Logistics and Product Management
Summary of Chapter 4: Logistics and Product Management
The Product in Logistics
The core of logistics system design is the product, the subject of flow in the supply chain and the generator of revenue. It comprises both tangible (weight, volume, shape, durability, performance) and intangible (post-sale support, company reputation, flexibility) elements, forming the total product supply.
The Product Life Cycle
Products follow a lifecycle impacting distribution strategies:
- Introduction: Low sales, cautious distribution, limited availability.
- Growth: Explosive sales growth, expanding distribution, increasing availability.
- Maturity: Slowing sales growth, stabilizing at maximum, widest distribution, good availability control.
- Decay: Falling sales, distribution aligned with movement patterns and inventory, declining availability.
The 80/20 Rule and ABC Classification
The 80/20 rule (Pareto principle) highlights that 80% of sales come from 20% of products. This principle is crucial for layout planning and prioritizing logistical processing. Not all products require the same logistical treatment.
Key Product Features Influencing Logistics
- Weight
- Volume
- Value
- Perishability
- Risks
- Substitutability
These features influence storage, inventory, transport, materials handling, and order processing. They can be grouped into:
- Weight-volume (product density)
- Value-weight ratio
- Substitutability
- Risk characteristics
Weight-Volume
Dense products (high weight-volume ratio) utilize transport and storage efficiently (e.g., packaged food). Low-density products fill transport capacity before reaching weight limits (e.g., beach balls). Higher product density generally lowers storage and transport costs as a percentage of sale price.
Value-Weight Ratio
Low value-weight products have low storage costs but high transport costs (as a percentage of sale price). High value-weight products show the opposite pattern (e.g., jewelry). Companies adjust strategies accordingly, focusing on favorable transport rates for low value-weight and minimizing inventory for high value-weight.
Substitutability
High substitutability means customers easily choose competing products. This increases the risk of lost sales.
Risk Characteristics
Perishability, flammability, value, and theft risk influence distribution restrictions and increase costs. Special handling (e.g., refrigeration) adds to expenses.
Product Packaging
Packaging serves multiple purposes:
- Facilitating storage and handling
- Optimizing transport
- Protecting the product
- Promoting sales
- Modifying product density
- Improving product usability
- Adding customer value
Logistics focuses on protective packaging and density modification. Packaging modifies product characteristics, adding costs but potentially reducing transport, storage, and damage claims.