• Assume that the company now faces the increased demand below (instead of the demand described in

  

• Assume that the company now faces the increased demand below (instead of the demand described in the original problem)– New demand at each market region• East : 300,000• South : 1,000,000• Midwest: 300,000• West : 200,000• Production costs, transport costs, and fixed costs of plants are same as those in Table 5-6• Questions– (1-1) Where should DryIce build its plants and how large should they be?– (1-2) How much units should DryIce transport to each market region from each plant?– Submit Excel files/sheet with all necessary conditions for Solver to run optimization – so that Solver models can be checked
posted_tech_492_592_2019su_0702_ch5_network_design_in_supply_chain.pdf

tech_492_592_2019su_0702_ch5_figure_5_3_to_figure_5_7.xlsx

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6/12/2019
Today
• Topics
– Ch. 5: Network design in supply chain
• Exclude pages 119–128
• Handouts
Network Design in Supply Chain
(Ch. 5)
TECH 492/592 – Manufacturing
Distribution Applications
– TECH-492-592_2019Su-0702_Ch5-Figure_5-3_to_Figure_57.xlsx
• Assignments / Announcements (Due)
– Assignment 4 (Due 7/9, 11:59 PM)
• Questions in the next slide
• Submit Excel file/sheet with all necessary conditions for Solver – so
that Solver can be checked
– Suggestions for Assignment 4




Start immediately, email any questions
Read hints in the following slides
Use Excel 2010 or 2013 or newer versions
Modify the Solver model in “TECH-492-592_2019Su-0702_Ch5Figure_5-3_to_Figure_5-7.xlsx”
• Use simplex method – choose “Simplex LP” method from the
dropdown menu of “Select a Solving Method:”
July 2, 2019
Assignment 4
Hints for Assignment 4
• Read Ch. 5 Exercise 2 “DryIce, Inc.” in the textbook
• Assume that the company now faces the increased demand below
(instead of the demand described in the original problem)
• Modify the provided Excel template for the assignment
– Enter the data of the problem in the template in the unit of:
• $1,000 for facility cost
• $ per unit for cost of air conditioner (sum of production and transport costs)
• 1,000 units for demand and plant capacity
– New demand at each market region




East
: 300,000
South : 1,000,000
Midwest : 300,000
West
: 200,000
– For example:
• Fixed cost of New York 200,000-capacity plant would be $6,000 instead of $6,000,000
• Demand in South would be 180 instead of 180,000
• Production costs, transport costs, and fixed costs of plants are same as
those in Table 5-5 in the textbook
• Questions
– (1-1) Where should DryIce build its plants and how large should they be?
– (1-2) How much units should DryIce transport to each market region from
each plant?
– Submit Excel file with answers and all necessary conditions for Solver to run
optimization – so that Solver models can be checked
– In Solver, change the ranges of:
• Variables in “By Changing Variable Cells:” box
• Constraints in “Subject to the Constraints:” box
because the number of markets and the number of production sites are
different from the template
• First run with the demand given in the original problem in the textbook
(Ch. 5 Exercise 2 “DryIce, Inc.”)
– If you set up Excel solver correctly, you should get the results similar to those
in the next slide
• Then run the Solver with the demand in the Assignment 4 slide
Hints for Assignment 4
• Cell
• Cost data are not shown below
Decision Variables
Supply Region
New York
Atlanta
Chicago
San Diego
Demand Region – Production Allocation (1000 Units)
East
South
Midwest West
0
0
0
0
110
180
110
0
0
0
0
0
0
0
10
100
Constraints
Supply Region
New York
Atlanta
Chicago
San Diego
Excess Capacity
0
0
0
90
East
Unmet Demand
Objective Function
Cost =
Low Capacity High Capacity
Plants
Plants
(1=open)
(1=open)
0
0
0
1
0
0
1
0
– Cell location is defined by a row and a column of
spread sheet
– Row is specified by a number
– Column is specified by an alphabet
– If cell is described as “B14”, the cell is at the
intersection of column “B” and row “14”
• “$B$14” is essentially same as “B14”
South
0
Some Basics about Excel
Midwest
0
– We can enter a number, text, formula, or logic
statement in a cell
– If we enter a formula or a logic statement, we need to
start the entry with “=” sign
West
0
0
$ 129,480 in units of $1,000
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6/12/2019
Some Basics about Excel

Some Basics about Excel
• “SUM” function
If cells are defined as “B14:B18”,
– We are referring to all the cells between and including B14 and B18 (and any data in these cells)
– These cells are:
B14
B15
B16
B17
B18

– SUM function adds the number in the cells
specified in the parenthesis immediately after
“SUM”
– For example, “=SUM(B14:B18)” calculates sum of
the numbers in cells “B14:B18”
– This means that we are adding the numbers in cells
B14, B15, B16, B17, and B18
If cells are defined as “B14:F14”,
– We are referring to all the cells between and including B14 and F14 (and any data in these cells)
– These cells are:
B14, C14, D14, E14, F14

If cells are defined as “B14:H18”,
– We are referring to all the cells in the rectangular area between and including B14 and H18 (and any
data in these cells)
– These cells are:
B14, C14, D14, E14, F14, G14, H14
B15, C15, D15, E15, F15, G15, H15
B16, C16, D16, E16, F16, G16, H16
B17, C17, D17, E17, F17, G17, H17
B18, C18, D18, E18, F18, G18, H18
Some Basics about Excel

Some Basics about Solver
“SUMPRODUCT” function
– SUMPRODUCT function takes two sets of cells specified in the parenthesis immediately after
“SUMPRODUCT”
– These two sets of cells are separated by “,” in the parenthesis
– For example, “=SUMPRODUCT(B14:F18, B4:F8)” refers to two sets of cells – B14:F18 and B4:F8

B14
B15
B16
B17
B18
B22≥0
B23≥0
B24≥0
B25≥0
B26≥0
C14
C15
C16
C17
C18
D14
D15
D16
D17
D18
E14
E15
E16
E17
E18
Second set of cells
F14
F15
F16
F17
F18
B4
B5
B6
B7
B8
C4
C5
C6
C7
C8
D4
D5
D6
D7
D8
E4
E5
E6
E7
E8
F4
F5
F6
F7
F8
– Then SUMPRODUCT function first multiply numbers in the corresponding cells and then add the
multiplied numbers (i.e., products)
– For example, “=SUMPRODUCT(B14:F18, B4:F8)” calculates the following products and add them up
B14 × B4
B15 × B5
B16 × B6
B17 × B7
B18 × B8
C14 × C4
C15 × C5
C16 × C6
C17 × C7
C18 × C8
D14 × D4
D15 × D5
D16 × D6
D17 × D7
D18 × D8
E14 × E4
E15 × E5
E16 × E6
E17 × E7
E18 × E8
F14 × F4
F15 × F5
F16 × F6
F17 × F7
F18 × F8
– In the above example,

– Same as “B22:B26≥0” and this means that all the numbers calculated in cells
“B22:B26” have to be zero or positive
The sizes of two sets of cells have to be the same – same number of column and same number of row
First set of cells



• Constraints
• “$B$22:$B$26≥0”
– Use this constraints to set that capacity has to be larger than supply
• Capacity – Supply ≥ 0
• “$B$28:$F$28=0”
– Same as “B28:F28=0” and this means that all the numbers calculated in cells
“B28:F28” have to be zero
B28=0, C28=0, D28=0, E28=0, F28=0
– Use this constraints to make sure that there is no excess supply
• Supply – Demand = 0
• “$G$14:$H$18=binary”  In Solver, choose “bin” after “Cell Reference”
– Same as “G14:H18=binary” and this means that all numbers in cells “G14:H18”
are either zero or one (binary)
– Use this constraints to describe whether or not we build facility
“B14:F18” may be transportation cost per unit from each supply region to each demand market
“B4:F8” may be the number of units transported from each supply region to each demand market
Then each product is the transportation cost to transfer required units from each supply region to each
demand market
The sum of the all products is the total transpiration cost to transfer required units from all supply region to
all demand market
• 1 if facility is built
• 0 if facility is not built
Topics: Network Design in Supply
Chain
Solver Installation
• Excel 2010, 2013
– Click the File tab, and then click Options
– Click Add-Ins, and then in the “Manage” box, select Excel
Add-ins
– Click Go
– In the “Add-Ins available” box, select the Solver Add-in
check box, and then click OK
– Tip: If Solver Add-in is not listed in the Add-Ins available
box, click Browse to locate the add-in
• If you get prompted that the Solver add-in is not currently installed
on your computer, click Yes to install it
– After you load the Solver add-in, the Solver command is
available in the Analysis group on the Data tab




The role of network design in the supply chain
Factors influencing network design decisions
Framework for network design decisions
Models for designing a regional network
configuration
• Models for identifying potential sites in a region
• Models for demand allocation and plant location
2
6/12/2019
Important Questions










What are four decisions in supply chain network design?
What decisions are made in facility role decisions?
What impacts do location decision have?
What impacts do capacity allocation decision have?
What decisions are made in market allocation decisions and
supply allocation decisions?
What are the examples of situations when supply chain
network need to be changed?
What are seven factors that influence network design
decisions?
How does competitive strategy impact network design
decisions?
What is positive externality?
How do positive externalities impact facility decisions?
Important Questions















How does short lead time impact facility and transportation decisions?
How does a larger number of facility impact inventory cost and facility cost?
How does a larger number of facility impact transportation cost?
Why it may be beneficial to locate steel making facility near iron ore supply
location instead of customer?
What are examples of macroeconomic factors?
What are tariffs?
How do tariffs impact facility decisions?
What are tax incentives?
How do tax incentives impact facility decisions?
What are free trade zones?
What are minimum requirements on local content?
What are limits on import?
How do exchange rate fluctuation impact facility decisions?
How do demand fluctuation impact facility decisions?
Does stronger dollar make:
– Import more attractive?
– Export more attractive?
• What should we do with facility to avoid impact of fluctuating exchange rate?
• What should we do with facility to avoid impact of fluctuating demand?
Important Questions
• What are four phases of supply chain network
design decisions?
• Understand basics of Excel
• Understand basics of Excel Solver
• Understand how to use Excel Solver in the
provided template
Supply Chain Network Design
Decisions
• Supply chain network design consists of the
following four decisions
1. Assignment of facility role
– What processes should each facility perform?
2. Location of manufacturing, storage, or
transportation-related facility
3. Allocation of capacity for each facility
4. Allocation of market and supply
– What markets should each facility serve?
– Which facilities should each supply source feed?
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
The Role of Network Design in
the Supply Chain
1. Facility Role Decisions
• Facility role decisions determine flexibility of a
supply chain in satisfying demand
– Flexible facility or
– Dedicated facility
• Example: Toyota
– Before 1997, each plant served only its local market
– During Asian recession in 1990s, Toyota’s Asian plants
had idle capacity; however, Toyota could not use the
idle capacity to serve non-Asian markets because the
plants were inflexibility
– After 1997, Toyota added flexibility to each plant to be
able to serve markets other than its local market
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
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2. Facility Location Decisions
• Facility location decisions
– Have a long-term impact on making a supply chain
responsive while keeping its cost low
– Once built, it is very expensive to shut down a facility or
move it to a different location
• Example: Toyota
– Toyota built its first US assembly plant in Lexington,
Kentucky in 1988 and has used the plant since then
– When the yen strengthened and cars produced in Japan
was too expensive to be exported, the US plant enabled
Toyota to cost-competitively provide cars to the US market
– Lexington plant enabled Toyota to be responsive to the US
market while keeping cost low (e.g., transportation)
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
4. Market and Supply Source
Allocation Decisions
• Allocations of market and supply source
– Significantly impact supply chain performance
• Affects
– Total production
– Inventory
– Transportation costs
incurred by the supply chain to satisfy customer demand
– Should be reviewed and revised if market conditions or
plant capacities change
• Market allocation can only be changed if:
– Facilities are flexible enough to serve different markets
• Supply source allocation can only be changed if:
– Facilities are flexible enough to receive supplies from different sources
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
3. Capacity Allocation Decisions
• Capacity allocation impacts both responsiveness and
cost of a supply chain
– Allocating too much capacity
• High responsiveness
• Excess capacity, low utilization, and as a result, a higher cost
– Allocating too little capacity
• Poor responsiveness if demand is not satisfied
• Low inventory cost
• High transportation cost if demand is filled from a distant facility
• Changing capacity allocation
– Easier than changing location
– Capacity decisions tend to stay in place for several years
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
Revisions of Supply Chain Network
Design Decisions
• Network design decisions should be revisited
as a market condition changes
• Example: Netflix
– Before 2010: mailed DVDs from 58 DCs across the
United States
– By the end of 2013: closed almost 20 DCs as video
streaming increases and DVD rentals decreases
• Example: Amazon
– Increased the number of DCs from 20 in 2009 to
about 70 in 2016
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
Factors Influencing Network Design
Decisions
Factors Influencing Network
Design Decisions
• There is a wide variety of factors that influence
network design decisions
• These factors may be classified into:
– Strategic factors
– Competitive factors
• Positive externalities between firms
• Locating to split market





Political factors
Infrastructure factors
Customer response time and local presence
Total logistic cost
Macroeconomic factors
• Tariffs and tax incentives
• Exchange-rate and demand risk
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
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Strategic Factors:
Competitive strategy
• Company’s competitive strategy
– Has a significant impact on supply chain network design decisions
• Company that focuses on efficiency
– Tends to find low-cost locations for its manufacturing facilities even if
the facilities are very far from the markets they serve
– Example: Many apparel manufacturers in 1980s moved their
manufacturing out to low-cost countries
• Company that focuses on responsiveness
– Tends to locate facilities close to the market even if it is a high-cost
location as far as the company can react quickly to the changing
market needs
– Example: Zara, Spanish apparel manufacturer, has a large fraction of
its manufacturing capacity in Portugal and Spain despite their high
costs
– The local capacity allows Zara to quickly respond to changing fashion
trends in Europe
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
Strategic Factors:
Global Supply Chain Network
• Global supply chain networks
– Need to be supported by facilities in various countries,
each of which plays different role
• Example: Zara
– Production facilities in Asia
• Focus on low cost (efficiency)
• Produces primarily standardized, low-value products that sell in
large amounts
– Production facilities in Europe
• Focus on responsiveness
• Produces primarily trendy designs whose demand is unpredictable
Strategic Factors:
Competitive strategy
• Example: Convenience store chains
– Competitive strategy: provide easy access to customers
(high responsiveness)
– Network design: cover an area by locating many small
stores
• 2016: 154,195 stores in US (4,737 in IL)
• Example: Discount stores such as Sam’s Club
– Competitive strategy: provide products with low prices
– Network design: locate few large stores to reduce cost
even though customers need to travel many miles to the
store
• 2016: 656 stores in US
• Each store covers an area that may be covered by many
convenience stores
(Source) http://www.nacsonline.com/research/factsheets/scopeofindustry/pages/industrystorecount.aspx
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
Competitive Factors
• Competitors’ strategies, sizes, and locations
– Decide whether to locate facilities close to or far
from competitors
• Competitive factors include:
– Positive externalities between firms
– (Locating to split the market)
– Combination of facilities allows Zara to produce a wide
variety of products in the most profitable manner
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
Competitive Factors:
Positive Externalities between Firms
• Positive externality
– “Consequence of an economic activity that benefit
unrelated third parties”
– Collocation of multiple companies benefits all of them
• Results in competitors locating near each other
Example
• Retail stores located close to each other in a mall
– Collocation increases the overall demand
• Benefits all parties
– Customers only need to trip to one location
• Customers find everything they are looking for
• Increases the total number of customers who visit the mall
• Increases the demand for all stores located in the mall
(Source) http://www.investopedia.com/terms/e/externality.asp
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
Competitive Factors:
Positive Externalities between Firms
Example
• Presence of competitors lead to the
development of appropriate infrastructure in
a developing area
– Suzuki was the first company that built a
manufacturing facility in India
• Created a local supplier network
– Suzuki’s competitors have also built assembly
facilities in India
• Due to well-established supplier base
• It was more effective to build cars in India rather than
to import cars to India
(Source) Supply Chain Management: Strategy, Planning, and Operation. Sunil Chopra. (2018) 7th Edition. Boston, MA: Pearson Education.
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Political Factors
Infrastructure Factors
Stable
• Political stability of a country is
important in the choice in facility
locations
• Examples
• Availability of good infrastructure is an important
requirement to locate facilities
• Poor infrastructure
– Adds cost (lower efficiency)
– Adds time (lower responsiveness)
– Rules of commerce and
ownership need to be clearly
defined
– Independent and clear legal
systems need to be established
• Key infrastructure elements include:
• Global Political Risk Index (GPRI)
– May be used when investing in
emerging market
– Evaluate b …
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