Logistics and Supply Chain Management, 4th Edition

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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little to overall profitability – indeed some may actually make a loss. Likewise, the

same conclusions would probably emerge from an 80:20 analysis of products.

Sometimes when performing the 80:20 analysis across the product range, it

is tempting to suggest that where a ‘long tail’ exists it should be removed through

product rationalisation. However, there may be strategic reasons for maintaining a

high level of variety or indeed there may be opportunities to use alternative strate-

gies to manage the slow movers to make them profitable. For example, it has been

suggested that if an Internet distribution channel is available then the ‘long tail’ can

become a source of profitable business.

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Because the ‘long tail’ represents such a

large number of products, even though individual item sales levels are low, if inven-

tory and distribution costs can be reduced by creating a single, virtual inventory

through working with partners across multiple channels, the economics may be trans-

formed. To a certain extent this is the approach that Amazon has taken, enabling it to

offer a vast range of book titles (and other products) but with minimal inventory.

However, for most companies it is likely that a selective rationalisation of slow-

moving lines will have a positive impact on overall profitability.

Product design and supply chain complexity

It is important to recognise that often a significant source of supply chain com-

plexity is the actual design of the product itself. It has long been known that a

large part of total through-life costs are determined at the drawing board stage

– sometimes as much as 80 per cent.

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There are a number of ways in which prod-

uct design decisions can impact subsequent supply chain complexity and hence

costs. These are some of the ways that product design decisions can affect supply

chain complexity:



Time-to-market and time-to-volume

Decisions on the functionality of products can increase manufacturing

complexity and reduce flexibility and responsiveness



Added complexity through lack of commonality

Decisions on product design impact the Bill of Materials. Low levels of

component commonality will add complexity.



Increased replenishment lead times

Some design decisions will determine the choice of supplier and therefore

could impact replenishment lead time, e.g. where the supply source is

offshore.



Supply chain vulnerability

Again, if the design decision involves unreliable supply sources this could

potentially increase the chance of supply chain disruption.



After sales support

For those products requiring after sales support, e.g. service parts, the

design of the product will have implications for inventory levels.