Riste Kelepurovski, KMGT-613, Logistics and Physical Distribution

Product Life Cycle Impact on Logistics and Distribution

Strategy
Introduction
With the globalization and increased product variety, logistics and distribution
are becoming an important competitive element in modern organizations
(Bielecki, 2012). The logistics channels shall be tailored taking into
consideration the customer requirements and the product characteristics,
variety and product cycle (Aitken, Childerhouse and Towill, 2003). In the
automotive industry, for example, the variety of models has increased, while
the product life cycle (PLC) has decreased (Volpato and Stocchetti, 2008) which
affects the logistics strategy and dynamics with increased need for tailored
logistics and distribution. In this analysis, I will assess the impact of PLC on
logistics strategy in the automotive industry, taking BWMs model 320td as a
product example. The European model 320 is manufactured at BMWs Munich
plant (BMW, 2016) and sold in the European market; hence the analysis is
limited to the European logistics strategy.
Product Life Cycle
PLC is a concept used in management for analyzing the industry demand and
predictability of switching between the phases for better management of sales
tendencies (Volpato and Stochetti, 2008). Normally, the life cycle has five
stages (Ryan, 1990):
1. Development
2. Growth
3. Maturity
4. Saturation and
5. Decline

Riste Kelepurovski, KMGT-613, Logistics and Physical Distribution

Figur 1(PLC Model, Sabadka 2014)

Each of this stages has a potential impact on the logistics and distribution
strategy. In the automotive industry, the lifetime of a model decreased from
eight to four years, while the number of models doubled in the last fifteen
years (Sabadka, 2014). Such development puts enormous expectations on the
logistics and SCM to reduce cost from the product.
In this analysis, the phase of product design is not included due to lack of
insight and knowledge of the product.
Logistics and Distribution Strategy
In a compartmentalized world, the logistics strategy is concerned with cross
functional and process-based approach to continuously improving the material,
information and resources flow to reduce the cost and improve lead time of the
entire system (Mangan, 2012). While many factors have an influence on the
logistics strategy, there are two primary logistics and SC strategic approaches,
namely lean and agile. A Lean strategy is based on Just in Time (JIT) and pull
principles with an aim to reduce the inventory in the system and increase the
customer lead time. The Agile strategy is based on the concept of agility by
using decoupling points and cope with volatile demand (Mangan, 2012). The
automotive industry launched standardization and mass customization to
decrease the variety of raw materials which indicate that both lean and agile
strategies are applicable (Mangan, 2012; Sabadka, 2014).
PLC Impact on Logistics Strategy for BMW model 320
Since the introduction on the market in 2012, the BMW model 320 production
exceeded 1.8M vehicles exiting the factory line. In Figure 2, the PLC curve is
visible which indicates that BMW 320 as a product follows the PLC patterns as
outlined in Figure 1.

Riste Kelepurovski, KMGT-613, Logistics and Physical Distribution

Figur 2(BMW 320 PLC) Data from Wikipedia

The PLC phases of BMW 320 (Figure 2) can be divided in:

Introduction to the market (2012)
Growth (2012-2013)
Maturity (2013-2014)
Saturation (2014-2015)
Decline (2015-2016)
BMW model 320 will be replaced in 2017
Introduction to Market and Growth Phase
As the BMW supply chain and logistics are parts of the same competitive
constellation, its hard to distinguish the analysis, and both terms are used
moving forward. In this PLC phase, the cost and customer delivery lead time
are crucial parameters that define the logistics and supply chain strategy.
The BMW supply chain is integrated and starts with the customer requirements
of customization (Sachin, 2015) or Build to order which triggers supplier
request for assembly materials arriving directly to BMW Munich plant (Figure 3).

Riste Kelepurovski, KMGT-613, Logistics and Physical Distribution

Figur 3: Supply Mechanism to Plant, Source-(Bartow 2007, cited by Sachin,2015)

As many components are the same in each BMW 320 model, regardless the
customization, there are two types of material requirements for the suppliers.
Long term requirements, where a supply order is placed up to ten months prior
production and short term requirements based on customer request, where the
order is placed up to a week prior the production. Taking into consideration that
BMW Plant operates with only one and half hour of line inventory, it is clearly
that requirements for the inbound logistics strategy and operations are very
complex.
The manufacturing process is based on JIT and JIS (Just in Sequence) which
requires JIT supply chain and inbound logistics strategy.
In this Phase, due to high volume production, based on JIT/ JIS supply chain
requirements and complexity, the information flow is crucial in integrating the
inbound logistics in overall Supply Chain and requires 4PL approach
(Gunasekarana and Ngai, 2005). This is a clear example that one size doesnt
fit all concerning logistics and distribution.
As Built to Order supply chain in the PLC growth phase, impact the outbound
logistics to avoid inventory of finished products. The benefits of built to order
supply chain is a low level of inventory condensed at the dealership level,
which requires efficient outbound logistics. However, the growth phase of PLC
is affecting the outbound logistics as the finished BMW vehicles should be
distributed and transported to the customer in an efficient and fast manner,
but with lowest possible cost. Due to high volume in PLC Growth phase, the
outbound distribution process of BMW Europe is based on cross-docking
distribution strategy for optimization the transportation cost (Sachin, 2015,
p.18).
The analysis of the Growth phase for BMW model 320 indicate the complexity
imposed on the logistics and the supply chain when the product enters the
market with high volume production. It also indicates the requirements of
integrated logistics approach where information sharing across the entire
supply chain actors is a central for synchronization of all parts, from order to
delivery.
Maturity and Saturation

Riste Kelepurovski, KMGT-613, Logistics and Physical Distribution

In the automotive industry, during maturity and saturation phase, the

complexity is shifting from the inbound and outbound logistics, towards spare
parts and repair logistics. One year after BMW model 320 left the factory gate,
it is time for regular maintenance service, which requires spare parts. The area
of automotive spare parts logistics is one of the remaining challenges in the
industry (Boysen, et al, 2015) and has a direct impact on customer satisfaction
and brand loyalty (Delloite, 2013). While the production of BMW 320 is mostly
based on built to order with planned capacity and demand, the spare parts
logistics is more complicated as demand cannot be clearly anticipated,
resulting in long lead times and increased cost. Another challenge is the
number of parts manufacturers, dealers, maintenance shops which complicate
the supply chain. The case of Penske Logistics (2012) clearly indicates the
problems of such supply chain complexity in the PLC, impacting the logistics
requirements and strategy. The spare part logistics, due to conditions of service
levels is network-based with warehouses and distribution centers (DC),
contrary from the finished goods logistics which is more cross-docking based
(Bengrya et al, 2014). Warehouse logistics strategy is based on inventory
management and distribution, and its efficiency is based on forecasting and
planning, as well as network design and warehouse management.
It is indicative that maturity and saturation phase of PLC require slightly
different logistics strategy from the growth phase in this example of BMW
model 320.
Decline and end of life cycle
In recent years, with the increase of the environmental awareness, the reverse
logistics has become an important aspect of the supply chains and the
automotive industry has found several ways to leverage on it. The BMW model
320 is still not ready to retire and get scrapped, but BMW has a reverse
logistics framework based on closed loop and post-industry loop, a program
for reusing and recycling the material into the production (Satchin, 2015).

Figur 4: Reverse Logistic Network, Source Tonnanot 2008, cited by Sachin 2015

Riste Kelepurovski, KMGT-613, Logistics and Physical Distribution

BMW designed and developed its own disassembling and recycling plant near
Munich, and its reverse logistics network is presented in Figure 1. The potential
product recalls are handled in the same logistics reverse system. The BMW
reverse logistics covers all areas as product return, recalls, cost saving and
environmental aspects.
The reverse logistics strategy is different from spare parts and production
logistics strategies from the transportation and warehousing perspective, but
equally important from the cost and environmental point of view.
Discussion, Conclusion, and Limitation
The PLC have an impact on logistics and distribution strategy and any further,
also on each of the PLC phases. The Growth phase with high volume
standardized manufacturing requires leagile or integrated logistics strategy,
while maturity and saturation phase require more traditional distribution
network logistics strategy. However, both logistics strategy requires a form of
central integrator function to ensure supply chain synchronization, which to a
certain extent challenge the current traditional classification of logistics
strategies into cross-docking versus warehousing (Benrgya et al, 2014) and
lean versus agile (Mangan, 2012).
This analysis is limited to a product PLC and doesnt take into consideration the
BMW suppliers and their individual logistics and supply chain complexity as
factors impacting the logistics and distribution strategy. From the critical
perspective, I find the concept of PLC insufficient in designing the logistics
strategies, as many other factors have more profound influence on the
complexity and efficiency of the logistics and supply chains.
References:
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Riste Kelepurovski, KMGT-613, Logistics and Physical Distribution

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direct=true&db=edsrep&AN=edsrep.29381&site=eds-live&scope=site