the middle Optimal location based on price: position at 0 and 1

Question 31

Framework for network design decisions

Answer 31

Phase 1: define a supply chain strategy/design Phase 2: define the regional facility configuration Phase 3: select a set of desirable potential sites Phase 4: location choices

Question 32

Network design decisions: phase 1 objective

Answer 32

Define a supply chain strategy/design Objective: define brand supply chain design including determining stages in the supply chain In-house or outsourcing of supply chain functions

Question 33

Network design decisions: phase 1 aspects and requirements

Answer 33

Definition of the firm’s competitive strategy (customer needs to satisfy) Specify required capabilities of supply chain (support competitive strategy) Forecast the likely evolution of global competition Identify constraints on available capital and how growth will be accomplished (acquire or build facilities, partnering)

Question 34

Network design decisions: phase 2 objective

Answer 34

Define the regional facility configuration Objective: identify regions where facilities will be located Potential roles of facilities Approximate number and capacities of facilities

Question 35

Network design decisions: phase 2 aspects and requirements

Answer 35

Forecast of the demand by country or region: homogeneity or variability of customer requirements across regions, homogeneity favors large consolidated facilities Economies of scale or scope (serve many markets) Relevant risks of regional markets (demand, exchange rate, political) Tariffs, requirements for local production, tax incentives, export/import restrictions Identify competitors (proximity to them) Desired response time and logistics costs per market

Question 36

Network design decisions: phase 3 objective

Answer 36

Select a set of desirable potential sites Objective: do this within each region where facilities are to be located

Question 37

Network design decisions: phase 3 aspects and requirements

Answer 37

Hard infrastructure requirements: availability of suppliers, transportation services, warehousing facilities Soft infrastructure requirements: availability of skilled workforce, workforce turnover

Question 38

Network design decisions: phase 4 objective

Answer 38

Location choices Objective: select precisely location and capacity allocation for each facility

Question 39

Network design decisions: phase 4 aspects and requirements

Answer 39

Expected margin and demand per market Various logistics and facility costs Taxes and tariffs at each location

Question 40

Overall goal for facility location and capacity allocation

Answer 40

Maximize profitability of the supply chain while providing customers with the appropriate responsiveness Revenues: product sales Costs: facilities, labor, transport, material, inventory

Question 41

Network design models are used to

Answer 41

Decide on locations and capacities (long term) Assign demand to facilities and identify transportation lanes (medium term) Note: Many trade-offs must be considered during network design: facility costs vs. transportation costs & response time

Question 42

Important information to know

Answer 42

Location of supply sources and markets Location of potential facility sites Facility, labor and material cost by site Transportation costs between each pari of sites Inventory costs by site and as a function of quantity Sale price of products in different regions Taxes and tariffs Desired response tine and other service factors