Whether you are a manufacturer, distributor or retailer, your network of plants, warehouses or stores can be a strategic asset. Facility location and network optimization is a method or ensuring your production and distribution network is designed to maximize customer service and minimize cost.
Customer service in distribution is often measured as distance or time to your customers or stores. Maximizing your reach in a one or two day delivery time can differentiate your service versus your competitors.
Costs in distribution, however, often have tradeoffs. Larger facilities enjoy economies of scale (construction, utilities and management). However, they are usually farther away from the entire customer base, increasing shipping costs.
These tradeoffs of cost and customer service require quantitative decision support. Supply Velocity uses optimization programming tools, and efficient frontier analysis, to support facility location decisions. The quantitative, optimal, solution can be used by management to ensure that you are not “winging-it”, when considering a costly and long-range decision such as where to put your plant or warehouse.
Facility Location & Network Optimization – Implementation Plan
- Gather all cost and customer service data for all potential locations
- Lease or construction costs
- Labor costs
- Distance to customer locations
- Shipping costs
- Build optimization model to choose the lowest cost site
- Evaluate customer service metrics of lowest costs site
- Create “efficient frontier” analysis, balancing customer service and lowest cost
- Decide on facility location using quantitative and qualitative criteria