A supply chain collaboration solution using XQuery

Rochester Institute of Technology

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5-1-2006

A supply chain collaboration solution using

XQuery

Bharani Govindasamy

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Recommended Citation

A

Supply

Chain

Collaboration

Solution

Using

XQuery

Bharani

S.

Govindasamy

M.S. (Industrial

and

Systems

Engineering)

Thesissubmittedinpartialfulfillmentoftherequirements

fortheMasterofScience in departmentofIndustrialandSystems _Engineering

intheKateGleasonCollegeof

Engineering

oftheRochester Instituteof_Technology

KATE GLEASON COLLEGE OF ENGINEERING

ROCHESTER INSTITUTE OF TECHNOLOGY

ROCHESTER, NY

CERTIFICATE OF APPROVAL

MASTER OF SCIENCE DEGREE THESIS

The M.S. Degree Thesis of Bharani S. Govindasamy has been examined and

approved by the thesis committee as satisfactory for the Thesis requirement for the

Master of Science Degree in Industrial and Systems Engineering

Dr. Sudhakar Paidy

Dept. of Industrial and Systems Engineering

Kate Gleason College of Engineering

Dr. "'Iarcos Esterman

Dept. of Industrial and Systems Engineering

Thesis/Dissertation

Author "ermission Statement

Title of thesis or dissertation:

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I understand that I must submit a print copy of my thesis or dissertation to the RIT Archives, per current RIT guidelines for the completion of my degree. I hereby grant to the Rochester Institute of Technology and its agents the non-exclusive license to archive and make accessible my thesis or dissertation in whole or in part in all forms of media in perpetuity. I retain all other ownership rights to the copyright of the thesis or dissertation. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation.

Print Reproduction Permission Granted:

I, , hereby grant permission to the Rochester Institute Technology to reproduce my print thesis or dissertation in whole or in part. Any reproduction will not be for commercial use or profit.

Signature of Author: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Date:

0;)"/01

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Print Reproduction Permission Denied:

I, , hereby deny pennission to the RIT Library of the Rochester Institute of Technology to reproduce my print thesis or dissertation in whole or in part.

ACKNOWLEDGEMENT

This thesis workwas an enjoyable

journey

made possiblewiththe

help

of a number of people who provided directions whenI foundmyselflost.

Firstly,

I would liketo thankDr. Sudhakar

Paidy,

forhis significant contributionin groomingme as a_{professional;} for his care and support atthetimes when Ineeded it_most; andfor

teaching

methe importance of"First things

First."

Iwould liketo thankDr. Marcos

Esterman,

for his valuablecomments.

I would liketo thank

Pradip

Chandratre,

atthe Advanced Systems Integration

Lab,

forhis patiencein

listening

and _questioning all _my ideas and_providinga

helping

hand inVisual FoxPro programming.

I would liketo thankVilesh

Salumkhe,

atthe Advanced Systems Integration

Lab,

for

helping

me withthe logistics.

Last,

butnot

least,

I wouldliketo thank_my

friends _{for providing}valuable support and _comments, fromthe

beginning

of_my

DEDICATION

To my

Mom,

TABLE OF CONTENTS

Introduction - 8

1.

Supply

Chain Management An Overview 13

1.1. Basic Featuresof a

Supply

Chain 14

1.2. Typesof

Supply

Chains 15

1.3.

Supply

Chain Management 18

1.4. _WhyDo We Needto Managea

Supply

Chain? 22

Bullwhip

Effect 23

1.5. ERPvs. SCM 25

ERP's Importance in SCM- 26

1.6. Expectationsfrom

Implementing

an SCMinanEnterprise 26 1.7. _SupplyChain Operations Reference_(SCOR) Model 27

1.8. FutureofSCM 29

1.9. Collaborative SCM 30

2. Collaborative_Planning,

Forecasting

andReplenishment_(CPFR) 32

2.1. CPFR Process Model - - 34

2.2.

Key

PerformanceIndicators in CPFR 38

2.3. Executive Dashboards 40

3. XML and_EmergingXML Technologies 42

3.1. ComponentsofXML 42

3.2. DTDandXMLSchema 44

3.2.1. DocumentTypeDefinition(DTD) 44

3.2.2. XML Schema 45

3.3. Web Services - 48

3.3.1. ArchitectureofWebServices 49

3.3.2. TechnologiesUsed in Web Services 51

3.3.3. Basic Steps in Web ServicesApplicationDevelopment 52

3.4. _XQuery 54

3.4.1. Brief

History

of

XQuery

- 55

3.4.3.

XQuery

Expressions 56

3.4.3.1.FLWORExpressions 56

3. 4. 3.2. Conditional Expressions - 57

4. CPFR Scenarios- - - 59

4.1. Scenario 1a

-Calculating

Sales Forecast_AccuracyKPI 59

4.2. Scenario lb

-Identifying

Sales Forecast Exceptions 62

4.3. Scenario 2a

-Calculating

OutofStock_FrequencyKPI 65

4.4. Scenario 2b

-Identifying

Promotion Plan Exceptions 68

4.5. Scenario 3a

-Calculating

Order Forecast_AccuracyKPI 71

4.6. Scenario 3b

-Identifying

Order_{Forecast/Delivery}Constraint Exceptions 74

5.

Developing

aCPFR Dashboard 77

5.1. _IdentifyingtheData Sources 79

5.2. _ConfiguringtheData Sources 79

5.3. _DevelopingaTarget XML Schema 82

5.4.

Developing XQuery

Code for Data Aggregation - 82

5.5. _DevelopingtheDashboard_UsingVisual FoxPro 87

CONCLUSION 90

REFERENCES 95

APPENDIXI 98

Abstract

Enterprises ina collaborative_supplychain shareinformationforquick andintelligent

decisionmaking. Collaborative_{Planning, Forecasting}andReplenishment(CPFR), abusiness modeldeveloped

by

an organizationcalled_{Voluntary Inter-industry}CommerceStandards,

definesa set ofbusinessprocesses tocollaborateonplanning,

forecasting

andreplenishment

activitiestoarriveat acommonorder. Thisinvolves sharing sales_forecast, orderforecastand

promotion_{information among business}partners.The Internethaspaved_{the way}for using Web Servicesto sharethis informationasXMLdata inrealtime andtomakeitavailableacross enterprises. Enterprises needto accessthis informationandintegrate itwiththeinformation

availableintheir_databases, Excel sheetsandXMLapplications.

Thisthesisdiscussesthedevelopmentof aninformationarchitecture_usingXQuery(a

declarative querylanguage

by

_{W3C)for aggregating data from disparatedata,} andevaluates

XQueryas atool toenableinformation integration for supplychain collaboration. Forthis purpose, severalCPFRscenarios are identifiedwheretworetailers sharetheirsales_forecast, orderforecastand promotionforecast informationwiththemanufacturer. Aprototype

applicationisdevelopedwhichcanfetch data from disparate datasources suchasWeb _Service, XMLdatabasesandCSV_files,aggregate_it, and useitto

identify

exceptionsin forecastsand calculatethe

key

performanceindicators (KPI). These KPIsarethenpresented as anexecutive

dashboard using Visual FoxPro. This Dashboardpresents _{information graphically}and enables

executivestotrack theperformanceof_{the supply chain,}andhence enablesthem tomake quick

Introduction

The supplychainis theseriesoflinksand shared processesthatexistbetweensuppliers

and customers.Theselinks and processesinvolveallactivities fromtheacquisitionofraw

materialsto the

delivery

offinishedgoodsto theendconsumer.Rawmaterials enterinto a

manufacturingorganization via a_supplysystemandaretransformedinto finishedgoods.The

finishedgoods arethensuppliedto consumersthroughadistributionsystem. Generally,several

companiesarelinkedtogetherin_{this process,} each_addingvalueto theproductasitmoves

through the_supplychain. Sincethevalue additionforaproductdoesnot_relyonjustthe

manufacturer, theconcept of_supplychain management assumes significance [12].

We candefine supplychainmanagement asthe thingswedoto influencethebehaviorof

the_supplychainandgettheresultswe want.Thuswe candefine supplychain managementas

"Thesystemic,strategic coordination ofthe traditionalbusinessfunctions andthetacticsacross

thesebusiness functionswithinaparticular_companyandacrossbusinesseswithinthe_supply

chain,forthepurposesof

improving

thelong-termperformance oftheindividualcompanies and

the_supplychain as a

whole" [1].

Traditional _supplychain managementtechniquesassumedthat theinformationwouldbe

availableforanimmediate supplier and customerinabusiness. Thisgave_waytoalinear supply

chain whereinformationwasshared_{only between}a stakeholder'simmediateparticipantsinthe

supplychain. Thisresultedinthe

bullwhip

effect,which refers to the_{demand variability}

increasingasonemoves_{upthe supply}chain _{away from}theretailcustomer. Thismeansthat

small changesinconsumerdemandcan resultin largevariations inordersplacedupstream.

Studieson_managingthe

bullwhip

effect pointedto theneedforacollaborative _supplychain

whereall_{the participating}businesspartnersshareinformationandmakeitavailableto allthe

otherbusinesspartners [2]. Thiswould meanthat_{information visibility}acrossthe_supplychain

enables companiestonoticethevariationsin demandas a result oflogistics_issues,plant

shutdowns,promotions, etc., inreal_time,andhencetoplanfor managingthevariationsin

Severalopenstandards organizationshave defined businessprocessesfor_supplychain

collaboration. The

Voluntary Interindustry

Commerce Standards _(VICS) organizationdefinesa standardfor combiningthe taskof_planning,

forecasting

and replenishmentforincreased

efficiency ina_supplychain. Their Collaborative_{Planning, Forecasting,} andReplenishment (CPFR)model formalizes theprocessesbetweentwo_tradingpartnersusedto agree upona jointplanand

forecast,

monitorsuccessthrough replenishment,andrecognize and respondto

anyexceptions. CPFRbuildsuponEfficient Consumer Response(ECR)principles

including

Vendor-Managed _{Inventory (VMI),}Jointly-Managed _Inventory

(JMI)

andContinuous Replenishment_(CRP) [7]. Theseprocessstandardsinvolveexchangeofinformation between

enterprises.

Informationexchanges assistin_transportingdataacrossthe_supplychaintobeused

by

all

businesspartners.Traditionalinformationexchanges usedelectronicdata interchange_(EDI)

technologythatenabledbusinessestobuild systemsand sharedata in a specifiedformatagreed

upon

by

allthebusinesspartners.Theinformation exchange was carried outthroughnetworks such asWAN. Thedisadvantagesof_usingtheEDIwerethatitwastooexpensivetoimplement

andthebusinesspartners wereforcedtobuilda separate systemforeachbusinesspartner_they

interactedwith. _Also,thebusinesssoftware applicationsacrosstheenterprises useddisparate

software componentsthatmadethe taskof

integrating

theinformationsystemsacrossthe enterprisesdifficult [3].

Asthe_supplychain grewlarger, enterprisesfound it difficultand_costlytoimplement

EDI, andtherewasa needfor data and communication standardsfor informationexchange[3]. Thisneed forastandard message formatand communication medium pavedthe_{way for}the

emergence ofWeb Servicesthatadvocated interoperabilitybetweensoftwaresystems [4].

Web Services are software programsthatcaninteractwiththeother software programs

viathe_{Internet using}theopen standards fordataandcommunication. WebServicesare

loosely

whichwasdevelopedas a meanstodescribedataandhasnow developed intoadatastandardas a resultofits excellent supportin_transportingdatathroughtheInternet [13].

As companies choosetoimplement Web Servicestoenable_supplychain_{visibility, the}

needhasarisento integratethisinformation (as_XML) thatisavailablefromtheWeb Services, at thebusinesspartner_end, andtheenterpriseinformationthatisavailableinthe_databases, atthe

stakeholder's end, inrealtime or near realtimeforthebusinessesto take intelligentandquick

actionson_purchasingand

delivery

issues. Enterprise information integration(EII)hasgrown into abusiness strategyanddealswiththis taskof

integrating

disparate datasourcessuch as

XML from Web Services andrelational data from databases. Enterprise information integration

is focusedontheintegrationofdata frommultiple systemsintoa_unified, consistentandaccurate representation geared towardthe_viewing andmanipulation ofthatdata. Thetypeofdatahasto bereal-time,whichmeansthat theinformation fromthedifferent datasourceshastobe

processedinrealtimeand made available as and whenit isneeded[5].

Enterprises_todayrelyoninformationfrom disparate datasources._{Collaborative supply}

chains_todayare_{growing in complexity}as more and morebusinesspartnersbecomepart ofthe product_supplychain and theinformationneeds ofthedifferentpartners are_{ever-increasing [9].}

ThewidespreadadoptionofXMLhas profoundlyalteredthe_waythe information isexchanged

withinandbetweenenterprises.Withavast amount ofdata

being

publishedin XML format

by

multiple_{sources, the}needhasarisenforan_easyand efficientmeansof_extractingand

manipulatingthisinformationfor managingthesupplychain. Enterpriseinformation integration

(EII)has becomemorethanjusta_buzzword; ithasgrownintoanenterprise _strategytointegrate

informationand makeit availableinrealtimeor near realtime [11].

Internet-enabledenterprises are_startingtouseXMLfor

information-sharing

as a result of

XML'sexcellent support for_transportingdata in a structuredformatovertheInternet [10]. An

enterprisethatcollaborates withbusinesspartners requiresthat theinformationavailablefrom

Technologiessuch as JDOMarebuilton_{existingprogramming}languages suchasJava

and are capable of_{manipulating data from}differentdatasources [6]. Softwareprogramscanbe

writtentoaccessthedatafrom different datasources_using application_{programming interfaces} (API),each written forthepurposeof_accessingand_{processing data from}a specificdatasource.

Theothertypeoflanguagesthatperformthetaskof_accessingand_{processing XML} arecalled

querylanguages.Unlike programming languagesthataredescriptive (wherewe_{specify how}we

want_{somethingdone),} thesearedeclarative_languages,which means wejusthaveto _specify

whatwewant[6]. World Wide Web Consortium_(W3C), a non-profit organizationfor

developing

open standards forcommunication overthe_Web,hascome_upwith adeclarative

query languagecalledXQuery. _XQueryholdsthepromiseof_{efficiently processing}(i.e.,

joining

and_{sorting) information from disparate}sources[8]. Although_XQueryisnot yet a_{specification,} its working draftversion enables usto explorethe_possibilityof enterpriseinformation

integration indetail. Since information integration isa paramounttask_{in supply}chain

collaboration_activities, we willfocusour_studyon_{evaluatingXQuery}for supplychain

collaboration.

Thisthesisintends_{to studyXQuery}and evaluateitas atool_{for supply}chain

collaboration. For thepurpose of_{this study,}we will considerthe_supplychain collaboration

scenariosdefined

by

_{Voluntary Interindustry}CommerceStandards Association_(VICS) [7]. VICS is anopen

industry

organization charteredtopromote_{cross-industry}commerce standards

for supplychain collaboration.Their supplychain collaboration_{methodology is}called

Collaborative_{Planning Forecasting}andReplenishment_(CPFR),andVICS describesthe

businessprocessesthatareinvolvedin CPFR. Thecases used forthis _studyarederivedfromthe

CPFR ProcessModeldefined

by

VICS.

Briefoverviewsofthechaptersto followare mentionedbelow.

Chapter3 definesa_supplychainand gives an overviewofthebasic featuresofa_supply

chain. Thevarioustypes of_supplychain are explained.Theneedfor managing a_supplychainis

explained anddefinitions forsupplychain management arediscussed. A briefexplanation of

Chapter 4discussestheconceptsin CPFR. The

9-Step

processmodelisexplained,which

coversallpartsofaCPFR_model,

including

_planning,

forecasting

andreplenishment. The

key

performanceindicators _(KPI),which are metricstomeasuretheperformance of_CPFR,are

discussed.The KPIsusedinthis_thesis, such asorderforecastaccuracy, salesforecastaccuracy,

promotionforecast_accuracyandout ofstockfrequency,areexplained. Executive dashboards are graphical userinterfaces whichareusedto _graphicallyrepresentthe

key

performanceindicators

in CPFR. Anexecutivedashboardassiststhebusinesspartnersina_supplychaintomonitorthe

performance ofthe_supplychaininrealtimeandhelps in decisionmaking.

Chapter 5 discussesthecoreXMLtechnologies thatare usedinthis thesis. The

emergenceofXMLopened_upamyriad oftechnologies which canbeusedfor supplychain collaboration.XML _Schema, aW3cspecification,isastandardtodefinethestructureof an

XMLdocument. ThischapterdiscussesXML Schemaand comparesitwith_DTD, anotherW3C

specification.Web Services arebuiltupon open standards such as_{XML, UDDI,}WSDLand

SOAP. Abrief introductiontoWeb Services andits componentsarediscussed. XQuery,the

programming languageusedfor XML_aggregation, is discussed. Acomparisonismadebetween

XQueryand_XPATH, a predecessorto_XQuery,andtheadvantagesof_using

XQuery

with

respectto this thesisareexplained.

Chapter 6explainsthevariousscenariosin CPFRthatusethenewarchitecture. Four

scenarios are_identified, each_{varying according}to thedatasources and KPIs. Eachscenariois

explained_alongwiththedatasources_{used, theprocessing}thatis doneandthe_{resulting data}that

is obtained.The_resultingdatacontainsthe

key

performanceindicatorsthat areusedinexecutive

dashboards.

Chapter 7explainstheprocedureto

develop

a_supplychaindashboard_using

XQuery

and

VisualFoxPro. Asample scenarioisusedto explaintheprocedureto

identify

thedata_sources,

1.

Supply

Chain Management An Overview

As thebusinessworld_changes,companies arefacedwithawealthof_evolving

challenges. First_theyhaveto copewith constantinnovationand shorter productlifecycles. _Plus,

ever-increasingcompetitionforcesthem tomove with greater speed while also

keeping

costs

down. And

rising

customer expectations mean_theyhaveto deliver higher levelsof service and

individualizedproducts and services. _{This growing list} of challengesisoftenmorethanasingle

companycanmeet onitsown.As a_result, moreand more companiesare_teamingupwith

alliance partners so_theycanfocusontheirown core competencies andhaveaccessto thefull range ofresources_theyneedto meettheir

customers'

demands. This meansthat thecompanies

needtobeabletoshareinformation quicklywithintheirown enterprise and partners. Thefield of_supplychain managementis evolvingto addresstheissuesacrossthe_supplychaininan organization[1].

As supply chains encompassthecompanies andthebusinessactivitiesneededto_design, make,deliver, and useaproductor_service,businesses dependontheir_supplychainstoprovide themwithwhat_theyneedto survive andthrive.

Every

business fits intooneormore _supply chainsandhas aroleto_{play in}each ofthem.Theterm_"supplychain

management"

aroseinthe

late 1980sandcame intowidespreaduseinthe 1990s. Priorto that_time, businessesusedterms

suchas

"logistics"

and"operationsmanagement"

instead [9].

The supplychainis theseries oflinksandsharedprocessesthatexistbetweensuppliers and customers. These linksandprocessesinvolveall activitiesfromtheacquisition of raw materialsto the

delivery

offinishedgoodstotheend consumer. Rawmaterials enterintoa manufacturingorganization viaa_supplysystem and aretransformedintofinishedgoods. The

finishedgoods arethensuppliedto consumersthrough adistributionsystem. _Generally, several

companies arelinkedtogetherinthisprocess,each_addingvalueto theproductasitmoves

1.1 Basic Features of a

Supply

Chain _[1]

Most supplychains exhibitthesebasiccharacteristics:

The supplychainincludes allactivities andprocesses usedto _supplyaproductor serviceto a

finalcustomer.

Any

numberofcompanies canbelinked inthe_supplychain.

Acustomercanbeasuppliertoanother customer so thetotalchaincanhaveanumberof

supplier-customer relationships.

Whilethedistributionsystemcanbe direct fromsupplierto customer,

depending

onthe

productsand_markets, itcan contain a number ofdistributorssuchas_{wholesalers, warehouses,}

andretailers.

Productsorservices_usuallyflow from suppliertocustomer. _Likewise,designanddemand information_usuallyflowsfromcustomertosupplier. (Physicalproducts move

"downstream,"

whiledemand informationflows_"upstream.")

Figure 1.1 describestheelementsof asupplychain.Asimplesupplychain encompasses

thebasic_tradingpartnersof a_supplychain, whereastheextended_supplychainincludesthe

service_providers, such asthird_{party logistics}providers,whoinfluencea_supplychaininone

wayor another.

Someotherdefinitionsof a_supplychainare offeredbelow:

"A supplychainisthealignment offirmsthat

bring

productsor servicestomarket."

[6]

-"A supplychain consists of all stagesinvolved,

directly

or_indirectly,in

fulfilling

a customer

request.The _supplychainnot_{only includes}themanufacturer and_suppliers,butalso_{transporters,}

warehouses,retailers,andcustomers

themselves."

[7]

"A supplychainis a network offacilitiesanddistributionoptionsthatperformsthefunctionsof

procurementof_{materials, transformation}ofthesematerialsinto intermediateandfinished

Simple_SupplyChain

Company Customer

Extended_SupplyChain

Ultimate Supplier *-*

f >

Supplier _4*

f "l Company -#

r

Customer i.

*-Ultimate

Customer

*^.

_"

s

* 4

"*** Service .. **" SmtesPrgyklm Provider

inareassuchas:

^ ^

-Logistics Finance

MarketResearch

[image:17.537.54.417.51.300.2]

ProductDesign IiiformatiouTechnology

Figure 1.1. Elementsof a_supplychain[1].

1.2 Types of_SupplyChains _[1]

A supplychain canbeclassified

by

thedemandpattern oftheproductsthatcome out ofa

supplychaininto a_(Physically)efficient(Figure _1.2) ora_(Market)responsive(Figure _1.3)

supplychain.Thisbringsus into_classifyingproductsinto Functional and_{Innovative products,}

both

having

_{varying demand}patterns. Thiscategorizationis veryusefulasit helps determinethe

appropriate supply-chaindesigntosupport

differing

demandpatterns. Eventhough this

classificationis _simple,it is_verypowerfulin explainingthemismatchesbetweenproduct

Prod"**

characteristics

Stable,predictable demand

&lifecycletime

Lowlevelofdemand

uncertainty

Lowmargin

EtfcientSCloaiacke!demand

iPush

1

Inventory

of

Finished goods

All production and

distribution decisionsare

madeon long-term

forecasts

Fynfljffnplw___ typically.,.

Retail products,

Pood cans,

beer,drinks

Pasta,

babydiapers

[image:18.537.66.419.54.208.2]

Etc...

Figure 1.2. An efficient_supplychainexample: made-to-stock environment[1].

Functionalproductsarecommoditiesthathavepredictabledemandpatterns. Somegood

examples offunctionalproducts arelight bulbs and_toothpaste;thesecommoditieshave many

substitutes and_typicallyofferlowmarginsfortheretailer. _Theyhave

long

leadtimesto order from suppliers,rarestock-out_situations, and_{usually insignificant}price markdowns(unlessit is

partof a_pricingpromotion). Innovative_{products,however,}have_{relatively highmargins,very}

fewsubstitutes(ifany),leadtimesindays fromsuppliers, frequentstockout_situations, drastic

markdownsto clear excess_inventory, andunpredictabledemand. Somegood examples of

innovativeproductsinclude Beanie_{Babies, Furbies,}andmost_recently, Pokemontoys.These

productsareinnovative becauseno historicalscannerdataexiststoprojectfuture_sales, asisthe

caseforfunctionalproducts. _Thus,innovative andfunctional

products'

ResponsiveSCto marketdemand

innovatiYflimnhnm

" _{Unpredictable demand} > Shortlifecycletime

* Great_variety r _Highmargins

Inventory

of

parts

Assembly

Decisionsbased

on accurate customer

demand.

Ensure that the varietyof productsreaching themarket

place matcheswhat customers wantto_buy

Aflsorts of industries

High tech industries

Computer_(Deli)

Fashion

[image:19.537.80.453.54.249.2]

,,etc,,,

Figure 1.3. Aresponsive_supplychain example: made-to-orderenvironment [1].

Primarily, cost and_{quality drive}supply-chaindesignforfunctionalproducts.Theentire

supplychain'sfocusis toward_reducingcostsand_gettingtherightproductto therightplace,at

therighttime. _Inventorybuildupsat _anypointinthe_supplyare not supposedtooccur.

Innovative-product supplychains aregearedtoward_supplyingproducts with minimal

leadtimes.This focusonleadtimesletsretailersrespondbetterto spikesin_demand,minimize

forcedmarkdowns, and avoidobsolete

inventory

costs.

Thecharacteristics ofthe two types of_supplychains are_important, as_theyleadto

[image:19.537.129.435.522.652.2]

differenttypesofrelationships with supply-chain partners. (Table 1.1 andTable _1.2)

Table 1.1 Selectinga

Supply

ChainBasedonProduct Demand Pattern [1]

Functional

Products

Innovative

Products

Efficient_Supply

Chain

MATCH MISMATCH

Responsive_Supply

Chain

MISMATCH MATCH

Physically

Efficient Process MarketResponsive

Process

Primary

purpose

Supply

predictable demand

efficientlyatlowestpossible cost

Respond quicklyto

unpredictable demandto

minimizeforced

markdowns and obsolete

inventories

Manufacturing

Focus

Maintainhighaverageutilization

rate

Deployexcessbuffer

capacity

Inventory

strategy Generate highreturns and minimize

inventory

throughout

the_supplychain

Deploysignificantbuffer stocks of parts orfinished

goods

Lead-timefocus Shortenleadtimes as

long

asit

doesnotincreasecost

Invest aggressively in

waystoreduceleadtimes

Approachto

choosingsuppliers

Select_primarilyforcost&

quality

Select primarily forspeed,

flexibility

and_quality

Ifthis iswhat a_supplychainis,thenwecandefine supplychain managementasthe

thingswedoto influencethebehaviorof_{the supply}chainandgettheresults we want.

1.3 _SupplyChain Management_[1]

Supplychain managementistheactive management of_supplychain activitiesto

maximize customer value and achieveasustainablecompetitive advantage. Itrepresents a

conscious effort

by

the_supplychain firmsto

develop

and run_supplychainsinthemost effective

and efficient ways possible. Supplychain activities cover_{everything from}product_development,

sourcing,production,and _logistics,to theinformation systems neededto coordinatethese

activities.

Supplychain management canbe further defined as:

"Thesystemic, strategiccoordinationofthe traditionalbusinessfunctionsandthe tactics

acrossthesebusiness functionswithinaparticular_companyand acrossbusinesseswithinthe

supply chain, forthepurposes of_improvingthelong-termperformance oftheindividual

companies and the_supplychain asa

Thereisa_{difference between}theconceptof_supplychainmanagementandthe traditional

concept oflogistics. Logistics_typicallyrefersto activitiesthatoccur withintheboundariesof a

single_{organization,}while_supplychainsreferto networksofcompaniesthatworktogetherand

coordinatetheiractionsto delivera producttomarket. _Also,traditionallogistics focuses its

attentiononactivities such as_{procurement,distribution,maintenance,}and

inventory

management.

Supply

chain managementacknowledges alloftraditionallogisticsandalso

includes activities suchas_marketing,new product_development,finance,and customer service

Taken_{individually,different supply}chain activities oftenhave conflictingneeds.For

instance,maintaining high levelsof customerservice requireshigh levelsof_inventory,butthen

therequirementto operate_efficientlycallsfor reducing

inventory

_{levels. It is only}whenthese

requirements areseentogetheras parts of alargerpicturethatways canbefoundto _effectively

balancetheirdifferent demands [1].

Effective supplychain managementrequires simultaneousimprovements in both

customer servicelevelsandthe_{internal operating}efficienciesofthecompaniesinthe_supply

chain.Customerservice atitsmostbasic levelmeans_{consistently high}orderfill rates,high

on-time

delivery

_rates, anda_{very low}rate of products returned

by

customers forwhatever reason.

Internal_{efficiency for}organizationsina_supplychainmeansthat theseorganizations getan

attractive rate of return ontheirinvestments in

inventory

and other_assets, andthat_theyfind

waysto lower_{their operating}andsales expenses [2].

AsshowninFigure 1.4, the

following

arefivebasiccomponentsfor supplychain

management[1].

1.

Plan_{Thisis thestrategic portion}of_supplychainmanagement. Youneed a_{strategy for}

managingalltheresourcesthatgo toward_meetingcustomerdemand foryourproduct or service.

A

big

piece of_{planning is}developingaset of metricstomonitorthe_supplychain sothatit is

2. Source_{Choosethesuppliersthat}

will deliverthegoods andservices you needto createyour

product or service.

Develop

a set of_pricing,

delivery

andpaymentprocesses withsuppliers and

create metrics for_monitoringand

improving

therelationships. Andputtogetherprocessesfor

managingthe

inventory

of goods and services youreceivefromsuppliers,

including

receiving

shipments, verifyingthem,transferringthem to your_{manufacturing facilities}and_authorizing

supplier payments.

3. Make Thisis the_{manufacturing}step. Scheduletheactivities_{necessary for}production,

testing,packagingand preparationfor delivery. Asthemostmetric-intensive portionofthe

supplychain,measure_{qualitylevels,}production output andworker productivity.

4. Deliver_{This isthepartthat}

many insidersrefertoas"logistics." Coordinatethereceipt of

ordersfrom_customers,

develop

a networkof_warehouses,pickcarriersto get productsto

customers and set_upan

invoicing

systemtoreceive payments.

5. Return Theproblem part ofthe_supplychain. Createanetworkfor_{receiving defective}and

excess productsbackfromcustomers and _supportingcustomerswhohaveproblems with

deliveredproducts.

Reduced Complexity

^r."_etusfcabon u>r<3 -Jdrib. icw-ruen*.rr.?n&_r..ztrd

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D

:faa Consulting SupplyChain Management Design Sell Service

There isabasicpatternto thepractice of_supplychain management.Each supplychain

has its own unique set of marketdemands and_{operatingchallenges,} andyettheissuesremain

essentiallythesame_{in every}case. _{Companies in any supply}chainmustmakedecisions

individually

and_{collectively regarding}theiractionsinfiveareas(see Figure _1.5) [1].

1. Production Whatproductsdoesthemarket want? Howmuch of which products

shouldbe_produced, and

by

when? This activity includesthecreationofmaster production

schedulesthat takeintoaccountplant_capacities,workload_{balancing,qualitycontrol,}and

equipment maintenance.

2.

Inventory

What

inventory

shouldbestocked at each stageina_supplychain? How

much

inventory

shouldbe heldasraw_{materials, semifinished,}orfinishedgoods? The primary

purposeof

inventory

isto act asabufferagainst_uncertaintyinthe_supplychain. _However,

holding inventory

canbe_expensive, sowhatarethe optimal

inventory

levelsand reorder points?

3. Location Whereshouldfacilitiesforproductionand

inventory

storagebe located?

Wherearethemost cost efficientlocations forproduction andforstorage ofinventory? Should

existing facilities beused or new onesbuilt? Oncethesedecisionsaremade,theydeterminethe

possible paths availableforproductto flowthroughfor

delivery

to thefinal consumer.

4. Transportation Howshould

inventory

bemovedfromone _supplychainlocationto

another? Airfreightandtruck

delivery

are_{generally fast}and reliablebut_theyare expensive.

Shipping by

sea or railismuchlessexpensivebut_usuallyinvolves longertransit timesandmore

uncertainty. _Stockinghigher levelsof_inventorymust compensateforthisuncertainty.When is it

bettertouse which mode oftransportation?

5.Information Howmuchdatashouldbecollected andhowmuchinformationshould

beshared?_Timelyandaccurateinformation holdsthepromise ofbettercoordination andbetter

decisionmaking. Withgoodinformation,peoplecanmake effectivedecisionsaboutwhatto

2, 1.

PRODUCTION What,how,find whento

produce

1 *

INVENTORY Howmyrhtn make.rod

howmuchiossmc

* v/"

N/ t

/ 5. \

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IKANSTOKTAUQe. LOCATION

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producs -_Mr.it>

RESPONSIVENESSversusEFFICIENCY

Then^hrcombination resp>ristv<.ne*suid_ct'ftcieacyineach of

thesednvcr\allocs asupplychainto"mvrciscthroughput white

simultaneouslyreducinginventoryandoperating

[image:24.537.150.393.43.262.2]

expense."

Figure 1.5.

Supply

chaindrivers [1].

1.4_WhyDo We Needto Manage a_SupplyChain?

Anunmanaged_supplychainisnot

inherently

stable. Demand variability increases as one

moves _upthe_supplychain_{away from}theretail_customer, and smallchanges inconsumer

demandcan resultin largevariationsinorders placed upstream. _Eventually,thenetwork can

oscillate _{in very large}swings aseach organizationinthe_supplychainseeksto solvetheproblem

from itsown perspective. Thisphenomenom is knownasthe

bullwhip

effectandhas been

Fiflui* 1 facraaatflgVerfcfl tuliti.tit_{Orders up}the_SupplyCMm

EensawS***:.

*

teiilirs-!Mw ~.Mar

:!_.-o 5,

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aa [image:25.537.64.346.44.245.2]

T Time

Figure 1.6.

Bullwhip

effect variabledemand across a_supplychain[2].

Bullwhip

Effect _[2]

Sourcesof_{variability include}suchfactors asdemand_{variability,qualityproblems,}

strikes or plantfires.

Variability

coupledwithtimedelays inthe transmissionof_{information up}

the_supplychain, andtime_{delays in manufacturing}and_shippinggoodsdownthe_supplychain,

createthe

bullwhip

effect.Allofthe

following

can contributetothe

bullwhip

effect:

1. Overreactiontobacklogs

2. _Neglectingto orderinan attempttoreduce

inventory

3. Nocommunicationandcoordination_upanddownthe_supplychain

4. _Delaytimesfor informationand material flow

5. Order

batching

largerorders resultinmore variance. Order

batching

occursinaneffort

toreduce_{ordering costs, to take}advantageoftransportationeconomics suchasfulltruck

loadeconomies,andtobenefit from salesincentives. Promotionsoften resultinforward

buying

tobenefitmorefromthelowerprices.

6. Shortagegaming: customers ordermorethan_theyneed

during

aperiod ofshort_supply,

7. Demandforecast inaccuracies: _{everybody in}the chain addsacertain percentageto the

demandestimates.Theresultisno _visibilityoftruecustomerdemand.

8. Freereturn policies

The

bullwhip

effectcanbe_effectivelymitigated_onlythroughmeasuresthatcombine

Information_Sharing,Channel Alignment andOperationalEfficiency. Table 1.3 discussesways

toovercomethecauses ofthe

bullwhip

effect.

Causes

Demand

Forecast

Updating

[image:26.537.38.502.232.601.2]

Batching

Table 1.3 ManagingtheBullwhipEffect [2]

Information

Sharing

ChannelAlignment

*

VisibilityofEndUser * _{Vendor Managed} demand dataacrossthe

Inventory

_(VMI)

supplychain * Consumer Direct

Operational _Efficiency

j

* _Lead-time reduction *_{Echelon-based}

inventory

j

control | *

VisibilityofEnd User * Logistics outsourcing (e.g. * Order processingcost

demand data acrossthe _3PLs)

supplychain *Discounts fortruck-load

*

Order processingcostsassortments(ofdifferent

reduction_(e.g.,through _products)

Computer/ Internet- *

DeliveryConsolidation based Order

Management_Systems) !

reduction_(e.g.,through

Computer/ Internet-based

Order Management

Systems)

Forward *

VisibilityofEnd User *Continuous *_ActivityBased

Costing

Buying demanddata<tcross the Replenishment Program (ABC)to _clearlyanalyze

supplychain _(CRP)

* _Stabilize

pricesthrough

Every

DayLow Price (EDLP: sellingprice)and

Every DayLow Cost (EDLC:

buying

_price)

inventory

costs,

handling

costs, transportation costs

etc. andcomparethem

withproduct price

promotionbenefit

Shortage i* _Share

sales,capacity * Definecancellation

1.5 ERPvs SCM _[13]

Thedifferences betweenERPsystems(e.g. _{SAP, Baan,}People soft)and SCMsystems

(e.g., 12,

Manugistics)

have beensubjecttointense debate. Onereason forthisisthat theERP

vendors are_addingmoreSCM

functionality

totheirproducts whileSCMvendors are also

expandingtheir

functionality,

encroachingontheareahandled

by

theERPvendors. Withthe

vendors ofERP systems andSCMsystems_addingmoreandmore _{functionality,}thedifferences betweenthemhave been blurring. Forexample,majorERPvendors are

introducing

advanced

planningand optimization as anintegrated component(alsoacomponentin_SCM)oftheir

system.

[image:27.537.58.489.308.597.2]

A fewsignificantdifferences betweenaERP andaSCMsystem are shown in Table 1.4.

Table 1.4 Comparison_ofERPandSCM Systems _[13]

Pointof comparison ERP SCM

Comprehensive _Yes, covers_manymore areasthanSCM

Relativelyless

Complexity

Highlycomplex _Relativelylesscomplex

Sourcingtables _Relativelystatic Dynamic

Handlingof constraints InanERP_system, allthe

demand, capacityand material constraintsare consideredin isolationof eachother

Simultaneous

handling

ofthe constraints

Functionality Relativelyless dynamicas theyare_mainlyconcerned withtransaction_processing andhavemorejobstodo

Canperformsimulationsof adjustmentswithregardto the

constraints

dynamically

inreal

time

Speedof_processing

requests

ERP's Importance in SCM

Traditionally

ERPtools were not consideredforSCMand as a_{result, the}information

flow betweenvarious members ofthe_supplychain was slow. Thiswasbecauseuntilthelate

1990'stheconcentration of organizationswas on

improving

the_{internal efficiency}alone.

Therefore, ERP systems also supported_onlysuchfunctionalities, andthe systemsacrossthe

supplychainweredisparate [14].

Theorganizations_however, soonrealizedthatalthoughinternal efficiency is _important,

itsbenefitwouldbelimitedunlesscomplemented

by

increased efficiencyacrossthe_supply

chain. _Theyalso realizedthatseamlessflowofreal-timeinformationacrossthe_supplychainwas

a

key

to successinthe_emergingmarket scenariocharacterized

by

_gallopingadvancements of

technology, shorterproductlife cycles, etc. _Therefore, organizations started

integrating

ERP

applicationswithSCMsoftware. Thisensuresthatthe_{efficiency is}achieved acrossthe_supply

chainandthereis a seamlessflowofinformation. InthisscenarioERPbecomesavitallink in

the_{integrated supply}chainasitserves asthe_{integrated planning}and control system[14].

Insummary, ERP applications

help

in effectiveSCMinthe

following

ways [5]:

1. Sharedata:

They

cancreate opportunitiesto sharedataacrosssupplychainmembers,

which can

help

managers in making better decisions._Theyalsoprovide widerscopeto mangers

of_supplychains

by

_makingavailable muchbroader information.

2. Real-time information: ERP systems can provide real-time_information,whichcanbeof

great

help

in_makingsupplychaindecisions. Forexample,orderingrawmaterialscanbebased

onthe_inventorydetailsprovided

by

theERP systems.

1.6Expectationsfrom_ImplementingSCM inanEnterprise _[9]

Minimizethecycletime_{in receiving}projected and actualdemand information.

Establish_{the monitoring}of actualdemand forproducttoas near a real-timebasisas possible.

Understandproductdemandpatterns at each stage ofthe_supplychain.

Eliminate

inventory

replenishment methodsthatlaunch demandlumps intothe_supplychain.

Eliminateincentives forcustomersthat

directly

causedemandaccumulation and order

stagingpriorto areplenishment_request,such as volumetransportationdiscounts.

Providevendor-managed

inventory

_(VMI) services

by

_{collaborativelyplanning}

inventory

needswiththecustomertoprojected end-user_demand;then,monitor actualdemandto

fine-tune theactualVMIlevels. (Note: VMIcanincreasesalesandprofits _{especially in industries}

wherebuyerscan goto alternative sourcesifyou or yourdistributor_stock-out.)

[image:29.537.35.475.302.466.2]

Somecompanieshavereapedgreatbenefits from

implementing

SCM acrosstheirenterprises.

Table 1.5liststhepercentageimprovement for

key

indicatorsthatmeasuretheperformanceof a

supplychain.

Table 1.5 BenefitsfromanIntegrated SCM

DeliveryPerformance 16%-28% Improvement

InventoryReduction 25%-60% Improvement

Fulfillment Cycle Time 30%-50% Improvement

Forecast_Accuracy 25%-80% Improvement

Overall_Productivity 10%-_{16% Improvement}

Lower_SupplyChain Costs 25%-50% Improvement

Fill Rates 20%-30% Improvement

Improved_CapacityRealization 10%-20% Improvement

1.7_Supply Chain OperationsReference _[SCOR] Model

Incollaboration with69members_consistingof_{manufacturers,} logistics/distribution

service providers and software solutionssuppliers,the

Supply

Chain Councilintroduced

Supply

Chain OperationsReference-model_(SCOR)(see Figure 1.7). Anumberof companieshave

pooledtheirreal-_world

supplychain experiencestobuildaflexible frameworkandacommon

languagethatcan

help

themimprovetheirsupplychain

internally

and_{externally [4],}

Themodel definescommon_supplychain managementprocesses and matches them

against"best

practices."

operations. It allows_{manufacturers, suppliers,}distributors andretailerswithaframeworkto

evaluatetheeffectiveness oftheir_supplychainoperationsandto targetand measure specific

process operations.

The SCORmodel wasdesigned to enable companiesto communicate,compare andlearn

fromcompetitors and companiesbothwithin and outside oftheir industry. Itnot_onlymeasures

supplychain performancebutalso effectiveness of_supplychain_{reengineering [4].}

The

Supply

Chain Operations Reference-model _(SCOR) isa process reference model. A

Process Reference Model helpsorganizations capturethe "as-is"state ofaprocess withthe

objective toachievethedesired"to-be"

futurestate. _Further,itallowsanorganizationto_quantify

itsoperational_performance,andto establishinternaltargetsbasedon"best-in-class"results in

similarcompanies. Itdescribesstandardmanagement_{processes,exploring}the_relationship

among differentprocesses._Finally, itcharacterizesthemanagement practices and software

solutionsthatresultin"best-in-class"

performance. Thus a process reference modelintegratesthe

conceptsofbusinessprocess_{reengineering,benchmarking,} and process measurementintoa

cross-functionalframework.

Plan P1 Plan_SupplyCtialn

|P__ PlanSouro=?Z>-|P?'Fbnl.1.:ii^>|PJ PlanC^ltej>|p?' Plan

F:~turi]>-o

3

u

[image:30.537.120.435.371.558.2]

1.8 FutureofSCM _[17]

Alotof_{activity is going}oninthe_supplychainfieldthatinvolves

implementing

supply

chain managementfor_planning, execution andcollaborationacrosstheenterpriseandbetween

enterprises. Afewpredictions _regarding

21st-century

_supplychainmanagementaretabulatedin

Table 1.6 [5].

Predictions Details

Performancewillbejudged

by

systemsand

flows.

Needto improvewaystoacceleratethe

flow.

Artificialintelligencewill_playa central

roleinall _supplychain activities.

Computer-aided_interaction, voice

recognition,robotics and expert systems

willfindmore users

Supply

chains willbe brandedand

marketed.

Supply

chainexpertisewillbemarketedas

theproducts marketedtoday.

Liability

hassleswillbealleviated

by

simplifiedrelease-ratepricing.

Legal

liability

differencesbetween

transportationand warehouse service

providerswillbe_resolved, as_theywould

moveinto

risk-sharing

mode

by

_getting

intoreleased-rate_pricingstructure

LogisticsOperationswillbepaperless and

"nearlabor-less."

Computer-directedmachineswillhandle

manual_jobs,

leaving

analyticaljobsto

humanworkers

Workereducation and_trainingwill

largely

bea corporate responsibility.

To assure_{steady flow}ofcapable_workers,

corporations will assume_{responsibility}to

train theiremployees.

Two typesof carriers will emerge: line haul

and"last

mile."

Line haul carrierswillcontractout all

pickupand

delivery

to lastmile carriers

capable of_{providing 24-hr}service.

The federalgovernment willbe forcedto

rebuildthetransportationinfrastructure.

Therail and roadinfrastructurewill

deteriorate,

forcing

thefederal government

tointervene.

[image:31.537.38.481.151.577.2]

1.9CollaborativeSCM

Opportunities forcollaboration_{among business}partnerswill_vary

depending

upon an

organisation's prospective roleinthe_supplychain. Collaborationenables partnersto

jointly

gain

abetter_{understanding}offutureproductdemandandto implementmore realisticprogrammesto

satisfythatdemand.Thethreemajortypesofcollaborative relationships aredescribed below.

1)Manufacturing/suppliercollaboration

Closecollaboration_{among supply}chain partnerscan

help

to aligntheparties andthen

enhancethevalue ofthe network'scombined activities.

Collaborating

with_suppliers,

manufacturerswillderivebenefitsinsuch

key

activities as newproduct_development, order

fulfilment,and_capacityplanning. Collaborativeproductdevelopmentenabled

by

_sharingand

modifying design documentswill

help

manufacturers

develop

productsbetterandfaster.

Similarly,co-ordinatingalltier-supplierproductionscheduleswill

help

ensurethatfuture

material needs are satisfied._This, in_turn,results in improvedorderfulfilment andincreased

capacityutilisation.

2) Manufacturer/customercollaboration

Thecollaborative opportunitiesbetweenmanufacturersandcustomers(suchas

wholesale-distributors andretailers)center ondemand planningand

inventory

replenishment.

Thefocus ison_jointly

developing

an_{understanding}ofdemand atthepoint of_consumption,

followed

by

creation of a_mutuallyagreed replenishment plan.Thisapproachhelpsto ensurethat

consumer requirements are met efficiently.To collaborate ondemand planning_{successfully,}

businesspartnersneed to shareand_modifyeach other'sdemandplans andforecasts

electronically. _Importantly, each partner needsto understandand_{electronically}shareits

promotional plans. Once demandplans andforecasts areinplace,replenishment plans designed

to assume adequate product_availabilitywouldbe

jointly

developed.

3) Collaborationwiththird_partyand fourth party logisticsproviders

Collaborationbetweencompanies andthird_partylogistics _(3PL)providers willfocuson

improveequipment utilisation

by

_enablingtheconsolidation of_{inbound, interfacility,} and

outbound shipments _amongbusinesspartners.Thiscanbeaccomplishedthrough electronic

sharingofinformationon shipment plans and_availabilityoftransportationresources.

Packaging

isanother potential areafor logistics collaboration. Collaborationwith3PLs providing

distributioncentre

(DC)

services wouldfocusontheproductiveuseof_facilities, laborand

equipment.Thisinvolveselectronic _sharingof

inventory

replenishmentplans sothatreceipts do

notoverload a_{DCs receiving}functionorstorage capacity. _{Electronic visibility into}the

availabilityofdistributioncentreresources would supportthis typeof collaboration.

Ascompaniesstartedto _{implement supply}chaincollaboration, therewas a needto havea

standardbusinessprocess wheredataand communicationforcollaborationarewelldefinedand

accepted

by

businesspartners. Openstandardsfor supplychain collaborationhave_evolved,

targetingcollaborationinthe_supplyside ordemandsideofthe_supplychain. Onesuch_standard,

2. Collaborative

Planning,

Forecasting

andReplenishment

(CPFR)

Severalopenstandards organizationshave defined businessprocessesfor supplychain

collaboration.The

Voluntary Interindustry

Commerce Standards _(VICS)organizationdefinesa

standard(see Figure ₁₎for_combiningthe taskof_planning,

forecasting

andreplenishmentfor

increased efficiency ina_supplychain.Their CollaborativePlanning, Forecasting, and

Replenishment

(CPFR)

model formalizestheprocessesbetweentwo_tradingpartnersusedto

agree upon ajointplan and

forecast,

monitorsuccessthroughreplenishment, andrecognizeand

respondto _anyexceptions.CPFR buildsuponEfficient Consumer Response_(ECR)principles

including

Vendor-Managed

Inventory

_(VMI),Jointly-Managed_{Inventory (JMI)}andContinuous

Replenishment (CRP). Theseprocess standardsinvolveexchange ofinformation between

enterprises [7].

CPFR canbe definedas abusinessprocess wherein_tradingpartners use_technologyanda

standardset ofbusinessprocessesfor Internet-basedcollaboration onforecastsandplansfor

replenishingproduct. Forthepurpose ofthis _study,We useCPFRasthereferenceto define

businessscenarios where_tradingpartners_(i.e.,retailers, warehouses and_{manufacturers)}have

visibility intoone another's critical_demand,orderforecastsand promotional forecasts using

Web Services [7].

TheneedforaCPFRmodel arosefromthe factthat the_supplychaininefficiencieswere

causedas aresultofthelackof_{information sharingamongtrading}partners._Also, therewas a

needfor informationtobeavailable_quicklytoall_tradingpartners sothat_timelyactioncouldbe

takento meetunexpectedevents. For example,a spikein demandwill registerintimefor

everyoneinthe_supplychain_{to effectively}adjust and ensure proper

inventory

levelson store

shelves. Costs for both_tradingpartners are _greatlyreducedbecauseproblems canbeanticipated

andcorrectionsmadeproactively.The capabilityfortimelyreactionisthegift fromtheInternet

thathasmademeaningful collaborative relationshipspossible.CPFRprovides alogical solution

to resolvinghistorical supplychaininefficiencies.The Internethasprovidedameans formore

conjunctionwiththeindustry-defined CPFR_processes,hasenabled a systematic methodforthe

reductionofand_timelyreactiontosupply- _{anddemand-chain inconsistencies.}

ToputCPFRinto_perspective, considertheextentto whichtheretailer and manufacturer

eachknowabout

how,

_{when,and wheretheend-consumeris buying. Retailershave immediate}

firsthandknowledge of consumer

buying

_{behavior learned}through_{everydayobservations,}

supported

by

theirinterpretationofPOSdata. Ontheother_hand,manufacturers aggregate

consumer

buying

_{behavior based}oninferencesmadefromsyndicateddata(thatis almost always

inherently delayed),

orretailers'

order quantities. Collaborativeprocesses_efficientlycombinethe

knowledgeof_each,which_ultimatelyeliminate surprisesatthemanufacturerthatleadto

out-of-stocksattheretailer.As a_{result, increasedsales,}organizational_streamliningand_alignment,

administrative and operational _{efficiency,improved}cash_flow,andimprovedreturnonassets

performance_ultimatelyoccursfor bothparties.

Apredecessorto theCPFR systemistheVendor Managed

Inventory

_(VMI) system.A

VMI systemcanbedefined asastreamlined approachto

inventory

and orderfulfillmentandis a

systeminwhich avendor_continuouslyand_{automatically}replenishes a_tradingpartner's

inventory. True VMIoccursbetweenadistributorand a_{manufacturer,} withElectronic Data

Interchange_(EDI)

being

thecrucial link betweenthe twocompanies. Table 2.1 comparesthe

CPFRsystemto theVMIsystem,

highlighting

thebenefitsofaCPFR system overVMI.

Table 2.1

Comparing

a CPFRsystemtoa VMI System

CPFR VMI

Commongoals Divergentgoals

Asingledemand forecast developed

collaboratively

Multipledemand forecasts developed

independently

Collaborativepromotional_{planning &}

execution

Inconsistentpromotion execution

Improvedin-stockpositionsandservice

levels

Challenged in-stockpositions at_retail, in DCsand atsupplier

Improved

inventory

management

across entire_supplychain

Low visibilityto_supplychain inventories

Optimizedreplenishmentstrategies

withjoint_ownership

Sub-optimizedreplenishment

capabilities

Process simplicitycreatesoptimal framework forsuccess

Processcomplicationsbetweenretailer

&supplierleadto operationalissues

2.1 CPFR Process Model

VICSdefinesa

9-step

CPFRprocess model forcollaborationin achievinga common

salesand orderforecast. Figure 2.1 illustratestheCPFRprocess_{model,clearly}

identifying

the

. &&f>ikmCnfang

1.DevelopCollaborate

Arrangement

ttc*oSo."C-nteria

3

'""'

BttsarBuss:>;

DevefeptneRtAcSvMss

duyer

:sceptic nT-gger.

P33 Data =usr ocepsieaT^ge-s A\ sarssBr i -^ 1 _.pport D_tia Dfr^son M /St ^

reateJoint Business

P!an

SellerBusiness

Development Actrwties

3. Create Sales Foreca

4 _{aerafy Exceptions for}

Sales Forecast

= "_e:t!cnIts-ns

5.Resc:ve<'

Collaoorate On

Exception Items

6. Create Order Forecast

Seller E..cept<-

T-gge-s

Se.er

4) -Jf1 _Dcc-s

on

Supper.___3-_a

Orser r,_.recast

identifyExceptions for Order Forecast

[image:37.537.40.504.44.587.2]

Escep&Em |-_en-s

8.Resolve'_{Collaborateon}

Exception Items

relate:-'3:3.c 4 ;;,<cep_ic"

xeros

RetalStore

<>

Short_Tenri'

Seller Materials & Production P.arming

3^'le"

Ereep?-:-_Trgge-!

Seller De<_'-r?n [_

-ppc-.0_3

? 9. OrderGeneration

Order PO Feedback Produce _[ Product _j 8yet_Receiving

"I.

ProdasS DeBvsryExecution

OrderFilling?

Shipment Execution

Cr&erii ;ng &6<_fc3k

K

>)

>0

Euver Activities

?

itther/ Join!Activities

D

BelerActivities

Figure 2.1. The

9-step

CPFRprocessdiagram.

Working groups: Managetheroles ofbuyerandseller

by defining

collaborativeteammembers

andtheirresponsibilities.

Collaborationarrangement: Arrangecollaboration such asproductitems, areas, exception

criteria, and conditions ofcollaboration.

Jointbusinessplan: _{Establish jointbusinessplan}

collaborativelyto

identify

eventcalendar

(openings, closings, promotions,

holidays,

advertisements, etc.).

Demandcollaboration: _{Integrate demandplanning}and exchangeforecastsof_tradingpartners.

This functionprovides mechanismto _{collaboratively}forecastandthen to generate common

demand forecasts.

Ordercollaboration: Thedemand

forecast,

on-hand

inventory

and_{shipping information}are

integratedto _{collaboratively}generate and exchangeorderforecasts.Thisfunction includesthe

frozenmechanism of order

forecasting

andordermanagement.

Exceptionlist: Monitorand_{automatically}trigger the exceptions andthengive notices inorderto

allow_tradingpartnersto control exceptions.

KPI &report:Managers can analyzethe

key

performances anddownloadreportsinaccordance

with eachwarehouse oreachproductitem.

This process modelalsoillustratesthatdata flows from each partnerateach_step,thereby

gettingconsumed andproduced at eachend. Table 2.2identifiesthedataconsumed and data

producedforeach _{step in}theCPFRprocess.

Table 2.2 InputandOutput DataatEach

Step

inCPFR Process

Process

Step

Data Consumed Data Produced

Develop

frontend agreement

None: Manual Process None: Manual Process

Createjoint business

plan

1. Buyer'scorporate_strategy

2. Seller's corporate _strategy

Jointbusinessplan

Createsales forecast 1. Joint businessplan

2. POSdata

3. Event

4. Salesforecastrevisions

Sales forecast

Identify

sales forecast exceptions

1. Sales forecast

2. Exceptions

4. Events Collaborateon sales

forecastexceptions

1. Buyer's secondary data for

exceptionitems

2. Identifiedexceptionitems 3. Seller's _{secondary data for}

exceptionitems

Sales forecastitem

revisions

Createorderforecast 1. Orderforecastrevisions

2. POSdata

3. Current

inventory

onhand

4.

Inventory

strategy/Seasonal Info

5. Sales forecast

6. Events

7. Producthistorical demandand

shipments

8. _{Product availability data}

Orderforecast

Identifyorderforecast exceptions

1. Order forecast

2. Exceptions criteriaandvalues

3. Events

Identifiedorder

forecastexception

items

Collaborateon order

forecastexceptions

1. Buyer's secondary data for

exceptionitems

2. Identifiedexception items

3. _{Seller's secondary data for}

exceptionitems

Orderforecast item

revisions

Generate Order 1. Orderforecast

2. Item management profile

Order

Researchesweredone on_quantifyingthebenefits of_usingtheCPFRmodelto achieve

supplychaincollaboration overtheInternet. Inthecase_studyonimplementation ofCPFR at

CatCo, a pet productsvendor, CatCocollaboratedwithitsretailers overthe_{Internet using}

standard_technologyagreed upon

by

CatCoanditsretailers. Thebenefitsthatwererealizedare

listed below [23].

Asalesincreaseof5-15% overtheaverage

In-stock

inventory

increasedto over98%

Inventorylevels loweredtobetween 25-50%acrossthe_supplychain

AlthoughCatCowas abletocollaborate overtheInternet,thedependenceon a particular

willingto adoptthe_technologythatCatCowas_{willing to} use.Therewas a need fora

vendor-independentandtechnology-neutralarchitecture for_{sharing information [23].}

Inthe_{Case study}onCPFR implementation between JohnsonandJohnson(J and_J)and

Superdrug,

JandJwas abletoreduce stock

by

13% andincreasethewarehouse_availability

by

1.3%. JandJ and

Superdrug

agreeduponacommon_technologyandwererestrictedto_using

databases for accessingtheirdata.Theefforttointegrate J andJwith other retailersdidnot

materialize asitproved_costlytoimplementasystem_usinga_technologycompliant with whatJ

andJused.

Restricting

thedatasourcesin CPFRcreatedtheadditionalburdenof_movingthe datatodatabasesforcollaborationandof_maintainingthem[24].

Thispresents theneedto haveavendor-independent andtechnology-neutralsolutionto

shareinformationovertheInternetacrossthe_supplychain,andto aggregatedata from different

datasources such as _databases,XMLandExcelfiles.Thisthesispresentsan architecturefor

CPFRwhere collaborationtakesplace independentofdatasources and_technology[24].

2.2

Key

Performance Indicators in CPFR

Key

performanceindicators_(KPI), alsoknownas

key

successindicators (KSI),

help

an

organizationdefineand measure progresstowardorganizational goals. Onceanorganizationhas

analyzedits_mission, identifiedallits_{stakeholders,} anddefined its goals,itneedsa_wayto

measure progresstowardthosegoals. _Keyperformance indicatorsarethosemeasurements.

Key

performanceindicators havethree

key

features.

1) Keyperformanceindicatorsreflecttheorganizational goals.

2) Key

performanceindicatorsmustbequantifiable.

3)

Key

performanceindicatorsmustbe

key

to organizational success.

Keyperformanceindicators arequantifiable_{measurements,} agreedto_beforehand,that

reflectthecritical successfactorsof anorganization. Theywilldiffer

depending

onthe

incomethatcomes fromreturn customers.A supplychain system_mayfocus its

key

performance

indicatorson servicelevels andleadtimes ofitspartners.

Whatever

key

performanceindicatorsare_{selected,they}must reflecttheorganization's

goals,theymustbe

key

to itssuccess,and_theymustbequantifiable(measurable).

Key

performanceindicators_usuallyare long-termconsiderations. Thedefinitionof what_theyare and

how_theyare measureddoesnotchange often.Thegoalsfora particular

key

performance

indicator maychange astheorganization's goals_change, or asit gets closerto _achievinga goal.

IntheCPFRcontext, KPIs are usedtomeasuretheoverallperformance ofthe

relationshipbetweenmanufacturerandretailer.Notall oftheseKPIsare required

by

CPFR

projectstomeasuretheperformances.

Only

theKPIsmostrelevantto thecurrent_relationshipof

tradingpartners shouldbeselectedinorderto facilitate implementationofCPFR. _Besides, the

responsibilities_{for measuring}eachKPI shouldbeassigned_accordingto eachpartner'sbusiness

processes and_abilitytomeasuretheresults. ECR (Efficient Consumer_Response) Europe

classifiedthe

key

performanceindicators _(KPIs)ofCPFRintothe tencategorieslisted in Figure

2.3 [22].

Inventory _| Forecast_Accuracy Service level Leaddine

Finished Goods Sales Forecast Production Order -Delivery

L

Material OrderForecast Deliver}' Order

-Production

Materials Forecast

Out-of-Stock(OOS) Frequency On-Shelf Availability

Unplannedchangeover

f

Obsoletes Distribution Ptannin}*

Promotion Plan

T

Obsoletes Full truck Promotion Effectiveness NewProduct

Introduction

Vehiclefell Material

ProductionPlan

4:

>aies

Emptyrunning Production Sales Growth

Rush Orders DistributionCosfe _Capacity