Understanding Supply Chain Network Design and Optimization

The main takeaway is that supply chain network design aims to balance cost reduction and customer satisfaction through various design options and parameters.

### Supply Chain Network Design: Types, Factors, and Performance Evaluation
* 📦 Supply chain network design involves designing the **distribution network** of a supply chain, from **customer location** to **manufacturer or supplier**.
* 💰 "The objective of supply chain network design is to **reduce supply chain costs** and **increase customer satisfaction**."
* 📈 "The performance of a supply chain network is evaluated based on **customer satisfaction** and the **cost incurred** to fulfill those needs."
* 👥 "The seven components of customer service in supply chain design are **response time, product variety, product availability, time to market, customer experience, order visibility, and returnability**."
* 💸 "Supply chain costs include **inventory cost, transportation cost, facility and handling cost, and information cost**."
* 📊 "The relationship between customer service components and supply chain costs helps in **optimizing the supply chain network design**."
* 🏭 "The decision to select a type of supply chain design depends on two options: **product delivery or pickup by the customer**, and the **presence of intermediate locations**."
* 🛒 Based on the above choices, there are six distinct distribution network designs: 
- **manufacturer storage with direct customer pickup**
- **manufacturer storage with direct shipping and in-transit merge**
- **distributor storage with direct shipment**
- **distributed storage with last mile delivery**
- **manufacturer distributed storage with customer pickup**
- **retail storage with customer pickup**.

Mrs. Greenlease, the mother? Yes, sir. So we'll quickly review the earlier points which I had discussed in earlier. So what is what exactly we mean by supply chain network design? It is nothing but a design of distribution network of any supply chain. Distribution means from customer location to manufacturer, or from supplier to the manufacturer, or from supplier to the customer. Any kind of link, you can say upstream or downstream link, is designed for less network design supply chain network design. Now, when you consider this supply chain network design, there are two kinds of cost involved. One is the supply chain cost, and another is the customer satisfaction or customer experience. And the objective of any good design or any good quality supply chain design is to reduce this cost and increase the customer satisfaction. So that's why there are different options for selecting various designs available in supply chain network, and depending upon the situation, company can select or manufacturer can select any design of supply chain. Now, as I said, the performance of any supply chain network

is evaluated by customer satisfaction or customer need, and cost incurred to fulfill those needs. So if you consider these are totally opposite to each other, if you increase the means if customer needs are more, then we have to incur more. This objective is to reduce the cost, so to maintain the balance between these two is the main task of designing the supply chain. Now, there are seven components of any service customer service. Those components include response time, that is time between placing the order and receiving the product. Then product variety, different number of products and with different configurations. They in product availability, that products should be available in stock. Time to market, so if that product is ever different in industry but not available in market, so that time is also how much time it will take to reach to the market, that is also one of the component. Then customer experience, so easiness to place the order and getting the goods. Then order visibility, so taking the order if that component is present in our supply chain network, then it is treated as a good supply chain design. Then you return

ability. If a customer is not satisfied with the product he received, he should be able to easily return that product. That is also a new component of supply chain design network. So, on the other hand, supply chain costs are different. Supply chain costs are there - those are inventory cost, transportation cost, facility and handling cost, and information cost. So, if you see the relationship between these customer service versus supply chain cost or different parameters or different components of customer service versus the different supply chain cost. So, this first graph indicates that required number of facilities affects the response time. What it indicates is if response time decreases as our facility number of facilities supplied to the customer a place or customer needs a place as supplier as customer needs increases, the response time will also increase. So then, facility cost versus number of facilities. This has been a second graph indicating that less number of facilities, of course, the cost required to you know the facilities is less. Then we have to keep balance between these two. That means the total artistic cost and number of facilities. So, this indicates the

optimization of any supply chain Network design. So here the total artistic cost includes inventory cost, transportation cost, and facility cost. We call these cost together as a total logistic cost. So this total logistic cost increases as the number of facilities increases. So logistic cost we have an after some time, after some period, or some at some point of moment. This logistic cost versus these number of facilities can be optimized. Then understanding the supply chain cost responsiveness efficient frontier. So this graph responsiveness versus cost which shows the relationship between these responsiveness and the supply chain cost. Then supply chain there are seven six steps in the any design of new supply chain. Of course, new design can be can have some benchmarks which are exist in the market or in the existing scenario. But if you consider a total new design of supply chain. So you have to define the objective of that supply chain. Then define for which project scope of that project and collect the data. Then considering first two points model the supply chain networks. Then after modeling that supply chain analyze the supply chain network whether it will

execute according to the design, according to the model selected, and then determine the tools used for modeling and analyzing the supply chain performance. Then, completion of the project. In a there is a sixth step is, we have to assess the remaining five parameters or five factors of supply chain, whether it is executed according to the design. On they know, as I said, that there are several factors to be considered while designing any supply chain Network. First is the location and distance, it matters. The second is current and future demand, whether the demand is high currently, but whether the same demand will remain or it will increase in the future, so that has to be considered. In service requirements of the customer, size and frequency of shipment, warehousing and labor cost, protein cost, and the mode of transportation. So, these several parameters for seven factors should be considered while designing in any supply chain Network. Then, a decision of selection of types of design of supply chain depends on two options. So, there are only two alternatives available, and with these two alternatives, you can

select any one of these two. So, option number one is product delivery or pickup by customer. So, whether we are going to deliver the product or customer will pick the product. That means, that means from manufacturer point of view whether manufacturer has to provide this delivery and pickup option. Our customer has to be said the delivery and pickup option. Then the second is the there is a direct relationship between a manufacturer and the customer. Then the second option is intermediate location. So, at this place of in between the place and manufacturer, intermediate means retailers or the distributor. Whether you have to think on this option. So, you can select that option also. So, based on above choice, there are six distinct distribution network designs. So, which are these six distribution network designs. So, manufacture of storage with direct CP here manufacturer has its own storage and he will directly see to the customer in customer and second option is manufacture storage with direct sipping and in transit merge. So, at some places manufacturer will decide inventory or a storage and through intranet storage he will distribute the item to the

customer the customer which distributes distributed storage which package carriers are de Larry now here the distributor will connect the supply from the manufacturer and he will make some another package and then he will deliver to the customer distributed storage with last mile delivery now here in third number option customer has to collect his delivery from the distributor storage location but in fourth option distributed storage with last mile delivery means own delivery so manufacturer sorry distributed with supply product to the at the home of customer then manufacturer distributed storage which customers become now here either manufacturer will provide a storage or distributor will provide a storage too but customer has to collect or pickup either from manufacturer storage or from distributors storage and the last option is the retail storage with customer pick up now there are number of retail outlets or storage available at plenty places a customer can pick his product from that location so these are the six options for designing so let us see one by one manufactures with direct CP now this figure indicates the network of supply chain and how the design of supply chain network in this type of manufacturer

storage with direct sitting. What we are observing at level one is a manufacturer. Middle is the retailer, and a customer. Now the continuous line with arrow indicates the product ropes, and dotted line with red arrow indicates the flow of information. Now see in this flow what you are observing all dotted lines, that means information is collected by the retailer. So manufacturer, that retailer will supply same information to either single manufacturer or know one of my manufacturers of the same item. Take example of soap, there are different brands of soap. Customer information received from customer, retailer will provide this information to number of manufacturers. Then is number of manufacturers, what they will do, they will supply the product direct to the customer through without any middle storage. So this is the one type of network of supply chain, and this supply chain network is also called the drop city. Drop shipping means directly supply from a manufacturer. They know what are the features of these direct sipping network. So features our inventory low cost because directly the manufacturer knows the requirement of customer.

transportation cost as manufacturer B is handling these entire transport, so the cost is high. Then facility and handling cost as only manufacturer handles the entire facilities, so low cost of manufacturing and low cost of facilities and handling. Then the information now entire information is stored by the manufacturer through the retailer, so there is a significant investment for storing these information or handling these information. So this is one part versus the service factor, so response time in this drop shipping case, so long response time it will take because to collect the gather the information from customer retainer will supply this information to manufacture and again manufacturer will take the action of supplying the good, so it will take a time. Then product variety as every information is received from the customer through retailer, so easy to provide more high level of variety, so it is possible in these case. Then product availability, so as the information is lively information or the real-time information issued to the manufacturer, so that's why the easy to provide high level of product availability. Then a customer experience now as there is no

middleman between the manufacturer and customer so the good in terms of home delivery but suffer the order for several manufacturers same - partial shipment sometimes quantity order quantity may not be full freedom time to market now here the it is fast time to reach to the market it is fast and order delivery more difficult but more important from customer service per se perception so because whatever those customer expect that can be directly informed or say in to the manufacturer so this is first category second category is manufacturer storage with the direct appeal and in transit much so second type of network supply chain network design here you observe the figure what do we are observing these factories are nothing but the manufacturers they know now retailer is there then in transit norge carrier is there and customer is there so flow of product is from manufacturer to in transit norwich carrier and then from in to and it merge carrier to the customer flow of information is from number of customers to the retailer's this return will import to number of manufacturers so what what change in previous and in this

said there is a in-transit merge carrier from where the supply is distributed to number of customers so they'll Rob dildo drop is example of this kind of network design see the characteristics or the feature of features of these in-transit mulch supply chain network so inventory inventory will remain same as that of the drop shipping there or the earlier shipping then transportation is somewhat lower cost then facilities of handling facilities and handling cost is higher than the drop shipping at carrier because here one location that is internal storage is added so that's why handling and the facility cost will be more then the investment on the on handling the information is somewhat higher than the earlier one then this service factor response time similar to the drop shipping product variety similar to drop shipping product availability because there is no additional change except the in-between storage then customer experience is better time to market is similar to drop shipping and alter visibility is similar to the drop shipping see the third category of network design in supply chain here what we are observing a we around story by distributor or retailer

now factories in between the customer and the manufacturer. There is a ver house storage, and that way Rousey is handled by either the retailer or the distributor, and the flow of information reaches only from this customer to o warehouse. And then that warehouse or transport this information to manufacturers, but all goods manufactured behind in the speed are supplied to that we are host managed by distributor. So take an example of Amazon. So weird Amazon will handle these distributors as a distributor or retainer warehouse. Then what are the features or characteristics of these kind of supply chain design. So inventory higher than a manufacturer storage. So he has to handle not only a single and so number of factories or number of industries supplies to these warehouse. So inventory cost is higher then Cranky's and transportation cost is lower now then manufacturers Tora reduction in highest is highest for faster moving atoms we'll see are we for which kind of atom which supply chain network is suitable in a next place. So facilities and handling somewhat higher than the manufacturer of

storage and information supplier infrastructure compared to the manufacturers store a simple simpler so here the information and link is simpler. They no service factor response time is faster than a manufacturer's promised. Product variety is lower so these middleman or a middle warehouse cannot handle all product variety. So lower manufacturer then then product availability high cost of cost to provide more were what ID then customer experience better than the manufacturer storage then time to reach market higher than the manufacturer of storage and variety of miss sorry order visibility is easier in case of these third type of delivery system supply chain delivery system next is the next category is distributed storage with the last mile delivery see what what change in earlier and this one here distributor or retailer warehouse is there but not a single warehouse there are number of warehouses by number of retailers of number where distributors so big basket is an example of this factory will manufacture these they will supply to number of era or distributors and number of distress will supply it to customers so see the feature of last month that means a

door-to-door delivery. Inventory cost is high. Transportation cost is also high. Facility and handling cost is as compared to the lower than the chain of retail storage information similar to distributor storage which package carrier and again this response time is very quick. Variety product variety some was somewhat list and product availability is more expensive to provide customer experience very good customer experience or they market - time - which market slightly higher than the distributed storage and order traceability is less as compared to earlier one. In the next its manufacturer customer pickup is the mixed type of supply chain network now see the network picture here the pickup site is added cross bisque cross doc he's added and retailer is there so the flow of information and customer information flow and a customer flow so from where customer has to pick these are his good or his product that is defined by the middle person and customer has to move to that location say we can say a big buzzer or a like this malls and from that place customer has to politely product so inventory can match to any.

other option transportation is lower facility and a handling facility cost is very high and information significant investment in the infrastructure required this post time similar to package carrier delivery product delivery product variety is similar to manufacturer distributor manufacturer or distributor product availability similar to the other two customer experience is lower market to time to market is similar to earlier one order visibility is the difficult but essential in this option and the last option is customer pick up now here retailer or pickup sites then through internet or telephone similar to the supermarket or online marketing this option is their customer has to pick up from retailer or from the mall there is no upper stream or upper bound of supply chain network here so this supply chain network is having higher inventory cost less transportation facilities the cost is also high information investment such as online and phone orders response time same-day pick up and drop so product lower than the product variety lower than the other options product availability more expensive customer experience related to whether the shop shopping is viewed positive or negative experience by the customer book kind of time to market now highest along the

distribution of or distribution option and order try one. You can press essentially buy online out the phone mode and here the this slide. Let us observe these six types of network design option versus our cost and depending upon means this rating one is good suitable and as the number one one two five so number increases it becomes difficult so retail storage we customer pick up response time. It is given one that means by this first design response time is very less then product variety so it cannot handle product variety so for greater then product availability for likewise the this chart or this table compares the benefits or characteristics or special features of every type of network design to the parameters on based on which we are designing ly that particular network of supply chain. So now this guy this table or this chart gives you information for designing a suitable or for choosing the suitable type of supply chain or your product so you consider this as a similar to design data book as we are using in engineering product design so based on these ready reference you can select a particular type of supply chain.

network for suitable for our product. So, then the slide is reasons for the improvement in supply chain performance. There are few reasons: reduction in in bone transportation for because of truckload shipment for manufacturer to distribute, reduction in outbound transportation cost because of distributor product from many manufacturers to into single outbound shipment. So, likewise these reasons by which you can improve the performance of supply chain. So, any reason we which is applicable to selected supply chain network that you can correct or that you can apply or take care while improving the performance of supply chain. So, I think this this gives you some idea about how supply chain network is selected and supply chain Network helps to improve the performance of economical performance of any industry because performance or profit margin or the life of any business depends on success of this effective working of supply chain. And again, what we mean by supply chain, the distribution network, the power distribution network is properly designed properly implemented then and then it will give our operators.

Lecture on Supply Chain Network Design by Dr. N. B. Gurule

Nanasaheb Gurule

The Importance of Supply Chain Network Design

Supply chain network design is the distribution network of a supply chain, aiming to minimize costs and enhance customer satisfaction.

The design involves balancing the seven components of customer service, such as response time and product availability, with the supply chain costs, including inventory and transportation costs.

The number of facilities in the network impacts both the response time and the overall cost, highlighting the need to carefully manage this balance in supply chain network design.

The total logistic cost, including inventory, transportation, and facility costs, increases with the number of facilities and can be optimized over time.

Understanding the relationship between responsiveness and supply chain cost is crucial in establishing the cost-efficient frontier.

There are seven key steps in designing a new supply chain, including defining objectives, collecting data, modeling the networks, and assessing various factors such as location, demand, and transportation mode.

The decision to select a supply chain design depends on the options of product delivery/pickup by the customer or establishing intermediate locations, leading to six distinct distribution network designs.

Options for Designing a Supply Chain Network

The six options for designing a supply chain network include distributed storage with package carriers, distributed storage with last mile delivery, customer collection from distributor storage, distributed storage with supply directly to the customer, manufacturer storage with direct shipping, and retail storage with customer pick up.

Each option has its own unique features and implications for inventory, transportation cost, facility cost, information handling, response time, product variety, product availability, and customer experience.

The manufacturer storage with direct shipping option allows for low inventory and facility costs, but has a longer response time, while offering a high product variety and availability based on real-time customer information.

There are three key supply chain network designs: 1) In-transit merge carrier, which involves direct communication from customers to retailers and then to manufacturers, exemplified by FedEx; 2) In-transit mulch, which adds internal storage, increasing handling and facility costs, with lower transportation costs; 3) Warehouse managed by a distributor, with higher inventory costs but lower transportation costs, exemplified by Amazon.

Each design has different characteristics in terms of inventory, transportation, handling, and customer experience.

Comparison of Different Supply Chain Networks

Storage and information suppliers have a faster response time than manufacturers, with lower product variety.

Distributed storage with last-mile delivery involves multiple warehouses and retailers, offering good product availability but high inventory and transportation costs.

Manufacturer customer pickup involves a mixed network with added cross-docks, offering lower facility costs and information investment.

Customer pickup option has higher inventory costs and provides same-day pickup, with lower product variety.

Selecting the Right Supply Chain Network Design

The presentation discusses six network design options and their associated costs, as well as the factors to consider in choosing the most suitable one.

It also highlights the reasons for improving supply chain performance, such as reducing transportation costs and optimizing distribution.

The proper design and implementation of a supply chain network are crucial for the economic performance and success of any business.