The advancement of information technology (IT) in recent years has allowed companies to perform operations that were previously unimaginable. Currently, there are several examples of companies that use IT to obtain cost reductions and/or generate competitive advantage.
Dell Computer invested in the direct and customized sale of computers over the Internet. The result was revenues of US$ 12,3 billion in 1998, growing 60% in just one year. In addition, it earned nearly $1 billion in profit, and was named the top performer in the information technology industry by Business Week magazine in 1998. Wal-Mart, the world's largest retailer, has 5.000 suppliers worldwide. world and 3.000 stores located in the United States, controls and manages its activities relying heavily on IT. Souza Cruz has a fleet of 900 vehicles to serve approximately 200 customers throughout Brazil. One of the tools it uses to overcome this logistical challenge is a Router, software whose purpose is to help obtain the best route for each delivery. As a result, its vehicles reach an efficiency of 99% and make an average of 43 deliveries per day.
All these examples denote how IT, both through systems and through the advancement of hardware, are fundamental for the development of logistics. As this subject is quite comprehensive, in this article only issues related to the use of information systems will be highlighted, not going into issues related to hardware, which will be dealt with in a next opportunity.
Currently there is a real agitation with regard to the implementation of business management systems, known as ERP, from the English Enterprise Resource Planning. It is not just large companies that have the opportunity to implement this solution; there are packages of all sizes and for various budgets. These systems basically aim to allow the company to “speak the same language”, enabling an integrated management. As a result, management reports with different information have their days numbered. But what about the logistics? How is it being approached?
THE ROLE OF INFORMATION IN LOGISTICS
The flow of information is an element of great importance in logistics operations. Customer and replenishment orders, inventory needs, warehouse movements, shipping documentation, and invoices are some of the most common forms of logistical information.
In the past, information flow was primarily paper-based, resulting in information transfer being slow, unreliable and error-prone. The technology's decreasing cost, associated with its greater ease of use, allow executives to have the means to collect, store, transfer and process data with greater efficiency, effectiveness and speed.
The electronic transfer and management of information provides an opportunity to reduce logistical costs through better coordination. In addition, it allows the improvement of the service based mainly on the improvement of the offer of information to the customers.
Traditionally, logistics has focused on the efficient flow of goods through the distribution channel. The flow of information was often overlooked, as it was not seen as something important for customers. Furthermore, the speed of exchange/transfer of information was limited to the speed of the paper. Currently, three reasons justify the importance of accurate and timely information for effective logistics systems.
- Customers realize that information about order status, product availability, delivery schedules, and invoices are necessary elements of total customer service;
- With the goal of reducing total inventory in the supply chain, executives realize that information can effectively reduce inventory and human resource needs. In particular, requirements planning that uses the most recent information can reduce inventory by minimizing uncertainties around demand;
- The information increases the flexibility allowing to identify (which, how much, how, when and where) the resources that can be used in order to obtain a strategic advantage.
An example of strategic positioning based on information technology is the case of express delivery companies. Fedex was the first to offer next-day delivery service in 1973 in the United States. At the end of the 80's, with high investments in IT, it started to have control of the entire customer order cycle. With this, I could maintain full traceability of the order. Its system currently processes 63 million transactions per day, which is equivalent to 3 million packages delivered. UPS, the largest American company in this segment, invested US$ 1.5 billion between 1986 and 1991 to reach the same level as its competitor in terms of services provided.
Another example of how information is of great importance in logistics is the interaction between manufacturers and retailers in supply chain management, promoted in Brazil by the ECR Brasil Movement. With this practice, some retail chains are starting to make point-of-sale information available to their suppliers so that they are responsible for the automatic resupply of products. This considerably reduces retailers' inventory costs and enables manufacturers to have better predictability of demand, providing a more rational use of resources.
LOGISTICS INFORMATION SYSTEMS
Logistics information systems function as links that link logistics activities into an integrated process, combining hardware and software to measure, control and manage logistics operations. These operations both take place within a specific company as well as along the entire supply chain.
We can consider hardware from computers and data storage devices to input and output instruments, such as: bar code printers, optical readers, GPS, etc. Software includes systems and applications/programs used in logistics.
Logistics information systems have four different functional levels: transactional system, management control, decision support and strategic planning. The pyramid format shown in Figure 1 suggests that the implementation of a robust transactional system is the basis that sustains the improvement of the other three levels. Each of the levels will be analyzed below, emphasizing their importance for the company's logistics competitiveness.
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- Transactional System
It is the basis for logistical operations and the source for planning and coordination activities. Through a transactional system, logistical information is shared with other areas of the company, such as: marketing, finance, among others.
A transactional system is characterized by formalized rules, cross-functional communications, high transaction volume, and an operational focus on day-to-day activities. The combination of structured processes and high transaction volume increases the emphasis on information system efficiency.
From there, the main logistical transactional process takes place: the order cycle. With this, all activities and events belonging to this cycle must be processed: order entry, credit checking, stock allocation, issuing invoices, shipping, transport and product arrival to the customer. Information about such activities/events must be readily available as order status is an increasingly necessary issue for good customer service.
The lack of integration between logistics operations is a problem commonly found in transactional systems that are not under an integrated management system. This can basically happen in three instances:
- Among logistical activities performed within the company;
- Between company facilities;
- Between the company and others belonging to the supply chain or logistics service providers.
- Management control
This level allows the use of information available in the transactional system for the management of logistical activities. Performance measurement includes financial, productivity, quality and customer service indicators.
In general, there is a great lack of performance indicators / reports in Brazilian companies. Among the main factors are the absence of a transactional system that has all the relevant information and vision on the advantages of controlling the logistics operations.
- An example of this is the measurement of product availability, that is, indicators that indicate the percentage of orders that were delivered complete;
- Another very important indicator to evaluate the level of service provided to the customer is the lead time. Companies do not always have information about the date of arrival to the customer. However, there are cases in which companies manage to obtain such information, but do not use it systematically to evaluate their performance and that of their carrier (transit time).
The presence of reports that deal with exceptions is essential for good management, since logistical operations are characterized by an intense flow of information. For example, a proactive control system must be able to predict future stockouts based on demand forecasts and expected receipts.
A concept increasingly used in companies is the Data Warehouse (DW). As the name suggests, it stores historical and current data from various areas of the company in a single database in order to facilitate reporting. The process of developing a DW provides an opportunity for the company to review and formalize objectives, plans and strategy.
- Decision Support
This functionality is characterized by the use of software to support operational, tactical and strategic activities that have a high level of complexity. Without the use of such tools, many decisions are made based only on feeling, which in many cases points to a far from optimal result. However, if they are used, there is a significant improvement in the efficiency of logistical operations, enabling, in addition to an increase in the level of service, cost reductions that justify the investments made.
There are differences between applications of decision support tools. Some are operational, as they are aimed at more routine operations, such as vehicle scheduling and routing, inventory management, etc. On the other hand, there are tools that act more tactically and strategically, such as: location of installations, analysis of customer profitability, etc. The application of these tools will depend mainly on the existing complexity in the logistics activities and their cost/benefit ratio.
Tools that tend to be more operational, must be fully connected with the transactional system, so that inputs are up-to-date information and in the proper format. In general, companies that do not have an integrated system face problems in implementing these tools with regard to connectivity with the system used.
In both types of decision support tools, the level of expertise of users is required to be high to deal with difficulties in implementation and use. Otherwise, there is a need for specific training, which occurs in most cases.
- Strategic planning
In strategic planning, logistic information supports the development and improvement of the logistic strategy. Decisions made are often extensions of the decision support level, although they are more abstract, less structured and focused on the long term. As an example, we can cite decisions based on the results of facility location models and analysis of customer receptivity to service improvements.
BUSINESS MANAGEMENT SYSTEMS
More and more medium and large Brazilian companies and from various sectors of the economy have been implementing business management systems – ERP. This type of system aims to solve information integration problems in companies, since before they operated with many systems, characterizing in some cases “a real patchwork quilt”, which made an integrated management unfeasible. In addition, the implementation of an ERP system allows companies to review their processes, eliminating activities that do not add value.
The costs of acquiring and implementing these packages vary, in general, between R$400 and R$20 million. These values mainly depend on the size of the company (number of users and installations) and its operation (chosen system modules). In general, it is estimated that for every R$1 spent on acquiring a license, R$2 is spent on consultancy and between R$0.5 and R$1.5 on equipment. Some of the main suppliers of this type of software in the world are already in Brazil. SAP, in addition to occupying the world leadership in this market, as we can see in figure 2, also occupies this position in Brazil with 38% of software license sales, on the other hand, Datasul has the largest number of customers with 23% of the market .
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Although for some the growth of ERP systems was stimulated by the millennium bug, a recent survey by AMR1 (an American research company in the area of business management applications) estimated that this market will surpass a global revenue of US$14.8 billion obtained in 1998 to US$ 42 billion in 2002. This market in Brazil was US$ 1998 million in 281 and the forecast for 2002 is to reach US$ 838 million.
But these numbers do not indicate that every ERP implementation in companies is a great success. There are cases where the project is compromised mainly due to problems in change management.
Associating ERP systems with the functionality of logistics information systems (figure 1), we can clearly see that the main objective of an ERP system, from a logistical point of view, is to act as a transactional system, solving problems with the lack of integration between activities logistics. However, not all ERP implementations consider logistics activities in an integrated way, this results from the lack of focus on logistics, which after the implementation process can bring a series of problems for logistics management.
- As an example, we can have the following situation: the person responsible for transport does not have information on the status of the order, which contains data on the allocation of stock (availability) and on the deadline for shipment. As a result, the load consolidation process becomes impractical.
The main ERP systems provide a wide range of pre-configured reports and performance indicators for measurement, analysis and control. However, the needs of companies are not always met. With this, the need arises to specify appropriate reporting structures for the company's operation. The presence of a Data Warehouse greatly favors this process.
Although an ERP system has attributes that contribute to improving management in the company, it does not have decision support tools. Several providers of this type of system have invested in partnerships and acquisitions to provide decision support tools that help improve the efficiency of logistics operations in the company and in the supply chain, as a way to fill this gap.
DECISION SUPPORT SOFTWARE
We can see in Figure 3 that the presence of the ERP system is strongly related to transactional aspects and the execution of operational activities, serving as the basis for a series of decision support applications.
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Not all areas covered in figure 3 are specifically logistical. The most common logistics tools found on the market are for the following areas: vehicle scheduling and routing, demand forecasting, warehouse management and inventory planning.
It is worth mentioning that ERP systems have warehouse management modules, whose main objective is to manage the flow of information, through position and batch control, FIFO rule, among other functionalities. However, functions related to the existence of intelligence are not available.
Two tools that have not been previously discussed deserve to be highlighted, mainly due to the lack of dissemination in Brazilian companies of the concepts that guide them. The first is the demand information module. It stores marketing data about the competition, data obtained from the POS (point of sale) of its main retail customers and promotional actions taken by the company. The objective is to provide more information for the demand forecasting process. The second is the transport information module that stores transport data, such as freight and transit time, in order to help optimize the logistics network, as well as transport planning, which determines the best modal for certain routes.
An excellent source for evaluating software that may be useful in improving your company's operation is the Logistics Software2 guide, developed by Andersen Consulting for the Council of Logistics Management (CLM). Editions are annual and are also sold on CD-ROM. This guide presents information about suppliers, software, functions/applications, cost, implementation time and other necessary data to start a research to choose a software.
Another way to obtain information about software providers is through the home page of the Center for Studies in Logistics (CEL).3
SOFTWARE FOCUSED ON SUPPLY CHAIN INTEGRATION
This type of software adds a set of tools shown in Figure 3, such as: demand forecasting, logistics network optimization, transport planning, production planning and sequencing, among others. In fact, it is an evolution of decision support systems.
They are commonly called Supply Chain Management (SCM) applications, that is, tools for integrated management of the supply chain. Its main function is to allow the user to control several logistic functions simultaneously, allowing the analysis of existing trade-offs. In addition, it has a scope that goes beyond the limits of the company, that is, it is also integrated with other members of the supply chain, such as: industries, wholesalers/distributors and retailers, in addition to logistics service providers. This becomes possible thanks to the connectivity offered by EDI (electronic data interchange) technologies and the Internet.
If, on the one hand, there are suppliers that specialize in this type of software (the main ones are: Manugistics, Caps and i2 Technologies), on the other hand, ERP suppliers are also migrating to this approach, which complements their powerful transactional systems. An example of this is the tool developed by SAP called APO (Advanced Planner and Optimizer). Its main modules are:
- Supply Chain Cockpit
- Logistics network planning
- Demand planning and forecasting
- distribution planning
- Production planning and sequencing
An interesting aspect evidenced in the United States is the accelerated process of merger and acquisition between software suppliers that have complementary products. They seek synergy between their products, to offer the market a product capable of dealing with cross-functional logistical problems or even operating in the SCM Applications segment.
TENDENCIES
There is a great growth perspective for the ERP market in Brazil, as we could see earlier. This is justified by the vast existing market. Most Brazilian companies do not have fully integrated systems. Furthermore, organizations that have implemented an ERP system are beginning to enjoy and quantify the benefits of integrated management, further propagating the idea that this type of solution is highly beneficial.
With a greater diffusion of ERP systems, there will be a favor to leverage the logistics operations, based mainly on the acquisition of decision support software, as well as SCM Applications. This will demand from organizations, increasingly qualified professionals in the field of logistics.
There is strong evidence that companies in the same supply chain will increasingly integrate through information systems, reducing uncertainties, duplication of efforts and, consequently, the cost of the operation.
The great challenge for organizations in the implementation of information systems is to assess the “value” that these packages, whether transactional or decision support, will bring to the company's business. Companies cannot be carried away by “fads”, but be convinced of the most appropriate choice for their needs.
