Global Logistics and Information Technology

1. Global Logistics and Information Technology Professor Keebom Kang Graduate School of Business Naval Postgraduate School kkang@nps.edu

2. Topics • Technology Innovation and Globalization • Marketing/ Financing/Brand Recognition • Supply Chain Logistics and Transportation • Transportation, Inventory Management • Information Technology (RFID/GPS/Internet) • Concluding Remarks

3. Globalization • Technology Innovation • Better transportation and communication and global financial market • Access to cheap commodity • Technology is changing the distribution of jobs • e.g., Farmers, factory workers, telephone operators • More wealth is generated from the global markets • Uneven distribution of wealth, Income gap widens (have and have-nots) • Beneficiaries: educated and connected groups (countries, individuals)

4. Motivation in SCM What would sales & production costs have to be to double net income? Which is easier? Percentages are % of sales.

5. Solution Increase sales 100% Reduce production costs by 12% Reducing production costs is more feasible.

6. Supplier Mfg. Wholesaler Retailer Order Cash Information Flow Flow Supply Chain VISA ® Credit Flow Mat'l Flow Consumer

7. Supply Chain Management • Applying a total systems approach to the entire flow of information, materials and service throughout the supply chain to provide the right quantities of right stuff, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements

8. Supply Chain Challenges • Achieving Global Optimization • Conflicting objectives • Complex network of facilities • System variation over time • Managing Uncertainty • Uncertainty in demand • Matching supply and demand

9. Logistics Cost Is Going Down • In 2003, US spent 8.5% of its GDP on logistics • In 2000, US spent 10% of its GDP on logistics • Transportation (5.9%) & Inventory (3.8%) • Management 0.3% • In 1980, US spent 16% of its GDP on logistics • Transportation (7.6%) & Inventory (7.9%)

10. Importance of Transportation • For some organizations, transportation is 20 to 40% of the product cost. • Transportation costs vary widely between industries. • Transportation service is a critical factor. • Delays may stop production.

11. Transportation Analysis • Air/Sea/Land (Rail, Truck) • Hub and Spokes (H&S) System • How does it work? • Atlanta, Dallas/Ft. Worth, Chicago, Washington, DC • Frankfurt, Munich, London, Paris • Istanbul/Warsaw as new regional Logistics Hubs • Tokyo, Singapore, Hong Kong, Seoul • Airline H&S demo model • Global competition on logistics hub • Airport hub, seaport hub, financial hub • More on Air Transportation Logistics

12. Airline Hub and Spoke System

13. Hub and Spoke for Computer Network

14. Logistics Hub • Reliable transportation systems and efficient customs and regulatory agencies • Info technology, communication • Finance, insurance and law firms • Affordable labor supply and educated human resources • Political and economic stability and safety • Cost of living and tax incentives • Business support (foreign language translation, convention centers, local transportation, etc.) • Entertainment facilities (restaurants, hotels, theme/rec parks)

15. Cost structure determinants • Yield Management: Mix of fares to maximize revenue on each flight - very complex computing problem • Perishable Inventory Management: Value of seat declines as departure approaches - worthless after takeoff, Dynamic pricing • Fleet Mix: Aircraft fleet mix, seating configuration determined by marketing strategy, traffic forecasts, financing capability • Crew scheduling, fuel purchasing/ management

16. Troublesome Airline Business • United Airlines filed bankruptcy protection in Dec 2002 • UA defaulted employee pension • Delta is at the verge of bankruptcy filing • Southwest Airline is doing very well. • Boeing 737 • Fuel hedging (85% of 2005 need at $26/bl, 65% of 2006 needs @$32, and 45% of 2007 needs @$31) • Other factors?

17. Case Studies • Dell Computer • Fast turnaround time • Order to manufacture (minimum inventory) • Minimum inventory and inventory in parts not in finished products –small inventory costs • Since the inventory is kept in parts, impact from technological obsoleteness is minimal. (most parts can be still used.) • Collect payment before the product is built • Estimate 2-month capital cost (float) of the annual revenue of $40 Billion • Virtual Integration

18. Comparing Dell and Ford Supply Chain .

19. Case Studies (continued) • Wal-Mart ($263B annual revenue in 2003: #1 in the Global Fortune 500) • Market Capitalization ($253B out of $377B retail/department store sector in the US: 2002) • Fast Turnaround time using Crossdocking • web.nps.navy.mil/~krgue/Crossdocking/crossdocking.html • web.nps.navy.mil/~krgue/Crossdocking/Crossdock_Designer/crossdock_designer.html • Advanced information systems (POS to manufacturing) • Vendor managed inventory control

20. Wal-Mart (Resulting Benefits) • Inventory at retail stores turned over twice a week (Industry averages once every two weeks) • Improved targeting of products to markets • Higher sales per square foot than competitors

21. forecast forecast forecast forecast time time time time Bullwhip Effect • Demand Forecast Updating - Forecast Error Compounding • Example: Pampers WalMart P&G - Dist P&G - Fact 3M - Supplier

22. The Bullwhip Effect in Supply Chains Amplification of uncertainty as you move up the supply chain

23. Logistics Information Systems • RFID combined with GPS and INTERNET • Total Asset Visibility (TAV), Real-time visibility - at any time anyone in the chain can identify where inventory is, its exact location, and if it is promised to a customer. • Instant access and writeable tags allow for instantaneous redirection of supplies should more critical needs arise elsewhere. Changing shipping instructions midstream will save time and money for all parties involved.

24. TAV via RF/GPS/Internet (from www.savi.com)

25. “I found my shipment” In-Transit Visibility-ITV Radio Frequency Identification Satellite Interrogator Writes to Tag Reads Tag Number En-route to Destination Tag Phone Uploads Data To Server Imports TCACCIS Source Shipment Data, Writes Data to Tag, Reads Tag Numbers En-route Local Area Network Regional ITV Server User Queries WWW for Multiple Data Requirements Multiple write and read stations world wide

26. In-Transit Visibility LOGSA GTN JTAV Regional ITV Database Server • User/STAMIS: • Access to stored tag data, queries on shipment status, geographical depiction of tag/interrogator location and status • Real time updates from TIPS via LAN, modem satellite.

27. Example GTN JTAV LOGSA Provides data to Korea Web site European Web Site Replicates Replicates Data to/from Europe Data to/from Korea CONUS Based Server Korean Regional Server European Regional Server PACOM JTAVN EUCOM JTAVN RF Data Flows to the Server from CONUS Sites

28. What is RFID? • Refers to the technology that uses devices attached to objects that transmit data via radio waves (RF) to a receiver to identify, categorize, and track movable items. • These devices can be large pieces of hardware the size of a small book like those attached to ocean containers or very small devices inserted into a label on a package. • RFID has advantages over bar codes such as the ability to hold more data, the ability to change the stored data as processing occurs, does not require line-of-sight to transfer data and is very effective in harsh environments where bar code labels won't work

29. History of RFID • 1940s British develop system of Identification Friend or Foe (IFF) to distinguish between friendly and enemy aircraft • 1970s Raytheon develops “Raytag”; first use of animal tagging to track migration pattern • 1980s First commercial application for RFID in electronic toll collection • 1990s US states adopt electronic toll collection; DoD pilot program for “SMART” ID cards • Present - Wal-Mart mandates its top 100 suppliers to fully support RFID inventory tracking by January 2005

30. Commercial Applications • Toll Collection, subway ticket (Singapore has the most advanced RF tracking and toll collection system). • Auto Industry – Michelin Tires, Toyota Prius, Speed Pass • Hospital Industry – “Tagging” Patients, critical pieces of equipment • Shipping Industry – Container tracking and Inventory Management • Airline Industry – baggage tag • Theme parks – child tracking, ski lift

31. Current DoD Policy • 23 Oct 2003 DoD established the “RFID policy” requiring suppliers to put passive RFID tags on material contracted after 1 Oct 2004 and/or delivered by 1 January 2005. • Current guidance dictates that all cases and pallets will be tagged with passive RFID, as well as individual pieces in excess of $5000. • All containers being shipped outside of the continental United States must have active (battery-powered) tags with the contents of the container written into them at the point of origin. • Beginning in FY07 and beyond, only RFID capable AIT peripherals and logistics information systems will be acquired • USTRANSCOM directed to create RFID infrastructure at designated strategic CONUS and OCONUS aerial and sea ports.

32. Applications: • Inventory, warehousing and property management, • control of equipment and spare parts at maintenance/repair/tracking facilities, • control of entry and exit points of military facilities and roadside installations via personal ID/biometrics, • control of transactions at custody exchange points, • military transportation community (i.e., seaports and air terminals) • handling of hazmat • control of military convoys • Asset identification and tracking • Store historical maintenance data on asset itself • Store pubs pertaining to the item

33. . 2D DataMatrix InfoDot • Each InfoDot label is laser-engraved with a unique two-dimensional DataMatrix bar code that can be applied directly to any part . Works like a license plate, it "links" a specific tagged asset to a data file that contains a wealth of information about that particular item. • Greatly reduce parts chasing throughout the system, • Reduce parts that are misplaced, or out of line of sight, by marking position via RF Primary use Part identification, consumables and Depot Level Repairables

34. . Unidentified frustrated material What is all of this? If items had an InfoDot attached to them, the following item when scanned would yield the following information (see next page)

35. . Part No: 9852654-A75 NSN: 7RH 1650-01-420-1348 Nomen: Gear Assembly Application: F/A-18C-D S/N: RL521664 Unit Cost: $98,000.00 EA MFG: Rolls-Royce Gears Div. MFG Code: 56854 SM&R Code: PAODD MFG Date: 23 Nov 2003 Shelf Life code: N/A Contract No: N00244-02-D-0100 Batch No: Feb 2003 5000A2 Warranty: Expires 23 Nov 2004 For warranty repairs ship to: Rolls-Royce gear systems C/O warranty services 123 Aviation industry way Montebello, CA 90640

36. Military Medical Applications. • Tracking the status and location of hundreds of wounded soldiers, prisoners of war, refugees and others arriving for treatment at the Pensacola Fleet Hospital in Iraq. • Use Smart Band® Wristbands • The wristband travels with wounded soldiers, and data can be read by RFID- handheld devices. The chips also allow doctors to add, change or create new triage records on the chip. A major problem in battlefield medicine is "losing a clipboard or a chart" when transferring wounded soldiers from one location to another. • Pharmaceuticals • Avoid giving wrong medicines to patients

37. Future Applications Smart Dust- Deployed by Small UAV Detect motion of passing vehicles Relay Data (Speed & Direction) to UAV Current size is 5mm but expected to drop below 1mm

38. Future Applications Implantable Tags Medical Records Identification Secure Areas Remains Weapons Control Vehicle Identification Enhance issue and retrograde of equipment Blue force tracking Battlefield visibility Reduce Fratricide

39. RFID

44. Future Concerns • Vehicle Tags Susceptibility to jamming Worse yet, enemy tracking • Implantable Chips Privacy Issues Security of Data • Smart Dust Cost ($50-$100) today Possibly drop to $1 within 5 Years

45. Future Concerns • Standardization (WalMart has about 10,000 suppliers – the DoD has over 42,000.) • Dual use of RFID and barcode for the next many years. • Heavy reliance on INTERNET access • Different success in CONUS vice when deployed • Bandwidth and comm gear requirements when deployed • infrastructure and connectivity • During OIF, INTERNET connectivity for many units was sorely lacking, which would greatly diminish the utility of the RFID/INTERNET TAV. • Ability of enemy to pinpoint us/our gear by their ability to access INTERNET/RFID assets…

46. References • www.rfidjournal.com/article/articleview/856/1/1 • www.rfidjournal.com/article/articleview/1080/1/1 • www.savi.com/rfid/RFIDOrdGuide1-12.html#1024619 • embedded.com/shared/printableArticle.jhtml?articleID=10700142 • www.epcglobalinc.org/

47. Concluding Remarks • Importance of Human Resources • Education and Continuing Education • Language, math and science • Global thinking • English language education for global market place • Need for linguists (language and culture)