This document discusses using soft computing techniques to evaluate coordination in supply chains. It proposes a fuzzy analytic hierarchy process (FAHP) model to measure the extent of coordination (EC) based on four coordination mechanisms: contracts, information sharing, information technology, and joint decision making. The EC is calculated as a weighted sum of the crisp scores of the four mechanisms, where the weights are determined from pairwise comparisons in the AHP. The model provides a way to quantitatively assess coordination across a supply chain and analyze different coordination scenarios. It is demonstrated through a numerical example involving order quantities and performance measures at different supply chain levels.

1. IT and Soft Computing :
Impressions, Implications and
Applications
Dr S G Deshmukh
Director
ABV-Indian Institute of Information
Technology & Management, Gwalior
deshmukh.sg@gmail.com
National Students Convention 2011
ITM Universe Gwalior
11March 2011

2. Motivation
 IT has become all pervading in almost
every walk of life
 Lot of debate on use/utility of IT
 Soft Computing : As a powerful tool
 IT aided by Soft Computing ?
 Relevance of IT in Management of
Business ?
2

3. Part 1
 Information Technology :
Impressions and Implications

4. Use of Information
Technology (IT)
 IT as an enabler and facilitator
 IT as a tool
 IT for streamlining processes
 IT for bringing in transparency and
objectivity
 IT helps in automation !

5. Impression 1: Role of IT
 IT acting as strategic weapon to gain
differentiation and advantage.
 Assumption: IT’s potency and ubiquity have
increased, so too has its strategic value?
 Examples: Indian Railways, CBSE , State
Transport
 Truly strategic resource : Its not ubiquity but
scarcity of a resource which brings sustained
competitive advantage.

6. Impression 2.. Availability of IT
 Ubiquity of resources transform them from
potentially strategic resources into commodity
factors of production .
 They are becoming costs of doing business that
must be paid but provide distinction to none.
 Availability of IT increased (see even at Grocery
shops) and cost decreased.
 More ubiquitous they are, less strategic they
become.

7. The Commoditization of IT
 Makes it valuable when shared than in isolation.
 IT is also highly replicable- no perfect commodity
than a byte of data at virtually no cost.
 Scalability of IT combined with technical
standardization dooms applications to economic
obsolescence.
 Internet accelerated commoditization of IT by
providing perfect delivery channel of apps.
 IT diffuses very fast from inception to maturity.
 Last ten years number of WWW sites grew from 0 to 40 million.
 Since 1980, over 280 million miles of fiber optic cable is installed-
circle the earth 11,320 times.

8. Impression 3: IT capability
 Because of its ability to record every
customer interaction,
 Ability to offer insights into customer and
market behavior,
 Turn a business into a scientific laboratory
for pre and post-production and
manufacturing purposes
 Its potential to re-invent the business itself
 IT’s proximity to decision making
8

9. IT Capability..
 How IT is used rather that what of IT
is used
 IT fundamentally offers two important
capabilities to businesses:
 Integration and
 Interactivity
 These capabilities have to be managed
effectively for business
9

10. Implication 1: Integration
 Enables powerful integration of various
business functions : Marketing,
Operations, Design , Finance (Example:
ERP based systems)
 Integrates both internal and external
functions
 Empowers suppliers and customers to
become part of the extended enterprise
10

11. Web 2.0
 Web 2.0 covers a broad range of new online
services, user-generated content,
communities and social networking tools.
Examples :Blogger, Flickr, MySpace, YouTube
, Wikipedia and the Godfather of web 2.0 -
Google.
 It is creation of far greater levels of
interactivity, not just between users, or
between users and the internet but between
complementary online services through web
services 11

12. Observation..
 “..Ordinary people now have access to
technology, where they can create
value and even collaborate and level
the playing field with the world’s
mightiest enterprises ..
 Anthony Williams, “ Wikinomics: How Mass
collaboration Changes Everything”, 2007
12

13. Insight..
 Web 2.0 takes some of its philosophical
underpinning from James Surowiecki's
book “The Wisdom of Crowds”, which
asserts that the aggregated insights of
large groups of diverse people can
provide better answers and innovations
than individual experts.
13

14. Comment..
 If infrastructure is for connectivity -- akin to
railroad, Integration is about integrating
functionalities of various systems and
applications even people; in a broad sense
focused on integrating people, processes and
technology in an enterprise setting.
 Role of Management: Enables effective
integration, provide necessary eco-system for
integration
14

15. Implication 2: Interactivity
 Interactivity (WAP, Web Services, XML)
being more recent in the IT evolution
 Enables to understand customer better
 Establishes long term relationships with
both customer and suppliers
 Helps in understanding product features
and add-ons by close interaction
15

16. Implication..
 Ever since the Internet brought down the
cost of connectivity, the need for integration
(be it application integration, b2b integration
or data integration) has been growing
 So also interactivity needs of enterprises
particularly dealing with bringing in pervasive
functionalities as in enterprise mobility,
personalisation and so on
16

17. Part 2
 Evaluation of Coordination in
supply chain- A Soft Computing
Approach

18. Supply Chain Coordination
 Act of working together and managing
dependencies among activities (Malone and
Crowston, 1994)
 Integration or linking together of different parts
of an organization to accomplish a collective set
of tasks (Van de Ven et al., 1976)
 Coordination is a process to bring into a
common action, movement or condition, or to
act together in a smooth concerted way
(Mattessich et al., 2001)

19. 19
Soft Computing
 Soft computing is an umbrella term for a
collection of computing techniques
 It is tolerant of imprecision, uncertainty
and partial truth
 Models based on human reasoning.
 Models can be
- linguistic,
- simple (no number crunching),
- comprehensible (no black boxes),
- fast when computing,
- good in practice.

20. 20
Soft Computing Applications : Business
• supplier evaluation
customer targeting,
• sequencing,
• scheduling,
• optimizing R&D,
• projects,
• knowledge-based
prognosis,
• fuzzy data analysis
• hospital stay prediction,
• TV commercial slot
evaluation,
• address matching,
• multi-criteria optimization,
etc.
•Supply Chain Coordination

21. Need of Coordination
 The supply chain entities optimize their local
objectives without taking into account its effect
on whole supply chain performance
 These conflicting objectives result in
 more inventory held up,
 increased system wide costs,
 more uncertainty and
 more demand fluctuations
 To improve the performance of whole supply
chain these conflicting issues are required to be
resolved by coordinating the supply chain
processes

22. How supply chain coordination can be achieved?
 Effective Implementation of coordination mechanisms is a
good indicator of coordination
 Extent of coordination may be represented as a function of i
coordination mechanisms (CM)
EC= f (CM1, CM2, CM3, .......... CMi)
 A soft computing based model is proposed to evaluate EC:
Fuzzy based Analytic Hierarch Process (FAHP)

23. Contracts
• Structured at beginning of relationship
• Decisions regarding risks and rewards
• Set foundation for the adoption of other
mechanisms
• Optimal decisions do not satisfy all
members of supply chain
• Sort out conflicts and confusions
• Reduces uncertainties and encourage long
term partnerships
• Comprised of quantity, price, cost and
demand
Information Sharing
• Type of information shared
• Willingness to share information
• Improve different performance
measures like reduce supply chain
costs, inventory levels, demand
variance, lead time and greater
customer satisfaction
• Reduces uncertainty in supply and
demand
Information Technology
• Type of information system
• Speed and accuracy of information
system
• SCM/ERP software
• Mode of communication
Joint Decision Making
• Joint planning
• Joint forecasting
•Joint replenishment
• Joint ordering
• Joint benefit sharing
SUPPLY CHAIN COORDINATION

24. Coordination mechanism-
Information Sharing
 Order information
 Inventory data
 End customer
demand
 Sales data
 Capacity
 Production schedule
 Lead time
 Price scheme
 Status of order
 Product quality
 Future plans
 New technologies
 Product
specifications

25. Coordination mechanism-
Information Technology
 Precise and accurate information flow
 Faster and cheaper order processing
 Reduces uncertainty
 Increase flexibility
 Improves customer service
 Reduces response time

26. Extent of coordination (EC)
EC = w1*CO + w2*IS + w3*IT + w4*CL
where w1, w2, w3, w4 are relative weights of
four coordination mechanisms
 CO, IS, IT and CL are the crisp scores of four
mechanisms i.e contracts, information
sharing, information technology and
collaboration respectively
 The crisp scores are assessed by defuzzyfying
the linguistic terms representing these factors

27. EL VL L SL AV SH H VH EH
1
0
0 0.2 0.4 0.6 0.8
1.0
Degree
of
membe
rship
a b c
d
SH H
VH
a b c
d










112
1
ab
b
dc
d
C
Linguistic terms assigned to coordination mechanisms
Conversion of fuzzy to crisp number
Crisp scores
CSCO: Contracts, CSIT: Information
technology, CSIS: Information sharing
and CSJD: Joint decision making
Pair wise comparisons of
coordination mechanisms
Relative weights of coordination
mechanisms
Check for
consisten
cy
Relative weights for
Contracts, Information technology, Information
sharing and Joint decision-making respectively
JDISITco ωandω,ω,ω
Inconsistent
Consistent Extent of Coordination
JDJDISISITITCOco CSωCSωCSωCSωEC +++=
FAHP model
AHP

28. Outcomes of FAHP model
 Uniform linguistic terms to coordination mechanisms
 Easiness of assigning linguistic terms by managers
 Extent of coordination based on the implementation and
importance of coordination mechanisms
 Applied to a real life case study
7701570770287068051407700420 .*.+.*.+.*.+.*.=EC
= 0.724
Low
1
0
0 0.3 0.4 0.7
0.86
Medium High
Score for Extent of Coordination
Degree of
membership

29. Pairwise comparison score
Coordina-
tion by
Contracts Information
Sharing
Information
Technology
Collaboration
Contracts 1 a12 1/a31 a14
Information
Sharing
1/a12 1 a23 1/a42
Information
Technology
a31 1/a23 1 1/a43
Collabor-
ation
1/a14 a42 a43 1

30. Analytic Hierarchy Process
(AHP)
 Set AHP subjective scale for pair wise
comparison of factors on the basis of their
relative importance
 Normalize the comparison scores
 Calculate the relative weights by taking
average of normalized scores and assign as
w1, w2, w3 and w4 for contracts,
information sharing, information technology
and collaboration respectively

31.  The defuzzification process is done using the
conversion formula given by Chen and Hwang (1992).
Where C is the crisp number computed by using
trapezoidal membership fuzzy number M= (a,b,c,d)










112
1
ab
b
dc
d
C

32. Input data for DSTSCC for two level SC
(A) Data considered for numerical example
Cost (cs) : 12 Cost (cb) : 2
Salvage (ss) : 9 Salvage (sb) :10
Goodwill cost (gs ) : 8 Goodwill cost (gb) : 14
Wholesale price (w) : 20 Price of product (p) : 30
Demand ~ N (100, 302)
(B) Decision variables for numerical example
Optimal order quantity : 111.35 units : 139.35 units
Other variables:  : 15, w’ : 10.1  : 0.6 and  : 0.148
Input data for DSTSCC for three level SC
(A) Data considered for numerical example
Level 1 Level 3
Marginal cost(cL1) : 20 Marginal cost (cL3) : 5
Goodwill cost (gL1) : 6 Goodwill cost (gL3) : 8
Salvage (sL1) : 16 Salvage (sL3) : 28
Wholesale price (w12) : 36 Price of product (p) : 60
Level 2
Marginal cost (cL2) :7
Goodwill cost (gL2) :7 Demand distribution N(100, 202)
Salvage (sL2) : 17
Wholesale price (w23) : 50 The cost and price are in monetary units
(B) Decision variables as Output data for DSTSCC
23 = 46 12 = 26
23 = 0.532 12 = 0.519
w’23 = 23.8 w’12 = 18.03
δ = 0.2936 Q*sc = 128.72 units
*
bQ *
sc
Q

33. Snapshot of the Model

34. Supply chain
member
Expected Performance
Measures
Case I
Scenario 0 (No
Coordination)
Case II “Coordination”
Scenario 1
(Coordin-ation
with optimal)
Scenario 2
(Scenario1+
Buyback contracts)
Scenario 3
(Scenario1+
Revenue sharing
contracts)
Scenario 4
(Scenario1+
Quantity
flexibility
contracts)
•Level 3
Actual Sale 86.760 99.20 99.195 99.195 102.171
Revenue realized 5205.596 5951.72 5951.722 3166.812 6130.253
Leftover inventory 4.165 29.53 29.529 29.53 2.539
Salvage realized 116.615 826.81 1353.762 826.81 71.081
Units short 13.048 0.61 0.612 0.61 0.480
Goodwill realized 104.381 4.90 4.897 4.90 3.836
Marginal value realized 454.624 643.62 643.621 643.62 586.922
Wholesale value incurred 4546.238 6436.21 6436.207 3076.507 5869.217
Buyback quantity realized 0 99.20 1353.762 0 633.741
Expected Profits 216.969 -306.198 220.759 268.593 375.101
•Level 2
Leftover inventory 0 0 29.565 29.529 2.539
Salvage realized 0 0 568.694 0 215.472
Units short 13.052 0.924 0.924 0.612 0.480
Goodwill realized 104.415 7.391 7.391 4.897 3.836
Marginal value realized 636.473 901.068 901.068 901.068 586.922
Wholesale value realized 4546.237 6436.205 6436.206 4522.280 5869.217
Wholesale value incurred 3273.29 4634.068 4634.068 2385.040 4225.836
Buyback quantity realized 0 0 568.694 0 456.294
Buyback quantity incurred 0 0 1359.99708 0 633.741
Expected Profits 545.110 894.602 1008.675 1231.886 856.358
Performance measures for different scenarios for three level
supply chain

35. Level 1
Leftover inventory 0 0 29.565 29.565 2.539
(Salvage realized –
buyback quantity) 0 0 417.477 0 202.797
Units short 13.052 0.924 0.924 0.612 0.480
Goodwill realized 626.491 5.543 5.543 3.673 2.877
Marginal value realized 1818.494 2574.482 2574.482 2574.483 2347.687
Wholesale value
incurred 3273.290 4634.068 4634.068 4415.645 4225.836
Expected Profits 828.305 2054.043 1936.279 1081.659 1621.776
Total Expected Profits of SC 1599.022 2638.789 2638.789 3175.516 2853.235
Supply chain
member
Expected
Performance
Measures
Case I
Scenario 0 (No
Coordination)
Case II “Coordination”
Scenario 1
(Coordin-
ation with
optimal)
Scenario 2
(Scenario1+
Buyback
contracts)
Scenario 3
(Scenario1+
Revenue sharing
contracts)
Scenario 4
(Scenario1+
Quantity
flexibility
contracts)
Performance measures for different scenarios for three level
supply chain (Contd.....)

36. Significance of coordination
mechanisms
Absence of contracts
Reduces profits of buyer
Absence of Information technology
Increases units short and goodwill cost
Absence of information sharing
Increase in marginal cost of supplier and
overstock
Absence of join decision making
Reduces the profits of both supplier and buyer

37. Different Scenarios
Performance Measures* Scenario 2
(Buyback
contract)
Cont. to the profits
(%)*
Scenario 3
(Revenue
sharing
contract)
Cont. to the
profits (%)
Scenario 4
(Quantity
flexibility
contract)
Cont. to the
profits (%)
Buyer
Revenues realized 171.03 13.8 -995.06 -45.8 171.03 34.0
Salvage realized/ (Returns
realized in Scenario 2) 375.47 30.2 223.44 10.3 39.49 7.9
Goodwill incurred 79.82 6.4 79.82 3.7 79.82 15.9
Marginal cost incurred -56.00 -4.5 -56.00 -2.6 -19.28 -3.8
Wholesale value realized -560.02 -45.1 819.08 37.7 -192.84 -38.4
Total Gain (Loss) 626.32
(-616.02)
50.4
(-49.6)
1122.34
(-1051.06) 51.6 (-48.4)
290.34
(-212.12)
57.8
(-42.2)
Supplier
Salvage realized 379.61 19.4 0 0 26.90 6.1
Goodwill incurred 45.63 2.3 45.63 6.3 45.63 10.4
Marginal cost incurred -336.01 -17.2 -336.01 -46.1 -115.70 -26.2
Wholesale value realized 560.02 28.7 347.01 47.6 192.84 43.7
Returns cost incurred -631.62 -32.3 0 0 -59.77 -13.6
Total Gain (Loss) 985.26
(-967.63)
50.5
(-49.5)
392.64
(-336.01)
53.9
(-42.1)
265.36
(-175.47)
60.2
(-39.8)
Relative contribution of different performance
measures in the profit function

38. End Thoughts
 IT is a dominant technology
 Smart use of technology
 IT does matter by offering capabilities
 Integration
 Interactivity
 IT as a back end tool in Soft computing
 Part of decision making
 Supply chain as an application domain
 Evaluation of various scenarios
 Evaluation of alternative scenarios

39. References
 Arshinder Kaur, Kanda, A. and Deshmukh, S. G. (2006), “A graph
theoretic approach to evaluate supply chain coordination”, International
Journal of Logistics and Systems Management”, Vol. 2, No.4, pp. 329-341
 Arshinder, Kanda, A. and Deshmukh, S. G. (2007), “Coordination in
Supply Chains: An Evaluation using Fuzzy Logic” ,Production Planning
and Control, Vol. 18, No. 5, pp. 420-435
 IT doesn’t Matter:
http://www.nicholasgcarr.com/articles/matter.html

40. Thanks