2009 g5 facility decisions and distribution network ch4_6

8/2/2019 2009 G5 Facility Decisions and Distribution Network CH4_6

1/13

Distribution Network Design andDistribution Network Design and

Facility DecisionsFacility Decisions

G5

[Chopra & Meindl] CH. 4-6

Prof. Anthony Han

Prepared for GMBA Program, School of ManagementNational Chiao Tung University

2

Distribution Network DesignDistribution Network Design (Ch 4)(Ch 4)

Cost Factors:InventoriesTransportationFacilitiesInformation

Customer Service Factors:Response timeProduct AvailabilityProduct VarietyOrder VisibilityReturnability

Customer Experience

Design Criterion: Customer Needs vs. Cost


2/13


3/13

5

Manufacturer Storage withDirect ShippingDrop Shipping

Examples: Dell, eBags, Nordstorm, etc.

Advantages: Centralized inventory at manufacturers High level of product availability

Disadvantages:High (Less-than-Truck, LTL) transportation costsLong shipping time

Good for products of:High variationHigh valueSlow moving

6

In-Transit Merge Network (Fig. 4.7)Factories

Retailer

Product Flow

Information Flow

In-Transit Merge byCarrier

Customers

p.100

Stock


4/13

7

In-Transit Merge Network

Examples: Dell, Gateway, Sony etc.

Similar to drop-shipping:High level of product availabilityTransportation costs are lower Facility/Processing costs are higher Better customization opportunities

Good for:Medium demandHigh value itemsMedium-demand products

8

Distributor Storage withCarrier Delivery (Fig. 4.8) p.102

Factories

Customers

Product FlowInformation Flow

Warehouse Storage by Distributor/Retailer FG Stock

(Package Carrier Delivery)


5/13

9

Distributor Storage withCarrier Delivery

Examples: W.W. Gringer, McMaster Carr, etc.

Two levels inventory:Distributors carry inventory at warehouses or DCsRetailers carry inventory at retail stores

Performance characteristics see Table 4.3 (p.103)Observations: Slow moving items => Inventory storage upstream More faster moving => Storage moves more downstream

10

Distributor Storage withLast Mile Delivery (Home Delivery)

Factories

Customers

Product Flow

Information Flow

Distributor/Retailer Warehouse

(Fig. 4.9), p.104

FG Stock

Milk-Run Delivery byDistributor/Retailer


6/13

11

Manufacturer or Distributor Storagewith Customer Pickup (Fig. 4.10) p.106

Factories

Retailer

Pickup Sites


Cross Dock DC

Customer Flow

Customers

Mostly for B2B, company customers

FG Stock FG Stock

12

Retail Storage with Customer Pickup(Individual Customers)

Factories

Retailer

Pickup Sites


Cross Dock DC

Customer Flow

Customers

Retail Stores Retail StoresRetail StoresFG Stock


7/13

13

Factors InfluencingFactors InfluencingDistribution Network DesignDistribution Network Design

Elements of customer service influenced bynetwork structure:

Response timeProduct varietyProduct availability

Customer experienceOrder visibilityReturnability

14

Facility DecisionsFacility Decisions (Ch 5)(Ch 5)

Distribution Network Facility DecisionsType (Warehouse, DC, Factory, X-Dock)

Number, Location, Capacity AllocationTrade-offs

The more DCsHigher facility/equipment costsHigher personnel costsLower transportation costs

higher safety inventory costsBetter customer service


8/13

Costs and Number of FacilitiesCosts and Number of Facilities

Costs

Number of facilities

Inventory

Transportation

Facility costs

5-15

Percent Service

Level WithinPromised Time

TransportationTransportation

Cost Build-up as a function of facilities

C o s t o

f O p e r a t

i o n s

C o s t o

f O p e r a t

i o n s

Number of FacilitiesNumber of Facilities

InventoryInventoryFacilitiesFacilities

Total CostsTotal Costs

LaborLabor

5-16


9/13

2004 Prentice-Hall, Inc. 1-17

Customer

DC

Where inventory needs to be for a one week orderWhere inventory needs to be for a one week orderresponse timeresponse time -- typical resultstypical results ---- > 1 DC> 1 DC

5-17


Customer

DC

Where inventory needs to be for a 5 day orderWhere inventory needs to be for a 5 day orderresponse timeresponse time -- typical resultstypical results ----> 2> 2 DCsDCs

5-18


10/13


Customer

DC

Where inventory needs to be for a 3 day orderWhere inventory needs to be for a 3 day orderresponse timeresponse time -- typical resultstypical results ----> 5> 5 DCsDCs

5-19


Customer

DC

Where inventory needs to be for a next day orderWhere inventory needs to be for a next day orderresponse timeresponse time -- typical resultstypical results ----> 13> 13 DCsDCs

5-20


11/13

21

Facility DecisionsFacility Decisions in Practice (I)in Practice (I)

Life Span of Different FacilitiesProduction Plants last for decades; Warehouses andOffices may change in a year

(An insurance company moved to reduce costs but then found hardto sell the facility in suburban area)

Cultural ImplicationsFord Lincoln Mark VIII though shared platform with

Mercury Cougar still locate in Wixom plant with other luxury cars to show consistent quality

22

Facility DecisionsFacility Decisions in Practice (II)in Practice (II)Don t Ignore Quality of Life Issues

QOL has great impact on performance of workforce;

Cost-saving is not all

Tax/Tariff IncentivesHas Big Influence in Global SettingIreland attracted hi-tech firms to build European facilitiesthereLocal government s good offer made Toyota, BMW,Mercedes locate plants in some states of USA


12/13

A Framework for Global Site Location

PHASE ISupply Chain

Strategy

PHASE IIRegional Facility

Configuration

PHASE IIIDesirable Sites

PHASE IVLocation Choices

Competitive STRATEGY

INTERNAL CONSTRAINTSCapital, growth strategy,existing network

PRODUCTION TECHNOLOGIESCost, Scale/Scope impact, supportrequired, flexibility

COMPETITIVEENVIRONMENT

PRODUCTION METHODSSkill needs, response time

FACTOR COSTSLabor, materials, site specific

GLOBAL COMPETITION

TARIFFS AND TAXINCENTIVES

REGIONAL DEMANDSize, growth, homogeneity,local specifications

POLITICAL, EXCHANGERATE AND DEMAND RISK

AVAILABLE

INFRASTRUCTURE

LOGISTICS COSTSTransport, inventory, coordination

[Chopra & Meindl, 2007] CH 5.2, p.138 5-23

24

Location/Allocation ModelLocation/Allocation Modelyi = 1 if plant is located at site i,0 otherwise

xij = Quantity shipped fromplant site i to customer j

f i: Fixed cost of facility ic ij: Per unit transportation costfrom i to jKi: Capacity of facility i

Mixed Integer Programing Model (MIP)[Chopra & Meidl, 2007]

CH 5.4, pp.141-145Excel Example

}1,0{

..

1

1

1 11

=

+

=

=

= ==

y

y K x

D x

xc y f

i

ii

n

jij

j

n

iij

n

i

m

jijiji

n

ii

t s

Min

, for every i

, for every j


13/13

25

Distribution Operations DecisionsDistribution Operations DecisionsFleet Planning/Management

Fleet Size and Fleet MixOwn Fleet or Outsourcing

Vehicle Routing/SchedulingTSP, VRP, VRPTW, PVRP, .

Crew Scheduling / DispatchingHard problems need Decision Support

reduce cost and improve service reliability(See a DSS prototype system developed in 1995 )

Make-or-Buy:You dont have to do it all by yourself!

See research results of our Network ResearchLab on my website

26

Network Design under UncertaintyNetwork Design under Uncertainty

(CH 6)

Use Decision Tree AnalysisTechniques usually taught in OR Courses

In practice:Keep alert of change of business/economic environmentBuild up good customer relationship

Build strategic alliances with LSP partners

2009 g5 facility decisions and distribution network ch4_6

Documents