System Dynamics Modelling to Study the Effects of Investment in Information Technology on Logistics Performance: A Case Study from India

System Dynamics Modelling to Study the Effects of Investment in Information Technology on Logistics Performance: A Case Study from India

Amrita Jhawar (Delhi Technological University, India) and S.K. Garg (Delhi Technological University, India)
Copyright: © 2016 |Pages: 22
DOI: 10.4018/IJSDA.2016040102


In this era of globalization, adoption of information technology (IT) is one of the critical contributing factors of logistics companies' competitiveness and growth. This paper investigates the investment in IT by an Indian based logistics company on the logistics performance. Technologies like RFID, EDI, GPS/GIS and ERP are chosen for improving processes like tracking and tracing, planning and forecasting, transportation automation, coordination with suppliers and customers and decision optimization. Simulations are carried out using system dynamics modelling and scenarios are generated. Through 15% investment in RFID, 30% investment in EDI, 15% investment in GPS and 40% investment in ERP of the total investment amount, the logistics cost reduced by 0.21%, delivery time reduced by 0.17%, reliability of services improved by 4.61%, flexibility improved by 5.52% and safety improved by 5.8% leading to an 0.52% improvement in LPI and 0.049% improvement in profit.
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1. Introduction

Many studies since 1990s suggest the important role information technology plays in enhancing the effectiveness and efficiency of logistics management (Introna, 1991; Hammant, 1995; Closs, 1997; Loebbeck and Powell, 1998). Timely, accurate, well managed and shared information is a valuable logistics resource and plays a very important role to enhance logistics competitiveness. Logistics competitiveness is an important factor in determining the competitiveness of nations and industries and to compete in todays’ environment, IT tools are a necessity, no matter the size of the organization.

The logistics cost of India is around 13-14% of GDP, which is much higher than Europe (10%), US (9%) and Japan (11%) (Deloitte, 2012). The main reasons for the high costs are low rate of technology adoption along with poor infrastructure and complex government regulations. The emerging market survey 2011 conducted by Transport Intelligence, highlights India’s attractiveness as a strong growth area for logistics in future and emerging as a major logistics hub (Deloitte, 2012). And as information is a valuable logistics resource, adoption and successful implementation of IT is said to be a pre requisite for logistics success (Closs et al., 1997).

The Indian logistics industry spends hardly 0.3% of its revenues on ICT as compared to 2-3% in developed countries and the need of the hour is 4-5% of revenues need to be ploughed back in ICT to advance quickly and generate competitive advantage (Srivastav and Chandra, 2013). Figure 1, shows the overall trend of investment in information technology by the Indian logistics players in the year 2010. As shown in Figure 1, almost 50% of the players are investing less than ten lakh rupees and only 2.58% are investing more than 1 crore rupees. Use of IT will help in reduction in costs, decrease in inventories, better space utilization, accelerate receiving and inspection of deliveries and easy transportation of items faultlessly as per customer preferences to achieve competitive advantage.

Figure 1.

Investment in IT by Indian logistics players in 2009 (Source: Softlink (2009))


Logistics requires high level of organizational and inter-organizational communication systems such as radio frequency identification (RFID), electronic data interchange (EDI) and Enterprise Resource Planning (ERP) at various levels of the logistics chain for better coordination, planning and decision optimization. For automatic tracking of vehicles, freight, containers etc. including location, speed and time can be measured with the help of global positioning system (GPS). And this information can be correctively used by geographic information system (GIS) for corrective actions. Although, there are innumerable technologies being used, the authors have considered the above mentioned five technologies to be studied further in this study.

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