Network Design and Facility Location

We begin this chapter with a brief review of supply chain strategic planning, which will serve to provide a general perspective on the topics of network design and facility location . This discussion includes an overview of the major factors that firms consider in their network design strategic planning process. Next, we review a case study of a distribution network design problem where a firm evaluates whether it should reduce the number of distribution centers on its current network. This case study illustrates the type of costs that a firm must analyze in a DC network design problem, and how planners calculate these costs. We then discuss how companies employ advanced techniques such as mathematical optimization in their strategic network design and location planning processes. We describe in straightforward terms what optimization models are, and the types of strategic network design problems that they can solve. We also review how optimization models can facilitate tactical manufacturing and distribution planning. Next, we illustrate a technique called the factor rating method. Planners often employ this simple mathematical tool to determine which potential site among a set of candidate locations in a specific geographic area best meets a firm’s needs.