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Strategi logistik dan

karakteristik produk
N IN IET I . A RV ITRIDA

The science o f movement, supply and

maintenance o f military forces in the field
Oxford Dictionary

Logistics wins b attles,

not troops
Rommel

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The Logistics Evolution

FRAGMENTATION 1960 EVOLVING TOTAL
INTEGRATION INTEGRATION
1980 2000

Demand forecasting
Purchasing
Requirements planning Materials Logistics Value
Production planning management supply chain Chain
Manufacturing inventory
Warehousing
Materials handling
Industrial packaging Demand
Chain
Finished goods inventory
Distribution planning Physical
Order processing
distribution
Transportation
Customer service

Managing the supply network

Upstream Downstream

Second-tier First-tier First-tier Second-tier

suppliers suppliers customers customers

Focal firm

Inbound logistics Internal logistics Outbound Logistics

Purchasing & Supply Physical Distribution

Supply chain management

Cathy H art, 2 016

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The Supply Chain

Raw
materials Factory Warehousing Retailer Consumer

Transport Transport Transport Transport

Facts and importance of logistics

qEffective logistics strategy
qReduces p roduction cost
qIncreases efficiency
qDrives u pprofits / d own cost to consumer

qOver 30% of UK working population are associated with logistics

qLogistics represents between 8-12% of GDP worldwide
qSupply chain costs account for a large proportion of sales revenue (30%-80% in food & drink
sectors)
qShorter product life cycles require faster and flexible distribution
qIncreasing energy prices affects transport costs
qTechnology / online changes the relationship between suppliers and customers
qGlobalization

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Competitive and Supply Chain Strategies

Competitive strategy: defines the set of customer needs a firm seeks to satisfy
through its products and services
Product development strategy: specifies the portfolio of new products that the
company w ill try to develop
Marketing and sales strategy: specifies how the m arket w ill be segmented and
product positioned, priced, and promoted
Supply chain strategy:
determines the nature of material procurement, transportation of materials, manufacture of
product or creation of service, distribution of product
Consistency and support between supply chain strategy, competitive strategy, and other
functional strategies is important

2-7

Physical part
Product
Intangible part

Physical : composed of characteristics such as w eight,

volume, and shape

Intangible : after-sales service, company reputation,

information system m anagement, flexibility to m eet
individual customer needs

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Classification on product characteristics

Ballou (2004) considers two types of products :

1. Consumer Products
Products that are d irected to u ltimate consumer.

2. Industrial Products
Products that are d irected to individual or organizations. It is u sed to p roduce
other goods or s ervices.
- Goods that are p art of finished p roduct : raw mat, component
- Goods that are u sed in the manufacturing p rocess: b uilding, equipment
- etc
Logistics s trategy d epends on the relationship b etween the b uyer and the
seller.

Consumer Products
Fisher (2007) suggests that the characteristics of the finished goods drive the features required
by the supply chain.
Aspects of D emand Functional Innovative
Product life cycle More than 2 years 3 months to 1 year
Contribution margin 5-20% 20-60%
Product variety Low(10 to 2 0 p er High ( often millions of
category) variants p er category)
Margin of errors of 10% 40-100%
forecast
Average stockout rate 1-2% 10-40%
Average forced of end-of- 0% 10-25%
season markdown as
%age of full p rice

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Comparison of Efficient and Responsive Supply Chains (Chopra, 2007)

Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow
postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at expense Aggressively reduce even if
of greater cost costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Greater reliance on low cost Greater reliance on
modes responsive (fast) modes

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Implications to logistics strategy

Functional product
(CONVENIENCE PRODUCTS)
- Consumers p uchase frequently, immediately, with little comparative shopping
- i.e : foodstuffs
- Require wide distribution through many outlets
- Has h igh d istribution cost
- Must p rovide h igh customer s ervice levels

Innovative product
(SHOPPING PRODUCTS)
- consumers are willing to s eek and compare s hopping : location, p rice, q uality,
performance
- i.e : h igh fashion, automobile, furniture
- Few outlets in a given market area not widespread
- Distribution cost lower that convenience p roduct

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Industrial Products
Kraljic ( 1983) defines 4 types of p urchasing items:

1. Strategic items
Scarce materials, etc.
High complexity of s upply market; h igh cost of materials compared to total p roduct cost.
Typical s ources - Long-term p artnerships, global suppliers
2. Bottleneck items
Catalyst materials, electronic p arts, etc.
High complexity of s upply market, low cost of materials compared to total product cost.
Typical s ources tend to have s imilar strategy as strategic items.
3. Leverage items
Electric motors, heating oil, etc.
Low complexity of supply market; high cost of materials compared to total product cost.
Typical s ources - Multiple s uppliers
4. Noncritical items
Steel rods, coal, office supplies, etc.
Low s upply market complexity., low cost of materials compared to total product cost.
Typical s ources local suppliers

Levels of Implied Demand Uncertainty

Detergent High F ashion
Long lead time steel Palm Pilot
Purely functional products Entirely new products

Customer Need
Price Responsiveness

Low High

Implied Demand Uncertainty

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Impact of Customer Needs on Implied

Demand Uncertainty
Customer Need Causes implied demand
uncertainty to increase because
Range of quantity increases Wider range of quantity implies
greater variance in demand
Lead time decreases Less time to react to orders

Variety of products required increases Demand per product becomes more

Number of channels increases
Rate of innovation increases
Required service level increases
2-15
disaggregated
Total customer demand is now
disaggregated over more channels
New products tend to have more
uncertain demand
Firm now has to handle unusual
surges in demand

Choosing the Right Supply Chain Strategy

Functional Innovative
Products-- Products--
Predictable Unpredictable
Low margin demand demand

Efficient supply Staple food

chain products

Responsive Electronic
supply chain equipment

High margin

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Actions for Misclassified

Products

Product Characteristic
Supply Chain Predictable/ Mature Unpredictable/
Design Type Introductory

Supply-to-Stock/ Tomato S oup If p roduct is h ere

Efficient

Supply-to-Order/ If p roduct is h ere Personal

Responsive Computer Models

Product Life-Cycle Curve and logistics strategy

Low sales,
few
outlets,
low SL
Sales v olume

Intro-
duction Growth Maturity Decline

Time

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Product Life-Cycle Curve and logistics strategy

Sales increase
rapidly, SL
increase, no
historical data
Sales v olume

Intro-
duction Growth Maturity Decline

Time

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Product Life-Cycle Curve and logistics strategy

Peak and stable

level, widest
distribution
Sales v olume

Intro-
duction Growth Maturity Decline

Time

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Product Life-Cycle Curve and logistics strategy

Decline,
more
centralised
location
Sales v olume

Intro-
duction Growth Maturity Decline

Time

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The Pareto Law

Pareto Principle or 80/20 Rule
In 1906, an Italian economist Vilfre do Pare to found that 80% of the la nd
in Italy was owned by 20% of the population.
The distribution of 80/20 occurs extremely frequently, including in business.

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Pareto law for warehouse capacity plan

- An empirical relationship for the 80-20 curve is

The 80-20 Curve ( 1+A)X

Y= A+X

where

Y = cumulative fraction of sales
X = cumulative fraction of items
A = constant to be determined
The Logistics p roblem is
the total o f the individual The constant is found by
product p roblem. 8 0%

sales a re g enerated b y X( 1-Y)

20% items A= Y-X

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Example: Adopting Pareto Principles in ABC Classification

Product Monthly Cumulative Cumulative An A BC
Product Rank b y Sales Percent o f Percent o f Classifi-
Number Salesa (000s) Total S alesb Total Itemsc cation
D-204 1 $5,056 36.2% 7.1%
D-212 2 3,424 60.7 14.3 A

D-185-0 3 1,052 68.3 21.4

D-191 4 893 74.6 28.6 B
D-192 5 843 80.7 35.7
D-193 6 727 85.7 42.9
D-179-0 7 451 89.1 50.0

D-195 8 412 91.9 57.1

D-196 9 214 93.6 64.3
D-186-0 10 205 95.1 71.4 C
D-198-0 11 188 96.4 78.6
D-199 12 172 97.6 85.7
D-200 13 170 98.7 92.9
D-205 14 159 100.0 100.0
$13,966
Total = 1 4 items

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Cumulative 80-20 curve

100
90
80
Total sales (%)

70
60
50
40
30
A items B items C items
20
10
0
0 20 40 60 80 100
Total items (%)
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Example Suppose t hat in an inventory of 10 items, 15% of t he items

account f or 80% of t he s ales v olume. The t otal s ales of all 10 items is
$90,000 per year. How much inventory c an be expected if t urnover
for A items = 8, B items = 5, and C items = 2?
First, f ind A.
.15(1- .80) Turnover = annual
X( 1-Y) A= = 0.0462
A= .80 - .15
sales/average inv
Y-X
Then, using A = 0.0462 and t he f irst item (1/10), we project t he s ales
volume to be:

( 1+A)X (1+ .0462).10

Y= Y= = 0.7156, or 71.6%of the sales Turnover
.0462+ .10
A+X Total sales
The average inventory f or t his item is expected t o be 0.716(90,000)/8 = $8,055.
Continue for t he remaining items and generate t he f ollowing table.

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Projected
Item Cumulative cumulative Projected
(X) item sales cumulative Projected Turnover Average
no. fraction fraction sales (Y) item sales ratio inventory
1 .10 .716 $64,440 $64,440 8:1 $8,055
A
2 .20 .850 76,500 12,060 8:1 1,508
3 .30 .907 81,630 6,630 5:1 1,326
4 .40 .938 84,420 2,790 5:1 558 B
5 .50 .958 86,220 1,800 5:1 360
6 .60 .971 87,390 1,170 2:1 585
7 .70 .981 88,290 900 2:1 450
8 .80 .989 89,010 720 2:1 360 C
9 .90 .995 89,550 540 2:1 270
10 1.00 1.000 90,000 450 2:1 225
5
$90,000 $13,697

Projected
Item Cumulative cumulative Projected
(X) item sales cumulative Projected Turnover Average
no. fraction fraction sales (Y) item sales ratio inventory
1 .10 .716 $64,440 $64,440 8:1 $8,055
A
2 .20 .850 76,500 12,060 8:1 1,508
3 .30 .907 81,630 6,630 5:1 1,326
4 .40 .938 84,420 2,790 5:1 558 B
5 .50
=Item numb/total item .958 86,220
= 0,850*90.000 1,800 5:1 360
= 12060/8
6
=2/10 .60 .971 87,390 1,170 2:1 585
7 .70 .981 88,290 900 2:1 450
8 .80 .989 89,010 = 76.500-64.440
720 2:1 360 C
( 1+A)X
9 = Y= A+X.995
.90 89,550 540 2:1 270
10 1.00 1.000 90,000 450 2:1 225
5
=[(1+0,0462)0,2] / $90,000 $13,697
(0,0462+0,2)

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The 80-20 Concept affects on v arious

level of Logistics treatment:

1. Geographic distribution
2. Number of warehouses needed
3. Stock availability

The 80-20 Concept affects on v arious

level of Logistics treatment:

1. Geographic distribution
2. Number of warehouses needed
3. Stock availability

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Other features of products

- Weight-bulk ratio
- Value-weight ratio
- Substitutability
- Risk

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Effect of Weight-Bulk Ratio on Logistics Costs

The weight to b ulk ( volume) ratio related

percent of s ales price
Logistics c osts as a

to transportation and storage costs

about the facility u tilization.
High ratio more d ense, i.e: canned
food, rolled steel

Total costs (transport + s torage)

Transportation c osts

Storage c osts

0
Weight-bulk ratio

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Effect of Value-Weight Ratio on Logistics

Costs
Storage cost : Inventory carrying
costs are computed as a fraction
Logistics c osts as a percent

of p roduct value
of s ales price

Total costs (transport + s torage)

Transportation
Storage c osts costs

0
0 Value-weight ratio

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Substitutability: Effect of Transport Service and

Inventory Level on Logistics Costs
Logistics c osts as a percent of s ales price

Logistics c osts as a percent of s ales price

Total costs
Total costs (transport + lost
(transport + lost sales + s torage
sales + s torage costs)
costs)
Transport Storage c osts
Transport costs
Lost s ales costs

Storage c osts Lost s ales

0 0
0 Improved t ransportation s ervice 0 Average inventory level
(a) (b)
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Effect of Product Risk on Logistics Costs

Total costs (transport

+ storage)
Risk : p erishable,
percent of s ales price
Logistics c osts as a

flammability,
tendency to
explode, ease of
being s tolen. Those
Transport c osts products need
special care to
handling and
Storage c osts storage

0
0 Increasing degree of risk in t he product

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Product packaging

Facilitate storage and handling

Promote better utilization of transport
equipment
Provide product protection: safety and security
Promote the sale of the product
Change the product density (look at the
example of Johnson & Johnson)

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Product pricing
Geographic pricing methods
- F.o.b. Pricing
- Zone pricing
(it reduces administrative complexity)
- Single (or uniform) pricing
(fair trade items, first class mail, and books)
- Freight equalization
(if 2 firms have equal efficiency in producing and selling, so the
important factor is transportation cost)
- Basing point pricing

Incentive pricing
- Quantity discounts
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Most popular types of F.o.b pricing.

- f.o.b factory(or f.o.b origin)
single price established at the factory location (shipment origin).
Customers take ownership of the goods at this point and are responsible for
transportation beyond this point. Example: automobile.
- f.o.b destination
the price is quoted at the customers location and transportation costs are
already i ncluded.

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Basing point pricing

If the location chosen is the location of a major competitor, prices can be forced to be similar to
the competitors at every geographic location.
Firms may use single or multiple basing points.
Example: cement and steel industries.

This strategy is attractive when:

- Transportation cost >> product value
- Little preference among buyers as to the supplier of the product
- Number of suppliers are relatively few.

Per-Case Logistics Costs as a Justification

for Price Discounts

Total per-case c osts

(transport + inventory +
Logistical c osts ($/case)

order processing and

Less t han handling costs)
truckload

Per-case inventory
carrying c osts
Truckload

Rail carload
Transport c osts
Per-case order processing and handling c osts
0 100 200 300 400
Quantity purchased (cases)

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Latihan
PT Antah Berantah sedang membuat rencana untuk membangun sebuah gudang baru.
Berdasarkan data historis dari gudang y ang dimiliki saat ini, 20% dari total item yang dimiliki
memiliki kontribusi terhadap penjualan sebesar 80%.
Perusahaan tersebut menghendaki bahwa gudang yang baru akan didedikasikan hanya untuk
item yang memiliki perputaran tinggi (kelas A, dengan rasio turnover 9 ) dan sedang (kelas B,
dengan rasio turnover 6). Diketahui bahwa jumlah jenis produk yang diproduksi PT Antah
Berantah adalah 20 item atau jenis, dengan total penjualan adalah 100 milyar per tahun.
1. Estimasikan nilai persediaan rata-rata yang akan disimpan di gudang baru tersebut untuk
masing-masing k ategori produk!
2. Jika satu unit persediaan rata-rata membutuhkan ruang berukuran 80 x 80 cm dan dapat
disusun vertikal sebanyak 4 layer, estimasikan luas gudang y ang diperlukan untuk menyimpan
persediaan! (diluar aisle, perkantoran, dll)

Assignment
1. Answers several questions in the text book Business Logistics/Supply
Chain Management, Ballou 2004, page 87-90, no. 2, 3, 4, 11, 12, 14.
2. Read an article online : Complex Products, Complex Logistics Needs, by
Inbound Logistics and Chemical W eek. Summarise the article by your own
words ( http://www.inboundlogistics.com/cms/article/complex-products-
complex-logistics-needs/ )

This is an INDIVIDUAL HAND-WRITTEN assignment and must be completed to the student

secretariat by 3 pm Monday, 27th February 2017. Your paper must be in A 4 size and stapled
in the top left corner (no bindings and plastic cover).
Any enquiry can be asked via email.
Niniet I. Arvitrida (niniet@ie.its.ac.id)

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