Wings of Change Newsletter October 2023

Supply Chain Network Design,
Challenges and Considerations
Written by
Shakkya Perera, MILT
Australian Maritime College,
University of Tasmania
Member Article
Supply chain network design is
a key element in supply chain
network planning. There are various
challenges associated with supply
chain network design (SCND). Figure
01 outlines most of those aspects
through four phases. SCND is based
on the supply chain strategy resulting
from the competitive strategy either
to be cost-efficient or differentiation
subject to constraints such as the size
of a facility.
Figure 1. Framework for Network Design Decisions in the Supply Chain (Sunil, C & Peter, M 2014)
Determining the size of each facility
in the supply chain, particularly the
size of the production facility could be
termed one of the key elements in the
supply chain network design. Similarly,
the size of the production facility
will influence the sourcing and distribution
network design owning to
production capacity constraints and
capability to accommodate inputs
and outputs.
The size of the production facility
demarcates production procedures.
Thus, the production frequency and
batch sizes have a direct impact on
the sourcing network design. When
supplies are needed in small batches
directly to the production floor, owing
to the size of the production facility,
it triggers a SCND with frequent
inbound logistics to the production
facility from well-established supply
sources. Therefore, it is evident that
the size of the production facility has
a significant impact on the sourcing
network design. Moreover, if the production
facility encompasses a high
production rate along with a lower
constrained space for input items,
then it will need intermediate warehouses
between the supplier and the
production facility through third-party
logistics providers, entrepot facilities,
or customs bonded warehouses.
Hence, the SCND in terms of sourcing
will be affected by the size of the production
facility.
Distribution network design is significantly
defined by the distributional
channel choice made by the company.
Figure 2 depicts there are several
types of distribution channels under
different levels that a company could
decide its business operations. It is
vivid that these distribution channels
are commencing with the manufacturer
and hence production facility
plays a major role in determining the
appropriate distribution channel.
Figure 2. Distribution Channels (Kotler, PT & Keller, KL 2015)
Wings of Change -13-