Detailed Summary of Chapter 5_ Network Design in the Supply Chain.pdf

Detailed Summary of Chapter 5: Network Design in the Supply Chain 5.1 The Role of Network Design in the Supply Chain Network design in supply chain management involves decisions regarding the role, location, and capacity of manufacturing, storage, and transportation facilities. These decisions det...

Detailed Summary of Chapter 5: Network Design in the Supply Chain 5.1 The Role of Network Design in the Supply Chain Network design in supply chain management involves decisions regarding the role, location, and capacity of manufacturing, storage, and transportation facilities. These decisions determine the overall configuration and constraints of the supply chain and significantly impact its performance. Key Points: - Facility Role: Decides what processes are performed at each facility. - Facility Location: Determines where facilities should be located. - Capacity Allocation: Allocates the right amount of capacity to each facility. - Market and Supply Allocation: Defines which markets each facility will serve and the supply sources feeding each facility. Example: Toyota has plants located worldwide, initially serving only local markets. Post-1997, Toyota added flexibility to its plants to serve multiple markets, allowing better management of changing global demands. 5.2 Factors Influencing Network Design Decisions Several factors influence network design decisions: 1. Strategic Factors: The firm’s competitive strategy significantly affects network design. Cost leaders locate facilities in low-cost regions, while firms prioritizing responsiveness locate facilities close to markets. Example: - Foxconn and Flextronics: Located factories in low-cost countries like China. - Zara: Keeps production close to markets in Europe for quick responsiveness to fashion trends. 2. Technological Factors: Significant economies of scale in production lead to fewer high-capacity locations. Example: Semiconductor companies build a few high-capacity facilities due to high fixed costs. 3. Macroeconomic Factors: Include taxes, tariffs, exchange rates, and demand risk. 4. Political Factors: Stability, trade policies, and government regulations impact location choices. 5. Infrastructure Factors: Availability of transportation, utilities, and communication systems. 6. Competitive Factors: The presence and actions of competitors influence facility locations. 7. Operational Factors: Include quality of life for employees and environmental considerations. Example: Ford located its luxury car production at the Wixom, Michigan plant to ensure quality focus consistent with its luxury brand, despite operational advantages of shared platforms with Mercury Cougar. 5.3 Framework for Network Design Decisions The network design process is divided into four phases: 1. Phase I: Define a Supply Chain Strategy/Design: Align the supply chain strategy with the competitive strategy. Forecast global competition and identify capital constraints and growth strategies. 2. Phase II: Define the Regional Facility Configuration: Identify regions for facility locations and their potential roles. Evaluate regional demand and economies of scale. Example: Semiconductor manufacturers like AMD benefit from having few large plants globally. 3. Phase III: Select a Set of Desirable Potential Sites: Choose potential sites within regions based on infrastructure, labor availability, and other local factors. 4. Phase IV: Location Choices: Select precise locations and capacities to maximize profits considering logistics costs, taxes, and tariffs. Example: SunOil evaluates multiple configurations for global petrochemical production to balance costs and regional demands. 5.4 Models for Facility Location and Capacity Allocation Managers use various models to optimize facility location and capacity allocation: 1. Gravity Models: Simple models to minimize transportation costs but do not account for other important costs. 2. Network Optimization Models: Include comprehensive costs such as production, transportation, inventory, taxes, and tariffs to maximize overall profitability. Example: For SunOil, models help decide between regional plants to balance economies of scale with transportation costs. Key Considerations: - Collect data on supply sources, markets, potential sites, demand forecasts, costs, and service requirements. - Use optimization models to balance costs and responsiveness while considering tariffs and customer requirements. 5.5 Making Network Design Decisions in Practice In practice, network design involves continuous evaluation and adjustment: - Consider cultural impacts, quality of life, and employee morale. - Utilize tax incentives and tariff considerations to optimize facility locations. Example: Ireland’s low taxes have attracted high-tech industries. Within the U.SStates offer incentives to attract companies like Toyota and BMW. 5.6 Summary of Learning Objectives 1. Understand the Role of Network Design: Network design includes facility roles, locations, and capacities, defining the operational constraints and opportunities. 2. Identify Influencing Factors: Strategic, technological, macroeconomic, political, infrastructure, competitive, and operational factors. 3. Develop a Framework: Align supply chain strategy with competitive strategy, consider regional demand and infrastructure, and optimize facility locations. 4. Use Optimization Models: Gravity and network optimization models help in making informed location and capacity decisions. Case Studies 1. Managing Growth at SportStuff.com: Discusses network design adjustments to accommodate growth and changing market demands. 2. Designing the Production Network at CoolWipes: Focuses on optimizing facility locations and capacities to enhance responsiveness and reduce costs. This detailed summary encapsulates the essential concepts and practical examples from Chapter 5, providing a comprehensive understanding of network design in supply chain management.