LOGISTICS NETWORK DESIGN / SYSTEMS

CONTROL

Industrial Logistics (BPT 3123)Industrial Technology Management Programme

Faculty of Technology

Chapter Outline• Network Design• Facility Location• Number of Facilities• Logistics Postponement

• Operational Objectives• Rapid Response• Minimum Variance and Inventory• Movement Consolidation• Quality

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

logistics

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

• Important factors influence location decisions:1. Labor (availability and cost)2. Proximity of suppliers or customers3. Construction costs4. Land costs5. Taxes6. Regulations7. Incentive packages8. Transportation infrastructure9. Quality of life for employees

Facility Location

Facility Location• Center-of-Gravity - Attempts to find the lowest-cost

location for a facility based on demand and distance• Method

a. Position the demand locations on a map with X and Y coordinates

b. Determine the amount of demand (population, weight of products shipped, number of shipments, sales dollar) at each location

c. Solving for the coordinates by using the following formula:

Facility LocationExample:

ExerciseJohnson’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.

City X Coordinate Y Coordinate Weight / Month

Sparta 25 50 100 tonsTroy 75 10 200 tons

Athens 90 80 50 tons

Answer : X* = 62.86 and Y* = 31.43

Factors that directly impact the number of facilities and their location in a network:

Number of Facilities

Transportation cost

Inventory cost

Total network cost

Number of FacilitiesInbound 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.

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

• The factors influencing modification of network design are:– Change in demand and supply– Product assortments– Changes in suppliers’ supplies– Manufacturing requirements

Facility Network Design

Operational Objectives• The operational objectives of integrated logistics are

the primary determinants of logistical performancea. Rapid Response

• The firm’s ability to satisfy customer service requirements in a timely manner

b. 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

c. Minimum Inventory• Minimum inventory involves asset commitment and

relative turnover• Total asset commitment is the financial value of

inventory deployed throughout the logistical system

d. Movement Consolidation• Concerned with the transportation cost that directly

related to the type of the product , the size of shipment and distance

e. Quality• To seek continuous quality improvement; if fails,

the logistical performance needs to be reversed and the repeated

Operational Objectives

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