Chapter

THE DIGITALISATION OF LOGISTICS

Marta Estrada, PhD.1; Miguel-Ángel Moliner, PhD.

and Diego Monferrer, PhD.
Department of Business Administration and Marketing
Universitat Jaume I
Castellón, Spain

ABSTRACT
The rise of new technologies, the growth of electronic business, the
arrival of new companies to the service sector, and improved levels of
customer service are just some of the factors that attest to the changes in
the logistics sector in recent years. In light of these changes, a good
business model is essential to the success of any company. New logistics
models must therefore take into account this current competitive
landscape to create, deliver and capture value. In this chapter we reflect
on the present and future logistics context and on the application of new
technologies in response to customer demands. To this end, first we
introduce the concept of digital disruption, and put forward the
application of new technologies as a valuable asset in the current business
landscape. Second, we define the concept of logistics, trace the various
stages in its evolution, and highlight the importance of integrating all the
agents involved in the supply chain. Third, we describe some of the most
significant logistic models currently in use. The chapter concludes with a
description of some of the technologies applied to the supply chain.

1
Corresponding Author: estrada@emp.uji.es
2 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

1. DIGITALISATION OF THE COMPANY

1.1. The Challenge of Transformation or Digital Disruption

Although logistics has influenced certain activities ever since the early
years of commercial relationships, the repercussions of the recent global
economic crisis, the opening up to the world of Asian markets, and strong
business competitiveness have all heightened the need for better process
planning and faster decision making. In a globalised world characterised
by technological change and disruption, the interactivity between
economic and social actors is now crucial to taking advantage of market
opportunities and maximising resources. In this context, companies that are
unable to adapt quickly to the speed with which information is exchanged
and processes managed will find it more difficult to generate added value
in their products and services. Despite this situation, the SAP Digital
Transformation Executive Study (2017) found that over a fifth (21%) of the
SMEs surveyed cite lack of financial resources as the main obstacle to
becoming a fully digital business, followed by lack of time (15%) and the
sophistication of the technologies. Lack of knowledge and experience of
company personnel are not given as reasons to explain the slow progress
towards digitalisation in medium-sized organisations, as only 8% of them
mentioned these factors as a major challenge. In contrast, large
corporations consider lack of personnel experience and knowledge to be
their biggest challenge (25%).
Despite the difficulties and reticence in some business sectors, it is
beyond question that the use of new technologies is now an established
reality that has changed purchasing and consumption habits, production
strategies and relationships in the business environment. As a result,
around 92% of digital leaders (SAP Digital Transformation Executive
Study, 2017) have put in place comprehensive digital processes to improve
the customer experience. These leaders consider customer empowerment
to be a necessary factor in transformation, rather than an objective or a
result. For 39% of leaders, the most important trend in the coming years
3 The Digitalisation of Logistics

will be initiatives that give consumers more power and involve them more
directly in the design of products and services. For the moment, the survey
results seem to back them up, as 70% of leaders have noted
transformational or significant value of digital transformation in customer
satisfaction and engagement (SAP Digital Transformation Executive Study,
2017). These circumstances are placing the logistics chain under
considerable pressure, as it is forced to intensify its efforts to achieve
higher standards of efficiency, service and profitability.
Manufacturers, distributors and logistics operators are rapidly adopting
the most suitable technologies to their processes as a way of adapting to
this new competitive landscape. Achieving this ambitious target is
inextricably linked to the design of systems that provide immediate access
to basic information about the company and the market in order to find
effective solutions to business management problems. The application of
new technologies to logistics is the latest business paradigm. In essence, it
involves replacing models based on low energy and raw material costs for
one based on low production costs and information dissemination. These
technologies have apparently unlimited capacity at both business and
individual-user levels, since they allow useful mass information to be
obtained, processed, stored, analysed, visualised, communicated and
shared at very low cost. In this respect, the usefulness of new technologies
is determined by the following aspects:

 They affect the company’s efficiency by improving problem-

solving capacity and reducing the time taken to respond to
problems.
 They increase business productivity, particularly in high-
technology sectors.
 They help logistics systems in the cost-rationalisation process (five
zeros theory: zero defects, zero downtime, zero delay, zero
inventory, zero paper) and in optimising existing resources.
 They favour the organisation’s effectiveness by highlighting key
elements of the overall business strategy such as competitive
4 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

advantage and the organisation’s relationship with the rest of the

channel members and its customers.
 They are able to create a future for the company and can change
the way it does its business.

The availability of these capacities at almost no incremental cost opens

up numerous directions for change that affect practically all markets; some
of the most significant capacities are:

 Permanent change in customers’ behaviours and attitudes, whether

final consumers (B2C) or intermediaries (B2B).
 Hyperconnectivity: the probability of connecting everything at
increasingly reduced costs.
 Opportunity to convert dynamic, mass and heterogeneous
information into practical knowledge at increasingly lower costs.
 Automation of jobs: the option to replace some manual work with
machinery.
 Virtualisation of services: reduced wait times and the introduction
of services and applications.
 Simplification of transactions: possibility to make secure reliable
payments without the need for intermediaries.
 Smart phones and tablets: facilitate the mobility of applications
and remote access to processes and resources for workers,
customers and suppliers.
 Omnichannelling: social networks, phones and tablets enable
relational interactions between various intermediaries in the
channel.
 Cloud computing: almost unlimited capacity for information and
data storage.
 The Internet of Things: the concept of digital interconnection
between people and everyday objects through the Internet.
 Big data: set of technologies that can generate predictive models
for complex systems based on extremely large amounts of
5 The Digitalisation of Logistics

heterogeneous information. Provide solutions to gather, store,

search, analyse and display large datasets.
 Artificial intelligence: investigates non-algorithmic problem
solving using any available computation technique.
 Enablement of new business models based on new logistics
platforms.
 Logistics revolution: the simplification and optimisation of supply
processes including the total elimination of some services.
 Others…

In sum, information and the application of new technologies in

businesses are becoming a competitive advantage on such a scale that
information systems and ICTs are now regarded as one of the critical
strategic resources for companies. The aim of their initial application is
mainly to reduce time and costs by replacing obsolete systems and
substituting manpower and machinery for more efficient systems.
The introduction of digital systems not only aims to increase efficiency
but, in a broader sense, its target is to create value for the company. Indeed,
value can be created even in mature markets or those showing signs of
exhaustion. One illustrative example is Amazon; the online shopping giant
has for years detected symptoms of saturation and has responded by
adapting its offer to include local business models. It is currently bucking
the digital trend with a project to open hundreds of physical bookshops.
The value of its strategy is based on the belief that physical and digital
shops can complement rather than substitute each other.

1.2. Levels of Digitalisation in the Company

The rate at which disruptive and accelerating digital technologies

appear and are consolidated logically varies across firms and sectors. As a
result companies undergoing digitalisation will have different results,
depending on the stage they have reached in applying new technologies.
6 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

Three phases can be identified in the way objectives evolve throughout the
implementation of new technologies:

First Phase
The main objective is to reduce costs in order to increase
competitiveness. Here, the chief problem lies in calculating the benefits
derived from digitalisation because they are often intangible, whereas costs
tend to be quantifiable in terms of expenditure on computer equipment and
networks. At this level companies incorporate new technologies through
the most common leverages of competitiveness of a business model.

 Conceptual leverage. Enhances the brand image and corporate

reputation with the lowest possible costs.
 Customer experience leverage. Increases efficiency of cross-
cutting business processes with lower structural costs.
 Operational leverage. Portfolio of goods and services with higher
perceived value and lower supply chain costs.

An initial digitalisation roadmap can be determined by evaluating the

impact of new technologies on the leverages of the current business model
and assigning priorities in their incorporation based on the level of
expected impact vis-à-vis the viability of their implementation. Any
company that keeps track emerging new technologies and incorporates
them to support and enhance their processes is in this phase. Some
examples include creating online platforms as channels to interact with
customers and distributors, monitoring assets through sensors, etc.

Second Phase
Using innovation to increase the value of goods and services. This is
achieved through the integrated management of functions developed by the
company’s value chain and its relationship with the other intermediaries
and customers. In this phase, a company generates real digital disruption in
the market, understood from two perspectives:
7 The Digitalisation of Logistics

 Proactive disruption perspective. Implies the capacity to take

advantage of new technologies to change the rules of the market
and create a new one.
 Preventative disruption perspective. Concerns the company’s
capacity to protect itself against disruptive innovations generated
by other companies. This tends to occur in established companies
and mature markets.

Third Phase
Having identified the risks or opportunities of disruption, the company
has the capacity to quickly transform its business model and cement its
new corporate culture. This phase entails developing the capacity for
continuous change and creating business models based on the disruptive
and accelerating power of technology. The technology is not, therefore, an
end in itself but a means by which companies anticipate market needs.
Companies such as Amazon, Google and Apple operate at this level.
Following this analysis of the key ways in which the emergence of
new technologies is affecting companies in terms of their phase of
evolution, we now turn to the role they play in shaping logistics
management and doing business (Cohen and Kietzmann, 2014; Tipping
and Kauschke, 2016). In the next sections we attempt to answer the
following questions: How is technology being used to create value in
logistics? What new business models are emerging in logistics? What are
the main technologies applied to the supply chain?

2. CONCEPT OF LOGISTICS:
DEVELOPMENT AND EVOLUTION

2.1. Logistics and the Supply Chain

Initially, the concept of logistics was defined as “the process of

managing material, information and financial flows from their point of
origin to their destination” (García, 2009). These flows must be managed
8 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

in a coordinated and rational manner in order to deliver customers the

goods or services they order in the agreed time, place, quantity and quality,

while guaranteeing competitiveness at the lowest possible cost (Serrano,

2014). However, recent changes in markets and in technological
development applied to the business world have made the definition of the
construct more complex.
Historically, the origins of logistics can be traced back to the end of the
eighteenth century, in the context of war and the development of military
strategy, in applications designed to distribute people or store supplies
efficiently. In this setting, the term became more familiar during the
Second World War, when many of the elements and concepts now
associated with logistics first appeared. However, it did not reach the
business world until the 1970s in the United States, from where it spread to
other Western countries (Neubauer, 2011).
Logistics then went through various stages before reaching the point
today in which it is clearly marked by the development and application of
new technologies in its management and processes. Initially, in the 1970s,
the application of logistics in business was associated exclusively with the
movement and coordination of finished products, their warehousing,
transport and distribution (Serrano, 2014). In a second stage, during the
1980s, logistics activities were more closely integrated in organisations as
the areas of procurement, production and distribution were no longer
considered as separate units (Neubauer, 2011). Attention turned to
developing a coordinated management aimed to improve customer service
at lower cost, and logistics management was regarded as a means of
increasing productivity and competitiveness (Ballou, 2007). The third
stage, in the 1990s, saw continuing emphasis on integrating logistics both
from the perspective of the company’s internal (at a vertical and horizontal
level, with the other areas in the firm) and external dynamics (with the
other intermediaries in the chain and customers). Logistics began to be
understood as a formula to generate added value that in turn would lead to
competitive advantage. It was during this stage that the concept of the
9 The Digitalisation of Logistics

supply chain first appeared, defined by the Council of Supply Chain

Management Professionals (2013) as:

“the planning and management of all activities involved in sourcing

and procurement, conversion, and all logistics management activities
[including] coordination and collaboration with channel partners, which
can be suppliers, intermediaries, third-party service providers, and
customers. In essence, supply chain management integrates supply and
demand management within and across companies”.
But it is not until the fourth phase was reached, also in the 1990s, that
the concept of the supply chain really gained strength, largely driven by
advances in ICTs and by a novel, much more integrating business concept.
This new, more complex conception entails building stronger links
between all members of the chain, interest in management models based on
returns and refunds (reverse logistics), and the development of business
alliances (Novaes, 2016). This new management paradigm considers
logistics as an integral part of every aspect of supply chain management.
Strictly speaking, the Council of Logistic Management (1991, revised in
2018) differentiates between the two concepts of logistics and supply chain
management, although it acknowledges the close relationship between
them. According to the Council, logistics is the part of the supply chain
concerned with:
“the process of planning, implementing, and controlling the efficient,
effective flow and storage of goods, services and related information from
point of origin to point of consumption for the purpose of conforming to
customer requirements”.
Whereas…
“Supply chain management encompasses all logistics management
activities, and the planning and administration of all activities involved in
the supply of materials and production. It also includes coordination and
collaboration with channel partners, which can be suppliers,
intermediaries, third-parties and customers”.
Some authors have simplified the explanation by assuming that supply
chain administration “is logistics, but extended beyond the company’s
10 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

boundaries” (Sánchez et al. 2002). In essence, supply chain management

cadena de suministro includes logistics management activities (those

responsible for moving products from point A to point B) and production
operations, and coordinates the activities of marketing, purchasing, product
design, finances and information technology. The following agents are
therefore involved in its development: suppliers, manufacturers,
distributors, transport firms, retailers and customers. This definition covers
the processes necessary for the efficient management of resources that
satisfy the three facets of market demand: timeframe, cost and quality.
Business logistics can be divided into external and internal logistics.
External logistics concerns the planning and management of flows between
the company and other agents in the supply chain, whereas internal
logistics refers to the planning and management of logistic processes that
take place within the company (Inza, 2013).
In the logistics process, the concepts of forward logistics and reverse
logistics must be distinguished. Forward logistics refers to the flow of all
the goods, services and information from the manufacturer to the
consumer. Reverse logistics refers to flows in the opposite direction from
the consumer or user to the manufacturer or supply points (Serrano, 2014).
Reverse logistics is therefore based on the planning and management of the
efficient flow of products and related information, which may involve the
return of products or the recovery of packaging, among others, in order to
recover value or ensure their appropriate disposal (Cánovas, 2014).
Returning to the supply chain, it is worth noting that although this
concept integrates logistics la logística, in business practice the two terms
are often used indistinctly and are referred to synonymously. Leaving
polemics aside, what is most noteworthy in this phase is the conception of
logistic processes as a strategic element that allows companies to generate
a brand and be competitive, and at the same time reduce costs. Its
implications are much greater than the simple management and control of
the company’s mechanisms for delivering its goods or services to the
customer. It is an integrating concept that goes beyond the organisation
11 The Digitalisation of Logistics

itself and may even include control over the procedures suppliers use in
their dealings with the company.

3. BUSINESS MODELS AND LOGISTICS

3.1. Business Models

New technologies are changing not only the relationship businesses

have with their customers and suppliers, but the very nature of rivalry in
many sectors, a situation that demands new approaches to business
strategies. We are witnessing a full-scale disruption in the traditional way
of operating in some markets, such as the distribution of books and music,
information services, travel agencies or financial services, to name just a
few of those most directly affected by this technological revolution.
Undoubtedly many of these emerging companies will disappear: their
business models (the logical description of how of company does business,
creates, delivers and captures value) are not sustainable and the pace at
which they burn through cash is higher than their capacity to raise new
capital or transform their operations into viable concerns that can start
returning a profit. However, we should not forget they have unleashed a
radical transformation in consumer patterns, defined new ways for
businesses to relate with customers and suppliers, and ushered in different
approaches to business operations. Their impact has generated a type of
rivalry based on the innovation of certain services at prices that have never
been so low. Such transformations call for a reflection on the strategic
approach of both traditional companies and new enterprises set up to take
advantage of the opportunities offered by the Internet. Likewise, new
technologies have brought with them new business models that are setting
the foundations for a major revolution in relationships between companies
(known as B2B), and especially supplier-customer relationships.
According to Kaba (2008), these different business models can be
classified in terms of the type of agent that participates in the transaction:

B2B (Business to Business): Transactions between companies.

12 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

B2C (Business to Consumer): Transactions between company and

customer.
B2G (Business to Government): Transactions between company and
government.
C2C (Consumer to Consumer): Transactions between consumers.
A2B/C/A (Administration to Business/Consumer or
Administration): Transactions between the administration and company,
administration and consumer, or between administrations.
P2P (Peer to Peer): Transactions between peers.
B2E (Business to Employee): Transactions between company and
employee.

In turn, Timmers (1998) and Rappa (2000) take into account the
growth of e-commerce, especially in modalities B2B and B2C, to establish
new classifications:

E-shop: buying and selling is conducted through the company’s

website.
E-procurement: tendering and procurement of goods and services
take place through websites.
E-auction: platforms for online auctions, that is, an electronic
version of bidding in traditional auctions.
E-mall: a group of e-shops under a common umbrella platform such
as a well-known brand.
Third-Party Marketplace: similar to the e-mall, but offering shared
marketing support and a platform for transactions for multiple businesses.
Virtual Community: members add information to an environment
created by the virtual community company. The company focuses on the
value added deriving from communication among members.
Value Chain Service Provider: specialised in a specific function of
the value chain which it turns to competitive advantage, such as
electronic payments or logistics.
Value Chain Integrator: integrates multiple stages of the chain with
the potential to explore information flows between processes.
Collaboration Platform: an information environment for
collaboration and cooperation between companies.
Information Brokerage: offers information services aim to add
value to data available in open networks or from integrated business
operations, such as information search, customer profiling, investment
guidance, etc.
E-trust services: provide services such as public and private
encryption and password management.
13 The Digitalisation of Logistics

Later, Rappa (2000, 2004) proposed a classification of business models

according to their nature, value proposal, relationship with the customer
and how they obtain income. This author defined nine business models:
Brokerage: facilitate transactions by acting as a go-between in the
buyer-seller relationship and transaction.
Advertising: the web-based advertising model is an adaptation of the
traditional broadcast media model.
Information Intermediary: companies operating as information
intermediaries in certain markets.
Merchant: wholesalers and retailers of goods and services.
Manufacturer Direct: the manufacturer sells directly to the customer
through a very short distribution channel with no intermediaries.
Affiliate: offers purchasing opportunities anywhere individuals have
access to the web.
Community: based on loyalty to a brand, community, issue,
company, etc. Income may be generated through sales of auxiliary goods
and services or through voluntary contributions.
Subscription: a service is paid for through a periodic subscription
fee.
Utility: the utility or low-demand model is a “pay-as-you-go”
metered approach. Unlike subscription services, metered services are
based on fees for actual use of the service.

In addition, new technologies have also driven innovative business and

alternative consumer models. In recent years, the cooperative economic
model appears to be gaining many followers. This model is based on
lending, renting, buying or selling goods according to specific needs more
than for economic benefit. Indeed, money is not the only exchange value
for transactions in this model. Its main benefits are associated with saving
money, sustainable development, resource management, extended offer
and environmental benefits. This movement has spawned new business
opportunities based on ICTs, the community and trust, where online
applications and platforms serve as a point of contact between supply and
demand. Examples of the many companies using this business model are
Uber and Wallapop.
Finally, the crowdsourcing model – a combination of the terms crowd
and outsourcing – is a concept in which tasks are outsourced to large
communities of individuals who provide their services or ideas in response
to an open call. The key to the success of these activities lies in dividing
14 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

the task into micro-tasks on virtual platforms, and the availability of a large
enough group of individuals willing to carry them out. The benefits gained
from this business model may range from cost and time savings to
enhanced levels of efficiency and innovation.
In sum, these new business models offer alternative approaches to
business practices in which new technologies can be used to increase
business efficiency.

3.3. New Logistics Business Models

Today’s business environment prioritises the efficient reduction of

internal administrative costs, minimisation of component costs,
simplification of purchasing approval processes, acceleration of production
cycles, and enhanced management of planning and product design
processes. Logistics plays a fundamental role in this landscape. Its
importance rests essentially on two factors: the costs deriving from
logistics activities, and the role that the area of logistics plays in facilitating
the sale of goods and services in general. Regarding the first factor,
logistics costs directly affect other economic activities, and therefore
enhanced logistic efficiency can translate into lower prices for consumers
and/or higher profits for the company. Secondly, the logistics area supports
the movement and flow of multiple economic transactions; goods must
arrive on time, in the right place and with the necessary quality to
guarantee that the sale goes through and the whole supply chain is
productive (Neubauer, 2011). Logistics is also an important variable in
company competitiveness, as demonstrated by its impact on costs, the
direct association with the level of service offered to the customer, the
importance of reliability in operations, and security, among other factors.
The growing importance of logistics is explained by the substantial
changes taking place in the macroeconomic environment in recent decades,
which include the expansion of globalisation and the relocation of
production plants by large manufacturers in pursuit of economies of scale,
with the corresponding escalation in transportation of raw materials and
15 The Digitalisation of Logistics

goods. These changes have led to a redistribution of the activities in the

supply chain between manufacturers and logistics service providers, with a
significant rise in subcontracting of services such as warehousing and
transport, as well as other value-added services (Neubauer, 2011). Against
this background, the expansion of new technologies, the application of
web-based solutions, B2B and B2C represent a major advance in the
development or application of new logistics models, known as e-logistics.
We describe some of the most widespread models below:

E-Purchasing
Defined as the digitalisation of the relationship between a buyer and
one or several suppliers. The purchasing process is based on two
complementary subprocesses: e-procurement and e-sourcing.

 E-procurement: this model is based on the digitalisation and

automation of procurement processes, from the initial order placed
from an e-catalogue to the acceptance or return of the order and its
storage. Although e-procurement initiatives have become
established in the last two years, their efficiency is limited by the
type of products and services that this model can process, since e-
procurement has traditionally focused on the purchase of highly
standardised goods and services, namely those generating a large
number of transactions with the relatively low value, in which the
price and conditions fall within specific parameters. This model
has been mainly used for procuring MRO (maintenance, repairs
and operations) services.
 E-sourcing: this is the digitalisation and automation of supplier
selection, negotiation and hiring processes aimed at optimising
efficiency in the purchasing process, improving control over
purchasing and reducing its associated administrative burden.

E-Payment
This involves creating new methods of online financial transfers. Many
traditional banking payment methods are not suitable for e-business
16 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

operations. Current e-payment solutions include the services offered by

payment service providers (PSPs), which allow online retailers to set up
payment gateways. PSPs act as intermediaries to process credit card
transactions and offer traders a secure alternative to other low-cost systems
currently available. Examples of this model are the US companies ProPay
and others.

E-Fulfilment
Order fulfilment is a term used in logistics to define the process that
includes all the stages of planning, manufacture, warehousing and
distribution from the moment a customer’s order is received until the final
product is delivered. The main services included in e-fulfilment are:

 Systems integration: provides connectivity between the company’s

internal and external systems, and ensures full visibility of the
entire supply chain process. It also involves stock management and
other processes.
 Fulfilment/distribution: refers to warehousing, pick-and-pack,
assembly, repairs, labelling and other support services.
 Customer interaction: sales support, customer service phone lines,
complaints, refunds.

In addition to these basic services, auxiliary services are provided such

as invoicing, promotions, advertising, etc. One example of a company
following this model is the DHL courier service.

Dropshipping
In this business model an online retailer does not physically carry the
stock it sells; in this case a wholesaler (or dropshipper) is responsible for
warehousing, picking, packing and delivering the order directly to the end
customer who has purchased the goods online (Adigital, 2016). These
retailers are simply intermediaries who earn a commission on the price of
the goods sold in the dropshipping shop, paid by the manufacturer or
17 The Digitalisation of Logistics

wholesaler, which represents their profit. AliExpress and DHgate are

examples of this business model.

Cross Docking
Defined as an operating strategy in which goods are received in the
distribution hub and immediately shipped without the need for
warehousing, and with considerable cost saving for the company.
Traditional distribution systems use warehouses to keep stock for shipping
on receipt of orders, as long as stocks are available; in contrast, in the
cross-docking system goods are manufactured on demand and the
company has very little or no stock. The strategy relies on having a
continuous flow of products and rapid transport at a low cost that meets
customers’ needs (Serrano, 2014). There are two types of cross-docking:
direct and indirect.
In direct or ‘by order’ cross-docking, the pallets or cases are received
and transported to the outbound loading bays the same format with
practically no handling. By contrast, in indirect or ‘by line’ cross-docking,
the pallets or cases are received and then divided up and relabelled for
shipping, a system that involves multiple operations. The supplier prepares
orders for shipping to each end customer using a specific loading unit
(pallets, cases, etc.). When they arrive at the distribution hub, the goods are
identified, classified and sent to each customer. The order is prepared for
the customer not by the distributor, but by the supplier before dispatching
the goods. In the case of indirect cross-docking, the distributor
deconsolidates the load for delivery to different customers and may add
other products to the order. This way of working is used particularly for
fresh food products and medicines in order to extend their shelf life.
Substantial changes to traditional logistics strategies were required to
implement this innovative process, which has been successfully applied in
businesses that demand a pulled flow, that is, supply activated by demand.
One example of this model is the Spanish company Grupo Eroski, which
owns 66 hypermarkets, 741 supermarkets, 305 franchised self-service
shops, 28 cash-and-carry establishments, 176 travel agents, 48 petrol
stations, 23 sports shops under the brand name Forum, and 148
18 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

perfumeries, for which this system provides a logistics solution that avoids
warehousing 20,000 different articles from over 200 suppliers.

4. MAIN INFORMATION TECHNOLOGIES APPLIED TO

THE SUPPLY CHAIN

4.1. Analysis and Description of New Technologies

A considerable number of companies now simultaneously use various

information and computer systems implemented in accordance with their
needs. Four large information systems can be identified, all of which are
included as special components within the company’s information system:
EDP systems, MIS systems, DSS systems and office computer systems.
This distinction is made according to their specialisation in the following
three generic activities:

 Systems designed to capture and process the details of current

transactions or activities, known as electronic data processing
(EDP) systems or transaction processing systems.
 Systems designed to allow or facilitate decision making and/or
share treatment resources, of which there are two types:
 Management Information Systems (MIS,).
 Decision Support Systems (DSS).
 Systems that communicate information between people,
departments, localities, supply chain agents, etc.

In one way or another, all these systems help the effective

development of ICTs within the supply chain management. In what
follows we define the most commonly used technologies in logistics and
distinguish between those applied by internal and external logistics.

4.1.1. ICTs in Internal Logistics

Internal or manufacturing logistics focuses on planning and managing
activities related to the transformation of raw materials into finished
19 The Digitalisation of Logistics

products and include warehousing, production and picking processes. The

main ICTs applied to these processes are: ERP, WMS, MRP I-II, barcodes,
radio frequency identification (RFID), pick to light or pick to voice, and
labour management systems (LMS):

ERP (Enterprise Resource Planning)

ERP is a technology involving a software program and the
organisation’s business processes in order to bring together suppliers and
end customers through the supply chain. For this to occur the software
program must be fully co-ordinated with the business processes. The main
advantage of ERP is that it uses a single database, which aids
communication and exchange of information between company
departments and prevents the duplication of information. ERP comprises
various modules, which the company can choose to introduce in their
entirety or select those most useful to them. The most common modules
are:

 Production planning module. This module uses historical

production data and sales estimations to optimise production.
 Purchasing module. Manages the procurement of required raw
materials, automates the process of identifying potential suppliers,
negotiating prices, designating orders to suppliers and invoicing.
This module is closely integrated with the inventory control and
production planning modules.
 Inventory control module: facilitates the process of maintaining the
right stock levels in the warehouse. Its activities include restocking
techniques, monitoring article use, reconciling inventory balances,
and providing inventory status reports, among others.
 Sales module: schedules orders, deliveries and invoicing. The sales
module is integrated with the company’s e-commerce website.
 Marketing module: manages promotional activities and advertising
(direct marketing, etc.)
20 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

 Finance module: gathers financial information from various

functional departments. Its activities include generating balance
sheets, general accounting, sales reports and financial statements.
 Human resources module: maintains a complete updated database
on all employees, their personal data, salaries, holidays,
attendance, sick leave, etc.

The main disadvantages of ERP are their considerable initial

investment and high failure rate, due in most cases to the absence of a
business culture willing to implement and develop the system.

WMS (Warehouse Management System)

Manages the movement and storage of goods in the warehouse, the
reception and storage of stock, processing of orders and billing, and
preparing orders for shipping. The WMS provides efficient management of
the supply chain through its capacity to optimise resources, reduce costs
and improve service provision by radically reducing picking activity. The
potential advantages of WMS are therefore: a) real-time information on the
use of resources in the warehouse; b) reduced costs due to optimised
operations (design of optimal picking routes and machine programming);
c) improved service quality through the proper handling of traceability,
accurate fulfilment of specifications in the shipped goods, and reliable
delivery times.
The disadvantages of WMS are the high costs of implementation due
to the software’s processing capacity and the need to restructure the
warehousing process.

Barcodes
Barcodes automatically capture information about product
identification, numbers, logistic units and localisations. They are available
in wide range of types such as EAN13 and UPC –A, EAN8, DUN14 or
ITF14, EAN 128, Code3of9 or Code39, QR code, etc. (see Jurado, 2015).
Optimum information management efficiency is achieved when all the
members of the supply chain implement the same product code. The
21 The Digitalisation of Logistics

advantages of barcodes are: a) enhanced inventory control; b) improved

planning of transport, production and sales; c) enhanced product

identification and management of warehouse processes. The most common

disadvantages in their use are: a) invariability of information; b) reading
distance limited to a few metres; c) requirement of an operator and barcode
reader.
In recent years barcodes seem to have come under threat from radio
frequency technologies, which apparently overcome the shortcomings of
barcodes by offering greater flexibility and agility in supply chain
management.

RFID (Radio Frequency Identification)

This is a generic term for all technologies that use radio-frequency
waves to automatically identify products using special tags to transmit
radio signals, which are picked up by scanners. The benefits of RFID for
logistics management are: a) greater memory for data storage than
barcodes; b) labels are reusable; c) tags can be read simultaneously
whereas barcodes are read one by one; d) visual contact between the reader
and the tag is unnecessary; e) stock updates and locations are made in real-
time; g) errors are practically reduced to zero. However, the system is
much more expensive to implement than barcodes.
RFID has great potential because it facilitates and minimises the time
needed to identify products, which streamlines location and picking
operations in the warehouse. It is also the basis for implementing EPC,
described below.
22 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

Source: Google images (2018)

Figure 1. EAN13 Barcode and QR code.

Pick to Light and Pick to Voice

Eliminate the use of paper in picking systems as they are based on
luminous networks and voice systems, respectively. Pick to light has a set
of luminous indicators that guide the operator to picking locations and
specify the quantities required. In pick to voice the warehouse operator
wears a headset through which short messages with picking instructions
are received, transmitted and sent. When this technology is used
throughout the warehouse individual benefits are enhanced and picking
operations, which account for around 75% of warehouse costs, are
optimised. It also enhances productivity by allowing the user to work with
both hands. It can be just as accurate as the barcode system and functions
by introducing spoken data. The main drawback with this technology is its
high implementation cost.

4.1.2. ICTs in External Logistics

Outbound logistics is considered as part of external logistics because it
is used to plan and control distribution processes and the relationship with
end customers. It also manages relationships with internal logistics
processes such as warehousing and picking. The main ICTs applied in
outbound logistics are: CRM, TMS, ECR, ERC, EPC and GPS.

CRM (Consumer Relationship Management)

CRM is a strategy that allows companies to identify, attract and retain
customers, and covers activities carried out in the areas of sales, marketing
and customer service. It is based on the automated exchange of customer-
related information and is designed to enhance customer satisfaction,
reduce costs and improve productivity. The disadvantages of introducing
CRM include: 1) the difficulty of changing the organisational culture to a
customer-oriented business philosophy, and 2) high implementation costs.
23 The Digitalisation of Logistics

TMS (Transportation Management System)

TMS optimises transportation resources and requirements (fleet costs,
loading wait times, etc.) by reconciling their lower costs with the necessary
customer service standards and the requirements of other agents in the
supply chain. This system has the following advantages: a) facilitates
transport service procurement; b) optimises transport activities; c) offers
the option to monitor and track goods; d) enables shipments to be
consolidated, thereby reducing transport costs and improving process
efficiency; e) facilitates customer service and automated complaints
management. Its main drawbacks are: a) high implementation costs, and b)
restructuring of the transportation process.

ECR (Efficient Consumer Response)

Based on collaboration of manufacturers and retailers to satisfy
consumer needs more quickly, to the highest quality and at the lowest
possible cost. Achieving this objective depends on the fulfilment of two
specific aims: 1) efficient flow of goods within the supply chain by
eliminating, as far as possible, processes that do not add value, reducing
inventories, lowering operational costs and shortening supply cycles; 2)
reduction of the total cost of the cycle by eliminating, as far as possible,
paper-based transactions, lowering administrative costs and reducing their
inefficiency. ECR functions on the basis of barcodes and EDI, which allow
the identification and monitoring of goods, improve traceability, and
streamline information exchange between customers and suppliers. The
main disadvantages associated with ECR are the increased business costs
and resistance to change by the agents involved.

EPC (Electronic Product Code)

This system uses radio frequencies to automate the identification of
consumer products through the supply chain. To this end it develops and
monitors an electronic product code (EPC™), which is a universal register
of numbers for EPCs in the supply chain. The EPC is a type of code that
can identify any product in the supply chain at the item level. It is a simple
and compact system that can generate a large number of unique identifiers.
This code is divided into four parts: 1) header; 2) EPC manager; 3) object
24 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

class, and 4) serial number; the header refers to the EPC version used, the
EPC manager is the code identifying the company that made the product,
the object class is the type of product (which may be the same as its stock
keeping unit, SKU, or reference), and the serial number is the product’s
individual identification.

GPS (Global Positioning System)

This system uses satellites to determine the precise position of an
object. Originally designed for military navigation, it was then developed
to provide a wide range of civil applications: movement of people, goods
and information, climate and natural disaster predictions, emergency
response, etc. The system works by means of signals sent to earth by
satellites, which are detected by receivers that may be static or
incorporated in vehicles. These signals are used to determine the position
of the receiver to an accuracy measured in millimetres through a system of
triangulation. Combined with geomatics technologies and integrated in a
leading space system, GPS data can be used to localise and track vehicles
and other objects, administer infrastructures, timestamp information and
images, and navigate anywhere on the planet. In the supply chain it is
applied to monitor shipments and trucks, and it offers the advantages of
reducing costs (by means of better control over the transport fleet) and
increasing security due to enhanced product traceability.

EDI (Electronic Data Interchange)

This is the electronic transmission of standardised commercial
documents between computers in such a way that information can be
processed without the need for manual intervention, thereby gaining time
and minimising errors.
In the 1980s, the communications project EDI, now known by its
initials EDICOM, was set up to respond to the need for a common
language between computer applications. The EPC Network is a collection
of technologies capable of providing automatic real-time identification by
sharing data about the product on a company’s system or accessing it from
outside. The EPC Network concept is based on technology used to access
25 The Digitalisation of Logistics

relevant information on the Internet. It is comprised of the following

parts:1) electronic product code (EPC); 2) EPC label (which is not a
barcode but a tag); 3) EPC readers (a RFID reader with one or several
antenna); 4) EPC Middleware (technology that manages basic scanned
information to communicate with EPC information services and user
companies’ information systems); 5) EPC IS (information services that
allow users to interchange the data in the EPC with market partners
through the EPCglobal Network); 6) Discovery services (a set of services
enabling users to obtain data related to a specific EPC). Automating and
normalising the transactions and interchange of information between
companies through EDI can improve procurement, reduce the time of
delivery and document receipt, lower costs and enhance trade relationships
between intervening parties. The disadvantages of EDI are its high
implementation costs and the complexity of the physical infrastructure.

Internet of Things (IoT)

This technology aims to change the relationship between objects and
people through an Internet connection. When applied to the supply chain, it
leads to considerable improvement in the functioning, speed and efficiency
of each stage in the chain. In warehouse management, for instance, it
enhances stock management, and improves control over costs, times and
used space. With regard to transport, it provides information on the
location of each vehicle in every moment, the route to be taken and the
effectiveness of the delivery. However, the application of the IoT to
logistics has infinite possibilities and opens up the way to reduce time and
costs in a process of which the end customer stands to benefit the most.
Improving the experience and the value offered to customers is one of the
aspects e-commerce needs to strengthen, and the Internet of Things is its
best ally in this endeavour (Fundación de la Innovación Bankinter, 2011).
Many other technologies that appear to be making great progress could
be added to this list. Some examples are:
26 Dra. Marta Estrada, Miguel-Ángel Moliner and Diego Monferrer

Source: Google images (2018)

Figure 2. EPC Code.

Integrated sensors (FedEx, for example, has moved into goods

transport with SenseAware multisensor devices, which monitor high-value
shipments online); delivery drones (in early 2016, Amazon began trialling
drones in the United Kingdom with a view to implementing this system in
its delivery service); and smart mining (Komatsu has built automated
heavy duty machinery controlled remotely to improve safety and increase
productivity), etc.

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