LOGISTICS NETWORK DESIGN / SYSTEMS CONTROL

1. LOGISTICS NETWORK DESIGN / SYSTEMS CONTROL Industrial Logistics (BPT 3123) Industrial Technology Management Programme Faculty of Technology

2. Chapter Outline • Network Design • Facility Location • Number of Facilities • Logistics Postponement • Operational Objectives • Rapid Response • Minimum Variance and Inventory • Movement Consolidation • Quality

3. Lesson Outcomes • Explain how network design decisions are made • Describe operational objectives of an integrated logistics

4. Network Design • Determining the number and type of facility required, their geographic locations and the work to be performed at each is an important part of network design • Typical logistic facilities are manufacturing plants, warehouses, cross-dock operations and retail stores • It also determines the inventory type and the quantity to be stocked at each facility and the assigning of customer orders for shipment • The network also must integrates information and transportation capabilities

5. Facility Location • Important factors influence location decisions: • Labor (availability and cost) • Proximity of suppliers or customers • Construction costs • Land costs • Taxes • Regulations • Incentive packages • Transportation infrastructure • Quality of life for employees

6. Facility Location • Center-of-Gravity - Attempts to find the lowest-cost location for a facility based on demand and distance • Method • Position the demand locations on a map with X and Y coordinates • Determine the amount of demand (population, weight of products shipped, number of shipments, sales dollar) at each location • Solving for the coordinates by using the following formula:

7. Facility Location Example:

8. Exercise Johnson’s Department Store has decided to build a warehouse to serve its store locations. It has three large stores, one each located in the cities of Sparta, Troy and Athens. The map coordinates of these cities and the weight of shipments per month to each is shown in the following table. Calculate the X and Y coordinates of the center-of-gravity for Johnson’s Department Store. Answer : X* = 62.86 and Y* = 31.43

9. Number of Facilities Factors that directly impact the number of facilities and their location in a network:

10. Number of Facilities Inbound logistics is the management of goods and materials which are arriving at your business premises. It is the opposite of outbound logistics. For example, in a tomato canning plant, inbound logistics is concerned with the receipt and storage of empty cans and raw tomatoes, which arrive separately. Outbound logistics is concerned with the storage of canned tomatoes (the finished product) and deliver to customers.

11. Logistics Postponement • The number of locations has a significant impact on the service provided to customers • When customers require short lead times, the company must have a large number of warehouse – extensive network is certainly not the lowest-cost alternative • Definition - Stock products in a single or only a few locations rather than spread inventory out across a large number of warehouses • Practiced by many firms, particularly those who manufacture high-value density product

12. Facility Network Design • The factors influencing modification of network design are: • Change in demand and supply • Product assortments • Changes in suppliers’ supplies • Manufacturing requirements

13. Operational Objectives • The operational objectives of integrated logistics are the primary determinants of logistical performance • Rapid Response • The firm’s ability to satisfy customer service requirements in a timely manner • Minimum Variance • Variance may result due to delay in expected time of customer order receipt, an unexpected disruption in manufacturing, goods arriving in damaged condition and delivery to an incorrect location

14. Operational Objectives • Minimum Inventory • Minimum inventory involves asset commitment and relative turnover • Total asset commitment is the financial value of inventory deployed throughout the logistical system • Movement Consolidation • Concerned with the transportation cost that directly related to the type of the product , the size of shipment and distance • Quality • To seek continuous quality improvement; if fails, the logistical performance needs to be reversed and the repeated

15. Summary • Network design and facility location are extremely complex decisions involving a number of considerations. • Quantitative techniques such as center-of-gravity can be used to approximate ideal locations. • Determining the proper number of locations involves many cost trade-off as well as a clear understanding of customer’s service requirement