CHAPTER 2 Logistics and Information Technology Learning Objectives

CHAPTER 2 Logistics and Information Technology

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 • To look at the Internet’s influence on logistics • To learn about select information technology challenges © 2008 Prentice Hall 3 -2

Logistics and Information Technology • Key Terms – Application-specific software – Data mining – Data warehouse – Electronic data interchange (EDI) © 2008 Prentice Hall – Electronic procurement (e-procurement) – Enterprise resource planning (ERP) system – Global positioning systems (GPS) – Information 3 -3

Logistics and Information Technology • Key Terms – Logistics information system (LIS) – On-demand software – Radio-frequency identification (RFID) – Reverse auction © 2008 Prentice Hall – Simulation – Transportation Management System (TMS) – Warehouse Management System (WMS) – Wireless communication 3 -4

Benefits of Effective and Efficient Use of Information • Replacement of inventory with information • Reduced variability in the supply chain • Better coordination of manufacturing, marketing, and distribution • Streamlined order processing and reduced lead-times © 2008 Prentice Hall 3 -5

General Types of Information Management Systems • • Office automation system Communication system Transaction processing system (TPS) Management information system (MIS) and Executive information system (EIS) • Decision support system (DSS) • Enterprise system 3 -6

General Types of Information Management Systems System type Logistics examples Office automation system: provides • Spreadsheet applications to effective ways to process personal and calculate optimal order quantities, organizational business data, to perform facility location, transport cost calculations, and to create documents minimization, among others Communication system: helps people • Virtual meetings via computer work together by interacting and sharing technology information in many different forms • Voice-based order picking Transaction processing system (TPS): collects and stores information about transactions; controls some aspects of transactions • Electronic data interchange • Automatic identification technologies such as bar codes • Point-of-sale systems 3 -7

General Types of Information Management Systems System type Logistics examples Management information system (MIS) and executive information system (EIS): converts TPS data into information for monitoring performance and managing an organization; provides executives information in a readily accessible format • Logistics information system Decision support system (DSS): helps people • Simulation make decisions by providing • Application-specific software such information, models, or analysis tools as warehouse mgmt sys • Data mining Enterprise system: creates and maintains • Logistics modules of enterprise consistent data processing methods and an resource planning systems integrated database across multiple business functions 3 -8

General Types of Information Management Systems • Office automation system – Process personal and organizational business data – Perform calculations – Create documents v. Examples of use – Spreadsheet applications © 2008 Prentice Hall 3 -9

General Types of Information Management Systems • Communication system – Help stakeholders work together by interacting and sharing information – Examples of use • Virtual meetings • Voice-based order picking © 2008 Prentice Hall 3 -10

General Types of Information Management Systems • Transaction Processing System (TPS) – Collects and stores information about transactions – Efficient processing of transactions • Real-time processing • Batch processing v Examples of use – Electronic data interchange (EDI) – Automatic identification technologies – Point-of-sale (POS) systems © 2008 Prentice Hall 3 -11

General Types of Information Management Systems • Transaction Processing System (TPS) (continued) – Automatic identification technologies Types: • • • Optical character recognition Machine vision Voice-data entry Radio-frequency identification (RFID) Magnetic strips Bar code scanners – Point-of-sale systems (POS) enhance decision making © 2008 Prentice Hall 3 -12

General Types of Information Management Systems • Management Information System (MIS) and Executive Information System (EIS) – Convert TPS data into information for monitoring performance and managing an organization v Examples of use – Logistics information system: “the people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to logistics decision makers” © 2008 Prentice Hall 3 -13

Structure and Function of a Logistics Information System © 2008 Prentice Hall 3 -14

General Types of Information Management Systems • Decision Support Systems (DSS) – helps managers make decisions by providing information, models, or analysis tools v Examples of use – Simulation – Application specific software – Data mining © 2008 Prentice Hall 3 -15

General Types of Information Management Systems • Enterprise resource planning (ERP) – All company functional areas use a common database to: • Standardize manufacturing processes • Integrate financial data • Standardize human resource data – Shortcomings • Costs of installation • Time-consuming installation process © 2008 Prentice Hall 3 -16

The Internet’s Influence on Logistics • Approximately 25% of the world’s population uses the internet – up from 5% at the beginning of the 21 st century • 3 Specific Influences on Logistics Include: – Online Retailing – On-Demand Software – Electronic Procurement © Pearson Education, Inc. publishing as Prentice Hall 2 -17

The Internet’s Influence on Logistics Similarities between online retailing and in-store retailing Logistical Functions & Activities • Transportation • Warehousing • Materials handling • Order management Equipment & Materials • Bar coding • WMSs © Pearson Education, Inc. publishing as Prentice Hall 2 -18

The Internet’s Influence on Logistics Differences between online retailing and in-store retailing Online Retailing In-store Retailing • Many logistical functions and activities occur • More, smaller orders • Order management and information management systems must handle large volumes of orders • Smaller orders dictate open -case picking • Many logistical functions and activities occur • 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 © Pearson Education, Inc. publishing as Prentice Hall 2 -19

The Internet’s Influence on Logistics 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 • Warehouse set up to handle large volume orders • Variety of materials handling equipment used • Packaging generally cartons that hold large volume orders © Pearson Education, Inc. publishing as Prentice Hall 2 -20

The Internet’s Influence on Logistics Differences between online retailing and in-store retailing 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 © Pearson Education, Inc. publishing as Prentice Hall 2 -21

The Internet’s Influence on Logistics On-Demand Software • Numerous logistics-related applications – Collaborative forecasting – Inventory optimization – TMSs © Pearson Education, Inc. publishing as Prentice Hall 2 -22

The Internet’s Influence on Logistics On-Demand Software Advantages Disadvantages • Pay-per-use • Faster installation • Less-costly installation • Smaller IT staff • Regular upgrades • Regular updates • Upgrades and updates can be too numerous and too frequent • Limited amount of customization • Security issues © Pearson Education, Inc. 2 -23 publishing as Prentice Hall

The Internet’s Influence on Logistics Electronic Procurement • Types of benefits realized from eprocurement include: – Transactional – Compliance – Management information – Price © Pearson Education, Inc. publishing as Prentice Hall 2 -24

The Internet’s Influence on Logistics Electronic Procurement • Drawbacks of using e-procurement – Security risk – Impersonal © Pearson Education, Inc. publishing as Prentice Hall 2 -25

Information Technology Challenges • IT is a tool that can help manage organizational problems, but it is not a beall/end-all solution for organizational problems • Theft of proprietary information – Decreasing size and increasing portability of technology devices • Employee resistance to IT implementations © Pearson Education, Inc. publishing as Prentice Hall 2 -26

Case 2 -1 JIT in Kalamazoo Company Facts: • Located Kalamazoo, Michigan Product Facts: • Mini motor homes • Largest component: truck or van chassis • Virtually the entire product was assembled from purchased components Market Facts: • Expanded from local Midwest market a national one 1 -27

Case 2 -1 JIT in Kalamazoo Inventory/Warehousing information: • Public warehouse • Inventory between $500, 000 and $1, 000 • More than 1. 5% / month interest for borrowed funds • Costs of safety stock were going up – 4 weeks of use for items supplied by vendors more than 500 miles – 1 week of use for items supplied by vendors nearby • Inventory carrying costs: 20% / year (including acquisition and transportation) – Average inventory = lot size / 2 1 -28

Case 2 -1 JIT in Kalamazoo Questions: 1. What is the total annual cost of maintaining the components inventory under the present system? 2. What would be the total annual cost of maintaining the components inventory under the JIT system ( assuming no safety stocks)? 3. Should Ballenger take into account any other costs or benefits from the JIT system? If so, what are they? 4. If the JIT system is adopted, are there safety stocks of any item that should be maintained? If so, which ones and how much? 5. If the JIT system is adopted, what changes, if any, should occur in the relationships between Ballenger’s firm and his suppliers of components? Discuss. 1 -29

Case 2 -1 JIT in Kalamazoo Questions: 6. Assume that Ballenger has switched to the JIT system and that he receives a surprise phone call from a competitor who is going out of business. The competitor wants to sell Ballenger 7, 000 dome lights of the type listed. Should Ballenger buy them? If so, at what price? 7. Carrying costs are 20 percent. Is there a level of carrying costs at which both Ballenger’s present system and a JIT system have similar costs? If so, what is it? 1 -30

Case 2 -1 JIT in Kalamazoo (Current System) Item Gas range Toilet Pump Refrigerator (large) Refrigerator (small) Foam cushion CB radio (type D) Dome lights Awning bracket Insect screen Average Number of Current lot Unit cost Average distance from units used size freight cost vendor (in each week purchased per unit miles) 1, 145 606 26 22 22 490 1, 800 3 48 159 10 10 56 6 7 675 9 824 540 570 200 240 125 120 15 1, 500 24 1, 720 1, 200 1, 240 $100 $80 $16 $110 $95 $8 $136 $2 $4 $7 $20 $18 $3 $20 $15 $2 $11 None $1 $1 1 -31

Case 2 -1 JIT in Kalamazoo (JIT) Item Gas range Toilet Pump Refrigerator (large) Refrigerator (small) Foam cushion CB radio (type D) Dome lights Awning bracket Insect screen Average Number of Current lot Unit cost Average distance from units used size freight cost vendor (in each week purchased per unit miles) 1, 145 606 26 22 22 490 1, 800 3 48 159 10 10 56 6 7 675 9 824 540 570 10 10 7 6 1 75 3 36 60 50 $105 $100 $15 $113 $85 $7 $130 $4 $5 $7 $22 $18 $4 $25 $15 $3 $26 0 $1 $2 1 -32

Case 2 -1 JIT in Kalamazoo (Current System) Safety Total Stock Avg. Inv. Total Inventory Investment (Unit) ($) Cost ($/yr) Item Gas range 40 100 140 $16, 800 $3, 360. 0 $62, 400 Toilet 40 120 160 $15, 680 $3, 136. 0 $50, 960 Pump 56 62. 5 118. 5 $2, 252 $450. 3 $55, 328 Refrigerator (large) 6 60 66 $8, 580 $1, 716. 0 $40, 560 Refrigerator (small) 7 7. 5 14. 5 $1, 595 $319. 0 $40, 040 Foam cushion 1350 750 2100 $21, 000 $4, 200. 0 $351, 000 CB radio (type D) 36 12 48 $7, 056 $1, 411. 2 $68, 796 Dome lights 824 860 1684 $3, 368 $673. 6 $85, 696 Awning bracket 540 600 1140 $5, 700 $1, 140. 0 $140, 400 Insect screen 1140 620 1760 $14, 080 $2, 816. 0 $237, 120 $96, 111 $19, 222. 1 $1, 132, 300 1 -33

Case 2 -1 JIT in Kalamazoo (JIT) Item Gas range Toilet Pump Refrigerator (large) Refrigerator (small) Foam cushion CB radio (type D) Dome lights Awning bracket Insect screen Safety Total Stock Avg. Inv. Total Inventory (Unit) ($) Cost ($/yr) 40 40 56 6 7 1350 36 824 540 1140 5 45 3. 5 59. 5 3 9 0. 5 7. 5 37. 5 1387. 5 1. 5 37. 5 18 842 30 570 25 1165 $5, 715 $5, 310 $1, 131 $1, 242 $750 $13, 875 $5, 850 $3, 368 $3, 420 $10, 485 $51, 146 $1, 143. 0 $1, 062. 0 $226. 1 $248. 4 $150. 0 $2, 775. 0 $1, 170. 0 $673. 6 $684. 0 $2, 097. 0 $10, 229. 1 Investment ($/yr) $66, 040 $61, 360 $55, 328 $43, 056 $36, 400 $351, 000 $73, 008 $171, 392 $168, 480 $266, 760 $1, 292, 824 1 -34