Impact of Information Communication Technology on Service Sector - Case Study Example

Impact of ICT on Service Sector Emergent of Information Technology is enabling businesses to have a competitive advantage due to creation of differentiated products and services. The service industry in particular, especially in most of the developed countries has had tremendous growth which is mainly attributed to innovation (Organisation for Economic Co-operation and Development 2005). In the current era, Information Communication Technology (ICT) is perceived as the essence of innovation. ICT has the advantage of speeding communication and lowering costs while increasing on output. The high profits and increase in productivity are due to the compatibility of the service industry and ICT that involves a great deal of interaction and information exchange between clients and suppliers (Willcocks, Petherbridge and Olson 2007). This paper will look at the developments that have taken place in the transport industry for the last nine years with a prime focus on Combined European Management Transportation (CEMAT) and N.C. Commack &Son as examples. The increase in efficiency of the back office operations in service firms is due to ICT which accelerates processing and monitoring of data on customers demands. The need for staff in the front-office to have face-to-face interaction with the customers for example in the case of e-shopping has been reduced. Enormous economic performance in the service industry can therefore be linked to innovation that is based on ICT. The service industry has been able to outperform the manufacturing industry due to the importance of ICT (Miles 2004). Back Ground of Transport Industry In order for any economy to be competitive and successful, there has to be a high quality transport and communication sector which plays a crucial role. Efficient movement of people, goods and services from one area to another enables the economy to grow especially in Europe by creating employment. ICT is important in strengthening the competition that is beneficial to both the transport industry and other sectors by enhancing innovation and increasing production rate. Transportation of goods within the European Union grew at a rate of 2.8% from 1995 to 2004 due to sound economic decisions and globalisation. The growth has had positive impacts such as creation of employment but at the same time it has led to congestion and increased damage to the environment through the use of fossil fuels leading to global warming. Ensuring a sustainable growth and reducing the fossil fuel emission remains a major challenge to the European Union. Road transport has an advantage over railway transport due to the extensive coverage all over Europe and as the EU economy is majorly dependent on an efficient road transport. Due to ICT, just-in-time services have been developed leading to the growth of road transport and high speed rail networks. When up-to-date technologies are implemented, reliability is improved, safety is enhanced and cost is reduced. As opposed to road transport, railway transport is much more environmentally friendly. Maritime transport is cheap and has low carbon emissions into the atmosphere. ICT has had a major impact on the water transport in the past nine years through the development of information services that support traffic in inland navigation called the River Information Services (RIS). A combination of the different modes of transport gives an allowance for each mode to play its role because each mode of transport has its own strengths and weaknesses. Logistics ensure that goods being transported reach the right destination with the right quality and quantity. However, globalisation has led to increased challenges such as security to passengers and goods being transported. Value chain and value system The framework of Michael Porter for value chain and value system between companies is crucial in understanding the importance of e-business. The activities of a company, which can either be primary activities or support activities, are interdependent and linked. The value chain represents the primary activities or the main functional areas of a company. ICT has an effect of optimising linkages of company activities and therefore improving the efficiency of services. A value chain is therefore created when a company’s value chain is linked to buyers’ and suppliers’ value chains. The ICT transactions take place within the value system (Hensher and Button 2000) Electronic business in transport and logistic service industry, which covers passenger and freight transport sub-sectors, applies Michael Porter’s conceptual framework. The use of ICT in the different sub-sectors differs although the benefits are the same. ICT is mostly used to support the complex logistical processes such as the control of a large fleet of vehicles in freight transport while in passenger transport ICT is applied in online ticketing. ICT has therefore increased the efficiency of logistic processes and reduced operational costs while enhancing passenger and goods transportation. Impact of ICT on Transport Transport sector The movement of goods and people has been influenced by ICT which has improved safety, increased speed and comfortability through reservation systems, traffic management systems and guidance systems. Growth of businesses has increased the use of transport leading to increased green house gas emissions especially carbon dioxide. ICT has had a major impact on development of advanced safety systems that lower the chances of accidents. Traffic management has also improved because road users are able to information about congestion prior to departure (Banister and Stead 2004). Businesses normally deal with large amounts of data on goods which has led to the development of data acquisition systems that enable firms to collect and disseminate information efficiently and accurately. Several logistic transactions such as warehousing, management of fleet and distribution of goods need to be integrated so that there can be a smooth flow of products. The smooth flow of information and goods has enabled companies dealing in logistics to have competitive advantage. Conversion of data into information by ICT systems facilitates decision making by managers leading to logistic effectiveness and flexibility. According to Banister and Stead (2004), there have been increased efforts by firms in the transport sector to adopt new technologies especially the internet-linked technologies. This has led to improved performance of businesses due to creative use of the internet and e-business by staff. Firms have also been able to automate the existing processes and therefore lower the redundancy in supply chain. The use of intranet technologies by firms has enhanced communication and cooperation in both physical and virtual teams while extranet technology has enhanced collaboration between organisations, suppliers and distributors. Employees have also been able to access information remotely from the company’s computer systems due to ICT. The need for warehousing has been reduced due to the development of just-in-time manufacturing whereby goods are delivered directly to customers without storage. This has made warehouses to transform and provide other non-storage services such as labelling, call centres therefore warehouses are third party logistic providers. The introduction of warehouse management system software (WMS) has improved coordination of multiple activities therefore reducing the need for intensive paper work. Traceability of the products from storage to distribution can be done easily with the use of WMS. Information communication and technology has made the process of securing online transactions with customers by transport and logistics service, possible (Black and Geenhuizen 2006). Voice conversations can be routed over the internet therefore saving costs because a single network is used to relay both voice and data. Voice over internet Protocol service (VoIP) also has some services that are not present with a traditional phone such as unified messaging and call waiting. ICT has become vital for employees especially in large logistic firms therefore creating a need for e-business skills. The ability for employees to exploit knowledge in a knowledge-based economy is crucial to competitiveness in the transport and logistics sector and companies need to be capital intensive as well as have a skilled workforce to be competitiveness. ICT has therefore increased the demand for people with knowledge on e-business conceptual skills. E-business has provided opportunities for transport and logistic sector to improve service and reduce costs. However, management of the supply chain has become a challenge due to an increase in demand. Exchange of information between two or more systems has been made possible by ICT and supply chain participants due to their ability to synchronise their processes. The use of Radio Frequency Identification (RFID) in transport and logistics enables tracking of goods without barcode scanning therefore security is improved (Hensher and Button 2000). A good example is in intercontinental shipping containers where more than twenty different firms transport their consignment in one container and logistic applications have to be able to trace the goods. Use of RFID technology in public transport ticketing has lowered transaction costs and provided opportunities for public transport firms to strengthen competitiveness. ICT has replaced the traditional paper based invoice with the electronic invoicing where the transaction between a buyer and a seller is computer based hence firms get a faster return on investment. The European Union has developed policies such as the e-invoicing directive that requires firms to have a defined electronic signature that reduces transaction risks. A reduction of paper-based processes has in turn improved supply chain efficiency in the transport and logistic sector for example in the case study of Combined European Management Transportation (CEMAT). Automation of procurement procedure (e-procurement) due to ICT has reduced costs incurred during selection of suppliers and improved the value of the purchases. Real-time information on the customers’ needs can be provided through e-procurement and firms can deal directly with customers by bypassing the traditional supply chain structure enhancing customer relationships (Organisation for Economic Co-operation and Development 2002). Increased use of ICT has optimised the use of different modes of transport. For example, selectively transporting goods by sea or air whereby items with a low value are carried by sea to lower transportation costs while the high value goods by air. The parts are then assembled later and this makes it possible for manufacturers to retain the quality of finished goods and satisfy their customers. Trucks have also been fitted with systems that can trace the location at any particular time hence improving the management of inventory (Boyle and Mannering 2004). Case studies and developments due to ICT CEMAT The case study of CEMAT (Combined European Management Transportation) illustrates how ICT can significantly improve management of transport documents and operations of transport terminals. Some of the problems that users face during adoption are also demonstrated. CEMAT, an Italian company based in Milan was founded in 1953 and it specialises in the transportation of vehicles, containers and swap bodies in sea and land. In order to increase its Information Technology Systems performance and support innovative solutions, CEMAT implemented an IT solution programme in 2007. The aim of the programme was to improve the process efficiency when checking in and out of the terminals. About 80% of the revenue in the CEMAT is generated from Demark, Germany, Benelux, France and Switzerland which are the major customers. There is aggressive competition from small firms that own terminals in their mother countries and operate in the European market. For efficient functioning of combined rail-road transport, inland terminals are essential where the mode of transport is changed. CEMAT uses over 190 terminals in Italy and other countries and covers the international markets by having agreements with terminal gate companies (The Sectoral e-business watch 2008). In order to gain a competitive edge, companies are investing in the information communication technology hence emphasising the importance of e-Business in the market. The main aim of the programme launched by CEMAT in 2007 was to increase flexibility and improve communication quality between customers and suppliers. A huge amount of cargo units of more than 1000 cargo units in each terminal is unloaded from tracks and efficiency of the terminal operations is crucial (The Sectoral e-business watch 2008). Before the e-business solution was implemented a great deal of time was consumed during loading and unloading where five copies of the transport document were exchanged. Before customers and truck drivers could leave, they wait for the process of checking in and out to be completed. Before adoption of the e-business solution, a customer who was checking in had to order service to CEMAT by sending a transport order through an internet based ordering service. A prefilled bill of lading was then sent by CEMAT to the terminal where the goods will arrive for the customer to complete filling manually and hand in together with the goods. Staff at the terminal then entered the customer’s complementary information into the transport management system and print five copies of the complete bill of lading. One copy is sent to CEMAT headquarters, another one stored at the terminal while the driver or customer is given three hard copies. When checking out, the customer delivered the completely filled bill of lading to the terminal after which an employee inputs data into the CEMAT transport management system and gave the customer the signed document. One copy was sent to the headquarters while the other one stored in the terminal (The Sectoral e-business watch 2008). The process had a number of disadvantages including the long hours spent by customers before unloading or picking their goods and poor verification on identifying the receiver of goods while checking out. There was a great deal of redundancy due to duplication of processes making the whole procedure to be complicated and it was necessary to have a storage system to replace the paper work. Different CEMAT terminals coupled with manual processes increased the chances of errors. The issues made the information technology department to develop an electronic solution that significantly improved the process of checking in and out. Implementation and adoption of the new e-solution has decreased the waiting time of customers from 2 hours to 30 minutes and improved security due to the use of codes when delivering goods. The process of handling documents has also been simplified. The customers are also satisfied due to increased efficiency and reduced data duplication. The errors have been reduced since the manual processes have been eliminated. The e-solution has been a success because the terminal managers showed full support to the new process and employees have adapted well to the correct usage of the process. N. C. Cammack & Son N. C. Cammack & Son is a transport and warehousing firm founded in 1919 and offers distribution, express deliveries and freight forwarding services across United Kingdom and Europe. Investment in ICT has been one of the major reasons for company success in truck business. Transport and warehousing have been automated enabling N. C. Cammack & Son to be competitive through monitoring and controlling operations. The track business was initiated in 2002 and the system was developed to improve on traffic management. The system allowed collection of several transport orders and putting them in a diary, management of warehouses and giving customers online access to the system to view job status and invoices. The customers can also view and print their own records online as well as monitor goods that are coming in or going out. Once a job is entered into the system, an employee monitors it and after accepting it, an acceptance receipt is sent to the customers and the information is automatically transferred to the job diary. Grouping of jobs is also done automatically by the system and truck information including the name of the driver and instructions given. An invoice is generated automatically and sent to the customer when a driver has finished the job and a signature checked against the work (The Sectoral e-business watch 2008) The system had several benefits to the company including an increase in the speed of job allocation and transparency in transactions because all users were able to view the job status. The planning process was simplified and a great deal of time saved due to improved operational efficiency. The company has also been able to save costs because the same number of workers can perform many jobs. The customers have also been satisfied with the services offered by N. C. Cammack & Son. Therefore, small companies can improve their operational efficiency by automation without significant financial investments. Future Developments due to ICT Current trends indicate that the use of Radio Frequency Identification will grow fast in the next five years although a number of challenges have to be overcome. There is also a high possibility of small and medium sized companies in the transport and logistic sector to adopt RFID technology because of innovation that will lower the capital costs. Routing systems as well as navigation and positioning systems are predicted to expand due to the impact of ICT. There is to be a paradigm shift in the way people understand carrying out of transactions and use of communication gadgets and especially the mobile phones. Use of cognitive systems and robotics will also increase especially in production. Conclusion The transport industry has had tremendous growth in the past nine years as the global economy improves necessitating the use of Information Communication and Technology systems that increase efficiency in operations. Innovation enhances ICT development therefore promoting competition in the transport and logistic sector and satisfying customers due to improved services. Transport and logistics sectors have benefited immensely from the adoption of current technologies that improve reliability and safety as well as reducing costs as illustrated in the case study of N.C. Cammack & Son. Development of Just-in-time has reduced the need for warehousing making warehouses to expand beyond storage of goods by providing facilities for cargo handling and in other cases call centres. Innovations such as Voice over Internet Protocol have also reduced the cost of communication between and within firms due to the capability of using a single channel when relaying voice or data. The traditional system of storing papers has also been replaced by the electronic invoicing reducing the chances of error and creating large storage space due to reduced filing. References Banister, D and Stead, D 2004, ‘Impact of Information and Communications Technology on Transport’ Transport Reviews, vol. 24, no. 5, pp. 611-632. Black, WR and Geenhuizen, MV 2006, ‘ICT Innovation and Sustainability of the Transport Sector’, EJTIR, vol. 6, no. 1, pp. 39-60. Boyle, LN and Mannering, F 2004, ‘Impact of traveller advisory systems on driving speed: some new evidence’, Transport Research Part C, vol. 1, pp. 57-72. Hensher, DA and Button KJ, 2000, Handbook of transport modelling, Emerald Group Publishing, London. Miles, I 2004, Innovation in services, The Oxford Handbook of Innovation, Oxford University Press, Oxford. Organisation for Economic Co-operation and Development, 2002, Benchmarking Intermodal Freight Transport, OECD publishing, Paris. Organisation for Economic Co-operation and Development, 2005, The economic impact of ICT: measurement, evidence and implications, OECD Publishing, Paris. The Sectoral e-business watch, 2008, Case study, Bonn, viewed on 7 December 2010, . The Sectoral e-business watch, 2008, Case study, Bonn, viewed on 7 December 2010, . Willcocks, LP, Petherbridge, P, Olson, N, 2007, Making IT Count: Strategy, Delivery, Infrastructure, Elsevier, Butterworth Heinemann. . Read More