Network design


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  • Notes: Increasing the number of facilities moves them closer to the end consumer. This reduces the response time. As Amazon has built warehouses, the average time from the warehouse to the end consumer has decreased. McMaster-Carr provides 1-2 day coverage of most of the U.S from 6 facilities. W.W. Grainger is able to increase coverage to same day delivery using about 370 facilities.
  • Network design

    1. 1. Facility DecisionsNetwork Design in a Supply Chain 1
    2. 2. The Role of Distributionin the Supply Chain x Distribution: the steps taken to move and store a product from the supplier stage to the customer stage in a supply chain x Distribution directly affects cost and the customer experience and therefore drives profitability x Choice of distribution network can achieve supply chain objectives from low cost to high responsiveness x Examples: Wal-Mart, Dell, Proctor & Gamble, Grainger 2
    3. 3. Factors InfluencingDistribution Network Design x Distribution network performance evaluated along two dimensions at the highest level: – Customer needs that are met – Cost of meeting customer needs x Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service 3
    4. 4. Factors InfluencingDistribution Network Designx Elements of customer service influenced by network structure: – Response time – Product variety – Product availability – Customer experience – Order visibility – Returnabilityx Supply chain costs affected by network structure: – Inventories – Transportation – Facilities and handling 4
    5. 5. Service and Number of Facilities (Fig. 4.1)Number ofFacilities Response Time 5
    6. 6. Design Options for aDistribution Network x Manufacturer Storage with Direct Shipping x Manufacturer Storage with Direct Shipping and In-Transit Merge x Distributor Storage with Carrier Delivery x Distributor Storage with Last Mile Delivery x Manufacturer or Distributor Storage with Consumer Pickup x Retail Storage with Consumer Pickup x Selecting a Distribution Network Design 6
    7. 7. Manufacturer Storage withDirect Shipping (Fig. 4.6) Manufacturer Retailer Customers Product Flow Information Flow 7
    8. 8. In-Transit Merge Network (Fig. 4.7) FactoriesRetailer In-Transit Merge by Carrier Customers Product Flow Information Flow 8
    9. 9. Distributor Storage withCarrier Delivery (Fig. 4.8) Factories Warehouse Storage by Distributor/Retailer Customers Product Flow Information Flow 9
    10. 10. Distributor Storage withLast Mile Delivery (Fig. 4.9) Factories Distributor/Retailer Warehouse Customers Product Flow Information Flow 10
    11. 11. Manufacturer or Distributor Storage withCustomer Pickup (Fig. 4.10) FactoriesRetailer Cross Dock DC Pickup Sites Customers Customer Flow Product Flow Information Flow 11
    12. 12. Distribution Networks in Practice x The ownership structure of the distribution network can have as big as an impact as the type of distribution network x The choice of a distribution network has very long-term consequences x Consider whether an exclusive distribution strategy is advantageous x Product, price, commoditization, and criticality have an impact on the type of distribution system preferred by customers 12
    13. 13. Network Design Decisionsx Facility role - flexibility of Toyota since 1997x Facility location - : a single warehouse in Seattlex Capacity allocation - Allocating too much  poor utilization - Allocating too little  poor responsiveness, high costx Market and supply allocation - : built new warehouses due to grown markets 13
    14. 14. Factors Influencing Network DesignDecisionsx Strategic – Cost vs. Responsiveness ex) Apparel producers, Convenience stores, Discount storesx Technological – Economies of scale  few high-capacity locations ex) Manufacturer of computer chips – Lower fixed costs  many local facilities ex) Bottling plants for Coca-Colax Macroeconomic – Tariffs, Tax incentives, Exchange rate and Demand riskx Political 14
    15. 15. Factors Influencing Network DesignDecisions (continued)x Infrastructure – availability of sites & labor – proximity to transportation terminals, rail service, airports and seaports – highway access, congestion, local utilitiesx Competitive – Close vs. Far ex) Retail stores in a mall, Supermarketsx Logistics and facility costs 15