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Production Planning & Control, Vol. 15, No. 6, September 2004, 584–595

Virtual supply-chain management A. GUNASEKARAN and E. W. T. NGAI

Keywords Logistics, virtual supply chain, critical success factors Abstract. In global business competition, companies believe greater transparency in supply-chain operations and collaboration is very important for success. Transparency brings accountability and responsibility. This openness in the supply-chain

allows companies to see how their suppliers are performing, from their sourcing of raw materials to their delivery to the retail outlet. Achieving greater transparency in the supply chain requires the development of comprehensive e-Logistics tools, which provide all players with open communication and shared information in every stage of the order-to-delivery process. Supply-chain transparency in ordering, inventory and transportation is a prerequisite for optimization and is critical

Authors: A. Gunasekaran (corresponding author), Department of Management, University of Massachusetts, North Dartmouth, MA 02747-2300, USA. E-mail: [email protected]. E. W. T. Ngai, Department of Management and Marketing, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PR China. ANGAPPA GUNASEKARAN is a Professor of Operations Management in the Department of Management at the Charlton College of Business, University of Massachusetts, Dartmouth. Dr Gunasekaran has held academic positions at Brunel University (UK), Monash University (Australia), the University of Vaasa (Finland), the University of Madras (India), and the University of Toronto, Laval University and Concordia University (Canada). He is teaching undergraduate and graduate courses in operations management and management science. Dr Gunasekaran has received the Thomas J. Higginson Award for Excellence in Teaching (2001– 2002) within the Charlton College of Business. He has over 150 articles published in 40 different peer-reviewed journals that include International Journal of Operations and Production Management, International Journal of Production Research, Production and Inventory Management Journal, European Journal of Operational Research and Computers and Industrial Engineering. He has presented about 50 papers and published 50 articles in conferences and given a number of invited talks in about 20 countries. He has received an Outstanding Paper Award from Managerial Auditing Journal for the year 2002. Dr Gunasekaran is on the Editorial Board of over 20 journals that include Production Planning and Control, Journal of Operations Management, International Journal of Production Economics, International Journal of Computer-integrated Manufacturing, International Journal of Operations and Production Management, Technovation and Computers in Industry: An International Journal. Dr Gunasekaran is involved with several national and international collaborative projects that are funded by both private and government agencies. He has organized several international workshops and conferences in the emerging areas of operations management and information systems. Dr Gunasekaran has edited a couple of books that include Agile Manufacturing: The 21st Century Competitive Strategy (Elsevier) and Knowledge and Information Technology Management: Human and Social Perspectives (Idea Group Publishing). Dr Gunasekaran is the Editor of Benchmarking: An International Journal and the North American Editor of Supply Chain Management: An International Journal. He has edited special issues for a number of highly reputed journals and some of them include: European Journal of Operational Research, Business Process Management Journal, Information Systems Journal, Logistics Information Management, International Journal of Operations and Production Management, International Journal of Production Economics and Journal of Operational Research Society. Dr Gunasekaran is currently interested in researching benchmarking, agile manufacturing, management information systems, eCommerce (B2B), information technology/systems evaluation, performance measures and metrics in new economy, technology management, logistics, supply-chain management and total quality management. He actively serves on several university committees.

Production Planning & Control ISSN 0953–7287 print/ISSN 1366–5871 online # 2004 Taylor & Francis Ltd http://www.tandf.co.uk/journals DOI: 10.1080/09537280412331283955

Virtual supply-chain management

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ERIC W. T. NGAI is currently an Associate Professor in the Department of Management and Marketing at The Hong Kong Polytechnic University. His current research interests are in the areas of electronic commerce, decision support systems and e-Supply-chain management. He has published in a number of journals including IEEE Transactions on Systems, Man and Cybernetics, Information and Management, Expert Systems, Expert Systems and Applications, International Journal of Operations and Production Management, Omega, Transportation Research and others. He serves as an associate editor for the International Journal of Enterprise Information Systems and is on the Editorial Board of International Journal of Production Research. Dr Eric Ngai has received the Faculty Award for Outstanding Performance/Achievement in Teaching (2003–2004).

for making business decisions. In this paper, the experiences of a virtual supply-chain (VSC) company are discussed with reference to the strategies, methods and technologies of its supply-chain. The supply-chain aims for improved customer satisfaction and hence for overall competitiveness in a global market. This discussion will be useful for other companies intending to emulate some of the critical success factors in VSC management.

1. Introduction The emergence of e-Commerce and information communication technologies has enabled companies to be flexible and responsive to changing market requirements. The new millennium has brought new information technologies and organizational environments, resulting in an electronic supply-chain (ESC). The ESC links trading partners through various information technologies– including the internet and/or electronic data interchange (EDI)–to allow them to buy, sell and move products, services and cash. The traditional methods of logistics control are increasingly incapable of managing the dynamics of contemporary logistics service requirements (Deborah 1997, Calza and Passaro 1997, Razaaque and Chang 1998, Ballou 1999, Angeles 2000, Arlbjorn and Halldorsson 2002). The rapid proliferation of e-Commerce requires a new approach; in particular, flexibility in the supply-chain is needed. To provide speed to market and fast, flexible responses to customer needs, a new supply-chain environment is needed. Supply-chain management (SCM) is a method for integrating a manufacturer’s operations with those of all of its suppliers and customers and their intermediaries. SCM seeks to integrate the relationships and operations of several-tier suppliers in meeting requirements–such as quantity, delivery and the timely exchange of information. Firms that embrace SCM also solicit ideas from key suppliers and involve them directly in new product development processes. By managing supply-chain costs and linking supplier capabilities to new product development, the corporate performance objectives in many organizations are advanced (Gurin 2000). In today’s highly competitive environment, many companies are becoming global to increase sales, profit

and market share, and to take advantage of efficiencies in production and sourcing. A key determinant of business performance is the role of logistics in ensuring a smooth flow of materials, products and information throughout a company’s supply-chains (Sum et al. 2001). Logistics have thus become recognized as a critical factor in achieving competitive advantage (Christopher 1992, 1997, Bowersox and Daugherty 1995, Bowersox and Closs 1996). In this context, ‘enterprise logistics’ have three key properties: (i) the ability to provide a seamless delivery process; (ii) the ability to track materials as they are in transit; and (iii) the ability to adjust transportation agreements based on specific customer demands (Greis and Kasarda 1997). Logistics have been defined by Daskin (1985) as ‘the design and operations of the physical, managerial, and informational systems needed to allow goods to overcome time and space’. Another definition promulgated by the Council of Logistics Management (Ballou 1999: 4) is as follows: the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of confirming to customer requirements. The supply-chain is an integrated business model for logistics management. It covers the flow of goods from suppliers through manufacturing and distribution chains to the end consumer. Christopher (1992) has suggested that the real competition is not company against company, but supply-chain against supply-chain. In recent years, information systems (ISs) have been seen as more than simply resources that support various business processes (Alshawi 2001). Feraud (1998) has pointed out similarities in the objectives of strategic management of information technology and of logistics information management. Some researchers (for example, Cooper 1994, Christopher 1997) have explained the close links between information systems and the management of logistics. In the present paper, the importance of virtual supply-chain (VSC) management in global competitiveness is highlighted, along with the implications of information sys-

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tems in logistics management. A case study conducted with a supply-chain company in Hong Kong is presented with the objective of elucidating the critical success factors in the VSC. These factors would be helpful to other companies seeking to emulate the success of LINE. The organization of the paper is as follows. Section 2 presents the background for the research. Section 3 presents a conceptual model for VSC management. Section 4 examines a case study and section 5 summarizes the findings.

2. Background of research In the new economy, the focus has been on: (i) building on core strengths; (ii) provision of real-time information; (iii) globalizing service demand; (iv) visibility of key performance indicators; (v) collaboration in supply-chain operation; and (vi) e-Commerce development. The main objective of SCM is to integrate processes with a view to reducing waste (defective products, inventory, idle capacity due to failures, and so forth), reducing order-to-delivery cycle times, and developing a flexible response throughout the supply-chain. Waste can be reduced within the supply-chain by three primary means: (i) minimizing duplication, (ii) achieving a level of uniformity among operations and systems; and (iii) increasing quality. Williams et al. (2002) explored traditional SCM and electronic supply-chain management, and noted the resulting effect on strategic alliances and partnerships. The core characteristic of the electronic supply-chain was identified as flexibility. Virtual organizations (also referred to as agile, outsourced or seamless organizations) have been defined in various ways in the literature. Greis and Kasarda (1997) defined them as ‘legally separate but operationally interdependent companies focused on responding to a market opportunity’. Virtual organizations create a network of suppliers, manufacturers and administrative services to accomplish specific objectives, such as flexibility and responsiveness (Fitzpatrick and Burke 2000). Successful SCM requires a change from managing individual functions to integrating activities into the key supply-chain processes. Serve et al. (2002) discussed the merits of supply-chain and business-to-business (B2B), and the impacts that they have on each other. They employed the concept of B2B marketplaces as the participating units in a supply-chain process in order to enhance the business process. Virtual enterprises can use this extended form of supply-chain as building blocks. An effective supply-chain will have a number of benefits. It will increase inventory turnover, increase customer service and responsiveness, reduce costs associated with

inefficient logistics management, increase returns on assets, streamline purchasing procedures, and improve forecast and central planning abilities. Open communication and cooperative supported work can achieve these benefits. According to Serve et al. (2002), electronic connectivity will enable supply-chain integration to execute crossenterprise activities and to coordinate the operations of collaborating firms. As a result, electronic connectivity will move firms from using enterprise-centric supplychains (in which an enterprise drives multiple processes) to synchronized electronically connected supply-chains (in which one process drives more than a single enterprise). The benefits of developing supply-chain efficiencies using B2B are many. Collaboration among supply-chain vendors improves demand forecasts, promotes efficient inventory management and reduces cycle times. The internet provides the benefits of centralized data and real-time feedback with a more economical architecture. These benefits require an industrystandard web browser (for example, Internet Explorer), and businesses are progressing in the development of such a tool. They can use the internet to market and sell products, communicate with customers and electronically link with business partners (Del Vecchio 2000). An effective SCM, in terms of strategies and operations, is essential for a successful company. SCM can reach beyond the boundaries of a single company to share information among suppliers, manufacturers, distributors and retailers. The internet plays a major role in this sharing. The ability to focus on one layer of the supply-chain has enabled organizations (such as American-On-Line (AOL) and lastminute.com) to be innovative. The attempt to develop VSC architecture focuses on the importance of knowledge and intellect in creating value (Graham and Hardaker 2000). The growth of web-based electronic commerce has created a number of approaches for modelling how e-Commerce affects business. Multiple interactions can be seen from three company perspectives: (i) B2B; (ii) business-to-consumer (B2C); and (iii) marketplace (M). B2B space includes the myriad upstream and downstream transactions that enhance channel coordination and customer relationships. B2C encompasses all interactions between the customer and firm. M involves the company, its partners and its customers. M provides opportunities for developing communication interactions–including customer surveys and information exchange on such things as product warranty and service capabilities. The web enables all suppliers in a supply-chain to identify and coordinate data transfers with each other. Chiu (1995) discussed the integration of IT with logistics management concepts and identified the critical success factors in effective logistics management

Virtual supply-chain management as including: (i) effective logistics planning; (ii) welldesigned distribution organization; (iii) prudent selection of allied companies; (iv) a close relationship with trading partners; (v) good logistics investment analysis; (vi) logistics management barriers elimination; (vii) top management commitment; and (viii) continuous improvement in logistics. The web platform has several advantages and overcomes some traditional problems. These include: (i) real-time inventory information; (ii) single data entry to minimize human error (because the data input is handled by customers and thus there is no need for re-entry); (iii) real-time online ordering functions; and (iv) multi-level password controls (so that different functions have different access levels controlled by their respective authorized people). Feraud (1998) has presented a framework for improving strategic decisionmaking in logistics information management. Ligon et al. (1992) discussed the role of EDI in logistics services. Peng and Vellenga (1993) highlighted the importance of government support in promoting logistics services with reference to China. Several researchers have dealt with logistics issues in a global perspective (Gary and Davies 1991, Welch and Nayak 1992, Wyatt 1992, Fawcett et al. 1993, Handfield 1994, Quinn and Hilmer 1994). The areas of e-Logistics and logistics business process outsourcing are subsets of this larger external logistics market.

3. A conceptual model for VSC The supply-chain consists of the logistical and informational elements extending from the demands of the marketplace at one end to the specific product/service delivery to the customer at the other. The integrated supply-chain structure seeks to minimize non-valueadded activities and their associated structures. This drives investment cost, operating cost and time out of the supply-chain process (Stewart 1995). Van Hoek (2001) has argued that simply building a customer-facing web environment is not very difficult, but managing it with an underlying business model that includes an e-Supply-chain is challenging. Experts claim that supply-chain failures can be attributed to a lack of information with respect to order and inventory management. Companies such as Amazon.com, ebay.com, FedEx.com, bestbuy.com, hotels.com, buy.com, and so forth, have websites in which orders can be received 24 hours per day from anywhere in the world. Unfortunately, their systems are inadequate when it comes to fulfilling the orders. A VSC represents a temporary network of firms coming together to exploit fast-changing opportunities

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(Strader et al. 1998). This involves an alliance of separate firms that can quickly bring together a set of core competencies to take advantage of a market opportunity. Depending upon future business objectives, the alliance might change. VSCs are enabled by an information infrastructure of continually improving technology. The marriage of supply-chain and e-Commerce achieves competitive advantages and market dominance. The internet plays a very important role in the networked economy. For example, online ordering on the web is directly connected to production planning. The production plan is shared with suppliers who receive orders in real-time from the original equipment manufacturer, using the supply-chain-wide information infrastructure. Information is used not only for operational ordering purposes, but also as a strategic, long-term resource for competitiveness and further innovation in the supply-chain. Stored customer information can also be used for datamining and customer profiling (van Hoek 2001). Virtual integration allows interaction with customers, networked trading partners and suppliers. This works effectively with the support of internet-based portal technologies, such as eXtensible Markup Language (XML) and Electronic Business using eXtensible Markup Language (ebXML), which allow structured and unstructured data from networked trading partners to be accessed from a common interface. The VSC is based on business alliances using such internet technologies. Virtual logistics resources can be traded in much the same way as banks and individuals trade foreign currencies and shares. Using computer applications and the internet, it becomes feasible to do this at a very low level in logistics operations. Such resources include production processes, production sub-processes, tools, vehicles, spare vehicle capacity, material-handling equipment, stock items parts, or even slots in a warehouse. These resources can be purchased, utilized remotely, and lent or sold when surplus to requirements. Information technologies are designed to coordinate a smooth flow of information, goods, cash and other services across the supply-chain. Logistic systems can then be constructed by purchasing the appropriate portfolio of resources and such a portfolio can be adjusted easily and rapidly to reflect changes in demand, changes in markets or changes in products (Clarke 1998). A conceptual model that explains the VSC is presented in figure 1. The VSC is based on developing a suitable network of collaborating firms depending on various resource requirements. The chain starts from market/ customer demands and continues until these demands are fulfilled. The VSC has four phases along the valueadding processes: (i) plan; (ii) source; (iii) make; and (iv) deliver. Each phase has its own information system modules that are integrated with other phases of the

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A. Gunasekaran and E. W. T. Ngai Information Flow

B2C, B2B, B2G & M

Market/Customer Demands

Plan

Source

Network planning, Data mining, Collaborative planning, Market Intelligence, Demand Forecast, Strategic alliances

Make

e-Procurement, e-Auction, e-Marketplace, Data mining, Customer relationship management

Web-based Design, MRPII, ERP, JIT, TQM and CRM

Deliver

e-Logistics, e-Payment, EDI, XML

Market/Customer Demands Fulfilled

Data Collection, Information Processing and Information Sharing, Internet, Intranet and Extranet

Company infrastructure, Human resource management, Management of technology, Procurement, Computer skills, Bar coding and scanning, Warehousing exhibition, Fleet utilization system, Inventory management system

Network of Firms

Materials Flow Figure 1. A conceptual model for a virtual supply-chain.

value chain. Various information technologies and systems have been used for this purpose, including B2C, B2B and M. Two major management tasks are the developing of partnerships based on core competencies and of resource requirements to satisfy market requirements. The integration of supply-chains can be achieved by: (i) communication, information systems; (ii) training and education; (iii) performance measures and rewards; and (iv) strategic plan. B2C, B2B, business-to-government (B2G) and Marketspace (http://www.marketspace.org.uk/) facilitate data collection, information processing and information sharing using communication technologies such as EDI,

internet, intranet and extranet. These information systems act as platforms for the integration of several of the phases (plan, source, make and deliver) of the supplychain with the objective of promoting open communication among partners. In VSCs, a network of firms provides different products or services so that a complete service can be performed by the virtual organization. The network of firms is based on various strategic considerations and resource requirements, which include: (i) company infrastructure; (ii) human resource management; (iii) management of technology; (iv) procurement; (v) computer skills; (vi) bar coding and scanning technologies; (vii) warehousing exhibition; (viii) fleet

Virtual supply-chain management utilization systems; and (ix) inventory management systems. Information flows in both ways along the VSC, but the materials flow in only one direction, except for product returns.

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B2B can reduce purchasing costs. This is because locating goods and completing the necessary paper work are labour-intensive processes (Serve et al. 2002).

3.3. Make 3.1. Plan At this phase of the supply-chain, data on customer orders or sales forecasts from the marketing department are processed for product development and management. Customer relationship management (CRM) and B2C are used for information processing and making decisions. B2B helps to increase the market intelligence and decrease the inventory level. Major tasks at this stage include network planning, data mining and collaborative planning with suppliers and customers about the market and the resources required. The issue of strategic alliance plays an important role in planning for the VSC environment. Obviously, demand drives all supply-chain activities; accurate forecasting of market requirements using B2C, CRM and B2B is thus essential for effective VSC management. Firms must plan to focus on customer demand, satisfaction and retention. By using web-based information systems and data-mining techniques, customer and supplier profiling can be done accurately. With the help of enterprise resource planning (ERP) systems, the manufacturing cycle time and the cost of production can also be estimated. Moreover, various experiments could be conducted to select the optimal decisions in different areas of the VSC. In addition, company infrastructure should be taken into account while planning for the activities in a VSC.

3.2. Source In this phase of the supply chain, the volume forecasts for products are used to determine the different resources required–including raw materials, components and parts, and sub-assemblies. Then suppliers for these resources are selected, based on pre-determined criteria. B2B e-Commerce has been widely used for this purpose, including strategic supplier–partner development based on core competencies. ERP systems, such as SAP, Oracle, BAAN and Peoplesoft, are used for integration with collaborating firms. B2B helps to decrease the inventory levels. E-Auction and e-Marketplace technologies are new options that should be considered in developing a commodity sourcing strategy. Data-mining technology can be used for researching the root causes of material and information flow problems and for using this research for process improvements. The internet allows the use of just-in-time ( JIT) manufacturing techniques.

This stage involves converting raw materials and subassemblies into final products that can be accepted by customers. In VSCs, the conversion takes place in a network of firms. A material requirements planning (MRP) system integrates the various production and assembly activities in a virtual enterprise. B2B companies can quickly and easily receive price quotes from numerous suppliers by using the internet. B2B makes connections between buyers and sellers that might not otherwise have happened (Serve et al. 2002). Web-based design, engineering and process planning have been achieved with the help of computer-aided design/computer-aided manufacturing (CAD/CAM), Pro-Engineer, computer-aided process planning (CAPP) and computer-integrated manufacturing (CIM). ERP systems, such as SAP, BAAN, Peoplesoft and Oracle, have been used for advanced production planning, networking with suppliers, material requirements planning, and production control. In the make phase, customer-relationship management will be useful in developing a collaborative supported work along supplier–customer links. Operations strategies such as JIT are used to manage on-time supplies and deliveries along the supply-chain. This will lead to a reduction in non-value-adding activities and hence in the overall production cost. Business process re-engineering will help process mapping in the supply chain and provide opportunities for various IT applications (including B2B and ERP), with the aim of eliminating non-value-adding activities. Total quality management (TQM) is a workplace culture that promotes quality management in the supply-chain based on cooperation, open communication and investment in people.

3.4. Deliver Deliver deals with logistics that include warehousing, transportation, order management, installation, invoicing and cash collection. Web-based information systems, such as e-Logistics, are useful in integrating the activities concerning the logistics value chain with the objective of delivering the goods in the most cost-effective manner. This includes using the EDI, XML and ebXML technologies that link enterprises across the supply-chain and the logistics activities within those enterprises. System architecture should focus on information flow from point-of-need to point-of-use. Key data on products,

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customers, suppliers, orders, forecasting, inventory, performance reporting, order replenishment and shipment/ invoicing must be accessible at multiple points in the supply-chain and be converted to information. Within a virtual environment, information about the stock held can be accessed locally and the stock catalogue can allow for organized access to remote stock information. Internet applications can be developed that allow for efficient remote control of stock and for organized access to stock items that are geographically dispersed. To support e-Logistics, we need EDI, XML and ebXML technologies, and a way to communicate the requirements to logistics operators and customers. Furthermore, technologies–such as bar code, bar code scanners, radio frequency identification (RFID), smart cards, vision systems, and so forth–are required to support e-Logistics.

4. Case study: Logistics Information Network Enterprise (Hong Kong) In this section, a case study is presented to assess the model reported in the previous section. The present authors visited the company that is the subject of the case study and interviewed the business development manager and other key employees. A set of questions based on the theoretical model developed for VSC was used in these interviews. In addition, the authors collected data using reports made available by the company, including the company’s website resource (http://www.arena.com/ aboutus.html).

4.1. Company background Logistics Information Network Enterprise (LINE) is a provider of supply-chain and logistics solutions and collaborative networks. LINE was established in early 2000 as the supply-chain solutions and logistics services division of Hutchinson Port Holdings (HPH) Group, the world’s leading port investor, developer and operator, with operations in 15 countries throughout Asia, the Middle East, Africa, Europe and the Americas. At present, HPH operates 30 ports and a number of transportation-related service companies. LINE and HPH are backed by Hutchison Whampoa Limited (HWL), a Hong Kong-based diversified, multinational conglomerate that is part of the Li Ka-shing group of companies. LINE has its headquarters in Hong Kong and offices in the USA and Europe. It serves customers that include freight forwarders, transportation buyers and suppliers, banks, insurance companies and government agencies. Some of their major partners

include Orange, HKNet and Pacific Supernet, Caltex, bigboxx, DHL and AXA. LINE’s strategic focus has been on leveraging technology for improving communication and visibility along the value chain. The mission of LINE is to develop a global logistics network with the objective of developing partnerships between stakeholders–including clients, manufacturers and customers. 4.2. The case analysis The model developed for VSC (figure 1) can be operationalized along the four main phases of the supplychain: (i) plan; (ii) source; (iii) make; and (iv) deliver. It should be noted that LINE views the supply-chain as consisting of the following phases: (i) source; (ii) make; (iii) store; (iv) move; and (v) payment. LINE did not include a separate phase of ‘plan’ because this had already taken place when developing the virtual supply network. As a major third-party logistics (3PL) company, LINE gives due consideration to downstream logistics (distribution) operations. This explains why the delivery phase is split into two phases: (a) store and (b) move (the third and fourth stages in the LINE supply-chain noted above). Because the issue of payment is important from the perspective of achieving a VSC, the phase of ‘payment’ (the fifth stage in the LINE supply-chain noted above) has been integrated into the formal supply-chain management arrangements by LINE logistics. LINE aims to provide collaborative logistics technologies and services through a global logistics and supplychain network. The LINE logistics services network configuration is presented in figure 2. This has three major domains: (i) service providers (truckers, 3PLs and port operators); (ii) logistics services (systems and partnerships); and (iii) trading partners (brands, retailers, suppliers and factories). The LINE network integrates these three major activities into the single platform of a VSC. LINE addresses the requirements of clients by assessing the technology and culture of their operating environment. LINE has a three-layer information architecture that is presented in figure 3. This includes logistics services, systems and relationships. The systems layer is linked into five phases of the VSC: (i) source; (ii) make; (iii) store; (iv) move; and (v) pay. Implementation of the VSC has led to transparency along the logistics chain activities and an effective transportation-management system. LINE’s strategy is based on the type of industry sectors in which their solutions offer potential to add value–such as soft goods, footwear, apparel, electronics and consumer products. LINE performs value-adding activities

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Virtual supply-chain management Service Providers

Logistics Services

Truckers 3PLs Port Operators

Systems Partnership

Trading Partners Brands Retailers Suppliers Factories

Figure 2. LINE logistics services network.

Logistics Information Network Enterprises (LINE)

Systems, Logistics Services, Partnerships, Transportation Management Systems.

Source

Make

Store

Move

Pay

Figure 3. Logistics Information Network Enterprise.

to all participants along the supply-chain. The company develops an integrated logistics chain solution that takes into consideration their clients’ major brands and manufacturers. LINE utilizes a shared information system for logistics operations and collaboration. This complements the customer’s existing enterprise resource planning (ERP) and supply-chain planning and optimization systems. LINE has an integrated system for information technology and logistics processes, viz. Lead Logistics Provider (LLP). LLP acts as a single entry point that manages the entire process–utilizing the power and speed of the internet and leveraging the capabilities of multiple 3PL providers. With the LLP, a single point of customer contact for logistics services, and increased transparency and valueadded distribution centres, a reduction of 30% in leadtime and logistics cost has been achieved.

4.2.1. Source In the twenty-first century, supply-chain management is based on speed, efficiency, reducing waste, reducing cost, communication and trust. Manufacturing

companies aim for shorter cycle times and increased sharing of information. This can be seen from the collaboration among LINE, clients and customers. Earlier supplychain systems were not designed to operate in these competitive global and e-Commerce environments. In view of this, LINE has automated its supply-chain to provide a wide range of commercial and electronic documentation. This allows LINE to capture data at any point along the value chain and to manage real-time information processing. Eventually, this allows LINE to deliver the goods on time in a cost-effective manner. LINE’s logistics information system, LLP, supports the transparency and integration that is needed to achieve cross-functional and cross-enterprise integration in real time. This eliminates the communication barriers among diverse participants in the logistics and supplychain. In the past, products were designed for assembly; now, at LINE, they are designed for achieving maximum supply-chain efficiency. Utilizing the speed of the internet, a client can have access to a wide range of data about suppliers and can better manage all its suppliers with more accurate and timely information on capacity and service requirements. In addition, a client can collaborate with suppliers using the information to fulfil

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requirements of customers on time. LINE employs justin-time ( JIT) processes to manage inventories along the logistics value chain. This includes a module for data mining and e-Auction to enable customer profiling and the prioritizing of operations.

4.2.2. Make LINE views the supply-chain from the perspective of an end-to-end process, making decisions based on realtime information in a way that traditional ERP systems do not. LINE supports manufacturing productivity by making available the required materials and services at the right time, in the right quantity and at competitive prices. This allows companies to compete in a global market with multiple competitive performance objectives. It assists manufacturers of different sizes and technological sophistication who can benefit from total supply-chain integration. This helps to improve materials planning, and allows clients to optimize their operational efficiency and deliver better service to their customers. The system operates as an ERP system and integrates the activities of manufacturers and 3PL. LINE has a module for B2B e-Commerce functions along the value chain. Automation is the main strategy of LINE in its logistics operations, including value-added activities. The ‘make’ phase requires the availability of all the required materials–so that the final product is assembled and delivered to customers on time with minimum wastage of resources (including minimization of unnecessary inventory, materials handling and other related overheads).

4.2.3. Store Inventory cost reduction leads to a reduction in the overall cost of production. In view of this, LINE’s inventory module focuses on reducing inventory and thus delivering a better service to customers. LINE performs a range of value-added services–including lastminute global inventory diversions, ticketing and labelling, scan-and-pack and document preparation by strategically aligning with HPH. Clients can receive the most up-to-date information from LINE for warehouse capacity planning. In general, companies can operate with confidence when they have more accurate information about the location, volume, availability and lead-time of products. LINE has utilized the available information technology for shared communication along the logistics value chain. The information technologies used by LINE include EDI, bar code systems, smart card, XML and ebXML.

4.2.4. Move LINE transport management and allied solutions aim to optimize planning, loading and routeing. LINE’s transportation module results in estimated savings of 10–12% in transport costs. Transportation management systems (TMS) is an online solution module of LINE that is designed to improve capacity usage and to optimize freight transport costs. Companies maximize capacity usage and select the most appropriate combination of channels. LINE determines the truckload, optimizes the route, manages the warehouse and equipment, and tracks online cargo. TMS increases the utilization of the transport fleet by continuous optimal planning and by scheduling thousands of customer bookings–taking into account real-time events and the constraints of resource availability. Wireless technologies, such as cellphones and pagers, have been widely used to communicate with transportation vehicles. This improves communication with both clients and customers, and thus enhances customer service and satisfaction. 4.2.5. Payment VSC requires automation of the payment process along the logistics chain. An electronic payment system develops confidence in the VSC and transparent integration of various collaborating firms along the supply chain. LINE’s platform for exchanging information includes the placing of orders, knowledge of the status of goods, and ability to make online payments–thus enhancing customers’ confidence in the system. The LINE module also includes foreign exchange services (including credit financing) and integrates financial settlement into the supply-chain. This is achieved through an alliance with a leading provider of global online payment services. With LINE, sellers can receive payment assurance and gain access to an extensive network of logistics providers, inspection agents, financial companies and cargo insurance. 4.3. Critical success factors A summary of LINE’s strategies and technologies for VSC management is presented in table 1. The following is a summary of the critical success factors in LINE Logistics. . Strategic alliances with various logistics service providers are utilized to achieve an effective virtual chain of partners who provide different services along the supply-chain on the basis of their core competencies.

Virtual supply-chain management

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Table 1. Summary of LINE’s strategies and technologies for logistics SCM. Module Source

Make Store Move Pay

Strategies/Technologies Collaboration, Connectivity, Strategic partnership with buyers, Open communications and cost reduction and profit for all, Logistics information system and easy payment systems, Visibility, Connectivity, an internet-based SCM information system, Collaboration with suppliers, Electronic documentation, Real-time information and processing and storage of mission-critical information Single platform, Supply-chain, User-friendly real-time information for Supply-chain integration and Collaborative partners Focus on inventory reduction, Inventory visibility by real-time information system, Strategic port facilities, Wide range of value-added services, Last-minute global inventory diversions, ticketing, labelling, scan and pack, Accurate warehouse capacity with online information access, Capable-of-promising Simplest and most efficient way, Optimize planning, loading and routeing, Capacity utilization, Select the most appropriate mode for transportation, Intelligent application of LINE technologies, Optimum utilization of freight transport costs Integrated financial settlement system, Strategic alliance with global online payment services, Electronic payment, Payment assurance, and foreign exchange services including credit financing

. Joint ventures bolster cooperative supported work among firms along the supply-chain, with transparent communication being an essential part of the joint projects. . Advanced warehouse management systems enable inventory and consolidation activities to be managed more effectively, and help to keep track of physical inventories more accurately. . Web-based logistics information systems provide an open platform for exchanging information about the status of orders and opportunities for bidding. The application of real-time information facilitates effective VSC management. . Integration of all activities along the supply-chain using strategic partnerships and open communication with collaborating firms allows a focus on reducing cycle time and inventory costs. . Technological advances (such as the internet, automation in material-handling activities and EDI) play a major role in exchanging more accurate and timely information and in reducing human physical work in handling materials. In turn, this helps in avoiding conflicts between partners along the supply-chain and helps to eliminate various non-value-adding activities. . LINE is trying to achieve fourth-party logistics (4PL), and believes this to be important. Thirdparty logistics (3PL) is the management of logistic services beyond transportation. For example, this might include storage, transshipment and valueadded services (as well as the use of subcontractors). 4PL is the integration of all companies involved along the supply-chain. 4PL is the planning, steering and controlling of all logistic procedures (for example, flow of information, material and capital) by one service provider with long-term strategic objectives.

. LINE has its own audit system for monitoring the performance of SCM. Traditional performance measures and metrics might not be applicable for measuring the performance of VSC. For example, information productivity is important in VSC effectiveness, as is the ability to develop partnership based on core competencies. Key performance indicators (such as order fulfilment time, strategic alignment and information productivity) help to manage VSC more productively. . LINE looks at everything from the perspective of order fulfilment. Order fulfilment drives all supply-chain activities. Reducing the time needed to fulfil the order motivates companies to focus on developing an integrated value chain with the help of a network of partners and information technologies.

5. Summary and conclusions The objectives of supply-chain improvement processes are to achieve waste reduction, order-to-delivery cycletime reduction, quality improvement and enhanced supply-chain performance. These objectives are attained through intrafirm and interfirm functional integration, sharing and cooperation. The company that is most closely aligned with consumers will eventually become the channel master, and will control its supply chain. In this paper, an attempt has been made to study the implications of VSC through a literature survey, the development of a conceptual framework for VSC, and the testing of that framework through a case study of a company in Hong Kong. The conceptual model presented here will enable managers to understand the value

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of the components: (i) plan; (ii) source; (iii) make; and (iv) deliver. The application of VSC will definitely benefit business processes by eliminating the weaknesses inherent in the traditional supply-chain. The virtual supply chain allows resources to be treated as commodities that can be lent, borrowed or traded. They can thus be flexibly consolidated, apportioned and allocated. The success of the VSC hinges upon the application of a real-time logistics information system to improve communication along the supply-chain. The major challenge in developing a VSC is networking and relationship management. For managing the VSC, key performance indicators for the success of networking and relationship management need to be determined. Because VSC relies on an effective communication system, a suitable information system using various information communication technologies needs to be developed. To summarize, the following are the key success factors for a successful VSC: (i) strategic alliances; (ii) web-based information systems; (iii) automation for business process re-engineering; (iv) supply-chain visibility; and (v) a performance-measurement system. The following are the critical success factors for VSC from LINE Logistics (see also table 1). . Transparency and sharing information in the supply-chain is essential. Information is the driving force of activities along the logistics value chain. Accurate information about delivery date, volume and location of goods in transit helps to avoid any misunderstanding with respect to the quality of service, and thus enhances overall customer satisfaction. . The application of a real-time logistics information system improves communication along the logistics value chain. . Networking and relationship management with collaborating firms, clients and customers is required. . Key performance indicators must be established to evaluate the performance of logistics services. . An effective logistics-information management system is paramount for the timely delivery of goods and better customer service. . Activity-based costing in logistics costing provides process mapping along the value chain, and thus facilitates the elimination of non-value-adding activities. . Having an effective reliable transportation fleet (outsourced) is essential. Strategic partnership with transportation companies will help to leverage other benefits–such as consolidation of goods and control of inventory costs. . Aiming for a one-stop solution for buyers/suppliers is necessary. This requires a logistics-network

solution so that an integrated logistics value chain can be developed. . Streamlining and optimizing the flow of goods using a business process re-engineering approach along the logistics value chain is also needed. The above summary from the case study provides sufficient evidence to demonstrate the application of the conceptual model for a VSC. However, the company’s confidentiality policy prevents the provision of additional information with respect to the fine details of the company’s system architecture and financial performance. Nevertheless, the authors appreciate the company’s cooperation in providing the above information–thus enabling the case study to be completed satisfactorily.

Acknowledgements The authors are most grateful to two anonymous referees for their constructive and helpful comments that helped to improve the presentation of the paper considerably. The authors thank Mr R. Wong, Business Development Manager and other employees at LINE, Hong Kong, for providing necessary information for this case-study research. This research was supported in part by the Hong Kong Polytechnic University under grant number A-632.

Acronyms 3PLs 4PLs AOL B2B B2C B2G CAD/CAM CAPP CIM CRM ebXML EDI ERP ESC HPH HWL IS IT JIT

Third-party Logistics Fourth-party Logistics America On-line Business-to-Business Business-to-Consumer Business-to-Government Computer-aided Design/Computer-aided Manufacturing Computer-aided Process Planning Computer-integrated Manufacturing Customer Relationship Management Electronic Business using Extensible Markup Language Electronic Data Interchange Enterprise Resource Planning Electronic Supply Chain Hutchison Port Holdings Hutchison Whampoa Limited Information System Information Technology Just-in-Time

Virtual supply-chain management LINE LLP M MRP RFID SCM TQM VSC XML

Logistics Information Network Enterprise Lead Logistics Provider Marketplace Material Requirements Planning Radio Frequency Identification Supply-chain Management Total Quality Management Virtual Supply Chain Extensible Markup Language

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