Essay About Life Of A Supply Chain Network And Impact Of Uncertainty

The Impact of Uncertainty on Network Design
THE IMPACT OF UNCERTAINTY ON NETWORK DESIGN
Supply chain design decisions such as the number and size of plants to build, the size
and scope of a distribution system, and whether to buy or lease ones facilities involve
significant investment. These decisions, once made, cannot be altered in the short term.
They remain in place for several years and define the constraints within which the sup-
ply chain must compete. Thus, it is important that these decisions be evaluated as accu-
rately as possible.
Over the life of a supply chain network, a company experiences fluctuations in
demand, prices, exchange rates, and the competitive environment. A decision that
looks very good under the current environment may be quite poor if the situation
changes. For example, long-term contracts for warehousing are more attractive if the
demand and price of warehousing do not change in the future or if the price of ware-
housing goes up. In contrast, a short-term contract is more attractive if either demand
or the price of warehousing drops in the future. The degree of demand and price uncer-
tainty has a significant influence on the appropriate portfolio of long- and short-term
warehousing space that a firm should carry.
Uncertainty of demand and price drives the value of building flexible production
capacity at