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Logistics Management LSM 730 Lecture 11 Dr. Khurrum S. Mughal 1-1 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.” 3-2 CONTROLLING Transport Strategy • Transport fundamentals • Transport decisions ORGANIZING Inventory Strategy • Forecasting • Inventory decisions • Purchasing and supply Customer scheduling decisions service goals • Storage fundamentals The product product • The • Storage decisions • Logistics service • Ord. proc. & info. sys. PLANNING Product in the Planning Triangle Location Strategy • Location decisions • The network planning process 3-3 Nature of the Product • Product classification – Consumer Products • Convenience goods • Shopping goods • Specialty goods – Industrial goods 1-4 Sales volume Product Life-Cycle Curve Introduction Growth Maturity Decline Time 3-5 Cumulative 80-20 Curve 100 90 Total sales (%) 80 70 60 50 40 30 A items 20 B items C items 10 0 0 20 40 60 Total items (%) 80 100 3-6 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 3-7 Logistics costs as a percent of sales price Effect of Weight-Bulk Ratio on Logistics Costs Total costs (transport + storage) Transportation costs Storage costs 0 0 Weight-bulk ratio 3-8 Effect of Value-Weight Ratio on Logistics Costs Logistics costs as a percent of sales price Example: Coal, Iron Ore Vs Electronic Equipment 0 Total costs (transport + storage) Transportation costs Storage costs 0 Value-weight ratio 3-9 0 Total costs (transport + lost sales + storage costs) Transport costs Lost sales Storage costs 0 Logistics costs as a percent of sales price Logistics costs as a percent of sales price Effect of Transport Service and Inventory Level on Logistics Costs (Substitutability) 0 Improved transportation service 0 (a) Total costs (transport + lost sales + storage costs) Transport Storage costs costs Lost sales Average inventory level (b) 3-10 Effect of Product Risk on Logistics Costs Logistics costs as a percent of sales price Total costs (transport + storage) Transport costs Storage costs 0 0 Increasing degree of risk in the product 3-11 Reasons for Product Packaging • Facilitate storage and handling • Promote better utilization of transport equipment • Provide product protection • Promote the sale of the product • Change the product density • Facilitate product use • Provide reuse value for the customer 3-12 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 3-13 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 3-14 1. Terms of Sale: F.O.B. Origin, Freight Collect Buyer -Pays Freight Charges Freight Charges Buyer -Bears Freight Charges Paid by Buyer Buyer -Owns Goods in Transit Buyer -Files Claims (If Any) BUYER Title Passes to Buyer SELLE R 2. Terms of Sale: F.O.B. Origin, Freight Prepaid Seller -Pays Freight Charges Seller -Bears Freight Charges Buyer -Owns Goods in Transit Buyer -Files Claims (If Any) Title Passes to Buyer BUYER SELLER Freight Charges Paid by Seller 3. Terms of Sale: F.O.B. Origin, Freight Prepaid and Charged Back Title Passes to Buyer BUYER SELLER Freight Charges Paid by Seller... A Variety of Pricing Arrangements Seller -Pays Freight Charges Buyer -Bears Freight Charges Buyer -Owns Goods in Transit Buyer -Files Claims (If Any) then Collected from Buyer by Adding Amount to Invoice 4. Terms of Sale: F.O.B. Destination, Freight Collect Buyer -Pays Freight Charges Buyer -Bears Freight Charges Seller -Owns Goods in Transit Seller -Files Claims (If Any) Title Passes to Buyer SELLER BUYER Freight Charges Paid by Buyer 5. Terms of Sale: F.O.B. Origin, Freight Prepaid (Delivered) Freight Charges Paid by Seller Title Passes toBuyer SELLER BUYER Seller -Pays Freight Charges Seller- Bears Freight Charges Seller -Owns Goods in Transit Seller -Files Claims (If Any) 6. Terms of Sale: F.O.B. Destination, Freight Collect and Allowed Title Passes to Buyer SELLER Freight Charges Paid by Buyer... BUYER Buyer -Pays Freight Charges Buyer -Bears Freight Charges Seller -Owns Goods in Transit Seller -Files Claims (If Any) then Charged to Seller by Deducting Amount from Invoice 3-15 Zone 2 Zone 3 $136.31 $137.38 Boston Zone 8 $147.38 Zone 7 $144.81 Zone 6 $142.43 Zone 5 $140.00 Zone 4 $138.33 UPS Pricing Zones 3-18