INFORMATION TECHNOLOGY IN LOGISTICS AND SUPPLY CHAIN by polisaslib

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LOGISTICS/ SUPPLY CHAIN STRATEGY AND PLANNING LOGISTICS AND SUPPLY CHAIN STRATEGY AND PLANNING Corporate Strategy Logistics/Supply Chain Strategy Logistics/Supply Chain Planning Selecting The Proper Channel Strategy Measuring Strategy Performance Cash Flow Savings Return on investment PORTER’S FIVE FORCES AND IT EFFECTS IT effects on its strategy and competitive advantage Can IT Build Barriers to Entry? Can IT Build in Switching Costs? Can IT Change the Basis of Competition? Can IT Change the Balance of Power in Supplier Relationships? Can IT Generate New Products? EFFECT OF IT TOWARDS SUPPLY CHAIN OPPORTUNITIES Inbound Logistic Operations and Product Definition Outbound Logistics Marketing and Sales After-Sales Service Corporate Infrastructure Management Control Human Resources Technology Development Procurement THE ROLE AND IMPORTANT OF INFORMATION FLOW IN LOGISTICS AND SUPPLY CHAIN The importance of information flow in warehouse PRACTICAL EXERCISES 1

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INFORMATION TECHNOLOGY IN SUPPLY CHAIN MANAGEMENT THE USE OF IT FROM THE PERSPECTIVE OF SCM The importance of IT Application in supply chain Materials Requirement Planning (MRP) and MRP II Enterprise Resource Planning (ERP) in supply chain Electronic Data Interchange (EDI) in supply chain Vendor Managed Inventory (VMI) Warehouse Management System (WMS) Collaborative , Planning, Forecasting and Replenishment (CPFR) Customer Relationship Management (CRM) The Seven R’s of CRM Contribution to Supply Chain Internal Supply Chain Management (ISCM) Supplier Relationship Management (SRM) Decision Support System (DSS) PRACTICAL EXERCISES 2

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ORDER PROCESSING AND INFORMATION SYSTEM INFORMATION SYSTEM Definition of Information System The Input Database Management The Output THE EFFECT OF INFORMATION FLOW IN ORDER PROCESSING TASK Flow of information from the order to delivery

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The order and its impact ACTIVITIES IN ORDER PROCESSING What is Order Processing? What is Order Cycle Time? ORDER PROCESSING SYSTEM Industrial Order Processing Retail Order Processing Customer Order Processing ELECTRONIC DATA INTERCHANGE (EDI) What is EDI? Basic Concept of EDI EDI Protocols Benefits of Using EDI Technology in Logistics and Supply Chain Management PRACTICAL EXERCISES 3

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LOGISTICS INFORMATION SYSTEM (LIS) THE LOGISTICS INFORMATION SYSTEM Function of Logistics Information system Internal operation LOGISTICS INFORMATION SYSTEM (LIS) THAT SUPPORT TIME-BASED COMPETITION Bar Coding Definition of Barcode Impact of Bar code technology on operations of logistics and supply chain management POINT-OF-SALE DATA (POS) Definition of POS Features to Consider in a POS System GLOBAL POSITIONING SYTEM (GPS) What is GPS? How GPS works? GPS works in logistics How GPS determines a position? Fleet Management Benefits of GPS Tracking system in Supply Chain Management RADIO FREQUENCY IDENTIFICATION (RFID) Major Advantages of Using RFID as an Auto-ID System Benefits of implementing RFID in supply chain Management Benefits of RFID in Manufacturing Processes Benefits of RFID in Warehouse Management Benefits of RFID in Tracking and Managing of Shipping Containers Benefits of RFID in Distribution Processes PRACTICAL EXERCISES 4

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INFORMATION COMMUNICATION TECHNOLOGY IN FREIGHT LOGISTICS DEVELOPMENTS OF INFORMATION COMMUNICATION TECHNOLOGY What is Information and Communications Technology? What is Freight? ICT in Freight Logistics ICT is an Enabler in Freight Logistics Functions of ICT in Freight Logistics Impact ICT on Freight Logistics Industry APPLICATION OF ICT ON TRADE BY DAGANG.NET What is Dagang.Net? Core Competencies of Dagang.Net National Single Window For Trade Facilitation – Malaysia’s eBased Trade Eco System NSW of e-Services Benefits NSW to Trading Community Benefits Gained By Traders and the Government

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Critical Success Factors for Malaysia’s NSW ASEAN Single Window - Regional e-Based Trade Eco-system Dagang NeXchange Berhad PRACTICAL EXERCISES 5

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THE INTERNET AND ECOMMERCE INTRODUCTION OF NETWORK What is a Network? Network Computers INTERNET World Wide Web (www) Web Browser Uniform Resources Locator (URL) How the Internet Works Benefit of Internet on Supply Chain Management E-COMMERCE IN SUPLY CHAIN MANAGEMENT Basic concept of E-Commerce What is Commerce? Evolution of E-Commerce E-Commerce Definitions and Concepts E-Business Types of E-Commerce Benefits and Limitations of E-Commerce The Limitation of EC USE OF E-COMMERCE IN SUPPLY CHAIN Business to Business Concepts Market Size and Content of B2B Characteristics of Business to Business Supply Chain Relationships in B2B Business-to-Consumer (B2C) Community Provider Supply Chain Entities E-COMMERCE TRANSACTIONS The Process of Online Transactions Transaction Process E-Commerce Transaction Cycle E-Commerce Payment Systems Characteristics of Successful E-Payment Methods Mode of E-Commerce Payment PayPal Benefits of E-Commerce Payment Systems PRACTICAL EXERCISES 6 REFERENCES

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Introduction To Strategy And Information Technology

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1 Introduction To Strategy And Information Technology

INTRODUCTION TO STRATEGY AND INFORMATION TECHNOLOGY LOGISTICS AND SUPPLY CHAIN STRATEGY AND PLANNING Corporate Strategy Corporate strategy creation begins with a clear expression of the firm’s objectives. Whether the company is to seek profit, survival, social, return on investment, market share or growth, goals should be well understood. Next, a process of visioning is likely to take place where unconventional, unheard of, and even counterintuitive strategies are considered. This requires addressing the four components of good strategy: customers, suppliers, competitors, and the company itself. Assessing the needs, strengths, weakness, orientations, and perspectives of each of these components is a beginning. Then, brainstorming about what may be possible as a niche strategy is the output of this visioning process. The following are examples of such visions:  

General Electric’s vision is to number one or two in each market that it serves; it will get out of any market in which it cannot maintain that standard. IBM constantly reshapes itself to remain an effective competitor.

General visioning strategies need to be converted into plans that are more definitive. With a clear understanding of the firm’s costs, financial strengths and weaknesses, market share position, asset base and deployment, external environment, competitive forces, and employee skills, a selection is made from alternative strategies that evolve from the threats and opportunities facing the firm. These strategies now become specific directions for how the vision will be made reality. EXAMPLES  Xerox’s copier patents were running out, meaning the company would not have a differentiated product in the marketplace. Therefore, it adopted the strategy to be number one in field service.  StarKist Foods adopted a supply-side strategy of buying and packing all the tuna that its own fleet and its contracted fleets could catch. This would help it to be the dominant packer in the tuna business. Source: Ronald H. Ballou, Business Logistics/Supply Chain Management, 2004, pp34

The corporate strategy drives the functional strategies because they contained within the former, as shown in Figure 1.1. The corporate strategy is realized as manufacturing, marketing, finance, and logistics shape their plans to meet it. For example, when StarKist Foods decided on a supply-side strategy, marketing and logistics responded with their plan to control the potential excess inventories that would result. This plan was to place tuna on sale to reduce inventories when necessary. The plan works because tuna is in such demand that consumers often stock up when it is on sale. Let’s now turn to the specific way logistics strategies are developed.

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Figure 1.1: Overview of Corporate Strategic Planning to Functional Strategic Planning Source: William Copacino and Donald B. Rosenfield, “Analitical Tools for Strategic Planning,” International Journal of Physical Distribution and Materias management, 15(3), pp.47-61, Council of Logistics Management USA

Logistics/Supply Chain Strategy Selecting a good logistics/Supply Chain (SC) strategy requires much of the same creative processes as developing a good corporate strategy. Innovative approaches to logistics/SC strategy can give a competitive advantage. EXAMPLES An office machine company took a step to save on valuable machine repair time. Traditionally, repair technicians were sent by a central service centre to the customer repair site. These highly trained and highly paid personnel spent a fair amount of their time traveling to and from these sites. The company redesigned its logistics system so that inventories of on-loan and replacement machines were placed at service centres around the country. When a machine broke down, replacement machine would be sent to the customer, and the broken machine sent to the service centre for repair. The new system not only saved on repair costs, but improved customer service as well. Source: Ronald H. Ballou, Business Logistics/Supply Chain Management, 2004, pp35

It has   

been suggested that a logistics strategy has three objectives: cost reduction capital reduction and service improvement.

Cost reduction is strategy directed toward minimizing the variable costs associated with movement and storage. The best strategy is usually formulated by evaluating alternative courses of action, such as choosing among different warehouse locations or selecting among alternative transport modes. Profit maximization is the prime goal. 2

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Capital reduction is strategy directed toward minimizing the level of investment in the logistics system. Maximizing the return on logistics assets is the motivation for this strategy. For example, shipping direct to customers to avoid warehousing, choosing public warehouses over privately owned warehouses, selecting a just-intime supply approach rather than stocking to inventory, or using third-party providers of logistics services. Service improvement strategies usually recognize that revenues depend on the level of logistics service provided. Although costs increase rapidly with increased level of logistics customer service, the increased revenues may offset the higher costs. To be effective, the service strategy is developed in contrast with that provided by the competition. EXAMPLES Domino Pizza is just one of many in the pizza market, serviced by competitors such as Pizza Hut as well as an army of independent retail operations. It has now become America’s second-largest pizza chain by promising customers a $3 discount on any pie not delivered within 30 minutes from the time it’s ordered. Source: Ronald H. Ballou, Business Logistics/Supply Chain Management, 2004, pp39

Each link in the logistics systems is planned and balanced with each other in an integrated logistics planning process (see Figure 1.2).

Figure 1.2: Flow of Logistics Planning Source: William Copacino and Donald B. Rosenfield, “Analitical Tools for Strategic Planning,” International Journal of Physical Distribution and Materias management, 15(3), pp.47-61, Council of Logistics Management USA

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Selecting the Proper Channel Strategy Selecting the proper channel design greatly affects the efficiency and effectiveness of the supply chain. Fundamentally, two strategies are significant:  

supply-to-stock supple-to-order

A supply-to-stock strategy is the supply channel is set up for maximum efficiency. That is, inventories are used to achieve good economics by allowing economical production runs, purchasing in quantity, batch order processing, and transporting in large shipment sizes. Safety stocks maintained to realize high levels of product availability. Demand usually met from inventories, but careful control holds inventory levels to a minimum. A supply-to-order strategy is one where the supply channel is set up maximum responsiveness. The channel characteristics are excess capacity, quick changeovers, short lead time, flexible processing, premium transportation, and single order processing. The costs associated with responsiveness are offset by the minimization of finished goods inventories. A summary of the differences between two approaches is given in Table 1.2. Table 1-2: Characteristics of Supply-to-stock and supply-to-order supply chains

Supply chain Efficient supply chain (Supply-to-Stock)

Responsive supply chain (Supply-to-Order)

Channel Design Characteristics     

Economical production runs Finished goods inventories Economical buy quantities Large shipment sizes Batch order processing

     

Excess capacity Quick changeovers Short lead times Flexible processing Premium transportation Single order processing

Measuring Strategy Performance Once supply chain strategies are planned and implemented, managers want to know if they are working. Three measures are useful to monitor this; cash flow, savings, and return of investment. If all are positive and substantial, the strategies are probably working well. These financial measures are of particular interest to top management.

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

Cash Flow Cash flow is the money that a strategy generates. For examples, if the strategy is to decrease the amount of inventory in a supply channel, then the money released from the inventory carried as an asset is turned into cash. This cash can then be used to pay salaries or dividends, or can be invested in other areas of the business.



Savings Savings refer to the change in all relevant costs associated with a strategy. A strategy that changes the number and location of the warehouses in a logistic network will affect transportation, inventory carrying, warehousing, and production / purchase costs. A good network design strategies will produce a significant annual costs savings (or, alternately, customer improvement that contributes to revenue growth).



Return on Investment Return on investment is the ratio of annual savings from the strategy to the investment required by strategy. It indicates the efficiency with which capital is being used. Good strategies should show a return greater than or equal to the expected return on a company’s projects.

PORTER’S FIVE FORCES AND IT EFFECTS This model identifies and analyses five competitive forces that shape every industry, and help determine an industry’s weakness and strengths. Michael E. Porter explains that the economic and competitive forces in an industry segment are the result of the five competitive forces:     

bargaining power of suppliers bargaining power of buyers threat of new entrants into the industry segment threat of substitute products or services intensity of rivalry within the industry

Figure 1.3: Porter’s five competitive forces

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Although Porter’s initial work did not include Information technology (IT) as a component of the framework, it has proven extremely useful in this regard. Table 1.3 describes the impact of IT on the five competitive forces. Column 1 lists the key competitive forces that shape competition in a given industry segment. In a specific industry, not all forces are of equal importance. Some industries are dominated by suppliers (for example, OPEC in the petroleum industry in the 1970’s), while other industries are preoccupied with the threat of new entrants and/or substitute products (such as the banking and insurance industries). Table 1.3: Impact of Competitive Forces

Force

Implication

Potential Uses of IT to Combat Force

Threat of new entrants

 New capacity  Substantial resources  Reduced prices or inflation of incumbents’ costs

    

Buyers’ bargaining power

   

Suppliers’ bargaining power Traditional intraindustry rivals

 Prices raised  Reduced quality and services (labour)  Competition -Price -Product -Distribution and service

Price forced down High quality More services Competition encouraged

Provide entry barriers Increase economic of scale Increase switching costs Product differentiation Increase access of distribution channel Buyer selection Switching costs Differentiation Entry barriers

 Selection of supplier  Threat of backward integration  Cost-effectiveness  Market access  Differentiation -Product -Services -Firm

Information Technology (IT) Effects On its Strategy and Competitive Advantage Five key questions can be used to guide an assessment of the impact of IT on strategy. 

Can IT Build Barriers to Entry? A successful entry barrier offers not only a new product or service that appeals to customers but also features that keep the customer “hooked”. The harder the service to emulate, the higher the barrier to entry. A large financial service firm sought to build an effective barrier to entry when it launched a unique and highly attractive financial product that depended on sophisticated software that was both costly and difficult to implement. The complexity of IT-enabled product caught competitors off guard; it took several years for them to develop a similar product, which gave the initiating firm valuable time to establish a significant market position. During this time, the firm continued to innovate, enhancing the original product and adding value to the services. Competitors not only has to catch up, but had to catch a moving target. 7

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Systems that increase the effectiveness of the sales force represent another kind of entry barrier - a knowledge barrier. For examples, several large insurance companies have implemented sophisticated, customer oriented financialplanning support package that have greatly expanded the ability of their agents to deal with rapidly changing and increasingly complex knowledge requirement within the industry. 

Can IT Build in Switching Costs? The use of IT systems can create switching costs. Switching costs are the costs that a consumer incurs as a result of changing brands, suppliers or products. The higher these cost are, the more difficult it is execute the switch. If a business sell something that customer can’t get elsewhere (at least not easily), then the business has high customer switching costs. Although most switching costs are monetary in nature, there are also psychological, effort and time based switching costs. Proponents of electronic home banking hope to capitalize on the potential of increasing switching costs. Indeed, in France, a $3 billion “virtual” bank exists that has no branches; customers, who have tightly integrated their financial records into the bank’s IT systems, conduct all transaction electronically. Another example of switching costs is manufacturer of heavy machine embedded into its product software that enables remote monitoring and, in some cases, correction of problem. In case of mechanical failure, the diagnostic device calls a computer at corporate headquarters, where software analyses and, if possible, solve the problem. If the problem cannot be solved remotely, the computer pages a mechanic and provides a complete record of current problem and the maintenance history of the product. The system has dramatically improved service quality and response time, enhanced customer loyalty, and decreased the tendency of customers to buy service from other company.



Can IT Change the Basis of Competition? In some industries IT has enabled a firm to fundamentally alter the basis of competition within the industry. This occurs when a firm uses IT to radically change either its cost structure (cost advantage) or its product/service offering (different advantages). For example, a major distributor of magazines, a very cost-competitive industry segment, used IT to significantly lower its cost structure by developing cheaper methods of sorting and distributing magazines. By radically reducing both headcount and inventory, it was able to become low-cost producer in the industry. Having attained significant cost advantage, the distributor then differentiated its products and services. In addition to distributing magazines, the company used IT and the information it generated to offer a valuable inventory-management service. In this example, the distributor initially used IT to changes its competitive position within an industry; it then used IT to fundamentally change the basis of competition.

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Can IT Change the Balance of Power in Supplier Relationships? The development of IT system that link manufacturers and suppliers has been a powerful role for IT within the firm. For example, just-in-time inventory systems have dramatically reduced inventory costs and warehouse expenses, while also improving order fulfilment time. Traditionally, companies have uses inventory to buffer uncertainty in their production processes. Large safety stocks of raw materials and supplies are kept of hand to allow operations to run smoothly. But inventory costs money; it ties up capital, it requires costly physical facilities for storage, and it must be managed by people. Increasingly, companies are using IT to link suppliers and manufacturers; by improving information flow, they are able to decrease uncertainty, and, in the process, reduce inventory, cut the number of warehouses, and decrease headcount while also streamlining the production process.



Can IT Generate New Products? IT can lead to products with higher quality, faster delivery, or less cost. Similarly, at little extra expense, existing products can be tailored to meet a customer’s special needs. Some companies may be able to combine one or more of these advantages. In addition, at little additional cost, as in the case of the on-line diagnostic system for machine failure described earlier, electronic support services can increase the value of the total package in the consumer’s eyes. It is clear that IT usage can help companies to produce innovative and quality products. For example, today’s upscale cars have more than 100 microcomputers in them controlling everything from breaking to temperature. Sewing machine use microcomputers to control everything from stitching pattern to complex thread shifts. Fighter aircraft and submarine have highly sophisticated automated control systems.

EFFECT OF IT TOWARDS SUPPLY CHAIN OPPORTUNITIES An effective way to search for potential IT opportunities is through a systematic analysis of a company’s value chain (the series of interdependent activities that bring a product or service to the customer). IT can improve effectiveness, by fundamentally changing the activity, and sometimes by altering the relationship between activities. The actions of one firm can significantly affect the value chain of key customers and suppliers. 

Inbound Logistic In many settings IT has expedited procurement of materials. For example, major distribution company, installed hundreds of personal computers on supplier premises to enables just-in-time, on-line ordering. The company required its suppliers to maintain adequate inventory and provide on-line access to stock levels so that they can appropriately plan orders. This system decreased the need for extensive warehousing of incoming materials and reduced disruption due to inventory shortfalls. The need to maintain inventory safety stocks and associated holding costs was reduced for both the supplier and the buyer. 9

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Operations and Product Definition Information systems technologies can also influence a manufacturer’s operation, and product offerings. For example, a manufacturer of thin transparent film completed a $30 million investment in new computer-control manufacturing facilities for one of its major product lines. This change slashed order response time from 10 weeks to two days and improved quality levels significantly.

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Outbound Logistics IT can also influence the way services and product are delivered to customers. For example, the Civil Aeronautics Board, believing that the system strongly influence purchasing behaviour, issued the cease-and-desist order that required that all carriers’ flights be fairly represented. Automatic teller machines, as well as theatre-ticket and airlines-ticket machines, allow cash and service to be rapidly and reliably delivered to customers where they work or shop. In 1998, the Internet has become an important retail channel for all types of physical and information-based products and services.

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Marketing and Sales In the early stages of IT use, marketing and sales are often missed. However, IT is now widely used in this field. In many firms, the sales force has been supplied with a wide array of personal portable technologies that enable firms to collect detailed customer and market data, and then to package and deliver the data back to the sales force and directly to customers. Apart from that, the use of IT also helps company to manage customer data. Data available from loyalty card can precisely identify which customers buy which brands of competing merchandise. This information is important to suppliers as they focus their coupon efforts to retain their customers.



After-Sales Service IT is also revolutionizing after-sales service; for example, on its new line of elevators, an elevator company has installed on-line diagnostic devices. This devices identify potential problems before the customer notices a difficulty, thus enabling the service representative to fix the elevator before it breaks down, reducing repair cost and increasing customer satisfaction. A large manufacturer of industrial machinery has installed an expert system on its home-office computer to support product maintenance. When a machine failure occurs on a customer’s premises, the machine is connected over a telephone line to the manufacturer’s computer, which performs an analysis of the problem and issues instruction to the machine operator. Service visited have decreased by 50 percent, while customer satisfaction has significantly improved.

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Corporate Infrastructure A large travel agency has electronically connected via satellite small outlying offices located near big corporate customer to enable to access to the full support capabilities of the home office. These network capabilities have transformed the 10

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organizational structure from one large central corporate office to many small full-service offices, resulting in a 27 percent growth in sales. 

Management Control. A major financial services firm used to pay a sales commission on each product sold by its sales force; thus, the sales force had maximum incentive to make the initial sale and no incentive to ensure customer satisfaction and retention. Using its new integrated customer database, the company implemented a new commission structure that rewarded both the initial sale and customer retention. This approach, made possible by new technology, aligned the company’s strategy and its sales incentive system much more effectively. In some instances, IT has dramatically enhanced coordination by providing greater access to a more widely connected network such as voice mail, electronic mail, groupware, and video conferencing. New networked “workflow” systems are also enabling tighter coordination of operations.

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Human Resources Human resources management has also changed. For example, to facilitate important personal decisions, an oil company has given personal computers to all its corporate management committee members, thus giving full on-line access to the detail personnel files of the 400 most senior members in the corporation. These files contain data on five-year performance appraisals, photographs, and lists of positions for which each person is a backup candidate. This show that, IT has facilitated important personnel decisions and made easier the management of employee’s data. Additionally, special government compliance auditing, which used to take months to complete, can now be done in hours.

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Technology Development The emerging new technologies are creating strategic opportunities for the organizations to build competitive advantages in various functional areas of management including logistics and supply chain management. However the degree of success depends on the selection of the right technology for the application, availability of proper organizational infrastructure, culture and management policies. In logistics, information, communication and automation technologies has substantially increased speed of identification, data gathering, processing, analysis and transmission, with high level of accuracy and reliability (Rajiv Bhandari). The example of latest technologies being used in logistics and supply chain management are; barcode, radio frequency identification (RFID), electronic data interchange (EDI), Enterprise Resource planning (ERP), geographical positioning system (GPS), etc.

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Procurement Procurement activities are also being transformed. For example, with a series of on-line electronic bulletin board that make the least spot prices instantly available around the country, a manufacturing company directs its nationwide purchasing effort. The boards have led to a tremendous improvement in purchasing price effectiveness, both in discovering and in implementing new

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quantity pricing discount data, as well as ensuring that the lowest prices are being achieved. A retailer, by virtue of its large sizes, has succeeded in its demand for on-line access to the inventory files and production schedules of its suppliers. This access has permitted the company to manage its inventories more tightly and to exert pressure to suppliers to lower price and to improve product availability.

THE ROLE AND IMPORTANCE OF INFORMATION IN LOGISTICS AND SUPPLY CHAINS Information is crucial to the performance of supply chain because it provides the basis on which supply chain managers make decision. Effective use of IT in supply chain can have a significant impact on supply chain performance. IT consists of

tools used for the purpose of:   

Gathering of Information Analysis of Information Execute upon information to increase the performance of SC

A well-managed supply chain links the suppliers, manufacturers, distributers and customers by a suitable information system for controlling across boarder in order to achieve optimum productivity, overall satisfaction and joyful relation at cheaper cost. Quick and effective information system helps manager to understand the customer response, their demands, inventory in the stock, how much to be produced and where to deliver and when? Managers and workers in logistics and SCM are today less connected with the physical handling of freight, but more in contact with the associated information. Hence, it is not just the information itself that is important, but also how we store, retrieve and use it. Information must have the following characteristics while making a decision in supply chain (facility, inventory, transportation, sourcing, pricing,

etc.) 

Must be accurate –Information that gives a true picture of the state of the supply chain will assist to make good decisions.



Accessible in a timely manner – To make good decisions, a manager needs to have up-to-date information that is easily accessible.



Must be of right kind – Companies must think about what information should be recorded so that valuable resources are not wasted collecting meaningless data while important data goes unrecorded.

Access to timely and accurate information is fundamental to effective SCM. Information must also be useful and useable. Hence, networked desktop and mobile devices such as laptops, personal digital assistants (PDAs) and mobile phone are not now only the toolkit of management, but are also used to access real time information from upstream and downstream in the supply chain. This information accessibility

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not only supports the ability to plan and control supply chain activities, but also, and arguably more importantly, provides 24/7 visibility of when things don’t go to plan. For example, the availability of demand information from a range of high street at a national distribution centre (NDC) will enable particular products to be rerouted to the stores where there is demand for them. Clearly the more timely and accurate that information is, the greater the chances of meeting demand, thereby reducing the probability of overstocking/understocking. The Importance of Information Flow in Warehouse Information and communication technology (ICT) enables the collection, analysis and evaluation of data and the transfer of information from one point to another. Information flows in warehouses and supply chains are as fundamental as the physical flows of goods and materials. Such information flows occur not only internally in companies, but also between external suppliers, contractors and customers. Consequently all the physical goods, people and material flows are triggered and paralleled by ICT. The whole warehouse and supply chain process is kept moving by communication the supply of information. The timing and quality of the information enables decision-making. Good information enables good decision to be made. The opposite is also true and all parts of supply chains rely on ICT for planning, organising, operation and administration together with all the other management process involve. When using any form of e-based communication, this will also include the customer interface. Information flows not only from top to bottom but also internally and externally. For example, a warehouse order picker uses a pick list, which is generated from the (external) customer order. These picking operations, in turn, are part of decisions taken at the tactical warehouse planning level and the tactical inventory planning level. The information required by anyone at any level is therefore connected and is part of a complex set of data handling and communication. ICT will facilitate all these fundamental triggering, coordinating and controlling functions throughout the supply chain, including the warehouse.

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PRACTICAL EXERCISES RECOMMENDED TIME ALLOCATION: 2 HOURS 1.

OUTCOMES: At the end of the activity, student should be able to analyse the supply chain and IT opportunities in real business environment

ACTIVITY: 1. You are required to get the info and explain in real world how IT can help the company/corporation in the following situation:     

IT can IT can IT can IT can IT can

build barriers to entry build in switching cost change the basis of competition change the balance of power in supplier relationships generate new products

2. Provide example for each situation.

CONCLUSION Please write your conclusion based on the effect of IT on the company's strategy and competitive advantage

Information Technology In Supply Chain Management

CHAPTER 2

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Information Technology In Supply Chain Management

INFORMATION TECHNOLOGY IN SUPPLY CHAIN MANAGEMENT THE USE OF INFORMATION TECHNOLOGY FROM THE PERSPECTIVE OF

SUPPLY CHAIN MANAGEMENT

The latest developments in technology enable organizations to leverage information easily on their premises. These technologies are helpful to coordinate the activities to manage the supply chain. In the field of supply chain management, there has always been an abundance of data. Shipping bills alone make a lot of information. Gathering the data is important; evaluating the information, setting benchmarks and measuring performance and progress is critical, the purity of raw material is important. From the data available many reports are generated, and provide solutions that can generate cost saving and or service improvements. Information technology offers many opportunities for companies to cut cost and improve responsiveness to customer’s needs. Some of the positive points of IT enabled services are:    

comparatively less capital intensive environmental friendly and clean can be undertaken from anywhere do not require expensive infrastructure facilities.

The Importance of Information Technology Application in Supply Chain Material Requirement Planning (MRP) and MRP II Material Requirements Planning (MRP) is a computer-based production planning and inventory control system. MRP is concerned with both production scheduling and inventory control. It is a material control system that attempts to keep adequate inventory levels to assure that required materials are available when needed. The original MRP planned and controlled only materials: the number of purchased components, built in-house parts and raw materials needed to produce each toplevel product. An MRP system is intended to simultaneously meet three objectives:  Ensure materials and products are available for production and delivery to customers.  Maintain the lowest possible level of inventory.  Plan manufacturing activities, delivery schedules and purchasing activities. Manufacturing Resource Planning, (MRPII) evolved from early system by including the integration of additional data, such as employee and financial needs. The system 16

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is designed to centralize, integrate and process information for effective decision making in scheduling, design engineering, inventory management and cost control in manufacturing. There are few benefits of MRP II to business function such as:

Function

Financial & Costing Functions

Function

Figure 2.1: Benefit of MRPII

Enterprise Resources Planning (ERP) in Supply Chain Enterprise resource planning (ERP) is a process by which a company (often a manufacturer) manages and integrates the important parts of its business. ERP software are built to collect and organize data from various levels of an organization and connect business activities across departments.

Figure 2.2: Illustration of ERP system

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Some of the main benefits of ERP system in supply chain are as follows: 

Enterprise-wide Visibility: ERP software enable visibility into material need and material use across the organization. This means it has the data to optimize inventory levels, purchasing and production for enhanced performance.



Automated Purchasing: Systems can be programmed to automatically place orders with vendors when inventory levels drop below a certain point. This feature minimizes the chances of running out of materials at critical times in the production schedule.



Vendor Performance: ERP systems give end-users and executives the opportunity to track vendor performance through metrics such as cycle time, cost, error rates and more. Data of this nature can be used to negotiate better terms or to justify switching vendors.



Exposure of Fraud and Malfeasance: ERP systems offer visibility provide information regarding existing corruption in the supply chain and also to deter those with a deviant mind set. Organizations can rest a little easier knowing that the data they need is being tracked by their ERP system.



Economies of Scale: Knowing how much, where and when the organization spends can be an unbeatable point of leverage in price negotiations across the supply chain. Consolidation of enterprise spending for favourable terms is a key benefit of ERP integration that organizations should absolutely strive to achieve.

Electronic Data Interchange (EDI) in Supply Chain EDI has been defined as: computer-to-computer exchange of structured data for automatic processing. EDI is used in supply chain management to facilitate the transfer of a wide range of documents such as bills of lading, customs documents, inventory documents, shipping status documents and payment information documents. Some of the most common documents that EDI facilitates in the supply chain:  Orders  Order Acknowledgements  Order Amendments  Shipment Notifications  Invoices  Requests for Routing Instructions  Organizational Relationships  Commission Sales Reports  Price/Sales Catalogues  Requests for Quotation EDI has many benefits such as providing timely information about its customers’ sales, it is highly accurate and it is very efficient because it does not require staff to collate the information manually. Others benefits of EDI for supply chain management are shown in Figure 2.2.

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Figure 2.3: Benefits of EDI for Supply Chain Management

Vendor Managed Inventory (VMI) Vendor managed inventory (VMI) is a system where the supplier has the visibility of customer’s inventory and is responsible for customer’s inventory optimization with optimum level of inventory. In other word, VMI is a method in which a vendor, holds and manages materials and parts of their customers. The simplest example of a vendor managed inventory system is between a manufacturer and distributor. The vendor has access to the sales and inventory levels of the distributor and the vendor places an order against itself if its inventory levels are low. It basically transfers control in the hands of the manufacturer. VMI system reduces out-of-stock situations and increase efficiency of the supply chain through the following factors:     

shortening the supply chain, centralization of forecasting, acceleration of communication process on stock-outs and inventory level (because of EDI), absence or less frequent promotions (by the manufacturer or the distributor), increase in loyalty to a supplier and improving of relationships in a supply chain

The benefits of VMI system approach are: 

Improved client service. Getting timely information from POS data, suppliers are able to respond better to customer’s needs, providing required quantities in a right location at a certain time.

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

Decreased demand uncertainty. Through monitoring of market demand flows and customer’s inventories, a distributor is supposed to reduce the number of large unplanned customer orders.

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Decreased inventory requirements. VMI planning system helps a distributor to decrease the inventory requirements as he knows exactly how much inventory the customer disposes, therefore, there is no need to have reserve inventories in order to manage uncertain orders.

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Decreased costs. All elements of a supply chain- manufacturers, distributors and customers able to reduce costs by re-engineering and merging their order fulfilments and distribution centre replenishment activities.

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Improved customer retention. Installing of VMI system is a specific-related investment into long term relationship between supplier and customer. The system costs a lot, switching costs for a customer is relatively high so he will prefer to deal for a long time with the same supplier.

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Decreased reliance on forecasting. By using VMI, a supplier gets instant data about customer’s inventories. Hence, suppliers do not have to forecast the customer’s demand for a product which typically contains loads of errors.

Warehouse Management Systems A warehouse management system (WMS) is a software application that supports the day-to-day operations in a warehouse. WMS programs enable centralized management of tasks such as tracking inventory levels and stock locations. Implementation of a WMS allows a company to increase its competitive advantage by reducing labor costs, improving customer service, increasing inventory accuracy, and improving flexibility and responsiveness. A WMS enables a company to manage inventory in real time, with information as current as the most recent order, shipment, or receipt and any movement in between. WMS Benefits are as follows:       

Faster inventory turns More efficient use of available warehouse space. Reduction in inventory paperwork Improved cycle counting. Reduced dependency on warehouse personnel. Enhanced customer service. Improved labor productivity.

Collaborative Planning, Forecasting and Replenishment (CPFR) Collaborative Planning, Forecasting and Replenishment (CPFR) is a concept that aims to enhance supply chain integration by supporting and assisting joint practices. CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. CPFR was developed in the late 1990s to fill the inter-organisational gap that ERP could not fill. First developed at Wal-Mart to enable collaborative scheduling with their first tier suppliers, CPFR is fundamentally a new collaborative method of scheduling logistics between suppliers and customers.

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CPFR allows trading partners working together in planning fulfilling customer demand, links sales and marketing best practices to supply chain planning and execution processes. The objective is to increase availability to the customer while reducing inventory, transportation and logistics costs. Customer Relationship Management (CRM) Customer relationship management (CRM) is a term that refers to practices, strategies and technologies that companies use to manage and analyze customer interactions and data throughout the customer lifecycle, with the goal of improving business relationships with customers, assisting in customer retention and driving sales growth. The focus of CRM is on creating value for the customer and the company over the longer term. When customers value the customer service that they receive from suppliers, they are less likely to look to alternative suppliers for their needs. CRM enables organizations to gain ‘competitive advantage’ over competitors that supply similar products or services. The Seven ‘R’s of CRM Contribution to Supply Chain Good customer relationships are the result of ‘the right product, for the right customer, in the right place, at the right time, in the right quantity, in the right condition, and at the right cost’. CRM is a way to identify each of these ‘rights’ and to segment customers accordingly. CRM can also be used to predict future customer behaviour. Forecasts can be made such as customers’ purchases, and even of the risk that they may move over to a rival company and stop buying from yours. For example, US supermarket Walmart and Target both use CRM to run sales promotions aimed at specific customer groups, using these business analytics. Other advantages of well-tuned business analytics include being able to display key status information at any time (‘dashboards’ showing quantities of customer orders and levels of satisfaction, for instance); they can also give recommendations for immediate action according to the trends or events predicted for the future. Example of CRM software are Siebel, Salesforce.com, SAP and Oracle. Key processes under CRM are as follows: 

 

Marketing: Involve decisions regarding which customers to target, how to target customers, and what products to offer, how to price products and how to manage the actual campaigns targeting customers. Sell: The sell process includes providing the sales force the information it needs to make a sale and then execute the actual sale. Order management: Important for the customer to track his order and for the enterprise to plan and execute order fulfillment.

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

Call/service center: Helps customers place orders, suggests products, solves problems, and provides information on order status.

Internal Supply Chain Management (ISCM) Internal supply chain refers to the chain of activities within a company, specifically, purchasing, production, sales and distribution. The internal supply chain has a significant impact on a company’s success; operations need to run smoothly in order to create a harmonized working environment and an efficient workflow. The internal supply chain management focuses on internal operations within the enterprise. Various processes included in ISCM are as follows:     

Strategic Planning – focuses on the network design of the supply chain. Demand planning – consists of forecasting demand and analyzing the impact on demand of demand management tools such as pricing and promotions. Supply planning – Factory planning and inventory planning capabilities are typically provided by supply planning software. Fulfillment – Links each order to a specific supply source and means of transportation. Field service – Service processes focus on setting inventory levels for spare parts as well as scheduling service calls.

The example of ISCM software are i2 Technologies, Manugistics, SAP and Oracle. Supplier Relationship Management (SRM) SRM is an integrated approach, addressing both the buyer and seller sides, which can provide mutual benefits for both organizations. The goal of supplier relationship management (SRM) is to streamline and make more effective the processes between an enterprise and its suppliers just as customer relationship management (CRM) is intended to streamline and make more effective the processes between an enterprise and its customers. SRM systems help users keep suppliers on their toes by monitoring their operations and revealing poor performance. Supplier relationship management is critical to any organization because it directly impacts the organization in terms of:    

Financial performance Profitability of a buying enterprise Product development costs Inventory levels

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 

Manufacturing schedules Timeliness of delivery of goods and services

Effective SRM gives organizations a competitive power in the market to:       

reduce direct and indirect costs and improve service improve the profitability of company and the suppliers improve productivity and all areas of supplier performance strengthen the supply-chain management process by collaborating with suppliers select the best suppliers to gain advantage over competitors minimize the risk of supply chain assure that organization's resources are prioritized on the most critical suppliers

Figure 2.4: Capabilities of SRM System

Decision Support System (DSS) A decision support system (DSS) is a computerized information system used to support decision-making in an organization or a business. A DSS analyze data and compile information that can be used to solve problems and make better decisions. Decision-support systems range from spreadsheets, in which users perform their own analysis, to expert systems, which attempt to incorporate the knowledge of experts in various fields and suggest possible alternatives. DSS are used to address various problems, from strategic problems such as logistics network design to tactical problems such as the

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assignment of products to warehouses and manufacturing facilities, day-to-day operational problems such as production scheduling, delivery mode selection, and vehicle routing. DSS allow the decision maker to analyze the consequences of decisions, depending on different possible scenarios. This kind of what-if analysis can help decision makers to recognize potential problems before they occur. The benefits of decision support systems include more informed decision-making, timely problem solving and improved efficiency for dealing with problems. DSS Play an important role in business. It perform various activities. The role of DSS is as follows: •

What if analysis

•

Goal oriented

•

Risk analysis

•

Model Building

•

Graphical analysis

The three major components of a DSS are the input databases and parameters, the analytical tools, and the presentation mechanism. •

The input database contains the basic information needed for decision making. This can be a PC-based database extract designed for the specific problem, a data warehouse with an accumulation of a company’s transactions, or distributed databases accessed through a network.

•

The data analysis usually involves embedded knowledge of the problem while also allowing the user to fine-tune certain parameters. Common DSS analysis tools and techniques in general are as follows:  Queries  Statistical analysis  Data mining  Online analytical processing (OLAP) tools  Calculators  Simulation  Artificial intelligence  Mathematical models and algorithms

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Presentation tools are used to display the results of DSS analysis. There are a varied number of formats d to enable the user to comprehend the vast quantity of output data:  Reports  Charts  Spreadsheet tables  Animation  Specialized graphic formats, such as a layout of a floor plan  Geographic information systems (GIS)

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PRACTICAL EXERCISES RECOMMENDED TIME ALLOCATION: 2 HOURS OUTCOMES: At the end of the activity, student should be able to derive the important of decision support system for supply chain management

ACTIVITY: 1. Work in group of 2 or 3 person. 2. Students are required to search the internet and get the information about decision- making support system 3. Study how the systems work and allow management to make a better decision.

CONCLUSION Please write your conclusion based on the important of decision support system for supply chain management.

Order Processing And Information System (IS)

CHAPTER 3

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ORDER PROCESSING AND INFORMATION SYSTEM (IS) INFORMATION SYSTEM Definition of Information System Information system is defined as the combination of people, hardware, software, communication networks, data resources, policies & procedures that stores, retrieves, transforms, and disseminates information in an organization. Information system usually refers to basic computer system that involves resources for shared or processed information, as well as people for managing the system. People are considered part of the system because without them, the system will not operate correctly. Information system provide an organization with support for business processes and operation, decision making, and competitive advantage.

Figure 3.1: Order processing phases Source: Management Information System, James A.O’Brien and George M.Markus, 10th edition, Mc Grawhill Irwin, 2011

There are many types of information system, depending on their requirements designed to be filled. Several common types of information systems are as follows:  Operation support systems (including transaction processing systems) converts business data (financial transactions) into valuable information.  Management information system management information systems use database information to output report, help users and businesses to make decisions based on release data.  Decision support systems In decision support systems, data from multiple sources will be reviewed by managers, who make decisions based on collected data. The information received helps the manager make better decisions.

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 Executive information systems An executive information system is useful for examining business trends, allowing users to quickly access custom strategic information in summary form, which can be reviewed in more detail. Regardless of the type of information system, there are three basic elements of system: The Input Input involves capturing and assembling elements that enter the system to be processed and usually in the form of data entry activity such as recording and editing. For example, entering data about sales transaction, delivery schedule, The data obtained will help the decision-making process. Data is available from various sources such as: 

Customers Customers provides data such as sales volume, its timing, location of sales, order size, shipment size, and transportation costs. The data is useful for planning, forecasting and operating decisions.

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Company records Data in the form of accounting reports, status report, reports from internal and external studies, and various operating reports.

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Published data Published data are available from research, data sharing through the internet and EDI, and suppliers who will provide valuable data just for the goodwill of the organization.

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Management The management, internal consultants, planners, and specialists can provide valuable data such as predictions of future sales levels, actions of competitions, and the availability of purchased materials.

Database management Database management involves the selection of data to be stored and retrieved, the selection of analytical methods and transformation process that convert input into output. Data analysis may contain some mathematical calculation and statistical models, to resolve certain logistics problems of the firm. Now, preparation of purchase orders, bills of lading, and freight bills is a common data processing activity to aid the logistician in planning and controlling materials flow. The Output The final elements of the information system is the output segment. This is the interface with the users of the system. Information in various forms is transmitted to end users in the output activity. The output is generally in several forms such as report ( summary report of cost, status report of inventories, purchase order report, and, exception reports that compare desired performance with actual performance), prepared documents (freight bills, transportation bills), data analysis, forms, graphic image, video displays, audio responses, paper products, and multimedia.

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THE EFFECT OF INFORMATION FLOW IN ORDER PROCESSING TASK FLOW OF INFORMATION FROM THE ORDER TO DELIVERY In the logistics system, orders are the basis of information flow. It has three main functions: i. creates a flow of information that precedes the goods, ii. accompanies them iii. follows them. 

Advance information flow Once received order from customer, the manufacturer or retailer will send the customer the order confirmation regarding the scheduled delivery time. All parties involved in the flow of goods will also receive notification of the delivery schedule. Hence, the parties involved have the time required to plan and schedule orders.

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Accompanying information flow The information flow that accompanies the flow of goods is designed to provide all parties with operational information needed on site to carry out transport, storage activities as well as proper handling of hazardous goods. The data enables the shipper, recipient and controller to continually check the condition of the products. This information is important for certain product such as pharmaceutical products like vaccines whose effectiveness can be harmed by temperature fluctuations outside the recommended range.

 Follow-Up Information Flow The information flow that follows the flow of goods consists of information that is available only after the flow of goods has been completed. For example, an invoice that the recipient receives a few days after a delivery. However, information can also flow in the opposite direction of the flow of goods. This involves a status report on the execution of the order (dispatching point, time of arrival in the transport chain). This information is also part of the follow-up information flow. THE ORDER AND ITS IMPACT The transmission of the customer’s order triggers the logistics processes within the company. The time required for order processing makes up a substantial amount of the total delivery time. The tasks of order processing are divided into six phases: order transmission, preparation, routing, picking, shipment and invoicing as illustrated in figure 3.2

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Figure 3.2: Order processing phases

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Order transmission Order transmission can be done by mail, fax, telephone, e-mail or electronic data exchange for example electronic data interchange (EDI). To avoid uneven capacity use of a logistics system, the appropriate means of transmission should be selected in each case.

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Preparation Preparation adjusts the order to meet internal company requirements and integrates the order into the logistics system’s planning. This includes obtaining missing information, and checking pricing conditions, delivery conditions and customer creditworthiness as well as the availability of the material in the warehouse.

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Routing Order preparation is usually followed by order routing, a process that includes order confirmation and the generation of internal job orders. For example, a delivery notification containing all related shipping documents and process to be done for shipment. As the integration of electronic data processing expands, the routing process is becoming increasingly automated, reducing paperwork associated with the information flow.

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

Picking Based on the orders, goods are picked in the warehouse according to factors such as order size, urgency and orders that have to be delivered simultaneously. In this phase, order processing provides information to the warehouse and inventories that can be used for tasks such as management of storage and retrieval equipment.

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Shipment Picking is followed by preparation of shipping documents and includes the selection of optimal means of transport and route for delivery. This information is closely linked to transportation because both loading and movement of goods are initiated in this phase.

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Invoicing Invoicing of orders may be done at various points - either as post-invoicing after shipping has been arranged or as pre-invoicing before or while compilation and shipping are being done. The strength of post-invoicing is that an order can smoothly proceed to the warehouse. The strength of pre-invoicing is that as much paperwork as possible can be completed in one phase.

ACTIVITIES IN ORDER PROCESSING What is Order Processing? Order processing is represented by a number of activities included in the customer order cycle. Specifically, they included order preparation, order transmittal, order entry, order filling, and order status reporting as illustrated in figure 3.3

Figure 3.3: Activity in Order processing

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

Order Preparation Order preparation refers to the activities of gathering the information needed about the products and to be purchased. It may be involve determining an appropriate vendor, filling out an order form, determining stock availability, communicating with sales clerk about order information, or making selection from web site menu. This activity has benefited greatly from electronic technology, as illustrated below: 

 



The use of bar code scanning at the supermarket allows information to be obtained electronically, i.e., information about the requested item (size, quantity, and description) and presenting it to a computer for further processing. Internet web sites provide extensive information about their products and even allow orders to be placed directly through the web page Some industrial purchase order are generated directly by the company’s computer. For example by using Electronic Data Interchange (EDI) technology.

Order Transmittal Order transmission is accomplished in two fundamental ways: manually and electronically. Manual transmission can include the mailing of orders or the physical carrying of orders by the sales staff to the point of order entry. Electronics transmission of order is now very popular with the wide use of tollfree telephone numbers, data phones, website on the internet, EDI, facsimile machines, and satellite communications. Electronics transmission provides high degree of reliability and accuracy, increasing security, and ever decreasing cost, has nearly replaced manual order transmittal methods.

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Order Entry Order entry is the next sequential activity of the order processing cycle. Order entry refers to many tasks that take place prior to the actual filling of an order. These include:  Checking the accuracy of the order information, such as item number, description, quantity and price  Checking the availability of the requested items  Preparing back-order or cancellation documentation, if necessary  Checking the customer’s credit status  Transcribing the order information as necessary and  Billing. Order entry has benefited greatly from technological improvements. Bar codes, optical scanner, and computers have substantially increased the productivity of this activity. Bar coding and scanning are especially important for entering order information accurately, quickly, and at low cost.

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Order Filling Order filling is represented by the physical activities required to:  Acquire the items through stock retrieval, production, or purchasing  Pack the items for shipment

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 Schedule the shipment for delivery Setting order-filling priorities and the associated procedures affect the total order cycle time for individual orders. Company might experience significant delays in filling important customer orders when order clerks, during busy periods, would handle the less complicated orders first. Some alternative priority rules for order processing might be the following:      

First-received, first-processed Shortest processing time Specified priority number Smaller, less-complicated order first Earliest promised delivery date Order having the least time before promised delivery date

Priorities for processing orders may affect the speed with which all orders are processed or the speed with the more important orders are handled. 

Order Status Reporting This final order-processing activity ensures that good customer service is provided by keeping the customer informed of any delays in order processing or delivery of the order. Specifically, this includes:  

tracing and tracking the order throughout the entire order cycle communicating with the customer about where the order may be, the order cycle and when it may be delivered. This monitoring activity does not affect the overall time to process an order.

What is Order Cycle Time? Order cycle time can be defined as the time that elapses from placement of order until receipt of order including time for order transmittal, processing, preparation, and shipping. In short order cycle can be describe as the period required to complete one cycle of an operation; or to complete a function, job, or task from start to finish. The order cycle contains all the time-related events that make up the total time required for a customer to receive an order. The elements of order cycle time are order transmittal time; order processing time; order assembly time; stock availability; production time, and delivery time. These elements are directly or indirectly controlled through choice and design of order transmittal methods, inventory-stocking policies, order processing procedures, transport modes, and scheduling methods.

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

Order Transmittal Time The order transmittal time may be composed of several time elements, depending on the method used for communicating orders. A salesperson-electronic communication system would have an order transmittal time composed of the length of time the salesperson and the sales office retain the order before transmitting it, and the length of time the order is in the transmittal channel.



Order Processing Time Another major component of order cycle time is the time for order processing and assembly. Order processing involves such activities as preparing shipping documents, updating inventory records, coordinating credit clearance, checking the order for errors, communicating with customers and interested parties within the company on the status of orders, and disseminating order information to sales, production, and accounting.

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Order Assembly Time Order assembly includes the time required to make the shipment ready for delivery after the order has been received. It involves picking the order from stocks, moving the order to the outbound point in the warehouse, any necessary packaging or light manufacturing, and consolidation with others moving in the same direction. If no inventories are available, then processing may include manufacturing.

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Stock availability Stock availability has a dramatic effect on total order cycle time because it often forces product and information flows to move out of the established channel. A normal channel may be to supply customers through a warehouse but when stock is not available in warehouse inventories, a second, or backup distribution channel may be used. For example, a back order for the out-of-stock item would be transmitted to the plant to be filled from plant stocks.

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Production Time If there is no plant stock available, a production order is prepared and stock is produced. Delivery is then made directly from the plant to the customer. Other possible backup systems are transhipping back-order goods from a secondary warehouse or simply holding back orders at the primary stocking point.

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Delivery Time The final primary element in the order cycle over which the logistician has direct control is the delivery time (the time required to move the order from the stocking point to the customer location). It may also include the time for loading at the origin point and unloading at the destination point.

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ORDER PROCESSING SYSTEM To describe how order processing works as a system, such systems are illustrated through examples from a variety of settings. The examples of order processing system are: Industrial Order Processing A manual order-processing system is one that has a high component of human activity throughout the system. Some aspects of order processing may be automated or handled electronically, but manual activity will represent the largest portion of the designed its order-processing system. Example The Samson-Packard Company produce a full line of custom hose coupling, valves, and high strength hose for industrial use. The company processes 50 orders per day on the average. The order-processing portion of the total order cycle time is 4 to 8 days out of 15 to 25 days. The total order cycle time is long, because orders are manufactured to customer specifications. The primary steps in the order-processing cycle, excluding the order filling activity, are the following: 1. Customer requests are entered into the order-processing system in two ways. First, salespeople collect orders from the field and mail or telephone them to company headquarters. Second, customers take the initiative to mail or telephone their order directly to headquarters. The customized nature of most customer orders precludes ordering through the company’s web site. Electronic data interchange (EDI) connection with most customers is not available 2. Upon receipt of telephone orders, a customer service receptionist transcribes the order to an abbreviated order form. Along with the mailed-in orders, the orders representative, who then tallies the information for the sales manager. 3. The sales manager reviews the order information to keep abreast of the sales activity. He also occasionally writes special notes of instruction on an order about the needs of particular customer. 4. Next, the orders are sent to the order-preparation clerk, who transcribe the order information, along with special instruction, onto Samson-Packard’s standard order form. 5. The orders are sent to the accounting department for credit checks. They are then forwarded to the sales department for verification. 6. Next, the data processing department keys the order information into the computer to be used for transmission to the plant, for more convenient handling, and for easy tracing of the order once in process. 7. Finally the senior customer service representative checks the order in its final form and transmits it via electronic transmission to the appropriate plant. In the same process, an order acknowledgement is prepared for the customer and e-mailed as order verification. Source: Ronald H. Ballou, Business Logistics/Supply Chain Management, 2004, pp137-138

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Retail Order Processing Companies, such as retailers, that operate intermediate to vendors and customers frequently design their order-processing system with at least a moderate degree of automation. Very quick order response time is usually not necessary, since there are inventories available for final consumers. Modern information systems have the benefit of replacing many of the assets previously needed to run a business. Using the internet, companies have been able to reduce warehouse space, lower inventory levels, reduce handling time, and better track order progress.

Figure 3.4: Direct to customer Delivery utilizing the Internet

Example Finished goods distributors can use EDI to create a direct-from-supplier distribution system. The product does not need to be stored in a distributor’s warehouse or its shelves. Customers receive their goods directly from the supplier. As shown in figure 3.4, the order information and products flow through the supply chain in the following way: 1. The customer tell the distributor how much of which products are wanted and where via EDI. 2. The distributor tells the suppliers how much of which products must be shipped via EDI. 3. The distributor tells the logistics provider where to pick up product and how much via EDI. 4. The distributor tells the logistics provider how much of which products is to be delivered where and when via EDI. 5. The suppliers prepare the product for shipment. 6. The logistics provider picks up the product, and sorts and segregates the product to the distributor’s specifications. 7. The logistics provider delivers the products to the customers. Source: Ronald H. Ballou, Business Logistics/Supply Chain Management, 2004, pp138-139

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Customer Order Processing Order processing systems that are designed to interact directly with final consumers will be based on elevated levels of customer service. Meeting customer product requests from retail stocks provides almost instantaneous order processing. McDonald’s has built a very successful food franchise business on fast order processing. Quick response to customer order request has often been on the cutting edge of customer service for many companies that sell to the final consumer, especially when the products involved are highly substitutable. Example Many have developed a strategy to compress the order cycle time, usually involves the following steps in the order-processing chain of activities. 1. A customer calls in an order using a toll-free telephone number or enters the order through the company’s Web site. Mail is also an option, but it substantially increases order transmittal time. 2. An order taker keys the order request into a computer terminal, or the customer has entered it electronically at the time of order placement. Inventory records, prices are found or calculated, and order charges are computed. If method of payment by credit card, a credit check on the card is conducted electronically 3. The order request is transmitted electronically to the warehouse to be filled, usually within the same day the order is received. 4. Normally the order request is shipped using UPS, FedEx, or another courier directly to the customer’s home or place of business. Overnight delivery may be made for an increased charge, if requested by the customer. The result is often a total order cycle time that is quicker and a price that is lower than what can be offered by local retailers. Figure 3.5 shows a paperless order processing system can work using the Internet as the point of order entry.

Figure 3.5: Electronic Commerce through the internet

Source: Ronald H. Ballou, Business Logistics/Supply Chain Management, 2004, pp140-141

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ELECTRONIC DATA INTERCHANGE (EDI) What is EDI? Electronic Data Interchange (EDI) is defined as the structured transmission of data between organizations by electronic means. By using EDI, organization could transfer electronic business documents such as Purchase Orders, Invoices, Advance Shipping Notices, and many more from one computer system to another, i.e. from one trading partner to another trading partner. The users can be two computers in an organization or two different organizations altogether. Data transmitted via EDI is typically automated; that is doesn’t require human intervention. EDI works through a series of data messages exchanged between the users in a standard format indicating the documents to be transmitted that can be in structured electronic format or physical transmission through electronic storage media. 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. A typical manual process involves with lots of paper and people involvement as illustrated in figure 3.6

Figure 3.6: A typical manual process - with lots of paper and people involvement

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BUYER

SUPPLIER S

Figure 3.7: The EDI process

Basic concept of EDI 

Business Documents 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 By adhering to the same standard, two different companies or organizations, even in two different countries, can electronically exchange documents (such as purchase orders, invoices, shipping notices, and many others). A standard format describes what each piece of information is and in what format (e.g., integer, decimal, mm/dd/yy). Without a standard format, each company would send documents using its company-specific format and, much as an Englishspeaking 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.

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Figure 3.8: How EDI works

EDI Protocols EDI protocols are the software that allows two computers to communicate. For computers to exchange data electronically, they must use the same protocol. Protocols can be thought of as languages. For two or more computers to communicate successfully, they must be using the same protocol. Levels of data security and encryption, necessary hardware and software, and level of availability to receive transmissions are all dictated by EDI protocols. Trading partners must be able to support more than one protocol as many companies use different protocols. There are four most common EDI protocols: 

Value-Added Network (VAN) VAN is simply a secure network where EDI documents can be exchanged between a business and its trading partners. An organization will be provided with a mailbox. Documents are sent and received from there and the organization checks the mailbox periodically to retrieve its documents. A VAN will ensure authenticity (non-repudiation) and assist in message management

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3 Order Processing And Information System (IS)

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Applicability Statement (AS2) AS2 is a specification about how to transport data securely and reliably over the Internet. Security is achieved by using digital certificates and encryption. AS2 uses encryption keys verifying the senders of EDI transmissions providing nonrepudiation and high-level security for the transmissions.

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File Transfer Protocol (FTP) FTP is the commonly used protocol for exchanging files over the Internet. FTP by itself does not provide the security needed for document exchange with other companies over the Internet. Although FTP is no longer secure enough on its own for B2B transmissions, many companies still use FTP for in-house transmissions.

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Secure File Transfer Protocol (SFTP) and File Transfer Protocol Secure (FTPS) SFTP and FTPS function in a similar fashion as FTP. However, both SFTP and FTPS have security layers that encrypt EDI data during transmission and then decrypt the EDI data upon arrival. Being created by different companies is the main difference between SFTP and FTPS. Developed by the Internet Engineering Task Force (IETF), SFTP’s encryption is different than FTPS, which was created by the Internet browser Netscape.

Benefits of using EDI technology in logistics and supply chain management. The successful implementation of EDI provides major benefits for all the trading partners involved:      

Faster transactions- real time document transfer in the supply chain. Commercial data can be communicated from one computer to another in a matter of minutes, enabling faster response and greater customer satisfaction. Reduction in transaction cost due to paperless operations. Significantly reducing the volume of paper to be handled and re-keyed, results in immediate savings in administrative and personnel costs. Reduction in order cycle time and inventory that will help to improve the competitiveness of the customers. Improve the corporate trading relationships between parties in the supply chain and creating barriers for competitors. Improved accuracy - EDI eliminates the inevitable errors resulting from manual data input. Better logistics management and increased productivity - EDI helps companies to better manage and control production, purchases and deliveries. Just-in-Time manufacturing technique can be adopted.

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Order Processing And Information System (IS)

PRACTICAL EXERCISES RECOMMENDED TIME ALLOCATION: 2 HOURS OUTCOMES: At the end of the activity, student should be able to analyse order processing systems in current market ACTIVITY: 1. Choose any types of order processing system (OPS) in current market such as Industrial Order Processing System, Retail Order Processing System, and Customer Order Processing System. 2. Students are required to conduct group visit (3 or 4 students) to any available company 3. Observe how the system works 4. By interview the person in charge, discuss how the order processing system able to eliminate several days in order cycle time compares to manual system they used before. 5. Give some introduction of the system and write a report regarding your finding from your visit.

Logistics Information System (LIS)

CHAPTER 4

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Logistics Information System (LIS)

LOGISTICS INFORMATION SYSTEM (LIS) THE LOGISTICS INFORMATION SYSTEM A logistics management information system (LMIS) is a system of records and reports whether paper-based or electronic. The system is used to aggregate, analyse, validate and display data (from all levels of the logistics system) that can be used to make logistics decisions and manage the supply chain. A logistics information system (LIS) can be described in terms of its functionality and its internal operation. Function of Logistics Information System The main objective is to collect, retain, and manipulate the data within the firm to make decisions, ranging from strategic to operational levels, and to facilitate business transactions. The logistics information system (LIS) should be comprehensive and capable enough to allow for communication between all the functional areas of the firm. Sharing information such as sales, shipments, production schedules, stock availability, order status, has the value to reduce uncertainties throughout the supply chain as users find ways of benefiting from information availability. Within the LIS the major subsystems are:  Order management system (OMS)  Warehouse management system (WMS)  Transportation management system (TMS)

Figure 4.1: Overview of Logistics Information Systems

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Internal Operation From the view point of internal operation, a logistics system can be represented schematically, as shown in Figure 4.2. There are three (3) elements that make up the system:  The input  The database and its associated manipulation  The output

Figure 4.2: Internal operation of Logistics Information System

LOGISTICS INFORMATION SYSTEM (LIS) THAT SUPPORT TIME-BASED COMPETITION Bar Coding The barcode has spread around the world since being invented in the middle of the last century. Over the past 30 years, it was the leading technology used to collect data in an automatic and contactless manner - particularly because it is economical to install and read. Even today, most global logistics systems would be incapable of functioning without the barcode. Historically bar codes was first used in a supermarkets in USA in 1952. Definition of Barcode A barcode is a visual representation of data that is scanned and interpreted for information. The information printed in bar code include, country code, manufacturer name, product details, date of manufacture, material content etc.

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Logistics Information System (LIS)

The bar coding offers the following advantages:    

Ease in identification of inventory items during storage, retrieval, pickup, inspection and dispatch. Reduce paper work and processing time leading Reduce human error Increases logistics system productivity through speed, accuracy and reliability.

Impact of Bar Code Technology on Operations of Logistics and Supply Chain Management Procurement operation – The parts and components brought from suppliers are assigned bar codes, which contain information on item name, batch number, date of manufacture, order no, serial no etc. The information in bar code helps in identifying and tracking the component. In the warehouse, when the goods enter through a conveyor, they are further scanned by scanner. The information decoded by the scanner is immediately logged in the central computer which helps real time update of inventory records. Processing – During the order processing the bar code will help in keeping identification of items based on their date of entry into the warehouse or store. This will ease material storage, retrieval and dispatch in First in First out (FIFO) inventory management system. Production operation – During the production process the identification of inprocess and finished items become easier due to bar coding. The various bathes at different stages of production can be easily tracked. Distribution operation – During distribution, barcode helps in identifying and tracking the transit of finished goods to the customers. POINT-OF-SALE DATA (POS) Definition of POS A computerized network operated by a main computer and linked to several checkout terminals. POS is an abbreviation for Point of Sale (or Point-of-Sale, or Point of Service). The term is applicable to a retail shop or store, the checkout/cashier counter in the store, or a location where such transactions can occur in this type of environment. It can also apply to the actual Point of Sale (POS) Hardware & Software including electronic cash register systems, touch-screen display, barcode scanners, receipt printers, scales and pole displays.

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Features to Consider in a POS System 

Fast checkout: A retail POS software should be able to simplify the checkout process. This means that it should not take the sales team’s much manual effort to complete a transaction.

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Entry of sales information: Most systems allow user to enter inventory codes either manually or automatically via a bar-code scanner. Once the inventory code is entered, the systems call up the standard or sales price, compute the price at multiple quantities and provide a running total. Once a sale is entered, these systems automatically update inventory and accounts receivable records.

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Pricing: POS systems generally offer a variety of ways to keep track of pricing, including add-on amounts, percentage of cost, margin percentage and custom formulas. For example, if company provide volume discounts, the system can set up multiple prices for each item.

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Security: In retail, it's important to keep tight control over cash receipts to prevent theft. Most of the POS systems provide audit trails to help company trace problems. This system also needs to protect customers’ credit card details. An organization may face legal issues if the POS does not have this feature.

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Inventory tracking: A POS should be able to monitor all the critical information about the store from individual transactions to purchases. This will make the ordering from vendors easy & the inventory manager would not waste time calculating the re-order level.

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Customer Data: A good POS can help convert the data on customer’s profile into information. As a use case, it will let the purchase team know what products the customers buy more frequently and thus the team can place orders accordingly. The data can also help the customer relation team build an effective loyalty program, which can increase sales in the long term.

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Automated Purchasing Program: A good POS allows the business to have a streamlined process of connecting with suppliers. For example, if the retail outlet is running low on a critical product, with the help an Automated Purchasing Program, the POS can easily get connected with the suppliers in no time and place the order for the required quantity required quantity

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Capabilities for multiple location / Mobility: A good POS should also offer online access which helps user stay connected with the business from anywhere remotely. It is a convenient feature for franchises and business having more than one location.

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Reporting tools: Every Retail POS should have a reporting feature which is user friendly. It should store information such as product styles or models, weekly sales, monthly sales, annual sales and hourly transactions.

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Logistics Information System (LIS)

GLOBAL POSITIONING SYSTEM (GPS) What is GPS? GPS or Global Positioning System is a network of orbiting satellites that send precise details of their position in space back to earth. The signals are obtained by GPS receivers, such as navigation devices and are used to calculate the exact position, speed and time at the vehicles location. GPS is well-known for military uses and was first developed by the US to aid in its global intelligence efforts at the height of the Cold War. However, currently GPS has been freely available to anyone with a GPS receiver. Airlines, shipping companies, trucking firms, and drivers everywhere use the GPS system to track vehicles, follow the best route to get them from destination A to B in the shortest possible time. The GPS system consists of three segments: 1) The space segment: the GPS satellites themselves, 2) The control system, operated by the U.S. military, and 3) The user segment, which includes both military and civilian users and their GPS equipment.

Figure 4.3: Global Positioning System (GPS) Segments

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Space Segment The first GPS satellite was launched by the U.S. Air Force in early 1978. There are now at least 24 satellites orbiting the earth at an altitude of about 11,000 nautical miles. The satellite are positioned in six Earth-centred orbital planes with four satellites in each plane. The high altitude insures that the satellite orbits are stable, precise and predictable, and that the satellites' motion through space is not affected by atmospheric drag. These 24 satellites make up a full GPS constellation.

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Control Segment The U.S. Department of Defense (DoD) maintains a master control station at Falcon Air Force Base in Colorado Springs. There are four other monitor stations located in Hawaii, Ascension Island, Diego Garcia and Kwajalein. The control segment has responsibility for monitoring the satellites and their proper functioning. This includes monitoring satellites in their proper orbited positions and monitoring satellite subsystem health and status. The DoD stations measure the satellite orbits precisely. Any discrepancies between predicted orbits and actual orbits are transmitted back to the satellites. The satellites can then broadcast these corrections, along with the other position and timing data, so that a GPS receiver on the earth can precisely establish the location of each satellite it is tracking.

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User Segment: Military and Civilian GPS Users This part consists of user receivers which are hand-held or, can be placed in a vehicle. All GPS receivers have an almanac programmed into their computer, which tells them where each satellite is at any given moment. The U.S. military uses GPS for navigation, reconnaissance, and missile guidance systems. Civilian use of GPS developed at the same time as military uses were being established, and has expanded far beyond original expectations. There are civilian applications for GPS in almost every field, from surveying to transportation to natural resource management to agriculture. Most civilian uses of GPS, however, fall into one of four categories: navigation, surveying, mapping and timing.

Figure 4.4: GPS User Segment: Receivers

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Logistics Information System (LIS)

How GPS Works? GPS is a network of 24 satellites in orbit around the earth at precise locations. They allow a user with a GPS receiver to determine latitude, longitude, and altitude. The receiver measures the time it takes for signals sent from A, B, C satellites to reach the receiver. From this data, the receiver triangulates an exact position. At any given time there are multiple satellites within the range of any location on earth. Three satellites are needed to determine latitude and longitude, while a fourth satellite (D) is necessary to determine altitude. On the ground control stations are used to precisely track and monitor each satellite's orbit and clock information. On the ground user segment, GPS receivers passively receive satellite signals, it doesn’t transmit. All GPS satellites synchronize operations so that these repeating signals are transmitted at the same instant. The signals, moving at the speed of light, arrive at a GPS receiver at slightly different times because some satellites are farther away than others. The distance to the GPS satellites can be determined by estimating the amount of time it takes for their signals to reach the receiver.

Figure 4.5: How GPS works

GPS Works in Logistics GPS has now become part of the supply chain visibility, which involves information systems that provide tracking details across the network. Therefore, GPS is very benefits in logistics operations, especially for businesses dealing with fleet vehicles. Businesses that operate with timely principles can find great value in getting more accurate data on the availability of their vehicle order status and more with GPS. A GPS tracking system determines the location of any identifiable object or person to record its position at regular intervals in order to create a track file or activity log.

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The recorded data is stored within the tracking unit or transmitted to a central location/Internet connected computer, using a cellular modem, 2-way radio or satellite. This allows real-time data reporting, using either web browser based tools or customized software. Tracking systems are used to route and monitor delivery vans, emergency vehicles, cargo, wildlife or prisoners. GPS technology that is used to help track and forecast the movement of freight has made a logistical revolution, including an application known as timely delivery. In timely delivery time, trucking companies use GPS for tracking to guarantee delivery and pickup at the promised time, either in short distance or across time zones. When an order comes in, a dispatcher punches a computer function, and a list of trucks appears on the screen, displaying a full array of detailed information on the status of each of them. If a truck is running late or strays off route, an alert is sent to the dispatcher. How GPS Determines a Position? 

 

When a GPS receiver is first turned on, it downloads orbit information from all the satellites called an almanac. This process, the first time, can take as long as 12 minutes; but once this information is downloaded, it is stored in the receiver’s memory for future use. The GPS receiver calculates the distance from each satellite to the receiver by using the distance formula: distance = velocity x time. The receiver determines position by using triangulation. When it receives signals from at least three satellites the receiver should be able to calculate its approximate position (a 2D position). The receiver needs at least four or more satellites to calculate a more accurate 3D position. The position can be reported in latitude/longitude, UTM, or other coordinate system.

Fleet Management GPS is also used by companies to manage their fleet of trucks or other vehicles while in the field. The GPS receiver collects vehicle data, such as maximum speed, vehicle location, length of time at specific location, and activation of specific events associated with vehicle. That information is then used to measure vehicle and driver productivity. Management reports provide data in a variety of formats, including number of stops, average stop length, percentage of total time spent on service calls and autographic.

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Benefits of GPS Tracking System in Supply Chain Management Inventory management Automated fleet maintenance Increased visibility between various stake holders Faster ROI from vehicles Comprehensive fleet management Decreased Overtime Smooth handling in-turn provides customer references Reduced Operational Costs

       

RADIO FREQUENCY IDENTIFICATION (RFID) Radio-frequency identification (R FID) is the use of a wireless system that uses radio frequency electromagnetic fields to transfer data from a tag attached to an object, for the purposes of automatic identification and tracking. RFID tag data can be read outside the line-of-sight, whereas barcodes must be aligned with an optical scanner. RFID is only one of the numerous technologies grouped under the term Automatic Identification (Auto ID), such as bar code, magnetic inks, optical character recognition, voice recognition, touch memory, smart cards, biometrics etc. RFID-based systems allows for non-contact reading and are effective in manufacturing and other hostile environment where bar codes could not survive. RFID systems consist of three components:   

RFID tag or smart label RFID reader Antenna

HOST COMPUTER

ANTENNA READER

Figure 4.4: Component of RFID

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Radio Frequency Tags (RFTs) are a piece of silicon chip to store data in the microcircuit. The RFTs are programmable with erasable memory. Data is stored in coded form and communicated to the reader through waves. The basic principle of tag is that antenna emits the radio signals. RFTs are very useful to accompany truck shipments. The tag will contain information on consignor, consignee, inventory items, quantity and value, what time the item travelled certain zone; even the temperature etc. The reader receives the tag signal with its antenna, decodes it and transfers the data to the host computer system. RFTs can be attached to virtually anything from a semitractor, to a pallet, containers etc. In the warehouse, the barcodes can be applied to the individual inventory items while RFTs can be applied to pallets, containers etc. These will allow the staff to directly communicate to the warehouse computer. Major Advantages of Using RFID as an Auto-ID System      

RFID readers do not require a line of sight to access data from the RFID tags. RFID systems can read data over varied range from few centimeters to few hundred meters. RFID readers can interrogate, and make RFID tags readings much faster. RFID systems can read and write different sizes of data from / to the tag, based on the type of tag. RFID systems can read tags in harsh environments, without any human interference. Can record sensor readings or perform calculations in the absence of a reader

Benefits of Implementing RFID in Supply Chain Management The term Supply chain covers all possible processes involved in the flow of goods from manufacturing to customer; including manufacturing, distribution and transportation. Thus, supply chain management covers all these steps in combination with marketing decisions, customer demand, in alignment with general corporate strategy and goals. RFID technology has risen to become a revolutionary element in supply chain management. It is not just a replacement for barcodes. RFID ensures that the right goods are available in the right place with no discrepancies and zero errors. It makes the supply chain considerably more precise and improves the efficiency and reliability of the entire chain. As real-time information is made available, administration and planning processes can be significantly improved.

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Benefits of RFID in Manufacturing Processes Manufacturers can benefit from increased information gathered with the help of RFID technology. RFID tags can store far more information than conventional barcode labels. This information can be used to optimize production processes, accurate knowledge of the real-time movements of raw materials and the time needed for specific production. With the help of RFID, manufacturers can also benefit from increased information in regards to repair and maintenance of their machines and equipment. This allows manufacturers to have visibility into valuable data such as: which machine has been repaired or undergone maintenance and when has this been done? This information helps to plan maintenance schedules. Hence, maintenance can become part of production planning and help to prevent costly production breaks. RFID in manufacturing processes means:  less manual work  less costs  improved visibility  improved planning Benefits of RFID in Warehouse Management Keeping track of the large number of cartons is a very complex as well as time and labour consuming process. However, RFID can be implemented to ease the situation as it can improve information management concerning cargo flow. Usually, readwrite equipment is installed at the entry to a warehouse. Every cargo unit is equipped with RFID tags and all the information relating to the tags is stored in the central computer of the warehouse. When the cargo is moved in or out of the warehouse, the read-write equipment registers it and forwards the data to the backend system. This allows the management centre to manage the vast amounts of products going into and leaving the storage, recognize cargo and help with placement of the cargo in the warehouse. RFID in warehouse processes offers:  visibility of accurate real-time information  fast locating of products  possibility to record losses  ability to plan product locations strategically Benefits of RFID in Tracking and Managing of Shipping Containers Around the world, the most popular way to transport large amounts of cargo is to use shipping containers. Container transports are oftentimes chosen as they ensure safe and secured transportation, low costs, standard packaging and high transport density. Companies that use RFID in tracking and managing of shipping containers are able to track containers in each link of the supply chain. Active RFID Tags can be used to track containers in real-time in yards and docks. Ultra-high frequency RFID technology has long identification distance and speeds up identification. RFID in container management and tracking offers:  visibility of real-time cargo movement  improves efficiency  increase accuracy

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Benefits of RFID in Distribution Processes Implementation of RFID technology can also add advantages to distribution processes. Usage of RFID will greatly accelerate the speed of delivery management, improve efficiency, and increase accuracy in selection and distribution processes. It will also reduce distribution costs. When products embedded with RFID tags enter a distribution centre, the RFID read-write equipment at the entry gate can register the RFID tags, and send the information to the distribution centres' backend system. This information can be used to put the cartons in proper places, sort them quickly and efficiently, and dispatch the cartons to the retailing centres in less time with improved accuracy. Usage of RFID also ensures accurate inventory control. RFID in distribution processes able to:  accelerates the speed of delivery  improves efficiency  increases accuracy  reduces distribution costs

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PRACTICAL EXERCISES RECOMMENDED TIME ALLOCATION: 2 HOURS OUTCOMES: At the end of the activity, student should be able to analyse order processing systems in current market ACTIVITY: 1. Using the internet, find any information about Radio Frequency Identification Device (RFID) technology. 2. Identify the uses of RFID in logistics activities. 3. Discuss on how the RFID can help the company to manage their supply chain efficiency. 4. Analyse and list two (2) major differences between RFID and barcode systems. CONCLUSION Please write your conclusion for these lab activities.

Information Communication Technology In Freight Logistics

CHAPTER 5

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Information Communication Technology In Freight Logistics

INFORMATION COMMUNICATION TECHNOLOGY IN FREIGHT LOGISTICS DEVELOPMENTS OF INFORMATION COMMUNICATION TECHNOLOGY What is Information and Communications Technology? Information and communications technology (ICT) is defined as an extended term for information technology (IT) which focuses on the role of unified communications and the integration of telecommunications (telephone lines and wireless signals), computers as well as necessary enterprise software, middleware, storage, and audiovisual systems, which enable users to access, store and manipulate data as well as transmit and manipulate information. The term ICT is also referred to the convergence of audio-visual and telephone networks with computer networks through a single cabling or link system. There are large economic incentives according to huge cost savings due to elimination of the telephone network. ICT is merged to introduce to the telephone network with the computer network system using a single unified system of cabling, signal distribution and management. ICT has changed the way individual interact and people do business especially in logistics business by allowing instant and accurate access and transfer of information, 7-days a week and 24-hours a day.

What is Freight? Freight is goods or cargo that is charged or paid for carriage or transportation by land, sea, or air (Figure 5.1). Goods could be transported on two conditions either freight-prepaid or freight-collect basis:  If the freight is paid by the consignor (as under C&F and CIF terms) the goods remain the consignor's property until their delivery is taken by the consignee upon their arrival at the destination, and payment of the consignor's invoice.  If freight is paid by the consignee (as under FOB terms) the goods become the consignee's property when handed over to the carrier against a bill of lading. Freight may be charged depending on the weight or volume of the shipment (depending upon its nature or density) and also varies accordingly to the shipment methods and mode of shipment, such as bulk, break bulk and containerize.

A shipping method is evaluating by three factors: time, cost, and product characteristics. While shipping by sea could take longer than shipping by air, the latter is generally more expensive. Shipping by rail could also be complemented by Figure 5.1: Transportation of Freight to the receiver faster. piggybacking the freight onto a truck so it can be delivered

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5 Information Communication Technology In Freight Logistics

Freight Logistics Industry Freight logistics is defined as economics activities that involved with:  Outsourcing, purchasing and packaging  Storage, handling and delivery (transporting) of freight (cargo)  Managing the documentary and information process flow between production and consumption points in Malaysia and around the world. Freight logistics includes all economics activities which are outsource to professional third party logistics provider (3PL) as well as freight logistics carried-out in-house by manufacturers and distributors. Freight companies are companies that specialize in the moving or forwarding of freight or cargo, from one place to another. These companies are divided into several variant sections. For example, international freight forwarders ship goods internationally from country to country, and domestic freight forwarders, ship goods within a single country. There are thousands of freight companies in business worldwide, many of which are members of certain organizations. Such organizations include the IATA (International Air Transport Association), TIA (Transportation Intermediaries Association) the BIFA (British International Freight Association), or the FTA (Freight Transport Association) and various or other regional organizations.

ICT in Freight Logistics As the cost of ICT equipment and communication fees fall and the number of Internet users rises, it will cause the increasingly need of e-commerce to facilitate effectiveness of freight logistics industry. Since ecommerce liberates sellers from the need to maintain a store, and buyers from the need to visit one, it requires the delivery of goods from seller to buyer. At the same time, information and communication technology (ICT) will have a positive effect on traffic. For example, once e-commerce has reached a certain level of diffusion there may be reduced use of private vehicles for shopping and more efficient joint delivery systems based on shared operational information that work to prevent an increase in traffic volume. ICT developments have affected freight transportation in many ways. The modes of transportation are made more effective by the use of ICT with specialized routing and scheduling, book keeping, vehicle monitoring and software maintenance. Coupling with e-commerce, ICT become a major catalyst for structural changes in freight transportation industry. It changes the way how freight forwarders are doing their business by recording and monitoring the right movement of the freight, the right size of typical shipments and the right delivery time which goods must be arrived at the right place for the right customers in the right quantity. Figure 5.2 is illustrates the developments of freight logistics driven by ICT.

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Figure 5.2: ICT Developments Drives Freight Logistics Industry

ICT is an Enabler in Freight Logistics Recently, all cost of personal computers, wireless devices, and internet peripherals has dropped sharply as well as their processing power and storage capacity. Furthermore, the growth of broadband and always-on Internet connections illustrates communication fees continue to drop while connection speeds increase. The lower cost and higher functionality of information and communication systems has had a profound effect in increasing the population of Internet users and fostering the growth of e-commerce. The growth of ICT coupling with e-commerce has greatly transformed the transportation system field such as Intelligent Transportation Systems (ITS) like car navigation systems and VICS (Vehicle Information and Communication System), which provides drivers with complete traffic information, which have begun to find their way into private vehicles usage. Their usage for commercial vehicles made it easier to track the location of vehicles and freight by using GPS, and applying such information to the optimization of travel routes and freight arrival times. In addition, great promise is also seen for the usage of radio frequency identification devices (RFID) electronic tags and Dedicated Short Range Communication (DSRC) such as the ETC (Electronic toll collection) system used to collect highway tolls.

Figure 5.3: Application of DSRC and ETC

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The technology of internet-accessible mobile phones has rapidly become common where the ability to use e-mail messaging services is used to find and locate road traffic information. The use of internet-phones and smartphones in business include everything from management of a salesperson's schedule to logistics applications like audio, video and photograph became important. They were used to record the inside of a shipping container by the internal digital camera and sending the image overseas to show how an item was packaged. In fact, by the end of September 2004 the number of mobile phone users had reached 89 million. The total number of GPSequipped mobile phones sold through 2003 is estimated to have been roughly 12 million are proven the use of ICT in the freight logistics has impacted the way of freight forwarders are doing their business.

Functions of ICT in Freight Logistics          

Vehicle Tracking Routing Delivery Scheduling Radio Frequency Bar Coding Inventory Management Address Systems Freight Auditing Supplier Management Electronic data Interchange

Figure 5.4: ICT in Freight Logistics

Impact ICT on Freight Logistics Industry ICT exerts an effect on road freight transportation through the development of ecommerce, e-logistics and e-fleet management. Here, there are some details concerning ICT's impact on the freight logistics industry and the role of government. 

Enhance Trade Facilitation

ICT was identified as a key to trade facilitation by the Malaysians National Single Window (NSW). NSW is managing the documentary and information process flow between production and consumption points in Malaysia and around the world through ICT (Figure 5.5).

•

ASW is a trade facilitation idea. The implementation of a single window system enables international (cross-border) traders to submit regulatory documents at a single location and/or single entity. Such documents are typically customs declarations, applications for import/export permits, and other supporting documents such as certificates of origin and trading invoices.

•

The main value proposition for having a single window for a country or economy is to increase the efficiency of time and cost savings for traders in their dealings with government authorities for obtaining the relevant clearance and permit(s) for moving cargoes across national or economic borders. In a traditional pre-single-

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Information Communication Technology In Freight Logistics

•

window environment, traders may have had to contend with visits and dealings with multiple government agencies in multiple locations to obtain the necessary papers, permits, and clearances to complete their import or export processes. A facility of NSW allows all parties involved in trade and transport to lodge standardized information and documents with a single entry point to fulfil all import, export, and transit-related regulatory requirements electronically. If information is electronic then individual data elements should only be submitted once.

Figure 5.5: Trade Facilitation - National Single Window

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Increase consumer demand E-commerce creates consumer demand that may lead to higher demand for freight transportation. Consumer demand is believed to rise because of the spread of the Internet means saving in transaction cost that lead to lower prices, careful Business-to-Consumers (B2C) marketing that leads to better matching of products with consumer needs, and increased value-added that changes in the amount the consumer is willing to pay.

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Increased orders for logistics providers E-commerce will reduce shipping volume. Generally, transportation to retail stores has been by pallet or returnable container. The emerging of e-commerce creates a need to ship a variety of items as individual units as per consumers request. Normally, consumer who order online product wants immediate delivery. Unable to cope with those demands, more and more shippers who have conducted their own logistics operations in-house are outsourcing to logistics services providers, particularly the parcel delivery services. Increased demand for parcel delivery could result in increasing market concentration in the hands of a few major transportation companies. Statistics demonstrate the increasing role of logistics service providers. The share of vehicle-km freight traffic volume accounted for by commercial trucks has steadily increased, from 17.6% in 1980 to 34.4% in 2001 (Table 5.1). Commercial vehicles carry mixed loads so they also have a higher loading ratio than private vehicles. The increase in commercial vehicles should lead to an increase in transportation efficiency and reduction in traffic in terms of vehicle-km. Parcel delivery has increased at a rate of 10% annually from 1.8 billion parcels in 1998 to 2.8 billion in 2003. Table 5.1: Freight Traffic in Japan In Terms Of Vehicle-Km, Ton-Km And Tons

Year 1980 1985 1990 1995 2000 2001 

Billion Vehiclekm 136 139 159 166 165 164

Freight Traffic in Vehicle-km Commercial Private Freight Traffic Trucks (%) Trucks (%) in Ton-km (Billions) 17.6 82.4 179 22.1 77.9 206 26.6 73.4 274 30.6 69.4 295 34.2 65.8 313 34.4 65.6 313 Source: http://www.mlit.go.jp/

Freight Traffic in Tons (Millions) 5,318 5,048 6,114 6,017 5,774 5,578

Reduce the volume of freight transportation Schemes to match cargos and trucks are nothing new. Logistics service providers have long communicated over the phone to cooperate in finding backhaul freight for empty trucks. Recently such efforts have moved to the Internet and directly involve shippers. Load efficiency can be improved and loaded miles increased through joint pick-up and delivery systems involving multiple shippers. Internetbased systems for joint pick-up and delivery are now being adopted by logistics services providers and shippers. Internet-based systems for matching cargos and trucks underwent something of a boom and increased rapidly a few years ago. Those systems for matching cargos and trucks that operate between qualified logistics services providers remain in active use. Among websites run by shippers' logistics subsidiaries (non-asset based systems) are companies that provide third-party logistics (3PL) services in conjunction with inventory management and distribution processing.

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Information Communication Technology In Freight Logistics

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Improve transportation efficiency Dispatch center can access road traffic information as they direct deliveries and routings. This increases their accuracy in predicting vehicle arrival times and improves their ability to respond quickly and accurately to customer inquiries. Recently, compilations of GPS data have enabled route selection and coordination of departure times by day and time that improve the accuracy of arrival times. Real-time road traffic information is available not only at dispatch centers but also to drivers through mobile phones. Drivers are now able to contact customers directly. Automatic Vehicle Identification/Automatic Equipment Identification (AVI/AEI) is also expected to contribute to improved transportation efficiency and security. For example, a trailer could be automatically identified, given permission to enter a container yard and instructed where to drop its load. The ISO is standardizing data dictionary and message sets in anticipation of an international, inter-modal freight tracking system. Usage of ICT has finally increased, with the recent availability of inexpensive, high-speed, always-on Internet access in offices and the development of vehicle-side applications incorporating GPS and packet communication.



Transportation demand can be managed through government investment in information infrastructure As the ICT is applied to logistics operations for shippers and logistics service providers, attention is turning to the role of government. In particular, there is a need to develop databases of digital road maps and road traffic information systems as a form of public infrastructure. Development of inexpensive, easy-touse databases would lead the private sector to develop various e-logistics and efleet management services. There is also a need for government to better regulate transportation demand through information and communication technology. Applications might include monitoring of hazardous materials transport or guiding vehicles along low-risk routes using vehicle identification and mobile communication systems. This could contribute to improved safety and response in the event of natural disaster or accident.

ICTs are having an enormous influence on road freight transportation in terms of ecommerce and the computerization of the logistics market and the increasing sophistication of fleet management systems. The broad impact of ICT on road freight transportation combines a trend toward increase caused by the growth in ecommerce with a trend toward improved transportation efficiency.

APPLICATION OF ICT ON TRADE BY DAGANG.NET What is Dagang.Net? Dagang.Net Technologies Sdn. Bhd. (Dagang.Net) is ICT’s company that has pioneered and spearheaded initiatives aimed at creating paper-less, electronic Customs-related services to ease the facilitation and streamlining of international trading processes for the import and export, trade and logistics industries. It is set up in 1989 as operator of Malaysia’s National Single Window for Trade Facilitation, which facilitates electronic Customs-related transactions and duty payments, and

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electronic document transfer between members of its trading community made up of manufacturers, importers & exporters, forwarders, shipping agents, terminal & port operators, banks, port authorities, permit issuing agencies and Customs. There are more than 100 million electronic transactions and RM 1.8 billion worth of Customs duty payment are transacted annually through Dagang.Net’s which is proven infrastructure system. The company is also ISO 27001:2013 certified for Information Security Management System. Dagang.Net serves a diverse range of customers, helping customers run their business faster, gaining valuable expertise to fully capitalize on e-Commerce and more accurately covered from logistics to manufacturing and from retail to government. Backed with a wealth of knowledge, expertise and operational knowhow in the provisioning of eServices (Figure 5.6) for Trade Facilitation, Dagang.Net’s track record stands testament to its relentless drive to deliver perfection. Dagang.Net is a wholly-owned subsidiary of Dagang NeXchange Berhad (DNeX), which is listed on the Main Market of Bursa Malaysia.

Figure 5.6: e-Services Trade Facilitation

Core Competencies of Dagang.Net  Business-to-Government (B2G) & Business-to-Business (B2B) eServices  Trade Facilitation implementation (Figure 5.7)  Enterprise Application Integration  Business process re-engineering and change management  IT Infrastructure and Consulting  Applications and systems development for vertical markets such as Halal industry

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Figure 5.7: Trade facilitation by Dagang.Net

National Single Window For Trade Facilitation – Malaysia’s eBased Trade Eco-System Trade processes involve a lot of document exchange and previously, the passing of documents was done in a tedious physical manner. In a manual process, duplicate documents are required by different authorities and agencies for approval. Too often, this slows down operations within the trading community. With the introduction of eServices in Trade Facilitation (refers to Figure 5.5), exchange of trade documents among businesses and approving authorities and agencies is done electronically. In Malaysia, the backbone of such electronic-based trade eco-system is the National Single Window (NSW) for Trade Facilitation - a one-stop Trade Facilitation system linking the trading community with relevant Government agencies and various other trade and logistics parties through one single window, which allows for a seamless and transparent process. An initiative of the Government of Malaysia, and led by the Ministry of Finance, Malaysia’s NSW for Trade Facilitation system was launched in 2009 to simplify clearance procedures, facilitate the electronic exchange of trade-related data, reduce cost of doing business and thereby enhancing trade efficiency and national competitiveness. The trading community in Malaysia is a vibrant one comprising not only traders, manufacturers, importers, exporters, forwarders, shipping agents, warehouse and depot operators, but also transport and logistics players, and banking and insurance agencies(refers to Figure 5.8). This network is further linked across the region and globally as well, making it a necessity to have smooth communications for this community to run business efficiently.

NSW of e-Services NSW serves e-Services as an integrated gateway to enable trade-related information and documents to be submitted by importers and exporters, Customs brokers, freight forwarders, shipping agents, banks, insurance companies only once at single entry point. E-Services has spearheaded ICT-enabled linkages for Malaysian trade communities to reach global markets and simplified the processes (Figure 5.8):

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 eDeclare Electronic Declarations (eDeclare) is launched in 2002. eDeclare is a web-based application that allows importers and exporters to submit import/export declarations to the Customs securely via the Network. Today, it is available at all ports and all entry points in Malaysia. The average number of Customs-related transactions conducted per month is 968,141 and the current number of users is 3,316.  ePCO Electronic Preferential Certificate of Origin (ePCO) is implemented in January 2009. It is a Web-based Certificate of Origin application and approval system which enables the environment for increased the speed to markets. ePCO is implemented in the following schemes: o ASEAN Industrial Cooperation (AICO) o Common Effective Preferential Tariff (CEPT) o Free Trade Agreement (FTA) o ASEAN-Korea Free Trade Area (AKFTA) o ASEAN-China Free Trade Area (ACFTA) o Malaysia-Japan Economic Partnership Agreement (MJEPA) o Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA) o Generalized System of Preferences (GSP) o Certificate of Origin for Textiles Malaysia has completed Free Trade Agreements (FTAs) with several countries and is a key in ASEAN Free Trade Agreement (AFTA) today. By using ePCO, Malaysian exporters can now efficiently take advantage of the benefits offered through these FTAs and Preferential Schemes.

Figure 5.8: e-Services Process Flow

 ePayment Electronic Customs Duty Payment (ePayment) is an online duty payment service that enables preparation and submission of duty payment to Customs.  eManifest Electronic Manifest (eManifest) allows port users to submit cargo and vessel manifests to the respective authorities via the Internet. It could allow 674 port users to send an average of 482,920 electronic CUSREPs, CUSCARs and Inter Terminal Transfer Document (ITT) for each month directly to respective authorities through the Network.  ePermit Electronic Permit (ePermit) is a paperless, web-based permit application system. It enables importers, exporters and forwarding agents to apply for import/export permits from Permit Issuing Agencies (PIAs). Today, ePermit has gone live at 17 permit-issuing agencies. It has currently registered RM 12 billion worth of combined annual trade buying volume flowing through its gateway. About 284,655 permits were transacted in year of 2009 with each electronic cycle taking about less than a day and the number of ePermit users has hit 10,714 users. ePermit is one of the cornerstones in the development of a true SW for electronic trade facilitation in Malaysia.

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Benefits NSW to Trading Community The trading community can save time and cost, gain competitive edge, and improve efficiency and productivity, which at the end of the day simply means improvements in its bottom line. On a larger scale, benefits experienced by the trading community can contribute positively to the ease of doing business for the country and competitiveness as a trading nation, and ultimately the whole economy. In Malaysia, the NSW for Trade Facilitation system is developed, operated and managed by Dagang.Net Technologies Sdn. Bhd. (Dagang.Net).

Benefits Gained By Traders and the Government Dagang.Net users’ - more than 6,000 have derived the following benefits:  Increased access and speed to export markets as trade transactions are now undertaken electronically.  Removal of red tape across Ministries and Government agencies.  Improved customer satisfaction via its 24/7 Careline Service, 7 Kedai EDIs (onestop service center``s) and 19 Facilitation Points (smaller centers) located nationwide.  Reduced manual labour costs as labour-intensive tasks can now be done via automated electronic data system.  Less administrative work as keyed data can now be used for different transactions and sent to all relevant parties. • Reduced risk of errors, increased time savings and higher efficiency. • Longer service hours to allow greater market activities and greater response to market demands. • Speedier processing of permit applications via the Network resulting in reduction of days required to export. The Government has also gained significant benefits: • More accurate and increased collection of customs duty payments which has risen to RM 1.8 billion annually. • Better compliance by trade communities as seen in the huge increase from 40 million electronic document transfers in 2003 to 275 million in 2009. • Use of technologically-advanced “risk management” tools for better control and enforcement purposes. • Provision of necessary enforcement and risk management tools that are on par with international standards. • More effective and efficient management of resources, in particular reduction of manpower needs and hardware costs.

Critical Success Factors for Malaysia’s NSW 

Government as the Champion of the NSW The success of Malaysia’s NSW has been significantly influenced by the support of the Malaysian Government who had championed this move since the late 1990s when electronic trade/infrastructure was identified as one of the nation’s top priorities.

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

Strong Inter-Agency Collaboration The active involvement and continuous interagency collaboration demonstrated by the 30 participating permit-issuing agencies have led to the full implementation of ePermit today.

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Public-Private Partnership Whilst the Government took a leading role in developing and implementing forward-looking and sustainable e-initiatives, the private sector was given the important role to devise and implement the paperless move to achieve a more transparent and efficient public delivery system for enhancing productivity and reducing the cost of doing business.

ASEAN Single Window - Regional e-Based Trade Eco-system The establishment of the ASEAN Economic Community (AEC) is a major milestone in the regional economic integration agenda in ASEAN (Association of Southeast Asian Nations), offering opportunities with a market size of US$2.6 trillion and a population of over 622 million. ASEAN Single Window (ASW) is a key component of the AEC. ASW is meant for trade facilitation, a unique regional initiative that connects and integrates NSWs of ASEAN member states to expedite cargo clearance within the context of increased economic integration in the ASEAN region. The ASW is set to take these NSWs to a regional context, provide secure IT architecture and legal framework, and allow trade, transport, and commercial data to be exchanged electronically among government agencies or the trading community. ASW is a regional eBased trade eco-system that can expedite cargo clearance process, reduce cost and time of doing business, and enhance trade efficiency and competitiveness. As the operator of Malaysia’s NSW for Trade Facilitation, Dagang.Net is looking forward to making a significant impact in the implementation of the ASW.

Dagang NeXchange Berhad Dagang NeXchange Berhad (“DNeX”), through wholly-owned subsidiary company Dagang.Net Technologies Sdn. Bhd. is enabling customers in the local Trade Facilitation and Logistics sector to leverage on the ASW. DNeX, which recently received the award of contract extension from the Government of Malaysia for the NSW for Trade Facilitation, has completed the design and development works of the Integration Module for ASW, which has gone live starting from today. DNeX also manages operations and maintenance of the Integration Module (refers to Figure 5.9). The Integration Module enables processing of trade data from Malaysia, which will then be sorted and sent electronically in a format recognised by the ASW. Prior to this e-Services, trade data that has been processed

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by the NSW will have to be submitted in hard copy to relevant authorities of receiving countries in ASEAN (refers to Figure 5.9).

Integration Module for ASW will benefit customer in exchange of trade data from Malaysia to other countries in ASEAN in various way of:  Convenience  Simpler  Faster processing time Secured  Transparent  Efficient In protecting customer’s data, they first would need to provide approval before their data is sent to the ASW. Moreover, as verification checkpoints are embedded in the Integration Module, exchange of trade data also takes lesser time for verification. Through the Integration Module for ASW, electronic trade data exchange from Malaysia can be done with Indonesia, Singapore and Thailand as their respective Trade Facilitation infrastructures are the only readily infrastructure to leverage on the ASW at the moment. In such an environment, trade data exchange and processes are more secure. This is just a more transparent and efficient way of doing business that could drive overall competitiveness of trade processes.

Figure 5.9: Integration Module for ASW

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PRACTICAL EXERCISES RECOMMENDED TIME ALLOCATION: 2 HOURS OUTCOMES: At the end of the activity, student should be able to understand the implementation of ICT in freight for trade facilitation.

ACTIVITY: You are required to choose any listed company in Malaysia that has exported their products or services using NSW. Find out who is their partner on the diagram below in order to accomplish their trading activity. .

Turn in your assignment as per indication: 1. 2. 3. 4.

Company profile Trading partner List of document involved Explain how ICT can facilitate their trading activity through Malaysia’s National Single Window

The Internet And Ecommerce

CHAPTER 6

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THE INTERNET AND ECOMMERCE INTRODUCTION OF NETWORK What is a Network? Network is a collection of computers and devices connected together via communication devices and media known as cables, telephones line, modems, and satellites. Current technology, a network can be wireless with no physical lines (Figure 6.1) or wires are connected. Once the computer is connected to network, it is said the computer is online. The benefit of computer network is sharing resources such as software programs, hardware devices, data and information. Sharing resources will save time and Figure 6.1: Wireless Network Technology money. Instead of purchasing many printers, many computers can share one printer via a network (Figure 6.2). The network enables all computers to access the same printer. All computers in today’s business include logistics business, are networked together. The network can be small or relatively extensive. There are two types of networks; Local Area Network (LAN) and Wide Area Network (WAN). LAN connects computers within the limited geographic area such as polytechnic, school and a group of building. WAN covers a large geographical area such as national and international corporations.

Figure 6.2: Wired Network Technology

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Network Computers Network Computers is designed purposely to connect to network especially internet. Most of the network computers could not be operated as a stand-alone computers which is the computers must be connected to a network to be functional. This computer typically does not have the internal or primary or CD-ROM storage because it relies on the network for storage to store data.

INTERNET Internet is actually referring to interconnected network of computers. Some of these computers are web servers, which are just specialized computers that contain and serve content from favourite websites, and others are just the client devices we use every day such as laptops, tablets, and mobile phones. Internet links together millions of government offices, business, educational institutions, logistics providers, manufacturers, retailers, non-government organizations and individuals (Figure 6.3). Many networks that comprise the internet (also called Net) could be local, regional, national and international. Although each network that constitutes the Internet could be owned by public or private organizations/sectors, no single organization own or control the Internet. Each organization on the Internet is responsible only for maintaining its own network.

Figure 6.3: Connection of the largest network in the world- Internet

There are varieties of reasons why people use Internet in the world. Some of the uses of internet are as follows:     

Education/training To retrieve/access information, research paper/journal/articles, and educational materials Business – To conduct business and investing transactions Entertainment – To access sources of entertainment and leisure such as online game, movie, music and magazines Tourism – To guide the planning vacation, hotels, transport, and food Shopping – To shop food, products and services online

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

   

Meeting/conference – To organize long distance meeting/conference among the business branches and converse with people around the world in group discussion Banking – To make payment online or online banking for personal or business purposes E-mails – To send messages or to receive messages to/from connected users Sharing – To share/provide information, photographs, audio, or video Training – To take online certified course such as NBOS or access other educational material for assignment/report.

Figure 6.4 shows Web pages that illustrate some of the users. Internet provides a variety of services to support all types of activities such as World Wide Web, electronic mail, File Transfer Protocol, Telnet, chat rooms, instant messaging, newsgroup, mailing-list and portals.

Figure 6.4: Internet and Users Connection

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World Wide Web (www) The usage of internet to access all kind of information is extremely significance. However, the usage of internet and www is used interchangeably. The fact is, www is one of the millions services available on the internet. The Web or www consists of a worldwide collection of electronic documents. Every single electronic document on the www is called as web page and it can contain some documents, text, audio, images, scale drawing and videos. Therefore, a collection of web pages is called as web site. Figure 6.5 shows the example of web site for POLISAS called “PORTAL Rasmi POLISAS”.

Figure 6.5: Example of Web Site for POLISAS

Web Browser In order to use www to access resources (product, services, information) users must have the web browser. Web browser or browser is a software application that allows users to access web page. There are several commonly use and popular web browser which are Chrome, Vivaldi, Opera, Microsoft Internet Explorer, Mozilla Firefox, Edge and Safari. All the mentioned web browsers own their personal features such as button, images, graphical user interface and navigation bar to assist and guide users through the web sites. Uniform Resources Locator (URL) Each web site has its own, unique address Figure 6.6: Wired Network Technology that called as Uniform Resources http://S4MUEL.com Locator (URL). The browser retrieves a web site by usingSource: its URL address which tells 76

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the browser where the document is located. It is easier for user to retrieve the required web site if the users know the URL address. As an example, URL address for Politeknik Sultan Haji Ahmad Shah is www.polisas.edu.my. User can type the URL in the box as Figure 6.7 and the web page of POLISAS as in Figure 6.4 is displayed.

Figure 6.7: Example of URL for POLISAS

How the Internet Works Let’s imagine each of these web servers as a tall building and that they’re connected to each other via highways and roads. This network of highways and roads (which is made up of fiber optic cables around the world) can be thought of as the Internet, and what travels along these highways and roads is data. Just like how physical buildings in real life have a mailing address, each of our web servers (which represents our favorite web sites like ESPN.com or Facebook.com) have a unique address called an IP address. How do we connect to the internet?” That’s where our Internet Service Providers (ISP’s) come into play. We can imagine them as special buildings that allow our client devices to connect to the highways and roads. Continuing with our analogy, just think of each of our internet connected devices as a house with a driveway that leads to the ISP’s. Now that we have a (very) high level sense of what the internet is, how exactly does it work? This is where our browser comes into play. The browser is what we call a “client application” and what this simply means that, it is a program that allows us to make requests to different web sites and respond to the data that those web sites send back. To best explain how this works, there are some of the steps involved with making a request to ESPN.com: 1. Each web server has its own unique IP address? Well, the web server for ESPN has its own IP address, which is 199.181.33.61. 2. When you type in “http://espn.go.com” into browser, the browser somehow needs to know that this is uniform resource locator (URL) actually means the IP address 199.181.33.61. So what the browser does is that it contacts the domain name service (DNS) and looks up the IP address for that URL. You can think of the DNS as a phone book. 3. Once the IP address is retrieved, the browser attempts to connect to the web server by opening up a socket connection. Without getting into the details, think of this as you physically calling the tall building (i.e. web server) and seeing if

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they’re still open. If someone responds, then you know they’re open and you’re connected. Now the browser and the server have an open connection with each other and the request to a specific article on ESPN can be made. But before the request can be sent over the internet, it has to follow a set of rules that describe how the request must be formatted. These set of rules are known as Transmission Control Protocol/Internet protocol (TCP/IP) and the HTTP protocol. Essentially, in order to travel along the highways and roads of the internet, every request made by the browser and every response sent by a web server must first be chopped up into small packets of data. Example of original request as a photo mosaic, and once it is been chopped up, each tile represents a packet of data. Aside from containing the binary bits of data, each tile also knows the IP address it is supposed to go to and how to reassemble itself once all the packets reach the destination IP address. Going back to our example of requesting a specific article on ESPN, the request for the article is chopped up into packets and sent along the highway and roads. Along the way, there are routers (and other similar devices) that basically act as traffic cops and direct the packets to the correct path leading to the IP address. Once all the packets of data arrive at the web server, the web server will look for the specific article, similar to how you’d look for a file in a cabinet drawer. Once the file has been located, the web server will chop up the response into data packets again, and send them back to your browser. Finally, when all the data packets arrive back at your browser, your browser will reassemble all packets into the HTML, CSS, JavaScript, and image files that represent the same original article. And once these files are processed, you’ll magically see the article displayed on screen. That’s how the Internet works illustrated by Figure 6.8. To watch the video refer link to https://youtu.be/7_LPdttKXPc

Figure 6.8: How Internet Works

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BENEFIT OF INTERNET ON SUPPLY CHAIN MANAGEMENT With the rapid changes in technology, supply chains have partially migrated to the Internet, as online marketplace which reduced the cost of both supply-chain management and the carrying out of supply-chain functions. A key to the reduced cost is Internet-based, generally available information that increases the transparency and speed of transactions. Members of supply chains can quickly and reliably find the specific information they need to complete an exchange of goods or services, and receive rapid payment. 

Procurement The Internet reduces the cost of purchases by giving supply-chain partners quick access to information about sources, availability, pricing and technical data. Members of the supply chain must cooperate in making this information available online, possibly in secure folders only accessible to account holders who are supply-chain partners. Once information required to make a purchase is available online from several sources, procurement is more efficient because the best source can be identified more quickly. While the actual prices paid do not necessarily diminish, the cost of the procurement transactions is lower.

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Supply On the supply side, the most important role of the Internet is to greatly increase the size of the accessible market. Suppliers using the Internet to market their goods and services can sell world-wide. With the Internet's greater transparency regarding pricing, suppliers have lost some of the strategic levers that allowed them to cultivate preferred accounts with higher margins. The ability of competitive suppliers to achieve greater sales volumes balances this disadvantage. Once the supplier has found a customer, he benefits from similarly reduced transaction costs as the purchaser, because completing the transaction is quicker and more efficient.

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Direct Transactions For supply chains in general, the role of the Internet has been to reduce the power of intermediaries. Suppliers can offer their products and services directly to customers, and purchasers can find what they need directly from producers. This disintermediation has simplified supply-chain management by making real time data on changes in demand and supply available to the markets, rather than having the information filtered through re-sellers. This trend has been especially pronounced in B2B transactions, while intermediaries remain more important in retail.

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Collaboration While supply-chain management through the Internet is still in its infancy, the possibilities exist for even closer integration of supply and procurement functions. Suppliers are interested in having a high, predictable sales volume, while purchasers are looking for a reliable, low-cost source. Companies can satisfy both goals by providing data on production and on procurement needs to each other under long term relationships. The resulting high, steady volume allows the supplier to offer his products at lower cost, while the purchaser benefits from this cost reduction and receives a reliable supply.

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E-COMMERCE IN SUPLY CHAIN MANAGEMENT Basic concept of E-Commerce Many traditional marketing activities continue today. However, the internet is changing the way those activities are completed. The Internet also is opening up new marketing opportunities. Using the Internet and related technologies to complete significant marketing activities is known as e-marketing or electronic marketing.

What is Commerce? 

  

The trading of good has been a major drive of human survival since the beginning of recorded history and beyond. The mass adoption of Internet has created a paradigm shift in the way businesses are conducted today. The past decade has seen an emergence of a new kind of commerce, the buying and selling of goods, through human-computer interaction over the Internet Today, Businesses use the Internet to conduct research, process customer orders, transfer funds to supplier’s bank and provide access to customer service representatives 24 hours a day, seven days a week. When used properly, emarketing increases the effectiveness of exchanges between business and consumers.

The commercial activities that is done online include shopping, investing and any other ventures that represents a business transaction or uses of electronic data interchange (figure 6.8).

Figure 6.9: Basic Concept of E-Commerce

Evolution of E-Commerce E-Commerce was first developed in the early 1970s with innovations like: • Electronic funds transfer (EFT) - funds can be routed electronically from one organization to another. • Electronic data interchange (EDI) – electronically used to transfer routine documents that expanded electronic transfers from financial transactions to other types of transaction processing. • Inter organisational system (IOS) – a system which allows the flow of information to be automated between organizations in order to reach a desired supply-chain management system, which enables the development of competitive organisations.

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E-Commerce Definitions and Concepts Electronic Commerce (EC) describes the process of buying, selling, or exchanging products, services and information via computer networks, including the internet. Kalakota and Whinston (1997) define EC from 4 perspectives:  From a communications perspective, EC is the delivery of goods, services, information , or payments over computer network or by any other electronic means  From a business process perspective, EC is the application of technology toward the automation of business transactions and workflow.  From a service perspective, EC is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of service delivery.  From an online perspective, EC provides the capability of buying and selling products and information over the internet and other online services.

E-Business A broader definition of EC that includes not just the buying and selling of goods and services, but also involved servicing customers, collaborating with business partners, transportation, storage and conducting electronic transactions within an organization (Figure 6.9).

Figure 6.10: E-Business Partners

Types of E-Commerce E-Commerce can take several forms depending on the degree of digitization (the transformation from physical to digital) of:  The product/service sold  The process  The delivery agent

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There are three types of E Commerce: 

Pure physical organizations Brick-and-mortar or old-economy organizations (corporations) that perform all of their business off-line, selling physical products by means of physical agents by having a physical store.



Pure online virtual organizations: New economy organizations are considered pure online virtual organizations that sell products or services only online.

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Partial EC: Click-and-mortar organizations that conduct e-commerce activity, but do their primary business in the physical world.

Example: Buying a book from Amazon.com is partial EC because the physical book is delivered by FedEx or third party of service provider. However, buying an e-book from Amazon.com or a software product from buy.com is pure EC, because the product delivery, payment and agent are all in digital process.

Benefits and Limitations of E-Commerce The Benefits of EC The benefits of e-commerce to organizations fall into several main categories, as described in the following list: 

Benefits to Organizations i. EC expands the marketplace: With minimal capital, a company can easily and quickly locate more customers, the best suppliers, and the most suitable business partners nationally or worldwide. ii. EC offers significant cost saving: With EC, companies no longer need to bear the costs of creating, processing, distributing, storing and retrieving paperbased information. iii. EC improves business organization and processes: EC allows for many innovative business models that provide strategic advantages and increase profits. iv. EC promotes interactivity: EC allow companies to interact with their customers and business partners and to receive quick and accurate feedback.

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Benefits to Consumers The benefits of EC to consumers centre mostly around convenience, speed and cost. EC allows consumers to shop or perform other transactions year round, 24 hours a day, from almost any location. It provides consumers with more choices of more products, from many vendors.

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Benefits to Society EC benefits the society as it improves the standard of living and delivery of public service

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The Limitations of EC Electronic Commerce has both technological and non-technological limitations: Technological Limitations Non-technological Limitations • There is a lack of universally acceptance • Security and privacy concerns deter standards for quality, security, and customers from buying. reliability. • Trust in EC and in unknown sellers hinders • The telecommunications bandwidth is buying. insufficient. • National and international government • Software development tools are still regulations sometimes get in the way. • It is difficult to measure the benefits of evolving. EC such as the effectiveness of online • There are difficulties in integrating the Internet and EC software with some existing advertising. • Some customers like to feel and touch applications and databases. products." Customers are resistant to the • Special Web servers in addition to the change from a real to an online store. network servers are needed. • People do not yet sufficiently trust • Internet accessibility is still expensive paperless, faceless transactions. and/or inconvenient. • There is an insufficient number (critical mass) of sellers and buyers needed for profitable EC operations.

USE OF E-COMMERCE IN SUPPLY CHAIN Business to Business Concepts Business to Business (B2B) refers to transactions between businesses conducted

electronically over the Internet, extranets, intranets, or private networks. Such transactions may be conducted between a business and its supply chain members, as well as between a business and any other business. In this context, a business refers to any organization, private or public, for profit or non-profit. The major characteristic of B2B is that companies attempt to automate the trading process in order to improve it.

Market Size and Content of B2B In B2B market, forecasters estimate that by 2005 the global B2B market may reach $10 trillion, continuing to be the major component of the EC market (Retter and Calyniuk 1998; Forrester Research 2001). The percentage of Internet-based B2B EC as a proportion of total non-Internet B2B commerce increased from 0.2 percent in 1997 to 2.1 percent in 2000, and is expected to grow to 10 percent by 2005. Chemicals, computer electronics, utilities, agriculture, shipping and warehousing, motor vehicles, petrochemicals, paper and office products, and food are the leading items in B2B.

Characteristics of Business to Business 

Parties to the Transaction B2B commerce can be conducted directly between a buyer and a seller or it can be conducted via an online intermediary. The intermediary is an online third party that brokers the transaction between the buyer and seller; it can be a virtual intermediary or a click-and-mortar intermediary. 83

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Types of Transactions There are two basic types of B2B transactions: spot buying and strategic sourcing. Spot buying refers to the purchasing of goods and services as they are needed, usually at prevailing market prices, which are determined dynamically by supply and demand. The buyers and the sellers may not know each other. Stock exchanges and commodity exchanges (oil, sugar, corn, etc.) are examples of spot buying. In contrast, strategic sourcing involves purchases made in longterm contracts that are usually based on private negotiation between sellers and buyers.

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Types of Materials Further, two types of materials and supplies are traded in B2B: direct and indirect. Direct Materials are materials used in making the product, such as steel in a car or paper in a book. The characteristics of direct materials are that their use is scheduled, they are usually not shelf items, and they are usually purchased in large quantities and after negotiation and contracting. Indirect Materials are referred as such office supplies or light bulbs, support production. They are usually used in maintenance, repairs, and operations activities, and are known collectively as MROs, or nonproduction materials.

Supply Chain Relationships in B2B The supply chain process consists of a number of interrelated sub processes and roles (Figure 6.11). These extend from the acquisition of materials from suppliers to the processing of a product or service, to packaging it and moving it to distributors and retailers, and end with its eventual purchase by the end-consumer. B2B can make supply chains more efficient and effective or change the supply chain completely, eliminating one or more intermediaries.

Figure 6.11: B2B in Supply Chain

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Business-to-Consumer (B2C) B2C involves activities of businesses serving end consumers with products and/or services. An example of a B2C transaction would be a person buying a pair of shoes from a retailer. E-commerce consists of the sale of product or services from a business to the general public or end user.  Seller : Business  Buyer : Consumer (public) B2C business is personalized their web sites to consumers by tracking visitors’ preference while they browse through the web pages. This enables the B2C business target advertisement, determine customer needs a personalize offerings to a customer’s profile.

Community Provider Sites that create a digital online environment where people with similar interest can transact (buy and sell goods), communicate with like-minded people, receive interestrelated information and even play out fantasies by adopting online personalities.

Figure 6.12: B2C online process

Supply Chain Entities Supply chain models and simulations in SCM Globe are composed of just four entities. These entities relate to each other and their interactions are what drive supply operations and produce the simulation results. Start a supply chain model by defining the PRODUCTS in the supply chain. Then define the FACILITIES where products are made, stored, sold or consumed. And finish the model by defining the VEHICLES and ROUTES that move products between facilities to meet demand.

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E-COMMERCE TRANSACTIONS The Process of Online Transactions Transaction Process In order to understand how e commerce transactions are processed, merchants need to first know these core processing actions:  



Authorization - Is the process by which the card issuer approves (or declines) a card purchase. The authorization takes place at the time the transaction occurs. Authentication - Is the process of verification of the cardholder and the card. During the authorization process the merchant should use fraud prevention services to validate the cardholder’s identity and the card being used. Settlement - Once a product has been shipped or a service provided to the customer, the merchant can initiate the settlement of a transaction through their acquiring bank and trigger the transfer of funds into the merchant account.

There are several participants in an e-commerce transaction.  



  



Card Issuer - Card issuer is a financial institution that issues payment cards and contracts with its cardholders for repayment of transactions. Cardholder - Cardholder is an authorized user of payment cards. In order to make an online purchase, the cardholder must use a web browser to interact with the e Commerce website. Acquiring Bank - Also called an acquirer or a merchant bank) is a financial institution that contracts with merchants to accept and process cards for payment of products and services. E Commerce Merchant - E Commerce merchant is an authorized acceptor of payment cards for the payment of products or services it provides. Processor - Processor is a financial institution that provides authorization, clearing or settlement services for merchants and merchant banks. Merchant Services Provider - A merchant services provider is a third party agent that has a direct relationship with a merchant. The merchant services provider processes or transmits card account numbers on behalf of the merchant. A merchant services provider may also provide services such as shopping carts, payment gateways, website hosting, data storage and clearing and settlement messages. Credit Card Association - The Credit Card Associations of Visa and MasterCard support the electronic transmission of all of their card authorizations between acquiring banks and card issuers and facilitate the settlement of funds.

E-Commerce Transaction Cycle

The processing of online card transactions may vary slightly depending on various factors, such as acquiring bank’s procedures, merchant services provider’s needs, business requirements and system used. However, it follows these steps: 

Authorization as illustrated by the Figure 6.13 below. i. The e-commerce transaction process begins with the cardholder ordering products or services from a web-based merchant by entering card payment information into a website form. For merchants participating in Verified by Visa or MasterCard Secure Code, the cardholder authentication occurs prior to the authorization processing. 86

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ii. The transaction information is then encrypted and transmitted via the internet to the merchant website’s server. The payment gateway receives the encrypted information from the merchant website’s server, formats it and transmits it to the acquiring bank. iii. The acquiring bank then electronically sends the authorization request to the Credit Card Association (Visa or MasterCard). iv. The Credit Card Association then sends the request to the card issuer. v. The card issuer then approves or declines the transaction. The authorization response is then routed back through the same channels.

Figure 6.13: E-Commerce Transaction Process



Authentication. Authentication is the process of verifying the cardholder’s identity and the validity of the transaction. There are a number of authentication services available to e commerce merchants and it is their decision which ones to use. Adequate actions can help reduce customer disputes and fraudulent transactions and improve the bottom line. Following are the most effective tools e commerce merchants can use to verify the validity of a cardholder and a card. o Address Verification Service (AVS). AVS enables merchants to compare the billing address provided by a customer to the one on file with the card issuer. o Card Security Codes. The card security codes are 3-digit numbers located on the back of Visa, MasterCard and Discover cards, in or around the signature panel, and 4-digit numbers located on the front of American Express cards, above the card account number. o Verified by Visa and MasterCard Secure Code. Verified by Visa and Master Card Secure Code are fraud prevention services developed by the Credit Card Associations to enable e commerce merchants to validate that a cardholders is the owner of a specific card account before completing a transaction.



Clearing and Settlement. Settlement is the process through which the card issuing bank exchanges funds with the acquiring bank to complete the transaction. The process may vary slightly from one merchant services provider to another but it follows these steps:

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ii. iii.

iv. v.

When the merchandise has been shipped or delivered or the service has been provided, the merchant captures the transaction and batches it together with other captured transactions for settlement. The batch is then electronically submitted to the acquiring bank. The acquiring bank electronically submits the transaction information to the Credit Card Association (Visa or MasterCard) for settlement. The Credit Card Association electronically submits the transaction information to the card issuer and then facilitates the settlement by paying the acquiring bank for the transaction and debiting the card issuer’s account. The acquiring bank typically receives its funds within 24 hours. The merchant is usually credited within 48 hours of settlement, unless the merchant agreement stipulates otherwise. The card issuer posts the transaction to the cardholder account and sends the monthly statement to the cardholder to complete the settlement cycle. Clearing & Settlement

Figure 6.14: Clearing and Settlement Process

E-Commerce Payment Systems There are many types of e-payment methods. What these diverse e-payment methods share in common is the ability to transfer a payment from one person or party to another person or party over a network without face-to-face interaction. Whatever the e-payment method, four parties are usually involved: 1. Issuer. The banks or nonbanking institutions that issue the e-payment instrument used to make the purchase. 2. Customer/payer/buyer. The party making the e-payment in exchange for goods or services. 3. Merchant/payee/seller. The party receiving the e-payment in exchange for goods and services. 4. Regulator. Usually a government agency whose regulations control the e-payment process. Characteristics of Successful E-Payment Methods 

Independence Some forms of e-payments require specialized software or hardware to make the payment. 88

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     

Interoperability and portability All forms of EC run on specialized systems that are interlinked with other enterprise systems and applications. Security How safe is the transfer? Anonymity Special payment methods such as e-cash or digital cash have to maintain anonymity. Divisibility Most sellers accept credit cards only for purchases within a minimum and maximum range. Ease of use For B2C e-payments, credit cards are the standard due to their ease of use. Transaction fees When a credit card is used for payment, the merchant pays a transaction fee of up to about 3 per cents of the item’s purchase price.

Figure 6.15: E-Commerce Payment Systems

Mode of E-Commerce Payment  Payment cards There are three types of payment cards: Credits cards – A credit card provides the holder with credit to make purchases up to a limit fixed by the card issuer. i. Charge cards – The balance on a charge card is supposed to be paid in full upon receipt of the monthly statement. ii. Debit cards – With a debit card, the cost of a purchased item comes directly out of the holder’s checking account.  E-wallets An e-wallet is a software component that a user downloads to their desktop PC and in which the user stores credit cards numbers and other personal information. When a user shops at a merchant who accepts the e-wallet, the user clicks the e-wallet, which automatically fills in all the necessary information. Credit card companies such as Visa and MasterCard offer e-wallets.

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 Smart cards An electronic card contains an embedded microchip that enables predefined operations or the addition, deletion or manipulation of information on the card.  E-cash The digital equivalent of paper currency and coins, which enables secure and anonymous, and it can be used to support payments that cannot be economically supported with payment cards.  Stored value cards A stored-value card represents money on deposit with the issuer, and is similar to a debit card. One major difference between stored value cards and debit cards is that debit cards are usually issued in the name of individual account holders, while stored value cards are usually anonymous.  Financial Process Exchange (FPX) Financial Process Exchange (FPX) opens new doors for e-Commerce, in particular business to business (B2B) and business to commerce (B2C) payments. FPX is an alternative payment channel for customers to make payment at e-market places such as websites and online stores as well as for corporations to collect bulk payment from their customers. It leverages on the Internet banking services of participating banks and provides fast, secure, reliable, real-time online payment processing. FPX provides a complete endto-end business transaction, resourceful payment records, simplified reconciliation and reduced risks as fund movements are between established financial institutions. Supported by the local financial institutions, FPX is operated by FPX Payment Gateway Sdn. Bhd. is a subsidiary company of Malaysian Electronic Payment System Sdn. Bhd. (MEPS)

Paypal PayPal is a fast and safer way to send and receive payments online without sharing your financial information. With PayPal you can: • Shop online with millions of merchants. • Pay online with your PayPal balance, bank account, or credit card. • Check out quickly – no need to enter your payment and shipping information. • Get paid for what you sell on eBay, on your own website, or in online classifieds and forums. • Donate to your favourite charity. • Use your credit card and earn rewards.

Benefits of E-Commerce Payment Systems  

 



Convenient: Customers can shop and/or make payment online. Guaranteed Payment Payments are conducted real-time online, thus customers/merchants are assured of payment. A notification to confirm payment is also provided to both parties. Unlock a new segment of markets Via Internet, FPX reaches to a broader base of customer/merchant segments. Operational efficiencies FPX enhances efficiency via automation and reduces the time taken from customer order stage to the payment stage. FPX also reduces operational costs. Secure FPX uses authentication and certification to ensure transaction is secured. 90

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PRACTICAL EXERCISES RECOMMENDED TIME ALLOCATION: 2 HOURS OUTCOMES: At the end of the activity, student should be able to apply e-payment transactions for internet payment. ACTIVITY: Visit Air Asia web page for online book using URL address as follow: http://booking.airasia.com/ Step 1 The interface will look like this:

Step 2 According to the interface, click the date for departure/arrival, origin and the destination. Search the available flight and key-in mode of flight (one/two ways) and numbers of guest. Click button search.

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Step 3 The available schedule of the flight will be shown as well as the price rate as follow:

Step 4 Scroll down the flight schedule to compare the price and promotion rate.

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Choose the most desirable option, click agree and Click continue.

Step 5 Key-in the personal information. If are already the member, just login with your own id. Key in all the passengers detail.

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Step 6 Choose the available seat.

Step 7 Complete the booking by making the online payment. OR Make any other purchases online and complete the online payment. Illustrates your online payment and explain how your payment is secured.

REFERENCES

Bowersox, Donal J. David J. Closs, M. Bixby Cooper, and Bowersox, John C. Supply Chain Logistics Management. New York: McGraw Hill, 2013 Chopra S, Peter M. Supply Chain management: Strategy, Planning, & Operation, 4th edition, Pearson, 2013 http://pn.ispirt.in/7-must-have-features-of-the-right-point-of-sale-pos-softwarefor-your-retail-business/ http://www.businessdictionary.com/definition/freight.html http://www.dagangnet.com/trade-facilitation/asean-single-window/ http://www.dagangnet.com/trade-facilitation/national-single-window/ http://www.radley.com/EDI/what-is-edi.html http://www.unescap.org/sites/default/files/brief4.pdf https://en.wikipedia.org/wiki/Information_and_communications_technology https://www.allthingssupplychain.com/how-important-is-the-internal-supplychain/ https://www.instituteforsupplymanagement.org/content.cfm?ItemNumber=20233 &SSO=1 https://www.investopedia.com/terms/d/decision-support-system.asp https://www.peerbits.com/blog/importance-warehouse-management-software-inlogistics-business.html James A. O’Brien and George M. Markus, Management Information System, 10 th edition, Mc Grawhill Irwin, 2011 Ronald H. Ballou, Business Logistics/Supply Chain Management. New Jersey, Prentice Hall, 2004. William Capacito and Donald B. Rosenfield, “Analitical Tools for Strategic Planning,” International Journal of Physical Distribution and Materias management, 15(3), pp.47-61, Council of Logistics Management USA

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