Logistics Strategies Across PLC Product life cycle

Traditionally, logistics is conceived as a functional support system and used as one of the tools for extending differentiated customer service to gain the competitive edge. Logistics strategy is for­mulated in line with the overall business strategy of the firm to achieve the desired business objec­tives. Firms try to optimize the various elements of the logistics mix to achieve the desired service level to support the product-market strategy. The criticality of the various elements of the logistics mix varies with the product, market and the customer service level. For example, the distribution network for FMCG products needs a number of warehouses and an intensive channel structure to serve a large number of customers spread across the country. On the other hand, a glass (sheets) manufacturing firm will have no field distribution warehouse as their product, being of a fragile nature, is usually shipped directly to the end customer or dealer. In the case of low unit value prod­ucts such as soft drinks, the distribution of these is normally within a 100-kilometre radius of the manufacturing plant. Here, the transportation route selection and vehicle scheduling are critically important factors to control transportation cost, which has a major share in the total landed cost of the product at the consumer end.

Another variable influencing the formulation of a logistical strategy is the adjustment across the life cycle phases the product is passing through (see Figure 17.1).

At each stage of the product life cycle, the requirement of logistical performance differs so as to face the market conditions.

1. Introduction

At the introductory stage, logistical support is basically required for making the product available at the places where product awareness is created for demand generation. The heavy promotional expenditure made might go waste if the product is not available when the customer wants it. Non-availability of the product in such a situation will dilute the impact of the marketing strategy. It may even have a negative effect on product acceptance by prospective consumers and lead to product failure. The primary objective here is to establish consumer acceptance and market posi­tion, with the emphasis being on stock availability. During the introductory phase, the demand pattern is erratic and the shipment size is small. Hence, the logistics cost as a percentage of rev­enue generated is pretty high. To get over the uncertainty, firms desirous of introducing a new product invariably select a smaller geographical area, wherein the variables of the logistics mix will remain in control and the risk of service failure is minimized. In a nutshell, the firm needs to organize and mobilize the elements of the logistics mix at the introductory stage to exhibit a high level of service commitment.

2. Growth

In the growth stage, the emphasis shifts to the creation of logistical infrastructure. As the sales growth is witnessed, more revenues are generated and profits are assured in growth stage, the strategy focus is on investment and making the back-end support stronger for gaining a competi­tive edge. The logistical cost as a percentage of the revenue generated plummets because of scale economics. In the growth stage, the strategy is to achieve logistical competency through investment in technology and network to build market share and customer relationship through reliable and consistent generic logistical service.

3. Maturity

The maturity stage witnesses a proliferation of competition. The price war becomes intense to gain market share in the stagnated or slowly growing market. Firms try to reach the consumer through multiple channels. In this phase, the strategy focus shifts to customized logistical solutions with value-added services to gain competitiveness. Typically, the profit margins come down and the firms focus on cost control. To maintain their competitive position, the firms resort to alliances in logistics and adopt the strategy of service customization. They evolve product-, market- and customer-specific logistical solutions for strategic clients and organize various resources to inte­grate them with the client’s supply chain. Logistics not being the core competency of a majority of manufacturing and trading firms, they seek help from experts or logistics service providers to perform the logistical operation effectively and efficiently at reduced costs.

4. Decline

In this phase, the product volume shrinks, costs go up, margins plummet and the element of uncertainty creeps in. Firms slowly withdraw from the markets. Logistical operations are planned on a selective basis to support marketing operations that are now performed on a restricted scale. The logistical resources are neither overcommitted nor overstretched in the decline stage.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.

One thought on “Logistics Strategies Across PLC Product life cycle

  1. gralion torile says:

    It’s perfect time to make some plans for the future and it’s time to be happy. I’ve read this put up and if I may just I want to counsel you some fascinating things or tips. Maybe you could write next articles relating to this article. I want to read even more issues about it!

Leave a Reply

Your email address will not be published. Required fields are marked *