Network Design in SC

Network Design in SC
Learning Objectives :
Understanding the role of network design in
SC

Factors influencing SC network design

Develop a framework for making network
design

Optimization of facility location and capacity
allocation decisions
SC Drivers
Facilities Production & storage sites & their
capacities

Inventory RM, W.I.P., FGs

Transportation moving inventory

Information data & analysis concerning facilities,
inventory, transportation and customer management
with the opportunity to make SC more efficient and
responsive
Facilities

SC Network design decisions
Facility Role - What role each facility play? What processes
are performed at each facility?

Facility Location - Where should facilities be located?

Capacity Allocation How much capacity should be
allocated to each facility?

Market and Supply Allocation What markets should
each facility serve? Which supply source should feed each facility?
Why these decisions are
important?

It affects scm performance
Responsiveness
Cost efficiency
Capacity decisions Utilization of resources
Expensive to shut down
Impact other drivers. Also set up constraints
within which the other drivers have to work

Discuss the factors you will consider while
setting up a facility for the following product
make suitable assumptions wherever required
1. Banking software
2. Pesticide
3. Cadbury Dairy Milk
4. New Laptop model
5. Washing machine
6. Peoples car
7. Jeans
8. Medicine of Cancer
9. Steel rods for building construction
10. New brand of ice cream
11. Soap / Toothpaste

Factors Influencing Network
Design
Strategic Competitive strategy
Responsiveness
Brand, closer to market - Boeing in US
Easy access to customers convenience stores say
7/11 v/s Mall

Cost leadership
Toyota US, India etc., Apparel producers Asia
Factors Influencing Network
Design
Technological Factors Flexible / Inflexible
technological requirement
Petrol & / OR Diesel Cars

Macro-economic Factors Tariffs, Tax incentives,
exchange rate, demand risk
Army Machine guns plants

Political Factors
Regulatory permissions FDI allowed only in certain
sectors
Strategic Factors
Offshore Facility : Low cost facility for export production
eg. Export zones, Marks & Spenser Raymond India, L&T Mysore /
Chennai plants , ITC Nepal packaging facility
Strategic Factors
Source Facility : Low cost facility for Global production eg.
Apple Laptops in China, Bulk drugs China, India, Indian leather /
Apparel industry
Strategic Factors
Server Facility : Regional Production Facility. Facilitys
objective is to supply the market where it is located. Because of Tax
incentives, tariff barriers, etc.- Factories in Himachal Pradesh,
Gujarat etc. of Pharma cos., Auto say Hyundai, Toyota,
Electronics Samsung, HUL
Strategic Factors
Contributor Facility : Regional production facility with
development skills. Facility serves local market but also involved
greatly in product customization, process improvement, product
modification or product development.eg. Maruti Udyog, Bata,
Cadbury, McDonald
Strategic Factors
Outpost Facility : Regional production facility built to gain
local skills. Eg India - Biotech cos, BPO, Software development,
Many factories of Japan
Strategic Factors
Lead Facility : Facility that leads in development and
process technologies. Facility with good access to a skilled
workforce and technological resource that creates new products,
processes and technologies for the entire network .Eg. Tata
Motors Buses South America, Africa , Mahindra Scorpio Left
hand drive to right hand drive
Technological Factors
Flexible / Inflexible Technology - If technological
requirement is flexible, facilities can be consolidate to
few to take benefit of economies of scale & Visa Versa.
Eg Production of CD/ DVD

Cost of setting up a facility - If facility set up
involves huge investment, few facilities are set up with
huge capacity eg manufacturing of computer chips but
if it is a small investment, many facilities are set up to
save transportation cost. Eg bottling plants of Coca
Cola.


Macro Economic Factors
Tariffs & Tax Incentives Tariffs, Tax incentives,
Free Trade Zones, Restrictions / limitations eg. BHEL in
Haridwar, ITC exports unit in Nepal

Exchange Rates and Demand Risk Exchange
Rate , demand fluctuations
manufacture in Japan (Yen) and sell in US. ($) / economic
slowdown
Inflexible facilities catering only the local demand - any steep
reduction in demand will leave the facility ideal and visa versa

Other Factors
Political factors Political stability

Infrastructure Factors Availability of good infrastructure
eg. Telecom sector in India
Other Factors
Competitive Factors - Competitors strategy, size
and location
Positive Externalities between firms eg. Silicon Valley in USA,
Chemical plants in Gujrat, Pune Educational hub

Locating to Split Market eg. Service industry say Hospital

Customer Response Time & Local Presence eg. Ice-cream /
Textile

Logistics and Facility Costs eg. Sugar, Cement, Steel, Electricity

Socio Economic factors backward areas J&K
Framework
Competitive Strategy - responsive v/s efficiency

Supply Chain Strategy based on competitive strategy

Regional Facility Configuration markets, regional tariffs,
etc.

Select Desirable Sites - Hard & soft infrastructure

Location Choices Precise location and capacity
Network Design Issues

Do not underestimate the life span of facilities
Future demand , cost, technology change
Do not gloss over the cultural implications
meat processing unit in vegetarian locality
Do not ignore quality of life issues A quality of
life for the workforce
Focus on Tariffs and Tax Incentives when
locating facilities Carefully consider tariffs and tax
incentives.
Decision Models

Consider trade offs during network design
Use design models for deciding
Facility location
Facility capacity
Network gravity or optimization models are
used to design the network.
Will be covered in QT in Semester II

Discuss

How do tariffs and exchange rates affect the
location decision in a supply chain?

Tariffs refer to any duties that must be paid when products
are moved across international, state, or city boundaries. If a
tariff is excessive, it provides a strong disincentive to do
business across borders with entities in that area. The classic
workaround to a high tariff is adding a location inside the
area. Some regions have developed trade agreements that
limit or eliminate the tariff on goods.
Exchange rates specify how much one currency is worth in
terms of another. As one currency gains against another, it
may be beneficial to add/shift production to the area using the
devalued currency. This makes the goods more affordable for
the population. Companies with flexible production
capabilities can shift some production from area to area
depending on the buying power of local markets