1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 12

3-2 Nature of the Product (Cont’d)  Product characteristics - Weight-bulk ratio - Value-weight ratio - Substitutability - Risk  Product packaging  Product pricing - F.o.b. origin - F.o.b. destination - Zone pricing - Single and uniform pricing - Quantity discounts - Deals

3-3 Product Pricing Geographic pricing methods - F.o.b. (free on board) pricing - F.o.b. factory price - F.o.b. delivery price - Zone pricing - Single, or uniform, pricing - Freight equalization - Basing point pricing Incentive pricing - Quantity discounts

Quantity purchased (cases) Logistical costs ($/case) Total per-case costs (transport + inventory + order processing and handling costs) Per-case inventory carrying costs Less than truckload Rail carload Truckload Transport costs Per-case order processing and handling costs Per-Case Logistics Costs as a Justification for Price Discounts

13-5 Facility Location Decisions CR (2004) Prentice Hall, Inc. Experience teaches that men are so much governed by what they are accustomed to see and practice, that the simplest and most obvious improvements in the most ordinary occupations are adopted with hesitation, reluctance, and by slow graduations. Alexander Hamilton, 1791

13-6 CR (2004) Prentice Hall, Inc. Facility Location in Location Strategy 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

13-7 CR (2004) Prentice Hall, Inc. Location Overview What's located?  Sourcing points  Plants  Vendors  Ports  Intermediate points  Warehouses  Terminals  Public facilities (fire, police, and ambulance stations)  Service centers  Sink points  Retail outlets  Customers/Users

13-8 CR (2004) Prentice Hall, Inc. Location Overview (Cont’d) Key Questions  How many facilities should there be?  Where should they be located?  What size should they be? Why Location is Important  Gives structure to the network  Significantly affects inventory and transportation costs  Impacts on the level of customer service to be achieved

13-9 CR (2004) Prentice Hall, Inc. Methods of Solution  Single warehouse location – Graphic – Grid, or center-of-gravity, approach  Multiple warehouse location – Simulation – Optimization – Heuristics Location Overview (Cont’d)

13-10 CR (2004) Prentice Hall, Inc. Nature of Location Analysis Manufacturing (plants & warehouses) Decisions are driven by economics. Relevant costs such as transportation, inventory carrying, labor, and taxes are traded off against each other to find good locations. Retail Decisions are driven by revenue. Traffic flow and resulting revenue are primary location factors, cost is considered after revenue. Service Decisions are driven by service factors. Response time, accessibility, and availability are key dimensions for locating in the service industry.

13-11 CR (2004) Prentice Hall, Inc. Some Location Theory/Practice Early economic analysis Bid rent curves Weber’s isodapanes Weber’s classification of industries Hoover’s tapered transport rates Agglomeration Mathematical approaches Light analysis - Chart, compass, ruler techniques - Spreadsheets - Checklists Continuous location methods Mathematical programming

13-12 CR (2004) Prentice Hall, Inc. Bid Rent Curve

13-13 Weber’s Classification of Industries CR (2004) Prentice Hall, Inc.

13-14 CR (2004) Prentice Hall, Inc. Hoover’s Transport Curves