The authors have been supported
by Deutsche Forschungsgemeinschaft (DFG), grant for collaborative
research center SFB 457-00.
Abstract: In this paper we introduce a concept
of project-driven co-operation formation between SMEs (small
and medium-sized enterprises). In contrast to conventional, more
static supply networks, which are often dominated by a large-scale
enterprise as main contractor, our model facilitates the dynamic
co-operation formation between equal partners. The co-operation
lasts for the duration of single projects and is therefore more
suited for single piece and small batch production. Co-operation
formation is supported by service brokering via electronic market
places. The SMEs are very loosely coupled to the market place,
having to provide only a company profile in order to be included
in any selection process. A multi-objective selection mechanism
helps to choose the most suitable partner for every task in the
co-operation. This enables SMEs to accept and successfully fulfill
customer requests for complex products, which they could otherwise
not handle. Supply chain management within the co-operation bases
on the new Extended Value Chain Management approach. It allows
a probability assessment of delivery time and quantity assurances
in tenders exchanged during the co-operation formation. Thus
the risk of failure due to lacking information about likelihood
of delivery in a supply point is drastically reduced.
production networks are the vision of a virtual enterprise model
followed in a collaborative research project at the Chemnitz
University of Technology . The centre of interest is the evolution
of a virtual enterprise model, which is based on small production
units, so called competence cells. The general intention of our
model is to improve the competitiveness of small and medium-sized
Our research pursues a path
off the beaten track. The objective of already existing models
is to restructure the co-operation between large-scale enterprises
and dependent partners. The primary objectives of our model are,
of course, the same ones as in existing models: reduction of
production costs, improved flexibility, higher quality, reduction
of the administrative overhead and the bullwhip effect. Already
existing approaches dissect organisations into smaller units.
These units possess only few and very specific key competences.
The rationale behind this top-down strategy is to connect particular
units in order to form a network. These networks should improve
the companies' performance in complex production tasks .
By following the bottom-up principle the concept of Virtual Enterprises
(VE) can also be applied to small and medium-sized enterprises.
Their business is, as a rule, already concentrated on a small
number of key competences. That means, they fulfill a particular
function very well. However co-operation could enable the SMEs
to accomplish comparable tasks as large-scale enterprises do.
Today these co-operation are often built up hierarchically, because
smaller enterprises are only involved as subcontractors of large-scale
enterprises. A prominent example of this pattern, and coincidentally
the essential driving force of innovation in Supply Chain Management
(SCM), is the automotive industry.
Supply Chain Management is
a major prerequisite for controlled co-operative production.
Supply Chain Management is the integrated, customer-oriented
view on business processes beginning with the initial supplier
up to the end consumer. It comprises all strategic and functional
measures for the efficient and effective coordination of inter-
and intra-organisational material and product flows. SCM shifts
the focus of planning from the enterprise level towards the objective
SCM typically treats suppliers
as "black boxes", which means they receive inquiries
as input and are expected to produce tenders as output. Their
internal situation, such as their current capacity, is hidden
to the client. Therefore the client has to delay further plannings
until he receives the tender and, more critically, he has to
rely on the assurances in the supplier's tender without beeing
able to check their likelihood. In reality however, delivery
time and quantity statements are often only the supplier's estimations.
This degree of vagueness is not visible to the client and often
turns out to be a pitfall in the co-operation.
2. Extended Value Chain Management
Extended Value Chain Management
(EVCM) supports the quantization of delivery time and quantity
assurances. The EVCM software is connected to the ERP system
and can directly assess the likelihood for the fulfillment of
a contract. This means, suppliers can be seen as "white
boxes". A product to be delivered can either be in stock
- it is avalaible to promise and the likelihood is hundred percent.
Or, the product has to be manufactured first. The ERP system
provides the information if the manufacturing is possible within
the given time frame. In this case the product is capable to
promise. However the likelihood now depends on the supplier's
internal situation and reliability of the next level suppliers.
This yields a chain of conditional probabilities for supply promises.
In contrast to SCM, EVCM allows a more realistic planning on
account of the probability chain. Moreover, the automatic processing
of inquiries by EVCM software allows for an instant generation
of tenders. The client receives an immediate response, which
drastically decreases the delay in his further plannings. By
combining the concept of EVCM with electronic market places,
the advantage of fast and realistic tender generation is complemented
by the option to have a flexible supplier network.
A customer can issue an inquiry
to a market place. The inquiry can also be automatically generated
by an SCM-system . Via the market place potential first level
suppliers for the final product are identified. Each supplier
disassembles the value adding chain only in the part he has the
technological or manufacturing competences for. Inquiries for
the other parts are passed on to a market place again. In case
a supplier does not need to further disassemble the value adding
chain, the roll out process in this branch stops and the supplier
returns a tender. Subsequently, in the roll back phase, the tender
is returned to the inquiring instance. A supplier receiving tenders
for out-sourced parts has to calculate his own tender. The selection
of the most suitable supplier according to a set of recieved
tenders requires advanced planning and scheduling tools .
At the end the customer receives tenders for the final product
from the first level suppliers.
Finally the technique of decentralized
disassembly likely yields a similar network to what a centralized
SCM planning procedure would generate. The difference is that
a centralized approach can theoretically guarantee a global optimum,
if the complexity of the entire task can be managed. A decentralized
approach cannot guarantee a global optimum. Nevertheless the
striking advantage of decentralized disassembly is the greatly
reduced complexity. The fast generation of realistic tenders
offsets the lack of a guaranteed optimum. Furthermore the decentralized
approach in connection with electronic market places allows flexible,
project-driven co-operation formation. The SME's are not tied
in a fixed supply network. Instead they can autonomously choose
the most suitable partners for every project.
The implementation of the described
approach comprises two main areas. The functionality of the EVCM
business logic as Add On to an existing ERP-system is hosted
as application service. The objective of this ASP (application
service providing) strategy is to provide the SMEs economically
feasible access to EVCM tools . Traditionally, SCM-solutions
are only affordable for a limited number of users. For SMEs the
costs are prohibitive. Our model of production networks offers
the opportunity to overcome this exclusivity by integrating the
e-business technologies and the enterprises' system environments
of ERP or even SCM.
Hosting of EVCM systems can
be accomplished by extending the market place functionality.
The second area is the installation of a sophisticated mediation
on market places. The mediator has to preselect only suitable
suppliers for a given inquiry in order to avoid information flooding.
It passes on the inquiry to the selected suppliers and routes
their tenders back to the inquiring instance.
3. Mediation on EVCM Market
In the EVCM model the market
place acts as a broker for services and products supplied by
independent SMEs. The broker selects suitable suppliers for a
given inquiry. Suitable here means that the supplier is capable
to fulfill the technological requirements stated in the inquiry.
Therefore the market place needs two components to act as a broker.
The market place has to maintain a product and service catalogue
describing the product ranges and technological capabilities
that can be exchanged on it. This in turn requires that the SMEs
register on the market place and describe themselves in compliance
with the market place's domain ontology. The domain ontology,
the market place's second required component, governs the formulation
of catalogue entries as well as the inquiries. Each enterprise
has to describe itself and its products or services in a profile
by using the terminology maintained in the ontology. This establishes
a common view on the product catalogue. The formulation of the
inquiries in the same terminology enforces the semantic compatibility
to the product catalogue and thus allows the identification of
potential suppliers. It must be noted however that neither the
product catalogue, the profiles nor the ontology contain static
information. For example new products or services might be offered,
which requires not only the insertion of another product but
also the addition of concepts to the ontology. This in turn requires
an extensible ontology and the efficient management of an arbitrarily
large product inventory in a knowledge base at the market place.
For the efficient storage and
retrieval of company profiles, we use the ICIx technology, which
organises objects according to a content-based similarity measure
. The measure takes into account describing features and creates
a multidimensional arrangement of the objects in form of similarity
groups. Thus ICIx groups together providers of similar services
or products . To the resulting similarity groups links are
established in the product catalogue. This mechanism allows the
broker to retrieve quickly all suitable suppliers for a given
inquiry once it has identified the appropriate entry in the product
catalogue. The broker's search can either be conducted as exact
match queries or approximate queries. Exact match returns only
those providers whose profile contains exactly the product or
service in question and all specified features. Due to the configuration
variety of complex products an exact match is not always guaranteed.
The approximate match however returns all members of the similarity
group. In the first case, the inquiry can be passed on to the
respective suppliers. The adherence to the concept ontology on
both sides guarantees that these suppliers can manufacture the
desired product. Therefore exhaustive and up-to-date description
of their product range is of economic interest for the suppliers.
In case of an approximate match the market place can either react
in the same way or require the client's decision. The supplier
receiving an inquiry resulting from an approximate match has
to decide whether it is technological feasible and he returns
a tender, or it is infeasible and he rejects the inquiry.
While the selection of suitable
suppliers for a product in the roll-out phase is based on content
criteria, ie. technology, features and functions of products,
the choice which tender to accept in the roll-back phase, and
consequently which supplier to include in the co-operation, is
based on economic criteria. A multi-objective decision has to
be made with respect to the quantity to be delivered, delivery
time, price and other conditions. The EVCM system has qualified
each tender with a particular likelihood and thus the decision
process is more detailed but also more complex. The risk of failure
in a supply point, which was hidden in the SCM world, is now
visible and can be included in the utility function of the optimization.
This decreases the structural risk in the co-operation formation
and operation. Moreover, the likelihood can be aggregated over
all nodes of the supply chain and becomes part of the final tender
the customer receives from the production network. The increased
transparency of the tender represents an additional benefit for
the customer and is likely to improve the customer's trust in
the production network.
In this article we have proposed
a concept for flexible co-operation formation. The co-operation
formation is project driven. For a complex product to manufacture
a network of most suitable participants is created under economic
considerations. The partners are identified by a product causal
approach, which means they are identified by offered products
rather than their competences and capabilities. The product causal
approach was chosen, because current research results do not
allow an in-depth competence description, sufficient for the
match-making purpose. As a consequence, the system includes at
the moment only manufacturers. Service providers can only be
handled if the description of their services is very specific,
for instance transport services. The description of more general
services, for instance logistics, is a current research topic.
The core of the business logic
in the co-operation formation is the electronic market place
in conjunction with an Extended Value Chain Management system.
We propose EVCM as new generation of Supply Chain Management
systems. EVCM works on top of the companies' ERP system. Thus
it allows insight into the companies' current capacities. On
this basis realistic tenders as response to inquiries can be
created rapidly. In combination with the communication speed
in electronic commerce, this can dramatically accelerate the
co-operation formation. Hosting EVCM as application service makes
sophisticated supply chain management affordable for SMEs. This
could turn supply chain management software into a fast growing
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