Description
Supply chain units are connected by both physical and in- formation
ows. Electronic services are used to perform a large part of activities in modern supply chains. The traditional supply chain configuration models pay the main attention to optimization of the physical
flows.
Joint Optimization of Physical and Information
Flows in Supply Chains
J¯anis Grabis
Riga Technical University, Kalku 1, Riga, LV-1658, Latvia
[email protected]
Abstract. Supply chain units are connected by both physical and in-
formation ?ows. Electronic services are used to perform a large part of
activities in modern supply chains. The traditional supply chain con?g-
uration models pay the main attention to optimization of the physical
?ows. However, it is equally important to ensure that the physical units
have appropriate information processing and logistics capabilities. There-
fore, a model for joint con?guration of the physical and information ?ows
in e-retailing supply chains is elaborated in this paper. The model simul-
taneously identi?es appropriate suppliers, selects the third party logistics
service provider and selects appropriate electronic information process-
ing services. The typical services used in global e-retailing are identi?ed.
The services are characterized by their functionality and quality of ser-
vice measurements. The preliminary experimental studies demonstrate
interdependencies between the physical and information ?ows.
Key words: supply chain, information ?ow, service selection
1 Introduction
A supply chain is the network of interrelated companies collaborating to serve
its customers. It has long been acknowledged that supply chain management
concerns with both physical movement of products from suppliers to customers
as well as with information ?ows for synchronizing the supply chain management
processes [1]. Meanwhile the distinction between the physical and information
?ows is becoming less visible in modern supply chains as many supply chain func-
tions are digitalized. Nevertheless, supply chain management methods continue
to analyze both ?ows separately.
This paper attempts to elaborate a supply chain con?guration model dealing
with both physical and information ?ows. The supply chain con?guration is one
of the key supply chain management sub-problems dealing with selection of sup-
ply chain units and establishing connections among the units [2]. The joint sup-
ply chain con?guration implies that the model selects units and establishes the
connections to ensure movement of physical goods as well as integrated informa-
tion processing. The model explores con?guration of an e-retailing supply chain,
where the e-retailer identi?es appropriate suppliers and selects a third-party lo-
gistics services provider and simultaneously selects appropriate web services for
enabling the information ?ow in the supply chain. The model combines the tra-
ditional supply chain con?guration problem [3] with the web service selection
problem [4]. The contribution to the ?eld of information logistics is demonstra-
tion of mutual interdependencies of the physical supply chain con?guration and
the web service selection. It is shown that the physical supply chain structure de-
pends upon availability of appropriate information processing services ensuring
information integration and information logistics in electronic supply chains.
The paper expands a traditional information sharing approach [5] of studying
information ?ows in supply chain. Klein and Rai [6] suggest that a strategic ap-
proach is needed to information integration in supply chains, and Swaminathan
and Tayur [7] identi?es opportunities for using emerging information technolo-
gies in e-business supply chain. Improvements in information logistics is one of
options for improving information ?ows. That is also con?rmed by ?ndings that
information accuracy and relevance is among the key factors a?ecting web-site
quality in e-business [8]. A hub based approach can be used in integrated the
physical and information ?ows in supply chains [9]. However, in the case of highly
distributed and heterogeneous supply chains as in e-retailing, a service oriented
approach could be a more attractive option [10].
The rest of the paper is organized as follows. The physical and information
?ows in the e-retailing supply chain are described in Section 2. These are repre-
sented in a form of business process models. These models capture the ?ows at
the strategic level. A mathematical supply chain model for joint optimization of
the physical and information ?ow is formulated in Section 3. Section 4 reports
results of the experimental studies conducted to demonstrate interdependencies
between the physical and information ?ows. Section 5 concludes.
2 Supply Chain Flows
A model for joint design of the physical and information ?ows is developed for
supply chains, where a signi?cant part of supply chain activities take place in
an electronic form. Supply chains by e-retailers such as Amazon.com, Macy’s
1
belong to this group of supply chains. The physical ?ow represents the ?ow of
products from suppliers to e-retailers facilities and ?nal delivery of products to
end-customers usually done by a 3PL provider. The information ?ow represents
di?erent on-line services to customers and supply chain partners. These services
include product information services, payment services, insurance services, ship-
ment tracking services and others. The services can be provided by the same
partners providing the physical processing or by partners specializing in deliver-
ing electronic information processing services. For instance, Borderfree
2
acts as
an integrator for e-retailers providing end-to-end information processing services.
1
http://www.amazon.com, http://www.macys.com
2
http://www.borderfree.com
2.1 Physical and Internal Information Flow
A business process model is used to represent the physical and information ?ows
and their processing in supply chains. It is assumed that the physical data ?ow
and supply chain units mainly dealing with processing of physical products are
represented as a single entity while supply chain units mainly dealing with infor-
mation processing are represented as independent units. Therefore, the physical
supply chain units are represented in the business process as lanes in a single
pool (Fig. 1), and the electronic supply chain units are represented as separate
pools (see Section 2.2).
The physical ?ow of products is initiated by detecting the customer demand
without specifying how the demand is detected. Suppliers are responsible for
supplying the products. The e-retailer is the focal unit in the e-retailing sup-
ply chain and its main task is to sell products to customers. The e-retailer can
also operate storage and distribution facilities (see [11] on various options for
products processing in e-retailing supply chains). The 3PL providers are respon-
sible for delivery of products to the customers. The internal information ?ow
accompanies the physical ?ow of products. It is referred as to the internal in-
formation ?ow because information processing is perceived as an essential part
of the physical products processing tasks. Data objects are used to represent
internal supply chain information ?ows. Only the main data objects such as
sales order, purchasing requisition, delivery note and delivery con?rmation are
referenced in the model. This supply chain representation does not include the
reverse supply chain ?ow for simplicity.
Fig. 1. The physical ?ow in supply chains
2.2 Message and Integrated Flow
An integrated physical and information ?ow model is created in order to cap-
ture interrelationship among the physical and electronic supply chain units. The
electronic supply chain units are represented each in a separate pool named as a
service unit with a speci?c type. These pools represent abstract service providers.
The actual service providers can provide several of the services required, some
of them act as service aggregators and some services can be provided by the
physical supply chain units. The interrelationships are shown as message ?ows
among the pools. The message ?ow shows only purely electronic information
processing activities. For instance, a shipment activity includes shipment data
processing, shipment con?rmation and other operations but these information
processing activities are perceived as an essential part of the physical activities
and are included in the Deliver product task.
The model de?nes main types of the electronic service units present in the
e-retailing supply chains in the global setting. These types include:
– Product information services – detailed information possibly aggregated from
multiple sources is provided about each product o?ered by the e-retailer
– Import/export services – checks on import and export restrictions from one
country to another for certain products, i.e., the service rejects selling a prod-
uct in certain countries where speci?c licensing rules are applicable
– Customs and taxes services – calculation of appropriate taxes depending upon
the customer location is performed
– Payment services – multi-currency processing of payments using di?erent pay-
ment channels is performed and restrictions concerning availability of the pay-
ment channels are applied, e.g., credit cards only from speci?ed countries are
accepted
– Shipment services – if multiple shipment modes are available the most appro-
priate alternative with regards to the destination and delivery time is deter-
mined and shipment tracking is provided independently of the 3PL provider
is provided, especially, if multiple logistics providers are used for delivery.
The list of service types is not exhaustive and other types of services can be
used such as fraud detection and shipment insurance. Fig. 2 shows the physical
e-retailing supply chain process along with the necessary electronic services. The
expansion of the Buy product task is given in Fig. 3. The message ?ow for this
task is shown only at the sub-process level. The product information service
provides information to the Sell product task and is responsible for providing as
rich information about the product as possible. The shipment service is invoked
during the product delivery to provide opportunities for tracking the product
delivery.
Majority of the message ?ows are associated with the Buy product task.
The services are invoked to provide an accurate estimate of the total ordering
costs for the customer. For local e-retailers, this operation usually is straightfor-
ward but much more comprehensive information should be gathered for global
e-retailers. The message ?ows should ensure information about applicable taxes,
import/export restrictions, delivery options and international payment process-
ing. This information is speci?c to the customer location.
In the given process model it is assumed that the e-retailer manages both
the physical and electronic sales process by itself. Another possibility is that a
traditional retailer deals only with the physical sales while the electronic part is
provided by a sales service provider.
Fig. 2. The message ?ow between the supply chain and the product information and
shipment services
Fig. 3. The message ?ow for the Buy product task
3 Model
The supply chain business process models show interactions among the physical
and electronic supply chain units. The supply chain con?guration problem is
to select suitable physical and electronic supply chain units to optimize supply
chain performance. In the case of e-retailing supply chain, products’ suppliers,
third party logistic provider and web services for information processing are se-
lected. The supply chain performance is measured by supply chain pro?tability
and customer satisfaction a?ected by e?ciency of information processing. The
pro?tability is calculated as revenues from product sales after deducting sales
expenses minus sourcing, delivery and unit setup costs. The information process-
ing e?ciency is calculated as a weighted sum of web service Quality-of-Service
(QoS) criteria, namely, response time, error rate and reliability, which are among
the most frequently used QoS criteria [4].
The mathematical formulation of the model consists of the objective function
(Eq. 1) and constraints (Eq. 7-13), the notations used are de?ned in Table 1.
The weights w
1
and w
2
are used to combine the physical units selection and
web service selection criteria in a single objective function. Eq. 6 evaluates the
information processing e?ciency for the selected web services. Importance of the
each QoS criteria is determined by the weight factor v
i
. Eq. 5 evaluates the ?xed
cost incurred by incorporating physical or electronic units in the supply chain.
P(X, Y, Y) = w
1
(R ?C
1
?C
2
?C
3
) +w
2
L ?max (1)
R =
N
p
?
i=1
N
c
?
j=1
?
ij
S
ij
(2)
C
1
=
N
p
?
i=1
N
v
?
j=1
?
ij
Q
ij
(3)
C
2
=
N
p
?
i=1
N
l
?
j=1
N
c
?
k=1
?
ijk
U
ijk
(4)
C
3
=
N
v
?
i=1
?
1
i
X
i
+
N
v
?
i=1
?
2
i
Y
i
+
N
v
?
i=1
?
3
i
Z
i
(5)
L =
N
s
?
i=1
3
?
j=1
v
j
?
ij
Y
i
(6)
S
ij
? d
ij
, i = 1, ..., N
p
, j = 1, ..., N
c
(7)
N
l
?
j=1
U
ijk
? S
ik
, i = 1, ..., N
p
, k = 1, ..., N
c
(8)
Table 1. Notation
Notation Description
N
p
number or products
N
c
number of countries where customer are located
N
v
number of potential suppliers
N
l
number of potential 3PL providers
N
s
number of potential services
P e-retailer’s pro?t
X
i
? {0, 1} a decision variable indicating whether the ith supplier is selected or not
Y
i
? {0, 1} a decision variable indicating whether the ith service is selected or not
Z
i
? {0, 1} a decision variable indicating whether the ith 3PL provider is selected
or not
S
ij
a decision variable determining the quantity of the ith product sold to
customer in the jth country
Q
ij
a decision variable determining the quantity of the ith product sourced
from the jth supplier
U
ijk
a decision variable determining the quantity of the ith product delivered
by the jth 3PL provider to the kth country
?
ij
revenues from each item of the i product sold in the jth country
?
ij
purchasing prices of the ith product from the jth supplier
?
ijk
delivery cost for the ith product by the jth 3PL provide to the kth
country
?
1
i
the setup cost for the ith supplier
?
2
i
the setup cost for the ith service
?
3
i
the setup cost for the ith 3PL provider
?ij the value of the jth QoS attribute for the ith service
d
ij
demand for the ith product in the jth country
?
ij
equals to one if the ith service supports the jth function and zero if not
?
ij
equals to one if the ith service is available in the jth country and zero
if not
M a large number
N
c
?
j=1
S
ij
?
N
v
?
k=1
Q
ik
, i = 1, ..., N
p
(9)
N
s
?
i=1
?
ij
Y
i
= 1, j = 1, ..., N
f
(10)
N
p
?
l=1
S
li
?
N
s
?
k=1
?
kj
?
ki
Y
k
M, i = 1, ..., N
c
, , j = 1, ..., N
f
(11)
N
p
?
i=1
Q
ij
? X
j
M, j = 1, ..., N
v
(12)
N
p
?
i=1
N
c
?
k=1
U
ijk
? Z
j
M, j = 1, ..., N
l
(13)
The constraint Eq. 7 ensures that the sales do not exceed the demand. The
sales-delivery balance is enforced by the constraint Eq. 8. The sales-supplies
balance is enforced by Eq. 9 stating that the products must be purchased from
suppliers in order to sell them to the customers. Eq. 10 speci?es that the services
should be selected to satisfy all the required information processing functions.
The constrains Eq. 11-13 ensure that suppliers, providers and services, respec-
tively, should be included in the supply chain if they perform any activities (e.g.,
products are supplied by the given supplier). The constraint (12) ties together
the physical and information ?ows by requiring that the products cannot be
physically delivered if appropriate information services are not available.
4 Experimental
The experimental studies are conducted to demonstrate interdependencies be-
tween physical and information supply chain con?guration decisions and to in-
vestigate impact of the weights w
1
and w
2
on the con?guration results. In order
to check the ?rst aspect, the supply chain con?guration is performed without
taking into account the information ?ows (EXP1). Technically, it means that w
2
is set to zero and the constraints (9) and (10) are ignored. The results of EXP1
are compared with an experiment (EXP2) where the physical and information
?ows are considered simultaneously. It is argued that the joint con?guration has
a signi?cant impact on supply chain con?guration if di?erent suppliers or 3PL
providers are selected.
4.1 Design of Experiments
A test supply chain con?guration problem is set up for the experimental pur-
poses. The dimensions of this supply chain are given by N
p
= 10, N
c
= 30, N
v
=
8, N
l
= 3 and N
s
= 10. The services should provide seven functions. The services
vary from highly specialized providing just one function to aggregators providing
all functions. Some of the services are available in all countries while others are
limited just to selected countries. The demand is randomly generated. However,
the average demand for certain products is country dependent, and some supplier
are able to produce these cheaper than others. The QoS characteristics are also
randomly generated thought they are correlated with a number of functions the
service provides (i.e., than more functions than worse performance). The model
is solved using a commercially available mathematical programing software.
4.2 Results
The experiments EXP1 and EXP2 are carried out for the test supply chain.
Fig. 4 shows all supply chain unit evaluated during the con?guration and the
units selected are shaded. P
?
= R ? C
1
? C
2
? C
3
measures the supply chain
performance in each experiments. It can be observed that di?erent supply chain
con?gurations are obtained in both experiments. In EXP1, the supply chain is
able to serve all customers. The electronic information ?ows are provided by
a combination of three web services and a 3PL provider, which provides more
uniform delivery costs around the world, is selected. In EXP2, the information
processing is performed by a single aggregator, which covers all but four coun-
tries. One additional supplier is present in the results of EXP1 compared to the
results of EXP2. This supplier is able to supply all products but it specializes in
the products most frequently order by the customers in the countries not served
in EXP2. The supply chain performance is substantially a?ected by taking into
account interdependencies between the physical and information ?ows for the
given test supply chain.
Fig. 4. The supply chain con?gurations obtained in experiments EXP1 and EXP2
The relative value of the weight factor w
2
characterizing the importance of
QoS criteria in optimization is varied in order to evaluate sensitive of the results.
The test supply chain used in the paper is quite insensitive to this factor. The
QoS criteria had signi?cant impact on the con?guration results only for values
w
2
exceeding 10
5
(the cost related factors and quality related factors have vastly
di?erent scales).
5 Conclusion
A model for joint optimization of the physical and information ?ows in e-retailing
supply chains has been elaborated. The model ensures that the physical supply
chain units have appropriate information processing capabilities at their disposal.
The importance of the joint optimization increases along with a growing number
of electronic services available over the Internet.
The formulated optimization model de?nes relationships between the physi-
cal and information ?ows and takes into account QoS requirements for e?cient
information processing. Preliminary experimental results show that the infor-
mation ?ows indeed a?ect selection of appropriate physical supply chain units.
However, the QoS requirements have minor impact of the supply chain con?gu-
ration decisions for the test supply chain analyzed in the paper. An alternative
approach to including QoS criteria directly in the objective model would speci?-
cation of minimum quality requirements in the form of constraints. That would
also alleviate the problem of selecting appropriate weights for multi-criteria op-
timization. The QoS characteristics also have impact on customer demand what
could also be represented in the optimization model.
References
1. Lambert, D.M., Cooper, M.C., Pagh, J.D.: Supply Chain Management: Implemen-
tation Issues and Research Opportunities, International Journal of Logistics Man-
agement, The, Vol. 9 Iss: 2, pp.1 - 20 (1998)
2. Chandra, C., Grabis, J.: Supply Chain Con?guration: Concepts, Solutions, and Ap-
plications, Springer: New York (2008)
3. Melo, M.T., Nickel, S., Saldanha-da-Gama, F.: Facility location and supply chain
management - A review, European Journal of Operational Research, vol. 196, no.
2, pp. 401-412 (2009)
4. Strunk, A.: QoS-aware service composition: A survey, Proceedings of the 8th IEEE
European Conference on Web Services, ECOWS 2010, pp. 67-74 (2010)
5. Lee, H.L., Whang, S.: Information sharing in a supply chain. International Journal
of Technology Management 20, 373-387 (2000)
6. Klein, R., Rai, A.: Inter?rm strategic information ?ows in logistics supply chain
relationships. MIS Quarterly: Management Information Systems 33, 735-762 (2009)
7. Swaminathan, J.M., Tayur, S.R.: Models for supply chains in e-business. Manage-
ment Science 49, 1387-1406 (2003)
8. Hernandez, B., Jimenez, J.,Martin, M.J.: Key website factors in e-business strategy.
International Journal of Information Management 29, 362-371 (2009)
9. Trappey, C.V., Trappey, A.J.C., Lin, G.Y.P., Liu, C.S., Lee, W.T.: Business and
logistics hub integration to facilitate global supply chain linkage. Proceedings of the
Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture
221, 1221-1233 (2007)
10. Candido, G., Barata, J., Colombo, A.W., Jammes, F.: SOA in recon?gurable sup-
ply chains: A research roadmap. Engineering Applications of Arti?cial Intelligence
22, 939-949 (2009)
11. Chopra, S., Meindl, P.: Supply Chain Management: London, Prentice Hall (2012)
doc_788045614.pdf
Supply chain units are connected by both physical and in- formation
ows. Electronic services are used to perform a large part of activities in modern supply chains. The traditional supply chain configuration models pay the main attention to optimization of the physical
flows.
Joint Optimization of Physical and Information
Flows in Supply Chains
J¯anis Grabis
Riga Technical University, Kalku 1, Riga, LV-1658, Latvia
[email protected]
Abstract. Supply chain units are connected by both physical and in-
formation ?ows. Electronic services are used to perform a large part of
activities in modern supply chains. The traditional supply chain con?g-
uration models pay the main attention to optimization of the physical
?ows. However, it is equally important to ensure that the physical units
have appropriate information processing and logistics capabilities. There-
fore, a model for joint con?guration of the physical and information ?ows
in e-retailing supply chains is elaborated in this paper. The model simul-
taneously identi?es appropriate suppliers, selects the third party logistics
service provider and selects appropriate electronic information process-
ing services. The typical services used in global e-retailing are identi?ed.
The services are characterized by their functionality and quality of ser-
vice measurements. The preliminary experimental studies demonstrate
interdependencies between the physical and information ?ows.
Key words: supply chain, information ?ow, service selection
1 Introduction
A supply chain is the network of interrelated companies collaborating to serve
its customers. It has long been acknowledged that supply chain management
concerns with both physical movement of products from suppliers to customers
as well as with information ?ows for synchronizing the supply chain management
processes [1]. Meanwhile the distinction between the physical and information
?ows is becoming less visible in modern supply chains as many supply chain func-
tions are digitalized. Nevertheless, supply chain management methods continue
to analyze both ?ows separately.
This paper attempts to elaborate a supply chain con?guration model dealing
with both physical and information ?ows. The supply chain con?guration is one
of the key supply chain management sub-problems dealing with selection of sup-
ply chain units and establishing connections among the units [2]. The joint sup-
ply chain con?guration implies that the model selects units and establishes the
connections to ensure movement of physical goods as well as integrated informa-
tion processing. The model explores con?guration of an e-retailing supply chain,
where the e-retailer identi?es appropriate suppliers and selects a third-party lo-
gistics services provider and simultaneously selects appropriate web services for
enabling the information ?ow in the supply chain. The model combines the tra-
ditional supply chain con?guration problem [3] with the web service selection
problem [4]. The contribution to the ?eld of information logistics is demonstra-
tion of mutual interdependencies of the physical supply chain con?guration and
the web service selection. It is shown that the physical supply chain structure de-
pends upon availability of appropriate information processing services ensuring
information integration and information logistics in electronic supply chains.
The paper expands a traditional information sharing approach [5] of studying
information ?ows in supply chain. Klein and Rai [6] suggest that a strategic ap-
proach is needed to information integration in supply chains, and Swaminathan
and Tayur [7] identi?es opportunities for using emerging information technolo-
gies in e-business supply chain. Improvements in information logistics is one of
options for improving information ?ows. That is also con?rmed by ?ndings that
information accuracy and relevance is among the key factors a?ecting web-site
quality in e-business [8]. A hub based approach can be used in integrated the
physical and information ?ows in supply chains [9]. However, in the case of highly
distributed and heterogeneous supply chains as in e-retailing, a service oriented
approach could be a more attractive option [10].
The rest of the paper is organized as follows. The physical and information
?ows in the e-retailing supply chain are described in Section 2. These are repre-
sented in a form of business process models. These models capture the ?ows at
the strategic level. A mathematical supply chain model for joint optimization of
the physical and information ?ow is formulated in Section 3. Section 4 reports
results of the experimental studies conducted to demonstrate interdependencies
between the physical and information ?ows. Section 5 concludes.
2 Supply Chain Flows
A model for joint design of the physical and information ?ows is developed for
supply chains, where a signi?cant part of supply chain activities take place in
an electronic form. Supply chains by e-retailers such as Amazon.com, Macy’s
1
belong to this group of supply chains. The physical ?ow represents the ?ow of
products from suppliers to e-retailers facilities and ?nal delivery of products to
end-customers usually done by a 3PL provider. The information ?ow represents
di?erent on-line services to customers and supply chain partners. These services
include product information services, payment services, insurance services, ship-
ment tracking services and others. The services can be provided by the same
partners providing the physical processing or by partners specializing in deliver-
ing electronic information processing services. For instance, Borderfree
2
acts as
an integrator for e-retailers providing end-to-end information processing services.
1
http://www.amazon.com, http://www.macys.com
2
http://www.borderfree.com
2.1 Physical and Internal Information Flow
A business process model is used to represent the physical and information ?ows
and their processing in supply chains. It is assumed that the physical data ?ow
and supply chain units mainly dealing with processing of physical products are
represented as a single entity while supply chain units mainly dealing with infor-
mation processing are represented as independent units. Therefore, the physical
supply chain units are represented in the business process as lanes in a single
pool (Fig. 1), and the electronic supply chain units are represented as separate
pools (see Section 2.2).
The physical ?ow of products is initiated by detecting the customer demand
without specifying how the demand is detected. Suppliers are responsible for
supplying the products. The e-retailer is the focal unit in the e-retailing sup-
ply chain and its main task is to sell products to customers. The e-retailer can
also operate storage and distribution facilities (see [11] on various options for
products processing in e-retailing supply chains). The 3PL providers are respon-
sible for delivery of products to the customers. The internal information ?ow
accompanies the physical ?ow of products. It is referred as to the internal in-
formation ?ow because information processing is perceived as an essential part
of the physical products processing tasks. Data objects are used to represent
internal supply chain information ?ows. Only the main data objects such as
sales order, purchasing requisition, delivery note and delivery con?rmation are
referenced in the model. This supply chain representation does not include the
reverse supply chain ?ow for simplicity.
Fig. 1. The physical ?ow in supply chains
2.2 Message and Integrated Flow
An integrated physical and information ?ow model is created in order to cap-
ture interrelationship among the physical and electronic supply chain units. The
electronic supply chain units are represented each in a separate pool named as a
service unit with a speci?c type. These pools represent abstract service providers.
The actual service providers can provide several of the services required, some
of them act as service aggregators and some services can be provided by the
physical supply chain units. The interrelationships are shown as message ?ows
among the pools. The message ?ow shows only purely electronic information
processing activities. For instance, a shipment activity includes shipment data
processing, shipment con?rmation and other operations but these information
processing activities are perceived as an essential part of the physical activities
and are included in the Deliver product task.
The model de?nes main types of the electronic service units present in the
e-retailing supply chains in the global setting. These types include:
– Product information services – detailed information possibly aggregated from
multiple sources is provided about each product o?ered by the e-retailer
– Import/export services – checks on import and export restrictions from one
country to another for certain products, i.e., the service rejects selling a prod-
uct in certain countries where speci?c licensing rules are applicable
– Customs and taxes services – calculation of appropriate taxes depending upon
the customer location is performed
– Payment services – multi-currency processing of payments using di?erent pay-
ment channels is performed and restrictions concerning availability of the pay-
ment channels are applied, e.g., credit cards only from speci?ed countries are
accepted
– Shipment services – if multiple shipment modes are available the most appro-
priate alternative with regards to the destination and delivery time is deter-
mined and shipment tracking is provided independently of the 3PL provider
is provided, especially, if multiple logistics providers are used for delivery.
The list of service types is not exhaustive and other types of services can be
used such as fraud detection and shipment insurance. Fig. 2 shows the physical
e-retailing supply chain process along with the necessary electronic services. The
expansion of the Buy product task is given in Fig. 3. The message ?ow for this
task is shown only at the sub-process level. The product information service
provides information to the Sell product task and is responsible for providing as
rich information about the product as possible. The shipment service is invoked
during the product delivery to provide opportunities for tracking the product
delivery.
Majority of the message ?ows are associated with the Buy product task.
The services are invoked to provide an accurate estimate of the total ordering
costs for the customer. For local e-retailers, this operation usually is straightfor-
ward but much more comprehensive information should be gathered for global
e-retailers. The message ?ows should ensure information about applicable taxes,
import/export restrictions, delivery options and international payment process-
ing. This information is speci?c to the customer location.
In the given process model it is assumed that the e-retailer manages both
the physical and electronic sales process by itself. Another possibility is that a
traditional retailer deals only with the physical sales while the electronic part is
provided by a sales service provider.
Fig. 2. The message ?ow between the supply chain and the product information and
shipment services
Fig. 3. The message ?ow for the Buy product task
3 Model
The supply chain business process models show interactions among the physical
and electronic supply chain units. The supply chain con?guration problem is
to select suitable physical and electronic supply chain units to optimize supply
chain performance. In the case of e-retailing supply chain, products’ suppliers,
third party logistic provider and web services for information processing are se-
lected. The supply chain performance is measured by supply chain pro?tability
and customer satisfaction a?ected by e?ciency of information processing. The
pro?tability is calculated as revenues from product sales after deducting sales
expenses minus sourcing, delivery and unit setup costs. The information process-
ing e?ciency is calculated as a weighted sum of web service Quality-of-Service
(QoS) criteria, namely, response time, error rate and reliability, which are among
the most frequently used QoS criteria [4].
The mathematical formulation of the model consists of the objective function
(Eq. 1) and constraints (Eq. 7-13), the notations used are de?ned in Table 1.
The weights w
1
and w
2
are used to combine the physical units selection and
web service selection criteria in a single objective function. Eq. 6 evaluates the
information processing e?ciency for the selected web services. Importance of the
each QoS criteria is determined by the weight factor v
i
. Eq. 5 evaluates the ?xed
cost incurred by incorporating physical or electronic units in the supply chain.
P(X, Y, Y) = w
1
(R ?C
1
?C
2
?C
3
) +w
2
L ?max (1)
R =
N
p
?
i=1
N
c
?
j=1
?
ij
S
ij
(2)
C
1
=
N
p
?
i=1
N
v
?
j=1
?
ij
Q
ij
(3)
C
2
=
N
p
?
i=1
N
l
?
j=1
N
c
?
k=1
?
ijk
U
ijk
(4)
C
3
=
N
v
?
i=1
?
1
i
X
i
+
N
v
?
i=1
?
2
i
Y
i
+
N
v
?
i=1
?
3
i
Z
i
(5)
L =
N
s
?
i=1
3
?
j=1
v
j
?
ij
Y
i
(6)
S
ij
? d
ij
, i = 1, ..., N
p
, j = 1, ..., N
c
(7)
N
l
?
j=1
U
ijk
? S
ik
, i = 1, ..., N
p
, k = 1, ..., N
c
(8)
Table 1. Notation
Notation Description
N
p
number or products
N
c
number of countries where customer are located
N
v
number of potential suppliers
N
l
number of potential 3PL providers
N
s
number of potential services
P e-retailer’s pro?t
X
i
? {0, 1} a decision variable indicating whether the ith supplier is selected or not
Y
i
? {0, 1} a decision variable indicating whether the ith service is selected or not
Z
i
? {0, 1} a decision variable indicating whether the ith 3PL provider is selected
or not
S
ij
a decision variable determining the quantity of the ith product sold to
customer in the jth country
Q
ij
a decision variable determining the quantity of the ith product sourced
from the jth supplier
U
ijk
a decision variable determining the quantity of the ith product delivered
by the jth 3PL provider to the kth country
?
ij
revenues from each item of the i product sold in the jth country
?
ij
purchasing prices of the ith product from the jth supplier
?
ijk
delivery cost for the ith product by the jth 3PL provide to the kth
country
?
1
i
the setup cost for the ith supplier
?
2
i
the setup cost for the ith service
?
3
i
the setup cost for the ith 3PL provider
?ij the value of the jth QoS attribute for the ith service
d
ij
demand for the ith product in the jth country
?
ij
equals to one if the ith service supports the jth function and zero if not
?
ij
equals to one if the ith service is available in the jth country and zero
if not
M a large number
N
c
?
j=1
S
ij
?
N
v
?
k=1
Q
ik
, i = 1, ..., N
p
(9)
N
s
?
i=1
?
ij
Y
i
= 1, j = 1, ..., N
f
(10)
N
p
?
l=1
S
li
?
N
s
?
k=1
?
kj
?
ki
Y
k
M, i = 1, ..., N
c
, , j = 1, ..., N
f
(11)
N
p
?
i=1
Q
ij
? X
j
M, j = 1, ..., N
v
(12)
N
p
?
i=1
N
c
?
k=1
U
ijk
? Z
j
M, j = 1, ..., N
l
(13)
The constraint Eq. 7 ensures that the sales do not exceed the demand. The
sales-delivery balance is enforced by the constraint Eq. 8. The sales-supplies
balance is enforced by Eq. 9 stating that the products must be purchased from
suppliers in order to sell them to the customers. Eq. 10 speci?es that the services
should be selected to satisfy all the required information processing functions.
The constrains Eq. 11-13 ensure that suppliers, providers and services, respec-
tively, should be included in the supply chain if they perform any activities (e.g.,
products are supplied by the given supplier). The constraint (12) ties together
the physical and information ?ows by requiring that the products cannot be
physically delivered if appropriate information services are not available.
4 Experimental
The experimental studies are conducted to demonstrate interdependencies be-
tween physical and information supply chain con?guration decisions and to in-
vestigate impact of the weights w
1
and w
2
on the con?guration results. In order
to check the ?rst aspect, the supply chain con?guration is performed without
taking into account the information ?ows (EXP1). Technically, it means that w
2
is set to zero and the constraints (9) and (10) are ignored. The results of EXP1
are compared with an experiment (EXP2) where the physical and information
?ows are considered simultaneously. It is argued that the joint con?guration has
a signi?cant impact on supply chain con?guration if di?erent suppliers or 3PL
providers are selected.
4.1 Design of Experiments
A test supply chain con?guration problem is set up for the experimental pur-
poses. The dimensions of this supply chain are given by N
p
= 10, N
c
= 30, N
v
=
8, N
l
= 3 and N
s
= 10. The services should provide seven functions. The services
vary from highly specialized providing just one function to aggregators providing
all functions. Some of the services are available in all countries while others are
limited just to selected countries. The demand is randomly generated. However,
the average demand for certain products is country dependent, and some supplier
are able to produce these cheaper than others. The QoS characteristics are also
randomly generated thought they are correlated with a number of functions the
service provides (i.e., than more functions than worse performance). The model
is solved using a commercially available mathematical programing software.
4.2 Results
The experiments EXP1 and EXP2 are carried out for the test supply chain.
Fig. 4 shows all supply chain unit evaluated during the con?guration and the
units selected are shaded. P
?
= R ? C
1
? C
2
? C
3
measures the supply chain
performance in each experiments. It can be observed that di?erent supply chain
con?gurations are obtained in both experiments. In EXP1, the supply chain is
able to serve all customers. The electronic information ?ows are provided by
a combination of three web services and a 3PL provider, which provides more
uniform delivery costs around the world, is selected. In EXP2, the information
processing is performed by a single aggregator, which covers all but four coun-
tries. One additional supplier is present in the results of EXP1 compared to the
results of EXP2. This supplier is able to supply all products but it specializes in
the products most frequently order by the customers in the countries not served
in EXP2. The supply chain performance is substantially a?ected by taking into
account interdependencies between the physical and information ?ows for the
given test supply chain.
Fig. 4. The supply chain con?gurations obtained in experiments EXP1 and EXP2
The relative value of the weight factor w
2
characterizing the importance of
QoS criteria in optimization is varied in order to evaluate sensitive of the results.
The test supply chain used in the paper is quite insensitive to this factor. The
QoS criteria had signi?cant impact on the con?guration results only for values
w
2
exceeding 10
5
(the cost related factors and quality related factors have vastly
di?erent scales).
5 Conclusion
A model for joint optimization of the physical and information ?ows in e-retailing
supply chains has been elaborated. The model ensures that the physical supply
chain units have appropriate information processing capabilities at their disposal.
The importance of the joint optimization increases along with a growing number
of electronic services available over the Internet.
The formulated optimization model de?nes relationships between the physi-
cal and information ?ows and takes into account QoS requirements for e?cient
information processing. Preliminary experimental results show that the infor-
mation ?ows indeed a?ect selection of appropriate physical supply chain units.
However, the QoS requirements have minor impact of the supply chain con?gu-
ration decisions for the test supply chain analyzed in the paper. An alternative
approach to including QoS criteria directly in the objective model would speci?-
cation of minimum quality requirements in the form of constraints. That would
also alleviate the problem of selecting appropriate weights for multi-criteria op-
timization. The QoS characteristics also have impact on customer demand what
could also be represented in the optimization model.
References
1. Lambert, D.M., Cooper, M.C., Pagh, J.D.: Supply Chain Management: Implemen-
tation Issues and Research Opportunities, International Journal of Logistics Man-
agement, The, Vol. 9 Iss: 2, pp.1 - 20 (1998)
2. Chandra, C., Grabis, J.: Supply Chain Con?guration: Concepts, Solutions, and Ap-
plications, Springer: New York (2008)
3. Melo, M.T., Nickel, S., Saldanha-da-Gama, F.: Facility location and supply chain
management - A review, European Journal of Operational Research, vol. 196, no.
2, pp. 401-412 (2009)
4. Strunk, A.: QoS-aware service composition: A survey, Proceedings of the 8th IEEE
European Conference on Web Services, ECOWS 2010, pp. 67-74 (2010)
5. Lee, H.L., Whang, S.: Information sharing in a supply chain. International Journal
of Technology Management 20, 373-387 (2000)
6. Klein, R., Rai, A.: Inter?rm strategic information ?ows in logistics supply chain
relationships. MIS Quarterly: Management Information Systems 33, 735-762 (2009)
7. Swaminathan, J.M., Tayur, S.R.: Models for supply chains in e-business. Manage-
ment Science 49, 1387-1406 (2003)
8. Hernandez, B., Jimenez, J.,Martin, M.J.: Key website factors in e-business strategy.
International Journal of Information Management 29, 362-371 (2009)
9. Trappey, C.V., Trappey, A.J.C., Lin, G.Y.P., Liu, C.S., Lee, W.T.: Business and
logistics hub integration to facilitate global supply chain linkage. Proceedings of the
Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture
221, 1221-1233 (2007)
10. Candido, G., Barata, J., Colombo, A.W., Jammes, F.: SOA in recon?gurable sup-
ply chains: A research roadmap. Engineering Applications of Arti?cial Intelligence
22, 939-949 (2009)
11. Chopra, S., Meindl, P.: Supply Chain Management: London, Prentice Hall (2012)
doc_788045614.pdf