Princilples of Logistics Information

PRINCIPLES OF LOGISTICS INFORMATION
UNIT I:
Logistics information-Meaning & Need forms-LIS-Definition-Information functionality-activities

involved in transaction system-Principles of designing or evaluating LIS applications.
UNIT II:
LIS Architecture-components-Two forms of forecast compound-planning & co-ordination flows and

operating flows-flow and use of integrated logistics information.
UNIT III:
Information forecasting: Definition-process- component-characteristic of forecast compound

approaches- forecast techniques- forecast error.
UNIT IV
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Information Technology and logistics-Electronic data interchange-personal computers-Artificial
intelligence/Expert system-communications bar coding & scanning. Electronic data interchange
standards-communication, information & future directions
UNIT V
Information technology for supply chain management-Bull whips effect-IT in supply chain-Business
process reengineering-enterprise resource planning-EDI problems with EDI-impact of internet on
SCM.
CONTENTS
Unit I Page No.

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Lesson 1 Introduction To Logistics Information
Lesson 2 Designing Logistics Information System
Unit 11
Lesson 3 Logistics Information System Architecture

Lesson 4 Logistics Information System Flow
Unit Iii
Lesson 5 Forecasting
Lesson 6 Forecasting Techniques
Unit Iv
Lesson 7 Electronic Data Interchange

Lesson 8 Information Technology
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Unit V
Lesson 9 Information Technology For Supply Chain Management

Lesson 10 Enterprise Resource Planning
Lesson 11 Business Process Re-Engineering
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UNIT I
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LESSON I
INTRODUCTION TO LOGISTICS INFORMATION
CONTENT
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1.0Aims and objective
1.1 Introduction
1.1.1 Logistics: The Inputs
1.1.2 Logistics: The Database and Its Associated Manipulations
1.1.3 Logistics: The Output
1.1.4 Logistics Information-Meaning
1.2 Logistics Information SystemFunctionality
1.3 Logistics Information Needs
1.4 Desired Characteristics of LIS
1.5 Let us sum Up
1.6 Lesson End Activity
1.7 Key words
1.8 Question and Answer
1.9 Suggested Reading
1.0 AIMS AND OBJECTIVE

After studying this lesson, you should be able to:
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 Know the need for logistics and information.
 Know characteristic of LIS
1.1 INTRODUCTION
Logistics is the field of study to focus on the design and implementation of the efficient
flow and storage of goods from the point of origin to the point of consumption.
Information system is the field of study to deal with problems against the design,
development, implementation, application of information system.
Logistics information system is a new discipline that unifies both logistics and information
system.
Logistics is viewed as the competency that links an enterprise with its customer and suppliers.
Information from and about customer flows through the enterprise in the form of sales activity,
forecasts and order. The whole process is viewed in terms of two interrelated efforts
a. Inventory flow
b. Information flow.
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Information flow is the key elements of logistics operation. Paper based information flow
increases both operating cost and decreases customer satisfaction. Electronic information movement
and management provide the opportunity to reduce logistics expense through increased coordination
and to enhance service by offering better information to customers.
Information was often overlooked because it was not viewed as being important to customer. The
council of Logistics Management recognized this change in 1918 when it incorporated material, in
process, finished goods and information into definition of logistics.
Converting data to information, portraying it in a manner useful for decision making, and
interfacing the information with decision-assisting methods are considered to be at the heart of an
information system. Logistics information systems are a subset of the firm’s total information
system, and it is directed to the particular problems of logistics decision making.
There are three distinct elements that make up this system:
1. the input
2. the database and its associated manipulations
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3. and the output
1.1.1 Logistics: The Inputs
The inputs are data items needed for planning and operating logistics system obtained from sources
like customers, company records, and published data and company personnel.
1.1.2 Logistics: The Database and Its Associated Manipulations
Management of the database involves selection of the data to be stored and retrieved, choice of the
methods of analysis and choice of the basic data-processing procedures.
1.1.3 Logistics: The Outputs
The outputs of a logistics information system include:
1. summary reports of cost or performance statistics,

2. status reports of inventories or order progress,
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3. exception reports that compare desired performance with actual performance, and
4. reports that initiate action.
Output can also be in the form of documents such as transportation bills of lading and freight bills.
1.1.4 Information logistics (IL) deals with the flow of information between human and / or machine
actors within or between any numbers of organizations that in turn form a value creating network. IL
is closely related to information management, information operations and information technology
Information Logistics (IL) may be used in two ways. First it can be defined as "managing and
controlling information handling processes optimally with respect to time (flow time and capacity),
storage, distribution and presentation in such a way that it contributes to company results in
concurrence with the costs of capturing (creation, searching, maintenance etc)." Thus IL utilizes
logistic principles to optimize information handling. Second IL can be seen as a concept using
information technology to optimize logistics.
1.2 LOGISTICS INFORMATION SYSTEM FUNCTIONALITY
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Logistics information systems are the threads that link logistics activities into an integrated process.
The integration builds on four levels of functionality:transaction, management, control,and decision
analysis and strategic planning system.
a. Transaction system: The most basic level is the transaction system, initiates and records
individual logistics activities. Transaction activities include order entry, inventory assignment,
order, selection, shipping, pricing, and invoicing and customer inquiry.
For example, customer order receipt initiates a transaction as the order is entered into the
information system.
The order entry transaction initiates a second transaction as inventory is assigned to the order.
A third transaction is then generated to direct the material handlers to select the order.
A fourth transaction directs the movement, loading and delivery of the order.
The final transaction prints or transmits the invoice for payment. Throughout the process,
order status information must be available when customers desire such information. Thus the
customer order performance must be available
when customer desires such information. Thus, the customer order performance cycle is
completed through a series of information system transaction. The transaction system is
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characterized by formalized rules;inter functional communication, a large volume of
transactions and an operational day –to –day focus.
b. Management control system: This focuses on performance measurements and

reporting.Performance measurement is necessary to provide management feedback regarding
service level and resource utilization. Thus, management control is characterized by an
evaluative, tactical, intermediate- term focus that evaluates past performance and identifies
alternatives. Common performance measures include financial, customer service, productivity
and quality indicators.
c. Decisionanalysis: This focuses on decision applications to assist managers in identifying,

evaluating and comparing logistics strategic and tactical alternatives. Typical analyses include
vehicle routing and scheduling, inventory management,facility location, and cost- benefit
analysis of operational trade offs and arrangements.
Decision analysis must include database maintenance, modeling and analysis and reporting
components for a wide range of potential alternatives. Similar to the management control level,
decision analysis is characterized by a tactical, evaluative focus. Unlike management control,
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decision analysis focuses on evaluating future tactical alternatives, and it needs to be relatively
unstructured and flexible to allow consideration of a wide range of options.
d. Strategic Planning: Focuses on information support to develop and refine logistics strategy.
These decisions are often extensions of the decision analysis level but are typically more
abstract, less structured and long term in focus. Examples of strategic planning decision
include synergies made possible through strategic alliances, development and refinement, of
firm capabilities and market opportunities, as well as customer responsiveness to improved
service.
Figure 1.1 Functionality of LIS
Characteristics Justification
High risk and extensive operation
Analysis and evaluation

Strategic planning Competitive advantage
Significance user expense and training, 15

effectiveness -driven focus
Identification and evaluation of
Performance control systems competitive alternative
Decision analysis
Management control
Transaction system
Check your progress 1
True or false
1. The transaction system, initiates and records individual logistics activities

2. Customers, company records, and published data and company personnel
are the inputs of LIS.
3. Management control system focuses on performance measurements and
reporting.
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1.3 LOGISTICS INFORMATION NEEDS
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 Using information more effectively is the single most important source of competitive
advantage for business firms today. Leading business firms the world over keep their
information arm strengthened for business logic to look beyond market logistics in a dynamic
environment.
 Logistics is an information-based process of material movement across the supply chain, and
hence information is a major factor for enhancing logistics competitiveness.
 Logistics is an information-based process of material movement wherein the flow of
information is the key to the success of logistic operations.
 The starting point of the information in logistics is the customer order. The customer
spells out his needs and passes it on to the supplier in the form of a document either paper
or electronic. Depending on the needs in terms of product quantity, product variety, place
of use and urgency the logistical operation chain is activated at the supplier's end to fulfill
the customer's requirement at the right place, at the right time and with least cost.
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 Information flow starts with the customers and ends with suppliers via distribution,
manufacturing and procurement centers. At each of the above places, decisions are taken
based on the information fed.
 The degree of success of the decisions largely depends on the information quality and
timeliness.
 With the advancement in information and communication technologies, the speed of
information analysis and flow has increased tremendously.
 Efficiency and Effectiveness of logistics operations have improved considerably, which in
turn has led to increasing the level of customer satisfaction.
 The electronic movement of information helps reduce the cost of logistics operations due to
increased coordination between various activities across the supply chain. Moreover, decisions
are taken on real-time basis, minimizing the risk element.
1.4 DESIRED CHARACTERISTICS OF LIS
The need for information support of an organization, for planning and implementing
logistics Decision depends on the objectives. The quality of management decisions in logistics
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will depend on the quality of the information generated by the LIS. The criticality of a decision
will determine the speed andaccuracy needs of the desired information. However, to reduce the
risk involved in decision- making the following features are required to be considered while
designing the LIS (see Figure 1. 2).
Figure 1.2: Characteristics of Logistics Information System
Accuracy 20
Accuracy:
Increased accuracy in measuring inventory level reduces decision uncertainty. Accuracy

with regard to inventory can be defined as the degree to which the information generated
through the reports matches with that of the physical counts. Ideally, an inventory, counted
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physically, should match the one reflected in the LIS report. If there is a deviation, it is
necessary to maintain a buffer stock to take care of the deviation. A high degree of accuracy
always helps minimize the risk element in making a decision.
Availability:
Operating-level data is frequently required to prepare status reports in different formats for
various management levels in an organization. This information should be readily available and
retrievable. For example, if a customer wants to know the status of his order, or the
management wants information on current inventory levels to make a commitment to some
large client of strategic importance, LIS should be designed to respond to such queries
immediately, as these are based on operating-level information.
Timeliness:
The addition or subtraction of information should be on a real-time basis. For example, the
delays in customer order registration and order processing will give an incorrect picture of
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orders on hand'. The procurement actions initiated on the basis of an incorrect report will create
material shortages in future, particularly for long delivery parts. In another case, the material
allocations based on old report may create problems in providing services to the important
customer .Updates on information for additions or deletion should be taken care of before the
periodic reports are due for generation. Cut-off dates for updates may be fixed daily, weekly or
monthly, depending on the periodicity of report generation.
Flexibility:
Flexibility refers to information requirements in the formats needed by the internal users
and the external customers of an organization. Internal users may require information in OIW
particular format, while the customer who places a very large order for a Greenfield project
requires order status reports periodically in different formats to forward to his bankers, top
management, government and so forth. The LIS should be designed for such flexibility.
Format:
In an organization, decisions are taken at various levels. The degree of criticality,
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frequency and impact varies with the authority level making the decision. Obviously, the format
in which the information is required differs with the authority making the decision. LIS should be
designed to satisfy the information needs of system users in the format of their choice.
At the top management level, a half-page status report on inventory level is sufficient to decide
on the funds requirement; while the materials manager will call for a status report on A-class items,
leaving the decision for B-class items to his subordinates.
Interactive:
It is not practically possible for human beings to predict all deviations, particularly when
operating-level activities are voluminous. If the safety or reorder levels of the inventory dangerously
deviate from the norms, LIS should bring this to the notice of the system users by way of generating
an exceptional status report. Any deviation, especially in the case of large orders from strategic
clients, should be highlighted to the concerned users. The exceptional reports help managers to focus
on the critical areas of deviations to take timely corrective actions. Hence, for the large organizations
especially, there is a real need of LIS, which highlightsexceptional situations that are sometimes not
noticed by executives who are too busy making decisions on the reports generated regularly. The
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expert systems or the information systems based on artificial intelligence help the management to
look for solutions to the problems that were earlier encountered and resolved by the experts. '
Check your progress2
Fill in the blanks
1. The flow of -----------------is the key to the success of logistic

operations.
2. The degree of success of the decisions largely depends on the
information ------------------ and -----------------------.
3. ----------------------is a system that companies use to move raw
materials or finished products.
4. The starting point of the information in logistics is the
---------------order.
1.5 LET US SUM UP
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Information is necessary to have as added advantage on competitor.Technology in information
processing keeps Company and customer both updated. Customer is satisfied as he can easily track
his consignment.Company also can track the consignment to have an idea of maximum limit taken
for the said delivery.
1.6 LESSON END ACTIVITY
Illustrate from your experience an example where failure to perform on an integrated basis has
resulted in service failure.
1.7 KEY WORDS
Inventory flow:Inventory flow is a system that companies use to move raw materials or finished
products.
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Artificial Intelligence: Artificial intelligence (AI)is the intelligence exhibited by machines or
software
Expert System: In artificial intelligence, an expert system is a computer system that emulates the
decision-making ability of a human expert.
1.8 QUESTION AND ANSWER
Q1. Define Information. Give the basic requirements of an input.
Q2. Explain LIS and the need for the same.
Q3. Explain the characteristics of LIS.
Q4. Explain the functionality of LIS with suitable diagram.
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Check your progress: Model Answers
CYP1
\ 1. True
2. True
3. True
CYP 2
1. Information
2. Quality and Timeliness
3. Inventory Flow
4. Customer
1.9 SUGGESTED READING

 Agrawal : Textbook of Logistics and Supply Chain Management: Macmillan Publishers India
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2003.
 Ballou:Business Logistics/Supply Chain Management, Pearson India, New Delhi, 2011, 5 th
edition.
 Bowesox: Logistical Management: The Integrated Supply Chain Process (English) 1st Edition,
Tata Mcgraw Hill Education Private Limited: 2005
 Martin Christopher: Logistics and Supply Chain Management Strategies for Reducing Cost
and Improving Service 2nd Edition, Pearson Education Published In:2006
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LESSON 2
DESIGNING LOGISTICS INFORMATION SYSTEM
CONTENT
2.1 Introduction
2.2 Designing logistical information system
2.3 Logistical Information System Levels
2.3.1 Operating Level

2.3.2 Tactical level
2.3.3 Control Level
2.3.4 2.3.4 Strategic Level
2.4 Let us sum Up
2.6 Key words
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 Know the designing logistical information system
 Know the logistics information system levels
2.1 INTRODUCTION
Information Flow is a key element of logistics operations. Common forms of logistics information
include customer and replenishment orders, inventory requirements,warehouse work orders,
transportation documentation and invoices. In the past, information flow was largely paper-based
and resulted in slow, unreliable and error- prone information transfer. Paper- based information flow
both increases operating cost and decreases customer satisfaction. Since technology costs are
declining and usage is easier, applications offer logistics managers the capability to more efficiently,
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effectively and rapidly move and manage information electronically. Electronic information
movement and management provide the opportunity to reduce logistics expense through increased
coordination and to enhance service by offering better information to customers.
2.2 DESIGNING LOGISTICS INFORMATION SYSTEM
The information system is an interacting structure of people, equipment, methods and control,
designed to create information flow in the required format for the user to make the decision to reduce
the risk element. Like the management information system (MIS), which is designed morn for
general management information needs, the logistics information system (LIS) caters to the specific
information needs for decision making in the areas of logistics management. LIS basically consists
of the following elements:
 Information sources
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 Information collection system
 Storage
 Processing
 Retrieval
 Report formatting
 Information Sources:
There are two basic resources for information, namely external customers and the internal
departments or functional areas of the enterprise.
 Information Collection System:
Customer order may come in the form of a purchase order through mail, fax or electronic data
exchange (EDI). This information may be fed into the system, manually if it is in paper form.
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Information in electronic form will be directly decoded and entered into the LIS. The customer order
may be assigned a particular code (bar code) to track and trace it by various internal information
users. .
From internal sources the information may be collected and punched manually or fed into the
system electronically by using "an automatic identification technology such as bar coding, radio
frequency tags and voice interactive system.
 Storage:
Information storage is done on magnetic tapes, CDs or the hard disk of centralized computers. With
advanced data storage systems based on the magnetic principle, it is possible to store voluminous
data.
 Processing:
Today, with advanced computer technology using microchips, instant processing of voluminous data
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with .great accuracy is possible. However, selection of the right computer system for a given
application needs to be done cautiously, keeping in view the objectives, investment cost and
maintenance capabilities.
 Retrieval:
An advanced computer data warehousing and mining system will facilitate instant data
retrieval at user terminals spread across the system.
 Report Formatting:
The appropriate software designed for the installed system makes it possible
to generate reports for users in the required formats. The above system elements need to be
configured as per requirements of various users of the system. However, the over-designed system
will have the various capabilities, but the cost will be prohibitive; while the low-cost system will not
be capable of satisfying the needs of all the system users, Hence, the trade-off may be thought of for
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cost and the system capabilities for the given application. Non-value-added system output
capabilities may be identified and taken out of the system to reduce investment cost.
Information for decision-making is required at all levels of logistics management. However,
the type of information depends on the authority level and the criticality of the decision.
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2.3 LOGISTICS INFORMATION SYSTEM LEVELS
Operating Level
Order Registration
Order Processing
Inventory Planning
Warehousing and Distribution
Transportation & Delivery
Tactical Level Strategic Level

Inventory Management Capability and Capacity Planning
Facility planning Logistic Information System
Alliances and Partnership
Channel Integration Customizing
Vehicle Route Planning and Scheduling
Outsourcing
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2.3.1Operating Level:
This starts with the receipt of an order from the customer. The operating-level components that
need to be coordinated are order registration; order processing, procurement, order filling, pack-
aging and transportation. The information system is needed for logistics system efficiency in
handling the voluminous multiple activities.
 Order Registration:
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This is the entry point for customer order. A purchase order may be received through the mail,
fax, email or EDI (Electronic Data Interchange) format. The order is then edited in the system to
check for the prices, quantities, taxes, levies, and delivery period and payment terms as agreed
during the sales negotiation or as per the enterprise's acceptable norms. Any deviations are to be
brought to the notice of the customer for issuing amendments. The order is acknowledged and
confirmed to the customer for acceptance after ensuring that inventory availability and delivery
dates conform to the customer's expectations. The main job at order registration is scrutiny, finding
deviations if any, communicating with the customer for issuing amendments and acknowledgement
of order.
 Order Processing:
Once the order is registered and confirmed for execution, the system looks for the inventory in
the network. The available warehouse stock is first checked and inventory allocation is done. In case
an item is not available at the warehouse, the system looks for the availability of the item across the
work-in-progress inventory and assigns the inventory from the next batch. If an item is not even
scheduled for production in the near future, action for its procurement from other distribution
centers is initiated or arrival of the next lot is awaited. The various functions covered under order
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processing are:
Inventory allocations
Creating orders and follow-up of order backlogs
Filled order document generation
Verification of orders
Linkage with other distribution centers
Inventory replenishment
 Inventory Planning:
Planning for procurement is based on the forecast for new orders and the accumulated backlog.
It covers forecast analysis and modeling; historical analysis of inventory movement; forecast
selection; inventory simulation and inventory requirement planning based on new orders expected
and pending backlogs; and inventory replenishment scheduling and inventory build-up scheduling.
LIS here does all the coordination activities for inventory and material movement across the supply
chain. After raw materials are received, it tracks them to the manufacturing schedules for obtaining
the finished goods to complete the order backlog and fill new orders.
 Warehousing and Distribution:
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LIS, for warehousing, typically covers the following:
Allocation and assigning of storage space
Distribution of inventory to various field distribution centers
Material handling
Inventory replenishment
Inventory control
The LIS is more concerned with maximizing warehouse productivity.
 Procurement:
The LIS is not a part of the procurement system; however, the' role of LIS in procurement
is to coordinate inventory procurement by way of preparing inventory forecast, coordinating the
transportation, organizing, receiving, managing raw material stores, and issuing of material for
manufacturing schedules. It looks into lot size optimization for reducing transportation and
handling charges.
 Transportation and Delivery:
Transportation and delivery involves three parties, namely, the consigner, carrier and the
consignee. The information system effectively coordinates these three parties. It helps to plan,
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execute and manage activities related to the movement of goods across the supply chain. The
decisions on the mode selection for freight optimization, carrier selection for lowest freight
rates and reliable service, and shipping schedules are possible through the information
integration through LIS. For efficient and effective movement of goods, integration and sharing
of information across consigner, carrier and consignee is done by LIS, which also focuses on
generation of documents such as orders, invoice, delivery 'notes, packing list, and so on. LIS
helps in reducing transportation cost and helps in increasing the planning capability of the
logistics department. '
2.3.2 Tactical level
At the tactical level, the information system is required to provide information for making
decisions on the formulation and implementation of logistical strategies. The decision process
here requires the information for bringing in effectiveness in the logistics system; The following
are typical decision areas wherein information analysis is required for evaluating tactical
alternatives.
 Facility Planning:
Facility planning requires a crucial decision to be made and involves financial
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commitments. The decision may be for a new facility or' for expansion of the existing facility.
The requirements of warehousing space and storage system are based on expected volumes of
product throughput. However, the information available at other distribution centers with
respect to throughput may help as guidelines in designing the new facility. The expansion plan
can be initiated only after certain throughput levels are reached at the existing facilities. Hence,
for facility Investment decisions LIS is required to provide an analysis of capacity utilization of
the existing facilities with respect to their throughput level. The data on competition may help
in the facility planning exercise. Even though these decisions are not made frequently, the LIS
is required to support those decisions by making information and analysis available as and
when these are required.
 Vehicle Routing and Scheduling:
Transportation is a major cost element in logistics. Vehicle routes are planned to have
wider distribution coverage so that per unit transportation cost is minimum. The information
system here needs to provide information on route length, the unloading and loading points en
route, and the time taken for the vehicle to reach the destination. The replenishment frequency
at various distribution centers, and the shelf life of the products. Depending on the
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replenishment frequency, vehicle schedules can be increased or reduced. In a complex situation
Involving multiple routes and distribution points, decision models based on linear programming
using computers are recommended. For product distribution to a large network of petrol pumps
across the country (from various refineries), petroleum companies need to optimize the
distribution system. So, elaborate exercises on route planning and vehicle scheduling using the
linear programming model are undertaken by them to reduce the distribution cost, which is as
high as 15-17 per cent of the product cost. Same is the case with dairy companies. A dairy
company with many milk collection points (numbering around 300-1000, depending on company
size), needs to make decisions on route planning of vehicles, keeping the crucial time factor in mind
for their perishable product.
 Inventory Management:
A logistics system's effectiveness is judged by the trade-off between the level of customer
service and the level of inventory being maintained to support it. A high inventory turnover ratio is a
sign of good inventory management. A decision on the inventory requires information on stock
levels across factory, distribution centers and channel members, the route travel time and vehicle
scheduling to meet customer demand at the right place and at the right time. Supplies to customers
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can be organized on a frequent basis in small batch quantities and can similarly be replenished
internally with proper planning. Hence, the timely decision on inventory is possible with LIS which
is designed for accuracy and speed in information flow.
 Channel Integration:
A logistics program, without close coordination with the channel members' requirements, will
have a higher probability of failure. Channel members have different inventory requirements in
terms of product varieties, volumes and frequency of replenishment. Hence, the information system
is required to facilitate planning of delivery schedules across the channel to maintain a continuous
inventory supply, keeping a minimum level at the distribution centers. The integration of channel
members with the distribution centers is possible only through a properly designed LIS.
 Outsourcing:
This is an area for tactical decisions, for which LIS has to provide information on the current
productivity level and the operating cost of the logistical system in operation. Based on the analysis
of the working of the existing logistic operations, a decision can be made whether the operations are
required to be outsourced or to be performed internally. The role of LIS here is to provide the cost-
benefit analysis of the existing and the proposed outsourced operation for comparison to take an
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appropriate decision.
2.3.3 Control Level:
LIS's major application is in the area of management control. Based on the operating-level
data, LIS is required to generate reports on the performance of various logistics operations. The LIS
isrequired to generate reports on a regular basis on the operating cost of the logistical system. Thu
includes the cost of warehousing operation, operating cost of material handling equipment, wage
bill, freight and utility cost. Deviations can be probed for timely corrective action. Major areas 01
management control that need LIS support are as follows.
 Asset Management:
Asset management is the area wherein LIS helps in evaluating a particular ·asset investment
against its returns and the payback period. The returns will be in terms of improved material
movement, reduced damages, higher throughput and lower cost of operation. LIS is designed to
make these reports on a regular basis to evaluate asset performance.
 Customer Service:
One of the major objectives of the logistics system is to provide excellent customer service.
LIS's focus today is to help management maintain the targeted level of customer service so as to gain
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a competitive edge. Parameters such as order performance cycle, order fill rate, case fill rate, the
number of customer complaints and transit and handling damages will need to be regularly checked
to maintain the level of customer service. LlS feeds the information, along with the operating-level
data analysis, in the required format, as and when required by the management for evaluation
and necessary corrective actions.
 Cost Control:
Inventory-carrying cost, freight, labour cost, equipment operating cost and utility cost are
the major costs that need to be controlled. LIS needs to generate cost reports to control any
deviations.
 System Productivity:
Higher productivity results in reduced operating cost and increased returns on assets.
Hence, LIS needs to generate reports on the productivity level of immovable and movable
assets and labour. Typical ratios such as inventory turnover, number of packages handled per
day, equipment downtime, warehouse throughput and warehouse occupancy are required to be
worked out by LIS to evaluate the productivity of the system.
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2.3.4 Strategic Level
Strategic-level decisions require information support for developing a logistics strategy in

order to gain a competitive edge. These decisions have long-term objectives. The frequency of
such decisions is very low. Decision making requires the analysis of a variety of data collected
at the operating level to build models for strategic decisions. Strategic decisions at this level
include the following.
 Capability and Capacity Planning:
The vision, the mission and the goals of business influence capacity and capability
planning of the LIS. The logistics objectives should be in line with the objectives of the main
business. Capability and capacity planning requires investment decisions. The LIS role here is
to evaluate planning decisions in light of their affects on other functional areas such as
marketing, finance and customer service on a long-term basis. LIS also helps analyze and
valuate the probabilities and pay-offs of various available options.
 Alliances and Partnerships
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The LIS role in this strategic area is to provide the management a base platform to
evaluate the benefits of alliances and partnerships in terms of cost reduction, customer service
speed and revenue generation. LIS helps to work out the return on investment and the payback
period.
 Customizing:
The customizing of services will involve the introduction of value-added services and
resource commitments; LIS needs to help evaluate these decisions in light of the benefits and
cost of customization. It will need to ask who these customers need customization, their
business volumes and what they are paying for. Is it worth committing resources to the
customized services asked for? Who are the other customers affected? Will there be any
opportunity loss? LIS is required to help the management to evaluate the customization
alternatives.
Check Your Progress
Fill in the blanks
1 .Order Registration is the entry point for customer order.

2. A high inventory turnover ratio is a sign of good inventory49
management.
3. The logistics information system (LIS) caters to the specific information needs for
decision making in the areas of logistics management.
2.4 LET US SUM UP
Information is the power and is used as one of the resources to develop a competitive edge in
business today. As logistics is an information-based process of material movement, it has
crucial role in supply chain competitiveness.
Vist http://www.bestlogisticsguide.com in order to find out how to manage information flow

with accuracy.
2.6 KEY WORDS

EDI (Electronic Data Interchange): It is an electronic communication system that provides
standards for exchanging data via any electronic means.
50
Bar Code:is an optical machine-readable representation of data relating to the object to which it
is attached

Q1. Information is the major factor in logistics competitiveness. Explain
Q2. Discuss the desired characteristics’ of LIS and its importance.
Q3. What are the different information requirement levels of LIS.
Check Your Progress: Model Answer
1. Order Registration
2. High inventory
3. Logistics management.

 Ballou, Ronal H, 1993, Business Logistics Mnagment, Englewood Cliffs, NJ:Prentice
Hall.
 Kalakota, Ravi and Andrew B. Whinston, 2000, Electronic Commerce. New York:
Addison- Wesley.
51
 O.Brien,J.1999, Management Information System: Irwin Mc Graw –Hill.
 Yurban, Efraim, Jay Aronson and Ting-Peng Liang.2004. Decisison Support System and
Intelligent System. 7th edition. Englewood Cliffs,NJ:Prentice Hall.
52
UNIT II
53
54
LESSON 3
LOGISTICS INFORMATION SYSTEM ARCHITECTURE

CONTENT
3.1 Introduction
3.2 Planning and Co-ordination
3.3 Operation
3.4 Integrated Logistics
3.5 The Integrated Logistics Model
3.6 Let us sum Up
3.8 Key words
55

 Know the logistics and information system architecture
 Know the planning , co-ordination and operation of the system
3.1 INTRODUCTION
Logistics information systems combine hardware and software to manage, control and measure the
logistics activities discussed in the previous section. Hardware includes computers, input/output
devices, and storage media. Software includes system and application programs used for processing
transactions, management control, decision analysis, and strategic planning. The architecture
includes both the information base to maintain the data warehouse and the execution components.
The information base contains purchase orders, inventory status and customer orders. The data
56
warehouse contains information describing the past activity levels and the current status and is the
basis for planning future requirements.
The execution components initiate, monitor, and measure the activities required to fulfill customer
and replenishment orders. These activities take two forms,
First is the planning and coordination activity to produce and deploy inventory.
Second are the operating activities to receive, process, ship and invoice customer orders.
Planning and co-ordination include the activities necessary to schedule procurement,production and
logistics resource allocation throughout the enterprise. Specific components include definition of
strategic objectives; rationalization of capacity constrains and determination of logistics,
manufacturing and procurement requirements.
Operations include the transaction activities necessary to manage and process orders, operate
distribution facilities, schedule transportation, and integrate procurement resources. This process is
completed for both customer and enterprise replenishment orders. Customer orders reflect demands
57
placed by enterprise customers. Replenishment orders control finished good movement between
manufacturing and distribution facilities.
Inventory deployment and management is the interface between planning/coordination and

operations. Inventory deployment and management monitors and controls the buffer stock whenever
a make to order strategy is not possible.
Figure 3.1 : Logistics Information System Architecture
Co-ordination flow
Strategic Capacity Logistics plan Manufacturi Procuremen
planning plan ng plan t plan
Forecast 58
Inventory deployment
and inventory
management
Operating flow
3.2 PLANNING AND CO-ORDINATION
Logistics system planning/coordination components form the information system backbone for
manufacturers and merchandisers. These components define core activities that guide enterprise
resource allocation and performance from procurement to product delivery.
59
Planning and co-ordination includes material planning activities both within the enterprise and
between distribution channel members. The specific components are
A. Strategic objectives
B. Capacity constrains
C. Logistics requirement
D. Manufacturing requirement
E. Procurement requirement.
Each planning/ coordination component is discussed.
A. Strategic objectives: Primary information drivers for many enterprises are strategic objectives
that define marketing and financial goals. These strategies objectives are typically developed
for a multiyear planning horizon that often included marketing mix plans, and the role of
logistics value added activities such as service level or capabilities. The objectives include
customer base, breadth of products and services, plannedpromotions and desired performance
levels. Marketing goals are the customer service policies and objectives that define logistics
activity and performance targets. The performance targets include service availability, capacity
60
and the quality elements discussed under customer service. Financial strategic objectives
define revenue, sales and production levels, and corresponding expense, as well as capital and
human resource constraints.
The combination of marketing and financial objectives defines the markets,products, services
and activity levels that logistics managers’ must accommodate during the planning horizon.
Specific goals include projected annual or quarterly activity levels such as shipments, dollar
volume, and total cases. Specific events that must be considered include product promotions,
new product introductions, market rollouts and acquisitions. Ideally the marketing and
financial plans should be integrated and consistent. The combination of marketing and
financial strategic objectives provides directions for other enterprise plans. While the process
of establishing strategic objectives is, by nature, unstructured and wide ranging, it must
develop and communicate a plan detailed enough to be operationalized.
B. Capacity Constraints: Capacity constraints and logistics, manufacturing and procurement

requirements evolve from the strategic objectives. Capacity constraints are determined by
internal and external manufacturing, warehousing and transportation resources. Using activity
61
levels defined by the strategic objectives, capacity constraints identify material bottlenecks and
effectively manage resources to meet market demands. Capacity problems can be resolved by
resource acquisition, speculation or postponement of production or delivery. Capacity
adjustments can be made by acquisition or alliances such as contract manufacturing or facility
leasing. Speculation reduces bottlenecks by anticipating production capacity requirements
through prior scheduling or contract manufacturing. Postponement delays production and
shipment until specific requirements are known and capacity can be allocated. It may be
necessary to offer customer incentives such as discounts or allowances in order to postpone
delivery. The capacity constraints introduce the time dimension into the enterprise’s strategic
objectives by considering facility, financial and human resource limitations. These constraints
have a major influence on logistics, manufacturing and procurement schedules.
Capacity constraints link the enterprise’s aggregate operating plan to weekly or daily logistics
requirements. These constraints are a major influence on monthly or weekly production for
each manufacturing location.
62
C. Logistics Requirements: Logistics requirements coordinate the facility, equipment, labor and
inventory resources necessary to accomplish the logistics mission. For example, the logistics
requirement component schedules shipments of finished product from manufacturing plants to
distribution centers and retailers. The shipment quantity is calculated as the difference between
customer requirements and inventory level. Logistics requirement are often implemented using
distribution requirement planning (DPR) as an inventory management and process control tool.
Logistics requirements are the following
a. Forecasts( sales, marketing, input, histories, accounts)
b. Customer Orders (Current Orders, Future Committed Orders, Contracts)
c. Promotions (Promotions, advertising plans)
d. Period Demand ( Inventory –on- hand, planned receipts, period logistics requirement)
Logistics requirement must be integrated with both capacity constraints (upstream) and
manufacturing requirement (downstream) to obtain optimal system performance.
D. Manufacturing Requirements: Manufacturing requirements schedule production resources

and attempt to resolve day –to –day capacity bottlenecks within the materials management
63
system. Primary bottlenecks result from raw material shortages or daily capacity limitations.
Manufacturing requirements determine the master production schedule (MPS) and
manufacturing requirements plan (MRP). The MRP defines weekly or daily production and
machine schedules. Given the MPS, the MRP coordinates the purchase and arrival of materials
and components to support the desired requirements and manufacturing plan.
E. Procurement Requirements: Procurement requirements schedule material releases,

shipments and receipts. Procurement requirements build on capacity constraints, logistics
requirements and manufacturing requirements to demonstrate long term material requirements
and release schedules. The requirement and release schedule is then used for purchasing
negotiation and contracting.
3.3 OPERATIONS
Operations include the information activities required to receive, process and ship customer
orders and to coordinate the receipt of purchase orders. Operations components are:
64
1. Order management
2. Order processing
3. Distribution operations
4. Transportation and shipping
5. Procurement
Each component is described below including a review of key functions and interfaces.
 Order Management: Order management is the entry point for customer orders and inquiries.
It allows entry and maintenance of customer orders using communication technologies such as
mail, phone, fax or EDI. As orders or inquiries are received, order management enters and
retrieves required information, edits for appropriate values and then retains acceptable orders
for processing. Order management can also offer information regarding inventory availability
and delivery dates to establish and confirm customer expectations. Order management, in
conjunction with customer service representatives, forms the primary interface between the
customer and the enterprises LIS.
 Order processing: assigns or allocates available inventory to open customer and
replenishment orders. Allocation may take place on a real time basis as orders are received or
65
in a batch mode. A typical order processing functionality, which includes inventory
assignment, back order creation and processing, order selection document generation, and
order verification.
 Distribution Operations: A Distribution operation incorporates LIS functions to guide
distribution centre physical activities including product receipts, material movement, and
storage and order selection. Distribution operations are often termed inventory control or
warehousing systems. Distribution operations direct all activities within distribution centers
using a combination of batch and real time assignments. In a batch environment, The LIS
develops a list of instructions or tasks to guide each material handler in the warehouse. In a
real time environment, information- directed technologies such as bar coding, radio frequency
communication, and automated handling equipment operates interactively with LIS to reduce
the elapsed time between decision and action. The real time environment, information- directed
technologies provide more operations flexibility and reduce internal performance- cycle time
requirements.
 Transportation and Shipping: With the increased opportunity to reduce cost through better
transport management, contemporary LIS transportation and shipping functionality emphasizes
66
performance monitoring, rate auditing, routing and scheduling, invoicing, reporting and
decision analyses. State of the art transportation and shipping LIS incorporates increased
planning and performance measurement capability.
 Procurement: Procurement manages purchase order preparation, modification and release, in
addition to tracking vendor Performance and compliance. Although procurement systems have
not traditionally been considered part of LIS, the importance of integrating procurement is
obvious when managing the entire supply chain. Integration of procurement and logistics
schedules and activities allows coordination of material receipt; facility capacity and
transportation back haul.
Check your progress
Fill in the blanks
1. -----------------define revenue, sales and production levels, and

corresponding expense.
2. -----------------manages purchase order preparation, modification and
release.
3. ----------------assigns or allocates available inventory to open customer and
replenishment orders
4. Manufacturing requirements determine the --------------------------and
67
manufacturing requirements plan (MRP).
5. Capacity constraints are determined by internal and external
-------------,------------------- and --------------------.
3.4 INTEGRATED LOGISTICS
Integrated logistics is a comprehensive, system-wide view of the entire logistics supply chain as a
single process: from raw materials supply to distribution of finished goods. Integrated logistics
integrates the activities such as physical distribution, materials management. Logistics engineering,
business logistics, logistics management, distribution management and even supply chain
68
management. Even though all the activities vary from one another, they share one key ingredient: the
concept of a continuous, uninterrupted flow of the product.
3.5 THE INTEGRATED LOGISTICS MODEL and FLOW
The integrated Logistics model encompasses the following
i. Procurement
ii. Manufacturing support
iii. Physical distribution
iv. Inventory flow
v. Information flow.
The logistics integration process is viewed in terms of two interrelated efforts- inventory flow and
information flow.
Inventory flow
Manufacturing Procurement suppliers

Custom Physical
support
ers distribution
69
Information
flow
The Logistics process is viewed in terms of two interrelated efforts-inventory flow and information
flow.
1. Inventory Flow: Right from the point of purchase of raw materials and components, the
logistics process adds value by moving inventory when and where needed.
2. Logistical Operations: To understand better, logistical operations are divided into three areas.
(a) Physical Distribution,(b)manufacturing support and(c)procurement. These are all briefly
discussed below:
(a)Physical Distribution is concerned with movement of a finished product to a customer who
is the final destination of the marketing channel.
(b)Manufacturing support: Manufacturing support focuses on managing work-in-process
inventory as it flows through the stages of manufacturing. The primary logistical responsibility
70
in manufacturing is to participate in formulation of a master production schedule (MPS) and to
arrange for timely availability of materials, component parts and work-in-process inventory.
(c)Procurement: Procurement is concerned with purchasing and arranging inbound movement
of materials, parts and/or finished inventory from suppliers to manufacturing and assembly
plants, warehouses or retail stores.
3. Information Flow: This flow Integrates physical distribution, manufacturing support and
procurement.
3.6 LET US SUM UP
Coordinated, integrated operations LIS is the minimum standard for logistics competitiveness today.
Coordination and integration allow smooth and consistent customer and replenishment order
information throughout the enterprise and offer current order statues visibility. While operations LIS
is typically well integrated, it is necessary to continuously review the system to ensure that no
bottlenecks develop and customer flexibility is maintained.
71
How does information technology facilitate formalization of operating processes?
3.8 KEY WORDS

Distribution requirement planning (DPR): Distributions Requirements Planning is the method
used by supply chain entities to plan orders in the whole supply chain taking into account the
inventories to be kept along with buffer or safety stock, placing the orders with the manufacturer
to replenish inventories to meet customer orders, etc.
Master production schedule (MPS): A master production schedule (MPS) is a plan for
individual commodities to produce in each time period such as production, staffing, inventory,
etc. It is usually linked to manufacturing where the plan indicates when and how much of each
product will be demanded.[
Material requirements plan (MRP): Material requirements planning (MRP) is a production
planning and inventory control system used to managemanufacturingprocesses.

72
Q1. Explain the basic principles of LIS
Q2.Explain the components of Operation
Q3. Planning and co-ordination is important for the successful implementation of a LIS. Explain.
1. Financial strategic objectives

2. Procurement
3. Order processing
4. master production schedule
5. manufacturing, warehousing and transportation resources.
6. Customer orders
7. Replenishment orders

 Agrawal : Textbook of Logistics and Supply Chain Management: Macmillan Publishers India
2003.
73
edition.
 Bowesox: Logistical Management: The Integrated Supply Chain Process (English) 1st
Edition, Tata Mcgraw Hill Education Private Limited: 2005
LESSON 4
LOGISTICS INFORMATION SYSTEM FLOW
CONTENT
74
4.1 Introduction
4.2 Logistics Information System Flow
4.3 Elements of LIS Flow
4.3.1 Modules
4.3.2 Data Files
4.3.3 Management and Data Entry Activities
4.3.4 Reports
4.4 Let us sum Up
4.6 Key words
4.0AIMS AND OBJECTIVE

 Discuss the information flow for logistics
75
 Understand the different elements of LIS flow
4.1 INTRODUCTION
Before the advent of computers and information technology, logistical performance had been
affected by lack of suitable technology to generate desired information which was vital for
achieving efficiency and effectiveness in logistical operations. Also management lacked full
appreciated and in-depth understanding of how fast and accurate communication could improve
logistical performance. Today’s state of the art communication and information technology are
capable of handling the most demanding information requirements which may be real-time
basis.
4.2 LOGISTICS INFORMATION SYSTEM FLOW

Logistics is the field of study to focus on the design and implementation of the efficient flow
and storage of goods from the point of origin to the point of consumption.
Information system is the field of study to deal with problems against the design, development,
implementation, application of information system.
76
Logistics information system is a new discipline that unifies both logistics and information
system.
Managers use information to positively control logistical operations to replace forecasting
errors with faster response to customer requirements.
4.3 ELEMENTS OF LIS FLOW

The schematic contains the major system elements including
1. Modules
2. Data Files
3. Management and Data Entry Activities
4. Reports
i. Modules: Modules are the actual routines that process data or information, such as
entering orders or assigning inventory. The LIS flow should incorporate the following
five modules:
e. Order entry
77
f. Order processing
g. Transportation and shipping
h. Distribution operations
i. Inventory management
ii. Data Files: The files contain the data and information base to support the
communications activities. The major database structures that are required for
supporting distribution communication are:
a. Order file
b. Inventory and warehouse files
c. Accounts receivable file
d. Distribution requirements file
iii. Management and Data Entry Activities: The management anddata entry activities
occur when data must be entered into the system or when management must enter a
decision. The general instances for this intervention include:
78
a. Order entry
b. Order inquiry
c. Forecasts development and reconciliation
d. Freight rating
e. Warehouse receipts and adjustments
iv. Reports: The reports consist of numerous summary, detail and exception listings to
provide hard copy information documenting system activities and performance. The
links identify the information flow between the subsystems, files , entry activities, and
reports
Check Your Progress
1. ------------are the actual routines that process data or information, such as

entering orders or assigning inventory.
2. -----------------The files contain the data and information base to support the
communications activities
3. Reports identify the information flow between the
--------------,----------------,------------------ and ---------------------.
4. The major database structures that are required for supporting distribution
communication are --------------------------------.
5. A ----------------.is a price at which a certain cargo is delivered from one
79
point to another.
4.4 LET US SUM UP
Thus, at conclusion we can state that LIS is the backbone of modem logistics operations. In the past,
this infrastructure has focused on initiating and controlling activities required taking, process, and
shipping customer orders. For today’s enterprises to remain competitive, the role of information
infrastructure must be extended to include requirement planning, management control, decision
analysis and integration with other members of the channel.

80
LIS is the backbone of modern logistics operations. Discuss.
4.6. KEY WORDS
 Order entry: This is a process of recording an order into the company'sentrysystem. Once an
order has been entered, the company can view information about this order and make necessary
changes for the entry.
 Freight rating: A freight rate (historically and in ship chartering simply freight) is a price at
which a certain cargo is delivered from one point to another. The price depends on the form of
the cargo, the mode of transport (truck, ship, train, aircraft), the weight of the cargo, and the
distance to the delivery destination.
 Inventory: Inventory or stock refers to the goods and materials that a business holds for the
ultimate purpose of resale (or repair)
Q1. Explain the five modules the LIS flow must incorporate.
81
Q2.What are the major database structures that are required for supporting distribution
communication?
Check Your Progress : Model Answers
1. Modules
2. Data Files
3. subsystems, files , entry activities, and reports
4. Order file, Inventory and warehouse files, Accounts
receivable file, Distribution requirements file
5. freight rate
82
 David J. Bloomberg,Stephen LeMay & logistics,Prentice –Hall of India Pvt Ltd., Joe B Hanna
New Delhi,2003.
 Donald J. Bowersox & David J Closs: Logistical Management ,Tata McGraw Hill Publishing
Co.Ltd,New Delhi,2004
 Satish C. Ailawadi & Rakesh Singh : Logistics Management ,Prentice –Hall of India Pvt
Ltd.,New Delhi,2005
 Donald Waters Logistics ,Palgrave Macmillan, New York,2004
 Krishnaveni Muthiah : Logistics Management & World Sea Borne Trade,Himalaya

Publishing House ,Mumbai,1999
83
UNIT - III
84
85
86
LESSON 5
FORECASTING
CONTENT
5.1 Introduction
5.2 General Forecast Considerations
5.2.1 The Nature of Demand
5.2.2 Forecast Components
5.3 Forecast approaches
87
5.3.1 Forecast Techniques
5.3.3 Forecast Support System
5.3.3 Forecast Administration
5.4 Let us sum Up
5.5Lesson End Activity
5.6 Key words
5.0AIMS AND OBJECTIVE

After studying this lesson, you should be able to
 Know the components of forecasting.
 Know the approaches of forecasting
 Understand the forecasting processes
5.1 INTRODUCTION
88
Forecasts drive logistics information system planning and coordination. A forecast projection or
prediction of the volume or number of units that will likely be produced, shipped, or sold. The
forecast may be specified in unit or dollar terms and may be for an individual item, for a customer,
or aggregated across a number of items and customers. A typical logistics forecast is a prediction for
weekly or monthly shipments from a distribution center for an individual item. Forecasts may be
aggregated across time periods for analysis and reporting.
Characteristics of Good Forecast Compound
A good forecast is should provide sufficient time with a fair degree of accuracy and reliability to
prepare for future demand. A good forecast should be simple to understand and provide information
relevant to production (e.g. units, etc.)Accurate forecast compound allow logistics managers to
smooth resources demands to minimize expensive spikes in both capacity and inventory. Forecasting
increases logistics effectiveness by enabling exchange and coordination of information rather than
inventory.
89
5.2 GENERAL FORECAST CONSIDERATIONS
Forecasting is the prediction of demands by location, stock keeping unit (SKU), and time
period for the purpose of planning logistics operations. To develop an integrated forecast process,
logistics management must consider all possible sources of information and the likely system users.
Prior to determining a forecast process, it is important to understand the nature of demand and the
major forecast components. Each is discussed.
5.2.1 The Nature of Demand
Forecasted demand can be classified as either dependent or independent. Dependent demand is
exemplified by the vertical sequence characteristic of purchasing and manufacturing situations.
Vertical dependence may extend through several channel levels such as raw material suppliers,
components manufacturers, assembly operations and distributors. One example of vertical
dependence would be component parts, such as tires, that are assembled to form finished goods, such
as automobiles. Horizontal dependent demand is a special situation where an attachment, promotion
item, or operator’s manual is included with each item shipped. For example forecast of tennis ball
90
for a promotion that provides free tennis balls with the purchase of a tennis racket.
5.2.2 Forecast Components
Logistics requires a forecasted quantity for planning and coordination. The forecast is generally
a monthly or weekly figure for each SKU and distribution location. While the forecasted quantity is
generally a single figure, the value is actually made up of six components. These components are
base demand, seasonal factors, trends, cyclic factors, promotions, and irregular quantities. Assuming
that the base demand is the "average" sales level, the other components are indexes or factors that
are multiplied by the base level to make a positive or negative adjustment.
The resulting forecast model is
FI = (BIX SI X T X C X PI) + I
Where F1=forecast quantity for period t
B1=base level demand for period t
S1=seasonality factor for period t
T= trend component: quantity increase or decrease per time period
91
CI= cyclic factor for period t
PI = promotional factor for period t
I= irregular or random quantity
While some forecasts may not include all components, it is useful to understand the behavior
of each so that it can be tracked and incorporated appropriately. The Characteristics of each
component are briefly reviewed.
The base demand, is the quantity that is left after the remaining components
have been removed. A good estimate of base demand is the average over an
extended time. The base demand is the appropriate forecast for items that have no
seasonality, trend, cyclic, or promotional components.
The seasonalcomponent is a generally recurring u ward and downward movement in the
demand pattern, usually on an annual basis. An example is the annual demand for toys, with high
demand just prior to Christmas and then low demand during the first three quarters of the year.
The trend component is defined as the long-range general movement in periodic sales over an
92
extended period of time. This trend may be positive, negative, or neutral in direction.
The cyclic component is characterized by swings in the demand pattern lasting more than a
year. These cycles may be either upward or downward. An example is the business cycle in which
the economy has traditionally swung from recession to expansion every three to five years.
The promotional component characterizes demand swings initiated by the firm's marketing
activities, such as advertising, deals, or promotions, These swings can often be characterized by
sales increases during the promotion followed by sales declines as customers work off inventory
purchased to take advantage of the promotion. Promotions can be deals offered to the consumer or
deals offered only to the trade (wholesalers and retailers). The promotion can be regular and thus
take place at the same time each year.
The irregularcomponent includes the random or unpredictable quantities that do not fit within
the other categories. Because of its random nature, this component
is impossible to predict.
93
5.2.3 Forecast Approaches
Forecast can be developed from two perspectives the top-down approach and the bottom-up
approach.
Top-Down Approach
The top-down or decomposition approach, as illustrated in Figure 5.1, develops a national
level SKU forecast and then spreads the volume across Top-Down Approach The top-down or
locations on the basis of historical sales patterns. As an decomposition approach, as illustrated
example, suppose the aggregate monthly forecast for the
entire country is 10,000 units. Assume that the firm uses four
distribution centers to service the demand with a historical
split of 40,30,20, and 10 percent, respectively. In this
situation, forecasts for individual distribution centers are
projected to be 4, 000, 3000, 2000, and 1000, respectively.
94
Figure 5.1 Top- down forecast example.
Plant distribution center
40% 30% 20% 10%
Field distribution Field distribution Field

Field distribution centre # 2 centre # 3 distribution
centre # 1 Forecast Forecast centre # 4
Forecast 4000 2000units Forecast 1000
3000units
units
units
Bottom-up Approach
On the other hand, the bottom-up approach is decentralized since each distribution center
forecast is developed independently. As a result, each forecast can more accurately track and
consider demand fluctuations within specific markets.
True or false
95
1. Irregular or random quantity should not be considered as forecast
component.
2. The cyclic component is characterized by swings in the demand pattern
lasting more than a year
3. Dependent demand is shown by the vertical sequence characteristic of
5.3 THE FORECAST PROCESS
Logistics planning and coordination require the best possible estimate of SKU-
location demand. Although forecasting is far from an exact science, a growing
number of enterprises are implementing integrated forecasting processes that in-
corporate data from multiple sources, sophisticated mathematical and statistical techniques,
elaborate decision support capability, trained and motivated personnel.
The time horizon for logistics operational forecasts is normally one year or less. Depending on the
plan's intended use, forecasts may be required on a daily. weekly, monthly, quarterly, semiannual, or
96
annual basis. The most common forecast period is one month. The important requirement is that the
basic planning horizon be selected to accommodate logistical operations.
Figure 5.2 Effective forecast processes
Forecast Forecast Process Forecast Users
Database
Order Forecast Administration Finance

History Marketing
ForecastForecast Sales
Tactics
Technique Support System Production
Logistics
The development of an effective forecast requires a procedure that integrates three components
97
a. Forecast technique
b. Forecast support system
c. Forecast administration
5.3.1 Forecast Techniques

The forecast technique is the mathematical or statistical computation used to translate
numerical parameters, including history, into a forecast quantity. Techniques include time-series
modeling, in which sales history is a major factor, and correlation modeling, in which relationships
with other independent variables are the major factor. Techniques alone cannot deal with the
complexities that are experienced in modern business forecasting. As a result, it is increasingly
apparent that accurate forecasting requires integration of the forecast techniques with appropriate
support and administrative systems.
5.3.2 Forecast support system
The forecast support system includes the data manipulation capability to gather and analyze
98
data, develop the forecast and communicate the forecast to relevant personnel and planning systems.
This component supports the maintenance and manipulation of the data and allows consideration of
external forecast factors such as the impact of promotions, strikes, price changes,product- line
changes, competitive activity and economic conditions. The system must be designed not only to
allow these changes but actually to encourage them.
5.3.3 Forecast Administration

Forecast administration includes the organizational, procedural, motivationaland personnel
aspects of the forecast function and their integration into the other firm functions. The organizational
aspect concerns individual roles and responsibilities.
Specific questions include: (1) Who is responsible for developing the forecast? (2)
How is forecast accuracy and performance measured? And (3) how does forecast
performance affect job performance evaluation and rewards? Procedural aspects concern individual
understanding of the relative impact of forecasting activities, information systems, and techniques.
99
Check Your Progress 2
True or false
1. The forecast support system must be flexible in nature.
2. Accurate forecasting requires integration past experience and techniques.
3. Accountability is a major factor in successful forecasting.
5.4 LET US SUM UP
It is important to realize that an optimum design requires an integrated and consistent combination
of components. Historically, it was thought that intensive effort in one of the individual components
such as technique could overdo problems in the other components. The design process must
adequately consider the strengths and weaknesses of each individual component and design ~or the
100
optimal performance of the integrated system.
5.5LESSON END ACTIVITY

One company may have several different forecasts to accommodate a single business requirement.
Why do you think the multiple forecast practice develops?
5.6 KEY WORDS

Decentralized: The work or data is scattered and not centralized.
SKU: Stock Keeping Unit

Q1. What are the three components of an integrated forecast process, and how are they related
Q2. How does the nature of demand affect forecast accuracy?
Q3. Compare and contrast the role of the forecast support system and the forecast administration.
Check your progress: Model Answers
CYP1 101
1 False
2. True
New Delhi,2003.
102
Ltd.,New Delhi,2005
 Donald Waters: Logistics ,Palgrave Macmillan, New York,2004
103
LESSON 6
FORECASTING TECHNIQUES
CONTENT
6.1 INTRODUCTION
6.2 TECHNIQUE CATEGORIES

6.2.1 Qualitative Techniques
104
6.2.2 Time series techniques
6.2.3 Casual techniques
6.3 Forecast Error
6.3.1 Error Measurement
6.3.2 Measurement level
6.3.3 Feedback
6.4 Let us sum Up
6.6 Key words
After studying this lesson, you should be able to

 Know the techniques of forecasting
 Understand the applicability of each technique.
105
6.1 INTRODUCTION
Logistical forecasting requires the selection of appropriate mathematical or statistical techniques

to generate periodic forecasts. The effective use of a technique requires matching the
characteristics of the situation with the abilities of the technique. In their classical article,
Makridakis and wheelwright suggest the following criteria for evaluating the applicability of a
technique
:(1) accuracy,
(2) the forecast time horizon,
(3) the value of forecasting,
(4) the availability of data,
(5) the type of data pattern, and
(6) the experience of the forecaster.

106
Each alternative forecast technique must be evaluated both qualitatively and quantitatively with
respect to these criteria.
When it would be advantageous to be able to identify a specific forecast technique (simple or

complex) that is appropriate for each application, the development and evaluation of forecast
techniques are not that exact. The selection of the appropriate technique is much more of an art than
a science. Simply stated, logistical management should choose the technique or techniques that
provide the bad results. The concept of focus forecasting illustrates one approach that is based on
results. Focus forecasting incorporates a number of techniques ranging from very simple to
reasonably complex. For each time period, multiple forecasts are generated for each SKU. Focus
forecasting then applies the forecast using the techniques that would have been the most accurate if it
was used for the most recent historical time period. For example, suppose that it was necessary to
create a forecast to June. At the end of May, focus forecasting would create a forecast for May all
the data available from end of the April, applying a number of techniques. The May forecast for each
technique is compared with May’s actual sales to determine which technique would have been the
107
most accurate for May. The assumption is that the best technique for June is the one that would have
been best for May.
6.2 TECHNIQUE CATEGORIES
There are three categories of forecast techniques: Qualitative, time series, and casuals. The
qualitative techniques use data such as expert opinion and information to forecast the future. A
qualitative technique may or may not consider the past. Time-series techniques focus entirely on
historical patterns and pattern changes to generate forecasts. Casual techniques, such as regression,
use refined and specific information regarding variables to develop a relationship between a lead
event and forecasted activity.
6.2.1 Qualitative Techniques: Qualitative techniques rely heavily on expertise and are quite
costly and time-consuming. They are ideal for situations where little historical data and much
managerial judgment are required. Using input from the sales force as the basis to forecast for a
new region or a new product is an example. However, qualitative forecasts are developed using
108
surveys, panels, and consensus meetings. The next sections provide a detailed discussion of the
time-series and casual techniques.
6.2.2 Time-series techniques: Time-series techniques are statistical methods using historical sales
data that contain relatively clear and stable relationships and trends.Time-series analysis is
used to identify (1) systematic variations in the data resulting from seasonality, (2) Cyclic
patterns,(3) trends, and (4) the growth rate of these trends. Once individual forecast
components are identified, time-serious techniques assume that the future will be similar to the
past. This implies that existing demand in the short term. Thus, these techniques are most
appropriate for short-range forecasting. However, useless the demand patterns are reasonably
stable, techniques do not always produce accurate forecasts.
Time-series techniques include a variety of methods that analyze the pattern and movement of
historical data. On the basis of specific recurring characteristics, techniques of varying
sophistication can be used. Four time-serious techniques are discussed in order of increasing
complexity. They are moving average, exponential smoothing, extended smoothing, and
adoptive smoothing.
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 Moving average Moving average forecasting uses an average of the most recent period’s
sales. The average may contain any number of previous time periods, although one-, three-,
and twelve-period averages are common. A one period moving average results in next
period’s forecast being projected by last period’s sales. A twelve-period moving average,
such as monthly, uses the average it replaces the oldest time period’s data. Thus the number
of time periods included in the average is held constant.Although moving averages are easy
to calculate, there are several limitations. Most significantly, they are unresponsive or
sluggish to change, and a great amount of historical data must be maintained and updated to
calculate forecasts. If the historical sales variations are large, average or mean value cannot
be relied on to render useful forecasts. Other than the base component, moving averages do
not consider the forecast components discussed earlier.
To partially overcome these deficiencies, weighted moving averages have been introduced
as refinements. The weight places more emphasis on recent observations. Exponential
smoothing represents a form of weighted moving average.
n
Si−1
Ft =∑
i=1 n
110
Where Ft =moving average forecast for period t
Si = sales for time period i-1
n = total number of time periods
For example, an April moving forecast based on sales of 120, 150, and 90 for the previous three
months is calculated as follows:
120+150+ 90
FApril
3
=120
 Exponential smoothing Exponential smoothing bases the estimate of future sales on the
weighted average of the previous demand and forecast levels. The net forecast is a function
of the old forecast incremented by some fraction of the differential between the old forecast
and actual sales realized. The increment of adjustment is called and alpha factor. The basic
format of the model is
Ft =Dt−1= (1−α ) Ft −1
Where Ft = forecasted sales for a time period t
Ft −1 = forecast for time period t-1

111
Dt−1 = actual demand for time period t-1
α = alpha factor or smoothing constant (o≤ α ≤ 1.0)
To illustrate, assume that the forecast for the most recent time period was and actual sales
experience was 110 units. Furthermore, assume that the factor is 0.2. Then, substituting,
Ft =αDt −1+ ( 1−α ) Ft −1
= (0.2)(110)+(1-0.2)(100)
= 22+80+102
Thus, the new forecast is for product sales of 102 units.
The prime advantage of exponential smoothing is that it permits a rapid calculation new
forecast without substantial historical records and updating the exponential is highly adaptable to
computerized forecasting. Depending on the value of the smoothing constant, it is also possible to
monitor and change technique sensitivity.
 Extended smoothing The basic model can be expended to include trend and seasonality
considerations. These techniques are known as exponential smoothing with trend and
exponential smoothing with seasonality, respectively.Extended exponential smoothing
112
incorporates the influence of trend and seasonality when specific values for these
components can be identified. The extended smoothing calculation is similar to that of the
basic smoothing model, except the base, trend, and seasonal components. The major
characteristic of extended techniques is that they directly consider trend and seasonal
components. While this is definitely an advantage, it is also a weakness. Extended
techniques are often considered to be overly sensitive because of the inability to correctly
segment the individual forecast components. This oversensitivity may lead to forecast
accuracy problems.
 Adaptive smoothing Adaptive smoothing provides a regular review of alpha factor
validity.The alpha value can be reviewed at the calculation of each forecast period to
determine the exact value that would have resulted in a perfect forecast. Once determined,
the alpha factor used to generate the subsequent forecast is adjusted to a value that would
have produced a perfect forecast. Thus, managerial judgment is particularly replaced by a
systematic and consistent method of updating alpha.More sophisticated forms of adaptive
smoothing include an automatic tracking signal to monitor error. When the signal is tripped
as a result of excessive error, the constant is automatically increased to make the forecast
113
more responsive to smoothing recent periods. If the recent period sales demonstrate
substantial change, increase responsiveness should decrease forecast error. As the forecast
error is reduced, the tracking signals automatically returns the smoothing constant to its
original value.
6.2.3 Casual Techniques forecasting by regression estimates sales for an SKU at the basis of other
independent factors. For example, coffee sales at a football games are usually a function of
temperature. Lower temperatures result in increased sales as table lists temperature and coffee
consumption for the home games over the last two seasons. Using linear regression with
temperature as the casual of independent variable, the quantitative relationship is illustrated at
the bottom of the table. The regression equation (y=49.775-0.45x) demonstrates that for the
degree of temperature increase (x value increases by 1), the coffee consumption declines by
450 cups (0.450 X 1̊FX1,000 cups). The correlation coefficient commonly included with
regression analysis, defines the proportion of variable the dependent variable (i.e., coffee
consumption) by the independent variable of (temperature). The correlation coefficient can
range from 0 to 1with a value of a indicating that the independent and dependent variables
114
perfectly correspond is this example, change in temperature explains 88 percent of the change
in coffee consumption.
Table 6.1 FOOTBALL COFFEE CONSUMPTION AND TEMPERATURE
Date Temperature Coffee consumption
(̊̊ F) (000cups)
9/10 65 21
9/24 42 32
10/1 58 19
10/15 32 29
10/29 28 40
11/12 20 43
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9/16 72 18
9/30 62 24
10/14 40 33
10/21 56 24
11/11 25 36
11/18 30 38
Y=49.775-0.45x r2=0.88
Where y=coffee
consumption
X=temperature
116
If a good relationship can be identified (such as between temperature and coffee consumption),
the information can be used to effectively predict requirements this example, the anticipated
requirements for coffee, cups, sugar, and cream can be determined in advance using the weather
forecast. Causal or regression forecasting works well when a leading variable such as temperature
can be identified. However, such situations are not particularly common for logistics applications.
If the SKU forecast is based on signal factor, it is referred to as simple regression analysis. The
use of more than one forecast is known as multiple regression.
Regression forecasts use the correlation between a leading or predictable event and the dependent
SKU’s sales. No cause-effect relationship need exist between the product’s sale and the
independent event if a high degree of correlation is consistently present. A correlation assumes
that the forecasted sales are preceded by some leading independent factor such as the sale of a
related product. However, the most reliable use of regression forecasting of sales is based on a
cause-effect relationship. Since regression can effectively consider external factors and events,
causal techniques are more appropriate for long-term or aggregate forecasting. For example, they
are commonly used to generate annual or national sales forecasts.
True or False
117
1 Qualitative techniques rely heavily on expertise and are quite costly and time-consuming.
2 Historical sales data are not required for forecasting.
3 Exponential smoothing incorporates the influence of trend and seasonality
4 Logistics requires forecast quantity for planning and coordination.
6.3 . FORECAST ERROR
Forecast accuracy refers to the difference between corresponding forecasts and actual sales.
Forecast accuracy improvement requires error measurement and analysis. There are three steps
for reducing forecast error. They are discussed below
6.3.1 Error Measurement
Forecast error can be measured on either an absolute or a relative basis using a number of
methods. While forecast error can be defined generally as the difference between actual demand and
forecast, a more definition is needed for calculation and comparison.
6.3.2 Measurement Level
118
The second step considers measurement level or aggregation. Assuming that individual SKU
detail is recorded, forecast error can be calculated for individual SKU-location combinations, for
groups of SKUs or locations, and nationally. Generally, more aggregation results in lower relative
forecast errors.
6.3.3 Feedback
The third step is to establish appropriate forecast feedback loops so that the process can be
improved. Forecast improvement results when individuals are motivated to identify problems and
improvement opportunities and are recognized with bonuses or competitive rewards. With
appropriate motivation, forecasters can identify major sources of error and develop techniques and
information to reduce them. In some cases more sophisticated forecasting techniques such as focus
forecasting have led to dramatic improvements. In other cases, it is possible to significantly reduce
forecast error through improved communication regarding marketing activities such as price
changes, promotions, or package changes. When evaluating forecast performance, it is important to
recognize perfect forecast is not likely and thus expectations should not be set too high.
Fill in the blanks
1. Forecast accuracy refers to the difference between ------------and -------------

2. The use of more than one forecast is known as --------------------.
119
3. Extended ----------------incorporates the influence of trend and seasonality

6.4 LET US SUM UP
Through the forecast the enterprises establishes common volume goals to guide the entire logistics
system. These goals identify the “ what, where and when of product sales. The objective is to
assimilate as much information as possible, analyze it and develop a forecast with the desired
accuracy in a timely manner. Forecast improvements- through either information sharing, through
analysis or increased expertise- result in significant inventory reductions.

Why is accountability a major factor in successful forecasting?
6.6 KEY WORDS

SKU: Stock Keeping Unit
Mean Absolute Deviation:the average absolute deviation or simply average deviation of a data set is
the averageof the absolute deviations and is a summary statistic of statistical dispersionor variability.
120
Q1. What factors are relevant to determine the level of sophistication required for a forecast
technique?
Q2. Compare and contrast the basic logic behind time series and casual forecast techniques.
Q3.What is the fundamental difference in logic between moving average and exponential
smoothing.
Check your progress : Model Answer
CYP 1
1. False
2. False
3. True
4. True
CYP2
1. Corresponding forecasts and actual sales.

2. Multiple regression
3. Exponential smoothing
121
New Delhi,2003.
Ltd.,New Delhi,2005
 Donald Waters: Logistics ,Palgrave Macmillan, New York,2004
 Krishnaveni Muthiah : Logistics Management & World Sea Borne Trade,Himalaya Publishing
House ,Mumbai,1999
122
UNIT - IV
123
124
125
LESSON 7
ELECTRONIC DATA INTERCHANGE
7.0 Aims and objective
7.1 Introduction
7.2 Definition of Electronic Data Interchange
126
7.3 Five key benefits of Electronic Data Interchange (EDI)
7.4 Electronic data Interchange Standards
7.4.1 Communication Standards
7.4.2 Information Standards
7.5 Future Directions
7.6 Let us sum up
7.8 Key words

 Know the concept of EDI
 Know the benefit of EDI to business world
 Understand thedifferent EDI Standards.
127
7.1 INTRODUCTION
EDI is identified as intercompany computer-to-computer exchange of business documents in
standard formats. EDI describes both the capability and practice of
communicating information between two organizations electronically instead of
via the traditional forms of mail, courier, or even fax. The capability refers to the.
ability of computer systems to communicate effectively. The practice refers to the
ability of the two organizations to effectively utilize the information exchanged.
7.2 DEFINITION OF EDI
Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a

standard electronic format between business partners.
EDI documents use specific computer record formats that are based on widely accepted standards.
However, each company will use the flexibility allowed by the standards in a unique way that fits
their business needs.
128
Each term in the definition is significant:
 Computer-to-computer– EDI replaces postal mail, fax and email. While email is also an
electronic approach, the documents exchanged via email must still be handled by people rather
than computers. Having people involved slows down the processing of the documents and also
introduces errors. Instead, EDI documents can flow straight through to the appropriate
application on the receiver’s computer (e.g., the Order Management System) and processing
can begin immediately.
 Business documents – These are any of the documents that are typically exchanged between
businesses. The most common documents exchanged via EDI are purchase orders, invoices
and advance ship notices. But there are many, many others such as bill of lading, customs
documents, inventory documents, shipping status documents and payment documents.

 Standard format– Because EDI documents must be processed by computers rather than
humans, a standard format must be used so that the computer will be able to read and
understand the documents. A standard format describes what each piece of information is and
129
in what format (e.g., integer, decimal, mmddyy). Without a standard format, each company
would send documents using its company-specific format and, much as an English-speaking
person probably doesn’t understand Japanese, the receiver’s computer system doesn’t
understand the company-specific format of the sender’s format.
 Business partners – The exchange of EDI documents is typically between two different
companies, referred to as business partners or trading partners. For example, Company A may
buy goods from Company B. Company A sends orders to Company B. Company A and
Company B are business partners.
130
131
Multiple Choice . Check Your Progress 1
1..The
Multiple electronic
Choice. method of transporting the logistics enterprise business document from one
computer to another according to a universally recognized standard is ________.
1. The electronic method of transporting the logistics enterprise business document from one
A. EDI
computer technology
to another B. EOS
according to a universally system
recognized C.GPS
standard system
is ________. D.GIS system
2.EDI information
A. EDI technology system belongs
B. EOS system to ________.
C.GPS system D.GIS system
2. A.
EDI information
information systemtechnology in management
belongs to ________. and manufacture (microcosmic logistics) process
B. information technology in management
A. information technology in management and manufacture (microcosmic logistics)
C. information technology in circulation process
process
D. information technology in organization structure
B. information technology in management
3.Modern logistics information techniques include:
C. information technology in circulation process
A.
D. EDI
information technology in organization structure
3. B. EPRlogistics information techniques include:
Modern
C. GPS
A. EDI
D. GIS
B. EPR 132
C. GPS
D. GIS
7.3 FIVE KEY BENEFITS OF ELECTRONIC DATA INTERCHANGE (EDI)
The benefit of electronic trading is well documented. Here are the top five reasons why businesses
adopt EDI.
Benefit One: Remove document re-keying
By removing the manual keying of key business documents such as Orders, Invoices,
Acknowledgments and Dispatch Notes the company can benefit significantly by::
 Reduced labour costs

 Elimination of human keying errors
 Faster document processing
 Instant document retrieval
 Remove reliance on the postal service
133
Benefit Two: Eliminate Paper
Paper-based trading relationships have some inherent disadvantages when compared with their
electronic trading equivalents:
 Stationery and printer consumable costs

 Document storage costs
 Lost documents
 Postage costs
Benefit Three: Reduce lead times and stockholding
 Electronic trading documents can be delivered far more quickly than their paper counterparts,
thus the turnaround time from order to delivery can be reduced.
 By using EDI for forecasting and planning, companies are able to get forward warning of
likely orders and to plan their production and stock levels accordingly.
134
 Companies receiving advanced shipping notes or acknowledgments know in advance what is
actually going to be delivered, and are made aware of shortages so alternate supplies can be
sourced.
 Integrating electronic documents means they can be processed much faster, again reducing lead
times and speeding up payments.
Benefit Four: Increase quality of the trading relationship
 Electronic trading documents when printed are much easier to read than copies faxed or
generated on multi-part stationery by impact printers.
 Accurate documents help ensure accurate supplies.
 Batches of electronic documents are usually sequentially numbered, therefore missing
documents can easily be identified, not causing companies to wade through piles of paper.
Benefit Five: Competitive Edge
135
The cost will be lowered because of less manpower requirement to process orders, deliveries or
payments. It is no accident that the leading UK retailers all rely on EDI for placing orders and
receiving invoices - they know the benefits they get and the costs that can be saved.
7.4ELECTRONIC DATA INTERCHANGE STANDARDS

Communication and information standards are essential for electronic data interchange (EDI).
Communication standards define the technical characteristics so that the computer hardware can correctly interpret
the interchange. Communication
standards determine the character sets, transmission priority, and speed. Information
standards dictate the structure and content of the document being transmitted. They
specifically define the types of documents and the sequence of data when a document is transmitted. Industry
organizations have developed and refined two general
standards as well as numerous industry-specific standards in an effort to standardize
both communication and information interchange.
Although the following review is not intended as a technical reference manual,
it is designed to provide some background regarding the standards used in logistics.
The specific topics include the communication standards and the information standards, which are also called
transaction sets.
136
7.4.1 Communication Standards
The most generally accepted communication standards are ASC X.12 (American standards
committee X.12)and UN/EDIFACT(United nations/Electronic data interchange for Administration,
commerce and transport). X.12 is promoted as the United States, standard while EDIFACT is used
by the United Nations as more of a global standards.
7.4.2 Information Standards

Information standards are implemented via transaction sets. A transaction set is a se of codes
that decide related electronic documents. Table 8.1 lists the common logistic-related industry-
specific standards for each industry the transaction set defines the document type that can be
transmitted. Documents are related in that they are used for a common logistics activity such as or
deign, warehouse operation, and transportation
Table 8.1 Primary Logistics Industry EDI Standards
137
UCS Uniform Communication Standards: .
grocery
VICS Voluntary INTER-Industry Communication
Standards Committee): mass merchadisers
WINS Warehouse Information Network
Standards: warehouse operations
TDCC Transportation Data Coordination
Committee: transportation operators
AIAG Automotive Industry Action Group:
automotive industry
7.5 FUTURE DIRECTIONS
While applications are migrating towards common standards, there is still conflict regarding
the ultimate goal. While a single common standard facilitates information interchange between
partners in any industry and country, many firms believe that strategic advantage can be achieved
only with proprietary EDI capabilities. Proprietary capabilities allow the firm to offer customized
transactions that efficiently meet information requirements. While the basic advantage of standard
138
EDI transaction sets is low cost and high flexibility, there are two major disadvantaging
First, a standard transaction set must accommodate the needs of all types of
users, thus making it more complex. The complexity results because different users
require transactions with different characteristics, and a standard transaction set
must accommodate them all. For example, the grocery industry requires a five-
digit UPC, while the electrical supply industry requires a twenty-digit item code.
Standardized logistics EDI transactions must accommodate both. Second, standard
EDI transactions do not provide competitive advantage since they can be readily duplicated by
competitors.
Many firms resolve this dilemma through the use of value added networks (VANs). A VAN is
a common interface between sending and receiving systems. The VAN adds value by managing
transactions,translating communication standards, and reducing the number of communication
linkages. Transaction management includes broadcasting of messages to subsets of suppliers,
carriers or customers and receipt of messages from customers using different communication
standards.

True or False
1. A VAN is a common interface between sending and receiving systems.
2. Communication and information standards are essential for electronic data
interchange (EDI). 139
3. Electronic trading documents when printed are much easier to read than copies
faxed or generated on multi-part stationery by impact printers.
4. Communication
7.6 LET US SUM UP
Information is a major factor for enhancing logistics competitiveness. Information is one of the few
resources whose capabilities are increasing while cost is declining. These characteristics uniquely
position information as the key technology to enhance logistics planning, operations and
measurement.

140
Compare and contrast the primary focus of the different levels EDI.
7.8 KEY WORDS
VAN: Value added network is a common interface between sending and receiving systems
Bill of lading: Abill of lading (sometimes abbreviated as B/L or BoL) is a document issued by a
carrier which details a shipment of merchandise and gives title of that shipment to a specified party
Invoices: An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a
sale transaction and indicating the products, quantities, and agreed prices for products or services the
seller has provided the buyer.
Q1. What is the difference between communication standards and information standards for EDI
transactions?
Q2. What is VAN and how does it resolve the disadvantages of different EDI transactions.
141
Q3. What is EDI. Explain the usefulness of EDI to businesses.
Check your Progress: Model Answers
CYP 1
1. EDI technology
2. information technology in management and manufacture

(microcosmic logistics) process
3. EDI
CYP 2
1. True
2. True
3. True
4. True
142
 Agrawal :Textbook of Logistics and Supply Chain Management: Macmillan Publishers India
2003.
edition.
 Bowesox: Logistical Management: The Integrated Supply Chain Process (English) 1st Edition,
Tata Mcgraw Hill Education Private Limited: 2005
LESSON 8
INFORMATION TECHNOLOGY

8.1 Introduction
8.2 Benefits of IT application in supply chain management
143
8.3Personal Computers
8.4 Artificial Intelligence / Expert System
8.5 Communication
8.6 Bar Coding and Scanning
8.7 Let us sum up
8.9 Key words

 Understand different Information technologies.
 Understand the usage of each in logistics.
8.1 INTRODUCTION
144
Information technology (IT) is the application of computers and telecommunications equipment to
store, retrieve, transmit and manipulate data, often in the context of a business or other enterprise.
The term is commonly used as a synonym for computers and computer networks, but it also
encompasses other information distribution technologies such as television and telephones. Several
industries are associated with information technology, including computer hardware, software,
electronics, semiconductors, internet, telecom equipment, e-commerce and computer services.
Information technology is simply the processing of data via computer: the use of technologies
from computing, electronics, and telecommunications to process and distribute information in digital
and other forms.
Information Technology, or IT, is the study, design, creation, utilization, support, and management
of computer-based information systems, especially software applications and computer hardware. IT
is not limited solely to computers though. With technologies quickly developing in the fields of cell
phones, PDAs and other handheld devices, the field of IT is quickly moving from
compartmentalized computer-focused areas to other forms of mobile technology.
145
8.2 BENEFITS OF IT APPLICATION IN SUPPLY CHAIN MANAGEMENT
 Streamlining—Communicate and collaborate more effectively with suppliers worldwide.

 Connecting— Make the connection between what your customers want and what you produce.
 Analyzing—Analyze the supply chain and manufacturing options and choose the plan that
makes best use of your assets.
 Synchronizing—synchronize the flow of batch production by managing the capacity of
vessels, tanks, and lines-and the flow between them.
 Communicating—Improve the communication and collaboration with suppliers worldwide.
 Designing—Create the optimal supply chain network and adapt the network to keep pace with
changes in the business.
 Transforming—Transform processes inside the warehouse and across the supply chain to
meet demands for new efficiencies.
 Understanding—Get a b etter understanding of your warehouse labor activities and
implement the changes neededto optimize worker performance.
146
 Maximizing—Maximize warehouse profits by using advanced costing, billing, and invoicing
capabilities.
 Optimizing—optimize your day-to-day fleet performance to reduce costs and improve
customer satisfaction.
8.3 PERSONAL COMPUTERS
The personal computer (PC) has become almost ubiquitous in today's logistics environment.
Reduced hardware size and increased capability have extended information technology
applications from the desks of managers and customer service representatives to the field. PCs are
influencing logistics management in three ways.
 First, low cost and high portability bring accurate and timely information to the
decision maker whether in the office, at the warehouse, or on the road. PCs make it cost-
effective to have decentralized flexible and even redundant processing for even the smallest
site or function.
147
 Second, responsiveness and flexibility offered by decentralized PC’s enable more focused
service and capability. The use of local areas networks (LANs), wide areas networks (WANs),
and client servers’ architecture offers the benefit of decentralization, responsiveness, flexibility
and redundancy which providing date integration throughout the enterprise. A LAN is a
network of PCs that use phone lines or cable to communicate and share resources such as
storage and printer. A LAN is restricted to relatively small geographical location such as an
officer or warehouse, while a WAN can operate across a wide geography. Client/Server
architecture uses the user processing power of PCs to provide LIS operating flexibility.
 Third, interactive PCs with graphics capabilities facilitate development of generic decision
support applications such as facility location, inventory analysis and routing and scheduling.
True or False
1. Client/Server architecture uses the user processing power of PCs to provide LIS
operating flexibility. 148
2. The term IT is commonly used as a synonym for computers and computer
networks.
3. Interactive PCs with graphics capabilities facilitate development of generic
decision support system.
8.4 ARTIFICIAL INTELLIGENCE / EXPERT SYSTEM
Artificial intelligence (AI) and expert systems are another information-based technology
contributing to logistics management. AI is an umbrella term describing a group of technologies
aimed at making computers imitate human reasoning. AI is concerned with symbolic reasoning
rather than numeric processing.
AI includes technologies such as expert systems, natural language translators, neural networks,
robotics, speech recognition, and 3D vision.
149
Figure 9.1 Basic structure of an expert system
User Interface Knowledge Base
Interface Engine  Facts
 Control  Heuristic
Strategies rules
USER  Question
sequencer
Expert systems are one category of AI that has experienced successful logistics
applications. Logistics expert systems are applied where expertise can increase the firm's
return on assets. Applications include carrier selection, international marketing and logistics,
inventory management, and information system design.
The inference engine searchesthe knowledge base to identify the rules that are relevant for a
specific decision. For example, the traffic manager attempting to make a decision about a motor
carrier does not want to use the rules developed for rail transportation. The inference engine
determines the relevant rules and the sequence in which they should be evaluated. The user interface
facilitates the interaction between the decision maker and the expert system. The interface format the
150
key questions to the user in natural language and then interprets the response. A good interface
allows the user to refine the knowledge base as additional information or expertise is obtained.
Expert systems have demonstrated their ability to improve logistics productivity The ability to
transform data and information into usable knowledge, to extract and share rare expertise, and to
manage knowledge as a virtual competitive resource are the concerns of expert system and artificial
intelligence.
8.5 COMMUNICATION
Information technology also significantly enhances logistics performance through aster and
widespread communication. Historically, logistics activities had a distinct communications
disadvantage since they involved movement in either a transport or a material-handling vehicle or
were much decentralized. As a result, information and directions were often removed in terms of
both time and location from the actual activity. Application of radio frequency (RF), satellite
communications, and image processing technologies has overcome these problems caused by
151
product movement and geographic decentralization.
 Radio frequency technology is used within relatively small areas, such as distribution
centers, to facilitate two-way information exchange. A major application
is real-time communication with material handlers such as forklift drivers and order
selectors. RF allows forklift drivers to have instructions and priorities updated on
a real-time basis rather than using a hard copy of instructions printed hours earlier.
Real-time communication offers more flexibility and responsiveness and often
provides improved service with less resource. Logistics RF applications include
two-way communication of warehouse selection instructions, warehouse cycle
count verification, and label printing. United Parcel Service uses speech-based RF
to read ZIP codes from incoming packages and print routing tickets to guide
package movement through its Grand Rapids, Michigan, sort facility
 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
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areas outside the reach of cable.
 Image processing applications rely upon facsimile (Fax) and optical scanning technology to
transmit and store freight bill information, as well as other supporting document such as proof
of delivery receipts or bill of lading. The rationale for this new service is that timely shipment
information is almost as important to the customer as delivering the goods on time.
BENEFITS OF AUTOMATIC IDENTIFICATION TECHNOLOGIES
 Shippers.: Improve order preparation and processing; eliminate shipping errors;

reduce labor time; improve record keeping; reduces physical inventory time.
 Carriers: Freight bill information integrity; customer access to real –time
information ;improved record keeping of customer shipment activity ; shipment
traceability ;simplified container processing ; monitor; incompatible products in
vehicles ; reduced information transfer time.
 Warehousing: Improved order preparation, processing, and shipment provide
accurate inventory control; customer access to real –time information; access
considerations of information security; reduced labor costs; receiving accuracy.
 Wholesalers/retailers: Unit inventory precision; price accuracy at point of sale;
improved register checkout productivity; reduce physical inventory time; increased
system flexibility.
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8.6 BAR CODING AND SCANNING
Information collection and exchange are critical for logistics information management and
control. Typical applications include tracking receipts at the warehouse and sales at the grocery
store. In the past, collection and exchange were done manually with error-prone and time-consuming
paper-based procedures. Bar coding and electronic scanning are identification technologies that
facilitate logistics information collection and-exchange.Although these auto identification (ID)
systems require significant capital investment for users, increased domestic and international
competition is encouraging shippers, carriers, warehouses, wholesalers, and retailers to develop and
utilize auto ID capability in order to compete in today's marketplace. Auto ID allows channel members
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toquickly track and communicate movement details with a low probability of error.
Bar coding refers to the placement of computer readable codes on items, cartons, containers,
and even railcars. Most consumers are aware of the Universal Product Code (UPC) that is present on
virtually all consumer products. UPC bar codes, used first in 1972, assign a unique five-digit number
to each manufacturer and product. Standardized bar codes reduce errors when receiving, handling,
or shipping product. For example, a bar code distinguishes package size and flavor.
While UPC is used extensively in the consumer goods industry for retail check- outs, other
channel members desire more detailed information.While retailers are concerned with individual
items, shippers and carriers are interested in the contents of pallets or containers. Therefore, a need
exists for bar codes to identify cartons, nallets, or containers of products. Although it is possible to
have a document listing pallet contents, the paperwork may be lost or damaged while in transit. To
provide encoded information that can be attached to the in-transit shipment, a computer readable
code is necessary that contains information regarding shipper, receiver, carton contents, and any
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special Instruction.
Fill in the Blank
1. ---------------- refers to the placement of computer readable codes on items, cartons,

containers, and even railcars.
2. Real-time communication offers more --------------and ---------------and often
provides improved service with lessresource.
3. AI is concerned with ---------------rather than numeric processing.

4. A----------is a network of PCs that use phone lines or cable to communicate
and share resources such as storage and printer
8.7 LET US SUM UP

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World is shrinking day by day with advancement of technology. Customers’ expectations are also
increasing and companies are prone to more and more uncertain environment. The IT field is
evolving and developing every day. New technologies in computers and mobile devices are shaping
the way the world communicates with one another, gets work done, and spends free time.
Companies will find that their conventional supply chain integration will have to be expanded
beyond their peripheries. The strategic and technological innovations in supply chain will impact on
how organizations buy and sell in the future.
How does information technology facilitate formalization of operation processes?
8.9 KEY WORDS
Optical scanning: Optical scanning is a process used to scan and collect raw data .An optical
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Scanner is a hardware input device that allows a user to take an image or text and convert it into a
digital file, allowing the computer to read or display the scanned object.
Universal Product Code:The Universal Product Code (UPC) is a barcode symbology (i.e., a
specific type of barcode), that is widely used in Canada and the United States for tracking trade
items in stores.
ZIP Code:ZIP codes are a system of postal codes used by the United States Postal Service (USPS)
since 1963. The term ZIP, is an acronym for Zone Improvement Plan.
8.10. QUESTION AND ANSWER

Q1How has development of the personal computer influenced logistics management?
Q2 How do communication technology applications assist logistics in providing improved
customer service?
Q3. How do bar coding and scanning technologies facilitate information collection and exchange
throughout the supply chain.
Check your progress: Model Answer
CYP 1
1. True
2. True
3. True
CYP2 158
1Bar coding
2.flexibility and responsiveness
3.symbolic reasoning
New Delhi,2003.
Ltd.,New Delhi,2005
 Donald Waters Logistics ,Palgrave Macmillan, New York,2004
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UNIT -V
161
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Lesson 9
Information Technology for Supply Chain Management
Content
9.1 Introduction
9.2 Definition of I.T
9.3Supply Chain management
9.4 Bull whip effect
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9.4.1 Causes of the Bullwhip Effect
9.4.2 Countermeasures to the Bullwhip Effect
9.4.3Factors affecting the bullwhip effect
9.4.4 Ways to Minimize the Bullwhip Effect
9.4.5Example of the bullwhip effect
9.5 Let us sum up
9.7 Key words

 Know the concept of supply chain management
 Know about Bull whip effect
 Understand the Bullwhip Effect in Supply Chain
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9.1 INTRODUCTION
Prior to 1980s the information flow between functional areas with in an organization and between
supply chain members organizations were paper based. The paper based transaction and
communication is slow. During this period, information was often over looked as a critical
competitive resource because its value to supply chain members was not clearly understood. IT
infrastructure capabilities provide a competitive positioning of business initiatives like cycle time
reduction, implementation, implementing redesigned cross-functional processes. Several well known
firms involved in supply chain relationship through information technology. Three factors have
strongly impacted this change in the importance of information. First, satisfying in fact pleasing
customer has become something of a corporate obsession. Serving the customer in the best, most
efficient and effective manner has become critical. Second information is a crucial factor in the
managers' abilities to reduce inventory and human resource requirement to a competitive level.
Information flows plays a crucial role in strategic planning.
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A supply chain is essentially a set of three or more companies directly linked by one or more of the
upstream or downstream flows of products, services, finances and information form a source to
customer.
Without information relayed at the right time to the right place, the whole supply chain would come
to a standstill.
Hence information technology, which enables information flow within a firm, between firms, and
across the supply chain, goes a long way towards ensuring effective and efficient supply chain
management. Information Technology, in short, forms the backbone of most corporate supply
chains.
Information technology facilitates the development of Information systems designed to provide speedy and
accurate information. The roadmap for a firm wishing to build a supply chain information system
would be to develop an
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intra-firm information system, expand the capabilities of the same by connecting to suppliers and/or
customers, thus creating an inter-firm system, and then, connect to the supplier’s supplier and
customer’s customer, thus resulting in a supply chain information system.
9.2 DEFINITION OF I.T
Information technology (IT) is the application of computers and telecommunications equipment to

store, retrieve, transmit and manipulate data,often in the context of a business or other enterprise.
The term is commonly used as a synonym for computers and computer networks, but it also
encompasses other information distribution technologies such as television and telephones.
Severalindustries are associated with information technology, including computer hardware,
software, electronics, semiconductors, internet, telecom equipment, e-commerce and computer
services.
IT (information technology) is a term that encompasses all forms of technology used to create, store,
exchange, and use information in its various forms (business data, voice conversations, still images,
motion pictures, multimedia presentations, and other forms, including those not yet conceived).
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It can also be defined as a set of tools, processes, and methodologies (such as coding/programming,
data communications, dataconversion, storage and retrieval, systems analysis and design,
systemscontrol) and associatedequipmentemployed to collect, process, and present information. In
broad terms, IT also includes office automation, multimedia, and telecommunications.
9.3SUPPLY CHAIN MANAGEMENT
Supply chain management (SCM) is the management of the flow of goods. It includes the
movement and storage of raw materials, work-in-process inventory, and finished goods from point
of origin to point of consumption.
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Supply chain management (SCM) is the oversight of materials, information, and finances as they
move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain
management involves coordinating and integrating these flows both within and among companies. It
is said that the ultimate goal of any effective supply chain management system is to reduce inventory
(with the assumption that products are available when needed).
Supply chain management (SCM) is the management of the flow of goods. It includes the
movement and storage of raw materials, work-in-process inventory, and finished goods from point
of origin to point of consumption. Interconnected or interlinked networks, channels and node
businesses are involved in the provision of products and services required by end customers in a
supply chain. Supply chain management has been defined as the "design, planning, execution,
control, and monitoring of supply chain activities with the objective of creating net value, building a
competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and
measuring performance globally."
Supply chain management is the streamlining of a business' supply-side activities to maximize
customer value and to gain a competitive advantage in the marketplace. Supply chain management
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(SCM) represents an effort by suppliers to develop and implement supply chains that are as efficient
and economical as possible.Supply chains cover everything from production, to product
development, to the information systems needed to direct these undertakings.
Fill in the blanks
1. ---------------- is the management of the flow of goods.
2. --------------------forms the backbone of most corporate supply chains.

3. SCM includes the movement and storage of--------------,-------------,and
-----------------from point of origin to point of consumption
9.4 BULL WHIP EFFECT
An unmanaged supply chain is not inherently stable. Demand variability increases as one moves up
the supply chain away from the retail customer, and small changes in consumer demand can result in
large variations in orders placed upstream. Eventually, the network can oscillate in very large swings
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as each organization in the supply chain seeks to solve the problem from its own perspective. This
phenomenon is known as the bullwhip effect and has been observed across most industries,
resulting in increased cost and poorer service.
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The bullwhip effect can be explained as an occurrence detected by the supply chain where orders
sent to the manufacturer and supplier create larger variance then the sales to the end customer.
These irregular orders in the lower part of the supply chain develop to be more distinct higher up in
the supply chain. This variance can interrupt the smoothness of the supply chain process as each
link in the supply chain will over or underestimate the product demand resulting in exaggerated
fluctuations.
9.4 .1 Causes of the Bullwhip Effect
Although the bullwhip effect is a common problem for supply chain management understanding the
causes of the bullwhip effect can help managers find strategies to alleviate the effect. The following
all can contribute to the bullwhip effect:
 Overreaction to backlogs
 Neglecting to order in an attempt to reduce inventory
 No communication up and down the supply chain
 No coordination up and down the supply chain
 Delay times for information and material flow
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 Order batching - larger orders result in more variance. Order batching occurs in an effort to
reduce ordering costs, to take advantage of transportation economics such as full truck load
economies, and to benefit from sales incentives. Promotions often result in forward buying to
benefit more from the lower prices.
 Shortage gaming: customers order more than they need during a period of short supply, hoping
that the partial shipments they receive will be sufficient.
 Demand forecast inaccuracies: everybody in the chain adds a certain percentage to the demand
estimates. The result is no visibility of true customer demand.
 Free return policies
9.4.2 Countermeasures to the Bullwhip Effect
While the bullwhip effect is a common problem, many leading companies have been able to apply
countermeasures to overcome it. Here are some of these solutions:
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 Countermeasures to order batching - High order cost is countered with Electronic Data
Interchange (EDI) and computer aided ordering (CAO). Full truck load economics are
countered with third-party logistics and assorted truckloads. Random or correlated ordering is
countered with regular delivery appointments. More frequent ordering results in smaller orders
and smaller variance. However, when an entity orders more often, it will not see a reduction in
its own demand variance - the reduction is seen by the upstream entities. Also, when an entity
orders more frequently, its required safety stock may increase or decrease; see the standard loss
function in the Inventory Management section.
 Countermeasures to shortage gaming - Proportional rationing schemes are countered by
allocating units based on past sales. Ignorance of supply chain conditions can be addressed by
sharing capacity and supply information.
Unrestricted ordering capability can be addressed by reducing the order size flexibility and
implementing capacity reservations. For example, one can reserve a fixed quantity for a given
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year and specify the quantity of each order shortly before it is needed, as long as the sum of the
order quantities equals to the reserved quantity.
 Countermeasures to fluctuating prices - High-low pricing can be replaced with every day
low prices (EDLP). Special purchase contracts can be implemented in order to specify ordering
at regular intervals to better synchronize delivery and purchase.
 Countermeasures to demand forecast inaccuracies - Lack of demand visibility can be
addressed by providing access to point of sale (POS) data. Single control of replenishment or
Vendor Managed Inventory (VMI) can overcome exaggerated demand forecasts. Long lead
times should be reduced where economically advantageous.
 Free return policies are not addressed easily. Often, such policies simply must be prohibited
or limited.
Through the numerous stages of a supply chain; key factors such as time and supply of order
decisions, demand for the supply, lack of communication and disorganization can result in one of the
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most common problems in supply chain management. This common problem is known as the
bullwhip effect; also sometimes the whiplash effect. In this blog post we will explain this concept
and outline some of the contributing factors to this issue.
9.4.3Factors affecting the bullwhip effect
There are many factors said to cause or contribute to the bullwhip effect in supply chains; the
following list names a few:
 Disorganization between each supply chain link; with ordering larger or smaller amounts of a
product than is needed due to an over or under reaction to the supply chain beforehand.
 Lack of communication between each link in the supply chain makes it difficult for processes
to run smoothly. Managers can perceive a product demand quite differently within different
links of the supply chain and therefore order different quantities.
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 Free return policies; customers may intentionally overstate demands due to shortages and
then cancel when the supply becomes adequate again, without return forfeit retailers will
continue to exaggerate their needs and cancel orders; resulting in excess material.
 Order batching; companies may not immediately place an order with their supplier; often
accumulating the demand first. Companies may order weekly or even monthly. This creates
variability in the demand as there may for instance be a surge in demand at some stage
followed by no demand after.
 Price variations – special discounts and other cost changes can upset regular buying patterns;
buyers want to take advantage on discounts offered during a short time period, this can cause
uneven production and distorted demand information.
 Demand information – relying on past demand information to estimate current demand
information of a product does not take into account any fluctuations that may occur in demand
over a period of time.
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9.4.4 Ways to Minimize the Bullwhip Effect
The first step in minimizing the bullwhip effect is to understand what drives customer demand
planning and inventory consumption. Lack of demand visibility can be addressed by providing all
key players in the supply chain with access to point of sale (POS) data. Suppliers and customers
must then work collaboratively to improve both the quality and frequency of information
communication throughout the supply chain. They may also choose to share information through an
arrangement such as vendor-managed inventory (VMI). Eliminating practices that introduce spikes
in demand, such as order batching, can also help. The higher order cost associated with smaller or
more frequent orders can be offset with Electronic Data Interchange (EDI) and computer aided
ordering (CAO).
Pricing strategies and policies can also help reduce the bullwhip effect. Eliminating incentives that
cause customers to delay orders, such as volume transportation discounts, and addressing the causes
of order cancellations or reductions can help create smoother ordering patterns. Offering products at
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stable and fair prices can prevent buying surges triggered by temporary promotional discounts.
Special purchase contracts can be implemented to encourage ordering at regular intervals to better
synchronize delivery and purchase
9.4.5Example of the bullwhip effect
Let’s look at an example; the actual demand for a product and its materials start at the customer,
however often the actual demand for a product gets distorted going down the supply chain. Let’s say
that an actual demand from a customer is 8 units, the retailer may then order 10 units from the
distributor; an extra 2 units are to ensure they don’t run out of floor stock.
The supplier then orders 20 units from the manufacturer; allowing them to buy in bulk so they have
enough stock to guarantee timely shipment of goods to the retailer. The manufacturer then receives
the order and then orders from their supplier in bulk; ordering 40 units to ensure economy of scale in
production to meet demand. Now 40 units have been produced for a demand of only 8 units;
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meaning the retailer will have to increase demand by dropping prices or finding more customers by
marketing and advertising.
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The goal of any supply chain is to get the right selection of goods and services to customers in the
most efficient way possible. To meet this goal, each link along the supply chain must not only
function as efficiently as possible; it must also coordinate and integrate with links both upstream and
downstream in the chain.
The keystone is accuracy in demand planning. Unforeseen spikes in demand or overestimations of

demand stimulate the supply end of the chain to respond with changes in production. Production and
supply issues then impact the consumer end of the supply chain and the effects ripple up and down
the chain. This is often referred to as the bullwhip effect.
Check Your Progress2
True or false
1. Demand variability increases as one moves up the supply chain

away from the retail customer.
2. Pricing strategies and policies can also help reduce the bullwhip effect
3. Lack of coordination and communication are the main causes of bull whip
effect
4. Demand planning is not important for SCM 182
9.5 LET US SUM UP
In this lesson we have discussed about the role of IT in Supply chain management. One of the major
failures in the use of it is the bull whip effect. SCM has become the buzz word in the business
world.Supply chain management is a complex process. There are several issues that can lead to the
bullwhip effect and those issues can be exacerbated by delays in transmitting information, and a lack
of coordination up and down the supply chain.Serving the customer in the best, most efficient and
effective manner has become critical.

Analyze the causes of bull whip effect and the ways to cope up with it in context to Indian
organization
183
9.7 KEY WORDS
Order batching; companies may not immediately place an order with their supplier; often
accumulating the demand first. Companies may order weekly or even monthly. This creates
variability in the demand as there may for instance be a surge in demand at some stage followed by
no demand after.
POS: Point of Sale
VMI: Vendor Managed Inventory
EDI: Electronic Data Interchange

1. Briefly explain the role of IT in supply chain management\
2. What is Bull whip Effect? Explain the causes of the same
3. Explain the factors affecting Bull whip effect.
4. Define supply chain management and its importance.
Check your Progress: Model Answers 184
CYP1
1. Supply Chain Management

2. Information technology
Martin Chritopher: Logistics and Supply chain management, Prentice Hall., 1998
185
Donald J Bowersox, David J Closs, M Bixby Cooper: Supply Chain Logistics Management, Tata Mc
Graw Hill 2009.
Sarika Kulkarni: Supply Chain Management,Tata Mc Graw Hill 2004
Lesson 10
ENTERPRISE RESOURCE PLANNING
Content
10.1 Introduction
10.2 Definition of ERP
10.3 Characteristics of ERP
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10.4 Functional areas and Component
10.4.1 Functional Areas of ERP
10.4.1 Components of ERP
10.5 Trends in ERP
10.6 Benefits of ERP
10.7 Advantages and disadvantages of ERP
10.8 EDI problem with EDI
10.9Let us sum up
10.11 Key words
10.12Question and Answer
10.13Suggested Reading

 Know the concept of ERP
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 Know the benefit of ERP to business world
 Understand the different modules.
10.1 INTRODUCTION
In 1990, Gartner Group first used the acronym ERP as an extension of material requirements
planning (MRP), later manufacturing resource planning and computer-integrated manufacturing.
Without replacing these terms, ERP came to represent a larger whole that reflects the evolution of
application integration beyond manufacturing.ERP systems experienced rapid growth in the 1990s,
because the year 2000 problem and introduction of the euro disrupted legacy systems. Many
companies took the opportunity to replace their old systems with ERP.
ERP systems initially focused on automating back office functions that did not directly affect
customers and the general public. Front office functions, such as customer relationship management
(CRM), dealt directly with customers, or e–business systems such as e–commerce, e–government, e–
telecom, and e–finance—or supplier relationship management (SRM) became integrated later, when
the Internet simplified communicating with external parties.
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"ERP II" was coined in 2000 in an article by Gartner Publications entitled ERP Is Dead — Long
Live ERP II. It describes web–based software that provides real–time access to ERP systems to
employees and partners (such as suppliers and customers). The ERP II role expands traditional ERP
resource optimization and transaction processing. Rather than just manage buying, selling, etc.—
ERP II leverages information in the resources under its management to help the enterprise
collaborate with other enterprises
.ERP II is more flexible than the first generation ERP. Rather than confine ERP system capabilities
within the organization, it goes beyond the corporate walls to interact with other systems. Enterprise
application suite is an alternate name for such systems.
10.2 DEFINITION OF ERP
Enterprise resource planning (ERP) is business management software—usually a suite of integrated

applications—that a company can use to collect, store, manage and interpret data from many
business activities, including:-
 Product planning, cost and development

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 Manufacturing or service delivery
 Marketing and sales
 Inventory management
 Shipping and payment
ERP provides an integrated view of core business processes, often in real-time, using common
databases maintained by a database management system. ERP systems track business resources—
cash, raw materials, production capacity—and the status of business commitments: orders, purchase
orders, and payroll. The applications that make up the system share data across the various
departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP
facilitates information flow between all business functions, and manages connections to outside
stakeholders.
Enterprise system software is a multi-billion dollar industry that produces components that support a
variety of business functions. IT investments have become the largest category of capital expenditure
in United States-based businesses over the past decade. Though early ERP systems focused on large
enterprises, smaller enterprises increasingly use ERP systems.
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Organizationsconsider the ERP system a vital organizational tool because it integrates varied
organizational systems and facilitates error-free transactions and production. However, ERP system
development is different from traditional systems development. ERP systems run on a variety of
computer hardware and network configurations, typically using a database as an information
repository.
10.3 Characteristics of ERP
ERP (Enterprise Resource Planning) systems typically include the following characteristics:
 An integrated system that operates in (or near) real time without relying on periodic updates
 A common database that supports all applications
 A consistent look and feel across modules
 Installation of the system with elaborate application/data integration by the Information
Technology (IT) department, provided the implementation is not done in small steps

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Fill in the blanks
1. ERP has common-------------- that supports all application

2. ERP is an integrated system that operates in (or near) ------------------without relying on
10.4 FUNCTIONAL AREAS AND COMPONENT OF ERP
10.4.1 Functional Areas of ERP
An ERP system covers the following common functional areas. In many ERP systems these are
called and grouped together as ERP modules:
 Financial accounting: General ledger, fixed asset, payables including vouchering, matching and
payment, receivables cash application and collections, cash management, financial
consolidation
 Management accounting: Budgeting, costing, cost management, activity based costing
 Human resources: Recruiting, training, rostering, payroll, benefits, 401K, diversity
management, retirement, separation
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 Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow
management, quality control, manufacturing process, manufacturing projects, manufacturing
flow, product life cycle management
 Order Processing: Order to cash, order entry, credit checking, pricing, available to promise,
inventory, shipping, sales analysis and reporting, sales commissioning.
 Supply chain management: Supply chain planning, supplier scheduling, product configurator,
order to cash, purchasing, inventory, claim processing, warehousing (receiving, put away,
picking and packing).
 Project management: Project planning, resource planning, project costing, work breakdown
structure, billing, time and expense, performance units, activity management
 Customer relationship management: Sales and marketing, commissions, service, customer
contact, call center support - CRM systems are not always considered part of ERP systems but
rather Business Support systems (BSS).
 Data services : Various "self–service" interfaces for customers, suppliers and/or employees
10.4.2 Components of ERP
 Transactional database
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 Management portal/dashboard
 Business intelligence system
 Customizable reporting
 Resource planning and scheduling
 Analyzing the product
 External access via technology such as web services
 Search
 Document management
 Messaging/chat/wiki
 Workflow management
10.5 BENEFITS OF ERP TO THE BUSINESS
 Integration across all business processes - To realize the full benefits of an ERP system it
should be fully integrated into all aspects of your business from the customer facing front end,
through planning and scheduling, to the production and distribution of the products you make.
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 Automation enhances productivity - By automating aspects of business processes, ERP
makes them more efficient, less prone to error, and faster. It also frees up people from
mundane tasks such as balancing data.
 Increase overall performance - By integrating disparate business processes, ERP ensures
coherence and avoids duplication, discontinuity, and people working at cross purposes, in
different parts of the organization. The cumulative positive effect when business processes
integrate well is overall superior performance by the organization.
 Quality Reports and Performance Analysis - Analysis on ERP will enable you to produce
financial and boardroom quality reports, as well as to conduct analysis on the performance of
your organization.
 Integrates across the entire supply chain - A best of breed ERP system should extend
beyond your organization and integrate with both your supplier and customer systems to ensure
full visibility and efficiency across your supply chain.
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10.6 TOP ERP TRENDS
The ERP field can be slow to change, but the last couple of years have unleashed forces which are
fundamentally shifting the entire area.According to Enterprise Apps Today, the following new and
continuing trends affect enterprise ERP software:
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 Mobile ERP: Executives and employees want real-time access to information, regardless of
where they are. It is expected that businesses will embrace mobile ERP for the reports,
dashboards and to conduct key business processes.
 Cloud ERP: The cloud has been advancing steadily into the enterprise for some time, but many
ERP users have been reluctant to place data cloud. Those reservations have gradually been
evaporating, however, as the advantages of the cloud become apparent.
 Social ERP: There has been much hype around social media and how important – or not -- it is
to add to ERP systems. Certainly, vendors have been quick to seize the initiative, adding social
media packages to their ERP systems with much fanfare. But some wonder if there is really
much gain to be had by integrating social media with ERP.
 Two-tier ERP: Enterprises once attempted to build an all-encompassing ERP system to take
care of every aspect of organizational systems. But some expensive failures have gradually
brought about a change in strategy – adopting two tiers of ERP.
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 ERP Vendors: Depending on your organization's size and needs there are a number of
enterprise resource planning software vendors to choose from in the large enterprise, mid-
market and the small business ERP market.
 Large Enterprise ERP (ERP Tier I): The ERP market for large enterprises is dominated by
three companies: SAP, Oracle and Microsoft. (Source: EnterpriseAppsToday; Enterprise ERP
Buyer's Guide: SAP, Oracle and Microsoft; Drew Robb)
10.7 ADVANTAGES AND DISADVANTAGES OF ERP (ENTERPRISE RESOURCE

PLANNING) SYSTEM:
10.7.1 The advantages of ERP are the following
 Complete visibility into all the important processes, across various departments of an
organization (especially for senior management personnel).
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 Automatic and coherent workflow from one department/function to another, to ensure a
smooth transition and quicker completion of processes. This also ensures that all the inter-
departmental activities are properly tracked and none of them is ‘missed out’.
 A unified and single reporting system to analyze the statistics/status etc. in real-time, across
all functions/departments.
 Since same (ERP) software is now used across all departments, individual departments having
to buy and maintain their own software systems is no longer necessary.
 Certain ERP vendors can extend their ERP systems to provide Business Intelligence
functionalities, that can give overall insights on business processes and identify potential areas
of problems/improvements.
 Advanced e-commerce integration is possible with ERP systems – most of them can handle
web-based order tracking/ processing.
 There are various modules in an ERP system like Finance/Accounts, Human Resource
Management, Manufacturing, Marketing/Sales, Supply Chain/Warehouse Management, CRM,
Project Management, etc.
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 Since ERP is a modular software system, its possible to implement either a few modules (or)
many modules based on the requirements of an organization. If more modules implemented,
the integration between various departments may be better.
 Since a Database system is implemented on the backend to store all the information required
by the ERP system, it enables centralized storage/back-up of all enterprise data.
 ERP systems are more secure as centralized security policies can be applied to them. All the
transactions happening via the ERP systems can be tracked.
 ERP systems provide better company-wide visibility and hence enable better/faster
collaboration across all the departments.
 It is possible to integrate other systems (like bar-code reader, for example) to the ERP system
through an API (Application Programing Interface).
 ERP systems make it easier for order tracking, inventory tracking, revenue tracking, sales
forecasting and related activities.
 ERP systems are especially helpful for managing globally dispersed enterprise companies,
better.
10.7.2 Disadvantages of ERP (Enterprise Resource Planning) Systems:

200
 The cost of ERP Software, planning, customization, configuration, testing, implementation,
etc. is too high.
 ERP deployments are highly time-consuming – projects may take 1-3 years (or more) to get
completed and fully functional.
 Too little customization may not integrate the ERP system with the business process & too
much customization may slow down the project and make it difficult to upgrade.
 The cost savings/payback may not be realized immediately after the ERP implementation &
it is quite difficult to measure the same.
 The participation of users is very important for successful implementation of ERP projects –
hence, exhaustive user training and simple user interface might be critical. But ERP systems
are generally difficult to learn (and use).
 There maybe additional indirect costs due to ERP implementation – like new IT infrastructure,
upgrading the WAN links, etc.
 Migration of existing data to the new ERP systems is difficult (or impossible) to achieve.
Integrating ERP systems with other stand alone software systems is equally difficult (if
possible). These activities may consume a lot of time, money & resources, if attempted.
201
 ERP implementations are difficult to achieve in decentralized organizations with disparate
business processes and systems.
 Once an ERP system is implemented it becomes a single vendor lock-in for further upgrades,
customizations etc. Companies are at the discretion of a single vendor and may not be able to
negotiate effectively for their services.
 Evaluation prior to implementation of ERP system is critical. If this step is not done properly
and experienced technical/business resources are not available while evaluating, ERP
implementations can (and have) become a failure.
10.8 EDI PROBLEM WITH EDI
 Expanding trading partner relationships may slow productivity: Onboarding new business
partners can be a difficult process, rife with things that don’t quite align or are difficult to
configure properly. This is especially true where EDI is concerned. Everything from formatting
issues to a business' approach to receiving and processing data can prolong exchanges and
make it tough for stakeholder organizations to build their partnership. These operational,
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compliance and IT issues (or some combination thereof) can disrupt physical and financial
flows, throwing off B2B integration efforts.
 Application updates spur data disruption: A wide variety of enterprise software solutions
can disrupt EDI connections, even those that have functioned effectively in the past.
Accounting tools, enterprise resource planning programs, customer relationship management
software and a variety of other high-level systems may receive upgrades, enhancements or
alterations in one company that makes them incompatible with the software used by another
member in the supply chain. This has the dual problem of forcing stakeholders to upgrade if
they're not ready, or on the flip side, effectively encouraging companies to refrain from
innovating in order to maintain the status quo. A managed services provider can help mitigate
these problems, based on experience and deep knowledge of the solution.
 Aging networks cause latency, confusion: In-house networks may not have the infrastructure
or capacity to handle larger applications with more complex processes, while the sheer volume
of data can cause problems for network management, EDI coordination and incident
resolution.
203
 Lack of administration sows conflict, questions: Disputes over integration requirements,
technical support and onboarding responsibilities not only damage fledgling relationships, but
can curtail productivity and profitability for both partners in the long term.
EDI doesn’t need to be a source of complexity and problems for B2B integration. With the right
tools and the help of a managed services provider, companies can gain a level of visibility over their
data-based operations they've never experienced before.
10.9 LET US SUM UP
Enterprise resource planning (ERP) is business process management software that allows an
organization to use a system of integrated applications to manage the business and automate many
back office functions related to technology, services and human resources. ERP software integrates
all facets of an operation, including product planning, development, manufacturing, sales and
marketing. ERP software is considered an enterprise application as it is designed to be used by larger
State true or false

204
1 Executives and employees want real-time access to information, regardless of
where they are.
2 ERP software integrates all facets of an operation, including product planning,
development, manufacturing, sales and marketing.
3 An ERP system is not useful for order tracking, inventory tracking, revenue
businesses and often requires dedicated teams to customize and analyze the data and to handle
upgrades and deployment.

Study and Analyze any ERP Software package implemented in any company.
10.11 KEY WORDS
205
Supply chain management: Supply chain management (SCM) is the management of the flow of
goods. It includes the movement and storage of raw materials, work-in-process inventory, and
finished goods from point of origin to point of consumption.
Project management: Project management is the process and activity of planning, organizing,
motivating, and controlling resources, procedures and protocols to achieve specific goals in scientific
or daily problems
Customer relationship management is a system for managing a company’s interactions with

current and future customers. It involves using technology to organize, automate and synchronize
sales, marketing, customer service, and technical support.
10.12QUESTION AND ANSWER

Q1. Define ERP. Explain the benefits of ERP in business world.
Q2. What are the advantages and disadvantages of ERP.
Q3. Give the characteristics of ERP
206
Q4. Explain the various functional areas of ERP.
CHECK YOUR PROGRESS: MODEL ANSWER
CYP1
1. database
2. Real time
3. Business, functions, and manages ,stakeholders.
CYP2
1. True
2. True
3. False
207
 Vinod kumar garg, N. K.Venkitakrishnan: Enterprise resource planning: Concepts and
practice, PHI Learning Pvt. Ltd., 01-Jan-2003
 Zubair H. Shaikh :ERP The Future of Business Automation - Atlantic Publishers and
Distributors Published In:2009
 Daniel E. O'Leary,: Enterprise Resource Planning Systems: Systems, Life Cycle, Electronic
Commerce, and Risk, Cambridge University Press, 31-Jul-2000 –
 Head, Simon (2005). The New Ruthless Economy. Work and Power in the Digital Age. Oxford
UP.
 Waldner, Jean-Baptiste (1992). Principles of Computer Integrated Manufacturing. , John

Wiley & Sons Ltd
208
LESSON 11
BUSINESS PROCESS RE-ENGINEERING
Content
209
11.1 Introduction
11.2 Definition of BPR
11.3 The role of information technology
11.4 BPR success & failure factors
11.5 BPR team composition
11.6 Let us sum up
11.8 Key words

210
 Know the concept of BPR
 Know the benefit of BPR to business world
11.1 INTRODUCTION
Business Process Reengineering (BPR) is the practice of rethinking and redesigning the way work is
done to better support an organization's mission and reduce costs. Reengineering starts with a high-
level assessment of the organization's mission, strategic goals, and customer needs. Basic questions
are asked, such as "Does our mission need to be redefined? Are our strategic goals aligned with our
mission? Who are our customers?" An organization may find that it is operating on questionable
assumptions, particularly in terms of the wants and needs of its customers. Only after the
organization rethinks what it should be doing, does it go on to decide how best to do it.
Within the framework of this basic assessment of mission and goals, re-engineering focuses on the
organization's business processes—the steps and procedures that govern how resources are used to
211
create products and services that meet the needs of particular customers or markets. As a structured
ordering of work steps across time and place, a business process can be decomposed into specific
activities, measured, modeled, and improved. It can also be completely redesigned or eliminated
altogether. Re-engineering identifies, analyzes, and re-designs an organization's core business
processes with the aim of achieving dramatic improvements in critical performance measures, such
as cost, quality, service, and speed.
11.2 DEFINITION OF BPR
Business process re-engineering is a business management strategy, originally pioneered in the

early 1990s, focusing on the analysis and design of workflows and business processes within an
organization. BPR aimed to help organizations fundamentally rethink how they do their work in
order to dramatically improve customer service, cut operational costs, and become world-class
competitors. In the mid-1990s, as many as 60% of the Fortune 500 companies claimed to either have
initiated reengineering efforts, or to have plans to do so.
212
BPR seeks to help companies radically restructure their organizations by focusing on the ground-up
design of their business processes. According to Davenport (1990) a business process is a set of
logically related tasks performed to achieve a defined business outcome. Re-engineering emphasized
a holisticfocus on business objectives and how processes related to them, encouraging full-scale
recreation of processes rather than iterative optimization of sub -processes.
Business process re-engineering is also known as business process redesign, business

transformation, or business process change management.
The most notable definitions of reengineering are:
 "... the fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in critical contemporary modern measures of performance, such as cost, quality,
service, and speed.
213
 encompasses the envisioning of new work strategies, the actual process design activity, and the
implementation of the change in all its complex technological, human, and organizational
dimensions.
11.3 THE ROLE OF INFORMATION TECHNOLOGY
Information technology (IT) has historically played an important role in the reengineering concept. It
is considered by some as a major enabler for new forms of working and collaborating within an
organization and across organizational borders.
BPR literatureidentified several so called disruptive technologies that were supposed to challenge
traditional wisdom about how work should be performed.
 Shared databases, making information available at many places

 Expert systems, allowing generalists to perform specialist tasks
214
 Telecommunication networks, allowing organizations to be centralized and decentralized at the
same time
 Decision-support tools, allowing decision-making to be a part of everybody's job
 Wireless data communication and portable computers, allowing field personnel to work office
independent
 Interactive videodisk, to get in immediate contact with potential buyers
 Automatic identification and tracking, allowing things to tell where they are, instead of
requiring to be found
 High performance computing, allowing on-the-fly planning and revisioning
In the mid-1990s, especially workflow management systems were considered as a significant

contributor to improved process efficiency. Also ERP (Enterprise Resource Planning) vendors, such
as SAP, JD Edwards, Oracle, PeopleSoft, positioned their solutions as vehicles for business process
redesign and improvement.
215
11.4 BPR SUCCESS & FAILURE FACTORS
Some important BPR success factors, , include, but are not limited to the following:
1. BPR team composition.

2. Business needs analysis.
3. Adequate IT infrastructure.
4. Effective change management.
5. Ongoing continuous improvement
There are many reasons for sub-optimal business processes which include:
1. One department may be optimized at the expense of another

2. Lack of time to focus on improving business process
3. Lack of recognition of the extent of the problem
4. Lack of training
216
5. People involved use the best tool they have at their disposal which is usually excel to fix
problems
6. Inadequate infrastructure
7. Overly bureaucratic processes
8. Lack of motivation
11.5 BPR TEAM COMPOSITION
Once organization-wide commitment has been secured from all departments involved in the
reengineering effort and at different levels, the critical step of selecting a BPR team must be taken.
This team will form the nucleus of the BPR effort, make key decisions and recommendations, and
help communicate the details and benefits of the BPR program to the entire organization. The
determinants of an effective BPR team may be summarized as follows:
 competency of the members of the team, their motivation

 their credibility within the organization and their creativity
217
 team empowerment, training of members in process mapping and brainstorming techniques
 effective team leadership
 proper organization of the team
 complementary skills among team members, adequate size, interchangeable accountability,
clarity of work approach, and
 Specificity of goals.
The most effective BPR teams include active representatives from the following work groups: top
management, business area responsible for the process being addressed, technology groups, finance,
and members of all ultimate process users’ groups. Team members who are selected from each work
group within the organization will have an impact on the outcome of the reengineered process
according to their desired requirements. The BPR team should be mixed in depth and knowledge.
For example, it may include members with the following characteristics:
 Members who do not know the process at all.
218
 Members who know the process inside-out.
 Customers, if possible.
 Members representing impacted departments.
 One or two members of the best, brightest, passionate, and committed technology experts.
 Members from outside of the organization
Moreover, Covert (1997) recommends that in order to have an effective BPR team, it must be kept
under ten players. If the organization fails to keep the team at a manageable size, the entire process
will be much more difficult to execute efficiently and effectively. The efforts of the team must be
focused on identifying breakthrough opportunities and designing new work steps or processes that
will create quantum gains and competitive advantage.
219
Check Your Progress: True or false
1. A business process is a set of logically related tasks performed to achieve a defined business
outcome
2. Business process re-engineering is also known as business process redesign.
3. BPR Team does not play an important role in the function.
4. Effective team leadership is very essential for successful BPR.

5. Lack of motivation is one of the reasons for sub-optimal business processes
11.6 LET US SUM UP
Successful BPR can potentially create substantial improvements in the way organizations do
business and can actually produce fundamental improvements for business operations. However, in
order to achieve that, there are some key success factors that must be taken into consideration when
performing BPR. BPR success factors are a collection of lessons learned from reengineering projects
and from these lessons common themes have emerged. In addition, the ultimate success of BPR
depends on the people who do it and on how well they can be committed and motivated to be
creative and to apply their detailed knowledge to the reengineering initiative. Organizations planning
to undertake BPR must take into consideration the success factors of BPR in order to ensure that
220
their reengineering related change efforts are comprehensive, well-implemented, and have minimum
chance of failure.
In many circumstances, reengineering has not always lived up to its expectations. Comment.
11.8 KEY WORDS

Vendors: In a supply chain, a vendor, or a supplier, is an enterprise that contributes goods or
services. Generally, a supply chain vendor manufactures inventory/stock items and sells them to the
next link in the chain. Today, the terms refers to a supplier of any good or service.
IT: Information technology (IT) is the application of computers and telecommunications
equipment to store, retrieve, transmit and manipulate data, often in the context of a business or other
enterprise.
221
Q1. Define BPR. Brief about the evolution of BPR.
Q2. Explain the benefits of BPR to the company.
Q3. Explain the success factors behind BPR.
Q4. What is the role of BPR Team.
1. True
2. True
3. False
4. TRUE
5. True
222
 Champy, J. (1995). Reengineering Management, Harper Business Books, New York.
 Davenport, Thomas (1995), Reengineering - The Fad That Forgot People, Fast Company,
November 1995.
 Drucker, Peter (1972), "Work and Tools", in: W. Kranzberg and W.H. Davenport (eds),
Technology and Culture, New York
 Hammer, M. and Champy, J. A.: (1993) Reengineering the Corporation: A Manifesto for
Business Revolution, Harper Business Books, New York, 1993. ISBN 0-06-662112-7.
 Hammer, M. and Stanton, S. (1995). "The Reengineering Revolution", Harper Collins,

London, 1995.
 Hansen, Gregory (1993) "Automating Business Process Reengineering", Prentice Hall.
 Hussein, Bassam (2008), PRISM: Process Re-engineering Integrated Spiral Model, VDM
Verlag
 Johansson, Henry J. et al. (1993), Business Process Reengineering: BreakPoint Strategies for
Market Dominance, John Wiley & Sons
223
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PRINCIPLES OF LOGISTICS INFORMATION

Logistics information-Meaning & Need forms-LIS-Definition-Information functionality-activities

LIS Architecture-components-Two forms of forecast compound-planning & co-ordination flows and

Information forecasting: Definition-process- component-characteristic of forecast compound

Unit I Page No.

Lesson 2 Designing Logistics Information System

Lesson 3 Logistics Information System Architecture

Lesson 6 Forecasting Techniques

Lesson 7 Electronic Data Interchange

Lesson 9 Information Technology For Supply Chain Management

INTRODUCTION TO LOGISTICS INFORMATION

1.0 AIMS AND OBJECTIVE

There are three distinct elements that make up this system:

1.1.1 Logistics: The Inputs

1.1.2 Logistics: The Database and Its Associated Manipulations

1.1.3 Logistics: The Outputs

The outputs of a logistics information system include:

1. summary reports of cost or performance statistics,

1.2 LOGISTICS INFORMATION SYSTEM FUNCTIONALITY

b. Management control system: This focuses on performance measurements and

c. Decisionanalysis: This focuses on decision applications to assist managers in identifying,

Figure 1.1 Functionality of LIS

Analysis and evaluation

Significance user expense and training, 15

Check your progress 1

1. The transaction system, initiates and records individual logistics activities

1.4 DESIRED CHARACTERISTICS OF LIS

Figure 1.2: Characteristics of Logistics Information System

Increased accuracy in measuring inventory level reduces decision uncertainty. Accuracy

Check your progress2

Fill in the blanks

1. The flow of -----------------is the key to the success of logistic

1.5 LET US SUM UP

1.6 LESSON END ACTIVITY

1.7 KEY WORDS

1.8 QUESTION AND ANSWER

Q1. Define Information. Give the basic requirements of an input.

Q2. Explain LIS and the need for the same.

Q3. Explain the characteristics of LIS.

Q4. Explain the functionality of LIS with suitable diagram.

2. Quality and Timeliness

1.9 SUGGESTED READING

DESIGNING LOGISTICS INFORMATION SYSTEM

2.3.1 Operating Level

2.0 AIMS AND OBJECTIVE

include customer and replenishment orders, inventory requirements,warehouse work orders,

coordination and to enhance service by offering better information to customers.

2.2 DESIGNING LOGISTICS INFORMATION SYSTEM

of the following elements:

departments or functional areas of the enterprise.

 Information Collection System:

frequency tags and voice interactive system.

retrieval at user terminals spread across the system.

Information for decision-making is required at all levels of logistics management. However,

Tactical Level Strategic Level

Strategic-level decisions require information support for developing a logistics strategy in

 Capability and Capacity Planning:

 Alliances and Partnerships

Check Your Progress