Note 03 Logistics Information Systems

7/30/2019 Note 03 Logistics Information Systems

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Chapter Three Logistics Information Systems

I. Learning objectives and requirements

1. to know why timely and accurate information is critical for effective logistics systems

design and operations

2. to know four levels of SCISs functionality including transaction systems, managementcontrol, decision analysis, and strategic planning

3. to understand the comprehensive information system integration

4. to know how firms obtain access to supply chain applications

5. to understand the comprehensive information system integration

6. to know the remarkable advances in logistics communication systems capability

II. Learning contents

Section I . I nformation System F unctionality

1. Main contents

1) Why Timely and Accurate Information is Critical for Effective Logistics Systems Design

and Operations.

(Without accurate information the effort involved in the logistical system can be wasted. in

Chapter Two) There are four reasons why timely and accurate information has become more critical

for effective logistics systems design and operations:-

a) Customer perceive information about order status, product availability, delivery schedule,

shipment tracking, and invoices as necessary elements of total customer service. Customers demand

access to real time information.

b) With the goal of reducing total supply chain assets, managers realize that information can be

used to reduce inventory and human resource requirements. In particular, requirements planning

using the most current information can reduce inventory by minimizing demand uncertainty.

c) Information increases flexibility with regard to how, when, and where resources may be

utilized to gain strategic advantage.

d) Enhanced information transfer and exchange capability utilizing the Internet is changing

relationships between buyers and redefining channel relationships. (channel relationships, see

PP.109-114)

2) Information Functionality

Supply chain information systems (SCIS) are the thread that links logistics activities into an

integrated process. The integration builds on four levels of functionality: (I) transaction systems,

(2) management control, (3) decision analysis, and (4) strategic planning. Figure 7-1 illustrateslogistics activities and decisions at each level of information functionality. As the pyramid shape

suggests, management control, decision analysis, and strategic planning enhancements require a

strong transaction system foundation.

a) Transaction Systems

A transaction system is characterized by formalized rules, procedures, and standardized

communications; a large volume of transactions; and an operational, day-to-day focus. The

combination of structured processes and large transaction volume places a major emphasis on

information system efficiency. Transaction activities ( processes) include order entry, inventory

assignment (which product is assigned to which customer), order selection (select or pick theproducts from the warehouse storage location), shipping (transport of the order to the customer),


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pricing and invoicing (develops the invoice and records an account receivable), and customer

request (usually represented by orders) for product into the information system.

b) Management Control

Management control focuses on performance measurement and reporting. Performance

measurement is necessary to provide management feedback regarding supply chain performanceand resource utilization. Common performance measures include cost, customer service,

productivity, quality, and asset management measures.

c) Decision Analysis

Decision analysis focuses on software tools to assist managers in identifying, evaluating, and

comparing supply chain and logistics strategic and tactical alternatives for improved

effectiveness.

d) Strategic Planning

Strategic planning organizes and synthesizes transaction data into a wide range of business

planning and decision-making models that assist in evaluating the probabilities and payoffs of

various strategies. Essentially, strategic planning focuses on information support to develop and

refine supply chain and logistics strategy.

2. Key concepts and points

Strategic Advantage, Channel Relationship, Supply Chain Information System (SCIS),

Transaction Systems, Order Management, Inventor Assignment, Order Selection, Shipping, Pricing

and Invoicing, Customer Inquiry, Management Control, Financial Measurement, Cost, Asset

Management, Customer Service Measurement, Productivity Measurement, Quality Measurement,

Decision Analysis, Vehicle Routing and Scheduling, Inventory levels and Management,

Network/Facility Location and Integration, Vertical Integration VS. Third-Party/Outsourcing,

Strategic Planning, Strategic Alliance Formulation, Development and Refinement of Capabilities

and Opportunities, Focused/Profit-Based Customer Service Analysis

3. Issues of application

Students shall understand that Supply chain information systems (SCIS) are the thread that

links logistics activities into an integrated process. The integration builds on four levels of

functionality: transaction systems, management control, decision analysis, and strategic planning.

Section I I . Comprehensive I nformation System I ntegration

1. Main contents

1) Integrated Supply Chain System Modules

A comprehensive information system initiates, monitors, assists in decision making, andreports on activities required to complete logistics operations and planning.

The major system components include: (1) Enterprise Resource Planning (ERP) or legacy

systems, (2) communication systems, (3) execution systems, and (4) planning systems. Figure 7-3

offers one illustration of these components and their typical interfaces.

2) ERP or Legacy Systems

The ERP or legacy systems are the backbone of most firms' supply chain information systems.

This backbone maintains current and historical data and processes transactions to initiate and track

performance.

Legacy systems refer to the mainframe applications that were developed prior to 1990 to

automate transactions such as order entry, order processing, warehouse operations, inventory


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management, transportation, and related financial transactions. In many cases, these legacy systems

represent independently developed software modules that lack integration and consistency;

consequently, problems with data reliability and integrity abound.

During the 1990s, many firms began to replace legacy systems with ERP systems designed as

integrated transaction modules with a common and consistent database. ERP systems facilitated

integrated operations and reporting to initiate, monitor, and track critical activities such as order

fulfillment and replenishment processing. ERP systems also incorporate an integrated corporate

wide database, sometime referred to as a data warehouse, along with appropriate transactions to

facilitate logistics and supply chain operations. Typical transactions can accommodate order entry

and fulfillment, procurement, and production transactions. Beyond these operational applications,

ERP systems typically include financial, accounting, and human resource capability.

To capitalize on the benefits of integration, headquarters systems are beginning to include two

other system components, forecasting and Customer Relationship Management (CRM)/sales

management system, which is one of the newer applications designed to facilitate information

sharing between the sales force and operational management. CRM provides sales representativesand customers with current information gained through the ERP system regarding sales history,

shipment history, order status, promotional summary, and shipment information. The history and

current status information, combined with information regarding product development, pricing, and

promotion, allows CRM to forecast customer orders that will maximize customer success. Such

timely and accurate information exchange between a firm and its customers increases the likelihood

that product sales and promotion plans will be supported with available product.

Notes:

Legacy Systems-

A computer system that has been in operation for a long time, and whose functions are tooessential to be disrupted by upgrading or integration with another system.

An older computer system such as a mainframe or minicomputer. It may also refer to only

the software (see legacy application).

A legacy system is an existing computer system or application program which continues to

be used because the user (typically an organization) does not want to replace or redesign it. Many

people use this term to refer to "antiquated" systems.

Year 2000 millennium bug-

A defect in the code of a computer program caused when a year is represented by its last two

digits only and the program interprets that year as falling inclusively between 1900 and 1999

instead of between 2000 and 2099. For example, 12-11-42 instead of 12-11-1942. Thus, when the

year changed from 1999 to 2000, the date became 01-01-00, and the system thought it was January

1, 1900. Also called millennium bug.

3) Communication Systems

The communication module facilitates information flow between functional areas within the

firm and between supply chain partners. Logistics information consists of real time data on

company operations inbound material flows, production status, product inventories, customer

shipments, and incoming orders.

From an external perspective, firms need to make order, shipment, and billing information

available to suppliers, financial institutions, transportation carriers, and customers. Internaloperating units must be able to share and exchange information on production schedule and status.


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Typical supply chain communication technologies include bar coding, scanning, Electronic Data

Interchange (EDI), satellite communication, radio frequency, and the Internet. Standards and

formats to exchange data.

4) Execution Systems

Enterprise execution systems work in conjunction with the firm's ERP to provide specificfunctionality to support logistics operations. While some ERP systems include reasonable

logistics functionality, many lack the capabilities to facilitate contemporary warehouse and

transportation operations. Most execution systems are "bolted-on" or integrated into the ERP

system to facilitate data exchange. In addition to facilitating standard warehouse management

functionality such as receiving, storage, shipping, and warehouse automation, Warehouse

Management Systems (WMS) typically include management reporting, support for value-added

services, and decision support capability. The Transportation Management System (TMS)

typically includes routing, load building, consolidation, and management of reverse logistics

activities as well as scheduling and documentation. Yard Management Systems (YMS) track

inventory in vehicles stored in facility yards.

5) Planning Systems

Supply chain planning systems, now being termed Advanced Planning and Scheduling (APS)

systems, are designed to assist in evaluating supply chain alternatives and advise in supply chain

decision making. Sophisticated supply chain planning systems are becoming increasingly common

to allow for consideration of complex alternatives under tight decision time constraints. Typical

supply chain planning applications include production scheduling, inventory resource planning, and

transportation planning. Using the historical and current data maintained in the data warehouse,

APS software systematically identifies and evaluates alternative courses of action and recommends

a near optimal solution within the constrains imposed. Typical cost rains involve production, facility,

transportation, inventory, or raw material limitations.

Planning systems can generally be grouped into two categories, strategic and tactical. Strategic

planning systems are designed to assist in analyses where there is a large number of alternatives and

data outside the range of current history is required. Tactical planning focuses on operational issues

as constrained by short-term resource constraints such as production, facility, or vehicle capacity.


Enterprise Resource Planning (ERP), Legacy Systems, Order management Systems (OMS),

Customer Relationship management (CRM), Communication Systems, Bar Coding, Scanning,

Electronic Data interchange (EDI), Satellite Communication, Radio Frequency, Execution Systems,Warehouse Management Systems (WMS), Transportation Management System (TMS), Yard

Management Systems (YMS), Planning Systems, Advanced Planning and Scheduling (APS)

3. Issues of application

The ERP are the backbone of most firms supply chain information systems. Students shall

fully understand the role of ERP systems, Planning systems, as well as Logistics execution systems

in enhancing firm performance and competitiveness.

Section I I I . Accessing Supply Chain Applications

1. Main contents

1) Advantages and Disadvantages of software purchase

Advantages: The first is through direct ownership. The firm purchases the hardware and


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soft-

ware for implementation within its facilities. While the initial cost can be substantial, the

direct ownership route offers high security and low variable cost. Firms can reduce capital

investment by leasing equipment or software from vendors or a third-party financing

company.Disadvantages: there are also risks associated with the direct ownership plan. The firm

must employ or contract individuals who can provide the expertise to implement, modify, and

maintain both the hardware and the software. Management and financial support of

information technology resources may use capital and talent that are needed to develop core

competency of a firm. In addition, direct ownership of information technology resources must

carefully evaluate redundancy requirements.

2) Advantages and Disadvantages of Third-Party Providers

Advantages : The hardware and software can be dedicated or shared with other clients of

the service provider. In either case, both the hardware and the data are reasonably secure. The

benefits of outsourcing are that operational responsibility is assigned to a specialist that has

extensive resources to focus on both hardware and software implementation and operations.

The major disadvantage of using a third-party service provider is increased variable cost.

To provide the service, a profit margin must be added to the cost of equipment and software.

However, the cost differential may be more than justified since the service provider should be

in a position to achieve economies of scale by sharing resources and personnel across multiple

clients.

3) Application Service Provider Benefits and Risks

Benefits

(a) Cost savings: Not necessary to purchase or upgrade software

(b) Time savings: Firm can focus on core business

(c) Staffing: ASP provides technical staff to implementation and maintenance

(d) Flexibility: Client can remotely access software with a Web browser

Risks

(a)Security: Proprietary information possibly vulnerable due lo ASP failures

(b)Infrastructure: ASP requires high-speed Internet connection

(c)History: No clear business model yet.


Direct Ownership, Outsource, Application Service Provider (ASP)3. Issues of application

The maintenance of comprehensive information system technology can be extremely

expensive. Students shall understand the relative benefits of software purchase, use of third-party

providers, and use of application software providers.

Section I V. Commun ication Systems

1. Main contents

1) Electronic Data Interchange

EDI is defined as intercompany computer-to-computer exchange of business documents in

standard formats to facilitate high-volume transactions. It involves both the capability and practiceof communicating information between two organizations electronically instead of via the


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traditional forms of mail, courier, or even fax.

2) Internet

The Internet is quickly becoming the supply chain information transmission tool of choice

for forecasted requirements, orders, inventory status, product updates, and shipment

information. In conjunction with a PC and an Internet browser, the Internet offers a standardapproach for order entry, order status inquiry, and shipment tracking.

The increasing availability of the Internet has also enabled the development of the

exchange portal, a communication medium that has significant supply chain implications.

3) Extensible Markup Language (XML)

Extensible Markup Language (XML) is a flexible computer language that facilitates

information transfer between a wide range of applications and is readily interpretable by

humans.

A basic XML message consists of three components: the actual information being

transmitted, data tags, and a DTD (Document Type Definition) or schema.

In situations characterized by low volume, XML is superior to ED1 for three reasons. First,

it is not expensive to install. Second, XML is easy to maintain. Finally, XML is more flexible

4) Satellite Technology

Satellite technology allows communication across a wide geographic area such as a region

or even the world. The technology is similar to microwave dishes used for home television in

areas outside the reach of cable.

Satellite communication provides a fast and high-volume channel for information

movement around the globe.

5) Radio Frequency Exchange

Radio Frequency Data Communication (RFDC) technology is used within relatively small

areas, such as distribution centers, to facilitate two-way information exchange.

Radio Frequency Identification (RFID) is a second form of radio frequency technology.

RFID can be used to identify a container or its contents as it moves through facilities or on

transportation equipment. RFID places a coded electronic chip in the container or box.

6) Image Processing

Image processing applications rely upon facsimile (fax) and optical-scanning technology to

transmit and store freight bill information, as well as other supporting documents such as proof of

delivery receipts or bills of lading.

Satellite technology, RF, and image processing require substantial capital investment prior toobtaining any returns.

7) Bar Coding and Scanning

Bar coding is the placement of computer readable codes on items, cartons, containers, pallets,

and even rail cars.

Another key component of Auto ID technology is the scanning process, which represents the

eyes of a bar code system. A scanner optically collects bar code data and converts it to usable

information. There are two types of scanners: handheld and fixed position. Each type can utilize

contact or non contact technology. Handheld scanners are either laser guns (non contact) or

wands (contact). Fixed position scanners are either automatic scanners (non contact) or cardreaders (contact).


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Communication Systems, Extensible markup Language (XML), Electronic Data interchange

(EDI), Value-Added Networks, Satellite Technology, Radio Frequency Exchange, Radio Frequency

Data Communication (RFDC), Radio Frequency Identification (RFID), Image Processing, Auto

Identification (ID), Bar Coding, Scanning, Point-of-Sale (POS), Stock Keeping Unit (SKU)3. Issues of application

The past decade has witnessed remarkable advances in logistics communication systems

capability. Students are expected to know well EDI, the Internet, XML, and satellite technology

existing to facilitate communication between firms and facilities; Radio frequency allowing

short-range communication within facilities such as warehouse; Image, bar coding, and scanner

technologies allowing communication between supply chain information systems and their physical

environment.

III. Review Questions

1. Compare and contrast the role of ERP systems and planning systems in enhancing firm

performance and competitiveness

2. Compare and contrast the role of ERP systems and logistics execution systems.

3. Discuss the relative benefits of software purchase, use of third-party providers, and use of

application software providers.

4. Describe and contrast the role of radio frequency data communications and radio frequency

identification for logistics and supply chain applications.

5. Discuss the relative differences between contact and non-contact scanning.

6. What is a value-added network (VAN) and how does it resolve the disadvantages of different

EDI transaction sets?

IV. Teaching approaches

1.Lecture; 2.Case Study; 3.Group Discussion 4.CAI (Computer-aided instruction); 5.

Network-Aided Teaching; 6.Bilingual Teaching Approach

Documents

Note 03 Logistics Information Systems