The document provides an overview of key concepts related to logistics and supply chain products. It discusses different types of consumer and industrial products and how their characteristics influence logistics strategies. Product attributes like weight, value, substitutability and risk are examined in terms of their effect on transportation, inventory, and other logistics costs. The document also covers product life cycles and pricing methods used in logistics, including freight equalization, zone pricing, and basing point pricing.

1. The Logistics/Supply
Chain Product
Chapter 3

2. “
”
…the first rule in dealing with other
people’s cultures and customs in that
you must follow them no matter what
your role in the foreign land may be.

3. Introduction
 The logistics/SC product is a collection of
characteristics that can be manipulated by the
logistician.
 Product- Center of focus in logistics system
 A competitive advantage can be created depending
on how product characteristic are reshaped to better
position them for the marketplace.

4. Nature of the Logistics/Sc Product
 Outcome, or result, of any activity or process.
 Composed of;
a. A physical part
b. An intangible part
 Company’s total product offering- Physical and service
characteristics

5. Classifying Product
 Consumer Product
 Industrial Product

6. Consumer Product (Convenience)
 Convenience products are those goods and services that
consumers purchase frequently, immediately, and with
little comparative shopping.
 banking service, tobacco etc.
 PepsiCo, Coca-Cola

7. Consumer Product (Shopping)
 Shopping products are those for which consumers are
willing to seek and compare: Shopping many locations;
Comparing prices; Quality and performance; and making a
purchase only after careful deliberation.
 Hight-fashion cloths
 Automobiles
 Home furnishing
 medical care

8. Consumer Product (Specialty)
 Specialty products are those for which buyer are
willing to expand a substantial effort and often
wait a significant amount of time in order to
acquire them.
 Organic foods
 Custom-made automobiles
 Management consulting advice

9. Industrial Product
 Products and services directed to individuals or
organizations that are used to produce other
goods or services.
 Production process- Raw material and component
parts
 Manufacturing process- Building and Equipment
 Supplies and business service

10. The Product Life Cycle
 Four stages of product life cycle:
1. Introduction
2. Growth
3. Maturity
4. Decline
 Influence on logistics strategy
 Different distribution pattern for different product life
cycle
 Anticipate distribution needs and plan for them in
advance

11. A generalized curve for product Life
Cycle

12. The 80-20 Curve
 The product life cycle serves as the basis for the
80-20 curve.
 Logistics problem= Total of individual product
problems.
 Product line consists of different products at
different stages with their respective life cycles
with different degree of sales success.

13. The 80-20 Curve (Cont.)
 80-20 concept is derived after observation of
product patterns in many forms.
 Bulk of the sales is generated from relatively few
products in the product line
 Pareto’s Law- 80 percent of a firm’s sales are
generated by 20 percent of the product line
items.

14. ABC Classification of 14 products

15. 80-20 curve with ABC Classification

16. Product Characteristics
 Attribute of the product influence logistics strategy.
 Product attributes- weight, volume, value, perishability,
flammability, substitutability.
 Need for warehousing, inventories, transportation,
materials handling, order processing varies depending on
aforementioned characteristics.
 Attributes can be discussed in four categories discussed in
the next slides.

17. Weight-Bulk Ratio
 Ratio of product weight to bulk (volume) is important when
transportation and storage costs are directly related to them.
 High density products- rolled sheets, printed materials, canned foods
 Good utilization of transportation equipment and storage facilities
 Low density products- inflated beech balls, boats, potato chips, lamp
shades
 Transportation equipment is fully utilized before the weight-carrying
capacity reached
 Increased handling and space costs

18. Generalized effect of product density on
logistics costs

19. Value-Weight Ratio
 Dollar value of the product being moved and stored is important
 Low value-weight ratio products
 Coal, iron ore, bauxite, and sand
 Low storage and high movement cost
 High value-weight ratio products
 Electronic equipment, jewelry, ad musical instrument
 High storage and low movement cost
 Inventory storage cost are fraction of product's dollar value
 Transport cost are pegged to weight

20. Generalized effect of product dollar
density of logistics costs

21. Substitutability
 Highly substitutable product- no difference b/w a firm’s
product and those of competing suppliers.
 Customer willing to take second-choice brand when the
first is not immediately available.
 Examples; food and drug
 Usually, distribution manager try to provide product
availability so that customer will not have to consider
substitute product.

22. Average effect on logistics cost for
substitutable product w.r.t
Transportation Service Inventory Level

23. Risk Characteristics
 Product characteristic are features like;
 Perishability, flammability, value, tendency to explode,
ease of being stolen
 Such features forces certain restriction on the distribution
system
 Higher transport and storage cost

24. Generalized effect of product risk on
logistics costs

25. Product Packaging
 Number of reasons why packaging expenses is incurred
 Facilitate storage and handling
 Promote better utilization of transport equipment
 Provide product protection
 Promote the sale of the product
 Change the product density
 Facilitate the use of the product
 Provide revenue value for the customer
 Companies are spending 7 percent of the total product development cost in design
packaging

26. Product Pricing
 Pricing itself is a very complex decision-making problem
involve economic theory, buyer behavior theory, theory of
competition, among others.
 Logistician usually not directly responsible for setting
price policy but they have influence on pricing decisions
because;
 Product price are related to geography
 Incentive prices are pegged to transportation rate structure

27. Geographic Pricing Methods
 Customers are dispersed over wide areas
 Total cost distribute to them varies with their
location
 Limited number of categories define most
geographic pricing methods.
 Pricing categories are discussed in subsequent
slides.

28. F.O.B. Pricing
 In dictionary sense, f.o.b. stands for “free on board.”
 In practical sense, the policy denotes the location at
which the price is effective.
 F.o.b. factory
 F.o.b. destination

29. Zero Pricing
 For dealing thousands of customers, different price for
each customer is not the wise policy.
 Administrative complexity of individual prices
 Zone pricing- Reduce administrative complexity

30. Zone prices

31. Sigle, or Uniform, Pricing
 Single price for all customers regardless of their location
 Fair-trade items like first-class mail or books
 Same price of the product is charged everywhere.

32. Freight Equalization Pricing
 If two firms have equal efficiency in producing and selling,
which results in same product cost at factory level, then
competitive pricing is a matter of transportation cost.
 If the markets are not equidistant from each factory
location, the firm farthest from marketplace may wish to
absorb enough of the freight charges to meet price
competition.
 The price is referred to as freight equalization and results in
different net returns.

33. Basing Print Pricing
 Establishes some point other than from which the product is actually
delivered.
 And the price is computed from that point.
 Price is computed as if the product were delivered from the basing
point.
 If location chosen is the location of a major competitor, prices can be
forced to be similar to the competitor’s at every geographical
location.
 New location for price computation is referred to as basing point.
 Firms may use single or multiple basing points.

34. Basing Print Pricing (Cont.)
 Steel and cement are leaders in the use of basing point
method.
 Basing point is attractive when
1. The product has high transportation cost relative to its overall
value
2. Little preference among buyers as to the supplier of the product
3. Relatively few suppliers and price cutting leads to retaliation by
rival firms.
 From customer’s perspective, industries are located at
the same point but that is not true.

35. Incentive Pricing Arrangements
 Logistics costs are driving force behind price incentive.
 Two types of price incentives are;
 Quantity Discounts
 Deal