Chapter 3 The logistics product

1. Chapter 3 The logistics product 1.Nature of the logistics product 2.The 80-20 curve 3.Product characteristics 4.Product packaging 5.Product pricing 6.Incentive pricing arrangement The Logistics Product

2. Nature of the logistics product Classifying products: 1.customer products. a. convenience products. b. shopping product. c. specialty products. 2.industrial products. Ex: raw materials, component parts, used in the manufacturing process. The Logistics Product

3. Customer products • a.convenience products • there products require wide distribution • ex: Pepsi-cola and coca-cola • telephone companies • banking services. • b. shopping product • customers are willing to seek and compare The Logistics Product

4. Customer products • distribution costs for such suppliers are somewhat lower than for convenience products, and product distribution need not be as widespread. • Ex: fashion clothes, automobiles, home furnishings and medical care. • c.specialty products • Buyers are willing to expend a substantial effort and often to wait a significant amount of time in order to acquire them. • Ex. Custom-made automobiles, professional musicians. The Logistics Product

5. The product life cycle • Introduction : new product. • Growth : increase rapidly. • Maturity : growth is slow or stabilized at a peak. • Decline : the sales volume declines. The Logistics Product

6. The 80-20 curve • Pareto’s law • 80% of a firm’s sales are generated by 20% of product line items. • Useful in distribution planning when the products are grouped or classified by their sales activity. • The top 20% might be called A items, the next 30% B items, and the remainder C items ITEMS(%) SALES(%) A 10-20 60-70 B 20-30 20-30 C 60-70 10-20 The Logistics Product

7. Step 1 : Ranked according to sales volume. • Step 2 : Calculated cumulative percent of total sales. • Step 3 : Calculated cumulative percent of total items. The Logistics Product

8. Advanced decisions Determine the relationship between various percentages of items and sales. where Y = cumulative fraction of sales X = cumulative fraction of items A = a constant to be determined. Ex: If 25 percent of the items (X) represent 70 percent of the sales (Y), then The Logistics Product

9. Box 3.8 EXAMPLES • Suppose that a certain warehouse is to store 11 of the 14 items (shown in Table 3-10, except for items 4,9, and 10) • X=0.21, Y=0.68 (21% of the items result in 68% of the sales), then A=0.143. • Turnover ratio • (annual sales / average inventory) • A items is 7/1. • B items is 5/1. • C items is 3/1. • If the annual sales through the warehouse are forecast to be $25,000, how much inventory investment in the warehouse can be expected? The Logistics Product

10. (-) 11107/7=1586.4 4889/ 7= 698.4 2284.8 The Logistics Product

11. Product characteristics Influence logistic strategy • Weight • Volume • Value • Perishability • Flammability • Substitutability The Logistics Product

12. Weight-Bulk ratio High weight-bulk ratio • rolled steel, printed materials, canned foods. • good utilization of transportation equipment and storage facilities. See figure 3-3, the product density increases, both storage and transportation costs decline. Box 3.9 JCPenney ships catalog furniture items in a knocked-down condition. The Logistics Product

13. Value-weight ratio • See figure 3-4 • electronic equipment, jewelry, musical instruments • higher storage costs • lower transportation costs • U-shaped total logistics cost curve (trade-off) The Logistics Product

14. Substitutability • Little or no difference between a firm’s product • Many food and drug products have a highly substitutable • Substitutability can be viewed in terms of lost sales to the suppliers The Logistics Product

15. Figure 3-5(a) show that improved transportation can be used to reduce lost sales (more readily available to the customer). Figure 3-5 (b) increase inventory level to reduce the lost sales. The Logistics Product

16. Risk characteristics • Perishability (fresh fruits and whole blood) • Flammability tendency to explore (gas, oil) • Value, ease be stolen (pens. watches. cigarettes) • Special treatment, whether transportation, storage or packaging, adds to the cost of distribution. • See figure 3-6. The Logistics Product

17. Product packaging • To facilitate storage and handling. • To promote better utilization of transport equipment. • To provide product protection. • To promote the sale of the product. • To change the product density. • To facilitate the use of the product. • To provide reuse value for the customer. The Logistics Product

18. Box 3.10 Johnson & Johnson • Diapers • Be packaged 12 or 24 to the box. • Change the product density. • Not only did this satisfy marketing, but it would save on storage, transportation and packaging costs as well. The Logistics Product

19. Product pricing Geographic pricing methods • F.o.b pricing (free on board) ,see figure 3-7. • Zone pricing, see figure 3-8. • Single, or uniform pricing. • Freight equalization pricing. • Basing point pricing. The Logistics Product

20. Incentive pricing arrangement A B C Transportation cost / case 2.2 2.0 1.7 Manufacturing and sales costs 10 10 10 • Quantity discounts. • See figure 3-9. The Logistics Product