The impact of innovative telecommunication technologies on the logistics sector

Table of Contents

List of Abbreviations

1 Introduction
1.1 Nature of the Problem and Objective
1.2 Structure

2 Foundations
2.1 Innovative Technologies
2.2 Telecommunication
2.3 Logistics Chain

3 Innovative Telecommunication Technologies in the Logistics Chain
3.1 Telecommunication via Satellite
3.1.1 Global Positioning System
3.1.2 Universal Mobile Telecommunications System
3.2 Radio Frequency Identification

4 Impact of Innovative Telecommunication Technologies
4.1 Efficiency and Effectiveness
4.2 Costs
4.3 Accuracy
4.4 Safety and Security
4.5 Competitive Advantage

5 Business Insights
5.1 Secure Trade Lane
5.2 Philips Semiconductors

6 Conclusion and Outlook

Bibliography

Appendix

List of Abbreviations

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1 Introduction

1.1 Nature of the Problem and Objective

The role of international trade has been redefined by the emergence and high pace of globalization. The effects are among other things that routes of transportation become longer, product life cycles shorten, and the requisite for the availability of goods and services increases (Christopher, 2005, pp. 207). Keeping this in mind, the logistics in- dustry is one of the fastest growing industries world-wide and benefitted in particular of this shift towards a globalized world. Even though logistics as such has prevailed over a long time, it has been only recently that the industry has received an enormous boost due to the global adherence and new technical developments. It was mainly because of the standardized container that this accretion, and globalization itself, could happen. But also the ‘New Economy’ accelerated this growth to a significant extent by introducing computers and telecommunication media, and thereby established a dynamic, high competitive and world-spanning market. At the same time, companies demand more and more premium solutions from logistic service providers¹ in order to cope with the competitive environment. The importance of the innovative and crucial factor of tele- communication technology (TT) in this specific sector can therefore not be denied. More importantly, it is of significant matter to have an understanding, as well as know- ing how to implement and take advantage of these technologies, in order to gain or maintain a competitive edge over rivaling companies. (Christopher, 2005, p. 9).

The objective of this paper is therefore to describe the impact which modern and innovative TTs can have on the logistics sector. In order to pursue this goal, it is important to focus on three points: the understanding of several TTs which are of use for commercial usage, their effects on logistic issues, and the linkage of these two points to practical examples as they can be found today. Due to the fact that the area of logistics spans a lot of different modalities and areas, like passenger logistics or document logistics, the focus will lie on container cargo shipment, exemplary for the drivers of this industry. In addition, particularly this field of logistics makes already, and has great potential to make, use of TTs for improvements in its field of activity.

1.2 Structure

The three focal points form also the structural set-up of this paper. In the second part, the underlying terminology will be introduced which is necessary for the understanding and clarification of the subsequent parts. In particular, this will include the description of innovative technologies, the logistic chain, and how they relate to each other. The third part will cover the specifications of a selection of TTs which have the character of being modern, innovative, and deployable regarding logistic issues. Furthermore, this section will concentrate on the question at what points they can be deployed in the logistics chain and thereby improve its flow.

In the forth part, the implications of TTs will be carried forward and the impact on busi- ness relevant aspects, like costs or efficiency and effectiveness, will be outlined. The fifth part brings together what has been discussed in the previous points and links these two aspects, innovative TTs and their impact on the logistic chain, to practical examples as they can be found in corporate life today. Two examples from the company International Business Machines (IBM) will serve to shape this part essentially in rela- tion to practice.

Finally, the last section is dedicated to a conclusion and outlook on TTs in order to round off this paper.

2 Foundations

2.1 Innovative Technologies

What is considered to be innovative; respectively, what distinguishes an innovative technology from a regular, non-innovative, technology? According to Joseph Schumpe- ter, innovation is based on economic and technological improvement. However, the new combination or alteration of existing production factors or processes can, from a busi- ness perspective, also constitute innovative character for a company. It should also be noticed that there is a great distinction between invention and innovation. Schumpeter states in this regard that an innovation is the successful penetration of a technical or organizational improvement - the invention alone is due to its missing successful achievement not enough.

For example, the invention of the internet became an innovative technology in commer- cial and private life only at that point when people began to use, work and play on it.

Making it possible to read news on the internet, however, was only a subsequent step after the initial invention and innovation of the internet has taken place and can there- fore not be considered to be a fully innovative technology (Schumpeter, 1912/2006, pp. 22).

One must also distinguish between the appearance and origin of an innovation. Copying or taking over technologies for ones own products may look from the outside as innovative; the source origins however from another party. The outcome is called plagiarism. BMW has, for example, recently accused Shuanghuan, respectively China Automobile Deutschland who is its importer, of having copied an earlier version of the BMW offroad vehicle X5 (“BMW attaque,” 2007).

2.2 Telecommunication

Telecommunication is a broad expression for the exchange of information over a longer distance normally transmitted via electromagnetic waves. Yet, the context in which telecommunication is used in this paper is drawn upon the thought of digital and virtual transmission of information using electronic devices (Torkzadeh, & Wong, 1992). The transformation of our society towards a knowledge- and information-oriented one opened up a great need and a great variety of ways for transmitting information. Therefore, the discussed TTs in chapter three are only a selective, business-relevant, and exemplary assortment for the telecommunication industry of today.

2.3 Logistics Chain

The term logistics chain is not determined in one general accepted definition, but it ra- ther contains several aspects that lead to its meaning. As Waters (2007) points out, the supply chain, namely “the series of activities and organizations that materials - both tangible and intangible - move through on their journey from initial suppliers to final customers” (p. 2), represents the frame in which the logistics chain is residing. Logistics itself is characterized as the functional aspect of a company dealing with the movement of those materials through the supply chain. Consequently, the logistics chain is con- cerned with the smooth material flow in an organization, as well as ensuring the flow among other preceding and subsequent organizations, like manufacturers or suppliers, distributers, shipping companies, or retailers.

Thus, the aspect of the logistics chain as a holistic, embedded function in a network of organizations needs to be highlighted in order to confine the logistics chain to the isolated function of transport logistics, for example (Vahrenkamp, 2005, p.14). Nevertheless, the modalities of the transport logistics (transportation by the means of vessel, airplane, train, or truck) take in a significant role in the logistics chain.

After the underlying terminology has been defined and explained, the connection be- tween these points needs to be brought together. Innovative technologies can serve for leveraging existing logistics chain operations by supplementing and improving them. They may open up new possibilities to ensure and add value beyond the idea of the effi- cient flow of materials. In the following parts, more specific innovative technologies, namely the TTs, are being introduced, and its potential and role in the logistics chain discussed.

3 Innovative Telecommunication Technologies in the Logistics

Based on the understanding of the previous chapter, this part aims to introduce and discuss the various TTs in accordance with a self-developed framework which illustrates where in the logistics industry, or, in a narrower sense, where in the logistics chain these TTs can come into operation. Exhibit 1 provides this illustration on p. 19. On the top, the various steps in the logistics chain are displayed. Beneath it, the multiple application areas for the following TTs are shown.

3.1 Telecommunication via Satellite

3.1.1 Global Positioning System

The Global Positioning System (GPS) is a technology based on a satellite system which has the main purpose of offering information about the coordinates (longitude and lati- tude) of a geographic location to devices that operate on it. However, the starting point for the GPS development lies in the US American military and therefore only allows the provision of coordinates within a specific tolerance area for civil and commercial use. On the other hand, GPS-based devices have well-established the display of direction readings, calculation of distances, as well as the indication of velocity of the attached object.

For the logistics area, GPS conduce to both, navigation of vehicles and cargo tracking and tracing. The uniqueness of this technology lies in the global reach and coverage. Unlike other TTs, GPS can follow up on a transponder anywhere on earth as long as it is located in a GPS-viable environment (Davis, 2005, p. 136).

A successor of this technology, namely the Galileo satellite system is about to tie in with the GPS, but won’t be introduced before 2008. Its purpose is to improve GPS in terms of quality of accessibility (number of simultaneously accessible satellites) as well as accuracy (the radius in which the coordinates of a location is given) (Moudrak et al., 2005).

3.1.2 Universal Mobile Telecommunications System

The Universal Mobile Telecommunications System, or UMTS, is a fairly new technolo- gy which belongs to the so-called 3G (third generation) technologies in the mobile radio industry. It is a mobile radio standard which allows higher data transmission rate com- pared to first and second generation technologies, like GSM. The uniqueness of UMTS, however, is its potential to provide new possibilities of multimedia communication by allowing higher interaction among other technologies, like Bluetooth, or Infrared. Te- lematics services, in connection with GSM for example, can be offered with a higher quality if transmission takes place via UMTS. Therefore, UMTS offers also great poten- tial for the usage in the logistics sector which is meanwhile commonly based on GPS data transfer (UMTS-Report, 2003).

3.2 Radio Frequency Identification

Radio Frequency Identification, or RFID, is probably the most recent and most captivat- ing emerging technology which supplements or substitutes existing conventional bar- code technology for automated identification, tracking and tracing purposes. The idea behind this technology is to minimize the effort and involvement performed by human personnel which is needed in the process of identifying inventory or cargo. The most significant difference to traditional printed barcodes is the ability of RFID tags to store and retrieve several types of data. Hence this technology goes beyond providing exclu- sively an identification number as it is the case with traditional barcodes. Apart from that, they allow a greater range at which the tags can be read, as well as the advantage of the scanning person not having to be in sight in order to obtain the information (Asif & Mandviwalla, 2005).

In general, there are two types of RFID tags - passive and active ones. Passive tags pri- marily serve to simplify the accurate, efficient and freehand retrieval of shipment in- formation in order to improve item visibility (United States Government Accountability Office, 2005).

Since 2005, Wal-Mart, for example, requires from its top 100 suppliers that they deliver goods tagged with RFID to three of Wal-Mart’s distribution centers. Even though, the tagged goods only refer to the palettes, not the goods themselves, Wal-Mart’s personnel is already able to tell of the shipments what is contained inside, the quantity, or when it has been shipped, for instance (Ferguson, 2005). The main purpose of this undertaking is, however, to get hold of inventory management, while eschewing stock-outs which would result in unnecessary costs for Wal-Mart (Tierney, 2004).

Active RFID tags, on the other hand, are intended to provide the RFID using party with nearly real-time, in-transit visibility of shipments. They possess their own internal power source which actively broadcasts signals. As indicated in the framework, their use exists primarily in in-transit visibility issues.

Even though, this technology promises a lot of advantages, as well as the option for reusability, there are also several drawbacks related to it. First of all, and most impor- tantly, the costs are still too high to promise extensive and cost-effective operational adaption.

Secondly, there is no (global) standardization and certification in place, as for example done by the International Organization for Standardization (ISO).

Finally, there is the question of the interference in privacy infringements. Even with new (generation two) RFID tags, sensible personal information that is stored will be (unaware of the affected individual) vulnerable to external abuse. This can come about to the point that customers’ shopping behavior, for example, will be entirely monitored by selling companies or other institutions (Bischoff, 2007).

The corporate intention so far, and in particular the field of application in the logistics chain of RFID technology, is that tags can provide asset visibility. That means to find out where a good is located at various points in and outside of transit; or where a machine is situated while carrying out a task (Degaspari, 2004).

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¹ They are also called third-party logistics companies. These companies are most typically external suppliers that perform all or part of a company’s logistics function.