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Impact of Product Classes on Logistics Plans and Decisions

Impact of Product Classes on Logistics Plans and Decisions. Consumer Goods Convenient Goods Shopping Goods Specialty Goods Industrial Goods. Product Characteristics Impacts on Planning. Product life cycle 80-20 rule Individual characteristics:

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Impact of Product Classes on Logistics Plans and Decisions

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  1. Impact of Product Classes on Logistics Plans and Decisions • Consumer Goods • Convenient Goods • Shopping Goods • Specialty Goods • Industrial Goods

  2. Product Characteristics Impacts on Planning • Product life cycle • 80-20 rule • Individual characteristics: • Weight-Bulk ratio (ration of weight to volume, density; e.g. cotton vs. steel) • Value-Weight ratio (coal vs. jewelry) • Substitutability (customer’s reaction when not in stock) • Risk characteristics (perishability, flammability, ease of being stolen)

  3. Sales Volume Introduction Growth Maturity Decline Time Product Life Cycle

  4. 80-20 Rule and ABC Classification

  5. A B C 20 50 Total Items(%) The 80-20 curve with an Arbitrary Product Classification Total Sales(%)

  6. ABC Analysis • 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 few regional warehouses are used © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 12-13

  7. Inventory Value of the Products in a Warehouse • 80-20 rule and ABC analysis can be used as the basis of grouping the products in a warehouse y= (1+A)x A+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)

  8. Product Characteristics • Weight- Bulk Ratio • Value-Weight Ratio • Substitutability • Risk Characteristics

  9. Logistics Cost as a percentage of sales price Total Cost Transportaiton Cost Storage Cost Increasing Weight-bulk ratio Generalized Effect of Product Density on Logistics Cost

  10. Logistics Cost as a percentage of sales price Total Cost Storage Cost Transportation cost Increasing value-weight ratio Generalized Effect of Value-weight Ratio on Logistics Cost

  11. Total cost Transport cost Improved transportation service Lost Sale cost Storage Cost Effect of Improved Transportation on Logistics Cost for a given level of substitutability Logistics cost as a percent of price

  12. Total cost Logis tics cost as a percentage of price Storage cost Transportation cost Lost Sale cost Average inventory level Effect of Average Inventory Level on Logistics Cost for a Given Level of Substitutability

  13. Total Cost Transportation Cost Costs Storage Cost Increasing Level of Risk of the Product Generalized Effect of Product Risk On Logistics Cost

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