Advanced Supply Chain
Management
Week 1
Lecture Monday: Designing the supply chain network
Key factors to be considered when designing a supply chain network
Two dimensions
1. Value provided to customers
2. Costs of meeting customers needs
Value is affected by supply chain:
Response time
The more facilities the lower the response time, with diminishing returns.
Product variety
Product availability
Customer experience/convenience
Time to market
Advanced Supply Chain Management 1
, Order visibility
Returnability
Supply chain decision-making framework
Six factors: Facilities, inventory, transportation, information, sourcing,
pricing.
Where Inventory, Transportation, Facilities and Information are affected by
the supply chain design.
Inventory costs
The more facilities the higher the inventory costs, with diminishing marginal costs
Advanced Supply Chain Management 2
, In the beginning: every facility has new inventory cost, so it
increases steep
Then due to every facility having less inventory (spread over all
facilities) it diminishes
Transportation costs (inbound and outbound)
The outbound transportation costs lower with more facilities, where the inbound will
increase with more facilities. In total the costs decrease at first at at a certain point
increase.
Facility costs (set-up and operation)
The more facilities, the higher the facility costs
Advanced Supply Chain Management 3
, Logistic costs and response time
Logistics costs= Inventory costs + Transport costs + Facility costs
An increase in number of facilities means a decrease in response time. However,
the costs will eventually rise again. So, the optimal point is where the response and
the costs are the lowest.
Other factors that might influence the number of facilities
Preference for local initiatives
Supply chain risk / resilience
Distance-dependent demand
International agreements
The strengths and weaknesses of various network design options
Two key decisions
1. Will products be delivered straight to the customer location or picked up
from a prearranged site?
Advanced Supply Chain Management 4
Management
Week 1
Lecture Monday: Designing the supply chain network
Key factors to be considered when designing a supply chain network
Two dimensions
1. Value provided to customers
2. Costs of meeting customers needs
Value is affected by supply chain:
Response time
The more facilities the lower the response time, with diminishing returns.
Product variety
Product availability
Customer experience/convenience
Time to market
Advanced Supply Chain Management 1
, Order visibility
Returnability
Supply chain decision-making framework
Six factors: Facilities, inventory, transportation, information, sourcing,
pricing.
Where Inventory, Transportation, Facilities and Information are affected by
the supply chain design.
Inventory costs
The more facilities the higher the inventory costs, with diminishing marginal costs
Advanced Supply Chain Management 2
, In the beginning: every facility has new inventory cost, so it
increases steep
Then due to every facility having less inventory (spread over all
facilities) it diminishes
Transportation costs (inbound and outbound)
The outbound transportation costs lower with more facilities, where the inbound will
increase with more facilities. In total the costs decrease at first at at a certain point
increase.
Facility costs (set-up and operation)
The more facilities, the higher the facility costs
Advanced Supply Chain Management 3
, Logistic costs and response time
Logistics costs= Inventory costs + Transport costs + Facility costs
An increase in number of facilities means a decrease in response time. However,
the costs will eventually rise again. So, the optimal point is where the response and
the costs are the lowest.
Other factors that might influence the number of facilities
Preference for local initiatives
Supply chain risk / resilience
Distance-dependent demand
International agreements
The strengths and weaknesses of various network design options
Two key decisions
1. Will products be delivered straight to the customer location or picked up
from a prearranged site?
Advanced Supply Chain Management 4
