Supply Chain Management
Supply Chain Management
Network Design and Facility Location
Classical Theories
von Thunen
Agricultural activity occurs in a “limitless plain of equal fertility” with a city in the middle Theorized that:
City price = origin price + transport costs Transport costs = f {weight & distance}
As a result
Products having high weight/value ratio should be produced near the city (see next slide)
Other Contributions
Land values decrease as move from city More intense land utilization near cities
Weber
Classification of Materials as:
Localized vs. Ubiquitous (available everywhere) Pure vs. Weight-Losing
How does a raw material’s status as pure, weight-losing, or weight-gaining influence the facility location decision? A pure raw material is one that loses no weight in manufacturing and, because of this, the processing point can be anywhere, near the raw material source and the market. Weight-losing products lose weight during processing; the processing point should be near their source in order to avoid payment of unnecessary transportation charges. Weight-gaining products gain weight during processing; the processing point should be close to the market.
Calculate MI:
Implications: if MI > 1.0, locate plant nearer to raw materials if MI = 1.0, indifferent if MI < 1.0, locate plant nearer to markets
1
When to plan?
No distribution network currently exists There has been no re-evaluation in 5 years When costs are changing rapidly, especially transport & inventory When markets have shifted. When current distribution economics encourage shifts When there has been a major policy shift in logistics such as in price, customer service, or investment level.
Logistics Strategy
• The objectives of logistics strategy are:
• Minimize Cost • Minimize Investments • Maximize Customer Service Maximize Return on Logistics Assets
INVENTORY DECISIONS
ROLA=Revenue−Costs Assets
LOCATION DECISIONS
TRANSPORT DECISIONS
Network Design
Network Design and Facility Location
Classical Theories
von Thunen
Agricultural activity occurs in a “limitless plain of equal fertility” with a city in the middle Theorized that:
City price = origin price + transport costs Transport costs = f {weight & distance}
As a result
Products having high weight/value ratio should be produced near the city (see next slide)
Other Contributions
Land values decrease as move from city More intense land utilization near cities
Weber
Classification of Materials as:
Localized vs. Ubiquitous (available everywhere) Pure vs. Weight-Losing
How does a raw material’s status as pure, weight-losing, or weight-gaining influence the facility location decision? A pure raw material is one that loses no weight in manufacturing and, because of this, the processing point can be anywhere, near the raw material source and the market. Weight-losing products lose weight during processing; the processing point should be near their source in order to avoid payment of unnecessary transportation charges. Weight-gaining products gain weight during processing; the processing point should be close to the market.
Calculate MI:
Implications: if MI > 1.0, locate plant nearer to raw materials if MI = 1.0, indifferent if MI < 1.0, locate plant nearer to markets
1
When to plan?
No distribution network currently exists There has been no re-evaluation in 5 years When costs are changing rapidly, especially transport & inventory When markets have shifted. When current distribution economics encourage shifts When there has been a major policy shift in logistics such as in price, customer service, or investment level.
Logistics Strategy
• The objectives of logistics strategy are:
• Minimize Cost • Minimize Investments • Maximize Customer Service Maximize Return on Logistics Assets
INVENTORY DECISIONS
ROLA=Revenue−Costs Assets
LOCATION DECISIONS
TRANSPORT DECISIONS
Network Design