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    Network Design and Facility Location

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    ashish.bms9
    Network design and facility location are primary responsibilities of logistics that determine the structure of a firm's operations. A network includes production facilities, warehouses, distribution centers, and retail stores. It must be determined how many and what type of facilities are needed, where they should be located, who will operate them, and which customer orders each facility will service. The location of facilities significantly impacts logistics costs and customer satisfaction. Logistical network analysis seeks optimal locations for distribution centers and their market areas to reduce costs and lead times through techniques like gravity models. The analysis is strategic but must be periodically reviewed to respond to changing customer, market, and competitive dynamics.

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    Network Design and Facility Location

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    ashish.bms9
    144 views4 pages
    Network design and facility location are primary responsibilities of logistics that determine the structure of a firm's operations. A network includes production facilities, warehouses, distribution centers, and retail stores. It must be determined how many and what type of facilities are needed, where they should be located, who will operate them, and which customer orders each facility will service. The location of facilities significantly impacts logistics costs and customer satisfaction. Logistical network analysis seeks optimal locations for distribution centers and their market areas to reduce costs and lead times through techniques like gravity models. The analysis is strategic but must be periodically reviewed to respond to changing customer, market, and competitive dynamics.

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    Logistics Notes

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    11

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    Network design and facility location are primary responsibilities of logistics that determine the structure of a firm's operations. A network includes production facilities, warehouses, distribution centers, and retail stores. It must be determined how many and what type of facilities are needed, where they should be located, who will operate them, and which customer orders each facility will service. The location of facilities significantly impacts logistics costs and customer satisfaction. Logistical network analysis seeks optimal locations for distribution centers and their market areas to reduce costs and lead times through techniques like gravity models. The analysis is strategic but must be periodically reviewed to respond to changing customer, market, and competitive dynamics.

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    144 views4 pages

    Network Design and Facility Location

    Uploaded by

    ashish.bms9
    Network design and facility location are primary responsibilities of logistics that determine the structure of a firm's operations. A network includes production facilities, warehouses, distribution centers, and retail stores. It must be determined how many and what type of facilities are needed, where they should be located, who will operate them, and which customer orders each facility will service. The location of facilities significantly impacts logistics costs and customer satisfaction. Logistical network analysis seeks optimal locations for distribution centers and their market areas to reduce costs and lead times through techniques like gravity models. The analysis is strategic but must be periodically reviewed to respond to changing customer, market, and competitive dynamics.

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    Network design and Facility Location

    Net work design is a primary responsibility of logistical function as the firm’s facility
    structure provides the products for the customer. Network or facility structure includes
    production facilities, warehouses, cross-dock operations, and retail stores. How many
    facilities are required, what work is to be performed [what is to be produced/what
    inventory is to be stocked and how much] in these facilities, where they are to be
    located [geographical locations], who [whether the operation in the facility is out
    sourced] will operate these facilities are some of the salient features of net work
    design. Logistics will also have to determine what customer orders are to be serviced
    from where. All the logistical operations are performed in the network of facilities.
    Network incorporates information and transportation capabilities.
    Cost of bringing in inputs and moving outputs to market depends on the location of the
    facilities. Inadequate location adds to logistics costs in addition to being counter
    productive for customer satisfaction.
    Logistics network
    [Bardi, pages 505, Bowersox pages 555……….]
    Logistical Network is the location of logistical & manufacturing facilities of a firm.
    This assumes importance as logistical cost is influenced by the location of these
    facilities. Strategically located facilities help managers reduce costs & lead times.
    Location Analysis should address the following questions
    1. How many distribution centers the firm should use, where should these be located?
    2. Which market area is to be served from each distribution center?
    Importance of location analysis or logistical network design
    1. This is strategic in nature. Short term location decisions by and large are
    unchangeable as change becomes very complex and prohibitively expensive. But this
    decision needs to be reviewed by management periodically to keep in step with
    dynamics of business. If management is not agile in taking cognizance of such factors
    as mentioned below consequences can be disastrous for the firm.
     Changing customer service requirements. Service expectations of customer are
    becoming higher. There is constant pressure to reduce lead times and costs.
    Customers believe in long term relationship or strategic partnership with suppliers

    1
     While demand for superior logistical service is intense, the customers served are
    also changing! A firm selling their products through their own chain of retailer
    shops has now found a big customer who specializes in running such chains. A
    firm selling to variety of customers big and small has one or two big mass
    merchants as customers. This change causes impact on so many logistical factors
    like lead time, order size and frequency and associated activities such as shipment
    notifications, markings and packaging.
     Dynamics of marketplace: shifting locations of customer and or supply market.
    • When the suburbs of Mumbai became densely populated with considerable
    purchasing power, companies had to consider strengthening their logistical
    network to cater to the needs of this new market place. Flight of industries from
    Mumbai to other cities in Maharastra or outside is also an example of this
    dynamism in market.
    • Such changes also take place on the inbound side, as concept of JIT has moved
    suppliers closer to the customer influencing the network on the inbound side
    • New raw materials deposits also calls for a review of network on the inbound side
    • Global scene – unification of Germany, collapse of USSR, emergence of Asian
    countries as good manufacturing or outsourcing locations for American industrial
    giants.
     Change in corporate ownership and subsequent changes in corporate policies –
    addition or deletion of a product line. If it is a merger or acquisition realigning
    strengths of merging companies.
    2. Impact on cost of moving the product to the customer.
     Analysis of logistical network yields opportunities for cost reduction.
    • High labor cost, companies out sourcing jobs to cut on labor cost
    • Cost of transportation
    • Cost of inventories
    3. Influence of inventory levels in the firm, the square root law
    4. Has direct impact on ‘Delivery’ expectations of the customer and thereby on
    customer satisfaction.

    2
    5. Competitive action – to be able to be competitive to the customer with respect to
    competition
    6. Corporate organizational changes such as down sizing and reengineering
    7. Globalization and logistical channel design: channel differences are seen within the
    country and they are all the more pertinent in global business. The differences in
    vehicle sizes, road and bridge restrictions, differences in material handling and
    information systems and trade agreements. This has added importance to the location
    analysis.
    Location Analysis techniques: Location analysis is done based on complex and huge
    volume of data. Hence sophisticated modeling techniques are employed.
    Gravity model: a simple model that takes into account the load of inventory
    transferred and the distance over which it is transferred.
    Use a flat board on which stick the map of market area. Locate the sources and
    destinations of inventory with the help of coordinates. Use weights to represent the
    inventory tonnage to be transferred for each source and destination. Tie these weights
    to strings and pass the strings through the wholes bored at respective source and
    destination points. The free ends of the strings are tied together. If the strings can
    move friction free the knot takes a position of equilibrium which represents the
    location of a distribution center.
    This model can be worked out analytically as explains din the class. When dissimilar
    transportation rates interact the models further modified analytically as explained in
    the class.
    The strength of the model is easy computability. It serves as a good starting point. As
    the location decision depends an several factors in addition to transportation, the
    outputs of this model are not final. The weakness of this model is that it suggests a
    single location.
    Limitations:
    1. single point location
    2. transportation rates are linear
    3. topography is not considered
    4. moves are not realistic but in x & y directions

    3
    Sensitivity analysis of above decision
    Ton, mile - center model: when we have to locate a warehouse in a city for
    distributing products in the market a modified version of the above model is used
    refer to the class notes
    Median model: refer to class notes

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