supply chain product_1.ppt

8/14/2019 supply chain product_1.ppt

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Product flows

Creates revenue

Basic dimensions of products are important

to manage the logistics serviceCarriage and transportation


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Combination of goods and service

Goods are physical portion including weight,volume, shape, durability, features,

performance etc. Service is the intangible part of product


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Classifying products-

Consumer product-Household products

Industrial product

Consumer product-Convenience product- Pepsi

Shopping product-Shopping clothes

Specialty product- Automobiles


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Distribution- availability, network

Stock- storage management

Price-level of price


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Introduction-Limited product availability

Distribution planning is difficult

Distribution strategy under consideration

Growth- Similar existing product salesinformation may be helpful

Maturity- known demand

Decline- stocking reduced to few locations


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ABC classification

A- 80% sales are generated from 20% of theproducts

B- 15% sales from 30% productsC- 5% sales from 50% products

Usage- Distribution strategy

and Grouping into warehouse


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Divides on-hand inventory into 3 classes A class, B class, C class

Basis is usually annual $ volume $ volume = Annual demand x Unit cost

Policies based on ABC analysis A items receives wide geographic distribution through many warehouses,

with high levels of stock availability

Give tighter physical control of A items

Forecast A items more carefully

C items might be distributed from a single, central stocking point(e.g.plant), with lower total stocking levels than for the A items

B items would have an intermediate distribution strategy where fewregional warehouses are used


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80-20 rule and ABC analysis can be used asthe basis of grouping the products in awarehouse

y= (1+A)xA+X

where,

Y= Fraction of cumulative sales X= Fraction of items

A: constant to be determined

If the relation between X and Y is already known:

A= X(1-Y)

(Y-X)


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Example Suppose that in an inventory of 10 items, 15% of theitems account for 80% of the sales volume. The total sales of all10 items is $90,000 per year. How much inventory can beexpected if turnover forA items = 8, B items = 5, and C items =2?

Solution: First, findA. A = .15(1- .80)/(.80-.15)

= 0.0462

Then, usingA = 0.0462 and the first item (1/10), we project thesales volume to be:

Y = (1+.0462).10/(.0462+.10) = 0.7156,or 71.6%of the sales

The inventory for this item is expected to be 0.716(90,000)/8 =$8,055.

.


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Weight- Bulk Ratio

Value-Weight Ratio

Substitutability

Risk Characteristics


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Individual characteristics: Weight-Bulk ratio (ration of weight to volume, density;

e.g. cotton vs. steel)

Cotton has low ratio

Steel has high ratio

Value-Weight ratio (coal vs. jewelry)

Coal has low ratio

Jewelry has high ratio

Substitutability (customers reaction when not instock)

Risk characteristics (perishability, flammability, easeof being stolen)


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Increasing Weight-bulk ratio

Logist

ics

Cost

as a

percen

tage

of

sales

price

Storage Cost

Transportaiton Cost

Total Cost

Generalized Effect of weight bulk ratio on Logistics Cost


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Increasing value-weight ratio

Logisti

csCost

as a

percen

tage of

sales

price

Transportation cost

Storage Cost

Total Cost

Generalized Effect of Value-weight Ratio on Logistics Cost


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When customers find little or no differencebetween a firms product and those of

competitors , products are said to be highlysubstitutable.

Distribution managers should ensure productavailability to ensure success in market.

Substitutability can be viewed as lost sales to

the supplier. Example- many food and drug products


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Increasing transportation cost

Increasing storage cost


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Improved transportationservice

Storage Cost

Lost Sale cost

Transport cost

Total cost

Logistics

cost as a

percent of

price

Effect of Improved Transportation on Logistics Cost for a given level

of substitutability


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20Average inventory level

Logis

tics cost

as a

percentag

e of price

Transportation

cost

Lost Sale cost

Storage cost

Total cost

Increasing storage cost


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(Perishability, flammability, ease ofbeing stolen), tendency to explode

Both transportation and storage cost

increases for high risk products


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Increasing Level of Risk of

the Product

Costs

Storage Cost

Transportation Cost

Total Cost

Generalized Effect of Product Risk On Logistics Cost


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Reasons of packaging

Facilitate storage and handling

Promote better utilization of transport

equipment Provide product protection

Promote the sale of the product

Change the product density Facilitate product use

Provide reuse value for the customer


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Geographic pricing methods

- F.o.b. pricing

- Zone pricing

- Single, or uniform, pricing - Freight equalization

- Basing point pricing

Incentive pricing - Quantity discounts


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This is the final price o the customerslocation

Transportation cost is included with the

product cost Supplier arranges the transportation

Example- Burger king fast food


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Establishes a single price within a widegeographic area.

Colonial furniture, located at Boston has

divided the country into 8 zones according topostal code. Establishes price (unit price +transport) by zone.


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Single price for all customers regardless theirlocation

Basing point pricing:Pricing is determined from where the product

is manufactured.

Nestle- Bangladesh, India, Malaysia

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