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CHAPTER 2 Logistics and Information Technology. Learning Objectives To appreciate the importance of effective and efficient utilization of information.

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Presentation on theme: "CHAPTER 2 Logistics and Information Technology. Learning Objectives To appreciate the importance of effective and efficient utilization of information."— Presentation transcript:

1 CHAPTER 2 Logistics and Information Technology

2 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 © 2008 Prentice Hall3-2

3 Logistics and Information Technology Key Terms –Application-specific software –Data –Data mining –Data warehouse –Electronic data interchange (EDI) Key Terms –Electronic procurement (e- procurement) –Enterprise resource planning (ERP) system –Global positioning systems (GPS) –Information © 2008 Prentice Hall3-3

4 Logistics and Information Technology Key Terms –Logistics information system (LIS) –On-demand software –Radio-frequency identification (RFID) –Reverse auction Key Terms –Simulation –Transportation Management System (TMS) –Warehouse Management System (WMS) –Wireless communication © 2008 Prentice Hall3-4

5 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 © 2008 Prentice Hall3-5

6 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 3-6

7 General Types of Information Management Systems 3-7 System typeLogistics examples Office automation system: provides effective ways to process personal and organizational business data, to perform calculations, and to create documents Spreadsheet applications to calculate optimal order quantities, facility location, transport cost minimization, among others Communication system: helps people work together by interacting and sharing information in many different forms Virtual meetings via computer technology 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

8 General Types of Information Management Systems 3-8 System typeLogistics 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 make decisions by providing information, models, or analysis tools Simulation Application-specific software 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

9 General Types of Information Management Systems Office automation system –Process personal and organizational business data –Perform calculations –Create documents  Examples of use –Spreadsheet applications © 2008 Prentice Hall3-9

10 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 © 2008 Prentice Hall3-10

11 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 © 2008 Prentice Hall3-11

12 General Types of Information Management Systems 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 © 2008 Prentice Hall3-12

13 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” © 2008 Prentice Hall3-13

14 Structure and Function of a Logistics Information System © 2008 Prentice Hall3-14

15 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 © 2008 Prentice Hall3-15

16 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 © 2008 Prentice Hall3-16

17 The Internet’s Influence on Logistics Approximately 25% of the world’s population uses the internet – up from 5% at the beginning of the 21 st century 3 Specific Influences on Logistics Include: –Online Retailing –On-Demand Software –Electronic Procurement 2-17 © Pearson Education, Inc. publishing as Prentice Hall

18 The Internet’s Influence on Logistics Logistical Functions & Activities Transportation Warehousing Materials handling Order management Equipment & Materials Bar coding WMSs © Pearson Education, Inc. publishing as Prentice Hall 2-18 Similarities between online retailing and in-store retailing

19 The Internet’s Influence on Logistics 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 orders 2-19 © Pearson Education, Inc. publishing as Prentice Hall Differences between online retailing and in-store retailing

20 The Internet’s Influence on Logistics 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 2-20 Differences between online retailing and in-store retailing © Pearson Education, Inc. publishing as Prentice Hall

21 The Internet’s Influence on Logistics 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 2-21 Differences between online retailing and in-store retailing © Pearson Education, Inc. publishing as Prentice Hall

22 Numerous logistics-related applications –Collaborative forecasting –Inventory optimization –TMSs © Pearson Education, Inc. publishing as Prentice Hall 2-22 The Internet’s Influence on Logistics On-Demand Software

23 The Internet’s Influence on Logistics 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 © Pearson Education, Inc. publishing as Prentice Hall 2-23 On-Demand Software

24 Types of benefits realized from e- procurement include: –Transactional –Compliance –Management information –Price © Pearson Education, Inc. publishing as Prentice Hall 2-24 The Internet’s Influence on Logistics Electronic Procurement

25 Drawbacks of using e-procurement –Security risk –Impersonal © Pearson Education, Inc. publishing as Prentice Hall 2-25 The Internet’s Influence on Logistics Electronic Procurement

26 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 2-26 Information Technology Challenges

27 Case 2-1 JIT in Kalamazoo Located Kalamazoo, Michigan 1-27 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

28 Case 2-1 JIT in Kalamazoo 1-28 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:

29 Case 2-1 JIT in Kalamazoo 1-29 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:

30 Case 2-1 JIT in Kalamazoo 1-30 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:

31 1-31 Case 2-1 JIT in Kalamazoo (Current System) ItemAverage distance from vendor (in miles) Number of units used each week Current lot size purchased Unit costAverage freight cost per unit Gas range1,14510200$100$20 Toilet60610240$80$18 Pump2656125$16$3 Refrigerator (large)226120$110$20 Refrigerator (small)22715$95$15 Foam cushion4906751,500$8$2 CB radio (type D)1,800924$136$11 Dome lights38241,720$2None Awning bracket485401,200$4$1 Insect screen1595701,240$7$1

32 1-32 Case 2-1 JIT in Kalamazoo (JIT) ItemAverage distance from vendor (in miles) Number of units used each week Current lot size purchased Unit costAverage freight cost per unit Gas range1,14510 $105$22 Toilet60610 $100$18 Pump26567$15$4 Refrigerator (large)2266$113$25 Refrigerator (small)2271$85$15 Foam cushion49067575$7$3 CB radio (type D)1,80093$130$26 Dome lights382436$40 Awning bracket4854060$5$1 Insect screen15957050$7$2

33 1-33 Case 2-1 JIT in Kalamazoo (Current System) Item Safety Stock (Unit) Avg. Inv. (Unit) Total Inv. (Unit) Total Inventory ($) Inventory Cost ($/yr) Investment ($/yr) Gas range 40100140$16,800$3,360.0$62,400 Toilet 40120160$15,680$3,136.0$50,960 Pump 5662.5118.5$2,252$450.3$55,328 Refrigerator (large) 66066$8,580$1,716.0$40,560 Refrigerator (small) 77.514.5$1,595$319.0$40,040 Foam cushion 13507502100$21,000$4,200.0$351,000 CB radio (type D) 361248$7,056$1,411.2$68,796 Dome lights 8248601684$3,368$673.6$85,696 Awning bracket 5406001140$5,700$1,140.0$140,400 Insect screen 11406201760$14,080$2,816.0$237,120 $96,111$19,222.1$1,132,300

34 1-34 Case 2-1 JIT in Kalamazoo (JIT) Item Safety Stock (Unit) Avg. Inv. (Unit) Total Inv. (Unit) Total Inventory ($) Inventory Cost ($/yr) Investment ($/yr) Gas range 40545$5,715$1,143.0$66,040 Toilet 40545$5,310$1,062.0$61,360 Pump 563.559.5$1,131$226.1$55,328 Refrigerator (large) 639$1,242$248.4$43,056 Refrigerator (small) 70.57.5$750$150.0$36,400 Foam cushion 135037.51387.5$13,875$2,775.0$351,000 CB radio (type D) 361.537.5$5,850$1,170.0$73,008 Dome lights 82418842$3,368$673.6$171,392 Awning bracket 54030570$3,420$684.0$168,480 Insect screen 1140251165$10,485$2,097.0$266,760 $51,146$10,229.1$1,292,824


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