Facility Location Evaluating potential sites – non-tangible criteria Cost – transportation models – Applichem Service facilities Issue of cost minimization vs. response speed Role of inventory

Plant Location Methodology: Factor Rating Method Example Two refineries sites (A and B) are assigned the following range of point values and respective points, where the more points the better for the site location. Sites A B Major factors for site location Pt. Range 123 150 54 24 45 34 8 156 100 63 96 55 14 4 50 20 Best Site is B Total pts. 528 558

Plant Location Methodology: Transportation Method of Linear Programming Transportation method of linear programming seeks to minimize costs of shipping n units to m destinations or it seeks to maximize profit of shipping n units to m destinations.

Applichem – Steps to solve 1. Calculate cost/1,000 units for each alternative (matrix). 2. Calculate total cost/alternative matrix. 3. Calculate total cost of current solution. 4. Solver setup -Target Cell -Minimize -Capacity Constraints -Demand Constraints -Options Linear Solution Non-Negative -Solve

Locating Service Facilities Site screening using regression analysis Profitability = a + b1 x1 + b2 x2 + b3 x3 Variables to include in the model (dependent on situation): Median income of local population Local population size Traffic in front of site Categories of variables: competitive, demand, demographic, physical access.

Matching Supply-Chains with Products Innovative Products Functional Products Efficient Supply-Chain Match Mismatch Responsive Supply-Chain Mismatch Match Marshall Fisher – Efficient vs Responsive Supply Chains

Demand Characteristics Supply Characteristics Functional Innovative Stable Evolving Low demand uncertainty More predictable demand Stable demand Long product life Low inventory cost Low profit margin Low product variety Higher volume Low stockout cost Low obsolescence High demand uncertainty Difficult to forecast Variable demand Short selling season High inventory cost High profit margin High product variety Low volume High stockout cost High obsolescence Less breakdowns Stable and higher yields Less quality problems More supply sources Reliable suppliers Less process changes Less capacity constraints Easier to changeover Flexible Dependable lead times Vulnerable to breakdowns Variable and lower yields Potential quality problems Limited supply sources Unreliable suppliers More process changes Potential capacity constrained Difficult to changeover Inflexible Variable lead time

Low (Functional Products) High (Innovative Products) Demand Uncertainty Low (Functional Products) High (Innovative Products) Supply Uncertainty Low (Stable Process) Grocery, basic apparel, food, oil and gas Efficient Supply Chain Fashion apparel, computers, popular music Responsive Supply Chain High (Evolving Process) Hydro-electric power, some food produce Risk-Hedging Supply Chain Telecom, high-end computers, semiconductor Agile Supply Chain Hau Lee’s Uncertainty Framework – Examples and Types of Supply Chain Needed

Automobile Manufacturing What type of supply chain are these companies opting for these days? Efficient, Responsive, Risk Hedging, Agile Ford BMW Mercedes Benz GM Honda

Faraway Factories Global auto makers increasingly are using remote plants in the developing world to make cars for their home markets. Here are some of the latest examples: 1. Ford in Bahia: Fusion mini-SUV for U.S. (starting 2004) 2. BMW in Rosslyn: 3-series sedans for Japan, Australia, U.S. 3. Volkswagen in Uitenhage: Golf compacts for Europe 4. DaimlerChrysler in East London: Mercedes C-class sedans for Europe 5. Honda in Ayutthaya: unnamed compact car for Japan (starting late 2002) 6. GM in Rayong: Opel Zafira minivans for Europe, Japan 7. Honda in Guangzhou: unnamed cars for Europe and Asia (starting 2004) Source: the companies

Concluding Remarks Struggle between low cost labor and transportation to market. Response is a function of distance to market vs inventory carried locally. Labor productivity is largely a function of automation. Automation greatly impacts flexibility. Global producers have a global set of alternatives to consider. Very rich area for analysis – no shooting from the hip here.