Chapter 5 Global Supply - Test 2

Decisions concerning the role of each facility are significant because they determine the amount of rigidity the supply chain has in changing the way it meets demand.

False

Facility location decisions have a long-term impact on a supply chain's performance because it is cost effective to shut down a facility or move it to a different location.

False

Describe the factors that influence supply chain network design decisions. Technological Factors

If production technology displays significant economies of scale, a few high-capacity locations are the most effective. In contrast, if facilities have lower fixed costs, many local facilities are preferred because this helps lower transportation costs. If the production technology is very inflexible and product requirements vary from one country to another, a firm has to set up local facilities to serve the market in each country. Conversely, if the technology is flexible, it becomes easier to consolidate manufacturing in a few large facilities

Describe the factors that influence supply chain network design decisions. Logistics and Facility Costs

Logistics and facility costs incurred within a supply chain change as the number of facilities, their location, and capacity allocation is changed. Companies must consider inventory, transportation, and facility costs when designing their supply chain networks. Inventory and facility costs increase as the number of facilities in a supply chain increase. Transportation costs decrease as the number of facilities is increased. Increasing the number of facilities to a point where inbound economies of scale are lost increases transportation cost. The supply chain network design is also influenced by the transformation occurring at each facility. When there is a significant reduction in material weight or volume as a result of processing, it may be better to locate facilities closer to the supply source rather than the customer. Total logistics costs are a sum of the inventory, transportation, and facility costs. The facilities in a supply chain network must at least equal the number that minimizes total logistics costs. A firm may increase the number of facilities beyond this point to improve the response time to its customers. This decision is justified if the revenue increase from improved response outweighs the increased cost from additional facilities.

Describe the factors that influence supply chain network design decisions. Macroeconomic Factors.

Macroeconomic factors include taxes, tariffs, exchange rates, and other economic factors that are not internal to an individual firm. If a country has very high tariffs, companies either do not serve the local market or set up manufacturing plants within the country to save on duties. High tariffs lead to more production locations within a supply chain network, with each location having a lower allocated capacity. Tax incentives are a reduction in tariffs or taxes that countries, states, and cities often provide to encourage firms to locate their facilities in specific areas. Many countries vary incentives from city to city to encourage investments in areas with lower economic development. Developing countries often create free trade zones where duties and tariffs are relaxed as long as production is used primarily for export. This creates a strong incentive for global firms to set up a plant in these countries to be able to exploit their low labor costs. Many countries also place minimum requirements on local content and limits on imports. Such policies lead companies to set up many facilities and source from local suppliers. Exchange rate risks may be handled using financial instruments that limit, or hedge against, the loss due to fluctuations. Suitably designed supply chain networks, however, offer the opportunity to take advantage of exchange rate fluctuations and increase profits. An effective way to do this is to build some over-capacity in the network and make the capacity flexible so that it can be used to supply different markets. This flexibility allows the firm to alter production flows within the supply chain to produce more in facilities that have a lower cost based on current exchange rates. When designing supply chain networks, companies must build appropriate flexibility to help counter fluctuations in exchange rates and demand across different countries.

A firm may increase the number of facilities beyond the point that minimizes total logistics cost to improve the response time to its customers.

TRUE

Decisions concerning the role of each facility are significant because they determine the amount of flexibility the supply chain has in changing the way it meets demand.

TRUE

High tariffs lead to more production locations within a supply chain network, with each location having a lower allocated capacity.

TRUE

If facilities have lower fixed costs, many local facilities are preferred because this helps lower transportation costs.

TRUE

Inventory and facility costs increase as the number of facilities in a supply chain increase.

TRUE

Network design decisions have a significant impact on performance because they determine the supply chain configuration and set constraints within which inventory, transportation, and information can be used to either decrease supply chain cost or increase responsiveness.

TRUE

Network design decisions have a significant impact on performance because they determine the supply chain configuration and set constraints within which the other supply chain drivers can be used either to decrease supply chain cost or to increase responsiveness.

TRUE

The supply chain 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.

TRUE

Capacity allocation decisions have a significant impact on supply chain performance because they tend to stay in place for several years.

True

Supply chain network design decisions include the location of manufacturing, storage, or transportation-related facilities and the allocation of capacity and roles to each facility.

True

The allocation of supply sources and markets to facilities has a significant impact on performance because it affects total production, inventory, and transportation costs incurred by the supply chain to satisfy customer demand.

True

A manufacturer of cat towers wishes to locate a super assembly facility to meet their cat tower assembly needs for the next millennium. Currently, carpet, cylinders, yarn and fasteners are purchased in bulk from suppliers in North Haverbrook, Ogden, and Springfield in the quantities shown in the table. The super assembly facility would ship to distribution centers located in Seattle, Lubbock, Nashville, and Philadelphia. The locations of all of these cities on an x-y grid, transportation costs on a ton per mile basis, and total tonnage are all contained in the table. Sources/Markets/Transportation Cost $/ton mile (Fn)/Quantity in Tons (Dn)/Xn/Yn SUPPLY North Haverbrook/1.1/650/700/1200 Ogden/1.2/450/250/600 Springfield/1.4/400/225/825 MARKET Seattle/2.25/300/50/1200 Lubbock/2.25/200/450/300 Nashville/2.25/500/800/250 Philadelphia/2.25/500/950/1100 What is the optimal location for the Super Assembly Center? A) (550, 808) B) (513, 772) C) (526, 795) D) (538, 784)

A) (550, 808)

Which of the following is the first phase in the design of a global supply chain network? A) Define a supply chain strategy B) Define the regional facility configuration C) Select desirable sites D) Location choices

A) Define a supply chain strategy

) ________ costs increase as the number of facilities in a supply chain increases. A) Inventory B) Transportation C) Retail operation D) Information

A) Inventory

Capital, growth strategy, existing networks and global competition mostly affect which of the four Global Network Design Decisions? A) Phase I - Supply Chain Strategy B) Phase II - Regional Facility Configuration C) Phase III - Desirable Sites D) Phase IV - Location Choices

A) Phase I - Supply Chain Strategy

A facility that creates new products, processes, and technologies for the entire network is A) a lead facility. B) a source facility. C) a server facility. D) an outpost facility.

A) a lead facility.

A facility that serves the role of being a low-cost supply source for markets located outside the country where the facility is located is A) an offshore facility. B) a source facility. C) a contributor facility. D) an outpost facility.

A) an offshore facility.

If a country has very high tariffs A) companies either do not serve the local market or set up manufacturing plants within the country to save on duties. B) companies do not serve the local market. C) companies set up manufacturing plants within the country to save on duties. D) companies will not serve the local market or set up manufacturing plants within the country to save on duties.

A) companies either do not serve the local market or set up manufacturing plants within the country to save on duties.

Facility location decisions have a long-term impact on a supply chain's performance because A) it is very expensive to shut down a facility or move it to a different location. B) it is not expensive to shut down a facility or move it to a different location. C) it is advisable to shut down a facility or move it to a different location. D) it is cost effective to shut down a facility or move it to a different location.

A) it is very expensive to shut down a facility or move it to a different location.

) If the production technology is very inflexible and product requirements vary from one country to another, a firm has to set up A) local facilities to serve the market in each country. B) a few high-capacity facilities to serve the market in each country. C) many local facilities because this helps lower transportation costs. D) a few high-capacity facilities because this helps lower transportation costs.

A) local facilities to serve the market in each country.

Firms focusing on responsiveness tend to A) locate facilities close to the market they serve. B) locate facilities very far from the market they serve. C) find the lowest cost location for their manufacturing facilities. D) select a high-cost location to be able to react slowly.

A) locate facilities close to the market they serve.

Firms that focus on cost leadership tend to find the lowest-cost location might A) locate far from their customers. B) locate in a higher cost area to provide faster response. C) have many facilities to take advantage of economies of scale. D) increase inventory levels to reduce stockouts.

A) locate far from their customers.

Allocating too much capacity to a location results in A) poor utilization, and as a result, higher costs. B) high utilization, and as a result, higher costs. C) poor utilization, and as a result, lower costs.

A) poor utilization, and as a result, higher costs.

The implications of culture should not be glossed over because A) tariffs and tax incentives should be carefully considered. B) facilities last a long time and have an enduring impact on a firm's performance. C) it is astounding how often tax incentives drive the choice of location. D) the location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network.

A) tariffs and tax incentives should be carefully considered.

Supply chain network design decisions classified as facility role are concerned with A) what processes are performed at each facility. B) where facilities should be located. C) how much capacity should be allocated to each facility. D) what markets each facility should serve and which supply sources should feed each facility.

A) what processes are performed at each facility.

A manufacturer of cat towers wishes to locate a super assembly facility to meet their cat tower assembly needs for the next millennium. Currently, carpet, cylinders, yarn and fasteners are purchased in bulk from suppliers in North Haverbrook, Ogden, and Springfield in the quantities shown in the table. The super assembly facility would ship to distribution centers located in Seattle, Lubbock, Nashville, and Philadelphia. The locations of all of these cities on an x-y grid, transportation costs on a ton per mile basis, and total tonnage are all contained in the table. Sources/Markets/Transportation Cost $/ton mile (Fn)/Quantity in Tons (Dn)/Xn/Yn SUPPLY North Haverbrook/1.1/650/700/1200 Ogden/1.2/450/250/600 Springfield/1.4/400/225/825 MARKET Seattle/2.25/300/50/1200 Lubbock/2.25/200/450/300 Nashville/2.25/500/800/250 Philadelphia/2.25/500/950/1100 Where should the new plant be located and what is the total system shipping cost?

Answer: The model requires that the weighted rectilinear distance between the Super Assembly Center and all sources and sinks of materials and product be minimized. rectilinear distance is given by dn = and transportation cost is given by TC = from n = 1 to 7 Formulating this nonlinear model (and running it in the nifty table provided by the authors) results in a location for the Super Assembly Center of (550.6,808.3) and total cost of $2,586,342.

A manufacturer of cat towers wishes to locate a super assembly facility to meet their cat tower assembly needs for the next millennium. Currently, carpet, cylinders, yarn and fasteners are purchased in bulk from suppliers in North Haverbrook, Ogden, and Springfield in the quantities shown in the table. The super assembly facility would ship to distribution centers located in Seattle, Lubbock, Nashville, and Philadelphia. The locations of all of these cities on an x-y grid, transportation costs on a ton per mile basis, and total tonnage are all contained in the table. Sources/Markets/Transportation Cost $/ton mile (Fn)/Quantity in Tons (Dn)/Xn/Yn SUPPLY North Haverbrook/1.1/650/700/1200 Ogden/1.2/450/250/600 Springfield/1.4/400/225/825 MARKET Seattle/2.25/300/50/1200 Lubbock/2.25/200/450/300 Nashville/2.25/500/800/250 Philadelphia/2.25/500/950/1100 What is the minimal shipping cost that satisfies all market demand? A) $2,546,632 B) $2,586,342 C) $2,451,668 D) $2,522,982

B) $2,586,342

Tariffs, economies of scale and aggregate factor costs mostly affect which of the four Global Network Design Decisions? A) Phase I - Supply Chain Strategy B) Phase II - Regional Facility Configuration C) Phase III - Desirable Sites D) Phase IV - Location Choices

B) Phase II - Regional Facility Configuration

A facility that also has low cost as its primary objective, but its strategic role is broader than that of an offshore facility is A) an offshore facility. B) a source facility. C) a contributor facility. D) an outpost facility.

B) a source facility.

It is very important that long-term consequences be thought through when making facility decisions, because A) network designers can use this fact to influence the role of the new facility and the focus of people working there. B) facilities last a long time and have an enduring impact on a firm's performance. C) it is astounding how often tax incentives drive the choice of location. D) the location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network.

B) facilities last a long time and have an enduring impact on a firm's performance.

Building some over-capacity in the supply chain network and making the capacity flexible allows a firm to alter production flows within the supply chain to A) produce less in facilities that have a lower cost based on current exchange rates. B) produce more in facilities that have a lower cost based on current exchange rates. C) produce more in facilities that have a higher cost based on current exchange rates. D) produce less in facilities that have the same cost based on current exchange rates.

B) produce more in facilities that have a lower cost based on current exchange rates.

Customer order entry is A) the point in time when the customer has access to choices and makes a decision regarding a purchase. B) the customer informing the retailer of what they want to purchase and the retailer allocating product to the customer. C) the process where product is prepared and sent to the customer. D) the process where the customer receives the product and takes ownership.

B) the customer informing the retailer of what they want to purchase and the retailer allocating product to the customer.

Decisions concerning the role of each facility are significant because A) they determine the amount of flexibility the supply chain has in demanding change. B) they determine the amount of flexibility the supply chain has in changing the way it meets demand. C) they determine the amount of capacity the supply chain has in changing the way it meets demand. D) they determine the amount of inventory the supply chain has in demanding change.

B) they determine the amount of flexibility the supply chain has in changing the way it meets demand.

Supply chain network design decisions classified as facility location are concerned with A) what processes are performed at each facility. B) where facilities should be located. C) how much capacity should be allocated to each facility. D) what markets each facility should serve and which supply sources should feed each facility.

B) where facilities should be located.

A manufacturer of cat towers wishes to locate a super assembly facility to meet their cat tower assembly needs for the next millennium. Currently, carpet, cylinders, yarn and fasteners are purchased in bulk from suppliers in North Haverbrook, Ogden, and Springfield in the quantities shown in the table. The super assembly facility would ship to distribution centers located in Seattle, Lubbock, Nashville, and Philadelphia. The locations of all of these cities on an x-y grid, transportation costs on a ton per mile basis, and total tonnage are all contained in the table. Sources/Markets/Transportation Cost $/ton mile (Fn)/Quantity in Tons (Dn)/Xn/Yn SUPPLY North Haverbrook/1.1/650/700/1200 Ogden/1.2/450/250/600 Springfield/1.4/400/225/825 MARKET Seattle/2.25/300/50/1200 Lubbock/2.25/200/450/300 Nashville/2.25/500/800/250 Philadelphia/2.25/500/950/1100 What is the distance between the Ogden and Seattle locations? A) 450 miles B) 350 miles C) 630 miles D) 1050 miles

C) 630 miles

Available infrastructure, skill needs and response time mostly affect which of the four Global Network Design Decisions? A) Phase I - Supply Chain Strategy B) Phase II - Regional Facility Configuration C) Phase III - Desirable Sites D) Phase IV - Location Choices

C) Phase III - Desirable Sites

The availability of suppliers, transportation services, communication, utilities, and warehousing infrastructure mostly affect which of the four Global Network Design Decisions? A) Phase I - Supply Chain Strategy B) Phase II - Regional Facility Configuration C) Phase III - Desirable Sites D) Phase IV - Location Choices

C) Phase III - Desirable Sites

A facility built because of tax incentives, local content requirement, tariff barriers, or high logistics cost to supply the region from elsewhere with the objective to supply the market where it is located is A) an offshore facility. B) a source facility. C) a server facility. D) a contributor facility.

C) a server facility.

The facilities in a supply chain network must A) at least maximize total logistics cost. B) at least equal the number that maximizes total logistics cost. C) at least equal the number that minimizes total logistics cost. D) at least minimize total logistics cost.

C) at least equal the number that minimizes total logistics cost.

Supply chain network design decisions include A) only the location of manufacturing, storage, or transportation-related facilities. B) only the allocation of capacity and roles to each facility. C) both the location of manufacturing, storage, or transportation-related facilities and the allocation of capacity and roles to each facility. D) neither the location of manufacturing, storage, or transportation-related facilities nor the allocation of capacity and roles to each facility.

C) both the location of manufacturing, storage, or transportation-related facilities and the allocation of capacity and roles to each facility.

Developing countries often create free trade zones where A) duties and tariffs are imposed as long as production is used primarily for export. B) duties and tariffs are imposed as long as production is used primarily for import. C) duties and tariffs are relaxed as long as production is used primarily for export. D) duties and tariffs are relaxed as long as production is used primarily for import.

C) duties and tariffs are relaxed as long as production is used primarily for export.

Firms focusing on cost leadership tend to A) locate facilities close to the market they serve. B) locate facilities very far from the market they serve. C) find the lowest cost location for their manufacturing facilities. D) select a high-cost location to be able to react quickly.

C) find the lowest cost location for their manufacturing facilities.

Supply chain network design decisions classified as capacity allocation are concerned with A) what processes are performed at each facility. B) where facilities should be located. C) how much capacity should be allocated to each facility. D) what markets each facility should serve and which supply sources should feed each facility.

C) how much capacity should be allocated to each facility.

The objective of the second phase of network design is to A) select a precise location and capacity allocation for each facility. B) select a set of desirable sites within each region where facilities are to be located. C) identify regions where facilities will be located, their potential roles, and their approximate capacity. D) specify what capabilities the supply chain network must have to support a firm's competitive strategy.

C) identify regions where facilities will be located, their potential roles, and their approximate capacity.

The allocation of supply sources and markets to facilities has a significant impact on performance because A) it cannot affect total production, inventory, and transportation costs incurred by the supply chain to satisfy customer demand. B) it cannot affect customer demand. C) it affects total production, inventory, and transportation costs incurred by the supply chain to satisfy customer demand. D) it cannot satisfy customer demand.

C) it affects total production, inventory, and transportation costs incurred by the supply chain to satisfy customer demand.

If the technology is flexible A) it becomes more difficult to consolidate manufacturing in a few large facilities. B) it becomes more difficult to distribute manufacturing in many local facilities. C) it becomes easier to consolidate manufacturing in a few large facilities. D) it becomes easier to consolidate manufacturing in many local facilities.

C) it becomes easier to consolidate manufacturing in a few large facilities.

Managers making facility location decisions should carefully consider tariffs and tax incentives, because A) network designers can use this fact to influence the role of the new facility and the focus of people working there. B) facilities last a long time and have an enduring impact on a firm's performance. C) it is astounding how often tax incentives drive the choice of location. D) the location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network.

C) it is astounding how often tax incentives drive the choice of location.

The objective of the third phase of network design is to A) maximize total profits, taking into account the expected margin and demand in each market. B) select a precise location and capacity allocation for each facility. C) select a set of desirable sites within each region where facilities are to be located. D) identify regions where facilities will be located, their potential roles, and their approximate capacity.

C) select a set of desirable sites within each region where facilities are to be located.

Network design decisions have a significant impact on performance because they A) determine the customer demand. B) determine the supply chain conflagration. C) set constraints within which inventory, transportation, and information can be used to either decrease supply chain cost or increase responsiveness. D) set constraints within which inventory, transportation, and information can be used to either increase supply chain cost or decrease responsiveness.

C) set constraints within which inventory, transportation, and information can be used to either decrease supply chain cost or increase responsiveness.

Duties that must be paid when products and/or equipment are moved across international, state, or city boundaries are referred to as A) taxes. B) tax incentives. C) tariffs. D) incentives.

C) tariffs.

Describe the factors that influence supply chain network design decisions. Competitive Factors

Companies must consider competitors' strategy, size, and location when designing their supply chain networks. A fundamental decision firms make is whether to locate their facilities close to competitors or far from them. How the firms compete and whether external factors such as raw material or labor availability force them to locate close to each other influence this decision. Positive externalities lead to competitors locating close to each other. When there are no positive externalities, firms locate to be able to capture the largest possible share of the market.

Describe the factors that influence supply chain network design decisions Political Factors

Companies prefer to locate facilities in politically stable countries where the rules of commerce are well defined. Countries with independent and clear legal systems allow firms to feel that they have recourse in the courts should they need it. This makes it easier for companies to invest in facilities in these countries. Political stability is hard to quantify, so a firm makes an essentially subjective evaluation when designing its supply chain network.

A manufacturer of cat towers wishes to locate a super assembly facility to meet their cat tower assembly needs for the next millennium. Currently, carpet, cylinders, yarn and fasteners are purchased in bulk from suppliers in North Haverbrook, Ogden, and Springfield in the quantities shown in the table. The super assembly facility would ship to distribution centers located in Seattle, Lubbock, Nashville, and Philadelphia. The locations of all of these cities on an x-y grid, transportation costs on a ton per mile basis, and total tonnage are all contained in the table. Sources/Markets/Transportation Cost $/ton mile (Fn)/Quantity in Tons (Dn)/Xn/Yn SUPPLY North Haverbrook/1.1/650/700/1200 Ogden/1.2/450/250/600 Springfield/1.4/400/225/825 MARKET Seattle/2.25/300/50/1200 Lubbock/2.25/200/450/300 Nashville/2.25/500/800/250 Philadelphia/2.25/500/950/1100 What is the cost to transport 500 tons of material between the Springfield and Seattle locations? A) $325,000 B) $192,500 C) $682,500 D) $437,500

D) $437,500

A facility that serves the market where it is located but also assumes responsibility for product customization, process improvements, product modifications, or product development is A) an offshore facility. B) a source facility. C) a server facility. D) a contributor facility.

D) a contributor facility.

A facility located primarily to obtain access to knowledge or skills that may exist within a certain region is A) an offshore facility. B) a source facility. C) a server facility. D) an outpost facility.

D) an outpost facility.

Capacity allocation decisions have a significant impact on supply chain performance because A) capacity decisions tend to be permanent. B) capacity decisions tend to be changed frequently. C) capacity decisions do not tend to stay in place for several years. D) capacity decisions tend to stay in place for several years.

D) capacity decisions tend to stay in place for several years.

Total logistics costs are a sum of the A) inventory and facility costs. B) transportation and facility costs. C) inventory and transportation costs. D) inventory, transportation, and facility costs.

D) inventory, transportation, and facility costs.

The quality of life at selected facility locations has a significant impact on performance because A) network designers can use this fact to influence the role of the new facility and the focus of people working there. B) facilities last a long time and have an enduring impact on a firm's performance. C) the location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network. D) it influences the work force available and their morale.

D) it influences the work force available and their morale.

If facilities have lower fixed costs A) a few high-capacity facilities are preferred because this helps lower transportation costs. B) a few local facilities are preferred because this helps lower transportation costs. C) many high-capacity facilities are preferred because this helps lower transportation costs. D) many local facilities are preferred because this helps lower transportation costs.

D) many local facilities are preferred because this helps lower transportation costs.

When faced with a network design decision, the goal of a manager is to design a network that A) maximizes the firm's profits. B) minimizes the firm's costs. C) satisfies customer needs in terms of demand and responsiveness. D) maximizes the firm's profits while satisfying customer needs in terms of demand and responsiveness.

D) maximizes the firm's profits while satisfying customer needs in terms of demand and responsiveness.

Allocating too little capacity results in A) good responsiveness if demand is not satisfied or low cost if demand is filled from a distant facility. B) good responsiveness if demand is not satisfied or high cost if demand is filled from a distant facility. C) poor responsiveness if demand is not satisfied or low cost if demand is filled from a distant facility. D) poor responsiveness if demand is not satisfied or high cost if demand is filled from a distant facility.

D) poor responsiveness if demand is not satisfied or high cost if demand is filled from a distant facility.

The objective of the first phase of network design is to A) maximize total profits, taking into account the expected margin and demand in each market. B) select a set of desirable sites within each region where facilities are to be located. C) identify regions where facilities will be located, their potential roles, and their approximate capacity. D) specify what capabilities the supply chain network must have to support a firm's competitive strategy.

D) specify what capabilities the supply chain network must have to support a firm's competitive strategy.

The allocation of supply sources and markets to facilities should be reconsidered on a regular basis so that A) the allocation can be held constant as market conditions or plant capacities expand. B) the allocation can be changed as market conditions or plant capacities stagnate. C) the allocation can be held constant as market conditions or plant capacities change. D) the allocation can be changed as market conditions or plant capacities change.

D) the allocation can be changed as market conditions or plant capacities change.

Supply chain network design decisions classified as market and supply allocation are concerned with A) what processes are performed at each facility. B) where facilities should be located. C) how much capacity should be allocated to each facility. D) what markets each facility should serve and which supply sources should feed each facility.

D) what markets each facility should serve and which supply sources should feed each facility.

Firms focusing on cost leadership tend to find the lowest cost location for their manufacturing facilities, but only if that means locating very far from the markets they serve.

FALSE

If facilities have higher fixed costs, many local facilities are preferred because this helps lower transportation costs.

FALSE

If production technology displays significant economies of scale, many local locations are the most effective.

FALSE

If the technology is flexible, it becomes more difficult to consolidate manufacturing in a few large facilities.

FALSE

Transportation costs increase as the number of facilities is increased.

FALSE

When faced with a network design decision, the goal of a manager is to design a network that minimizes the firm's costs while satisfying customer needs in terms of demand and responsiveness.

FALSE

Describe the factors that influence supply chain network design decisions. Strategic Factors:

Firms focusing on cost leadership tend to find the lowest cost location for their manufacturing facilities, even if that means locating very far from the markets they serve. Firms focusing on responsiveness tend to locate facilities closer to the market and may select a high-cost location if this choice allows the firm to quickly react to changing market needs.

Describe the factors that influence supply chain network design decisions Customer Response Time and Local Presence

Firms that target customers who value a short response time must locate close to them. If a firm is delivering its product to customers, use of a rapid means of transportation allows it to build fewer facilities and still provide a short response time. This option, however, increases transportation costs. Moreover, there are many situations where the presence of a facility close to a customer is important.

When designing supply chain networks, companies must build appropriate flexibility to help counter fluctuations in exchange rates and demand across different countries.

TRUE

Describe the factors that influence supply chain network design decisions. Infrastructure Factors

The availability of good infrastructure is an important prerequisite to locating a facility in a given area. Poor infrastructure adds to the cost of doing business from a given location. Key infrastructure elements to be considered during network design include availability of sites, labor availability, proximity to transportation terminals, rail service, proximity to airports and seaports, highway access, congestion, and local utilities.

3) Describe the four phases in the framework for network design decisions. 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.

Describe the four phases in the framework for network design decisions. 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.

Describe the four phases in the framework for network design decisions. 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.

Describe the four phases in the framework for network design decisions. 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.