Technological Innovations in the Indian Logistics Industry the Case of Freight Handling

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    Technological Innovations in the

    Indian Logistics Industry: The Case

    of Freight Handling

     ARTICLE · JANUARY 2009

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    424

    2 AUTHORS, INCLUDING:

    Kolluru Srinivas

    Macquarie University

    25 PUBLICATIONS  13 CITATIONS 

    SEE PROFILE

    Available from: Kolluru Srinivas

    Retrieved on: 07 April 2016

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    The IUP Journal of Infrastructure Vol VII Nos 3 & 4 2009114© 2009 IUP All Rights Reserved

    Overview of Indian Logistics Industry

    A Brief BackgroundThe Indian economy has been growing at an average rate of over 8% over the last few years.

    The economy has posted a growth rate of 9.0% in 2007-08. Similarly, the manufacturing

    sector has registered a growth rate of 8.2%, which is acting as a major growth driver for 

    the logistics industry. The major logistics functions of the industry include transportation,

    warehousing, freight forwarding, etc. Spending on the logistics industry in India is estimated

    * Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent,New Delhi, India. E-mail: [email protected]

    ** Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent,

    New Delhi, India. E-mail: [email protected]

    Kolluru Srinivas* and Kolluru Krishna**

    Technological Innovations

    in the Indian Logistics Industry:

    The Case of Freight Handling

    For any industry, use of Information Technology (IT) and innovation is

    necessary in order to stay ahead in the competition. The logistics industry 

    is a classic example of the birth and development of a vital new service-based 

    industry. The industry has been transformed from the business concept 

    of transportation to that of serving the entire logistical needs. The challengesof the modern technology-driven competition, globalization of manufacturing,

    shorter product life cycles, increasingly sophisticated customers needs

    and greater integration of technologies compelled the logistics industry 

    to develop innovative strategies and processes. The main objective of this

     paper is to present a brief insight into the various cost saving technologies

    that were adopted by the Indian logistics industry (road, railways, ports and 

    aviation) for improving the services. The paper gives a brief picture of 

    the logistics industry in India. It also gives a brief literature survey on thetopic. The paper also describes the recently used technologies and some

    of the innovations that have taken place in all the major transportation

    chains (road, rail, marine and aviation) and their benefits.

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    Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling 115

    around 13% of Gross Domestic Product (GDP), which is estimated at Rs. 4,068.63 bn in

    2007-08.1 However, India’s spending on logistics is much higher than that of the developed

    economies like the US (9.5%), Japan (10.5%) and Germany (10%). Figure 1 provides a brief 

    picture of India’s spending on logistics over the last few years.

    Figure 1: Spending on Logistics in India

    Source: MOSPI, PIB, Government of India

     4,500

     4,000

     3,500

     3,000

     2,500

     2,000

     1,500

     1,000

    500

      02001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

       R  s .

       (   b  n   )

    Years

    From the cost component point of view,

    transportation accounts for about 35% of the

    total logistics costs followed by inventories

    (25%), losses (14%), packaging (11%), handling

    and warehousing (9%) and customers and

    shopping (6%).2

    Reasons for High Spendingand Government Initiatives

    The reasons for this huge spending can be

    attributed to lack of efficient infrastructure

    facilities, lack of implementation of Information

    Technology (IT) in logistics and delay checkingpoints on the highways3  which invariably

    increases the transportation costs. Another major 

    reason could be the regulatory obstacles, which

    not only increases the cost of service, but also

    1 Ministry of Statistics and Program Implementation (MOSPI), Government of India.2 Edelweiss Research.3 As per the estimate of the Planning Commission, Government of India, the economic cost of such delay is at a

    minimum of Rs. 3,200 cr and a maximum of Rs. 4,300 cr for the year 2004 which progressively goes up to

    Rs. 60,168 cr by 2017.

    Roads 1,520

    Power 4,812

    Railways 1,100

    Telecom 1,226

    Aviation 370

    Ports 800

    Oil and Gas 2,210

    Urban Infrastructure 1,974

    Total 13,973

    Table 1: Spending on Infrastructure

    from 2005-06 to 2011-12E

    Source: Edelweiss Research

    (Rs. bn)

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    The IUP Journal of Infrastructure Vol VII Nos 3 & 4 2009116

    results in frequent delays and thereby higher logistics costs. To overcome this situation, the

    Government of India has taken initiatives to improve the infrastructure in the country by

    spending around Rs. 14 tn across the sectors (Table 1).

    Freight Handling Scenario

    Cargo traffic handled at major Indian ports has seen double-digit growth over the lastfew years, i.e., 10.38% in 2005-06 and 11.35% in 2004-05. Similarly, the freight carried

    by railways also grew by 10.7% in 2005-06 and freight carried by road registered a

    growth rate of about 10% in 2005-06 over the previous years. It has been observed that

    since 2001-02, cargo traffic (both domestic and international) at all Indian airports has been

    growing rapidly. Domestic air cargo traffic has been growing at a Compounded Annual

    Growth Rate (CAGR) of 12.57% from 2001-02 to 2006-07, whereas international air cargo

    traffic has also registered a CAGR of 13% during the same period (Table 2).

    Review of Literature

    With reduced trade barriers and the advent of advanced information technologies, new

    opportunities and global markets have become available for service providers in the logistics

    industry. As organizations globalize to access new markets and achieve higher productionand sourcing efficiencies, logistics play an important role in moving materials, products,

    and services through supply chains.

    The concept of innovation is regarded in most organizations as an effective tool to

    create and sustain competitive advantages. The logistics function is an area that is

    increasingly seeking ways of adding value through innovation (Soosay and Hyland, 2004).

    It has transformed from the business concept of transportation to that of serving the entire

    logistical needs of customers. The service component offers a very good change of gaining

    sustainable competitive advantage in the hypercompetitive global market. Conversely,

    poor service or a reluctance to innovate offers a fairly good change of losing customers

    Year

    2001-02 287.60 492.50 515 854

    2002-03 313.50 518.74 545 979

    2003-04 344.50 557.39 595 1,068

    2004-05 383.70 602.10 646 1,281

    2005-06 423.40 666.50 706 1,404

    2006-07 463.80 726.00 763 1,553

    Table 2: Cargo Handling Scenario

    Source: Indian Ports Association, Ministry of Railways, Planning Commission, Airport Authority of India

    Cargo Handled at Ports

    (mn tons)Rail Freight

    (bn tons km)

    Road Freight

    (bn tons km)

    Air Cargo

    (mn tons)

    https://www.researchgate.net/publication/228216846_Driving_Innovation_in_Logistics_Case_Studies_in_Distribution_Centres?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/228216846_Driving_Innovation_in_Logistics_Case_Studies_in_Distribution_Centres?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==

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    Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling 117

    (Chapman et al., 2002; and Esper et al., 2007). Chapman et al. (2002) also found that

    the advances in technology and communication have compelled this industry to strive

    permanently for new products and solutions.

    Several other studies that explored improving influence of innovation on logistics industry

    on a widely varied spectrum of improvement areas like, quality of service production and

    delivery (Parasuraman and Grewal, 2000); research and development cost-efficiency(Rao, 2001); transaction costs (Garicano and Kaplan, 2001); productivity, inventory and

    demand management (Kaplan and Sawhney, 2000); increased customization capabilities

    (Yingli and Laiwani, 2007); supply chain and relationships (Hyland et al., 2003; Kaltoft

    et al. 2007; and Yingli and Laiwani, 2007).

    Hence, logistics organizations must constantly seek new knowledge, ‘think for the

    customer’, anticipate and innovate services to meet customers evolving needs.

    Recently Used Technologies and Innovations

    Need of Innovation in Logistics

    One of the most challenging aspects of understanding innovation in logistics management

    lies in the accepted wisdom that every product has its own unique value chain. Thus, innovation

    is primarily a ‘pull phenomenon’ for service providers in the logistics industry.4 The competition

    among industries to manage global supply chains cost effectively, created an opportunity

    4  John Seely Brown and John Hagel III define pull and push systems in the context of innovation as follows:“Push systems contrast starkly with pull ones, particularly in their view of demand: the former treat it as

    foreseeable, the latter as highly uncertain. This difference in a basic premise leads to fundamentally different

    Figure 2: Indian Logistics Industry Structure

    Logistics Industry

    Airlines Shippers RoadCarriers

    Railways Airports Ports Roads Railways 4PL

    IndependentLogistics Service

    Providers

    C&FAgents

    Warehousingand Distribution

    Agents

    MultipleServiceProviders

    Key TransportationsService Providers

    InfrastructureProviders

    Support Services

    3PL

    Source: Industry Sources, 2007 

    Note: 3PL – Third Party Logistics; 4PL – Fourth Party Logistics; C&F Agents – Clearing and ForwardingAgents.

    https://www.researchgate.net/publication/2400294_The_Effects_of_Business-to-Business_E-Commerce_on_Transaction_Costs?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/242544662_E-Hubs_the_new_B2B_marketplaces?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/27649900_Using_e-business_to_enable_customised_logistics_sustainability?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/2400294_The_Effects_of_Business-to-Business_E-Commerce_on_Transaction_Costs?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/27649900_Using_e-business_to_enable_customised_logistics_sustainability?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/242544662_E-Hubs_the_new_B2B_marketplaces?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==

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    The IUP Journal of Infrastructure Vol VII Nos 3 & 4 2009118

    design principles. For instance, instead of dealing with uncertainty by tightening controls, as push systemswould, pull models address immediate needs by expanding opportunities for local participants—employeesand customers alike—to use their creativity. To exploit the opportunities that uncertainty presents, pull modelshelp people come together and innovate by drawing on a growing array of specialized and distributedresources” (www.McKinseyquarterly.com).

    5 RIS has several components, which can be categorized into two groups, that is, core system and supportmodules. The core system comprises of Locational Referencing System, Asset Management System, PavementManagement System, Environmental Management System, Traffic Management System and PerformanceMonitoring System. On the other hand, Support Modules are Security and Access Control Module and System

    Information Module (Information available at www.nhai.org).

    for innovations. Innovation in logistics could improve internal efficiency within a logistics

    organization or could help serve customers better. The purpose of this paper is to understand

    the need of innovation in the logistics industry, therefore, we begin with a classification

    of the industry (Figure 2).

    Surface Transportation (Roadways and Railways)

    Recently, in India, the major thrust of the surface transport sector (both road transport and

    rail transport) is on Research and Development (R&D). The major reason is to build a

    comparable and sustainable road infrastructure in the country. In this context, the sector has

    been improving designs, using modern construction techniques, introducing improved

    material, coming up with better and appropriate specifications and using new technologies.

    An outlay of Rs. 60 mn has been provided for road transport R&D in 2006-07. On the same

    lines, the railway network continues upgrading its systems to take advantage of the latest

    features and technological applications. In this context, close attention is paid to

    maintenance, quality control and cost efficiency as these factors play an important integralrole in the efficient operation of the Indian Railways. The allotted total IT budget of Center 

    for Railway Information Systems (CRIS) for the year 2006-07 is Rs. 3,500 mn, where the

    focus was on upgrading the existing

    technology and infrastructure and

    implementing newer tools and

    techniques for building IT

    infrastructure in Indian Railways

    (Table 3). Table 4 describes the

    recently used technologies in thetransport chains.

    Table 3: Focused Areas by the Railways

    • Web-enabled services.

    • Building an IT application that can reflect the existing

    business performance.

    • Shift towards data mining from data warehousing.

    Road Transport Sector • Use of geo-synthetics in improving the performance of pavement overlays.

    • Introduction of Geographical Information Systems (GIS) basedNational Highways Information System (NHIS) to overcome thetraffic and transportation problems.

    • Road Information System (RIS)5

    for Golden Quadrilateral (GQ)project. The RIS comprises of computerized time-series.

    Table 4: Recently Used Technologies in Surface, Marine and Aviation Sectors

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    Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling 119

    6 Horizontal integration has various forms such as operational arrangements on vessel sharing, slot sharing,consortia and strategic alliances. Consortia are agreements between liner shipping companies to operate jointlyin services like technical, operational, or commercial coordination. Strategic alliances are emerged to providecombined services on various routes to shipping lines. In addition, these alliances were formed to increaseefficiency and ensure better util ization of vessels through numerous arrangements.

    7 In many developed countries, port information systems have been transformed into integrated logistics informationsystems through interconnected efforts with other logistics-related information systems. Some of the examplesare INTIS at the Port of Rotterdam, ADEMAR at the Port of Le Havre, DAKOSY at the Port of Hamburg, SEAGHat the Port of Antwerp, and FCP80 at the Port of Felixstowe. Generally, the IT systems facilitate electronic

    submissions and clearance of shipping information.

    Table 4 (Cont.)

    database on the national highways information like trafficanalysis, pavement condition, road inventory and assetcondition.

    Indian Railways • Freight Operation Information System (FOIS), for controlling

    and monitoring the multifarious activities in freight operations.• Rake Management System (RMS) for handling commercial

    transactions.

    • RMS to track and manage freight wagons, freight-classlocomotives and other operations of the freight system.

    • Implementation of Terminal Management System (TMS) toprovide information on freight at the freight terminals, status of the train and expected time of arrival and cost of the freight tothe customers.

    Marine Sector • With an emphasis on cost reduction and to ensure optimumcapacity utilization, there has been an increase in horizontalintegration among the shipping liners.6

    • Use of IT like Internet services to improve supply chainprocess, enhance cooperation between freight carriers andtheir customers by enabling communication and eliminatingthe heavy procedures and regulations.7

    • Vessel Traffic Management System (VTMS) to provide effectiveguidance on navigation of ships, which is already installed atMumbai, JNPT, Kolkata, New Mangalore and Mormugao ports.

    • Computerization of container handling operations like managingcontainer traffic, major ports connectivity, etc.

    • Implementation of Radio Frequency Identification system for identifying the movement of ships wirelessly using radiowaves.

    Aviation Sector • Air Traffic Management (ATM) to modernize air traffic controlservices. Under the ATM, the following services are to beprovided such as, Air Route Surveillance Radars, MonopulseSecondary Surveillance Radars, Airport Surveillance Radars,Airport Surface Detection Equipment, Radar Data ProcessingSystems, Flight Data Processing Systems, Automatic MessageSwitching Systems, Automatic Self Briefing Systems, 12 VORs.

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    Marine and Air Transport Sectors

    Over the years it has been observed that around 90% of India’s external trade is moving

    by sea. With the economy growing at a rate of over 8% and positioning itself as manufacturing

    outsourcing base, new technologies are needed to be developed in the light of the emerging

    scenario in the Maritime industry. On similar lines, the air transport sector in India is also

    growing fastly and adopting new technologies for delivering qualitative services.

    DVORs with Remote Monitoring and Maintenance facilitycolocated with High Power DMEs for uni-directional airways.

    • Communication, Navigation and Surveillance (CNS) to facilitateand support systems for air navigation. The CNS discharges

    the services like coordination among all concerned agenciesand organizations, preparation of estimates, invitation of tenders, evaluation of technical and commercial bids,placement of orders of equipment and its subsequentinstallations, etc.

    • Electronic Data Interchange (EDI) to know latest informationand status of export/import cargo via Internet.

    • Flight Data Processing System (FDPS) to achieve improvedautomation of air traffic services.

    • Automatic Dependence System (ADS) for enhancing the

    surveillance over Indian air space.

    • There are also few other technologies that were proposed tobe taken up for the development of the Civil Aviation Sector in the country, such as:

    – IT-based system to assess vehicular traffic volume for airport public access.

    – LED-based airport lighting and display technology.

    – Intelligent digital surveillance.

    – Integration techniques for information.

    – Information dissemination and online payments throughInternet.

    – Radio frequency-based identification techniques.

    – Wireless information technologies.

    – Smart card technology.

    – Common use IT systems.

    – Online simulation of terminal congestion.

    – Electronic perimeter security system and intrusion

    prevention.– Explosive detection technology.

    – Satellite-based CNS/ATM systems.

    Table 4 (Cont.)

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    Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling 121

    Innovations in Road Transport Sector

    Over the last few years, India is experiencing the problem of traffic congestion owing to

    growth in vehicle population, which is growing at a rate of 8-9% per annum. To overcome

    the problem, the Government of India has come out with an ambitious program, i.e.,

     Jawahar Lal Nehru National Urban Renewal Mission (JNNURM) for improvement of urban

    transport infrastructure in the country.

    Generally, investments in the transport infrastructure, particularly in the highways,

    were being made by the Central or State governments in India.8 But as an innovative tool,

    now the Central as well as State governments are attracted towards the private sector owing

    to the managerial efficiency and consumer responsiveness. In this context, the government

    has laid down certain comprehensive policy guidelines for private sector participation in the

    road transport sector. On the policy guidelines front, the government has announced several

    incentives such as tax exemptions, duty free import of road building equipments and

    machinery, etc. As a result of the government’s initiative to involve the private sector in

    the infrastructure projects, the National Highway Development Program (NHDP) Phase III

    to Phase VII were taken up on the basis of Public Private Partnership (PPP) on Build, Operate

    and Transfer (BOT) mode or Annuity mode.

    Innovations by Indian Railways

    • As an experiment, by leasing out catering and parcel services, the Indian Railways

    (IR) has reduced catering and parcel losses of about Rs. 10 bn in 2005-06. The Railways

    has also enhanced wagon capacity by attracting private investments in the wagon

    investment schemes and siding liberalization schemes.

    • While retaining the core activity of train operations, the IR awarded licenses to private

    parties for running container trains, which is likely to attract investment in wagons

    and construction of terminals in the coming years.

    • The IR also plans to explore more PPP schemes with an aim to modernizing metro

    and mini metro stations with world-class passenger amenities, development of agro

    retail outlets and supply chains, construction of multimodal logistic parks, warehouses

    and budget hotels, expansion of network and increase in production capacity.

    • The IR also constituted a PPP Cell to develop the policy framework to providenon-discriminatory level playing field to investors, prepare the bankable documents

    and set up a procedure for awarding partnerships through the open tendering system.

    Innovations in the Marine Transport Sector

    Radio Frequency Identification (RFID) system is commonly used to describe a system which

    transmits the identity of an object wirelessly, using radio waves. RFID consists of various

    components such as tags, tag readers, edge servers, middleware and application software.

    8 The main reason is due to the requirement of huge volume of resources, long gestation period, uncertain returns

    and various externalities associated with the projects.

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    The IUP Journal of Infrastructure Vol VII Nos 3 & 4 2009122

    RFID is nowadays extensively used in the retail and logistics sectors as a replacement for 

    Universal Product Codes (UPC) or EAN Article Number Code, barcodes, having number 

    of important advantages over the barcode technology. RFID is generally costlier than

    barcode and may for that reason, not be able to replace the barcode fully, but definitely

    it is more advantageous than barcode which is having a higher storage capacity. It is

    expected that almost all of our major ports will sooner or later implement RFID technologyin all shipments.

    Innovations by Aviation Sector

    Electronic Data Interchange (EDI) is a standard format for exchanging business data. It is

    the inter-organizational exchange of business documentation in structured, machine-processable

    form over computer communication networks. In India, the EDI implementation agencies

    are Ministry of Civil Aviation and Airport Authority of India.

    • Automation of cargo processing activities and online data capturing was introduced

    in 1999 at four metro airports, viz., Delhi, Mumbai, Kolkata and Chennai.

    • The Airport Authority of India (AAI) is assisting automation of cargo processing

    activities at three non-metro airports such as, Bangalore, Hyderabad and

    Thiruvananthapuram.

    Benefits from EDI

    • Availability of latest information on status of import/export cargo to the trader 

    via Internet.

    • Drastic reduction in human power deployment by the agencies at the cargo terminal

    for processing of their consignments, which will ultimately reduce the transaction

    cost of import as well as exported cargo.

    • Information on the AAI charges that are applicable for a particular consignment

    at any given time via Internet.

    • Availability of information on the regulatory and the facilitating agencies, cargo

    handling systems and procedures, facilities available, AAI-prescribed charges/rates,

    dos and don’ts, etc.

    ConclusionLogistics, an extension of physical distribution management, usually pertain to the

    management of the materials and information stream of business, down through a distribution

    channel, to the end customers. In the Indian context, the scope and role of logistics have

    changed dramatically over the years. Logistics used to have a supportive role to primary

    functions such as marketing and manufacturing. But now the industry expanded to cover 

    warehousing and transportation activities, purchasing, distribution, inventory management,

    packaging, manufacturing, and even customer service. More importantly, logistics management

    has evolved from passive, cost-absorbing function to that of strategic factor that provides

    unique competitive advantage. The global marketplace has compelled every industry to

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    Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling 123

    transform itself into a truly customer-oriented, service-focused enterprise, irrespective of the

    products and services it sells.

    To stay ahead in the modern global marketplace, organizations must constantly look for 

    innovative strategies to improve their competitiveness. As organizations globalize to access

    new markets and achieve higher production and sourcing efficiencies, logistics play an

    important role in moving materials, products, and services through supply chains. It is evidentfrom the paper that logistics organizations that are willing to sustain their position in the

    market, will have to conform and adopt innovations of the information era. Especially,

    logistics service providers have to adopt and creatively deploy up-to-date technology, because

    logistics industry strongly depends on information for efficient operations. Logistics

    technologies refer to the hardware, software, and network design required to facilitate

    processing and exchange. It includes related components in the supply chain, such as satellite

    transmissions, web-based ordering, EDI, bar coding, systems for order entry, order processing,

    vehicle routing and scheduling, inventory replenishments, automated storage, and retrieval

    systems, etc. The correct implementation of technologies can be a significant source of 

    competitive advantage to the service providers.

    Bibliography

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    11. Virginija Kavaliauskiene and Neringa Survilaite-Bagdonaviciute (2004), “Trends in

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    4. Edelweiss Research.

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