Seminar : Facility Location Planning

1
Seminar Facility Location Planning

• Theme 4
• Facility Location Planning and Global
  Manufacturing Strategy
• 28. Oct. 2002
• Wen Jiang
• Viktor Baasch

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Contents
• Introduction (Wen Jiang)
• Manufacturing Strategy (Wen Jiang)
• Designing Global Supply Chain Strategies
• 3.1. Comparative and Competitive Value-Added
  Chains (Wen Jiang)
• 3.2. Operational Flexibility (Viktor Baasch)
• A Mathematical Model (Viktor Baasch)
• Complexity of Production Distribution Network
  with Globalization (Wen Jiang)
• Compromise and Conclusion
• (Viktor Baasch and Wen Jiang)

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• Introduction
• Economical success require facility location
  planning and manufacturing strategy
• Changes in today's global economic environment
  need global supply chain strategies
• ? to obtain competitive advantage with
  deployment of comparative advantages
• ? operational flexibility, for example,
  production shifting for lowering production costs
  
• Disadvantage increased complexity
• ? structural complexity
• ? uncertainties complexity (fluctuating exchange
  rate, interest rate in international market)

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• 2. Manufacturing strategy
• Manufacturing strategy plays an important role
  among the firms corporate and business
  strategies
• To make manufacturing operation efficient is
  quite complex for every company
• Evidence American neglect of the manufacturing
  function
• result decline in US industrial competitive
  strength

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• 2.1 Hierarchical Levels of Planning
• Corporate level goals
• ?
• Business level a good run in every business
• ?
• Functional level a detailed plan
• Important vertical integration of three levels

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

6
Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• Figure 1 A three level corporate hierarchy

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• 2.2 Structural decisions and infrastructural
  decisions
• Framework for manufacturing strategy
• 6 performance measures
• cost, quality, delivery performance,
  flexibility, innovativeness, time-based
  competition
• 9 categories of manufacturing strategy decisions
• - Structural decisions facilities, capacity,
  vertical integration, processes and technologies,
  vendor relations
• - infrastructural decisions scope and new
  products, human resources, quality,
  infrastructure
• Structural decisions are especially crucial for
  designing production-distribution system

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

8
Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• An example of manufacturing strategies' vertical
  integration
• Corporate level profit maximization
• ?
• Business level (SBU) capacity deciding
• ?
• Functional level marketing sales, finance
  department
• - marketing sales department how to deal with
  existing demand whether to add capacity to meet
  unexpected demand in the coming high season
• - finance department whether there are
  financial opportunities to support the program

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• 3. Designing global supply chain strategy
• Changes in today global economic environment,
  such as
• Cut of trade barriers and tariffs
• Improvements in transportation and communication
• Convergence of consumer tastes
• Unsteady financial markets
• ? increased benefits of developing multinational
  companies global supply chain strategies
• The global supply chain strategy involves both
  operational and financial decisions
• High costs and risks, but potential significant
  payoffs

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• 3.1. Comparative and competitive value-added
  chains
• 3.1.1. Value-added chain of competitive and
  comparative advantage
• Definitions
• Competitive advantage firm specific advantage
• Comparative advantage location specific
  advantage
• The value-added chain the process by which
  technology is combined with material and labor
  inputs, and then processed inputs are assembled,
  marketed and distributed.

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Interpretation of competitive advantage
• 2 washing machine manufacturers A and B. A
  specialized in production, B specialized in
  after-sales service
• Now market demand for washing machine with strong
  customer service increased
• Then B will put more investments on service, so
  to strengthen its distinctive competence relative
  to A
• Interpretation of comparative advantage
• USA, Japan have comparative advantage in
  technology and human capital - intensive
  manufacturing
• ? Research Development activities
• China, India have comparative advantage in labor
  costs
• ? Assembly

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Figure 2 value-added chain of comparative
  advantage

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• 3.1.2. Interrelation between competitive and
  comparative advantage
• Comparative advantage is inherited, competitive
  advantage is created
• Idea move from comparative to competitive
  advantage
• Evidence in the flying geese formation
• New goods are produced and exported in Japan
  earlier than other Asian countries
• As these goods become standardized and profit
  margins fall, production and export move to the
  so-called four tigers of Asia
• For similar reasons, moves to Malaysia and
  Thailand, and then to Indonesia
• In the meantime, Japan develops and exports other
  goods, the product cycle begins again
• The comparative advantage found in the flying
  geese formation responsible in large part for
  the high and growing competitiveness of East Asia
  over the last few decades

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Moving from countries comparative advantage to
  competitive advantage ? 3 major transitions
• (1) from a traditional specialization to
  factor-driven competitive advantage,
• (2) from factor-driven competitive advantage to
  investment-related competitive advantage and
• (3) from investment-related competitive
  advantage to innovation-driven competitive
  advantage
• Illustration with Japanese television industry in
  American

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• In 60 s Japanese TV manufacturer entered into
  the American market relying on large-scale
  production, namely lower labor costs in home
  plants ( the first transfer from a traditional
  specialization to factor-driven competitive
  advantage)
• In response to American manufacturer rivalry,
  heavy investment in product quality ? cut down of
  requirement for after-sales service (the second
  transfer from factor-driven competitive advantage
  to investment-related competitive advantage)
• Placing investment in distribution channels and
  brand building (the third transfer from
  investment-related competitive advantage to
  innovation-driven competitive advantage)

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• 3.2. Operational Flexibility - Financial
  Decisions
• Arbitrage opportunities
• Government offer of subsidized loans intended
  for local investment to multinational companies
• multinational companies' utilization of the
  chance to transfer the loans outside by
  remittance
• Leverage opportunities
• Creation of market or bargaining power because of
  the global position of the firm
• Example Michelin entered into North American
  market, Goodyear cut down price in Europe so as
  to stop Michelin investment in North American
  (loss in Europe can be made up by profit gained
  in other regions)

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• 5. Complexity of production-distribution network
  with globalization
• Followed with a trend of globalization in the
  1990s, many companies set up new
  production/distribution networks outside own
  country
• ? lowering production and logistics costs
• ? grasp of regionally available skills and
  process know-how
• ? nearness to local customers
• ? disadvantage increased complexity of
  structural and uncertainty complexity

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• structural complexity
• Operations integration throughout the entire
  system of manufacturing facility around the
  world, not just rationalization operations within
  each individual plant
• Structural decisions at each facility with
  international context, integration of facility
  location, capacity acquisition and technology
  selection decisions
• case study a freight transportation problem

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• Case study A freight transportation problem
• Background
• Economies of scale exists in shipping costs with
  respect to volume of shipment, namely as the size
  or volume of shipments increases, the shipping
  cost per unit decreases
• Intermediate terminals are desirable where small
  quantities shipments can be combined or
  consolidated, so that the total size or volume of
  shipment rises and the shipping cost per unit
  reduces
• For each source-destination pair, to decide
  whether to ship of the product directly or via a
  consolidation terminal
• Shipping costs are piecewise linear concave
  functions of the volume shipped, shipping via a
  terminal incurs a linear inventory holding cost
  and extra transit time

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Figure 3 Structure of freight transport problem

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Classical location-distribution problem
• Unidirectional movements from plants through
  warehouse to clients
• Objective cost minimization
• Restrictions
• Shortest traveling path
• Costs minimization of terminal opening and
  operation
• Timely delivery performance to customer
• Comparing concave cost facility location problem
  with classical location-distribution problem
• both direct and indirect (via a terminal)
  shipments are possible
• Objective cost minimization of direct and
  indirect transportation
• Restrictions are not kept, because
• The traveling distance may be raised due to
  transfer via terminals
• Extra stocking cost incurs
• By indirect transport, products are shipped via a
  terminal, extra transit time is required, so
  timely delivery to customer cannot be performed

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Result traditional algorithms cannot solve
  multi-product problem
• ? structural complexity
• A multi-product location-distribution problem can
  be
• Linear or not linear
• Concave ( as well as the freight transport
  problem)
• Convex
• Otherwise
• Deterministic or stochastic
• Uncapacitated or capacitated
• ? in one word, it can be very complicated

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• Uncertainty complexity
• In international markets, factors such as
• Exchange rates
• International interest rate
• Trade barriers and tariffs
• Taxes and duties
• are uncertain and nonlinear, so it is usually
  difficult to design mathematical models

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Theme 4Facility Location Planning and Global
Manufacturing Strategy

• 6. Compromise and Conclusion
• Conclusion
• The global manufacturing strategy provides a
  framework for facility location
• Designing global supply chain strategy is crucial
  for achieving a long-term sustainable advantage
  over competitors
• To obtain the competitive advantages with
  deployment of comparative advantages
• Operational flexibility
• Production-distribution network with
  globalization is complicated
• Structural complexity
• Uncertainty complexity

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

25
Theme 4Facility Location Planning and Global
Manufacturing Strategy

• Introduction
• Manufacturing Strategy
• 2.1 Hierarchical levels of planning
• 2.2 Structural decisions and infrastructural
  decisions
• Designing Global Supply Chain Strategy
• 3.1. Comparative and competitive value-added
  chains
• 3.2. Operational flexibility
• 4. Mathematical Model
• 5. Complexity of Production Distribution
  Network with Globalization
• 6. Compromise and Conclusion

• Compromise
• To consider all competitive precedence such as
  flexibility, quality, delivery performance and
  new technology, not only focused on cost
  minimization
• Coordination of all of business entities in
  different countries, not just the
  configurationally decisions alone
• Creating competitive advantage in growth sectors
  should be either concerned by companies or by
  governments, a strong public-private partnership
  is required
• Need to better approach of optimization for
  structural decisions i.e. capacity, technology
  and product range of manufacturing facilities and
  their vertical integration