International Journal of Electronic Business Management, Vol. 4, No. 5, pp.

357-367 (2006)

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IMPLEMENTATION OF SUPPLY CHAIN LOGISTICS PROCESS REENGINEERING AND E-BUSINESS SOLUTION FOR A CHAIN STORE BUSINESS
Y. C. Ethan Lin Department of International Trade Hsin-Wu College Taipei (244), Taiwan

ABSTRACT
It is now a norm in the convenience store supply chain that a logistics company (or companies) provides logistics services to both chain stores and their suppliers. The coverage rate of stores has become the major factor for winning in the marketplace of chain store businesses. Logistics companies need to establish a logistics center for each market area to provide quick response to the stores in that specific service area. The planning of supply chain logistics operational mechanism has became the critical success factor for the reduction of total supply chain operational costs. This mechanism can also reduce the complexity and cycle time of supply chain operational processes, such as the supply chain management of logistics center, integrated payment process among stores, logistics companies, and product suppliers. The purpose of this paper is to explore the experience and outcomes of the supply chain logistics operational process reengineering and e-business solution implementation of a chain store business. The analysis of supply chain logistics operational process reengineering effects on the supply chain partners are also discussed, with the intent of providing a successful business model for other chain store businesses. Keywords: Chain Store Business Supply Chain, Operational Process Reengineering, E-Business Solution, KPI

1. INTRODUCTION
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Market competition in the 21st century has evolved from a simple commercial process to sophisticated e-commerce. A key factor that has strengthened competitiveness is the utilization of Information Technology (IT) to construct the supply chain management framework. This framework reforms the internal processes and procedures of a company. This type of process restructuring will definitely be the most powerful weapon to succeed in head-to-head competition. 1.1 Study Motivation When implementing Supply Chain Management (SCM), it is very important to ensure two-way communication between the suppliers and customers on all aspects. This includes planning the mutually beneficial process together and coordination of commercial ideas by negotiation. Thus, operational efficiency will increase, costs will decrease, and all stake holders will benefit.
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Metz [10] defines SCM as procedure integration of purchasing, production and delivery. There is little research available on the advantages of SCM for the chain store industry as provided by the logistics company. What research is available tends to focus on supply chain procedures, resources to evaluate customer service, and methods for evaluating supplier performance via stock cost. The Distribution Center (DC) is the most important bridge between trader and supplier. Drucker [6] proposes the importance of logistics, and thinks it is the last Dark Continent. The effective control of logistics can reduce costs. Henkoff [8] also indicates additional evidence that points to logistics as the source of competitive advantage for the future. The motivation of this research is to a case study and model for managing and operating chain store supply chain logistics, such as purchasing, returning goods and cash flow. The main purpose is to reduce direct and indirect costs, to improve customer service management, and to strengthen the competitiveness of the chain store industry.

Corresponding author: ethan@tdccorp.com.tw

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International Journal of Electronic Business Management, Vol. 4, No. 5 (2006) 1.4 Research Range The methodology used is the case study, focusing on an exclusive sealing type logistics company of the chain store supply chain business as research object. All operational decisions and experiences faced by e-Logistics are recorded. Areas covered include network infrastructure, software, hardware, reconstructed and business process reengineering. The major points of A-Company e-Logistics lie in plural DC purchasing, integration of supplier account transactions and CVS account withheld management, establish the foundation of activity based costing (ABC), apply process reengineering and assess logistics key performance index, reduce bull-whip effect, slow down the whole cost and raise supplier service satisfaction as the main purpose. The article is focused on the following points: 1. The internal and external network construction of chain store supply chain e-Logistics. 2. Process reengineering on purchasing, returning goods and accounting procedure of e-Logistics. 3. Internal performance analysis on chain store supply chain e-Logistics. 4. External efficiency analysis on chain store supply chain e-Logistics from suppliers and retailer.

1.2 Study Purpose To synthesize the above points, the purpose is to examine the relationship, from the purchasing perspective, between DC of CVS chain store industry by using e-Logistics to handle inventory and improve competitiveness. This study also wants to understand the role of IT in relation to the logistic E-business solution, and to present an impact analysis from suppliers to customers. To achieve this purpose the case study method has been adopted. A CVS chain store, which is exclusive to a logistic company, will provide the basis to discuss how the chain store industry in Taiwan is being introduced to e-Logistics, and how its influencing process re-engineering to strengthen the business's competitiveness. The research purpose is as follows: 1. Probe the contribution of business to supply chains using e-Logistics, offer a successful business to serve as a successful reference. 2. Probe into the role of IT, offer insight into the experience of other businesses that have implemented e-Logistics. 3. Probe into channeling e-Logistics interaction between supplier and CVS chain store, in order to have a model in the future. 4. Probe into channeling risk on e-Logistics to propose rules and regulations to evade those pitfalls. 1.3 Description of Questions The domestic convenience chain store arena is experiencing a fierce increase in competition. The density of CVS has surpassed that of Japan. In fact, it is the highest in the world, with roughly 8,000 shops. The rate of old stores closing and new stores opening are quick. The intricacies of storage and transport operations have made the relationship between CVS and suppliers more complicated. This phenomenon has pushed CVS chain stores to create a specialized logistics support team, which not only offers inventory and delivery but also acts as an intermediary between CVS and suppliers. That is the reason for generating traditional domestic DC. These sealing-type logistics companies have set up different DCs in every area for delivering goods in the shortest possible time. While the logistics industry is pursuing a high turnover rate in stock and low short rate in supply goods, the procedures between DCs and supplier's importing stock, return goods and account exchanges have become increasingly complicated. This increases expenditures as well due to the plural stronghold of DCs. The use of network IT and process reengineering in SCM to reduce the whole cost structure and improve competitiveness is one of the greatest concerns of CVS chain stores.

2. LITERATURE REVIEW
2.1 Business Process Reengineering (BPR) Hammer [7] defines BPR: A re-thinking and re-design of the base of a business's procedures, enabling the weighing of key indexes of business, for example: cost, quality, service, speed, etc., to obtain a dramatic improvement of results. IT is the critical key factors of BPR, by using IT to re-inspect current workflow operations and to identify ways to improve quality. Venkatraman [12] depicts the IT has became the main tool for re-organizing business organizations. IT is the main tool used to redesign workflow procedures and improve the quality of service. Kalakota and Robinson [9] point out that IT demonstrates its greatest influence by the power of e-business, which has changed completely the way businesses operate. This segues to the core goal of brand-new customer values and procedures. The introduction, tactics and analysis of those factors demonstrate that the E-business solution has a close relationship with business reengineering. 2.2 Supply Chain Management The categories of SCM proposed by Christopher [4] focus on the goods manufacturing process, the provision and delivery channel, and finally reaching consumers' at the other end of the supply chain. The concrete practices presented by Weele [14] depend on

Y. C. E. Lin: Implementation of Supply Chain Logistics Process Reengineering and E-Business Solution reduced inventory stock, shared information, shared risk and remuneration, mutual trust and cooperation, shared planning, reduction of the business supply quotient, and the use of science and technology to link the supply chain workflow operation procedures. Sharing the information can help members in SCM make better decisions, and help SCM reach optimum performance levels. Cachon and Fisher [3] think the inventory management of SCM can speed up the current IT pace, lower costs for business and provide local on demand exchanges, reduce inventory stock, and improve the reliability of providing and delivering services. Anderson and Katz [1] put forward the value of supply chain purchasing. They state that purchasing does play a key role in SCM, and is the main factor for controlling business costs and increasing benefits. Watts et al. [13] also point out that the function of purchasing allows businesses and suppliers to set up a 2-way link to improve the supplier's capabilities, share information in timely manner, and an improved overall relationship with increased SCM performance. 2.3 Key Success Factors (KSF) The KSF are the best way to define business's information needs to ensure a competition advantage and growth of business. Shank et al. [11] propose that KSF can be weighed on the success or failure of the information system. Analysis of the proportion of additional value produced in the course of business is the best index to establish key success factors. Increased activity with a higher additional value is the root of KSF. KSF of SCM should include the change in organizational procedures which are altered by the external environment, internal information and shared IT among businesses in the supply chain. 2.4 Key Performance Indicators (KPI) The U.S.A. Supply Chain Council proposes the SCOR model (Supply Chain Operations Reference Model) as the chain store performance model. It emphasizes improving customer service, lowering operating costs and improving efficiency. Cohen and Lee [5] are the first researchers to use basic cost and customer response as an indicator to measure the supply chain performance index. Beamon [2] divides the supply chain performance indicator into two categories: quantitative indicators and non-quantitative indicators. These two indicators can be combined into one overall performance indicator. According to all the above research and documents, we can tell that applying information technology to maximize supply chain efficiency is one of the KSF. SCM documents seldom probe into the logistics center as a starting point, nor probe into the reality of KPI with regards to chain store SCM and internal operating procedures.

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3. RESEARCH APPROACH
3.1 The Studys Tactics Yin [15] divides the social science research tactics into five methods: 1. Research law of the experiment; 2. Survey report law; 3. Record analytic approach; 4. Historical research law; and 5. Case study law. The selected research method should have combined at least three of above methods, depending on the following conditions: (1) Method of study to approach research. (2) The degree which the researcher can control to the real subjects behavior, and (3) The degree of the phenomenon or the historical phenomenon at that time the research is conducted. It sums up the importance of a variety of research methods. There are 5 laws: (1) Law of Experiment Study, (2) Law of Survey Report, (3) Law of the Note Down Analytic Approach, (4) Law of the Study of History, and (5) Law of the Case Study. This main focus of this research is to establish if a supply chain Logistics company is the key factor between the upper-level supplier and lower-level supplier, how to use IT to reduce the costs of supply chain operations, and finally to determine the best procedures for streamlining the business organization and to single out the importance of the supply chain E-business solution. This research follows the how research methodology and conforms with the law of experiments, law of the study of history, and the individual case study law in accordance with the tactics of studying. This research focuses on the performance of a Logistics companys E-business solution. Therefore, the study is unable to control the fact that system is already operational, it can only analyze the data available before implementation and the effects after implementation. Therefore, the level and the degree of controlled incidents of actual behavior is limited, and this research is unsuitable for the application of the law of experiment tactic. The focal point of this research is the KPI after the implementation of the chain store supply chain E-business solution, the focal point appeared in the phenomenon at that time, the past procedure incident can only depend on historical materials in retrospect, study pf the degree of phenomenon in the present is higher than the historical phenomenon at the time of focal point, so it is unsuitable to adopt the law of the study of history tactic. Clearly, this research should adopt the law of case study while synthesizing the above-mentioned research tactics. In research following this type of design, there are two kinds of situations and conditions that need to be considered when using a

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International Journal of Electronic Business Management, Vol. 4, No. 5 (2006) to inventory management. The A-Companys main customer is one of the large-scale CVS. The head office of CVS is responsible for selecting and pricing of goods. Although the A-Company selects stock based on inventory management principles, it only collects revenue based on the expenses of the services it provides. The A-Company has the right to purchase and pay operational costs, but must also accept that the head office of CVS can withhold payment to the supplier. Routine practice is for each shop to statistically analyze their point of sale (POS) data, transmitting it to both the value added network company (VAN), and the A-Company head office. The A-Company head office integrates the sales data and to determine which products are selling in which area of the country. The A-Company head office then transmits its order to the appropriate DC, based on the geographic location of the CVS, for delivery of required stock for re-sale.

single case study to be approached with multiple methods of analysis. 3.2 Case Choosing Yin [15] proposes choosing a case study according to three principles as follows: 1. Remove the influence of independent variables: The results cannot be influenced due to changes in the external environment. 2. Choose an example where the theory has been applied: Choose a case where the theory has been applied in the extreme, so that outcomes can be clearly demonstrated to be the result of the theorys application. 3. The business representative: the chosen case can represent a specific industry, and its application analogous to the degree in the studys theme. On the basis of the stated principles selecting a subject, why choose a particular subject as a case study? The logistics industry is the middle link that connects supplier and chain store. The case studys business volume exceeds 10 billion every year. The author acts as project manager for channeling into e-Logistics, understands completely the background of the case study, and can collect all information necessary for this research. 3.3 Study Frame Based on the above description, the framework of e-Logistics is shown in Figure 1.

Figure 2: Flow of the A-Company Due to local and area needs, some suppliers will only supply one DC; others will support up to four DC. Every DC has its own independent inventory, accounting and administrative operations. Every supplier must operate according to the billing and payment requirements of each DC. The A-Companys head office summarizes all payments according to each supplier, and coordinates with the CVS head office on deducting payments, provides detailed information on goods in stock, returned goods, and the deduction of any credits. Figure 2 shows the flow of the A-Company. 4.2 Reason of E-Logistics System The A-Company is the sealed DC, it is heavily influenced by CVS business, and its profit is determined by operational costs. Why has A-Company implemented the e-Logistics system? 1. External environmental factors (1) IT is changing rapidly: IT changes the industry trade attitude and the competitive environment. Every chain store system is on the trending to channeling into the e-Logistics system. So, to make remain competitive, the new-type of information e-Logistics service system will influence the survival of the chain store.

Figure 1: The e-Logistics framework

4. CASE STUDY
4.1 Introduction of the Case Study Company The A-Company was established in 1989. It is a leading logistics center that supplies a large convenience store chain domestically. In order to offer the service of a rapid response, it has successively built middle, southern and northern distribution centers (DC) in Taiwan that support roughly 2000 CVS shops, and supplies over 90% of the goods in its retail stores. The key operation consists of order and information processing, merchandise purchasing, packing, delivery of merchandise, inventory control, etc. The key operation accounts for 76% of the goods that belong

Y. C. E. Lin: Implementation of Supply Chain Logistics Process Reengineering and E-Business Solution (2) Industry's severe competition: A-Company is a benchmark of logistics companies. To successfully take on old competition and to create new market areas, it needs to offer customer service to suppliers, provide shorter response times to CVS, and furnish instant information on inventory as a service to maintain its competitive edge. 2. Internal environmental factors (1) Manpower needs have increased sharply: For meeting the supply needs required after the opening of many more local stores, A-Company has set up the stronghold of DC to service each geographical area. DC can not reduce operation costs because of the lack of an integrated business solution, resulting in the increase of manpower. (2) Transaction turnaround operates slowly: The long lead time required for orders reduces the turn over rate. That increases inventory costs, and influences fund application. (3) Returned goods cause delays: With seasonal festivals and holidays occurring annually, goods from CVS are returned to inventory, this process requires a lot of space to store returned goods and also increase the operation costs due to the long term effect. (4) Sealed-type information model: A-Company is initially using the non-open system to establish its logistic information system. It has already created a big problem to overcome for a logistics company which is greatly dependent on IT. 4.3 Purpose of E-Logistics System IT can dramatically change the competitive environment of business, provide sharp insight, fast response strength, and powerful control of data will be the key factors determining whether at business remains competitive. The e-Logistics project provides the following points as a competitive strategy. 1. Speed: Replace paper file procedures with E-ordering, instead of sending papers between the logistic company and suppliers. 2. Service: Integrate the retailer account payment information; raise the penetrating degree on every supply chain nodes. 3. Simplify: Simplify shatter-type supplier payment procedures by unifying the financial window among businesses. Therefore, using e-Logistics, businesses can concentrate on dealing with relevant information, combining orders, controlling cash flow, and returning goods, reacting to and supplying every node within a business's necessary information system immediately. The competitiveness and service strength can be improved greatly. Channeling e-Logistics needs is a huge cost, but the government offers the chain store supply chain promotion plan to

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logistics companies nationally. A-Company decided to channel into e-Logistics to promote a migration towards this projected trend in the industry.

5. A COMPANYS NETWORK

PLANNING
5.1 Internal MPLS Network Planning 5.1.1 Original Network Structure Originally, the network was a point-to-point leased line structure, with a backup ISDN line. The downstream circulation between the middle DC and south DC information transition needed to pass through the northern DC. Adopting point-to-point ADSL to an outside network, created the following bottleneck: 1. Network bandwidth problem (1) Technological Problem of Transmitting Data: The special closed data transmission network will negatively influence other networks bandwidth. (2) Storing and retrieving shared files is a problem: The general shared files are all kept on the northern DC server. It is difficult to store and retrieve data at other DC. (3) Database access problem: Most data are stored at the northern DC, the other DC have unstable connections that are often out of service. 2. Defects of network structure All network transmissions rely on the northern DC as a middle station. When router troubles occur, all network communications are completely shut down. 3. Complicated expansibility problem With an additional DC to consider, and a need for back-up circuits, A-Companys new network structure will be as shown in Figure 3. The connection between CVS head office and new DC needs a T1 leased line to transmit, and needs another T1 as a backup line to connect with the northern DC.

Figure 3: Structure of newly-increased DC

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International Journal of Electronic Business Management, Vol. 4, No. 5 (2006) 5.2 External Network VPN Planning 5.2.1 External Network Structure Consideration A sealed network structure is much safer for network trade security. Thus, constructing an interconnected special line is the most provides the most security, but requires a great cost and time. As to maintenances the network, the cost is huge in light of every transaction node that needs a special line. A-Company assesses all possibilities, and adopted an SSL encrypted mechanism. Although this applied an external gold key requiring the development of application software, the construction costs were relatively low. The mechanism is comparatively limited on application usages in a Web-Based model. Operation of IPSec VPN sets up a sealed virtual channel, although the use of a client site is inconvenient, it is second in terms of security only to a leased line construction. However, by using IP technology, it can support most applications. Based on the above description, when A-Company adopts an IPSec VPN scheme, its external network structure will be as shown in Figure 5.

5.1.2 Plan MPLS Network Structure A-Company proposes to channel into SEEDNET MPLS network structure, as Figure 4 shows. A-Company will not directly lease the necessary line; it will lease the required line using the island wide SEEDNET as a backbone, and add it to an extra network package from its own network infrastructure.

Figure 4: New MPLS network structure The planned MPLS network structure is offered as a service of SEEDNET. The northern DC regards the T1 leased line as a back-up to connect to SEEDNET, and adopts one pair of router to provide network bandwidth balance, and as a mutual back-up increasing the connection stability and bandwidth between middle DC, southern DC, and SEEDNET. The back-up line is changed to ADSL. 5.1.3 Structure of MPLS Network The following is a comparison and contrast of network models before and after the implementation of e-Logistics for A-Company. 1. Difference between transmission models: AS/400 transmits data with a Bridge Model that will negatively influence other networks. Using MPLS structure, transmission data is with IP Plus. 2. Difference between network linkages: Original network link among each point by leased lines. Under MPLS, each point is joined through the backbone of SEEDNET, and then using the SEEDNET labeling package to transmit data. 3. Differences of newly-increased nodes: Original network needs to supply a leased line and ISDN for a backup line, when a new DC is established. Under the MPLS structure, it adopts the leasing way so the only thing required to do is to complete new connect application, which does not need to alter the entire network structure. 4. Differences between network management: SEEDNET personnel control the network at any time, and the way of MPLS utilizes a variety of ways to conduct the transmission. It requires only a monitor connection between every DC and SEEDNET.

Figure 5: IP sec VPN network structure A-Company has only two ADSL on the original network structure; it belongs to a sealed structure. After channeling e-Logistics, it needs to build a security network that does not require a lot of changes to the current structure. 1. Construction of the external connection: When constructing e-Logistics, one of two connection solutions needs to be selected. One is managed by A-Company to purchase fire-wall equipment, etc.; another is to rent ISP bandwidth and equipment. Regarding maintenance and support, it is better to transfer the work load to ISP companies due to the fact that network virus invasion technology changes rapidly and is upgraded constantly on all network equipment. 2. Connection for supplier's network: Because of the structure of IPSec VPN, the connection

Y. C. E. Lin: Implementation of Supply Chain Logistics Process Reengineering and E-Business Solution encryption channel requires SISCO 3030 hardware for efficiency. The supplier must set up a virtual private channel with software on the client site. After establishing a channel, it must also still pass the filtration of the fire wall. Then, it can connect to the e-Logistics system. Connection for the internal network: The A-Company network is built upon the MPLS of SEEDNET, to connect to the e-Logistics system; it needs to use the original leased line to enter IDC through the firewall. The IDC can also prevent entering A-Company via IDC due to internal network security. 3.

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4.

3.

5. 6.

Outsourced the plan to an information technology consultant firm to analyze, design and develop the e-Logistics system. The Testing Team assessed the e-Logistic system, reported issues and bugs to the consultant firm for trouble shooting and improving system. The Procedure Team assisted the suppliers with testing and implementation of the system. Suppliers were assisted with the implementation and initiation of the e-Logistics system once it was fully operational.

6. ANALYSIS AND DISCUSSION OF CASE STUDY

6.1 Characteristics of Successful E-Logistics E-Logistics manages the core operating process between DC and suppliers. It integrates information from suppliers and distributors. Applying e-Logistics will change many conventional processes and operating procedures. E-Logistics augments the use of the newest technology and tools available. A-Company plans a clear strategy to promote, introduce and implement the e-Logistics goal. 6.1.1 Plans Used to Promoting E-Logistics The team members thoroughly understand the process, and plan the following policies: 1. Adjust the suppliers business contract to replace the traditional paper based documents with the new electronic documentation. 2. Suppliers receive a certificate of payment rapidly through e-Logistics, thus providing the advantage of earlier access to the certificate of payment for use as collateral with financial institutions. 3. Training classes were provided to suppliers, to teach their employees the purpose of the project, and the procedures of using e-Logistics. 6.1.2 Methods Used to Introduce E-Logistics In order to achieve the above policies, the team organized the following teams, and clarified the duties for each team. 1. Organize an e-Logistics promotional unit, with a manager in charge of two teams: Procedure Team and Testing Team. The former is responsible for the planning and management of process reengineering. The later is responsible for testing the computer network and software. 2. Regular meetings to report progress and improve coordination between teams.

6.1.3 Key Factors for E-Logistics Implementation E-Logistics is not limited to improving DC process. The case study involves nearly 400 suppliers and 2,000 CVS. Suppliers ERP system, security management system, system compatibility and user quality all contribute to the outcome of implementing e-Logistics. E-Logistics successfully implemented by the case study attributes to the following factors: 1. Executive level fully supports and participates. 2. Suppliers share the advantages and efficiencies of the system. 3. The team fully communicates and cooperates. 4. IT engineers have the necessary technological knowledge and skills to success implement system. 5. Coordinate corporate employees based on skill and experience. 6.2 Process Re-engineering in E-Logistics 6.2.1 Supply Chain Process before Re-engineering Suppliers replenished stock and invoiced the distribution center daily. Receiving Department employees then checked and accepted stock deliveries before recording the actual invoice amount. On the 4th day of every month, accountants at each distribution center reviewed and adjusted the monthly statement issued by suppliers. Adjusted statements from all distribution centers were submitted to the Accounting Department (AD) of A-Company headquarters. The total monthly statement for each specific supplier was calculated, and all payments were processed accordingly.

Figure 6: The flow chart before re-engineering

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International Journal of Electronic Business Management, Vol. 4, No. 5 (2006) All partners in the supply chain can instantly retrieve and review detail bookkeeping records online. This can reduce time and labor costs to correct errors and verify the accuracy of bills. The Figure 7 flow chart shows process after re-engineering. 6.2.3 Benefits Analysis of Process Re-engineering Before process re-engineering, each DCs daily routine included manual invoices processing and checking of deliveries. The monthly routine of the AD included summarizing monthly invoices, and inspecting the payment statement list submitted by suppliers, etc. After process re-engineering and e-Logistics solution, DC is only responsible for purchasing and receiving goods, tracking returns, and inventory control. Monthly payment statement submitted by suppliers are transferred to e-Logistics, and handled by the AD of A-Company headquarters. Thus, the time of bookkeeping is dramatically reduced due to the centralized invoice management. The data is shown on Table 1 and Table 2. Table 1: Time saved after implement e-Logistics Hrs/ Unit Reduced Job Items Total Day Each 1. Invoice input and check 20.0 DC 2. Invoice reconciliation 24 Acc. 1. Reserve, release funds Hrs/ 3.5 Dept 2. Billing checking Day Info. 1. Regular process 0.5 Dept 2. Abnormal management Table 2: Time increased after implement e-Logistics Unit Increased Task Days/Month Total Payment 15.0 30 Days/ 2.0 Acc. Monthly closing Month Dept Sales tax 2.5 1.0 Processing credit Statistical analysis demonstrates that e-Logistics can reduce staffing needs at each DC by one FTE, a total four FTEs for the case study. A-Company headquarters would need to add only one FTE to the accounting department. If increased demand warrants building a new DC, the total number of new hires required for operating the center would be reduced because of the implementation of e-Logistics. The case study saves an estimated $NT2.88 millions in salary and benefits per year. 6.3 Analysis of the Effectiveness of E-Logistics 6.3.1 Benefits of E-Logistics to Suppliers Prior to implementing e-Logistics, suppliers were passively informed of the status of the supply chain. After implementation of the system, suppliers can retrieve information anytime, and contact either

The CVS headquarters deducts charges for refused items, and submits adjustments to A-Company for revised invoicing. After a review of adjustments, final billing information is generated, and AD of A-Company encumbers and releases funds for payment. The CVS headquarters also mails a payment review report to suppliers. The case study invoices the CVS headquarters as needed to recover any shortage in the original payment. The business department will do reserve, release and collections at last. The flow chart shows as Figure 6. 6.2.2 Supply Chain Process after Re-engineering All bookkeeping was done by using e-Logistics system. All suppliers can instantly check actual delivery amount of goods and billed online. Suppliers have the option of generating an invoice at the time goods are shipped, and the invoice data can be entered into the e-Logistics system directly. An invoice can also be generated by combining different shipments, and entered into the e-Logistics system at the end of the month. When both the suppliers system and the e-Logistics system are connected, errors from manual data entry during order processing are minimized. After reengineering, suppliers have the ability to review all charges, verify pricing and applicable discounts. One invoice will be submitted to A-Company monthly, rather than to each DC individually. The headquarters of the CVS can review items not shipped, items not accepted for delivery and verify credits for display fees, promotional fees, discounts, etc. Payments can then be submitted directly to the case study via the electronic system. The case study accounting department then calculates payment to suppliers based on the information submitted by the headquarters of CVS in the system, and wires payment to suppliers as stipulated in supplier contracts.

Figure 7: The flow chart after re-engineering

Y. C. E. Lin: Implementation of Supply Chain Logistics Process Reengineering and E-Business Solution A-Company or CVS headquarters instantaneously. This allows suppliers to gain the following benefits with regards to purchasing, merchandise returns and bookkeeping: 1. Purchasing (1) Previously, suppliers received orders by fax, which lacked a mechanism for verifying orders in a timely manner. Disputes arose with the distributor over supply shortages, often resulting in penalties for violation of the sales contract. (2) Suppliers are able to provide the case study with notification of stock shortages in a timely manner, allowing purchasing personnel to promptly deal with any sudden shortages. (3) Suppliers receive information on orders that are shipped incomplete, which will reduce the number of disputes and penalties. 2. Merchandise Returns (1) Distribution center warehouse employees check and accept merchandise received and enter the quantity into the system. Computer generated reports reduce manual errors. (2) The supplier knows precisely the size of returns, which enables to send an appropriately sized vehicle to control transportation costs. (3) Service level is increase by rapidly dispatching vehicles to collect returns. 3. Bookkeeping (1) Suppliers no longer need to issue paper invoices when shipping, expediting the suppliers accounts receivable process, reducing the manpower required for invoice verification. The supplier receives payment on the 8th instead of the 12th of the month. (2) Suppliers and DC verify deliveries simultaneously. Computer generated reconciliation reports eliminate manually writing the reports. Detailed billing reports can be checked online and download, which eliminates the process of manually generating and mailing invoices. (3) Suppliers can view invoice adjustments made by the convenience store headquarters on-line, ensuring suppliers have fewer questions when billing the case study. This provides suppliers expedited access to accurate certificates of payment, which they may use as collateral with financial institutions. (4) Suppliers issue a monthly invoice instead of each individual shipment, thus reducing the cumbersome burden of tracking scattered discount and price differences. 6.3.2 Suppliers Quantitative Benefit Indicators Before implementing of E-Logistics, suppliers had to reconcile check and acceptance reports with invoices to generate monthly statements. Any missing documentation delayed payments to suppliers. Table

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3 shows the suppliers quantitative performance. 1. Rate of Missed Market Opportunities = Total amount of unfulfilled orders monthly / Total amount of orders placed monthly 2. Rate of Missed Monthly Payments = 1 (Total amount billed by supplier monthly / Actual payment received monthly) 3. Average number of invoices issued to each distributor monthly = (Total number of monthly invoices) / (Total number of distributors) Table 3: Suppliers quantitative performance indicators
Performance Indicators 1. Rate of missed market opportunities 2. Rate of missed monthly payments 3. Average number of invoices issued to each DC monthly Before E-Logistics 1.200% 0.070% 30 After E-Logistics 0.570% 0.037% 15

According to the above statistics, the case study has placed a total of 21600 orders with all suppliers in 2005, worth a total amount of $NT 17 billions. In the same year, it received 11780 monthly statements from all suppliers, with a total payment amount of $NT 15.5 billions. Process re-engineering reduced by 10 minutes the procedure used by each supplier to request payment for each invoice. The amount saved by each supplier annually is shown in Table 4. Table 4: Suppliers financial performance indicators Annual Amount Performance Indicator (NT$10,000) Decreased Missed Market 10,710 Opportunities Decreased Missed Monthly 495 Payments Amount Saved by Increased 10 Productivity 6.3.3 Benefits for the CVS Headquarters Before implement e-Logistics, communication between CVS headquarters and the case study was limited. Now, the two companies share information in a way that benefits the convenience stores as follows: 1. Purchasing: Convenience stores are notified of stock shortages automatically. The case study is notified, and the concern passed to the supplier to increase product availability. This decreases the rate of lost market opportunity due to a shortage of product inventory. 2. Merchandise Returns: Previously, convenience store headquarters only had access to POS data,

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International Journal of Electronic Business Management, Vol. 4, No. 5 (2006) without merchandise return information. With E-logistics, all information regarding goods returned by the lower-level convenience stores to the distribution centers can be retrieved by the convenience store headquarters instantly, which allows the convenience store headquarter to properly credit invoices for payment. Bookkeeping: The convenience store headquarters can instantly access the suppliers request for payment from the case study using E-Logistics. It can combine it with the ERP system, deducting the appropriate credit and adjustment amounts and related data on the E-Logistics system. The revised data is integrated with the case studys accounts payable/receivable process. This reduces the possibility of being in arrears, and the necessity of follow up procedures to collect payment. telephone and fax. (2) Instantly confirm the unit price of products with suppliers, thus avoiding arguments over pricing while paying the bill. (3) Knowledge of suppliers stock availability allows planning for possible supply shortages 2. Merchandise Returns (1) Simplified process to document the purchase and return of merchandise, and decrease the errors caused by multiple manual input of transactions. (2) Employee responsibility is clarified. Purchasing personnel are responsible for returning merchandise. Merchandise return personnel are responsible for updating inventory information. (3) Purchasing personnel receives the updated inventory status, which increases the utilization of the warehouse space. 3. Bookkeeping (1) The distribution center is only responsible for the inventory control. The accounting department of the case study headquarters is responsible for all financial matters. (2) Organizational processes were re-engineered, allowing a combined reduction of four (3) Uniform procedures at all distribution centers eliminate confusion for suppliers. (4) Simplified operational processes allow an earlier monthly closing. 6.3.6 Overall Quantitative Indicators of Efficiency for the Case Study After process re-engineering by E-Logistics, process procedures were simplified. Using computer technology to verify bookkeeping allowed a reduction in required man hours, and improved productivity as shown in Table 6. Table 6: A-Company quantitative KPI Efficiency Before After Indicator E-Logistics E-Logistics 1 2 Time of 628 man 250 man bookkeeping hours/month hours/month 3 4 Monthly The 12th day of The 8th day closing date each month of each month 1. Time spent on accounting before e-Logistics (1) The following tasks were required at each distribution center: handling of purchase orders, processing and verification of invoices, review and report of daily activity, verification of scheduling report and adjusted statements, printing of reports, etc. (2) Headquarters accounting department manually review and verify all invoices, and the printing and mailing of necessary reports to the convenience store headquarters. 2. Time spent on accounting after e-Logistics: The AD reconciles purchase orders with invoices,

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6.3.4 Quantitative KPI of Efficiency for CVS Headquarters Statistical analysis demonstrates the decrease in lost market opportunities for CVS due to the improved inventory control provided by E-Logistics. There was also a decrease in billing reconciliation requests from suppliers. The quantitative indicators of efficiency are shown in Table 5. Table 5: Quantitative indicators of efficiency for CVS headquarters
Efficiency Indicators 4. Un-filled rate for convenience store orders 5. Billing reconciliation requests from suppliers Before E-Logistic 3.20% 5/per month After E-Logistic 1.87% 1/per month

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Un-filled rate for convenience store orders = Amount of unfilled orders monthly / Total orders monthly 2. Number of billing reconciliation requests from suppliers = Number of billing reconciliation requests from suppliers The lower-level convenience stores ordered $NT 15 billions from the case study. By implementing the E-Logistics system to decrease product shortages, the case study reduced un-filled orders by $NT 200 millions in one year. 6.3.5 Benefits to the Case Study After implementing e-Logistics, telephone contact was replaced by online communication. The case study could instantly check inventory status and the floating price of products. The case study gained the following benefits: 1. Purchasing (1) NT$38,000 is saved per month by not using the

Y. C. E. Lin: Implementation of Supply Chain Logistics Process Reengineering and E-Business Solution verifies scheduling reports and adjusts payments, and prints necessary reports and documents. Month end closing date before e-Logistics: Each DC completed and mailed the monthly closing report to AD headquarters on the 12th of each month. Month end closing date after implementing e-Logistic: Suppliers complete their invoicing by the 4th of each month, and AD completes its monthly closing on the 8th of each month.

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7. CONCLUSION AND SUGGESTIONS

In the extremely competitive convenience store market, an effective supply chain is the most critical winning factor. E-Logistics utilizes information technology to modify and integrate internal and external processes, connecting all stake holders to the supply chain data stream. A well-constructed supply chain system is the way to a superior position in a highly competitive market. An efficient supply chain system using e-Logistics is built on effective communication between stake holders. Coordinating access to information provided the benefit of reduced operating costs and increased efficiency.

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ABOUT THE AUTHOR

Ethan Y. J. Lin is an Assistant Vice President of Taiwan Distribution Center Co., Ltd. (TDC) in Taiwan. He is also a lecturer in the Department of Internal Trade Management at Hsing Wu College (HWC), Taiwan. He received his MS degree from Computer Science Department at Illinois Institute of Technology (IIT), United States. His research and teaching interests are in Logistics, e-Commerce and Supply Chain Management. (Received August 2006, revised November 2006, accepted December 2006)

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