Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

Course 3 – Supply Chain Design: Location Planning and Sustainability

Intended learning outcomes: Produce design options for global production, distribution, service, and transportation networks. Describe location selection / configuration for a production network using qualitative / quantitative methods. Explain the concept of sustainability with reference to the triple bottom line. Disclose economic opportunities for social and environmental commitment as well as energy management concepts.


Location planning, or facility location planning, is the planning of locations for company facilities.

Location planning is a strategic task, and it is closely associated with a “make” decision. The first steps in location planning some­times make “make-or-buy” decisions possible at all (see Section 2.1.1). Location decisions also have to be reviewed periodically. Globali­za­tion in particular is leading companies to revise their location strategies. For manufacturers of investment goods, the reasons for this are, among others:

  • Globalization of the targeted market segment requires the local presence of production and distribution facilities, due to official regulations, for example, or because the customer demands it.
  • Entry into new market segments: The creation of new production facilities or a distribution center, i.e. a warehouse with (limited) inventory of end products and/or service items, is necessary.
  • Cost pressures due to the market and a focus on core competencies and core businesses: Due to these, individual steps in value added are moved to locations with specific know-how or lower costs.
  • Increasing importance of the time factor in development, order processing, and service in order to achieve short delivery times in distant markets. One solution can be decentralized adaptation of products and services by completing them locally.
  • Current location’s disadvantages (personnel, finance, legal, aids for exports, tax, patent system, customer basis, mentality, unions).

These reasons change continuously due to the changing global environ­ment. However, location planning is a long-term task. Generally, mistakes cannot be rectified quickly and are very costly. Figure 3.1.0.1 shows the dynamics of the problem as revealed by a survey of medium-sized companies of the mechanical or electrical industry (M&E) in Germany from 1999 to 2012 (see [Kink12]). The survey investigated the companies’ reasons for both offshoring and backshoring production activities (mostly from Eastern Europe or Asia). The statistics demonstrate the importance of systematic location planning.

Fig. 3.1.0.1        Reasons for moving facilities back (data according to [Kink12] and previous publications of Fraunhofer ISI, Karlsruhe).

Section 3.1 deals with the strategic decisions in company-internal value adding. We look mainly at location planning in production, distribution, and service networks. This also includes the adequate transport networks.

Section 3.2 introduces possible arrangements, location factors, and criteria for location selection, thereafter location configuration, that is, the assignment of products and services to a location. The solution methods are of both a qualitative and a quantitative kind. And finally, Section 3.3 looks at the current challenge of design-sustainable supply chains with a view to the “triple bottom line.”



Course 3: Sections and their intended learning outcomes

  • Course 3 – Supply Chain Design: Location Planning and Sustainability

    Intended learning outcomes: Produce design options for global production, distribution, service, and transportation networks. Describe location selection / configuration for a production network using qualitative / quantitative methods. Explain the concept of sustainability with reference to the triple bottom line. Disclose economic opportunities for social and environmental commitment as well as energy management concepts.

  • 3.1 Design Options for Integrated Production, Distribution, Service, and Transportation Networks

    Intended learning outcomes: Explain design options for global production networks, distribution networks, service networks, and transportation networks. Describe the network structure for decentralized distribution, and design options for retail networks. Disclose the integration of the portfolios.

  • 3.2 Location Selection and Location Configuration

    Intended learning outcomes: Differentiate between location selection and location configuration. Explain location selection using qualitative methods and factor rating. Describe location selection and location configuration with linear programming.

  • 3.3 Sustainable Supply Chains

    Intended learning outcomes: Explain the changing concept of sustainability with reference to the triple bottom line. Disclose economic opportunities for social commitment and for environmental commitment. Describe energy management concepts and measures for improved environmental performance. Produce an overview on the measurement of the environmental performance. Present social and environmental dimensions in industrial practice.


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