1 impact of product classes on logistics plans and decisions consumer goods convenient goods...
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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
Product Life Cycle
Time
Sales Volume
Introduction
Growth Maturity Decline
4
80-20 Rule and ABC Classification
5
ProductNumber
ProductRank by
Sales
MonthlySales
(1000 $)
CumulativePercentage
of TotalSales
CumulativePercen tage
of TotalItems
ProductClassific
ation
D-204 1 5056 %36,2 %7,1 A
D-212 2 3424 60,7 14,3 A
D-185-0 3 1052 68,3 21,4 B
D-191 4 893 74,6 28,6 B
D-192 5 843 80,7 35,7 B
D-193 6 727 85,9 42,6 B
D-179-0 7 451 89,1 50 B
D-195 8 412 91,9 57,1 C
D-196 9 214 93,6 64,3 C
D-186-0 10 205 95,1 71,4 C
D-198-0 11 188 96,4 78,6 C
D-199 12 172 97,6 85,7 C
D-200 13 170 98,7 92,9 C
D-205 14 159 100 100 C
$13966
6
The 80-20 curve with an Arbitrary Product Classification
Total Sales(%)
Total Items(%)
A CB
20 50
7
Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 12-13 © 1998 by Prentice Hall, Inc.
A Simon & Schuster CompanyUpper Saddle River, N.J. 07458
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
ABC Analysis
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)xA+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)
9
Product Rank Cumulative ItemProportion (X)
Cumulative Sales(Y)
Projected ItemSales
TurnoverRatio
AverageInventory
ValueD-204 1 0,0909 $12068 12068 7:1 $1724
D-212 2 0,1818 16867 4798 7:1 685
D-185-0 3 0,2727 19444 2577 5:1 515
D-192 4 0,3636 21052 1608 5:1 322
D-193 5 0,4545 22151 1099 5:1 220
D-179-0 6 0,5454 22950 799 5:1 160
D-195 7 0,6363 23557 607 3:1 202
D-198-0 8 0,7272 24034 477 3:1 159
D-199 9 0,8181 24419 384 3:1 128
D-200 10 0,9090 24735 316 3:1 105
D-205 11 1,0000 25000 265 3:1 88
$25000 $4308
10
Product Characteristics
Weight- Bulk Ratio Value-Weight Ratio Substitutability Risk Characteristics
11
Increasing Weight-bulk ratio
Log
ist
ics
Cos
t as
a
perc
enta
ge
of
sale
s pr
ice
Storage Cost
Transportaiton Cost
Total Cost
Generalized Effect of Product Density on Logistics Cost
12
Increasing value-weight ratio
Log
isti
cs
Cos
t as
a
perc
enta
ge o
f sa
les
pric
e
Transportation cost
Storage Cost
Total Cost
Generalized Effect of Value-weight Ratio on Logistics Cost
13Improved transportation service
Storage Cost
Lost Sale cost
Transport cost
Total cost
Logistics cost as a percent of price
Effect of Improved Transportation on Logistics Cost for a given level of substitutability
14Average inventory level
Log
isti
cs
cost
as
a perc
enta
ge o
f pr
ice
Transportation cost
Lost Sale cost
Storage cost
Total cost
Effect of Average Inventory Level on Logistics Cost for a Given Level of Substitutability
15
Increasing Level of Risk of the Product
Costs
Storage Cost
Transportation Cost
Total Cost
Generalized Effect of Product Risk On Logistics Cost
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