Network Design Decisions: Phase I: The objective of the first phase of network design is to define a firms broad supply chain design. This includes determining the stages in the supply chain and whether each supply chain function will be performed in-house or outsourced. This phase requires a clear understanding of the competitive strategy and what the supply chain aims to satisfy (value proposition). The supply chain function needs to recognize the capabilities the network must have to support the strategy. Of course, the supply chain function will have constraints to be recognized such as capital. Phase II: With respect to the facilities driver, the SC function must determine the location of the facilities, their potential roles and their level of capacity. This requires understanding of the demand network and forecast i.e., where the demand is located and how much each location would require in the future. Other factors should also be analyzed such as political and currency risk, but also the competitive landscape. Phase III: Select a set of desirable potential sites within each identified region. Many factors should be considered in this task. Phase IV: Select a precise location and capacity allocation for each facility. Exercise. The following exercise will help illustrate this selection process. Consider this worldwide manufacturer of petrochemical products. Your task is to help the VP of supply chain optimally design her distribution network. The next table gives you available information on variable production and transportation costs (inc. taxes and tariffs) per million units, for each supply and demand node Note that the demand locations are real, but the supply locations are still hypothetical. Example: If a facility is designed and located in Europe and if this facility decides to produce and supply 1Million units to its point of sales in Asia, then the estimated cost of manufacturing and transportation are $119K. So cost are in thousands of USD and units are in millions. The demand team has worked on yearly demand forecasts. Today the company estimates the following forecast for each demand region (again in millions of units): Supply/Demand Region N. America S. America Europe Asia Africa N. America 81 92 101 130 115 S. America 117 77 108 98 100 Europe 102 105 95 119 111 Asia 115 125 90 59 74 Africa 142 100 103 105 71

The manufacturing company is wondering where to locate its facilities and what should be the level of capacity of each facility. With respect to the latter, it has choices between low capacity and high capacity. The cost of capacity are fixed and annualized and given below Your objective is to help the VP of supply chain decide on the location and the capacity levels of the supply facilities when you only care about costs. Suggest a plan for the VP that details the facilities location and capacity and, the distribution flow. What if you care about profit, revisit your analysis above knowing that the prices you charge per unit in different regions are not the same and given below: (prices are in USD) Submit a pdf report to be discussed with the CEO. Any technical details should be in the appendix. You can also submit an excel file but youre not guarantees the CEO will have time to look at it. Discuss your solution (in each case) and put it in context with the four phases introduced at the beginning of this document N. America S. America Europe Asia Africa 12 8 14 16 7 Fixed Low Fixed High Supply Cost ($) Capacity Cost ($) Capacity N. America 6000 10 9000 20 S. America 4500 10 6750 20 Europe 6500 10 9750 20 Asia 4100 10 6150 20 Africa 4000 10 6000 20

Your objective is to help the VP of supply chain decide on the location and the capacity levels of the supply facilities when you only care about costs. Suggest a plan for the VP that details the facilities location and capacity and, the distribution flow. What if you care about profit, revisit your analysis above knowing that the prices you charge per unit in different regions are not the same and given below: (prices are in USD)

demand Region N. America S. America Europe Asia Africa price 5 3 7 6 6

Submit a pdf report to be discussed with the CEO. Any technical details should be in the appendix. You can also submit an excel file but youre not guarantees the CEO will have time to look at it. Discuss your solution (in each case) and put it in context with the four phases introduced at the beginning of this document