Generic Production Network Design Strategies

If a company decides to operate more than one site, it has to decide on how to distribute activities across its sites. Ihde (2001, pp. 85-87) describes the basic options available. One option is to split volumes so that all sites perform all activities. This option basically duplicates activities at each new site. A second option is to divide activities across several sites by function, product or production process. In this case, each site specializes on a specific segment of the overall activities spectrum. Finally, the two options can also be combined leading to what Ihde calls a diversified site network. 

Considering only production network design, Schmenner (1979) builds on the focused factory concept to develop four distinct multi-plant strategies. While he does not consider an international environment, the generic strategies developed for domestic networks are also applied to international production networks (cf. Kouvelis et al. 2004, p. 127). Based on a product/market or process focus Schmenner defines four plant types  

Ferdows (1989) uses the primary reason for establishing a plant (cheap production factors, use of local technological resources or proximity to markets) and the extent of technical activities taking place at the plant to distinguish between six strategic plant roles in international production networks  

In an empirical study Vereecke and Van Dierdonck (2002) tested Fer-dow s model and found it to be valid with two exceptions it appears to be too limited in the criteria for adding plants to an existing network and lead factories were also added based on market proximity. In another study Maritan et al. (2004) used autonomy over planning, production and control decisions to validate Ferdow s model but found only weak correlations with planning decisions showing the strongest correlation. 

Jordan and Graves (1995) analyze volume flexibility that can be achieved via product-plant assignment choices in a multi-plant, multiproduct production network when faced with uncertain demand. Based on a 10 plants/10 products example they demonstrate that, if correctly designed, a network with partial flexibility can yield almost the same volume flexibility benefits as a totally flexible network where all plants are able to produce all products. Their recommendation is that products should be allocated to plants in a chain pattern with the complete network ideally creating a single chain instead of several shorter chains (cf. Fig. 5). For more complex networks their recommendation is to equalize the number of plants a product is directly connected to and the number of products to which each plant is directly connected and create a circuit that encompasses as many plants and products as possible. 

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