The Supply Chain Network
This section looks at the role of supply chain networks, initially addressing the questions concerning the location of facilities, allocating capacity and allocating markets within a supply chain network.
Supply Chain Networks: The Role
Decisions regarding supply chain networks fall into four classifications:
- Facility role;
- Facility location;
- Capacity allocation;
- Market and supply allocation.
Performance is affected by the decisions regarding the design of the supply chain network. They can determine the configuration of the supply chain and set out the constraints within which other drivers can be used to reduce cost or increase responsiveness. Network design decisions impact each other. For example, the decisions concerning each facility are important because they establish the supply chain has flexibility in meeting its demands.
Because it is expensive to close a plant or relocate, decisions about where to locate it have a long-term effect on the efficiency of the supply chain. An excellent location allows the supply chain to increase responsiveness and keep costs low.
The allocation of capacity has a similar impact on supply chain performance as much as it impacts total production, inventory and transportation. Capacity can be altered more easily than facility location, as these decisions impact usage and result in high costs. Allocation of too little capacity creates low responsiveness and the need to transport from other locations, resulting in increased costs.
The competitive advantage of a company influences discussions on network design. Those who focus on responsiveness locate their facilities closer to the market, allowing them to react quickly to changes in their chosen markets. Companies that concentrate on low-cost strategies tend to find locations for their manufacturing needs within low-cost areas, regardless of the potential increases apparent with transporting the goods to the customers.
Strategic Factors
Competitive strategy impacts decisions regarding the network design of the supply chain. Organisations focusing on cost leadership find the lowest cost location for their manufacturing facilities.
For example, companies move from their home nation to areas with low labour costs.
Organisations that focus on competitiveness tend to locate closer to the market to enable a quick response to market changes. For example, convenience stores provide access to customers as part of their competitive strategy.
Supply chains that operate globally support their strategic objectives by locating facilities in different countries which play different roles. For example, a company may have Asian production facilities focusing on cost and producing mass-market low-cost products. In contrast, other global facilities may focus on responsiveness and provide high-priced newly designed products. Therefore, this differentiation allows the company to satisfy various demands profitably.