Page 268 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 12: Network Integration

material index. This was the ratio of the localized raw material in the weight of the finished Notes
product. Various types of industry were assigned a locational weight based on the material
index. Utilizing these two measures, Weber generalized that industries would locate facilities at
the point of consumption when the manufacturing process was weight-gaining and near the
point of raw material deposit when the manufacturing process was weight-losing. Finally, if the
manufacturing process were neither weight-gaining nor weight-losing, firms would select plant
locations at an intermediate point of convenience.

12.1.1 Spectrum of Location Decisions

In terms of logistical planning, transportation offers the potential to link geographically dispersed
manufacturing, warehousing, and market locations into an integrated system. Logistical system
facilities include all locations at which materials, work-in-process, or finished inventories are
handled or stored. Thus, all retail stores, finished goods warehouses, manufacturing plants, and
material storage warehouses are logistical network locations. It follows that selection of individual
locations, as well as the overall locational network, represents important competitive and cost-
related logistical decisions.
A manufacturing plant location may require several years to fully implement.

Example: General Motors’ decision to build a new Cadillac assembly plant in Lansing,
Michigan, spanned over 5 years from concept to reality.

In contrast, some warehouse arrangements are sufficiently flexible to be used only at specified
times during a year. The selection of retail locations is a specialized decision influenced by
marketing and competitive conditions. The discussion that follows concentrates on warehouse
location. Among all the location decisions faced by logistical managers, those involving
warehouse networks are most frequently reviewed.
12.1.2 Local Presence: An Obsolete Paradigm

A long-standing belief in business is that a firm must have facilities in local markets to successfully
conduct business. During economic development of North America, erratic transportation services
created serious doubt about a firm’s ability to promise delivery in a timely and consistent
manner. In short, customers felt that unless a supplier maintained inventory in local market
areas it would be difficult, if not impossible, to provide consistent delivery. This perception,
commonly referred to as the local presence paradigm, resulted in logistical strategies committed
to forward deployment of inventory. As recently as the early 1960s it was not uncommon for
manufacturers to operate 20 or more distribution warehouses to service mainland United States.
Some firms went so far as to have full line inventory warehouses located near all major sales
offices.

When a tradition is part of a successful strategy, it is difficult to change. However, for the past
several decades inventory cost and risk associated with local presence have driven re-examination.
Transportation services have dramatically expanded, and reliability has increased to the point
where arrival times are dependable and predictable. Rapid advances in information technology
have reduced the time required to identify and communicate customer requirements. Technology
is available to track transportation vehicles, thereby providing accurate delivery information.
Next-day delivery from a warehouse facility located as far away as 800 to 1000 miles is common
practice.
Transportation, information technology, and inventory economics all favour the use of fewer
rather than greater numbers of distribution warehouses to service customers within a geographical
area.

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