The Effect of Information on Supply Chain Management

Bachelor Thesis, 2014

62 Pages, Grade: 1,0


Page of Contents

List of Figures

List of Abbreviations

1. Introduction and Background Information
1.1. Definition of Logistics
1.2. Definition of Supply Chain Management
1.3. Logistics and Supply Chain Management
1.4. Definition of Data and Information

2. Information - A Support of Supply Chain Decision Making
2.1. Information Flows
2.1.1. Push/Pull Principle
2.2. Information Requirements
2.3. Information Value
2.3.1. Cost/Benefit Ratio
2.4. Supply Chain Macro Processes
2.4.1. Information Visibility
2.4.2. Trust
2.5. Conclusion

3. Collaborative Planning, Forecasting, and Replenishment
3.1. Supply Chain Collaborations
3.2. General Information about CPFR
3.3. The Nine-Step CPFR Model
3.3.1. Planning
3.3.2. Forecasting
3.3.3. Replenishment
3.4. The New CPFR Model
3.4.1. Analysis: Performance Assessment
3.5. Benefits of CPFR
3.5.1. Wal-Mart’s CPFR Pilot Project
3.5.2. The Bullwhip Effect
3.6. CPFR Challenges
3.7. Conclusion

4. Information as Technical Tool
4.1. The Emergence of Supply Chain IT
4.2. Data, Information, and Supply Chain IT
4.2.1. Poor Data
4.2.2. Data Processing
4.2.3. Database vs. Data Warehouse
4.2.4. Enterprise Resource Planning
4.2.5. Data as Basic Unit of Information
4.2.6. Data Standardisation
4.3. The Impact of IT on Supply Chain Management
4.4. IT System Selection
4.4.1. Needs Assessment
4.4.2. Make or Buy
4.4.3. Vendor Selection
4.4.4. Align IT Strategy with Business Strategy
4.5. Risk Assessment
4.5.1. Required Business Changes
4.6. Conclusion

5. Warehouse Management Systems
5.1. Inventory
5.2. The Role of Warehouses
5.2.1. Managing Warehouses through WMS
5.2.2. Radio-frequency Identification
5.2.3. Barcodes
5.3. WMS Functionality
5.3.1. Cross-docking
5.4. Selecting and Implementing WMS
5.4.1. WMS Selection
5.4.2. WMS Implementation
5.5. Benefits of WMS
5.6. Problematic Issues
5.7. WMS Future
5.7.1. Cloud Computing
5.7.2. Cloud-based WMS
5.8. Conclusion: Cloud-based WMS and CPFR

6. Final Review

Reference List


Everyday thousands of containers are shipped worldwide in order to fulfil customer orders in time. Nowadays focusing only on domestic markets is no longer an option for achieving long-term business success as global competition forces companies to recognise the need for superior design, planning, operation, and coordination of their supply chain activities. These are strongly supported by the rapid progress of information technologies.

This thesis aims at establishing the importance of information and its effects on supply chain management, thereby pointing out key aspects that technology plays in managing information. It is structured in the following way: The first chapter defines the relevant terminologies helpful in understanding the overall topic. The second chapter moves on to describe in greater detail the effective management of information flows and their relevance for the three supply chain macro processes. Before proceeding to examine information technologies; chapter 3 deals with the collaborative planning, forecasting, and replenishment approach in order to outline a framework for information exchange along the supply chain. In chapter 4 it is then necessary to discuss the impact of information technologies on facilitating the management of supply chain activities and processes. The fifth chapter follows from the previous one by establishing how technology facilitates the physical movement and storage of inventory in warehousing by addressing the most used supply chain software: warehouse management systems. The final chapter summarises the main results of this thesis.


I would first of all like to thank my supervisor, Dr. Wolfgang Meier, for his guidance and help throughout this project, as well as for the support in difficult moments of the project period.


I declare, to the best of my knowledge, that this thesis was composed by myself, that the work contained herein is my own except where due reference has been made in the text.

I certify that this work contains no material which has been accepted for the award of any other degree to any other university or institution.

Cologne, 14 August 2014 A. Bätz

Place, date



The Harvard referencing system was used throughout the thesis.

List of Figures

Figure 1-1: Supply Chain Stages

Figure 2-1: Information Flows

Figure 3-1: Vertical Collaboration

Figure 3-2: Horizontal Collaboration

Figure 3-3: Full Collaboration

Figure 3-4: The Nine-Step CPFR Model

Figure 3-5: The Newer CPFR Model

Figure 3-6: The Bullwhip Effect

Figure 4-1: The Relationship between Database and Data Warehouse

Figure 5-1: WMS Functionality

Figure 5-2: Cross-docking

Figure 5-3: The 2013 Technology Usage Study – Survey Cloud Computing

List of Abbreviations

illustration not visible in this excerpt

1. Introduction and Background Information

This introductory chapter begins by laying out relevant theoretical dimensions to define the terms logistics, supply chain management (SCM), and their relationship. It will then go on to give a brief overview of the terms data, information, and their link.

1.1 Definition of Logistics

“Every time you buy, rent, lease, hire or borrow anything at all, someone has to collect and deliver it to your door. Logistics is the function responsible for this movement”. This broad definition by Waters (2009, p.4) illustrates the significant role logistics plays in day-to-day life – for both individuals and firms.

The first serious analysis of logistics in businesses emerged during the 1950s with focusing on outbound logistics which is the physical distribution of products from the firm out to the customer. Inbound logistics, instead, is the physical movement of parts from suppliers to the firm. These parts are, then, used in manufacturing finished products. Because final products are normally of higher value than their respective raw materials, managers initially zeroed in on outbound logistics (Coyle et al., 2003).

Since the 1990s, however, logistics has become a much more dynamic and important process (Coyle et al., 2003) which centres upon both inbound and outbound logistics (Coyle et al., 2013). It is responsible for planning, implementing, and controlling the efficient and effective movement and storage of goods, services, and information from suppliers to end-users (Chopra et al., 2013). Thus, logistics nowadays involves substantially more than trucks delivering products to customers (Mangan et al., 2012).

Logistics management especially ensures product availability and punctuality throughout the flows of products, services, and related information (Chopra et al., 2013) and, thereby, aims to optimise profitability by an efficient management of costs in the process of filling orders (Christopher, 2011). Common activities may consist of inbound and outbound transportation as well as fleet management, warehousing and stock keeping, materials handling, order and inventory processing, and supply and demand planning (CSCMP, 2014).

In view of all that has been mentioned so far, Mangan et al. (2012, p.9) concludes that “logistics involves getting the right product, in the right way, in the right quantity and the right quality, in the right place at the right time, for the right customer at the right cost”.

1.2 Definition of Supply Chain Management

It is also worth noting that logistics activities were originally treated separately from each other. Yet in the early 1980s firms began to recognise the benefit of integrating those activities – only since then the term SCM was introduced and received attention from businesses worldwide (Mangan et al., 2012).

A supply chain (SC) is a network composed of interdependent members working together with the aim of receiving and filling a customer request. Members include manufacturers, suppliers, transporters, warehouses, wholesalers or distributors, retailers, and customers. SCM refers to managing these parties and organisations directly or indirectly. Supplies, products, funds, information, and service flows ‘move’ through the different organisations – also referred to as stages – in order to create a network. These flows, then, lead to the connection of the various stages of cooperation within the network, both upstream and downstream (Chopra et al., 2013). Upstream concerns inward movements from suppliers; downstream means outward movements to end-users (Waters, 2009).

illustration not visible in this excerpt

Figure 1-1: Supply Chain Stages

This, however, depicts only a regular template of SC stages as each SC is unique and varies according to the products or services produced (Waters, 2009).

What is common for each stage is that it should generate value which contributes to raise overall value generated by the whole network. This value, or surplus, is the difference between the final value a customer places on the product and the effort a SC wields in filling customer requests. Fulfilling customer needs and, thereby, obtaining profit is the first and foremost objective of any SC (Chopra et al., 2013). This view is conclusively supported by Mangan et al. (2012, p.11) who argue that “the purposes of SCM are to create value, enhance efficiency, and satisfy customers”. Therefore, competent management should always keep in mind that the more efficient and productive the SC, the higher is its profit and success potential (Coyle et al., 2013). In order to maximise overall profitability, management through efficient production at lowest possible SC costs follows the objective of creating supplies on which customers place high value (Chopra et al., 2013).

Coming back to the definition of SCM, Christopher (2011) argues that the term ‘supply chain management’ might be replaced by ‘demand network management’ as the chain consists of numerous parties located around the firm being the centre of this network which is ultimately driven by the market; that is, by customers or end users, not suppliers. Therefore, J. Aitken (1998), as cited in Christopher (2011, p.4), suggested that an extended definition of a SC is the following: "A network of connected and interdependent organisations mutually and co-operatively working together to control, manage and improve the flow of materials and information from suppliers to end users".

1.3 Logistics and Supply Chain Management

Having defined what is meant by logistics and SCM, respectively, it is necessary to explain their connection.

Recently, Larson and Halldorsson (2004, cited in Mangan et al., 2012) provided the ‘unionist view’ on logistics: SCM is considered as the wider entity of which logistics is only one part. Thus, logistics is the part of moving materials and information through an organisation which SCM builds on in terms of coordinating processes and activities throughout all stages (Christopher, 2011). That is, logistics is part of the network a SC comprises, but SCMs is “a much wider, intercompany, boundary-spanning concept, than is the case with logistics” (Mangan et al., 2012, p.13).

Nevertheless, logistics activities are crucial for the success of the overall SC. The integration of these activities, however, is an enormous challenge (Coyle et al., 2013). Throughout this paper, the ‘unionist view’ of logistics being part of the overall concept of SCM will be adopted.

1.4 Definition of Data and Information

In addition, it is necessary to clarify exactly what is meant by information in the context of SCM. Information is a commonly-used term playing a vital role in SCM and yet is difficult to define precisely.

The term information is generally understood to be correlated with the concept of data as each is said to influence the other. Data tends to be used to refer to numbers, words, audio, symbols (Davis and Shaw, 2011), dates, images or audio (BBC, 2014a).

Mutch (2008) highlights the need to ensure the quality of data by inspecting its correctness from the beginning to the very end. This might be difficult, due to limitless amounts of data in firms. Nevertheless, defining and specifying the attributes of data in the beginning of a process supports qualitative use and transmission. Furthermore, Mutch reported that not the mass of data is valuable, but the data that reasonably provide an explanation to questions asked. These might vary according to changing environments and conditions, which in turn can change the data requirements as well. Thus, using incorrect or redundant data might lead to wrong results.

Yet, having just data itself does not create any meaning; it has to appear in a certain context such as in a sentence with an underlying structure. Only when data is gathered and put into context can it create meaning (BBC, 2014a).

Once data is structured, it is generally referred to as information. Thus, information can be considered as structured data put into context (BBC, 2014b). This issue was first analysed in detail by Ackoff, who in 1989 (cited in Davis and Shaw, 2011) concluded that data is facts resulting from observing things. It then builds the basis unit for information, meaning information is a collection of data generating knowledge when its essence is interpreted by management. Knowledge is regarded as the capability to understand information consisting of various data and being able to work with it (BBC, 2014c).

2. Information - A Support of Supply Chain Decision Making

This chapter now moves on to describe the importance of information on SCM. It first gives a brief overview of information flows and goes on to identify criteria that information has to fulfil in order to be of good quality. The last section further discusses the relevance of information on the three SC macro processes.

2.1 Information Flows

Vast amounts of data flow through the SC and the amount is growing drastically as more suppliers, customers and products get involved. Information flows have become an increasingly important concern for managers as they connect the entire SC from its beginning to the very end. The more levels information flows through, the more complex it gets and the higher the chance it might be inaccurate (Christopher, 2011).

illustration not visible in this excerpt

Figure 2-1: Information Flows

2.1.1 Push/Pull Principle

These two information flows are also highly relevant for push/pull principles. Push processes are initiated in anticipation of customer orders without knowing actual demand (Coyle et al., 2013). Pull processes, on the other hand, are executed in reaction to a customer order, meaning customer demand is certain (Chopra et al., 2013).

The computer technology manufacturing company “Dell” is a good illustration of how push and pull processes are implemented in SCM. Dell combined the major advantages of both systems - exploiting economies of scale, while still reducing lead time and inventory (Anh and Kaminsky, 2007) – into a so-called push-pull strategy. As Dell’s production is initiated by order placement, manufacturing belongs to the pull-process and is based on a backward flow of information from the market to Dell. However, it builds what it predicts to be the most highly demanded components in advance. This, in conjunction with ordering components and replenishing inventory before arrival of customer orders, represents a push-based system which relies on forward information flows (Moorhead, 2013).

Thus, Dell took advantage of the mass of customers wishing customised computers by combining the two way flow of information. Backward information flows from the market (pull) indicate customer demand and trigger production, yet Dell orders and produces in large volumes according to the integration of forward information flows (push).

This example shows that finding the adequate boundary between push and pull principles allows a company to match supply and demand effectively, providing that information flows from top to bottom and bottom to top to coordinate push and pull.

2.2 Information Requirements

Sweeney (2006) argues that information flows only benefit a company if they are managed effectively because they build the critical foundation for other flows. For instance, money flows are usually associated with a corresponding information flow. Following this, other flows and activities can barely be conducted effectively if information flows are not managed correctly beforehand.

In order to manage information flows effectively, information has to fulfil five requirements, namely accuracy, availability, timeliness, relevance and transferability.

Information accuracy To allow for successful decisions to be made, information should be accurate, that is, it must be correct and truly depict the actual SC state (Chopra et al., 2013). Inaccurate information could lead to replenishment of false inventories, transportation delays, and ultimately dissatisfied customers and higher costs (Coyle et al., 2013).

Information availability Accurate information must be provided on time, when needed, while ensuring easy access to the needed information (Chopra et al., 2013). This need is even increased when data is dispersed among various members employing different information technology (IT) systems (Coyle et al., 2013).

Timely information Information must be based on real-time data, meaning it must be up-to-date, due to daily requirements of current information (Coyle et al., 2013).

Relevant information Apart from having accurate and timely information, it is also crucial to provide important information that is needed in decision making. Thus, management must receive quick access only to information needed in their current situation (Coyle et al., 2013).

Information transfer Information fulfilling previous defined criteria should be shared among the entire SC members in order to align their decisions (Chopra et al., 2013). On that account, data should be easily transferable from one format into another and from one location to another (Coyle et al., 2013).

When all of the above mentioned requirements are met, information should be of good quality.

2.3 Information Value

Mutch (2008) draws our attention back to managing information effectively. He reported that information differs from other resources in terms of its lifecycle: contrary to other assets - as long as filed accurately - information does not deplete or become obsolete; its value might even increase over time.

Information itself, however, does not imply anything about the value which can be created through it. Having a particular piece of information might initially be very valuable, yet soon after it might be considered common knowledge, thus decreasing its value to the firm. In addition to that, valuable decisions may be taken without full and complete information on hand, and on the other hand wrong decisions could be made based on correct information (Mutch, 2008).

2.3.1 Cost/Benefit Ratio

Davis and Shaw (2011) support this view and suggest that information is only useful to management as long as it is valuable as well. To determine the value of information, they highlight the need to undertake a cost-benefit ratio by comparing fixed and variable information costs with information benefits. Fixed information costs include labour, equipment, salaries, and software costs. Since information is to some extent impalpable and limitless, it is difficult to assess its variable costs, including, for example, errors and breakdown costs. Information benefits a firm if it saves time, enhances efficiency and responsiveness, saves costs and leads to a competitive advantage over competitors. When the benefits measured in monetary terms are higher than the costs, information is said to provide value.

2.4 Supply Chain Macro Processes

The final part of this chapter concentrates on the relevance of information flows for the SC macro processes.

The Business Dictionary (2014) provides a thorough definition of a process: “Sequence of interdependent and linked procedures which, at every stage, consume one or more resources (...) to convert inputs (...) into outputs. These outputs then serve as inputs for the next stage until a known goal or end result is reached”. This definition indeed represents the purpose of SC processes which appear between stages involved, ultimately combined to fulfil a customer order.

Chopra et al. (2013) list three main categories of macro processes into which all SC activities and processes can be separated; they focus on downstream, internal, or upstream:

1. Customer relationship management (CRM)
2. Internal supply chain management (ISCM)
3. Supplier relationship management (SRM)

CRM As Coyle et al. (2013, p. 265) point out, the CRM macro process embraces “(...) anything that touches the customer”. It particularly concentrates on downstream activities to generate and repeat customer demand (Waters, 2009) and consists of further micro processes, including marketing, sales, order management, and customer service (Chopra et al., 2013).

ISCM The ISCM macro process then fulfils this customer demand by turning inputs into outputs with the objective of being cost efficient. It comprises order fulfilment, resources planning, and execution systems, such that planned demand and supply levels meet actual customer orders (Chopra et al., 2013).

SRM The SRM macro process includes upstream activities involved in interaction with suppliers. These are, for instance, processes belonging to the selection of suppliers in terms of negotiations, sourcing, and buying (Chopra et al., 2013).

Integration of the macro processes Information flows are the key that enables integration of all activities into the three macro processes. The exchange of important data between the departments that handle the processes fosters coordination and cooperation among them. This is essential for SCM because it does not aim at maximising one firm’s but rather the entire chain’s surplus. Central to the full integration of the macro processes is the concept of information visibility.

2.4.1 Information Visibility

According to Handfield et al. (2009, p.694) information visibility “is the process of sharing critical data (...) in real time between suppliers and customers”. Information visibility along the SC makes sure that all stages’ information is based on the same data (Christopher, 2011).

The role of each SC stage Every SC member should be aware of the potential that information visibility can yield for SC performance. They should recognise the need to work hand in hand to integrate their information from top to bottom, since looking only at internal processes will not help to improve performance across all macro processes. SC members should be aware that they are most of the time involved in all three processes by being a supplier of another party while being a customer for again another party. For instance, the purpose of CRM parties is to be aware of customer behaviour and demand. When planning and designing a new product within the SRM process, CRM information input is essential to improve design according to customer feedback. But the ISCM process is also integrated into the information exchange because internal processes depend highly on the availability of supplies. SRM information about particular supplies should match the actual production levels that are possible at ISCM parties, which in turn should match CRM information on customer demand. Sharing information to make it visible will facilitate this integration and connectivity between the macro processes and related members, so that they can understand the true status of not only their part but what is currently happening everywhere.

2.4.2 Trust

As information is a critical resource its value diminishes if it falls into the wrong hands. Trust is, therefore, of high importance to enable information visibility in the SC.

Handfield et al. (2009, p.123) state that trust “(...) refers to the belief in the character, ability, strength, and truthfulness of another party”. Similar to any other personal or organisational relationship between two or more partners, building trust usually takes time and requires patience from all parties. It is encouraged by being fair to each other, open and honest in giving feedback, and always staying loyal.

The integration of the macro processes is not possible if partners do not trust each other. Only with trust is critical information believed to be secure in the hands of a partner. To mitigate the risk of sharing information, partners should always keep their promises and treat each other in an important and fair way. It has been found that without trust, collaboration and integration tend to result in inefficient performance which leads to higher transaction costs (Coyle et al., 2013). Agreements which clearly state the purpose and value of the relationship and identify the rewards of mutual effort help to reduce the risk of exploiting partners and establish trust.

2.5 Conclusion

This chapter began by describing information flows and arguing that information must fulfil certain requirements. Only then can information be a foundation for successful SC decision making. If one requirement was not met, management’s decision making might fail as well. Eventually, information should provide a benefit that far exceeds its costs.

Returning briefly to the above-mentioned definition of a process, the SC macro processes are interdependent and linked to each other through information flows. This indicates that every SC stage’s information output might serve as input for another stage up- and downstream. The exchange of valuable information should, therefore, be of high priority to SC members. Information visibility also supports the establishment of a single plan which integrates all macro processes’ activities. An implication of this is that emerging issues can be solved before they become severe problems.

If managed effectively, information flows can ultimately be a key driver to optimise overall SC performance with members being aware of the influence of their decisions on other SC stages and processes.

3. Collaborative Planning, Forecasting, and Replenishment

This chapter moves on from the previous one, which described the impact of information sharing on SCM decision making. What follows now is an outline of the collaborative planning, forecasting, and replenishment (CPFR) approach whose success depends on, among other things, the degree of information visibility between trading partners.

3.1 Supply Chain Collaborations

To begin with, the term CPFR shows a need to be explicit about what is meant by collaboration. As was pointed out earlier, firms’ logistical and SCM activities do not happen independently from each other; instead their processes are connected. A collaboration between two or more SC partners can improve this relationship. Coyle et al. (2013, p.115) define collaborations as a “business practice that encourages individual organisations to share information and resources for the benefit of all”. In the end, collaborations are reasonable when all parties perform better than they would if operating independently.

The process of arriving at a mutual beneficial collaboration can, however, be challenging. Firms’ internal goal achievement must be coupled with the interests of the SC collaboration. Initially, firms might think they lose in bargaining power as they exchange information that prior only served their own goal achievements. A collaboration should, therefore, always be a platform of confidential information and decision synchronisation (Derrouiche et al., 2008).

Three types of collaborations exist (Coyle et al, 2013): vertical, horizontal, and full collaboration. These are illustrated below for a simple SC:

illustration not visible in this excerpt

Figure 3-3: Full Collaboration

Vertical collaboration occurs between supply chain stages such as retailers and distributors, whereas horizontal refers to collaborations between firms of the same stage like two retailers. A full collaboration combines both; it embraces vertical and horizontal integration between stages and stage’s members (Coyle et al., 2013).

3.2 General Information about CPFR

CPFR is a framework for vertical collaboration between buyers and sellers in a SC where at least two partners agree to exchange data in order to progress their inventory replenishment (Christopher, 2011). CPFR allows them to decide on a single forecast at item level which builds the information foundation for their decision making and execution plan (Coyle et al., 2013).

Several authors (e.g. Coyle et al., 2013; Derrouiche et al., 2008; Krajewski et al., 2010; Lapide, 2010) refer to the pilot project between Wal-Mart, Warner-Lambert, IBM, SAP, and Manugistics in 1995 as the first project that attempted to implement a CPFR solution. In doing so, they tried to establish standards for how suppliers and buyers could collaborate over the Internet. Based on this, the Voluntary Interindustry Commerce Standards (VICS) Association developed a nine step framework model for CPFR in 1998, as presented in the CPFR Voluntary Guidelines. CPFR is now a registered trademark (Coyle et al., 2013).

3.3 The Nine-Step CPFR Model

CPFR commonly includes nine steps, which fall into three phases - planning, forecasting, and replenishment - which are shown on the next page. This model mainly looks at vertical collaborations between retailers and manufacturers (Georg, 2006).

illustration not visible in this excerpt

Figure 3-4: The Nine-Step CPFR Model

3.3.1 Planning

Front-end agreement The first step of the planning phase involves the development of a necessary tenet agreement (Georg, 2006). This is a general agreement on the business objective of the collaboration and deals with strategic issues like expectations, actions, and resource requirements (Derrouiche et al., 2008). During the agreement, the scope of the collaboration is defined as to which goals are to be achieved and how to measure them (Georg, 2006). This also includes evaluation and review methods, and an arrangement about how to handle disagreements. Partners are to agree on information sharing requirements such as technical systems and organisational resources involved (Bozarth, 2011), a confidentiality agreement on how to treat information (ECR Europe, 2001), and the exact degree of data details to be exchanged when and how often (Georg, 2006). It is essential to establish a long-lasting environment of trust where partners feel secure to exchange critical data. Moreover, the planning time horizon, forecast, and replenishment methods are discussed (Coyle et al., 2013). Afterwards, each partner should be aware of his role, responsibilities, and practical performance in the collaboration (Derrouiche et al., 2008), which will be recorded in a document (Harrison and van Hoek, 2011).

Joint business plan During the second planning step a joint business plan is created which comprises detailed information about specific business strategies (Georg, 2006). Partners exchange details on their business plans to develop a collaborative plan which defines the partnership strategy, roles, objectives, and tactical actions (Derrouiche et al., 2008). The information to be exchanged may include the following: product launches, store openings or closings, promotions and market trends (Fedotov, 2014), shelf space allocation (Bozarth, 2011), buying patterns, and seasonal events (ECR Europe, 2001). Finally, the joint business plan aims at improving the forecast quality with detailed information at item level from both parties (Derrouiche et al., 2008).A


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The Effect of Information on Supply Chain Management
Cologne University of Applied Sciences
Supply Chain Management
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effect, information, supply, chain, management
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Annegret Bätz (Author), 2014, The Effect of Information on Supply Chain Management, Munich, GRIN Verlag,


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