Expert Systems With Applications: Usha Ramanathan

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Expert Systems with Applications xxx (2013) xxxxxx
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Contents lists available at SciVerse ScienceDirect
Expert Systems with Applications

journal homepage: www.elsevier.com/locate/eswa
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Performance of supply chain collaboration A simulation study
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Usha Ramanathan
University of Bedfordshire, Putteridge Bury Campus, Bedfordshire LU2 8LE, United Kingdom
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Keywords:
Supply chain collaboration
Simulation
Performance measurement
CPFR
a b s t r a c t
In the past few decades several supply chain management initiatives such as Vendor Managed Inventory,
Continuous Replenishment and Collaborative Planning Forecasting and Replenishment (CPFR) have been
proposed in literature to improve the performance of supply chains. But, identifying the benets of collaboration is still a big challenge for many supply chains. Confusion around the optimum number of partners,
investment in collaboration and duration of partnership are some of the barriers of healthy collaborative
arrangements. To evolve competitive supply chain collaboration (SCC), all SC processes need to be assessed
from time to time for evaluating the performance. In a growing eld, performance measurement is highly
indispensable in order to make continuous improvement; in a new eld, it is equally important to check the
performance to test conduciveness of SCC. In this research, collaborative performance measurement will
act as a testing tool to identify conductive environment to collaborate, by the way of pinpointing areas
requiring improvements before initializing collaboration. We use actual industrial data and simulation
to help managerial decision-making on the number of collaborating partners, the level of investments
and the involvement in supply chain processes. This approach will help the supply chains to obtain maximum benet of collaborative relationships. The use of simulation for understanding the performance of
SCC is relatively a new approach and this can be used by companies that are interested in collaboration
without having to invest a huge sum of money in establishing the actual collaboration.
2013 Elsevier Ltd. All rights reserved.
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1. Introduction
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Supply chain management (SCM) organizes and manages the

whole process of activities of supply network from suppliers
through manufacturers, retailers/wholesales till end users (Christopher, 1998). Traditionally, supply chain (SC) was designed with
more focus on movement of materials rather than information
ow. Due to ever increasing competition in businesses, many SCs
have taken some twists from traditional way of functioning, from
time to time, to adapt to the situation. Existing literature describes
the SCM of the 21st century as an integrative value adding process
of planning and controlling of materials and information between
the supplier and the end user in order to increase customer satisfaction by reduced cost and improved services (Cooper, Lamber,
& Pagh, 1997).
In todays competitive unpredicted business world, cost reduction and good customer services are not stand-alone effort of any
single SC member. As success of any product lies in customers response to that product, it is important for businesses to achieve
customer satisfaction by having efcient and effective SCs. This
may be possible through collaboration among SC partners. Hence,
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Tel.: +44 1582 749239.

E-mail address: [email protected]
it is important to coordinate SC activities to streamline planning,

production and replenishment (Ramanathan, 2012a). Market demand and changing nature of end-users can create more opportunities for SC players. At the same time, to be viable in a competitive
market, all SC members need to be innovative and productive (Lee,
2002). As operating alone in a tight competition seem to be no
longer benecial for SCs, the importance of partnership has been
adopted in various stages of many SCs (Smaros, 2007).
In the past, several SCM practices such as Vendor Managed
Inventory (VMI), Efcient Consumer Response (ECR), Continuous
Replenishment (CR), and Electronic Data Interchange (EDI) have
been suggested in the literature to increase benets of SCs. VMI
technique was developed in the mid 1980s, in which customers
inventory policy and replenishment process were managed by
the manufacturer or supplier. However, SC visibility was not predominately powerful in VMI to avoid bullwhip effect (Barratt & Oliveira, 2001). Forecast driven VMI and integration of CR with EDI
was used to reduce the information distortion in VMI. ECR developed in 1992, was based on the concept of value adding by all partners in the supply chain. Both VMI and EDI together with ECR tried
to create more responsive supply chain with broader visibility of
information across the whole SC. Ever increasing SC demands have
led to the invention of Collaborative Planning Forecasting and
Replenishment (CPFR), another supply chain management tool
incorporating planning, forecasting and replenishment under a
0957-4174/$ - see front matter 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.eswa.2013.07.022
Please cite this article in press as: Ramanathan, U. Performance of supply chain collaboration A simulation study. Expert Systems with Applications (2013),
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U. Ramanathan / Expert Systems with Applications xxx (2013) xxxxxx
single framework (Fliedner, 2003). CPFR, a second generation ECR

(Seifert, 2003) aims to be responsive to consumer demand. It was
introduced as a pilot project between Wal-Mart and Warner-Lambert in mid-nineties. According to VICS (2002), CPFR is a new collaborative business perspective that combines the intelligence of
multiple trading partners in the planning and fullment of customers demand by linking sales and marketing best practices.
Collaboration among SC members is a topic of interest for many
researchers and practitioners (Barratt & Oliveira, 2001; Danese,
2007; Nyaga, Whipple, & Lynch, 2010; Ramanathan, 2012a). SimatQ3 upang and Sridharan (2004) evolved four proles for supply chain
collaboration (SCC), namely efcient, synergistic, underrating and
prospective collaboration. They proposed decision synchronization, incentive alignment and information sharing as three performance indices. In an attempt to maximize benets of SCs, all SC
members share information (data sharing) and collectively forecast
the demand for products to have effective replenishment process
(Aviv, 2007; Gavirneni, Kapuscinski, & Tayur, 1999). SCC activities
help to improve the performance of involved members in a structured framework with the aim of maximizing prot through improved logistical services (Stank, Keller, & Daugherty, 2001).
However, majority of the articles in the literature have not highlighted important factors of good SCC practice. In this paper, we
will be analysing the environments conducive to initiate SCC such
as CPFR. The focus of this research is to identify the suitable environments to collaborate in SCs. Revealing the actual benets of SC
collaboration with certain number of partners with specic level of
investments for a specied period will help to make decision on
implementing SCC at various levels. This is further explained
through evidence from the existing literature in the next section.
The rest of the paper is organised as follows: Section 2 will
briey explain the existing literature on SCC. Section 3 will describe research methodology used in this research. Section 4 explains the development of performance measurement of supply
chain collaboration. Section 5 will discuss the results and analysis
of simulation. Finally, Section 6 will conclude the paper with key
ndings, managerial implications, limitations and future work.
2. Supply chain collaboration for performance improvement:
a literature review
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SCM is being practiced by many businesses around the globe

and hence it has a great wealth of literature from time of evolution
of business processes. But, SCC is a relatively new research area
and the literature is growing at a tremendous pace. Various advantages and disadvantages have been revealed by academics and
practitioners. This section discusses some of the advantages and
barriers of SCC. On realizing the importance of collaborative efforts
in SCs, many researchers have developed theoretical and mathematical models to improve the structure and functionality of SCs.
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2.1. Advantages of SC collaboration
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In the eld of SCM, there is an overlap in the meaning of cooperation, coordination, collaboration, joint action plan and partnership, representing more or less the same concept (Corsten & Felde
2005; Yu, Yan, & Cheng, 2001). However, CPFR is specically dened as a web-based attempt (Fliedner, 2003) or internet tool to
coordinate the various supply chain activities such as forecasting,
production and purchasing in SCs to improve the visibility of consumer demand (Barratt & Oliveira, 2001), to reduce any variance
between supply and demand (Steermann, 2003). Caridi, Cigolini,
and Marco (2005) viewed CPFR as a process of correcting, adjusting, proposing prices and quantities to reach an agreement on
common unique forecast that can be used by buyers and sellers.
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VICS (2002) claimed that CPFR would help cost savings and gain
competitive advantage. Several case studies have been reported
in literatures that have examined the impact of collaboration
(see www.ecch.com and ECR, 2002).
In SCCs, through joint planning and decision making, the understanding of the replenishment process is becoming clearer (Barratt
& Oliveira, 2001). For example, Wal-Marts initiative of creating
prole on purchase pattern of customers, namely personality
traits, has helped to increase visibility of demand throughout the
value chain (Mclvor et al., 2003). Information exchange and de- Q4
mand forecast based on sales data helped Sport Obermeyer to improve forecast accuracy during demand uncertainty (Fisher 1997).
In recent years, many academics and practitioners have suggested using collaborative arrangement to improve SC performance. Ramanathan and Muyldermans (2011) used structural
equation models to identify underlying demand factors of soft
drink sales in collaborative supply chains. They suggested using
those factors for demand forecasting. Cheung, Cheung, and Kwok
(2012) used actionable quantitative information from a number
of upstream and downstream partners in developing knowledgebased system in supply chains. They have used simulation experiments to test SC models. Ramanathan and Gunasekaran (2013),
Nyaga et al. (2010) and several other researchers insisted the
importance of transparent information sharing, joint efforts and
investments to improve trust and commitments in SCCs.
Any SC can improve visibility using ve important factors
namely responsiveness, planning, shared targets, trust and common forecast (Barratt & Oliveira 2001). Real benet of information
sharing among SC partners lies in its effective and efcient use
(Lee, So, & Tang, 2000; Raghunathan, 2001) and it is also supported
by proper use of Information Technology (IT) (Cachon & Fisher,
2000; Sanders & Premus, 2005). From the cases of Wal-mart and
P&G, it is understandable that the use of various IT platforms is
based on the scale of operations.
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2.2. Barriers of SC collaboration
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Barriers of SC collaboration can be broadly classied under two

categories: organisational and operational. Smaros (2007) argued
that lack of internal integration (organisational barrier) would be
a great obstacle for manufacturers to efciently use demand and
forecast information (operational barrier). Sometimes behavioural
issues within organisation may also lead to failure of collaborative
relationships. Fliedner (2003) considered lack of trust, lack of internal forecast, and fear of collusion as three main obstacles to implement collaboration. Boddy, Cahill, Charles, Fraser-Kraus, and
MacBeth (1998) identied six underlying barriers for partnering:
insufcient focus on the long term, improper denition of cost
and benet, over reliance on relations, conicts on priority, underestimating the scale of change and turbulence surrounding
partnering.
Use of technology and levels of information exchange in SCs
have been discussed in the literature as both the advantage and
the disadvantage (Cadilhon & Fearne, 2005; Sanders & Premus
2005; Smaros, 2007). Occasionally, even a basic level of information exchange will yield potential benets to businesses. For example, Metro Cash & Carry Vietnam is a German-owned business to
business grocery wholesaler successfully engaged in collaboration
with a disarming degree of simplicity. The company shares information among SC partners using telephone calls and fax machine
without much sophisticated IT (Cadilhon & Fearne, 2005). The case
of Metro Cash & Carry claries that free access to available data is
imminent in SCCs for planning and forecasting. But technology
may not be a barrier for the success of collaboration (Cadilhon &
Fearne, 2005; Smaros, 2007). This argument on technology totally
disagrees with the basic concept of CPFR, which is a web-based
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attempt to coordinate the various activities among supply chain

partners (Fliedner, 2003). Though information sharing and the role
of IT were commonly accepted as signicant phenomena in SCC
(Sanders & Premus 2005), the use of technology is not argued
widely as a necessary condition for collaboration; this is mainly because the technology used in CPFR varies widely across different
CPFR cases (Danese, 2007). Also, due to availability of wider variety
of technology and tools, proper technology selection becomes a
complicated task for collaborating partners. To handle this issue,
Caridi et al. (2005) proposed a new learning model to incorporate
intelligent agents to CPFR to measure performance of SCs at different collaborative environments. Barriers of partnering could be
avoided through supplier training programme (Smith, 2006) and
identifying opportunities to increase scope (Boddy et al., 1998).
Continuous efforts of academics and practitioners to improve SCC
have helped creating many models of SCs.
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2.3. Models in SC collaboration
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In general, the nature of complexity is instrumental in the

development of models at various levels of SCCs. Also due to increase in SC dependencies, SCC requires different combination of
tasks and resources (Simatupang & Sridharan, 2004). For instance,
CPFR business model is based on experiences of practitioners and
strategies of their business development process (Ireland & Crum,
2005). Though, the basic structure of CPFR model has been accepted by many practitioners, it is also commonly agreed by many
that some value addition to the existing model, depending on the
industry implementing CPFR, will make SCCs responsive to market
changes (Chung & Leung 2005; Smith 2006).
Theoretical model developed by Corsten and Felde (2005) is
related to the impact of trust (Humphreys, Shiu, & Chan,
2001), dependence, supplier collaboration on innovation, purchase cost reduction and nancial performance. They established
that supplier collaboration and the level of trust have positive
impact on innovation and success of SCs. In literature, many
conceptual frameworks are designed to explain the organizational and functional aspects of SCC whereas mathematical or
simulation models are focussing mainly on the performance
evaluation. Examples of SC models, suggested in the literature
after the development of CPFR framework (mid-nineties), are given in Table 1.
Aviv (2001) compared the effect of collaboration in two different set-up: one with centralized information and another with
decentralized information. Based on uncertainty measure he concluded that diversied forecasting capabilities can improve the
benets of collaborative forecasting; in other words forecasting
accuracy is strongly dependent on the collaborative strength.
Lee et al. (2000) developed a model to verify value of demand
information sharing especially when demands are correlated signicantly over a period of time. In a counter argument, Ragunathan
(2001) emphasised the importance on effective use of available
internal information for forecasting in comparison to investing
on inter-organizational information system for information sharing in the case of non-stationary demand.
Only a few studies exist in the literature on the performance
analysis of SCC using simulation. Kim and Oh (2005) used system
dynamics model to identify the performance of collaborative SCs
in three different scenarios: manufacturer dominated SCs, supplier dominated SCs and balanced decision making. The authors
identied that the balanced SCC will yield high benets. Angerhofer and Angelides (2006) created a system dynamics model to
evaluate the performance of supply chain management. The impact of six constituents stakeholders, topology, levels of collaboration, enabling technology, business strategy and processes,
were tested on SCs to measure the performance. Chang, Fu, Lee,
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Lin, and Hsueh (2007) introduced an idea of augmented CPFR

(A-CPFR) as an improvement to existing CPFR model with access
to market information through application service provider. The
authors tested its forecast accuracy through a simulation model.
In a recent paper, Ramanathan (2012a) used AHP model to compare performance of two companies based on use of SC information. The author concluded that the companies using frequent
information exchange among SCs can be beneted with continuous improvement in planning and forecasting.
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2.4. Performance measurement of SC collaborations
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Models in SC collaborations are mainly classied under two categories: performance measurement models and decision making
frameworks. Some models are supported with mathematical/
empirical evidence (Angerhofer & Angelides, 2006; Forslund &
Jonsson 2007; Kim & Oh 2005), and other models are purely conceptual in nature (Chen & Paulraj, 2004; Simatupang & Sridharan,
2004). In general, these two types of models are interrelated to
each other in their way of functioning with respect to cause and effect. For example, performance measurement will lead to decision
making process and decisions will lead to improve future performance. The main purpose of measuring the performance of SC network is to identify the problems in order to improve the SC
efciency and also to identify the conduciveness of collaboration.
Many researchers conducted a detailed study on performance
measurement of SC network based on cost and service level (Lee
& Padmanabhan, 1997). But in SCCs, communication technologies
such as information exchange and proper use of data are of high
importance to the success of collaboration (Danese, 2007). Hence,
measuring the proper use of technology and information are also
becoming important in SCCs.
Some researchers developed theoretical frameworks to measure the performance using balanced score card with many performance perspective measures (Chen & Paulraj, 2004). But a very few
researchers initiated benchmarking of SCs (Simatupang & Sridharan, 2004; Ramanathan, Gunasekaran, & Subramanian, 2011). Evidences from the literature conrm that key measures for
evaluating SC performance include cost, quality and responsiveness. In recent literature, forecast accuracy is also used as an indicator of proper use of information in SCCs (Ramanathan &
Muyldermans, 2010). Meanwhile, lack of information exchange
will result in greater variability of demand forecast for upstream
SC members (Yu et al., 2001), which is the clear indication of SC
problem. Chen and Paulraj (2004) tried to create a conceptual
framework to understand problems and opportunities associated
with SC management.
As there are many dimensions for SCCs, the performance measurement is also becoming a complicated process. Verifying
whether the environment is conducive to SCC will help the companies to identify the areas to be modied before implementation.
This was partly answered from the ndings of Aviv (2001) and
Smaros (2007). Aviv (2001) conrmed that the products with short
lead time could achieve better forecast accuracy compared to the
products with long lead time (Smaros, 2007). Danese (2007)
through several case studies across SC networks such as manufacturers, customers and suppliers, identied that different levels of
collaboration exist in SCs and the benets attached to each level
will differ. Based on the analysis of these case studies, Danese
(2007) classied the degree of collaboration as low, medium or
high. Ramanathan (2012a) compared two case companies performance on demand planning and forecasting and suggested three
different levels of collaborations in SCs, namely preparatory level,
progressive level and futuristic level. However, not many articles
have discussed the benets of SCC in terms of the number of partners, investment and duration of partnerships. Most of the studies
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Table 1
Some existing models in SCC.
Author
Simulation models
Cheung et al. (2012)
Chan and Zhang (2011)
Chang et al. (2007)
Type of model
Key concept
Knowledge-based model
Collaborative transportation
management
Verication of forecast accuracy
The model helps to formulate long-term successful SC partnerships

The model helps to identify the potential benets of collaboration in transportation
Angerhofer and Angelides

(2006)
Kim and Oh (2005)
Fu and Piplani (2004)
Evaluation of supply-side
collaboration
Optimisation and mathematical models

Sinha, Aditya, Tiwari, and
Optimisation model
achd Chan (2011)
Aviv (2001)
Mathematical model for
forecasting
Aviv (2007)
Mathematical model for
forecasting
Aviv (2002)
Mathematical model for joint
forecasting and replenishment
Chen and Chen (2005)
Mathematical model for joint
replenishment
Mathematical model
Mishra and Shah (2009)
Structural equation model
Nyaga et al. (2010)

Ramanathan and
Muyldermans (2010,
2011)
Ramanathan and
Gunasekaran (2013)
Ramanathan (2012a)

Impact of SC collaboration in success of long term partnership
AHP model
Role of SC information in companys decision making
Multi-enterprise collaborative
decision support system
Structural Equation Model
The model helps decision makers to explore various options of solutions under what-if scenarios.
McCarthy and Golicic

(2002)
Lambert and Pohlen
(2001)
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Products with shorter lead time have more benet from supply chain collaboration
Raghunathan (2001), Lee

et al. (2000)
Kwon, Im, and Lee (2007)

Caridi et al. (2005)
Chung and Leung (2005)
Simatupang and
Sridharan (2004)
Stank et al. (2001)
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The model helps to improve the performance of petroleum supply chain
Dominance or power of partnership, agility of the supply chain and internal service rate affect the
benets of collaborative forecasting
Auto-regressive demand process can decrease the demand uncertainty in VMI and CFAR
(Collaborative Forecasting and Replenishment) programmes
Developed four decision making models to determine optimal inventory replenishment and
production policies in a supply chain considering three-level inventory system in a two echelon
supply chain; Model also included major and minor set-up cost for manufacturers, and major
transportation and minor processing cost for the retailer
Inventory reduction and cost reduction can be achieved with efcient use of information sharing
(Lee et al., 2000) and there is no need to invest in inter-organizational systems for information
sharing if order history is available (Raghunathan, 2001)
New product development will benet from collaborative effort of supplier and customer, and cross
functional involvement
Impact of collaborative efforts in overall satisfaction
Impact of demand information in collaborative forecasting
Other models
Shaei, Sundaram, and
Piramuthu (2012)
Singh and Power (2009)
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(Augmented CPFR), with application of service provider, will have access to market information and
hence can improve forecast accuracy and achieve considerable reduction of inventory
The model helps to identify the areas need improvement by measuring the performance of the
supply chain
The model tests impact of different decision making process in collaborative supply chain
performance
Supply-side collaboration can improve the distributors performance
Multi-agent model
Multi-agent model
An improvement to CPFR model
Collaborative performance system
Logistical service performance
model
Collaborative forecasting model
Conceptual model
Firm performance will increase if both supplier and customer are involved in collaborative
relationship
The model helps to provide exible solutions to address SC uncertainties
Mutli-agent system can be used to automate and optimise supply chain collaboration
Inclusion of Engineering change management increases the responsiveness to market changes
Collaborative enablers are directly linked with collaborative performance metrics. Four types of
collaboration identied: efcient, underrating, prospective and synergistic
Collaboration with external supply chain partners along with internal support will improve
logistical services
Increased revenues and earnings are possible with SCCs.
Developed a framework with following seven steps: supply chain mapping, identifying value
addition process, identifying the effect of relationship on protability, realign supply chain
processes accordingly, measure individual performance, compare value with supply chain
objectives, replicate steps at each link in the supply chain
discussed above have conrmed the role of supply chain partners

and their involvement in SC performance and prot. However,
there is no specic study that discusses in detail the role of investment, the number of partners or the duration in collaborative partnerships. To ll this gap, in this paper we use the combination of all
these three elements in SC collaboration.
In order to nd environment conducive for SCC, based on the
literature and the actual practices in SCs, we propose in this
study that the degree of collaboration will depend on factors
namely the investment on collaborating technology and partnerships, the number of collaborating partners and the duration of
collaboration. We attempt to develop a performance model for
SCC using a well-known methodology called simulation in the
following sections.
3. Research methodology
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Performance evaluation of SCC is a complex task and research

on this topic is still in its infancy. We make an attempt to quantify
the benets of SCCs through the factors discussed above. The
choice of methodology is most important to identify the correct
solution to a particular research problem (Yin, 1989). Case study
based simulation is being used in this research. Case study research
will be benecial to understand the role of above specied ve factors in performance of SCC. Basic information such as duration of
collaboration, the level of investments and the number of partners
from the case companies will be simulated to create similar
scenario. For this purpose, we have chosen two case companies
from the packaging industry.
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In this paper, we have used simulation to identify the performance of SC collaboration based on the factors of SCC. To initialize
the process of simulation, basic mathematical approach is used as
outlined above in Section 3. All the measures are converted in
terms of ratio to avoid using mixed units. Generally, rhw ratio of
input to output is described as a performance indicator. Simulation
will support analysing collaborative performance on supply chains
for changing degrees over the collaborating period. This what-if
analysis will be instrumental in decision making on implementation of collaborative supply chain (Angerhofer & Angelides,
2006). The advantage of using simulation is that an existing or proposed system can be designed using what if analysis in order to
optimize the benets by identifying the pitfalls in the system.
Some researchers attempted to use system dynamics simulation
for what-if analysis (Angerhofer & Angelides, 2006; Chang et al.,
2007; Kim & Oh, 2005). In this research the purpose of what-if
analysis is to identify the conducive environment to implement
SCCs. Schematic projection (see Fig. 1) of research methodology
can further simplify the understanding of SC performance.
This research intends to establish links among all the coordinating factors of collaboration. Creating links with different modules
will in turn be powerful to identify a weaker node which needs
improvement. Traditionally, performance of supply chain is measured through demand amplication (Angerhofer & Angelides,
2006) and value additions in each node of supply chain. But in case
of collaborative SCs, the value addition is not an independent activity and hence composite performance indicator is used to measure
performance of collaborative supply chain. If SC handles product
returns then the performance should include inventory management and disposition of the returned goods. We have considered
ve important factors of SC collaboration for our further analysis;
namely, degree of SC collaboration, business objectives operational and nancial, information sharing and SC processes. We
have categorised the SC performance as nancial and non-nancial. Non-nancial performance of SC is measured through operational business objectives, SC processes and information sharing
(see Fig. 1).
4. Development of performance measures for supply chain
collaboration
Though SC is a widely researched area, it needs a strong framework (Chen & Paulraj, 2004) for development of more systematic
principles that will help SCs to develop against all odds and barriers. In recent business world, many companies collaborate for different purposes such as logistics, cost reduction and business
expansion. Such SCC necessitates some value addition to business
objectives along with the original SC operations models (ECR,
2002). Also information sharing is critical in modern SCs to meet
uctuating demand (Ramanathan, 2012a,b). In the literature, degree of collaboration is not linked with performance of SCs in an
effective way (Danese, 2007; Larsen, Thenoe, & Andresen, 2003;
Ramanathan, 2012a). In this research based on the literature and
actual SC practices in recent businesses, we consider ve important
factors of collaboration namely business objectives nancial and
operational, supply chain processes, information sharing and degree of collaboration.
404
4.1. Business objectives nancial (BOF)
418
Now-a-days, many businesses are striving to maximize prot

by improving the quality of products and services to the end users
by lowering the cost. Many leading companies such as Wal-Mart
and Procter & Gamble use SCC to achieve this objective. VICS
(2002) claims that CPFR will help cost savings and gain competitive
advantage. Commonly SC collaboration is initiated among various
SC members to meet customers needs, to improve product availability, to increase business performance, to increase sales, to
achieve reduced cost, to increase revenues and earnings, to improve forecast accuracy, to increase visibility of demand (McCarthy Q5
& Golicic, 2002; Cooke, 2002; Ireland & Crum, 2005; Ramanathan,
2012b). Cost savings such as minimizing the logistics cost can possibly be one of the most important drivers of collaborations (Chen
& Chen 2005; Corsten & Felde, 2005). Chen and Chen (2005) developed a mathematical model for joint replenishment in the process
of reducing cost. For example, Ace Hardwares CPFR pilot project
earned a positive result in forecast accuracy from 80% to 90% and
product costs dropped from 7% to2.5% (Cooke, 2002). In many cases
the SC collaboration proved to be a promising tool to increase business performance, sales, revenues and earnings (McCarthy & Golicic, 2002; Cooke, 2002).
In our research, sales revenue and costs involved in production
will be used to quantify nancial business objectives. In general,
cost involves xed cost and variable costs such as production cost,
stock out or holding cost. Other hidden variable costs are not included for the purpose of calculations
419
Define variables N, L, T, I, FA, CU,

LT, Rv, HC, SC, Ap, P, R, D
Define: Degree = f(N,L,T); here L = f(I) ;

IS = f(FA)
BOO = f(CU,LT); BOF = f(Rv, HC, SC); Pr = f(Ap,P,R,D)
Define performance in terms of above defined metrics

For Dg = 1 to x period
Calculate ISDg, BOODg, BOFDg, PrDg
Collaborative performance (non-financial) = BOODg + PrDg +ISDg
Collaborative performance (financial) = BOFDg
Analyse the performance at various

degrees to identify the conduciveness
N - Number of collaborating
partners
L - Level of collaboration
I Investment on
collaboration
T Time (duration) of
collaboration
IS - Information Sharing
FA - Forecasting Accuracy
BOO- Bus.Obj. Operational
CU - Capacity Utilization
LT- Lead Time
Rv-Revenue
HC Holding Cost
SC Stock out Cost
Pr SC processes
BOF Bus Obj.Financial
Ap-Adherence to plan
Ad-Adherence to delivery
plan
P No. produced
R No. returned
D- No. Delivered (No. sold to
wholesaler/Retailer)
Fig. 1. Schematic projection of methodology.
405
406
407
408
409
410
411
412
413
414
415
416
417
420
421
422
423
424
425
426
427
428
429
430
431
432
433
434
435
436
437
438
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442
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444
ESWA 8713
20 July 2013
6
T
X
No:of sales No:of returns Unit sales price No:produced Unit production cost- Stockout or holding cost
Fixed cost Variable cost
j0

T
X
Dj Rj SP Pj PC OC j
Total cost
j0
BOF
446
445
447
448
449
450
451
452
Here D No. delivered (i.e., sold to retailer).

R No. returned.
I Current inventory.
SP Selling Price.
PC Production Cost.
P No. Produced.
OC Other Cost (Holding cost or stock-out cost).
Adherence to production plan (AP):
506
507
PP n;j
AP 1
Pn;nj
509
Here; Production plan PPn;j
510
P n;nj Pn1;nj
06j<T
P n;nT l
jT
512
453
455
Variable cost Production cost Holding cost or stock-out cost
456
458
459
460
461
OC
HC I R D HC; I P D
SC D I R SC; I < D
HC holding cost.
SC stock-out cost.
462
467
Stock-out cost or penalty cost is usually calculated for retailers

but not for manufacturers (Aviv, 2007). Based on our interview
with the case companies, we assume that manufacturers will also
incur penalty cost for not completing production on time to facilitate on time delivery; this is similar to stock-out cost of retailer.
468
4.2. Business objectives operational (BOO)
469
Customer retention is becoming a great challenge in current

competitive business market. Improved business performance
through SCC can help to attract and retain customers (Matchette &
Seikel, 2004). Customer loyalty can also be built by effective SC activities. For example, making stock of right products available at right
time in proper location of retail stores will help to attract and retain
customers. This can be achieved through a wider cooperation from
all SC members. For instance, efcient capacity utilization can help
reducing production time (Aviv, 2007). Customer loyalty can also
be achieved if SC activities include customer service such as accepting and handling product returns (Dowlatshahi, 2000).
From the literature, we have considered three important factors
namely number of product returns, product lead time, and capacity
utilization (production capacity) to measure the business objectives (Aviv, 2007; Dowlatshahi, 2000).
2
2
n;n l
Capacity utilization CU PCPPCP
Pn;nPl where Pn,n l
(Aviv, 2007) assumed capacity utilization as the product of cost
of production and square of the difference between production
batch size for period n and average production size)
463
464
465
466
470
471
472
473
474
475
476
477
478
479
480
481
482
483
484
485
486
487
488
490
492
491
493
494
495
496
Assume if Pn;n l; Capacity utilization is 100%

PC Product cost.
P Number of items produced.
Pn,n Production batch size suggested for the next n periods at
the beginning of period n.
l Average production size.
497
499
501
500
502
R
Reduced Return rate; RR 1
D
R Number of returns.
D Number delivered.
503
504
505
Adherence to production plan will reect in the reduction of

product lead time or production time (Aviv, 2007).
n Current period and 1 6 n 6 T; PPn,j production plan at period

n for period j.
Hence, operational business objectives can be quantied as
follows:
513
514
515
516
517
BOO CU RR AP 100%

P n;n l2
R
PP n;j
1
1
D
P
P n;nj
519
4.3. Supply chain processes
520
Supply chain operations reference model (SCOR) classied processes as plan, source, make, deliver and return. Based on type of
products and market value, length or degree of collaboration will
differ (Ramanathan, 2012b). Products with long production cycle
time takes more time to reach the market, while product with
short production cycle time takes less time. Though collaboration
in SCs can help to sell all products with variable lead time, products
with shorter lead time have more benet in SC collaboration (Aviv,
2001). In this research, we assume that the availability of raw
material (source) is not difcult and accordingly, we consider four
processes namely plan, produce, replenish and return. In SCCs
planning stage will include forecasting as its integral part and
hence forecasting is not treated as a separate process. SCs with
activities of product returns need to check the inventory level
and to arrange a proper disposition for the product returns (Dowlatshahi, 2000). In this case, performance of collaborative processes
is a collective measure of cost function of adherence to plan and
cost of inventory
521
Production plan PP n;j
523
524
525
526
527
528
529
530
531
532
533
534
535
536
537
538
539
Pn;nj Pn1;nj
06j<T
Pn;nT l
jT
PT
C AP;j PP n;j 2
j0
Adherence to plan cost function C AP PP n Production
(based on
cost
Aviv, 2007).
Product returns will increase the level of current inventory. In
SCs with product returns, inventory holding cost can be quantied
as follows:
HC I R D HC;
522
IPD
Here D No. delivered (i.e., sold to retailer).

R No. returned.
I Current inventory.
HC Unit holding Cost.
541
542
543
544
545
546
547
549
551
550
552
553
554
555
Performance of collaborative SC processes

can be calculated as
!
PT
PT
C AP;j :PP n;j 2
IRDj HC
j0
Av erage Production
j0
Variable cost
cost
556
557
ESWA 8713
20 July 2013
7

558
4.4. Degree of collaboration
559
Previous case study research by Danese (2007) identied different levels of collaboration such as basic communication, limited
collaboration and full collaboration. Larsen et al. (2003) and ECR,
2002 categorized the depth and level of collaboration into three
different forms such as basic collaboration, developing collaboration and advanced collaboration. Whereas, Simatupang and Sridharan (2004) categorized the level of collaborative practices into low
and high collaborations. In general it is agreed that various levels
and practice of collaboration can yield benets across the whole
SC. In our research, degree of collaboration is measured in terms
of number of collaborating partners (can be two echelon or multi-echelon SC), duration of collaboration and level of involvement.
In this research, level of involvement is dened as the involvement
of top management in terms of investment on technology and people in SCC activities.
In every SCC, active participation of each SC partner can help to
enhance the overall performance (Lambert & Pohlen, 2001). Cooke
(2002) identied the need to change corporate culture as a prerequirement of collaboration. Long-term SCCs can change attitude
of workers. Normally, level of involvement of top management in
SCC will be reected in their investment on collaborating technology and training (Ramanathan et al., 2011). Based on the literature,
we dene the degree of SCC in terms of number of collaborating
partners, total number of years, and investment on collaborative
effort
560
561
562
563
564
565
566
567
568
569
570
571
572
573
574
575
576
577
578
579
580
581
582
583
584
586
587
588
589
Number of SCC partners

Degree
Number of supply chain members
Collaborating years
Level of Involvement

Duration in business
Here level will be identied from the case company and percentage value will be assumed based on the collaborative operations
(activities) in proportion to total activities.
590
592
Level of Involvement

Collaborative investment on training and technology per year
Total investment on training and technology per year
593
4.5. Information sharing
594
In recent competitive market, a great deal of business is relying

on SC information and proper use of data. SCC can contribute to
improve information sharing among SC partners (Yu et al., 2001).
According to VICS (2002) accelerated information sharing among
SC partners will increase the reliability of the order generation. Li
and Wang (2007) asserted that the benet of information sharing
is depending on two factors: one is the context and the other is
the proper use of information. Optimizing the supply chain will
be possible through collaboration (Horvath, 2001) and information
sharing (Horvath 2001; Yu et al. 2001). Information sharing among
SC partners will help improve forecast accuracy and hence will
help potential cost savings (Aviv, 2007;Byrne & Heavey, 2006).
An exceptional level of service can also be achieved through integrated data and information (Kim, 2006).
Critical information sharing among SC partners varies widely
depending on the industries involved (Smaros, 2007). Ovalle and
Marquez (2003) summarized the types of information under three
headings: product information, customer demand and transaction
information, and inventory information. Yu et al. (2001) revealed
that the centralized information sharing benets manufacturers
more than the retailers. Though information sharing and the role
of IT were accepted as signicant phenomenon in collaboration
(Sanders & Premus 2005), the use of technology is not argued
595
596
597
598
599
600
601
602
603
604
605
606
607
608
609
610
611
612
613
614
615
616
widely as a necessary condition for collaboration. This argument

is evident from Smaros (2007) statement collaboration technology
is not a key obstacle for large scale collaborative forecasting.
In SCCs, product replenishment is a sub-process of forecasting
(CPFR, 2002). Internal forecasting is the one which is generated
by each collaborating partner based on the time series data and
other exceptional factors (such as sales promotions) and market
criteria. Collective forecasting is based on all the individual internal
forecast gures which in turn facilitate order generation. Internal
forecast accuracy will reect in the collective forecast gure and
help to reduce bullwhip effect (Aviv, 2001). In SCCs, the forecasting
accuracy and forecast information quality can improve the prot
proportion (Forslund & Jonsson, 2007).
From the above literature, we understand that effectiveness of
information sharing in SCC will be reected in forecasting accuracy
(FA) of product demands (Ramanathan & Muyldermans, 2010) and
returns. Accordingly, we calculate FA as follows:

absAD FD
Forecasting Accuracy Sales 1
AD

Forecasting Accuracy Returns

absAR FR
1
AR
617
618
619
620
621
622
623
624
625
626
627
628
629
630
631
632
633
634
636
637
639
Collectively, Forecasting Accuracy (FA) can be calculated as:
640

9
8
absADj FDj
absARj FRj
T
<
=
X
ADj
ARj
1
100
:
;
2
j0
641
643
We assume that the demand follows the normal distribution.

FD Expected Demand; AD Actual Demand; FR Expected Returns; AR Actual Returns; j SCC period (here, 0 < j < 6).
The underlying assumption is that the use of technology and
information system helps to exchange real time information without any delay in information sharing. Hence, the point of sale data
is available to manufacturer without any delay, i.e. accessibility is
100%. Standard Deviation (SD) of Forecast Error (FE) describes the
spread of errors or uncertainty about an error which can be used
for setting safety stock.
Forecasting Error is calculated as follows:
644
Absolute percentage of error Sales%

absAD FD
100%
AD
645
646
647
648
649
650
651
652
653
654
655
657
658
Absolute percentage of error Returns%

absAR FR
100%
AR
660
In this paper, we measure the degree of collaboration based on

the level of involvement; the length of collaboration (period) and
the number of partners. The impact of change in the degree of collaboration will be identied in forecast accuracy, business objectives and processes. The overall performance of SCC is calculated
as the sum of individual performance in terms of BOO, BOF, forecasting accuracy, and processes at various degrees of collaboration.
661
5. Analysis and discussion of simulation results
668
Improving overall performance, in terms of both quality and

service, of SCs along with other business objectives such as maximising prot and minimising costs are the common underlying
features of CPFR. But not many researchers have considered the
impact of other underlying factors such as degree of collaboration,
involvement of top management, information sharing, customer
support, business objectives and SC processes. Magnitude of
669
662
663
664
665
666
667
670
671
672
673
674
675
ESWA 8713
20 July 2013
8
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680
681
682
683
684
685
686
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689
690
691
692
693
694
695
696
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700
701
702
703
704
705
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708
709
710
711
712
713
714
715
716
717
718
719
720
721
722
723
724
725
benets on implementation of SCC often varies widely across different industries as substantial amount of investment and time
are involved (Ramanathan et al., 2011). For example, products that
are mainly manufactured to stock (such as detergents and shampoo) will have longer shelf life (Fisher, 1997) and hence SCs may
not require high degree of collaboration. At the same time, fast
moving technology products such as laptops and software need
to be sold in a short span of time in order to avoid obsolescence
which requires higher degree of collaborative support from other
SC members.
For the purpose of this research we have contacted ve different global companies from the packaging industry, who practice SCC. Three of them have collaboration with either upstream
or downstream SC partners but not with both. Finally, we have
considered two manufacturing companies who have been involved in collaboration for over six years with both upstream
and downstream customers. SCC information selected for further
analyses were mainly focussed on ve factors as explained before. For each company, we have collected data of 10 collaborating partners and simulated the data using excel. Table 2
describes the sample data of one of the companies collaborating
with different supply chain partners at various degrees. The rst
three columns of the table represent SC investment in collaboration (in US dollars), number of partners and length of collaboration. All the remaining columns have used the formula as
described in Section 4.
We have simulated 1000 instances of SCC based on the companys data. The results indicate that the forecasts accuracy becomes stable over a period of time with the same number of
collaborating partners. Fig. 2 indicates the effect of the levels of
collaboration on the performance of the company in terms of
nancial and non-nancial objectives (SC processes and information sharing). SC partners collaborating for longer period of time
have achieved increasing performance both nancially and operationally. But it is not guaranteed that the company individual
nancial business objectives will be achieved consistently in case
of high investments on collaboration. Also, the higher the number
of collaborating partners does not mean proportionately the higher
the level of performance. The performance of the company shows a
very slow but incremental effect against the level of collaboration
in terms of number of partners (see Fig. 2).
Our interview with the case companies revealed that collaborating partners who are in the same business for a long term will
bring success for all SC collaborating partners. This is possible
mainly due to the sharing of knowledge and well established SC
network. But new members need to wait to reveal the actual benet of collaboration. Huge investment in SCCs will not always help
to reap the benet quickly. Time is the key success factor in collaboration. Committed SC partners make our SCs really protable and
successful in terms of performance.
The results of the analysis suggest that companies do not need

to investment on collaboration every year in order to yield high
prot. Companies that believe in high investment on collaborative
relationship without having effective SC operations will be difcult
to survive in the competitive market. Even though new partnership
is encouraged in competitive business scenario, it is vital for companies to continue the existing protable partnership for a longer
period of time to obtain consistent performance.
726
6. Managerial implications, conclusions and future research
734
This paper addresses a recent relevant practical approach of SC

collaboration in performance improvement. Understanding the
important factors of SC collaboration and their impact on the potential benets of SC can help the top management to understand
the required degree of collaboration with upstream and downstream partners. One of the interesting managerial insights on fundamental principal of collaboration is that neither investment nor
number of partners nor duration of collaboration, will independently contribute to improve the performance of SCs. This result
helps to understand the importance of involvement of each SC
partner. Increasing the number of partners in SCs will complicate
the decision making and hence slow down the performance. However, human interactions in SCs can assist appropriate investment
decisions in IT and collaborations to improve SC processes. Longterm collaborating partners can help yielding sustainable benets
to SCs.
In general, the nancial performance of a company is an indicator of success of operational performance. From the data analysis,
we identied that the less involvement of top management in SC
collaboration results in poorer overall performance. By measuring
the performance, the top management of the company can decide
whether to improve its investments in collaborative activities.
Measuring the forecast accuracy can alert the managers the usefulness of available information and also can point out the need for
accessible information and technology (Ramanathan & Muyldermans, 2010). Different supply chain partners collaborating for various purposes will have individual business objectives. Successful
collaboration will help the businesses to be successful in achieving
those set objectives. By measuring both nancial and operational
objectives any company can understand the current accomplishment of expected achievements. For example, in the given case
company, the higher investment in collaboration has not shown
more substantial benet in terms of revenue. Hence, the company
can try to improve other aspects of the current collaborative
arrangement instead of investing further in the collaboration. On
knowing the potential benets of SC collaboration, SC partners
can extend their partnership further to increase prot, to reduce
lead time and to improve customers satisfaction. In this research,
we have tested the SC collaboration with different levels of
735
Table 2
Analysis of sample data.
Coll. investment
Coll. partners
Coll. period
Degree
BOO
Information sharing
Forecast accuracy (%)
SC processes
83500
50000
55000
34000
48500
53500
133000
49000
45000
56000
59000
43590
3
10
4
10
11
7
8
4
3
6
12
7
3
3
4
4
4
5
5
5
6
6
7
7
0.01
0.02
0.04
0.01
0.01
0.04
0.05
0.02
0.01
0.02
0.02
0.03
0.02
0.99
0.89
0.00
0.03
0.01
0.01
0.99
0.90
0.00
0.99
0.01
0.77
0.92
0.95
0.91
0.87
0.91
0.93
0.76
0.79
0.97
0.93
0.94
65
96
91
96
91
91
87
69
65
95
99
97
0.79
0.62
0.54
0.57
0.12
0.01
0.56
0.49
0.51
0.54
0.45
0.45
727
728
729
730
731
732
733
736
737
738
739
740
741
742
743
744
745
746
747
748
749
750
751
752
753
754
755
756
757
758
759
760
761
762
763
764
765
766
767
768
769
770
771
772
773
ESWA 8713
20 July 2013
9
Top Management
Involvement
Technology
Investment
People
Require more involvement
Overall performance
Adjust the degree
Duration
Level of
Involvement
Degree
Collaborative Supply
Chain
Increase frequency,
accessibility & revamp
technology
Information sharing
&Forecasting
Business Objectives
(Financial)
Business Objectives
(Operational)
Partners
Adhere to plan, control production
and delivery time and frequent
monitoring
Increase profit;
reduce cost
Fig. 2. Effect of levels of collaboration on performance.
Reduce returns;
reduce product lead
time; improve
capacity utilization
Processes
Plan, Produce, Replenish and Return
Fig. 3. Areas of improvement in SC collaboration.
774
775
776
777
778
779
780
781
782
783
involvement and partnerships for certain period of time using simulation techniques. For different degrees of collaboration, the benets of SC are found different. In real businesses, it is risky to
experiment various degrees of collaboration as it can involve a
huge amount of investment.
Findings of this research suggest that the degree of collaboration should be revised on analysing the performance of the company (see Fig. 3). The conduciveness of collaboration for any
company depends on its exibility in changing the degree of collaboration to achieve the business objectives. For example, if too
many SC partners are involved in the collaboration, the partners

with the highest investment may have the power of dominance
in planning and decision making; this may affect the smaller players in SCC arrangements (Aviv, 2007). In this case, the top management of the focal company can alter the degree of collaboration
such as duration of collaboration, level of involvement and number
of participating members to achieve required performance. Irrespective of the degree of collaboration, another performance measure namely, forecast accuracy of the company will explicitly
indicate the role of information exchange in the collaborative SC
784
785
786
787
788
789
790
791
792
793
ESWA 8713
20 July 2013
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828
(Ramanathan & Muyldermans, 2010). Since the products with

shorter lead time can normally benet more from collaborative
forecasting (Aviv, 2001), in this research we suggest extending
the use of collaborative forecasting for products with medium or
longer lead time. In poor forecast accuracy, top management can
increase accessibility of information exchange. The company can
also think of revamping the IT technology in order to improve
the efciency of information sharing.
Achieving the predened business objectives in terms of nancial and operational activities will help the SC partners to sustain in
the competitive business market. Performance measurement, in
terms of nancial and operational business objectives, indicates
the conduciveness of the current SC collaboration. The collaborating company can adjust the degree of collaboration to match its
business objectives. For example, SCC can be strengthened to increase prot by reducing the cost of operations. Similarly, SC collaboration can help reducing the product returns or help selling
the returned products in secondary markets. Our research conrms
that production lead time and capacity utilisation can also be improved with SC collaboration of suppliers for on-time delivery of
raw materials for timely planned production (see Fig. 3).
To evolve efcient and effective competitive supply chain collaboration, all SC processes need to be assessed from time to time
for evaluating the performance. In a growing eld, performance
measurement is highly indispensable in order to improve further.
In a new eld, it is equally important to monitor the performance
to test the conduciveness. Our research has indicated the importance of identifying conducive environments for successful supply
chain collaborations. We have based our simulation study using
data from two companies from packaging industry. The same research can be extended further for different industries that have
SC collaboration with many partners involving huge investment
for long duration. This can help to draw a general conclusion on
suggested level of investment and supply chain partnership, specic to each business sector.
829
7. Uncited references
794
795
796
797
798
799
800
801
802
803
804
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807
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815
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823
824
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826
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830
Q6
Lee and Whang (2001).
831
Acknowledgement
832
834
Author would like to thank two anonymous reviewers for

their valuable comments and Dr. Yongmei Bentley for her support
in improving the paper.
835
References
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856
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858
Q7
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