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Supply Chain Network Design Lecture 4

The document discusses supply chain network design and factors that influence design decisions. It describes key decisions around facility location, capacity allocation, and market/supply allocation. Models are presented for optimizing facility location and capacity, including factors considered like demand, costs, capacities. The document outlines capacitated plant location models and network optimization models to determine optimal configurations based on minimizing costs while meeting demand.

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Santosh Sahoo
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41 views23 pages

Supply Chain Network Design Lecture 4

The document discusses supply chain network design and factors that influence design decisions. It describes key decisions around facility location, capacity allocation, and market/supply allocation. Models are presented for optimizing facility location and capacity, including factors considered like demand, costs, capacities. The document outlines capacitated plant location models and network optimization models to determine optimal configurations based on minimizing costs while meeting demand.

Uploaded by

Santosh Sahoo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SUPPLY CHAIN NETWORK DESIGN

NETWORK DESIGN DECISIONS


 Facility location
 Where should facilities be located?
 Capacity allocation
 How much capacity at each facility?
 Market and supply allocation
 What markets? Which supply sources?
FACTORS INFLUENCING
NETWORK DESIGN DECISIONS
 Strategic factors
 Technological factors

 Macroeconomic factors
 Tariffs and tax incentives
 Exchange-rate and demand risk
 Freight and fuel costs
 Political
MODELS FOR FACILITY LOCATION AND
CAPACITY ALLOCATION
 Maximize the overall profitability of the supply
chain network while providing customers with
the appropriate responsiveness
 Many trade-offs during network design

 Network design models used to decide on


locations and capacities and to assign current
demand to facilities
MODELS FOR FACILITY LOCATION AND
CAPACITY ALLOCATION
 Important information
 Location of supply sources and markets
 Location of potential facility sites
 Demand forecast by market
 Facility, labor, and material costs by site
 Transportation costs between each pair of sites
 Inventory costs by site and as a function of quantity
 Sale price of product in different regions
 Taxes and tariffs
 Desired response time and other service factors
CAPACITATED PLANT LOCATION MODEL
n = number of potential plant locations/capacity
m = number of markets or demand points yi = 1 if plant i is open, 0 otherwise
D j = annual demand from market j xij = quantity shipped from
plant i to market j
K i = potential capacity of plant i
f i = annualized fixed cost of keeping plant i open
cij = cost of producing and shipping one unit from plant i to market j (cost
includes production, inventory, transportation, and tariffs)
n n m
Minå f i yi + å åc x ij ij
i=1 i=1 j=1
subject to
n

åx ij
= D j for j = 1,...,m
i=1
m

åx ij
= K i yi for i = 1,...,n
j=1

yi Î {0,1} for i = 1,...,n, x ij ³ 0


CAPACITATED PLANT LOCATION MODEL

Figure 5-4
CAPACITATED PLANT LOCATION MODEL

Figure 5-5
PHASE III: GRAVITY LOCATION MODELS

Figure 5-6
NETWORK OPTIMIZATION MODELS
 Allocating demand to production facilities

n = number of factory locations


m = number of markets or demand points xij = quantity shipped from
D j = annual demand from market j factory i to market j

K i = capacity of factory i
cij = cost of producing and shipping one unit from factory i to
market j

n m subject to
Minå å cij xij n

i=1 j=1 åx ij
= D j for j = 1,...,m
i=1
m

åx ij
= Ki for i = 1,...,n
j=1
NETWORK OPTIMIZATION MODELS
 Optimal demand allocation

Atlant Bosto Chicago Denve Omah Portlan


a n r a d
TelecomOne Baltimor 0 8 2
e
Memphis 10 0 12

Wichita 0 0 0

HighOptic Salt Lake 0 0 11

Cheyenne 6 7 0
Table 5-3
CAPACITATED PLANT LOCATION MODEL
 Merge the companies
 Solve using location-specific costs

yi = 1 if factory i is open, 0 otherwise


xij = quantity shipped from factory i to market j

n n m
Minå f i yi + å åc x ij ij
i=1 i=1 j=1
CAPACITATED PLANT LOCATION MODEL

Figure 5-9
CAPACITATED PLANT LOCATION MODEL

Figure 5-10
CAPACITATED PLANT LOCATION MODEL

Figure 5-11
CAPACITATED MODEL WITH
SINGLE SOURCING
 Market supplied by only one factory
 Modify decision variables

yi = 1 if factory i is open, 0 otherwise


xij = 1 if market j is supplied by factory i, 0 otherwise
n n m
Minå f i yi + å å D j cij xij
i=1 i=1 j=1
subject to
n

åx ij
= 1 for j = 1,...,m
i=1
m

åD x i ij
£ K i yi for i = 1,...,n
j=1

xij , yi Î {0,1}
CAPACITATED MODEL WITH
SINGLE SOURCING

Figure 5-12
CAPACITATED MODEL WITH
SINGLE SOURCING
 Optimal network configuration with single sourcing

Open/ Atlant Bosto Denve Omah Portlan


Closed a n Chicago r a d
Baltimore Closed 0 0 0 0 0 0

Cheyenne Closed 0 0 0 0 0 0

Salt Lake Open 0 0 0 6 0 11

Memphis Open 10 8 0 0 0 0

Wichita Open 0 0 14 0 7 0

Table 5-4
LOCATING PLANTS AND WAREHOUSES
SIMULTANEOUSLY

Figure 5-13
LOCATING PLANTS AND WAREHOUSES
SIMULTANEOUSLY
 Model inputs

m = number of markets or demand points


n = number of potential factory locations
l = number of suppliers
t = number of potential warehouse locations
Dj = annual demand from customer j
Ki = potential capacity of factory at site i
Sh = supply capacity at supplier h
We = potential warehouse capacity at site e
Fi = fixed cost of locating a plant at site i
fe = fixed cost of locating a warehouse at site e
chi = cost of shipping one unit from supply source h to factory i
cie = cost of producing and shipping one unit from factory i to
warehouse e
cej = cost of shipping one unit from warehouse e to customer j
LOCATING PLANTS AND WAREHOUSES
SIMULTANEOUSLY
 Goal is to identify plant and warehouse
locations and quantities shipped that minimize
the total fixed and variable costs

Yi = 1 if factory is located at site i, 0 otherwise


Ye = 1 if warehouse is located at site e, 0 otherwise
xej = quantity shipped from warehouse e to market j
xie = quantity shipped from factory at site i to warehouse
e
xhi = quantity shipped from supplier h to factory at site i
n t l n t m
Minå Fi yi + å f e ye + å å chi xie + å å cej xej
i=1 e=1 h=1 i=1 e=1 j=1
LOCATING PLANTS AND WAREHOUSES
SIMULTANEOUSLY
subject to

n m

åx hi
£ Sh for h = 1,...,l åx ej
£ We ye for e = 1,...,t
i=1 j=1
l t t

åx hi
– å xie ³ 0 for i = 1,...,n åx ej
= D j for j = 1,...,m
h=1 e=1 e=1
t

åx ie
£ Ki yi for i = 1,...,n yi , ye Î {0,1},xej ,xie ,xhi ³ 0
e=1
n m

åx – åxie ej
³ 0 for e = 1,...,t
i=1 j=1
THANK YOU

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