Professional Documents
Culture Documents
C12/60275/09
..
EGERON UNIVERSITY
NOVEMBER 2012
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Transportation involves the physical movement or flow of goods. The transportation system is
the physical link that connects customers, raw material, suppliers, plants, warehouses and
channel members. These are the fixed points in a logistics supply chain. The basic modes of
transportation are water, rail, motor carrier, air and pipeline (Gale, 2009). On the other hand
logistics was defined by Council of Supply Chain Management Professionals (1991) as part of
the supply chain process that plans, implements, and controls the efficient, effective forward
and reverses flow and storage of goods, services, and related information between the point of
origin and the point of consumption in order to meet customers requirements . Thus transport
and logistics service companies are companies which are involved in the movement of goods,
raw materials and parcels between customers, suppliers, plants and warehouses, while ensuring
efficiency in the process (Winston and Goldberg, 2004).
Transport and logistics services companies have been on the rise over the past decade. Peter
Drucker (1960) identified logistics as a growing concern within business operations. This may
be attributed to the continued need for transportation of materials as a result of the increase in
the number of manufacturing, wholesale and retail businesses and sending of parcels amongst
people. This has triggered stiff competition among the companies in this industry as each one of
the competitors jostle for customers with other industry players, with the objective of staying
ahead of competition (Fulani and Abumere, 1993)
Transport and logistics companies have thus been forced to be ever on the lookout for ways,
means and techniques which they could leverage on to wade off competition, and continue to
excel in their operations. Many companies are turning to the use of management science tools,
to help them have an edge over their competitors (Bowersox, Closs, & Cooper, 2010)
Management science tools are a collection of techniques and concepts, which have been
developed with an aim of improving the efficiency and effectiveness of operations in
organizations. Some of the management science tools which have been developed include: Justin-time concept, management information system, transportation models, sharing of capacity
2
Management Information Systems (MIS) encompass the use of computers, internet and
Database Management System (DBMS) which allows for the storage of the contacts of
customers, Customer Relationship Management (CRM) which improves communication with
customers and prompt response to their queries, Transaction Processing System (TPS) which
provides information about daily transactions in the business, Knowledge management systems
which enable organizations to better manage processes for capturing and applying knowledge and
expertise (Laudon and Laudon, 2010). Enterprise systems which are used to bridge the
communication gap between all departments and all users of information within a company.
3
Decision Support System (DSS) which helps in collecting market intelligence and provide realtime data for decision making, Executive Support System (ESS) which provides all the
information needed by the top echelon of the organization to make strategic decisions regarding
the direction of the organisation. Laudon and Laudon (2010) identify five eras of MIS evolution
corresponding to five phases in the development of computing technology: mainframe and
minicomputer computing, personal computers, client/server networks, enterprise computing,
and cloud computing.
Management information systems and transportation model(s) when applied in organizations
operations have the ability to confer myriad benefits, not the least of which are improved
efficiency, reliability and saving on cost and time. The use of these tools in organizations can be
a game changer in the industry (Laudon and Laudon, 2010; Hiller and Lieberman, 2000).
However, with the high skepticism among managers regarding the use of these tools (AIBUMA
conference, 2012),
performance in the organizations that have adopted them and help dispel this notion regarding
their viability, by bringing to light the extent to which these tools can improve performance of
organizations
It is thus against this background that we want to investigate the effectiveness of these tools in
enhancing the performance of the three organizations in this study: DHL, Wells Fargo, and G4S.
1.3 Objectives
1.3.1. Main Objective
To investigate the influence of applications of two selected management science tools: transport
models and management information systems on the performance of transportation and logistics
service companies in Nakuru municipality.
1.3.2. Specific Objectives
In respect of DHL, G4S and Wells Fargo transportation and logistics service companies.
Specific objectives are set to:
i. To characterize the transportation model(s) used by the selected transport and logistics
firms.
ii. To characterize management information systems used by the selected transport and
logistics firms.
iii. To investigate the influence of transportation model(s) on time.
iv. To investigate the influence of management information systems on time.
v. To determine the influence of transportation model(s) on cost.
vi. To determine the influence of management information systems on cost.
This study will be undertaken to enable those firms in transportation and logistics service
industry to decide whether or not to apply the management science tools discussed to improve
their performance by enhancing their dependability and reliability and reducing their
operational cost and the time taken.
Finally, the findings of this study will help arouse the interest of students in institutions of
higher learning to pursue Management Science especially in Transportation and Logistics by
researching more on the subject.
CHAPTER TWO
LITERATURE REVIEW
2.1. Introduction
This chapter focuses on the relevant literature to the study in order to acquaint the researcher with
results of other studies relating to this field. It includes review of historical literature and
empirical literature which help in relating the study to the larger ongoing dialogue in the literature
about the study. It highlights different authors and their perspectives in their area of research on
aspects of the effects of use of transportation model(s) and management information systems on
performance.
2.2. Historical and Empirical literature
2.2.1. Transportation model(s)
Transportation model(s) are special purpose algorithms of the linear programming. The
transportation model is concerned with selecting the routes between supply and demand points in
order to minimize costs of transportation subject to constraints of supply at any supply point and
demand at any demand point (http://www.mbaknol.com/management-science/transportation-andassignment-models-in-operations-research/).
According to Golden and Assad (1991), transportation model(s) is synonymous with vehicle
routing. Beasley and Christofides (1997), define vehicle routing as the designing routes for
delivery vehicles which are to operate from a single depot to supply a set of customers with
known locations and known demands for a certain commodity. Routes for the vehicles are
designed to minimize some objective such as cost and the total time taken.
Transportation model(s)/Vehicle routing subject is one that has a long history of systematic study,
the problem first being considered in an academic paper by Dantzig and Ramser published in the
late 1950's on Vehicle routing problem. According to Beasley and Christofides (1997), the subject
has attracted a lot of attention in the academic literature for two basic reasons:
Many methods have been suggested for obtaining optimized route. Rizzoli, Montemanni,
Luceibello and Gambardella (2007) have focused on the Ant Colony Optimization (ACO) on the
Vehicle Routing problem/Transportation model(s) and its real world application. ACO simulates
the behavior of ant colonies in nature as they forage for food and find the most efficient routes
from their nests to food sources. The decision making processes of ants are embedded in the
artificial intelligence algorithm of a group of virtual ants which are used to provide solutions to
the vehicle routing problem. This approach is relevant because it provides solutions to an
important problem in transportation science and the experimental results indicate that the
performance of the technique is competitive with other techniques used to generate solutions to
the Vehicle routing problem. Potvin (1996) has worked on the survey of genetic algorithms in his
study in which he has given simple genetic algorithms and various extensions for solving
Travelling Salesman Problem (TPS). He has worked both on the random and classical problems.
Travelling Salesman Problem (TPS) is one of the most well-known difficult problems of time. A
salesperson must visit n cities, passing through each city only once, beginning from one of the
city that is considered as a base or starting city and returns to it. The cost of the transportation
among the cities is given. The problem is to find the order of minimum cost route that is, the order
of visiting the cities in such a way that the cost is the minimum.
Schabauer, Shikuta and Weishaupl (2005) have worked on to solve travelling salesman problem
heuristically by the parallelization of self-organizing maps on cluster architectures. Larsen (2000)
has worked on the dynamic factors of Vehicle Routing problem/Transportation model(s). He has
investigated the dynamics of Vehicle Routing problem/Transportation model(s) in order to
improve the performances of existing algorithms as well as develop new windows. Homberger
and Gehrig (2005) have worked on Vehicle Routing problem/Transportation models on time
windows. In this they have designed an optical set of routes that will service the entire customers
10
with constraints being taken care of properly. Their objective function minimizes both the total
distance and the number of salesmen being used.
Carter and Ragsdel (2006) have developed a new approach to solve travelling sales problem in
which the method proposes set of chromosomes and related operators for the travelling salesman
problem and compares theoretical properties and computational performance of the proposed
techniques.
Mitrovic-Minic and Krishnamurti (2006) have worked on to find the lower and the upper bound
required for the number of vehicles to serve all the location for multiple salesman problem with
time windows. They have introduced two types of precedence graphs namely the Start time
precedence graphs and the End time precedent graphs. The bounds are generated by covering the
precedence graphs with minimum number of parts. The bounds which are tight and loss are
compared and closeness of such instances was discussed.
Researchers on Vehicle Routing problem/Transportation models have proved that Vehicle
Routing problem/Transportation model(s) are a NP-complete combinatorial optimization
problem. They have theorized that if an algorithm is guaranteed to find the optimal Solution in a
polynomial time for the VRP, then efficient algorithms could also be found for all other NPcomplete problems.
2.2.1.1. Practical Problem for a transportation model
In their journal, International Journal of Engineering Science and Technology, Nallusamy,
Duruiswamy, Dhanalaksmi and Parthian (2009) reviewed a Mathematical structure of Vehicle
Routing problem/Transportation model(s). They wrote that it is a graph where cities are the nodes
of the graph. The connection between pairs of cities are called edges and each edge has a cost or
distance associated with it.
The vehicle routing problem as encountered in practice involves many restrictions on the routes
that delivery vehicles can follow. We can classify these restrictions to a certain extent as relating
either to the vehicles or to the customers. Note here that in any particular case not all of these
restrictions may apply however in thinking generically about the problem it is useful to list all
restrictions that can potentially apply (Beasley, 1997).
2.2.1.1.1. Vehicles
10
11
Each vehicle has a limit (capacity - usually weight and/or volume) on the goods carried, e.g.
tankers delivering to petrol (gasoline) stations are volume limited, buses have a limit on the
number of people legally allowed on board, etc.
Each vehicle has a total working time from departure to arrival back at the depot, typically to
comply with legal restrictions on driver working hours.
Each vehicle has a time period within which it must leave the depot, typically to ensure that space
is available for incoming vehicles to resupply the depot. Each vehicle has a number of time
periods during which it does nothing (driver rest periods). Each vehicle has a cost associated with
its use for deliveries.
2.2.1.1.2. Customers
Each customer has a certain quantity which has to be delivered,
Each customer has a number of time periods during which delivery (and/or collection) can occur
(time windows).
Each customer has an associated visit time (drop time).
Each customer has a set of vehicles which cannot be used for delivery (access restrictions).
Each customer has a priority for delivery (if the vehicles cannot deliver to all the customers).
Typically this might happen due to driver/vehicle unavailability
12
i.
Minimize the number of vehicles used (vehicles, and their associated drivers, are often a
fixed cost)
ii.
Minimize the total distance (or time) travelled (this typically corresponds to variable cost)
iii.
Minimize some combination of number of vehicles used and total distance (or time)
travelled.
The cost of vehicles in the vehicle fleet is often regarded as a fixed cost so that the first objective
above corresponds to the minimization of fixed costs; the second objective above corresponds to
the minimization of the running (or variable) costs; and the third objective above corresponds to
the minimization of total cost (the sum of fixed plus variable cost).
The network diagram can be illustrated as shown below:
13
better manage processes for capturing and applying knowledge and expertise (Laudon and
Laudon, 2010). Knowledge workers are those who promote the creation of new knowledge and
integrate it into the organization.
According to Fugate, Stank and Mentzer (2009), results collected in a logistics operations context
prove the existence of a strong positive relationship between a KMS process and operational and
organizational performance. This view is further proved by Rasula, Vuksic and Stemberger in
their research: The impact of Knowledge management systems on organizational performance.
The model was empirically tested through structural equation modeling on a sample of 329
Slovenian and Croatian companies with 50 or more employees. They concluded that Knowledge
management systems enables an organization to capture, store, distribute and apply knowledge, to
enable it leverage it for strategic benefits, in terms of making well informed decisions, which
enabled them to cut on their operation costs.
2.2.2.2. Enterprise systems
Enterprise systems (also known as enterprise resource planning (ERP) systems) are used to
bridge the communication gap between all departments and all users of information within a
company. According to Chung (2008), Enterprise Resource Planning (ERP) systems are one of
the most significant of the technological advances to emerge during the last decade. ERP provide
13
14
organizations with a set of incorporated application modules that cover most business functions
(Davenport, 2000).
During the last decade, the adoption of ERP systems was clearly one of the most significant
factors in organizational evolution, these days accounting for about 30% of all major evolution
activities in organizations (Davenport, 2000; Herold, Fedor and Caldwell, 2007).
Olson (2004) defined ERP as an industry term for a broad set of activities supported by multimodule application software that helps a manufacturer or other business manage the important
parts of its daily operations, including product planning, purchasing parts, maintaining
inventories, interacting with suppliers, providing customer service, and tracking orders. Waxer
(2006) defined ERP as a broad term for any software application that integrates all business
processes and data into a single system.
As ERPs evolved, they have become more sophisticated in terms integrating a series of modules
in different business functions such as finance and accounting, human resource management, IT,
sales and marketing, manufacturing, and logistics (Shanks, Seddon, and Willcocks 2003; Dery
,Grant, Hall and Wailes , 2005).
The implementation of ERP has been credited, among other things, with reducing procurement
charges, creating highly efficient sales strategies, lowering administration rates, and decreasing
direct and indirect labor expenses (Hunton, Lippincott and Reck, 2003; Gefen and Ragowsky,
2004; Yen and Sheu, 2004; Bergstrm and Stehn, 2005).
Other studies show that ERP implementation has a massive effect on organizational performance
(Hall, 2002).
2.2.2.3. Customer relationship management system.
Customer relationship management (CRM) is a widely implemented model for managing a
companys interactions with customers, clients, and sales prospects. It involves using technology
to organize, automate, and synchronize business processesprincipally sales activities, but also
those for marketing, customer service, and technical support. The overall goals are to find, attract,
and win new clients, service and retain those the company already has, entice former clients to
return,
and
reduce
the
costs
of
marketing
and
client
service
(http://en.wikipedia.org/wiki/Customer_relationship_management).
14
15
15
16
Performance
1. Cost
2. Time: (i) Reliability
2. MIS
(ii) Dependability
16
17
Moderating variable
Source: Researcher.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 .Research design
The research adopted descriptive approach. This is because, the study aim to describe the effect of
transportation model(s) and Management information systems on performance of the selected
transport and logistics service companies. Descriptive research is used to obtain information
concerning the current status of the phenomena to describe what exists, with respect to variables
or conditions in a situation (Mugenda and Mugenda, 1999).
3.2. Target Population
The study focused on DHL, Wells Fargo and G4S transport and logistics service companies in
Nakuru Municipality. The study population was respective employees of DHL, Wells Fargo and
G4S companies. A target population is the total collection of elements about which one wishes to
make some inferences (Mugenda and Mugenda, 1999).
17
18
n ==30% of 35
= 6 employees
= 10 employees
Sample size for G4S:
na =
18
19
20
Nakuru
i.
DHL
ii.
Wells Fargo
iii.
G4S
Eldoret
Kisumu
KEY
20
21
DHL
G4S
Wells Fargo
Source: Researcher
x - ) 2
n 1
21
22
CHAPTER FOUR
NUMBER
OF PERCENTAGE (%)
RESPONDENTS
Expected Responses
100
Received Responses
50
NUMBER
OF PERCENTAGE (%)
RESPONDENTS
Expected Responses
12
100
Received Responses
50
Table 3: G4S
RESPONSES
NUMBER
OF PERCENTAGE (%)
RESPONDENTS
Expected Responses
10
100
Received Responses
80
22
23
Female
DHL
Wells Fargo
G4S
Total
Female
2
1
0
DHL
G4S
Wells Fargo
24
Company
20-24
25-29
30-34
35 and above
DHL
Wells Fargo
G4S
Total
10
Certificate
Diploma
Degree
DHL
Wells Fargo
G4S
1
24
25
Total
Certificate
Diploma
Degree
1.5
1
0.5
0
DHL
Wells Fargo
G4S
DURATION IN YEARS
DHL
WELLS FARGO
25
26
G4S
10
0.17
0.17-0.25
-0.08
0.0064
0.25
0.25-0.25
0.33
0.33-0.25
0.08
0.0064
(x-
Mean=0.25
(x-
)2
X in hours
0.0128
2-1.58
0.42
0.1764
2-1.58
0.42
0.1764
1-1.58
0.58
0.3364
0.5
0.5-1.58
-1.08
1.1664
2-1.58
0.42
0.1764
2-1.58
0.42
0.1764
(x-
(x-
)2
X in hours
26
27
Mean=1.58
2.2084
Table 9: G4S
X in hours
(x-
(x-
(x-
)2
1-0.97
0.03
0.0009
1-0.97
0.03
0.0009
0.75
0.75-
-0.22
0.0484
0.97
1
1-0.97
0.03
0.0009
0.5
0.5-0.97
-0.47
0.2209
1.5
1.5-0.97
0.53
0.2809
1-0.97
0.03
0.0009
27
28
1-0.97
0.03
Mean=0.97
0.0009
0.5547
Total
(x-
(x-
000
000,000
)2
000
600
300
900
116.6667
13611.1189
400
250
650
17777.76889
28
29
133.3333
450
350
800
MEAN
166.6667
27777.78889
783.3333
59166.67668
Total (x)
(x-
(x-
To Kisumu in
To Eldoret
000
in 000
150
80
230
15
225
140
70
210
-5
25
120
100
220
25
130
90
220
25
)2
29
30
100
80
180
-35
1225
150
80
230
15
225
MEAN
215
1750
Total (x)
(x-
(x-
)2
To Kisumu in
To Eldoret
000
in 000
80
70
150
-8.75
76.5625
90
70
160
1.25
1.5625
100
65
165
6.25
39.0625
95
60
155
-3.75
14.0625
80
70
150
-8.75
76.5625
100
65
165
6.25
39.0625
90
70
160
1.25
1.5625
30
31
100
65
165
MEAN
158.75
6.25
39.0625
287.5
n1 = 8
S1=6408.70
x 2 = 215000
n2 =6
S2=18708.30
31
32
(158750 - 215000)
tc =
(6408.70) 2 (18708.30) 2
+
8
6
tc = -7.06069356
Rejection region (-7.06)
Rejection region
-2.179
2.179
n1 = 8
S1=6408.7
32
33
x 2 = 783333.3
n2 =3
S2= 171998.08
(158750 - 783333.3)
tc =
(6408.7) 2 (171998.08) 2
+
8
3
= -6.288
Rejection region (-6.288)
Rejection region
-2.179
2.179
n2 =3
S1= 171998.08
33
34
x 2 = 215000
n2 =6
S2=18708.3
(783333.3 - 215000)
tc =
(171998.08) 2 (18708.3) 2
+
3
6
=5.706
Rejection region
Rejection region(5.706)
-2.179
2.179
Total-Kisumu:
Burnt forest-
G4S
Wells Fargo
DHL
Fuel:
70,000
60,000
53,333.30
Repair:
105,625
48,333.30
20,000
Fuel:
30,000
32,500
21,666.70
Repair:
47500
24,166.70
18,333.30
Total
253,125
165,000
113,333.30
Eldoret
Figure 4
34
35
G4S
48%
Wells Fargo
31%
Average value of goods lost as a result of insecurity along the roads plied.
Table 14
G4S
Wells Fargo
DHL
Nakuru-Kisumu
55,625
59,166.70
16,666.70
Nakuru-Eldoret
23125
27,500
18,333.30
Total
78,750
86,666.70
35000
Figure 5.
35
36
G4S
39%
DHL
43%
G4S
DHL
Wells Fargo
Systems
Transaction
Processing System
Knowledge
management
System
Customer
relationship System
36
37
Database
15
Management
System
4.2.2.2. Means and standard deviations of cost saved when MIS is used in the operations
(x-
450
450-450
400
400-450
-50
2500
500
500-450
50
2500
(x-
Mean=450
(x-
5000
DHL saves an average of ksh. 450,000 with a standard deviation of ksh. 50000 when they use
MIS.
Table 17: Wells Fargo
X in 000 ksh
(x-
400
400-425
-25
625
450
450-425
25
625
500
500-425
75
5625
450
450-425
25
625
350
350-425
-75
5625
400
400-425
-25
625
Mean=425
(x-
(x-
)2
13750
38
500
500-512.5
-12.5
156.25
500
500-512.5
-12.5
156.25
400
400-512.5
-112.5
12656.25
600
600-512.5
112.5
12656.25
500
500-512.5
-12.5
156.25
650
650-512.5
137.5
18906.25
450
450-512.5
-62.5
3906.25
500
500-512.5
-12.5
156.25
(x-
Mean=512.5
(x-
)2
X in 000 ksh
48,750
Standard Deviation=83452.30
Source: Research Data (2012)
G4S saves an average of ksh. 521500 with a standard deviation of ksh. 83452.30
when they use MIS.
.
4.2.2.3. t-test for the difference in cost saved when MIS is used operations:
Between G4S and Wells Fargo:
Ho: There is no significant difference between the cost saved by G4S and that saved by
Wells Fargo when they use MIS in their operations.
38
39
H1: There is a significant difference between the cost saved by G4S and that saved by
Wells Fargo when they use MIS in their operations.
n1 = 8
S1=83452.30
x 2 = 425000
n2 =6
S2=52440.40
(512500 425000)
tc =
(83452.3) 2 (52440.40) 2
+
8
6
tc = 2.400
-2.179
2.179
39
40
Ho: There is no significant difference between the cost saved by G4S and that saved by
DHL when they use MIS in their operations.
H1: There is a significant difference between the cost saved by G4S and that saved by
DHL when they use MIS in their operations.
n1 = 8
x 2 = 450000
n2 =3
S1=83452.30
S2= 50000
(512500 - 450000)
tc =
(83452.30) 2 (50000) 2
+
8
3
= 1.514
Rejection region
Acceptance region
1.514
-2.179
Rejection region
2.179
40
41
4.2.2.4. Means and standard deviations of time saved when MIS is used operations:
Table 8: DHL
(x-
2-2.33
-0.33
0.1089
2-2.33
-0.33
0.1089
3-2.33
0.67
0.4489
(x-
Mean=2.33
(x-
)2
X in hours
0.6667
2-2.67
-0.67
0.4489
2-2.67
-0.67
0.4489
3-2.67
0.33
0.1089
4-2.67
1.33
1.7689
3-2.67
0.33
0.1089
2-2.67
-0.67
0.4489
Mean=2.67
(x-
(x-
)2
X in hours
3.3334
42
Wells Fargo saves an average of 2hours 40.2minutes with a standard deviation of 49 minutes
when they use
Table 9: G4S
X in hours
(x-)
(x- )
(x- )2
3-3.94
-0.94
0.8836
3-3.94
-0.94
0.8836
4.5
4.5-3.94
0.56
0.3136
4-3.94
0.06
0.0036
5-3.94
1.06
1.1236
5-3.94
1.06
1.1236
3-3.94
-0.94
0.8836
4-3.94
0.06
0.0036
Mean=3.94
5.2188
4.2.2.5. t-test for the difference in time saved when MIS is used in operations:
Between G4S and Wells Fargo:
Ho: There is no significant difference between the time saved by G4S and that saved by
Wells Fargo when they use MIS in their operations.
42
43
H1: There is a significant difference between the time saved by G4S and that saved by
Wells Fargo when they use MIS in their operations.
n1 = 8
x 2 = 2.67
n2 =6
S1=0.8634
S2=0.8165
(3.94 - 2.67)
tc =
(0.8634) 2 (0.8165) 2
+
8
6
tc = 2.810
Rejection region (2.810)
Rejection region
-2.179
2.179
43
44
H1: There is a significant difference between the time saved by G4S and that saved by
DHL when they use MIS in their operations.
n1 = 8
x 2 = 2.33
n2 =3
S1=0.8634
S2= 0.5774
(3.94 2.33)
tc =
(0.8634) 2 (0.5774) 2
+
8
3
= 3.562
Rejection region
Rejection region (3.562)
-2.179
2.179
44
45
G4S
Wells Fargo
Very Efficient
Efficient
Table 6
CHAPTER FIVE
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46
47
i.
ii.
All the three firms use the following information systems: Transaction processing system,
Customer relationship Management, Enterprise system, Database Management System
and Knowledge Management System.
iii.
The use of transportation model(s) reduces the transportation time. However, in our study,
the gains are cancelled by significant effect of the moderating variable; the poor state of
the roads.
iv.
v.
vi.
5.3. Conclusion
In light of this research, it is evident that the use of the selected Management Science tools:
Management information systems and transportation model(s) have a positive impact on the
performance of the studied firms.
5.4. Recommendations
Based on the research findings, it is evident that the use of the selected Management Science
tools: Management information systems and transportation model(s) improves performance in
transportation and logistics firms and therefore other firms in the industry should employ them in
their operations.
5.5. Suggestions for further study
The research wishes to make some proposals for further research based on the findings of the
study, to be carried with regard to other Management Science tools.
A replication of the current study should be done on other similar firms to establish if similar
results will be achieved of the findings.
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48
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