Facility Network DesignFacility Network DesignConcepts – Session I9.00 am – 10.15am ICFAI Business School – Executive MBA

Subhajit MazumderEmail: subhajit.mazumder@gmail.com

Views expressed are personal and do not include any point of view of the speaker’s organization

AgendaAgenda

� Introduction� Broader perspective of Facility Network

Design� Factors influencing Facility Network

Design� Decision Process

IntroductionIntroduction� Facility

◦ Production facility� E.g. factories, plants, assembly lines

◦ Distribution facility� E.g. state level warehouses, district level, last mile

◦ Development facility� E.g. off-shore development facility, on-site facility,

near-shore facility

� Business enabler� State-of-the-art

IntroductionIntroduction

�Why network?◦ Concept of supply chain network◦ Multiple linkages◦ Multi-location / Multi-site business models◦ Competitive advantage of being networked

� Examples◦ Supply / Sourcing networks◦ Distribution networks e.g. FMCG◦ Service over ICT networks

IntroductionIntroduction� Facility Network Design is important

◦ When a new business model is being setup e.g. greenfield initiative

◦ When supply chain strategy is being re-worked

◦ Supply chain partners / internal capabilities are being re-aligned

◦ Customer service levels demand improvement in facility network

◦ At all levels: strategic, tactical and operational levels

Broader perspective of Facility Broader perspective of Facility Network DesignNetwork Design� Decision on facility location will depend on

◦ Geographic significance – how developed / attractive the location itself is

◦ Proximity from other key facilities / locations◦ Transportation and other logistics availability◦ Availability of resources as required – cheap

labor, skilled labor, educated personnel◦ Cost of setting up the facility◦ A conducive business environment – cultural,

political, environmental, economic, competitive

Broader perspective of Facility Broader perspective of Facility Network DesignNetwork Design� Some examples .. Lets discuss

◦ Tata Motors, Singur◦ Infosys Development Centers◦ Steel plants

� Some aspects can be quantified financially and some cannot be quantified◦ Business acumen of managers◦ The fuzzy area

Factors influencing Facility Network Factors influencing Facility Network DesignDesign� Strategic factors (Porter’s generic

strategies)◦ Cost◦ Differentiation◦ Focus� Different types of facilities

◦ Offshore – cost◦ Source – cost and differentiation (quality

production)◦ Server - cost

Factors influencing Facility Network Factors influencing Facility Network DesignDesign

◦ Contributor – cost and differentiation (value added services)

◦ Outpost – local knowledge, skills, competence◦ Lead facility – differentiation focus (new

processes, products, technologies)� Technological factors

◦ Scale of technology investment e.g. oil refinery facilities

◦ Availability of technological enablement� Economic factors

◦ Tariffs, Taxes – SEZs, EPZs, STPIs

Factors influencing Facility Network Factors influencing Facility Network DesignDesign� Political factors

◦ Stability◦ Vision◦ Support – laws, regulations, investment in necessary

infrastructure, incentives� Infrastructure factors

◦ Well connected – by roads, rail, air, ship, pipelines, power supply, ICT connectivity

� Proximity to suppliers, markets◦ Responsive supply chain – near customers for faster

feedback◦ Efficient supply chain – near raw materials / resources

Factors influencing Facility Network Factors influencing Facility Network DesignDesign� Other factors

◦ Climate◦ Quality of life for personnel to be stationed◦ Scalability◦ Modularity

Facility network decision processFacility network decision process� A supply chain strategy

◦ Broad strategies are: efficient / responsive◦ Would depend on nature of products / services

produced and delivered◦ Customer segments◦ Business model and where the product is in its

lifecycle� Study of regional market configuration

◦ Demand forecast at each region◦ Homogeneous / heterogeneous demand◦ Economy of scale / scope ◦ Risk evaluation / assessment

Facility network decision processFacility network decision process

� Identifying set of potential sites◦ Which are in line with the SC strategy◦ Which have favorable market configuration

� Selecting the location◦ Out of the set of potential sites◦ Minimize costs◦ Maximize profits◦ Could result in some competitive advantage� E.g. better understanding of local needs / tastes

Decision modelsDecision models� Gravity location model

◦ Identifies potential locations in each region where a facility is being planned

◦ Within a region◦ To find locations where the cost of transportation / flow

materials will be minimal� E.g. Steel appliance manufacturer

◦ Assembly factory in one location supplying entire country◦ Demand has grown and new plant setup is being

considered◦ Supply sources and their capacity and demand from

markets are known◦ Transportation cost / mile is known (for both)

Decision modelsDecision models◦ Assumption� Markets and Supply Sources can be represented as

grid points on a plane (xn yn)� Transportation cost grows linearly with quantity

shipped� Fn is the cost of shipping one unit for one mile

between the facility and either market / supply source� Dn is quantity to be shipped between the facility

and either market / supply source

Decision modelsDecision models◦ Data available

◦ If (x, y) is the location selected for the facility, the distance dn between the facility and the market / supply source is given by� Dn = SQRT(x – xn)2 + (y – yn)2)� Total Cost = Sum n=1, k (dn, Dn. Fn)

Decision modelsDecision models

� Linear Programming model◦ Tool used in planning and finding most optimal

solution◦ Consists of� Objective function� Constraints� Solution by graphical methods� Solution by excel solver

Decision modelsDecision models� Transportation (demand – capacity

allocation)◦ Identifies a distribution n/w which minimizes

transportation◦ Ignores geographical layout◦ Satisfies overall supply and demand requirements◦ Assumptions� Transportation costs are a linear function of the no. of

units shipped� Transportation cost per unit is fixed irrespective of the

quantity shipped� Total supply matches Total demand

Decision modelsDecision models

� Generic equation to solve transportation problem◦ Cost (min.) = sum (costs x Shipment

quantities)◦ subject to� Total received = Total demand� Total shipment = Total supply� All values should be greater than 0

Decision modelsDecision models

� E.g.

� Least cost solution

Thank YouThank You

subhajit.mazumder@gmail.com