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8/9/2019 2010_E4.5 Facility Decisions and Distribution Network CH4_6
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Distribution Network Design andDistribution Network Design and
Facility DecisionsFacility Decisions
G5
Prof. Anthony F. HAN
[Chopra & Meindl] CH. 4-6
2
Distribution Network DesignDistribution Network Design (Ch 4)(Ch 4)
Cost Factors: Inventories
Transportation
Facilities
Information
Customer Service Factors: Response time
Product Availability
Product Variety
Order Visibility
Returnability
Customer Experience
Design Criterion: Customer Needs vs. Cost
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Design Options for a Distribution NetworkDesign Options for a Distribution Network
1. Manufacturer Storage with Direct Shipping
2. Manufacturer Storage with Direct Shipping and In-TransitMerge
3. Distributor Storage with Carrier Delivery
4. Distributor Storage with Last Mile Delivery
5. Manufacturer or Distributor Storage with Consumer Pickup
6. Retail Storage with Consumer Pickup
Design Factor
Storage Location & Customer Pickup or not
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Manufacturer Storage withDirect Shipping (Fig. 4.6) p.97
STOCK Manufacturer
Retailer
Customers
Product Flow
Information Flow
Also called Drop Shipping
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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 costs
Long shipping time
Good for products of:High variationHigh value
Slow moving
6
In-Transit Merge Network (Fig. 4.7)
Factories
Retailer
Product Flow
Information Flow
In-Transit Merge by
Carrier
Customers
p.100
Stock
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In-Transit Merge Network
Examples: Dell, Gateway, Sony etc.
Similar to drop-shipping:
High level of product availability
Transportation costs are lower
Facility/Processing costs are higher
Better customization opportunities
Good for:
Medium demand
High value items
Medium-demand products
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Distributor Storage withCarrier Delivery (Fig. 4.8) p.102
Factories
Customers
Product Flow
Information Flow
Warehouse Storage by
Distributor/RetailerFG Stock
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Distributor Storage withCarrier Delivery
Examples: W.W. Gringer, McMaster Carr, etc.
Two levels inventory:
Distributors carry inventory at warehouses or DCs
Retailers 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
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Distributor Storage withLast Mile Delivery (Home Delivery)
Factories
Customers
Product Flow
Information Flow
Distributor/Retailer
Warehouse
(Fig. 4.9), p.104
FG Stock
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Factors InfluencingFactors Influencing
Distribution Network DesignDistribution Network Design
Elements of customer service influenced bynetwork structure:
Response time
Product variety
Product availability
Customer experience Order visibility
Returnability
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Facility DecisionsFacility Decisions (Ch 5)(Ch 5)
Distribution Network Facility Decisions
Type (Warehouse, DC, Factory, X-Dock)
Number, Location, Capacity Allocation
Trade-offs
The more DCs
Higher facility/equipment costs
Higher personnel costs
Lower transportation costs
higher safety inventory costsBetter customer service
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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
CostofOperations
CostofOperations
Number of FacilitiesNumber of Facilities
InventoryInventory
FacilitiesFacilities
Total CostsTotal Costs
LaborLabor
5-16
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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 order
response timeresponse time -- typical resultstypical results ----> 1 DC> 1 DC
5-17
2004 Prentice-Hall, Inc. 1-18
Customer
DC
Where inventory needs to be for a 5 day orderWhere inventory needs to be for a 5 day order
response timeresponse time -- typical resultstypical results ----> 2> 2 DCsDCs
5-18
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2004 Prentice-Hall, Inc. 1-19
Customer
DC
Where inventory needs to be for a 3 day orderWhere inventory needs to be for a 3 day order
response timeresponse time -- typical resultstypical results ----> 5> 5 DCsDCs
5-19
2004 Prentice-Hall, Inc. 1-20
Customer
DC
Where inventory needs to be for a next day orderWhere inventory needs to be for a next day order
response timeresponse time -- typical resultstypical results ----> 13> 13 DCsDCs
5-20
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Facility DecisionsFacility Decisions in Practice (I)in Practice (I)
Life Span of Different Facilities
Production 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 Implications
Ford Lincoln Mark VIII though shared platform with
Mercury Cougar still locate in Wixom plant with otherluxury cars to show consistent quality
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Facility DecisionsFacility Decisions in Practice (II)in Practice (II)
Dont Ignore Quality of Life Issues
QOL has great impact on performance of workforce;
Cost-saving is not all
Tax/Tariff Incentives
Has Big Influence in Global Setting
Ireland attracted hi-tech firms to build European facilitiesthere
Local governments good offer made Toyota, BMW,Mercedes locate plants in some states of USA
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A Framework for Global Site Location
PHASE I
Supply Chain
Strategy
PHASE II
Regional Facility
Configuration
PHASE III
Desirable Sites
PHASE IV
Location Choices
Competitive STRATEGY
INTERNAL CONSTRAINTSCapital, growth strategy,
existing network
PRODUCTION TECHNOLOGIES
Cost, Scale/Scope impact, support
required, flexibility
COMPETITIVE
ENVIRONMENT
PRODUCTION METHODS
Skill needs, response time
FACTOR COSTS
Labor, materials, site specific
GLOBAL COMPETITION
TARIFFS AND TAX
INCENTIVES
REGIONAL DEMAND
Size, growth, homogeneity,
local specifications
POLITICAL, EXCHANGE
RATE AND DEMAND RISK
AVAILABLE
INFRASTRUCTURE
LOGISTICS COSTS
Transport, inventory, coordination
[Chopra & Meindl, 2007] CH 5.2, p.138 5-23
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Location/Allocation ModelLocation/Allocation Model
yi = 1 if plant is located at site i,0 otherwise
xij = Quantity shipped fromplant site i to customer j
fi: Fixed cost of facility i
cij: Per unit transportation costfrom i to j
Ki: Capacity of facility i
Mixed Integer Programing Model (MIP)
[Chopra & Meidl, 2007]
CH 5.4, pp.141-145
Excel Example
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Distribution Operations DecisionsDistribution Operations Decisions
Fleet Planning/Management
Fleet Size and Fleet Mix Own Fleet or Outsourcing
Vehicle Routing/Scheduling TSP, VRP, VRPTW, PVRP, .
Crew Scheduling / Dispatching
Hard 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 ofour Network ResearchLab on my website
26
Network Design under UncertaintyNetwork Design under Uncertainty
(CH 6)
Use Decision Tree Analysis Techniques usually taught in OR Courses
In practice:
Keep alert of change of business/economic environment
Build up good customer relationship
Build strategic alliances with LSP partners
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