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Int. J. Integrated Supply Management, Vol. 3, No. 2, 2007 135
Copyright © 2007 Inderscience Enterprises Ltd.
Improving logistics visibility in a supply chain: an integrated approach with radio frequency identification technology
K.L. Choy Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hunghom, Hong Kong E-mail: [email protected]
Stuart C.K. So* Department of Logistics, The Hong Kong Polytechnic University, Hunghom, Hong Kong Fax: (852)23302704 E-mail: [email protected] *Corresponding author
John J. Liu Department of Logistics, The Hong Kong Polytechnic University, Hunghom, Hong Kong E-mail: [email protected]
Henry Lau Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hunghom, Hong Kong E-mail: [email protected]
S.K. Kwok Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hunghom, Hong Kong E-mail: [email protected]
Abstract: Third Party Logistics (3PL) becomes more important nowadays as it aims to improve supply chain efficiency through reducing cycle time and inventory level for both upstream suppliers and downstream retailers. However, many small to medium-sized 3PL providers in the Pearl River Delta (PRD) region still highly rely on manual processes, which make them difficult to
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achieve the role of supply chain facilitators. In this study, a logistics information hub named Integrated Logistics Information Management System (ILIMS) adopting Radio Frequency Identification (RFID) technology is presented to suit this need. With ILIMS, 3PL companies are provided with unified business processes with enhanced tracking capability. A case study is discussed in applying ILIMS to a medium-sized 3PL company. Through using this generic system, the logistics visibility in the supply chain is improved with significant reduction of delivery time, supply cost, inventory and out-of-stock frequency that lead to increase of revenue and operations volume.
Keywords: 3PL; EPC; logistics information system; logistics visibility; OLAP; RFID.
Reference to this paper should be made as follows: Choy, K.L., So, S.C.K., Liu, J.J., Lau, H. and Kwok, S.K. (2007) ‘Improving logistics visibility in a supply chain: an integrated approach with radio frequency identification technology’, Int. J. Integrated Supply Management, Vol. 3, No. 2, pp.135–155.
Biographical notes: Dr K.L. Choy is an Assistant Professor in the Department of Industrial and Systems Engineering of the Hong Kong Polytechnic University. He received his MSc degrees in Manufacturing Systems Engineering and Management Science. He obtained MPhil degree in Engineering at the University of Warwick in 1990 and the PhD degree in 2003. Dr Choy’s current research areas focuses on the application of artificial intelligent technologies in enhancing the effectiveness of customer and supplier relationship management as well as covering logistics information systems under outsource manufacturing environment. He has published a number of international journal papers in the areas of logistics information, data systems, supply chain management, technology management as well as applying expert systems in industry.
Stuart C.K. So is the Computer Systems and Laboratory Officer in the Department of Logistics at The Hong Kong Polytechnic University, involved in research and technology management. He received his Master of IT Management in 1999 and the MBA in 2003 from Macquarie University and his Master of Electronic Commerce in 2002. His current research areas focuses on the application of information technology in logistics and supply chain management, electronic business and information security. He has published a number of international journal papers in the areas of RFID applications, logistics and information security.
Prof. John J. Liu is the Head and Chair Professor of Maritime Studies in the Department of Logistics at the Hong Kong Polytechnic University. He received his MS in Control Theory in China in 1981, MS in Engineering Economic Systems from Stanford University in 1983 and PhD in Industrial Engineering from Penn State University in 1986. He was the Professor of Innovative Manufacturing and Supply Chain Management and the Director of Consortium for Innovative Manufacturing and Operations Management with the University of Wisconsin-Milwaukee. His current research areas include impulse supply order fulfillment systems, make-to-order incentive problems, maritime rescue simulator and maritime logistics.
Dr Henry Lau is currently an Associate Professor in the Department of Industrial and Systems Engineering at the Hong Kong Polytechnic University, involved in research and teaching activities. He received his Master’s degree at Aston University in Birmingham in 1981 and his Doctorate at the University of Adelaide in 1995. His current research areas cover manufacturing information
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systems and artificial intelligence applications, and he has authored and coauthored over 100 international research papers covering multi-agent modelling, object technology, global manufacturing and computational intelligence applications.
Dr S.K. Kwok is a Project Fellow of Department of Industrial and Systems Engineering. He is also Mobile Commerce Demonstration Unit in-charge of the Microsoft Enterprise Systems Centre (MESC). His research areas are in Artificial Intelligence, Industrial and Systems Engineering, Information and Communication Technologies (ICT) and Mobile Commerce.
1 Introduction
The PRD region of the Chinese mainland has been evolved into one of the world’s biggest business, manufacturing and consumer powerhouses (Hong Kong Trade Development Council, 2003). The PRD is ideally positioned to offer one-stop logistics services for mainland enterprises with the well-established international network and infrastructure in logistics services as well as advanced application of information technology. Over the past two decades, the demand of logistics services such as warehousing, transportation and distribution grow rapidly in the PRD (Hong Kong Trade Development Council, 2004). There has been a trend for 3PL prospering through providing cost effective and flexible logistics services in the region (Hong Kong Logistics Association, 2004). According to Hertz and Alfredsson (2003), 3PL is an external logistics service provider who manages, coordinates and delivers logistics activities on behalf of a shipper. However, many local small to medium-sized 3PL providers still rely heavily on manual-based procedures. It is costly and inefficient that undermines the overall supply chain performance, not to mention improving visibility on various logistics activities. Therefore new method is needed for further improvement.
With the incentive of improving supply chain visibility, RFID technology was developed by Auto-ID Center at Massachusetts Institute of Technology (Finkenzeller, 2000; Doyle, 2004; Shepard, 2005). It is an auto identification technology that enables logistics items in the supply chain with embedded intelligence to communicate with each other and with different supply chain members (Auto-ID Center, 2002; IBM, 2003; VeriSign, 2004). Supply chain members can obtain up-to-date status in various logistics activities to improve their operation performance by linking the real-time data to their information systems. The Integrated Logistics Information Management System (ILIMS), an RFID-enabled web-based Logistics Information System (LIS), is designed for local small and medium-sized 3PL providers to suit this need. It connects with various supply chain members to provide faster and reliable logistics information sharing by improving the logistics visibility in the supply chain. Besides, the new approach provides continuous improvement to 3PLs with dynamic performance reporting.
The paper presents the supportive literature and establishes a generic model of a responsive LIS by integrating processes and utilising advance IT applications to optimise information flow in the supply chain. A case study is then presented to illustrate how ILIMS is used in improving the business performance of a medium-sized 3PL company in the PRD.
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2 Third party logistics in logistics service chain
Nowadays, companies increasingly see themselves as part of a supply chain to compete against other supply chains, than a single firm competing against other individual firms (Christopher, 1998). In the past two decades, there has been a trend that manufacturers, distributors and logistics service providers in the PRD region join hands to collaborate in business operations and decision-making (Hong Kong Trade Development Council, 2004). Logistics management as part of supply chain management plans, implements and controls the efficient, flow and storage of goods, services and related information between the point of origin and the point of consumption to meet customers’ requirements (Council of Logistics Management, 2003). The companies form partnership in the supply chain that aims to improve product distribution and cost saving in logistics management.
According to Lieb and Randall (1996), 3PL involves the use of external companies to perform logistics functions that have been performed traditionally within a company. Thus, 3PLs collaborating with upstream and downstream supply chain parties have appeared to offer rapid product transportation and customer-oriented logistics services for competitive advantage (Yeung and Chang, 2002).
2.1 Supply chain collaboration in logistics service delivery
The use of 3PL providers is about taking over some or all a company’s logistics responsibilities that allow it to focus on its core competencies through collaboration and providing technical and service flexibility (Simchi-levi et al., 2004). The key to success of these external logistics providers is to collaborate with business partners and customers in promoting the exchange of information throughout the supply chain. According to Gattorna (1998), there are three types of supply chain collaboration in logistics service delivery:
1 Simple collaboration supports passing transaction data among business partners
2 Formulated collaboration requires exchanging demand parameters and priorities among the trading partners in the supply chain and
3 Modelled collaboration involves tight integration of supply chain parties through sharing common operation model so that each trading partners has real-time visibility into each other’s capacities, loads, inventories and committed orders.
Hence, providing real-time visibility is the key in formulating the strategic goal of a logistics service chain to achieve deeper collaboration. Figure 1 shows the four-tier framework of strategic goals development for collaboration in logistics service delivery.
In tier one, strategic goals in service and logistics visibility are identified to achieve model collaboration in logistics service delivery. The achievement is measured by a series of performance measures as indicated in tier two. The underlying performance data is extracted from various data sources in tier three including Logistics Information System (LIS) and other enterprise information systems. In tier four, the required performance data is captured from day-to-day business activities to the systems. Hence, the four-tier framework provides a solid foundation of developing the LIS operation model in a logistics service chain.
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Figure 1 Development of strategic goals in logistics service delivery
2.2 Issues of small and medium-sized 3PL providers
According to Hong Kong Logistics Association (2004), many of the local 3PL providers operate in small & medium-sized in the PRD region. For small & medium-sized 3PL companies, they subcontract most physical functions to key suppliers including land transport, warehouse owner and freight forwarder to provide logistics services (Africk and Calkins, 1994). In fact, many small and medium-sized 3PL companies in the PRD focus on providing flexible logistics services at very competitive price by forming strategic partnership with manufacturers, distributors and logistics service providers. As shown in Figure 2, 3PL provider connects customers and suppliers in a logistics service chain, which acts an information hub controlling the flow and sharing of information among them as well as a middleman managing the product distribution from the factory all the way up to the right destination for the right party at the right time.
Figure 2 3PL providers in logistics service chain
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3PL providers coordinate product distribution from the seller and all the way up to the buyer in the supply chain. However, from many small to medium-sized 3PL providers use telephone or e-mail as major channels of communication with their trading partners to perform services such as collecting logistics service requests from customers or sending notices of late goods delivery due to traffic congestions, cargo misconnections, etc. (Hong Kong Logistics Association, 2004). Without a common computerised operating platform employed in the supply chain, a 3PL provider needs to call several parties, repeating the same information of the same case, which this is expensive, time-consuming and potentially unreliable. Table 1 Operation problems in a logistics service chain driven by small and medium-sized
3PL providers
Supply chain activities Operations problems Consequences
Vendor Take Order from Retailer or customer directly, then fax PO to manufacturer
Retailer or customer amend the order, then relay amended PO to manufacturer
Not able to trace the downstream logistics activities beyond its trading partners
The change is not communicated directly to the downstream of supply chain
Not sure if the buyer receive the delivery of goods and if the quantity and status of goods is OKShip too many or too few goods to download customer
Manufacturer Take order from vendor and fax PO to 3PL company to arrange delivery of finished goods
Both vendor and 3PL company has no visibility on the manufacturer’s inventory and logistics operations
Manufacturer may not responsive to cope with the change requested by the vendor, and may delay to reject the request of change
3PL company Take order from manufacturer and arrange forwarder to ship the finished goods to distribution centre or retailer
No access to the manufacturer’s logistics demand and not able to the delivery status of the goods on the way to customers
3PL company may not responsive to cope with the change requested by the upstream supply chain parties and immediately notify the forwarder to follow the change
Transportation/forwarding Receive booking order from various 3PL companies and schedule transportation to pick-up and delivery finished goods
Insufficient information for scheduling and forecasting due to low transparency and visibility of information sharing
Delay of delivery schedule is common and upstream suppliers has always no visibility on the delays
Distribution centre Receive and store the goods temporarily until receive the dispatch order to distribute the goods to downstream retailer
No idea on how many items will arrive and need more information to schedule the delivery to the retailers/customers
Uncertainty of demand always cause delay of distribution to downstream retailers and delay of sending receive notice to forwarder could cause disruption of delivery schedule
Retailer/customer Place order to vendor and send receive notice to upstream supply chain members upon receiving the ordered goods
No transparency on the arrival time of ordered goods No enough information to forecast the demand and the cash-flow
Difficult to control the inventory level and out-of-stock frequency Badly impact the net profit due to higher overhead cost
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The traditional method adopted by most local small and medium-sized 3PL companies causes various supply chain problems such as communication errors due to poor information visibility, which impact badly the distribution process. Table 1 presents the drawbacks of the present method and it reflects the needs of using information technology such as LIS to provide more responsive and reliable logistics services (Gustin et al., 1994, 1995; Huan, 1995; Kang and Kwon, 1997; Mason et al., 2003; Rutner et al., 2001, 2003).
In this study, the generic operation model and design of an RFID-based integrated LIS are proposed. It aims to achieve effective modelled collaboration among trading partners through enhancing logistics and service visibility in a logistics service chain.
3 RFID-based EPC compliant logistics information system
There are two main applications in LIS, namely
1 transactional application such as order management and
2 co-coordinating application such as distribution management (Closs et al., 1997). A LIS operation model is developed to improve the visibility of the two applications and provide performance management that is underpinned by relevant technologies.
3.1 Improving logistics visibility with RFID and EPC
RFID works in combination with Electronic Product Codes (EPCs) with the initiative of standardising the communication of product information so that the supply chain members can uniquely identify and locate information about the manufacturer, product class and instance of a particular product (VeriSign, 2004). With the aims to automate supply chain logistics, EPC addresses everything from products to packages, containers and pallets (Auto-ID Center, 2002; Chorafas, 2001). Supply chain members can
1 uniquely recognise each item
2 trace the movement of items on the supply chain and
3 exchange information with trading partners to collaborate on various activities, through integrating RFID technology with their enterprises information systems.
In practice, RFID tags carrying the EPCs are directly related to product information hierarchically at item level, case level and pallet level. As logistical items move along the supply chain, continuous flow of real-time product data is captured at various RFID access points to increase logistics visibility. The improved visibility into material flow, locations and inventory levels in the supply chain helps the supply chain members in gathering and linking product information into their database to improve efficiency in receiving, shipping and exception handling throughout the distribution process.
3.2 Improving service visibility with LIS and key technologies
Access to LIS involves not only in-house users, but also the supply chain parties who are external to 3PL providers. For example, customers using web browsers to track delivery status and suppliers working remotely with mobile devices to update job status should be able to access LIS. Multi-tier client/server computing model integrating with the internet
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meets this new challenge. It includes a presentation tier that interfaces with the clients, an application tier and a database tier that reside on the back-end server (Lewandowski, 1998; Edwards, 1999). The application tier is implemented as a collection of components such as Microsoft’s Distributed Component Object Model (DCOM) for using in a variety of client-initiated business transactions. It is suitable to connect 3PLs with various supply chain parties in a distributed environment.
Integrating wireless communication system to LIS allows real-time information access, reducing costs and increase operation efficiency through providing timely and quality information necessary to tracking and tracing of logistics items at warehouses or remote transportation (Gebresenbet and Ljungberg, 2001; Yao and Carlson, 1999; Rishel et al., 2003). Mobile devices can access to LIS by using General Packet Radio Service (GPRS), an internet packet switching protocol for GSM networks to connect mobile devices with the internet.
3.3 Performance management
Two types of performance measures are created to achieve continuous improvement. They include business performance metrics that measures the financial and operational performance of 3PL providers and logistics performance metrics that represents the service level of outbound logistics. The business performance metrics are developed in the aspect of sales, operations and support (Hudson et al., 1999; Krause and Mertins, 1999). The logistics performance metrics are essentially the Key Performance Indicators (KPIs) of inventory level, out-of-stock frequency, delivery lead-time and total cost of supply.
The corresponding performance metrics for benchmarking the performance of the 3PL company and the supply chain operations are summarised in Table 2. They are realised by using OnLine Analytical Processing (OLAP) application. OLAP is a category of software analytical tools that provides features of multi-dimensional conceptual view and intuitive data manipulation on data stored in a database (Codd et al., 1993). In practice, OLAP converts data into useful information by transforming raw data to meaningful and organised information with its analysis features to reflect the real dimensionality of the enterprise that is understandable by user. Most importantly, OLAP has the ability to provide managers with information they need to make effective decisions about an organisation’s strategic directions. Table 2 Proposed performance metrics
Business areas Proposed performance metrics Financial and operational performance Sales Revenue
Cost Volume Operations Lead-time
Support Customer complaints Key performance indicators of logistics services Inventory Cost Out-of-stock Frequency Delivery lead-time Lead-time Total-cost-of-supply Cost
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3.4 Operation model for integrating LIS and RFID
To realise significant value using RFID requires a collaborative environment with trading partners to exchange relevant information. A generic operation model is proposed in Figure 3 to systematically integrate LIS into the 3PL’s supply chain with RFID capability to allow real time tracking and tracing on product items in the distribution process.
Figure 3 LIS/RFID operation model
The model consists of three major components, namely, logistics service management, logistic production distribution management and logistics information system.
1 Logistics service management enables LIS to provide functions and user interfaces such as tracking and tracing of logistical items, order management and exceptional status update for both customers and suppliers, where the product information is standardised with Global Trade Identification Number (GTIN) (ECR Asia Council, 2001).
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2 Logistics operation management facilitates the management of outbound logistics activities that control the materials and information flow in the supply chain. It includes warehouse operations, inventory management and distribution management. The activities are supported by capturing EPC information on LIS in real-time through RFID and exchanging the information among the supply chain members over the EPC-Network.
3 Logistics information system is a business system for collecting, retaining, sharing and manipulating logistics data. Key to success is the architecture for integrating the EPC network services into ILIMS. Besides, ILIMS needs to support routing and connectivity features for RFID data to aggregate, manage, access and route the data to multiple supply chain members. The selected data is associated with the business objects such as purchase orders, shipping notices and invoices to send exceptions, updates and notifications in real time to improve operation responsiveness. Furthermore, ILIMS will support product data conversion for two different applications as well as multidimensional data analysis to achieve continuous performance improvement.
4 Integrated logistics information management system
The Integrated Logistics Information Management System (ILIMS) is a web-based LIS that integrates all the core logistics processes together to realise the LIS/RFID operation model. It is a common platform that allows different supply chain members to transmit, capture, share and collect the required data via the internet. Figure 4 shows the system architecture of ILIMS, which comprises client-related functions, business related functions and data-related functions.
ILIMS employs a distributed computing design embracing the DCOM technology due to the fact that the Windows customer base is widely adopted and a relatively lower cost of investment is required in implementing the system. The function of each tier is discussed as follows.
1 Client adaptation tier – The client adaptation tier allows different parties on the Internet including GPRS mobile devices such as PDA and Smart Phone at remote locations to access the information on ILIMS. With wireless connectivity, latest information on delivery status and inventory at warehouses can be updated in real-time and synchronised to ILIMS database.
2 The presentation tier – The presentation tier is the User Interface (UI) of the system that allows users to access the business functions over the internet with web-browsers. The web-server contains a number of web pages for providing various functions to different group of users. The web pages are constructed by using Hypertext Mark-up Language (HTML). When the web-server receives a request for an Active Server Pages (ASP) file from the web pages, it processes the server-side script codes contained in the file to build the HTML web page, which is sent to the browser.
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3 The application tier – The application tier implements logistics processes that support logistics services. It is the business logic of ILIMS, which provides various application functions such as quotation, order placement, order status tracking or customer invoices that can be accessed over the internet. The business logic is implemented as Component Object Model components on the ILIMS server. They are accessed through DCOM calls initiated by ASP when the web-server receives requests from the browser. The ILIMS server interconnects with the e-mail server for generating e-mail notifications to customers such as invoices or shipping documents. The system provides conversion between GTIN-based data for use in order management and EPC-based data for enhancing logistics visibility, which is crucial to product identification. It realises the performance management functions through extracting and analysing the business data from the ILIMS database and generates reports to support decision-making.
4 The database tier – The database tier of ILIMS is the information repository for storing and retrieving the business data for further manipulation. It stores different kinds of business data such as information of customer, supplier, business transactions and product and order status on a database server. The data operation that is supported by database tier includes:
Database query processing – The business entity components invoked by the business components on the application expose methods to retrieve, insert, delete and update the corresponding information to the database server through Structure Query Language (SQL) queries in the form of stored procedures. A stored procedure is a set of SQL statements that is usually stored in the server and reused by the SQL database clients for enhancing the performance and maintainability of data operations.
Data transformation – Transaction data is synchronised with other Relational Database Management Systems through Data Transformation Services (DTS). DTS is a tool of SQL database server. It maps the selected columns of data to a set of transformations, and sends the transformed data to a destined OLEDB connection.
EPC-Network Adoption – Formatted EPC data is stored in Physical Markup Language (PML) format on the EPC-IS server. The data on EPC-IS can be exchanged with other enterprise information systems such as LIS or ERP through PML, Extensible Markup Language (XML) or direct field mapping on database tables by using DTS.
Multi-dimensional data analysis – OLAP data cubes are designed and constructed to provide multi-dimensional views on performance data through the analysis services available on the SQL database server. The cube editor selects the pre-defined dimensions and measures for building up corresponding OLAP cubes. OLAP cubes then answer the query from users to summarise performance data in a multi-dimensional perspective.
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Figure 4 System architecture of ILIMS
5 Case study
ILIMS was tested in International Logistics Solutions Limited (ILSL) with the intention of improving logistics visibility and distribution management. ILSL is a medium-sized 3PL company that offers integrated logistics solutions in the PRD region. Its targeted customers are primarily overseas high-tech companies, which demand 3PL integrated logistics service in China. The majority of existing customers are manufacturers that do
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not have logistics operations and distribution centre in the region. The manufacturing plants and warehouses of these companies are located in China, where their customers are mainly trading companies or retailers in Hong Kong and Taiwan. ILSL forms strategic partnerships with the customers and manages their product distribution activities.
Figure 5 shows the major business activities at ILSL, which includes sales, delivery and after-sales activities. The activities are underpinned by four core logistics processes. They are
1 customer order acquisition
2 customer order fulfillment
3 customer support and
4 billing.
Figure 5 Third Party Logistics (3PL) activities at ILSL
ILIMS integrates the logistics processes and provide a standard platform as well as systematic means for doing business. It also provides a single view on various business functions and data.
The operation method adopted by ILSL, like other traditional small and medium-sized local companies, is manual-based, which is inefficient, costly and unreliable, thereby undermining its business performance and potential growth.
5.1 Implementation of ILIMS to improve service visibility
ILIMS was implemented at ILSL in two major phases. Phase one involves implementing ILIMS in ILSL to improve service visibility through providing single point of control on information among trading partners. Phase two extends the system capabilities by integrating RFID and Auto-ID technology for improving logistics visibility.
In phase one, the multi-tier system architecture of ILIMS is closely integrated with the logistics processes of ILSL to provide a uniform mean of conducting transactions with its customers and suppliers.
The client adaptation tier connects various supply chain parties via traditional Internet Service Providers (ISP) as well as mobile data operators who support GPRS service. The presentation tier works in collaboration with client adaptation tier to provide a single view of information and an entry point for users to access various application functions on ILIMS. It is customised for three groups of users, which include ILSL staffs, customers and suppliers.
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In the application tier, the logistics processes are optimised by ILIMS to speed up the overall order fulfillment process.
The database tier is essentially a central relational database that stores the transactional data for sharing among different user groups in the supply chain. Business components in the application tier attend to client requests to trigger data operations such as the retrieval, insertion and deletion of data, thereby updating the transactions. OLAP cubes provide hierarchical breakdown on dimension levels so that aggregated measures can be computed from more specific data at lower level of same dimensions (or ‘drill-down’) or summarising data at upper level (or ‘roll-up’). The dimensions defined for each business area categorise the measures of the cube. The roll-up and drill-down features of OLAP are applied to any dimension of measurements, generating a performance report in real time. Figure 6 shows the performance report of the Sales-Revenue with the drill-down sales figures.
Figure 6 Performance report with application of drill-down in OLAP
Through using the performance reporting function, both the business performance and logistics service level are closely monitored on ILIMS to pursue appropriate decision and its supporting action responsively.
5.2 Implementation of ILIMS to improve logistics visibility
In Phase 2, ILIMS is enhanced with EPC-network and Auto-ID technology to resolve the drawbacks of various supply chain issues. Items that move along the supply chain can be tracked and traced in real-time. The captured data is screened and incorporated into ILIMS database and then utilised by the business objects in the application tier such as order tracing, shipping notices and invoices to provide more responsive services. The
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RFID-enabled ILIMS can be extended to both up and downstream supply chain parties so that it essentially becomes a logistics information hub in the supply chain.
As shown in Figure 7, ILIMS provides the following improvements on product distribution:
1 Information on the change of order quantity or delivery requirements is synchronised among the vendor, manufacturer and retailer to eliminate potential discrepancy.
2 When product items leave the manufacturing plant, their departure information is written into the EPC-IS server at the manufacturers. The information is consolidated with the containership information and shipping information in the ILIMS database and is published via an Advance Shipping Notice (ASN) to the receiving retailer.
3 At the distribution centre, good received status or departure information is updated to the EPC-IS server and can be accessed by the trading partners via the EPC network.
4 As the product items leave the distribution centre and arrive the retailer, the associated RFID data are captured on the EPC-IS server, consolidated with the ILIMS database and exchanged among the members who participate in product distribution to improve the reliability of scheduling and future order projection.
Figure 7 ILIMS as an information-hub among the supplier chain members
Figure 8 shows the data flow among the major ILIMS functions and other supply chain information systems. In essence, the continuous flow of information in the supply chain essentially creates a logistics information network that reliably moves the data from RFID readers, EPC-IS server to ILIMS server and then shared among the trading partners in real-time that aims to enhance logistics and service visibility.
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Figure 8 The diagram of data flow between ILIMS and other external systems
5.3 Implementation issues
A number of issues arose from the implementation of ILIMS at ILSL. Firms need to anticipate both technical and non-technical problems when deploying RFID technology as process changes, data conversion and systems integration are required to carryout not only within the firms, but also among the trading partners. Tradeoffs were identified in the following logistics activities when implementing ILIMS to ILSL and its trading partners:
1 Sales support – Majority of this part is implemented in phase one. It is mainly order management where the transactions are primarily conducted over the Internet by exchanging e-documents with the manual process is preserved for backup purpose. In order to facilitate the computerised process, the paper-based documents generated in the manual process are converted into digital format, which demands additional cost and overhead.
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2 Service delivery – In phase one, it involves cross company system integration along the logistics service chain and training of operation staffs in these companies that requires detail planning on both system and human aspects to carry out the implementation smoothly. In Phase 2, it involves deployment of RFID technology at various tracking points for the involved parties along the supply chain, which is time consuming as re-calibration of RFID hardware and tuning of middleware are required.
3 After-sales – The functions including document transfer and billing are implemented in Phase 1, while the order tracking function demands further testing in Phase 2 with the RFID/EPC components that provides more information on in-transit delivery status. However, the added value introduces potential stresses on the databases, both in terms of speed and volume in processing RFID data. Investment on upgrading existing systems and network infrastructure is required for high volume data traffic.
4 Controlling – It involves implementation of performance management function. Similar to after-sales activities, investment on upgrading the OLAP processing platform is required in Phase 2 in order for handling high volume of data, which results from RFID applications.
Owing to financial and resource constraints of small to medium-sized 3PL providers, the firms need to closely collaborate with their trading partners to share the cost and risks.
6 Results and benefits
In Phase 1, ILIMS capture the data generated in the daily operations such as transaction data and logistics documents on the central database. Therefore, it provides a single point of control on information that enhances the capability of information sharing among supply chain members. As a result, the fulfillment process and the operation efficiency are improved, which thereby enables ILSL able to handle higher transaction volume. The improvement is not only beneficial to ILSL, but also to its business counterparts in the supply chain.
ILSL measures the operation performance in the areas of
1 inventory level
2 out-of-stock frequency
3 delivery lead-time and
4 total cost of supply.
Table 3 shows the performance improvements of ILSL after using ILIMS. It is noted that the performances on various logistics functions are improved significantly. The average inventory is reduced by 27%, the out-of-stock frequency is reduced by 68%, the average delivery lead-time is reduced by 33% and the total cost of supply is also reduced by 45% on average.
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Table 3 Performance improvement measured by KPIs
Before using ILIMS (scale to based 100)
After using ILIMS (compared to 100) Improvement (%)
Inventory 100 73 –27 Out-of-stock frequency 100 32 –68 Delivery lead-time 100 67 –33 Total cost of supply 100 55 –45
With the use of EPC and RFID technology in Phase 2, the logistics visibility in the supply chain is further improved. It offers ILSL with exception tracking and management based on required needs throughout the points in the supply chain to provide exception-based visibility. The receiving company is enabled to establish the proof of receipt automatically as goods are scanned upon entering its premises. Besides, the function also helps maintaining inventory accuracy in the warehouses and identify chain of custody that guide ILSL making important decisions on distribution and supplier management. As a result, the operation efficiency is improved, which enables ILSL able to handle higher transaction volume.
Through using the OLAP analytical tools, performance reports incorporating the performance metrics and dimensions are provided. Hence, ILSL is able to perform multi-dimensional analysis basing on historical data to evaluate the performance in sales, operations and support processes. Moreover, ILIMS also helps ILSL to identify both the customers who contribute the most revenue, and the under-performed suppliers by comparing to the performance indicators as set-out in Tables 3 and 4. In possessing such information, ILSL is able to provide the right services to the right people. This helps improving
1 financial performance, such as increase in revenue and reduction of cost and
2 non-financial performance, especially in reducing customer complaints and internal process lead-time.
The results of these improvements are shown in Table 4. Table 4 Financial and operational improvement by ILIMS
Before using ILIMS (scale to based 100)
After using ILIMS (compared to 100) Improvement (%)
Cost saving 100 25 –75 Revenue 100 110 10 Operations volume 100 115 15 Process lead-time 100 30 –70 Customer complaints 100 78 –22
It is noted that the reduction in delivery lead-time and process lead-time as shown in Tables 3 and 4 contributes to the improvement of customer complaints in terms of service and quality. The performance improvement in terms of customer compliant nature is shown in Table 5.
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Table 5 Improvement on customer complaint by ILIMS
Before using ILIMS (scale to based 100)
After using ILIMS (compared to 100) Improvement (%)
Quality (e.g. delivery, damage) 100 70 –30 Service (e.g. response time, support) 100 78 –22 Others (e.g. price, product) 100 87 –13
In summary, ILIMS provides ILSL and its trading partners not only an efficient and uniform way of doing business, but also an innovative way of tracking logistical items in distribution through integrating with RFID technology.
7 Conclusion and future development
With the aims to improve the performance of small and medium-sized 3PL providers as well as logistics visibility in the supply chain, an RFID-based operation model for ILIMS is presented. The model is realised by a generic system architecture, which is designed with object-oriented multi-tier client/server system, RFID/EPC technology and OLAP application. The system is tested in ILSL and in the companies of its supply chain counterparts to validate the feasibility of ILIMS. The analysis shows that the adoption of ILIMS has resulted in a significant improvement in cost saving, revenue generation and customer satisfaction. Besides, the operation performances of various logistics activities are also improved.
Further work on this growing field of ILIMS is recommended to study how such improvements can be sustained. Two areas are worth exploring. Such as the sensor-based RFID model and the predictive data analysis. With the aid of sensor-based RFID technology, supply chain visibility can be further improved through gathering and analysing ambient information in the surroundings such as temperature or humidity of the nearby environment. Besides, as the performance management function is a descriptive model, a predictive model is suggested to enhance the forecasting capability of small and medium-sized 3PL companies.
Acknowledgement
The authors wish to thank the Research Committee of The Hong Kong Polytechnic University for the financial support of the project.
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