1. 1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 10

2. 3-2 The Logistics/Supply Chain Product “Logistics/Supply Chain managers are ‘owners’ of the product-flow process from raw material sources to final consumers, not activity administrators.”

3. 3-3 Product in the Planning Triangle PLANNING ORGANIZING CONTROLLING Transport Strategy Transport fundamentals Transport decisions Customer service goals The product Logistics service Ord. proc. & info. sys. Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Location Strategy Location decisions The network planning process PLANNING ORGANIZING CONTROLLING Transport Strategy Transport fundamentals Transport decisions Customer service goals The product Logistics service Ord. proc. & info. sys. Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Location Strategy Location decisions The network planning process

4. Nature of the Product Product classification – Consumer Products Convenience goods Shopping goods Specialty goods – Industrial goods 1-4

5. Nature of the Product Product classification – Consumer Products Convenience Products – Purchased Frequently with little comparative shopping – Distributed through multiple outlets – High distribution costs justified by increased sales – Example: vending machines for coca-cola 1-5

6. Nature of the Product Product classification – Consumer Products Shopping Products – Consumers seek and compare – Comparing quality, price and performance – Few outlets to be maintained – Distribution costs are lower – Examples: Furniture, Medical Services, Automobiles etc 1-6

7. Nature of the Product Product classification – Consumer Products Specialty Products – Buyers expend substantial effort – Buyers wait significant amount of time to get the particular product – Distribution is centralized – Lowest physical distribution costs – Examples: Consultancy Service, Musical Instruments for professional musicians 1-7

8. Nature of the Product Product classification – Industrial Products Raw Material that is part of finishes goods Machinery and equipment that is used for production process Goods not directly involved like business services, and office Supplies 1-8

9. 3-9 Intro- duction GrowthMaturityDecline Sales volume Time Product Life-Cycle Curve

10. Introductory Stage – Sales are not high – Cautious inventory and distribution strategies Growth Stage – Huge growth after product acceptance – Not history of sales to manage inventory and distribution 1-10

11. Product Life-Cycle Curve Maturity Stage – Stable sales – Huge distribution, many stocking points – Sound forecasts Decline Stage – Stocking points reduced to centralized distribution 1-11

12. 3-12 Nature of the Product 80% of Firm’s sales are generated by 20% of the product line items -Difference in inventory and distribution

13. ABC Classification for 14 Products 3-5

14. 0 10 20 30 40 50 60 70 80 90 100 020406080100 Total items (%) Total sales (%) A itemsB itemsC items Cumulative 80-20 Curve 3-6

15. 3-15 Example Suppose that in an inventory of 10 items, 15% of the items account for 80% of the sales volume. The totalsales of all 10 items is $90,000 per year. Howmuch inventory can be expected if turnover First, findA. 0.0462=.15-.80.80)-.15(1 =A Then, usingA= 0.0462 and the first item (1/10), we project the sales volume to be: sales the of 71.6% or,7156.0.10+.0462.0462).10+(1 =Y  Continue for the remaining items and generate the following table. Nature of the Product (Cont’d) for A items = 8, B items = 5, and C items = 2? The inventory for this item is expected to be 0.716(90,000)/8 = $8,055. Turnover Total sales Projected Cumulative Sales 0.716(90,000) = $64,440

16. Example (Cont’d) 3-8