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: agunasekaran@umassd.edu.
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
585
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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A. Gunasekaran and E. W. T. Ngai
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
587
(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.
589
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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A. Gunasekaran and E. W. T. Ngai
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
591
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
593
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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A. Gunasekaran and E. W. T. Ngai
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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