After studying this chapter you will be able to understand: nature of the product, product pricing, per-case logistics costs as a justification for price discounts, facility location decisions, location overview, nature of location analysis, some location theory/practice.
Logistics Management LSM 730 Lecture 12 Dr Khurrum S Mughal 1-1 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 3-2 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 3-3 Logistical costs ($/case) Per-Case Logistics Costs as a Justification for Price Discounts Less than truckload Total per-case costs (transport + inventory + order processing and handling costs) Per-case inventory carrying costs Truckload Rail carload Transport costs Per-case order processing and handling costs 400 100 200 300 Quantity purchased (cases) 3-4 Facility Location Decisions 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 CR (2004) Prentice Hall, Inc 13-5 Location Strategy L ocation decisions decisions • Location • The network planning process CR (2004) Prentice Hall, Inc 13-6 CONTROLLING Transport Strategy • Transport fundamentals • Transport decisions ORGANIZING Inventory Strategy • Forecasting • Inventory decisions • Purchasing and supply Customer scheduling decisions • Storage fundamentals service goals • The product • Storage decisions • Logistics service • Ord proc & info sys PLANNING Facility Location in Location Strategy 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 CR (2004) Prentice Hall, Inc 13-7 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 CR (2004) Prentice Hall, Inc 13-8 Location Overview (Cont’d) Methods of Solution • Single warehouse location – Graphic – Grid, or center-of-gravity, approach • Multiple warehouse location – Simulation – Optimization – Heuristics CR (2004) Prentice Hall, Inc 13-9 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 CR (2004) Prentice Hall, Inc 13-10 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 CR (2004) Prentice Hall, Inc 13-11 Bid Rent Curve CR (2004) Prentice Hall, Inc 13-12 Weber’s Classification of Industries CR (2004) Prentice Hall, Inc 13-13 Hoover’s Transport Curves Y CR (2004) Prentice Hall, Inc 13-14 ... 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 3-2 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 3-3 Logistical costs ($/case) Per-Case Logistics Costs as a Justification for Price Discounts Less than truckload Total per-case