The modern approach to the analysis of logistics information systems

8/15/2019 The modern approach to the analysis of logistics information systems

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The modern approach to the analysis of logistics

information systems

Ana Iskra 1, Edvard Tijan 2, Saša Aksentijević 3 1 E-mail: [email protected]

2 University of Rijeka, Faculty of Maritime StudiesStudentska 2, 51000 Rijeka, Croatia

Tel: +385 51 33 84 11 Fax: +385 51 33 67 55 E-mail: [email protected] 3Aksentijević Forensics and Consulting, Ltd.

Gornji Sroki 125a, Viškovo, Croatia Tel: +385 51 65 17 00 Fax: +385 51 65 17 81 E-mail: [email protected]

Abstract - The terms of logistic management in

organizations and the use of information and

telecommunication technologies in support of the

management are inextricably intertwined. The fundamental

benefit which business systems obtain by using logistics

business information systems is the optimization of business

processes. By using the logistics information systems the

focus is shifted to those business processes that result in the

highest added value. The highest level of development of

logistics business information systems results in the

construction of an integrated logistics information system

that allows data mining processes and supports managerial

decision making. This paper analyzes the development of

logistics information systems, their types and functionalities

in the context of modern business environments.

I. I NTRODUCTION

To understand the logistics information systems it isnecessary to clarify the concepts of logistics managementand computerization. Logistics is the science whichdeveloped from the war planning, and its modern formdates from the 17th century [1]. The use of computers in

business began to grow significantly in 1950s after thelaunch of the first commercial electronic computerUNIVAC [2] [3]. The computer, as well as logistics, wasfirst used to obtain military superiority (for example indeciphering enemy messages) but the link of the twoconcepts is not the original military purpose, but the

manipulation of data and information [4].The logistics management can be interpreted through

the general division of the business system, consisting ofinput and output information, and executive andmanagement processes. Therefore, each logistics functiontakes and processes the data necessary for the operating ofcore activities, but the logistics management levelintegrates the relevant data, adds importance and value,and uses the information to debug and optimize thelogistics processes [5].

A growing number of companies at the end of the 20thcentury launched a redesign of their business processes[6]. The classic form of business had to change

completely because information has become one of the basic business resources. Reengineering or redesign of the

business processes changed the traditional approach to business based on the work, natural resources and capital.The construction of information systems in enterprisescreated a new market division by applying the modernwork concepts and electronic business [7] [8].

Although the modern information systems haveevolved to a great extent, the human component remainsindispensable because the information system as usefulonly to an extent to which a person is able to analyze andmake use of the information provided. Likewise, the

business information system is useful only if wellimplemented to pursue the objectives of enterprise. Thecompany is not an isolated system, and in decision-making and management the wider environment must beconsidered [9]. The information system must support themanagement in a way that in addition to informationrelated to the company it includes the external informationavailable. This provides a comprehensive solution on the

basis of which the management makes their decisions [7].

Smaller companies develop their information systemsto the level they need for decision making. If themanagement of a small company has a clear insight intothe business and the entire logistics process, they will optfor an operational and/or executive information systemlayer. For such companies, the most important goal is toautomate the input and output of data and to simplify the

processes in order to save time. If there is noheterogeneity of business functions, data discrepancy or

poor communication, then there is no need for datawarehousing, complex reports and analysis [9] [10].

The combination of various forms of informationsystems with the integration of the strategic system createsan integrated information system. The information is inputwithin one organizational unit and is simultaneously usedin all the other units when needed. Such integratedinformation system links the activities in the logisticschain horizontally and vertically, and the processing timeis reduced to a minimum. The largest advantage of suchsystems is the creation of a homogeneous organization onthe basis of sharing information, therefore the integratedinformation systems form the basis of virtualorganizations [7].

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II. THE ROLE OF LOGISTICS SYSTEMS IN IMPROVING

BUSINESS PROCESSES

The purpose of the logistics system is theoptimization of business processes and maximumutilization of resources. Compared to the traditional

profit-oriented companies, logistics companies leave the

narrow-minded orientation directed toward financialframework of revenue and expenditure. With thedevelopment of modern logistics at the beginning of the20th century, successful business could no longer be

based only on the retrospective financial indicators.These were the beginnings of modern business, morecomplex and yet more simple. Its complexity lies in theextensive surveillance and monitoring of the businessfunctions. In the short term any such company makesgreat effort to get updated information from all businessfunctions, in order to serve the business purpose. Datafrom one of the business functions, such as procurement,must be useful, unchanged, visible and usable in all otherfunctions, from production to distribution. On the other

hand, the establishment of logistics information networkwithin the company enabled the management (at alllevels) the visibility of the entire material, informationand financial flows. This in the long term led to moremanageable business processes [10].

Companies which utilize the logistics managementmodel focus on flows and indicators that give addedvalue. The logistics concept is not about producing tocover all costs and achieve a profit; it is about fulfillingcustomer requirements in the shortest possible time and atthe right time. If customer demands are met, the companyreceives positive feedback, and thus the financial gains.

The modern business discards the traditional physicaland intermediary model and reduces the number of active participants in the logistics chain. That does not mean theend of continuous structures with actors from production,

procurement, transportation, storage, wholesale and/orretail trade and end customers, but the integration ofcertain functions in one segment. The inclusion ofheterogeneous functions was enabled by the developmentof computer networks. Considering the various functionsas one means faster response to unpredictable situations[11].

Through ICT solutions, the data from the logisticschain arrive into one place, a database, and can be

extracted at any time and in different ways, depending onthe purpose. A quick way of entering data in procurement, storage, production sales, distribution andthe possibility of mutual exchange of data provided the

basis of the logistics management model. Completeinformation support between business functions is neededto optimize the space- time flow of goods, energy,information and knowledge. Furthermore, by linkingvarious stages in the logistics chain, the companyachieves lower operational costs mainly related tosupplies or stock. Optimization of production within thelogistics chain requires that the product comes to an end

point or to the end customer in the shortest possible time.Information linking and dissemination of information

between participants in production, distribution and salereduces the waiting time resulting in faster cash flow and

positive customer reaction. Information andcommunication leads to the integrated logisticsinformation system, and integrated logistics informationsystem leads to fully optimized logistics system [1] [12].

III. I NFORMATION TECHNOLOGY AND LOGISTICS

INFORMATION SISTEMS Although lowering the costs is the main reason for

implementing ICT solutions, another factor appeared later

in the evolution of ICT in business. It is the duration of

the business process. After initial calming of the

information revolution and the profiling of each of the

companies that have successfully carried out the

adjustment by applying an appropriate informationsystem in every logistics chain, the new types of

competition arose. In that regard, there was a focus on the

customer and meeting his needs. Companies developed

strategic plans in which the objectives were the

development of new quality products or services in a

more efficient and effective way, as soon as possible.Information technology became a tool to save time in the

business. Modern companies with their ICT systems

received not only the easier view of the entire logistics

chain, but the system on which they can rely on, which

can give them a clear view of the previous operations,

whose storage capacity and processing time surpasses

humans and saves a lot of time and money in planning,

development, procurement, distribution, sales, marketing,

etc. The other reasons for ICT implementation may

include: modernizing administration, better cash flow,

energy conservation, and accelerated distribution of vitalresources [13].

IV. COMPONENTS AND FUNCTIONS OF THE LOGISTICS

INFORMATION SYSTEM

In logistics, information systems maintain constant

communication between vertical and horizontal positions

in the logistics chain. Information support enables more

control over the current business as well as greater insight

into the previous business, on the basis of which a

business decision can be made to change and improve.

The goal of information technology is not the automation

of all business activities as this would lead to the

elimination of the human factor which is, and always will be, a key link in the process of computerization. In

logistics processes, the information technology plays a

key role in the integration of information sharing, joint

planning, coordination of business process and

acceptance of new business models and technologies[13].

The components of logistic information systems are

hardware (material and technical component), software

(intangible component) lifeware (the human component),

Netware (network) and orgware (organizational

component [7]. The most influential component in therealization of the logistics information system is the

human component - the users of the system who are

directly involved from the development of software tousing the final results. Therefore, all the people who

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appear in the logistics chain as outsourcers, suppliers,

transporters, distributors, etc. and use the logisticsinformation system constitute lifeware. The orgware

includes functional, coordinated and synchronized

alignment of the remaining four components of logistic

and information systems. Network connection is the

prerequisite for information and communication links [7][15]. Many types of computer networks exist, dependingon the geographical location and structure, for example

PAN (Personal Area Network), LAN (Local area

network), HAN (Home Area Network), SAN (Storage

Area Network), CAN (Campus area network), MAN

(Metropolitan area network), WAN (Wide area network),

EPN (Enterprise private network), VPN (Virtual privatenetwork) and GAN (Global Area Network) [16]. A large

increase in network and Internet traffic is measured in

exabytes today. According to Cisco forecasts, traffic will

by 2018 exceed 715 Exabyte’s per month, or 8.6zettabytes per year. [17].

Some authors mention dataware, which represents the

data in structured databases and on any other media. All

information passing through the information system must

be archived in a way to allow them to be easily accessed

at a crucial moment. It is easy to conclude that if one

component fails to create a connection with the whole,the system will not perform its designated tasks [18]. The

data in databases and data warehouses are usually

collected from various sources. Efficient database

operation is based on the structured relationships between

data from different sources, so a qualified user can

extract, transform and read useful information and draw

conclusions [19].

V. I NTRODUCTION AND APPLICATION OF LOGISTICS

INFORMATION SYSTEMS

Before the implementation of information technology

or information systems, the management must decide

which type of information system matches the businessand logistics processes. First, it is important to plan which

business functions the information system needs to

support, improve, speed up or replace.

1960s saw a growth of both the customer's awareness

and product portfolio to meet the growing demand. This

was a major factor in the distribution channels, as thecompany had to work with multiple products and at the

same time maintain the cost of transport and stocks. In

the 1970s, the use of computers in business increased.

The change was significant because the business

processes were firstly redesigned and then computerized.

One approach of business redesign in the 1970s was

TQM or Total Quality Management [20]. In the 1980s,

due to recession and rising interest rates, many companies

re-focused on cost reduction, which gradually lead to the

development of integrated logistics [21].

The information systems and database facilitated the

process of monitoring the business and enabled business

development based on continuous corrective procedures.Information systems almost completely eliminated the

human error when combining data from different sources,

but did not eliminate the need for specific humanknowledge. Today, humans and computers work together,

discovering new methods and new knowledge. These two

spheres form a virtual organization and are the foundation

of connecting with new partners, suppliers, distributors,

customers and so on [3] [22]. What the informationtechnology ultimately enables are: structuredtransactions, automation, improving information

capabilities, shortening the cycle time, knowledge

management, inventory control and reducing

organizational complexity [23]. Information systems

present an important and irreplaceable role in connecting

with suppliers. Starting with the Just-In-Time concept inJapan and later in Europe, the relationship with suppliers

was completely changed. To ensure that production

flowed continuously, with the delivery at the right time

and the right place, the suppliers gradually merged with

the production and have become strategic partners [24].

The information link between companies and suppliers

was enabled by the commercialization of Electronic Data

Interchange (EDI) in the 1980s and 1990s. The company

could achieve a cost advantage and establish a better

market position by connecting closely with its suppliers,

Through EDI system, a company can send timelyinformation regarding inventory, debit lists, information

regarding demand, or possible customer complaints, and

thereby reduce costs of intervention, reduce unnecessary

inventory, speed up the response time, etc. Of course, the

information system can always be created as desired,

thereby providing a control over output information,

because the increasing links with external partners may

lead to the risk of leaks of classified information [14]

[25].

VI. THE APPLICATION OF INFORMATION SYSTEMS IN

LOGISTICS ACTIVITIES

The company is a complex organization consisting of avariety of business functions in a business cycle. Looking

from the perspective of a common information system, it

can be concluded that it is impossible to apply only one

business information system which will be equally

beneficial to all business functions. For example, in thehuman resources department the employee database will

be the most important (with their income, their workinghours, annual leave and similar), while this information

will be completely irrelevant in the production process.

It often happens that a variety of business functions

use completely different information systems that meet

the basic purpose, but slow down the process chain. For

example, if the same material specifications must be input

in procurement, warehousing, production or sales, it

extends the logistics process and thereby increases the

risk of errors at each entry. In order to solve such a

problem an integrated information system has beendeveloped, that connects all levels vertically and

horizontally and provides optimum data disseminationwithin the company. It achieves the functional and

process connection within the company, because



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operational, tactical and strategic levels of management

use the same information system. The integrated systemhas eliminated the problem of multiple information entry

and has linked the process flow within the company. For

this reason, the integrated information system has had

greatest impact on the logistics processes. Also, it

eliminated the potential conflict between the verticallevels because it enabled the use of a single system andthe same data in all positions within the company [7] [9].

VII. I NTEGRATED LOGISTICS INFORMATION SYSTEM

Logistics management model is applicable to every

business aspect, in which the company wants the most

efficient way to get to the finish line. Logistics means the

coordination of system components and strategic linking

to obtain a harmonious whole that leads to the pre- set

target. Many companies are facing the problem of

disunity of operating information and data within the

organization. The same company can use a multitude of

different databases: virtual repositories, systems for

processing documentation data, electronic mail systems,

structured and unstructured knowledge databases and

more. Due to the use of information from different

sources, the common problems are inconsistency and

contradiction which leads to inefficiency of information

systems to support management [26].

Often the concept of integrated logistics is mixed with

the concept of supply chain management because they

share the idea of a continuous and uninterrupted flow of

information. Integrated logistics management implies the

management of physical distribution, materials

management, business logistics and business engineering.Integrated logistics is the process of anticipating

customers' needs and desires [21]. From the definition, it

is clear that the integrated logistics deals with all logistics

activities: transportation, warehouse management,

inventory, materials management and communication and

information flow management. The last activity is crucialfor the whole system because it holds the system

together. For this reason, the study and development of

integrated information systems should be a priority and

main consideration in the implementation of integrated

logistics.

The process of information management begins withcollecting basic data related to transportation, raw

materials, employees and so on. Such information is

processed in the integrated logistics information system

to finally reach integrated logistics managers. Different

subsystems exist: for data processing, for research and

development, for decision support, for reporting etc. All

of them ultimately support and link the functional areas

of integrated logistics [21].

The data processing system is comparable to customer

service and is of great importance due to the direct

contact with the customer. Computer solutions that are

used at the lowest level of management are Transaction

Processing Systems or Office Automation Systems. Thesystem for research and development includes activities

such as planning the integration of logistics and

information technology, the coordination of informationand logistics network, staff training, decision-making on

outsourcing of the IT solutions and more. Such a system

is backed up with strategic management level solutions.

Decision support systems are also a part of the strategic

and tactical levels of the organization and are based onanalytical modeling. A collective term is sometimesManagement Support Systems (MMS). MMS are based

on simulation models, projections and database analysis

for the purpose of finding accurate and relevant

information for decision making.

The principle of knowledge discovery in databases is

popularly referred to as data mining. Data mining is amethod of extraction of knowledge from information and

is often used at the highest levels of management [9].

Strategic managers apply decision support systems to

extract data entered at the tactical or operational level and

put it in context in order to reach solutions. Four types of

management support systems exist [27]: Decision

Support Systems (DSS), Group decision support systems

(GDSS), Expert Systems (ES) and Executive Support

Systems (ESS).

In order to support management in the decision-

making process, various integrated information systems

are being used, such as ERP systems (Enterprise

Resource Planning), CRM (Customer Relationship

Management), SRM (Supplier Relationship

Management), PLM (Product Lifecycle Management) ,

BI (Business Intelligence) and others [28] [29]. They are

essential for today's management and timely decision-

making, but are not limited to the management role. Ifimplemented, each employee (depending on his

professional position) will have access to the system. In

short, the employees are the ones who have direct contact

with the system as they input information from their field

of action, whereas the higher levels decide on the basis ofreports that the system is creating, not on the basis of the

information entered. The information system follows the

information flow within the company. Regardless of the

type of integrated information system, all of them are

implemented in order to accelerate business processes,increase efficiency and reduce costs [28] [30].

VIII.

CONCLUSION

Information, as the most important resource in the business, opened the business organization to theenvironment and encouraged internal reorganization andredesign of processes, structures and business functions.Companies have turned to modern way of doing business

– the network structures that allow for greater autonomyof the individual business functions, while on the otherhand the concentration of decisive power centralizes in theform of uniting all business information in a virtual unit

called data warehouse.

As the information connection is critical in large

companies, increased development of tools, processes andapplications is required in order to better communicate between the disparate functions, locations and employees.

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Because of more specific activities, productiondislocation, integration with other companies, cooperationwith international partners, and so on, the use of

information technology in business is inevitable. Large

corporations that work in different locations are using ITsolutions for direct communication, but, more important,for the processing, storing and archiving information anddata that is further processed and extracted in the form of

reports required for the future operation of the company.

The existence of multinational companies, andinternational cooperation in general, would be unthinkablewithout the information support today. Most moderncompanies have invested heavily in the development ofinformation activities and their ICT departments, whichare now considered one of the central business functions.Logistics information systems provide greater autonomyand efficiency of business functions while imposingtechnical constraints to control the authenticity of theentered data. The entire business process takes place

within the same system. Cooperation through theinformation system thereby reduces the operating costs ofsending physical documents, saves time and ensures thetimely dissemination of accurate information.

Some companies accept the information technologyonly to reduce costs of the overall business process, whileothers aim for the integration of business functions on the

basis of information connectivity. Therefore, manycompanies see their vision in a successful integration

process in order to speed up the logistics flow andcommunication, avoid loss of information, increase theircompetitiveness and in the end reduce operating costs.

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The modern approach to the analysis of logistics information systems