The System Model for Supply Chain Process Optimization*
，
Yan Jianyuan Qin Fan
Business School, Nankai University, P.R.China, 300071
Abstract: The supply chain process optimization (SCPO) is to further coordinate or redesign
processes of supply chain in order to achieve the strategic target of organization. SCPO is discussed
from the view of system engineering in this paper. Based on the supply-chain operations reference
(SCOR) model, a system model for SCPO is proposed by integrating various supply chain optimization
approaches. This system model can help to organize concepts, unify existing methods, and discover
new SCPO solutions that may be neglected. There are three basic phases in SCPO. They are modeling,
measuring and improving. Based on these three phases, the system model for SCPO proposed in this
paper includes six interrelated components which are applied to support the reality of SCPO
information system. This system model can be used as an integrated framework of SCPO research or a
prototype of SCPO information system.
Keywords: Case-based reasoning, Optimization method, SCOR, Supply chain process
1 Introduction
In today’s global market, the entire supply chain management (SCM) becomes a key factor for the
successful business. Supply chain speed and flexibility have become key levers for competitive
differentiation and increased profitability. The faster the supply chain, the better a company can
respond to changing market situation and the less it needs inventory – resulting in higher return on
capital employed [1].
A supply chain is comprised of a set of processes. The specific goal of supply chain management
is to coordinate supply chain processes. The supply chain processes optimization(SCPO) is to further
coordinate or redesign processes of supply chain in order to reduce waste, reduce order-to-delivery
cycle time, develop a flexible response throughout the supply chain, and reduce unit cost , consequently
achieve strategic target of organization. In other words, it is a very important approach to
achievement of organization strategic target. Many approaches to supply chain optimization, both local
optimization and global optimization, have been discussed in [1-8] .
The supply-chain operations reference model (SCOR) is a standard process reference model for
supply chain management. SCOR has been developed and endorsed by the Supply-Chain Council
(SCC). It is the first cross-industry framework for evaluating and improving enterprise-wide
supply-chain performance and management [5]. The process reference model contains [6]:
• Standard descriptions of management processes
• A framework of relationships among the standard processes
• Standard metrics to measure process performance
• Management practices that produce best-in-class performance
• Standard alignment to features and functionality
Based on SCOR, the objective of this paper is to develop a system model for SCPO. The system
model proposed in this paper integrates many approaches of supply chain optimization. The system
model can be used as a framework of SCPO research or a prototype of SCPO information system.
2 The generic phases of SCPO
For the purpose of SCPO, generally, there are three basic phases: modeling, measuring and
improving. SCPO can be completed by applying the three phases.
2.1 Modeling
The objective of modeling the SCP is to represent the SCP explicitly. It is the foundation of SCPO.
This phase includes two parts of contents. One is how to organize the knowledge base of SCP; the other
is how to model the SCP.
The knowledge base of SCP is applied to predefine various processes in supply chain and create
new processes on demand by the user. A knowledge base of SCP is proposed in [8]. Using this
knowledge base, the processes and sub-processes in supply chain can be chosen or created on demand
by the user for modeling and optimizing SCP.
*
This paper is supported by the Natural Science Foundation of China (NSFC) under Grant No.
70471040, IBM Shared University Research (SUR) Project and 985 Foundation from Ministry of
Education (No. 950A94505-B12).
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To select model is to decide how to represent SCP for SCPO. The model is another key content for
modeling SCP. Models for SCP representation can be divided into two categories by the scope of
representation: SCP models for local optimization and global optimization. The SCP models for local
optimization focus on representing and optimizing some segments in supply chain. Some mathematical
models such as linear programming and mixed integer programming (MIP)[2, 3]
have provided
solutions to the local SCPO. The SCP models for global optimization focus more attention on the
representation and optimization of the entire supply chain instead of some segments. The SCP models
for global optimization can be further divided into four categories by the function and representation:
diagram models in early days, mathematical models, grammatical models and other dynamic models.
Diagram models in early days such as flow chart [9] , are composed of a set of diagram notations.
They are suited to static SCP representation. Mathematical models, such as fuzzy multi-objective
approach [10] and MIP [11], focus on getting the optimal results with mathematical approach.
Grammatical models, e.g. grammatical approach in [8] , represent processes in terms of a finite lexicon
of process and a finite set of rules or constraints that specify allowable combinations of processes in the
lexicon. Though they are applied to represent the static processes, they augment the use of other tools
by suggesting combinations and alternatives that might otherwise be missed [12] . Other dynamic
models include the models which can represent dynamic SCP, such as Petri nets [13], IDEF3 modeling
[14], and workflow modeling (WFM) [15] .
2.2 Measuring
Sink and Tuttle [16] claim that you cannot manage what you cannot measure. The objective of
measuring is to find the shortfalls of SCP by quantifying optimization objective and measuring SCP
performance. Performance measurement system (PMS) is an important component in measuring. Two
major requirements for PMS of SCP are[17] : 1) Performance measures must be linked with the
strategy of an organization, be part of an integrated SCPO system, have internal validity and enable
proactive management; and 2) The performance measurement system must be dynamic,
intra-connectable, focused and usable. The relevant performance measurement approaches have been
surveyed in [18].
2.3 Improving
After the implementation of two above phases, SCP can be improved by various optimization
approaches until the performance gaps between as is SCP and reference models are minimized. Many
optimization technologies have been proposed and applied to SCPO. These approaches have been
surveyed in [19] . Moreover, case-based reasoning (CBR) approach [20] can also be applied in SCPO.
It is beneficial when a novel process that is quite different from prior experiences must be created for
optimization.
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3 The components of SCPO system
Based on the SCOR model and the general process of SCPO, the SCPO system proposed in this
paper contains six components: optimization objective, the knowledge base of SCP, the modeling
method of SCP, performance measurement system, the knowledge base of industry case, and
optimization method.
3.1 Optimization objective
The optimization objective is a key component of SCPO system. Optimization objective in SCPO
system have three key characteristics.
Firstly, the optimization objective is derived from strategic target of organization. The ultimate
goal of SCPO is to achieve strategic target of organization. Accordingly, there is the need for a change
in the way the SCP and performance measurement information are presented according to the change
of the strategic target. From the view of SCPO, for achieving the strategic target of organization, there
are mainly three types of optimization objective: minimize cost, shorten circle time, and improve
quality of product/service. There are different focus processes and performance measurement metrics
for various different SCPO objectives. For example, if the optimization objective is to minimize cost,
the supply chain processes which need to expend large cost are taken as the focus processes of SCPO.
Meanwhile, the performance measurement metrics should lay particular stress on measuring the cost of
SCP. Secondly, the optimization objective is multiple. That is, it is possible that the optimization
objective is the combination of one more types of optimization objective for achieving the strategic
target. For example, according to the strategic target, the optimization objective may be to minimize
cost as well as to improve quality of product/service. Therefore, there is a trade-off among different
types of optimization objective. Thirdly, optimization objective, reflecting managers’ immediate
preoccupations, may be different in different period.
3.2 The knowledge base of SCP
It is necessary to define the inputs of the model before modeling and integrating various supply
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chain processes as a whole. In SCPO, the inputs are supply chain processes, such as “sale”,
“transportation”, and the relationship among them. The knowledge base of supply chain process
consists of various supply chain processes and sub-processes which is predefined or defined by users.
These processes can be broken down into two dimensions: parts and types as in [21]. In this way, any
number of processes can be arranged in a richly interconnected two-dimensional network.
3.3 The modeling method of SCP
For the purpose of representing supply chain process for SCPO, there is a need for intuitive and
easy-to-learn modeling approach which can represent dynamic process and SCP performance
information. The design of model is influenced by the scope of optimization and how many levels the
processes being broken down into is enough for optimization. A grammar-based model of supply chain
process is used in our SCPO system. It has been proposed in previous paper [22] by integrating Petri
nets [13], IDEF3 modeling [14], and grammatical approach [8]. The basic grammar elements of the
model are individual processes (process), the constraints which restrict the connection among
individual processes (event) and the connection relation among individual processes (dependency). The
dynamic supply chain process can be easily represented using this model. Moreover, performance
measures of the SCOR [6] can be integrated into the model considering the importance of
performance measurement in SCPO.
3.4 Performance measurement system (PMS)
The design of PMS of SCPO is driven on one hand by what the strategy defines as good in terms
of corporate direction, and on the other hand by managers and operators within the system who have to
make the performance measures work in a proactive and practical sense in order to keep SCP satisfying.
In SCPO system, PMS is applied to quantify the optimization objective and measure supply chain
process performance. The PMS for SCPO must be a process-based PMS. From the cause-effect view,
good results are achieved through the good associated processes or sub-processes. Process-based PMS
does not only fit with the nature of SCM [23], but also contributes much more to continuous SCPO.
A PMS of SCPO is a single composite system. It is relevant to consider it as having three facets.
These facets are performance measures definition, structure, balance.
When the performance measures are defined, it is taken into account that performance measures
can measure the performance based on processes in terms of various optimization objective and various
levels of corporate hierarchy. That is, there is a set of detailed performance measures in PMS of
SCPO which can measure the full-scale performance. Moreover, the definition of performance
measures should be also influenced by which operational data for performance measurement is
acquirable.
The structure of PMS is how to organize the performance measures. The structure should enable
performance measurement of various processes and sub-processes in terms of optimization objective
and relating the performance of processes to that of sub-processes.
The balance of the PMS means how to weight the various performance measures. Balance can be
derived from the application of the balanced scorecard or similar range of measures. It is influenced by
the optimization objective, the design of the performance measures and the structure of PMS.
Standard metrics to measure process performance has been provided in SCOR [6] . The metrics
focus on the process-based performance measurement of supply chain. The PMS in SCOR model is
applied in our research since it facilitates linking with the operational strategies, identifying success,
and testing the effect of strategies.
The PMS of SCOR category the performance measures into customer-facing measures and
internal-facing measures. It is suited to process-based performance measurement of entire supply chain.
3.5 The knowledge base of industry case
The industry cases in the knowledge base of industry case can be categorized into three types by
performance: the best industry practices, the average industry practices, and ordinary industry practices.
The knowledge base of industry case can provide some suggested to-be models to managers based on
the optimization objective, as is model, and relevant industry cases with inference methods. In other
words, the inference engine in knowledge base makes it possible to support the managers’ decision on
SCPO interactively. Especially, it is decided by the user which suggested to-be model are taken as
reference models. That is, it is not important whether the reference models chosen by the user are the
best industry practices or other types of cases. Instead, the reference models must be the models which
can help to generate the satisfying solutions.
3.6 Optimization method
Optimization method is applied to get the optimal solution to SCP improvement. Two types of
optimization method can be applied in SCPO system: the CBR-based method and calculating. In
CBR-based method, If there exits unsatisfying performance gaps between the as is model and reference
models, new solutions can be generated by retrieving the most relevant industry cases from the
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knowledge base of industry cases and adapting them to fit the situations. Calculating is to generate the
to-be model by some process optimization algorithms directly. The two methods are integrated in our
research.
4 The system model
A system model of SCPO is proposed in this section. For users, there are three phases (modeling,
measuring and improving) for SCPO in the system model. Meanwhile, the system model is comprised
of six components discussed in previous section which can support the SCPO information system
design. The system model shown in fig. 1 provides a way of understanding the relationship among the
three phases and the six components.
In this model, the first work for SCPO is to decide the optimization objective. It is the foundation
of SCPO. It influences all three phases of SCPO.
From the user’s view, the next step is to model the as is SCP model. Using the knowledge base of SCP
and modeling method, the individual processes chosen from the knowledge base of SCP or defined on
demand by the user can be combined into an entire supply chain process. If there are processes defined
by the user, the new processes will be stored in the knowledge base of SCP by some storing rules of
knowledge base.
The following step is to measure the performance of the as is SCP model. PMS is applied to
complete this work. On one hand, the optimization objective is quantified in PMS. That is, the
optimization objective is translated into a set of weighted performance measures benchmark. On the
other hand, the knowledge base of industry case is applied to support performance measurement
through PMS. For the consistency of process data, the process data in two knowledge bases are linked
via processes index table stored in the knowledge base of SCP. Therefore, when the user models a new
process, the relevant industry cases, including the best industry practice, average industry practice and
the ordinary industry practice, can be retrieved. Accordingly, the suggested to-be model can be
generated with inference methods. After that, the process performances of as is model and the
suggested to-be models are measured in terms of the weighted performance measures influenced by
optimization objective. Then, the as is model can be contrasted to the suggested to-be models on
performance, as help the user to choose reference models. Consequently, the performance gaps between
the as is model and reference models are represented.
The Knowledge Base of SCP
Modeling
Modeling method
Optimization
Objective
PMS
Measuring
Yes
Satisfying?
No
The Knowledge Base of Industry Case
Improving
Optimization Method
Fig.1 the system model of SCPO
If the performance gaps between as is model and the reference models are unsatisfying, it is said
that there exists the space of improvement. Therefore, the phase of improving begins. The optimization
methods can be applied in this phase. Besides the two types of methods mentioned above, in order to
increase the flexibility of the system, the to-be model can be created manually. That is, the user himself
can apply the modeling tools to recomposing as is model manually with the help of the two knowledge
bases in this system. After the to-be model is generated in the improving phase, the return measurement
of the to-be model follows.
On the other hand, If there are not unsatisfying performance gaps between as is model and the
reference models, the as is model is stored in the knowledge base of industry case as an industry case in
the relevant situation. Then the process of SCPO ends.
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5 Conclusion
SCPO focuses on further coordinating or redesigning the entire SCP in order to achieve the
strategic target of organization. A system model for SCPO is proposed in this paper. The system model
is comprised of three phases of SCPO process and six basic components which are applied to support
the reality of SCPO information system. The system model support the usage of various optimization
methods. Moreover, this model can optimize SCP according to optimization objective which is linked
with strategic target of organization.
The future research can focus on each phase of SCPO process and component of SCPO system
based on this system model. Moreover, Various industry may have different needs for SCPO. More
applications in different industry will improve this system.
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