Question

1. ABC is going to build a new manufacturing plant to serve five market regions. ABC has four supply sources. The coordinates of location, the demand of each market region, maximum units from each supply source and the shipping cost from each supply source or to each market region are shown below.

Supply Sources	Shipping Cost ($/Ton Mile)	Supply (Tons)	X Coordinate	Y Coordinate
S1	1.5	180	450	820
S2	1	220	280	900
S3	2	140	600	400
S4	2	170	850	700

Markets	Shipping Cost ($/Ton Mile)	Demand (Tons)	X Coordinate	Y Coordinate
M1	1	110	100	100
M2	1.5	70	200	300
M3	2.5	85	1000	100
M4	3	90	600	1100
M5	2	65	800	900

                           

• a) Where should ABC locate its plant? (Hint: Use Gravity Model and Excel Solver).

• b) Identify some of the influencing factors that affect ABC’s network design decision.

Answer 1

The excel model is shown below

The formulas are shown below

The solver parameters are shown below

The result is shown below

Apart from the cost and the distance factors, the organization should also focus on various other factors such as lead time, lot size, etc.

2. Identify and explain the major factors that influence network design decisions.

There are many factors that influence network design designs, which include strategic factors, technological factors, macroeconomics factors, political factors, infrastructure, and competitive factors. Strategic factors look over the local versus global supply chain network and see the strategic role of each facility, such as the cost and responsiveness. Technological factors evaluate the characteristics of production technologies and looks over the technology fixed costs as well as its flexibility. Macroeconomic factors include the taxes, tariffs, limits on import, exchange rates, shipping costs and demand risk. Political factors oversee the stability of a country and the clarity of legal systems there. Infrastructure include the availability of sites and labor and the access to transportation. Competitive factors are important for companies as it looks at all their competitor’s size, strategy, and location.

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