CHAPTER 3 Logistics and Information Technology. Learning Objectives To appreciate the importance of...

CHAPTER 3

Logistics and

Information Technology

© 2008 Prentice Hall

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 understand key differences between the logistics of e-fulfillment and the logistics of traditional fulfillment

3-2


Logistics and Information Technology

• Key Terms– Application-specific

software– Artificial intelligence (AI)– Communication system– Data– Decision support system

(DSS)– Electronic commerce

• Key Terms– Electronic data

interchange (EDI)– Enterprise resource

planning (ERP) system– Global positioning

systems (GPS)– Information

3-3


Logistics and Information Technology

• Key Terms– Logistics information

system (LIS)– Office automation

system– On-demand software– Radio-frequency

identification (RFID)

• Key Terms– Simulation– Transaction

processing system (TPS)

– Voice-based order picking

– 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

• 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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• Office automation system– Process personal and organizational business

data– Perform calculations– Create documents

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• Communication system– Help stakeholders work together by interacting

and sharing information– Examples of use

• Electronic data interchange (EDI)• Virtual meetings• Video conferencing using cell phones• Global positioning systems (GPS)• Voice-based order picking

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• Transaction Processing System (TPS)– Collects and stores information about transactions– Efficient processing of transactions

• Real-time processing• Batch processing

– Electronic data interchange• Benefits/Drawbacks• Global usage

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• Transaction Processing System (TPS) (continued)– Automatic identification technologies

Types:• 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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• Management Information System (MIS) and Executive Information System (EIS)– Convert data into information– 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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• Decision Support Systems (DSS) provide information, models, or analysis tools – Simulation– Artificial Intelligence (AI)– Application specific software– Data mining

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• 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

2-15© Pearson Education, Inc. publishing as Prentice Hall


Logistical Functions & Activities• Transportation• Warehousing• Materials handling• Order management

Equipment & Materials• Bar coding• WMSs

© Pearson Education, Inc. publishing as Prentice Hall

2-16

Similarities between online retailing and in-store retailing


Online 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

In-store Retailing• 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 orders2-17


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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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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• Numerous logistics-related applications – Collaborative forecasting– Inventory optimization– TMSs


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On-Demand Software


Advantages

• Pay-per-use• Faster installation• Less-costly

installation• Smaller IT staff• Regular upgrades • Regular updates

Disadvantages

• Upgrades and updates can be too numerous and too frequent

• Limited amount of customization

• Security issues


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On-Demand Software

• Types of benefits realized from e-procurement include:– Transactional– Compliance– Management information– Price


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Electronic Procurement

• Drawbacks of using e-procurement– Security risk– Impersonal


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Electronic Procurement

• 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 – Decreasing size and increasing portability of

technology devices• Employee resistance to IT

implementations© Pearson Education, Inc. publishing as Prentice Hall

2-24

Information Technology Challenges


Electronic Commerce and Logistics

• Internet impacts include:– Logistics functions

• Transportation• Order management

– Channel design

3-25



• Internet impacts (continued)– Intermediaries

• 4 categories of logistics exchanges– Enhancing procurement services– Matching shippers and carriers– Executing relevant transactions– Transacting with partners

• Application service providers provide access over the Internet to applications and related services that would otherwise have to be located in enterprise computers

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• E-Fulfillment is the coordinated inbound and outbound logistics functions that facilitate the management and delivery of customer orders placed online

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• E-fulfillment– 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

• Traditional Fulfillment– 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


3-28



• E-fulfillment– Products slotted to

facilitate picking smaller orders

– Totes and push carts used

– Packaging is small cartons, envelopes, bags suited to holding small quantities

• Traditional Fulfillment– Warehouse set up to


– Variety of materials handling equipment used

– Packaging generally cartons that hold large volume orders

3-29



• E-fulfillment– 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

• Traditional Fulfillment– 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

3-30

Case 3-1 Sports Car Care

• Two bays for maintenance (Painting, and Repairs)• Time available: 30 working days

1-31

Facts:

• Do repair before painting• Cars needing the least repair time should be taken first• Cars needing the least repaint time should be taken last

Scheduling Priorities:

Cars Repair (days) Paint (days)(P) Porsche 911 Carrera 2 5 2(F) Ferrari Testarossa 1 6(A) Audi S8 9 7(L) Lamborghini Diablo 3 8(A) Bentley Continental GT 10 4

1-32



1. If Tayfun had a sixth car to repair/repaint, could he fit it inside the 30 working days limit? If so, how long could the repairs and paint/repaint take?

2. Somewhat to his embarrassment, Tayfun suddenly learned that only cars built in the United States were to be shown at Pebble Beach. Luckily, he had some in his stable, though they also would need some repairs and painting/repainting. Following are the five U.S.—built cars with their required times for repair and paint/repaint

1-33

Questions:

Cars Repair (days) Paint (days)(Q) Qvale 4 3(F) Ford Shelby 2 7(O) Olds Toronado 8 6(C) Corvette 1 7(D) Dodge Viper 9 5


2. Determine the order of the U.S. cars that are going to be taken into repair and repaint.

3. Draw a Gantt chart of the given work processes.4. Calculate the total least amount of processing time for the work

processes.5. lf Tayfun had a sixth U.S. car to repair/repaint, could he fit it inside

the 30 working days limit? If so how long could the repairs and paint/repaint take?

1-34

Questions:

Case 3-2 JIT in Kalamazoo

• Located Kalamazoo, Michigan

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Company Facts:

• Mini motor homes• Largest component: truck or van chassis• Virtually the entire product was assembled from

purchased components

Product Facts:

Market Facts:• Expanded from local Midwest market a national one


1-36

• 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

Inventory/Warehousing information:


1-37

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.

Questions:


1-38

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?

Questions:

1-39

Case 3-2 JIT in Kalamazoo(Current System)

Item Average distance from

vendor (in miles)

Number of units used each week

Current lot size

purchased

Unit cost Average freight cost

per unit

Gas range 1,145 10 200 $100 $20 Toilet 606 10 240 $80 $18 Pump 26 56 125 $16 $3 Refrigerator (large) 22 6 120 $110 $20 Refrigerator (small) 22 7 15 $95 $15 Foam cushion 490 675 1,500 $8 $2 CB radio (type D) 1,800 9 24 $136 $11 Dome lights 3 824 1,720 $2 NoneAwning bracket 48 540 1,200 $4 $1 Insect screen 159 570 1,240 $7 $1

1-40

Case 3-2 JIT in Kalamazoo(JIT)

Item Average distance from

vendor (in miles)

Number of units used each week

Current lot size

purchased

Unit cost Average freight cost

per unit

Gas range 1,145 10 10 $105 $22 Toilet 606 10 10 $100 $18 Pump 26 56 7 $15 $4 Refrigerator (large) 22 6 6 $113 $25 Refrigerator (small) 22 7 1 $85 $15 Foam cushion 490 675 75 $7 $3 CB radio (type D) 1,800 9 3 $130 $26 Dome lights 3 824 36 $4 0Awning bracket 48 540 60 $5 $1 Insect screen 159 570 50 $7 $2

1-41

Case 3-2 JIT in Kalamazoo(Current System)

Item

Safety Stock (Unit)

Avg. Inv.

(Unit)

Total Inv.

(Unit)

Total Inventory

($)Inventory Cost ($/yr)

Investment ($/yr)

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 3-2 JIT in Kalamazoo(JIT)

Item

Safety Stock (Unit)

Avg. Inv.

(Unit)

Total Inv.

(Unit)

Total Inventory

($)Inventory Cost ($/yr)

Investment ($/yr)

Gas range 40 5 45 $5,715 $1,143.0 $66,040 Toilet 40 5 45 $5,310 $1,062.0 $61,360 Pump 56 3.5 59.5 $1,131 $226.1 $55,328 Refrigerator (large) 6 3 9 $1,242 $248.4 $43,056 Refrigerator (small) 7 0.5 7.5 $750 $150.0 $36,400 Foam cushion 1350 37.5 1387.5 $13,875 $2,775.0 $351,000 CB radio (type D) 36 1.5 37.5 $5,850 $1,170.0 $73,008 Dome lights 824 18 842 $3,368 $673.6 $171,392 Awning bracket 540 30 570 $3,420 $684.0 $168,480 Insect screen 1140 25 1165 $10,485 $2,097.0 $266,760 $51,146 $10,229.1 $1,292,824

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CHAPTER 3 Logistics and Information Technology. Learning Objectives To appreciate the importance of...

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