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Phase I: Define a Supply Chain Strategy
The objective of the first phase of network design is to define a firm's supply chain strategy.The supply chain strategy specifies what capabilities the supply chain network must have to support a firm's competitive strategy.Phase I starts with a clear definition of the firm's competitive strategy as the set of customer needs that the supply chain aims to satisfy.Next,managers must forecast the likely evolution of global competition and whether competitors in each market will be local or global players.Managers must also identify constraints on available capital and whether growth will be accomplished by acquiring existing facilities,building new facilities,or partnering.Based on the competitive strategy of the firm,an analysis of the competition,any economies of scale or scope,and any constraints,managers must determine the supply chain strategy for the firm.
Phase II: Define the Regional Facility Configuration
The objective of the second phase of network design is to identify regions where facilities will be located,their potential roles,and their approximate capacity.An analysis of Phase II is started with a forecast of the demand by country.Such a forecast must include a measure of the size of the demand as well as a determination of whether the customer requirements are homogenous or variable across different countries.The next step is for managers to identify whether economies of scale or scope can play a significant role in reducing costs given available production technologies.Next,managers must identify demand risk,exchange rate risk,and political risk associated with different regional markets.They must also identify regional tariffs,any requirements for local production,tax incentives,and any export or import restrictions for each market.The tax and tariff information is used to identify the best location to extract a major share of the profits.In general,it is best to obtain the major share of profits at the location with the lowest tax rate.Managers must identify competitors in each region and make a case for whether a facility needs to be located close to or far from a competitor's facility.The desired response time for each market must also be identified.Managers must also identify the factor and logistics costs at an aggregate level in each region.Based on all this information,managers will identify the regional facility configuration for the supply chain network using network design models discussed in the next section.The regional configuration defines the approximate number of facilities in the network,regions where facilities will be set up,and whether a facility will produce all products for a given market or a few products for all markets in the network.
Phase III: Select Desirable Sites
The objective of Phase III is to select a set of desirable sites within each region where facilities are to be located.The set of desirable sites should be larger than the desired number of facilities to be set up so that a precise selection may be made in Phase IV.Sites should be selected based on an analysis of infrastructure availability to support the desired production methodologies.Hard infrastructure requirements include the availability of suppliers,transportation services,communication,utilities,and warehousing infrastructure.Soft infrastructure requirements include the availability of skilled workforce,workforce turnover,and the community's receptivity to business and industry.
Phase IV: Location Choices
The objective of this phase is to select a precise location and capacity allocation for each facility.Attention is restricted to the desirable sites selected in Phase III.The network is designed to maximize total profits,taking into account the expected margin and demand in each market,various logistics and facility costs,and the taxes and tariffs at each location.