Information Technology in Logistics Industry - Essay Example

Information Technology in Logistics Industry Faculty 21 Jan 2006 Index I. II. Introduction III. Logistics Industry IV. About the Company-DHL V. Information Technology Structure of the Company-DHL VI. Recommendation VII. Conclusion VIII. Appendix IX. Reference I. Abstract Approximately 6500 DHL offices world wide are connected through each other. Around 285000 employees continuously work to deliver 1.5 billion shipments every year. The number is still increasing. The information Technology system used by DHL group is very advanced. It always emphasises on its future requirements and keeps on investing on the development and implementation of new solutions. This paper focuses on the logistics industry, DHL group and information technology. II. Introduction Worldwide growth of economic activities opened new avenues for various companies. In the process of globalisation many companies have reframed their strategies depending upon various socioeconomic factors. In today’s global business scenario various economic unions like United Nations, ASEAN, NAFTA and others are very active. These act as a regulatory body for the global business markets for the benefits of various regions of the world. The logistics industry has grown along with the other industries. One of the important factors in the growth of logistics industry is the technology available today. This paper will discuss about the logistics market. The various important factors of the logistics market would be discussed in this paper. Further it would be explaining about the world class company DHL. The information system used by DHL is vital for its business processes. The last section will explain the changes which can add value to its information systems and improve its business processes. In this global market every component of business from manufacturing, marketing, distribution and others each got specialised. Distribution and logistics of any company become very important. This is one area of function which is active at each phase of business process i.e. e. from procurement of raw material to distribution of finished goods, logistics is involved. III. Logistics Industry Logistics is important part of any business in the current business scenario. Globalisation has opened various avenues to the business in new geographic destinations. These new destinations sometime become centre of manufacturing due to low labour cost or R&D centres due to the government support and technology available or new markets due to the presence of demand of manufactured goods. Each of these activities required transportation of raw materials, finished goods or orders from one place to other. The cost of the in house transportation was more than the outsourcing of the service. It was because of the requirement of large infrastructure and high fixed cost. The growing economy and globalisation encouraged the development of new industry which is Logistics Industry. The current scenario of this sector in UK is: The UK logistics sector is worth £55bn to the economy. It currently employs 1.7 million people spanning some 63,000 companies.1 Figure 3.1 Factors Influencing Logistics Industry2 Factors influencing the logistics industry are as follows: III.i. External Environment External environment includes various political, economic, legal and regulatory factors of the country where the company is operating. These are as follows: Transportation Regulations Cross border regulations and legalisation across various countries Tariff Barriers Political harmony among various countries Availability of resources III.ii. Supply The supply of the products, raw materials and various manufactured goods primarily depends upon three factors: Technology: Technology of the customer company and the logistic company influences the logistics process i.e. if the client is practicing JIT (Just in Time), it will be very important for the logistics company to understand the crucial nature of the timely delivery. . This would require effective tracking system so that in any case customer should be able to track the material. Infrastructure: Poor infrastructure results in poor services. Organisation: The organisation structure, vision and changes also affect the logistic process. III.iii. Distribution: The distribution channel, proper vehicle of transportation, storage and timely delivery are important factors. III.iv. Customer Logistics Companies serve various kinds of customers. It can be pharmaceutical firms which have to send its products or receive the materials in specific storage environmental conditions, it can be electronic goods where breakable nature of the goods can define the way it has to be shipped and others. Each customer has specific requirement which influences the business of the company. III.v. Retailing The new technologies, growth of internet and e commerce and internet selling have added on the importance of the Logistics industry in the retailing business as well. Any product sold through internet is delivered through the third part logistics companies. Logistics Process: A simple process of flow of materials through various components is explained below: From the supplier site the raw material is delivered as a bulk order to the manufacturing unit or the warehouse where the raw material inventory is kept. From this place it is transferred to the place of production. The products of one process can be raw material for the other process. In such cases the materials, work in process and other are transferred to the site of production of finished goods. From this place again the finished goods are stored in the warehouse and the function of distribution channel starts. It depends upon the members of the distribution about the length of distribution channel. Longer the channel more will be the price of finished goods due to the cost involve in that. In zero level distribution channels the products are distributed to the customer directly from the manufacturing units. It happens mostly for the industrial goods, for the Level 1 distributions there will be retailer. Level 2 channels include retailers along with wholesaler and finally the 4 level channels where the jobber would be added in the distribution channel. The channel members and size can be more than that depending upon the location and product to be distributed. Some Selective Industries with Special logistics requirements: S.N. Industry Products Logistics Requirements 1. Financial Services Important Statements Account Information Credit Cards/Debit Cards deliveries Security Sensitive Time Sensitive Usually Paper/ Fear of physical loss; tearing/ rain and others 2. Manufacturing Raw Materials Specific Supply Chain Requirements Work In process Finished goods distribution Need to be integrated with the supply chain of the manufacturing process, clients’ customers’ requirements and timely safe deliveries. 3. Pharmaceutical/Medical Research Chemicals and raw materials Specific logistics requirements in terms of storage of the products (temperature, pressure et), specific regulatory frameworks of the companies regarding chemicals distributions and logistics, safety concerns. 4. Electronics Manufacturing process requirements, parts and finished goods distributions. Safety, special packaging and handling requirements. 5. Automotive Integration with customers supply chain and manufacturing processes like Just in Time and others, inbound logistics, materials required for the manufacturing process like various parts coming from various other manufactures. Integration with the supply chain and manufacturing process is must. Tracking system very important for the client since in most of the cases of JIT, companies don’t even store the parts etc reducing the cost and efforts of warehousing. 6. Fashion Products Various fashion products are one of the important parts of export import today. Clothes, accessories of various brands etc also required to be distributed timely. Timely distribution to various locations. 7. Food and Perishable items Various kind of food items from spices to the finished products are distributed today. These items have expiry dates after which the product will either spoiled or taste will differ. Timely distribution, proper packaging and handling Table 3.1 Industries and Logistics Requirements The above table gives an idea of the different logistics requirements of different industries. In the overall the factors important for any company operating in the logistics industry are: Time Packaging Consistency with Customers’ Requirements Mode of delivery Cost offered Development of the industry This industry has developed with the development of various other industries. The primitive form of logistics can be seen in the agrarian economy. During this period which was prior to 1960’s, crops and various other agricultural products were supplied to the nearest market place. It was probably the primitive form of logistics systems. 1970’s was the important period for the development of distribution chain. This decade experienced the need of the separate function of distribution management. 1980’s and early 1990’s where there had been various developments in the fields of business and information technology. New concepts of business management developed. More focus was towards the specialisation of services. During this period logistics industry evolved as a separate industry offering third party logistics services. Late 1990’s there was development of Supply Chain Management concept. There were various growths in terms of low cost technologies like internet, development of e-commerce and focus on customer service and timely delivery of products and services. Current and future prospects At present logistics industry is utilising various new technology, providing value added services and supporting the business activities of various other activities profitably. The majority of players in this industry are small companies. It is expected to grow further in future. Figure A .1 of annexe gives the market share of various logistics companies. Figure A. 4 to A 6 shows the predictions for the growth of logistics sector from 2003-2008. DHL enjoys a considerable share in the market place. It is 6.4% in the Air freight market, 5.5% in ocean freight and has fifth rank in the contract freight market. Each of them is expected growth of 6.7%, 6.8% and 7.2 % respectively by 2008. This is a significant growth. It may lead to more specialised services offered to various industries and including more value added services to them. Figure: 3.2. Depiction of a cross-company value chain sequence and an internal activity chain (Source: Porter 1986).3 Above figure is given by Porter. It depicts the process of value creation for the customer. Emphasising on each factor of the primary and support activities any business unit can create value for its customers. As one can see from the above figure logistics is an important component in the value creation for the customers. All the business customers are trying to satisfy their customers in this competing world. The process starts with the customer needs and requirement analysis and ends with its satisfaction and feedback for any business process. Logistics Industry offers these business clients a proper infrastructure and specialised services. The business groups can utilise their energy, manpower and resources to the other area of the business. IV. About the Company-DHL DHL is a global market leader of the international express and logistics industry. Its annual revenues were nearly Euro 22 billion in 2003. It has a strong network worldwide, strong infrastructure base and manpower to support its overall activity. It is owned by Deutsche Post World Net. Deutsche Post, DHL and Postbank companies form worlds leading logistics group. It transfers goods, information and payments through its global network and domestic partners. DHL offers expertise in express, air and ocean freight, overland transport and logistics solutions, combined with worldwide coverage and an in-depth understanding of local markets. DHLs international network links more than 220 countries and territories worldwide. Over 170,000 employees are dedicated to providing fast and reliable services that exceed customers expectations. 4 Figure 4.1 DHL Vehicles DHL offers various solutions to the clients’ requirements. Its strong network and strategic policies have resulted in the development of strong base of customers. It has adopted strategic alliance, merger and acquisition strategies with various companies to gain market share and get a foothold in the domestics companies. For example5 acquisition of Exel Group in December 2005, acquire 100 percent of the shares of PPL CZ s.r.o, based in Prague, Chez Republic and acquisition of Blue Dart of India, a premium domestic courier and integrated air express package Distribution Company and many others. Contributing Factors of Success of DHL: The goodwill and brand image DHL enjoys today is result of years of experience, strong infrastructure, management, human resource, information technology and large base of satisfied customers. Company has a vision and dedication towards contributing to the value of all the stakeholders. V. Information Technology Structure of the Company-DHL DHL has a comprehensive information system placed to offer various solutions to the customer according to customer requirement. From late 1990’s it has been focusing on the internet based solutions for the faster flow of information within the organisations and various locations. From the movement order is placed the interaction with Information technology starts. Placement of the order, filling up electronic form, bar code, warehouse, transportation and final delivery, each step is using information technology efficiently. DHL has been using technology to create visibility of the supply chain solutions. Broadly the Information technology is divided into three parts6. V.i. Visibility Solutions The main concern of any customer after ordering is where the order is right now. Even before the time of delivery they like to track the order. This is because much time these orders are important manufacturing raw material or component. The overall production process will be adversely affected if the order is late. DHL consolidate the various logistics information for the customer and partners. V.ii. EDI & XML Network Integration As speed and time are the crucial issues in the logistics industry apart from the safe delivery concerns. The data exchanged with the customer on the frequent basis with the help of call centres. Customer can connect to the backend system of the DHL and exchange the real time data. It is done through standard XML APIs. DHL is a member of a number of trade information exchange associations - including the automotive and electronics sectors.7 V.iii. IT for Extended Supply Chain Services DHL deals with almost all the business sectors and industry for providing services and solution to their businesses. These industries can be manufacturing where the timely delivery of raw materials at various stages of production and distribution and delivery of finished goods to various locations are important or it can be financial services where the security and time are critical issues of delivery. DHL operates an unmatched global system of 238 gateways and more than 450 hubs, warehouses and terminals. This allows for the rapid and efficient movement of shipments, resulting in fast, reliable and cost-efficient service to over 4.2 million customers worldwide. More than 400 aircraft operate for or on behalf of DHL, giving DHL the flexibility to use the fastest possible means of transportation to any given destination.8 Following is the list of solutions used by DHL for its supply chain services9: V.iii.a. Order Management System (OMS Online, LLC V.iii.b. Transport Management System V.iii.c. Exception Reporting V.iii.d. Track and trace V.iii.e. Warehouse Management System V.iii.f. Data warehouse V.iii.g. Connectivity - information backbone It offers approximately 100 various services to its customer. It touches almost all the industries. It has specialised in providing customised solutions to the sensitive and critical orders like orders of pharmaceutical and chemical engineering products. It has a very informative website. It offers various value added services like insurance, pickup and delivery, other information like tax; regulations etc of countries, flexible billing system and have special vehicles to meet the special logistic requirements bulk orders and others. DHL website is very informative. VI. Recommendations Peter Redshaw, an analyst at Gartner, says: "Individual segments of the supply chain, such as warehousing, are already highly efficient. But many segments are not coupled together properly and a fragmented supply chain means extra cost".10 As stated in the above statement, the basic problem with any business is integration among various units of its business. DHL is a business leader in the logistics field. It has a strong customer base and infrastructure. It has providing many flexible and customised solutions to the logistic requirement of customers. Its business strategy, marketing-mix and other strategies related to partnerships and associations has been very focused. The current IT system will be more powerful if it is: Integrated properly with each other Provide accurate information on the state of the order. Alert customer about any kind of delay or problem as soon as the problem is recognised (It can be problem related to human error, calamities, political or any other) Reducing paperwork by doing internal analysis and process analysis, making flow chart and replacing the longer process and paperwork by introducing appropriate technology there. Providing adequate training to the manpower for any technological updates to reduce to chances of human error. Using wireless technologies of signals to track the shipment or individual orders. Adequately train the manpower to utilise the new technology efficiently. VII. Conclusion Logistic Industry is showing significant growth globally. The trends are towards using the Information Technology more efficiently and effectively to serve the customer. DHL is global leader in that. It has been investing, developing and using the information technology. The key factors of any technology are user friendliness of the technology, low cost and increased efficiency. The structure of information technology becomes complex in the organisation like DHL, which is global leader, have stronger customer base, various divisions and subdivisions of the organisation, different type of industries to be served with different requirements from pharmaceutical to electronic goods. This emphasis on the requirement of low cost integrated solution for the organisation. DHL has been successful in understanding the requirements of the changing business environment and investing appropriately in the development of new solutions and services to meet customers demand. The demand to track goods, timely delivery and safe delivery is increasing. DHL has to focus more on the tracking system and integration of various divisions of the organisation. VIII. Appendix Figure: A.1 Air Freight11 Figure: A.2 Ocean Freight12 Figure: A.3 Contract Logistics13 Figure: A 4 Expected growth in Global Airfreight Market from 2003 to 200814 Figure: A 5 Expected growth in Global Ocean freight Market from 2003 to 200815 Figure: A 6 Expected growth in Contract Logistics Market from 2003 to 200816 GLOBAL FACTS AND FIGURES OF DHL17 Number of Employees: around 285,000 Number of Offices: around 6,500 Number of Hubs, Warehouses & Terminals: more than 450 Number of Gateways: 240 Number of Aircraft*: 420 Number of Vehicles: 76,200 Number of Countries & Territories: more than 220 Shipments per Year: more than 1.5 billion Destinations Covered: 120,000 * Own and foreign airlines IX. Reference Case Studies: DHL, accessed January 18, 2006 from http://www.casewise.com/aboutus/casestudies/casestudy-dhl.php Dantuma, L. M. Y. and Hawkins, R. W. (2001) TNO Report: E – Commerce in the Logistics Sector. 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