Innovations in Logistics

Van der Vorst et al. (2005) Innovations in Logistics and ICT in Food Supply Chain Networks p.
0
Innovations in Logistics and ICT
in Food Supply Chain Networks

Jack van der vorst, Adrie Beulens and Paul van Beek

1 !ntroduction ......................................................................................................................... 1
2 The emergence of chains and networks .................................................................................. 2
2.1 What is (a) Supply Chain (Nanagement)?......................................................................... 2
2.2 Framework for chainfnetwork development ...................................................................... +
2.3 Specific characteristics of the food supply chain network ................................................... 7
2.+ The evolution of Supply Chain Nanagement ..................................................................... 8
2.5 Nanaging the increased complexity.................................................................................. 9
3 The evolution of Logistics management ................................................................................ 10
3.1 What is logistics (management)? ................................................................................... 10
3.2 Logistical activities and the customer order decoupling point............................................ 11
3.3 The nature of logistical planning and management.......................................................... 13
3.+ Performance improvement ............................................................................................ 15
+ The evolution of information management ............................................................................ 15
+.1 !nformation processing activities.................................................................................... 15
+.2 What is !CT and information management? .................................................................... 17
+.3 Traceability information ................................................................................................ 19
+.+ !nformation systems and services.................................................................................. 22
+.5 !nformation management issues.................................................................................... 2+
5 An overview of innovative concepts in logistics and !CT in FSCN ............................................. 15
5.1 !nnovative concepts related to the network structure ...................................................... 25
5.2 !nnovative concepts related to chain management and processes .................................... 27
5.3 !nnovative concepts related to chain resources ............................................................... 30
6 The essence of innovations in logistics and !CT ..................................................................... 33
References ............................................................................................................................... 33
Appendix Glossary..................................................................................................................... 36

Reference:

Vorst, van der J.G.A.J., A.J.M. Beulens and P. van Beek {2005), Innovations in logistics
and ICT in food supply chain networks, in: Innovation in Agri-Food Systems, {Eds)
W.M.F. Jongen & M.T.G. Meulenberg, Wageningen Academic Publishers, Wageningen,
Chapter 10, p. 245-292

Van der Vorst et al. (2005) Innovations in Logistics and ICT in Food Supply Chain Networks p. 1
Innovations in Logistics and ICT
in Food Supply Chain Networks

Jack van der vorst, Adrie Beulens and Paul van Beek

1 Introduction
Since the 1980s, literature on Logistics and !nformation 8 Communication Technology (!CT
1
) stresses
the need for collaboration among successive actors in the supply chain, from primary producers to
final consumers, to better satisfy consumer demand at lower costs (Lambert et al. 1998; van der
vorst, 2000). This new way of managing the business within each link and the relationships with other
members of the supply chain has been named Supply Chain Nanagement (SCN). A driving force
behind SCN is the recognition that sub-optimisation occurs if each organisation in a supply chain
attempts to optimise its own results rather than to coordinate its goals and activities with other
organisations to optimise the results of the chain (Cooper et al., 1997). This holds true especially in
food supply chains because of shelf life constraints of food products and increased consumer attention
for safe and environmentfanimal-friendly production methods.

Recent events have increased the interest in SCN as a means of improving the strength of the chain.
Examples are the BSE crisis in the United Kingdom and the Classical Swine fever and Avian !nfluenza
in among others the Netherlands, which made producers aware of the necessity of chain control and
intensified chain co-operation. Furthermore, the increased interest in SCN has been spurred by
intensified competition (due to open EU-markets), demographic and market developments (such as
product proliferation and shorter product life cycles) combined with developments in !CT that enable
more efficient execution of processes and more frequent exchange of huge amounts of information
for co-ordination purposes. Consumers in Western-European markets have become more demanding
and place new demands on attributes of food such as quality (guarantees), integrity, safety, diversity
and associated information (services).

These developments put dynamic requirements on the performance of the food system initiating a
reorientation of companies in Dutch agriculture and food industry on their roles, activities and
strategies. Demand and supply are no longer restricted to nations or regions but have become
international processes. We see an increasing concentration in agribusiness sectors, an enormous
increase in cross-border flows of livestock and food products and the creation of international forms of
cooperation. The food industry is becoming an interconnected system with a large variety of complex
relationships, reflected in the market place by the formation of (virtual) Food Supply Chain Networks
(FSCN) via alliances, horizontal and vertical cooperation, forward and backward integration in the
supply chain and continuous innovation (Beulens et al., 200+). The latter encompass the development
and implementation of enhanced quality, logistics and information systems. !n order to satisfy the
increasing demands of consumers, government, business partners, NGO's and to obtain the license
to produce and deliver", companies continuously have to work on innovations in products, processes
and forms of cooperation in the FSCN.

This chapter focuses on these developments and innovations in logistics and !CT in the FSCN. We will
give an overview of these developments and discuss the impact on the design and management of
the FSCN. Practical examples will be presented in boxes to exemplify and clarify theoretical concepts.

1
In the appendix a glossary of all abbreviations is given.

The structure of the chapter is as follows. The next section will discuss the concepts of food chains
and networks. Section 3 gives an overview and presents a framework of logistics management,
section + does this for !nformation Nanagement. !n section 5 the innovations in Logistics and !CT are
collected and discussed in more detail together with the impact on chain design and management. We
will conclude this chapter by a summary of the essence of the innovations in Logistics and !CT.

2 The emergence of chains and networks
!n this section we discus in more detail the context and characteristics of food supply chains and
networks, in order to be able to better define complexities and challenges associated with planning,
designing, developing and implementing logistics and information systems.
1.0 What is {a) Supply Chain {Management)?
The term `Supply Chain Nanagement' is relatively new. !t first appeared in logistics literature in 1982
as an inventory management approach with an emphasis on the supply of raw materials (Oliver and
Webber, 1982). Logistics managers in retail, grocery, and other high inventory industries began to see
that a significant competitive advantage could be derived through the management of materials
through inbound and outbound channels. Purchasing literature states that SCN evolved from an
upgrade of the purchasing function to an integral part of the corporate planning process. Since its
introduction in the retail industry, the supply chain concept has spread to other industries such as
computers and copiers.
Around 1990, academics first described SCN from a theoretical standpoint to clarify how it
differed from more traditional approaches to managing the flow of materials and the associated flow
of information (Cooper and Ellram, 1993; see Table 1). We define SCN as follows (based on van der
vorst, 2000):

SCN is the integrated planning, co-ordination and control of all business processes and activities in the
supply chain to deliver superior consumer value at less cost to the supply chain as a whole while
satisfying the variable requirements of other stakeholders in the supply chain (e.g. government and
NGO's) .

!n this definition a supply chain is a series of (physical and decision making) activities
connected by material and information flows and associated flows of money and property rights that
cross organisational boundaries. The supply chain not only includes the manufacturer and its
suppliers, but also (depending on the logistics flows) transporters, warehouses, retailers, service
organisations and consumers themselves. !n the definition of SCN a business process can be defined
as a structured, measured set of activities designed to produce a specified output for a particular
customer or market (Davenport, 1993). Next to the logistical processes in the supply chain (such as
operations and distribution) we distinguish business processes such as new product development,
marketing, finance, and customer relationship management (Chopra and Neindl, 2001). Finally, value
is first of all the amount consumers are willing to pay for what a company provides and it is measured
by total revenue. The concept `value-added activity' originates from Porter's `value chain' framework
and characterizes the value created by an activity in relation to the cost of executing it (Porter, 1985).
Currently the value concept is more expanded. We now talk about values associated with the so called
`Triple P': People, Planet and Profit. So next to the financial performance also the social and
environmental performance are incorporated. These latter two lead to (qualitative) attributes that are
generally spoken associated with the product itself (biologically produced), the companies producing it
(social policy) and the raw materials (GNO?) and resources (child labour?) used. For example a

company may have a reputation for sustainable production, uses inputs that contain no GNO's, etc.
These properties are then inherited and associated by all products produced and delivered by them.

Table 1. Characteristics of SCN according to Cooper and Ellram (1993)
Element Traditional Nanagement Supply Chain Nanagement
!nventory management approach !ndependent efforts Joint reduction in channel inventories
Total cost approach Ninimise firm costs Channel-wide cost efficiencies
Time horizon Short term Long term
Amount of information sharing and
monitoring
Limited to needs of own current
transactions
As required for planning and monitoring
purposes
Amount of co-ordination of multiple
levels in the channel
Single contact for the transaction
between channel pairs
Nultiple contacts between levels in firms
and levels of channel
Joint planning Transaction-based On-going
Compatibility of corporate philosophies Not relevant Compatible at least for key relationships
Breadth of supplier base Large to increase competition and
spread risk
Small to increase co-ordination
Channel leadership Not needed Needed for co-ordination focus
Amount of sharing of risks 8 rewards Each on its own Risks 8 rewards shared over longer term
Speed of operations, information and
inventory flows
`Warehouse' orientation (storage, safety
stock). !nterrupted by barriers to
flows. Localised to channel pairs
`DC' orientation (turnover speed).
!nterconnecting flows; J!T, Quick
Response across the channel

Figure 1 depicts a generic supply chain at the organisation level within the context of a complete
supply chain network. Each firm is positioned in a network layer and belongs to at least one supply
chain: i.e. it usually has multiple (varying) suppliers and customers at the same time and over time.
Other actors in the network influence the performance of the chain. As Hakansson and Snehota
(1995) state: `what happens between two companies does not solely depend on the two parties
involved, but on what is going on in a number of other relationships'. Therefore, the analysis of a
supply chain should preferably take place or be evaluated within the context of the complex network
of food chains, in other words a Food Supply Chain Network (FSCN). Lazzarini refers to a netchain"
and defines it as à directed network of actors who cooperate to bring a product to customers'
(Lazzarini et al. 2001).

Figure 1. Schematic diagram of a supply chain from the perspective of the processor (bold flows)
within the total FSCN (based on Lazzarini et al., 2001).

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Distributors
Processors
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!n a FSCN different companies collaborate strategically in one or more areas while preserving their
own identity and autonomy. As stated, in a FSCN more than one supply chain and more than one
business process can be identified, both parallel and sequential in time. As a result, organizations may
play different roles in different chain settings and therefore collaborate with differing chain partners,
who may be their competitors in other chain settings. !n brief, chain actors may be involved in
different supply chains in different FSCN, participate in a variety of business processes that change
over time and in which dynamically changing vertical and horizontal partnerships are required.
!t is worth noting that a growing number of terms are being utilized by individuals and
organisations that are presented as being more appropriate, comprehensive andfor advanced than
SCN. Such terms include demand chain management (to distinguish it from the type of management
in which `supply' begins and drives the chain of activities), and value chain management or value
networks (to emphasise the value-added focus on processes).

2.0 Framework for chainJnetwork development
When researchers andfor managers discuss the potentials of chain and network development, there is
a need for a `language', a framework, that will allow us to describe supply chains, its participants,
processes, products, resources and management, relationships between these and (types of)
attributes of these in order to allow us to understand each other unambiguously (to a large extent).
This section will present such a useful framework.

!n a FSCN a number of typical characteristics can be identified. !n line with the thoughts of Lambert
and Cooper (2000) we distinguish the following four elements that can be used to describe, analyse
andfor develop a specific FSCN (see Figure 2):
1. The Network Structure that demarcates the boundaries of the supply chain network and describes
the main participants or actors of the network, accepted andfor certified roles performed by them
and all the configuration and institutional arrangements that constitute the network. The key is to
sort out which members are critical to the success of the company and the supply chain - in line
with the supply chain objectives - and, thus, should be allocated managerial attention and
resources;
2. Chain Business Processes are structured, measured sets of business activities designed to
produce a specified output (consisting of types of physical products, services and information) for
a particular customer or market. Lambert and Cooper have identified eight key business
processes that could be integrated with the key members in the supply chain (see table 2);

Table 2. Business processes that could be integrated in the supply chain (Lambert and Cooper, 2000).
Business process General description
Customer relationship management Specifying service level agreements with key customers
Customer service management Providing the customer with real-time information on promised shipping dates and
product availability through interfaces with the organizations' production and
distribution operations
Demand management Balancing the customer's requirements with the firm's supply capabilities
Order fulfilment Delivering products and meeting customer need dates
Nanufacturing flow management Pulling product through the plant based on customer needs
Procurement Developing strategic plans with suppliers to support the manufacturing flow
management process and development of new products
Product development and
commercialisation
Customers and suppliers must be integrated into the product development process in
order to reduce time to market
Returns process Aligning processes to realise an efficient return of re-usable items

3. Network and Chain Nanagement that typifies the coordination and management structures in the
network that facilitate the instantiation and execution of processes by actors in the network

making use of the chain resources with the objective to realise the performance objectives
formulated by the FSCN. Lambert and Cooper distinguish two groups of management
components, see table 3. Especially the managerial and behavioural components are well-known
obstacles to SCN as they might hinder the development of trust, commitment and openness
between supply chain members;
+. Chain Resources that are used to produce the product and deliver it to the customer. These
enablers include people, machines and !CT (information, information systems and information
infrastructures).

Table 3. Two groups of management components that have to be aligned in the supply chain.
Physical and technical components Nanagerial and behavioural components
planning and control methods (e.g. push or pull
control);
work flowfactivity structure (indicates how the firm
performs its tasks and activities);
organisation structure (indicates who performs the
tasks and activities, e.g. cross-functional teams);
communication and information flow facility
structure (e.g. information transparency);
product flow facility structure (e.g. location of
inventories, decoupling points).
management methods (i.e. the
corporate philosophy and management
techniques);
corporate culture and attitude;
risk and reward structure;
power and leadership structure.

!n brief, within a FSCN we identify one or more Chain Business Processes with well-identified
products that are produced and delivered to the customer of that Chain Business Process (e.g. chain
processes that produce and deliver boxes with yoghurt or cheese slices). That production and delivery
requires the execution of business activities by one of the actors participating in the network (such as
transportation, storing, order picking). There are precedence relations between business activities that
are or may be determined by goods, resources, information, financial and control flows of business
entities
2
. According to van der vorst (2000) a continuous process of the creation and flow of
transitions of business entities can be identified in each chain process of an FSCN, which involves a
conversion of place, time and statefcontent of these entities. So we may regard a FSCN as a directed
network of business processes and activities with precedence relationships.
Note that processes necessarily can be identified at different levels of abstraction. That means
that each process can be broken down into a directed and connected network of (sub-)
processesfactivities. As a consequence one makes a conscious choice of the abstraction level needed
in the business context. A choice that one must be able to alter when required.

2
We assume that business activities normally exchange well-defined and identified information sets and
identified quantities of physical goods. A business entity is then used to represent an information flow and/or
goods flow, or it may represent the availability of certain capacities of resources. Input business entities (raw
materials, packaging materials, (intermediate) products, production means or resources, control and specification
entities (recipes f.i.)) are used to create products, by-products and waste, the outputs of the activity.


Figure 2. Framework for chainfnetwork development (adapted from Lambert et al., 2000)

Each element of the framework is directly related to the objectives of the FSCN, i.e. the degree to
which a supply chain (within the FSCN) fulfils end-user and stakeholder requirements concerning key
performance indicators at any point in time, and at what total cost. One can focus on three generic
value propositions, which can be found separately or in combination:
(1) Network differentiation and Narket segmentation where the target is to differentiate as a
chain to meet the specific demands of customers (e.g. lowest cost, assortment, etc.);
(2) !ntegrated quality, the target here is to meet the increasing demand of consumers,
governments, NGO's and business partners for safe and environmental friendly produced
products; and
(3) Network optimisation, the target here is cost reduction through a streamlined chain with
rational information supply.
!f these objectives are realised in practice can be measured via the output performance of the supply
chain (network) using Key Performance !ndicators (KP!s). These refer to a relatively small number of
critical dimensions which contribute more than proportionally to the success or failure in the
marketplace (Christopher, 1998). KP!s compare the efficiency and effectiveness of a system with the
norm or target value. A well-defined set of supply chain performance indicators will help establish
benchmarks and assess changes over time.

We may state that the environment in which supply chains operate, plays a dominant role in
finding optimal chain configurations and control mechanisms. Traditional performance indicators such
as costs, throughput time or technical quality of products are insufficient for finding the best
configuration of the supply chain. Also other indicators in line with the `Triple P' philosophy (People,
Planet, Profit) have to play a role in this process and should therefore be developed like `guaranteed
product integrity' (see www.PetersFarm.com), 'environmental chain profile' or 'profile of animal-
friendliness' and `guaranteed quality, hygiene and safety' in meat producing chains (see also box 1) .

The groundwork for successful SCN is established by an explicit definition of supply chain
objectives and related key performance indicators and, successively, by deciding on the four key
elements of the FSCN. The optimal design will differ for each supply chain depending on the
competitive strategy and the market, product and production characteristics. The key is to sort out
Network
structure
Chain
Business
Processes
Chain
Resources
Chain
management
Who are the members of the
FSCN and what are their roles?
What are the configuration
arrangements?
Who performs which processes
in the FSCN?
What is the level of
integration of processes?
What resources (ICT, human,
technology) are used in each
process by each member of the
FSCN?
What management structures
are used in each process link?
What is contractual
arrangements are made?
Governance structures?
Chain
objectives
Chain
performance

which members are critical to the success of the company and the supply chain - in line with the
supply chain objectives - and, thus, should be allocated managerial attention and resources (Lambert
8 Cooper, 2000).
3.0 Specific characteristics of the food supply chain network
A FSCN comprises organisations that are responsible for the production and distribution of vegetable
or animal-based products. !n general, we distinguish two main types (Zuurbier et al., 1996):
1. FSCN for fresh agricultural products (such as fresh vegetables, flowers, fruit). !n general, these
chains may comprise growers, auctions, wholesalers, importers and exporters, retailers and
speciality shops and their input and service suppliers. Basically, all of these stages leave the
intrinsic characteristics of the product grown or produced in the countryside untouched. The main
processes are the handling, conditioned storing, packing, transportation, and especially trading of
these goods.
2. FSCN for processed food products (such as portioned meats, snacks, desserts, canned food
products). !n these chains agricultural products are used as raw materials for producing consumer
products with higher added value. !n most cases, conservation and conditioning processes extend
the shelf life of the agricultural and consumer products.

Table +. Overview of main characteristics of FSCNs and their impact on Logistics and !CT.
SC stage Product and process characteristics !mpact on Logistics and !CT
Overall Shelf life constraints for raw materials, intermediates and
finished products and changes in product quality level while
progressing the SC (decay)
Recycling of materials required
Timing constraints
!nformation requirements
Return flows
Growers cq.
Producers
Long production throughput times (producing new or additional
products takes a lot of time)
Seasonality in production
variability of quality and quantity of supply
Responsiveness
Flexibility in process and
planning
Food industry High volume, low variety (although the variety is increasing)
production systems
Highly sophisticated capital-intensive machinery focusing on
capacity utilisation
variable process yield in quantity and quality due to biological
variations, seasonality, random factors connected with weather,
pests, other biological hazards
A possible necessity to wait for the results of quality tests
(quarantine)
Alternative installations, alternative recipes, product-dependent
cleaning and processing times, carry over of raw materials
between successive product lots, etc.
Storage buffer capacity is restricted, when material,
intermediates or finished products can only be kept in special
tanks or containers
Necessity to value all parts because of complementarity of
agricultural inputs (for example, beef cannot be produced
without the co-product hides)
Necessity for lot
3
traceability of work in process due to quality
and environmental requirements and product responsibility
!mportance of production
planning and scheduling
focusing on high capacity
utilisation
Flexibility of recipes

Timing constraints, !CT-
possibility to confine products

Flexible production planning
that can handle this
complexity

Need for configurations that
facilitate tracking and tracing
Auctions f
Wholesalers f
Retailers
variability of quality and quantity of supply of farm-based inputs
Seasonal supply of products requires global (year-round)
sourcing
Requirements for conditioned transportation and storage means
Pricing issues
Timing constraints
Need for conditioning
Pre-information on quality
status of products

Actors in both types of chains understand that original good quality products are subject to quality
decay because of an inconsiderate action of another actor, for example storing a unit load of milk on a
dockside in the burning sun. van Rijn and Schijns (1993), Den Ouden et al. (1996) and Trienekens
(1999) sum up a list of specific process and product characteristics of agricultural FSCNs. These,
including some enhancements, are summarised in Table + and categorised by (potential) stage in the
supply chain. !t is clear that each characteristic has an impact on the way the logistical processes are
organised.

Due to specific characteristics of food products, the partnership thoughts of SCN have already
received a lot of attention over the past years in FSCNs. !t is vital for industrial producers to contract
suppliers to guarantee the supply of raw materials with the right volume, right quantity, at the right
place and at the right time. Furthermore, they coordinate the timing of the supply of goods with
suppliers to match capacity availability. The increased attention of consumers for food safety and
environmental issues increases the necessity for tracking and tracing of goods in the FSCN (see box
2). One example, is a soft drink producer who recalled soft drinks after glass splinters where detected
in the bottles. Such occurrences have led to the introduction of integral quality control systems,
increased attention for SCN and associated tracking and tracing in FSCNs.

4.0 The evolution of Supply Chain Management
Stevens (1989) describes an often-cited, four-stage evolutionary path from functional control to SCN
which reflects an increasing level of integration of chain business processes:
Stage 1. Baseline: Functional islands
Responsibility for different activities in the organisation is vested in different, almost independent,
departments. Characteristics of this stage are staged inventory caused by failure to integrate and
synchronise activities, independent and often-incompatible control systems and procedures, and
organisational boundaries and functional islands.
Stage 2. Functional integration: Naterials Nanagement and Physical Distribution
This level of integration is characterised by an emphasis on cost reduction rather than
performance improvement; discrete business units, each of which is buffered by inventory;
reactive customer service (whoever shouts the loudest, gets the goods); and poor visibility of
final consumer demand (using only NRP-!!
+
).
Stage 3. !nternal integration: Logistics Nanagement
This stage involves the integration of those aspects of the chain directly under the control of the
company. !t embraces outward goods management, integrating supply and demand along the
company's own chain. Characteristics are a comprehensive integrated planning and control
system (NRP-!! combined with DRP), full systems visibility, an emphasis on efficiency rather than
on effectiveness, extensive use of ED!, and reacting to customer demand rather than managing
the customer.
Stage +. External integration: SCN
Finally, full chain integration is achieved. This stage embodies a change of focus from being
product-oriented to being customer-oriented, i.e. penetrating deeply into the customer
organisation to understand its products, culture, market and organisation. !ntegration upstream
the chain to include suppliers also represents more than just a change of scope - it represents a
change in attitude, away from the adversarial attitude of conflict to one of mutual support and
co-operation while preserving the autonomy of participants.

3
A lot or a batch is a quantity produced together sharing the same identifying characteristics such as production
date and process parameters.
4
For an elaboration on MRP, DRP, JIT and EDI we refer to Slack et al. (2004) or Silver et al. (1998).


Walking on this integration ladder from baseline to SCN has a significant impact on all elements of the
FSCN framework as discussed in section 2. !t requires innovations in the network structure (which
partner is going to perform what role?), in the business processes (who does what activity?), in the
management structure (what new structure is used?) and in the resources used (what new
technological systems are required?).

At the moment more and more integrated supply chains are created in FSCNs, especially when high-
quality, reliable and sustainable products are requested. However, we must recognise that many
companies are still in stage 3 and sometimes even stage 2. External integration, or SCN, is especially
beneficial for those companies that gain profits (in terms of speed, quality, reliability, flexibility or
cost) by collaboration. The latest trend is to develop flexible networks of actors that each can fulfil
one or more specific required tasks dependent on the customer's wishes. This reduces the
dependency of the company on a specific supplier and increases capacity-flexibility.

5.0 Managing the increased complexity
The management of food supply chains has become a complex task; for example, product
assortments have exploded, product life cycles have decreased and consumer demands on product
freshness and food safety fluctuate and have become more unpredictable. This has resulted in a
demand for short lead times and high delivery frequencies of small batches, hence requiring very
flexible production organisations and supply chains in order to keep the costs minimal.

!n promoting and building a strong FSCN, organizations need to understand the way competition is
changing. Future competitiveness will depend on being able to join supply chains, effective
participation in, and control of, global food chains. To be competitive, coordination and sharing of
information need to be undertaken between network partners. The result of the FSCN is measurable
via the acceptance of the end product by the consumer. Nowadays, as we discussed, this acceptance
is a combination of availability, price, quality and food safety and other qualitative attributes. The
highest added value for all participants can only be achieved when these aspects are optimized at the
chain or network level. This is especially true for realizing a high quality and safe product that
possesses integrity. Food safety and high quality products are not the sole responsibility of an
individual organization, but of the entire food chain. Because the different actors in the FSCN each
have their own role in ensuring the quality and safety of the end product, their activities should be
closely coordinated. This should and can be facilitated by efficient logistics systems and exchanging
information between chainfnetwork participants. !n particular, it is a great challenge to effectively and
efficiently realize the coordination and information processes in FSCN, in the dynamic institutional
context as they are in.

There are two main enabling technologies that facilitate organisations to manage the increased
complexity and allow for the emergence of FSCN. First of all the developments in !CT (hardware and
software) which have facilitated the rapid and intensive information gathering and exchange; this will
be discussed extensively in section +. Secondly, the development of mathematical algorithms that
facilitated the processing of all that data in (automated) decision support models. During the last two
decades trade and also academia became heavily involved in the development of quantitative models
primarily directed towards more effective planning and control of logistical operations (Gnther and
van Beek, 2003). Operations Research, i.e. the quantitative modelling of the design, conduct and
coordination of operations (activities) within an organisation, has had an impressive impact on
improving the efficiency of numerous organisations around the world. Nore or less sophisticated
models have been developed for practically all logistical decisions, such as route planning, scheduling,

facility location, distribution processes, network management, procurement, inventory management,
and so on. Box 1 gives an overview of a recent study that uses Stochastic Simulation to describe the
spread of Salmonella in pork supply chains and to evaluate control measures to reduce this spread.
For the interested reader we refer to the book of Winston (1997) in which many optimization and
simulation techniques are presented.

Box 1: Control of the spread of Salmonella in pork supply chains (van der Gaag, 200+).

Recently a PhD study (van der Gaag, 200+) has been finalized dealing with epidemiological and economic effects
of different strategies in finishing, transport, lairage and slaughtering stages aiming at improving food safety of
pork with respect to Salmonella. Knowledge about the interaction and relations between the epidemiological and
economic aspects was limited. For that reason two models were designed, one for the epidemiological aspects
and one for the economic aspects of Salmonella control in the pork supply chain.
The epidemiological model is a stochastic simulation model. !t simulates the introduction and spread of
Salmonella in the pork supply chain. The economic model is a deterministic simulation model. For each package
of control measures deployed over the different stages of the chain costs and revenues have been calculated
using the partial budgeting technique. Since it is not feasible in practice to implement all possible control
measures, for each stage a package of measures has been specified by selecting feasible measures. The net
costs associated with these packages per stage were calculated per pig. Combining the results of the
epidemiological and economic models allowed for comparison of the cost-effectiveness of different control
strategies for Salmonella in the pork supply chain.
This research revealed the importance of a chain approach instead of considering each stage individually.
Furthermore, the combination of both models enables decision-makers to answer a variety of questions such as:
where to deploy control measures, how to find interesting combination of Salmonella prevalence and cost of the
control measures?

Before we discuss innovations in Logistics and !CT in more detail it is helpful - for those who are
not so familiar with both disciplines - to give definitions and to discuss the main concepts of both
disciplines for a basic understanding. Therefore, the next section discusses Logistics Nanagement and
section + will discuss !nformation Nanagement.

3 The evolution of Logistics management
!n this section we discus in more detail what logistics is all about in order to be able to understand the
content and context when designing and innovating logistical systems. We will first give a definition of
logistics, discuss logistical activities, give an overview of the nature of logistics planning and
management and discuss performance management.
1.0 What is logistics {management)?
We depart with a definition of logistics that is based on the definition of the Council of Logistics
Nanagement. !t shows that logistics is part of SCN, as discussed earlier, referring to those Chain
Business Processes that deal with the management of the goods and information flows.

`Logistics is that part of the supply chain process that plans, implements and controls the efficient,
effective flow and storage of goods, services and related information from the point-of-origin to the
point-of-consumption in order to meet customer requirements (Lambert et al., 1998) and satisfies the
requirements imposed by other stakeholders such as the government (new rules and regulations such
as the General Food Law) and the retail community (e.g. Global Food Safety !nitiative)'.

!ncluded within this definition are aspects such as customer service, transportation, storage, plant site
selection, inventory control, order processing, distribution, procurement, materials handling, return

goods handling, and demand forecasting. !n addition aspects of product development such as
designing packaging variants of products and associated product labels are also important.
Historically, logistics has been considered an issue deserving modest priority in each organization; it
was merely regarded as a cost component. Nowadays logistics is seen as a value-adding process that
directly supports the primary goal of the organization, which is to be competitive in terms of a high
level of customer service, competitive price and quality, in terms of compliance with rules and
regulations, in terms of being able to satisfy extensive qualitative service and information
requirements imposed by consumers and other stakeholders of the supply chain and finally in terms of
flexibility in responding to market demands. For an extensive historical overview of the development
of logistics we refer to the PhD thesis of Ruffini (1999).

Until 30 years ago logistical activities (such as order administration, transport, ordering and inventory
control) were often separate functions or activities involving individual managers with their own tasks
and objectives (functional island approach). Consequently each function sought to maximize its own
objectives. During the early 1970s the notion of trade-off analysis was proposed. Problems of sub-
optimal performance on the level of a whole chain business process could be overcome if sub-optimal
performance in one, or even two, of the activities of that process was accepted and traded off against
economies obtained from other activities in the process thus lowering the overall costs (Gattorna and
Walters, 1996). For example, inventory holding costs and warehouse costs (storing inventory) were
reduced considerably when faster but more expensive transportation modes replaced slower
traditional modes (the substitution of sea freight by air freight). The route to SCN was thus
evolutionary, rather than revolutionary (Cooper and Ellram, 1993).

2.0 Logistical activities and the customer order decoupling point
The design of a logistics system highly depends on the performance objectives of that system related
to the markets it wants to deliver. Or as Narshall Fisher (1997) states the nature of the demand for
the product should be carefully considered before a supply chain strategy is devised". Nowadays,
supply chains are expected to be extremely flexible and responsive at low cost in order to satisfy the
constantly changing consumer demand. According to Chopra and Neindl (2001) the organisation's or
supply chain's performance is influenced by four drivers:
!nventory is all raw materials, work in process and finished goods within an organisation. The level
of inventories influences the product quality, the delivery lead time and the costs associated with
that delivery.
Transportation entails moving inventory from point to point in the supply chain. Transportation can
involve the use of many combinations of modes (e.g. truck, train, plane, boat) and routes, each
with its own performance characteristics.
Facilities are places in the FSCN where inventory is stored, conditioned, assembled or fabricated.
The two major types of facilities are production sites and storage sites (distribution centres).
Whatever the function of the facility, decisions regarding location, capacity, and flexibility of
facilities have a significant impact on the supply chain's performance.
!nformation consists of data and analysis regarding inventory, transportation, facilities, and
customers throughout the supply chain. !nformation is potentially the biggest driver of
performance as it directly affects each of the other drivers.
!t are the choices made concerning these drivers and related operational processes that determine the
responsiveness and efficiency of the supply chain.

So let us look at the operational processes that make use of inventory, transportation, facilities and
information. The traditional view on logistics management in a supply chain is the cycle view. !n this
view chain processes in a supply chain are divided into a series of cycles, each performed at the

interface between two successive stages of a supply chain (figure 3). Chopra and Neindl (2001)
distinguish four process cycles:
Customer order cycle: occurs at the customerfretailer interface and includes all business
activities directly involved in receiving and filling the customer's order.
Replenishment cycle: occurs at the retailerfdistributor interface and includes all business
activities directly involved in replenishing retailer inventory. The fulfilment process is triggered
when retailers place an order to replenish inventories to meet future demand.
Nanufacturing cycle: occurs at the distributorfmanufacturer interface and includes all business
activities directly involved in manufacturing and replenishing the inventory. The manufacturing
process is triggered by customer orders, replenishment orders from a retailer or distributor or by
the forecast of customer demand and current product availability at the manufacturer's finished-
product warehouse.
Procurement cycle: occurs at the manufacturerfsupplier interface and includes all business
activities necessary to ensure that materials are available for manufacturing to occur according
to schedule. Here the manufacturer orders components from suppliers that replenish component
inventories.
A cycle view of the supply chain clearly defines the business processes and activities involved and the
owners of each process (hence roles and responsibilities). Furthermore, because of the inventory
being held between the cycles, the main processes are decoupled to a certain extent. This implies that
each process can function independently and is not hindered by `problems' in other processes. This
opposes the just-in-time philosophy, which states among other things that the decoupling of activities
by inventories should be eliminated since it hinders supply chain visibility and supports the sub-
optimisation of the supply chain.

Figure 3. views on supply chain processes (based on Chopra and Neindl, 2001; note that a reversed
triangle stands for an inventory).

Due to increasing consumer demand variability and uncertainty resulting in an increased
demand for capacity-flexibility (and thus reduction of inventories), the pushfpull view on supply chains
is gaining more interest. This view focuses on the extent to which customer orders penetrate or may
penetrate the logistic system. The Customer Order Decoupling Point (CODP) - also referred to as the
Demand Penetration Point (Christopher, 1998) - separates the part of the organisation whose
management decisions are governed by customer orders (pull process) from the part of the
Customer
order cycle
Replenishment
cycle
Manufacturing
cycle
Procurement
cycle
Customer
order cycle
Replenishment
cycle
Manufacturing
cycle
Procurement
cycle
Pull process Push process
M
A
R
K
E
T
Customer order
decoupling point
Traditional cycle view
S
U
P
P
L
Y

organisation where production plans are made based on forecasted demand of consumers and or
forecasted orders from partners downstream in the chain (push process). Downstream of the CODP
the material flow is directly controlled by customer orders and the focus is on customer
responsiveness (lead time and flexibility). Upstream towards suppliers, the material flow is controlled
by forecasting and planning, and the focus is on efficiency (usually employing large batch sizes) and
taking into account inherent properties of material flows and production capacities and resources. !t
must be determined where the decoupling point should be for each product-market combination or
product group in the company. Therefore a company can have multiple CODP's at different locations
and even a single product can have more than one, as it can serve multiple product-market
combinations.

Production Sales
Suppliers Customers
of half
fabricats
of end
products
Distribution
Raw materials End product
Deliver from decentr. stock
Make to stock
Assemble to order
Make to order
Engineer to order
DP
1
DP
5
DP
4
DP
3
DP
2
P
l
a
n
n
i
n
g

d
r
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n

a
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Figure +. Five positions of the CODP (Hoekstra 8 Romme, 1992).

Hoekstra and Romme (1992) distinguish five possible positions of a decoupling point (DP) as
depicted in Figure +. Currently the general trend is to shift the CODP upstream the supply chain
(towards suppliers) in order to increase the responsiveness to variable market demand and limit the
amount of non-value adding activities. !CT is then required to increase the speed of information
exchange as to realise acceptable lead times (see section +).

3.0 The nature of logistical planning and management
A logistical system is composed of a large number of elements which have to be managed properly in
order to deliver final products in the right quantities at the desired time and quality at the right place,
and at a reasonable cost. This puts challenging requirements on the quality of the different logistical
processes - especially in view of the specific characteristics of the agri-food chain (see section 2.3). !t
is clear that the underlying decision processes related to the design and management of logistical
systems and processes can be extremely complex. To cope with this complexity, decision making in
organizations is often structured hierarchically. Decisions made at one level of the organizational
hierarchy are constrained by those made at the next higher level and in turn constraining those made
at the next lower level (hierarchical interdependence). Just as constraints are passed downward,
feedback (control information) is passed up the hierarchy. Understanding organizational decision
making processes therefore entails understanding the interactions among managerial levels (Silver et
al, 1998). Nanagement levels are classified by their nature, the type of decisions made during
planning and control. Decisions may differ in aspects like planning horizon, frequency and timing of

decision making, level of detail, and level of uncertainty (Anthony et al., 2000). !n accordance with
many authors (see, for example, Blumenthal, 197+; Ganeshan et al., 1999; Anthony et al., 2000)
three levels of logistical management can be distinguished (see Figure 5):
Strategic planning
At this level organisational goals and the strategies for attaining these goals are defined.
Competitive decisions are made within multiple planning horizons, usually annually, or over multi-
year planning horizons to achieve an enterprise-wide, or chain-wide, optimal solution which reflects
global objectives. !n fact, these logistical decisions are mainly concerned with the establishment of
the supply chain configuration: e.g. site selection, capacity determination, process choice and
finally investments in new resources. These decisions are extremely important because they are
responsible for maintaining the competitive capability of individual enterprises and the chain as a
whole. The pushfpull view and the position of the CODP are very useful concepts when making
these decisions.
Tactical planning
At the second level organisational goals and market performance demands are translated into
logistical objectives. Tactical planning reflects decisions for the coming months. Decision rules and
procedures are formulated and responsibilities and authorisation structures are set. Suppliers are
selected and contracts with customers are made about sales and performance criteria. Emphasis is
put on the procurement, availability and deployment of people, materials and other resources to
meet actual demand. These decisions include the choices on and implementation of information
systems to be discussed in the next section.
Operational control and management
This managerial level is concerned with daily operations of a facility in response to set objectives to
ensure that the most profitable way to fulfil actual order requirements is considered and executed.
!t contains all operational decisions, which directly influence the flow of materials and information.
Typically, operational decisions reflect day-to-day operations up to two weeks in advance.
Higher-level decisions have longer lead times, longer planning horizons, and are concerned with
aggregates such as total manpower requirements and total product-line demand (Keen and Scott
Norton, 1978; Neal, 198+). The higher the decision level, the longer the planning horizon, and the
greater the uncertainty under which decisions have to be made. Further the higher the decision level
the more the decision maker depends on external information (Keen and Scott Norton, 1978). !n
figure 5 we depict a typical overview of such a decision hierarchy with some information streams and
dependencies.

Although the nature of logistical planning and management has remained the same in the last
decades, there has been a change in the organisational grouping of and execution of these processes.
!nitiated by external and !CT developments, planning horizons have shortened and planning cycles
take place more frequently. Also the complexity has increased due to the expanding product
assortment and consumer wishes for fresher and more natural products. As we will discuss in more
detail in section + developments in !CT facilitate faster information exchange and - together with
chain collaboration - provide more information on consumer demand and other relevant data. Nore
and more management processes are now automated (think of inventory control systems) which
make it possible to manage such large number of SKU's (stock keeping units). And finally,
management is fed with a lot of performance information (sometime with too much information) due
to the increased information capturing capabilities, which make it possible to react swiftly to changing
demand patterns or logistical bottlenecks.


Figure 5. Generic overview of the planning structure of an industrial food processor.

4.0 Performance improvement
Current supply chain bottlenecks, such as increasing product variety, globalisation and shorter
product life cycles, increased complexity and severity of constraints, rules and regulations to be
satisfied or to be complied with made and make it increasingly difficult for supply chains to achieve a
strategic fit between what the supply chain does particularly well and the desired variable customer
needs. !n general, the profitability of the supply chain could be improved drastically via better delivery
performance (improved responsiveness and reliability of deliveries, fewer stock outs, higher product
quality, more receiver-friendly loads) and increased information availability (better demand insight,
more predictable order cycles, accurate, real-time). The potential for improvement when applying
logistical SCN-concepts is based on the reduction of inventory-carrying (reduced overstocks, faster
inventory turns) and transportation costs (pooling of transport), the reduction of indirect and direct
labour costs and the increase of sales and sales margins (also due to a reduction of stock-outs). Nany
companies are re-engineering and rationalising their supply chain network to obtain these benefits.
But before we discuss such innovations in nowadays logistics systems we will first discuss the ins and
outs of information management.

4 The evolution of information management
!n other parts of this book different management and operational aspects of FSCN have been
discussed. !n the current chapter we have so far discussed the essence of logistics operations and
management. !t is now time to elaborate on information management and !CT issues.
1.0 Information processing activities
FSCNs have been described as systems in terms of actors executing chain processes that consist of
business activities. Each business activity is performed by one actor of the network and exchanges
business entities in the form of flows with other business activities. These flows encompass identified
Production Packing Delivery
Order
acceptance
Purchase Detailed planning and progress control
Order
acceptance
Stock
control
Stock
control
Stock
control
Unit
control
Unit
control
Delivery
planning
Stock
control
Stock
control
Stock
control
Unit
control
Unit
control
Delivery
planning
Forecast Tactical (Aggregate) planning Forecast Tactical (Aggregate) planning
Strategic Supply Chain Planning Strategic Supply Chain Planning
Production Packing Delivery Production Packing Delivery
Order
acceptance
Order
acceptance
Purchase Operational planning and progress control
Stock
control
Stock
control
Stock
control
Unit
control
Unit
control
Delivery
planning
Stock
control
Stock
control
Stock
control
Unit
control
Unit
control
Delivery
planning
Forecast Tactical (Aggregate) planning Forecast Tactical (Aggregate) planning
Strategic Supply Chain Planning Strategic Supply Chain Planning Strategic Supply Chain Planning Strategic Supply Chain Planning

physical entities, information exchange and messages, money and property flows. The latter of these
flows are often represented in the form of information (bank payment slip, contracts handing over
property rights). Basic components of logistic operations and management have been discussed.

A lot of these activities are to a large extent information processing activities. Logistic operations may
be concerned with receiving orders for stock replenishment and the associated decision to fill in that
order. These may then be followed by business activities such as picking, packing, labelling, making a
bill of lading, invoicing and dispatching. The majority of activities just mentioned are (partly)
information processing activities (either completely automated or executed by people using
information systems). Decision making activity requires the availability of information. Nanagement is
assumed to make informed decisions in order to realise its performance targets.

!n decision making models such as those from Simon (1976), Blumenthal (197+), Nintzberg(1979),
Bemelmans (1990), Keen and Scott Norton (1978), Anthony et al. (2000) it is assumed that the
decision making process must satisfy certain preconditions and constraints. These are well formulated
by De Leeuw (2002) who distinguishes the following preconditions for effective control (see also figure
6):
1. information about the objectives of control. So about what is to be achieved.
2. information about part of the history and state of the object system (ranging from a single
business activity to the complete supply chain) to be controlled.
3. information about available decision alternatives. You have to know what decisions one can or
may take. That involves the need to be informed about available facilities and constraints
imposed.
+. information about external variables (what the environment asks from the business process).
5. a model of the object system to be controlled. That means a (set of) models that relate and
connect the variables mentioned in points 1 through + thus allowing to derive expected
consequences of different decision alternatives and suggesting courses of action depending on
weights of objectives. Finally it is often up to decision maker to make the final choice.
From previous descriptions one may easily conclude that a lot of business activities or processes are
for a large part information and decision making activities. They are currently called information
intensive activities. Activities that are partly automated using automated machinery andfor using
partly automated information systems.

Figure 6. Positioning of the information system.
Environment
Object system
Control system
Information system
Control actions
Input
Output
Control
information
Internal data
External data
Irregular
variables
System boundary
Environment
Object system
Control system
Information system
Control actions
Input
Output
Control
information
Internal data
External data
Irregular
variables
System boundary


Our statement about the information intensiveness of activities, as described for logistic operations
and management holds much broader in organisations. For professional activities of marketing people,
business developers, management analysts, system developers, product development we find the
same. They all are in need of adequate information and systems that provide them with efficient tools
to do their job properly in a most often highly competitive and ever more time constrained
environment.

2.0 What is ICT and information management?
!n this section we proceed with some definitions and discuss data exchange infrastructures in FSCN.

We define !nformation and Communication Technologies (!CT) as all available technical facilities and
all available knowledge and skills that allow the organisation to use these facilities for executing
business activities, chain processes and communication.

Facilities encompass all organisational and institutional arrangements, computers, networks,
peripherals, systems software, application packages (application software), procedures, technical,
information and communication standards (reference information models and coding and message
standards) etc., that are used and necessary for adequate information processing. Knowledge and
skills refer amongst others to knowledge and skills:
of users of !CT to use resources effectively and efficiently;
of the !CT management function and department to develop, implement, maintain and upgrade
!CT facilities of the organisation and to manage and control it is accessible and useable when
necessary;
to develop and implement an information strategy aligned with the business strategy in its FSCN
context. !n particular this skill is of paramount importance when organizational and logistical
innovation depends to a large extend on the ability to choose and implement proper !CT tools
and infrastructures.

!f we talk about information we address a formal representation of the identity and other properties
(data) of business entities that we need for executing and controlling purposeful business activities.
An entity is something concrete or abstract that we are interested in. Hence data becomes information
when it is used for purposeful business activities (òne can act on it').

From the description given above it follows simply that technology is important, in particular however
the `soft part' of !CT is at least as important as the `hard part'. With the soft part we then refer to
information management, technology assessment (being able to assess the economic viability and
organizational and technical feasibility of the use of a technology for FSCN innovation), business,
communication and (decision) process and standards design, the development and implementation of
information systems, the maintenance and upgrading of these, etc. With the hard part we refer for
instance to the technical development of information systems (software engineering) and the design
and implementation of technical infrastructures (computers, peripherals, networks, systems software,
database systems, communication systems, communication and coding standards. The primary focus
of this book is certainly not to focus on the hard part of !CT. Computers and networks give people
access to the !S and data resources mentioned. Nowadays, just count the continuously growing
number of computers for personal use in your business environment. Look at the way these are
connected to the hard and soft !CT infrastructure thus allowing to share the contents of these. There
is an overwhelming growth in this area that we call ubiquitous or pervasive computing (Weiser, 1993).
The authenticated and authorized access and availability of all these technical resources, including

open networks like !nternet and proprietary networks, and of the !S and Databases implemented on
them is a major area of management concern on the level of organisations and on the level of FSCN.
We want and need secure and protected access and availability of these resources every day of the
year, all day and at any place for actors in and outside the FSCN in order to make new innovative
business models work. However, problems associated with for example cyber crime, terrorism, the
unauthorized and unintended (mis)use of information may not be neglected. They constitute a
transparency dilemma as described in Beulens, van Dijk en Duysters (2003).

Nowadays we find more and more that people and organizations within organizations and within FSCN
need to be able to use and share !CT systems and resources. As a consequence we elaborate now on
components of these infrastructures. Components to be mentioned here encompass:
Data resources stored in shared databases and a shared understanding of its content (shared data
model of the database). Think for example of tracking and tracing data (see section +.3).
!nformation systems and services that allow us to use and maintain these databases. An
information system is a system that is used to process information necessary to perform useful
activities. !t is a system consisting of activities, facilities, methods and procedures used by an
organisation to process and provide for the information needed for executing and managing
business processes. !n particular during the last decade the use of databases is often no longer
restricted to a particular organisation and place but may be accessed anyplace through the
!nternet or via vPN (virtual private networks). However, the use must be safe (safeguarded
against unauthorized access and use), private and restricted to authenticated and authorized
users. Examples of internet systems are for example systems used by manufacturers to inform
clients about products, company and processes. They may also use it as a means to exchange
information and complaints. See for instance www.petersfarm.com or www.hak.nl. Finally a lot of
companies now use it as a means to sell products (see e.g. DELL Computers: www.dell.com) or to
create marketplaces (e.g. Transora.com). vPN's are used by an increasing number of companies
to facilitate working àny place any time' for instance when working from different sites, with
different business partners in FSCN, where they have uninhibited access to shared resources
mentioned before.
The whole set of formalized coding and message standards (both technically and content) with
associated procedures for use, connected to shared databases, which are necessary to allow
seamless and errorless, automated communication between business partners in FSCN.
!nternational standards organizations like EANfUCC play a very important role in that context
(EAN is the European Article Number Association, www.ean.nl. UCC stands for Uniform Code
Council which is the American standards organization). The standards, infrastructures and services
provided by and projects run by EANfUCC are very important in the world to bring about
innovation using !CT applications in which automated cooperation and communication just
mentioned is incorporated.
The technical infrastructure necessary. None of the above can work if we don't have the
connected set of computers (workstations of individual associates or people employed by or
interested in the FSCN and the database, communication and application servers and all
associated peripherals) that will allow for its usage. For networks this involves LAN (local area
networks within the company), WAN (wide area networks) to connect companies and beyond via
telecom services, !NTERNET, etc.
The organisational infrastructure encompasses the organisation and staffing of all development,
control, help and advisory functions and activities throughout the organisation, aiming at their
availability and accessibility at all places in the organisation when necessary. These issues also
play a role on the level of FSCN where for instance independent service organizations (like EAN)
and in particular also Enhanced Trusted Third Party (ETTP) (may) play a role of great importance.
An ETTP may have roles in:

o Providing for and giving access to shared resources on the FSCN level or even beyond
that.
o Arranging for authentication and authorization for access and use of FSCN resources, thus
also catering for part of the protection of the rights of autonomous partners in FSCN.
The ETTP roles just mentioned are in our opinion of crucial importance for bringing about
innovation using !CT on the level of FSCN or even beyond that level.

3.0 Traceability information
Logistics is a relatively `transaction-oriented' function, in the sense that logistics activities entail many
transactions (processes or activities) per time unit where these are to be recorded in an information
system. As an example, there are an extensive amount of movements in and out of a stock during
one day, and there are a great number of shipments from suppliers and to customers during the year.
The same goes for the number of operations or transactions in production. This simple fact implies
that logistics is rather dependent on !CT (Persson, 1995).

Box 2. Food safety and tracking 8 tracing

Recently, the council of ministers of the EU has adopted the `General Food Law' (regulation EC No 178f2002)
serving as a steppingstone for future legislation on food safety. One of the main instruments to guarantee food
safety and reduce the size of a product recall is traceability. With regard to traceability, the General Food Law
(GFL) states that companies must be able to identify the suppliers of its raw materials and the customer of its
end-products on a transaction basis, to be implemented as of 1 January 2005. This general traceability
requirement is non-prescriptive but encompasses all food and feed business operators including primary
producers. Retailers of goods to the final consumer are exempt from the requirements of forward traceability.
The basic idea of tracking and tracing is the possibility to determine where a certain item is located and
to trace the history of that item. On the basis of that information, it should also be possible to determine the
source of any (quality) problem of an item, and it should be possible to find out where the other items with the
same problem are located in the supply chain. !n literature the concept of traceability is often used as synonym to
tracking and tracing.
Traceability has impact on chain level, as well as on company level. On company level a system should
provide information on the location of the product and on the history of the product (product and process
information). On chain level, besides information on the location of products, also information on the origin of the
product is of importance. !n this regard it is important to identify the current unique characteristics of lots
(components) and the historical relationship between lots.

During the last years the need has arisen for traceability information in logistics, for quality reasons,
for informing consumers and NGO's and governed by legal regulations (for example: EU origin
regulations for meat, generic EU regulation with respect to product safety and last but not least the
General Food Law which is effective as of January 1, 2005, see also box 2). Traceability information is
information that may be used to inform stakeholders about the whereabouts of particular (physical)
items or products, about their history, dynamic properties, content and relationships with other
products (used for relationship for example). Then the question arises what is the nature of the
information involved? Without giving an elaborate account of how we arrived at it, we mention the
following data sources:

(1)Transaction data
!n order to be able to manage and report about logistical (and other type of) transactions, information
about these transactions must be recorded. Based on the recordings the flow and whereabouts of
goods are known, respectively knowledge is available about what is sold and what needs to be

invoiced or transported. Also these recordings make the information available that is necessary to
decide upon and plan logistical activities. Last but not least, there are reporting obligations within the
company, within the FSCN and to other stakeholders of the company or FSCN. An example of the
latter is provided by the logistical company UPS, which allows customers to trace the whereabouts
about parcels sent any time of the day (www.ups.com). !nformation about these transactions may
involve a variety of information such as:
The transaction itself with its identification and performance measurements;
Products used and produced in the transaction and the change in properties of these products;
Production means and resources (including procedures) used and actors involved with their
properties for the transaction (provenance, origin), etc.

(2) Product data and identification.
Transactions are dealing with products, services and resources used. What do we need to know and
record about these products and services? Well known data about products encompass data contained
on the label of a food product that has to satisfy requirements of consumers, business partners and
legal authorities. Again without an elaborate discussion the following types of product information can
be distinguished:
Product identification. Each form of appearance of a product, a packaging variant, must uniquely
be identified. The Global Trade !tem Number (GT!N) standard provides a standard to do that
unambiguously in FSCN. See the GT!N implementation Guide obtainable via EANfUCC. Each
saleable product package that can be sold in a store using Point of Sale (POS) systems needs a
GT!N in readable form and in barcode form, otherwise a POS-system cannot determine the price
and is not able to update remaining inventory in the store. !t must be noted over here that
current product identifications are basically identifications for groups of products. All products of
that group, all 1.5 litre bottles of Coca Cola, share that identification since they are the same in
the eyes of the consumer, they have the same price, packaging, EAN barcode and information on
the label (with exception of lot number and expiry date). For many products that group-
identification is or will no longer be sufficient for the future. For traceability and transparency
reasons we are moving rapidly towards identifying individual items in addition to the group
identification. This is called the Electronic product Code, a code that contains the GT!N and is
expanded by an individual number thus identifying each individual object separately (see
www.epcglobalinc.org). This code is also named SerialGT!N or SGT!N.
Product properties that we are further interested in for a variety of transparency reasons (see the
earlier discussion on transactions) encompass:
o !nherent properties of the product. These can be seen or otherwise measured on the
product. Nany inherent properties can change over time, e.g. taste, content of chemical
components, bacteriological status, visual attractiveness, quality. Some are not likely to
change, e.g. size.
o Process properties. These describe the process history of what has happened to a unit. !f
units are combined, for instance on the basis of only equal inherent properties, then you
get units with non-homogeneous process properties, which may become a problem when
there is a need for tracing product provenance through the FSCN based on process
properties, e.g. in the case of a recall.
o Properties of resources of production used on the product. This is in fact an extension of
the previous category. !t includes machines and labour. !n the case of machines,
contamination issues may arise. For instance, if a machine is used for non-GN seed after
having been used for GN seed, very rigorous cleaning is necessary to avoid that
contamination. !n the case of labour, ethical issues can arise, as when customers refuse
to buy products because they suspect that children have been used to produce it.

o Provenance data of the product. Here we are referring to a trace of authenticity and or
past ownership or involvement. That may include information about organizations with
their processes that have been involved in the production and whereabouts of the
product, about ownership over time, about origin (birth and breeding on country, farm,
etc.), and about a trace on genetic properties.

(3) Actor data and identification.
Business processes are executed by actors, legally based entities, who produce products on their
production locations. !f we look at information requirements discussed earlier we must be able to
identify and record information about these actors, their locations, processes, products and the
relationships between them. With respect to the identification of actors and locations we again need a
universal standard provided by EANfUCC, the GLN (Global Location Number). For future applications,
again, that GLN will no longer suffice, as a consequence of which the serialized GLN will be introduced
more and more allowing detailed identification of company units (SGLN: see www.epcglobalinc.org).

(+) Derived data.
!f we want to inform stakeholders about (groups of) transactions, products, product history and many
other things, then this information can be derived from recorded data following the model as depicted
in figure 7. !n that figure we assume that derived data are produced either internally in the
organisation, for internal or external use, or externally. Buying decisions of potential customers is an
example of external use.

Organizations may derive information from recorded data for internal use, for informing business
partners to manage and control FSCN activities and to inform consumers and others about subjects
these are interested in. Whether an organization will succeed in meeting information needs and
satisfying associated performance requirements will heavily depend on the scope and quality of
recorded data and on the quality of the model that is used to derive the required information from
available data. !f information cannot be provided a quality gap becomes apparent.

Figure 7. Layered exchange of information between actors and transparency

Receiver of information
Processing and Reaction
Model based deduction
of information
Observe + Capture
and Store Data
Object System
Environment
of information
Observe + Capture
and Store Data
Object System
Actor A in FSCN 1 Actor B in FSCN 1
Exchange of information within a FSCN
Exchange of information
to actors in other FSCNs
of information
Observe + Capture
and Store Data
Object System
of information
Observe + Capture
and Store Data
Object System
of information
Observe + Capture
and Store Data
Object System
of information
Observe + Capture
and Store Data
Object System
Exchange of information
to the environment

4.0 Information systems and services
!n previous sections we have given several definitions and we discussed information and its use.
Automated information systems (!S) or services are means used by people or embedded (built in into)
in machines to process the information previously discussed. Basic processing functions of any !S
encompass capturing, transmitting, storing, retrieving, manipulating and displaying or reporting
information. They aim at gathering and providing the information necessary to execute, monitor and
control purposeful activities in a business and FSCN (see figure 6), as discussed by Alter (2002, fourth
edition). There are different types of information systems and different classifications of these. Given
the scope of this book we will focus only on a functional classification of systems. For other
classifications we would like to refer to Alter (2002) or Bertrand et al. (1990). Such a functional
classification is depicted in figure 8.

Figure 8. Type of information systems one finds in businesses.

!n our description we highlight different types of information systems and their time and data
dependencies. !n practice we strive for a level of integration of systems on different levels in and
between organizations such that basic recordings possess integrity and need to be done only once
(minimize administrative burden) and that information is communicated correctly and timely. With this
we aim to be able to adequately plan, manage and control FSCN activities and report about it with
integrity.
For understanding we briefly describe the components addressed in figure 8 starting at the bottom:
Production automation. On the factory floor we find production, storage and transportation
systems or machines and robots. Systems that nowadays become more and more partly
automated machines (this increased tremendously over the last decades) and machines that more
and more play a role in providing for basic recordings about quality, process data and resources
used. These machines consist of, broadly speaking:
o The core of the production system.
o Sensors that are used to measure properties of inputs and outputs (quality, shape,
defects) of the machine, of the condition of the machine (e.g. temperature, humidity,
etc.) and of process parameters in comparison with predefined parameters and translate
that into an electrical signal that is sent to computer embedded in the production system.
MIS/DSS
Management support
ERP systems
Administration/ transaction
Quality systems
Office
white collar
Manufacturing
blue collar
MES: Shop Floor Control Systems
Time (week, day)
SCADA: Supervisory Control and Data Acquisition Systems
Time (day, hour)
Production systems
and DCS
T(hour, min, sec)
Production systems
and DCS
T(hour, min, sec)
1 2
Task assignment Process Data
SCM, CRM TMS, WMS
Production systems
and DCS
T(hour, min, sec)
3

o Actuators perform some mechanical action, that may be starting and stopping machines
or adjusting machine settings, in response to some electrical input signal generated by
the embedded computer where that signal in turn is based on some control measure
defined by the embedded computer.
o The Programmable Logic Controller (PLC), the embedded computer system, that is
connected to sensors and actuators and the rest of the machine. !t contains embedded
software, the embedded system that determines the functionality of the machine. Finally
such a machine must be able to interact with the human workforce (show information
about the machine and what it is doing and take commands from that person) or
automatically exchange that information with automated controllers, called Digital Control
Systems (DCS).
Currently and for the near future, in order to play a role in innovation in logistics, quality
and traceability, increasing the functionality of these systems, in the areas just
mentioned, is of the utmost importance, as we can already see in a number of innovative
firms. For example the organizational and technical complexity of realizing full traceability
in factory with complicated processes for food production is often underestimated.
!n essence this description of production systems holds also for computerized home appliances
such as ovens, magnetrons, washing machines, multi media machines, etc.
SCADA (Supervisory Control and Data Acquisition) systems are systems that control a number of
connected Digital Control Systems (with each their own production systems) on an hourly and
daily basis. They collect detailed process information, report about that and exchange information
with other parts of the organisation when required.
Based on information generated by the ERP (Enterprise Resource Planning) system of an
organisation about what to produce and when, on a weekly or daily basis, the NES
(Nanufacturing Execution System) supports operations managers to make operational schedules,
the (sequence of) assignments of all cooperating production systems in a scheduling period for
the factory. !t is also used, similar to the SCADA systems, to control and monitor the execution of
the operational schedule, administrate it and communicate and report about it.
The next layer of systems to be discussed are ERP, Quality, SCN systems, WNS (Warehouse
Nanagement System), (TNS) Transport Nanagement systems and CRN (Customer Relationship
Nanagement) systems. These are basic systems where transaction data are gathered and
recorded, where operational decisions are made and communicated within the organisation and
between supply chain organisations. The latter involves exchanging messages between
organisations using ED! or XNL. Supporting Traceability is one of the functions that is becoming
more and more incorporated in ERP and WNSfTNS, also with their connections to production
systems
The following level of !S to be discussed is the level of Nanagement !nformation Systems (N!S)
and Decision Support Systems (DSS). With N!S we address systems that give managers insight
into results obtained, allow them to analyse these results (business intelligence), and provide for
(management) reporting. Nodel Based DSS (NBDSS) may help managers to develop and evaluate
alternative courses of action (decisions) and evaluate the expected consequences thereof. This
plays a role on different levels in the organization. At the operational level to help organize, plan,
staf, execute en control operational activities such as procurement, sales, production,
warehousing and distribution. On the tactical level to derive and evaluate tactical decisions
followed by supporting the development and implementation of business resources and systems.
Finally, on the strategic level these NBDSS and Executive Support Systems are meant to support
the development and evaluation of strategic options for the company and or for a FSCN.

With this overview we end this classification of types of !S. The whole set of information systems and
resources used in a company used to satisfy its information needs is called the !S infrastructure. The

reader has to be aware that different production situations require different logistic control systems
and that different control systems require different information systems. The !S infrastructure will
therefore differ between companies. Noreover, because of the cooperation in FSCN, we not only have
to distinguish !S infrastructures on the level of the company but also on the level of FSCN. This means
that these infrastructures have to be able to cooperate, which is nowadays amongst others realized by
adherence to shared reference models (that is a shared vocabulary to ensure we can understand each
other without ambiguity), identification systems as earlier described, and messaging standards from
EAN, also as earlier discussed.

5.0 Information management issues.
!CT and infrastructures are a resource of vital importance for effective and efficient performance of
businesses on their own and in the context of FSCN. As a consequence it merits management
attention both on the level of the individual business and FSCN in which they participate. Strategic
issues have to be resolved aligned with business and FSCN strategies. !n that context, e-business
issues and virtualisation of business and network processes (in particular logistic processes) are
becoming more and more important since they determine the possibilities for innovation of FSCN
using !CT. Next to the strategic management issues one also has to do with the development,
implementation, maintenance and upgrading of the !CT infrastructures aligned with the development
and implementation of new or changed business models, again both on the level of the company and
the FSCN. This calls for an adequate organizational infrastructure and the management and execution
of their activities.

5 An overview of innovative concepts in logistics and ICT in FSCN
This book is about innovations in food production systems and this chapter focuses in particular on
innovations in logistics and !CT. !n previous sections we already described the main innovation, that is
the rise of the concept of the FSCN, and discussed in more detail the evolution of logistics and
information management. At the moment, a lot of specific developments and projects are taking or
have taken place that are worth mentioning. Changing consumer requirements, new legal restrictions,
foreign competitors that have penetrated the market with different value propositions, infrastructural
problems such as traffic jams, and so on have stimulated actors in FSCN to innovate their network
structure, chain processes, management structures and chain resources. !n this section we will
present an overview of some of the most important initiatives(as we see it), categorised by the
elements of the framework for chainfnetwork development, as depicted in Figure 9.


Figure 9. Overview of innovations in logistics and !CT in FSCN.

1.0 Innovative concepts related to the network structure
The network structure deals with the members of the supply chain and the roles they perform
(see figure 2). As discussed earlier, an FSCN is characterised by dynamic instantiations of supply chain
collaborations within the network of potential partners that are able and commit themselves to comply
to performance requirements put on them. The first development to mention is the
internationalisation of supply chain relationships. Due to open markets and !CT one is able to do
business with partners all over the world. FSCN have internationalised significantly resulting in more
complex networks and a necessity for all chain participants to rethink their value proposition and roles
to play in the FSCN. Although the flexibility in the selection of a specific partner to fulfil a specific
business process has increased (i.e. one can choose different suppliers for specific product-market
combinations), the number of partners with whom to cooperate has decreased. There is a reduction
of the supplier base due to the paradigm that `cooperation requires management attention and that
there is only little management time available'. Due to economies of scale supply chain integration has
taken place resulting in a decreased number of actors of substantial importance in a supply chain with
explicit role definitions. Roles for which they are (in)formally certified.

So on the one hand we see a reduction in the number of actors in the supply chain. On the other
hand new actors have joined the FSCN. Due to the intensified concentration on core activities of
(brand) manufacturers more and more logistics and information processing activities are outsourced
to a Logistics Service Provider (LSP). An LSP is an external provider who manages, controls andfor
delivers logistics activities on behalf of a shipper. There are several types of LSPs (e.g. Norgan Stanley
Research, 2001; Engelbart, 2003). A 2PL (second party LSP) is generally a commodity capacity
provider, such as a trucking company or a warehouse operator, that provides services for a single
actor in the supply chain. !t just transports goods from A to B or stores goods but adds no additional
value. A 3PL (third party LSP) executes and manages all or a large portion of multiple shippers
physical logistics activities and specialises in value-added activities such as consolidation of goods,
warehousing and repacking. Nowadays, even more advanced service providers have evolved that
position themselves as a logistics integrator or a one-point contact for the shipper's logistics
outsourcing requirements. Such a fourth party logistics service provider (+PL) usually has no or limited
physical assets of its own but assembles and manages the resources, capabilities, and technology of

Chain
Processes
Network
Structure
Chain
Resources
Network/Chain
Management
Network structure innovations:
International FSCN
Reduction supplier base
Logistic/Information Service Provider
Outsourcing activities
Chain orchestration
Virtual and physical clustering
Chain resources innovations:
Consolidation centres
Multi-modal networks
Intelligent packaging/labels
Chain Information Systems
Tracing technology (RFID,
GPS, scanning, )
Chain control innovations:
Connectivity and transparency
Pro-active chain planning concepts
(VMI, ECR, CPFR & FGP)
Cross Docking / Postponement
Sharing logistics capacity

its organization with those of complementary service providers (2PL and 3PL) to deliver a
comprehensive logistics supply chain solution. !t orchestrates logistics flows in the FSCN or even
beyond that. !t has a complete overview of the supply chain as well as strong logistics and
sophisticated !CT tools that provide for product flow monitoring capabilities, resource capacity and
product visibility information and flow planning and scheduling support and information.

Next to logistics service providers also information service providers, so-called infomediaries, have
emerged: companies transforming the improvement and processing of information into a core activity.
Tapscott et al. (2000) refer to the rise of `virtual business webs' (b-webs) defined as fluid
congregations of businesses - sometimes highly structured, sometimes amorphous - that come
together on the internet to create value for customers and wealth for their shareholders. Business
webs refer to a distinct system of suppliers, distributors, commerce services providers, infrastructure
providers, and customers that use the internet for their primary business communications and
transactions. Research of van der vorst et al. (2002) revealed the existence of four types of b-webs:
E-marketplaces that bring together sellers and buyers and focus on market efficiency through
price discovery or needs matching. An example is the Floraplex bidfask system that is designed
to link European, African and !sraeli growers (supply of flowers) to wholesalers and distributors
world-wide (demand for flowers). This system allows buyers to negotiate directly with growers
(see www.floraplex.nl).
virtual enterprises are characterised by complementary contributions from a number of different
companies, where the web-site (for example www.transora.com) plays the role of a broker. They
generate value gained from knowledge brought to the network, be it industry best practices,
knowledge management, benchmarking studies, or other content-based value such as the
generation of buying power when multiple companies act together in the buying process.
!nformation chains are characterised by transparency of information through the value chain.
They focus on gathering relevant information throughout the supply chain and adjusting supply
chain processes to customer needs. An example is www.hak.nl where the fruit and vegetables
canning factory HAK gives consumers and retailers insight in detailed process and product
information in addition with advice in the from of recipes.
Supply or value chains which design and deliver an integrated product or service that meets a set
of customer needs. They are characterised by a dominating focal company who structures and
directs a FSCN. They aim to produce a highly integrated value proposition (for example,
www.petersfarm.com) by focusing on products with particular and published quality, provenance
and safety attributes with associated chain transparency. This leads to improved visibility across
market supply chains, reduced lead time, reduced inventory levels, improved logistics
management and ERP-related process integration.
One can imagine that, next to !nformation chains especially, the value chain b-web (like Peter's Farm)
is bound to become widespread in food supply chains, because of the importance of tracking and
tracing of products related to food safety and environmental issues and the presence of quality
certification programs in these supply chains. Next to value chains, E-marketplaces may be used for
the supply of routine, well specified items. This prediction is in accordance with Porter (2001), who
expects open marketplaces to diminish over the long haul, and buyers focus in building close,
proprietary relationships with fewer suppliers, using !nternet technologies to gain efficiency
improvements in various aspects of those relationships. He states that the great paradox of the
!nternet is that its very benefits - making information widely available; reducing the difficulty of
purchasing, marketing, and distribution; allowing buyers and sellers to find and transact business with
one another more easily - also make it more difficult for companies to capture those benefits as
profits (Porter, 2001). The result is often a shift toward price competition, resulting in a negative net
effect on the competitive advantage.

Another innovative concept that receives a lot of attention especially in the Netherlands is the
clustering of supply chain activities in so-called Agri Business Complexes" (ABCs). !n such an ABC
multiple organisations andfor supply chains are physically connected at one location (region) resulting
in amongst other things the possibility for more efficient transportation (combining product flows over
multiple actors towards, from en between ABC's may allow frequent transport with associated quality
improvement effects while also improving the efficiency), utility-sharing, joint purchasing, better
product and process development, reduction of odour-problems and less load on the environment.
Further, ABC's may promote new innovative activities such as:
using by-products or waste flows in one supply chain as inputs for another supply chain. For
example, the use of slaughter by-products as inputs for animal feed or the use of warmth that
comes from manure-processing for greenhouse heating.
the processing (assembling) of new food products from materials produced in different supply
chains, such as vegetables, potatoes, meat products, fruit, etc.
The ABC is characterised by the creation of new supply chains since `neue Kombinationen' of FSCN-
members arise. For an example, see box 3.

Box 3. Agribusiness complexes: the A-1 protein corridor (www.agrologistiek.nl)

Highway A1 in the Netherlands is one of the most important East-West connections in Europe. At the same time
it provides a number of production centers in which animal proteins are processed in nutricious semi-finished and
end products. Along with that the centers offer direct and indirect employment at primary production stages and
suppliers and customers. However, because of more stringent regulations concerning environment and animal
welfare and an increasing international competition, competitiveness has decreased significantly. The project A1
Protein Corridor aims to break through this downwards spiral by implementing system innovations in production
and processing of animal proteins, that is, by altering the chain organisation and logistics flows and rearranging
the spatial environment. Physical clustering of activities (supply chain stages) optimizes the use of energy, water
and waste flows and reduces transport movements. The project includes a number of sub-projects such as
research into value-added slaughter by-products and concentrated facilities that house a number of different
processing stages.

2.0 Innovative concepts related to chain management and processes
Chain Nanagement and Chain Processes deal with the way business processes are managed
and executed in the supply chain. We have described the need for customer-order or demand driven
supply chains that are responsive and sustainable at low cost. This translates into a high demand on
the flexibility and efficiency of the manufacturing and distribution processes and the organisation of
supply chains. The development of such supply chains are enhanced by several innovative concepts
heavily supported by information technology, which we will briefly describe in the following.

The main development we see here is the creation of chain connectivity and transparency
combined with the shifting of the Customer Order Decoupling Point (CODP as discussed in section 3.2)
upstream the supply chain - that is towards the suppliers - in order to increase the responsiveness to
the dynamic market demand by acting pro-actively on timely information. A precondition for supply
chain coordination is the establishment of connectivity and transparency, i.e. interconnecting the
information systems of successive partners in the supply chain and exchanging information via this
infrastructure. By connecting and exchanging information on consumer wishes and external
requirements with all members of the supply chain and by formulating supply chain objectives related
to the Triple P, supply chain processes and management can be designed and executed efficiently and
effectively. Numerous examples are available to show that supply chain performance will improve

when chain transparency and customer oriented supply chains are (partly) created with associated
operational coordination mechanisms (see also box +).

Box 4. Supply Chain Nanagement Concepts in Practice

Several well-known firms involved in supply chain type relationships (e.g., Procter 8 Gamble (P8G) and Wal-Nart,
the US's fastest growing retailer) owe much of their success to the notion of information and the systems utilised
to share this information with one another. Through state-of-the-art information systems, Wal-Nart shares point-
of-sale information from its many retail outlets directly (via satellite) with P8G and other major suppliers. The
product suppliers themselves become responsible for the sales and marketing of their products in the Wal-Nart
stores through easy access to information on consumer buying patterns and transactions. P8G expanded these
working methods with a new distribution system that allowed customers to buy and receive all P8G products
together on the same truck - regardless of which business sector manufactured the brand. This development,
together with the introduction of new pricing structures, pallet standardisation, electronic invoicing and new
procedures for handling damaged products resulted in huge savings. Because of the speed of this system, Wal-
Nart pays P8G after the merchandise passes over the scanners as the consumer goes through the checkout lane.

Nowadays retailers and manufacturers work together to assess consumer demand and to
determine the most appropriate supply management and replenishment approach to meet this
consumer demand. This has evolved in a number of rapid fulfilment techniques as vendor Nanaged
!nventory (vN!), Efficient Consumer Response (ECR), Collaborative demand planning, Forecasting and
Replenishment (CPFR) and Factory Gate Pricing (FGP). We will describe them briefly (van der vorst,
200+).

vN! is a technique developed in the mid 1980s, whereby the supplier has the sole responsibility
for managing the customer's inventory policy, including the replenishment process. The logistical
branch of ECR, Efficient (or Continuous) Replenishment (ER), moves one step ahead of vN! and
reveals stock levels in retailers' stores and uses point-of-sale (POS) data to generate a sales forecast.
!t aims for the establishment of responsive and efficient replenishment by shifting the order
decoupling point as far upstream the supply chain as possible. ER uses concepts such as automatic
replenishment systems based on
(i) the sales forecast, built from historical demand data and no longer purely based on the
variations of inventory levels at the customers' main stock-holding facility,
(ii) high frequent deliveries with short lead times, and
(iii) cross docking, i.e. eliminating product storage at warehouses where products received are
turned around for shipment to retail stores within 2+ hours.
CPFR further increases the level of co-operation and collaboration. Rather than trying to independently
project demand patterns, buyers and sellers share information in advance and work together to
develop realistic, informed, and detailed estimates that can be used to guide business operations
(Stank et al. 1999). Utilizing principles of CPFR, a retailer and manufacturer work together to jointly
create a single, combined promotion calendar sufficiently in advance of the selling period. This
calendar is subsequently periodically up-dated on a real-time basis over the !nternet. The retailer also
provides POS-data, longer-term promotional plans, prescribed inventory levels, etc. for the consumer
goods trading partner. Both firms create sales and order forecasts and a collaborative system is used
to compare the retailer's forecast to the consumer goods firm's own forecast. Discrepancies or
exceptions are identified and appropriate managers advised. Working together, the team" decides
ultimately on one, i.e. collaborative, forecast extending across the supply chain.

One of the latest management concepts is called Factory Gate Pricing (FGP) - which makes the
retailer the orchestrator of transportation. The manufacturer makes its products available at its

warehouse and gets the price of goods without transportation costs. The logistic service provider that
also takes care of the distribution from retail warehouse to outlets and returns flows, can optimize the
total flows by incorporating the flows from suppliers. Whether FGP is interesting depends on demand
characteristics (volumefvariability), type of replenishment (degree of responsiveness), product
characteristics (perishabilityfvalue), geographical distances and infrastructural characteristics such as
the number of docks available. When we compare FGP with CPFR, we can conclude that FGP is
interesting when volume and demand variability are low; CPFR is interesting when the volume and the
demand uncertainty are high. The main barriers for manufacturers to implement FGP are the required
internal changes (to facilitate the pull flow), the reduction of transport volume (which makes the
efficient planning of the remaining flows difficult) and the required transparency in product prices and
transportation costs.

Box 5. Shortened Fresh Collection (www.klict.org)

Nowadays, consumers and retail demand a varied assortment of floricultural products and a year round supply of
top quality produce, all for a reasonable price. To meet the growing consumer demands the floricultural chains
will have to be reversed from product oriented (push) to market-oriented (pull). A consumer driven chain can
only be successful if the chain is organised in a flexible, efficient and responsive way. !n order to speed up the
flow of goods throughout the chain, from the grower to the retailer or florist, new logistical chain concepts have
been developed in the project Shortened Fresh Collection". These new concepts where inspired by the need to
deliver more frequent, in lower batches within a lead time shorter than the current 27 hours.

The project aimed at optimising the logistical processes of the ornamental plant cultivation network in Bleiswijk,
the Netherlands. The objective was to clarify and significantly reduce the lead time of the product range for a
supply chain, from the moment the exporter places an order to the time of actual delivery to the exporter's
premises. Participants in the project were FloraHolland Flower Auction, growers, wholesaler Lemkes and carriers.

via chain analysis, simulation of logistical flows and a pilot study new logistical chain concepts were tested in
practice and evaluated on environmental burden, feasibility, total costs and lead time. The results showed that
lead times could be significantly decreased at lower costs. !t requires: (1) the use of electronic ordering systems;
(2) reduction of waiting times in the supply chain implicating a change in the working methods of especially
growers; (3) collaboration in the transport of plants from specific regions.

The project showed that people make the difference" in vertical chain partner shipping. Time is needed to build
trust and to create commitment between the successive links in the chain. !t requires the use of tools like
workshops with the partners, chain performance measurements, agreements on responsibilities and the division
of costs and revenues. !n the project, trust between the partners in the chain has grown significantly. Especially
the understanding of each other's role, added value and wins for chain cooperation lead to a common
competence to act as a whole. The chain as a whole has changed their way of working, from a daily trade
operation being concerned with daily prices and orders, into a long term partner shipping in which joint consumer
concern is leading and supply performance is under control. This should be followed by scaling up by means of
developing a universally applicable solution with which to reduce the lead times of an ornamental plant cultivation
cluster.

Next to vertical cooperation between suppliers and customers there are also examples of
horizontal cooperation where multiple organisations from the same network layer (see figure 1) work
together. We refer here to concepts such as sharing production or warehousing capacity to exchange
capacities and increase manufacturing flexibility. We will come back to this in the next subsection.

On a more detailed level we see a number of innovative sub-concepts that facilitate an efficient and
responsive supply, such as postponement" or delayed configuration" (van Hoek, 1998) or value
added Logistics". By delaying (postponing) product differentiation one delays for as long as possible

the moment when different product versions assume their unique identity, thereby gaining the
greatest possible (mix) flexibility in responding to changing consumer demands. According to van
Hoek postponed manufacturing equates to àssemble to order' where fabrication of parts is
standardised but the assembly and distribution process is customised. Postponement is based on the
principle of seeking to design products using common platforms, components or modules but where
the final assembly or customisation does not take place until the final market destination andfor
customer requirement is known.

3.0 Innovative concepts related to chain resources
!nnovations in Chain Resources relate to developments in physical means, human skills and
competences and !CT. We will not go into details related to human skills and competences since they
are directly related to the use of resources and the management concepts introduced. !n general we
can state that the education level and skills of managers and workforce will (have to) increase
significantly to cope with the increased complexity of new process technologies and process control
concepts. Especially the knowledge on !CT will (have to) increase due to recent developments as we
discussed already in section +. We will concentrate here on the main technological developments that
have an impact on logistics. But let us first start with some important developments in physical
means.

Whereas in the past every actor organised its own transport and warehousing, technological
advances in logistics and !CT enable the development of new logistics paradigms based on
cooperation. This facilitates the consolidation of goods, which decreases costs and increases
responsiveness. Good examples are the development of Nanufacturing Consolidation Centres by Lever
Faberg, Kimberly Clark, Ola and !glo Nora and the rise of Fresh Consolidation Centres in the venlo-
region that focuses on fresh fruits and vegetables. !n these centres many small incoming lots of
material from different suppliers, that are to be delivered to the same customer, are consolidated into
fewer, larger loads for efficient onward despatch. The idea has been explained earlier, combining
more product flows toward centres, within centres and from centres over short time spans, allows
frequent, responsive and yet efficient transportation. Usually a trusted third party, a LSP (see section
5.1), is responsible for the planning and execution of all logistical activities.

!n the Netherlands, due to increasing traffic congestion, a lot of effort is put into the
development of multi-modal transportation networks where goods are transported via multiple
modalities on pre-defined routes. Good examples are `Distrivaart' where pallets are transported via
trucks and boats to regional distribution centres and `Distriroad' where the transportation of goods
flows is combined with the transportation of humans between multiple hubs on a pre-defined and
assigned highway line. Finally, on a more detailed level, a number of innovations are introduced in the
Dutch infrastructure such as making use of the hard shoulder of highways at peak hours, new
information providing mechanisms, using GPS to redirect drivers, floatable roads, and so on. We refer
to the website of the platform agrologistiek" for an elaboration on these projects (see
www.agrologistiek.nl).

Box 6. An internet Hub for the vos Logistics Supply Chain (Hillergersberg et al., 2003)

vos Logistics is a third party logistics service provider that is active in adding value to its portfolio of logistics
services. vos is one of the larger, asset based, transport and logistical companies on the European Narket. The
company employs more than +000 people working at more than 30 offices throughout Europe. The firm's long-
term strategy is to become a full logistics service provider for its customers, offering services such as
warehousing, transportation management and supply chain (re)design.

The case is concerned with the vos sea containers transport from its veendam terminal to the Rotterdam harbour
for customers such as Avebe, Friesland Dairy Foods, Kappa, Akzo and Dow Chemical. Dependent on the cost and
speed requirements of the customer, transport takes place over road, water and rail connections. Several parties
are involved in the supply chain such as rail operators, barge operators, charters, terminals, etc. Current
limitations in the supply chain are the following: there is lack of real-time information on the status of containers,
a large number of containers are involved in exceptions such as no shows and delays, and the same order
information is entered in the system multiple times. Although the transport of containers seems simple, many
parties are involved, and many pieces of information from these parties need to be consolidated at the right place
at the right time in order to avoid operational problems.

Early 2000, vos and !nformore, an !CT company that specializes in providing logistics hubs, initiated a project to
create a central logistics information hub that would register and communicate data within the supply chain and
optimises the planning and monitoring of the transportation system. Using the hub, vos can monitor the
information exchange and the activities taking place on a real-time basis. Other parties connected can monitor
part of the information in the hub of interest to them. The case showed that there were a lot of benefits to be
obtained: chain transparency and coordination resulted - via the hub - in shorter throughput times and increased
resource utilisation and productivity. For an elaborated description of the case, we refer to Hillergersberg et al.
(2003)

When we focus on technological developments we see the rise of new processing and
packaging technologies that facilitate new logistical concepts. A good example is the development of
modified atmosphere packaging that lengthens the best-before-date and now allows fresh flowers and
fruit 8 vegetables to be transported via containers on ships to the United States instead of using
expensive air transport. This is often combined with intelligence, which means that sensors and
tracking devices are connected to handling units of these products during transport and storage that
facilitate the monitoring and adjustment of atmosphere and other conditions. !n the end a consumer
will be able to trace backward the history of the product concerning temperature and other relevant
conditions as the product moved forward through the supply chain. This is also called, quality
controlled tracking and tracing. Of course, as already stated in section + this requires the
standardisation of object identification on the individual level, registration and communication; we
refer to the earlier discussion on EANfUCC information standards (see section +.3). On the other hand
we also see a change in the use of transportation means for consumer goods due to the relocation of
production facilities to cheaper countries. For example, Nike has relocated some of its factories to
Asian countries and flies the sneakers into Europe via air transport. From a supply chain perspective
this is cheaper since the decrease in production costs fully compensates more expensive
transportation costs. Comparable discussions are taking place in agribusiness since production costs
are much lower in Eastern-Europe.

When we look closer at innovations in !CT (in addition to the concepts and innovations
introduced in section +) we should mention the rise of new Decision Support Systems and Chain
!nformation Systems that facilitate chain transparency and information exchange and cooperation in
the supply chain. Numerous actors are nowadays working on centralised and decentralised
information systems to facilitate the coordinated planning and information exchange. We refer to the
website www.ictlogistiek.nl for an overview of all these system providers.


One of the latest !CT developments is the introduction of Electronic Product Codes (see
section +) and the Radio Frequency !dentification (RF!D) tag that - in the end - will probably replace
the traditional barcode. Basically RF!D refers to a tag which is able to transmit andfor receive
radiographic signals actively or passively (this means that the tag needs to be activated via a
scanner). Such tags are at the moment introduced in the food supply chain by a number of large
retailers (such as Wall-Nart, Tesco and Netro, see box 7) that have started pilots in their warehouses
in which they oblige their main suppliers to put tags on their productsfpallets. Using such tags
provides significant logistical benefits since the processing of those items can proceed electronically
without the interference of humans. The data that is gathered provides stacks of information that - if
processed properly - can help in optimising the logistics and administrative flows. Up to now the tag is
mostly used at the pallet level in combination with the information standards SSCC (Serial Shipping
Container Code i.e. the label on the pallet) and DES-ADv message (i.e. the corresponding data
message). These standards facilitate the recording and pro-active sending of information on shipment
and about the articles that are contained in it (article number, quantity, batch number, quality level,
etc.). !n the near future we will even be able to identify each individual product in a shipment (instead
of a group of products with common characteristics) when the Electronic Product Code is used since
this provides for an unique identification number for each unique item. For an elaborate discussion on
EPC and RF!D we would like to refer to for instance www.epcglobalinc.org or to a recent book by van
Trier and Rietdijk (200+). !n that context all identification and coding standards associated with
products, production means (e.g. pallets and containers) and shipments are dealt with along with
infrastructural issues such as a generic Object Naming Service (ONS) that resembles the DNS service
that is so important in the world to find machines and people attached to internet. A further
explanation is beyond the scope of this book.
Finally we must make an important issue about public and political concerns associated with the use
of RF!D. Especially the use of RF!D tags on individual articles, as they are bought by consumes, are
addressed in publications that voice these concerns. These voices stress the possibility of misuse of
information about purchases. Possible violation of the privacy of those buyers, the ability of continuing
the collection of data after purchase and, of course the unauthorized (mis) use of that data.
Regardless whether these ideas are true or not, effective use and deployment of this technology calls
for an adequate response to these ideas.
Box 7. The Future Store !nitiative (www.metrogroup.de)
How can shopping become easier and more convenient? What technologies can be used to increase the
effectiveness of logistic processes in retailing? The Future Store !nitiative is a pilot cooperation project between
Netro Group , SAP, !ntel, !BN and T-Systems as well as other partner companies from the information technology
and consumer goods industries. Within the Future Store !nitiative, technologies and technical systems are tested
and further developed under real-world conditions. RF!D (Radio Frequency !dentification) is the most prominent
element of the new technologies and the basis for an efficient control within the logistics chain. Other features to
be tested within the Future Store !nitiative include self-scanning devices and innovative check-out systems
enabling the customer to pay without a cashier and resulting in shorter waiting periods at the check-out. State-of-
the-art information media and devices such as information terminals or small customer computers like the
Personal Shopping Assistants help consumers to find products and provide in-depth information. A small hand-
held computer with a bar code scanner and other functions, the so-called Nobile Assistant, supports employees
when recalling data on the store and warehouse inventory. Netro Group, Tesco and Wal-Nart the leading
international retail companies, announced on january 17, 2005 that they will be collaborating in the
implementation of RF!D technology. These three companies are among the first to implement RF!D along the
entire process chain, thus ensuring greater efficiency and customer-orientation in retailing.

6 The essence of innovations in logistics and ICT
This chapter is about innovations in logistics and !CT in the food supply chain network (FSCN). We
described the changes that occur in the players, the playing field and the rules of the game of acting
in a FSCN. The complexity and dynamism has increased significantly in the last years and will increase
the years to come, resulting in new actors that enter the playing field, new ways of managing and
coordinating processes, and new technologies to support management. The preceding sections have
presented an overview of innovative concepts in logistics and !CT. When we evaluate these
innovations and look at the essence we find the following generic characteristics:
a general focus on cost effectiveness with more and more attention for the combination of
Profit, People and Planet;
an increase of guarantees related to food quality and safety;
a redefinition of value propositions, roles and processes of actors in the FSCN;
an increase of (international) cooperation in supply chains whilst maintaining a high flexibility in
partner selection;
a concept change from the functional approach into a process approach;
a decoupling of processes via modularisation and the creation of dynamic relationships between
processes;
a speeding up of processes via rapid fulfilment techniques and parallel processing;
an increased use of the potential of new information capturing and processing capabilities;
a consolidation of product and information flows within organizations, supply chains and FSCNs;
and
an introduction of new packaging and processing technologies that facilitate new logistics
concepts with different transitions in form, place and time;
!n short, we see a continuous change in the network structure, the processes, the management
structures and the resources used.

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Appendix Glossary

Abbreviation Explanation

Abbreviation Explanation
2PL Second Party Logistics

!CT !nformation and Communication
Technology
3PL Thrid Party Logistics

!S !nformation System
+PL Fourth Party Logistics

J!T Just in Time
ABC AgriBusiness Complex

KP! Key Performance !ndicator
CODP Customer Order Decoupling Point

LAN f WAN Local Area Network f
Wide Area Network
CPFR Collaborative Planning Forecasting
and Replenishment

LSP Logistic Service Provider
CRN Customer Relationship Nanagement

NCC Nanufacturing Consolidation Center
CRP Continuous Replenishment

NES Nanufacturing Execution System
DCS Digital Control System

N!S Nanagement !nformation System
DRP Distribution Resource Planning

NRP Naterial Requirements Planning
DSS Decision Support System

PLC Programmable Logic Controller
EAN European Article Number

POS Point of Sale
ECR Efficient Consumer Response

RF!D Radio Frequency !dentification
ED! Electronic Data !nterchange

SCADA Supervisory Control And Data
Acquisition
EPC Eletronic Product Code

SCN Supply Chain Nanagement
ER Efficient Replenishment

SKU Stock Keeping Unit
ERP Enterprise Resource Planning

SSCC Serial Shipping Container Code
FCC Fresh Consolidation Center

TNS Transport Nanagement System
FGP Factory Gate Pricing

UCC Uniform Code Council
FSCN Food Supply Chain Network

vN! vendor Nanaged !nventory
GLN Global Location Number

vPN virtual Private Network
GN(O) Genetic Nodified Organism

WNS Warehouse Nanagement System
GPS Global Positioning System

XNL eXtensible Narkup Language
GT!N Global Trade !tem Number

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