Logistics and Information Technology

CHAPTER 2
Logistics and Information
Technology
Copyright © 2015 Pearson Education, Inc.

Logistics and Information Technology
Key Terms
• Application specific
software
• Big Data
• Cloud computing
• Data mining
• Data warehouse
• Electronic data
interchange (EDI)
• Electronic
procurement
(e-procurement)
• Enterprise resource
planning (ERP) system
• Global positioning
systems (GPS)
• Information
2-2

Logistics and Information Technology
Key Terms
• Logistics information
system (LIS)
• Logistics optimization
models
• On-demand software
(software-as-a-service)
• Radio-frequency
identification (RFID)
• Reverse auction
• Simulation
• Transportation
Management System
(TMS)
• Warehouse
Management System
(WMS)
• Wireless
communication
2-3

Learning Objectives
• To appreciate the importance of effective and
efficient utilization of information for logistics
management
• To learn about general types of information
systems and their logistical applications
2-4

Learning Objectives
• To look at the Internet’s influence on logistics
• To learn about select information technology
challenges
2-5

Benefits of Effective and Efficient Use
of Information
• Greater knowledge and visibility across the
supply chain
• Greater awareness of customer demand via
point-of-sale data
• Better coordination of manufacturing, marketing,
and distribution
• Streamlined order processing and reduced lead-
times
2-6

Figure 2.1:
General
Types of
Information
Management
Systems
2-7

General Types of Information
Management Systems
Office automation systems:
• Provide effective ways to
– Process personal and organizational business data
– Perform calculations
– Create documents
2-8

Management Systems
• Include general software packages
– Word processing
– Spreadsheet (most relevant for logisticians)
– Presentation
– Database management applications
2-9

Management Systems
• Spreadsheet (most relevant for logisticians)
– Able to solve for basic logistic optimization models
through add-in packages such as “What’s Best”
2-10

Management Systems
Communication system
– Help stakeholders work together by interacting and
sharing information in many different forms
– Examples of telecommunication technologies
• Fax machines
• Personal computers
• Electronic mail
• Cellular phones
• Tablets
• Smart phones
2-11

Management Systems
Communication system
• Examples of logistics information technology
– Electronic data interchange (EDI)
• Viewed as the measuring stick in the 1990’s
– Wireless communication
• Emerged as the measuring stick during the first decade of
the twenty-first century
• Device examples include
– Global positioning systems (GPS)
– Tablets (such as Apple’s iPad)
2-12

Management Systems
Transaction Processing System (TPS)
– Collects and stores information about transactions
– Efficient processing of transactions with a choice of
• Real-time processing or
• Batch processing
– Examples include
• Electronic data interchange (EDI)
• Automatic identification technologies
– Essential component in point-of-sale (POS) systems
2-13

Management Systems
Transaction Processing System (TPS) (continued)
2-14
Benefits of EDI
Reduced document preparation and
processing time
Increased cash flow
Reduced inventory carrying costs Increased billing accuracy
Reduced personnel costs Increased productivity
Reduced Information float Increase customer satisfaction
Reduced shipping errors
Reduced lead times
Reduced order cycle times
Reduced ordering costs

Management Systems
Transaction Processing System (TPS) (continued)
2-15
Drawbacks of EDI
Lack of awareness of the benefits of EDI
High setup costs
Lack of standard formats
Incompatibility of computer hardware and software
Reduced shipping errors
Reduced lead times
Reduced order cycle times
Reduced ordering costs

Management Systems
– Examples of automatic identification technologies
• Optical character recognition
• Machine vision
• Voice-data entry
• Magnetic strips
• Bar code scanners
• Radio-frequency identification (RFID)
2-16

Management Systems
– RFID Consists of:
1. A scanning antenna
2. An RFID tag (chip) that conveys relevant data
3. A receiver that interprets the data
– Compared to bar codes, RFID
1. Does not require clear line of sight between an object
and RFID hardware
2. Can store much larger quantities of data
3. Can offer both read and write capabilities
2-17

Management Systems
Management Information System (MIS) and
Executive Information System (EIS)
•Convert TPS data into information for monitoring
performance and managing an organization
•Objective is to provide managers and executives
the information they really need
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•A logistics information system (LIS) can be
defined as “the people, equipment, and
procedures to gather, sort, analyze, evaluate,
and distribute needed, timely, and accurate
information to logistics decision makers.”1
1
Adapted from a definition of “marketing information system” provided by Philip Kotler and Gary Armstrong in
Principles of Marketing, 11th
ed. (Upper Saddle River, NJ: Prentice Hall, 2006), Chapter 4.
Copyright © 2015 Pearson Education, Inc. 2-19
Management Systems

2-20
Management Systems

Management Systems
Decision Support Systems (DSS)
•Help managers make decisions by providing
information, models, or analysis tools
•Examples of specific uses include
– Vehicle routing issues
– Inventory control decisions
– Developing automatic order picking systems
– Optimization models for buyer-seller negotiations
2-21

Management Systems
•Several prominent DSS techniques include:
– Simulation
• Technique that models a real-world system, typically
using mathematical equations to represent the
relationships among the system’s components
– Application specific software
• Technique developed to help managers deal with specific
logistics processes or activities
• Popular option includes on-demand software (also
referred to as software-as-a-service or cloud computing)
2-22

Management Systems
•Examples of logistics-related application-specific
software
– Transportation management systems (TMS)
• Software package that automates the process of building orders,
tending loads, tacking shipments, audits, and payments1
– Warehouse management systems (WMS)
• Software package that provides oversight of the storage and flow
of materials within a company’s operations2
1
Amy Zucherman, “Transportation Management Systems Give Shippers Power to Make Smarter Trucking Choices,”
World Trade, January 2008, 34-38.
2
Dave Piasecki, “Warehouse Management Systems,” www.inventoryops.com.
2-23

Management Systems
2-24

Management Systems
•Data mining – a DSS technique
– Is the application of mathematical tools to large
bodies of data in order to extract correlations and
rules1
– Dependent on data warehouses
• Central repository for all relevant data collected by an
organization
1
Sam Joseph and Daniel Scuka, “AI”, Japan Inc., November 2001, 20-28.
2-25

Management Systems
Enterprise Systems
•Create and maintain consistent data processing
methods and an integrated database across
multiple business functions1
2-26

Management Systems
Enterprise Systems
•Enterprise Systems example:
– Enterprise resource planning (ERP)
• “lets a company automate and integrate the majority of
its business processes, share common data and practices
across the enterprise, and produce and access
information in a real-time environment”1
1
Joel D. Wisner, G. Keong Leong, and Keah-Choon Tan, Principles of Supply Chain Management: A Balanced
Approach, 2nd
ed. (Mason, OH: South-Western Cengage Learning, 2008), p. 507.
2-27

Management Systems
Enterprise Systems
•Shortcomings of Enterprise resource planning
(ERP)
–Costs of installation
–Time-consuming installation process
–Initially lacked strong application-specific
logistical capabilities such as TMS or WMS
2-28

The Internet’s Influence on Logistics
• Approximately 35% of the world’s population
uses the internet – up from 5% at the beginning
of the 21st
century
• 3 Specific Influences on Logistics Include:
1. Online retailing
2. Cloud computing
3. Electronic procurement
2-29

Logistical Functions and
Activities
•Transportation
•Warehousing
•Materials handling
•Order management
Equipment and Materials
• Bar coding
• WMSs
2-30
Similarities between online retailing and in-store retailing

Online Retailing
• More, smaller orders
• Order management
systems must handle large
volumes of orders
• Information management
systems capable of
correctly transmitting each
order so it can be filled in a
timely fashion
• Smaller orders dictate
open-case picking
In-store Retailing
• Fewer, larger orders
• Order management
system is set up to handle
orders from resellers, not
consumers
• Full-case picking
• Warehouse set up to
handle large volume
orders
2-31
Differences between online retailing and in-store retailing

Online Retailing
• Products slotted to
facilitate picking smaller
orders
• Totes and push carts used
• Packaging is small cartons,
envelopes, bags suited to
holding small quantities
In-Store Retailing
• Variety of materials
handling equipment used
• Packaging generally
cartons that hold large
volume orders
2-32

Online Retailing
• Transportation companies
used with extensive
delivery networks;
experience in parcel
shipments
• Outbound shipments
usually picked up by vans
• Return rates much higher
and from ultimate
consumers
In-store Retailing
• Transportation methods
and companies vary by
request of buyer
• Outbound shipments may
be picked up by tractor
trailers or railcars
• Return rates lower and
from resellers
2-33

– Worldwide public cloud services market – where
software, services, or information are shared via
the Internet without the users having control
over the technology infrastructure – grew almost
20% between 2011 and 20121
1
Bridget McCrea, “Cloud Breakthrough,” Logistics Management 51, no. 11 (2012): 36-40. 2-34
• Cloud Computing

• Cloud Computing
– Advantages of Cloud Computing
• Pay-per-use allows firms to avoid high capital
investment which speeds up ROI for the software
• Since it involves operational as opposed to capital
expenditures, it is a viable option for firms that could
not afford to purchase, install, and maintain
application-specific software such as TMS and WMS
• Due to the economic slowdown of 2007, many firms
were forced to slash IT expenditures, thus benefitting
cloud-based applications
2-35Copyright © 2015 Pearson Education, Inc.

• Cloud Computing
– Advantages of Cloud Computing continued
• Faster and less costly installation
• Smaller IT staff
• Regular upgrades and updates from the
software provider

• Cloud Computing
– Drawbacks of Cloud Computing
• Upgrades and updates can be too numerous
and too frequent
• Limited amount of customization
• Security issues

2-38
• Electronic Procurement, or e-procurement
- Uses the internet to make it easier, faster, and less
expensive for an organization to purchase goods
and services

– Benefits realized from e-procurement include:
• Transactional benefits
– Measures the benefits of enhanced
transactional efficiency associated with e-
procurement
• Compliance benefits
– Focus on the savings that come from
adherence to established procurement
policies

– Benefits realized from e-procurement include:
• Management information benefits
– Encompass those that result from
management information, customer
satisfaction, and supplier satisfaction levels
after implementation of e-procurement
• Price benefits
– Are those that are given as a result of
adopting e-procurement

- Drawbacks of using e-procurement
• Security risk of transmitted information
• Impersonal as human interaction is replaced
by computer transactions
2-41

• IT is a tool that can help manage
organizational problems, but it is not a be-
all/end-all solution for organizational
problems
• Theft of proprietary information
– Websites protected from viruses and hackers
– Decreasing size and increasing portability of
technology devices
• Employee resistance to IT implementations
2-42
Information Technology Challenges

Copyright Notice
2-43
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written permission of the
publisher. Printed in the United States of America.

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