Supply Chain Network Design

Table of Content

Supply Chain Network Design

Supply chain network design decisions include the assignment of facility roles, manufacturing, storage, and transportation-related facilities, and capacity and market allocation at each facility.

Supply chain network design decisions are grouped into:

1. Facility role

2. Facilitylocation

3. Capacity allocation

4. Market allocation and supply

Network design decisions have a significant impact on performance because these decisions determine the makeup of the supply chain and the set of barriers that accompany other supply chain triggers can also be used to mitigate supply chain costs or to increase responsiveness. All of these network design decisions impact each other and should be taken into account.

Decisions about the role of the facility are important because they determine the flexibility of the supply chain is changing to reconcile bids.

The facility location decision has a long-term impact on supply chain performance because it is very costly to discontinue a facility or move to a different location. The right location decision can help the supply chain to respond more so that it is low cost.

The capacity allocation decision also has a significant impact on supply chain performance. Since capacity allocations can be changed more easily than location, capacity decisions are likely to remain over several years. Allocating too many facilities does not produce much use, which results in high costs.

The allocation of demand sources and markets at facilities also has a significant impact on supply chain performance because it has an impact on total production, inventory, and transportation costs incurred in the supply chain for customer demand satisfaction.

This decision should be considered so that allocations can be changed such as market conditions or changes in factory capacity.

Factors Influencing Network Design Decisions

The following are the kinds of factors that influence network design decisions in the supply chain.

1. Strategic factors

A firm's competitive strategy has a significant impact on network design decisions in the supply chain. Companies that focus on cost leadership will try to find or create the lowest cost for their manufacturing facilities.

Firms that focus on speed of response tend to place closed facilities on the market and may choose high-cost locations if that choice satisfies the firm to react quickly to required market changes.

The global supply chain network can support the strategic objectives of the company with the role of different facilities in different places.

2. Technological factors

The characteristics of production technology have a significant impact on network design decisions. If production technology displays significant economies of scale, fewer high capacity locations will be more effective.

Unlike the case with lower fixed cost facilities, many local facilities are being prepared because this will help lower transportation costs. Flexibility in production technology impacts the level of consolidation the network can achieve.

3. Macroeconomic factors

These factors include taxes, customs duties, exchange rates, and other economic factors that are not present in the company. This factor has a significant impact on the success or failure of the supply chain network.

4. Political factors

Political stability in a country is a matter of great consideration because it has a significant impact on the role in the choice of location. Companies prefer to locate facilities in locations or countries that have a level of stability that provides clarity in terms of trade and ownership rules.

5. Infrastructure factors

The existence of good infrastructure is an important prerequisite in allocating facilities in certain areas. Poor infrastructure will further increase business costs.

6. Competitive factors A

The company must consider the strategy, size, and location of competitors when designing its supply chain network. Making important company decisions is when determining the company's facilities so that they are not accessible to competitors or in other words, away from competitors.

7. Customer response time and local presence

Companies that have target customers who can respond quickly must place facilities that are closed to these customers. If the company ships its products to customers, it means that transportation has to be built up a little bit and still increases the short response time. This choice results in increased or increased transportation costs. Furthermore, many situations require these facilities to customers.

8. Logistics and facilities costs

Logistics and facilities costs that occur in the supply chain can experience changes such as the number of facilities, location, and capacity allocation. Companies must consider the supply, transportation, and facility costs when they design their supply chain network.

The higher the cost of supplies and facilities, the greater the number of facilities used in the supply chain. The smaller the transportation cost, the greater the number of facilities. If the number of facilities increases at a point where the economies of scale are lost, transportation costs increase. The total logistics amount is all inventory, transportation, and facility costs.

Framework in Network Design Decisions

The success in designing a supply chain network will maximize the company's profits when customer demands are satisfied and responsive. Network design decisions are made in four stages:

Establish a supply chain design or strategy. The purpose of this stage is to establish a large supply chain design. This includes determining the stages in the supply chain and each supply chain function that will be used.

Establish regional facility arrangements. The purpose of this stage is to identify the area where it will be located, the rules that apply, and its capacity.

Choose a set of potential spots as desired. The objective of stage three is to select a set of potential sites of interest in each area where the facility will be located. The place should be selected based on the analysis provided in the infrastructure to support the desired production methodology.

Site selection. The objective of this stage is to select an appropriate location and capacity location for each facility. Attention is limited to the desired potential site which has been selected in stage three.

Facility Location Model and Capacity Allocation

Managers' success in assigning facilities and allocating capacity should be optimized on the overall profitability of the supply chain network results while increasing the responsiveness of the customer appropriately. Managers have to consider many trade-offs during network design.

Managers use the network design model in two different situations, namely:

The model is used to decide the location where the facility will be established and the existing capacity at each facility. Managers have to make decisions based on the future where locations and capacities cannot be changed.

The model is used to determine direct demand for facility availability and identify the path along which the product will be passed. The manager must consider his decisions on such bases as demand prices, changes in exchange rates, and changes in customs.

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