Topics: Variable cost, Total cost, Costs Pages: 28 (17627 words) Published: October 31, 2014
CHAPTER FIVE ------------------------------- Network Design in the Supply Chain 5.1 The Role of Network Design in the Supply Chain 5.2 Factors Influencing Network Design Decisions 5.3 A Framework for Network Design Decisions 5.4 Models for Facility Location and Capacity Allocation 5.5 Making Network Design Decisions in Practice 5.6 Summary of Learning Objectives Discussion Questions Exercises Bibliography Case Study Managing Growth at SportStuff.com Learning Objectives After reading this chapter, you will be able to Understand the role of network design in a supply chain. Identify factors influencing supply chain network design decisions. 3. Develop a framework for making network design decisions. 4. Use optimization for facility location and capacity allocation decisions. In this chapter, we provide an understanding of the role of network design within a supply chain. We focus on the fundamental questions of facility location and capacity allocation when designing a supply chain network. We identify and discuss the role of various factors that influence the facility location and capacity allocation decision. We then establish a framework and discuss various solution methodologies for facility location and capacity allocation decisions in a supply chain. 5.1 THE ROLE OF NETWORK DESIGN IN THE SUPPLY CHAIN Supply chain network design decisions include the location of manufacturing, storage, or transportation-related facilities and the allocation of capacity and roles to each facility. Supply chain network design decisions are classified as follows Facility role What role should 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 sources should feed each facility All network design decisions affect each other and must be made taking this fact into consideration. Decisions concerning the role of each facility are significant because they determine the amount of flexibility the supply chain has in changing the way it meets demand. For example, Toyota has plants located worldwide in each market that it serves. Prior to 1997, each plant was only capable of serving its local market. This hurt Toyota when the Asian economy went into a recession in the late 1990s. The local plants in Asia had a lot of idle capacity that could not be used to serve other markets that had excess demand. Toyota has now added flexibility to each plant to be able to serve markets other than the local one. This additional flexibility helps Toyota deal more effectively with changing global market conditions. Facility location decisions have a long-term impact on a supply chains performance because it is very expensive to shut down a facility or move it to a different location. A good location decision can help a supply chain be responsive while keeping its costs low. Toyota, for example, built its assembly plant in the United States in Lexington, Kentucky, in 1988 and has used the plant since then. The Lexington plant proved very profitable for Toyota when the Yen strengthened and cars produced in Japan were too expensive to be cost competitive with cars produced in the United Sates. The plant allowed Toyota to be responsive to the American market while keeping costs low. In contrast, a poorly located facility makes it very difficult for a supply chain to perform close to the efficient frontier. For example, Amazon.com found it very difficult to be cost effective in supplying books throughout the United States when it had a single warehouse in Seattle. As a result, the company has added warehouses located in other parts of the country. Capacity allocation decisions also have a significant impact on supply chain performance. Whereas capacity allocation can be altered more easily than location, capacity...
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