Collaboration : The Key to Responsive Supply Chains 9781846634314, 9781846634307

Citation preview

scm cover (i).qxd

01/05/2007

13:29

Page 1

ISSN 1359-8546

Volume 12 Number 3 2007

Supply Chain Management An International Journal

Collaboration: the key to responsive supply chains Guest Editor: Georgios I. Doukidis

www.emeraldinsight.com

Supply Chain Management: An International Journal Volume 12, Number 3, 2007 ISSN 1359-8546

Collaboration: the key to responsive supply chains Guest Editor: Georgios I. Doukidis

Contents 174

Access this journal online

175

Guest editorial

177

A conceptual framework for supply chain collaboration: empirical evidence from the agri-food industry A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

187

Combining vertical and horizontal collaboration for transport optimisation Robert Mason, Chandra Lalwani and Roger Boughton

200

A study of an augmented CPFR model for the 3C retail industry Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin and Hsu-Chih Hsueh

210

Collaborative supply chain practices and evolving technological approaches Katerina Pramatari

221

Integration of web-based and RFID technology in visualizing logistics operations – a case study Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Access this journal electronically The current and past volumes of this journal are available at: www.emeraldinsight.com/1359-8546.htm You can also search more than 150 additional Emerald journals in Emerald Management Xtra (www.emeraldinsight.com) See page following contents for full details of what your access includes

www.emeraldinsight.com/scm.htm As a subscriber to this journal, you can benefit from instant, electronic access to this title via Emerald Management Xtra. Your access includes a variety of features that increase the value of your journal subscription.

Structured abstracts Emerald structured abstracts provide consistent, clear and informative summaries of the content of the articles, allowing faster evaluation of papers.

How to access this journal electronically

Additional complimentary services available

To benefit from electronic access to this journal, please contact [email protected] A set of login details will then be provided to you. Should you wish to access via IP, please provide these details in your e-mail. Once registration is completed, your institution will have instant access to all articles through the journal’s Table of Contents page at www.emeraldinsight.com/1359-8546.htm More information about the journal is also available at www.emeraldinsight.com/scm.htm Our liberal institution-wide licence allows everyone within your institution to access your journal electronically, making your subscription more cost-effective. Our web site has been designed to provide you with a comprehensive, simple system that needs only minimum administration. Access is available via IP authentication or username and password. Emerald online training services Visit www.emeraldinsight.com/training and take an Emerald online tour to help you get the most from your subscription.

Key features of Emerald electronic journals Automatic permission to make up to 25 copies of individual articles This facility can be used for training purposes, course notes, seminars etc. This only applies to articles of which Emerald owns copyright. For further details visit www.emeraldinsight.com/copyright Online publishing and archiving As well as current volumes of the journal, you can also gain access to past volumes on the internet via Emerald Management Xtra. You can browse or search these databases for relevant articles. Non-article content Material in our journals such as product information, industry trends, company news, conferences, etc. is available online and can be accessed by users. Reference linking Direct links from the journal article references to abstracts of the most influential articles cited. Where possible, this link is to the full text of the article. E-mail an article Allows users to e-mail links to relevant and interesting articles to another computer for later use, reference or printing purposes.

Your access includes a variety of features that add to the functionality and value of your journal subscription: Xtra resources and collections When you register your journal subscription online, you will gain access to Xtra resources for Librarians, Faculty, Authors, Researchers, Deans and Managers. In addition you can access Emerald Collections, which include case studies, book reviews, guru interviews and literature reviews. E-mail alert services These services allow you to be kept up to date with the latest additions to the journal via e-mail, as soon as new material enters the database. Further information about the services available can be found at www.emeraldinsight.com/alerts Emerald Research Connections An online meeting place for the research community where researchers present their own work and interests and seek other researchers for future projects. Register yourself or search our database of researchers at www.emeraldinsight.com/connections

Choice of access Electronic access to this journal is available via a number of channels. Our web site www.emeraldinsight.com is the recommended means of electronic access, as it provides fully searchable and value added access to the complete content of the journal. However, you can also access and search the article content of this journal through the following journal delivery services: EBSCOHost Electronic Journals Service ejournals.ebsco.com Informatics J-Gate www.j-gate.informindia.co.in Ingenta www.ingenta.com Minerva Electronic Online Services www.minerva.at OCLC FirstSearch www.oclc.org/firstsearch SilverLinker www.ovid.com SwetsWise www.swetswise.com

Emerald Customer Support For customer support and technical help contact: E-mail [email protected] Web www.emeraldinsight.com/customercharter Tel +44 (0) 1274 785278 Fax +44 (0) 1274 785201

benefits of collaboration across the total supply chain, and not just from the perspective of an individual company. Associating this to supply chain responsiveness and capability to effectively and efficiently respond to increasing customer needs is another challenge. Past research on the aforementioned aspects of supply chain collaboration tends to be fragmented. Therefore, there is a growing need for solid theory and integrated understanding of the performances, successes, failures, critical issues and motives for supply chain collaboration, in order to advance the theory development and enhance collaborative practices towards more responsive supply chains. The specific issue SCMIJ devoted to this purpose through work in different fields, as demonstrated by the following papers. The issue is a follow-up of the papers presented in the 3rd International Workshop on “Supply-chain management and Information Systems” (Ketikidis and Koh, 2005) that took place in July 2005 in Thessaloniki, Greece. In their paper titled “A conceptual framework for supply chain collaboration: empirical evidence from the agri-food industry”, Matopoulos, Vlachopoulou, Manthou and Manos analyze the concept of supply chain collaboration and provide an overall framework that can be used as a conceptual landmark for further empirical research. They further explore this framework in the context of the agri-food industry, submitting empirical evidence from an exploratory case study at the grower-processor interface involving small mediumsized enterprises (SMEs). Mason, Lalwani and Boughton look into a different sector and in their paper entitled “Combing vertical and horizontal collaboration for transport optimization” examine various collaborative initiatives in the road freight transport industry. Based on a three year action-based research program focusing on transport integration in supply chains, the paper sets out a viewpoint of why logistics and transport managers as well as their customers may need to collaborate and aims to summarize and categorize a range of identified collaborative models that can be adopted to better optimize transport performance. Rather than just presenting a list of collaborative alternatives, the paper shows how the adoption of models which combine both vertical and horizontal collaboration simultaneously can support better optimised transport solutions. Chang, Fu, Lee, Lin and Hsueh select to study the CPFR practice and in their work entitled “A study of an augmented CPFR model for the 3C retail industry” propose and test an augmented collaborative planning, forecasting, and replenishment (A-CPFR) model in a retailer-supplier context in the computer, communication, and consumer (3C) retail industry. Based on the results from a real case presented in the paper, the authors suggest an augmented model which they then validate through simulation, based on measurements of forecasting accuracy, with a view to reducing the “bullwhip effect” in the supply chain. Pramatari, in her paper titled “Collaborative supply chain practices and evolving technological approaches” takes on a technological perspective and examines the enabling role of information technology and how this has evolved in supporting various supply chain collaboration practices. Based on practical evidence from three different case studies, the paper draws interesting conclusions regarding the suitability and criticality of the technological approach used to support collaboration, especially in relation to the use of a web-platform as compared to the classical EDI approach

Guest editorial About the Guest Editor Georgios I. Doukidis is a Professor in Information Systems and Chairman of the Department of Management Science and Technology at the Athens University of Economics and Business (AUEB). He holds an MSc and a PhD in OR/IS from the London School of Economics, where he taught as a lecturer for six years in the Information Systems Department, and currently is a visiting Professor at Brunel University. He has published 12 books and more than 100 papers and has acted as guest editor for the Journal of Operational Research Society, the European Journal of Information Systems, the Journal of Information Technology and the International Journal of Electronic Commerce. He is founder and director of the eBusiness Research Center of AUEB (ELTRUN) which with 30 full-time researchers is one of the largest in European Business Schools that specializes in m-Commerce, digital TV, knowledge management, supply chain management, ebusiness models, digital marketing and IS management. In an academic career spanning 22 years, he has presented various IS scientific papers in more than 120 international and national conferences in 22 different countries and acted as Chairman in the following international conferences: European Conference in Information Systems (1995), International Electronic Commerce Conference (1998), International Conference of the Decision Sciences Institute (1999), International Conference on Mobile Business (2002). His latest book, Consumer Driven Electronic Transformation: Applying New Technologies to Enthuse Consumers, was published by Springer-Verlag in December 2004.

Collaboration is a recent trend in supply chain management that focuses on joint planning, coordination, and process integration between suppliers, customers, and other partners in a supply chain. Its competitive benefits include cost reductions, higher return on assets and increased reliability and responsiveness to market needs. However, it has been reported that supply chain collaboration has proved difficult to implement, both in terms of technologies and information systems involved, but mainly from various other organizational perspectives. Recent advances in information and communication technologies, along with a growing use of strategic partnering and outsourcing relationships, has resulted in a confusing assortment of alternative technological approaches for supporting collaborative supply chain management. Current enterprises lack the theoretical background and tools to effectively assess the various alternatives. On the other hand, during the past years we have witnessed an overreliance on technology and little attention paid to aspects such as trust between trading partners, incentives schemes, or performance measurement. Therefore, there is a growing need for a greater understanding of the elements that make up supply chain collaboration and in particular how the relevant cultural, strategic and implementation elements inter-relate with each other. In addition, there is a growing need for efficient and reliable performance measurement that captures the costs and Supply Chain Management: An International Journal 12/3 (2007) 175–176 q Emerald Group Publishing Limited [ISSN 1359-8546]

175

Guest editorial

Supply Chain Management: An International Journal Volume 12 · Number 3 · 2007 · 175 –176

I would like to thank the 15 referees, for their hard work on reviewing the submitted papers, and Dr L. Koh and Dr P. Ketekidis for their assistance in preparation of the special issue.

and to a distributed-application-architecture supporting RFID-enabled collaboration. Finally, examining a specific technological implementation, the paper titled “Integration of web-based and RFID technology in visualizing logistics operations – a case study” by Chow, Choy and Lee proposes an integrated approach in the development of a web-based logistics information management system (ILIMS) employing RFID technology in logistics processes. The paper reports on an interesting real-life case study and has added-value considering the market that it is targeted at. In particular, the paper has chosen a successful and well-tested IT solution and applied it in a market where advanced logistic processes are still in their infancy.

Georgios I. Doukidis Guest Editor

Reference Ketikidis, P. and Koh, L. (2005), Proceedings of the 3rd International Workshop on Supply Chain Management and Information Systems, Thessaloniki, Greece, July 2005.

Erratum Owing to an error in our submission systems, an article published in Vol. 11 No. 5, 2006 was inadvertently republished in Vol. 12 No. 2. The article is “Enhancing agility by timely sharing of supply information” by Gang Li, Yi Lin, Shouyang Wang and Hong Yan, SCM, Vol. 11 No. 5, pp. 425-35, which should be used for future citations. The repeat article has been removed from the Emerald web site. Emerald sincerely apologises for this error.

176

A conceptual framework for supply chain collaboration: empirical evidence from the agri-food industry A. Matopoulos, M. Vlachopoulou and V. Manthou University of Macedonia, Thessaloniki, Greece, and

B. Manos Aristotle University of Thessalonki, Thessalonki, Greece Abstract Purpose – The purpose of this paper is to analyse the concept of supply chain collaboration and to provide an overall framework that can be used as a conceptual landmark for further empirical research. In addition, the concept is explored in the context of agri-food industry and particularities are identified. Finally, the paper submits empirical evidence from an exploratory case study in the agri-food industry, at the grower-processor interface, and information regarding the way the concept is actually applied in small medium-sized enterprises (SMEs) is presented. Design/methodology/approach – The paper employed case study research by conducting in-depth interviews in the two companies. Findings – Supply chain collaboration concept is of significant importance for the agri-food industry however, some constraints arise due to the nature of industry’s products, and the specific structure of the sector. Subsequently, collaboration in the supply chain is often limited to operational issues and to logistics-related activities. Research limitations/implications – Research is limited to a single case study and further qualitative testing of the conceptual model is needed in order to adjust the model before large scale testing. Practical implications – Case study findings may be transferable to other similar dual relationships at the grower-processor interface. Weaker parts in asymmetric relationships have opportunities to improve their position, altering the dependence balance, by achieving product/process excellence. Originality/value – The paper provides evidence regarding the applicability of the supply chain collaboration concept in the agri-food industry. It takes into consideration not relationships between big multinational companies, but SMEs. Keywords Supply chain management, Channel relationships, Food industry Paper type Research paper

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

efficient data and information exchanges between supply chain members, have been more or less surpassed by the information and communication technology revolution and the development of e-business applications. A number of factors related to the business environment, the specific industry features, and endogenous firm characteristics, may still influence the series of dyadic business relationships, which constitute the supply chain, enabling or deteriorating this way collaboration opportunities. Despite the barriers that potentially deteriorate collaboration among companies for many industries all over the world, collaboration is becoming more of a necessity than an option. Based on existing research on supply chain collaboration, this paper attempts to understand the concept of collaboration and to provide a theoretical landmark to be used by more empirically oriented research. Emphasis is given in the agri-food industry, which is characterized by a number of key and unique characteristics, mainly related to: product features, and the sector’s structure, where collaborative practises developed in response to the economic pressures are driving the evolution of the chain and encourage greater

Supply Chain Management: An International Journal 12/3 (2007) 177– 186 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10.1108/13598540710742491]

The authors would like to thank G. Michalitsos and K. Balatsos, purchasing manager of HC and managing director of BC respectively, for the provision of all the relevant information and data in order to complete the research.

Introduction The recognition, the last decades, of the supply chain as a key and vital field for enterprises’ success, in contrast to the traditional intra-enterprise focus on internal processes, has been a major change and challenge, in the modus operandi of enterprises. In many cases, their ability to compete has been directly linked with their ability to collaborate with other enterprises. Many writers, (Lewis, 1990; Lamming, 1993; Hines, 1994; Gattorna and Walters, 1996; Christopher, 1998; Gunasekaran et al., 2001), have recognised this increased need for collaboration, stressing out the establishment of closer and long-term working relationships even partnerships with suppliers at various levels in the chain, as a way to construct ever more efficient and responsive supply chains, in order to deliver exceptional value to customers. However, collaboration in the supply chain is not always easy to achieve, even when past communication restrictions, regarding

177

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

Figure 1 An overall framework of supply chain collaboration

vertical and horizontal co-ordination. As Cadilhon and Fearne (2005) argue, most of the articles on supply chain collaboration typically focus on large multinational companies, while the agri-food industry, particularly in Europe, is to a great extent an industry dominated by smallmedium sized enterprises (SMEs) (European Commission, 2002). Drawing on this aspect, the paper provides empirical evidence based on a case study conducted at the growerprocessor interface. The companies of the case study are not large multinationals but SMEs, operating in the Greek market. This will offer valuable insights regarding collaboration issues and whether the supply chain collaboration really applies or not in the sector, as well as, the intrinsic difficulties and risks associated to collaboration.

Supply chain collaboration: analysing the concept Collaboration is about organisations and enterprises working together and can be viewed as a concept going beyond normal commercial relationships. It is a departure from the anchor point of discreteness which underlies spot market transactions to a relational exchange, as the roles of supplier and buyer are no longer narrowly defined in terms of the simple transfer of ownership of products (Macneil, 1981). Collaboration appears as enterprises recognise cases where working and operating alone is not sufficient to resolve common problems and to achieve the desired goals (Huxham, 1996; Corbett et al., 1999; Barratt and Oliveira, 2001; Wagner et al., 2002). Collaboration between supply chain partners is one of the issues which lately have received increased attention in the supply chain literature (Andraski, 1999; Anderson and Lee, 1999, 2001; McCarthy and Golicic, 2002), in addition to attention received in the past in the strategic management literature (Spekman and Sawhney, 1995; Brandenburger and Nalebuff, 1996; Kumar, 1996). In fact, some authors (McLaren et al., 2002; Becker et al., 2004) argue that there is a new school of thought in the supply chain literature regarding the notion of supply chain collaboration. Essentially, a prerequisite for the existence of supply chain collaboration is the existence of supply chains in addition to collaboration. The notion implies that the chain members, two or more, become involved and actively work together in coordinating activities which span the boundaries of their organizations in order to fulfil and satisfy customers’ needs (Bowersox, 1990; Mentzer et al., 2000; Muchstadt et al., 2001). Based on existing relevant literature, a general research framework for supply chain collaboration is suggested (Figure 1). Two pillars are distinguished in the framework for supply chain collaboration, which are dealing with the design and the government of supply chain activities, and the establishment and the maintenance of supply chain relationships, respectively.

The second element involves selecting the activities on which collaboration will be established. The plethora of the activities constitutes the “width” of collaboration. Companies need to determine the specific activities upon which they will collaborate, since not all the activities require the same amount of involvement and close relationship (Sahay, 2003). After selecting the activities the third element is to identify in what level companies will collaborate. A three level approach namely strategic, tactical, operational, is rather essential, since companies seldom choose or decide to collaborate across all decision taking levels. This distinction on strategic, tactical and operational, which has been very common in the supply chain literature, constitutes the “depth” of collaboration (Stevens, 1989; Chopra and Meindl, 2001; Fawcett and Magnan, 2002). The combination of those three elements comprises the intensity of collaboration. The more the depth (from operational to tactical and strategic), the width (from simple supply chain activities to more complex such as new product development) and the number of entities (two or more entities, upstream-downstream) the more intense the collaboration is. Finally, another important element for the design and governing of supply chain activities includes the decision of selecting the appropriate technique and technology to facilitate information sharing. It is a very complicated decision, since not all potential collaborators are able to meet the requirements of collaboration in terms of technology and techniques.

Design and government of supply chain activities The first pillar in the framework is related to the design and government of supply chain activities consisting of three elements. The first element is about taking the decision of selecting the appropriate partner. Companies in the real business world are interacting with a number of suppliers and customers. Obviously, not all of them can become close collaborators and under this prism a selection is needed, based on the expectations, perceived benefits and drawbacks, and the “business fit” of companies.

Establishing and maintaining supply chain relationships The second pillar concerns the establishment and maintenance of supply chain relationships. It includes the less tangible, but equally important, elements of relationships. The critical elements that have been also cited in the literature include mutuality of benefits, risk, and rewards sharing (Stank et al., 1999; Barratt and Oliveira, 2001). The risk and reward sharing balance will be probably 178

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

one of the crucial factors which will guide companies towards close collaboration. An interaction of other elements, such as trust, power and dependence, has been also identified in the literature to play an influential role in companies’ decision to collaborate. La Londe (2002), for example argues that trust and risk issues are very important in supply chain relationships because of the interdependency between companies. Dependence of one company on another means that the company will have power over the other. Power as a concept in supply chain relationships has not been discussed extensively (Cox et al., 2003) and when discussed it has received irregular and contrasting treatment from analysts (Hingley, 2005). For some authors, power is one of the greatest deterrents to trust, which is the single more discussed element in making supply chains function effective and efficient (Kumar, 1996; Dapiran and HogarthScott, 2003; Handfield and Bechtel, 2004). The interesting issue is to identify how these elements interact with each other and how they affect and determine the intensity of collaboration, as well as, the selection of the appropriate information-data sharing technologies and techniques.

Figure 2 Linking supply chain activities to specific collaboration benefits

Benefits and risks of collaboration: approaches and critical aspects Undoubtedly, a plethora of benefits associated with interenterprise collaboration exists. The way these benefits can be regarded depends on the way supply chain collaboration is viewed. One way to view them is by approaching supply chain collaboration, and its respective benefits, at a macro level (Sahay, 2003), which means general cost reductions, as well as, general revenue growth. In this case, a company takes decisions regarding the other collaborator on the basis of how good is performing with collaborator A, in comparison to the collaborator B. A different way to approach supply chain collaboration benefits is by taking a more activity-based approach. By relating the benefits of collaboration to the specific activities, it is more likely to better identify the real benefits of supply chain collaboration, since not all activities require the same amount of companies’ involvement. Some of the most commonly cited, in the literature, supply chain activities include: . procurement; . inventory management; . product design and new product development; . manufacturing (planning); . order processing; . transportation/distribution; . sales; . demand management; and . customer service.

collaborations is the risk of failure (Dwyer et al., 1987). The risk of failure includes the loss of significant investments in money, time and delay or abandonment of business plans, in cases where collaboration is unsuccessful. In addition, an inherent risk to the risk of failure is the exposure to competition. Indeed, companies should bear in mind that the potential collaborator may become at some point in time the partner of another competitor. Another important risk is related to potential increased dependence of one company on another. The issue of dependence is one of the more complex issues in business relationships. It arises in cases where a company is to a greater or lesser extent relied on another company across a number of processes. In fact, many authors (Spekman and Salmond, 1992; Adams and Goldsmith, 1999) have argued that in the process of procurement for example, the more a buyer buys from a supplier, the more likely the buyer will be able to influence the supplier. In most of the cases in the literature, dependence has been viewed as a risk, which is particularly high for small companies collaborating with big ones, especially when combined with the element of power. Furthermore, an inherent risk associated to collaboration is the risk of increasing operational complexity. For example, a company-supplier of two other companies, one a collaborator and one not, may end up running two separate supply chains, which means duplication of effort in many cases. In particular at the front of technology integration many future collaborators are facing difficulties in integrating their systems. This increased complexity in technology integration can sometimes cause even the termination of the collaboration.

In Figure 2, some of the benefits arising from collaboration, as those identified in the literature, are linked to the aforementioned supply chain activities (Lewis, 1990; Ellram, 1995; Walker, 1994; Parker, 2000; Horvath, 2001; Mentzer et al., 2000; McLaren et al., 2002; Simatupang and Sridharan, 2004). Despite the benefits that have been identified in collaboration among companies, collaborative practises may not be appropriate for every business relationship (Krause, 1999). In fact, apart from the benefits, risks are also involved in collaborations. One of the most obvious risks in

Driving forces and barriers of supply chain collaboration: implications for the agri-food industry In order to understand the concept of collaboration in the context of the agri-food industry there is a need to better 179

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

analyse the sector by identifying its particularities, as well as, the changes that have occurred lately. Which are the supply chain activities where collaboration is possible and what are the particular elements, benefits, and risks of collaboration that need to be considered by companies operating in the sector? A number of changes have occurred the last decade in the agri-food sector. The entrance of global retailers, industry’s consolidation in most of the sub-sectors, the changing consumer consumption attitudes, as well as the existence of more strict regulations and laws regarding food production, have altered the business environment for most of the companies operating in the sector, encouraging collaboration attitudes among companies at all levels. In particular, global retailers are building partnerships and support close collaboration practises with many of their suppliers in an effort to achieve performance improvements across many business levels (Kaufman, 1999). The undisputed competitive pressures in the sector also fostered consolidation in most of the sub-sectors of the agri-food industry and thus, have increased the need for collaboration. Consumers nowadays, are more than ever interested in having healthy food and are characterized by higher levels of food safety concerns (Hughes, 1994). This reality, in combination with the recent food crises has increased public pressure for transparency, traceability and “due diligence” throughout the agri-food supply chain (Fearne et al., 2004), and has increased essentially the need for collaboration among entities in the agri-food supply chain. Despite the increased importance for collaboration across the entire agri-food supply chain, important barriers also exist which may limit collaboration intensity. Most of the barriers to supply chain collaboration are related to industry’s complex and heterogeneous structure. A typical agri-food supply chain may consist of a number of entities linked from “farm to fork”, such as farmers, input suppliers, co-operatives, packhouses, transporters, exporters, importers, wholesalers, retailers, and finally consumers. The structure of the agrifood industry may be really complex, and for some products it is quite extended including many entities and resulting in numerous interactions (Matopoulos et al., 2004). The more the number of the companies, participating in the supply chain increases, the more the information exchanges become problematic, hindering supply chain collaboration, as companies often do not have compatible systems for information exchanges. Another important barrier for collaboration arises from the increased diversity of the entities constituting the supply chain. Companies’ differences in terms of economic size, structure, and access on ICT applications, may deteriorate collaboration intensity due to power-trust reasons, operational complexity or technical reasons, respectively. In Figure 3, a schematic representation of the entities which potentially participate in the agri-food industry is presented. Different line patterns indicate potential interaction channels.

industry and how a range of factors impact on the intensity of collaboration. The conceptual framework and its propositions A conceptual framework is developed based on the overall framework suggested earlier in paper. All the issues encapsulated in the overall framework are examined apart from the issue of selecting the appropriate data and information techniques and technologies, since no valuable findings were expected to arise. This is due to the level of use of information and communication technologies in Greek agrifood SME’s, which is rather low (Manthou et al., 2005). On the contrary, the role of industry’s macro factors, as well as, micro-factors is included in the framework and explored. Macro factors are related to the external environment of the sector and include general trends and changes that have taken place. Micro factors, on the other hand, include the specific internal characteristics of the sector related to its products, processes and structure. In this particular research, the macrofactors further considered are; the globalization and consolidation of the industry, changing consumer consumption attitudes, stricter regulations and laws regarding food production and food safety issues. All these have been shown in the literature to interact in the development of collaboration in the agri-food supply chain (Hughes, 1994; Shaw and Gibbs, 1995; Fearne et al., 2004). Regarding the micro factors emphasis is given on the particular structure of the industry, as well as, specific product features. The framework and propositions for subsequent testing are described below (Figure 4) and are generated based on a literature survey. Bacharach’s (1989), guidelines on theory development have been used, particularly in developing relationships between constructs in terms of propositions. The first two propositions link the first pillar of supply chain collaboration (design and government of supply chain activities) with macro and micro factors, while the third links micro factors with the second pillar of supply chain collaboration (establishing and maintaining supply chain relationships). Finally, the fourth proposition focuses on the less tangible elements of relationships, emphasizing the way they interact and their role in the intensity of collaboration. Concerning industry’s macro-factors, globalization extends the business scope and activities of a company, to other regions. At the same time, the government of activities that are now dispersed in a greater geographical range becomes more difficult, increasing the need for collaboration (Kaufman, 1999). Consolidation of the industry, in response to the increased competition, encourages companies to collaborate to a range of supply chain activities in order to become competition resistant. Changing consumer attitudes and stricter food laws and regulations, are the drivers that have forced companies of the sector to pay attention in securing product quality. Collaboration in the form of increased information exchanges is needed in order to achieve transparency across the supply chain (Trienekens and Beulens, 2001). As a result, the following proposition is proposed: P1. Industry’s macro-factors enhance the design and government of supply chain relationships by enhancing the intensity of supply chain collaboration.

Empirical case study In this section, empirical insights from the agri-food industry are provided. In particular, a case study at the growerprocessor interface was conducted in order to investigate and understand collaboration in the context of the agri-food

Industry’s micro-factors affect both the width and the depth of collaboration. Hypothetically, an intense collaborative relationship among members in the fresh produce supply 180

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

Figure 3 A schematic representation of the agri-food supply chain

Figure 4 A conceptual framework of collaboration development in the agri-food supply chain

There is a relationship between products’ specific characteristics of price and supply volatility to the trustbuilding process and the intensity of collaboration (O’Keeffe, 1998). When the supply of a product is decreased (due to weather conditions, farmer’s competence) the farmer may demand higher prices and better payment terms. Analogously, the processor when the supply of the product is increased may demand lower prices, longer payment periods, as well as, impose stricter product controls. In both cases, the trust building process is impinged as companies try to realize shortterm benefits. This puts pressure on the collaborationbuilding process, deteriorating the intensity of collaboration and specifically the depth of collaboration from strategic to operational and tactical. As a result, the third proposition relates industry micro factors to the establishment and maintenance of supply chain relationships. P3. Industry’s micro-factors hinder the establishment and maintenance of supply chain relationships, by impinging the trust-building process, and deteriorate the intensity of collaboration. The balance of power and dependency and its role in the way relationships evolve has been identified in the literature. Asymmetrical relationships generate disadvantage for the weaker party (Johnsen and Ford, 2002) and are less stable than symmetrical relationships (Bretherton and Carswell, 2002). In the context of the agri-food industry, power imbalance issues are extremely relevant and have been clearly recognised (O’Keefe and Fearne, 2002; Hingley, 2005). O’Keeffe (1998), agues that it is difficult to achieve interdependence in the agri-food industry due to size imbalance and as a result, small and less powerful companies will be more dependent from large powerful companies than the opposite. This power asymmetry will enable large companies to exercise their power, by imposing their rules to collaboration, continuously increasing requirements and risk-reward sharing imbalance. This imbalance reduces the collaboration attitude, impinges trust and deters collaboration intensity. Therefore, the last proposition relates power asymmetry to dependence and risk-reward sharing. P4. Power asymmetry a) increases the dependence of a company from another, in favour of the more powerful, and b) amplifies the imbalance of risk-reward sharing among companies hindering trust development and as a result collaboration intensity.

chain would include the identification of the consumption trends at the consumer level, the transfer of this information upstream in the chain, the development of the new product varieties from the research centre, and finally movement of the product downstream in the chain. However, due to timeconstraints this is unfeasible, since the research for new varieties and the biological growth cycle of a product may reach a decade, limiting the width of supply chain activities to the more logistics oriented ones in order to meet the increased requirements arising by the perishability of agricultural products (Schotzko and Hinson, 2000). In addition, the constraints of the product, related to the uncertain production (due to weather conditions or/and farmer’s competence), limit the depth of collaboration from the strategic level to tactical and operational, in order to avoid risky long-term decisions. This leads to the second proposition: P2. Industry’s micro-factors hinder the design and government of supply chain relationships by deteriorating the intensity of supply chain collaboration. 181

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

Case study design The method chosen for this study was research by case study. In particular, the case study method used was the “single-case design” as called by Yin (1994), with single unit of analysis and single number of cases. Research by case study was preferred, since it enables a more descriptive and exploratory approach allowing for more rich insights into the research object (Yin, 1994; Miles and Huberman, 1994). Case study research has been lately recognised as an increasingly important type of research in the context of agri-business sector, since traditional research strategies have been often proved to be limited in their applicability and scope (Sterns et al., 1998). The case study presented in this research is about Hellenic Catering (HC), one of the biggest food processors in Greece, and the collaboration with Balatsos Company (BC), a family-based company, which became HC’s biggest supplier of fresh vegetables. HC is the major supplier in fresh produce and has also established an alliance with Goody’s, which is the biggest fast-food restaurant chain in Greece. HC currently operates in two facilities in Thessaloniki and Athens, employing nearly three hundred and eighty people. Its main business activity includes the production of meat-products, ready to eat meals, sauces and fresh vegetables. Nearly 80 per cent of the production goes to Goody’s, while the remaining 20 per cent goes to hotels and supermarkets. In order to collect data an interview protocol has been developed, as follows.

.

.

. .

.

.

.

What were the main problems encountered in managing this relationship? What kind of strategies, if any, were adopted in order to overcome problems? How successfully did you confront these problems? Did differences in the size of companies cause any difficulties? In which cases did you exercise your power (or experience it)? How dependent do you consider your company is from the other company? What will happen if tomorrow the collaboration you have ends? What will be the consequences, if any, for your company and how quickly you will overcome this situation? Compare the current situation with the past (the beginning of the relationship). Has it changed? In what way? How risk and reward sharing has been evolved during your relationship? What were the main drivers for this situation? How much do you trust the other company? Has the level of trust altered during the collaboration? What were the main reasons for this situation?

The protocol aimed at encapsulating the constructs of the conceptual framework. In particular, the first part of the questionnaire contained questions regarding the business activities, the size of the companies and general discussion related to the particularities of the sector, as well as, the changes that had occurred lately. The second part dealt with the relationship between the two companies. In this particular part, a number of issues regarding the type of relationship, its evolution over time, the nature of dependence and the role of other critical elements, such as power and trust to the intensity of collaboration were explored. Semi-structured in depth interviews were conducted with the purchasing manager and the managing director of the two companies respectively. In fact, the first interview was conducted with the purchasing manager of the first company, where he also introduced to us the contact of the other company. The duration of the interviews was more than an hour each. A follow up was done by telephone, in order to clarify some of the responses given. To ensure the internal consistency of the data, responses of each participant were further explored and cross checked by asking the other participant, avoiding in any case to provoke debate between participants.

Interview protocol Overview 1 General company information: . Size of the company (number of employees, annual turnover). . Business structure and business units of the company. . Describe the business activities undertaken by the company. 2 Sector characteristics: . Describe the competition in the sector in comparison to the past. What drives competition nowadays? . Has the strategy towards competition evolved over years? How? . What are the requirements in market today and have they changed the last years? If yes why? 3 Changes and developments in your supply chain: . What is currently the structure of your supply chain (number of suppliers/customers, areas of collaboration, requirements? Has it changed the last years? In what way? . What were the drivers for the above changes, if any? . What were the benefits and the constraints of such an evolution?

Findings-discussion of results The propositions formulated in the conceptual framework can now be supported or not, based on the empirical results of the case study. P1. Industry’s macro-factors enhance the design and government of supply chain relationships by enhancing the intensity of supply chain collaboration.

Relationship between companies 1 General characteristics: . Describe your relationship with the specific partner (history of the relationship, areas of collaboration, percentage of products supplied). . What were the reasons for starting up the specific collaboration? 2 Analysing the relationship: . Describe your relationship with the other company (advantages/disadvantages).

The case study revealed that some industry macro- factors enhance the intensity of collaboration in the agri-food supply chain. For example, the case study supports the fact that changing consumer attitudes enhanced the intensity of collaboration. Indeed, in the late 1990s there was an increased need in the market (originated by Goody’s) for greater quantities of vegetables in response to changing consumer attitudes and preferences (more people eating out in fast-food restaurants, preferring more healthy-like food). 182

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

This resulted in a strategic-level decision from HC and Goody’s to start up collaboration. Thus, HC became Goody’s exclusive supplier of fresh vegetables. In addition, industry’s consolidation enhances the intensity of supply chain collaboration. The appearance of new companies operating in HC’s sector resulted in increased competition pressuring HC to become more efficient in its activities. As a result, the company decided to change its supply policy, towards an effort to rationalise its supply base, ensuring product excellence (in terms of quantity- quality) and process excellence (in terms of cost and time reductions). The company up to the late 1990s had a really big supplier base for fresh vegetables (tomatoes, cucumber, lettuce, carrots etc.), constituting of nearly forty suppliers. In fact, the company was buying fresh vegetables from the local central fruit and vegetable market, negotiating prices and quantities on a regular basis. This situation quite often resulted in losses of product quality and at the same time significant excess of costs. Costs included not only the actual price-driven costs, but also indirect costs of finding, negotiating and monitoring the appropriate supplier. The exploratory evidence also shows that macro factors such as, globalization, stricter food laws and regulations, do not play an important role in enhancing the intensity of supply chain collaboration. P2. Industry’s micro-factors hinder the design and government of supply chain relationships by deteriorating the intensity of supply chain collaboration.

Analogously, reduced demand for lettuce from HC, in relation to overproduction or stable production of lettuce from BC resulted in similar practises from HC, which posed issues for quality standards resulting in downward price pressures. Even if this situation was not occurring at a regular basis, it created conflicts and lack of trust in the business relationship. The data support this proposition, corroborating also the suggestions of O’Keeffe (1998), regarding the trustbuilding process. P4. Power asymmetry a) increases the dependence of a company from another, in favour of the more powerful, and b) amplifies the imbalance of risk-reward sharing among companies hindering trust development and as a result collaboration intensity. One of the most interesting aspects of this collaboration is related to the way power asymmetry has been evolved over time and the way it has affected the interdependence of the two companies as well as, the risk-reward sharing. At the beginning of the collaboration the size imbalance between HC and BC was in favour of HC, making BC completely dependent on HC’s decisions. Despite this extremely power unbalanced relationship, BC did enter the relationship and tolerated power imbalance supporting also the suggestions of Blundel and Hingley (2001), regarding the initial decision of an SME to start a collaboration. However, this situation has been reversed. Bretherton and Carswell (2002) suggest, the imbalance of power drives the weaker party to seek alternative alliances. In the case study this is almost the case, since BC did not seek for alternative alliances, but instead it entered very successfully to new business activities in addition to lettuce production. This resulted in a shift of dependence, with HC becoming to a great extent more dependent than BC, despite the power imbalance which was still in favour of HC. Risk-reward sharing, also, evolved over time following to a great extent the power-dependence balance. Initially, when BC was dependent from HC, no mutuality in risk sharing existed. Indeed, the risk for BC was quite significant. Huge investments in production facilities (greenhouse operations) were needed and on the contrary no commitment, in terms of contract, was given from the part of HC. The result was a continuous pressure from the BC to HC, which created trust problems and collaboration inefficiencies (increased control and production monitoring etc.). However, as the dependence of BC from HC reduced over time, even if power asymmetry still existed, risk-reward sharing imbalance, also, reduced and resulted in better collaboration attitude, and more intense collaboration particularly at the operational and tactical level. The exploratory evidence, in contrast to Handfield and Bechtel (2004), show that it is the element of dependence affecting the trust-building process and thus collaboration intensity, rather than the element of power. As a result, neither the proposition of power asymmetry increasing the dependence of a company from another, in favour of the more powerful, nor the proposition of power asymmetry amplifing the imbalance of risk-benefit sharing among companies is supported.

The case study demonstrates deterioration on the intensity of supply chain collaboration due to product features and the structure of the industry. Indeed, due to product features the main area for collaboration between HC and BC concerns predominantly logistics-related activities, such as transportation, ordering, procurement, rather than activities related to joint development of new products, or joint demand management. This occurs not only as a result of the specific characteristics of the product, but also the structure of the sector. For example, in order to achieve joint development of new products, or joint demand management, further integration upstream and downstream in the chain is required. The case study shows that both upstream and downstream integration is difficult to achieve, particularly upstream integration with the entities responsible for developing new varieties; no such links exist. Finally, the volatile nature of price and supply, deters the depth of collaboration to operational and tactical level, rather than strategic, despite the fact BC, put pressure on HC to collaborate on a strategic level by conducting joint investments in the field of greenhouse vegetable production. P3. Industry’s micro-factors hinder the establishment and maintenance of supply chain relationships, by impinging the trust-building process, and deteriorate the intensity of collaboration. The case study identified that products’ features impinge the trust-building process and hinder the establishment of supply chain relationships. In particular, the volatile nature of the product, in terms of quantity and quality, impinged trust building between companies. Indeed, there were cases where increased demand from HC followed by low production volumes (due to weather conditions, or farmer’s incompetence) resulted in increased requirements in terms of prices and better payment terms, from BC for all levels.

Conclusions Collaboration is a very broad and encompassing term and when it is put in the context of the supply chain it needs yet further clarification (Barratt, 2004). The complex nature of 183

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

supply chains adds difficulties in the elements involved in the concept of supply chain collaboration. The literature review undertaken, although not exhaustive, served as a comprehensive base for understanding and developing a framework for supply chain collaboration. Two major pillars were identified: the design and government of supply chain activities, and the establishment and maintenance of supply chain relationships. Part of this overall framework was further explored in the context of the agri-food industry in an effort to understand the concept of supply chain collaboration in a specific context. The case study conducted revealed that while there is a true need for supply chain collaboration, the structure of the agrifood sector along with the nature of products impinges the intensity of collaboration, to more operational and tactical level, as well as, to logistics-related activities. For example, the companies coordinate on the procurement/supply and distribution process mainly at the tactical level (e.g. arrange procurement details and terms, delivery times), however when it comes to more complicated supply chain activities, such as product design/new product development and demand management or even when they have to plan at the operational level, they are unable to collaborate. Regarding the critical elements affecting the establishment and maintenance of supply chain relationships, trust seems to seriously affect the intensity of collaboration limiting the depth and the width of collaboration. In addition, the exploratory evidence, in contrast to Handfield and Bechtel (2004), show that it is the element of dependence affecting risk and reward sharing and thus, the trust-building process and subsequently collaboration intensity, rather than the element of power. Regarding the risk of dependence of small companies by large ones, the case study shows in the longterm the dependence imbalance and the power imbalance can be altered in favour of small companies. In the case study, the weaker part of the relationship sought to enter to new business activities, in order to alter the dependence imbalance and this also concurs with Hingley’s (2005) view about weaker organisations having a certain degree of tolerance in asymmetric relationships. The result was that the more powerful company, became more dependent from the weaker part, than the opposite, presenting the so called “Paradox of power”. This was achieved as the weaker company, in its effort to meet large company’s requirements, accomplished unique product or/and process excellence, making difficult for other competitors to follow. Regarding the overall proposed research framework, the case study identified the importance of the elements of trust, power, dependence, and risk/reward sharing in establishing and maintaining supply chain relationships, as well as, the role of the above elements in selecting partner, deciding on collaboration width and depth. However, the issue of selecting information and data sharing techniques and technologies needs also to be tackled, in particular its interrelation with the elements of the second pillar. The propositions developed in this paper, as well as the overall framework for supply chain collaboration offer scope for further testing and development. They should be seen as an effort to an improved understanding of collaboration. The study has two main limitations. The first limitation is that the research draws from one relationship only. Further qualitative testing of the conceptual model is needed with the aim of literal or theoretical replication (Yin, 2003). The

second limitation is the focus on dyadic relationships; extending the research focus to more complex supply chain relationships across the entire chain would be also useful. While none of the factors identified in the research are truly new or novel, they have never been studied in the agri-food context before, and this is the key contribution of this study. Future research on supply chain collaboration is required in order to develop a more clear understanding of the benefits, as well as, the risks of supply chain collaboration and the way the aforementioned elements of trust, power and dependence interact in the collaboration building process.

References Adams, C.L. and Goldsmith, P.D. (1999), “Conditions for successful strategic alliances in the food industry”, International Food and Agribusiness Management Review, Vol. 2 No. 2, pp. 221-48. Anderson, D.L. and Lee, H. (1999), “Synchronized supply chains: the new frontier”, Achieving Supply Chain Excellence Through Technology, Vol. 1, pp. 12-21. Anderson, D.L. and Lee, H. (2001), “New supply chains business models – the opportunities and the challenges”, Achieving Supply Chain Excellence Through Technology, Vol. 3, pp. 12-18. Andraski, J.C. (1999), “Supply chain collaboration”, available: www.foodlogistics.com/collaboration.html (accessed 01/09/2000). Bacharach, B.S. (1989), “Organizational theories: some criteria for evaluation”, Academy of Management Review, Vol. 14 No. 4, pp. 496-515. Barratt, M. (2004), “Understanding the meaning of collaboration”, Supply Chain Management: An International Journal, Vol. 9 No. 1, pp. 30-42. Barratt, M. and Oliveira, A. (2001), “Exploring the experiences of collaborative planning initiatives”, International Journal of Physical Distribution & Logistics Management, Vol. 31 No. 4, pp. 266-89. Becker, J.F.F., Verduijn, T.M. and Kumar, K. (2004), “Supply chain collaboration across strategic, tactical and operational planning”, available at: www.klict.org/docs/ PPhr175.pdf (accessed 10/09/2004). Blundel, R.K. and Hingley, M.K. (2001), “Exploring growth in vertical inter-firm relationships: small-medium firms supplying multiple food retailers”, Journal of Small Business and Enterprise Development, Vol. 8 No. 3, pp. 245-65. Brandenburger, A.M. and Nalebuff, B.J. (1996), Co-opetiton, Doubleday, New York, NY. Bretherton, P. and Carswell, P. (2002), “Trust me – I’m a marketing academic! A cross-disciplinary look at trust”, Proceedings of Academy of Marketing Annual Conference, Nottingham University Business School 2-5 July. Bowersox, D.J. (1990), “The strategic benefits of logistics alliances”, Harvard Business Review, Vol. 68 No. 4, pp. 36-43. Cadilhon, J.J. and Fearne, A.P. (2005), “Lessons in collaboration: a case study from Vietnam”, Supply Chain Management Review, Vol. 9 No. 4, pp. 11-12. Chopra, S. and Meindl, P. (2001), Supply Chain Management: Strategy, Planning and Operation, Prentice Hall Editions, Upper Saddle River, NJ. Christopher, M. (1998), Logistics and Supply Chain Management, 2nd ed., Pearson Education Publishing, Harlow. 184

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

Corbett, C.J., Blackburn, J.D. and van Wassenhove, L.N. (1999), “Partnerships to improve supply chains”, Sloan Management Review, Vol. 40 No. 4, pp. 71-82. Cox, A., Lonsdale, C. and Watson, G. (2003), “The role of incentives in buyer-supplier relationships: industrial cases from a UK study”, Proceedings of the 19th Annual IMP Conference, Lugano, 4-6 September. Dapiran, G.P. and Hogarth-Scott, S. (2003), “Are co-operation and trust being confused with power? An analysis of food retailing in Australia and the UK”, International Journal of Retail & Distribution Management, Vol. 31 No. 5, pp. 256-67. Dwyer, F.R., Schurr, P.H. and Oh, S. (1987), “Developing buyer-seller relationship”, Journal of Marketing, Vol. 51, pp. 11-27. Ellram, L.M. (1995), “Partnering pitfalls and success factors”, International Journal of Purchasing and Materials Management, Spring. European Commission (2002), ICT and E-business in the Food, Beverage and Tobacco Industry, European e-business Market Watch, Sector report, No. 1, July. Fawcett, S.E. and Magnan, G.M. (2002), “The rhetoric and reality of supply chain integration”, International Journal of Physical Distribution & Logistics Management, Vol. 32 No. 5, pp. 339-61. Fearne, A., Hughes, D. and Duffy, R. (2004), “Concepts of collaboration-supply chain management in a global food industry”, available at: www.imperial.ac.uk/ agriculturalsciences/cfcr/pdfdoc/global-food-industry.pdf (accessed 10/09/2004). Gattorna, J.L. and Walters, D.W. (1996), Managing the Supply Chain, Macmillan, Basingstoke. Gunasekaran, A., Patel, C. and Tirtiroglou, E. (2001), “Performance measure and metrics in a supply chain environment”, International Journal of Operations & Production Management, Vol. 21 Nos 1/2, pp. 71-87. Handfield, R.B. and Bechtel, C. (2004), “Trust, power, dependence, and economics: can SCM research borrow paradigms?”, International Journal of Integrated Supply Management, Vol. 1 No. 1, pp. 3-32. Hines, P. (1994), Creating World Class Suppliers, Pitman, London. Hingley, M.K. (2005), “Power imbalanced relationships: cases from UK fresh food supply”, International Journal of Retail & Distribution Management, Vol. 33 No. 8, pp. 551-69. Horvath, L. (2001), “Collaboration: the key to value creation in supply chain management”, Supply Chain Management: An International Journal, Vol. 6 No. 5, pp. 205-7. Hughes, D. (1994), Breaking with Tradition: Building Partnerships and Alliances in the European Food Industry, Wye College Press, Wye. Huxham, C. (1996), Creating Collaborative Advantage, Sage Publications, London. Johnsen, R.E. and Ford, D. (2002), “Developing the concept of asymmetrical and symmetrical relationships: linking relationship characteristics and firms’ capabilities and strategies”, in Spencer, R., Pons, J-F. and Gasiglia, H. (Eds), Proceedings of the 18th Annual IMP Conference Graduate School of Business and Management, Dijon, 5-7 September. Kaufman, P. (1999), “Food retailing consolidation: implications for supply chain management practices”, Journal of Food Distribution Research, March, pp. 6-11.

Krause, D.R. (1999), “The antecedents of buying firmsefforts to improve suppliers”, Journal of Operations Management, Vol. 172, pp. 205-24. Kumar, N. (1996), “The power of trust in manufacturer/ retailer relationships”, Harvard Business Review, NovemberDecember, pp. 92-106. La Londe, B. (2002), “Who can you trust these days?”, Supply Chain Management Review, May/June, p. 11. Lamming, R. (1993), Beyond Partnership, Prentice Hall, New York, NY. Lewis, D.J. (1990), Partnership for Profit: Structuring and Managing Strategic Alliances, The Free Press, New York, NY. McCarthy, T.M. and Golicic, S.L. (2002), “Implementing collaborative forecasting to improve supply chain performance”, International Journal of Physical Distribution & Logistic Management, Vol. 32 No. 6, pp. 431-54. McLaren, T., Head, M. and Yuan, Y. (2002), “Supply chain collaboration alternatives: understanding the expected cost and benefits”, Internet Research: Electronic Networking Applications and Policy, Vol. 12 No. 4, pp. 348-64. Macneil, I.R. (1981), “Economic Analysis of contractual relations: its shortfalls and the need for a rich classificatory apparatus”, Northwestern University Law Review, Vol. 75 No. 1, pp. 1018-63. Manthou, V., Matopoulos, A. and Vlachopoulou, M. (2005), “Internet-based applications in agri-food logistics: a survey on the Greek canning sector”, Journal of Food Engineering, Vol. 70 No. 3, pp. 447-54 (Special Issue on Operational Research and Food Logistics). Matopoulos, A., Vlachopoulou, M., Folinas, D. and Manthou, V. (2004), “Information architecture framework for agri-food networks”, in Bremmers, H., Omta, S.W.F., Trienekens, J.H. and Wubben, E.F.M. (Eds), Proceedings of the 6th International Conference on Chain and Network Management in Agribusiness and the Food Industry 27-28 May, Ede. Mentzer, J.T., Fonghin, J.H. and Golicic, S.L. (2000), “Supply chain collaboration: enablers, impediments and benefits”, Supply Chain Management Review, Vol. 4, September-October, pp. 52-80. Miles, M.B. and Huberman, A.M. (1994), Qualitative Data Analysis: An Expanded Sourcebook, 2nd ed., Sage, London and Thousand Oaks, CA. Muchstadt, J.A., Murray, D.H., Rappold, J.A. and Collins, D.E. (2001), “Guidelines for collaborative supply chain system design and operation”, Information System Frontiers, Vol. 3-4, pp. 427-53. O’Keeffe, M. (1998), “Establishing supply chain partnerships: lessons from Australian agribusiness”, Supply Chain Management: An International Journal, Vol. 3 No. 1. O’Keefe, M. and Fearne, A. (2002), “From commodity marketing to category management: insights from the Waitrose category leadership programme in fresh produce”, Supply Chain Management: An International Journal, Vol. 7 No. 5, pp. 296-301. Parker, H. (2000), “Inter-firm collaboration and the new product development process”, Industrial Management and Data Systems, Vol. 100 No. 6, pp. 255-60. Sahay, B.S. (2003), “Supply chain collaboration: the key to value creation”, Work Study, Vol. 52 No. 2, pp. 76-83. Schotzko, R.T. and Hinson, R.A. (2000), “Supply chain management in perishables: a produce application”, Journal of Food Distribution Research, July, pp. 17-28. 185

A conceptual framework for supply chain collaboration

Supply Chain Management: An International Journal

A. Matopoulos, M. Vlachopoulou, V. Manthou and B. Manos

Volume 12 · Number 3 · 2007 · 177 –186

Shaw, A.S. and Gibbs, J. (1995), “Retailer-supplier relationships and the evolution of marketing”, International Journal of Retail & Distribution Management, Vol. 23 No. 7, pp. 7-16. Simatupang, T.M. and Sridharan, R. (2004), “Benchmarking supply chain collaboration: an empirical study”, Benchmarking: An International Journal, Vol. 11 No. 5, pp. 484-503. Spekman, R. and Salmond, D. (1992), A Working Consensus to Collaborate: A Field Study of Manufacturer-Supplier Dyads, Marketing Science Institute, Cambridge, MA. Spekman, R. and Sawhney, K. (1995), “Toward a conceptual understanding of the antecedents of strategic alliances”, in Wilson, D. and Mollen, C. (Eds), Business Marketing: An Interaction and Network Perspective, Kent Publishing, Boston, MA, pp. 157-92. Stank, T.P., Crum, M. and Arango, M. (1999), “Benefits of inter-firm co-ordination in food industry supply chains”, Journal of Business Logistics, Vol. 20 No. 2, pp. 21-41. Sterns, J.A., Schweikhardt, D.B. and Peterson, H.C. (1998), “Using case studies as an approach for conducting Agribusiness Research”, International Food and Agribusiness Management Review, Vol. 1 No. 3, pp. 311-27. Stevens, G.C. (1989), “Integrating the supply chain”, International Journal of Physical Distribution and Materials Management, Vol. 8 No. 8, pp. 3-8. Trienekens, J. and Beulens, A. (2001), “The implications of EU food safety legislation and consumer demands on supply chain information systems”, working paper, Department of Management Studies, Wageningen University. Wagner, B.A., Macbeth, D.K. and Boddy, D. (2002), “Improving supply chain relations: an empirical case study”, Supply Chain Management: An International Journal, Vol. 7 No. 4, pp. 253-64. Walker, M. (1994), “Supplier-retailer collaboration in European grocery distribution”, Logistics Information Management, Vol. 7 No. 6, pp. 23-7. Yin, R.K. (1994), Case Study Research: Design and Methods, 2nd ed., Sage Publications Inc, Thousand Oaks, CA. Yin, R.K. (2003), Case Study Research: Design and Methods, 3rd ed., Sage Publications Inc, Thousand Oaks, CA.

on supply chain operations. He has been involved as a researcher in the national research programme “Heraklitos” and “EQUAL”, and he participated in the E-business forum (work-team Z2: Using RFID for the integration of the supply chain, and work-team I2: E-business in SME’s in the food industry, under the auspices of the Greek Ministry of Development). He is also a member of Hellenic and International Associations. A. Matopoulos is the corresponding author and can be contacted at: [email protected] M. Vlachopoulou is an Associate Professor of e-Marketing/ Business at the University of Macedonia, Department of Applied Informatics, Thessaloniki, Greece. Her professional expertise and research interests include: Marketing information systems, E-Business, ERP/CRM systems, Supply chain management, Knowledge management, e-supply chain management, e-logistics, Virtual organization/enterprise modeling. She has participated in European Projects in the above fields, and she was an expert evaluator of STAR project research. She has published papers in Greek and International Journals, and books. She acts as a reviewer in the International Journal of Production Economics, the International Journal of Business Information Systems, the European Journal of Operational Research, and for the Balkan Conference of Operations Research. She has been chairman in several scientific conferences, and member of organizing and scientific committees. She is a member of Hellenic and International Associations and visiting research professor at the University of Sunderland, UK. She has also served as a consultant to private companies in Greece. V. Manthou is an Associate Professor of Information Systems & Logistics at the University of Macedonia, Department of Applied Informatics, Thessaloniki, Greece. Her professional expertise and research interests include: analysis and design of management information systems, Supply chain management, Logistics, ERP, e-commerce, health information systems. She has participated and participating in European Projects in the above fields (e-business forum, ISIS project) and has published papers and reports in Greek and International Journals, and books. She acts as a reviewer for the International Journal of Production Economics, the International Journal of Logistics Systems and Management, the TQM Magazine, the International Journal of Enterprise Information Systems and for the Balkan Conference of Operations Research. She has been chairman in many scientific conferences, and member of organizing and scientific committees. She is a member of Hellenic and International Associations and visiting research professor at Loyola University, USA. She has also served as a consultant to private companies in Greece. B. Manos is a Professor of Agricultural Economics at the Aristotle University of Thessaloniki, School of Agriculture, Lab. of Agricultural Informatics, Thessaloniki, Greece. His professional expertise and research interests include: decision support systems, agricultural economics, operational research and computer applications in the agricultural sector. He has participated and participating in a number of European projects in the above fields and has published several papers and reports in Greek and International Journals, and books. He is a member of Hellenic and International Associations.

Further reading Ellram, L.M. (1991), “A managerial guideline for the development of implementation of purchasing partnerships”, International Journal of Purchasing and Materials Management, pp. 2-8.

About the authors A. Matopoulos is a Doctoral candidate at the University of Macedonia, Department of Applied Informatics, Thessaloniki, Greece. He received his BSc in Agriculture, from Aristotle University of Thessaloniki, and his MSc in Food Industry Management and Marketing, from Imperial College, Wye Campus, University of London. His current research interests include: Logistics and supply chain management, E-business adoption and E-Business impact

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

186

Combining vertical and horizontal collaboration for transport optimisation Robert Mason Lean Enterprise Research Centre and Innovative Manufacturing Research Centre (CU-IMRC), Cardiff University, UK

Chandra Lalwani Business School, The University of Hull, Hull, UK, and

Roger Boughton MultiServ. Logistics, Willenhall, UK Abstract Purpose – The purpose of this paper is to focuss on customer driven supply chains and what this means for the management of freight transport, a key process in the supply chain as it acts as a physical link between customers and suppliers. It aims to assess whether some of the new collaborative models for transport management are delivering better optimised solutions. Design/methodology/approach – The paper is based on a multi-dimensional methodological approach, which includes empirical, model building, opinion and archival evidence. Much of the thinking and findings in this paper have been derived from a series of quasi-delphi discussion sessions with logistics industry experts from three sectors, steel, grocery and construction and experienced academics in the fields of logistics and supply chain management. Findings – The paper sets out to argue that new innovative solutions are emerging for better transport optimisation, that exploit the competitive power of collaboration, both vertically with supply chain partners and horizontally with other logistics service providers (LSPs). Research limitations/implications – The research was largely focused on the road freight transport industry in the UK and Europe. However, it is felt that similar thinking can be deployed in other settings for alternative transport modes and other geographical regions. From an academic perspective the paper contributes to the notion that supply chain management as well as focussing on vertical coordination and process integration also needs to incorporate the potential considerable power of horizontal collaboration. Originality/value – In particular it is original in that it highlights how important it is to combine vertical collaboration with horizontal collaboration if better optimised transport solutions are to be achieved. This is of considerable value and interest both to practitioner and academic communities. Keywords Transport management, Horizontal integration, Supply chain management Paper type Research paper

in information communication technology (ICT) the paper asserts that to combat the increasing industry pressures LSPs face, a new mind-set and openness to collaboration with supply chain partners, complimentors and even competitors is required. This view is supported by a review of three case study examples which are assessed against a balanced scorecard to illustrate how they have the potential to better optimise transport through collaboration. The research is focused on the road freight transport industry in the UK and Europe (although much of the thinking can be deployed in other settings for alternative transport modes and other geographical regions). There are 442,000 commercial trucks in the UK run by about 103,000 operator licence holders (Burns, 2005). The road transport marketplace is adapting to two major driving forces, increased cost pressures and improved cost reduction capabilities, which are having the effect of re-defining the structure of the haulage industry. Cost pressures are not just coming from customers, although pressure to improve value from supply chain partners is unremittingly strong. They are also coming from new legislation, such as the EU Working Time Directive for Mobile Workers, the WEE directive, congestion charges and safety compliance, as well as supply issues such as record prices of fuel, driver shortages, increasing insurance premiums, road congestion and low utilisation. In this liberalised marketplace it is perhaps unsurprising that there

Introduction The nature of modern supply chain management is being influenced by a range of powerful forces. In many sectors the era of mass production where the supplier was in the driving seat is being replaced by customer driven supply chains where a “new competitive framework for supply chain operators is emerging” (Christopher, 2004). This paper focuses on what this means for the management of freight transport, a key process in the supply chain as it acts as a physical link between customers and suppliers (Coyle et al., 2003). Through a series of quasi-delphi discussion groups and an action-based research programme it is becoming clear that new innovative solutions are emerging for better transport optimisation which exploit the competitive power of collaboration, both vertically with supply chain partners and horizontally with other logistics service providers (LSPs). Facilitated by the targeted adoption of certain developments The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal 12/3 (2007) 187– 199 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10.1108/13598540710742509]

187

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

is an eagerness to adapt to new cost reducing capabilities, some of which, involving collaboration, will be discussed in this study. Moreover, there is recognition that a more collaborative approach could support the industry’s objective of contributing towards the targets set by many governments for sustainable development, such as reducing empty or light running of freight transport and transferring more freight movement onto sustainably desirable modes (McKinnon et al., 2003). The paper is set out as follows. Initially, the role of road transport in modern supply chain management is discussed. It is emphasised that it is critical that freight transport is managed within the context of optimising the holistic supply chain system. Next the concept of collaboration is developed to illustrate how it has evolved both as an important building block in integrating the supply chain through vertical collaboration to reduce costs and to improve service levels as well as horizontally with industry partners to better utilise assets and hence to further reduce costs. The uniting of both vertical and horizontal collaborative techniques to harness a better optimised capability in transport management is then formulated. Finally, after the enabling adoption of a range of ICT developments is briefly discussed which it is argued is a crucial catalyst to some of the new models for collaboration in the better optimisation of transport, three case study examples are presented. These illustrate how managers in road transport are developing new value enhancing solutions to more closely meet the needs of supply chain partners.

background concepts and examples of collaboration are introduced in this paper. Specifically, the thinking in this paper has been derived from a series of quasi-delphi discussion sessions with logistics industry experts from the sectors identified above and experienced academics in the fields of logistics and supply chain management. Many of the issues identified have been triangulated through action-based research utilising the Quick Scan (Lewis et al., 1998) and Big Picture Mapping (Hines and Rich, 2001) methodologies.

The role of transport in modern supply chain management It is important to underline at the outset that the optimisation of transport at the expense of other logistics activities is not necessarily the aim. The goal should be to optimise the value of the supply process as a whole, not just transport. Transport should consequently be managed within the context of the supply chain setting and therefore it is important that initially an understanding of the characteristics of modern supply chain management is established. Supply chain management Supply chain management was first coined by Oliver and Webber (1992) and developed further by Houlihan in the mid 1980s (Houlihan, 1984, 1985, 1988). It aimed to describe the flow of materials across organisational borders and was defined by Ellram in 1991 as “an integrative approach to dealing with the planning and control of the materials flow from suppliers to end-users”. The importance of supply chain management’s influence on organisational strategy was underlined by authors such as Stevens (1989, 1990), Christopher (1992), Webster (1992) and Macbeth and Ferguson (1994) who postulated that competition takes place between supply chains rather than individual companies in modern marketplaces. There has been much debate in recent years over the theoretical support behind this position, which strikes at the core of what many believe to be optimum supply chain management practice. It is helpful to set this discussion in the context of transaction cost economics. Williamson (1979) did much to crystallise the transaction cost debate and building on the work of Coase(1937) argued that there were two basic governance structures which he termed as: 1 Hierarchy – vertical integration. 2 Market – vertical disintegration.

Methodology At a recent conference[1] focussing on freight transport in supply chains attended by over 200 internationally based delegates, the call for improved partnering in the management of transport, between users and providers was loud and clear (Boughton, 2004; Mason, 2004). Speakers and delegates were united in their recognition of the desirability of adopting a more collaborative approach to transport management if improved results for both hauliers and customers of freight transport were to be realised. The research which fed into this conference, derived from a three year EPSRC sponsored programme led by Cardiff University and was follow by a further three year EPSRC programme which continues to develop the study at the universities Innovative Manufacturing Research Centre (CU-IMRC). The research team includes senior representatives from the freight transport industry and now three industrial sectors, steel, grocery and construction, further supported by senior representatives from the Road Haulage Association and the Department for Transport in the UK. The main objective of the programmes is to generate generic benefits which could enhance the effectiveness and efficiency of freight transport. In particular they seek to analyse and document logistics, transport and management practices involved in current supply chains. As a result, the conclusions presented in this paper, that strategies for improving transport and supply chain performance often involve collaboration of various forms, are based on a multi-dimensional methodological approach, which includes empirical, model building, opinion and archival evidence. A selected summary of the main methods used and results derived from the research is available in a book Transport in Supply Chains (Lalwani et al., 2004) and over 30 separate papers some of which are referred to when

Therefore, a firm was faced with an “either or” alternative of either making or buying. However, a middle way termed a “Network”, began to be recognised by academics such as Jarillo (1988) and Nassimbeni et al. (1993). Networks can be defined as “two (dyad) or more agents, at least in part autonomous, which give rise to an exchange relationship, according to certain modalities and forms” (Nassimbeni, 2004). Much was based on the experience of the Japanese who had demonstrated that potentially superior strategy could emerge by engaging in a “Market” structure but with a considerable degree of asset specificity and social sharing (Sako, 1992). Hines (1997) noted that as the concept of this third way, “Networking”, became accepted numerous advantages began to be defined and described (Figure 1). These broadly encompass an integrated supply chain management philosophy. 188

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

Figure 1 Theoretical constructs surrounding the networking debate

Within this context the nature of modern day supply chains is being influenced by a range of powerful forces. One of the most notable, which has added greater importance to the study of supply chain optimisation as a potential competitive differentiator has been the “commoditisation” of markets in recent years in many sectors (Christopher, 2004). Thus, sustainable differences between products to differentiate brands has been harder to achieve and competition has focussed more on relationship quality and less on product quality (Christopher et al., 1991), which is now seen more as an order qualifier (Hill, 1993). Customers in many industries demand shorter lead times coupled with high reliability. As markets mature and customers and consumers are faced with numerous viable alternatives and become more knowledgeable and sophisticated, it is perhaps not surprising that yesterday’s markets which were dominated by mass production are being replaced by a marketplace characterised by mass customisation (Pine, 1993) which is customer value orientated (Christopher, 2004). Cox and Lamming (1997) characterised mass production as “vast in volume, ignorant and ambitious, which created benign consumers, a subservient labour force and compliant supply market”. Towards the last quarter of the last century these limitations of the system began to be exposed. Consumers grew in knowledge and assertiveness, and with it the structure of enterprises and the inter-firm links and relationships were forced to evolve to survive. We argue we are still living in this era today where businesses in sector after sector are having to come to terms with what it means to be more customer focussed, flexible and process orientated, where securing a position in successful supply chain networks rather than just being an effective company is an important key to sustainable success. In predicting the future for supply chains the MIT Center for Transportation and Logistics (CTL) has embarked on a research initiative which aims to predict the supply chain of the future called “Supply Chain 2020”. At the outset they have tried to define supply chain excellence given the contextual backdrop which has been discussed above. To support this quest they have developed three categories that they propose form the initial basis for a balanced scorecard of operational objectives or metrics (Goentzel and Lapide, 2004): 1 Efficiency – internal metrics like productivity, quality and costs. 2 Asset utilisation – internal metrics like cash- to cash cycles, plant utilisation, and inventory turns. 3 Customer response – customer facing metrics like order cycle times, perfect order fulfilment and time to market.

Systems theory (Von Bertalanffy, 1950) underpinned the supply chain management discipline (Giannakis et al., 2004). Scientific research was mainly based on reductionism until the 1930s (Anderson, 2001), where the behaviour of the whole could be explained by the individual parts. Von Bertalanffy challenged reductionism with holism in the form of systems theory. The whole may be greater than the sum of its parts. Supply chain management, which can be set within this context, has developed as a holistic approach to industrial organisations and their supply systems (Figure 2). It is now commonly recognised that supply chains are dynamic systems, popularised by the work of Forrester, who through the use of a simple simulation model showed how the variance of end user demand could be amplified as it moves up the supply chain system (Forrester, 1961). A taxonomy of causes of demand amplification was developed by Disney et al. (2000) and include factors such as time delays, order batching effects (Burbidge, 1981), and rationing and gaming (Houlihan, 1985). These effects plus other inefficiencies such as duplication of activities, which result in risk aversion strategies, large stock-piles of inventory and other symptoms of uncoordinated inter-company processes, could be overcome through vertical integration it is argued. .

Figure 2 An Organisation as an input-output transformation system

Later we will position inherent inefficiencies in transport management within this categorising framework and develop it as a scorecard to illustrate the impact of our case studies in improving performance across each of the metrics. The role of transport Given this background what does this mean for the management of transport? How should transport be managed within the overall integrated supply chain environment? Transport can be defined as “the physical link connecting . . . the fixed points in a logistics supply chain” (Coyle et al., 2003) and hence is a key integral process in contributing to the overall goal of successful supply chain 189

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

management; the planning and control of material flow (Ellram, 1991), to delivery of superior value to the end customer (Christopher and Towill, 2000). Stank et al. (2001) confirm that “benefits accruing from world class operations at the points of supply are pointless without the accompaniment of excellent transport planning and execution”. They go on to portray the critical role of transport in the supply chain as a cog in an interlocking set of supply chain gears or wheels. It is vital that all supply chain processes provide excellence in terms of optimised value and therefore it is critical that transport plays its proper role in terms of cost and service provision, rather than being seen as potentially the weakest link. Importantly, however, as we will develop later, as a mobile asset transport has the flexibility to potentially serve more than one supply chain and therefore Stank et al.’s image of transport an interlocking gear in one value chain can be extended to indicate its potential wider value (Figure 3). However, despite its apparent importance in terms of both cost and service, Potter (2005) notes that transport is more commonly treated as a discrete process and as “a derived demand, where costs have to be minimised within the constraints imposed upon it by the supply chain”. He quotes, Quinn (2000) who, in his article “Transportation: the forgotten factor”, suggested, “the focus of supply chain management research has neglected transport management”. Transport is often therefore managed as a commodity, where purchasing is focussed on transactional rather than a partnership (contemporary) approach. This can be represented in a simple diagram of an integrated supply chain between a buyer and seller which highlights typical collaborative links between buying and selling partners, such as the promotion of collaborative planning, forecasting and replenishment (CPFR) in the grocery sector (Ireland and Bruce, 2000j) but fails to factor in integrated transport management (Figure 4). Cox (2004) notes that, “any activity that incurs too much cost in the process of adding value will lead to customer’s dissatisfaction and presumably loss of sale”. Freight transport is clearly one such activity and it is argued here that a

Figure 4 The focus of supply chain management research has neglected transport management

collaborative approach is often capable of providing superior value to more traditional purchasing and supply methods for transport provision. Collaboration in transport management is, therefore, proposed to overcome some of the inherent inefficiencies which are invariably in the transportation process to provide superior, order winning performance. Sutherland (2003) identifies a range of these inefficiencies which they list under shippers (the buyers of transport) and carriers (the transport providers). For shippers they include high transport costs, poor on time performance, long cycle times, and high inventory costs. For carriers they are empty deadhead miles, unproductive waiting time and lack of critical network mass. Interestingly, many of these inefficiencies are obscured from normal customers of transport who incorrectly believe that by just using the forces of demand and supply and awarding contracts to low cost bidders they are optimising the transport contract. The three categories developed by Goentzel and Lapide (2004) can be used to position these inefficiencies (Table I).

Figure 3 A simplified model of transportation value contribution in vertically and horizontally integrated supply chain networks

Business relationship frameworks Vertical collaboration involving transport As we have discussed, to many there remains tremendous potential to prodigiously improve a value chain’s effectiveness through improved coordination of the business of product and service supply (Hammer, 2001). The notion of integration implies that some of the benefits of ownership can be realised without some of the burdens of ownership being incurred and a key building block of this integration is the notion of vertical collaboration. It is advocated that vertical relations should be developed in upstream and downstream directions along the supply chain as well as internally across functions. Hence, the central question postulated in supply chain management is how best to manage relationships between supply chain players. There has been much written and debated about this area and consequently before we probe into vertical collaboration involving the management of transport the overall topic of this form of collaboration is briefly set out. 190

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

Table I Categorising the inherent inefficiencies of transport and logistics to the balanced scorecard measures for supply chain excellence Component of supply chain excellence (Goentzel and Lapide, 2004)

Transport and logistics inefficiencies (Sutherland, 2003)

Efficiency

High inventory carrying costs Unproductive waiting time High transport costs Lack of critical network mass Empty running miles Long cycle times Poor on time performance

Asset utilisation Customer response (service)

partnering rather than collaboration to cover the family of inter-relationship forms between firms. Spekman et al. (1998) (see Figure 5) argued that collaboration should be defined as a particular type of relationship and not an all embracing term which covered any form of business interaction. There is obviously debate over whether this kind of collaborative approach is better or superior in terms of optimising the supply system. Although many authors regard collaboration as an integral part of supply chain management (Horvarth, 2001) there is also recognition that the journey to move from one end of the spectrum to the other is not easy and can take some time (Hines and Samuel, 2004). There is also recognition that to maintain collaborative relations with all contact points at the same time is problematic and hence many authors have advocated the prioritisation of relationships depending on their importance. Many authors argue that there should be a “mutuality of benefit” between collaborative partners (Carlisle and Parker, 1989, Barratt, 2004). This does not mean that the benefits should be equally shared, but it does lead to the conclusion that each collaborative party should derive some payback for investing in the relationship. Rewards for collaborating do not have to be monetarily based and might be very soft and/or in the long rather than the short term. Other authors argue that there should be an element of risk sharing in collaboration.

The collaborative supply chain The traditional view took a relatively myopic approach, aiming to optimise functions and departments, all be it, in a strategic sense by adopting a longer-term perspective. Hines and Samuel (2004) summarised this in relation to the purchasing function, arguing that the aim of traditional purchasing was: . . . to achieve the lowest purchase prices whilst assuring supply was characterised by: multiple suppliers, supplier selection being based primarily on purchase price; arms-length negotiations; formal short-term contracts and centralised purchasing (Hines and Samuel, 2004)

Moreover, many of these inefficiencies remain unseen by potential close partners who work in isolation of connected processes and are driven by functionally orientated, or at best firm led key performance indicators. In contrast supply chains which demonstrate collaborative management, “to integrate supply and demand, deliver significantly improved performance” (Barratt, 2004). A comparison of these two approaches is shown in Table II. Consequently, much of the focus of supply chain management goals and market orientated value chain strategies have been focussed on unlocking the value creating potential of closer relationships, vertically up and down the chain of supply. With a few exceptions, notably Blois (1972), Hines (1997) notes that it was not until the 1980s that the “true strategic value of buyer-seller relationships was being discussed in any depth”. But by the early 1990s, Carlisle and Parker (1989), Ellram (1991), Macbeth and Ferguson (1994) and Baily and Farmer (1990) had taken the notion of buyer-seller relationship forward emphasising that it involved commitment over an extended period of time and included the sharing of information along with the sharing of risks and rewards (Ellram, 1991). Many authors have drawn up conceptualisations to show how they envisage the spectrum of relationship types within a network, (see Figure 1) from open market relations on the one hand (the traditional view) to tightly coordinated and integrated relationships on the other (the contemporary view – Table II). Mentzer et al. (2000), use the term

Figure 5 The key transition from open market negotiation to collaboration

Table II Comparing traditional and contemporary supply chain management approaches SCM view

Aim

Means

Scope

Supplier base numbers

Management

Traditional view

Optimise cost (through lowest purchase price) Optimise value

Adversarial (arms length negotiations) Collaborative

Purely operational

Many

Short term contracts

Strategic and operational

Selected few

Joint and on-going management

Contemporary view

Source: Adapted from Hines and Samuel (2004)

191

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

Finally, the notion of sharing information is frequently promoted as an essential element of collaboration. Indeed, it is the explosion in new sharing possibilities that are occurring due to the developments in recent years in information communication technology (ICT) which many authors attribute as a key plank in the rise of the desirability of collaboration. An in depth review of collaboration involving transport management with supply chain partners leading to a classification of behaviours along a spectrum such as Spekman et al.’s (1998) is beyond the scope of this paper. We have therefore selected a more all encompassing definition of his form of collaboration.

between partners with features such as proactive shipment based alerts and the integration of event planning capabilities. Comprehensive KPI reporting supports the stage. Stank and Goldsby (2000) identified five levels of collaboration on a spectrum of strategic to operational importance. At the highest strategic decision level total freight flows would be assessed and the appropriateness of transport modes would be determined, although it was stressed that network flexibility and the capability to switch modes was important. The second level focussed on lane operating decisions on a daily basis to meet delivery service requirements at lowest costs. Schedulers aimed to consolidate loads within the service parameters of achieving on time in full delivery of orders. As we will see in the Factory Gate Pricing case study the design of the network (the first strategic level) and in the Skylark case (again the first strategic decision level) can have a considerable baring on what is possible at this decision level. Levels three to five concentrated on the operational integration aspects. The ECR group in Europe has begun to facilitate discussions and work programmes for transport optimisation into its overall framework for “delivering a better deal for consumers through greater collaboration between retailers and suppliers” (Potter et al., 2003a). It has provided a guide of activities that are aimed at guiding decision makers into successfully implementing improvements in primary distribution. Essentially five steps are outline from strategise to deployment with partners able to select from a menu of potential optimisation strategies at either, tactical, operational, or strategic levels. At the strategic level solutions include the development of consolidation centres, total network optimisation and shared user facilities each of which feature in the three case study examples we develop as examples of collaborative solutions. Disney et al. (2003) showed at an operational level how the adoption of a collaborative strategy such as vendor-managed inventory (Waller et al., 1999) can also have a partially beneficial impact on transport optimisation. A key to this was the concept of flexibility in transport provision and key concept and one which the authors are addressing in future research. In the USA the formalisation of the concept of collaborative transport management (CTM) as a cousin complimentary to the process of collaborative planning, forecasting and replenishment (CPFR) has been developed in recent years (Sutherland, 2003). Backed by software support it includes “capacity planning and scheduling, order generation load tender, delivery execution, and carrier payment” aspects (Sutherland, 2003). Through a strategic, tactical and operational phases transport is managed collaboratively by supply chain traders and service providers from forecast to operation. In its conceptualisation CTM envisages that the further collaboration is invested into, the greater will be the value dividend (Sutherland, 2003) a notion that is also present in our case study examples. One of the keys to optimisation in collaborative supply chain management is to achieve an ideal balance between cost savings and service level.

A collaborative supply chain simply means that two or more independent companies work jointly to plan to execute supply chain operations with greater success than when acting in isolation (Simatupang and Sridharan, 2002).

However, it is important to note that different degrees of vertical integration through collaboration are possible and that collaboration involving transport management will follow on a similar progression. Transport collaboration in supply chain management As has been discussed the management of transport is more usually categorised as occurring on traditional more adversarial lines rather than from a more contemporary integrated perspective. However, there is evidence that is supporting a move towards a more partnering approach. Morash and Clinton(1997) note that to minimise total costs and maximise customer value transport integration is vital within the supply chain. They remark however, that supply chain integrations place more pressure on the transport operation. “If time compression results in more frequent deliveries then cycle stocks can be lower . . . faster transit time allows for the minimisation of pipeline inventory and more of a premium is placed on methods to control transport cost whilst tightening cycle time”. They also note the importance of reliability of the transport operation and note that this is increasing as more chains move to just-in-time production. Thus it could be argued that the incentive to vertically integrate and collaborate to control costs and improve service levels so that the benefits of integrated supply chain management can be deployed is increasing. Gurav (2004) highlights that there are two reasons why transportation is becoming a more strategic business function: 1 transport costs are accounting for a larger percentage of the cost of goods sold; and 2 there is more realisation of the strong correlation between customer service levels and transportation performance. In modern supply chain management where inventory levels are compressed and consequently the buffer provided by that inventory in the prevention of sell outs is reduced the criticality of on time in full delivery increases which clearly transport has a key role in fulfilling. Gurav (2004) goes on to suggest that in vertically integrating transport there is a spectrum similar to the spectrum developed by Spekman et al. (1998). First, at level one, transport is managed as a completely disparate function and there is no or very little visibility of the shipment cycle. At level two communication begins to improve between carrier and shippers supported by some automated shipment feedback. Finally at level three a more fully developed collaborative platform is established

In modern supply chains the criticality of good service as well as tight costs management are becoming increasingly important (Towill, 1997).

As the importance to achieve more reliable service levels increases, the need for this trade off to be managed increases. 192

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

As we will see one of the ways to manage costs down as well as achieve the required service levels is to extend the notion of collaboration on a horizontal plain to potentially include complimentary players and even competitors (Christopher, 2004). It is the inclusion of this dimension alongside vertical collaboration that separates our examples from many of these concepts.

the wider enterprise through the effect of demand amplification or bullwhip, it is either not always possible to negate this, or alternatively the demand fluctuation is caused by other forces outside the control of the supply chain members. This can be due to economic, cyclical, trend or random reasons and demand amplification up the supply chain can exacerbate the problem. In these circumstances if the asset can be additionally deployed on parallel supply chains their utilisation rate goes up by spreading the fixed costs of assets among more activities thus producing a more attractive business proposition. Transport provision often has to be reactive to fluctuating demand and hence it makes sense to pursue horizontally collaborative solutions. Given the number of potential companies involved in this concept of multi-relations in a network, it is often managed not as a cohesive whole, but as a self-evolving system, Ritter et al. (2004) notes. This introduces also the ideas behind reducing the number of contact points so that they can be better managed and the segmentation of relationships to determine different levels of collaborative action. However, where they can be conceptualised as a complete network and a single point of control established there is considerable room for holistic gains to be made in the transport operation. This is recognised in the definition of combining horizontal and vertical forms of collaboration.

Horizontal collaboration involving transport At the outset of this discussion it is perhaps useful to position different types of business relationship in terms of the core company. In simple terms relationships can be formed in one of two dimensions; either vertically or horizontally. Barratt (2004) presented this concept in a simple, but very useful model in which he identified the four different potential relationship partners, suppliers and customers on the vertical axis and complementors or competitors on the horizontal plain. He also noted that another form of collaboration can occur internally within the core company as departments, previously functionally orientated, break down barriers and work towards optimisation from a process perspective (Figure 6). In addition, a form of combined relationship which links the benefits of vertical and horizontal collaboration has been identified known as lateral collaboration. In their drive to be ever more efficient and competitive, companies have clearly, as we have discussed, focussed on their internal organisation and processes and through vertical collaboration with supply chain partners. As pressure to become ever more competitive continues companies are now looking externally beyond the boundaries of their own organisations and value chains and transport as a mobile asset is arguably more versatile in being able to achieve this concept. Horizontal collaboration more fully exploits the conceptualisation of supply chains as supply networks. One of the keys to value creation and profitability is the effective deployment of assets. Where spare capacity in those assets exists on a value stream the ideal from a lean perspective would be to stabilise demand and right size the assets accordingly (Womack and Jones, 1996). However, while often some demand fluctuation is internally created by

It [lateral collaboration] aims to gain more flexibility by combining and sharing capabilities in both vertical and horizontal manners (Simatupang and Sridharan, 2002)

This kind of thinking is being exploited by new network logistics players who envisage that collaboration will be a key to creating superior value adding solutions in many supply chains. This can be seen through developments in international and domestic logistics structures. Our case study examples of Factory Gate Pricing and Pallet Networks typify this combined collaborative approach.

Case study examples of lateral collaboration for transport Three case study examples are examined to illustrate how the concept of better optimised transport through lateral collaborative models are being realised. Initially, the facilitating force of ICT development and adoption is briefly considered.

Figure 6 Forms of collaborative transport management

The facilitating force of ICT developments One of the main catalysts to improved vertical and horizontal relationships have been the developments in ICT which have led to renewed possibilities for the sharing of information. This has enabled core processes such as forecasting, production, distribution and product development to become considerably more visible to partners leading to collaborative possibilities. Customers, who are willing to share market information, allow their inventories to be co-managed with suppliers, build in understanding and flexibility into their relationship are able to show improved results (Harrigan, 1985).

It is estimated that global logistics market is worth US$3 trillion and that no enterprise (big or small) could afford to avoid collaborating intelligently in logistics and transport (Malone, 2006). This is possible due to the advancement in ICT that assist in reducing or eliminating inefficiencies in the 193

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

transport through collaboration. These efficiencies as we have discussed could be related to time, inventory, inaccuracies, distance and utilisation of space that could be managed better using technologies to bring benefit to all partners in supply chains. As detailed above there have been inter-industry initiatives to develop collaborative transport management (CTM) using the CPFR model involving information and process flows. Suppliers and buyers in this system collaborate jointly with 3PLs or transport operators to achieve desirable efficiency (Sutherland, 2003). Successful and effective inter-organisational collaboration requires the organisations to understand how to use the information technology to gain the benefits through data analysis, visibility, and information utilisation. An additional area where significant advances are being made that will assist in collaboration in transport optimisation management is automatic identification and data capture (AIDC). AIDC technology assists in capturing real-time information on the movement of goods through the supply chains. One of the AIDC methods is radio frequency identification (RFID) which is having considerable impact on the collaboration strategies in transport optimisation in a variety of sectors including retail, manufacturing, health, and others. A further development which features in underpins each case study, notably the Skylark system is the changes in Telematics. Telematics can be simply defined as, “the use of computers to control and monitor remote devices or systems” (DfT, 2003) In the transport industry a number of devices or systems have been installed on vehicles and trailers providing the opportunity for not only better transport management but also for collaboration for transport optimisation. Telematics hardware includes on-board computers with software for global positioning system (GPS) and data communication controls. GPS receiver, communication modules, on-board keypad, navigation module and screen are all interfaced with the on-board computer system. Telematics system includes the installation of a management software on the computer system and this is designed to assist in managing the vehicles, drivers, reporting, delivery, and other operational functions. Companies such as UPS and TNT have shown that a number of benefits could be achieved in freight transport management using telematics systems including the overall improvement in the freight system efficiency. Three case studies discussed in the later section suggest that the information generated through the use of telematics hardware, satellite tracking and management software system is facilitating the collaboration towards transport optimization. New ICT developments are hence facilitating improved capabilities in transport management. This is accelerating the progress to more professionally and precisely managed supply chain systems working in a time compressed state where integration between value chain partners is sought to drive out duplicated processes and to achieve more seamless flows of the product along the value chain. Examples of the adoption and exploitation of certain ICT developments which will feature in our case studies have ICT developments at their core.

not a new concept, having roots in many other sectors, notably the automotive industry, but the scale and complexity of its deployment in the UK retail industry took it to a new level (Potter et al., 2003b). It is an excellent example of how the exploitation of the competitive power of enhanced collaboration can have profound implications for better optimising the transport process. FGP has been defined as: . . . the use of an ex-works price for a product and the organisation and optimisation of transport by the purchaser to the point of delivery (Potter et al., 2003b).

It can be seen as a continuation of a retail strategy in extending their span of control back up their supply chains which began with the introduction of distribution centres in the 1970s and 1980s and continued with the introduction of just in time practices in the 1990s as inventory levels were compressed in stores and distribution centres over the last decade and a half. This required consolidation centres to be introduced into the inbound network to maintain the efficiency of transport (Smith and Sparks, 2004), but these were controlled on an ad-hoc basis by various manufacturing consortiums. FGP was introduced from 2001, with the UKs leading retailer Tesco leading the move, allowing the receiving retailers to take greater control of the inbound distribution network into their distribution centres. Effectively what the move enabled was the introduction of a single point of control for the in-bound transport network to drive up asset utilisation of vehicles. It transferred formerly externally managed operations into internally controlled operations and although responsibility for transportation was still out-sourced to third party logistics providers the ability to optimise the network was considerably enhanced. As part of our research programme a detailed analysis of the potential savings from the shift to FGP was made, in particular focussing on the savings that could be generated through increasing the volume of product flows passing through the consolidation network. Within the case study retailer, less than truckload suppliers are those that average fewer than 18 pallets per load per day and under FGP these suppliers now were routed via their local consolidation centre for onward movement to the main distribution centre of the retailer (Figure 7). By controlling the consolidation network from a single point through FGP, it is possible to reduce the total distance products travel between suppliers and stores by 23-25 per cent (Potter et al., 2003b). In addition, the improved visibility provided by introducing one central point of control allowed the retailer is able to further exploit its utilisation of transport assets through better coordination of in-bound and out-bound vehicle movements to reduce empty running. Improved customer response or service levels have also been realised since the introduction of FGP. By separating the transport process from the manufacturing supplying process reasons for failure to arrive can be more easily followed up and accountability attributed. Through this the retailer is able to identify problems and make changes to improve the reliability of delivery service levels with more on time arrivals at the DC. On the efficiency side there is obviously potential for the retailer to use its economies of scale to compress freight rates for the whole network and to put more pressure on carriers to ensure on time delivery performance is at high levels. FGP

Factory gate pricing The first case study focuses on the concept of factory gate pricing (FGP), in particular the deployment of the concept in the UK retail industry since 2001 by leading retailers. FGP is 194

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

Figure 7 Transport management techniques applied within the case study retailer under FGP

monitors vehicle positions every five minutes, providing an extremely up to date service. Skylark will display to interested parties such as the shipper and carrier each truck’s progress on a job, showing whether the truck is early, on time or late, through a simple traffic light based visual display system. The system can potentially monitor half a million “jobs” at any one time. The unique benefits of the Skylark system lie in the fact that it offers a “transparent” mechanism to monitor many different logistical operations, providing an opportunity to facilitate possible mutually beneficial collaborations. It is able to offer this opportunity because it will allow a number of different telematic systems to “talk” to it and each other. It is also very flexible and can customise the visibility of transport jobs, running status of a load to whoever values the information. Warehouses, for example, could receive early notification of a vehicle running late or can communicate with all in-bound deliveries during a period to notify them of late running at the DC to reduce unproductive waiting time. As well as supporting on time delivery through enhanced visibility it also has the potential to encourage better fleet asset utilisation matching spare vehicles with loads across the collaborative network. For instance, a haulier can identify which vehicles are due to run empty or can find a vehicle. The more companies that join the network the greater the potential in load consolidation and empty running reduction.

should also allow for a reduction in waiting time to be achieved at collection and drop off points, but although better planning is facilitated by FGP in practice there are many other external factors that contribute to delays especially at receiving distribution points that this saving has been only partially realised. For inventory levels FGP supports the holistic supply chain strategy of compressing order lead times and inventory levels facilitating transport solutions which fit with this strategy. Case studies such as from Brown (2002) support this. Improved delivery reliability and potential to better synchronise deliveries to a tighter just in time basis again support the drive towards lower inventory holding. FGP is an example of fourth party logistics (4PLs). 4PL providers have emerged over recent years as a way of managing logistics activities more holistically to deliver improved vehicle utilisation and consequently better performance. Rather than customers of transport having a “one to one” relationship with one transport provider the 4PL is able to generate a relationship with many providers to deliver savings. The 4PL then oversees all of the partner’s logistics and transport operations over a wide geographical area and through network synergies can link resources (transport assets) with work, reducing costs and improving service levels. Better optimisation of transport through improving vertical and horizontal collaboration.

Pallet networks Pallet networks are again a form of transport optimisation through combined vertical and horizontal collaboration. Like the FGP and 4PL concept they create and exploit a single point of control for the whole operation with a modular pallet system which allows a high level of customisation and service whilst efficiencies are managed through economies of scope. They have developed rapidly in the UK, in part as a response to customer pressures. This has led to considerable annual growth rates being achieved in the UK since their introduction in the early 1990s. Ten networks currently operate with a nightly throughput of around 5,000 pallets (DfT, 2005). Haulage companies who join a network mutually benefit from collaborating in the consortium but have no need to integrate their business with other hauliers other than through the pallet network coordinator. Pallets are picked up from local suppliers, consolidated for a region, shipped to a central distribution hub, before being re-allocated to their end destination where the reverse process of trunking, deconsolidation and final delivery is followed. Their success is partly attributed to being able to efficiently handle the small but frequent loads required for lean production (Semple, 2003), thus supporting reduced inventory levels especially at customers. Indeed from a supply chain efficiency perspective they are able to fully support a company’s drive to reduce inventory and work to a tighter just in time system shipping regular small quantities on fairly tight lead times (order day one for delivery day two). Although rates were initially quite high the pallet industry has become very competitive in the UK resulting in a further lowering of rates. The development of new pallet sizes such as the half and the quarter pallets has further fuelled usage levels. A virtuous circle has developed so as more customers are introduced to the network the stronger the networks become allowing for fuller loads and further lowering of rates.

Skylark The visibility of the transport operation has been greatly enhanced in recent years by the introduction of telematics. However, what had frustrated the customers of transport is the necessity to access a number of telematic sites to gain an accurate picture of their fleet at anyone time as each haulier had develped its own telematic system Skylark is a response to this. It is a new open telematic internet based system to meet haulage tracking needs (www.skylarkqps.com). It was created for three leading grocery manufacturers who collaboratively united to commission the system and is due to go live during the spring of 2006. Ultimately, it is hoped all contracted LSPs will operate this system and will be able to exploit the benefits for improved transport optimisation. Like other telematic systems Skylark allows customers to accurately track the position of any vehicle at any point. It 195

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

A new ICT system is also being developed to support the pallet network concept. Currently information about a load is conveyed manually with the load. Thus it is only when the load is cross-docked at the central hub that out-bound distributing hauliers know the details about delivery requirements. The new electronic communication system will enable hauliers responsible for delivery to be notified as soon as the load is booked onto the system by the suppler and will therefore provide much earlier notification of delivery details. In addition it is anticipated that the new ICT system will facilitate the identification of any loads which might bypass the central hub can be made on a direct routing creating a “virtual hub” for such product flows.

Figure 8 A theoretical framework outlining the demand for and supply of better optimised transport solutions through combining vertical and horizontal collaboration

Case study assessment In order to assess the strengths of each of the case studies in contributing towards the optimisation of transport and related logistics activities such as inventory control a chart has been drawn up which summarises each one (Table III). The degree of impact for each case study is plotted against each category of supply chain excellence (Goentzel and Lapide, 2004) and the related inherent inefficiencies in traditional transport provision (Sutherland, 2003). It highlights that each is able to support a balanced scorecard of improvement, or has the potential to do so in many of the measurable areas. Interestingly, the virtuous circle of optimisation that was highlighted by Sutherland (2003) in the CTM concept is also present here. The greater the volume of activity in each of the case study examples the greater the potential cost savings, although to some extent this is off-set by added complexity. A theoretical framework summarising the main aspects of the paper is presented (Figure 8), which draws together the main issues argued in this paper. The management of transport must be operationalised within the context of the holistic supply chain. On the demand side powerful industry pressures are being exerted on the process of transport in contemporary supply chains. Transport operators have to ensure they are able to deliver products in smaller more frequent orders, just in time to tighter delivery windows, to ever more exacting quality standards and with complete reliability, while also ensuring costs are contained or even lowered. The traditional forms of managing transport as a discrete function by-passed by many of the integrative processes that have characterised the movement towards

integrated supply chain management need now to include transport. Yet, although vertical integration is desirable it is not enough if transport costs are to be better optimised. What is required is the joint application of vertical collaboration alongside transport models which include a strong element of horizontal collaboration. Our case study examples typify this approach and indicate new levels of value can be attained by the transport operation if such collaborative practices are embraced.

Conclusions This paper has described the advantages of taking a collaborative approach for transport management through combining collaboration with vertical supply chain partners with collaboration on a horizontal basis. It has demonstrated that this approach can improve logistics performance. Transport collaboration can take many forms. It is not just about cost minimalisation – it is about value optimisation – . improved service levels – visibility – end customer satisfaction and so on, as well as potentially lower costs. Each of the case study examples illustrate how better optimised value can be generated by the transport process if collaboration is more fully engaged into.

Table III An assessment of the case study examples at better optimising transport and logistics inefficiencies FGP (with better consolidation network)

Skylark

Component of supply chain excellence

Transport and logistics inefficiencies

Efficiency

High inventory carrying costs

Yes (for customer)

No change

Asset utilisation

Unproductive waiting time High transport costs Lack of critical network mass

Partial Yes Yes

Yes Partial No change

Empty running miles Long cycle times Poor on time performance

Yes No change Yes

Potentially yes No change Potentially yes

Customer response (service)

Pallet networks

Capability to improve performance in transport inefficiencies

196

Yes (for customer and potentially for supplier) Yes Yes Partial (a virtuous circle can develop) Partial Yes Yes

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

ICT changes, leading to more effective collaborative capabilities are providing increased possibilities for companies to work more closely together to reduce logistics costs, eliminate inefficiencies and deliver service excellence, within a more robust business model framework. Advanced open telematic systems, ICT enabled fleet management systems and advances in automatic identification and data capture such as RFID are coming together to support new business models for transport management. Reducing miles where vehicles are light loaded or empty, slicker turn around times, and optimising the planning of the fleet are all critical if hauliers are to improve deployment and make the most of their assets. This will also contribute to more sustainable distribution. Much has to be worked on within the industry before the fuller potential of transport collaboration can begin to be achieved. For improved vertical collaboration companies (customers and providers) by en-large, need to re-orientate their thinking to a process orientated rather than a functionally orientated mentality. This needs to be supported by well thought through supply chain strategies that underpin the collaborative approach. In many instances also a driver of change to lead prospective partners towards a more collaborative state is required. Examples of these leaders have been discussed in the paper – the pallet network providers, factory gate pricing and telematic coordinators – but more are needed. This requires a holistic stance to be taken and sufficient power to leverage changes in behaviour. Where vertical and horizontal collaboration can be combined new often superior business models are being created. Demand for transport is invariably not even and maintaining effective utilisation of assets even when tightly coordinated with customers can be problematic. By flexibly using assets across parallel supply chains as described in the paper an integrated service combined with high levels of efficiency can be realised, which provide enhanced value solutions in transport optimisation and a more competitive position for the participating transport organisations. These ideas are challenging many traditional methods for managing transport.

Brown, A. (2002), “Feeding the big cats”, Motor Transport, 25 April, pp. 20-1. Burbidge, J.L. (1981), “The new approach to production”, Production Engineer, Vol. 40 No. 12, pp. 769-84. Burns, R. (2005), The Burns Report – Freight Taxes Inquiry, available at: www.freight-taxes.co.uk Carlisle, J. and Parker, R. (1989), Beyond Negotiation: Redeeming Customer Supplier Relationships, Wiley, Chichester. Christopher, M. (1992), Logistics and Supply Chain Management, Pitmans, London. Christopher, M. (2004), “Supply chains: a marketing perspective”, in New, S. and Westbrook, R. (Eds), Understanding Supply Chains, Oxford University Press, Oxford, pp. 23-42. Christopher, M. and Towill, D.R. (2000), “An integrated model for the design of agile supply chains”, International Journal of Physical Distribution & Logistics Management, Vol. 13 No. 4, pp. 4-17. Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing, 1st ed., Publishing, London. Coase, R. (1937), “The nature of the firm”, Economica, Vol. 4, pp. 386-405. Cox, A. (2004), “The art of the possible; relationship management in power regimes and supply chains”, Supply Chain Management: An International Journal, Vol. 9 No. 5, pp. 346-56. Cox, A. and Lamming, R. (1997), “Managing supply in the firm of the future”, European Journal of Purchasing and Supply Management, Vol. 3 No. 2. Coyle, J.J., Edward, J.B. and Langley, C.J. (2003), The Management of Business Logistics: A Supply Chain Perspective, 7th ed., Western/Thompson Learning, Mason, OH. Department for Transport (2003), Best Practice Guide No. 341 ‘Telematics Guide’, Transport Energy Best Practice, available at: www.transportenergy.org.uk Department for Transport (2005), Key Performance Indicators for the Pallet Distribution Network Sector, Transport Energy Best Practice, available at: www. transportenergy.org.uk Disney, S.M., Naim, M.M. and Towill, D.R. (2000), “Genetic algorithm optimisation of a class of inventory control systems”, International Journal of Production Economics, Vol. 68, pp. 259-78. Disney, S.M., Potter, A.T. and Gardner, B.M. (2003), “The impact of vendor managed inventory on transport operations”, Transportation Research Part E, Vol. 39, pp. 363-80. Ellram, L.M. (1991), “Supply chain management. The industrial organisation perspective”, International Journal of Physical Distribution & Logistics Management, Vol. 21 No. 1, pp. 13-22. Forrester, J.W. (1961), Industrial Dynamic, Productivity Press, Portland, OR. Giannakis, M., Croom, S. and Slack, N. (2004), “Supply chain paradigms”, in New, S. and Westbrook, R. (Eds), Understanding Supply Chains, Oxford University Press, Oxford, pp. 1-21. Goentzel, J. and Lapide, L. (2004), “Supply chain 2020: predicting the supply chain of the future”, paper presented at the LRN Conference, Dublin, September.

Note 1 Transport in Supply Chains Conference, Belfry Hotel, Sutton Coldfield, UK, 6th October 2004

References Anderson, H. (2001), “A history of reductionism versus holistic approaches to scientific research”, Endeavour, Vol. 25 No. 4, pp. 153-6. Baily, P. and Farmer, D. (1990), Purchasing Principles and Management, 6th ed., Pitman Publishing, London. Barratt, M. (2004), “Understanding the meaning of collaboration in the supply chain”, Supply Chain Management: An International Journal, Vol. 9 No. 1, pp. 30-42. Blois, K. (1972), “Vertical quasi-integration”, Journal of Industrial Economics, Vol. 20, pp. 253-72. Boughton, R. (2004), “Transport in supply chains”, Transport in Supply Chains Conference, Belfry Hotel, Sutton Coldfield, 6th October 2004, available at: www.itels. org.uk 197

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

Gurav, R. (2004), “Closed loop transport management”, Logistics Focus, November, pp. 44-7. Hammer, M. (2001), “The superefficient company”, Harvard Business Review, September, pp. 81-91. Harrigan, K.R. (1985), “Strategies for intrafirm transfers and outside sourcing”, Academy of Management Journal, Vol. 28 No. 4, pp. 914-25. Hill, T. (1993), Manufacturing Strategy: Text and Cases, 2nd ed., Macmillan Press, London. Hines, P.A. (1994), Creating World Class Suppliers: Unlocking Mutual Competitive Advantage, Pitman Publishing, London. Hines, P.A. (1997), “Comparative typology of intercompany networking”, in Cox, A. and Hines, P.A. (Eds), Advanced Supply Management, Earlsgate Press, Boston, pp. 137-82. Hines, P.A. and Rich, N. (2001), “The seven value stream mapping tools”, in Taylor, D. and Brunt, D. (Eds), Manufacturing Operations and Supply Chain Management, Thomson Learning, Boston, MA. Hines, P. and Samuel, D. (2004), “An explanatory model of integrated supply chain management”, Logistics Research Network Conference, September, Dublin, Ireland, pp. 248256. Horvarth, L. (2001), “Collaboration: the key to value creation in supply chain management”, Supply Chain Management, Vol. 6 No. 5, pp. 205-7. Houlihan, J.B. (1984), “Supply chain management”, Proceedings of the 19th Int. Tech. Conference BPICS, pp. 101-10. Houlihan, J.B. (1985), “International supply chain management”, International Journal of Physical Distribution and Materials Management, Vol. 15, pp. 22-9. Houlihan, J.B. (1988), “International supply chains: a new approach”, Management Decision, Vol. 26, pp. 13-19. Ireland, R. and Bruce, R. (2000), “CPFR: only the beginning of collaboration”, Supply Chain Management Review, September/October, pp. 80-8. Jarillo, C.J. (1988), “On strategic networks”, Strategic Management Journal, Vol. 9, pp. 31-41. Lalwani, C., Mason, R., Potter, A. and Yang, B. (Eds) (2004), Transport in Supply Chains, Cardiff Business School, Cardiff University, Cardiff, pp. 134. Leenders, M.R. and Blenkhorn, D.L. (1988), Reverse Marketing, The New Buyer-Supplier Relationship, Macmillan, New York, NY, p. 27. Lewis, J., Naim, M.M., Wardle, S. and Williams, E. (1998), “Quick scan your way to supply chain improvement”, IOM Control, Vol. 24 No. 7, pp. 17-22. McKinnon, A., Campbell, J. and Leuchars, D. (2003), Key Performance Indicators for the Food Supply Chain, Transport Energy Benchmarking Guide 78, Department for Transport, London. Macbeth, D.K. and Ferguson, N. (1994), Partnership Sourcing. An Integrated Supply Chain Approach, Pitman, London. Malone, R. (2006), available at: www.forbes.com/logistics/ 2006/01/31 Mason, R. (2004), “New opportunities for improved performance through better transport management”, paper presented at the Transport in Supply Chains Conference, Sutton Coldfield, 6 October 2004, available at: www.itels.org.uk Mentzer, J.T., Soonhong, M. and Zach, G. (2000), “The nature of interfirm partnering in supply chain

management”, Journal of Retailing, Vol. 76 No. 4, pp. 549-68. Morash, E.A. and Clinton, S.R. (1997), “The role of transportation capabilities in international supply chain management”, Transportation Journal, Vol. 36 No. 4, pp. 5-17. Nassimbeni, G. (2004), “Supply chains: a network perspective”, in New, S. and Westbrook, R. (Eds), Understanding Supply Chains, Oxford University Press, Oxford, pp. 43-68. Nassimbeni, G., De Toni, A. and Tonchia, S. (1993), “Supply chain into network companies”, Proceedings of the International Symposium on Logistics, pp. 163-8. Oliver, R.K. and Webber, M.D. (1992), “Supply chain management logistics catches up with strategy”, in Christopher, M. (Ed.), Logistics: The Strategic Issues, Chapman and Hall, London, pp. 63-75. Pine, B.J. II (1993), Mass Customisation: The Frontier in Business Competition, Harvard Business School Press, Boston, MA. Potter, A., Lalwani, C., Disney, S. and Velho, H. (2003b), “Modelling the impact of factory gate pricing on transport and logistics”, 8th International Symposium on Logistics, pp. 625-30. Potter, A.T. (2005), “The impact of supply chain dynamics on transport”, thesis submitted for Doctor of Philosophy, Cardiff Business School, Cardiff, October, available at: [email protected] Potter, M., Brown, A., Patel, T. and Cornes, S. (2003a), ECR UK Transport Optimisation: Sharing Best Practices in Distribution Management, IGD, Watford, available at: www.IGD.com/ecr Quinn, F.J. (2000), “Transportation: the forgotten factor”, Logistics Management, Vol. 39 No. 9, p. 45. Ritter, T., Wilkinson, I. and Wesley, J.J. (2004), “Managing in Complex Business Networks”, Industrial Marketing Management, No. 33, pp. 175-83. Sako, M. (1992), Prices, Quality and Trust: Inter-Firm Relations in Britain and Japan, Cambridge University Trust, Cambridge. Semple, J. (2003), “Pall-Ex shows quality vision”, Motor Transport, 3 April, pp. 1-4. Simatupang, T.M. and Sridharan, R. (2002), “The collaborative supply chain”, International Journal of Logistics Management;, Vol. 13 No. 1, pp. 15-30. Smith, D. and Sparks, L. (2004), “Logistics in Tesco: past, present and future”, in Fernie, J. and Sparks, L. (Eds), Logistics and Retail Management – Insights into Current Practice and Trends from Leading Experts, 2nd ed., Kogan Page, London. Spekman, R., Kamauff, J. Jr and Myhr, N. (1998), “An empirical investigation into supply chain management: a perspective on partnerships”, Supply Chain Management, Vol. 3 No. 2, pp. 53-67. Stank, T.P. and Goldsby, T.J. (2000), “A framework for transportation decision making in an integrated supply chain”, Supply Chain Management: An International Journal, Vol. 5 No. 2, pp. 71-7. Stank, T.P., Keller, S.B. and Daugherty, P.J. (2001), “Supply chain coordination and logistic service performance”, Journal of Business Logistics, Vol. 22 No. 1, pp. 29-48. 198

Combining vertical and horizontal collaboration

Supply Chain Management: An International Journal

Robert Mason, Chandra Lalwani and Roger Boughton

Volume 12 · Number 3 · 2007 · 187 –199

Further reading

Stevens, G. (1989), “Integrating the supply chain”, International Journal of Physical Distribution and Materials Management, Vol. 19 No. 8, pp. 3-8. Stevens, G.C. (1990), “Successful supply chain management”, Management Decision, Vol. 28 No. 8, pp. 25-30. Sutherland, J. (2003), Collaborative Transport Management, Business Briefing, Transport and Logistics Packaging, pp. 88-91. Towill, D.R. (1997), “The seamless supply chain: the predator’s strategic advantage”, International Journal of Technology Management, Vol. 13 No. 1, pp. 37-56. Von Bertalanffy, L. (1950), “Theory of open systems in physics and biology”, Science, Vol. III, pp. 23-9. Waller, M., Johnson, M.E. and Davis, T. (1999), “Vendor managed inventory in the retail supply chain”, Journal of Business Logistics, Vol. 20 No. 1, pp. 183-203. Webster, F.E. (1992), “The changing role of marketing in the corporation”, Journal of Marketing, Vol. 56 No. 4, pp. 1-17. Williamson, O. (1979), “Transaction cost economics: the governance of contractual relations”, Journal of Law and Economics, Vol. 22, pp. 3-61. Womack, J.P. and Jones, D.T. (1996), Lean Thinking, Simon & Schuster, New York, NY.

Cox, A., Ireland, P., Lansdale, C., Sanderson, J. and Watson, G. (2003), Supply Chain Management: A Guide to Best Practice, Financial Times/Prentice Hall, London. Mason, R. and Lalwani, C. (2004), “Integrating transportation into the supply chain to improve supply chain performance”, Proceedings of 9th Annual Logistics Research Network Conference, Quinn School of Business, University College Dublin, 9-10 September, pp. 370-8.

About the authors Robert Mason is a Lecturer in Logistics at the Lean Enterprise Research Centre and Innovative Manufacturing Research Centre (CU-IMRC), Cardiff University, UK. Robert is the corresponding author and can be contacted at: [email protected] Chandra Lalwani is the Chair in Supply Chain Management at the Business School at The University of Hull, UK. Roger Boughton is the Managing Director of MultiServ Logistics, UK. MultiServ are the largest transporter of steel in Europe.

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

199

A study of an augmented CPFR model for the 3C retail industry Tien-Hsiang Chang Department of Information Management, National Kaohsiung University of Applied Science, Kaohsiung, Taiwan, Republic of China

Hsin-Pin Fu and Wan-I Lee Department of Marketing and Distribution Management, National Kaohsiung First University of Science and Technology, Kaohsiung, Taiwan, Republic of China

Yichen Lin Institute of Technology Management, National University of Tainan, Tainan, Taiwan, Republic of China, and

Hsu-Chih Hsueh Smartant Co. Ltd Hsinchu, Taiwan, Republic of China Abstract Purpose – To propose and test an augmented collaborative planning, forecasting, and replenishment (A-CPFR) model in a retailer-supplier context with a view to improving forecasting accuracy and then reducing the “bullwhip effect” in the supply chain. Design/methodology/approach – After a literature review, the paper presents a real case in which the present authors provided assistance. The description of the case includes: case company background; an “as-is” model analysis; a “to-be” (CPFR) model analysis; and a description of the results and potential benefits. The paper then proposes an A-CPFR model for the case and performs a simulation of the new model for comparison with the existing CPFR model. Findings – The results show that the mean absolute deviation of forecasting and the inventory variance are both better in the proposed model than in the existing CPFR model. The proposed model can thus improve the accuracy of sales forecasting, reduce inventory levels, and reduce the “bullwhip effect”. Practical implications – In addition to information provided by the retailer, a logistics supplier should also obtain competitors’ promotional information from the market as another factor for forecasting – thus enabling timely responses to demand fluctuations. Originality/value – The proposed model is an original and useful development on the existing CPFR model. It could become a reference model for the retail industry in implementing CPFR in the future. Keywords Retailing, Supply chain management Paper type Research paper

The CPFR model is gathering momentum. For example, Industry Directions & Syncra Systems (ID&SS, 2000), which conducted research on 120 manufacturers, found that 26 per cent were putting CPFR-related plans into operation (23 per cent in the experimental stage; 3 per cent working on plans for more than six months) and that 42 per cent were pursuing related research. Similarly, the Market Information Center (see http://mic.iii.org.tw/intelligence/aboutmic/people_b1. asp?pno ¼ 880115), after conducting an analysis of the Gartner Group, estimated that by 2005 collaborative commerce would carry off more than 80 per cent of all business opportunities when competing against enterprises that did not have the capability to engage in collaborative commerce. Moreover, it has been estimated that businesses that implement the CPFR model can expect to achieve 2-25 per cent growth in sales, 10-15 per cent improvement in forecasting accuracy, and 0.5-2 per cent improvement in service performance (see: www.cpfr.org/). In a retail-oriented supply chain, the so-called “bullwhip effect” (that is, the magnification of demand fluctuations as orders move up a supply chain) is often initiated when changes in market demand cause forecasting inaccuracies. In response, many enterprises have implemented new crossenterprise operational models (such as JIT, VMI, and CPFR)

1. Introduction In fiercely competitive markets, retail businesses often use various supply-chain strategies to link replenishment, distribution, transport, and logistics in a quick-response mechanism. Typical strategies include “just-in-time” (JIT) and vendor-managed inventory (VMI). However, these methods can do no more than collate information among businesses, rather than promoting integrated cross-enterprise strategies and real process collaboration. Hence, in 1998, the Voluntary Inter-industry Commerce Standard (VICS – see www.vics.org/) proposed a model entitled “Collaborative planning, forecasting and replenishment” (CPFR) with a view to integrating the supply side and the demand side, thus enabling the collective creation of an effective environment to meet consumer demands. The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal 12/3 (2007) 200– 209 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10.1108/13598540710742518]

200

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

2. Literature review

in an attempt to reduce the “bullwhip effect” in their supply chains. In doing this, the members of a supply chain attempt to build up mutual trust and information-sharing through the new cross-enterprise operational model. In effect, the members of a supply chain form a “virtual organization”. If upstream logistics suppliers detect an imminent change in the market, the retailer does not necessarily have to initiate adjustment of forecasts of sales and demand; rather, the upstream logistics supplier can directly attune to delivery demand, thus reducing the intensity of the “bullwhip effect” in the supply chain. Lee et al. (1997) described four causes of the bullwhip effect-demand signal processing, the rationing game, order batching, and price variations. Demand signal processing refers to the situation where demand is nonstationary and one uses past demand information to update forecasts. The rationing game refers to the strategic ordering behavior of buyers when supply shortage is anticipated. When the fixed order cost is nonzero, ordering in every period would be uneconomical, and batching of orders would occur. Finally, price variations refer to non-constant purchase prices of the product. The present paper reports on the implementation of such a cross-enterprise operational model. This CPFR collaboration was executed, with the assistance of the present authors, between JP Computers Ltd, a retailer of computer, communication, and consumer (3C) products, and Synnex, the largest logistics supplier of 3C products in Taiwan. A unique collaborative marketing mode was built up. However, the bullwhip effect is reduced but it still existed. According to the above description (Lee et al., 1997), the forecasting accuracy is one of there causes of the bullwhip effect Therefore, the authors proposed an augmented CPFR model (A-CPFR), consisting of the existing CPFR model with the addition of an application service provider (ASP) mode to provide additional market information with a view to improve the forecasting accuracy, as shown through the simulation study, and thus reduce the “bullwhip effect” in the supply chain. An ASP is a contractual service that provides system implementation, hosting, management, and the use of applications, all from a location with concentrated management and is responsible for directly or indirectly providing all of the special activities and professional knowledge of the software maintenance system (IDC, 1999). The A-CPFR model was then simulated and analyzed to test whether the “bullwhip effect” in the supply chain was actually reduced. The rest of this paper is arranged as follows. Following a literature review, the paper presents a real case in which the present authors provided assistance. The description of the case includes: . case company background; . an “as-is” model analysis; . a “to-be” (CPFR) model analysis; and . a description of the results and potential benefits.

According to the American Heritage Dictionary (2000), the term “collaborate” means “to work together, especially in a joint intellectual effort”. Burdick et al. (1999) described “collaborative commerce” as a model that enables dynamic cooperation among employees, trade partners, and customers in a trade community or market. Nolan (2001) described “collaborative commerce” as being composed of interaction within a “virtual organization”, with the “virtual organization” being comprised of two or more entities that attach great importance to knowledge exchange and the linkage of business processes with a view to bringing about efficient value creation. Hammer (2001) regarded “collaboration” as the integration of inter-enterprise processes and proposed a four-step implementation model. Since VICS first proposed the CPFR model in 1998, many enterprises have implemented it, and researchers have paid more attention to CPFR-related issues. Williams (1999) described how Procter & Gamble (P&G) took advantage of CPFR in a supply chain to create value for the corporation, trade partners, and consumers. Foote and Malini (2001) found that the incorporation of Data Warehouse with Walmart in CPFR enabled more accurate forecasting of operational processes. Barratt and Oliveira (2001) reviewed the literature on the subject and a broad range of case studies; they identified the potential difficulties that can arise in the implementation of CPFR and proposed five possible solutions to the identified difficulties. According to Holmstrom et al. (2002), retailers can use existing item-management information for forecasting after implementing CPFR. The same authors also found that better methods of replenishment (such as VMI, transport planning, and software) can assist in implementing a more integrated CPFR model. Albright (2002) demonstrated that CPFR implementation can reduce inventory levels, increase sales, and improve trade partnerships. Sagar (2003) reviewed Whirlpool Corporation implementation of CPFR in 2000, and found that it significantly enhanced sales forecasting between the company and its suppliers. Steermann (2003) investigated the case of Sears, a major American retailer, and its supplier, Michelin, who collaborated in applying the CPFR model in 2001 – producing a reduction in their inventory level of 25 per cent. Esper and Williams (2003) worked on a case study and discovered that, by implementing CPFR, collaborative transportation management (CTM) could bring about better outcomes and profits. Barratt and Oliveira (2001) also contended that CPFR could decrease inventory levels substantially and Sherman (1998) noted that the model could increase sales, improve management, enhance operational benefits, raise cash flow, and boost return on assets. Fliedner (2003) research suggested that CPFR would become an indispensable instrument in any future supply chain. This review of the literature demonstrates that most research on CPFR has emphasized its application and its benefits. It is noticeable that there is a lack of research into how a business might integrate other models with CPFR with a view to reducing the “bullwhip effect”.

The paper then proposes an A-CPFR model for the case. A simulation of the A-CPFR model is then performed, and a comparison is made with the existing CPFR model. The paper concludes with a summary of the major findings and implications of the study. 201

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

3. Case study

3.3.1. AP-to-AP CPFR with major suppliers After analyzing the existing purchasing process, JP set up a CPFR mechanism with its major supplier. The process was set up as follows: . Step 1: JP and its supplier together formulate the forecasting and replenishment mechanism – which covers promotion, safe inventory, forecasting, replenishment, and pricing. . Step 2: JP head office collects sales data from its chain stores nationwide, transfers the data into the inventory system, and transmits sales and inventory data to the supplier on a regular basis. . Step 3: On receipt, data are automatically transferred into the internal system of the supplier, which confirms items that have to be replenished. If the supplier discovers a mistake or if it does not have sufficient products for delivery, it responds to JP with such information; if necessary, JP then identifies another supplier according to its part number database. However, if to-be-replenished items are confirmed, the supplier determines the amount of replenishment in accordance with previous agreements and its current inventory. . Step 4: The supplier regularly transfers information about the amount of replenishment to JP and delivers the goods to designated stores within the agreed time period. . Step 5: After the retail stores of JP receive a delivery, they input the delivery data into computer systems, and the data are transmitted to head office. The process of replenishment is completed at this point. . Step 6: Payments between JP and the supplier are made on a monthly basis. (Because prices are always fluctuating, the two sides negotiate the final price before payment according to previous agreements on cost analysis. Payment is made only after the final price is confirmed.)

3.1 Company background JP Computers Ltd was established in 1985 to sell computers, communication equipment, and consumer products (socalled “3C products”) through retail outlets in Taiwan. In its early years, its annual turnover was about NT$5 million, and the company had approximately eight employees. Over the past 20 years, JP has grown to a company with 12 chain stores, a capital base of NT$158 million, and a workforce of 160 employees. In 2004, its turnover reached NT$2.5 billion. The major supplier of JP is Synnex Logistics, the largest logistics supplier of 3C products in Taiwan, which supplies 40 per cent of JP retail products. 3.2 “As-is” model The original operational model of JP depended on its head office, which formulated every operational strategy for the business. All its retail stores were engaged in direct face-toface sales of products to individual clients. Each of these retail stores transferred operational information on inventory and sales to head office through a point-of-sales (POS) system on a daily basis. The head office would then establish purchasing strategies and make price enquiries of almost 200 suppliers before placing orders. Suppliers would deliver products to each retail store and inform head office of the delivery. After receiving the products, each store reported to head office, which then paid the supplier on confirmation of delivery. Because the system depended on the transfer of a great deal of information from individual retail outlets using manual processes, decision-making at head office could not respond promptly to changes in market demand. In addition, purchasing time and response time to information received were both prolonged.

Currently, Synnex is the only supplier to have joined the model; however, expansion to include other major suppliers is planned. In accordance with the mutual trust that has been established between JP and its major logistics supplier under CPFR, the two parties have also reached consensus on collaborative marketing strategies. If the logistics supplier needs to introduce new products, JP is required to provide an unconditional offer of display shelves in its retail outlets for the products. If sales of the new product are unsatisfactory, both sides review the product. If overpricing is thought to be the cause of poor sales, negotiations are undertaken to reduce the price; in addition, the logistics supplier sends product engineers to the stores to assist with marketing. If the product is still a poor seller, the logistics supplier is required, unconditionally, to buy back the products at the original price. This collaborative marketing mechanism devised by JP and its logistics supplier is a novel concept in Taiwan. Its establishment demonstrates that the two companies have reached a consensus on collaborative marketing with a high level of mutual trust.

3.3 “To-be model” To improve the existing process, JP proposed to implement a CPFR model to establish cross-enterprise application-toapplication (AP-to-AP) collaborative processes (also known as “peer-to-peer” collaborative processes) with major suppliers who possessed high information capability. For suppliers with insufficient information capability (from whom JP made few purchases), JP chose to construct a collaborative platform (browser-based) that allowed minor suppliers to engage in the CPFR model. The information structure of the CPFR model is shown in Figure 1, and the process of CPFR is shown in Table I. Figure 1 Information structure of CPFR model

3.3.2. Establishment of a common platform with minor suppliers The CPFR mechanism set up by JP with its minor suppliers is similar to the AP-to-AP model. Because these suppliers have less information capability, only automatic replenishment can be achieved. All data transmission is done over the platform established by JP. The suppliers can log into a customized web site with passwords to examine the sales-and-inventory data of 202

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

Table I CPFR process of JP and its logistics supplier Synnex Process Draft agreement Develop joint business plan Forecast sales

Identify unusual sales forecast

Deal with unusual item collaboratively

Forecast order

Identify unusual order forecast

Deal with unusual item collaboratively

Generate order

Input

Output

Enterprise strategy of retailer Enterprise strategy of logistics supplier Common enterprise plan POS data Event Adjust sales forecast Sales forecast Exceptional situation Evaluation standard of classification Event Subordinate data of exceptional item from retailer Confirmed exceptional item Subordinate data of exceptional item from logistics supplier Order forecast Adjust POS data Inventory Inventory strategy and seasonal information Sales forecast Event Product history demand and sales information Adjust product sales forecast Order forecast Classification and value of exceptional situation Event Subordinate data of exceptional item from retailer Confirmed exceptional item Subordinate data of exceptional item from logistics supplier The main file of order forecast item management

Common enterprise plan Common enterprise plan Sales forecast

Confirmed exceptional item

Adjusted items of sales forecast

Order forecast

Confirmed exceptional item of order

Adjusted items of sales forecast of order

Order

and service level) are significantly improved after CPFR implementation.

their products on JP shelves. They can also make replenishments on the basis of the inventory policy agreement. Payments are made on a monthly basis. When suppliers have developed new products, they can transmit information about the products to JP via this platform. The features of the platform can be summarized as follows: . The suppliers can check on product information at any time. This includes inventory-and-sales data, which is sent to JP. This means that JP saves much time in making enquiries about prices, and the suppliers save time in negotiating with JP for procurement. . The suppliers can check on JP current sales and inventory at any time. This allows them to plan their future inventory in advance. . The suppliers can update information on new products at any time. This means that JP saves time in looking for new products.

3.5 Issues after the implementation The combined efforts of JP and its logistics supplier in implementing CPFR have reduced the level of inventory and established a unique collaborative marketing model. However, using this model, the suppliers can obtain only inventory-andsales information about their products from JP. This means that they are unable to respond promptly to temporary fluctuations in market demand. For example, when JP or its competitors are engaged in special sales promotions, sales in JP retail outlets might fluctuate. In these circumstances, forecasting and replenishment estimates generated by CPFR might differ from the forecasting demand in the market. In other words, because the suppliers are unable to obtain information from the market, fluctuations in forecasting still occur. In addressing such problems, Barratt and Oliveira (2001) and Fliedner (2003) identified potential obstacles to the successful implementation of CPFR. As a result of these studies, it is apparent that the real keys to successful implementation are trust and technology. In the case being considered here, it was clear that JP and its logistics supplier had established such mutual trust in their implementation of CPFR, and this augured well for the possibility of the companies undertaking further development to establish a

3.4 Results and benefits The benefits to JP brought about by the new CPFR implementation are listed in Table II. These data were generated from the log files of the system during a year. Differences between the CPFR model and the original purchasing process are listed in Table III. From Table II, it is apparent that key performance indicators (KPIs) (such as inventory turnover rate, capital turnover, out-of-stock rate, 203

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

Table II Comparison before and after KPI KPIs

Before

After

Inventory turnover rate (per month) Capital turnover Out of stock rate Service level

1 1.33 4.95% 95.05%

1.5 1.75 2.49% 97.51%

Formula Revenue per month/average inventory cost per month Average revenue per month (accumulate yearly revenue/12months)/capital The lost of lack merchandise /revenue The ratios of customer satisfied/dissatisfied their consumption

Table III Process differences between “as-is” model and “to-be” model Procurement model (as-is) Procurement item and number Procurement operation Decide supplier Deliver information to the suppliers Confirm the order

Auto-replenishment model (to-be)

Headquarters decided by the inventory system Supplier decided by inventory data Implement by procurement staff Cancel procurement operation After procurement staff made inquiry suppliers, then The computer automatically produces produce supplier decided to order from the supplier who can replenish merchandise Deliver the order to suppliers by e-mail or fax Deliver the inventory data to supplier on schedule Connect by phone Only confirm the item and number without replenishment

new operational model. Therefore, to enable the suppliers to obtain direct market information (and thus facilitate more timely responses to changes in market demand), the present authors proposed an A-CPFR model to improve the forecasting accuracy and to reduce the “bullwhip effect” in the supply chain.

Because the main information source for cSIS is POS information from retailers, this information represents current sales. To collect information for future promotions and marketing strategies, ASP operators of the cSIS must also use search engines to examine retailers’ web sites and the databases of major news sites. They also need to integrate CPFR models of upstream and downstream companies and develop a third-party information-value-added ASP. The result is an A-CPFR model (Figure 3). Figure 3 shows the A-CPFR model in operational mode between JP and its logistics supplier. The model functions as follows: . JP sends data on inventory, sales, products, promotion, and sales forecasting to Synnex, the logistics supplier. . ASP relies on a web service or search engine to gather marketing or promotion information about 3C retailers. . Synnex connects with ASP operators and often uses ASP information to obtain information about the 3C retailing market. . If Synnex discovers, through ASP information, that competitors of JP are beginning a sales promotion, Synnex adjusts the replenishment data of the CPFR and transmits the data to JP for confirmation before replenishment.

4. Proposed model The Taiwanese “Common Sales Information System” (cSIS) (see http://ld.itri.org.tw/achievement1.htm), sponsored by the Ministry of Economic Affairs, collects and analyzes retail sales data and makes this available to retailers via a web-based information channel. Currently, the system is mainly used by wholesalers and retailers – such as chain stores and supermarkets. The information is obtained from point-ofsale (POS) data from major chain stores, supermarkets and wholesalers. These data then undergo format transformation, screening, integration, categorizing, and correcting. The result is a “data warehouse” of useful information about retail sales, added value, and related subjects. Products and sales databases are updated on a regular basis (see Figure 2). Figure 2 Framework of common sales information system

JP and Synnex have reached a consensus of collaborative marketing based on their mutual trust. With the A-CPFR Figure 3 A-CPFR model of 3C collaborative sales information system

204

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

model, Synnex can promptly become aware of changes in market demand and can thus actively attune replenishment data – effectively improving the forecasting accuracy.

equation (1), n is equal to 3. Forecasts can be made after period 4. To decide the a value, the present authors simulated each situation by positing a different a value from 0.1 to 0.9 (in increments of 0.1). The simulation results showed that the mean absolute deviation (MAD) is lowest when a is set to 0.1. a is therefore set to 0.1 in this paper. In addition, the authors assumed that JP had promotions in the 4th , 7th , 10th , 13th , 17th and 22nd weeks, and that its competitors had promotions in the 4th , 6th , 12th , 13th , 20th and 22nd weeks. Using the above assumptions, the simulations of two models were executed. They are described in detail below.

5. Simulation analysis 5.1 Symbols and assumptions To verify the proposed model, the two operational models (CPFR and A-CPFR) for order transmission between the retailer and the logistics supplier were simulated using a notebook computer product. The symbols used in the simulation analysis are: MIL Maximum inventory level (MIL) of JP ¼ 400 (The past sales amount of JP in each period never exceeded 400, so MIL is set to 400). AS Actual sales quantity SF Sales forecasting quantity EI Ending inventory before adding received order. OQ Order quantity RO Received order of JP Company DO Delivered order quantity to JP from the logistics supplier PD Prepared to deliver order IFS Inventory for sale of i th period

5.2 Existing CPFR model In the original model (which preceded the first CPFR model), JP made forecasts of its sales for each period on the basis of past sales information and its experience of its previous promotions. Using this information it produced an order and sent it to the logistics supplier. Having received the order from JP, the logistics supplier prepared to deliver the order to JP. For its own purposes, the logistics supplier also made its own forecasts of likely sales – based only on past order quantities from JP. The supplier and the retailer thus made their own forecasts of sales demand, without considering information on promotional activities by JP competitors. By implementing the CPFR model, the previous purchasing model has been transformed into an automatic replenishment mechanism. Using this system, the retailer is not required to purchase goods in person and the logistics supplier is no longer required to receive orders before delivery. This has allowed JP to concentrate its efforts on marketing. In this CPFR model, JP provides information about promotions, sales, and inventory directly to its logistics supplier. According to the CPFR agreement, the logistics supplier and JP collaboratively forecast the replenishment quantities on the basis of the information provided by JP. They also collaboratively forecast the sales demand, using the MA and ES methods, the calculation of collaborative forecasting of sales is based on equation (3) and equation (4). The promotion information (M) is considered as an impact factor of forecasting and the value of M is determined by JP experience.

Notes: . RO of i th period¼DO of i th period¼OQ of i 2 1th period¼PD of i 2 1th period. . IFS of i th period¼DO of i th periodþEI of i th period. . EI of i th period¼IFS of i 2 1th period 2 AS of i th period. . OQ of i th period¼MIL 2 (IFS of i th period 2 SF of i þ 1th period). Certain assumptions are made in the simulation that follows. With respect to inventory policy, it is assumed that the fixedtime period is taken as the inventory period. That is, the order of the i th period is sent by JP to the logistics supplier at end of the i th period, and the logistics supplier will deliver it to JP at end of the i þ 1th period. In addition, it is assumed that demand (sales) is independent and that the logistics supplier can fulfil the order of JP. The forecasting time is six months; therefore, because a month has 4 periods, there are, in total, 24 periods. Initially (period zero), inventory and order quantity are set as 600 and 300 respectively. With respect to forecasting methods, the moving average (MA) method, as shown in equation (1), together with exponential smoothing (ES) method, as shown in equation (2), are used to forecast orders in the simulation process. The equations are as follows: F tþ1

t 1 X ¼ Ai n i¼ðt2nþ1Þ

F tþ1 ¼ aAt þ ð1 2 aÞF t F tþ1 Ai n

a

F tþ1 ¼

t 1 X Ai £ ð1 þ MÞ n i¼ðt2nþ1Þ

F tþ1 ¼ aAt þ ð1 2 aÞF t £ ð1 þ MÞ . .

ð1Þ ð2Þ

ð3Þ ð4Þ

When JP has a promotion, M ¼ 0.2. The forecast quantity for the first period after JP has finished its promotion will decreased 10 per cent, that is, M ¼ 20:1

In this model, JP and its logistics supplier do not consider the competitor promotional information when they collaboratively forecast sales demand and replenishment quantities. Figure 4 shows the results of the simulation.

¼The forecasted demand for the i þ 1th period ¼actual demand in i th period. ¼number of periods of demand to be included in the moving average (known as the order of the moving average). ¼fraction value.

5.3. A-CPFR model Under the A-CPFR model (integrated with cSIS), JP still provides information about sales, inventory, and promotion directly to its logistics supplier. Moreover, due to the automatic replenishment mechanism, JP is still not required to purchase goods in person, and the logistics supplier still

To simplify the calculation, the number of periods in the moving average method is taken to be 3; therefore, in 205

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

Figure 4 Simulation results of CPFR model

The moving average (MA) method is used. Because some information is lacking in the first three periods of the 24 periods, there are 21 periods of data to be calculated. The simulation results of MAD and variance of EIBR on the two models are shown in Table IV. From Table IV, it can be observed that the A-CPFR model yields a lower MAD than was the case in the existing CPFR model, irrespective of whether MA or ES is used. With respect to EIBR, it can be noted that the A-CPFR model has the same performance as the previous model. Taken together, these results mean that the A-CPFR model has improved forecast accuracy while retaining the lower inventory level of the existing CPFR model. Furthermore, paired comparisons were conducted between the MAD of the existing CPFR model and the MAD of the ACPFR model to confirm which is better. Two hypotheses were tested using Wilcoxon Signed Ranks Test: H1. That the MAD of the existing CPFR model and the MAD of the A-CPFR model are the same under the MA method. H2. That the MAD of the existing CPFR model and the MAD of the A-CPFR model are the same under the ES method.

does not require orders before delivery. The difference in the A-CPFR model is that, as well as acquiring sales, inventory, and promotional information from JP, the logistics supplier can also access information about competitors’ promotions through the ASP. Therefore, in addition to being able to forecast sales and replenishment quantities collaboratively with JP (according to their agreements), the logistics supplier can also adjust the replenishment quantities according to information about competitors’ promotions provided by ASP. The M value determined by equations 3 and 4 are affected by the following conditions (in addition to the conditions under the CPFR model): . when JP does not have a promotion, but competitors do, M ¼ 20:2; and . when both JP and competitors have promotions, M ¼ 0:1. In this model, the competitor promotional information is an additional factor to be considered in forecasting when JP and its logistics supplier collaboratively forecast sales demand and replenishment quantities. Figure 5 shows the result of the simulation. To compare the simulation results of two models, the mean absolute deviation (“MAD”) and the variance of ending inventory before adding received order (“variance of EIBR”) are used. The first measure, MAD, enables a comparison to be made of the forecasting accuracy of the two models; the better model has the lower MAD. The second measure, variance of EIBR, enables an evaluation of the stability of inventory; that is, a lower variance of EIBR indicates a more stable inventory – thus enabling a lower average inventory (lower inventory cost) to be set.

The test outcomes are shown in Table V. It can be noted that all test statistics were less than the critical value. Both hypotheses are therefore rejected. In addition to all the test statistics being T þ , the MAD of the ACPFR model is significantly less than that of the existing CPFR model in the paired comparisons column. This confirms that the A-CPFR model is a better model than the existing CPFR model. 206

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

Figure 5 Simulation results of A-CPFR model

Table IV Comparison of MAD and variance of EIBR Forecasting methods

.

MA

ES

Models

MAD

Items Variance of EIBR MAD

CPFR model A-CPFR model

28.73 17.79

2848.41 703.84

24.61 11.74

Variance of EIBR 2202.98 560.85

avoid stagnation and capital losses due to an unnecessary increase in inventory.

Simultaneously, the retailer inventory level and loss from outof-stock can both be reduced. In general terms, the logistics supplier is able to have “a finger on the pulse” of changing market demand, and can thus make timely adjustments in replenishment data. Meanwhile, JP can focus on selling products – because the task of responding to temporary changes in the market is left to the logistics side. Apart from decreasing the frequency of episodes of out-of-stock or unnecessarily high inventory, the proposed A-CPFR model improved the forecasting accuracy and simultaneously reduces the “bullwhip effect” in the supply chain.

Notes: Ending inventory before adding received order (EIBR) P jActualt 2 Forecastt j MAD ¼ n

The above analysis indicates that there is a higher level of forecasting accuracy in the A-CPFR model, thus enabling the logistics side to: . forecast with more accuracy . improve delivery and inventory preparation; and

6. Conclusion The CPFR model proposed by VICS does not really address the questions of market strategy and collaborative marketing – despite the fact that market factors can have a significant

Table V Outcomes of Wilcoxon Signed Ranks Test Forecasting method MA ES

Paired comparison (former-latter)

T2

T1

Test statistic 5min(T1 ,T2 )

Critical value Wn;0:05

Conclusion to the MAD for the paired comparison

A-CPFR 2 CPFR A-CPFR 2 CPFR

20 21

1 0

1 0

2 2

A-CPFR , CPFR A-CPFR , CPFR

Notes: T2 : sum of negative ranks; Tþ : sum of positive ranks; n ¼ number of negative rank þ number of positive rank

207

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

influence on the accuracy of the CPFR model. The present paper has therefore investigated the existing CPFR model to discover whether it can really reduce inventory and enhance the rate of turnover of goods. The study finds that it is difficult for a supplier to make timely adjustments in response to changes in market demand if that supplier only source of market information is its retailer partner. The retailer studied in this paper had built up trust and had established a collaborative strategy with its suppliers. The present authors therefore proposed an augmented CPFR model for the retailer. This A-CPFR model enables earlier detection and forecasting of demand fluctuations in the market, thus facilitating adjustments in sales forecast data and replenishment quantities. The retailer does not need to worry about fluctuations in sales or inventory caused by competitors’ promotions, thus allowing the retailer to concentrate its efforts on marketing. Such improved forecasting accuracy leads to reduce the bullwhip effect. The proposed model could thus be a reference model for the retail industry in implementing CPFR in the future. Several avenues exist for future studies to extend the present research. First, research is required into how a promotional activity for one product affects the sales of other products. Second, one of the components of the “bullwhip effect” – advertising – needs further exploration in an effort to avoid a gap between forecasted order quantities and real sales caused by dramatically increased needs. Third, technological obsolescence reduces the sales of electronic goods, and this subject is worthy of further research to ascertain its role in any sales-information system.

IDC (1999), ASPs’ Impact on the IT Industry: An IDC-Wide Opinion, IDC, Framingham, MA. Industry Directions Inc. and Syncra Systems Inc. (2000), “The next wave of supply chain advantage: collaborative planning, forecasting and replenishment”, available at: www.industrydirections.com/pdf/CPFRPublicReport.pdf Lee, H.-L., Padmanabhan, V. and Whang, S. (1997), ““Information distortion in a supply chain: the bullwhip effect”, Management Science, Vol. 43 No. 4, pp. 546-58. Nolan, W. Jr (2001), “Game plan for a successful collaboration forecasting process”, Journal of Business Forecasting Methods and Systems, Vol. 20 No. 1, pp. 2-6. Sagar, N. (2003), “CPFR at Whirlpool Corporation: two heads and an exception engine”, The Journal of Business Forecasting Methods & Systems, Vol. 22 No. 4, pp. 3-8. Sherman, R.J. (1998), “Collaborative planning, forecasting and replenishment (CPFR): realizing the promise of efficient consumer response through collaborative technology”, Journal of Marketing Theory and Practice, Vol. 6 No. 4, pp. 6-9. Steermann, H. (2003), “A practical look at CPFR: The Sears-Michelin experience”, Supply Chain Management Review, Vol. 7 No. 4, p. 46. Williams, S.H. (1999), “Collaborative planning, forecasting, and replenishment”, Hospital Materiel Management Quarterly, Vol. 21 No. 2, pp. 44-58.

Further reading PwC Consulting (2001), “Collaborative processes in e-supply networks”, PwC Consulting, Rosemont, IL, Whitepaper.

References

About the authors

Albright, B. (2002), “CPFR’s secret benefit”, Frontline Solutions, Vol. 3 No. 11, pp. 30-5. (The) American Heritage Dictionary (2000), 4th ed, available at: www.bartleby.com/am Barratt, M. and Oliveira, A. (2001), “Exploring the experiences of collaborative planning initiatives”, International Journal of Physical Distribution & Logistics Management, Vol. 31 No. 4, pp. 266-89. Burdick, D., Bond, B., Miklovic, D., Pond, K. and Eschinger, C. (1999), “C-commerce – the new arena for business applications”, research note, Gartner Group, Stamford, CT. Esper, T.L. and Williams, L.R. (2003), “The value of collaborative transportation management (CTM): its relationship to CPFR and information technology”, Transportation Journal, Vol. 42 No. 4, pp. 55-65. Fliedner, G. (2003), “CPFR: an emerging supply chain tool”, Industrial Management þ Data Systems, Vol. 103 Nos 1/2, pp. 14-21. Foote, P.S. and Malini, K. (2001), “Forecasting using data warehousing model: Wal-Mart’s experience”, The Journal of Business Forecasting Methods & Systems, Vol. 20 No. 3, pp. 13-17. Hammer, M. (2001), “The superefficient company”, Harvard Business Review, Vol. 79 No. 8, pp. 82-91. Holmstrom, J., Framling, K., Kaipia, R. and Saranen, J. (2002), “Collaborative planning forecasting and replenishment: new solutions needed for mass collaboration”, Supply Chain Management, Vol. 7 Nos 3/4, pp. 136-45.

Tien-Hsiang Chang is an associate professor at Department of Information Management at National Kaohsiung University of Applied Sciences, Taiwan, ROC. She holds a PhD from Department of Industrial Management, National Taiwan University of Science and Technology. Her current research interests are in operation research, stochastic and information management. Dr Chang has published articles in International Journal of System Science, Production Planning and Control and Industrial Management and Data Systems and Computer Standards & Interfaces. Hsin-Pin Fu currently serve as a professor of Department of Marketing and Distribution Management at National Kaohsiung First University of Science and Technology, Taiwan, ROC. He holds a PhD from Department of Industrial Engineering and Management, National Chiao Tung University, Taiwan. His current research interests are in electronic business and operation management in industrial applications. Mr Fu has published articles in International Journal of Industrial Engineering, Production Planning and Control, International Journal of Production Economic, Industrial Management and Data Systems and Computer Standards & Interfaces. Hsin-Pin Fu is the corresponding author and can be contacted at: [email protected] Wan-I Lee currently serve as an assistant professor of Department of Marketing and Distribution Management at National Kaohsiung First University of Science and Technology, Taiwan, ROC. She holds a MS and PhD from Department of Mathematical Sciences, University of Northern Colorado, USA. Her current research interests are 208

A study of an augmented CPFR model for the 3C retail industry

Supply Chain Management: An International Journal

Tien-Hsiang Chang, Hsin-Pin Fu, Wan-I Lee, Yichen Lin, Hsu-Chih Hsueh

Volume 12 · Number 3 · 2007 · 200 –209

in customer relationship management, customer value and healthcare marketing. Dr Lee has published articles in Journal of the Chinese Institute of Industrial Engineers, Journal of Manufacturing Technology Management, An International Journal of Expert Systems with Applications and International Journal of Electronic Business Management. Yichen Lin is an associate professor and serves as the director with the Institute of Technology Management, National University of Tainan, Taiwan, ROC. She received her PhD degree in management from The University of Hull, UK in 2001. Her research interests include customer

relationship management (CRM), knowledge management (KM), collaborative commerce and integrated marketing communication. She has participated in many industrial projects, especially in the area of electronic commerce. Hsu-Chih Hsueh currently serves at Sales Department, Smartant Co., Ltd. Hsinchu, Taiwan, ROC. He holds a MBA of Department of Marketing and Distribution Management at National Kaohsiung First University of Science and Technology, Taiwan, ROC. His current research interest is marketing management.

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

209

Collaborative supply chain practices and evolving technological approaches Katerina Pramatari Department of Management Science and Technology, Athens University of Economics & Business, Athens, Greece Abstract Purpose – This paper aims to give an overview of supply chain collaboration practices and the way the underlying enabling technologies have evolved, from the classical EDI approach, to web-based and RFID-enabled collaboration. Design/methodology/approach – The paper discusses alternative technological approaches and the role they play in supporting collaboration. The research presented in this paper is empirical in nature, based on three different case studies from the grocery retail sector depicting different aspects of implementing supply chain collaboration practices. Findings – From the examination of these cases, interesting lessons are derived regarding the suitability and criticality of the technological approach used to support collaboration, especially regarding the use of a centralized web-platform as compared to the classical EDI approach and to a decentralized solution based on web services. Research limitations/implications – Research is limited to the specific case studies and further validation of the research findings through qualitative and quantitative methods would be appropriate. Practical implications – The paper provides support to practitioner regarding the selection of the appropriate technological approach to support collaboration. Furthermore, it gives insight regarding the maturity of current technologies in relation to collaboration requirements and to what extent can the technology be an enabler or a barrier in a collaboration initiative. Originality/value – The paper links the technological and the supply-chain collaboration perspective in order to derive interesting conclusions relevant to both academics and practitioners. The cases presented are quite unique and have not been widely studied, representing interesting and novel approaches to the way that technology has been employed to support collaboration practices. Keywords Supply chain management, Worldwide web, Electronic data interchange Paper type Research paper

variation of stock level in the customer’s main warehouse or distribution centre (Blatherwick, 1998). VMI is probably the first trust-based business link between suppliers and customers (Barratt and Oliveira, 2001). CRP moves one step ahead of VMI and reveals demand from the retailers’ stores. The inventory policy is then based on the sales forecast, built from historical demand data and no longer purely based on the variations of inventory levels at the customers’ main stock-holding facility (Andraski, 1994). Collaborative planning, forecasting and replenishment (CPFR) can be seen as an evolution from VMI and CRP, addressing not only replenishment but also joint demand forecasting and promotions planning, focusing on promotions and special-line items (Holmstro¨m et al., 2002). CPFR is based on extended information sharing between retailer and supplier, including point-of-sales (POS) data, forecasts and promotion plans. Based on these short descriptions, VMI and CRP are more about efficient replenishment and supply, whereas CPFR puts more emphasis on the demand side. Category management is another demand-side collaboration practice that has evolved during the last decade into a common business process. In the typical form of this process, a preferred supplier is responsible for managing, on behalf of a retail chain, the product assortment and product shelf allocation following an agreed product category strategy and based on the analysis of POS data and other information (O’Keeffe and Fearne, 2002). However, this process requires ad hoc information sharing between trading partners, taking place usually off-line, and is not so popular in the supply chain collaboration literature.

Collaboration in the supply chain Since the early 1990s, there has been a growing understanding that supply chain management should be built around the integration of trading partners (Barratt and Oliveira, 2001). Bowersox et al. (2000) state that firms collaborate in the sense of “leveraging benefits to achieve common goals”. Anthony (2000) suggests that supply chain collaboration occurs when “two or more companies share the responsibility of exchanging common planning, management, execution, and performance measurement information”. Anderson and Lee (1999) state that industry participants “collaborate on planning and execution” of supply chain strategy to achieve a “synchronised supply chain”. In retailing and FMCG, supply-chain collaboration has mainly taken the form of practices such as continuous replenishment program (CRP), vendor managed inventory (VMI) and collaborative planning, forecasting and replenishment (CPFR). VMI is a technique developed in the mid 1980s, whereby the manufacturer (supplier) has the sole responsibility for managing the customer’s inventory policy, including the replenishment process, based on the The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal 12/3 (2007) 210– 220 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10.1108/13598540710742527]

210

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Information technology (IT) has played an enabling role in all these collaboration practices and there is a clear evolution path in the capabilities and sophistication of the underlying IT infrastructure supporting former versus later forms of collaboration. Furthermore, the emergence of new technologies such as radio frequency identification (RFID), is expected to revolutionize many of the supply chain operations, especially if the scope of implementation is extended from internal warehouse and distribution processes to supply-chain processes involving collaborating partners (Prater et al., 2005). A recent industry report (GCI, 2005) refers to new collaboration processes that will be empowered through the use of RFID and information sharing between trading partners, such as anti-counterfeiting and legal compliance, product recall and reverse logistics, code-dated product management and cold chain monitoring. In this paper, this evolutionary path in the enabling role of information technology is described, based on evidence from three indicative cases in the grocery retail sector. The first case relates to a web-based electronic service, provided by a third-party intermediary, supporting e-ordering and e-invoicing. This case is compared to the classical EDI approach, using evidence from the Greek grocery retail environment. The second case is based on a web-based platform supporting collaborative store replenishment for a major Greek retailer, a practice entailing much more intensive information sharing and collaboration between trading partners. The third case is based on the capabilities provided by RFID technology for unique product identification and discusses new forms of collaboration based on a distributed-network-architecture, in the context of a European research project. From the examination of these cases, interesting lessons are derived regarding the suitability and criticality of the technological approach used to support collaboration. The following section discusses the evolving technological approaches supporting supply chain collaboration, from the classical EDI approach, to web-based and RFID-enabled collaboration. Section three presents three indicative cases that provide practical evidence from alternative technological approaches. The three cases are compared in section four and further research findings are discussed. Section five concludes the discussion and presents suggestions for further research in this area.

unique product identification. Table I summarizes the evolution in increased information exchange from pure ordering to CPFR and RFID-enabled collaboration, as well as the underlying technology supporting the exchange of information and interaction between the trading partners. As we move from VMI/CRP to more advanced forms of collaboration, such as CPFR, the amount of exchanged information increases and so do the requirements towards the underlying technology infrastructure. Electronic data interchange (EDI) has been a key enabling technology for efficient replenishment and supply chain coordination (Hill and Scudder, 2002). Without EDI, CRP would not have been economically viable, as the amount of daily information processed and transmitted in the channel is too large to handle manually. Information technology is a necessary condition for the CRP innovation, thus serving as an enabler for this new form of interorganizational relationships and joint channel process redesign (Lee et al., 2003). However, EDI is also expensive and too complicated compared to the alternatives that have emerged lately for secure and reliable communication over the Internet and for information exchange in XML format (Stefansson, 2002). This is further demonstrated by the first case-study described below. Furthermore, EDI confines the exchanged information to certain types, as defined by the respective standard EDI messages (e.g. Inventory Report (INVRPT) message supporting CRP), whereas new forms of supply-chain collaboration require many more types of information to be exchanged between the trading partners and these types may vary significantly in different occasions. In order to cope with this increasing need for extended information exchange, the retail sector has started moving away from EDI to new ways of information exchange, mainly enabled by Internet-based communication platforms and retail exchanges (Sparks and Wagner, 2003), also referred to as electronic marketplaces (e-marketplaces). Such exchanges are characterised by the retailers’ direct access to distributors and suppliers, enabling businesses to interact via a neutral intermediary (the exchange) to conduct either one-to-one or multiple transactions. Thus, suppliers gain access to more buyers, and buyers can contact many suppliers. Such exchanges also hold out the hope of a more efficient supply system, through better and more rapid communications facilitating improvements in planning, deployment of transport fleets, warehouse management and procurement procedures. Although these could provide members with cost and service benefits in line with their global ambitions, they might also change the nature of some business relationships (Sparks and Wagner, 2003). The third-party operated e-marketplace is not the only option for operating a web-based collaboration platform. Private exchanges, namely invitation only networks that connect a single company to its customers, suppliers or both, are also based on a web-based platform to support information exchange and collaboration. A few retailers, e.g. Wal-Mart, have had the will and the finance to create priority supply chain information systems and the power to force suppliers to adopt them. Sainsbury, Tesco and Metro AG in Europe have also built collaborative applications into their private exchanges. The second case presented below discusses the benefits but also the difficulties of supporting supply chain

Evolving technological approaches to supply chain collaboration Information technology has clearly played an enabling role in most if not in all the various supply chain collaboration practices referred to above and industry participants often use the terms “enablers” and “integrators” when referring to technological elements such as EDI, standards, Internet, etc. (ECRE, 1997). This enabling role of information technology has been demonstrated initially through supporting the information exchange between trading partners. In the traditional ordering process, retailers provide manufacturers with only data on quantities of goods required through ordering, usually once a week. VMI/CRP and CPFR highly increase the total volume of information transmitted between retailers and suppliers on a daily basis. The volume of information exchanged and intensity of interaction further increases dramatically when RFID technology is employed for 211

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Table I Information exchanged and underlying technology from traditional ordering to RFID-enabled collaboration Traditional ordering process

VMI/CRP

Supply-chain collaboration practice CPFR RFID-enabled collaborative process

Information exchanged Orders Orders Dispatch advices Suggestive orders Inventory report (including store orders and warehouse shipments in CRP)

Collaborative business processes

Replenishment

Technology supporting Paper information exchange EDI EDI over internet Internet-based intermediary Technology supporting Internal ERP user-interaction systems

Central Warehouse (CWH) Replenishment

EDI (mainly) EDI over Internet (lately) Internet-based intermediary

Internal application (mainly) Collaborative platform – retail exchange (lately)

Orders Inventory reports Aggregated POS data Sales forecasts Promotion plans

Product shelf position Out-of-shelf indication Accurate inventory information (including back-room inventory, expiration dates, etc.) Context-based POS data Product history CWH Replenishment Replenishment Store replenishment Anti-counterfeiting Promotion planning Legal compliance Product recall Reverse logistics Code-dated product management Cold chain monitoring Shelf management Promotion management XML/ ASCII files over XML files over internet (expected) internet EPC Network – ONS infrastructure Global data synchronization (expected) network-GDSN (expected) Global data synchronization network – GDSN (expected) Collaborative platform – Distributed application environment – web retail exchange services (expected) Collaborative platform – retail exchange (expected)

combined with the pressure they put on their suppliers indicate that this technology has already become a market mandate. The Electronic Product Code (EPC), which is a global-standards-based implementation of the RFID technology, is the standard adopted in all these initiatives. The EPC can be viewed as a continuation of barcode scanning, though EPC makes a significant step forward with the ability to support mass serialized identification (GCI, 2005). At the same time, recently established global information networks intend to support the collaboration between supply chain partners. The global data synchronization network (GDSN), established by GS1 (www.gs1.org) with the support of leading industry forums (GCI, ECR Europe), aims at providing supply chain partners with accurate product catalogue information. On the other hand, the EPC Network, supported by the Object Name Service (ONS) infrastructure, has started materializing under the administration and directives of EPCglobal (www. epcglobalinc.com) and with the support of the same global standardization bodies and industry forums (GS1, GCI, ECR Europe). The difference between the GDSN and the EPC Network is that the former is meant to support information sharing about product type (what is currently identified via a barcode) whereas the latter is meant to support information sharing about unique product instance (identified via a smart tag, following the EPC standard). A recent report consolidating the views of industry leaders and many different companies on a global basis (GCI, 2005)

collaboration practices based on a central web-based collaboration platform. Two of the main barriers that make suppliers wary of participating in electronic marketplaces or private exchanges supporting collaborative supply chain processes, as also discussed by Eng (2003), refer to: 1 the technical uncertainty on reliability of e-marketplaces and complexity of integrating internal IT systems to the collaboration platform; and 2 the process complexity and unfriendliness entailed with requiring company employs to log-into different collaboration platforms and application environments in order to collaborate with the various supply-chain partners. The emerging technology of web-services and the related interoperability standards provide adequate answers to both of these problems, as they help combine the cost benefits and simplicity of the web with the independence and flexibility of a decentralized solution. A decentralized applicationarchitecture further copes well with increased transaction volumes and high frequency of interactions between trading partners, as is the case with RFID. Currently, RFID implementations take place internally within a company mainly with the objective to automate warehouse management processes in the first run (Prater et al., 2005). The priority and effort placed behind such implementations by the US Department of Defence and global retailers such as Wal-Mart, METRO, Tesco etc. 212

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

identifies the need to establish clear information-sharing work practices and infrastructures between trading partners to support the use of free, standards-based information exchange and enable transformed business processes enabled by RFID technology. The third case presented below discusses how this is achieved utilizing a distributed application-architecture based on the technology of web services. Figure 1 summarizes the evolving path of supply chain collaboration practices in retail and the underlying information technologies that have enabled this collaboration over time.

with CRP/VMI for central warehouse replenishment. The cost and complexity associated with setting up the EDI technology rendered this option infeasible for all SME companies, but also the bigger ones. However, end of 2003-beginning of 2004, a new option, other than the classical EDI approach, was made available to companies in the sector for supporting the electronic exchange of orders and invoices. The new option, provided by two e-ordering/e-invoicing service providers, was very cheap and fast in the setup (about five days compared to several weeks or months for EDI setup), did not require the use of standards and was based on new technologies and the free Internet for message exchange. Figure 2 schematically presents how this works. The order is extracted from the retailer’s ERP system in a specific file format (this is usually a plain text file, fixed-length or delimited, but can also be any other format, e.g. XML). This file is sent as is to the intermediate service provider, using web-services technology. More specifically, a webservice client, provided by the service provider, is installed on a retailer’s PC connected to the internet, and the web-service server software runs on the service provider’s central web site. This communication is secure, as the file is sent encrypted and the sender is authenticated through SSL and PKI. When the file is sent to the central web site, two non-exclusive options are available. The order file is loaded on a web site and can be viewed through a web-browser by the supplier or is translated into a different format (e.g. a different text file or XML format), as required by the supplier’s ERP, and is sent, again through web-services, to the supplier’s system. The first option, which has also been known as Web-EDI, is important for a small supplier, for example, who does not want to invest in any back-end integration link with an ERP or does not simply have an ERP. On the other hand, for the retailer there is only one interface to cope with all the different requirements of the various suppliers, which are handled by the intermediate service provider. The opposite process is followed for sending the invoices, although in this case the Web-EDI option is not relevant. Following the application service provider (ASP) model (Soliman et al., 2003), this service is offered by the e-ordering/ e-invoicing service provider to retailers and suppliers, who are charged an initial setup fee and then a small fee per transaction, which is much less than the cost of the manual data-entry, leaving aside other benefits. The collaborating party usually charged is the one having the greater benefits, i.e. the supplier for receiving the orders and the retailer for receiving the invoices. It is estimated that by using the e-invoicing service for 80 per cent of its transactions, a retailer

Practical evidence from alternative technological approaches Case 1: e-ordering and e-invoicing through a web intermediary The Greek grocery retail sector is the second most fragmented in Europe, with the three top retailers accounting for less than 50 per cent of the market and the ten top retailers accounting for just over 80 per cent. The sector is also characterized by a relatively high degree of direct-store-delivery and only two major retailers have a degree of centralization of over 75 per cent, i.e. 75 per cent of the products are delivered to a central warehouse instead of directly to the store. Most of the other retailers have a degree of centralization between 40 and 60 per cent. On the other side, we find about 2,000 suppliers selling their products through the grocery retail channel, 80 of them being the major ones, 200 of them being quite important and selling to almost every retail chain, and the rest being small suppliers selling few products to some of the retailers. These facts result in a high number of transactions between retailers and suppliers, one of the highest in Europe, with a large supermarket chain receiving on average 1.5 to 2 million invoices per year; the lower the degree of centralisation the higher the number of invoices. The cost and errors associated with the invoice data-entry process, and the respective data-entry process of orders by suppliers, leaving aside the delays in the information update, made the option of electronic exchange through the EDI promise very appealing, already from the beginning. In 1995, a special committee with members from interested retailers and suppliers and the EAN Hellas organization was dedicated to defining/ customizing the EDIFACT message standards for the Greek retail environment. However, the vision was not meant to materialize at that time; almost ten years afterwards, in 2004, only 13 companies from the grocery retail sector were using EDI, and these were just the companies working

Figure 1 Evolution of supply-chain collaboration practices in retail and enabling technologies

213

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Figure 2 E-ordering and e-invoicing through a web intermediary

companies to adopt the CRP/VMI collaborative process and there are signs in the market that this trend will continue. Table II compares the current approach to the classical EDI approach, stressing the points that have made this a success case compared to the initial EDI failure.

can achieve an 83.3 per cent cost reduction, resulting in a net gain of 900,000 e yearly (Drakos and Pantzis, 2005). Other indirect savings relate to the elimination of data-entry errors, the timely update of stock and delivery information, the control of supplier service-levels, and the real-time control of spending. What is important to note in this process is that the intermediate service provider operates as a “translation hub”, eliminating the need for the two collaborating parties to agree on and “talk” through a common standard. This mere fact significantly simplifies the process for them and leaves the message mapping complexity to the service provider, who builds on past knowledge to do this efficiently and correctly. In addition, each company has only one link to maintain, that with the intermediate service provider, and this gives it the possibility to instantly connect to any other connected company, in a many-to-many environment. As the two service providers currently operating in the Greek market, IS Impact with its @Connect service and Retail@Link, are also interconnected, this possibility is offered to any retailer or supplier, irrespective of which service provider the company uses. The setting described above has enabled, in about a year’s time, more than 200 companies in the grocery retail sector, involving almost all the top retailers and supplies but also many SME’s, to electronically exchange order and invoice files with their trading partners. In the beginning of 2006, it is estimated that more than 200,000 invoices are exchanged electronically each month. This setting has been expanded to support not only the eordering/e-invoicing process but also other collaborative processes, like CRP/VMI. In this case, the CRP/VMI forecasting and order proposal software operates on the central web site and the supplier has access to it through a web-browser, in a similar way like the Web-EDI approach but with additional functionality. File exchanges between retailer and supplier ERP systems take place as described above. This fact makes it easy for a supplier that already uses the eordering service to upgrade it to CRP/VMI with no additional technical setup required. The technical complexity of setting up the CRP/VMI process rests again with the intermediate service provider. This possibility has enabled some smaller

Case 2: collaborative store ordering over a web-based collaboration platform The second case presented uses again the approach of a centralized web platform but this time not in order to merely support the electronic file exchange between supply chain partners, but in order to support a collaborative store replenishment process. Currently, the store replenishment process is a combination of direct-store-delivery (DSD), where the respective product suppliers are those preparing the order and delivering their products directly to the store, and centralized-delivery, where the responsible store personnel prepare and send the order to a central warehouse, which in turn delivers the products of several suppliers to the store. The specific case refers to utilizing a web platform to support collaborative store ordering to both DSD suppliers and the central warehouse is the following way: The central web platform is updated daily with store-level information, including point-of-sales (POS) data, delivery quantities, product assortment, promotion activities, new product codes etc. Most of these data come from the retailer’s central information system (e.g. product assortment, product catalogues) and directly or indirectly from the store information system (e.g. POS data), but some information may also come from the central warehouse or the suppliers’ information systems. Based on this information, the system running on the central web platform prepares respective order proposals per individual store. For centralized deliveries, the store personnel review the respective order proposal and, on confirmation, the order is sent to the retailer’s central warehouse. For direct-store-delivery, the supplier salesman first reviews the system’s order proposal, which is then sent to the store for final confirmation and then to the supplier for execution. Both the stores and the suppliers’ salesmen access the system through the web. This is schematically depicted in Figure 3. 214

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Table II Comparison between the classical EDI approach and a web-based intermediary for supporting e-ordering/e-invoicing Classical EDI approach – failure

Web-based intermediary – success

Technical elements Conformation to standards This was a complicated and difficult process. Companies had No use of common standard required. Company sends and to customize EDIFACT standards, understand them and control receives information in any format. The intermediate service the mapping between internal data and EDI message fields provider assumes responsibility of doing the mapping from one company format to the other Use of network Companies were required to connect to a Value Added Companies use the Internet infrastructure which they already infrastructure Network (VAN), which was adding to the technical complexity use in most of the cases anyway of the process Software setup Companies were required to setup specialized EDI software, Companies setup a thin web-service client on any PC usually on a dedicated PC with a dial-up connection to the connected to the Internet and only define the file input and VAN, and define the mapping and connection rules (addresses output directories etc.) for any different message and partner link Process elements Setup time Because of the technical complexity, the setup time took The setup time only takes some days in most cases, unless several weeks and required separate testing for every new extra effort is required to import or export the files from the message and partner link company ERP. Once a company is connected, no extra effort is required to connect to any other connected partner Process control and Each company’s internal IT department is responsible for Significant economies of scale exist for the intermediate monitoring constantly monitoring that the EDI messages have translated service provider who does the process monitoring and control correctly and have been sent/ received successfully. In case of for all the companies at once. Any technical problem is problems, technical support by the EDI software vendor may handled internally by the service provider be needed Cost elements Setup cost The company has to pay significant fees for the EDI software The setup fee is much lower (some hundred e) or even less for and the timely and complex setup process (several thousand the mere Web-EDI service e) Cost of network Extra fee is paid to the VAN for annual subscription and based Free communication over the internet infrastructure on the volume of communication On-going cost EDI software maintenance cost and extra ongoing cost On-going service fee based on the number of transactions, incurred due to the internal technical monitoring required only charged to the message recipient

The concept of collaborative store ordering builds on the notions of CRP/VMI and CPFR but is also different from them in respect to the following: . CRP/VMI in grocery retailing has mainly been applied to central warehouse replenishment and is based on inventory report data, whereas the process of collaborative store ordering refers to store replenishment and mainly utilizes POS data and other information such as product assortment, delivery quantities, information on promotion activities etc. In addition, in CRP/VMI there is no distinction between centralized and DSD delivery. . The process of collaborative store ordering (PCSO) can be regarded as daily, store-level CPFR, whereas the typical CPFR process focuses more on promotional items or special events and the planning horizon is usually the week or month (Pramatari et al., 2002).

grocery retailing faces today, that of shelf availability. Through initial piloting of collaborative store ordering and systematic shelf-availability measurements, a 60 per cent reduction in out-of-shelf situations is reported (Pramatari et al., 2002). Despite the proven business benefits associated with this process, the barriers and challenges of implementation cannot be disregarded. These include both technical challenges as well as organizational and coordination challenges, summarized as following: Technical challenges . Data-integrity and synchronization issues, as this process is heavily dependent on information coming from many different sources. Several data-integrity and validation checks had to be implemented for the operation to work smoothly. . Quality of the automated inter-organisational system links, as initially these relied on point-to-point FTP links between retailers’ and suppliers’ systems and the web platform. Issues were resolved by employing the webservices technology to support them in combination with several failure-control mechanisms. . Web user-interface combined with slow internet connections. The web interface had to be redesigned several times for making it user friendly and efficient for a store employee to review an order proposal of over 500

The specific case involves an application service provider, Retail@Link, offering store-ordering collaboration services through its web-based platform, one retailer, i.e. Veropoulos Spar, a e770 million company and third-largest Greek retailer, as well as several suppliers, including Schwarzkopf & Rilken, Procter & Gamble, Unilever and Elgeka. The focus of this case is not on cost reduction, like the previous case was, but on sales increase through collaboratively addressing one of the major challenges that 215

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Figure 3 Collaborative store ordering through a web platform

.

.

store ordering resulted in a total failure, mainly due to the misalignment between new and existing business processes. Only after both the internal business processes were carefully redesigned and the web platform was better aligned to the internal processes was the system accepted by the organization.

products a time using a dial-up internet connection. Printing-out the order proposal and minimizing the interaction with the web site are actions that have contributed to overcoming this issue. Scalability of the centralised software architecture. Veropoulos Spar has 160 stores utilizing the web platform. When all the stores went online, the initial web platform experienced serious delays and scalability issues. The platform had to be totally redesigned in order to cope with such large numbers of stores and information volumes (million of records on a daily basis, including POS data from all the stores, product assortments from all the stores etc.) Controlling the various points of system failure, ranging from internet connectivity issues in the stores to back-end integration and file-transfer issues between the central platform and the various information systems, to hardware printer failures in the stores etc. Several control mechanisms and thorough testing, involving pilot testing before broader phased roll-out, were employed to address this issue.

Multi-party co-ordination challenges . The challenges of the ASP model. Supporting collaborative store ordering through an ASP intermediary, instead of each retailer building its own collaboration platform, represents significant economies of scale and efficient communications in a many-to-many environment, especially in as fragmented a market as the Greek grocery retail environment. However, this requires that all the major retailers and suppliers use the intermediate collaboration platform, which is not yet the case. Furthermore, utilizing an ASP in this case has similar advantages and disadvantages to more traditional IT outsourcing (Kern et al., 2002). . Supplier-retailer coordination challenges. While the suppliers initially appeared enthusiastic about collaborative store ordering and the possibility to have direct access to daily POS data and store-level information, several barriers soon had a slow-down effect on their decision to exploit this new opportunity. These related to technology, organisational, and collaboration barriers, as also reported by Hsiao (2003).

Organizational challenges . User involvement challenges: Make the actual users in the stores like the system and feel positively about the new process change was one of the major challenges. In addition, learning users to use the system correctly and exploit the available information for making informed decisions was another challenge on its own. After almost three years of operation, Veropoulos Spar is considering re-training the people in the stores to make the best out of the system use. . Technology/business alignment and business process redesign: An initial attempt to use a pre-defined ebusiness platform to support the process of collaborative

The above have resulted in poor adoption of the collaborative store replenishment process by the suppliers, despite the fact that Veropoulos (for almost three years now) and PenteGalaxias, another major Greek retailer with about 100 stores (for almost two years now), use it fully for internal store ordering to the central warehouse. 216

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Furthermore, considering the technological approach of utilizing a centralized web platform to support this supply chain collaboration process, one could say that this choice, despite its advantages in offering one point for information links management and data validation, lags behind in relation to the following: . System response time and scalability is poor compared to a decentralized architecture. . The central platform is a single point of failure, causing problems to the ordering process of all the stores in case there is an issue. . The web-interface does not integrate well with the internal processes of the suppliers (e.g. a supplier salesman visiting both Veropoulos stores and other stores not connected to the platform has to use the web system for the Veropoulos stores and a different internal application for the rest of the stores). Veropoulos and Pente-Galaxias overcame this issue by having the platform customized to fit well with their internal store processes, but this cannot be the case for each supplier.

.

Real-time analytics and decision support exploiting the rich information environment in a distributed and collaborative context.

The case demonstrates how the above technological framework enables some new supply chain collaboration processes that would not have been possible before. As an example, Figure 4 depicts a new collaborative process, namely dynamic pricing, giving suppliers and retailers the possibility to reduce the price of products approaching their expiration date dynamically, in order to boost demand and minimize the cost of product waste. RFID technology enables this scenario by providing the information on current stock and expiration dates, as well as consumer response to reduced prices. The information infrastructure giving the supplier and retailer central offices access to this information is what enables collaboration. The distributed nature of this infrastructure offers scalability to the system, which is a necessity given the immense amount of data, and allows the integration of the application elements with internal processes in the retailer and the supplier. In this context, the same underlying infrastructure enables another scenario, that of product recall, where the supplier may choose to withdraw the products that are close to expiry from the market instead of reducing their price. Apart from dynamic pricing and product recall, other collaboration scenarios that are considered in the context of the SMART project include the following: . Back room visibility and store replenishment. In this scenario both retailer and product supplier have a clear picture of what is a product’s stock in the store as well as the product’s sales and other information and collaborate on order placement for store replenishment. This scenario resembles to the second case presented above, but is based on much more precise stock information (enabled by RFID technology) and, in addition, the users do not have to log into a central web site but may access the system in a distributed manner, e.g. using their PDAs. . Shelf replenishment and out-of-shelf alerts. This possibility enables the store personnel to better manage the shelf replenishment process, which is currently one of the major causes behind the out-of-shelf problem (Gruen et al., 2002). Sharing out-of-shelf alerts with the product suppliers is also important, especially in direct-storedelivery where the supplier is responsible for replenishing the store, in order to further monitor the problem as well as develop more accurate demand forecasts. . Collaborative shelf-management. In this scenario retailer and product suppliers get real-time information about the shelf appearance (provided that products and shelves are equipped with RFID tags and readers respectively) and manage the shelf allocation and appearance in collaboration. The process of shelf-management is already based on supplier-retailer collaboration to a great extent, but currently involves many manual and timeconsuming steps that make it quite cumbersome. . Collaborative in-store promotion management and evaluation. As a last example, this scenario enables retailers and suppliers to get information on past in-store promotion events performance and further collaborate over the SMART infrastructure in order to plan and manage future in-store promotion events. RFID technology is what allows in this case to associate sales information with specific in-store placement and other promotional context.

A decentralized application-architecture, as enabled today by the web services technology and new interoperability standards, may successfully address some of these issues. This is the approach employed in the next case, supporting RFID-enabled collaboration in the supply chain. Case 3: RFID-enabled collaboration based on a distributed-network-architecture The emergence of new technologies, such as radio frequency identification (RFID), is expected to revolutionize many of the supply chain operations by reducing costs, improving service levels and offering new capabilities for identifying unique product instances. The benefits from the use of RFID technologies are expected to grow substantially if the scope of implementation is extended from internal warehouse and distribution processes to supply-chain processes involving collaborating partners. Under this perspective, the specific case employs a distributed application-architecture, operating in close integration with the GDSN and EPC network information infrastructures, referred to above, and building on the possibilities provided by web service orchestration, datastream management systems and RFID technologies to address this need. More specifically, the case refers to SMART, a European Research Project (IST 2005, FP6)[1] with several participants across Europe, including three major retail chains from Ireland, Greece and Cyprus, as well as technology providers and research institutes. The project employs the following technologies into an integrated network infrastructure to enable supply chain collaboration and decision making: . RFID technologies providing unique product instance and context identification, which further enable new services and collaboration practices. . Web service choreography in order to enable crossorganizational process integration and information sharing (Muehlen et al., 2005). . Data stream management systems supporting continuous queries based on transient data streams associated with unique product identification, which cannot be as efficiently supported by relational databases (Chatziantoniou and Anagnostopoulos, 2004). 217

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Figure 4 Indicative dynamic pricing RFID-enabled collaborative process

The fact that this case refers to a research project, however, reveals that this technological approach is still new and not widely tested yet, not only in relation to the RFID technology, but also in relation to the use of web services technology in order to support information sharing and collaboration in a distributed environment. The SMART project partners envisage that they can support new collaborative practices that would not have been able with the existing technologies. However, it remains to be proved whether the selected technologies are mature enough to support these new collaboration scenarios, as well as whether these new scenarios are viable from an organizational and business perspective.

interact with each other, which, although is quite simple in terms of user interface, means that people use many different systems in order to perform similar tasks (e.g. ordering), which is quite awkward and leads to dissatisfaction and finally non-acceptance of the system and the new process by the users. If this is the situation, it appears more suitable that each user has only one system to interact with and this system is automatically connected, in the back-office, with the different systems of many other supply chain partners, which is what a decentralized solution can offer. This approach becomes necessary also in case the information intensity highly increases and thus a centralized web-platform cannot effectively handle it, resulting in poor system performance and scalability issues. This is another reason why the decentralized solution has been selected in the third case, where RFID technology and unique product identification lead to an exponential increase in the information to be exchanged. However, we are not yet sure whether the technology of web-services and the pertinent application model have matured enough in order to hide the automation and technical complexity from the users and, thus, fulfill the promise of smooth interorganizational process integration. In addition, the decentralized approach has also to face several

Discussion The three cases presented above refer to three different settings of electronic interaction between supply-chain partners. Apart from selecting a different technological approach to support this interaction, the three collaboration cases also differ in terms of process complexity and information intensity. These two dimensions could be used in a way to define the depth of collaboration between supply chain partners. The evidence from the three cases shows that there is a connection between the depth of collaboration and the suitability of the technological approach used to support this collaboration. The grid presented in Figure 5 summarizes this evidence. In case that the process complexity is low and the intensity of the information exchanged is low, then a centralized web platform appears as the suitable approach, as has been demonstrated by the first case. However, when the process complexity increases and requires the involvement of different employees from the collaborating organizations, then the webparadigm presents inadequacies. The second case has managed to finally handle effectively and efficiently the information exchange of a big volume and many different types of data on a daily basis, using a centralized web platform and following the same approach as in the first case. However, the web-paradigm in this case requires that people log-into a common web site in order to

Figure 5 Technological approach versus depth of collaboration

218

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

issues in relation to the adoption of standards by supply chain partners. These technological standards do not merely refer to the format of the exchanged information, as was the case with EDI, but also entail the way that applications interact and the process logic is implemented. While the technology of web services has already developed into a de facto standard for information exchange over the internet, there are still many standardization efforts that need to conclude and become widely accepted (see, for example, Muehlen et al., 2005) before the interfaces between web services of different organizations are fully standardized and capable to enable the integration of supply chain processes on a wide scale. This is expected to be a main barrier and one of the major technological risks associated with this approach. Last but not least, the governance of the infrastructure is also expected to play a critical role in the success of the technological approach selected to support collaborative supply chain processes. In both the first and the second case, an intermediary application service provider has played an important role in making it happen, doing the project management on behalf of the users and dealing not merely with technical issues but also with organizational issues and user training. If there is no central control and support to the roll-out of the technology, then this may represent another barrier, having a slow-down effect on the adoption of the technology and the collaborative process. The third case, while following a decentralized approach, also relies on some centralized technical elements, such as the web services directory or the web service orchestration engine. Based on the lessons acquired from the previous two cases, it may be wise that these centralized elements are controlled by an ASP who will also have the drive to push this forward and support the roll-out of the technology.

collaboration practices, the motives for adoption as well as the pertinent costs and benefits for the various partners.

Note 1 Project co-funded by the European Commission under the FP6-IST Programme (No. ST-5-034957-STP)

References Anderson, D.L. and Lee, H. (1999), “Synchronised supply chains: the new frontier”, Achieving Supply Chain Excellence Through Technology, Montgomery Research Inc, San Francisco, CA, pp. 112-21. Andraski, J.C. (1994), “Foundations for successful continuous replenishment programs”, International Journal of Logistics Management, Vol. 5 No. 1, pp. 1-8. Anthony, T. (2000), “Supply chain collaboration: success in the new internet economy”, Achieving Supply Chain Excellence through Technology, Montgomery Research Inc, San Francisco, pp. 241-4. Barratt, M. and Oliveira, A. (2001), “Exploring the experience of collaborative planning initiatives”, International Journal of Physical Distribution & Logistics Management, Vol. 31 No. 4, pp. 266-89. Blatherwick, A. (1998), “Vendor-managed inventory: fashion fad or important supply chain strategy?”, Supply Chain Management: An International Journal, Vol. 3 No. 1, pp. 10-11. Bowersox, D.J., Closs, D.J. and Stank, T.P. (2000), “Ten mega-trends that will revolutionize supply chain logistics”, Journal of Business Logistics, Vol. 21 No. 2, pp. 1-16. Chatziantoniou, D. and Anagnostopoulos, A. (2004), “NESTREAM: querying nested streams”, ACM SIGMOD, Vol. 33 No. 3, pp. 71-8. Drakos, W. and Pantzis, Y. (2005), “Last-mile supply chain integration: easy connection and information exchange between suppliers and retailers”, in Doukidis, G.J. and Vrechopoulos, A.P. (Eds), Consumer Driven Electronic Transformation, Springer, New York, NY. ECRE (1997), CEO Overview, Efficient Consumer Response, ECR Europe Publications, Brussels, available at: www. ecrnet.org Eng, T.Y. (2003), “The role of e-marketplaces in supply chain management”, Industrial Marketing Management, Vol. 33 No. 2, pp. 97-105. GCI (2005), EPC: A Shared Vision for Transforming Business Processes, Global Commerce Initiative, available at: www. gci-net.org Gruen, T.W., Corsten, D.S. and Bharadwaj, S. (2002), “Retail out-of-stocks: a worldwide examination of extent, causes and consumer responses”, paper presented at the Food Institute Forum (CIES, FMI, GMA). Hill, A.C. and Scudder, G.D. (2002), “The use of electronic data interchange for supply chain coordination in the food industry”, Journal of Operations Management, Vol. 20, pp. 375-87. Holmstro¨m, J., Framling, K., Kaipia, R. and Saranen, J. (2002), “Collaborative planning forecasting and replenishment: new solutions needed for mass collaboration”, Supply Chain Management: An International Journal, Vol. 7 No. 3, pp. 136-45.

Conclusions The paper has presented three different cases of supply-chain collaboration and has discussed the technological approach that has been followed in these different cases. From this discussion and the evidence provided by the three cases, some interesting findings related to the suitability of a central webplatform or the appropriateness of a decentralized solution enabled by web services technology are discussed. In addition, the lessons acquired from the first two cases are used in order to support some speculations regarding the third case, which is still closer to research than to production. The work presented in this paper and the conclusions drawn are relevant to practitioners and academics having either technical or business orientation. Technical people gain evidence from watching the application of different technologies in a specific application field. On the other hand, practitioners in the grocery retail sector but also in other sectors can assess the risk and capabilities associated with the technological approach used to support collaborative supply chain initiatives and better anticipate future developments. However, the three cases provide qualitative findings that would be useful to validate further through quantitative work, but also through application in different settings. Interesting findings may also be gained by not only looking at the technological aspects of these three cases, but at several other aspects relating to collaboration, such as the governance rules and relations between supply chain partners, the organizational issues associated with existing and new 219

Collaborative supply chain practices

Supply Chain Management: An International Journal

Katerina Pramatari

Volume 12 · Number 3 · 2007 · 210 –220

Hsiao, R.L. (2003), “Technology fears: distrust and cultural persistence in electronic marketplace adoption”, The Journal of Strategic Information Systems, Vol. 12, pp. 169-99. Kern, T., Kreijger, J. and Wilcocks, L. (2002), “Exploring ASP as sourcing strategy: theoretical perspectives, propositions for practice”, The Journal of Strategic Information Systems, Vol. 11 No. 2, pp. 153-77. Lee, S.C., Pak, B.Y. and Lee, H.G. (2003), “Business value of B2B electronic commerce: the critical role of inter-firm collaboration”, Electronic Commerce Research and Applications, Vol. 2 No. 4, pp. 350-61. Muehlen, M., Nickerson, J.V. and Swenson, K.D. (2005), “Developing web services choreography standards – the case of REST vs. SOAP”, Decision Support Systems, Vol. 40, pp. 9-29. O’Keeffe, M. and Fearne, A. (2002), “From commodity marketing to category management: insights from the Waitrose category leadership program in fresh produce”, Supply Chain Management: An International Journal, Vol. 7 No. 5, pp. 296-301. Pramatari, K., Papakiriakopoulos, D., Poulymenakou, A. and Doukidis, G.I.U. (2002), “New forms of CPFR”, The ECR Journal – International Business Review, Vol. 2 No. 2, pp. 38-43. Prater, E., Frazier, G.V. and Reyes, P.M. (2005), “Future impacts of RFID on e-supply chains in grocery retailing”,

Supply Chain Management: An International Journal, Vol. 10 No. 2, pp. 134-42. Soliman, K.S., Chen, L. and Frolick, M.N. (2003), “ASPs: do they work?”, Information Systems Management, Vol. 20 No. 4, pp. 50-7. Sparks, L. and Wagner, B.A. (2003), “Retail exchanges: a research agenda”, Supply Chain Management: An International Journal, Vol. 8 No. 3, pp. 201-8. Stefansson, G. (2002), “Business-to-business data sharing: a source for integration of supply chains”, International Journal of Production Economics, Vol. 75, pp. 135-46.

About the author Katerina Pramatari is Lecturer at the Department of Management Science and Technology of the Athens University of Economics and Business (AUEB). She holds a PhD from Athens University of Economics & Business (AUEB) and a Masters in Information Systems from the same University. She has worked as a systems analyst for Procter & Gamble European Headquarters, in the Marketing Department of Procter & Gamble Greece and in the setup of new business ventures in the area of e-business and supply chain integration in grocery retailing. Katerina can be contacted at: [email protected]

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

220

Integration of web-based and RFID technology in visualizing logistics operations – a case study Harry K.H. Chow, K.L. Choy and W.B. Lee Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hunghom, Hong Kong, and

Felix T.S. Chan Department of Industrial and Systems Engineering, The University of Hong Kong, Hong Kong Abstract Purpose – To provide a new generic model equipped with a “process visualizing” feature by capturing RFID logistics data to represent different logistics processes’ status, and sharing them through web-based technology to supply chain parties. Design/methodology/approach – In order to provide logistics service companies an effective way to manage their logistics processes and help both the up and down stream supply chain parties maximize their activities linkage within the value chain, the proposed system integrates radio frequency identification (RFID) and IT applications to optimize information flow in a supply chain. In doing so, the objective of visualizing logistics process is achieved. Findings – It is found that the proposed model enhanced the performance of third party logistics providers and their supply chain partners in three main areas. They include a significant reduction in inventory level, a substantial drop in the chance of out-of-stock and, a significant improvement in the efficiency of delivery. They are among the most critical problems that often exist in a supply chain. Research limitations/implications – The proposed model requires supply chain participants to share their process data on the web environment so as to achieve the target of collaboration. This demands the need of tight security control over the public internet. Practical implications – This paper provides useful information and practical guidance for supply chain participants to formulate a “process visualizing featured” information system. Originality/value – This paper provides a solution to solve common supply chain management problems and offers practical helps to supply chain participants effectively. Keywords Distribution management, Information systems Paper type Research paper

processes (Hong Kong Logistics Association, 2004), which is unresponsive and inefficient in today’s digital era. Moreover, these 3PL providers are unable to synchronize information flow with its sub-contracted logistics service partners in a real-time basis for making timely decision or providing responsive customer services. Therefore, a new method is needed to tackle the information problem and support the business growth of 3PL providers in the coming future. In this paper, an integrated logistics information management system (ILIMS) is designed for local small and medium-sized 3PL providers with advanced information technology to suite this need. It is a web-based logistics information hub connecting supply chain partners together to share reliable logistics information efficiently. ILIMS also unifies the way of doing businesses among trading partners basing on standardized logistics process and common logistics data. Moreover, ILIMS allows real-time information sharing among supply chain members to take places through integrating web-based and auto-identification (Auto-ID) technologies. For example, the customer’s stock and logistics resources are tracked and traced in a real-time basis

1. Introduction In recent years, due to stringent competition, many manufacturing firms in Hong Kong have moved their production to the PRD region where the labour cost is low. With substantial presence of manufacturing plants in the region, the demand of logistics services such as warehousing, transportation and distribution has grown rapidly (Hong Kong Trade Development Council, 2004). These businesses form the extended enterprises in various product delivery supply chains, in which 3PL has a strategic position in the supply chain in providing cost effective logistics management. In general, logistics management typically deals with various inbound and outbound logistics activities that involve all levels of planning and execution (Council of Logistics Management, 2003). However, many local small and medium-sized 3PL providers still operate in manual The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal 12/3 (2007) 221– 234 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10.1108/13598540710742536]

The authors wish to thank the Research Committee of The Hong Kong Polytechnic University for the financial support of the project.

221

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

by the RFID technology. In doing so, the visualization of the whole logistics service processes is achieved, enabling the upand down-stream logistics service providers to work collaboratively in providing integrated and responsiveness logistic service. As a result, logistics visibility throughout the supply chain is significantly improved. The paper aims at establishing a generic model of a responsive logistics information system by integrating advance IT applications to optimize information flow in a supply chain. A case study is then presented to illustrate how ILIMS is used in improving the business performance of a 3PL company.

logistics information transferring channel to reflect the realtime operations progress. Therefore, to visualize and control the outsourced logistics operations become critical for 3PLs to sustain their competitiveness. Figure 2 summarizes the drawbacks of present communication method. Since the current information transferring method cannot track an order status in a real-time base, it is necessary to develop a logistics information system (LIS) integrating web-based and radio frequency identification (RFID) technologies together to enhance logistics service responsiveness and information transparency.

2. Review of related studies

2.3 Logistics management, radio frequency identification and logistics information system Christopher (1992) defined logistics management as the supply chain processes that plans, implements, and controls the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption in order to meet customers’ requirements. Within a supply chain network, logistics service providers act as a bridge to formulate the linkage between the upper and lower supply chain parties’ processes (Chan and Chung, 2005). By doing so, a “virtual” enterprise is developed requiring the business owners work collaboratively in order to carry out the business. Porter (1987) proposed a “value chain” concept which has been widely used in presenting the integration within the function of a firm. Underlying the “value chain” concept, a firm is defined as a collection of key functional activities that can be separated and identified as primary activities consisting of inbound logistics, operations, outbound logistics, marketing and sales, and service, and support activities of infrastructure, human resource management, technology development, and procurement. Hence, maximizing the linkage between the activities can result in an enhancement of the film’s operations efficiency and competitive advantage. Similarly, a “virtual” enterprise operates in the same approach of involving different number of supply chain parties to perform various key functions (Chan and Chan, 2005). Armistead (1996) emphasized that it is important for supply chain members, in particular, the logistics service providers, to communicate through peers in performing the same function or activities. Therefore, in order to enable effective activities integration in the supply chain, an efficient information-sharing environment is mandatory to exchange relevant information thereby visualising the logistics processes status between up and down stream supply chain parties (Chan et al., 2005). RFID is an Auto-ID technology developed by Auto-ID Center at Massachusetts Institute of Technology to identify an object by the use of radio wave (Armistead, 1996; Doyle, 2004; Finkenzeller, 2000; Shepard, 2005). According to VeriSign, Inc. (2004), RFID works in combination with electronic product codes (EPCs) that aims to enhance supply chain logistics operations efficiency through three EPC network services. 1 Object name service (ONS) is a distributed but authoritative directory of information sources to describe EPC in the supply chain. 2 EPC information service (EPC-IS) is the data repositories to store information about unique items in the supply chain. It captures the instance data of logistics item through the EPC middleware on the savant servers. The savant servers provide screening and management of

2.1 Current status of third party logistics in the Pearl River Delta region 3PL involves the use of external companies to perform logistics functions which have been traditionally performed within a company (Lieb and Randall, 1996). According to Hertz and Alfredsson (2003), a logistics service provider is responsible for managing, coordinating and delivering logistics activities on behalf of a shipper. To maintain competitiveness, many companies sub-contract non-core processes such as logistics to service providers. As a result, 3PL providers always participate in the fulfilment process throughout a supply chain in order to provide cost-effective services. 2.2 Operations problems of small and medium-sized third party logistics providers According to Hong Kong Trade Development Council (2004), there are four critical factors for local 3PL to become successful. They are namely: 1 PRD focus; 2 adoption of IT solutions; 3 provision of integrative services; and 4 forming supply chain partnerships. According to the Hong Kong Logistics Association (2004), many of the 3PL providers in Hong Kong and the PRD region are small and medium-sized companies. They provide logistics services to customers through sub-contracting part of the operations to other supply chain parties, following the generic order fulfilment process as shown in Figure 1. In this process, telephone, fax and email are widely used as major communication means in the operations for collecting service request from customer, sending booking request to supplier, or updating customer about delivery status. It is note that the existing method involves a lot of manual procedures that is both inefficient and unresponsive. It causes various communication problems in the supply chain, which impact the fulfilment process badly. In such case, the effectiveness and efficiency of outsource logistics service provider are unpredicted and measured. At the same time, more value-added services are demanded such as real-time track-and-trace of delivery, preparing tailormade documents for customers, and sharing logistics information among the trading partners in a real-time base for better planning and inventory reduction (Chan and Chan, 2006). Under the limitation of resource, many small and medium sized 3PLs tend to outsource logistics services to other service providers in order to increase the responsiveness and flexibility. However, monitoring the outsourced logistics operations are always a challenge as there is a lack of effective 222

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

Figure 1 Generic order fulfilment process flow of small and medium-sized 3PL provider

3

RFID raw data, while EPC-IS provides services to exchange EPC related data with supply chain members. EPC discovery service (EPC-DS) enables efficient trackand-trace capabilities through the EPC Network. For each manufacturer, the EPC-DS provides a directory of all EPC-IS which reads and contains information of particular products.

With the help of EPC, RFID provides three benefits in the supply chain, namely: 1 recognition of each item uniquely; 2 accurately track and trace items moving through the supply chain; and 3 the improvement of logistics visibility by exchanging information with trading partners. 223

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

Figure 2 Drawbacks of existing method adopted by small and medium-sized 3PL providers

3. Integrated logistics information management system (ILIMS)

RFID tags carry the EPCs uniquely to identify items. In contrast to bar codes, these tags require less physical handling of the items and offer greater data reliability as they move along the supply chain. The characteristics of EPC-enabled RFID, when applied throughout a supply chain, improve process visibility such as location of materials and inventory levels. It also helps enterprises gain efficiency in receiving, shipping and materials handling. In fact, the RFID technology has been recently applied in numerous areas in the supply chain activities such as inventory management (Smaros and Holmstrom, 2000), manufacturing and distribution of physical goods (Mintchell, 2002), and, shipping and port operations (D’Amico, 2002; Dornheim, 2002). In brief, in managing supply chain logistics, EPC will address everything from products to packages, containers, and pallets that aims to automate the supply chain (Chorafas, 2001; Auto-ID Center, 2002). In doing so, the movement of logistics items on the supply chain can be traced. Through using RFID enabled LIS, the operations of 3PL providers and other supply chain members are synchronized. Rutner et al. (2001) addressed LIS a major area of study in the logistics and operations areas for more than 25 years. Most of the previous studies examine the adoption of LIS in organizations (Gustin et al., 1994; Gustin et al., 1995; Huan, 1995; Kang and Kwon, 1997; Rutner et al., 2001; Margaret, 2002; Rutner et al., 2003). However, it is found that the previous works have not examined the feasibility of enabling LIS with Auto-ID technology to improve the logistics operations. In order to realize significant value of adopting RFID, a collaborative environment with trading partners to exchange relevant information is mandatory. As there is little evidence of such kind of LIS in the market, therefore, in this paper, basing on the value chain perspective (Porter, 1985), a web-based logistics information system integrating with RFID technology to aid multiple supply chain members in aggregating, managing and routing logistics processes, is proposed. The system, called integrated logistics information management system, is capable of connecting LIS to an EPCnetwork to discover and share RFID/EPC data by using AutoID technology to improve logistics visibility in the supply chain.

The integrated logistics information management system (ILIMS) is a web-based system that integrates RFID technology to visualize logistics processes. It links the entire core logistics processes so that logistics services can be provided and visualized on real- time base. It is a common platform that allows different parties to transmit, capture, share and collect the required logistics data via the internet. Through acquiring the required logistics data, up- and downstream parties not only handle the logistics activities flexibly, but also perform the integrated logistics process collaboratively. The model consists of the following three layers: 1 Logistics service is the collection of physical logistics activities, including warehouse operations, inventory management, distribution, reverse logistics, transportation and freight forwarding services. 2 Logistics process is the collection of logistics management activities facilitating the materials and information flow on the supply chain. It connects the business with other supply chain members and supports the delivery of the required logistics services on the top tier. The activities include order fulfilment processes, customer and supplier service, procurement and demand management. 3 Logistics information system is a business application for collecting, retaining, and manipulating logistics data. Key to success is the architecture for integrating the three EPC-network services into ILIMS, improving the information flow in the supply chain and decisionmaking in logistics processes. With EPC Middleware on the savant server, RFID raw data can be managed and stored on EPC-IS server. Selected data is incorporated into the ILIMS database and associated with the business objects such as purchase orders, shipping notices and invoices so that exceptions, status updates and notifications can be generated in real time to improve operations responsiveness. 224

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

4. System architecture of ILIMS

display of outputs. Users can use different kinds of services in the system according to their role. The web-server contains a number of web pages for providing various functions to different group of users. The web pages are constructed by using Hypertext Mark-up Language (HTML). When the web server receives a request for an ASP file from the web pages, it processes the serverside script codes contained in the file to build the HTML web page, which is sent to the browser. In ILIMS, the business functions are implemented as component object model (COM) components on the application tier. They are accessed through DCOM calls initiated by ASP when the web-server receives requests from the browser.

As illustrated in Figure 3, multi-tier client-server system architecture is used in ILIMS for realizing the integration approach. ILIMS employs a distributed computing design using distributed component object model (DCOM) due to the fact that customer widely adopt the Windows customer base and a relatively lower cost of investment is required in implementing the system. The function of each tier is discussed in the following sections. 4.1 The presentation tier The presentation tier is the user interface (UI) of the system that allows users to access the business functions over the Internet with their web-browsers. It allows users to access business information through the Internet in accordance with the access right granted by the 3PL providers. This tier provides inputs to the application tier and manages the

4.2 The RFID data collection tier The RFID data collection tier is responsible for providing functional applications on radio frequency signal transferring, data filtering and processing. There are two types of RFID data, namely, static and dynamic logistics data.

Figure 3 System architecture of ILIMS

225

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

The static data collection module uses low-power radio signals to exchange data wirelessly between passive tags and readers. The passive tag consists of an integrated circuit to store the item identity and other information. As shown in Figure 4, the passive tag is attached on the items like pallets, cases or items to record item identity. The tag reader, on the other hand, is integrated to fix positioned antenna that are mounted on structures like dock door, facility entrance, or integrated into forklifts and other equipment. It contains one or more antennas to recognize and read hundreds of tags within their reading range. Next, the received signals and data will be decoded and passed through a data connection device to the server that runs the business logic. The function of the connection device is to exchange data between the readers, or networks of readers via a wireless LAN (network). In contrast, the dynamic data collection module applies the shorter pulse radio frequency signals to transfer, define and process dynamic data between the reader and tags as shown in Figure 5. The active tag readers are located to the gateway of different logistics operations zone including: storage, packaging and departure zone. On the other hand, the

active tags consist of an internal battery and a short pulse transmitter, located at the equipment such as forklifts. The tag where is attached on the equipment, emits the short pulse signal several times every second. The readers receive the signals and send them back to the hub processor of ILIMS. With the triangulation logic setup as read by the various readers, the exact x, y co-ordinates of the active tag can be calculated. In doing so, the exact location and departure time of the equipments in different zones are accurately determined and recorded respectively. As a consequence, the logistics operations status of each order is determined. 4.3 The application tier The application tier implements logistics processes delivering desired logistics services. It is the business logic providing various functions such as quotation, order placement, operations status tracking, or customer invoice that are implemented by business component modules and data component modules. The ILIMS also interconnects with the Email Server for generating for generating email notifications to customers that carry business information like invoices or shipping documents.

Figure 4 Static logistics data collection setting

4.4 The database tier The database tier of ILIMS is the information repository for storing and retrieving the business data requested by the business functions for further manipulation. It stores different kinds of business data such as information of customer, supplier, business transactions, product data and order status. The data operations supported by database tier include: . Database query processing. The business entity components invoked by the business components on the application tier can expose methods to retrieve, insert, delete, and update the corresponding information to the database server through structure query language (SQL) queries, which are implemented as stored procedures. A stored procedure is a set of SQL statements that is usually stored in the server and reused by the SQL database clients for enhancing the performance and maintainability of data operations. . Data transformation. Transaction data is synchronized with other relational database management systems (RDBMS) through Data Transformation Services (DTS). DTS is a tool of SQL database server. It maps the selected columns of data to a set of transformations, and sends the transformed data to a destined OLEDB connection through DTS. . EPC-network adoption. Formatted EPC data is stored in physical mark-up language (PML) format on EPC-IS server. The data on EPC-IS can be exchanged with other enterprise information systems such as LIS or ERP through using PML, Extensible Mark-up Language (XML) or direct field mapping over database tables by using DTS.

Figure 5 Dynamic logistics data collection setting

4.5 The security tier The security tier supports virtual private network (VPN) that connects trusted parties on the supply chain for sharing business intelligence. Security socket layer (SSL) protocol is deployed for all the business users in order to provide a minimum level of security control over the public internet. As web application programs such as ASP files that run on webservers are easily attacked and compromised, a security 226

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

system must be established. Three security control principles are embedded in the system. 1 Confidentiality – information transmitted over an untrusted network, such as the internet, is protected against unintended or unauthorized access. 2 Authentication – the identity of a user who wishes to access the system has to be verified. 3 Authorization – users have right to access specified information or resources from the system based on their identity.

ILIMS integrates the processes and provides a standard platform as well as systematic means for doing business. It also provides a single view on various business functions and data. The operations method adopted by ELL, like other traditional small and medium-sized local companies, is manual-based which is inefficient, costly and unreliable, thereby undermining its business performance and potential growth.

The security tier is implemented in ILIMS as system service to achieve the security control objectives. The security tier is essentially the security system services implemented in ILIMS to achieve the above security control objectives. Table I summarizes the required technologies and associated system components for enhancing security in ILIMS.

5.1 Implementation and integration of ILIMS The system implementation was carried out in two phases. Phase 1 involves implementing ILIMS in ELL to better facilitate and control the information flow between trading partners. Phase two extends the system capabilities by integrating EPC-network and Auto-ID technology. In phase one, ILIMS integrates the logistics processes and provides a uniform mean to ELL for conducting transactions with its customers and suppliers. Table II summarizes the implementation details of ILIMS in ELL through integrating the multi-tier system architecture. The presentation tier provides a single view of information and an entry point for users to access various application functions. It is customized for three groups of users, which include ELL staff members, customers and suppliers. In the application tier, the logistics processes are optimized by ILIMS so that the overall order fulfilment process is speed up. Figure 7 shows the optimized information flow among the trading partners in the supply chain through ILIMS. It shows that ILIMS provides a single point of control on information routing between the customer and the suppliers so that data integrity and reliability is assured. Besides, the infrastructure of EPC-IS is implemented for preparing Phase 2 enhancement. The database tier is essentially a centralized relational database that stores the transactional data for sharing among different groups of users in the supply chain. Business components in the application tier attend to client requests to trigger data operations such as retrieval, insertion, and deletion of data, thereby updating the transactions. Finally, through the security tier, ELL and its core customers and suppliers are integrated by means of VPN. This provides additional security controls on authentication, confidentiality that helps trust building with the trading partners.

5. Case study To validate the feasibility of ILIMS, the system was tested in Eastern Logistics Limited (ELL), a medium-sized 3PL company which provides business of all sizes with a wide range of logistics business like door-to-door transportation, warehousing and distribution, freight forwarding services, logistics consultation and project management services. Its visions are to provide quality, cost-effective and reliable logistics solutions to clients utilizing the professional workforce, reliable outsourced logistics service and extensive transportation network with integration of advanced information technology systems. In ILIMS, most of existing customers are Asian electronic component manufacturers that do not have logistics operations or distribution centre in the region. The manufacturing plants and warehouses of these companies are located in China where their customers are mainly trading companies or retailers in Hong Kong and the PRD region. ELL forms partnerships with customers to manage their outbound logistics activities. Figure 6 shows the major business activities at ELL including sales, delivery and after-sales activities. The activities are underpinned by four core logistics processes. They are: 1 customer order acquisition; 2 customer order fulfilment 3 customer support; and 4 billing. Table I Security technologies and associated system components in ILIMS Security objectives

Security technologies

System components

Confidentiality

Network level: IP security protocol (IPSEC) provide data encryption for tightly connected suppliers and customers System level: security socket layer (SSL) protocol for all connected suppliers and customers Network level: IP security protocol (IPSEC) provide network authentication for tightly connected suppliers and customers System level: security socket layer (SSL) protocol for all connected suppliers and customers Application level: role placed on business components through programming COM objects Database level: SQL logon resource rights

Network level: firewall that supports IPSEC for building virtual private network (VPN) System level: Web server that supports SSL Protocol (internet information server) Network level: firewall that supports IPSEC for building virtual private network (VPN) System level: web server that supports SSL protocol (internet information server) Application level: Windows server’s users or user groups are assigned to appropriate COM roles Database level: access privileges on SQL database server (e.g. select, insert, delete and update)

Authentication

Authorization

227

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

Figure 6 Third party logistics (3PL) activities at ELL

Table II Implementation of ILIMS on various logistics activities in ELL Logistics activities

Sales support Service selection

Presentation tier

Application tier

Web pages of service information

Select and extract information Maintain tables of service information

Price negotiation

E-documents for quotation and RFQ

Order placement

E-documents for PO and PO confirmation

Warehousing

Order processing

Web pages of status update for customers

Supplier analysis

Web page of performance analysis Web pages for suppliers to input update information

Order status update

Service delivery Order processing Supplier booking Status update

After-Sales Order tracking Document Transfer

Billing

Database tier

Provide the following security mechanisms to business activities: Auto create quotations for std Maintain tables of transaction Network layer: connect all services records core customers and suppliers with VPN over the Internet, and, connect all non-core customers and suppliers with standard HTTP protocol over the internet Auto confirm purchase Maintain tables of transaction System layer: use SSL protocol request and document routing records for all connected suppliers and customers Application layer: roles verification when business components (COM objects) are called Select suitable suppliers based Maintain tables of transaction Database layer: enable access on price quoted records level privileges for data operations Control the supplier’s Maintain tables of performance performance records Update both ELL and Maintain tables of status customers with new order records status

Web pages of status update for customers Web pages of status update for ELL Web pages for suppliers to input update information

Select suitable suppliers based on price quoted Prepare booking orders and job orders Update both ELL and customers with new status

Maintain tables of transaction

Web pages for customers to track order status Web pages for customers and suppliers to request shipping documents Web pages to present bills for customers

Extract order status information Route selected shipping documents to requested parties Prepare and route bill to customer after completing the order

Read order status records

Generate reports according to pre-defined metrics Send alert to ELL for unresolved issues

Maintain a database of performance data Maintain customer compliant records

Controlling Performance measurement Web pages for ELL to view and print performance reports Customer compliant Web pages for ELL to log complaints

Security tier

228

Maintain tables of transaction records Maintain tables of status records

Maintain record of shipping documents Maintain records of customer invoice for each order

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

Figure 7 Information flow optimized by ILIMS

5.2 Implementation of EPC network and Auto-ID technology In Phase 2, ILIMS is enhanced with EPC-network and AutoID technology to resolve the drawbacks of supply chain issues. Before implementing the ILIMS, some physical set-up of RFID technology are needed. 1 Set passive RFID tag receivers on material handling equipment such as a forklift, which is used in collecting the information passive tag and door location on pallet. The tag reader is connected with a mounted touch screen computer (see Figure 8).

2

Figure 8 Passive RFID tag reader on forklift

Figure 9 Passive RFID tag on pallet and dock door

3

4

5

229

Stick passive RFID tags on pallet and side of dock door (see Figure 9). Mount a touch screen computer on the forklift which is used in collecting passive RFID tag data and passing message to the driver via wireless LAN network (see Figure 10). Attach an active RFID tag to moving equipment like a forklift (see Figure 10) to track and trace the resource location and status. Mount the active RFID tag receivers at strategic locations of the different warehouse zones to provide full RF

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

Figure 10 An active RFID tag and touch screen computer at forklift

Figure 11 Visualize the integrated logistics service

coverage. The tag receivers are connected with the server via LAN network. After finishing the preparation, ELL connects the ILIMS via the LAN network. With the help of Auto-ID technology, different supply chain parties’ logistics operations are recorded and presented via the ILIMS presentation tier. By doing so, a web-based logistics information hub is created, therefore, ELL and its subcontracted logistics service providers can work collaboratively to achieve integrated logistics services to customers. Product items that move along different logistics operations can now be tracked and traced in real-time. The data captured is screened and incorporated into the database of ILIMS. It is then utilized by the business objects in the application tier such as order tracing, shipping notices and invoices to provide more responsive services. As shown in Figure 11, through the web-based presentation tier of ILIMS, a customer places a delivery request without directly communicating with the ELL. At the same time, ELL’s subcontracted transportation party is alerted through the ILIMS web platform instantly. Since the ELL’s warehouse has already implemented the RFID technology, the status of the logistics resource (loaded/idle) is controlled, measured and transmitted to the ILIMS. It means the warehousing activities of customer order are visualized. Figure 12 illustrates the operations status of different customer orders when using ILIMS. First, the operations times (dynamic RFID logistics data) of different warehousing tasks are captured and collected by the dynamic data collection module. Secondly, this data are uploaded and presented at the ILIMS presentation web-based tier. In doing so, not only a customer can determine its order progress status, but also ELL’s subcontracted-transportation party can accurately prepare the transportation schedule and equipment planning so as to achieve the just-in-time ordering delivery. In summary, ILIMS provides improvements on the distribution operations as shown in Figure 13. . Information on the change of order quantity or delivery requirements is synchronized between the vendor, manufacturer and retailer so that potential discrepancy can be eliminated. . When product items leave the manufacturing plant, their departure information is written into the EPC-IS server at

.

.

the manufacturers. The information is consolidated with the containership information and shipping information in the ILIMS database and is published via an advance shipping notice (ASN) to the receiving retailer. At the distribution centre, good received status or departure information is updated to the EPC-IS server and can be accessed by the trading partners via the EPC network. As the product items leave the distribution centre and arrive the retailer, the associated RFID data is captured on the EPC-IS server, consolidated with the ILIMS database and exchanged among the members who participate in product distribution so that the reliability of scheduling and future order projection are improved.

The continuous flow of information in the supply chain essentially creates a logistics information network that securely and reliably moves the data from RFID readers, EPC-IS server to ILIMS server and then share among the trading partners in real-time that aims to enhance logistics visibility.

6. Results and discussions With ILIMS, the data generated in the daily operations such as transaction, operations data and logistics documents are captured on the database. Since ILIMS provides a single point of control on information, the capability of information sharing among the supply chain parties is enhanced. As a result, the fulfilment process of the inbound and outbound logistics operations in the supply chain is improved. The improvement does not only beneficial to ELL, but also to its business counterparts in the supply chain. 230

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

Figure 12 Real-time logistics operations progress of different orders

Figure 13 ILIMS as an information-hub among the supplier chain members

231

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

Figure 15 Financial and operational improvement by ILIMS

After deploying the system in Phase 1, the presentation tier of ILIMS provides ELL’s staff and the supply chain parties with a single view of business information in a user-friendly approach. The manual procedures in the business activities are automated by ILIMS by the application tier. Moreover, all the logistics documents are now prepared by ILIMS. Business data generated in the transactions are stored electronically in the ILIMS database, which can be shared with trading partners simultaneously. As a result, the operations efficiency is improved which enables ELL able to handle higher transaction volume. ELL measures the operations performance in the areas of inventory level, out-of-stock frequency, delivery lead-time, and total cost of supply. Figure 14 shows the performance improvements of ELL after using ILIMS. It is noted that the performances on various logistics functions are improved significantly. The average inventory is reduced by 27 per cent, the out-of-stock frequency is reduced by 68 per cent and the average delivery lead-time is reduced by 32 per cent. Besides, the total cost of supply is also reduced by 40 per cent on average. With the use of EPC and Auto-ID technology in phase two, the supply chain visibility is further improved. It first offers ELL with exception tracking and management based on required needs throughout the points in the supply chain to provide exception-based visibility. Then, the overall logistics operations efficiency is enhanced through using the Auto-ID technology. For example, with an RFID reader equipped forklift, and with all the pallets and cases RFID tagged, there is no need for the forklift operator to scan the pallet or manually verify that he has picked the right product with the right quantity. All he need is to pick up the pallet with the forklift. Then the RFID reader on the forklift will automatically read all the RFID data from the pallet and forward it to the ILIMS which in turn verifies that he is performing his picking tasks correctly. Further more, as the ELL and its sub-contracted service parties can mutually understand both the operations status through the ILIMS presentation tiers, their collaborative ability to handle the emergency case, operations plan and resource allocation is enhanced. The improvements of ELL after implementing the ILIMS as shown in Figure 15, include: 1 Financial performance, such as increase in revenue and reduction of operations cost. For example, with the help of RFID tags on pallets and cases, the number of dock checkers is reduced; these dock checkers check the accuracy of the products on the pallet and then make sure the right pallet is loaded onto the right trailer. With the use of RFID, cases and pallets are automatically verified when the forklift pickup the pallets, and thus the manual

2

labour provided by the dock checkers are deemed unnecessary. Non-financial performance, especially in reduction of customer complaints and the process lead-time. They are: . the cost of re-shipping products if the wrong pallet is picked and shipped, and . the cost of re-stocking the products when customers return the pallets that are incorrectly shipped to them.

In summary, ILIMS provides ELL and its trading partners an efficient and uniform way of doing business through a comprehensive approval of the improvement on organizational performance.

7. Conclusions In order to establish a collaborative environment with supply chain partners to exchange relevant real-time logistics information seamlessly, advanced technologies have to be adapted to the present logistics information system so that supply chain partners can be aggregated, managed, accessed and routed appropriately. In this study, web-based and AutoID technologies were used in designing a logistics information system for improving the business performance of small and medium-sized 3PL providers and their trading partners through visualizing logistics process, enhancement of information integration, and improvement of supply chain visibility. To do this, an integrated web-based RFID-EPC compliant logistics information system, ILIMS, which involved connecting LIS to an EPC-network to discover and share RDID/EPC data, is proposed. Since the system is capable of visualizing real-time logistics process status and transferring logistics information between parties authorized to use the system, a collaborative environment is thus created to support relevant partners to carry out primary activities within the supply chain. To realize the applicability of ILIMS in practice, the prototype was implemented in ELL. As a result, both ELL and its upstream and downstream partners benefited in terms of operations improvement. Through collecting real-time logistics data such as stock delivery time and picking time from ILIMS, its upstream partners like manufacturer redesigned its product package method so as to facilitate and speed up the market delivery time. Its downstream partners like a supermarket, on the other hand, acquired real-time logistics process status such as taking and delivering an inbound stock, enabling them to accurately plan the corresponding resource level for handling the incoming stock. Through using ILIMS as a high security information sharing channel with the supply chain partners of ELL to

Figure 14 Performance improvement measured by KPIs

232

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

visualize logistics operations status, different business activities were linked and made transparent. Real-time operations information was thus obtained, resulting in the enhancement of overall operations efficiency and competitive advantage in ELL. In conclusion, the analysis showed that the adoption of ILIMS has resulted in a significant improvement in business performance in terms of cost saving, revenue generation and customer satisfaction.

Hong Kong Trade Development Council (2004), Business Strategies of Hong Kong Logistics Companies Targeting the China Market, Hong Kong Trade Development Council, Wanchai, March. Huan, N.C. (1995), “The integrated logistics management system: a framework and case study”, International Journal of Physical Distribution & Logistics Management, Vol. 25 No. 6, pp. 4-22. Kang, K.W. and Kwon, O.K. (1997), “Integrated logistics information system in Korea”, Logistics Information Management, Vol. 10 No. 1, pp. 43-51. Lieb, R.C. and Randall, H.L. (1996), “A comparison of the use of third-party logistics service by large American manufacturers, 1991, 1994, and 1995”, Journal of Business Logistics, Vol. 17 No. 1, pp. 305-20. Margaret, W. (2002), “Supply system structure, management and performance: a conceptual model”, International Journal of Management Reviews, Vol. 4 No. 4, pp. 353-69. Mintchell, G. (2002), “It’s automatic: automation shifts transmission assembly into high gear”, Control Engineering, Vol. 49 No. 6, p. 12. Porter, M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Collier Macmillan Publishers, London, pp. 33-61. Porter, M.E. (1987), “Managing value-from competitive advantage to corporate strategy”, Harvard Business Review, May-June. Rutner, S.M., Gibson, B.J. and Williams, S.R. (2003), “The impacts of the integrated logistics systems on electronic commerce and enterprise resource planning systems”, Transportation Research Part E, Vol. 39, pp. 83-93. Rutner, S.M., Gibson, B.J., Vitasek, K.L. and Gustin, C.M. (2001), “Is technology filling the information gap?”, Supply Chain Management Review, Vol. 5 No. 2, pp. 58-65. Shepard, S. (2005), RFID – Radio Frequency Identification, McGraw Hill, New York, NY, pp. 1-54. Smaros, J. and Holmstrom, J. (2000), “Viewpoint: reaching the consumer through grocery VMI”, International Journal of Retails & Distribution Management, Vol. 28 No. 2, pp. 55-61. VeriSign, Inc. (2004), The EPC Network: Enhancing the Supply Chain, VeriSign White Paper 2004, VeriSign Inc, Mountain View, CA.

References Armistead, C. (1996), “Principle of business process management”, Journal of Managing Service Quality, Vol. 6 No. 6, pp. 48-52. Auto-ID Center (2002), Technology Guide, Auto-ID Center, Massachusetts Institute of Technology, Cambridge, MA. Chan, F.T.S. and Chan, H.K. (2005), “The future trend on system-wide modelling in supply chain studies”, International Journal of Advanced Manufacturing Technology, Vol. 25 Nos 7-8, pp. 820-32. Chan, F.T.S. and Chan, H.K. (2006), “A simulation study with quantity flexibility in a supply chain subjected to uncertainties”, International Journal of Computer Integrated Manufacturing, Vol. 19 No. 2, pp. 148-60. Chan, F.T.S. and Chung, S.H. (2005), “Multicriterion genetic optimisation for due date assigned distribution network problems”, Decision Support Systems, Vol. 39, pp. 661-75. Chan, F.T.S., Chung, S.H. and Wadhwa, S. (2005), “A hybrid generic algorithm for production and distribution”, Omega-International Journal of Management Science, Vol. 33 No. 4, pp. 345-55. Chorafas, D. (2001), Integrating ERP, CRM Supply Chain Management, and Smart Materials, CRC Press LLC, Boca Raton, FL. Christopher, M. (1992), Logistics and Supply Chain Management, Pitman Publishing, London. Council of Logistics Management (2003), Supply Chain Visions: Logistics Terms and Glossary, Council of Logistics Management, Lombard, IL, pp. 74. D’Amico, E. (2002), “Steering clear of new costs”, Chemical Week, Vol. 164 No. 36, pp. 30-2. Dornheim, M.A. (2002), “Port security”, Aviation Week and Space Technology, Vol. 157 No. 7, p. 17. Doyle, S. (2004), “Auto-ID technology in retail and its potential application in marketing”, Journal of Database Marketing & Customer Strategy Management, Vol. 11 No. 3, pp. 274-9. Finkenzeller, K. (2000), RFID Handbook: Radio-Frequency Identification Fundamentals and Applications, John Wiley & Sons, New York, NY. Gustin, C.M., Daugherty, P.J. and Stank, T.P. (1994), “Computerization: supporting integration”, International Journal of Physical Distribution & Logistics Management, Vol. 24 No. 1, pp. 11-16. Gustin, C.M., Daugherty, P.J. and Stank, T.P. (1995), “The effects of information availability on logistics integration”, Journal of Business Logistics, Vol. 16 No. 1, pp. 1-21. Hertz, S. and Alfredsson, M. (2003), “Strategic development of third-party logistics providers”, Industrial Marketing Management, Vol. 32, pp. 139-49. Hong Kong Logistics Association (2004), profile, available at: www.hkla.org.hk/ (accessed 18 March 2004).

About the authors Harry K.H. Chow is currently a research student in the Department of Industrial and Systems Engineering at the Hong Kong Polytechnic University. He obtained his Bachelor degree in Industrial and Systems Engineering from the Hong Kong Polytechnic University in 2004. His research areas encompass integrative logistics information management system using artificial intelligent approach. K.L. Choy is an Assistant Professor in the Department of Industrial and Systems Engineering of The Hong Kong Polytechnic University. He gained MSc degrees in Manufacturing Systems Engineering and Management Science, and the MPhil degree in Engineering, at the University of Warwick in 1990s, He received his Doctorate at the Hong Kong Polytechnic University in 2003. Dr Choy’s current research areas concern the application of artificial intelligent technologies in enhancing the effectiveness of customer and supplier relationship management as well as 233

Integration of web-based and RFID technology in visualizing logistics operations

Supply Chain Management: An International Journal

Harry K.H. Chow, K.L. Choy, W.B. Lee and Felix T.S. Chan

Volume 12 · Number 3 · 2007 · 221 –234

covering logistics information systems and logistics engineering using RFID technology in global supply chain operation environment. He has published more than 40 international journal papers in the areas of logistics information management, data systems, supply chain management, technology management, as well as applying expert systems in industry. Dr Choy is the corresponding author and can be contacted at: [email protected] W.B. Lee is the Chair Professor and Head of the Department of Industrial and Systems Engineering and the Ultra-precision Machine Centre of the Hong Kong Polytechnic University. In 2000, he has led the Digital Factory and Microsoft Enterprise System Centre projects

with the aims to shorten product development cycle, improved logistics activities, and provided faster response to customer and market needs. Professor Lee’s research interests include manufacturing technology, ultra-precision machining, dispersed production systems, manufacturing and logistics strategy, and knowledge management. He has published one research monogram, co-edited two books, and has more than 200 papers published in various fields of manufacturing and logistics engineering. Felix T.S. Chen is Associate Professor in the Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Hong Kong.

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

234