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, management control, 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. Information System Functionality

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 illustrates logistics 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 the products from the warehouse storage location), shipping (transport of the order to the customer),

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 performance and 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 II. Comprehensive Information System Integration

1. Main contents 1) Integrated Supply Chain System Modules A comprehensive information system initiates, monitors, assists in decision making, and reports 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

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 representatives and 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 SystemsA computer system that has been in operation for a long time, and whose functions are too essential 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 in- formation available to suppliers, financial institutions, transportation carriers, and customers. Internal operating units must be able to share and exchange information on production schedule and status.

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 specific functionality 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. 2. Key concepts and points 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 III. 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

software 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. 2. Key concepts and points 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 IV. Communication 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 practice of communicating information between two organizations electronically instead of via the

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 standard approach 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 to obtaining 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 card readers (contact).

2. Key concepts and points 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