Transcript The Global Community

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
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Logistics and
Information Technology
• Key Terms
• Key Terms
– Application-specific
software
– Data
– Data mining
– Data warehouse
– Electronic data
interchange (EDI)
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– Electronic
procurement (eprocurement)
– Enterprise resource
planning (ERP)
system
– Global positioning
systems (GPS)
– Information
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Logistics and Information
Technology
• Key Terms
• Key Terms
– Logistics information
system (LIS)
– On-demand software
– Radio-frequency
identification (RFID)
– Reverse auction
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– Simulation
– Transportation
Management
System (TMS)
– Warehouse
Management
System (WMS)
– Wireless
communication
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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
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General Types of Information
Management Systems
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Office automation system
Communication system
Transaction processing system (TPS)
Management information system (MIS) and
Executive information system (EIS)
• Decision support system (DSS)
• Enterprise system
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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
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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
information, models, or analysis tools
such as warehouse mgmt sys
• Data mining
Enterprise system: creates and maintains
consistent data processing methods and an
integrated database across multiple business
functions
• Logistics modules of enterprise
resource planning systems
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General Types of Information
Management Systems
• Office automation system
– Process personal and organizational business
data
– Perform calculations
– Create documents
Examples of use
– Spreadsheet applications
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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
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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
 Examples of use
– Electronic data interchange (EDI)
– Automatic identification technologies
– Point-of-sale (POS) systems
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General Types of Information
Management Systems
• Transaction Processing System (TPS) (continued)
– Automatic identification technologies Types:
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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
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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
 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”
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Structure and Function of a
Logistics Information System
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General Types of Information
Management Systems
• Decision Support Systems (DSS)
– helps managers make decisions by
providing information, models, or analysis
tools
Examples of use
– Simulation
– Application specific software
– Data mining
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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
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The Internet’s Influence on
Logistics
• Approximately 25% of the world’s population
uses the internet – up from 5% at the
beginning of the 21st century
• 3 Specific Influences on Logistics Include:
– Online Retailing
– On-Demand Software
– Electronic Procurement
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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
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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
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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
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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
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The Internet’s Influence on
Logistics
On-Demand Software
• Numerous logistics-related applications
– Collaborative forecasting
– Inventory optimization
– TMSs
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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
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publishing as Prentice Hall
The Internet’s Influence on
Logistics
Electronic Procurement
• Types of benefits realized from eprocurement include:
– Transactional
– Compliance
– Management information
– Price
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The Internet’s Influence on
Logistics
Electronic Procurement
• Drawbacks of using e-procurement
– Security risk
– Impersonal
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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
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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
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Case 2-1 JIT in Kalamazoo
Inventory/Warehousing information:
• Public warehouse
• Inventory between $500,000 and $1,000,000
• 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
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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.
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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?
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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
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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
$2
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Case 2-1 JIT in Kalamazoo
(Current System)
Safety Avg.
Total
Total
Stock
Inv.
Inv.
Inventory Inventory Investment
(Unit) (Unit) (Unit)
($)
Cost ($/yr)
($/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 $1,132,300
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Case 2-1 JIT in Kalamazoo
(JIT)
Item
Gas range
Toilet
Pump
Refrigerator (large)
Refrigerator (small)
Foam cushion
CB radio (type D)
Dome lights
Awning bracket
Insect screen
Safety Avg.
Stock
Inv.
(Unit) (Unit)
40
40
56
6
7
1350
36
824
540
1140
Total
Inv.
(Unit)
5
45
5
45
3.5
59.5
3
9
0.5
7.5
37.5 1387.5
1.5
37.5
18
842
30
570
25
1165
Total
Inventory
($)
$5,715
$5,310
$1,131
$1,242
$750
$13,875
$5,850
$3,368
$3,420
$10,485
$51,146
Inventory
Cost ($/yr)
$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
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