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Supply Chain Management, 5e (Chopra/Meindl) Chapter 5 Network Design in the Supply Chain 5.1 True/False Questions 1) 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. Answer: TRUE Diff: 2 Topic: 5.1 The Role of Network Design in the Supply Chain AACSB: Analytic Skills Learning Outcome: Compare common approaches to supply chain design 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. Answer: FALSE Diff: 2 Topic: 5.1 The Role of Network Design in the Supply Chain AACSB: Analytic Skills Learning Outcome: Compare common approaches to supply chain design 3) 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. Answer: FALSE Diff: 1 Topic: 5.1 The Role of Network Design in the Supply Chain AACSB: Analytic Skills Learning Outcome: Compare common approaches to supply chain design 4) Capacity allocation decisions have a significant impact on supply chain performance because they tend to stay in place for several years. Answer: TRUE Diff: 2 Topic: 5.1 The Role of Network Design in the Supply Chain AACSB: Analytic Skills Learning Outcome: Compare common approaches to supply chain design 5) 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. Answer: TRUE Diff: 1 Topic: 5.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 5-1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 6) The allocation of supply sources and markets to facilities does not need to be reconsidered on a regular basis so that the allocation can be changed as market conditions or plant capacities change. Answer: TRUE Diff: 2 Topic: 5.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 7) 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. Answer: TRUE Diff: 2 Topic: 5.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 8) 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. Answer: FALSE Diff: 1 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 9) If production technology displays significant economies of scale, many local locations are the most effective. Answer: FALSE Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 10) If facilities have lower fixed costs, many local facilities are preferred because this helps lower transportation costs. Answer: TRUE Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 11) 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. Answer: TRUE Diff: 3 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 5-2 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 12) If the technology is flexible.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 18) A firm may increase the number of facilities beyond the point that minimizes total logistics cost to improve the response time to its customers. with each location having a lower allocated capacity. Answer: TRUE Diff: 2 Topic: 5. Answer: TRUE Diff: 2 Topic: 5. publishing as Prentice Hall . Answer: FALSE Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 14) High tariffs lead to more production locations within a supply chain network.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 16) Inventory and facility costs increase as the number of facilities in a supply chain increase. Inc. Answer: FALSE Diff: 3 Topic: 5. companies must build appropriate flexibility to help counter fluctuations in exchange rates and demand across different countries.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 15) When designing supply chain networks.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 17) Transportation costs increase as the number of facilities is increased. Answer: TRUE Diff: 3 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 5-3 Copyright © 2013 Pearson Education. Answer: FALSE Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 13) Tariffs have a minor influence on location decisions within a supply chain. Answer: TRUE Diff: 1 Topic: 5. it becomes more difficult to consolidate manufacturing in a few large facilities. Answer: FALSE Diff: 3 Topic: 5. various logistics and facility costs. many local facilities are preferred because this helps lower transportation costs. publishing as Prentice Hall . and the taxes and tariffs at each location.3 Framework for Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 21) 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. Answer: TRUE Diff: 1 Topic: 5.1 The Role of Network Design in the Supply Chain AACSB: Analytic Skills Learning Outcome: Compare common approaches to supply chain design 23) If facilities have higher fixed costs. taking into account the expected margin and demand in each market.19) When faced with a network design decision. Answer: TRUE Diff: 1 Topic: 5. Answer: FALSE Diff: 1 Topic: 5. 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.1 The Role of Network Design in the Supply Chain AACSB: Analytic Skills Learning Outcome: Compare common approaches to supply chain design 22) 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.3 Framework for Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 20) The supply chain network is designed to maximize total profits. Inc. Answer: TRUE Diff: 1 Topic: 5.2 Factors Influencing Network Design Decisions AACSB: Analytic Skills Learning Outcome: Compare common approaches to supply chain design 5-4 Copyright © 2013 Pearson Education. C) both the location of manufacturing. 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. E) none of the above Answer: B Diff: 1 Topic: 5.5.1 The Role of Network Design in the Supply Chain 5-5 Copyright © 2013 Pearson Education. or transportation-related facilities. C) how much capacity should be allocated to each facility. C) how much capacity should be allocated to each facility. E) none of the above Answer: A Diff: 2 Topic: 5. B) where facilities should be located.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 2) Supply chain network design decisions classified as facility role are concerned with A) what processes are performed at each facility. storage. 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. E) none of the above Answer: C Diff: 1 Topic: 5. E) none of the above Answer: C Diff: 1 Topic: 5. or transportation-related facilities and the allocation of capacity and roles to each facility. Inc. B) only the allocation of capacity and roles to each facility. publishing as Prentice Hall .1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 4) Supply chain network design decisions classified as capacity allocation are concerned with A) what processes are performed at each facility. storage. or transportation-related facilities nor the allocation of capacity and roles to each facility. storage.2 Multiple Choice Questions 1) Supply chain network design decisions include A) only the location of manufacturing. B) where facilities should be located.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 3) Supply chain network design decisions classified as facility location are concerned with A) what processes are performed at each facility. D) neither the location of manufacturing. D) they determine the amount of inventory the supply chain has in demanding change.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 6) Decisions concerning the role of each facility are significant because A) they determine the amount of flexibility the supply chain has in demanding change. E) none of the above Answer: A Diff: 2 Topic: 5. C) they determine the amount of capacity the supply chain has in changing the way it meets demand. C) how much capacity should be allocated to each facility. Inc. B) they determine the amount of flexibility the supply chain has in changing the way it meets demand. B) it is not expensive to shut down a facility or move it to a different location. B) capacity decisions tend to be changed frequently.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 8) Capacity allocation decisions have a significant impact on supply chain performance because A) capacity decisions tend to be permanent.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 5-6 Copyright © 2013 Pearson Education.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 7) 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. Answer: B Diff: 2 Topic: 5. C) it is advisable to shut down a facility or move it to a different location.5) Supply chain network design decisions classified as market and supply allocation are concerned with A) what processes are performed at each facility. E) none of the above Answer: D Diff: 1 Topic: 5. D) capacity decisions tend to stay in place for several years. B) where facilities should be located. E) none of the above Answer: D Diff: 2 Topic: 5. E) None of the above are true. D) it is cost effective to shut down a facility or move it to a different location. publishing as Prentice Hall . C) capacity decisions do not tend to stay in place for several years. D) what markets each facility should serve and which supply sources should feed each facility. B) it cannot affect customer demand. and as a result.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 10) Allocating too little capacity results in A) temporary damage. E) high utilization. higher costs. B) good responsiveness if demand is not satisfied or low cost if demand is filled from a distant facility. Answer: B Diff: 2 Topic: 5. C) high utilization. Answer: E Diff: 2 Topic: 5. lower costs. higher costs. and as a result. D) poor utilization. Inc. C) good responsiveness if demand is not satisfied or high cost if demand is filled from a distant facility. E) poor responsiveness if demand is not satisfied or high cost if demand is filled from a distant facility. B) poor utilization. D) poor responsiveness if demand is not satisfied or low cost if demand is filled from a distant facility. D) it cannot satisfy customer demand. inventory.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 5-7 Copyright © 2013 Pearson Education.9) Allocating too much capacity to a location results in A) permanent damage. E) none of the above Answer: C Diff: 2 Topic: 5.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 11) The allocation of supply sources and markets to facilities has a significant impact on performance because A) it cannot affect total production. and transportation costs incurred by the supply chain to satisfy customer demand. C) it affects total production. and transportation costs incurred by the supply chain to satisfy customer demand. lower costs. inventory. and as a result. and as a result. publishing as Prentice Hall . 1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 13) Network design decisions have a significant impact on performance because they A) determine the supply chain configuration. E) A and C only Answer: E Diff: 3 Topic: 5. publishing as Prentice Hall . transportation. B) determine the supply chain conflagration. D) the process where the customer receives the product and takes ownership. and information can be used to either decrease supply chain cost or increase responsiveness.1 The Role of Network Design in the Supply Chain 14) Customer order entry is A) the point in time when the customer has access to choices and makes a decision regarding a purchase.1 The Role of Network Design in the Supply Chain 5-8 Copyright © 2013 Pearson Education. D) set constraints within which inventory.12) 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. C) the process where product is prepared and sent to the customer. transportation.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 15) Which of the following is not a factor influencing network design decisions in supply chains? A) Strategic factors B) Tactical factors C) Macroeconomic factors D) Political factors E) Infrastructure factors Answer: B Diff: 2 Topic: 5. C) the allocation can be held constant as market conditions or plant capacities change. E) none of the above Answer: D Diff: 2 Topic: 5. E) none of the above Answer: B Diff: 2 Topic: 5. B) the allocation can be changed as market conditions or plant capacities stagnate. Inc. B) the customer informing the retailer of what they want to purchase and the retailer allocating product to the customer. C) set constraints within which inventory. D) the allocation can be changed as market conditions or plant capacities change. and information can be used to either increase supply chain cost or decrease responsiveness. E) an outpost facility.16) Firms focusing on cost leadership tend to A) locate facilities close to the market they serve. Inc. D) a contributor facility. E) none of the above Answer: A Diff: 2 Topic: 5. B) locate facilities very far from the market they serve. D) select a high-cost location to be able to react quickly.2 Factors Influencing Network Design Decisions 19) 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.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 18) Which of the following is not one of Kasra Ferdows' classifications of possible strategic roles for various facilities in a global supply chain network? A) Offpost facility B) Source facility C) Server facility D) Contributor facility E) Outpost facility Answer: A Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions 5-9 Copyright © 2013 Pearson Education. D) select a high-cost location to be able to react slowly. C) find the lowest cost location for their manufacturing facilities. B) a source facility. B) locate facilities very far from the market they serve.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 17) Firms focusing on responsiveness tend to A) locate facilities close to the market they serve. C) a server facility. C) find the lowest cost location for their manufacturing facilities. E) none of the above Answer: C Diff: 2 Topic: 5. Answer: A Diff: 2 Topic: 5. publishing as Prentice Hall . D) a contributor facility. B) a source facility. E) an outpost facility. or product development is A) an offshore facility. D) a contributor facility. C) a server facility. Answer: B Diff: 2 Topic: 5. process improvements. local content requirement. Answer: C Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 23) A facility that serves the market where it is located but also assumes responsibility for product customization. B) a source facility. E) an outpost facility. Inc. 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. but its strategic role is broader than that of an offshore facility is A) an offshore facility. B) a source facility. E) an outpost facility. tariff barriers. product modifications. B) a source facility. E) an outpost facility. D) a contributor facility. Answer: D Diff: 2 Topic: 5. C) a server facility. C) a server facility.2 Factors Influencing Network Design Decisions 5-10 Copyright © 2013 Pearson Education.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 22) A facility located primarily to obtain access to knowledge or skills that may exist within a certain region is A) an offshore facility. C) a server facility. D) a contributor facility. publishing as Prentice Hall .20) A facility that also has low cost as its primary objective. Answer: E Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions 21) A facility built because of tax incentives. C) a server facility. E) few low-capacity locations are the least effective. Answer: D Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions 26) If facilities have lower fixed costs. publishing as Prentice Hall . and technologies for the entire network is A) an offshore facility. C) few high-capacity locations are the least effective. D) a few high-capacity facilities because this helps lower transportation costs. C) many local facilities because this helps lower transportation costs. Answer: A Diff: 3 Topic: 5. E) many high-capacity facilities because this helps lower transportation costs. E) an outpost facility.2 Factors Influencing Network Design Decisions 5-11 Copyright © 2013 Pearson Education. A) many high-capacity locations are the most effective. B) few high-capacity locations are the most effective. D) a lead facility. Inc. D) many local facilities are preferred because this helps lower transportation costs. Answer: D Diff: 2 Topic: 5. C) many high-capacity facilities are preferred because this helps lower transportation costs. A) a few high-capacity facilities are preferred because this helps lower transportation costs. B) a source facility. Answer: B Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions 27) If the production technology is very inflexible and product requirements vary from one country to another. E) one central facility is preferred because this helps lower transportation costs. D) few low-capacity locations are the most effective. B) a few local facilities are preferred because this helps lower transportation costs. a firm has to set up A) local facilities to serve the market in each country.2 Factors Influencing Network Design Decisions 25) Production technology displays significant economies of scale. processes.24) A facility that creates new products. B) a few high-capacity facilities to serve the market in each country. E) duties and tariffs are increased as long as production is used primarily for export. D) it becomes easier to consolidate manufacturing in many local facilities.2 Factors Influencing Network Design Decisions 31) Developing countries often create free trade zones where A) duties and tariffs are imposed as long as production is used primarily for export. B) tax incentives. C) duties and tariffs are relaxed as long as production is used primarily for export. Answer: A Diff: 2 Topic: 5. state. Inc. D) incentives. E) companies will serve the local market by setting up regional manufacturing plants. Answer: C Diff: 3 Topic: 5. B) companies do not serve the local market. C) tariffs. or city boundaries are referred to as A) taxes.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 30) If a country has very high tariffs. C) it becomes easier to consolidate manufacturing in a few large facilities.2 Factors Influencing Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 29) Duties that must be paid when products and/or equipment are moved across international. A) companies either do not serve the local market or set up manufacturing plants within the country to save on duties.2 Factors Influencing Network Design Decisions 5-12 Copyright © 2013 Pearson Education. E) the firm should have one central facility. D) duties and tariffs are relaxed as long as production is used primarily for import. B) it becomes more difficult to distribute manufacturing in many local facilities. C) companies set up manufacturing plants within the country to save on duties. B) duties and tariffs are imposed as long as production is used primarily for import.28) If the technology is flexible. A) it becomes more difficult to consolidate manufacturing in a few large facilities. publishing as Prentice Hall . D) companies will not serve the local market or set up manufacturing plants within the country to save on duties. E) none of the above Answer: C Diff: 2 Topic: 5. Answer: C Diff: 1 Topic: 5. transportation. E) none of the above Answer: C Diff: 1 Topic: 5.3 Framework for Network Design Decisions 5-13 Copyright © 2013 Pearson Education.32) 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.2 Factors Influencing Network Design Decisions 33) Total logistics costs are a sum of the A) inventory and facility costs. Answer: B Diff: 2 Topic: 5. D) inventory.2 Factors Influencing Network Design Decisions 35) When faced with a network design decision. publishing as Prentice Hall . D) maximizes the firm's profits while satisfying customer needs in terms of demand and responsiveness. C) produce more in facilities that have a higher cost based on current exchange rates. C) at least equal the number that minimizes total logistics cost.2 Factors Influencing Network Design Decisions 34) The facilities in a supply chain network must A) at least maximize total logistics cost. D) produce less in facilities that have the same cost based on current exchange rates. E) None of the above are accurate. C) satisfies customer needs in terms of demand and responsiveness. and facility costs. E) inventory. transportation. C) inventory and transportation costs. Answer: D Diff: 2 Topic: 5. B) minimizes the firm's costs. the goal of a manager is to design a network that A) maximizes the firm's profits. D) at least minimize total logistics cost. Inc. B) transportation and facility costs. B) produce more in facilities that have a lower cost based on current exchange rates. and faculty costs. E) none of the above Answer: D Diff: 2 Topic: 5. B) at least equal the number that maximizes total logistics cost. their potential roles. taking into account the expected margin and demand in each market. D) identify regions where facilities will be located. publishing as Prentice Hall . Answer: D Diff: 3 Topic: 5. and their approximate capacity. C) select a set of desirable sites within each region where facilities are to be located. B) select a precise location and capacity allocation for each facility. E) specify what capabilities the supply chain network must have to support a firm's competitive strategy.3 Framework for Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 37) 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 E) Implement supply chain strategy Answer: A Diff: 2 Topic: 5. E) specify what capabilities the supply chain network must have to support a firm's competitive strategy. their potential roles.3 Framework for Network Design Decisions 5-14 Copyright © 2013 Pearson Education. and their approximate capacity. Answer: E Diff: 3 Topic: 5. Inc.3 Framework for Network Design Decisions 39) The objective of the second phase of network design is to A) maximize total profits.36) Which of the following is not a 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 E) Implement supply chain strategy Answer: E Diff: 2 Topic: 5. D) identify regions where facilities will be located. taking into account the expected margin and demand in each market. C) select a set of desirable sites within each region where facilities are to be located. B) select a precise location and capacity allocation for each facility.3 Framework for Network Design Decisions 38) The objective of the first phase of network design is to A) maximize total profits. D) the location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network.40) The objective of the third phase of network design is to A) maximize total profits. publishing as Prentice Hall . Answer: B Diff: 3 Topic: 5.3 Framework for Network Design Decisions 41) It is very important that long-term consequences be thought through when making facility decisions. C) select a set of desirable sites within each region where facilities are to be located. B) facilities last a long time and have an enduring impact on a firm's performance.5 Making Network Design Decisions in Practice 5-15 Copyright © 2013 Pearson Education.3 Framework for Network Design Decisions 42) 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. Inc. taking into account the expected margin and demand in each market. E) the quality of life at selected facility locations has a significant impact on performance. E) the quality of life at selected facility locations has a significant impact on performance. D) identify regions where facilities will be located. Answer: C Diff: 3 Topic: 5. their potential roles. 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. and their approximate capacity. E) specify what capabilities the supply chain network must have to support a firm's competitive strategy. Answer: A Diff: 3 Topic: 5. B) select a precise location and capacity allocation for each facility. because A) network designers can use this fact to influence the role of the new facility and the focus of people working there. C) it is astounding how often tax incentives drive the choice of location. publishing as Prentice Hall . E) it influences the work force available and their morale. Inc.43) 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. E) it influences the work force available and their morale. D) the location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network. because A) network designers can use this fact to influence the role of the new facility and the focus of people working there.1 The Role of Network Design in the Supply Chain Learning Outcome: Compare common approaches to supply chain design 5-16 Copyright © 2013 Pearson Education. B) facilities last a long time and have an enduring impact on a firm's performance. D) the location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network.5 Making Network Design Decisions in Practice 45) Which of the following is NOT a classification for Supply Chain Network Design Decisions? A) Facility role B) Inventory allocation C) Facility location D) Market and supply allocation Answer: B Diff: 3 Topic: 5.5 Making Network Design Decisions in Practice Learning Outcome: Compare common approaches to supply chain design 44) Managers making facility location decisions should carefully consider tariffs and tax incentives. C) it is astounding how often tax incentives drive the choice of location. Answer: C Diff: 2 Topic: 5. B) facilities last a long time and have an enduring impact on a firm's performance. Answer: E Diff: 3 Topic: 5. D) available production technologies.3 Framework for Network Design Decisions Learning Outcome: Compare common approaches to supply chain design 49) Capital. C) have many facilities to take advantage of economies of scale. A) Inventory B) Transportation C) Retail operation D) Information Answer: A Diff: 3 Topic: 5. D) increase inventory levels to reduce stockouts. existing networks and global competition mostly affect which of the four Global Network Design Decisions? A) Phase I .Regional Facility Configuration C) Phase III . Answer: A Diff: 1 Topic: 5.Supply Chain Strategy B) Phase II .3 Framework for Network Design Decisions AACSB: Dynamics of the Global Economy Learning Outcome: Compare common approaches to supply chain design 5-17 Copyright © 2013 Pearson Education. publishing as Prentice Hall . B) locate in a higher cost area to provide faster response.Desirable Sites D) Phase IV .46) Firms that focus on cost leadership tend to find the lowest-cost location might A) locate far from their customers. Answer: D Diff: 2 Topic: 5.2 Factors Influencing Network Design Decisions AACSB: Dynamics of the Global Economy Learning Outcome: Compare common approaches to supply chain design 47) Macroeconomic factors influencing network design decisions would typically NOT include A) tarriffs.Location Choices Answer: A Diff: 2 Topic: 5. B) exchange rates. Inc.2 Factors Influencing Network Design Decisions AACSB: Dynamics of the Global Economy Learning Outcome: Compare common approaches to supply chain design 48) ________ costs increase as the number of facilities in a supply chain increases. C) shipping costs. growth strategy. Desirable Sites D) Phase IV .Location Choices Answer: C Diff: 3 Topic: 5. Inc.Supply Chain Strategy B) Phase II . communication.3 Framework for Network Design Decisions AACSB: Multicultural & Diversity Understanding Learning Outcome: Compare common approaches to supply chain design 51) Tariffs.Supply Chain Strategy B) Phase II .Location Choices Answer: B Diff: 3 Topic: 5.50) The availability of suppliers.Regional Facility Configuration C) Phase III . Which of these would NOT be on that list? A) Quality of life B) Tarriffs and tax incentives C) Cultural implications D) The life span of most facilities is getting shorter and shorter.Location Choices Answer: C Diff: 3 Topic: 5.Supply Chain Strategy B) Phase II .Desirable Sites D) Phase IV . economies of scale and aggregate factor costs mostly affect which of the four Global Network Design Decisions? A) Phase I . publishing as Prentice Hall .Regional Facility Configuration C) Phase III .Regional Facility Configuration C) Phase III .Desirable Sites D) Phase IV . Answer: D Diff: 1 Topic: 5. skill needs and response time mostly affect which of the four Global Network Design Decisions? A) Phase I .5 Making Network Design Decisions in Practice 5-18 Copyright © 2013 Pearson Education.3 Framework for Network Design Decisions 52) Available infrastructure. transportation services. and warehousing infrastructure mostly affect which of the four Global Network Design Decisions? A) Phase I .3 Framework for Network Design Decisions AACSB: Dynamics of the Global Economy Learning Outcome: Compare common approaches to supply chain design 53) Managers should keep certain issues in mind when making network design decisions for a supply chain. utilities. Answer: Supply chain network design decisions include the location of manufacturing. publishing as Prentice Hall .3 Essay Questions 1) Explain how supply chain network design decisions are classified. Inc.1 The Role of Network Design in the Supply Chain 5-19 Copyright © 2013 Pearson Education. Facility location: Where should facilities be located? 3. Market and supply allocation: What markets should each facility serve? Which supply sources should feed each facility? Diff: 2 Topic: 5. or transportation-related facilities and the allocation of capacity and roles to each facility. Facility role: What role should each facility play? What processes are performed at each facility? 2. storage.5. Capacity allocation: How much capacity should be allocated to each facility? 4. Supply chain network design decisions are classified as follows: 1. Conversely. and other economic factors that are not internal to an individual firm. Many countries vary incentives from city to city to encourage investments in areas with lower economic development. Exchange rate risks may be handled using financial instruments that limit. Key infrastructure elements to be considered during network design include availability of sites. High tariffs lead to more production locations within a supply chain network. Such policies lead companies to set up many facilities and source from local suppliers. proximity to transportation terminals. Answer: Strategic Factors. When designing supply chain networks. If a country has very high tariffs. Many countries also place minimum requirements on local content and limits on imports. the loss due to fluctuations. Firms focusing on cost leadership tend to find the lowest cost location for their manufacturing facilities. congestion. In contrast. rail service. Macroeconomic Factors. so a firm makes an essentially subjective evaluation when designing its supply chain network. and cities often provide to encourage firms to locate their facilities in specific areas. highway access. publishing as Prentice Hall . tariffs. if facilities have lower fixed costs. 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. Political Factors. If the production technology is very inflexible and product requirements vary from one country to another. Infrastructure Factors. Suitably designed supply chain networks. offer the opportunity to take advantage of exchange rate fluctuations and increase profits. even if that means locating very far from the markets they serve. a firm has to set up local facilities to serve the market in each country. 5-20 Copyright © 2013 Pearson Education. exchange rates. it becomes easier to consolidate manufacturing in a few large facilities. if the technology is flexible. Macroeconomic factors include taxes. labor availability. states. proximity to airports and seaports. companies must build appropriate flexibility to help counter fluctuations in exchange rates and demand across different countries. If production technology displays significant economies of scale.2) Describe the factors that influence supply chain network design decisions. with each location having a lower allocated capacity. and local utilities. or hedge against. Developing countries often create free trade zones where duties and tariffs are relaxed as long as production is used primarily for export. Political stability is hard to quantify. Poor infrastructure adds to the cost of doing business from a given location. Tax incentives are a reduction in tariffs or taxes that countries. a few high-capacity locations are the most effective. Countries with independent and clear legal systems allow firms to feel that they have recourse in the courts should they need it. 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. companies either do not serve the local market or set up manufacturing plants within the country to save on duties. Companies prefer to locate facilities in politically stable countries where the rules of commerce are well defined. The availability of good infrastructure is an important prerequisite to locating a facility in a given area. Technological Factors. Inc. This makes it easier for companies to invest in facilities in these countries. 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. however. many local facilities are preferred because this helps lower transportation costs. 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. Companies must consider competitors’ strategy. there are many situations where the presence of a facility close to a customer is important. use of a rapid means of transportation allows it to build fewer facilities and still provide a short response time. increases transportation costs. If a firm is delivering its product to customers. Moreover. publishing as Prentice Hall . Total logistics costs are a sum of the inventory. Diff: 3 Topic: 5. Increasing the number of facilities to a point where inbound economies of scale are lost increases transportation cost. Transportation costs decrease as the number of facilities is increased. The supply chain network design is also influenced by the transformation occurring at each facility. Inventory and facility costs increase as the number of facilities in a supply chain increase. and location when designing their supply chain networks. The facilities in a supply chain network must at least equal the number that minimizes total logistics costs. their location. Companies must consider inventory. Customer Response Time and Local Presence. A firm may increase the number of facilities beyond this point to improve the response time to its customers. Positive externalities lead to competitors locating close to each other. This decision is justified if the revenue increase from improved response outweighs the increased cost from additional facilities. 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. When there are no positive externalities. and facility costs when designing their supply chain networks. Inc. and facility costs. and capacity allocation is changed. This option. size. Logistics and Facility Costs. however. When there is a significant reduction in material weight or volume as a result of processing.Competitive Factors. transportation. Logistics and facility costs incurred within a supply chain change as the number of facilities. Firms that target customers who value a short response time must locate close to them. it may be better to locate facilities closer to the supply source rather than the customer. transportation. firms locate to be able to capture the largest possible share of the market. A fundamental decision firms make is whether to locate their facilities close to competitors or far from them.2 Factors Influencing Network Design Decisions 5-21 Copyright © 2013 Pearson Education. utilities. managers will identify the regional facility configuration for the supply chain network using network design models discussed in the next section. Answer: 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. Sites should be selected based on an analysis of infrastructure availability to support the desired production methodologies. transportation services. 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. 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. communication. an analysis of the competition. Based on the competitive strategy of the firm. Soft infrastructure requirements include the availability of skilled workforce. 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. and any export or import restrictions for each market. and any constraints. any economies of scale or scope. exchange rate risk. it is best to obtain the major share of profits at the location with the lowest tax rate. Managers must also identify the factor and logistics costs at an aggregate level in each region. regions where facilities will be set up. workforce turnover. 5-22 Copyright © 2013 Pearson Education. The supply chain strategy specifies what capabilities the supply chain network must have to support a firm's competitive strategy. The desired response time for each market must also be identified. Next. Managers must also identify constraints on available capital and whether growth will be accomplished by acquiring existing facilities. 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. managers must forecast the likely evolution of global competition and whether competitors in each market will be local or global players. publishing as Prentice Hall . The regional configuration defines the approximate number of facilities in the network. any requirements for local production. 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. or partnering. and the community's receptivity to business and industry. managers must identify demand risk. tax incentives. and whether a facility will produce all products for a given market or a few products for all markets in the network. and warehousing infrastructure. Next.3) Describe the four phases in the framework for network design decisions. and their approximate capacity. In general. The tax and tariff information is used to identify the best location to extract a major share of the profits. Based on all this information. Hard infrastructure requirements include the availability of suppliers. managers must determine the supply chain strategy for the firm. building new facilities. their potential roles. 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. Inc. An analysis of Phase II is started with a forecast of the demand by country. 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. They must also identify regional tariffs. and political risk associated with different regional markets. Inc.4 Models for Facility Location and Capacity Allocation 5-23 Copyright © 2013 Pearson Education. publishing as Prentice Hall . and the taxes and tariffs at each location. prices.3 Framework for Network Design Decisions 4) Explain the two situations in which managers use network design models. Answer: Managers use network design models in two different situations. Managers must consider this decision at least on an annual basis as demand. Attention is restricted to the desirable sites selected in Phase III. taking into account the expected margin and demand in each market. In both cases. these models are used to assign current demand to the available facilities and identify lanes along which product will be transported. Managers must make this decision considering a time horizon over which locations and capacities will not be altered (typically in years). The network is designed to maximize total profits. Diff: 3 Topic: 5. various logistics and facility costs. these models are used to decide on locations where facilities will be established and the capacity to be assigned to each facility. and tariffs change.Phase IV: Location Choices The objective of this phase is to select a precise location and capacity allocation for each facility. First. Second. the goal is to maximize the profit while satisfying customer needs. Diff: 2 Topic: 5.