Information Technology in Logistics

Many corporations are looking to improve their investment returns by finding new ways to cut cost and increase profitability. With IT coming out with new products every now and then, corporations are finding it easier to implement programmes to fulfil their objectives. The two most recent IT tools that are supporting logistics are ERP and DRP.

1. Enterprise Resource Planning (ERP)

ERP is an integrated software encompassing all business operations meant to bring about a sig­nificant cultural change in the way people work. ERP is a business solution. Corporations install ERP to address certain business issues that have to be identified. ERP is a very expensive, large and complex exercise requiring a sufficient amount of planning. One of the crucial areas where ERPs are in vogue is the supply chain management (SCM). SCM solutions always focus on optimizing order fulfilment and movement of goods through the logistic system of the enterprise. In India, the major ERPs in use are System Application Product (SAP), BaaN, Oracle, J.B. Edward and Peoplesoft which have been developed by foreign companies and are suitable for the business environment prevailing in those countries. However, some Indian companies such as Ramco Systems have devel­oped ERP to suit the Indian business environment.

ERP helps in optimization of the SCM process to develop competitiveness by ensuring the following advantages:

• Quicker response to customer requirement
• Reduction in inventory costs
• Improvement in service levels—internal and external
• Improvement in inventory turnover rate
• Reduction in logistical cost

Majority of Indian companies have implemented ERP in their supply chain systems, which has helped them to maintain a minimum inventory of raw materials and finished goods, resulting in considerable cost reduction.

2. Distribution Requirement Planning (DRP)

It is another IT tool and also a sophisticated planning approach that takes into consideration the multiple distribution stages and their characteristics in the distribution system. DRP is the logical extension of manufacturing requirement planning (MRP). However, DRP is guided by
customer demand, while MRP is controlled by the production schedule. The finished goods inven­tory requirement is determined by DRP, considering the variables at multiple distribution centres located in different markets. DRP helps in consolidating shipments to multiple locations spread over a vast geographical area, and thus helps in reducing freight cost. It also helps reduce the inventory level, resulting in the reduction of warehouse space requirement. This system improves inventory visibility in the logistic supply chain.

3. Automated Inventory Tracking System (AITS)

This IT tool is quite popular in retail chains in the United States. AITS is designed to control inventory flow in the supply chain and involves the use of computerized material planning and the EDI system. The system gives real-time status of the inventory levels of all items at retail stores, feeder and mother warehouses. For replenishment of items sold, information is conveyed directly to the supplier after an item’s inventory level is checked at distribution and mother ware­houses. The supplier initiates action to replenish the inventory item, depending on the item’s offtake rate at the retail stores, its safety stock, inventory in transit, and so on. The U.S. retail chain giant, Wal-Mart, controls inventory investments throughout its entire supply chain with the help of AITS.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.