SUPPLY CHAIN MANAGEMENT

Network Design in the Supply Chain

(tambahan untuk memahami modul
supply chain network)

3-1

3-2

Why Network Planning?

Find the right balance between inventory,
transportation and manufacturing costs,
Match supply and demand under
uncertainty by positioning and managing
inventory effectively,
Utilize resources effectively by sourcing
products from the most appropriate
manufacturing facility

3-3

Network Design
Physical configuration and infrastructure of
the supply chain.
A strategic decision with long-lasting
effects on the firm.
Decisions relating to plant and warehouse
location as well as distribution and
sourcing

3-4

Key Strategic Decisions

Determining the appropriate number of
facilities such as plants and warehouses.
Determining the location of each facility.
Determining the size of each facility.
Allocating space for products in each
facility.
Determining sourcing requirements.
Determining distribution strategies, i.e., the
allocation of customers to warehouse

3-5

Demand Allocation Model

Which market is served by
which plant?
Which supply sources are
used by a plant?
xij = Quantity shipped from
plant site i to customer j
Cij= cost of producing and
shipping from plant site I
to customer j
Dj = annual demand from
customer j
Ki = capacity of plant i

Min cij xij

i 1 j 1

s.t.
n

x D
ij

, j 1,...,m

x K

, i 1,...,n

i 1
m

j 1

ij

ij

3-6

Plant Location with Multiple

Sourcing

yi = 1 if plant is located
at site i, 0 otherwise
xij = Quantity shipped
from plant site i to
customer j
fi = annual fixed cost
of keeping factory i
open

Min
i 1

f y c x
i

i 1 j 1

ij

ij

s.t.
n

x D , j 1,...,m
i 1

ij

x K y , i 1,...,n
j 1

ij

y k ; y {0,1}
i 1

5-7
3-7

3-8

Plant Location with Single Sourcing

yi = 1 if plant is located
at site i, 0 otherwise
xij = 1 if market j is
supplied by factory i, 0
otherwise
Dj = annual demand
from customer j

Min
i 1

f y D j c x
i

i 1 j 1

ij

ij

s.t.
n

x
i 1

ij

1, j 1,...,m

D j x K y , i 1,...,n
ij

j 1

xij, y {0,1}
i

5-9
3-9

Example

Single product

Two plants p1 and p2

Plant p2 has an annual capacity of 60,000 units.

The two plants have the same production costs.

There are two warehouses w1 and w2 with

identical warehouse handling costs.

There are three markets areas c1,c2 and c3 with

demands of 50,000, 100,000 and 50,000,
respectively.

3-10

Unit Distribution Costs

Facility
warehouse

p1

p2

c1

c2

c3

w1

w2

3-11

Heuristic #1:
Choose the Cheapest Warehouse to Source
Demand

D = 50,000
$2 x 50,000

$5 x 140,000

Cap = 60,000

$2 x 60,000

D = 100,000
$1 x 100,000

$2 x 50,000

D = 50,000

Total Costs = $1,120,000

3-12

The Optimization Model

The problem described earlier can be framed as the

following linear programming problem.
Let
x(p1,w1), x(p1,w2), x(p2,w1) and x(p2,w2) be the flows
from the plants to the warehouses.
x(w1,c1), x(w1,c2), x(w1,c3) be the flows from the
warehouse w1 to customer zones c1, c2 and c3.
x(w2,c1), x(w2,c2), x(w2,c3) be the flows from
warehouse w2 to customer zones c1, c2 and c3

3-13

The Optimization Model

The problem we want to solve is:
min 0x(p1,w1) + 5x(p1,w2) + 4x(p2,w1)
+ 2x(p2,w2) + 3x(w1,c1) + 4x(w1,c2)
+ 5x(w1,c3) + 2x(w2,c1) + x(w2,c2) + 2x(w2,c3)

subject to the following constraints:

x(p2,w1) + x(p2,w2) 60000
x(p1,w1) + x(p2,w1) = x(w1,c1) + x(w1,c2) + x(w1,c3)
x(p1,w2) + x(p2,w2) = x(w2,c1) + x(w2,c2) + x(w2,c3)
x(w1,c1) + x(w2,c1) = 50000
x(w1,c2) + x(w2,c2) = 100000
x(w1,c3) + x(w2,c3) = 50000

all flows greater than or equal to zero.

3-14

Optimal Solution
Facility
warehouse

p1

p2

c1

c2

c3

w1

140,000

50,000

40,000

50,000

w2

60,000

60,000

Total cost for the optimal strategy is $740,000

3-15