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. Product Life Cycle Sales Volume Time Introduction Maturity Growth
Decline

4. 80-20 Rule and ABC Classification

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

7. 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
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Transparency Masters to accompany Operations Management, 5E (Heizer & Render)
12-13 13

8. 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)

10. Product Characteristics
Weight- Bulk Ratio
Value-Weight Ratio
Substitutability
Risk Characteristics

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

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

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

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

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