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Robust Structural Equations for Designing and Monitoring Strategic International Facility Networks
Author(s) -
Kouvelis Panos,
Munson Charles L.,
Yang Shilei
Publication year - 2013
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2012.01418.x
Subject(s) - computer science , key (lock) , economies of scale , product (mathematics) , structural equation modeling , focus (optics) , scale (ratio) , integer (computer science) , network planning and design , operations research , mathematical optimization , industrial organization , industrial engineering , economics , microeconomics , mathematics , engineering , computer network , programming language , physics , geometry , computer security , quantum mechanics , machine learning , optics
Using predictive global sensitivity analysis, we develop a structural equations model to abstract from the details of a large‐scale mixed integer program ( MIP ) to capture essential design trade‐offs of global manufacturing and distribution networks. We provide a conceptual framework that describes a firm's network structure along three dimensions: market focus, plant focus, and network dispersion. Normalized dependent variables are specified that act as proxies for a company's placement into our conceptual network classification via the calculation of just a few key independent variables. We provide robust equation sets for eight cost structure clusters. Many different product types could be classified into one of these groups, which would allow managers to use the equations directly without needing to run the MIP for themselves. Our numerical tests suggest that the formulas representing the network structure drivers—economies of scale, complexity costs, transportation costs, and tariffs—may be sufficient for managers to design their strategic network structures, and perhaps more importantly, to monitor them over time to detect potential need for adjustment.