Supply chain management and efficiency

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Literature review

This chapter gives an insight of the reviewed literature of this thesis. First, basic as-pects of supply chain management and efficiency is described. Further, the im-portance of information for supply chain management is addressed, followed by a brief description of RFID technology and levels of RFID tagging. Additionally, aspects of material handling are addressed, and implications of RFID pallets in this concern are presented. Finally, the chapter presents NLP and briefly explains how the pallet pool cycle in the Norwegian grocery industry works.

Supply chain management and efficiency

Before discussing the aspects of supply chain management (SCM), an explanation of what a supply chain is and consists of, may help to provide a clearer picture of SCM aspects. ‘A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request.’ (Chopra & Meindl, 2010, p. 20). Reid and Sanders (2010, p. 93) define a supply chain as ‘…the network of activities that delivers a fin-ished product or service to the customer.’ A supply chain therefore includes manu-facturers, suppliers, warehouses, transporters, retailers, and the final customer. All of the mentioned actors play a crucial role in their supply chains in order for the customer’s request to be fulfilled. Even so, this does not mean that all supply chains have identical characteristics. They do not always consist of constant num-bers and types of actors. Rather, different supply chains are designed according to, and dependent on, the customer’s needs and the roles played and the stages in-volved in those specific supply chains (Chopra & Meindl, 2010).
As seen in Reid and Sanders’ (2010) definition above, the term supply chain is also referred to as a network. Further, it is also referred to as logistics network (Simchi-Levi, Kaminsky & Simchi-Levi, 2004) and supply network (Rice & Caniato, 2003; Skilton & Robinson, 2009), since actors interacting with each other in a supply chain also cooperates with other actors from other supply chains. These network terms give a broader, more complex picture of the supply chain than what is often perceived with the term supply chain. Nevertheless, this thesis will use the terms supply chain and supply chain management, based on the grounds that these are the traditional terms regarding the field.
With the fierce competition and increasing customer expectation in today’s global markets, strategic handling of the steps and activities in the supply chain becomes vitally important for firms in order to survive. Simchi-Levi et al. (2004, p.2) define SCM as:
‘…a set of approaches used to efficiently integrate suppliers, manufacturers, ware-houses, and stores so that merchandise is produced and distributed in the right quan-tities, to the right locations, and at the right time in order to minimize systemwide costs while satisfying service-level requirements.’
Emphasis is put on that all the actors in a supply chain and all activities within SCM are of importance in order for the supply chain to achieve what its objective should be: Maximizing overall value through the supply chain by being efficient and cost-effective through minimizing systemwide costs (Simchi-Levi et al., 2004; Reid & Sanders, 2010). Educational course books on SCM often view SCM as a pipeline for the efficient and effective flow of products/services, information, and financials (Langley, Coyle, Gibson, Novack & Bardi, 2009; Chopra & Meindl, 2010), with these three flows covering all the activities and stages mentioned in the definition above. Through combining the different views of SCM, a broad understanding of the term is achieved so that it may be viewed both as a network of chains and as a single chain consisting of a given number of firms.
Efficiency can be described in various ways depending on in which context the term is used. Reid and Sanders (2010) describe efficiency as performing activities well and at the lowest possible cost. According to Karkkainen (2003), efficiency al-so includes saving time in handling operations; and this is important to stay com-petitive in the market. Chen (1997) stresses that suppliers and buyers need to es-tablish a close working relationship to seek ways to achieve maximum supply chain efficiency.

Importance of information for SCM

The importance of information in SCM is undisputable. Without the right infor-mation concerning the processes taking place through the supply chain, managers are not able to assess situations appropriately and take action to respond to each case in the best manner. Yücesan (2007) points out that ‘information is said to be the glue that holds supply chains together.’ (In Jung, Chen, & Jeong, 2007, p. 127). According to Langley et al. (2009) information is the lifeline of business, driving ef-fective decisions and actions. Wamba and Boeck (2008) add that a high level of in-formation flow integration is considered a key determinant of a firm’s efficiency. Fawcett, Ellram and Ogden (2007) stress four reasons for the increasing im-portance of accurate and timely information for optimal SCM:

1. Information about order status, inventory availability, delivery schedules, shipment tracking, and invoices is needed in real time for managers to pro-vide exceptional customer satisfaction.
2. When dealing with uncertainty, information substitutes for inventory and may help to take costs out of the supply chain.
3. Information increases flexibility with regard to when, where, and how re-sources are utilized to gain competitive advantages.
4. Web-based information sharing is changing relationships between buyers and sellers, and redefining supply chain relationships.

Thus, it appears that for a supply chain to benefit from information sharing, some kind of cooperation between the supply chain actors is necessary. Nevertheless, through a series of case study interviews, Fawcett and Magnan (2002) found that of a company’s processes to integrate supply chains, at best, 95 per cent still took place among the triad of the company plus one tier upstream and one tier down-stream. Fawcett et al. (2007) acknowledge this and claim that most managers find it hard to collaborate in a meaningful way, both internally and externally, in spite of the innately appealing idea of cooperation.
This thesis focuses on information in regards to what benefits of efficiency that may arise when the actors in the grocery industry utilize pallet-level RFID tagging. Although this level of utilization does not provide the same amounts of detailed da-ta as RFID tagging at the case-, or item- level would, research studies still highlight the possibilities of improved information sharing between supply chain partners through implementation of RFID technology and the electronic product code (EPC) global network2. For instance, Wamba and Boeck (2008) show that RFID technolo-gy and the EPCglobal network has the potential to effectively enhance information flows in a supply chain through automating information-based activities, such as validation of shipping orders, filling out bill of lading (BOL), entering data from BOL in the enterprise resource planning (ERP) system, and dispatching tasks in the warehouse management system (WMS). This will, together with synchronization of information and product flows, and by allowing end-to-end information visibil-ity in the supply chain, reduce potential human errors, as well as document han-dling and processing costs. However, Wamba and Boeck (2008) stress that to achieve the mentioned benefits; the involved actors must have a ‘network collabo-ration’ strategy in adopting the RFID technology.
Bottani and Rizzi (2008) agree with the notion of actors needing a ‘network col-laboration’, or ‘integrated’ approach to the adoption and implementation of RFID, EPC standards, and the EPCglobal network to achieve the technology’s full benefits. Their study shows that with an integrated approach, the implementation allows for real-time data availability and sharing through the supply chain.
With the focus in SCM on efficiency and cost-effectiveness to minimize systemwide costs while at the same time working to maximize value, technological develop-ment and utilization are becoming increasingly important in order for companies to keep competitive. As pointed towards by Zelbst et al. (2010), RFID technology is considered as one such technology that helps to improve overall supply chain per-formance through supporting supply chain information sharing.

RFID technology

The following sub-chapter will address the technicalities of the RFID technology, and describe its place in automatic identification and industry use.

Automatic identification

‘Automatic identification’ is a term describing the technology that helps machines to gather information about and identify items. Companies want to identify items, capture information and transfer it into a computer without having human labor to handle the operation. The aim of an automatic identification system is to increase efficiency, reduce data entry errors and free up staff to perform more value- added functions. Technologies such as barcodes, smart cards, voice recognizers, optical character recognizer, and RFID can all be identified and categorized under the term ‘automatic identification’ (RFID Journal, n.d.a).

Industry standard use

The most used automatic identification technology in the grocery industry today is the barcode system. A barcode is a label containing information for identifying product packages or pallets. Barcodes are used to maintain accurate information on pallet level or item level. The information can only be read by a special barcode scanner and can be transferred into an information system. The main drawbacks of barcodes are that the scanner must have line of sight to be able to read the label (National Barcode, n.d.). Additionally, since barcodes are exposed on the outside of the labeled unit, they are at risk of being damaged, and thus unable to scan (Adap-talift Hyster, 2012).

Terminology and technical aspects of RFID

A good explanation of the RFID technology is provided by Zhu, Mukhopadhyay, and Kurata (2012):
RFID technology consists of an RFID tag and an RFID reader linked to a computer system. The tag itself consists of a chip and an antenna, where the chip is the com-ponent that store and process information, while the antenna receives and trans-mits the information to a computer system. Usually, RFID tags are used to store in-formation about an object or a shipment. The object or shipment is given a unique identifying number which is part of the information stored in the tag. An RFID reader reads the information in the tag when the tag passes the reader. The reader then transfers the information to a computer system, and together this allows for tracking of physical movement in real-time. The following section describes the technical aspects of the RFID technology.
Active RFID tags
Active tags normally have their own transmitter and a power source, like a battery, or it draws energy from the sun or other sources. The read range for active tags is normally between 20 to 100 meters (RFID Journal, n.d.b).
Passive RFID tags
Passive tags do not have any form of power source, and will only be active and transfer information when it receives radio wave signals from an RFID reader. Pas-sive tags can have a read range up to ten meters (RFID Journal, n.d.b).
RFID reader
The RFID reader is used to communicate with the RFID tags. The reader is equipped with antennas, which emit radio waves and receive signals back from the tag. Further, the reader passes the information to a computer, so the data can be analyzed (RFID Journal, n.d.b).
Frequency
The communication between the reader and the tags is done by radio waves. To be able to communicate, the reader and tag must be tuned at the same frequency lev-el. RFID systems can use many different frequency levels, but generally the most used levels are low-frequency (around 125 KHz), high- frequency (13.56 MHz) and ultra- high frequency (860-960 MHz). Radio waves behave different at different frequencies, so to be able to use different applications the same frequency has to be chosen (RFID Journal, n.d.c).
Standards
The international organization for standardizations (ISO) has made a technology standard that specifies the standards that are used for communication between the tag and the reader. For supply chain applications, the most important technology standard is the ISO 18000 standard family. This standard family covers frequency bands from low frequency, high frequency and ultra- high frequency (RFID Journal, n.d.d).
The ISO 18000 standard also specifies data structure requirements which are compatible with EPC. EPC is a unique number given to the tag by EPCglobal. Each company that licenses and subscribes to the ISO 18000 standard is given its own number range for its items, so that no EPC number will be duplicated worldwide. The ISO standard is important when different actors are supposed to collaborate in a supply chain, domestic or international. By following the standard, all actors will have the opportunity to use the technology and each company’s RFID technology is capable to read and understand the information that is captured in the tags. This way each actor will be sure that they can support and get benefits from the tech-nology (Gaukler & Seifart, 2007).
Levels of RFID tagging
As briefly mentioned in chapter 2.2, RFID tagging for tracking of goods in the gro-cery industry can usually take place at three different levels, namely pallet-, case-and item- level. Each level is different in regards to what information it can provide when put to use (Leung, Cheng & Hennessy, 2007).
In pallet- level tagging, tags are normally placed in each of the pallet’s four corners, to ensure that tags can be read from any angle when a pallet passes by a reader. Pallet- level tagging allows reading of an identification (ID) number on the pallet’s RFID tag, and registering of a shipment’s ID number into the RFID tag. This process enables a link between the pallet and the order number, as well as to the goods loaded on that specific pallet (Swedberg, 2010).
In case- level tagging, tags are often placed in both sides of the case. Case- level tagging is similar to the pallet level, and can capture information on the content that is placed in the case. At this level both active and passive tags are taken into use, the purpose will decide which type of tags is used. The primary advantage of case levels tagging is that it allows more detailed tracking than the pallet level, and smaller part of inventory is stored in the case (Leung et al., 2007).
Item- level tags are either attached to the item, or a part of the item package. Often at this level, active tags are used. Item- level tagging gives the highest possible visibility in the supply chain, because it allows gathering real-time information at any time (Leung et al., 2007).

Material handling

Together with the importance of information flow, efficiency in the handling and flow of materials is also critical. Material handling can be defined as ‘short distance movement of goods or materials within a storage area, involving loading, unloading, palletizing, and depalletizing…’ (BusinessDictionary, n.d.). Arnold, Chapman and Clive (2012) add that it takes place in or around a facility and also that it concerns unloading and loading of transport vehicles.
Material handling activities take place both in inbound and outbound logistics sys-tems. According to Fawcett et al. (2007) and Langley et al. (2009), the inbound sys-tem of logistics can be connected to material management and the outbound logis-tics to the term physical distribution. Further, integration between the inbound and outbound system is important for the efficient and effective management of the logistics supply chain (Langley et al., 2009). In the following, this thesis will deal with inbound logistics as concerning the activities from receiving of goods in-to a facility and to their point of storing. Outbound logistics will deal with activities from the point of picking to also include transportation. Further, all activities per-formed in or around a facility will be characterized as material handling activities, regardless of whether those activities belong to inbound or outbound logistics.

RFID pallets

The RFID pallets that have been put to use in the Norwegian grocery industry are produced by Shuert Technologies in collaboration with NLP (NLP, n.d.a). The Eu-ropean standards for load carriers for transport of goods include a standard size of 1200mm*800mm (Arjo Produkter AS, n.d.), and the RFID pallets follow this stand-ard (NLP, n.d.a). In comparison to traditional EUR pallets, the plastic pallets have three main characteristics. First, the plastic pallet has a stable weight of 14.9 kilos, making it eight to ten kilos lighter than a standard EUR pallet, depending on the material used in the EUR pallet (NLP, n.d.b). Secondly, static loading capacity of the plastic pallet is five tons (NLP, 2009), while for EUR pallets, the static loading ca-pacity is four tons (Arjo Produkter AS, n.d.). Finally, the plastic pallets are integrat-ed with four RFID tags that contain a unique pallet identification number, and al-low writing and storing of information (NLP, n.d.c).

Material handling activities

To handle the movement of goods at and between the different actors in the supply chain efficiently, a set of standardized activities become necessary. Arnold et al. (2012) highlight eight activities as important to operate a warehouse. Even though they name the activities as warehouse activities, in this thesis the activities are viewed as necessary in all facilities, regardless of whether those are producer, wholesaler, or retailer facilities.

1 Introduction
1.1 Background
1.2 Problem discussion
1.3 Purpose
1.4 Delimitations
1.5 Research questions
1.6 Outline
2 Literature review 
2.1 Supply chain management and efficiency
2.2 Importance of information for SCM
2.3 RFID technology
2.4 Material handling
2.5 Norsk Lastbærer Pool
2.6 Summary
3 Methodology 
3.1 Research approach
3.2 Research classification
3.3 Research strategy
3.4 Quantitative and qualitative methods
3.5 Time horizon
3.6 Data collection
3.7 Reliability and Validity
4 Empirical findings 
4.1 Maarud AS
4.2 KiMs Norge AS
4.3 Mills DA
4.4 ASKO Norge AS
4.5 COOP Norge Handel AS
4.6 TINE SA
4.7 Rieber & Søn ASA
4.8 Summary
5 Analysis 
5.1 Physical pallet aspects
5.2 Information and RFID aspects
6 Conclusions and further studies 
6.1 Conclusion
6.2 Suggestions for further studies
References
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