Logistics/SC products and services Logistics & SCM January 18, 2022

Logistics Products and Services

Classification of products
Consumer goods are produced for the personal use of the ultimate consumer, while
industrial goods are produced for industrial purposes. There are many goods, such as
typewriters and stationery can be classified as both industrial and consumer goods.

Marketers have traditionally classified products on the basis of three characteristics –

durability, tangibility and use.

Products can be classified as:- A. Consumer Products B. Industrial Products.

Some of the types of consumer goods are:- 1. Convenience Goods 2. Shopping Goods 3.
Specialty Goods 4. Impulse Goods 5. Emergency Goods.

Some of the types of industrial goods are:- 1. Raw Materials 2. Fabricating Materials and
Parts 3. Installations 4. Accessory Equipment 5. Supplies 6. Services.

Classification of Products: On the basis of Durability and Tangibility, On the basis of

Consumer Shopping Habits and a Few Others
Classification of Products – 2 Major Classification: Consumer Products and Industrial
Products
Products may be classified on the basis of users of the products, the type of consumers who
use the product that is:
1. Consumer products, and
2. Industrial products.

1. Consumer Products:

Consumer products are those products that are bought by the final customer for consumption.
Consumer products are of four types:

i. Convenience products,
ii. Shopping products,
iii. Speciality products, and
iv. Unsought products.
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i. Convenience Products:
Convenience Products are usually low priced, easily available products that customer
buys frequently, without any planning or search effort and with minimum comparison and
buying effort. Such products are made available to the customers through widespread
distribution channels-through every retail outlets. This category includes fast moving
consumer goods (FMCG) like soap, toothpaste, detergents, food items like rice, wheat flour,
salt, sugar, milk and so on.

These are goods purchased frequently, immediately and with least time and efforts.
Convenience in purchase is the main criterion in purchasing it, for example easy and quick
availability, nearness of shop etc.

Important Characteristics are:

(1) Regular and continuous demand.
(2) Essential for consumers.
(3) Small unit of purchase and low price.
(4) Branded/Standardized products.
(5) No enquiries about quality, price as customers know about them due to regular purchase.
(6) Keen competition among producers.
(7) Large numbers of advertisements.
(8) Increasing role of sales promotion schemes, discount offers, gift offers, etc.
Types of Convenience Goods:
(1) Staples:

For purchasing staple goods, consumers do not spend too much time. These items are bought
frequently for immediate use; e.g., milk, bread, grocery items.

(2) Impulse Goods:

Desire to buy such goods is aroused suddenly while shopping. They are purchased on sight
without forethought, e.g., magazines, gift items, etc. Window displays are made to draw
consumer’s attention.

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(3) Emergency Goods:

Purchased on some urgent and compelling need; e.g., handkerchief by a traveler, umbrella
due to sudden rains, pain reliever for headache etc. Customer does not have much time to
bother about price/quality of a product.

ii. Shopping Products:

Shopping products are high priced (compared to the convenience product), less
frequently purchased consumer products and services. While buying such products or
services, consumer spends much time and effort in gathering information about the product
and purchases the product after a careful consideration of price, quality, features, style and
suitability. Such products are distributed through few selected distribution outlet. Examples
include television, air conditioners, cars, furniture, hotel and airline services, tourism
services.

Shopping goods are goods bought only after comparing quality, price, suitability and style
in several stores and putting some effort in the process and not buying in haste. Consumers
select such goods only after analysis and evaluation of merits and demerits of all substitutes
of product and comparing the brands as well as stores.

Service and warranty work are often important considerations as well. Examples are –
Furniture, clothing. Readymade Garments, shoes, sarees, major appliances. Shopping goods
are durable in nature. They are purchased less frequently and are of high unit value. A
shopping good may not be purchased for a considerable period after the decision to buy the
product is made.

Chief characteristics are:

(1) Durable Nature
(2) High Unit price
(3) Comparison in selection
(4) Gap between decision to buy and actual buy
(5) Persuasive Effects of salesmen/Retailers.

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iii. Specialty Products:

Specialty Products are high priced branded product and services with unique features
and the customers are convinced that this product is superior to all other competing brands
with regard to its features, quality and hence are willing to pay a high price for the product.
These goods are not purchased frequently may be once or twice in lifetime and are distributed
through one or few exclusive distribution outlets. The buyers do not compare specialty
products.

iv. Unsought Products:

Unsought product is consumer products that the consumer either does not know about or
knows about but does not normally think of buying. In such a situation the marketer
undertakes aggressive advertising, personal selling and other marketing effort. The product
remains unsought until the consumer becomes aware of them through advertising. The price
of such product varies. Examples of unsought product are cemetery plots, blood donation to
Red Cross, umbilical cord stem cell banking services.

2. Industrial Products:

Industrial Products are purchased by business firms for further processing or for use in
conducting a business. The distinction between consumer product and industrial is based on
the purpose for which the product is bought. Like a kitchen chimney purchased by a
consumer is a consumer product but a kitchen chimney purchased by a hotel is an industrial
product.

Business products include:

i. Material and parts,

ii. Capital items,

iii. Supplies, and

iv. Services.

i. Material and parts – Material and parts include raw material like agricultural products,
crude petroleum, iron ore, manufactured materials include iron, yarn, cement, wires and
component parts include small motors, tires, and castings.
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ii. Capital items – Capital items help in production or operation and include installations
like factories, offices, fixed equipments like generators, computer systems, elevators and
accessory equipments like tools office equipments.

iii. Supplies – Supplies include lubricants, coal, paper, pencils and repair maintenance like
paint, nails brooms.

iv. Services – Services include maintenance and repair services like computer repair
services, legal services, consultancy services, and advertising services.

Chief characteristics are:

(a) Derived Demand, that is, their demand is derived from demand of other products; e.g.,
demand for leather is derived from demand for shoes and other leather products.

(b) Technical Considerations in their purchase include advice from experts like engineers,
production managers cost accountants.

(c) Direct Selling (by manufacturers, and sometimes, according to buyers’ specifications).

(d) Limited Buyers (Compared to consumer products).

(e) Geographically Concentrated i.e., similar production units are located in a particular area.

(f) Reciprocal Buying – (in case of basic industries like. Oil, Steel, rubber, chemicals). For
instance, Ashok Ley land may buy tyres and tubes from Ceat and sell them trucks.

(g) Leasing instead of Buying (this is a growing trend). For example, transport agencies
instead of purchasing public carriers on outright basis, take them on hire basis.

Major Categories of industrial goods are:

(i) Raw-materials e.g., natural rubber, cotton, sugarcane & agricultural products, mines,
forestry.

(ii) Component parts and materials e.g., tyres and batteries for cars.

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(iii) Accessory items e.g., smaller machines.

(iv) Installations e.g., overhead cranes, Buildings, Machines.

(v) Supplies e.g., fuel, coal, cleaning materials, lubricating oil, electric power etc., nuts, bolts.

(vi) Business Services e.g., consultants, hiring advertising agency.

Another Classification:

(i) Raw-Materials e.g., agricultural products, mines and forests.

(ii) Semi-finished-goods, supplied by one industrial unit to another; these goods are further
processed by receiving unit.

(iii) Fabricating Goods used by receiving unit without processing e.g., speaker/cabinet of
TV, Tyre and Tube of Cycle, Tyre, Tube, Light, Horn, Plug of Scooter.

(iv) Production Supplies necessary for operating industrial units e.g., Coal, Gas, Fuel, Diesel
etc.

(v) Production Facilities & Equipment e.g., Buildings, Machines, Equipment, Furniture,
Fixtures etc.

(vi) Managerial Materials used in management/administration of an enterprise, e.g.,

Stationery, Accounting Machines, and Data Processing Machines.

The Product life Cycle

The various stages of a product’s life cycle determine how it is marketed to
consumers. Successfully introducing a product to the market should see a rise in demand and
popularity, pushing older products from the market. As the new product becomes established,
the marketing efforts lessen and the associated costs of marketing and production drop. As
the product moves from maturity to decline, so demand wanes and the product can be
removed from the market, possibly to be replaced by a newer alternative.

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Managing the four stages of the life cycle can help increase profitability and maximise
returns, while a failure to do so could see a product fail to meet its potential and reduce its
shelf life.

There are four stages of a product’s life cycle, as follows:

1. Market Introduction and Development

This product life cycle stage involves developing a market strategy, usually through
an investment in advertising and marketing to make consumers aware of the product and its
benefits. At this stage, sales tend to be slow as demand is created. This stage can take time
to move through, depending on the complexity of the product, how new and innovative it is,
how it suits customer needs and whether there is any competition in the marketplace. A new
product development that is suited to customer needs is more likely to succeed, but there is
plenty of evidence that products can fail at this point, meaning that stage two is never
reached. For this reason, many companies prefer to follow in the footsteps of an innovative
pioneer, improving an existing product and releasing their own version.

2. Market Growth

If a product successfully navigates through the market introduction it is ready to enter

the growth stage of the life cycle. This should see growing demand promote an increase in

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production and the product becoming more widely available. The steady growth of the
market introduction and development stage now turns into a sharp upturn as the product takes
off. At this point competitors may enter the market with their own versions of your product
– either direct copies or with some improvements. Branding becomes important to maintain
your position in the marketplace as the consumer is given a choice to go elsewhere. Product
pricing and availability in the marketplace become important factors to continue driving sales
in the face of increasing competition. At this point the life cycle moves to stage three; market
maturity.

3. Market Maturity

At this point a product is established in the marketplace and so the cost of producing
and marketing the existing product will decline. As the product life cycle reaches this mature
stage there are the beginnings of market saturation. Many consumers will now have bought
the product and competitors will be established, meaning that branding, price and product
differentiation becomes even more important to maintain a market share. Retailers will not
seek to promote your product as they may have done in stage one, but will instead become
stock lists and order takers.

4. Market Decline

Eventually, as competition continues to rise, with other companies seeking to emulate

your success with additional product features or lower prices, so the life cycle will go into
decline. Decline can also be caused by new innovations that supersede your existing product,
such as horse-drawn carriages going out of fashion as the automobile took over.

Many companies will begin to move onto different ventures as market saturation
means there is no longer any profit to be gained. Of course, some companies will survive the
decline and may continue to offer the product but production is likely to be on a smaller scale
and prices and profit margins may become depressed. Consumers may also turn away from
a product in favour of a new alternative, although this can be reversed in some instances with
styles and fashions coming back into play to revive interest in an older product.

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The 80-20 Rule (Pareto Principle)

The 80-20 rule, also known as the Pareto Principle, is an aphorism which asserts
that 80% of outcomes (or outputs) result from 20% of all causes (or inputs) for any given
event. In business, a goal of the 80-20 rule is to identify inputs that are potentially the most
productive and make them the priority. For instance, once managers identify factors that are
critical to their company's success, they should give those factors the most focus.

Although the 80-20 axiom is frequently used in business and economics, you can apply the
concept to any field—such as wealth distribution, personal finance, spending habits, and
even infidelity in personal relationships.

The 80-20 rule—also known as the Pareto principle and applied in Pareto analysis—was
first used in macroeconomics to describe the distribution of wealth in Italy in the early 20th
century. It was introduced in 1906 by Italian economist Vilfredo Pareto, best known for the
concepts of Pareto efficiency.

Pareto noticed that 20% of the pea pods in his garden were responsible for 80% of the peas.
Pareto expanded this principle to macroeconomics by showing that 80% of the wealth in
Italy was owned by 20% of the population.

Major Takeaways from Pareto Principle are

• The 80-20 rule maintains that 80% of outcomes (outputs) come from 20% of causes
(inputs).
• In the 80-20 rule, you prioritize the 20% of factors that will produce the best results.
• A principle of the 80-20 rule is to identify an entity's best assets and use them
efficiently to create maximum value.
• This "rule" is a precept, not a hard-and-fast mathematical law.

Product Characteristics
Product characteristics affect logistics strategy. Product characteristics affect type of storage,
inventory, transportation, unloading, order processing.

• Following are important characteristics

– Weight-bulk ratio

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– Value-weight ratio
– Substitutability
– Risk
Wight Bulk ratio:

This characteristic of product is related to transportation and storage cost

• High Ratio product: ex. steel plate, printed materials, cans, etc.

Efficient use of transportation and storage equipment is important.

• Low Ratio product: ex. ball, potato chip

– Transportation and storage cost is high compared with sale price.

– Efficient use of volume capacity and volume reducing is important.

Value/Weight Ratio

Low:

Products that have low value-weight ratios (e.g., coal, iron ore, bauxite, and sand) also have
low storage costs but high movement costs as a percentage of their sales price. Inventory
carrying costs are computed as a fraction of the product's value. Low product value means
low storage cost, since inventory-carrying cost is the dominant factor in storage cost.
Transport Cost are pegged to weight. When the value of the product is low, transport costs
represent a high proportion of the sales price.

High:

High value-weight ratio products (e.g., electronic equipment, jewelry and musical
instruments) show higher storage and lower transport costs. If the product has a high value-
weight ratio, minimizing the amount of inventory maintained is a typical reaction. Of course,
some firms attempt to adjust an unfavorable value-weight ratio by changing accounting to
alter value or by changing procedures packaging requirements to alter weight.

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Substitutability

Products is highly substitutable, when customers find no difference between a firm's product
and those of competing suppliers. The customer is readily willing to take a second-choice
brand when the first is not immediately available.

Many food and drug products have a highly substitutable characteristic.

• Distribution managers try to provide product availability at a level so that customers

will not have to
• consider a substitute product.
• Logistician has no control over a product's substitutability, yet he must plan for the
distribution of products with varying degrees of substitutability.
• Substitutability can be viewed in terms of lost sales to the supplier.
• Higher substitutability usually means a greater chance for a customer to select a
competing product, thus resulting in a lost sale for the supplier.
• The logistician generally deals with lost sales through transportation choices, storage
choices, or both.

Risk characteristics

• Product risk characteristics refer to features such as perishability, flammability,

value, tendency to explode, and ease of being stolen such as pens, watches, or
cigarettes.
• When a product shows high risk in one or more of these features, it simply forces
certain restrictions on the distribution system.
• Special care must be taken in their handling and transport.
• Inside warehouses, special fenced-in and locked areas are set up to handle these and
similar products.
• Highly perishable products (e.g., fresh fruits and whole blood) require refrigerated
storage and transportation, and products that may have a tendency to contaminate
fresh food products, such as automobile tires, cannot be stored near them in a
warehouse.

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• Whether in transportation, storage, or packaging, special treatment adds to the cost

of distribution.

Figure: Product Characteristics

Customer Service Elements

An important concept within logistics transportation systems operations is logistics
customer service. This concept is based on the overall scope of the supply chain.
Traditionally it has been difficult for components of the supply chain to define their role in
the overall customer service delivered to end-users. However, the growing trend is for a
larger awareness of “their role not only with reference to trading partners but also to the end
customer and at the point to the fact that logistics customer service in the supply chain
functions as communicating vessels”.

Basically customer service elements are categorized into three different conditions based onn
the transaction, each of which are described below.

Pretransition elements

Pretransition elements of customer service mean to establish a climate for good

customer service. Which is basically a nonroutine activity. This element of services deals
with the service level and related activities in qualitative and quantitative terms.
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Pretransaction elements provide the roadmap to the operating personnel regarding the tactical
and operational aspects of customer service activities of the company. For the reverse
logistics process, this phase is essential because it helps to shape the firm to focus on
customer such way to create influence the perception of the firm into the customer’s mind.

Transaction elements

Transaction elements include everything between a order is received and delivered

to the customer. During the transaction phase of customer service, a firm focusses on
retrieving, packing, and delivering the order to the customer in a timely and cost effective
manner. This phase also includes scheduling of shipment, communication with the customer,
delivery tracking, and delivery confirmation.

Post transaction elements

This phase represents the array of services needed to support the product in the field;
to protect consumers from defective products; to provide for the return of packages; and to
handle claims, complaints, and returns. Corporate customer service is the sum of all these
elements because customers react to the overall experience.

Figure: Customer service elements.

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Importance of customer service elements

According to studies of Sterling and Lambert, most of the industries show that buyers,
customers, and influencers of purchases of related industries mainly focus on variables
including product, price, promotion, physical distribution, and speed of delivery among
others. Sterling and Lambert clearly showed in their research that logistics customer service
is the critical factor for the office systems as well as plastic and furniture factories. Factors
such as high fill rate, frequent delivery, detailed inventory visibility, estimated shipping date,
and expected delivery time from the time of order placement and order received are very
important to the retail customers.

Order Cycle Time

In logistics, it is said that nothing happens until somebody orders something. “Order
Cycle Time is defined as the elapsed time between when a customer order, purchase order,
or service request is placed and when the product or service is received by the customer”

Logisticians can affect the overall customer service level through efficient
management of operations. The cycle time of each order must be carefully monitored to
properly judge the efficiency within each cycle. Therefore, order cycle time is considered all
the processes that must occur prior to the customer receiving their product or service. Total
order cycle time includes order transmittal time, order processing and receiving time, stock
acquisition time, and delivery time. Order processing and receiving time includes the bill of
lading preparation, credit clearance, and order assembly times. However, the delivery time
has three basic components: shipping time from the plant, shipping time from the warehouse,
and customer shipment process.

Depending on the system used for communicating orders, the transmittal time varies.
The transmittal time includes transferring the order request from the origin to the entry of
the order for further processing. Order entry may be handled manually such as physically
carrying the order or electronically via toll-free number, satellite communication or via the
internet. The manual processing is slow but inexpensive, while the electronic methods are
most reliable, accurate and fast but expensive.

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The next important element of an order cycle is the steps required for order
processing and order assembly. These processes are involved steps like send notifications to
the buyer/supplier, updating inventory records, preparing and scheduling shipping details for
delivery, and communicating with customers as priorities can affect or change the speed of
order processing for delivery. To some extent, order processing and assembly occurs
concurrently to save time for both of these operations. Unavailability of stock has a
significant negative effect on total order cycle time, as it takes searching for the stock items,
reconciling missing items, and delays in order assembly. The final primary element in the
order cycle over which the logistician has direct control is the delivery time, the time required
to move the order from the stocking point to the customer location.

Modeling Sales- Service Relationship

This section discusses various models that formulate the theoretical relationship
between sales/revenues and services. Usually, better service generates more sales. In some
cases, sales–service relationship for a given product may deviate from the theoretical
relationship. Following methods for modeling the actual relationship could be used in those
specific cases.

Two Point Method

The two-point method involves establishing two points on the diminishing return portion of
the sales-service relationship through straight lines. The method is based on the notion that
multiple data points to accurately define the sales–service curve would be expensive or
unrealistic to obtain, and if data were available, it is not usually possible to describe the
relationship with a great deal of accuracy. First, set logistics customer service at a high level
for a particular product and observing the sales that can be achieved. Then the level is
reduced to a low level and sales are again noted. These limitations suggest that a careful
selection of the situation to which it is to be applied must be made if reasonable results are
to be obtained. Figure below shows how the two-point method is used to correlate sales-
service relations by establishing two points and the area covered based on the relationship of
product sales and logistic customer service offered.

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Figure: 2 Points method

Before/after experiments
The impact on sales/revenues to a change in service level may be all that is needed to evaluate
the effect on costs. The sales-service relationship over a wide range of service choices may
be unnecessary and impractical. Sales response is determined either by inducing a service
level change and monitoring the change in sales. These experiments are easier to implement
because the current service level serves as the before data point. Before and after experiments
of this type are subject to the same methodological problems as the two points method
described earlier.

Game playing
One problem in measuring the sales response to service changes is controlling the business
environment so that only the effect of the logistics customer service level is measured. One
approach is to set up a laboratory simulation, or gaming situation, where the participants
make their decisions within a controlled environment. This environment attempts to replicate
the elements of demand uncertainty, competition, logistics strategy, and others that are
relevant to the situation. Game involves decisions about logistics activity levels and hence
service levels. By monitoring the overall time period of game playing, extensive data is
obtained to generate a sales-service curve. The artificiality of the gaming environment will
always lead to questions about the relevance of the results to a particular firm or product
situation. Predictive value of the gaming process is established through validation
procedures.

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Buyer surveys
One of the popular methods for gathering customer service information is surveying buyers
or other people who influence purchases. Mail questionnaires and personal interviews are
frequently used because a large sample of information can be obtained at a relatively low
cost. Survey methods must be used with caution because biases can occur. The questions
must be carefully designed so as not to lead the respondents or to bias their answers and yet
capture the essence of service that the buyers find important. The finding of survey can be
used to model the relationship between the cost and the customer service level.

Measuring Service
Logistics service can be measured using different KPIs,

▪ Time taken to answer calls or fulfill quote requests.

▪ Timeliness of electronic data interchange transactions, status updates, and

reporting.

▪ Frequency of end-customer visits and customer surveys.

▪ Flexibility demonstrated by the service provider.

▪ Engagement demonstrated by customer service staff.

▪ Performance in executing escalation processes and decision trees.

▪ Frequency and quality of supply chain recommendations.

Service Contingencies
System breakdown

A global economy has inherently a very complex logistical system. Getting a raw material
from China to a Indian manufacturer and then the final product back to Nepal can have many
factors that can cause a system breakdown. Weather, a natural disaster, an economic
upheaval, or even political changes can affect the supply chain in many drastic ways. For
instance, COVID-19 and its associated impacts paralyzed the health system deliveries in
many places including in the Nepal. Many hospitals were out of ventilators and other
personal protective equipment during this pandemic.

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To avoid the System Breakdown, the organization and companies must be ready with the
pandemic.

Product Recall

Product recalls are becoming more and more the norm of businesses today. The tremendous
growth in returns has enthused new interest in Reverse Logistics (RL) as firms attempt to
meet various challenges. Typically, the higher the level of challenge greater is the
opportunity for improvement.

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References
https://msmemon.files.wordpress.com/2016/10/chap3.pdf
https://www.yourarticlelibrary.com/products/product-definition-characteristics-and-
types/48613
http://blscproduct.weebly.com/product-characteristic.html
https://www.investopedia.com/terms/1/80-20-
rule.asp#:~:text=The%2080%2D20%20rule%20maintains,efficiently%20to%20create%20
maximum%20value.
https://www.twi-global.com/technical-knowledge/faqs/what-is-a-product-life-
cycle#:~:text=A%20product's%20life%20cycle%20is,%2C%20packaging%20redesigns%2
C%20and%20more.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7563975/#:~:text=Logistics%20customer
%20service%20is%20a,of%20filling%20the%20customer's%20order.

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