Supply Chain Management

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Supply Chain Management
Network Design and Facility Location

Classical Theories

von Thunen
Agricultural activity occurs in a “limitless plain of equal fertility” with a city in the middle Theorized that:
City price = origin price + transport costs Transport costs = f {weight & distance}

As a result
Products having high weight/value ratio should be produced near the city (see next slide)

Other Contributions
Land values decrease as move from city More intense land utilization near cities

Classification of Materials as:
Localized vs. Ubiquitous (available everywhere) Pure vs. Weight-Losing

How does a raw material’s status as pure, weight-losing, or weight-gaining influence the facility location decision? A pure
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Percent Service Level Within Promised Time
Facilities Inventory Transportation Labor

Number of Facilities

Organizations should be thinking about the optimal number of facilities in the system. The need for additional facilities often arises when an organization’s service performance from existing facilities drops below “acceptable” levels. The general trend in recent years has been for companies to reduce the number of facilities in their distribution networks.

Cost of Operations

Network Design and Facility Location
Reasons for Location Decision Steps in the Location Decision Location Determinants Location Evaluation Methods

Strategic Location of Facilities
Types of Location Decisions
– Suppliers – Manufacturing – Distribution – Customers

Reasons for the Location Decision
– New Markets / New Products – Facility Modernization – Shifts in Economic Conditions – Competitive Pressures – Global Issues – Increased Customer Service Requirements


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