Operational Efficiency in Supply Chain Management

KERBL Peter (Student ID: 53793261)

Introduction

Big data has been playing a significant role as a disruptive technology in supply chain management of the logistics industry. A “supply chain” is a broad term for the resources, activities, information, and people that are involved throughout the entire process of raw material to final product, or supplier to customer. Thus, supply chains are highly linked together and involve anything from transport to storage in warehouses to actual point of sale. Globalization increases the interconnectedness of businesses which leads to a growing complexity of supply chains. Hence, there is one magic word in the logistics industry: efficiency.

Three main emerging technologies which are improving operational efficiency of supply chains in the logistics industry will be discussed. These three technologies are Radio Frequency Identification (RFID), Enterprise Resource Planning (ERP), and Automated Storage and Retrieval Systems (ASRS). My goal will also be to describe the impact of globalization on these emerging, innovative big data technologies.

Radio frequency identification (RFID)

Radio frequency identification (RFID) is an automatic identification system which already has many practical uses. For example, bar codes or magnetic strips on credit cards use RFID technology to function. However, RFID is being taken to new and innovative heights in the logistics industry. RFID technology is a way of transmitting and receiving unique data so that people or objects can be automatically detected.

…So how does it work?

RFID technology involves two main devices: an “RFID tag” and a “reader”. Objects are equipped with an RFID tag containing specific data about the object. The reader has an antenna which uses radio waves to detect the RFID tags when these tags are within reach. The ease of reading data is precisely what makes RFID a desirable technology. Contrary to bar codes and credit cards which have to be swiped or placed directly against a reader to detect data, RFID readers can detect RFID tags simply when the tags are within range of the reader. Since this is still an emerging technology, the range varies anywhere from one meter to seven meters for RFID technologies utilizing high-frequency radio waves. However, this technology has improved drastically in recent years and in container tracking and railway applications, where readers must detect tags at a greater distance, a range of up to 100 meters is now achievable. The advantage of this technology is quite straightforward. Imagine going grocery shopping. Instead of the supermarket employee having to first swipe each product, the groceries could be placed in a bag and then detected all at once. In this manner, each product would contain an RFID tag and the reader could easily detect all of the groceries through the bag.

Radio Frequency Identification technology is used in supply chains to track goods. RFID tags are placed directly on cases and pallets containing data about the goods such as manufacture date, shipment information, destination, etc. Another benefit of RFID is that people are not needed to scan objects as long as readers are placed in the proximity of goods containing RFID tags.

(Roberts 2006)

The images below show various applications of RFID: 

Figure 1: Overview of the benefits & applications of RFID (Source: http://0045eff.netsolhost.com/AGWARE/English/WhitePapers/RFIDTechnology.htm)

Figure 2: RFID tag situated in the middle of a pallet (Source: http://www.world-pallet.com/)

The RFID market has been slow to grow. However, nowadays the market for this big data technology is growing quicker and bigger. There are already several big players providing RFID technologies to many different industries. Although RFID is already quite popular in the logistics and transportation industry, other industries such as retailers, automobile industry, governments, farming, etc. are also using RFID.

(Harrop)

The following table shows the market size in billions of US Dollars of RFID technologies in 2005 and 2010. Additionally, a forecast for 2020 is provided: 

Table 1: Global market size of RFID technologies (Source: Harrop)

From the table above, it can be seen that the market for RFID tags, readers and other equipment almost tripled from 2005 to 2010. Moreover, the market is expected to experience further rapid growth until 2020. This highlights the increasing global importance of Radio Frequency Identification technology.

Enterprise Resource Planning (ERP)

Enterprise Resource Planning (ERP) represents another application of big data as a disruptive technology in the logistics industry. ERP is essentially software which integrates data from many core activities of a business. This integration of vast data, kept in a database, typically contains real time information on a wide range of aspects such as inventory, shipping and payment details, manufacturing plans, costs, customer relationship management, etc. Hence, implementing ERP software allows for information to be easily shared across all areas of a business. Indeed, Mehrjerdi (2010) argues that by collecting and storing information from various business functions, the organization as a whole benefits by having a broader insight. Thus, managers have a clear and instant overview of lots of important information within a company which assists them in decision-making. Therefore, ERP can make organizations more profitable by reducing the time and costs associated with carrying out business activities. There are many providers of ERP technology on the market, some of which include SAP, Oracle, PeopleSoft, and Baan.

The following image depicts many of the business functions which are integrated into an ERP system. The sum of each individual part makes an organization as a whole more efficient:

Figure 3: ERP Systems integrate many business functions (Source: http://www.mersoft.am)

One concrete benefit of using ERP technology is the fact that it reduces order cycle times in supply chain management. This means that less time is needed to deliver an order once the order has been placed (Mehrjerdi 2010). ERP technology can also integrate and automate e-commerce functions, increasing revenue. Additionally, ERP can be used to automatically place new orders when inventory is low and needs to be restocked. Customer data can also be stored and refreshed in order to better satisfy customer needs.

Although ERP systems can significantly increase operational efficiency of supply chains when used properly, Mehrjerdi (2010) points out that implementing ERP software is a long and complex process. Many instances of unsuccessful implementation have occurred which caused a decrease in business performance of all affected companies. In some instances, companies even went bankrupt. According to the author, surveys have shown that approximately 65 percent of business executives agree that ERP can be harmful. For this reason, enough time and resources should be allocated when implementing an ERP system. Managers in the logistics industry should take advantage of training and familiarization services offered by ERP software providers. Furthermore, managers should involve their subordinates in the training process so that employees across all departments are aware of the benefits of using ERP systems and are also able to use them correctly. It is important to note that most ERP software providers will only offer technical support up to one and a half years after the introduction of a new version. Hence, updates should be purchased when necessary. Generally speaking, implementing ERP software in supply chain management is a costly procedure with costs that are often hidden or unforeseeable. Consequently, it is often argued that implementing ERP software does not always make sense. However, Tian and Xu (2015) argue that Enterprise Resource Planning systems are actually effective at reducing not only costs but also risks for a firm in the long run. Ultimately, every company in the logistics industry must decide for itself if managing big data through ERP is useful or not.

Automated Storage and Retrieval Systems (ASRS)

Another way big data is improving operational efficiency in the logistics industry is through a disruptive technology known as Automated Storage and Retrieval Systems (ASRS). This technology is also known as Automated Warehouse Storage Solutions (AWSS). This is simply a fancy name for a warehouse where inventory is handled by fully automated computers and robotic equipment. Before automation was developed, people, forklifts, and other equipment were needed to manually run inventory in a warehouse. Now, with ASRS, the technology has become more sophisticated and people are only needed to oversee the operations of software programs and fix any errors which may arise. Hu and Chang (2010) define ASRS as “a combination of equipment and controls that handle, store, and retrieve materials as needed with precision, accuracy, and speed under a defined degree of automation” (p. 297). A “stacker crane” is installed in the warehouse which can move both horizontally and vertically. The stacker crane stores and retrieves goods which are usually placed on standardized pallets.

The image below shows an Automated Storage and Retrieval System in a warehouse:

Figure 4: ASRS in a warehouse (Source: www.mhi.org)

This automated usage of big data is advantageous to the logistics industry for many reasons. According to Hu and Chang (2010), automated storage systems increase efficiency and safety while decreasing the costs of labor. They enhance efficiency because through the precise location and retrieval of objects, human mistakes are mitigated (e.g. picking the wrong orders). They are also faster at retrieving inventory than people are. Since less people are needed in the warehouse where heavy objects and equipment are located, safety is automatically higher. All of these benefits mean that operating costs are ultimately reduced. This is very beneficial in the logistics industry, as Baker and Halim (2007) highlight that storage in warehouses represents about twenty percent of total logistics costs in supply chains. Nevertheless, implementing such a complex storage system is initially expensive for companies. In addition, adopting ASRS is a lengthy process, taking an average of twenty months to complete. However, in the long run these disadvantages can be offset by future profits due to increased productivity. In fact, according to Malone (2004), automated storage technology can boost shipping and receiving productivity up to 300 percent.

Automated warehouse systems are often implemented when land is scarce and hence warehouses are built higher in order to utilize space more efficiently. As a result, many automated storage facilities are built over ten or twenty meters high, with 40 meters being the general maximum height.

It is interesting to note that ASRS are utilized in a myriad of industries other than logistics and, as Heinrich and Willis (2014) point out, even university libraries implement this technology. The authors report that about twenty U.S. universities currently use ASRS in their libraries. Due to the long-term benefits and increased popularity of ASRS, it is not surprising that the market for automated storage solutions is growing steadily (Baker & Halim 2007).

Impact of Globalization

Globalization in the twenty-first century has broadened the competitive landscape because many companies have expanded their businesses overseas. This means that more revenue can be generated by conducting business in many markets worldwide. The fact that business opportunities have increased is especially beneficial to entrepreneurs and small companies who are empowered to compete in global markets. In the logistics industry, efficiency is everything because being a strong competitor means being quick and reliable while keeping costs to a minimum. Big data in the forms of RFID, ERP and ASRS strengthen logistics companies, whether small or big. However, it is often argued that globalization leads to a lack of fair trading opportunities. In fact, the World Trade Organization, which is supposed to be a neutral organization to promote trade worldwide, has received much criticism for being heavily influenced by the interests of wealthy nations and companies. Through globalization it seems that rich, well-established companies are becoming bigger, stronger and more dominant. Thus, their financial strength enables them to afford the opportunities provided by big data while smaller companies are left struggling to survive. No matter what one argues regarding free trade, globalization does in fact make big data more accessible to smaller companies. Therefore, logistics companies should use the business opportunities made available by globalization in order to grow and then invest in big data to become more competitive.

Conclusion

In summary, the three big data technologies discussed in this report are linked together in supply chains of the logistics industry. To illustrate, goods are often equipped with RFID tags, making them identifiable and distinguishable from other goods. These goods are then, for example, shipped from Rotterdam to Shanghai where they are temporarily stored in a warehouse. This warehouse in Shanghai could then be equipped with an Automated Storage and Retrieval System. In the warehouse, the goods would be identifiable through the RFID tags. Hence, by reading the RFID tags, the ASRS is able to store the goods and precisely retrieve the goods from storage again. Additionally, ERP software will most likely be used in the warehouse to manage the flows of information. Therefore, these three technologies, when implemented successfully, ultimately increase operational efficiency. When deciding whether or not to implement these forms of big data, companies should consider what their core competence is. If a logistics company focuses mainly on transporting goods and only rents warehouse space, then ASRS does not make sense. RFID and ERP, on the other hand, would make sense.

In conclusion, globalization makes supply chains increasingly complex and interconnected. From a SWOT perspective, this can be seen as a “threat”. However, by adopting big data technologies, logistics companies can turn this “threat” into an “opportunity” because complexity of supply chains is reduced. Supply chains will run smoother, faster and more efficient while reducing errors, time needed and costs. This also makes a logistics company utilizing big data a more attractive business partner because it is able to add value to other organizations by guaranteeing smoother supply chain management. For these reasons, globalization and the implementation of big data are a primary way to exploit business opportunities in the logistics industry.

References

Baker, P., & Halim, Z. (2007). An exploration of warehouse automation implementations: cost, service and flexibility issues. Supply Chain Management: An International Journal, 12(2), 129-138.

Harrop, P. The global market for RFID 2010-2020 [PowerPoint slides]. Retrieved from market research Online Web site: http://www.centrenational-rfid.com/docs/applications-rfid/RFID%20Markets%20Toulouse%20IDTechEx%20V2%20GOOD%20ONE.pdf

Heinrich, H., & Willis, E. (2014). Automated storage and retrieval system: a time-tested innovation. Library Management, 35, 444-453.

Hu, K.Y., & Chang, T.S. (2010). An innovative automated storage and retrieval system for B2C e-Commerce logistics. International Journal of Advanced Manufacturing Technology, 48, 297-305.

Malone, Robert (2004). Acvhieving Success with AS/RS. Retrieved from http://www.inboundlogistics.com/cms/article/achieving-success-with-asrs/

Mehrjerdi, Y.Z. (2010). Enterprise resource planning: risk and benefit analysis. Business Strategy Series, 11(5), 308-324.

Roberts, C.M. (2006). Radio frequency identification (RFID). Computers & Security, 25, 18-26.

Tian, F., & Xu, S.X. (2015). How Do Enterprise Resource Planning Systems Affect Firm Risk? Post-Implementation Impact. MIS Quarterly, 39(1), 39-60.