CHAPTER 2

Logistics and Information

Technology
 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
 General Types of Information
Management Systems
Office automation systems:
• Include general software packages
– Word processing
– Spreadsheet (most relevant for logisticians)
– Presentation
– Database management applications
 General Types of Information
Management Systems
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”
 An Example LP Problem
Recall that Howie owns and operates Blue Ridge Hot Tubs, a company
that sells two models of hot tubs: the Aqua-Spa and the Hydro-Lux.
Howie purchases prefabricated fiberglass hot tub shells and installs a
common water pump and the appropriate amount of tubing into each
hot tub. Every Aqua- Spa requires 9 hours of labor and 12 feet of
tubing; every Hydro-Lux requires 6 hours of labor and 16 feet of
tubing. Demand for these products is such that each Aqua-Spa
produced can be sold to generate a profit of $350, and each Hydro-Lux
produced can be sold to generate a profit of $300. The company
expects to have 200 pumps, 1,566 hours of labor, and 2,880 feet of
tubing available during the next production cycle. The problem is to
determine the optimal number of Aqua-Spas and Hydro-Luxes to
produce to maximize profits.
 An Example LP Problem

Blue Ridge Hot Tubs produces two types of hot

tubs: Aqua-Spas & Hydro-Luxes.
Aqua-Spa Hydro-Lux
Pumps 1 1
Labor 9 hours 6 hours
Tubing 12 feet 16 feet
Unit Profit $350 $300

There are 200 pumps, 1566 hours of labor, and

2880 feet of tubing available.
1. Understand the problem.
2. Identify the decision variables.
X1=number of Aqua-Spas to produce
X2=number of Hydro-Luxes to produce
3. State the objective function as a linear
combination of the decision variables.
MAX: 350X1 + 300X2
4. State the constraints as linear combinations of the
decision variables.
1X1 + 1X2 <= 200 } pumps
9X1 + 6X2 <= 1566 } labor
12X1 + 16X2 <= 2880 } tubing
5. Identify any upper or lower bounds on the
decision variables.
X1 >= 0
X2 >= 0
 LP Model for
Blue Ridge Hot Tubs

MAX: 350X1 + 300X2

S.T.: 1X1 + 1X2 <= 200
9X1 + 6X2 <= 1566
12X1 + 16X2 <= 2880
X1 >= 0
X2 >= 0
 Solving LP Problems:
An Intuitive Approach

• Idea: Each Aqua-Spa (X1) generates the highest unit profit

($350), so let’s make as many of them as possible!
• How many would that be?
– Let X2 = 0
• 1st constraint: 1X1 <= 200
• 2nd constraint: 9X1 <=1566 or X1 <=174
• 3rd constraint: 12X1 <= 2880 or X1 <= 240
• If X2=0, the maximum value of X1 is 174 and the total profit is
$350*174 + $300*0 = $60,900
• This solution is feasible, but is it optimal?
• No!
 Solving LP Problems:

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 General Types of Information
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
 General Types of Information
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)
 Electronic data interchange (EDI)

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Interchange).mp4
 General Types of Information
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
 General Types of Information
Management Systems
Transaction Processing System (TPS) (continued)
Benefits of EDI
Reduced document preparation and Increased cash flow
processing time
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
 General Types of Information
Management Systems
Transaction Processing System (TPS) (continued)
Drawbacks of EDI
Lack of awareness of the benefits of EDI
High setup costs
Lack of standard formats
Incompatibility of computer hardware and software
 General Types of Information
Management Systems
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)
Voice-data entry
Bar code scanners
 General Types of Information
Management Systems
Transaction Processing System (TPS)
– 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
 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
• Objective is to provide managers and executives
the information they really need
 General Types of Information
Management Systems
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.
 General Types of Information
Management Systems
Management Information System (MIS) and
Executive Information System (EIS)
 General Types of Information
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
 General Types of Information
Management Systems
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)
 General Types of Information
Management Systems
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

1Amy 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.
 General Types of Information
Management Systems
Decision Support Systems (DSS)
 General Types of Information
Management Systems
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.
 General Types of Information
Management Systems
Enterprise Systems
• Create and maintain consistent data processing
methods and an integrated database across
multiple business functions1

1 Alter, Information Systems, Chapter 5.

 General Types of Information
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

1Joel 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.
 General Types of Information
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
 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
 The Internet’s Influence on Logistics
Similarities between online retailing and in-store retailing

Logistical Functions and Equipment and Materials

Activities • Bar coding
• Transportation • WMSs
• Warehousing
• Materials handling
• Order management
 The Internet’s Influence on Logistics
Differences between online retailing and in-store retailing
Online Retailing In-store Retailing
• More, smaller orders • Fewer, larger orders
• Order management • Order management
systems must handle large system is set up to handle
volumes of orders orders from resellers, not
consumers
• Information management
systems capable of • Full-case picking
correctly transmitting each • Warehouse set up to
order so it can be filled in a handle large volume
timely fashion orders
• Smaller orders dictate
open-case picking
 The Internet’s Influence on Logistics
Differences between online retailing and in-store retailing
Online Retailing In-Store Retailing
• Products slotted to • Variety of materials
facilitate picking smaller handling equipment used
orders • Packaging generally
• Totes and push carts used cartons that hold large
• Packaging is small cartons, volume orders
envelopes, bags suited to
holding small quantities
 The Internet’s Influence on Logistics
Differences between online retailing and in-store retailing
Online Retailing In-store Retailing
• Transportation companies • Transportation methods
used with extensive and companies vary by
delivery networks; request of buyer
experience in parcel • Outbound shipments may
shipments be picked up by tractor
• Outbound shipments trailers or railcars
usually picked up by vans • Return rates lower and
• Return rates much higher from resellers
and from ultimate
consumers
 The Internet’s Influence on Logistics
• Cloud Computing
– 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.
 The Internet’s Influence on Logistics
• 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
 The Internet’s Influence on Logistics
• Cloud Computing
– Advantages of Cloud Computing continued
• Faster and less costly installation
• Smaller IT staff
• Regular upgrades and updates from the
software provider
 The Internet’s Influence on Logistics

• Cloud Computing
– Drawbacks of Cloud Computing
• Upgrades and updates can be too numerous
and too frequent
• Limited amount of customization
• Security issues
 The Internet’s Influence on Logistics
• Electronic Procurement, or e-procurement
- Uses the internet to make it easier, faster, and less
expensive for an organization to purchase goods
and services
 The Internet’s Influence on Logistics

• 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
 The Internet’s Influence on Logistics

• 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
 The Internet’s Influence on Logistics
• Electronic Procurement, or e-procurement
- Drawbacks of using e-procurement
• Security risk of transmitted information
• Impersonal as human interaction is replaced
by computer transactions
Information Technology Challenges
• 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