Industrial Management & Data Systems

A supply chain performance measurement approach using the internet of things: toward more practical
SCPMS
Abdallah Jamal Dweekat Gyusun Hwang Jinwoo Park
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To cite this document:
Abdallah Jamal Dweekat Gyusun Hwang Jinwoo Park , (2017)," A supply chain performance measurement approach using
the internet of things: toward more practical SCPMS ", Industrial Management & Data Systems, Vol. 117 Iss 2 pp. -
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 A supply chain performance measurement approach using the internet of things:
toward more practical SCPMS

1. Introduction

Shapiro defines a company’s supply chain (SC) as “dispersed facilities where raw material,

intermediate products, or finished products are acquired, transformed, stored, or sold and

transportation links that connect facilities along which products flow” (Shapiro, 2001). SC

management has been defined as “the integration of the key business process from end user
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through original suppliers that provides products, services and information that add value for

customers and other stakeholders” (Stock and Lambert, 2001). To evaluate the effectiveness of

supply chains, many PM models and approaches have been developed, such as the Balance

Scorecard (BSC), the Supply Chain Operations Reference model (SCOR) model, etc. All these

models were developed to provide the means to choose the appropriate metrics, define functions

or business processes whereby the necessary information can be retrieved to determine whether

the SC has improved or degraded, identify success and potential strategies, facilitate

understanding of the situation, direct management attention, revise company goals, reengineer

business processes, and enhance effective and efficient decision making, not only at the

management level but also at the operational level (Lapide, 2000; Chan, 2003; Marwah et al.,

2012). However, due to the complexity and dynamism of SCs, many obstacles have been

encountered to efficient supply chain performance measurement (SCPM). Some are related to

identifying a balanced set of metrics that can satisfy integration and collaboration among and

within SC members. Other problems are technical, and relate to poor data collection, dispersed

IT infrastructure, poor communication, and poor visibility. Another risk relates to the structure

and integrity of data due to its large size and diversity of sources (Lohman et al., 2004).
 In this paper, a new approach is developed to overcome the above obstacles. It contains a novel

conceptual model that uses promising IoT technologies to implement SCPM systems (SCPMS).

Ideas from practitioners, as well as the SCOR model and the ISA-95 standards, are used to

determine the SC-balanced scorecard and identify the data sources of the metrics. The

implementation of the approach is explained through a case study scenario.

The motivation underlying this study is to present a more practical approach for SCPM and

highlight the promising role of IoT in PM in general.

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The rest of this paper is organized as follows: in Section 2, we examine the relevant literature.

Sections 3 and 4 describe the SCOR model and IoT, respectively. Sections 5 and 6 are devoted to

a description of our SCPMS approach and its IoT-enabling model. In Section 7, we apply our

approach to a case study. The conclusions and results are presented in Section 8.

2. Literature Review

Within a few decades of the emergence of SCM, SCPM frameworks and models have been

extensively studied and a steady stream of related research has been published (Lapide, 2000;

Chan, 2003; Gunasekaran et al., 2004; Kaplan and Norton, 2006; Gunasekaran, and Kobu, 2007;

Hall and Saygin, 2012; Agami et al., 2012; etc.). In the vast array of literature on SCPM (Ramaa

et al., 2009; Arzu Akyuz and Erman Erkan, 2010; Kurien and Qureshi, 2011; Lauras et al., 2011;

Estampe et al., 2013; Najmi et al., 2013), a variety of attempts have been made to classify the

developed models. Najmi et al. (2013) categorized them into five types: perspective-based, six

sigma-based, process-based, uncertainty theory-based, and hierarchy-based models. Agami et al.

(2012) divided these into two categories: financial and non-financial. The latter was divided

further into nine types based on their measurement criteria, the most important being BSC and

SCOR.
 A review of the SC literature reveals the problems in SCPM. The major problems can be

summarized as follows (Gunasekaran et al., 2004; Saad and Patel, 2006; Bhagwat and Sharma,

2007; Gunasekaran and Kobu, 2007; Arzu Akyuz and Erman Erkan, 2010; Agami et al., 2012;

Estampe et al., 2013):

• Lack of a clear connection with strategy and a clear distinction between metrics at the

strategic, tactical, and operational levels.

• Lack of a balanced approach to integrating financial and non-financial metrics.

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• Focus on local optimization and, thus, the absence of a comprehensive SC context.

• Incompleteness, inconsistencies, and absence of relational structures in PM and metrics.

• A large number of metrics, which make it difficult to distinguish the critical from the

trivial.

• Too inward-looking and, consequently, focusing insufficiently on external parts

(customers, suppliers, and competitors).

• Being static, too short-term, and profit-oriented.

There seems to be no universal consensus regarding a comprehensive approach to measure

supply chain performance (Robinson and Malhotra, 2005; Aru Akyuz and Erman Erkan, 2010).

However, compared with the traditional focus on functions, the SC management process

orientation approach can lead to superior results. We thus focus on this approach, where two

fundamental interacting tasks play important roles: process modeling and performance

measurement. The former requires tracking material and information flow, and simultaneously

monitoring, measuring, and controlling the value added along all SC processes. The latter’s role

is to assign measures or metrics to these processes to evaluate changes and assess the

performance of the complete SC as well as that of each individual process (Stadtler et al., 2015).
 These metrics should be selected to reflect a balance between internal and external, as well as

financial and non-financial, measures, which can be related to strategic, tactical, and operational

levels of decision making and control (Gunasekaran et al., 2004). On the contrary, in order to

practically implement and use any SCPMS, performance-relevant data should be effectively

tracked, gathered, sorted, stored, and processed. Technologies that assist in these tasks have been

studied (Kueng et al., 2001; Marchand and Raymond, 2008; Myles, 2008; Teimoury et al., 2013).

Myles (2008) discussed the impact of information technology on Performance Measurement

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Systems (PMS). A number of researchers introduced PMS as an information system (Kueng et

al., 2001; Marchand and Raymond, 2008; Myles, 2008; Teimoury et al., 2013) . Kueng et al.

(2000) studied the practical and technical aspects of information technology in PMS

implementation.

2.1 SCOR Model

The SCOR model was developed by the Supply Chain Council (SCC), organized in 1996

(Stadtler et al., 2015). SCOR is the most widespread process-oriented SCPM model designed

especially to model SC, and is the only integrated cross-functional framework that links business

processes, performance metrics, software requirements or technology, and best practices. It is

also a tool for implementation used by many companies worldwide (Stephens, 2001; Min et al.,

2009; Ramaa et al., 2009; Agami et al., 2012; Stadtler et al., 2015). From their first draft to the

most recent revision (Rev. 11.0, 2012), practitioners have been developing SCOR models in

recognition of the fact that a significant competitive advantage can be attained by coordinating

SC activities across supplier and customer boundaries as long as SC goals, performance, and

objectives are communicated successfully among SC participants, and that this can be translated

into increased revenue and cost saving (Stephens, 2001). According to Robinson and Malhotra
 (2005), SCOR is an integrated processes of planning, sourcing, making, and delivering. This

spans the value chain from the suppliers’ suppliers upstream to the customers’ customers

downstream. They also pointed out that the SCOR model demonstrates the linking of value-

adding processes within departments in an organization and between SC entities; thus, it supports

intra-organizational and inter-organizational integration (Robinson and Malhotra, 2005).

Moreover, SCOR offers a consistent “scorecard” framework for the development of SC

performance. This scorecard seeks a balance between short-term and long-term plans, internal
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and external focus, among different levels of an organization, in BSC methodology views, and

for multiple stakeholder perspectives (Arzu Akyuz and Erman Erkan, 2010). Many researchers

(Lockamy III and McCormack, 2004; Hwang et al., 2008; McCormack et al., 2008; Cai et

al.,2009) support the importance of the SCOR model to SCPM.

The scope of the SCOR model starts from the initial planning processes (demand forecasts) and

ends with customer satisfaction measurement points (installation, invoices, and payment). The

model is specific to a product or a family of products flowing through SC organizational entities.

SCOR identifies a building block approach consisting of six business processes: planning,

sourcing, making, delivering, returning, and enabling (Council, 2012). This approach allows the

SC to be configured across organizations, internally or externally, and across industry segments

and geographies (Stephens, 2001).

The six SCOR management processes are further decomposed into three deeper levels. Level 2

(configuration) is where the organization implements its configuration strategy and determines

its capabilities within level 1 processes. Level 3 (detailed operations) contains steps performed in

a certain sequence to plan SC activities, source materials, manufacture products, deliver goods

and services, and handle product returns. Level 4 (implementation) lies outside the SCOR scope,
 and includes processes dealing directly with practices and activities. It is extended from level 2

processes according to the uniqueness of each SC organization’s operations, and generally

involves industry-, product-, location-, and/ or technology-specific processes (Chen and Huang,

2007; Council, 2012).

Typically, an SC can be described using the SCOR model business map by establishing a

framework for the organizational elements of a subsequent supply chain. A thread diagram can

be used to convert any SC geographical map into its typical process view (see Fig. 5 in the case
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study section 4). Using the SCOR model, it is possible to describe an SC in five dimensions (i.e.,

performance attributes): reliability, responsiveness, agility, cost, and efficiency in asset

utilization. Each performance attribute has one or more strategic metrics (level 1 metrics). These

level 1 metrics are calculations by which an organization can measure its success in achieving its

desired position within the competitive marketplace. Table A1 in the Appendix describes SCOR

performance attributes and level 1 metrics for each attribute (Stephens, 2001; Council, 2012).

Each process in the SCOR model has its own performance metrics and, like its process structure,

these metrics are organized in a hierarchical structure. Three levels of metrics, levels 1, 2, and 3,

are described in the model, where each level serves as a diagnostic for higher-level metrics.

Therefore, the SCOR model can be used as a root cause analysis tool (Council, 2012; Kocaoğlu

et al., 2013).

2.2 The Internet of Things

IoT technologies can be considered excellent tools that can solve performance measurement-

based data-related problems. Teimoury et al. (2013) categorized these problems into four types:

delays in collecting information, assessing collected data, providing feedback, and reforming the

system. However, such problems and many other SCPM-related problems can be resolved by
 employing the emerging technology of the Internet of Things (IoT). Therefore, this study aims to

determine how IoT technology can improve SCPMS.

The Internet of Things refers to information-sensing devices and technologies, such as a global

position system (GPS), radio-frequency identification devices (RFIDs), infrared sensors, laser

scanners, gas inductors, etc. It is a real-time, Internet-based network. According to an agreed

protocol, it links processes or objects that need to be monitored, linked, and interacted with.

The advent of IoT represents a transformative shift for humans, businesses, and the overall
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economy, similar to the shift that occurred due to the introduction of personal computers. IoT is

beginning to incorporate major technological industry trends, such as cloud computing, data

mining, data analysis, mobile communications, and others. Its connection capability surpasses

earlier efforts to track and control systems, such as the use of RFIDs, as it provides almost

limitless versatility (Burkitt, 2015).

The architecture of the IoT can be divided into four layers: the sensing or perception layer, the

gateway and network layer, the management service layer, and the application layer. The main

task of the sensing or perception layer is to collect and transmit data. This layer usually consists

of three components: object identification properties, such as an RFID tags, barcodes, or any

property of objects that can be sensed (e.g., shape, size, temperature, etc.); reader tools, which

include sensors and actuators; and means of short-distance networking connectivity, such as Wi-

Fi, ZigBee, etc. (Li Wang et al., 2014; Xiao Feng Wang, 2014).

The role of the gateway & network layer is to connect objects or things and allow them to share

and exchange information. It contains a gateway, an internal network, or a local area network

(LAN) to connect the gateway with the sensing layer, and an external network or wide area
 network (WAN) to communicate with the external domain (Li Wang et al., 2014; Xiao Feng

Wang, 2014).

The management service layer relies on middleware technology that provides functionalities to

seamlessly integrate services and applications into the IoT. It is in-charge of information

analytics, security control, process modeling, and device management (Li Wang et al., 2014;

Xiao Feng Wang, 2014).

The application layer is the ultimate goal of IoT technology. In this layer, collected and
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transitioned data are reserved, processed through certain techniques to be used for a plan, and

objects or things are managed and controlled (Li Wang et al., 2014; Xiao Feng Wang, 2014).

IoT in Supply Chain Management

The term “Internet of Things” was coined by Kevin Ashton in 1999 to refer to uniquely

identifiable, interoperable, connected objects using RFID at Procter & Gamble’s (P&G’s) SC

(Ashton, 2009). The IoT offered a promising solution for all systems related to SC, such as

manufacturing systems, transportation systems, performance management systems, and others

(Da Xu et al., 2014).

With the evolution of the IoT, a new paradigm has emerged: “The Sensing Enterprise.” This

paradigm aims to achieve seamless integration of business and information and communication

technologies in cyberspace (Moisescu and Sacala, 2016). In the Sensing Enterprise approach,

data are acquired automatically using physical and virtual things, transformed into multi-

dimensional information, analyzed, and organized in such a way as to provide context awareness

and decision support. Thus, digitization of enterprise entities is required regardless of their

properties—tangible or intangible, simple or complex. The Sensing Enterprise approach can

therefore better incorporate reactive behavior and provide a direct link between stimuli and
 actions (Cluster, 2012). Developing a smart environment for it is the first step toward developing

an IoT-enabled SC resource management system. Such environments can be defined in terms of

resource identity, visualization and virtualization capabilities, communication capabilities, and

interoperability. Conceptually, this can be digitally characterized by a unique identifier,

processing unit, memory, and networking capabilities. In order to achieve this, many IoT-

enabling technologies have been developed, and are ready to be used in various SC management

applications. These technologies can be categorized into four groups (Da Xu et al., 2014).
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Identification and tracking technologies includes RFID systems, barcodes, and intelligent

sensors, all widely used in retail, logistics, and SC management in the last few decades. RFID

can be integrated with wireless sensor networks (WSNs) to better track and trace things in real

time.

Communication and network technologies refer to technologies that help entities communicate

and exchange information. This includes WAN, MAN, LAN, WLAN, VPN, etc., communication

protocols and standards such as machine-to-machine (M2M), IETF low-power wireless personal

area networks (6LoWPAN), RFIDs, IPv6, etc., and cross-layer protocols for wireless networks

such as wireless sensor and actuator networks (WSANs) or ad-hoc networks (AHNs) to facilitate

diverse communication and computation capabilities and vary quality-of-service requirements.

Service management technologies refer to the implementation and management of quality IoT

services that meet the needs of users or applications as well as such technologies as storage space,

security management, operational support, billing support, business rules management, and

business process management, which was recently offered through cloud computing. Cloud

computing is regarded as a promising IoT-enabling technology in the manufacturing industry,

virtual enterprises, and SC management (Sepehri, 2012).

 IoT can affect the entire SC in many ways. First, it can develop SC reliability by enabling object

visibility and real-time information exchange. Second, it can enhance SC responsiveness and

reduce its cost, facilitating real-time optimization for its functions and business process activities.

Third, it can improve SC assets’ management by tracking resources in real time. Lastly, it can

enhance SC agility by speeding up information flow processes. Therefore, IoT technologies offer

promising potential to address traceability, visibility, and controllability challenges in SC.

3. SCPM Approach Framework

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This section presents a framework for the overall SCPM approach enabled by IoT (Fig. 1). The

framework consists of two main parts: the proposed approach, and a data collection and

communication model for IoT-enabled performance metrics.

Fig. 1: SCPM approach framework using the IoT.

 3.1. SC Performance Measurement Approach

SCPM requires some basic steps: (1) understanding the system’s business environment by

analyzing the SC from a business perspective, identifying its performance attributes, and

selecting a suitable balanced scorecard for its performance evaluation; (2) finding a way to

collect data; and (3) finding a reference to compare with in order to determine values or benefits

(Fig. 1).
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1- Identify the SC’s Strategic Performance Attributes & Select Its Balanced Scorecard.

SC goals and characteristics should be analyzed in order to select the attributes suitable for

describing our SC. Our proposed approach uses Stadtler et al.’s (2015) “supply chain topology”

tool to describe and analyze any SC. Supply chain topology can be used to describe the two main

categories of SC characteristics: functional characteristics, which can be applied to organizations,

members, entities, or locations within a supply chain. This consists of four subcategories:

procurement, production, distribution, and sales characteristics. The second category is structural

characteristics, which describes the relations among SC members or entities, and consists of two

subcategories: SC topography, and integration and coordination characteristics (see Table 1).

To decide the best performance attributes to express our SC strategy, we consider Fisher’s idea

of matching SC type with its product category (Fisher, 1997). He identified two types of SC

products and activities, where products are categorized according to their demand patterns. The

first category is functional products, such as grocery store products, which satisfy basic needs,

change little over time, and have relatively stable and predictable demand with long lifecycles.

Their demand stability enhances market competition, often leading to low profit margins. The
 second category is innovation products, such as smartphones, electronic devices, and fashion

products, which often relate to technological development and are affected by people’s values

and dynamism of lifestyle. These products usually achieve higher profit margins, have a short

lifecycle and unpredictable demand, and change rapidly over time as companies are forced to

introduce a steady stream of innovations.

Moreover, according to Fisher, an SC is supposed to perform two types of activities. Internal

activities consist of activities related to transforming raw materials into finished products and
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transporting them from one point in the SC to the next. External or market mediation activities

consists of activities required to ensure that all products reaching marketplaces match what

consumers want to buy; in other words, they match customers’ values.

Accordingly, from an SCPM perspective, supply chains can be classified in two dimensions: (1)

product type portfolio(s), and (2) the activity type that it should focus on strategically (Fig. 2).

Hence, performance attributes can be selected according to this classification.

Fig. 2: Supply chain classification according to product type and activity focus.
 For instance, in a physically efficient SC (Fig. 2), if it has purely functional products, in general,

the profit margin is low and demand is relatively predictable, hence making market mediation

easy to achieve. It is then better to focus on internal activities in order to enable the entire SC to

minimize inventory and maximize production efficiency. Therefore, performance attributes

related to coordinating the activities of SC members to meet its predictable demand at the lowest

cost should garner more focus. These attributes, according to the SCOR model, are internal focus

attributes: SC cost and asset management efficiency.

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On the contrary, in SC market responsiveness (Fig. 2), if products are purely innovative, the

profit margin is high, the risk of shortages or excess supplies is high, and uncertainty in markets

requires quick reactions to market demand signals. Thus, performance attributes related to

achieving customer satisfaction by deciding inventory positioning, capacity, and SC resources

should receive greater focus than those minimizing cost. Therefore, these attributes, according to

the SCOR model, are external focus attributes: reliability, responsiveness, and agility.

However, in practice, it is uncommon to find purely functional or purely innovative SC products.

Therefore, it is possible to have a combination of internal and external performance attributes,

with relative focus on one of them to manage and control a distinct SC (Fig. 2).

Following the identification of SC strategic performance attributes and the recognition of the

direction of focus, the performance scorecard metrics are selected. The creators of Supply Chain

Excellence (2012) recommend choosing at least one metric from each performance attribute. In

our approach, a simpler proposition is added based on what was mentioned before: that it is

necessary to consider the SC type, decide its direction of focus, and choose the best metrics to

measure the SC’s ability to achieve its strategic attributes.

 2- Performance Metrics Data Assembly Plan

Following the identification of strategic SC attributes and the selection of scorecard metrics, the

more practical parts of this approach are executed. Certain sub-steps for collecting all data

required to measure each metric are used, which we examine in detail below.

(1) Metric Identification

According to the Supply Chain Excellence (2012), there are three common approaches to

practically defining SCOR level 1 performance metrics. The first involves using the
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SCOR manual for metric definition and calculation. The second depends on the

SCORMark benchmark offered with membership in the Supply Chain Council. The third

approach is to use the generic approach provided in Supply Chain Excellence (2012),

which includes practical calculation components according to SCOR definitions built

from a variety of project experiences. Any of these approaches can be used, and a

combination is also possible.

(2) Identifying Segmentation Strategy

A two-level segmentation strategy is considered. The first is business unit-level

segmentation, which requires deciding whether to evaluate the overall SC depending on

the best single SC business unit, or some or all business units according to the “80-20

rule” or a weighted average formula. This decision should be made consistently with

benchmarking evaluation criteria. The second level is performance metric segmentation.

Deciding the segmentation strategy to use for each metric depends on the metric itself, its

definition, calculation components, and the manner of its measurement aggregation and

disaggregation. For instance, segmentation options can occur by site, customer, SKU,

country, forecast planning family, or commodity.

 (3) Finding the Data-extracting Query

This step is the most critical in this approach, as this is where IoT technology plays a

major role in SCPMS. The IoT-enabled performance metrics data collection and

communication model was developed to determine data for each performance metric.

(4) Deciding the Measurement Time Frame or Data Sample Size, and Executing

Metric Measurement

It is important to differentiate between the time frames of metric measurement and data
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collection. The former is time over which the measurement output has meaning; for

example, the order fulfillment metric needs to be calculated for historical data (e.g., a day,

week, month, quarter, etc.). Without a time frame, this metric measurement has no

meaning. However, the data collection time frame has a different meaning, as it can be

zero or instantaneous—such as in determining the inventory level at a specific moment—

or could require quantities like backorders per day, week, month, etc.

(5) Calling for Performance Target Benchmarking Data for Comparison, Planning,

and Control

This step is common to all SCPMSs, and requires calling for benchmark data or performance

targets in order to determine and compare SC health. It is possible to determine benchmark

information from any related institution (e.g., Hoover, SCC, etc.), whereas comparing outputs

with performance targets determined by management helps with internal SC management and

control.
 3.2. IoT-enabled Performance Metric Data Collection and Communication Model

An efficient SCPMS should have the capability to fulfill three types of SC integration.

Functional integration means integrating SC purchase, manufacture, transportation, and

warehousing activities. Special integration means integrating all SC activities across

geographically dispersed markets, facilities, and vendors. Intertemporal or hierarchical

integration means integrating SC activities over strategic, tactical, and operational planning

horizons (Shapior, 2001) Achieving such integrations enables consistency and coherence of
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overlapping SC decisions. However, in today’s highly dynamic global markets, consistency and

coherent decisions are directly related to the ability to perceive everything (objects) in real time,

and to collect and analyze all information available.

1- Configuring SC using SCOR Level 2 Processes

By abbreviating the procedure developed by Stadtler et al. (2015) to configure the SC, any SC

can be represented using SCOR model processes in three steps:

(1) Define the business unit to be configured. This step should take into account the

selected segmentation strategy.

(2) Geographically depict SC entities involved in SC business processes level 1 (SCOR

model), enter the major flows of materials as directed arcs between locations and

entities, and assign SC business level 2 processes to each (Fig. 4).

(3) Develop a level 2 SC business process diagram by (a) defining partial process chains

for the modeled SC, i.e., the sequential level 2 sourcing, making, delivering, and

returning processes planned by a single “sP1” planning process. (b) Connect each
 partial process chain using “sP2-sP5” planning processes. (c) Define a top-level “sP1”

planning process, if possible (Fig. 5).

2- In this step, according to the segmentation strategy in its two levels, all SC entities related

to the SC scorecard metrics or their data-extracting query are more deeply analyzed.

Hence, for each partial process chain, the blueprint of a SCOR model business process

level 3 is configured (see Fig. 6).

3- The process inputs and outputs of the blueprints can be identified. Using the SCOR
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model manual (i.e., from SCOR model Rev. 10 and Rev. 11), it is easy to determine

process inputs and outputs and, hence, to decide which processes to monitor or measure

to collect the required data.

4- By determining the processes concerned, an analysis is conducted using the ISA-95

standard. The ISA-95 defines three main object information models: personnel, material,

and equipment. At least one of these can be used to identify the structure and

characteristics of the relevant information (for more information about ISA-95, see

ANSI/ISA-95.00.01-2010 and ANSI/ISA-95.00.02-2010).

5- The outputs of the previous step provide exactly the information or data that we wish to

collect. Therefore, we must determine the ERP module directly responsible for storing

and treating this information (i.e., in SAP systems, the module can be SD (Sales and

Distribution), IM (Inventory management), PP (Production Planning), MM (Materials

Management), etc.).

6- This is the last and most important step in our model. In this step, we express the role of

IoT technology in facilitating and promoting SCPM processes in three dimensions. First,

it reduces data collection time to almost zero (real-time data). Second, it increases data
 efficiency. Third, it enables real-time data communication among all SC objects and

entities. Accordingly, this leads to the fulfillment of the three types of integration

mentioned at the beginning of this section and, therefore, enables efficient decision

making. Fig. 3 shows the general SC IoT architecture. To apply it to this research

approach, we must consider how to connect the objects identified in Step 4 with the

related module(s) in the ERP system and communicate information to all entities using

this SC IoT architecture while considering each entity’s needs and authority. This is done
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in three steps.

Fig. 3: Supply chain IoT architecture.

(1) Every object is uniquely identified. The GS1 system and Internet Protocol

version 6 (IPv6) can perfectly satisfy this requirement. The GS1 is a system

that provides for the use of unambiguous numbers to identify goods, services,

assets, and locations worldwide. These numbers can be represented in

barcodes or tags in order to enable their electronic reading wherever required

 in business processes. These identification numbers are also used in Electronic

Data Interchange (EDI), XML electronic messaging, Global Data

Synchronization (GDSN), and GS1 network systems. The system is designed

to overcome the limitations of using company-, organization-, or sector-

specific coding systems. IPv6 addresses hierarchical allocation methods that

can facilitate any required aggregation across SC entities. Thus, all SC entities

can be sensed and perceived (Jara et al., 2013).

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(2) This step involves determining the sensing or tracking system to enable real-

time data collection from objects and enhance communication among them.

Many technologies have been developed for this purpose, and RFID and WSN

are the most advanced. Sensing and tracking systems commonly include

short-distance connecting network technologies that enable efficient

communication between objects and sensing devices (i.e., Wi-Fi, ZigBee, and

Bluetooth).

(3) The last step involves developing the Internet-based communicating network.

“Developing” here is not literally developing the network itself, but forming

an efficient combination of advanced network technologies to enable SC

applications, specifically SCPM applications, considering that we are dealing

with a dynamic ecosystem. Hence, this requires ubiquitous access to the

Internet, seamless handover, flexible roaming policies, security constraints,

and an interoperable mobility protocol with the existing Internet infrastructure.

In summary, integration, interoperability, and security are the major features

to consider when choosing an SC IoT network.

 4. Case Study

The simplified SC of a beverage was used as a case study scenario for the proposed approach.

The SC represented a single business unit consisting of a raw material supplier and packaging

material suppliers, a production plant, a distributer, and five retailers, two of whom were active

with higher demand and the others with standard demand. The manufacturer received the

required materials from suppliers and produced the beverage product set to expire 12 days from
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production time (e.g., natural milk products). Following packaging, the finished products were

transported to a distribution center (DC), from where each customer (retailer) was served. The

products were made to stock and were ordered by the retailer as a theoretical final customer in

this case study.

Fig. 4: Case study supply chain.

 • Identify SC Strategic Attributes and Select a Balanced Set of Supply Chain Metrics

To analyze the SC and select an appropriate balanced performance scorecard, the typology of the

example SC was developed (Table 1). It was clear that the SC mostly provided functional

products. Its main configuration was to make to stock. Thus, its PM system needed to be more

focused on its physical activities (i.e., internal focus). Therefore, it was possible to choose a

balanced performance metrics scorecard from SCOR metrics as shown in Table 2.

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Table 1: Topology of beverage supply chain.

Table 2: Supply chain balanced scorecard.

• PM’s Data Assembly Plan

For simplicity, the percentage of expired products from the total sales across the supply chain (or

expiry waste percentage), one of the level-3 performance metrics of the SC assets management

efficiency attribute, was chosen to show how IoT technology can facilitate data collection

required to measure a performance metrics and enhance decision making. Following our

approach in Fig. 1, data assembly was applied as below:

(1) Metric Definition

According to the SCOR model (Rev. 11.0, 2012), the expiry waste percentage can be

identified as the total waste due to product expiring before being demanded by customers.

It can be calculated using the formula: Expiry Waste % = [expired waste came from all
 supply chain members inventory]/Total Sale. Table 3 summarizes the calculation

components for the metric.

Table 3: Expiry waste percentage calculation components.

(2) Segmentation Strategy

As shown in Table 3, the case study SC featured an intra-organizational supply chain.

That meant that it involved a large company with several sites and one top management
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level. Therefore, there was no need to segment over business units, and it was possible to

segment the expiry waste percentage metric by site or final customer, the retailers.

(3) Data Extracting Query Identification

Measuring the expiry waste percentage metric required seeing all inventories inside the

supply chain, and tracking their positions and information. That can be done efficiently

using IoT. For this purpose, an IoT-enabled PM collection and communication model

was applied.

1- The first step involved developing a SCOR level 2 process thread diagram for

the overall SC (Fig. 5).

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Fig. 5: Case study supply chain SCOR level 2 process thread diagram.

2- The second step was to develop an SC process level 3 blueprint for each

partial process chain. We focus on DC entities. Fig. 6 shows an example of

the DC partial process chain. We assumed the same work could be done to

collect all data required for retailers and the manufacturer.

Fig. 6: DC partial process chain blueprint (using SCOR level 3 process).

 3- The third step was to analyze each partial process to determine the SCOR

level 3 processes directly responsible for inventory data required to measure

the Expiry Waste percentage metric. In the DC partial process example, sD1.8

and sS1.4 (red-colored processes in Fig. 6) were the processes responsible for

the inventory and its data.

4- The fourth step was to determine objects related to the data and the object
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information models from ISA-95. In our example, the finished product

inventory consisted of objects related to the data components being traced.

According to ISA-95, the information concerning these objects can be defined

using the material model and, hence, object information attributes can be

determined.

5- The fifth step was to determine the ERP module(s) responsible for obtaining

this information and performing related transactions. In the DC case, the

inventory management module could be the targeted destination.

6- The last step was to identify and develop the IoT system required to enable the

perception, collection, exchange, and communication of data, and hence

measure the performance metric in question. To do this, we applied the IoT

model.

i. Uniquely identify each element to be measured. In our example, this

was done easily by following ISA-95 and using the GS1 standard (e.g.,

the Tag Data Standard, or Global Trade Item Number). Therefore,

 each production unit (milk bottle) should have had its own

identification number.

ii. Choose the information perception system needed to collect the

required data. An RFID system was one of the best systems for our

example. It can be used to collect all object information (in our

example, expiry date or time to expire, and position of each product).

iii. Develop an efficient communication network among all SC entities

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and systems. Fig. 7 depicts a suggested network structure for our

example.

Fig. 7: Case study communication network.

• Online SC Performance Measurement

By enabling online data sensing and perception, SC performance was monitored and used to

manage and control the overall supply chain. To validate and show simple implications of this

research idea, simulation models were built and executed.

 5. Scenario Results and Analysis

The simulation model was built assuming random demand with maximum and minimum values

coming through each retailer. The products were assumed to store their identity in a tag

containing product expiry information. Two types of retailers were defined: active retailers, who

had high demand, and non-active retailers with lower demand. Potentially expired products

(three remaining days) could be moved from non-active retailers to active ones to sell at high-
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demand outlets.

Moving activities were controlled by a moving cost matrix. The cost of moving needed to be less

than the cost of waste, and the movements could not be executed if the receiver’s inventory was

higher than expected demand and no movement was allowed between active retailers. The two-

bin or (s, Q) inventory policy was used for all SC players with one-day lead time. Therefore,

orders were placed when the inventories reach their minimum levels, including safety stock, to

keep customer satisfaction level higher than 90%.

As shown in Table A2 in the Appendix, the model was used to generate daily demand for a year.

Fig. 8 shows the accumulated waste in the supply chain before and following the use of the IoT

function with the same demand. Table 4 shows the expiry waste percentage of each retailer

before and after the use of the IoT as an example of possible waste sources. According to the

results, the use of IoT reduced expiry waste percentage by approximately 45% in the first and 75%

in the other two non-active retailers. This was possible because the expiry date for each product

was monitored daily and was visible to all supply chain members. Moreover, as the members of

the supply chain members could see the products with their expiry dates every day, this could

have caused short-term scheduling for production and distribution activities to depend on actual
 daily real-time information, instead of depending merely on the forecasted values using historical

data.

12000

10000
Waste (products unit)

8000

6000

4000

2000
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0
0 50 100 150 200 250 300 350 400
Time (day)

Before IoT After IoT

Fig. 8: Accumulated waste due to expiry before and after the application of IoT.

Table. 4: Expiry waste percentage from each retailer before and after IoT.

6. Contribution and Future Work

PM is an essential element in effective planning, control, and decision making and is considered

a major challenge in dynamic ecosystems, such as SCs. SCPM requires enabling two integrated

levels of detection capabilities. The first at the organizational level to monitor and control

individual entities, and the other at the holistic level to simultaneously monitor, plan for, and

integrate all SC members. To develop SCPMSs, it is necessary to coordinate the SC in order to

achieve operational, spatial, and hierarchical integration. A PMS that satisfies these requirements

in real time was the ideal for research in previous decades. However, the development of
 process-oriented SCPM models (e.g., the SCOR model), the availability of international

standards to identify the automated interface between enterprise and control systems (i.e., ISA-

95), and IoT technologies can help realize this ideal.

This work introduced a new and more practical approach to develop SCPMS that can satisfy the

above requirements and handle many problems in prevalent PMSs. The approach introduced a

new method to select strategic SC attributes, identify balance scorecard, and analyze the chosen

performance metrics from the required data point view. This allows us to connect the
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performance metrics with strategy, hence integrating financial and non-financial measurement,

simplify the formation of PM segmentation strategies in order to shift focus from local to

comprehensive optimization—and inward-looking to both inward- and outward-looking—and

achieve a reasonable number of consistent, structured performance metrics. Moreover, using the

SCOR model to analyze SC operations and processes enables a more coordinated PMS through

the simultaneous consideration of the integration within and between SC members.

Moreover, using the ISA-95 standards to identify all SC processes and the data structures and

properties of operations resources allows for ubiquitous interconnectivity using IoT technologies,

and can therefore solve data integrity and manipulation problems. Using IoT also allows the

system to handle data-related problems in SCPMS, collect and process the data, and provide

concurrent feedback and reform any related system in real time.

However, even though this study can be considered a trial to explore the role of IoT technologies

in supporting the shift from traditional information systems and data collection to knowledge

creation, there remain many challenges that need to be addressed for such models. These can be

classified into three categories. The first is technical challenges, not least in terms of security,

reliability, network integration, interoperability of engineering systems, and discoverability. The

 second category is related to the convenience of IoT applications for users considering their

privacy needs and job security in light of potential job displacement due to increased automation.

The last challenge is related to business models, affordability, market partitioning, and

coordination problems among supply chain members (Vermesan and Friess, 2014; O’Halloran

and Kvochko, 2015).

Further research is needed to address the above challenges and test the proposed approach using

more realistic and complex SCs. Furthermore, this work revealed that IoT use in SCPM is a
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fruitful research topic, and there is a need for more creative ideas to develop applications in this

area. Industry practitioners, IT experts, and researchers might need to work together to build a

smarter real-time system that helps handle current and future challenges in SC management.

7. Conclusion

This work introduced an approach to develop an SCPMS. The approach departed from some

practical ideas to analyze SCs based on PM perception and determine a balanced scorecard that

links SC business objectives to its operational objectives. It uses the SCOR model as the tool to

ascertain metric data. In other words, data was assembled directly from an SC’s business

processes along with all its entities, hence achieving the desired integration. To directly

communicate at the operational level, this approach used ISA-95 to identify information and the

stakeholders, represented by an object that can be perceived using IoT technology. Therefore, it

enables automatic, real-time data collection.

ACKNOWLEDGMENT
 The authors would like to thank Mr. Young-Woo Kim for his help. This work was supported by

the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIP)

(No. 2015R1A2A2A03008086). And also by the Automation and Systems Research Institute

(ASRI) in Seoul National University in the form of resources and administrative support.

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Appendix
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Table A1: Performance attributes and level 1 metrics.

Table A2: Simulation model assumptions and generated demand sample.

 Table A1: Performance attributes and level 1 metrics.

Level 1 Metrics
Focus Attribute Definition (Key Performance
Indicators)

The ability to perform

Delivery tasks as required, RL1.1
Reliability focusing on Perfect Order Fulfillment
predictability of a
process outcome.
The speed at which RS1.1
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Responsiveness tasks are performed, Order Fulfillment Cycle

Customer- addressing the speed of Time
Focused doing repeat business.
AG1.1
Upside Flexibility
AG1.2
The ability to respond to Upside Adaptability
Agility
external influences. AG1.3
Downside Adaptability
AG1.4
Overall Value-at-Risk
The cost of operating a
process, typically
CO1.1
Costs including labor,
Total Cost to Serve
material, and
transportation costs.
Internal- AM1.1
Focused Cash-to-cash Cycle Time
Asset AM1.2
Management Return on Fixed Assets
Efficiency AM1.3
The ability to efficiently Return on Working
utilize assets. Capital
(Source: SCOR Revision 11.0, 2012; Stephens, 2001)
 Table A2: Simulation model assumptions and generated demand sample.

Demand
Day
R1 R2 R3 R4 R5
Demand Generating Variables 1 199 1156 188 1034 158
for each Retailor 2 169 1156 174 1305 153
[R1,R2,R3,R4R5]
3 175 1027 185 1446 174
min-demand / Retailor=
4 186 1234 152 1122 178
[150,1000,150,1000,150]
max-demand / Retailor = . . . . . .
[200,1500,200,1500,200] . . . . . .
364 179 1357 195 1427 164
365 197 1343 186 1237 189
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(1) Sum (unit) 63797 455793 63716 457560 63512

(2) Average (unit/day) 175 1249 175 1254 174
(3) Standard Deviation (unit) 14 145 14 144 14
(4)Product unit Cost ($) 4 4 4 4 4
(5) Inventory value $ = (1)*(4) 255188 1823172 254864 1830240 254048
(6) Inventory Holding Cost /year
63797 455793 63716 457560 63512
=25% *(5)
(7)Inventory Holding Cost
1 1 1 1 1
($/unit) =(6)/(1)
(8) Order Fixed Cost ($/order) 20 20 20 20 20
(9) Lead Time (day) 1 1 1 1 1
(10) Lead Time Demand (unit) =
524 1249 524 1254 522
(2)*(9)
(11) Service level 0.9 0.9 0.9 0.9 0.9
(12) Service factor =
1.28 1.28 1.28 1.28 1.28
NORMSINV(11)
(13) Lead time factor =SQRT(9) 1 1 1 1 1
(14) Safety stock = (3)*(12)*(13) 19 185 18 185 18
Reorder Point- r = (10)+(14) 543 1434 542 1439 540
Order Quantity-Q
1597 4270 1596 4278 1594
=SQRT(2*(1)*(8)/(7))
 Table 1: Topology for beverage supply chain.

Function Attributes Content

Number and type of products Few, standard (RM) and specific
procured (packaging materials)
Single (RM), Single (packaging
Procurement Sourcing type
materials)
Supplier lead time and reliability Short, reliable
Material life cycle Long
Production process organization Flow line
Repetition of operations Batch production
Production Changeover characteristics Not available
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Production bottlenecks Known, almost stationary

Work time flexibility Low, partial additional cost required
Distribution structure 2stages
Distribution Delivery pattern Dynamic
Deployment of transportation means Unlimited, routes
Availability of future demand Forecasted
Demand curve Stable
Product life cycle Several years
Number of product types Few
Sales
Degree of customization Standard
Convergent (blending), divergent
Bill of materials (BOM)
(packaging)
Portion of service operation Tangible goods
Structural Attributes
Structure Attributes Content
Network structure Mixture material flow
Degree of globalization S. Korea
Typography
Location of decoupling point(s) Deliver to order
Major constraints Flow line capacity
Legal position Intra-organizational
Integration
Balance of power Customers (retailers)
and
Direction of coordination Mixture information flow
Coordination
Type of information exchange Forecasts and orders

Table 2: Supply chain balanced scorecard.

 Level-1 Performance
Performance Attribute
Metrics
Delivery Reliability Perfect Order Fulfillment
Order Fulfillment Cycle
Responsiveness
External Time
Upside Supply Chain
Flexibility
Flexibility
Cost of Goods
Cost Supply Chain Management
Cost
Internal
Cash-to-cash Cycle Time
Assets Management Efficiency Return on Fixed Supply
Chain Assets
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Table 3: Expiry waste percentage calculation components.

Unit Component Formula Note

Expiry Wastes [Expiry waists from all SC

%
Percentage members] / Total Sales

Expiry waists from all
pcs
 +  +
R waste M: Manufacturer
SC members 
 D: Distributor
pcs Total sales
R Sales R: Retailor


Table. 4: Expiry Waists percentage from each retailor before and after IoT.

Before IoT After IoT

Retailor Retailor Sales
Expiry Expiry Expiry Expiry Improvement%
# Type (unit)
Wastes Wastes% Wastes Wastes%
Nun-
1 63797 3510 5.50% 1860 2.92% 47.01%
Active
2 Active 455793 0 0.00% 0 0.00% -
Nun-
3 63716 3638 5.71% 942 1.48% 74.11%
Active
4 Active 456095 0 0.00% 0 0.00% -
Nun-
5 63512 3819 6.01% 958 1.51% 74.91%
Active