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Logistics Network Design for Global Operations

OBJECTIVES
Logistics Network Configuration Orientation of Facility Networks
By Market, By Product, and By Process

New Product Allocation

The Value Chain of the Firm

Materials/Services Flow Inbound Logistics Operations Outbound Marketing Service Logistics & Sales Customers
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Suppliers

Information Flow

Materials/Supply Mgmt

Distribution/Channel Mgmt

Logistics
Logistics is the management of flows between business functions (Council of Logistics Management 1991) Logistics is the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements

Key Characteristics of Logistics Network Configuration

Modularization
A product design approach in which the product is assembled from a set of standardized constituent units Associated with inbound logistics

Postponement
A value-addition process for a set of end products in which the customization of the product is postponed as late as possible Associated with outbound logistics

Framework for Supply Chain Structure

High Outbound postponeme ent M A P P P Postponed M M A P M M Low Low Rigid Modularized High A P M M M Flexible A P P P

Inbound sourcing

Orientation of Facility Networks

Where to locate facilities? How to allocate production activities to the various facilities? How to manage the distribution of products? How to develop suppliers for the production facilities? How to organize the interfaces along the supply chain?

Orientation of Facility Networks: Considerations

Markets Products to produce and sell Demand projections for different markets Macroeconomic conditions Transportation costs Production economics

Whether to Locate Production Facilities Abroad

Five categories of factors to determine g whether to locate production facilities abroad
Access to low production input Proximity to market Use of local technological resources Control and amortization of technological assets Preemption of competition

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Orientation of Facility Networks

Market focus
Each plant produces the entire product line for its respective market

Product family focus

Each plant specializes in a specific product family

Process focus
Each plant specializes in specific steps of the manufacturing process

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Market Focus
Advantages g
Proximity to market, transportation economies, product well-adjusted to the market needs

Disadvantages
Economies of scale not exploited duplication exploited, of process equipment, difficulty in new product introduction

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Product Family Focus

Advantages g
Economies of scale, high level of product learning, more standardized quality, easy introduction of new products

Disadvantages
Lack of local presence exchange rate presence, exposure, transportation diseconomies

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Process Focus
Advantages g
Economies of scale, high level of process learning, no duplication of process equipment

Disadvantages
Exchange rate exposure, transportation exposure diseconomies, difficulty in coordinating production scheduling at component and assembly facilities, difficult to control the product quality

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Choice of Facility Orientation

High Marke eting requiremen nts Apparel Computers Process Product family Electronics Market Tools Low Low Manufacturing complexities High

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New Product Allocation

How to allocate a new product among the p g existing manufacturing facilities? Two considerations
Site competency
The ability of the manufacturing facility to manage the current operations and absorb a new product

Process technology complexity

The complexity of the process required to produce the product

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New Product Allocation Matrix

High Site competency e Low Low High Process technology complexity

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New Product Allocation Matrix: Example with Four Facilities

P1 High Site competency e C D P3 P2

A Low

Low High Process technology complexity