Download Web Services Application in Information Sharing of Supply Chain in SMB

Web Services Application in Information Sharing of Supply
Chain in SMB
ZHU Weiping1, SHAO Liangshan2
1.College of Management, China Institute of Metrology, Hangzhou, Zhejiang 310018, China
2. Liaoning Technical University, Fuxin 123000, China
Abstract: Recent years have witnessed a rapid growth of interest in the study of alleviating the
Bullwhip Effect and realizing the information sharing of supply chain in SMB. Aiming for two typical
supply chains —concentrated and separated demand information in SMB—the paper analyzes the
influence of demand information to Bullwhip Effect. Based on the above content, the value of
information sharing is explained. Then, the paper analyses the defect of EDI which realizes information
sharing among enterprises of supply chain, proposes the use of latest Web Services technology
realizing information sharing among them, and sums up the concept structure of its realization and two
typical business mode—client demand information sharing and manufacturing and stocking information
sharing.
Keywords: Web Services; Supply Chain; Information Sharing
1. The value of information sharing in SMB supply chain
1.1 Introduction
According to statistics, 90% enterprises in China are SMB, which provide 70% wealth and have
become an important part of our national economy. Along with the rising of economy globalization and
e-business, competition among SMB turns to competition among supply chains step by step, and net
supply chain among enterprises will take the place of traditional hierarchy supply chain. As a main way
to enhance the performance of SMB supply chain, information sharing is paid more and more attention
to. In present high performance supply chain, it is through information sharing among upriver and
downriver enterprises to achieve inosculation between goods logistics and information flow, realize
effective management of supply chain and improve system’s whole performance. This kind of change
will result in lower stock level and higher service level. It provides a great chance to ameliorate
management and operational performance of supply chain that related information about stock level,
order, production and delivery etc is shared among a whole supply chain. Its value is materialized in the
following aspects:
(1) It lends itself to decrease demand fluctuation from a supply chain’s downriver parts to its upriver
parts.
(2) It could help suppliers to make better forecast and explain sales promotion and market change.
(3) To harmonize manufacturing and marketing systems and their strategies.
(4) To make suppliers respond to supply problems and adapt to them more quickly.
(5) To shorten lead time (especially information lead time).
1.2 Quantitative description about the value of information sharing Bullwhip effect
Consider a simplified four-stage supply chain that is shown in the following figure. This supply
chain has one retailer, one wholesaler, one distributor and one manufacturer.
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Outer demand
Retailer
Order lead time
Delivery lead time
Wholesaler
Order lead time
Delivery lead time
Distributor
Order lead time
Delivery lead time
Manufacturer
Figure 1 Manufacturing lead-time
In the research of supply chain management, suppliers and retailers have noticed a kind of
phenomenon: although the costumer demand for a specific product doesn’t change much, its stock and
postponed delivery level fluctuate greatly in supply chain. This phenomenon is called ‘bullwhip effect’
in which demand change extend increases as it heads for supply chain’s upriver parts.
Bullwhip effect could be analyzed quantitatively. A retailer’s order change (Var(Q)) to supply
chain’s upriver parts and costumer’s demand change (Var(D)) observed by the retailer fulfill:
Var (Q )
2 L 2 L2
>= 1 +
+ 2
Var ( D )
p
p
L represents lead time, and p represents observed quantity of costumer demand.
Aiming at two supply chains with different types, the following expounds the influence of
concentrated demand information on bullwhip effect: (1) supply chain with concentrated demand
information; (2) supply chain with separated demand information.
1.3 Supply chain with concentrated demand information
In this kind of supply chain, a retailer (1st stage of supply chain) obverses costumers’ demand,
adopts P observed demand values to forecast average demand with SMA (Simple Moving Average)
method, and finds target stock level according to forecast results. Then he gives his order to wholesaler.
Wholesaler (2nd stage of supply chain) receives order and average demand data forecasted by retailer,
confirms his target stock level with this forecasted value and send his order to distributor. In the same
way, distributor (3rd stage of supply chain) receives order and average demand data forecasted by retailer,
confirms his target stock level with this forecasted value and send his order to manufacturer (4th stage of
supply chain).
In this supply chain of concentrated type, each stage shares costumers’ average demand
information that is forecasted by retailer and confirms stock strategy depending on it. Based on the
above analysis and the quantitative function of Bullwhip effect, the relation between order’s variance
Var (Q k ) sent out by K stage and costumers’ demand variance Var (D ) can be concluded as:
k −1
k −1
2∑i =1 Li 2(∑i =i Li ) 2
Var (Q k )
≥ 1+
+
Var ( D )
p
p
Li Represents lead-time between I stage and i+1 stage.
1.4 Supply chain with separated demand information
In this type of supply chain, average demand data forecasted by retailer is not shared by supply
chain’s upriver parts. Adversely, wholesaler estimates average demand depending on orders sent by
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retailer. For the sake of simpleness, we assume that wholesaler adopts P observed values to forecast
average demand with SMA (Simple Moving Average) method, and the P observed values are retailer’s
recent p orders. In the same way, distributor uses P observed order values sent by wholesaler to forecast
demand’s average value and standard deviation with SMA, and confirms target stock level by these
observed values. Distributor sends order to manufacturer depending on his target stock level. As a result,
k
in this kind of supply chain, the relation between order’s variance Var (Q ) sent by k stage and
customers’ demand variance Var (D ) fulfills the following function:
Var (Q k ) k −1  2 Li
L2 i 
≥ ∏ 1 +
+2 2
Var ( D )
p
p 
i =1 
Li represents lead time between I stage and i+1 stage.
1.5 Value analysis for information sharing
By comparing the bullwhip effect analysis about the above two supply chain types, we see clearly
that in supply chain of concentrated demand order’s fluctuation extent increases from supply chain’s
downriver parts to upriver parts in the way of summation, and in supply chain of separated demand it
increases in the way of product.
When demand information is concentrated, every stage of supply chain can use actual customer
demand information to forecast average demand. Adversely, as demand information is not shared, each
stage has to use order sent by its previous stage to forecast average demand. As shown by Bullwhip
effect, these orders have bigger fluctuation extent than actual costumer demand data. Therefore, average
demand forecasted by these orders has bigger fluctuation extent, which results in more fluctuation in
orders of next stage.
Consequently, we know that Bullwhip effect can be decreased remarkably by sharing demand
information among enterprises in a whole supply chain.
2. How to realize information sharing in SMB supply chain
For the core business of a supply chain, it is very important to enhance its competitive power
whether it could realize information sharing in greatest extent with key partners, decrease Bullwhip
effect, and reduce information lead time (time for handling order) in supply chain and achieve better
operational performance. Therefore, it becomes the focus point of core business and IT manufacturer to
look for a solution which is relatively cheaper and acceptable and also could fully satisfy information
communication.
2.1 Defect of traditional EDI
Traditional e-business began at the end of 1960s. In order to transfer business files automatically
from one information system to another without fax, telegraph and manual input, American TDCC
(Transportation Data Coordinating Committee) tried to establish data protocol that was oriented to
business rule and based on EDP, so as to realize auto-transfer of business data among different trade
partners’ computer systems. This is EDI (Electronic Data Interchange) called today. Now EDI has
become a protocol system with computer software and hardware technology, business rules and security
and secrecy. Although EDI matures in technology day by day, it is not applied to SMB widely. This
shows that as main protocol of data exchange, EDI has its inherent defect for SMB:
1 Expensive. Specific VAN should be rented and one to one exchange system should be customized.
Thus information handling cost is increased for an enterprise.
2 Its coverage is small. It adopts special close VAN (value-added network) which only connects with
limited trade partners.
3 The structure of its protocol has poor agility, and could not synchronize with the change of its
corresponding business environment.
4 Transmission of EDI message has a lot of limitation, and could only use appointed network and
security protocols.
5 EDI protocols are based on traditional business rules. Because of economic development and rule
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（）
（）
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change, many business applications can not use early EDI protocols to denote themselves normatively.
Therefore, either from technical aspect or economic aspect, it is hard for EDI to bear the important
task of information sharing among SMB supply chain’s nodes.
2.2 Electronic data interchange solution based on XML&Web Service
The naissance of XML provides electronic data interchange with brand-new idea. Defects of EDI
are just advantages of XML application. XML could easily and flexibly show new business rules by
customizing DTD/Schema. It is easier to become popularly either from technology angle or cost. XML
itself is data definition protocols with no relation to specific application. Thus, common network
infrastructure, communication protocols and encryption protocols could be combined with XML, and
consist multiple B2B solutions.
XML can realize data interchange among enterprises with independent platforms. it’s the
information sharing way of enhancing business cooperation efficiency and the best choice for B2B data
interchange to use XML which is based on internet and with uniform protocols. XML is a data
interchange way for different platforms, equipment and languages. Nonetheless we need realization
mechanism of data interchange. Because the transfer and return results of Web Services are XML
document formats, its XML application is data interchange model and mechanism for e-business.
3. Adopt Web Services to realize information sharing of SMB supply chain
3.1 Introduction of Web Services technology
As a burgeoning technology, Web Services may bring great change to supply chain B2Bi. Simply
speaking, Web Services are interface that describe some operations which could be visited through
network with standardized XML message delivery mechanism. It conceals details used to realize
services, and supplies platforms that are independent from hardware and software on which services
realize and program languages used. This permits and supports an integrated application that is based on
Web Services to become a multiplatform realization that is incompact coupled and oriented to
components. Web Services are established on a group of standard protocols, including TCP/IP, XML,
SOAP, WSDL and UDDI etc (the followed figure can be referenced).
(1) Network transfer protocols, TCP/IP;
(2) Extensible Markup Language XML is a kind of data description rule. SOAP and WSDL are all
established on it.
(3) Simple Object Access Protocol SOAP is a simple and light-weighted message transfer mechanism
that based on XML. It is used to interchange structural data among web application programs.
(4) Web Service Description Language WSDL itself is XML file. It defines Web Services descriptions
as a group of services visiting points, by which clients could visit services including files oriented
information and procedure oriented call (like remote procedure call).
(5) Universal Description Discovery and Integration UDDI.
，
，
，
，
Figure 2 Web Services notional protocol stacks
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3.2 How do Web Services share information to reduce Bullwhip Effect?
The initial purpose of Web Services is to provide applications with interfaces which could be used
to visit network by XML messages. Since by Web Services data integration’s effect to existed system
could be minimized and data integration among enterprises could be carried out flexibly and efficiently,
Web Services application in information integration of supply chain enterprises is paid more and more
attention to by enterprises and application integrated services suppliers.
By rebuilding an old application and unveiling its function as Web Services, using WSDL to
describe its function and transfer way and using SOAP to transfer (request/corresponding mechanism), a
3rd business partner could transfer these Web Services and realize information sharing of supply chain,
so as to achieve real multi-platform application program data integration among enterprises that is
incompact coupled and with stronger adaptability. The following figure shows the logic structure of how
to use Web Service to realize application data integration.
Figure 3 the logic structure of how to use Web Service to realize application data integration
As for the simple 4-stage supply chain we discussed above, there are two typical business modes to
realize application program data’s integration of supply chain’s every stage. Their application logic
structure is alike (as shown in the above figure):
(1) Customer demand information sharing
The most common way to reduce Bullwhip effect is to concentrate customer demand information in a
supply chain. Namely, retailers in downriver part of a supply chain provide data for distributor and
manufacturer in upriver part to realize customer demand information sharing in the whole supply chain.
Retailers encapsulate some function of their system as Web Services, and business systems in upriver
can use SOAP (a standard protocol) to transfer them from internet, and get customers’ average demand
information in XML flies form. Then upriver business in a supply chain can adopt real customer demand
information, not orders of downriver business to forecast average demand. Depends on the above
analysis about information sharing value, we know that in this way Bullwhip effect can be decreased
remarkably and manufacturer can respond better to order demand of downriver members.
(2) manufacture and stock information sharing
In another aspect, manufacturer encapsulates some function of its system as Web Services, and
downriver member (retailer, distributor) of the supply chain can use Web Services provided by upriver
manufacturer to get stock and manufacture information. This make them quote order lead time well and
truly for their clients. Besides, through manufacture and stock information sharing retailer and
distributor can know and trust manufacturer’s capability. This confidence makes distributor and retailer
decrease their secure stock level, which they hold to prevent manufacture problems.
Web Service can be used to encapsulate an enterprise’s existed application and uncover their function as
Web Service. Thus existed investment is effectively protected. So it is a potent technology used to
integrate data and application among enterprises. In addition, Web Services is developing rapidly. For
example, BPEL (Business Procedure Executive Language), WS-Transaction and WS-Coordination
provide an all-around business procedure automation infrastructure, on which a company can adopt the
power and advantage of Web Service to establish business and make them auto, so as to realize
hundred-percent cooperation and information sharing of supply chain and concentrate business
procedure among enterprises, reach the purpose of decrease stock level and shorten lead time, and
finally realize the target of best customer service in lowest cost.
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References
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management------conception, stratagem and case study. Shanghai Far East Publishing Company,
2002:79 82
[2] Peter C.Bell, translated by Han Botang etc. survey in stratagem angle about management science .
Beijing: Mechanical Industryl Publishing Company, 2001:191 203
[3] Luo Hong, ERP principle, design and implementation . Beijing: Electronic Indurstry Publishing
Companym, 2001:101 103
[4] Chai Xiaolu, Web Service infrastructure and open inter-operational technology, Beijing: Tsinghua
University Publishing Company, 2001:75 78
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