Transcript Chapter 3 The logistics product

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
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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.
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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
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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.
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The product life cycle
Introduction : new product.
Growth : increase rapidly.
Maturity : growth is slow or stabilized at a peak.
Decline : the sales volume declines.
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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
A
B
C
ITEMS(%)
10-20
20-30
60-70
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SALES(%)
60-70
20-30
10-20
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• Step 1 : Ranked according to sales volume.
• Step 2 : Calculated cumulative percent of total sales.
• Step 3 : Calculated cumulative percent of total items.
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Advanced decisions
Determine the relationship between
various percentages of items and
sales.
(1  A) X
Y 
A X
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)
(1  A) X
Y
 AY  XY  X  AY represent 70 percent of the sales
A X
(Y), then
 A(Y  X )  X (1  Y )
X (1  Y )
 A
(Y  X )
X (1  Y ) 0.25(1  0.70)
A

 0.1667
(Y  X ) (0.70  0.25)
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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.
A
Y
X (1  Y ) 0.21(1  0.68)

 0.143
(Y  X )
(0.68  0.21)
(1  A) X
A X
If the annual sales through D  204 Y  (1  0.143)(0.071)  0.379
(0.143 0.071)
the warehouse are forecast to
(1  0.143)(0.143)
D  212 Y 
 0.5715
(
0
.
143

0
.
143
)
be $25,000, how much
(1  0.143)(0.214)
D  185 0 Y 
 0.685
inventory investment inThethe
(0.143 0.214) 9
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warehouse can be expected?
25000* (Y1 )
25000* (Y2 )
 25000*
 15994
(1  0.143)(0.1818)
(0.143 0.1818)
(1  0.143)(0.0909)
(0.143 0.0909)
 25000* 0.4442
 25000*
 11105
(-)
The Logistics Product
11107/7=1586.4
4889/ 7= 698.4
2284.8
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Product characteristics
Influence logistic strategy
Weight
Volume
Value
Perishability
Flammability
Substitutability
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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.
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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) 13
The Logistics Product
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
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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.
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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.
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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.
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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.
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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.
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Incentive pricing arrangement
• Quantity discounts.
• See figure 3-9.
Transportation cost / case
Manufacturing and sales costs
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A
2.2
10
B
2.0
10
C
1.7
10
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