Supply Chain Network Design

Submitted by:
Attri Borgohain (06)
Nishant Shah (23)
Abhishekh Tripathi (02)
Maneesh Pandey (16)
 Network Design Decisions
• The geographical distribution of suppliers, plants, warehouses and customers
represent the core of the supply chain.

• Over time, the customer base, products and facilities may change, thus it is of vital
importance to constantly review the network design of one’s supply chain.

• Conventional supply chain management targets mainly the operational aspect of

businesses, whereby inventory levels need to be analyzed on a month to month basis
with corresponding customer demand and adhoc operational issues. Network
design, on the other hand, presents a more strategic viewpoint to capturing the
dependencies between distinct operational units.

• When companies examine their network design every two or three years, they have
the opportunity to reconsider the various benefits and trade-offs associated with
different sites. By making decisions on the placement of facilities and the selection
of suppliers, companies are empowered to restructure their supply chain to further
maximize profitability.
 Network Design Decisions

• Facility role: What role should each facility play? What

processes should be 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?
(How many plants, DC’s, retail stores, etc. to build?)
 Supply Chain Network in Simple and basic Terms Involves determining
following process design:
Procurement:
• Where are your suppliers
• How will you procure raw materials and components

Manufacturing:
• Where will you locate the factories for manufacturing /
assembly
• Manufacturing Methodology

Finished Goods:
• Where will you hold inventories, Number of Warehouses,
Location of warehouses etc.
• How will you distribute to markets – Transportation and
Distribution logistics
All above decisions are influenced and driven by Key Driver which
is the Customer Fulfilment.
 Some key factors that affect the supply chain network
modelling :

•Government Policies of the Country where plants are to be located.

•Political climate
•Local culture, availability of skilled / unskilled human resources,
industrial relations environment, infrastructural support, energy
availability etc.
•Taxation policies, Incentives, Subsidies etc across proposed plant
location as well as tax structures in different market locations.
•Technology infrastructure status.
•Foreign investment policy, Foreign Exchange and repatriation
Policy and regulations.
Designing Supply Chain Network involves determining and
defining following Elements:

• Market Structure
• Demand Plotting or Estimation
• Market Segment
• Procurement Cost
• Product /Conversion Costs
• Logistics Costs including Inventory holding costs
• Over heads
• Cost of Sales
 Network Design aims to define:
• Best fit Procurement model – Buying decision and processes-
VMI, JIT, Kanban, procurement cost models etc.
• Production processes – One or more number of plants, plant
capacity design, Building to order, build to stock etc, in-
house manufacturing or outsource manufacturing and related
decisions including technology for production.
• Manufacturing Facility design – Location, Number of
factories, size of unit, time frames for the plant setup project
etc.
• Finished Goods Supply Chain network – Number of
warehouses, location & size of warehouses, inventory flow
and volume decisions, transportation.
• Sales and Marketing Decisions – Sales Channel and network
strategy, Sales pricing and promotions, order management
and fulfillment process, service delivery process definitions.
 A Framework for Global Site Location

Competitive STRATEGY GLOBAL COMPETITION

PHASE I
Supply Chain
INTERNAL CONSTRAINTS Strategy
Capital, growth strategy, TARIFFS AND TAX
existing network INCENTIVES

PRODUCTION TECHNOLOGIES
REGIONAL DEMAND
Cost, Scale/Scope impact, support PHASE II Size, growth, homogeneity,
required, flexibility
Regional Facility local specifications
Configuration
COMPETITIVE
ENVIRONMENT POLITICAL, EXCHANGE
RATE AND DEMAND RISK

PHASE III
Desirable Sites AVAILABLE
INFRASTRUCTURE
PRODUCTION METHODS
Skill needs, response time

FACTOR COSTS PHASE IV LOGISTICS COSTS

Labor, materials, site specific Location Choices Transport, inventory, coordination
 Conventional Network

Materials Customer
Vendor Finished Customer
DC Store
DC Goods DC DC

Customer
Component Store
Vendor Manufacturing
DC Plant Customer Customer
Warehouse DC Store
Components
DC Customer
Vendor Store
DC Finished
Customer
Goods DC
Final DC Customer
Assembly Store
A Two Echelon Single type Location Network Design
 Tailored Network: Multi-Echelon Finished
Goods Network

Local DC
Store 1
Cross-Dock
Regional Customer 1
Finished DC
Goods DC Store 1
Local DC
Cross-Dock
National Store 2
Customer 2
Finished
DC
Goods DC
Local DC Store 2
Cross-Dock
Regional
Finished Store 3
Goods DC

Store 3
 Network Design

•Supply Chain Network designs not only provide an operating

framework of the entire business to guide the managements, they
also examine the structure from strategic view point taking into
account external influences, interdependencies of all processes and
critically evaluate opportunities to maximize profitability.

•Supply Chain Design consultants use various design soft wares and
optimization techniques coupled with inputs from industry
consultants and experts.