gis for logistics service providers

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Review of the use of Geographical Information Systems in the

Marketing and Planning of Logistics Services

Mike Forster

Christian Salvesen Logistics Research Paper no. 3

September 2000


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Executive Summary

Geographical Information Systems (GIS) enable storage, manipulation, analysis anddisplay of geographically referenced data. The rate of growth in the GIS industry hasaccelerated in the 1990s as businesses have adopted GIS to relate different sources of

information to one another through a common geographical reference.

The aim of this paper is to examine opportunities for GIS to add competitive advantage in

marketing and planning for companies on the supply side of logistics. It draws togethermaterial from fourteen interviews with software vendors and logistics service providersand from secondary desk-based research.

The value of GIS lies in enabling users to integrate different sets of data through acommon geographical reference system such as latitude and longitude, eastings and

northings or a common pre-defined geography such as U.K. postcodes. Users can theninterrogate these data based on their geographical relationships and display the results on a

map, in a table or on a chart.

Techincal barriers to the widespread use of GIS in business have been eroded in the 1990sby five factors: reduced cost of computing power; increased availability of digital map

data; availability of software component technology; integration with corporate databases;and growth in use of the Internet for sharing software and data.

Spatial data processing functions are now available under a wide range of different termsincluding desktop mapping, spatial information. spatial resource planning and spatialdecision support as well as geographical information systems. These functions can be

found as part of wider corporate decision support systems.

There are numerous opportunities to exploit geographical relationships in data within

activities in the value chain and to support different levels of logistics decision-making.

Amongst companies providing logistics services the term geographical information

systems (GIS) is either not recognised or considered to include any software capable ofdisplaying digital maps.

The greatest use of software packages with an element, or component, of GIS technologyis at an operational level e.g. routing, scheduling, tracking, tracing or navigation. Lack of

use of GIS packages to support higher-level logistics decision-making may be for a varietyof reasons: a lack of involvement of contract distribution companies in these decisions; theavailability of centralised resources for planning; difficulty in justifying the cost of buyingand supporting a mapping package; the perception by software companies that logistics

services is not a target market.

The greatest use of GIS packages appears in two areas: companies with large numbers of

customers, large networks of facilities and a large geographical spread e.g. express parcelscompanies. Also logistics consultants involved in strategic levels of logistics decision-making.

Given the inherently geographical nature of much of the analysis that supports logisticsdecision-making it is likely that the use of these packages will grow within this sector.


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Acknowledgements

This project has been financed by research sponsorship for the study of transport and logisticsissues from Christian Salvesen plc. The views expressed in the paper are solely the responsibility

of the authors.

I am very grateful to all those managers who participated in the survey.


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Contents

1. INTRODUCTION........................................................................................................................... 1

1 WHAT ARE GEOGRAPHICAL INFORMATION SYSTEMS? ................................................. 2

1.1 DEFINING GIS ............................................................................................................................... 21.2 FUNCTIONS OF A GIS ..................................................................................................................... 3

2 GIS IN BUSINESS................................................................................. ......................................... 6

2.1 THE DEVELOPMENT OF THE GIS MARKET ........................................................................................ 62.2 OPPORTUNITIES FOR GIS IN LOGISTICS ........................................................................................... 82.3 RESEARCH METHOD .................................................................................................................... 11

3 OPPORTUNITIES FOR GIS IN LOGISTICS SERVICE PROVIDERS................................... 12

3.1 THE ROLE OF LOGISTICS SERVICE PROVIDERS IN DECISION-MAKING ............................................... 123.2 MANAGEMENT OF DISTRIBUTION RESOURCES ............................................................................... 123.3 INVOLVEMENT IN HIGHER LEVEL DECISION-MAKING ...................................................................... 14

3.4 LOGISTICS SERVICE PROVIDERS AND MARKETING DECISION-MAKING ............................................. 203.5 AVAILABILITY OF STAFF AND TRAINING ........................................................................................ 20

4 CONCLUSIONS ........................................................................................................................... 22

APPENDIX: SOURCES OF INFORMATION ON GIS...................................................................... 23

TRADE ASSOCIATIONS: ......................................................................................................................... 23PEER REVIEWED ACADEMIC JOURNALS: .................................................................................................. 23TRADE PRESS (AVAILABLE IN THE UK):.................................................................................................. 23WEB BASED MAGAZINES:....................................................................................................................... 23UK CONFERENCE WEB SITES: ................................................................................................................ 23

REFERENCES....................................................................................................................................... 24

Figures and Tables

FIGURE 1AUTOMATED MAPPING ................................................................................................................ 3

FIGURE 2THEMATIC MAPPING .................................................................................................................... 3

FIGURE 3MAP OVERLAY MODELLING......................................................................................................... 3

FIGURE 4SPATIAL QUERY........................................................................................................................... 4

FIGURE 5RASTER AND VECTOR DATA (AFTER WORBOYS, 1995) .................................................................... 5

FIGURE 6. PARAMETERS FOR GIS .............................................................................................................. 19

TABLE 1GIS IN THE VALUE CHAIN. SOURCE: HENDRIKS, 1998...................................................................... 9

TABLE 2A TAXONOMY OF LOGISTICS DECISIONS.SOURCE: MCKINNON1998.................................................. 9

TABLE 3GIS OPPORTUNITIES TO SUPPORT LOGISTICS DECISIONS.......................... ....................................... 10

TABLE 4ACORN GEODEMOGRAPHIC CLASSIFICATION (CACI LIMITED)................................................ 16


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1. Introduction

Information technology (IT) can play a major role in improving efficiency and effectiveness

in logistics processes. Through these improvements IT can provide a competitive

advantage to both users and providers of logistics services. Logistics is inherently concerned

with geographical information: from board level decisions about the location of

manufacturing and warehousing to operational level decisions about the best route for a

vehicle. IT that is specifically designed to work with geographical data offers interesting

possibilities for both users and providers of logistics services.

Geographical Information Systems (GIS) enable storage, manipulation, analysis and display

of geographically referenced data. The GIS industry has developed over the past 30 years

from specialist academic and government roots in cartography, photogrammetry and remote

sensing into a $1.2 billion industry world-wide1. The rate of growth in the GIS industry has

accelerated in the 1990s as businesses have adopted GIS to relate different sources of

information to one another through a common geographical reference.

The aim of this paper is to examine opportunities for GIS to add competitive advantage in

marketing and planning for companies on the supply side of logistics i.e. the companies that

provide logistics services such as contract distribution, freight forwarding, express parcels,

international haulage, short sea and deep sea shipping and all cargo aircraft.


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1 What are Geographical Information Systems?

1.1 Defining GIS

GIS are commonly defined by the processes that are carried out: computer system[s] for

capturing, storing, checking, integrating, manipulating, analysing and displaying data related

to positions on the Earth's surface2. The physical components required to carry out these

processes are illustrated in figure 1. The software is divided into four parts: DBMS

(database management system; graphics system; interface; and operating system). There is

specialist hardware - scanner, plotter and digitiser in addition to the computer and the

graphics workstations. There are data, spatial (map) and attribute (company). Finally, the

system may be linked through a communications network.

Figure 1. The physical components of a GIS. Source: AGI

In practice, the term GIS is often used to mean just the software product that contains the

functions necessary to carry out some, or all, of these processes. Used in this sense,

geographical information systems are primarily commercial products for producing maps.

Their value lies in enabling users to integrate different sets of data through a common

geographical reference system such as latitude and longitude, eastings and northings or a

common pre-defined geography such as U.K. postcodes. Users can then interrogate these

data based on their geographical relationships and display the results on a map, in a table or

on a chart. Well-known GIS products in the UK include ArcInfo and ArcView from

ESRI, GeoMedia from Intergraph, MapInfo Professional from MapInfo Corp and

GeoConcept from GeoConcept SA (distributed by Kingswood Ltd in the UK).


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1.2 Functions of a GIS

The processes of integration and interrogation can be broken down into a number of general

categories. Laurini and Thompson3 have identified ten major tasks for spatial information

systems listed below (figures 1-4 are derived from Laurini and Thompson).

1. Automated mapping: replicating paper maps on computer.

Automated

Mapping

Paper map

Digitized or scanned

Computer plotted map

Figure 1 Automated Mapping

2. Thematic mapping: for instance using customer information and demographic data.

Thematic

Mapping

Statistical areas Number of businesses Symbol map+

Figure 2 Thematic Mapping

3. Map overlay or composite mapping: producing a map from several layers of data.

Map Overlay

Modelling

Map thematic

layers

Combination

Figure 3 Map Overlay Modelling


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4. Spatial querying: obtaining information from a database in response to identification of

particular conditions.

Spatial Query

A

B

C

D

A 101 2

B 54 5

C 496 3

D 44 1

Figure 4 Spatial Query

5. Spatial browsing: exploring the contents of a database in response to identification of

particular conditions.

6. Spatial problem solving: for example deducing inclusions of points in polygons, or for

spatial decision making incorporating both spatial and logical deductive reasoning.

7. Analysis of spatial data: tasks which deal with the attributes of entities, like the average

size of sales territories or the degree to which product sales are related to weather

conditions.

8. Creating spatial statistics: tasks that require measurements of spatial properties of

phenomena, like the total distance travelled by a vehicle on a road network.

9. Analysis of spatial statistics: tasks which treat spatial properties as attributes, for

example the correlation between highway network connectivity and levels of economic

development.

10.Spatial analysis: encompassing tasks, including simulation, which use a variety of tools

of spatial statistics and location-based problem solving.

These tasks define ways in which users make use of spatial data. Tasks are carried out on

spatial and attribute data sets held in a database.

Geographical or spatial digital data is generally in one of two forms: vector or raster (see

figure 5). Vector data is made up of points, lines and polygons (on the right in figure 5).

The location of customers for an express parcels operator could be stored as a set of points,

the road network as a set of lines and the boundaries of depot service areas as a set of

polygons. Raster data takes the form of a grid in which each cell stores a particular value

(on the left in figure 5). Satellite and aerial photographs are in raster format, or paper maps


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that have been digitally scanned. Figure 5 shows that either format can be used to represent

the same data. Both formats have advantages and disadvantages in terms of computer

processing speed and storage space. Most GIS products are able to make use of data in

both formats. The attributes of points, lines, polygons or cells are typically a mixture of

numerical and textual data.

Figure 5 Raster and Vector Data (after Worboys, 19954)

Typically users will buy, or licence, standard geographical, boundary and attribute data sets

and combine these with their own data in a GIS. Major suppliers of digital map data in the

UK include the Ordnance Survey, Bartholomews and the Automobile Association (AA).

There are also a number of companies offering specialist products such as Navigation

Technologies which provide street level maps with navigational attributes or Cities

Revealed which provide aerial photography. A typical set of vector data will include

different layers for the motorway and trunk road network, for towns and cities of different

populations, ports, airports rail way stations, etc. Boundary data sets are supplied from a

number of sources. They can be in the form of hierarchies like electoral districts and wards

(from ONS) or postcode areas, districts and sectors (from Royal Mail), or a single

geography such as television boundary regions. There are also a number of general and

specialist point data sets available such as golf courses, billboards, retail outlets. The

suppliers of these data sets generally distribute through one or more official re-sellers such

as Geoplan, Kingswood, ESRIs DataStore or MapInfos Data Products.


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2 GIS in business

2.1 The development of the GIS market

Until the early 1990s geographical information systems were complex, they used proprietary

database management systems and the components were expensive. The major commercial

uses were to maintain land inventory records for local and national government departments

and utility companies. While there were many proponents of the use of GIS in business cost

and complexity were effective barriers to all but the largest companies. Since the early

1990s these barriers have been eroded by five major enabling factors resulting in the

growing use of GIS, or GIS related software, in business.

First, reductions in the cost of computer hardware and networking technology have given

any company the possibility to operate GIS software. Second, detailed digital map data

have become available for most Western countries. These are complemented by a wide

range of digital data sets available from national statistical organisations and commercial

market research companies (although the cost of these data sets varies from country to

country). Third, software component technology, in particular for Microsoft operating

systems, has enabled the major GIS vendors to supply individual mapping functions in a

form that can be easily incorporated with other packages increasing the number of people

exposed to the potential of mapping software. At the same time the vendors have been able

to integrate their products with established software products providing other functions.

Fourth, companies producing the software used to manage large databases have introduced

products that assist integration of existing corporate databases with GIS. Finally, this

process of integration has been further facilitated by the growth in the use of the Internet as

a common network for sharing software and data.

GIS products have also evolved and new companies have entered the market. GIS vendors

have also recognised the need to reduce, or mask, the complexity of GIS software in order

to appeal to a wide range of business users. This has led to the introduction of software

packages with a limited set of functions, with guidance on how to complete standard tasks

and often integrated with standard sets of map and attribute data5. Most recently Microsoft

have entered the mapping market. Microsoft MapPoint is a part of the MicrosoftOffice suite. It provides users with the ability to combine their data with some commonly

used geographical data sets and produce maps. Maps can be incorporated in document,


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spreadsheets and presentations. Microsoft are offering ease-of-use, key data sets and

limited functionality at a price that is considerably lower than the major desktop mapping

packages for the Microsoft Windows platform.

As the commercial market has developed so vendors of GIS products have moved away

from the original term, GIS, and created a range of alternative descriptions for software

products, such as desktop mapping, spatial information. spatial resource planning and

spatial decision support, in an attempt to differentiate their products from their

competitors and to appeal to new markets. International Data Corporation (IDC), a U.S.

market analysis company, tracks GIS products within what they refer to as the spatial

information management market6.

The analytical tasks performed within GIS products involve non-spatial processes

particularly statistical analysis, optimization, network routing and dynamic positioning.

Software companies can attempt to address a particular business requirement from strength

in spatial or non-spatial processing. They can either buy-in or write additional software to

supplement their main area of expertise. Rather than trying to include all functions in one

package software vendors offer modules, or add-ons, with extra functions or provide users

with the ability to write their own functions in either proprietary or standard programming

languages. There are many products that provide some of the tasks described in section 1.2

and so fall between the extremes of comprehensively featured GIS products and simple

mapping packages. These products often share a common purpose: users need to provide

information to support business decisions7. This shared purpose covers a broad range of

applications such as Enterprise Resource Planning (ERP) or Decision Support Systems

(DSS).

Generally these applications involve a number of software products linked together.

Corporate data are held in database, or data warehouse, products such as Oracle, Informix

or DB2. They are entered either through an interface to support a business process e.g.

orders, or generated from processing within a package e.g. orders delivered on time. This

interface could be a package designed for a particular database, for any database or a set of

custom-built software routines written specially for a company in a particular programming

language8. The interface may be linked to the database on the same physical machine, on a

Local Area Network (LAN) or company intranet, or across the Internet. A user at a


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workstation can retrieve data through software located on the workstation, served across a

LAN, intranet, or the Internet. These data can be analysed and the results presented in the

form of a table, chart or map. The results can be printed in hard copy or disseminated

across a LAN, intranet, or the Internet. The spatial processing tasks constitute a small part

of this system. GIS vendors address the different permutations of system structure by

offering a range of products. For instance MapInfo sell, in addition to their original product

MapInfo Professional: MapX - a software component to integrate mapping in other

products; SpatialWare - software to integrate with database products from Oracle,

Informix and IBM; MapXtreme - a map server for the Internet; and MapXsite -

software to provide Wheres the Nearest capabilities in company web sites.

The result of these developments is that a broad range of software now exists incorporating

some spatial information functionality. Trying to define a GIS market is increasingly

difficult, and, perhaps, increasingly meaningless. A more practical approach to

understanding the potential value of GIS technology is to look at how spatial data can

support decision-making in different areas of business.

2.2 Opportunities for GIS in logisticsAn often-cited statistic in promotional literature on GIS is that 80% of business data has a

geographical element. The implication is that geographical information systems have

relevance and can add value in almost any area of business. Hendriks9 uses using Porters

concept of the value chain to examine where geographical, or spatial, information systems

fit within the information strategy of organisations. He suggests that companies can identify

opportunities within the five primary and four supporting activities of the value chain. His

indication of likely opportunities is shown in table 3.


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Table 1 GIS in the value chain. Source: Hendriks, 1998

ADMINISTRATION & INFRASTRUCTURE: GIS as a tool for strategic planning; as a spatial decision support toolfor asset managementHUMAN RESOURCES MANAGEMENT: Flexible workforce management based on project locationPRODUCT / TECHNOLOGY DEVELOPMENT: Examination of effects of spatialization in process/productPROCUREMENT: fleet management, supply management

INBOUNDLOGISTICS:optimization ofwarehouse usage;

logistics modelling

SALES &MARKETING:GIS as a marketanalysis tool;

simulation ofdispersion of newproducts;target marketingand advertising

SERVICES:route planning;dealer networkmaintenance;

customercomplaints;dispatch;maintenanceforecasting

OPERATIONS:enhancing thespa tial contentof process or

product

OUTBOUNDLOGISTICS:route planning;fleet management;

deliveryassessment

There is a strong logistics focus including route planning, optimisation, modelling, network

maintenance, fleet management and delivery assessment. The spatialization of process or

product might be taken to mean the way in which demand varies geographically. Equally,

enhancing the spatial content of process or product might refer to customisation or

postponement operations although this is not clear. It is possible to divide the potential

logistics opportunities according to the level of decision-making that they support.

McKinnon10 provides a taxonomy of logistics decision making consisting of four levels

shown in table 2. This taxonomy was originally devised to help assess how logistics

decisions affect the demand for road freight transport. Changing transport to

distribution at the bottom level is sufficient to include other functions besides transport.

Table 2 A taxonomy of logistics decisions. Source: McKinnon 1998

Level Description

Logistics structures Numbers, locations and capacity of factories,warehouses and terminals

Pattern of trading links Created by commercial decisions on sourcing,sub-contracting and distribution, and manifest as

a freight network linking a company' premises to

those of its trading partners

Scheduling of product flow The programming of production and distributionoperations translate trading into discrete freight

flows. Adherence to a just-in-time (JIT) regime,

for example, usually requires frequent delivery of

small orders

Management of transport resources Within the framework defined by decisions at the

previous three levels, transport managers stillhave discretion over the use of transport

resources.


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Table 3 places the opportunities that Hendriks sees for GIS in logistics at the level of

decision-making that they support. In addition, alternative descriptions of opportunities,

based on descriptions of existing software, have been added. The table is not intended to be

definitive but to illustrate the fact that opportunities for GIS exist at all levels of decision-

making. For a comprehensive list of software packages to support logistics processes see

the European Logistics Software Guide (Institute of Logistics and Transport, Arthur

Andersen and Cambridge Market Intelligence) now in its 13th edition.

Table 3 GIS opportunities to support logistics decisions.

Level Decision support software

Logistics structures Strategic planning,

Distribution network planning,Asset management,

Performance measurement

Pattern of trading links Supply management,Demand analysis and measurement

Dealer network maintenance

Scheduling of product flow Logistics modellingGoods receipt and despatch

Dispatch

Delivery assessment

Management of transport resources Routing and scheduling

Driver and vehicle performanceFleet management,

Maintenance forecasting,

Optimization of warehouse usage

Warehouse management

Articles in US trade journals suggest that companies are using GIS in logistics. Proctor and

Gamble used MapInfo in combination with optimization software to re-design their facility

location11. Federal Express used ArcInfo and GenaMap to measure service standard

across the U.S.12 and have built a warehouse location model using the Visual Basic

programming language together with ESRIs Map Objects mapping components13. A

recent special edition of the magazine Business Geographics discusses the role of GIS in

supply chains14. Articles in the U.K. are scarce. However, a recent article in Distribution

Business hints at growing interest in GIS in logistics, suggesting that: A quiet revolution is

under way in the use of computer-based mapping and geographic information systems in the

logistics world15


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2.3 Research Method

It is against this background of potential opportunity that a series of interviews was

undertaken to investigate the use of GIS amongst logistics service providers. Given the

range of different possible applications a random survey did not seem appropriate. The first

step was to talk to a four of GIS vendors to establish how they viewed the potential for GIS

in logistics. These companies were also asked if they could provide introductions to

customers who were using GIS for logistics applications. Where possible these

introductions were followed up. At the same time ten logistics service providers and

logistics consultancies were approached for interview separately. While these interviews do

not constitute a sample from which statistical generalisations can be made they do provide

valuable insight into the level of understanding of GIS amongst logistics service providers.

Where companies are making use of GIS the interviews shed light on some of the barriers to

using GIS and benefits that can accrue. The remainder of the paper discusses the

opportunities described above and draws together material from the interviews and from

secondary desk-based research.


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3 Opportunities for GIS in Logistics Service Providers

3.1 The role of Logistics Service Providers in decision-making

Companies providing logistics services are operating as part their clients logistics systems.

In terms of the value chain shown in table 1 they are part of their clients inbound and

outbound logistics. From the perspective of a clients value-chain the opportunities for GIS

to support inbound and outbound logistics depend on the involvement of the service

provider in the clients logistics decisions. From the perspective of the service providers

value-chain, administration, human resources, technology development, procurement, sales

and marketing, services and operations are adding value to the inbound and outbound

logistic services.

The role of logistics service providers has been limited to the lowest level of decision-

making, the management of distribution resources. De-regulation of freight transport,

particularly by road, stimulated the market for outsourcing of freight transport and

warehousing services. Companies that did not see transport as a core activity could remove

the costs of transport assets and labour from their balance sheets. However, outsourcing

also helped to stimulate the market for IT products to support these functions.

3.2 Management of Distribution Resources

There is now an extensive range of software, available for different hardware and operating

systems to support anyone managing warehouses or transport operations. One source in

the UK lists over 100 different software packages that are able to provide routing and

scheduling functions16. While there may be some overlap there are clearly a large number of

routing products that are not classified as GIS. Vendors of routing and scheduling

packages have developed their products, and their geographical interfaces, independently of

the main GIS vendors.

The ability to calculate drive times is a key element of much GIS analysis in business. The

cost benefit analyses for routing and scheduling products should be straight forward to

present in terms of savings in numbers of vehicles and reduced mileage. The cost savings in

the area of operation addressed have to be greater than the cost of purchasing and using the

system. A recent estimate suggests that computerised vehicle routing and scheduling

packages can cut transport costs and distance travelled by between 5 and 10 percent17.


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Despite this, companies have been slow to accept the use of routing and scheduling

packages18. While much effort has been focused on the technical side of routing

applications much less effort appears to have been spent in considering how people

integrate these packages into existing business processes. The management implications

and the impact on other areas of the business are often of greater concern than the use of

the package19. Interviews with logistics service providers confirm that these are still

important issues to be considered in the adoption of new software, particularly with

tracking software.

Research in GIS places routing applications under the umbrella of GIS-T meaning GIS for

transportation. Waters20 provides a detailed description of what a GIS-T software package

might include in addition to standard GIS functions: matrix handling; shortest path

analysis; spatial interaction and gravity models; trip generation-trip attraction. While he

suggests that there are GIS-T software packages that include some, or all, of these

functions (in particular he mentions the TransCad package produced by Caliper

Corporation) he also points out that the package is a combination of GIS and other

software. He also refers to the links between GIS-T and automatic vehicle location systems

(AVLS). AVLS covers a range of related applications that use some form of

communications technology, such as the Global Positioning System (GPS), to track the

location of a vehicle. According to articles in the logistics trade press these systems are

growing in popularity as they offer opportunities for dynamic re-scheduling of vehicles to

take advantage of additional loading opportunities or to avoid areas of congestion21. They

also offer management greater visibility over how their assets are being used. GIS can

provide a visual display of the location of the vehicle. In the UK Isotrak offers a range of

business services to fleet managers based on a combination of technologies that includes

uses the GeoConcept GIS package. Several of the major GIS vendors market modules

or add-ons for their products that provide tracking functionality. However, GIS rarely

forms a part of the marketing literature for tracking products themselves. The mapping

functions are embedded in the package and the visual interface is taken for granted22.

Where logistics appears in GIS vendor marketing it is generally in combination with a

routing and scheduling package or a tracking and tracing system. MapInfo produced a

promotional white paper on Desktop Mapping and Transportation in the U.S23. The main

thrust of the paper is on the links between mapping and routing. More recently ESRI have


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launched a product in the U.S. called ArcLogistics which appears to be a combination of

routing and mapping functions. According to their publicity material it is derived from

work that they carried out with the Sears Group in the US which included the use of GIS to

assist in warehouse operations. The extent to which new entrants to the routing software

market can succeed may depend on their ability to tap into the accumulated experience of

existing software providers in the practical problems of applying routing and scheduling

software in a business environment and of integrating their products with other business

software. In the U.K. Kingswood Ltd. market GeoConcept for use in logistics. They are

also distributors of the Truckstops routing package and re-sellers of AA and NavTech

road data sets.

This marketing focus is perhaps responsible for the common assumption amongst the

logistics service providers interviewed that the terms GIS, geographical information systems

and desktop mapping refer to routing and scheduling or tracking and tracing systems.

Overall, however, there is a general lack of awareness of GIS products. The terms

mentioned above are not generally recognised. A comprehensive survey might reveal that

any software that includes some form of digital map would fall into a common-sense

classification as a GIS. This lack of familiarity of GIS amongst logistics service providers

may be because they are seen by vendors of GIS and Desktop Mapping software as a

market for routing and tracking packages not for site analysis and marketing packages.

Another reason may be because software aimed at supporting this level of decision-making

is functionally oriented. The generic spatial processing capabilities of GIS packages may

not appeal unless they are presented with a functional orientation as in the case of ESRIs

ArcLogistics.

3.3 Involvement in higher level decision-makingService providers do become involved in higher level decision-making in their clients in

certain circumstances. First, in some cases the logistics service provider may build, or lease,

a new facility for a client in which case they will have been involved in decisions at the

logistics structures level. Second, the large contract distribution companies have created

internal consultancy departments to respond to invitations for tender and to support on-

going contracts. Third, there is a trend for clients to use one service provider, a lead

company, to manage relationships with other service providers24

. This may mean that themain service provider becomes involved in decisions affecting scheduling of product flow


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and the pattern of trading links. In these cases the logistics service provider is becoming

involved in distribution network planning.

The nature of decisions at this level is that they involve assessing multiple criteria and

multiple scenarios. Issues of site location are also intrinsically geographical. Senior

management want to assess the performance of the existing distribution network, simulate

the performance of new configurations of the network and consider the impact of new

configurations on their operations. Different logistics service markets have different

requirements. The national freight transport companies, including express parcels, couriers

and freight forwarders, need to run a network of offices to supply their market. The

contract distributors need to understand how their operations fit into the distribution

networks of their clients to produce competitive responses to tenders and to manage change

during the course of a contract. Again, there are over 100 packages already available to

help companies with these tasks25. However, at the level of strategic site analysis there is a

close link to the use of GIS in the business-to-consumer sector.

Site analysis has been one of the major applications of GIS amongst retail businesses. For

introductions to the use of GIS as a market analysis tool see Birkin et al26, or Grimshaw27.

Retailers are concerned with the potential market that an outlet will serve. Location

decisions may be based on experience and personal judgement of an area28. However, the

availability of a large variety of data sets derived from the National Census or business data

on consumers and business derived from market research and credit rating companies

provides an opportunity to test personal intuition or to help focus attention on particular

areas.

For instance, a retail organisation has purchased a set of postcode districts and the

population data for each of those districts. Within the GIS it will define a catchment area

for an outlet usually based on a drive time from the outlet. The company could also define

a catchment in terms of a crow-fly distance or in terms of a standard set of geographical

boundaries such as a postcode. They can then overlay the catchment area on the population

data (a map overlay task) and retrieve information about the total population included in

that catchment (a spatial query task). The GIS examines the boundary of the catchment

area to see which postcode districts fall completely within it and which fall partly within it.

The software returns the total population figures for all of the enclosed and intersected


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postcode districts. The company may then want to see which customers already fall within

the catchment area. If they have the postcode for each of their customers they can link each

customer to a geographical reference point, in this case perhaps the geographical centre of

the postcode in which they are located. This process is known as geocoding. This layer

of customer information can then be super-imposed on the catchment (a map overlay task).

This gives a visual impression of how many existing customers fall within the new

catchment area of the new store.

The company can also make use of geodemographic data. These data sets are derived from

statistical analyses of census data and aim to divide the population into a number of

categories of shared interests, affluence or need. The categories are linked to areas through

electoral or postcode geography. The most popular of these are the ACORN

classification from CACI and MOSAIC from Experian. The principal value of

geodemographic classification in business is that it provides a link between existing

customers living in an area and the total population living in that area. For instance, the

ACORN classification is split into 6 Categories, 16 Groups (shown in table 4) and 56

different Types.

Table 4 ACORN geodemographic classification (CACI Limited)

Category A Thriving Group 1 Wealthy Achievers, Suburban Areas

Group 2 Affluent Greys, Rural Communities

Group 3 Prosperous Pensioners, Retirement Areas

Category B Expanding Group 4 Affluent Executives, Family Areas

Group 5 Well-Off Workers, Family Areas

Category C Rising Group 6 Affluent Urbanities, Town & City Areas

Group 7 Prosperous Professionals, Metropolitan Areas

Group 8 Better- Off Executives, Inner City Areas

Category D Settling Group 9 Comfortable Middle Agers, Mature Home Owning

Areas

Group 10 Skilled Workers, Home Owning Areas

Category E Aspiring Group 11 New Home Owners, Mature Communities

Group 12 White Collar Workers, Better-Off Multi-Ethinc Areas

Category F Striving Group 13 Older People, Less Prosperous Areas

Group 14 Council Estate Residents, Better-Off Homes

Group 15 Council Estate Residents, High Unemployment

Group 16 Council Estate Residents, Greatest Hardship

Group 17 People in Multi-Ethnic, Low-Income Areas

In a given area a business has a certain number of customers in each of these 56 types. The

total population for that area can also be broken down into each of the 56 types. By


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comparing the ACORN profile of the customers with the ACORN profile of the total

population it is possible to see if the customers are over or under represented in particular

ACORN types. If the business infers from this comparison the ACORN types most

likely to be its customers it can also see how many potential customers are in that area and

also focus its marketing on the same ACORN types in other areas. A map is not

necessary for geodemographic profiling but enhances the value geodemographic analysis by

helping the business visualise the results.

These are only a few simple examples of the processes that a company might go through in

using a GIS to support a decision to open a new site close an existing site. In practice,

these simple tasks are repeated many times using a mixture of commercial and company

data. A number of modelling techniques, such as gravity modelling and location-allocation

can be used to derive new data that can be mapped. The procedures can be automated so

that a number of simulations can be run perhaps to suggest a number of new locations, or

examine the effects of changing key criteria such as floor space or product range. Target

marketing activities such as planning direct mail or leaflet drop campaign focus on the

individual rather than the site. However, at the heart of target marketing is the need to

profile and segment both existing and potential customers. Companies carry out these

activities using a mixture of demographics, geodemographics and company data.

For the logistics service industry there is little reason to use geodemographics. There have

been attempts to try and create geodemographic classifications for the business-to-business

sector but the characteristics of businesses are not directly related to geographical location

in the same way that they are for consumers. Companies that are possible exceptions to this

are those involved in home delivery operations or house moving. These companies can

assess likely demand for their services through the customer profiling although whether they

have access to data about the people they are delivering to is not clear.

Another set of GIS related applications has developed around the concept of territory

management where the location of sales staff or service engineers changes. Here the aim is

to create sales territories or service areas that are balanced according to chosen criteria such

as potential sales or clients or equal drive time. The mapping elements of these products are

linked to optimization algorithms. With all of these applications territory management,

retail site location and target marketing the value of the spatial tasks is in providing a


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visual interface and enabling spatial query and browsing. In the case of business-to-

consumer marketing additional value is added through the use of additional demographic

and geodemographic datasets. It is the availability of these data sets that has helped to

stimulate the use of GIS as a market analysis tool.

In the course of the interviews companies using GIS packages confirmed that the visual

interface and the ability to integrate different data sets are the key benefits of a GIS package

for strategic logistics analysis. However, most of the data used by these companies is

internal. Unlike the retail sector there does not appear to be an opportunity to develop

value-added data products from existing national data sets. Alternatively, it may be that no

one has yet tried to develop any such data sets. Where GIS packages are used it is in

conjunction with other packages rather than in direct competition with them. The

availability of GIS functions as software components may improve an original custom-built

map interface in the same way that reporting functions such as Seagates Crystal Reports

improve can improve reporting capabilities for a range of software products. For example,

the Cast-DPM strategic logistics-modelling package from Radical now includes mapping

using ESRIs MapObjects.

In the retail sector the decision to use a GIS requires an assessment of the potential loss in

making a bad site location decision, the extent to which balancing sales territories will lead

to improved sales or better service, or the number of new customers gained through a

marketing campaign. This has to be weighed against the cost of the application, the data

used within it, which often exceeds the price of the software many times, and the cost of the

user to operate the system. The economics favour companies with a large number of retail

outlets e.g. supermarkets, car dealerships, retail arms of banks, a large numbers of

customers or a large number of sales or service staff. This is partly because in smaller

companies it may be as cost effective to carry out some of these tasks manually. It is also

because, typically, the larger companies are able to dedicate staff to the use of the software.

These simple parameters are shown in figure 4.


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Figure 6. Parameters for GIS

In summary, the value of GIS lies in the ability to integrate disparate sets of data, visualise

them in the form of a map and link to software that provides non-spatial functions, such as

optimisation routines. This value is enhanced by the availability of commercial data sets

that enhance internal company data and provide information about potential consumers.

The greater the numbers of customers, sites or service staff the greater the potential value

of using GIS to support business functions. A recent article in Distribution Business alludes

to the value of using a mapping package to help visualise the results of logistics analysis 29.

However, it is hard for companies to put a value on the ability to map corporate data.

In the case of software used to support strategic level logistics decisions the cost-benefit is

difficult to calculate. The cost of making a bad decision must be weighed against the price

High potential forNetwork PlanningLow potential forMarketing

Low potential forNetwork PlanningMarketing

High potential forNetwork PlanningLow potential forMarketing

High potential forMarketingLow potential forNetwork Planning

Large

Small

Small Large

Number of customers

Number

ofsites

High potential forNetwork PlanningLow potential forTerritory Planning

Low potential for

Network PlanningTerritory Planning

High potential forNetwork PlanningTerritory Planning

High potential for

Territory PlanningLow potential forNetwork Planning

Large

Small

Small Large

Number of sales staff / engineers

Numberofsites

High potential forMarketingLow potential forTerritory Planning

Low potential forMarketing

Territory Planning

High potential forNetwork PlanningMarketing

High potential forTerritory Planning

Low potential forMarketing

Large

Small

Small Large

Number of sales staff / engineers

Num

berofcustomers


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of the software and data, and the labour cost in training and use of a piece of software.

Such a calculation may be made harder because the process is likely to involve other

software as well as the GIS. In the case of site location it is easy to suggest that the cost of

a bad decision may run into millions of pounds compared to the cost of a software package

costing thousands of pounds. However, the cost of a bad decision is only a potential loss

not an actual cost as in the case of running 10 trucks when only nine are needed. Choosing

to use a GIS package requires a belief in the overall benefits that may accrue rather than a

straightforward cost benefit analysis.

3.4 Logistics service providers and marketing decision-making

Logistics service providers need to market and sell their services. The way in which they go

about this depends on the nature of the service that they are offering. Peters et al

30

offer aninteresting insight into the sales and marketing process in third party logistics, or contract

distribution, companies. They provide a ranking of the most effective ways of finding new

clients based on responses from the CEOs of major European third party logistics

companies to a survey. Direct mail, the form of marketing most commonly associated with

GIS, is ranked only eighth. The top three most effective ways to find new clients are:

reference from a customer; presentation at a professional meeting; and sales call by a

representative. In the same survey 75% of the CEOs reported that they had fewer than 100customers. It is hard to see the need for GIS to support for the marketing function in

contract distribution companies. Where the number of customers is large the potential is

greater. Domestic and international express parcels companies, freight forwarders and large

hauliers all tend to have large customer bases. It has been suggested that the largest express

operators have gained market share through branding of services and the effective

marketing of these brands31. Companies such as Federal Express, DHL and TNT have

almost become generic terms for express parcels, mail and courier services. One of thecompanies that participated in the interviews is a large express distribution company. They

make use of GIS principally for network planning. However, they also act as a resource for

other departments, including marketing, to use as they need. This maximises the benefits

gained from the use of the package for the company by focusing use on a small group of

expert users.

3.5 Availability of staff and training

Although mapping packages are becoming easier to use they are still by no means simple

software. The arrival of Microsoft MapPoint may change this in the medium to long


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term. However, where GIS or desktop mapping packages are used as analysis tools within

logistics service companies or consultancies, it is by experts who have had an opportunity

to learn to use the product and make regular use of it in their work. In one case it was

suggested that it can take up to three months for a user to become familiar with a package

and effective in its use. The packages may be broadly aimed at a particular function but

they also require creative thought. Users need to understand the concepts behind mapping

packages to be able to use them effectively. It would also be helpful if they understand

some of the basic design issues in the creation of maps. Monmonier32 provides an

interesting perspective on the role of maps as a means of disseminating information in his

book How to Lie with Maps. At least as important, users need to understand the

corporate data that is used in the analysis. Understanding what criteria to use in an analysis

of site profitability or performance comparison is critical to providing meaningful support.

The software vendors run their own training programmes to support particular products.

There are also a growing number of courses in GIS at both undergraduate and postgraduate

level at universities in the UK. As yet there is no UK equivalent to the course advertised by

the Management Development Centre at the University of Tennessee in the use of GIS in

logistics and supply chain planning.


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4 Conclusions

Geographical information systems are available in a variety of forms, generally designed to

appeal to particular industrial markets and for particular functions. The term GIS is used

in a loose fashion to refer to the market for mapping software products and also to a

particular sub-set of this market, complex, high-specification and expensive mapping

software.

Amongst companies providing logistics services the term geographical information

systems (GIS) is either not recognised or considered to include any software capable of

displaying digital maps. The greatest use of software packages with an element, or

component, of GIS technology is at an operational level e.g. routing, scheduling, tracking,

tracing or navigation. Lack of use of GIS packages to support higher-level logistics

decision-making may be for a variety of reasons:

a lack of involvement of contract distribution companies in these decisions;

the availability of centralised resources for planning;

difficulty in justifying the cost of buying and supporting a mapping package;

the perception by software companies that logistics services is not a target market.

Companies may make greater use of GIS tools as: they take on more responsibility for

clients e.g. by becoming lead logistics companies; or are exposed to consultants using

these tools. The greatest use of GIS packages appears in two areas: companies with large

numbers of customers, large networks of facilities and a large geographical spread e.g.

express parcels companies (these companies may have marketing strategies which

encourage the use of GIS for analysis). Also logistics consultants involved in strategiclevels of logistics decision-making.

The ability to map data held in corporate databases assists decision-making but is hard to

value. The cost of software and data is outweighed by importance of proficient users.

However, logistics service providers will become increasingly exposed to GIS technologies

in a variety of forms. Given the inherently geographical nature of much of the analysis that

supports logistics decision-making it is likely that the use of these packages will grow

within this sector.


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Appendix: Sources of Information on GIS

Trade Associations:

Association for Geographical Information (AGI) (http://www.agi.org.uk/)

Peer reviewed academic journals:

International Journal of Geographical Information Science (IJGIS)

Transactions in GIS

Trade press (available in the UK):

GIS Europe

New Perspectives (marketing oriented)

Web based magazines:

GEOPlace.com (http://www.geoplace.com/)Directions (http://www.directionsmag.com/) (marketing oriented)

UK Conference web sites:

Digital Mapping Show (http://www.digitalmappingshow.com/)GIS 99 (http://www.gisexpo.com/)


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References

1 Mapping Awareness, 1999a, GIS Industry, Mapping Awareness, March 1999.2 AGI, 2000, Association for Geographic Information web-site http://www.geo.ed.ac.uk/agidexe/term?271.For a discussion of definitions of GIS see Cowen, D.J., GIS versus CAD versus DBMS: what are thedifferences? inIntroductory readings in Geographic Information Systems D.J. Peuquet and D.F. Marble(eds.), Taylor & Francis, London 1990 and Chrisman, N.R., What does GIS mean? Transactions in GISvol. 3, no. 2, March 19993 Laurini, R. and Thompson, D, 1992, Fundamentals of Spatial information Systems Academic Press,London. p55-574 Worboys, M.F., 1995, GIS A Computing Perspective, Taylor & Francis, London5 For an interesting perspective on how this fits a model followed by all software packages see UserInterface Engineering, Inc. Market MaturityEye For Design Jan/Feb 1997, UIE, Massachusetts (alsoavailable at http://world.std.com/~uieweb/market.htm)6 IDC, 1999,7 Sonnen, D., 2000, http://www.directionsmag.com/article.asp?articleID=328 Sonnen, D., 2000, http://www.directionsmag.com/article.asp?articleID=40

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Distribution Business, Geographic Analysis edges further on to the logistics agenda,DistributionBusiness, issue 7, Oct 9916 Institute of Logistics (Andersen Consulting & CMI) Logistics Software Guide 1999 12th Edition,Cambridge Market Intelligence, London, 199917 National Economic Research Associates (NERA) Motors or Modems. NERA London, 199718 McKinnon, 1989 Physical Distribution Systems chapter 7, Routledge, London19 Eibl, P. 1996 Computerised vehicle routing and scheduling in road transport, Avebury20 Waters, N.M., 1999, Transportation GIS:GIS-T in Longley P., Goodchild M.F., Maguire D.J., RhindD.W. (eds) Geographical Information Systems: Principles, Techniques, Management and Applications, 2nd

edition, Harlow, Longman/New York, john Wiley 7 Sons inc. vol. 2: 827 - 82421 Distribution Business, Tracking and the importance of using the data it provides issue 1, Jan/Feb 200022 Op. Cit. 1423 MapInfo, 1995,Desktop Mapping: Transportation. Mapinfo Corp.24 HIDC, 1998, Worldwide Logistics , The Future of Supply Chain Services, Holland InternationalDistribution Council, The Netherlands25 Op.Cit. 1526 Birkin, M., Clarke,G., Clarke,M. and Wilson,A., 1996, Intelligent GIS: Location Decisions andStrategic Planning. GeoInformation International, Cambridge.27 Grimshaw, D.J., 1999,Bringing Geographical Information Systems into Business, 2nd edition28 Clarke, I and Rowley, J., 1995, A case for spatial decision-support systems in retail location planning,international Journal of Retail & Distribution Managementvol. 23 no. 3: 4-1029 Distribution Business,ITTs are you winning enough?, issue 1, Jan/Feb 200030 Peters, M., Cooper, J., Lieb, R.C., Randall, H.L., 1998, The Third-Party logistics Industry in Europe:Provider Perspectives on the Industrys Current Status and Future Prospects.International Journal ofLogistics vol. 1, no. 1: 9-2631

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gis for logistics service providers

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