Product’s Attributes

Physical Nature of the Product

A product’s physical nature substantially affects almost every aspect of logistics and distribution systems, including packagingOpens in new window, material handlingOpens in new window, storageOpens in new window, and transportationOpens in new window. In fact, both the structure and the cost of a distribution system for a given product are directly affected by the product’s particular characteristics. These characteristics can be classified into four main categories, based on:

1. Volume-to-weight ratio
2. Value-to-weight ratio
3. Substitutability
4. Special characteristics

1.     Volume-to-Weight Ratio

Both the volume and weight characteristics of a product significantly affect distribution costs. Products with low volume-to-weight ratios tend to fully utilize the weight-constrained capacities of road freight vehicles, handling equipment, and storage space.

Therefore, distribution systems deal with these kinds of products, including dense products such as sheet steel and books, more efficiently. In contrast, high-ratio products, such as many food items, paper tissues, and feathers, use up a lot of space, which results in underutilized distribution components, raising both transportation and storage costs.

In general, storage rates are volume based and value based, but transportation rates are more dependent on the type of transportation mode. For example, water carriers normally charge the same price for 1 ton as for 1 cubic meter, but 1 ton costs the same as 6 cubic meters for airfreight. Hence, the transportation of heavy products by air is relatively more expensive.

However, in most cases, overall distribution costs (including transportation and storage costs) tend to decrease as the volume-to-weight ratio decreases. To avoid abnormally low rates, carriers and warehouses often stipulate a minimum charge for the transportation and storage of very light or very heavy products, respectively.

2.     Value-to-Weight Ratio

This ratio shows the value per unit weight of a given product. High-value, low-weight products, such as electronic equipments and jewelry, have greater potential for absorbing the distribution costs because the relative transport cost of these products to their overall value is not significant.

Therefore, criteria other than price play a significant role in determining the proper distribution system for high-value products. In contrast, only inexpensive transport alternatives can be viable shipping options for products with low value-to-weight ratios, including ore, coal, and food. However, the storage and inventory holding costs for products with high value-to-weight ratios tend to be high in comparison with low ratio products because the capital tied up in the stock is higher, and more expensive and secure warehousing is required.

3.     Substitutability

The degree to which a given product can be substituted by an alternative from another source is referred to as its substitutability. Highly substitutable products, such as soft drinks and junk food, are those that customers would readily substitute with another brand or type of products if the initially desired products are not available.

The distribution system should ensure the availability of these products at all times, otherwise the sale would be lost. This could be achieved through maintaining high inventory levels to decrease the stock-out probability or by using efficient and reliable transportation modes for on-time replenishments.

Both of the preceding options are high cost because they would raise the average inventory level and enforce a transport system with higher costs, respectively. However, for products with low substitutability degrees, less-expensive distribution systems with lower average inventory levels and slower transportation modes can be used.

4.     Special Characteristics

Certain other characteristics of products imply a degree of risk in their distribution. These characteristics, including fragility, perishability, hazard and contamination potential, time constraints, and extreme value, pose some requirements and restrictions on a distribution system.

Therefore, a special transport, storage, and handling system is required to minimize this risk or even satisfy the legal obligations, which means the company will incur extra charges, as it is the case with any form of specialization.

Examples of these specifications could be packaging requirements of fragile products, necessary inventory controls, and refrigerated storage and transportation facilities for perishable products, as well as special packaging and stringent regulations (such as controlled temperature, restricted stacking height, and isolation from other products) for contaminant and hazardous products.

Moreover, time-constrained products, such as foods, newspapers, and seasonal and fashion goods, have significant implications for distribution systems and often require fast and expensive transportation modes to meet their time deadlines. Finally, extremely valuable products, or small items that are vulnerable to theft, require special stock control and distribution systems with high security.

Many different product characteristics significantly affect almost every logistics function. Because these logistics functions are interrelated, the requirements and restrictions imposed by these characteristics often lead to complicated alternatives. These alternatives vary in cost and service attributes and should be thoroughly evaluated by logistics executives for determining an appropriate distribution system.

Another crucial, and often challenging, decision that should be taken by logistics executives is determining a product’s distribution channels – the alternative ways or path through which a product reaches its market.