2009 ISECS International Colloquium on Computing, Communication, Control, and Management

Information Sharing Model of Supply Chain Based on Third Party Logistics Providers

Shang Yingzhao
School of Management Huazhong University of Science and Technology Wuhan, P.R.China rennanping@126.com
Abstract-Supply chain fulfills its customers demand by a network of companies, mainly consisting of suppliers, manufacturers and third party logistics providers (thereafter 3PLs). Firstly, the related literatures are reviewed. And based on Venn diagram, the information sharing mechanism is analyzed to indicate the relationship between the different shared information. Moreover, three information-sharing models are proposed and analyzed, which are the point-topoint model, the interface model, and the integrated manage model. Integrated with the aforementioned analysis, the view is provided to select the matching information sharing model under different conditions. The paper ends with a discussion of directions for future research. Keywords-Information sharing; Supply chain; Venn diagram; 3PLs

Liang Jing
School of Management Huazhong University of Science and Technology Wuhan, P.R.China yx1161@126.com effectively. Two main means are information sharing and flows coordination in the chain (Sahin and Robinson, 2002). This paper began by reviewing the literatures about information sharing model. Then a Venn diagram was presented to analyze the structure of information sharing between different partners. The following sections designed and discussed three models of information sharing, that are the point-to-point model, the interface model, and the integrated manage model. The concluding section summarized the important ideas of the paper and provided general comments and implication for further research. II. LITERATURE REVIEW Many researchers investigate information sharing in SCM theoretically, that is often considered as a good solution for SCM and Supply Chain Coordination (Forrester, 1958, 1961; Lee et al., 1997a and 1997b; Simchi-Levi, Kamin-sky, and Simchi-Levi, 2000; Lee and Whang, 2000;Zhao, Xie, and Zhao, Xie and Leung, 2002). Stank et al. (1999) studied inter-firm coordination processes in food industry supply chains, which one characterization is information exchange. Simatupang et al. (2002) identified four different modes of coordination which including information sharing. Chen (2002) described that information sharing is an integral part of any coordination effort. Zhao and Xie (2002) investigated the impact of forecasting errors and information sharing on the performance of a supply chain, and examine the impact of forecasting errors on the value of information sharing between retailers and a supplier. Li et al. (2004) integrated the bullwhip effect in supply chains and the validity of the production-smoothing model, and then a reasonable explanation for practical problem in the information transfer process is suggested. Lee and Whang (2000) dealt with the types of the shared information include inventory, sales, demand forecast, order status and production schedule. Then they discussed three alternative system models from industry examples. Although the characteristics of these models were discussed, the implementation environment and specific measures was ignored. Although a number of papers have been published in general area of information sharing in SCM, little work has been carried out for how information sharing to be implemented or how information sharing model to be designed. Moreover, there has been little effort to identify the key processes and areas where inter-organization

I.

INTRODUCTION

Information sharing is at the heart of supply chain management (thereafter SCM). Information sharing among buyers and suppliers is a fundamental requirement for effective supply chain management (Handfield and Nichols, 1999). Information sharing is the most factors for successful SCM. With the development of information technology, the market competitions are so intensified and the demands from the customers are increasing sharply (Kwon and Suh, 2004). Thus, the partners of a supply chain who ever were the rivals for respective benefits have realized that business management has entered the era of Internet competition. To win the maximal chain-wide profits and to improve their competitive power, the partners must coordinate with each other effectively and efficiency. Luckily, advanced information technologies make it more possible and available to get more useful information to support coordination in Supply Chain Management (SCM). A supply chain partnership entails intensive but selective information sharing and joint improvement activities (Liker and Choi 2004). Information sharing is distinguished between two levels: (1) purchasing information sharing here the buyer only shares tactical information, e.g. purchase orders; and (2) supply chain information sharing the supplier has access to strategic information, such as buyers inventory levels, sales forecasts, production schedules, etc. With the help of wide application of advanced information technology, one can cooperate with another in the same chain more easily and

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shared information concentrated based on the different characters of the chains. Shared information among the partners would improve the supply chain operation. However, it is not enough to ensure the whole chain operating in the optimal state and to implement the maximal profit only by transferring data and sharing information in the relation network consisting of the all partners. Sahin and Robinson (2002) presented the performance of the supply chain can be only sub-optimal when there is lack of coordination, even under conditions of full information. Therefore, they focus their attention on the interfaces between information sharing and physical flow coordination at the operational level. Lee (2000) considered the coordination mode due to process realignment but said nothing about combining different modes. There is a generally accepted theory concerning that logistics outsource is a obvious trend in SCM (Remko and Hoek, 1998; Sahin and Robinson, 2002; Huiskonen and Pirttilak, 2002), and more and more third party logistics providers (3PLs) have joined in the operation processes of the supply chain indispensably. However, there is less work addressed in this type of supply chain, which includes 3PLs. From a literature overview, most of existing researches focus on the generic supply chains which consist of material suppliers, manufacturers, wholesalers, retailers and ultimate customers (Forrester, 1958, 1961; Lee et al., 1997a and 1997b; Lambert and Cooper, 2000; Zhao and Xie, 2002; Sahin and Robinson, 2002; Li et al,2004), but except 3PLs. Since the system functions are decided by system structure, information sharing model, as an important and necessary part of supply chain operation, will be lie on the type of the supply chain structure. Moreover different information demands would lead to different supply chains structures, and the information sharing model and its application process will be decided and affected by the structures. In the following sections, Venn diagram is presented to analyze the areas of information sharing between different partners. III. MECHANISM OF INFORMATION SHARING BASED ON VENN DIAGRAM

information sharing and the middle levels in which partial information sharing occurs between these aforementioned two extremes (Sahin and Robinson, 2002). The model extends the amount of partners who join in the information sharing from two to three and considers they are in full information sharing.
Up stream Down stream

Supplier

Manufacturer

3PLs Physical Flow Financial Flow Information Flow

Fig 1. A two-stage supply chain model with 3PLs

B. Mechanism analysis based on Venn diagram model Based on the before-mentioned hypothesis, a Venn diagram is developed in order to analyze the shared information between the partners clearly (shown in Fig.2, the overlap areas are where the information shared). The model is presented as following:

E S T M

Fig 2. The Venn diagram model

A. Mechanism Hypothesis To analyze the supply chain based on 3PLs simply and easily, a two-level model with a single supplier (S), a single manufacturer (M) and a 3PLs (T) is considered, which including the flows of physical, information and financial (shown in Fig.1). In Figure 1, the reverse logistics and the influx of the logistics fee into 3PLs are not considered. Thus, the financial flow only refers the manufactures purchase fee. When the supplier and manufacture outsource their logistics to 3PLs who providing the logistics infrastructure and the especial logistics service for them, it is supposed that the unit logistics service fee is stationary and it occupies little in the unit cost so that it can be ignored in our discussion. To improve the whole performance of the chain, the partners need coordinate with each other. The distinct levers of information sharing would affect the result of coordination, and it is considered that information sharing can occur at following levels in the paper: no information sharing, full

E: whole information in the supply chain Ii: interior information of i and all correlative exterior information that it could be provided by i,

i {supplier,manufaturer,3PLs}

SIijk : shared information among i, j and k. Moreover, if some information wouldnt be shared with other partners, the subscript could be ignored. So when i = j = k , SI ijk is
shorted as SI i , and SI i = I i . If i j k , then SI ijk means shared information among the dissimilar partners which are i, j and k, and i, j , k {supplier,manufaturer,3PLs} . Then, there are some relative as following:

SI sm = ( I s I m )

SI st = ( I s I t )
SI mt = ( I m I t )

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SI sm : shared information between the supplier and the manufacturer, such as sales, inventory level, demand forecast, order status, production schedule and capacity. Under the full information sharing, it especially includes the respective estimate feedback from the members of the focal companys supply chain (Lambert and Cooper, 2000) about the 3PLs. It is significant to the supplier and manufacturer that they could monitor and control the activity of the 3PLs more effective and reduce the degree of the information asymmetries between them and the 3PLs. SI st : shared information between the supplier and the 3PLs, such as logistics capacity, equipment, shipping freight, transportation availability and quantity discount, inventory cycle, inventory costs, inventory levels, order operating status, order shipped complete, freight status and cost, and so on. SI mt : shared information between the manufacturer and the 3PLs, such as order operating status, order shipped complete, inventory cycle, transit time, transit quantity and so on. SI smt : shared information among the triplet, that means:

A. The point-to-point model At the point-to-point model, partners are linked each other directly, they may implement it by the EDI system, email, telephone, fax or even manpower. It is convenient, and the partners could achieve quick response to others. However, it is lower inefficient. For example, trade information under the same standard conditions is transferred between partners by EDI (shown in Fig 3). The EDI system would complete the information process and transfer automatically. However, all of partners would use the EDI system, and the types of shared information are limited by the EDI system. B. The interface model The interface model is based on Internet and WWW technology. It is extended from the interior information system. Considering the safety of interior system and the demands of information sharing at the same time, no company would open its interior databases directly to their partners, but as a substitute, an exterior database is established. The exterior database is outside of the system firewalls and stores the data from the interior information system, which is processed in advance (shown in Fig. 4).

SI smt = I s I m I t = SI sm SI mt SI st
When SIsmt , that means some information are always shared. In other words, based on the numbers of the information sharing partners, every SI ij is sorted by two
' parts, one is SI ij and the other is SI ijk . That is,

s t T

' SI ij = ( I i I j ) SI ijk = SI ij SI ijk

m Fig 4. The exterior database model

i, j , k {supplier,manufaturer,3PLs}
According to the amount of partners who join in the information sharing, all shared information (SI) could be sorted into shared information between two partners (SI-2, such as SI sm , SI mt and SI st ) and shared information among three partners (SI-3, such as SIsmt ). According to the proper permission, exterior users could visit and operate the exterior database to get the shared information and update or rewrite the data. After checking or processing the data from the exterior database by some data standards and rules, the effective and useful data will store into the interior database. It will be a bother and timeconsuming work to search, transmit, and process useful information where are many partners. And it is a complicated and intractable work to build the matching interface between different databases. C. The integrated manage model This model develops from the interface model, and it only replaces multi-exterior- databases by a public database (shown in Fig 5). There is a public database and a set of unification standard in this model. The public database provider (PDP, it would be a third party information provider or the core company in the chain, but it is nothing to our discussion.) offers some types of information service to the partners. The service would be common or especial ordered in advance by the parteners. In terms of symbiosis and the standards, partners transmit, store, process their shared information in this model.

M
EDI EDI

S
EDI

Fig3. The point to - point model

IV.

THREE MODELS OF INFORMATION SHARING

From Fig.2, the shared information occurs among two or three partners. For analytical simplicity without loss of generality, we consider three partners joining in the information sharing process. So three types of the information sharing model among three partners (S, M, T) are presented as the following: the point-to-point model, the interface model, and the integrated manage model.

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Based on the web, a net-database would be adopted reasonably. Therefore, the PDP mostly maintains the public database operation and develop more new functional modules to insure security and integrality of the data.

certain standards. It is undoubted that is a formidable challenge in the future. VI.

CONCLUSION

S Public database M Fig 5. The information platform model T

V.

COMPARISON AND CHOICE OF MODELS

In the point-to-point model and in the EDI system, data is exchanged directly between the interior databases. The main shared information is business documents and bill of document. It will avoid repeated putting the same data into the same database and shorten down the order process time. Partners should obey the uniform business schema and standard to ensure data integrity, consistency and reliability in the transmitting process. The model has certain faulttolerance and extension ability. However, it needs a set of especial devices and individual line. The highly setting cost and maintained expenses arent afforded by most of the minor enterprises. Fortunately, with the development of the Internet technology, the EDI based on Internet is used in minor enterprises more widely instead of high-cost VAN. This model fits to share some improtant information belong to SI-2. The interface model is based on the Internet and the WWW technology, so the setting cost is lower and the application is easy correspondingly. So this model fits to share any type information of SI. However, an additional exterior shared database should be built and data process must be processed so that there is an additional setting cost and expenditures. Furthermore, it is inevitable to affect the transmitting speed of information in the reasonable range so that there is information delay. And it is difficult and complex to bulid the multi-interfaces between partners and to implement the integration of multi-systems. The integrated manage model has high demand for information technology level and capacity of the PDP. It is not only exchanged data by interface, but also integrated the data from the different information sources. In this model, PDP and the partners just are co-workers. Therefore, this model demands highly for the credit of PDP. It can integrate data with a set of interface standard and other data receipt approaches that are provided by information platform, such as existent and being constructed public logistics information platform, which planed and built by all levels government in China. Thus, this model especially fits to share SI-3. It demands highly for the information technology level and device of PDP, and the professional programmers are asked to integrate the different information systems by some

The competitions among the different organizations have changed into the competitions among the supply chains. This paper attempts to analyze the effect of a supply chain information sharing and the information sharing models, which are considered 3PLs in SCM. Without regard to 3PLs, the flows of information, materials, money, manpower, and capital equipment only between upsteam and downsteam member generally are considered (Forrest,1958). When logistics outsourcing is becoming a growing stream in industry, we couldnt lose sight of them in SCM. As a result, 3PLs play more important roles in SCM, and consequently affect the flows among the chain. The requirements of sharing information and their characteristics in this type supply chain which including 3PLs are analyzed and three information-sharing models are proposed and analyzed in this paper. However, there are many open research issues that remain to be examined. First, while our model focuses on a supplier, a manufacturer and a single 3PLs, exactly the same model can be used to analyze the process of information sharing with multiple 3PLs. Secondly, we only consider a two-level model of this type of supply chain, and it need to extend the whole chain. Next, there are several issues about our models deserving further study. How to select the proper information sharing model according to the practice demand of information and the limitation of the information systems? How to design and implement the whole and the local model synthetically? How to adjust and update the models in the different supply chain lifecycle? All the problems need to research in the future. REFERENCES
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