Logistics and Information Technology

CHAPTER 2

Logistics and Information Technology

Copyright © 2015 Pearson Education, Inc.

Logistics and Information TechnologyKey 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

2-2Copyright © 2015 Pearson Education, Inc.

Logistics and Information TechnologyKey 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


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


Learning Objectives

• To look at the Internet’s influence on logistics

• To learn about select information technology challenges


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


Figure 2.1: General Types

of Information

Management Systems


General Types of Information Management Systems

Office automation systems:• Provide effective ways to

– Process personal and organizational business data– Perform calculations– Create documents



Office automation systems:• Include general software packages

– Word processing– Spreadsheet (most relevant for logisticians)– Presentation– Database management applications



Office automation systems:• Spreadsheet (most relevant for logisticians)

– Able to solve for basic logistic optimization models through add-in packages such as “What’s Best”



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



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)



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



Transaction Processing System (TPS) (continued)


Benefits of EDIReduced 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


Transaction Processing System (TPS) (continued)


Drawbacks of EDILack of awareness of the benefits of EDIHigh setup costsLack of standard formatsIncompatibility of computer hardware and softwareReduced shipping errorsReduced lead timesReduced order cycle timesReduced ordering costs


Transaction Processing System (TPS)– Examples of automatic identification technologies

• Optical character recognition• Machine vision• Voice-data entry• Magnetic strips• Bar code scanners• Radio-frequency identification (RFID)



Transaction Processing System (TPS)– RFID Consists of:

1. A scanning antenna2. An RFID tag (chip) that conveys relevant data3. A receiver that interprets the data

– Compared to bar codes, RFID1. Does not require clear line of sight between an object

and RFID hardware2. Can store much larger quantities of data3. Can offer both read and write capabilities



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


Management Information System (MIS) and Executive Information System (EIS)•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

1Adapted 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 Information System (MIS) and Executive Information System (EIS)


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



Decision Support Systems (DSS) •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)



Decision Support Systems (DSS) •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.

2Dave Piasecki, “Warehouse Management Systems,” www.inventoryops.com.



Decision Support Systems (DSS)



Decision Support Systems (DSS) •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.



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

1 Alter, Information Systems, Chapter 5.



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.



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


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 retailing2. Cloud computing3. Electronic procurement



Logistical Functions and Activities•Transportation•Warehousing•Materials handling•Order management

Equipment and Materials• Bar coding• WMSs

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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

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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

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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

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– 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.

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• 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



• 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


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• Electronic Procurement, or e-procurement- Uses the internet to make it easier, faster, and less

expensive for an organization to purchase goods and services



• Electronic Procurement, or e-procurement– 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



• Electronic Procurement, or e-procurement– 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

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• Electronic Procurement, or e-procurement


• 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

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Information Technology Challenges


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Logistics and Information Technology