Beruflich Dokumente
Kultur Dokumente
i
Proceedings of ICM 2007
The 6th International Conference on Management
August 3-5, 2007 Wuhan, China
(VOL.I)
Science Press
S Beijing, China
ii
ABSTRACT
This book is the proceedings of the 6th International Conference on Management (ICM2007).
ICM2007 is a conference organized by Department of Management Science, National Natural
Science Foundation of China (NSFC) with Huazhong University of Science and Technology, which
is held on August 3-5, 2007, in Wuhan, China.
About 300 papers are selected in the proceedings. These papers, submitted from 11 countries
and areas, cover three key issues in management science: basic theories and methods, business
administration, and macroeconomic management. The proceeding is a precious reference to those
people who wish to either understand the new trends and new requirements on management
sciences in the foreseeable future, or familiarize with the status and development of management
sciences.
Published by
Science Press
All right reserved. No part of the material by this copyright notice may be reproduced or utilized in
any form or by any means,electronic or mechanical,including photocopying, or by any information
storage and retrieval system,without written permission from the copyright owners.
iii
Preface
Guo Chongqing
Director General, Department of Management Sciences, NSFC
August 2007
iv
Proceedings of ICM 2007
The 6th International Conference on Management
Sponsor
Department of Management Sciences, National Natural Science Foundation of China
Organizer
Huazhong University of Science and Technology
Jointly Organizers
Southwest Jiaotong University
Chinese University of Hong Kong
v
Conference Chairman
Prof. Guo Chongqing (, Beijing, China)
vi
Program Committee
Chairman
Prof. Li Peigeng (, Wuhan, China)
Co-Chairman
Prof. Huang Haijun (, Beijing, China)
Prof. Wang Shouyang (, Beijing, China)
Prof. Zhang Wei (, Beijing, China)
vii
Organizing Committee
Chairman
Prof. Zhang Jinlong (, Wuhan, China)
Co-Chairman
Prof. Chen Xiaotian (, Beijing, China)
Prof. Jia Jianmin (, Chengdu, China)
Secretary General
Prof. Xia Xinping (, Wuhan, China)
Prof. Liao Jianqiao (, Wuhan, China)
Members(by alphabetic)
Prof. Cao Yong (, Wuhan, China) Prof. Long Lirong (, Wuhan, China)
Prof. Chen Pinglu (, Wuhan, China) Prof. Lu Yaobin (, Wuhan, China)
Prof. Cui Nanfang (, Wuhan, China) Prof. Ma Shihua (, Wuhan, China)
Prof. Feng Zhiyan (, Beijing, China) Prof. Meng Erling (, Wuhan, China)
Prof. Gong Pu (, Wuhan, China) Prof. Tian Zhilong (, Wuhan, China)
Prof. Huang Dengshi (,Chengdu,China) Prof. Wang Zongjun (, Wuhan, China)
Prof. Jing FengJie (, Wuhan, China) Prof. Yang Cao (, Wuhan, China)
Prof. Li Hao (, Wuhan, China) Prof. Yang Liexun (, Beijing, China)
Prof. Li Jun (, Chengdu, China) Prof. Zhu Xuezhong (, Wuhan, China)
Prof. Liu Zuoyi (, Beijing, China)
ii
CONTENTS
VOL.I
SECTION ONE
Management Science
An Agent-Based Knowledge Transfer Model for Implementing and Operating ERP Systems
Dong Jichang, Tan Dapeng, Huo Guoqing 3
An Adaptive Particle Swarm Algorithm for Global Optimization
Guo Chonghui, Li Hong 8
A Study on Dynamic Modeling for Chinese Residents Consumption and Investment Decision with Housing
Liu Zhixin, Huang Lingling 13
New Formulations for Second-Best Congestion Pricing Problems on a General Transportation Network
with Elastic Demands: An Excess-Demand Approach
Liu Nan, Chen Daqiang 19
Fuzzy MPMP Production Planning Problem with Minimum Risk Criteria
Yuan Guoqiang, Liu Yankui 29
Optimizing Designs to Improve the Blockage Behavior of Emergency Networks
Wu Weiwei, Angelika Ning, Ning Xuanxi 37
An Approach to Solve Large Scale Multiple Traveling Salesman Problem with Balanced Assignment
Wang Dazhi, Wang Dingwei 43
Optimization Methods and Models Supplier Selection for N-Product under Uncertainty: A
Simulation-Based Optimization Method
Wu Chunxu, Dong Feifei, Fu Jianbing 46
A Feasible Case Study of Applying Critical Chain Multi-Project Management in Semiconductor Turnkey
Services
His-Hsien Yu, Sheng-Kuan Chiu 51
A Fuzzy Multi-Objective Programming for Optimization of Reverse Logistics for Solid Waste
He Bo, Yang Chao, Zhang Hua 59
The FIP Problem with Uncertain Demand in Several Scenarios
Yang Jun, Liu Shuji, Xiong Jing 65
Information Sharing Strategy and Data Processing Model for SMLE Alliance
Qi Ershi, Gao Yinan, Huo Yanfang 71
Solving Capacitated Facility Location Problem Using Tabu Search
Minghe Sun, Eliane Aparecida Ducati, Vincius Amaral Armentano 76
Research on the Hybrid Ant Colony Labor Division Algorithm with Optimization and Its Application
Xiao Renbin, Zhang Qiang and Zhang Xinhui 82
Semicontinuty of the Solution Mapping of -Vector Equilibrium Problem
Kenji Kimura, Yeong-Cheng Liou, Jen-Chih Yao 90
iii
Optimization of Distribution Network Design Based on Retailer Satisfaction
Zhang Min 101
Optimizing Linear Optimization Problems under Fuzzy Relational Equations with Max-Star Composition
Yan-KuenWu 107
SECTION TWO
Operational Management
Virtual Cellular Manufacturing Systems: Emerging Research Issues in Global Manufacturing & Supply
Chain Contexts
Nallan C. Suresh 117
A Study on the Performance Characteristics of Closed-loop Asynchronous Automatic Assembly Systems
W.K. Leung, W.C. Ng, Y. Ge 122
Container Slot Allocation Model with Liner Shipping Revenue Management
Bu Xiangzhi, Chen Rongqiu, Li Li 130
Production Order Evaluation Based on Neutral Network Model
Qiu Jie, Chen Zhixiang 138
Distribution the TOC Way: Review and a Case Study
Cui Nanfang, Leng Kaijun 145
The Research on Distribution of Large Scale Chains Enterprise with Time Window
Da Qingli, Zhang Heng 152
Multi-Objective Layout Optimization in Dynamic Environments: A Heuristic Approach
Dong Ming, Liu Fei, Hou Forest, Zhang Franky, Chen Feng 159
A Centralized Inventory Policy for Open-Loop Reverse Supply Chain
Gou Qinglong, Liang Liang, Xu Xiping, Xu Chuanyong 165
Research on Development of Modern Logistic Industry in Area along New Eurasian Land Bridge (Chinas
Section) Based on Spatial Economic Relationship
Ji Shouwen, Chen Jiajuan, Xie Fang 175
A Simulation Based Research on Loading -Unloading Strategy in Railway Container Terminal
Li Dong, Wang Dingwei 180
A Fuzzy Evaluation Method of Integrated Logistics Service Networks
Zhao Zhiyan, Li Bo 186
Formulation and Complexity Analysis for 3PL Transportation Problems
Li Kunpeng 191
Study of the Partial Task Management under Constrained Resources
Li Mingyu, Bi Yiming, Li Bin 195
A Study on Guaranteed Delivery Time Based Inventory Model of Component Commonality in
Assemble-to-Order Systems
Lin Yong, Chen Kai 200
Outsourcing Decision-Making of Equipment Maintenance in Process Industries
Liu Liping, Ji Jianhua, Fan Tijun, Hu Jiling 212
A Location-Allocation Problem Applying in Scrap Steel Recycling Network Design
liu Yang, Tang Jiafu 215
A Dynamic Inventory/Allocation Problem Based on Internet Auctions
Liu Shuren, Hu Qiying 221
iv
Reliability of Transportation Network Service Capacity Based on Effective Agile Theory
Song Rui, He Shiwei 226
Information Increment and Information Value in Supply Chains
Wang Jing, Wang Xun, Li Yuxiang 232
Information Sharing in a Supply Chain with Learning Effect
Wu Jianghua , Xin Zhai 239
A Study of the Production Planning and Control System for Remanufacturing
Xie Jiaping, Ren Yi , Zhao Zhong 245
A Production I1nventory Model for Intangible Deteriorated Items with Demand-Dependent Deteriorating
Rate
Xu Xianhao, Tang Ziyi 254
The Impact of Positive Externality on Returns Policy
Xu Chuanyong, Liang Liang, Gou Qinglong, Zha Yong, Zhou Chuiri 260
Study on a Model of Lean Supplier Management Based on the Lean Production
Xu Zhiduan, Guo Yixun 269
Study on Lead Time Inventory Models Based on Customer Waiting Time
Yan Lei, Chen Rongqiu, Li Li 276
The Method Based on the PSO Algorithm for the Order Planning of the Steel Plant
Zhang Tao, Cheng Haigang, Chu Xiaoxuan, Xie Meiping 281
Positioning Model of Purchasing Based on Kraljics Purchasing Portfolio Matrix and Factor Analysis
Zhao Zhenfeng, Guo Danxia, Ding Liuming 289
Research on Coordinated Replenishments by Alternative Supply Sources in a Logistics System
Zheng Aihua, Zhao Qiuhong 296
Solving the Joint Replenishment Problem with Warehouse-Space Restrictions Using a Genetic Algorithm
Ming-Jong Yao 302
An GA-based Alternative Approach on the Capacitated Warehouse Allocation of Customers with Uncertain
Demands
ZhouGengui, Ye Feng, Cao Jian, Cao Zhengyu 308
Evolution of Manufacturing Systems: from Product Competitive Advantage towards Collaborative Value
Creation
Yongjiang Shi 316
SECTION THREE
Decision Theory and Application
SECTION FOUR
Information Management and E-Commerce
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SECTION ONE
MANAGEMENT SCIENCE
1
2
An Agent-Based Knowledge Transfer Model for
Implementing and Operating ERP Systems
Abstract To implement and operate an Enterprise Resource Planning (ERP) system, knowledge transfer is an important method to
constitute effective Knowledge Management (KM) systems and develop effective transfer strategies to enhance competitive
advantage. In this paper, an agent-based knowledge transfer framework is presented for ERP life cycle, and discussions about the
relationship between the knowledge transfer in ERP life cycle and ERP effects are provided. We investigate the use of knowledge
transfer to select, implement and use ERP systems and propose some knowledge agents.
Key words ERP, Knowledge transfer, Agent, ERP effects
1. Introduction
In the last few years, thousands of companies around the world have implemented enterprise resource
planning (ERP) systems. The commercially available ERP software packages promise seamless integration of all
information flows in the company, such as financial and accounting information, human resource information,
supply chain information, and customer information. ERP system provides two major benefits that do not exist in
non-integrated departmental systems: (1) a unified enterprise view of the business that encompasses all functions
and departments, and (2) an enterprise database where all business transactions are entered, recorded, processed,
monitored and reported. The unified view increases the requirement for, and the extent of, interdepartmental
cooperation and coordination. ERP system enables companies to achieve their objectives of increased
communication and responsiveness to all stake holders (Dillon, 1999)[3].
ERP implementations are accompanied by large data warehouses that are designed to facilitate data access
and improve the reporting capabilities. Because of the size and cost of the data warehouse, some knowledge
managements may be able to exploit the underlying information and database structure. In other hand, it has been
estimated that virtually all of the Fortune 500 firms have either implemented an ERP system or are implementing
an ERP system. Also, some small to medium enterprises have adopted ERP systems too. So the knowledge
transfer needs can vary substantially across different clients for the ERP firms.
More often, implementation of ERP systems needs consulting firms. During the late 1990s, it was estimated
that roughly one-third to one-half of the consulting done by the major consulting firms has to do with selecting,
implementing, or using ERP systems (Public accounting report, 1998)[10]. Further, additional consulting often is
done after the ERP system has been installed, e.g., improving configuration and security. As a result, there is a
large potential for knowledge transfer through the life cycle, both for consultants and the companies implementing
the software. Also, when the ERP software is developed, there is also knowledge transfer between the consultants
and the programmers who may be from the ERP companies or specific software companies (Daniel, 2002)[2].
Furthermore, all too often the knowledge assets created during ERP projects are lost, ignored, or not
leveraged to their fullest potential in the implementation (Linda, 2001)[5]. These valuable assets include the
relationships and rules embedded in the software, the project design criteria and decision history, testing and
training scenarios and scripts, and user experiences. The most successful implementations avoid losing the
knowledge created in the selection, implementation and early deployment stages through careful, early planning
of KM systems. Organizations can improve their institutional learning curve by establishing the processes and
systems needed to capture, manage, access, and replenish knowledge across the entire ERP life cycle.
From the analysis above, we can find that knowledge transfer is emerging as important tool to support ERP
3
systems. The purpose of this paper is to discuss the knowledge transfer across the entire life cycle of ERP system
to select, implement and use ERP system.
In this paper, we discuss the relationship between the knowledge transfer in an ERP life cycle and ERP
effects in Section 2. Then a multi-agent based framework for knowledge transfer in the ERP system is proposed in
Section 3. Section 4 provides the knowledge agents in the entire ERP life cycle for enterprises to select, to
implement and use ERP system. Finally, we summarize the paper briefly in Section 5.
4
from the expertise transferred to a software programmer and embedded in the software at last. An enterprise
implementing ERP is a process that internal and external knowledge are transferred into the software and become
the power of the enterprise. Just these knowledge transferences decide the effect of the implementation of the
ERP system. Fig. 1 illustrates the knowledge transfer process in ERP life cycle.
To gain the useful knowledge, a knowledge transfer framework (Nonaka, 1991)[8], which identifies which
information we should retain, who will eventually use that information, and how we will capture that information
at each stage of the ERP life cycle, should be provided. In addition, the knowledge transfer framework provides a
model of the knowledge environment over the life cycle of a system and illustrates the relationships and
dependencies of people, business processes and events, and knowledge domains. With this framework, we can
anticipate and plan for the knowledge requirements of subsequent phases of the ERP project. We can also develop
mechanisms for transferring or transforming the knowledge base from one phase to another. Selecting,
implementing and using REP systems can result in a number of issues that can benefit from the knowledge
transfer.
We provide an agent-based framework for knowledge transfer in ERP system life cycle (Shown in Fig. 2).
Different knowledge contents in each stage of life cycle of ERP system can be dealt by the knowledge agents:
Selecting Agent, Implementing Agent and Using Agent in the framework.
Using of this framework, we can see that both explicit knowledge and tacit knowledge can be transferred among
the actors in the process of implementation of ERP system. The following section will provide a detailed introduction to
the knowledge agents in the framework.
Industrial ERP
ERP ERP
Expertise Software Company Implementation
Software
Consultant Programmer Enterprise
ERP
Implementation
Consultant
5
4. Knowledge Agents
4.1 Selecting Agent
Knowledge transfer can facilitate the choice of ERP system. In order to facilitate access to information and
eliminate information asymmetries, a Selecting Agent designed to capture and make available information
regarding the ERP systems in a timely manner, would have been a helpful device. Information about each of the
ERP systems under consideration could have been embedded in this agent. According to the current
literatures including selection process the following knowledge contents can be transferred into this agent from
the external entities or internal entities of the enterprise (Langenwalter, 2000; Minahan, 1998; Oden, 1993)[4][7][9].
(1) Vision. Clearly define the corporate mission, objectives and strategy.
(2) Feature. A proposal that contains the feature and function list should be created. Typically, this proposal
describes how the company wants each department or function to operate and consists of instructions to the
supplier, the terms and conditions, supplier response forms, and so on.
(3) Software Candidate. Select only ERP providers that are right for the business of an enterprise. Price,
supplier support, ease of implementation, closeness of fit to the companys business, flexibility when the
companys business changes, technological risk and value (total implemented cost versus total value to the
company) are the important criteria to select an ERP system.
Using this knowledge agent, make a final decision on the implementation. In extreme cases, if necessary,
reverse the decision to implement ERP, change vendors, or renegotiate the contract. During this stage, the
knowledge actors include a team composed of respected individuals who are familiar with the various software
packages, company processes and the industry, business unit managers, the manager of the enterprise, consultants,
and so on.
4.2 Implementing Agent
During the implementation stage, Combining business and industry-related knowledge with the knowledge
structures (processes, data architectures, and so forth) of the ERP system is an important goal at this stage. The
project managers of ERP implementation will require current, accurate information and support tools in order to
accomplish tasks. The human experts and system knowledge, the project management and change request
documentation and audit trails, and other information are the main knowledge in this stage. In order to accomplish
these goals, the Implementing Agent is needed. The following knowledge contents can be transferred into this
agent:
(1) ERP Model. Capture the organizations business processes and rules in the context of the ERP software
and provide models for the final systems configuration.
(2) Toolkit. Provide project management, document management, collaboration and message, expertise and
team-skills management, and a lessons-learned process repository.
(3) IT. IT knowledge components-software code, models, rules, and so on.
Moreover, the Implementing Agent should provide an integrated access to external data sources and
integrates the information received in the context of the ERP implementation project instance: context, priority,
and others; a real time communications and collaboration environment that includes shared documents, media,
and discussion spaces with appropriate security and access controls; a single point of access to a wide range of
relevant knowledge bases (external and internal), without regard to data format or sources that include documents,
databases, management reports, and performance metrics.
4.3 Using Agent
When enterprise is living with the ERP system, a Using Agent is needed to ensure the transfer of knowledge
to new team members and system users, to use the system, and to continue to identify and communicate key
issues to all the communities. Developing and delivering training and maintaining training documentations are
also important in order to support the ERP-system knowledge transfer to the business community in the
implementing stage. In this stage, we will also need to provide complete and accurate documentation for testing,
6
diagnostics, audit trails, and the resolution of potential problems, issues, and errors. Moreover, the organization
should anticipate the future requirements of the IT organization as well as those of the business community. To
properly evaluate the impact of future upgrades, functions and modules, or the integration of new applications
(such as data warehouses, analytic support systems, supply chain management systems, sales force automation,
human resource systems, call centers, and customer value management systems), this knowledge must be
preserved in a usable and accessible form. Further, In order to create a dynamic and positive long-term learning
environment, knowledge needs to be usable and accessible across the value chain for both ERP and non-ERP
communities. In addition, improving and sustaining the efficiency of the ERP system by decreasing support and
maintenance costs and providing integration with non-ERP sources should be an ongoing goal.
All the above can be proved by the Using Agent. The following major functional knowledge should be
included in this agent:
(1) Training and Learning documents.
(2) Analytic Reporting.
5. Conclusions
This paper has focused on knowledge transfer for selecting, implementing, and using ERP systems. In
particular, an agent-based framework is presented for knowledge transfer in ERP life cycle. Also, discussion about
the relationship between the knowledge management in an ERP implementation and ERP success is provided.
Although this paper has addressed some important issues, it is just the beginning. There are a number of other
issues integrating ERP systems and knowledge transfer. Organizational learning is becoming increasingly coupled
with knowledge management. As a result, it is important to analyze how ERP systems can facilitate organizational
learning and how organizational learning can be built into ERP systems. Further, research could focus on devices
designed to facilitate knowledge management within or between organizations. For example, a number of virtual
communities have been developed to solicit and generate knowledge about specific ERP packages, such as SAP
or Oracle.
References
[1] Bancroft N H, Seip H, Sprengle A. Implementing SAP R/3. Greenwich: Manning Publications, 2nd Edition, 1998
[2] Daniel E O. Knowledge management across the enterprise resource planning systems life cycle International. Journal of
Accounting Information Systems, 2002, 3: 99-110
[3] Dillon C. Stretching toward enterprise flexibility with ERP. APICS-The Performance Advantage, October, 1999, 38-43
[4] Langenwalter G. Enterprise Resources Planning and Beyond: Integrating Your Entire Organization. Boca Raton: St. Lucie
Press, 2000
[5] Linda E C. Business impact: a lack of ERP knowledge and commitment undermines the efficacy and progress of an ERP
implementation and threatens the realization of intended business benefits. Intelligent Enterprise Magazine, A Stitch in Time 7,
2001
[6] McCaskey D, Okrent M. Catching the ERP second wave. APICSThe Performance Advantage, 1999, 34-38
[7] Minahan T. Enterprise resource planning. Purchasing, 1998, 16: 112-117
[8] Nonaka I. The knowledge-creating company. Harvard Business Review, 1991, 69: 96-104
[9] Oden H, Langenwalter G, Lucier R. Handbook of Material and Capacity Requirements Planning. New York : McGraw-Hill,
1993
[10] Public accounting report. Big Six Dominate Systems Integration Market. New York: Aspen Publishers, 1998
[11] Scott J E, Kaindl L. Enhancing functionality in an enterprise software package. Information and Management, 2000, 37:
111-122
[12] Swan J, Newell S, Robertson M. The illusion of best practice in information system for operations management. European
Journal of Information System, 1994, 8: 284-293
7
An Adaptive Particle Swarm Algorithm for Global Optimization*
Abstract Particle swarm optimization is a relatively new category of meta-heuristic global optimization algorithms. It has been
widely concerned by people because of its feasibility and effectiveness. In this paper, an adaptive particle swarm optimization
algorithm, which introduces two adaptive acceleration factors in terms of the convergence speed and global search capability of the
PSO algorithm, is proposed. A novel weighted function has been introduced and some particles are to be updated in a new way when
the proposed algorithm traps in local optimum. The proposed algorithm is shown to enhance the convergence speed and global search
capability on different benchmark optimization functions.
Key words Particle swarm algorithm, Meta-heuristic, Global optimization
1. Introduction
The particle swarm optimization algorithm (PSO), originally introduced in terms of social and cognitive
behavior by Kennedy and Eberhart in 1995 [1, 2], has proven to be a powerful competitor to other meta-heuristic
algorithms for global optimization problems. The PSO models the optimal exploration of a problem space by a
population of agents or particles; the success histories of the agents influence both their own search patterns and
those of their peers. The search is focused toward promising regions by biasing each particles velocity vector
toward both the particles own remembered best position and the communicated best ever swarm location. The
relative weights of these two positions are scaled by two factors, aptly called the cognitive and social scaling
parameters [3]. Incidentally, these two components are the main governing parameters of swarm behavior (and
algorithm efficiency), and have previously been the topic of extensive studies [4, 5].
A newcomer among optimization algorithms, the derivative-free PSO has recently received a lot of attention,
with some conferences devoted solely to this topic. The reasons for the interest in the PSO are numerous, but
include the following: The algorithm can easily be parallelized on massive parallel processing machines, since the
individual searches of the simulated particles are independent of each other, and communication between particles
is only required once all particles have evolved to the same pseudo time state. Furthermore, the PSO is simpler,
both in formulation and computer implementation, than the genetic algorithm (GA). In addition, the PSO seems to
outperform the GA for a number of difficult programming classes, notably the bound constrained global
optimization problem [6].
Notwithstanding its recent popularity, the PSO has a number of drawbacks, one of which is the presence of
problem dependent parameters. A further drawback of the original algorithm proposed by Kennedy and Eberhart
[1, 2] lies therein that the algorithm is known to quickly converge to the approximate region of the global
minimum. However, the algorithm does not maintain this efficiency when entering the stage where a refined local
search is required to pinpoint the minimum exactly. This has led to a number of variations on the original PSO
being proposed to overcome this shortcoming. Some of the most notable of these formulations are the introduction
of an inertia term by Shi and Eberhart [3], and more recently, the so-called constriction factor by Clerc [7] in his
swarm and queen approach, which is named CPSO in this paper. Constriction seems superior to the introduction
of inertia [8]. In the latter approach, the inertia term is either kept constant or decreased linearly as the search
progresses, with the linear decrease in inertia more efficient than a constant inertia term.
In this paper, an adaptive particle swarm optimization (APSO) algorithm, which introduces two adaptive
acceleration factors and a new weight function in terms of the convergence speed and global search capability of
the PSO algorithm, is proposed. This paper is organized as follows. In section 2, we present the global
optimization problem and introduce the standard PSO algorithm. In section 3, firstly we introduce the CPSO
algorithm, and then a new adaptive particle swarm optimization (APSO) algorithm is presented. Experimental
*This work was supported by Natural Science Foundation of China under grant No. 10571018.
8
results are reported in Section 4. Finally, some concluding remarks are given in section 5.
If the objective function and/or the feasible domain D are non-convex, then there may be many local minima
which are not globally optimal. The problem of determining an accurate estimate of the global optimum is
mathematically ill-posed in the sense that very similar objective functions may have global optima very distant
from each other. Nevertheless, the need in practice to find a relative low local minimum has resulted in
considerable research over the last decades to develop algorithms that attempt to find such a low minimum. Many
global optimization techniques have emerged as attractive, alternative tools. Particle swarm optimization is one of
such stochastic global optimization tools, which has been proven to provide successful solutions for such difficult
optimization problems.
The PSO algorithm simulates social behavior among particles or individuals flying through a
multidimensional search space. Each particle represents a single potential solution. The particles evaluate their
positions relative to the fitness at each iteration, and companion particles share memories of their best positions,
and then use these memories to adjust their own velocities and positions.
Let i indicates a particle index in the swarm which includes m particles. Each particle flies through an
n-dimensional search space. X i = ( xi1 , xi 2 , , xin ) and Vi = (vi1 , vi 2 , , vin ) represent the current position and
velocity of particle i respectively. They are dynamically adjusted according to their own previous best position
Pi = ( pi1 , pi 2 , , pin ) and the best position of the entire swarm Pg = ( pg1 , pg 2 , , pgn ) . The particles interact
and move according to the following equations:
vij (t + 1) = w(t )vij (t ) + c1r1 j ( pij (t ) xij (t )) + c2 r2 j ( pgj (t ) xij (t )) (2)
Generally, in the standard PSO algorithm, the cognitive learning rate and the social learning rate are often
both set to the same constant to give each component equal weight. However, each particles search ability varies
as the swarm evolves, and further more, even at the same generation different particles among the swarm have
9
different search abilities. The fixed constant setting on c1 and c2 constrains the adjustment of velocity and
direction of particles greatly. In this paper, two adaptive acceleration factors are introduced to the cognitive and
social components respectively,
f ( Pi (t )) f ( X i (t ))
Ai1 = ln( + e 1) (6)
PF
f ( Pg (t )) f ( X i (t ))
Ai 2 = ln( + e 1) (7)
GF
1 m
1 m
where PF =
m
( f ( P (t )) f ( X (t )))
i i
, GF =
m
( f ( P (t ) f ( X (t )))
g i
, f (x) is the object fitness
i =1 i =1
function, and e is the base of the natural logarithm, i.e. ln e = 1 . PF and GF are considered to be the criterion
whether the particle need to be accelerated or not. If f ( Pi (t )) f ( X i (t )) > PF and f (Pg (t)) f ( Xi (t)) > GF , then
Ai1 > 1 , Ai 2 > 1 , accelerate the particle; If f (Pi (t)) f ( Xi (t)) < PF and f ( Pg (t )) f ( X i (t )) < GF , then Ai1 <1,
Ai 2 <1, decelerate the particle. As shown in the previous section, the portion between cognitive component and
social component can influence the performance of the algorithm. In this paper, the cognitive learning rate and
social learning rate are defined as follows:
w1 = c12 /(c1 + c2 ) (8)
w2 = c22 /(c1 + c2 ) (9)
where c1 and c2 are the same as in the standard PSO.
The weight function w(t) plays the role of balancing the global and local searches. In general, PSO algorithm
uses a linearly-decreasing weight function which lacks sustained search ability and tends to trap in a local optimal
solution. So in this paper, we define the weight function as follows:
w(t ) ~ U ( w0 ,2w0 ) (10)
where w0 is a constant parameter, the suggested range for w0 is [0.3, 0.6]. U represents a uniform probability
distribution.
In order to improve the particles global search ability and avoid getting into local optimal solution, if the
algorithm doesnt catch a better solution for 10 continue generations this paper updates part particles as follows:
Randomly select 30% particles in current population and randomly change their positions within a range of 40%
of the current positions, in other words, to set the particles current position xij equals to a random value within
[0.8 xij ,1.2 xij ] for each dimension.
Finally, considering all the mentioned above, the evolving equations of particles can be described as follows:
vij (t + 1) = w(t )vij (t ) + w1r1 j Ai1 ( pij (t ) xij (t )) + w2 r2 j Ai 2 ( pgj (t ) xij (t )) (11)
where w(t) is as shown in (10), w1 and w2 are as shown in (8), (9), Ai1 and Ai 2 are as shown in (6), (7)
respectively.
In the light of above considerations, APSO algorithm can be demonstrated by following:
Step1: Initialize the initial population or swarm with m particles. For each particle, it has a random position
and velocity in the initial range.
Step2: Evaluate the desired optimization fitness function for each particle.
Step3: Compare the evaluated fitness value of each particle with its Pi, which is the best position of its
personal history. If current value is better than Pi, then set the current value as Pi.
Step4: Compare the evaluated fitness value of each particle with its Pg, which is the best position of all the
particles history in the swarm at some generation. If current value is better than Pg, then set the current value as
10
Pg .
Step5: Update the velocity and position of each particle according to the equations (11) and (12).
Step6: Update part particles if the algorithm doesnt catch better solution for 10 continue generations.
Step7: Loop to step2 until a stop criterion is met, usually a sufficiently good fitness value or a predefined
maximum number of generations.
n
f ( x) = ( xi2 10 cos(2 xi ) + 10)
Rastrigrin i =1
30 [-5.2,5.2] 100
1 n 2 n
x
Griwank
f ( x) = xi
4000 i=1 i =1
cos( i ) + 1
i 30 [-600,600] 0.1
For each test problem, 50 independent experiments were conducted. The swarm size was set to 30 in all cases.
The swarm was allowed to perform a maximum number of 5000 iterations. For the standard PSO algorithm, a
linearly decreasing weight function is used which starts at 0.9 and ends at 0.4 with c1c22.0 as recommended
by Shi and Eberhart [3]. For the CPSO and APSO algorithm, we set c12.8, c21.3 under the suggestion of
Clerc [7]. For the APSO, we set w00.4.The final results reported in Tab. 2 take from the mean value of 50 runs
for each algorithm.
Tab. 2 A comparative study of APSO, PSO and CPSO
Algorithm Index Sphere Rosenbrock Rastrigrin Griwank Schaffer
Success ratio 100% 98% 90% 100% 100%
PSO
Number of iterations 3094.94 3334.76 2470.52 3018.48 1382.86
Time consuming(s) 1.117 2.646 1.128 1.485 0.124
Success ratio 96% 82% 98% 98% 90%
CPSO
Number of iterations 301.06 311.17 175.79 258.12 481.48
Time consuming(s) 0.253 0.818 0.079 0.118 0.021
Success ratio 100% 100% 98% 100% 100%
APSO
Number of iterations 171.66 209.42 73.87 112.72 114.64
Time consuming(s) 0.126 0.185 0.051 0.062 0.009
From Tab. 2, we can see it clearly that APSO algorithm performances much better than standard PSO and the
CPSO algorithms. For example, the mean number of iterations of PSO and CPSO for Rastrigrin function is 2471
and 176, respectively, and the mean number of iterations of APSO for Rastrigrin function is only 74. Among the
11
three algorithms, the convergence speed of APSO is quickest. It indicates that APSO has great performance of
convergence property over the standard PSO and CPSO algorithms. For all the functions tested, the running time
of APSO is shortest and the mean results obtained are best. That is to say, APSO yield better results than PSO and
CPSO.
5. Conclusion
Particle swarm optimization algorithm is a meta-heuristic global optimization algorithm which appeared
recently. It has been widely concerned by researcher because of its feasibility and effectiveness. How to improve
the performance of PSO is an important problem. In this paper, an adaptive particle swarm optimization algorithm,
which introduces two adaptive acceleration factors in terms of the convergence speed and global search capability
of the PSO algorithm, is proposed. A novel weight function has been introduced and some particles are to be
updated in a new way when the proposed algorithm traps in local optimum. Experiments results show that APSO
can overcome the premature convergence and has a marked improvement in performance over the traditional PSO
and CPSO.
References
[1] Kennedy J, Eberhart R C. Particle swarm optimization, In: Proceedings of the 1995 IEEE International Conference on the
Neural Networks, Piscataway, NJ: IEEE Service Center, 1995. 1942-1948
[2] Eberhart R C, Kennedy J. A new optimizer using particle swarm theory. In: Proceedings of the 1995 6th International
Symposium on Micro Machine and Human Science, Piscataway, NJ: IEEE Service Center, 1995. 39-43
[3] Shi Y, Eberhart R C. A modified particle swarm optimization. In: Proceedings of the IEEE International Conference on
Evolutionary Computation, Piscataway, NJ: IEEE Press, 1998, 69-73
[4] J Kennedy. The Particle Swarm: Social adaptation of knowledge. In: Proceedings of the IEEE International Conference on
Evolutionary Computation, Piscataway, NJ: IEEE Service Center, 1997, 303-308
[5] Shi Y, Eberhat R C. Empirical study of particle swarm optimization. In: Angeline P
J, Michalewicz Z, Schoenauer M, Yao X, Zalzala A, eds. Proceedings of the Congress of Evolutionary Computation Vol.3,
IEEE Press, 1999, 1945-1950
[6] Schutte J F, Groenwold A A. A study of global optimization using particle swarms. Journal of Global Optimization, 2005, 31:
93-108
[7] Clerc M. The swarm and the queen: Towards a deterministic and adaptive particle swarm optimization. In: Angeline P
J, Michalewicz Z, Schoenauer M, Yao X, Zalzala A, eds. Proceedings of the Congress of Evolutionary Computation Vol.3,
IEEE Press, 1999, 1951-1957
[8] R C Eberhart, Y Shi. Comparing inertia weights and constriction factors in particle swarm optimization. In: Proceedings of the
2000 Congress on Evolutionary Computation, Piscataway, NJ: IEEE Service Center, 2000. 84-88
[9] Clerc M, Kennedy J. The particle swarmexplosion, stability, and convergence in a multidimensional complex space, IEEE
Transactions on Evolutionary Computation, 2002, 6 (1): 5873.
[10] Trelea I C. The particle swarm optimization algorithm: Convergence analysis and parameter selection. Information Processing
Letters, 2003, 85: 317325.
12
A Study on Dynamic Modeling for Chinese Residents Consumption
and Investment Decision with Housing
Abstract We solve a realistically calibrated life-cycle model of consumption and portfolio decision for Chinese families with
housing and stochastic labor income, and try to find the important factors for residents consumption and investment decision. Our
analysis demonstrates that labor income risk and house price risk crowd out the level of stockholdings because of the increase of
protective saving, while down payment ratio reduces stockholdings of resident due to the illiquid home equity restrictions. Our
analysis also indicates that, with the increase of house price risk and down payment ratio, non-housing consumption of households is
reduced in the early life-cycle, and increased in the latter life-cycle.
Key Words Life-cycle, Consumption and investment, Decision, Housing
1. Introduction
The issue of consumption and investment decision over life cycle is encountered by every household. It needs
to decide the size of housing to buy, how much to consume goods other than housing, how much to borrow using
the house as collateral, and portfolio composition among risky stocks, relatively safe assets and saving. To answer
these questions, we can construct a dynamic realistic model of the optimal portfolio and consumption decision of
a typical family based on the Life-Cycle Hypothesis, which provided by F.Modiglianli in 1963[1]. It states that
individual can smooth his consumption during all his life, and choose an optimal consumption and investment
path in order to maximize his life cycle utility.
For most Chinese residents, housing is the single most important consumption good which derives utility
from it, and, at the same time, the dominant asset in the portfolio. For instant, the survey of household asset by
National Bureau of Statistics of China revealed that house value-to-total asset ration among city residents had
reached 47.9 percent in 2002. Although housing is difficult to model because of its simultaneous role as a
consumption and investment good, illiquidity, and high transaction cost, it plays a crucial role in explaining the
consumption and the portfolio of households all over their lives. Therefore, its quite meaningful to make clear
household consumption and investment decision of Chinese families with housing restrictions and related factors.
In this paper we develop a calibrated life-cycle model with stochastic labor income, costly stock market
participation and risky owner-occupied housing, and try to answer the following questions: Firstly, how about the
character of Chinese residents consumption and investment behavior over life cycle in presence of housing?
Secondly, do labor income risk and house price risk lead families to reduce their other consumption goods and
financial assets? Thirdly, how does the increase of down payment ratio affect the consumption and the
composition of Chinese households portfolio?
Several recent studies attempt to reveal the effect of housing on households life-cycle stock investment. For
instant, Cocco(2005)[2] introduces housing to a standard life-cycle consumption and portfolio decision model,
Hu(2005)[3] studies portfolio choices for homeowners in the presence of a house rental market in a stylized five-period
model. Chen & Fu(2006) [4] construct a life-cycle model to explain the relationship between monetary policy and
the consumption and investment behavior of Chinese families. Three key features distinguish our model from the
others: First, we introduce housing and related factors into a realistic framework. Second, we describe the
character of Chinese families with the special housing risk, mortgage factor and stochastic wage. Third, we try to
forecast the effect of the policy about housing in China, and provide useful suggestions to the policy makers.
2. The Model
We model the consumption and investment choices of a resident who lives from time 1 until time T
Supported by program for new century excellent talents in university ( NCET-050184) and Natural Science Foundation of China (70521001)
13
according to the character of Chinese economy. Fig. 1 is the structure of our model.
To simplify the problem, we put forward the following hypotheses according to the realistic situation:
Hypothesis 1: There are two financial assets: A riskless asset ( B t ) with gross real return r f , and a risky asset( St )
with gross real return rs , t . A investor changes his riskless asset without incurring any cost, and spends a transaction
rate on risky stock.
Hypothesis 2:. The resident owns the house he lives in. If he want to buy a new house at time t, he need sell
his old house at the same period with a transaction cost equals to a fraction ( ) of the house value.
Hypothesis 3: Short sale of financial assets is prohibited.
2.1 Preference Function
The household derives utility from housing services ( H t ) and a numeraire good ( Ct ), and after date T from
bequeathing terminal wealth WT +1 . The residents preference is characterized by the recursive Epstein-Zin utility
function, and described by:
T
U 1 = E1 [ t 1U ( C t , H t )] + T B ( Q t ) , (1)
t =1
14
St > 0 , Bt > 0 for all t (6)
equations (3) to (10), plus the constraints that consumption and house must be non-negative at all dates.
15
3.2 Numerical Solution Method
Analytical solutions to this problem do not exist; we thus derive numerical solutions through value function
iterations. With the recursive nature of the problem, we can rewrite the consumption and investment problem with
Bellman equation as follows:
( C t H t1 )1
Vt ( X t ) = max { + E t [Vt + 1 ( X t + 1 )] + B (Qt )}
{ At } 1
Where X t = {Lt , PH ,t , H t 1 , Dt 1 , Qt } the vector of is endogenous state variables, and
At = {St , Bt , Ct , H t , Dt } is the vector of choice variables. We use Newton iterated algorithm to optimize the
different choices. We iterate backwards, and find a good feasible solution with improving the initial states.
4. Results
4.1 Baseline Case Analysis
a: labor Income,Non-Housing
b: Stock vs. Riskless Asset
Consumption,Housing Positions
200000 25000
180000
160000 20000
140000
120000 15000
RMB
RMB
100000
80000 10000
60000
40000 5000
20000
0 0
25 30 35 40 45 50 55 60 65 70 75 25 30 35 40 45 50 55 60 65 70 75
Age lt Ct House position Age Bt St
Fig.2 shows the residents life-cycle housing positionsconsumption other than housestock and riskless
asset choices on baseline case. From this figure we can find that:
(1) As labor income and accumulated wealth increasing, the non-housing consumption increases accordingly,
and exceeds the labor income after retirement.
(2) Our model can generate a hump-shaped life-cycle housing position, which increases before 60, and
descends after 65. It means that the household may optimally choose to refinance his mortgage, and cash out a
fraction of his house equity to increase his consumption at the end of life.
(3) With a large illiquid house equity position, the resident holds less stock before 50, and increases his
stockholdings after accumulating enough liquid wealth. After retirement, the resident descends stock level
because of risk aversion and supporting his consumption.
(4) Riskless asset of resident reaches a peak at the age of 59, and descend rapidly at 60-65.
4.2 The Effect of Labor Income Risk
Fig. 3 presents the impact of labor income risk for housingconsumption other than housestock and riskless
asset of the resident. It indicates that Labor income risk crowds out housing position, and cuts down the
non-housing consumption at the early life-cycle because of protective saving. Due to the accumulation of wealth,
the growth rate of non-housing consumption with highest level of labor income risk is fastest at latter period of
life-cycle. With the increase of labor income risk, the level of stockholdings observed in portfolio composition
descends since labor income substitutes for riskless asset holdings and the level of riskless asset increases most of
the time during life-cycle.
16
a: Labor Income Risk:Housing and Non-Housing b:Labor Income Risk:Stock and Riskless Asset
Consumption 35000
350000
30000
300000
25000
250000
20000
200000
RMB
RMB
15000
150000
100000 10000
50000 5000
0 0
25 30 35 40 45 50 55 60 65 70 75 25 30 35 40 45 50 55 60 65 70 75
Ct(lv=0,02) House position(lv=0.02) Bt(lv=0.02) St(lv=0.02) Bt(lv=0.04)
Age Age
Ct(lv=0.04) House position(lv=0.04)
Ct(lv=0.1) House position(lv=0.1) St(lv=0.04) Bt(lv=0.1) St(lv=0.1)
300000 20000
250000
15000
RMB
200000
RMB
150000 10000
100000
5000
50000
0 0
25 30 35 40 45 50 55 60 65 70 75
25 30 35 40 45 50 55 60 65 70 75
Ct(Hv=0) House position(Hv=0)
Bt(Hv=0) St(Hv=0) Bt(Hv=0.02)
Age Ct(Hv=0.02)
Ct(Hv=0.04)
House position(Hv=0.02)
House position(Hv=0.04)
Age St(Hv=0.02) Bt(Hv=0.04) St(Hv=0.04)
350000
300000
250000
RMB
200000
150000
100000
50000
0
25 30 35 40 45 50 55 60 65 70 75
Ct(d=20%) House position(d=20%)
Age Ct(d=30%) House position(d=30%)
Ct(d=40%) House position(d=40%)
17
5. Conclusions
In this paper, we developed a dynamic life-cycle model to study the optimal consumption and investment
decision with housing of Chinese resident. It is important to introduce housing into our model, since housing is the
single most important asset for many households, and has significant implications for residents consumption and
portfolio choice. Our model incorporates many realistic features including stochastic labor income processstock
market transaction costhousing restrictions and liquidation cost.
The model generates hump-shaped life-cycle stockholdings and house position of Chinese resident. Our
analysis indicates that labor income riskhouse price risk and down payment ratio have significant impact for
residents consumption and investment choice. Labor income risk and house price risk crowd out the level of
stockholding because of protective saving, while down payment cuts down the stockholding due to illiquid home
equity restrictions. The impact of house price risk and down payment ratio to non-housing consumption is not the
same in different stage of the life-cycle. Specifically, with the increase of house price risk and down payment ratio,
young residents reduce their non-housing consumption, while old residents increase their non-housing
consumption.
References
[1] Ando, A. and F.Modigliani, The Life-Cycle Hypothesis of Saving: Aggregate Implications and Test, American Economic
Review, 1963,Vol.53:55-84
[2] Cocco, Joo F, Portfolio Choice in the Presence of Housing, Review of Financial Studies, 2005,Vol.18 issue 2,535-567
[3] XiaoQing Hu, Portfolio choices for homeowners, Journal of Urban Economics, Jul2005,Vol.58 issue 1,114-136
[4] XueBin Chen, DongSheng Fu and ChengJie Ge, The Dynamic Optimization Simulation Analysis on Chinese Residents
Consumption and Investment Behavior, Journal of Financial Research, 2006(3),21-35 (in Chinese)
[5] Gomes,Francisco, Michaelides and Alexander, Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence,
Apr2005, Vol.60 issue 2,869-904
[6] Rui Yao and Harold H. Zhang, Optimal life-cycle asset allocation with housing as collateral, The Review of Financial Studies,
2005, vol 18 No. 198-239
[7] Carroll. C. D and W. E. Dunn, Unemployment expectations, jumping triggers, and household balance sheets, NBER
Macroeconomics Annual, 1997, 165- 229, MT Press, Cambridge, MA
[8] Kullmann Cornelia and Stephan Siegel, Real estate and its role in household portfolio choice, Working paper, University of
British Columbia, 2003
[9] McCarthy, David G, A life-cycle model of defined- benefit pension plans, Journal of Pension Economics and Finance,
2003,2(2): 99-126
[10] Flavin and Marjorie, Owner-occupied housing in the presence of adjustment costs: implications for asset pricing and
nondurable consumption, 2002, Working Paper, UC San Diego.
18
New Formulations for Second-Best Congestion Pricing
Problems on a General Transportation Network with Elastic
Demands: An Excess-Demand Approach
Abstract This paper examines the problem of second-best congestion pricing problem for a general urban highway transportation
network with multiple time periods and two modes. The previous second-best congestion pricing models for a simple road network
are reviewed, and then extended to a general network with travelers also having modal choice of car and bus. New formulations of
the congestion pricing problems are presented with an excess-demand approach for the problems of no-toll, first-best and second-best,
and the first-order conditions are derived. The new approach has the advantage of incorporating mode choice into the existing
models.
Key words Congestion pricing, Traffic equilibrium, Elastic demand, Second-best
1. Introduction
Rapid development of urbanization and growth of car ownership in China have led to serious urban traffic
congestion. Recently congestion pricing as a demand-side strategy to tackle congestion has received increasing
attention. The issue of road pricing/congestion pricing has been studied by many researchers, the representative
results focus on following four directions:
(1) congestion pricing with bottlenecks, Arnott et al. (1990)[1][2]analyzed user equilibrium, system optimum,
and various pricing regimes for a network of two routes in parallel based on Vickrey (1969)[3], which models
roads as bottlenecks; Hai-jun Huang (2000)[4] studied the fares and tolls in a competitive system with transit and
highways with two groups of commuters.
(2) social welfare effect of congestion pricing, Small (1992)[5] analyzed the congestion pricing impact s on
travelers different income levels in San Francisco Bay area and Los Angeles; Paolo Ferrari (2002) [6]present an
optimal algorithms for the social welfare by co-share of the driver and authority.
(3) general network congestion pricing problem, Liu and Boyce (2002) [7]developed a model of the system-
optimal travel choice problem and efficient congestion tolls for a general transportation network with multi-
periods; Hai Yang et al. (2004)[8] studied the multi-criteria or the cost-versus-time network equilibrium and
system optimum problem in a network with a discrete set of VOTs for several user classes.
(4) second-best congestion pricing problem, Verhoef (1996, 2002)[9][10]analyzed second-best congestion
pricing for a simple and a general networks, respectively and for a single period; Yang and Huang (1999)[11]
studied carpooling and congestion pricing in a multilane highway with high-occupancy vehicle lanes; Liu and
McDonald (1998, 1999)[12][13]used economic theory of the second best and a simulation model to compare
first-best, second-best and no-toll solutions for a model with two routes and two time periods (peak and pre-peak).
This paper focuses on efficiency issues associated with second-best congestion pricing, i.e., use of congestion
tolls to achieve the best utilization of resources for a transportation network with constraints that part of the
network cannot be tolled. The organization of the paper is as follows. In Section 2 we first review a second-best
congestion pricing model presented in Liu and McDonald (1999) [13]. Then, in Section 3, we extend the previous
model to a general network with travelers also having modal choice of car and bus, and present new model
formulations of congestion pricing problems consisting of no-toll, first-best and second-best. The final section
summarizes the major conclusions and suggests further research topics.
This research has been supported by the National Natural Science Foundation of China (Efficiency and equity problems of multi-period second-best congestion
pricing schemes in urban road systems, No: 70471053).
19
2. Previous Formulations of Second-best Congestion Pricing Problems
In this section we review the formulations of congestion pricing models by Liu and McDonald (1999) [13],
which serve as a basis for our new approach. The second-best problem aims to maximize the social welfare or net
benefits (total benefits B minus total costs C of the transportation system):
max W = B C
( v1 , v 2 )
(1)
= P (v , v
( 0,0)
1 1 2 )dv1 + P2 (v1 , v 2 )dv 2
subject to
P1 (v1 , v 2 ) = c1 f (v1 f ) = c1t (v1t ) + 1t (1a )
P2 (v1 , v 2 ) = c 2 f (v 2 f ) = c 2t (v 2t ) + 2t (1b)
v1 = v1t + v1 f , v 2 = v 2t + v 2 f (1c)
v1t 0, v1 f 0, v 2t 0, v 2 f 0, v1 0, v 2 0 (1d )
where congestion tolls on the toll route are denoted by 1t and 2t . Eq. ( 1a ) is the constraint on the pricing of
the free route in the peak period. In the peak period the equilibrium price of a trip on either route is equal to the
average cost on the free route. The equilibrium price of the trip on the toll route is the average cost plus the
congestion toll in the peak period. Similar to the condition for the peak period, Eq. ( 1b ) is the constraint on the
pricing of the free route in the pre-peak period. Eq. (1c ) states that the total traffic volume in the peak (pre-peak)
period is equal to the sum of the traffic on each route in the peak (pre-peak) period. Eq. ( 1d ) is the nonnegativity
condition for traffic volumes.
By solving the model for optimal traffic volume allocation ( v1t , v1 f , v 2 t , v 2 f , v1 , v 2 ), the second-best congestion
tolls ( 1t , 2 t ) on the toll route for the peak and pre-peak periods are determined by:
1t = P1 (v1 , v2 ) c1t (v1t )
2t = P2 (v1 , v 2 ) c 2t (v2t )
For the first-best problem, the pricing constraints Eq. (1a ) and Eq. ( 1b ) do not exist since congestion tolls can
be imposed on both routes; and its objective function is the same as Eq. (1) subject to traffic volume constraints
Eq. ( 1c ) and nonnegativity condition Eq. ( 1d ).
For the no-toll problem, no maximization is involved; therefore, the optimal traffic volume allocation
( v1t , v1 f , v 2 t , v 2 f ) is determined by the following equilibrium conditions:
P1 (v1 , v2 ) = c1t (v1t ) = c1 f (v1 f )
P2 (v1 , v2 ) = c2t (v2t ) = c2 f (v2 f )
In order to solve the problems of the second-best and first-best, the following theorem is needed (Pressman
1970) [14]:
Theorem 1. Suppose Pi (v1 , v2 ) (i=1,2), and Pi / v j (i,j=1,2) are continuous and single valued at every
point of a simply connected region. Then, if and only if P1 / v2 = P2 / v1 will the line integral
( v1 ,v2 )
B= P (v , v )dv
1 1 2 1 + P2 (v1 , v2 )dv2 :
( 0,0)
20
B (v1 , v2 ) B(v1 , v2 )
= P1 (v1 , v2 ) = P2 (v1 , v2 )
v1 v2
The above models provide a starting point for evaluating second-best congestion pricing schemes, However
they have some shortcomings as they only deal with a simple network that contains two alternative roads (a toll
route and a free route) and there is no mode choice. In the next section, we extend the previous models to a
general network with travelers also having modal choice of car and bus.
bus lane
21
where q irs is the traffic demand between OD pair rs in period i , Pirs is the trip price for OD pair rs in period
i , q irs is the total potential fixed-demand according to the excess-demand formulation method.
For demand functions Eq.(4), the following assumptions are made regarding dependency:
1). Negative own-price effect: q1rs / P1rs < 0 , q2 rs / P2 rs < 0
2). Positive cross-price effect: q`rs / P2 rs > 0 , q2 rs / P1rs > 0
Then the excess-demand functions of private car are denoted by
e1rs = q1rs q1rs = 11,rs P1rs 12,rs P2 rs
(5)
e2 rs = q2 rs q2 rs = 21,rs P1rs + 22,rs P2 rs
From Eq.(5), the inverse excess-demand function for OD pair rs can be derived as a function of the
excess-demand traffic volume in both the peak and pre-peak periods, or
22 ,rs 12 ,rs
E1rs = e1rs + e
11,rs 22 ,rs 12 ,rs 21,rs 11,rs 22 ,rs 12 ,rs 21,rs 2 rs
21,rs 11,rs E1rs = b22,rs e1rs + b12,rs e2 rs
E 2 rs = e1rs + e
11,rs 22 ,rs 12 ,rs 21,rs 11,rs 22 ,rs 12 ,rs 21,rs 2 rs E2 rs = b21,rs e1rs + b11,rs e2 rs
or (6)
3.1.4. Mode split
Mode split or called mode choice is the result of a serial decision. Here we simplify the mode split by a logit
choice function.
~ 1
N irs = N irs ~
1+ e ( C irs C irs ) (7)
~
N irs = N irs N irs
~
where N irs is the total number of persons traveling between OD pair rs in period i , N irs is the number of
persons choosing private car between OD pair rs in period i , N irs is the number of persons choosing bus between
~
OD pair rs in period i , Crsi and C rsi are the minimum travel costs between OD pair rs in period i for both
car and bus, respectively.
~
The number of persons N irs (that is N irs , N irs , N irs ) between OD pair rs in period i for both trip mode
and the related traffic volume q rsi (that is q~irs , q irs , qirs ) satisfy the following relations
N irs = qirs N irs = qirs qirs + qirs = qirs (8)
where are and are loading factors (persons per vehicle) for car and bus, respectively.
When the interaction between both modes is ignored, we can treat the bus lane as another excess-demand
route. Based on the Eq.(7), we have
1 N 1 N
C irs = ln irs 1 + C irs = ln irs + C irs
N irs N irs
Then the equivalent travel cost of the bus lane can be derived as:
1 q 1 q irs (9)
W irs ( q irs ) = ln ~ ~irs + C irs = ln ~
+ C irs
q irs q irs q irs
3.2 New formulations of congestion pricing problems
3.2.1 no-toll problem
In this problem we consider the model of user equilibrium with variable demand for two periods and two
modes:
22
min Z ( x , e, q ) = cia ( w ) dw +
xia ( e1 rs , e2 rs )
E1rs ( w1 , w2 ) dw1 + E 2 rs ( w1 , w2 ) dw2
0 ( 0,0 )
i a rs
qirs
+ Wirs ( w ) dw (10)
0
i rs
s.t.
k rs
f irs , k + eirs + qirs = qirs rs , k , i
1) Equivalent conditions
Let the objective function in (10) be decomposed as follows:
min Z ( x , e , q ) = m in [ Z 1 ( x ) + Z 2 ( e ) + Z 3 ( q ) ] (11)
Z1 ( x) = cia ( w)dw
xia
where:
0
i a
Z 2 (e) =
( e1rs , e2 rs )
E1rs ( w1 , w2 )dw1 + E2 rs ( w1 , w2 )dw2
(0,0)
rs
qirs
Z 3 (q ) = Wirs ( w)dw
0
i rs
23
~ ~ ~ ~
c ia ( x ia ) a , k irs f irs , k = 0 ,
rs
c~ia ( ~
x ia ) ars, k irs 0 , f irs , k 0 (14 a )
a k a k
[
W ( q ) q = 0 ,
irs irs irs irs ] W irs ( q irs ) irs 0 , q irs 0
(14 b )
(14 c )
[ ]
E irs ( e1 rs , e 2 rs ) irs e irs = 0 , E irs ( e1 rs , e 2 rs ) irs 0 , e irs 0
(14 d )
~
q irs f irs , k e irs q irs = 0
k rs
Eq. (14a) states that if the traffic volume of private cars between OD pair rs in period i is positivethat is
~
f irs ,k > 0 , then cia ( xia ) ars, k irs = 0 holds, it means that the travel cost of private cars on the used
ak
~ ~
route k connecting OD pair rs is the same as the minimum one ( Cirs = min(Cirs ,k ) = irs ); on the other side,
~ ~
if Cirs ,k > irs holds, then theres no traffic volume between OD pair rs in period i , that is f irs ,k = 0 .
Eq. (14b) states that if the traffic volume of the bus lane between OD pair rs in period i is positive,
then Wirs ( q irs ) = irs it means that the travel cost of the bus lane on route k connecting OD pair rs is the same of
~ ~
the minimum travel cost of the private car ( Cirs = min(Cirs ,k ) = irs ).
Eq. (14c) states that if the excess-demand of the private car between OD pair rs in period i is
positive( eirs > 0 ), then Eirs (e1rs , e2 rs ) = irs holds, it means that the travel cost of the excess-demand route
connecting OD pair rs is the same as the minimum travel cost of private car.
Eq. (14d ) represents a set of flow conservation constraints.
2) Uniqueness conditions
The strict convexity of Z1 , Z 2 and Z 3 is obvious, which implies that program (10) has a unique solution.
Based on the above analysis, the equilibrium conditions fulfill:
1) mode split accords with a logit choice function;
2) the private car traffic volume allocation satisfies user equilibriums condition; and
3) cross-price effect of different periods demonstrates by different pricing strategy.
Total number of persons traveling by each mode can be calculated by Eq.(8) and ~ , .
3.2.2 First-best problem
In this problem we consider the model of system optimal with variable demand for two periods and two
modes:
c
( e1 rs , e 2 rs )
m in Z ( x , e , q ) = ia ( x ia ) x ia + E 1 rs ( w1 , w 2 ) d w1 + E 2 rs ( w1 , w 2 ) dw 2
( 0 ,0 )
i a rs
+ Wi rs
irs ( q irs ) q irs (15)
s.t.
k rs
f irs , k + e irs + q irs = q irs rs , k , i
Z 2 (e ) =
( e1 rs , e2 rs )
E1rs ( w1 , w2 )dw1 + E2 rs ( w1 , w2 )dw2
(0,0)
rs
L (17 d )
=0
irs
Here we use the following notation:
dc ( ~ x )
mc ia ( ~
x ia ) = c~ia ( ~
x ia ) + ~
x ia ia~ ia
d x ia
~ dc ( ~ x )
(18)
MC irs , k = mc ia ars, k = C irs , k + ~ x ia ia~ ia
ak ak d x ia
dW irs ( q irs )
MW irs ( q irs ) = W irs ( q irs ) + q irs
d q irs
where mcia is the marginal cost on link a in period i ; MCirs ,k is the marginal cost on route k between OD
pair rs in period i for private cars; MWirs is the equivalent marginal equivalent cost on route k between OD pair rs in
period i for the bus lane.
Then the first-order conditions are thus (the same procedure as the no-toll problem):
( ) ~
MCirs ,k irs f irs ,k = 0, MCirs ,k irs 0,
~
f irs ,k 0
[ ]
MWirs ( q irs ) irs q irs = 0, MWirs (q irs ) irs 0, q irs 0
(19)
[
E (e , e ) e = 0,
irs 1rs 2 rs irs ] irs Eirs (e1rs , e2 rs ) irs 0, eirs 0
~
qirs f irs ,k eirs qirs = 0
krs
The first-order conditions states that the marginal travel cost of private car travel on route k connecting OD
pair rs in time period i is equal to the minimum travel cost (i.e., the travel price) of private car between OD
pair rs ( min(Cirs ,k + irs ,k ) = irs ); and the equivalent marginal travel cost of the bus lane travel on OD pair rs is
equal to the minimum travel cost of the private car travel on all routes connecting OD pair rs ( MWirs (qirs ) = irs ).
Then, irs = MWirs (qirs ) = min(Cirs,k + irs,k ) i, rs, k . Here we can calculate the efficient congestion tolls for route k for
private cars:
dcia ( xia ) , and efficient route congestion tolls for bus lane: dWirs (qirs ) .
irs ,k = xia irs = qirs
ak dxia dqirs
The strict convexity of Z1 , Z 2 , Z 3 is obvious, which implies that program (15) has a unique solution.
3.2.3 Second-best problems
Based on the analysis process of the above problems, we can find that the no-toll problem and first-best
problem are two extreme forms of the second-best problem, this indicates we can construct the model of the
second-best problem by modifying the objective functions of no-toll and first-best problems.
1) Second-best problem I
In this problem we consider the scheme that charges no-toll for bus lanes, and only charges private cars on all
links and in all time periods:
25
c ( x ia ) x ia +
( e1 rs , e 2 rs )
m in Z 1 ( x , e , q ) =
i a
ia
rs
( 0 ,0 )
E1 rs ( w1 , w 2 ) dw1 + E 2 rs ( w1 , w 2 ) dw 2
q irs
+ (20)
i
rs
0
W irs ( w ) dw
s.t.
k rs
f irs , k + eirs + q irs = q irs rs , k , i
The first-order conditions for this program are (see the procedure of the no-toll problem and first-best
problem):
( ~
MC irs ,k irs f irs ,k = 0,) MC irs ,k irs 0,
~
f irs ,k 0
[
Wirs ( q irs ) irs q irs = 0,] Wirs ( q irs ) irs 0, q irs 0 (21)
[
E ( e , e ) e = 0,
irs 1rs 2 rs irs irs ] E irs ( e1rs , e2 rs ) irs 0, eirs 0
~
q irs f irs ,k eirs q irs = 0
krs
The first-order conditions states that the marginal travel cost of private cars on route k connecting OD
pair rs in time period i is equal to the minimum travel cost (i.e., the travel price) of private cars between OD
pair rs ( min(Cirs ,k + irs ,k ) = irs ); and the equivalent travel cost of the bus lane travel on OD pair rs is equal
to the minimum travel cost between OD pair rs Wirs (qirs ) = irs ).
Then, irs = Wirs (qirs ) = min(Cirs,k + irs,k ) i, rs, k , which matches the travel cost characteristics under second-best
problem I.
2) Second-best problem II
In this problem we consider the scheme that charges no-toll for all bus lanes, only charges private cars on toll
routes (or certain links) in all time periods:
min Z ( x, e, q ) = cia ( xia ) xia +
xia
i ak i ak
0
cia ( w)dw
kK k K
qirs (22)
+ [ E1rs (w1 , w2 )dw1 + E2 rs (w1 , w2 )dw2 ] + 0
( e1 rs ,e2 rs )
Wirs ( w)dw
(0,0)
rs i rs
s.t. f
krs
irs , k + eirs + qirs = qirs rs, k , i
where k denotes a tolled route, K is the set of all toll routes between all OD pairs; k denotes a free route,
and K is the set of all free routes between all OD pairs. And the first-order conditions for this program are:
(MC ) ~ f irs ,k = 0, MCirs ,k irs 0,
~
f irs ,k 0 k
irs ,k irs
C ~
(
irs ,k
~
) ~
irs f irs ,k = 0, Cirs ,k irs 0,
~
f irs ,k 0 k
(23)
[
Wirs (qirs ) irs qirs = 0, ] Wirs (qirs ) irs 0, qirs 0
[
Eirs (e1rs , e2 rs ) irs eirs = 0, ]
Eirs (e1rs , e2 rs ) irs 0, eirs 0
q ~
irs k
f irs ,k eirs qirs = 0
rs
The first-order conditions states that the marginal travel cost of private cars on toll route k connecting OD
pair rs in time period i is equal to the minimum travel cost (i.e., the travel price) of private cars between OD
~
pair rs ( min(Cirs,k + ~irs ,k ) = irs ); the travel cost of private car travel on free route k connecting OD pair rs in
~
time period i is equal to the minimum travel cost of private cars between OD pair rs ( min(Cirs ,k ) = irs ); and the
equivalent travel cost of the bus lane between OD pair rs is equal to the minimum travel cost between OD pair rs
( Wirs (qirs ) = irs ). Then, irs = Wirs (qirs ) = min(Cirs ,k + irs ,k ) = min Cirs ,k i, rs, k , k , which matches the travel cost
characteristics under Second-best problem II.
3) Second-best problem III
26
In this problem we consider the scheme that charges no-toll for all bus lanes, only charges private cars on toll
routes (or certain links) in peak period:
min Z ( x, e, q) = c1a ( x1a ) x1a + c2 a ( w)dw +
x2 a xia
ak ak
0
i ak
0
cia ( w)dw
kK kK k K
qirs
+ [ E1rs (w1 , w2 )dw1 + E2rs (w1 , w2 )dw2 ] + 0
( e1 rs , e2 rs )
Wirs ( w)dw (24)
(0,0)
rs i rs
s.t. f
krs
irs , k + eirs + qirs = qirs rs, k , i
The first-order conditions states that in peak period (i = 1) the marginal travel cost of private cars on toll
route k connecting OD pair rs is equal to the minimum travel cost (i.e., the travel price) of private cars
between OD pair rs ( min(C1rs ,k + 1rs ,k ) = 1rs ), the travel cost of private cars on free route k connecting OD pair
~
rs is equal to the minimum travel cost of private cars between OD pair rs ( min(C1rs ,k ) = 1rs ); in off-peak period
(i = 2) , the travel cost of private cars on either toll route k or free route k connecting OD pair rs is equal to
the minimum travel cost of private cars between OD pair rs ( min C2 rs ,k = min C2 rs ,k = 2 rs ). And the equivalent
travel cost of the bus lane between OD pair rs is equal to the minimum travel cost of private cars between OD
pair rs ( Wirs (qirs ) = irs ). Then,
1rs = W1rs (q1rs ) = min(C1rs ,k + 1rs ,k ) = minC1rs ,k i = 1, rs , k , k
2rs = W2rs (q2rs ) = min C2 rs ,k = minC2rs ,k i = 2, rs , k , k
which matches the travel cost characteristics under Second-best problem III.
References
[1] Arnott R., de Palma A., Lindsey R. Economics of a bottleneck. Journal of Urban Economics, 1990, 27: 111-130
[2] Arnott R., de Palma A., Lindsey R. Departure time and route choice for the morning commute. Transportation Research B,
1990, 24: 209-228
[3] Vickrey W. Congestion theory and transportation investment. American Economic Review, Papers and Proceedings,
1969,59:251-261
27
[4] Huang Haijun. Fares and tolls in a competitive system with transit and highways: the case with two groups of commuters.
Transportation Research Part E, 2000, 36: 267-284
[5] Small K. Urban Transportation Economics. Harwood Academic, Chur, Switzerland. 1992
[6] Paolo F. Road network toll pricing and social welfare. Transportation Research Part B,2002,36: 471-483
[7] Liu L.N., Boyce D. Variational inequality formulation of systemoptimal travel choice problem and efficient congestion tolls
for a general transportation network and multiple time periods, Regional Science and Urban Economics, 2002, 32:627-650
[8] Yang H, Huang Haijun. The multi-class, multi-criteria traffic network equilibrium and systems optimum problem,
Transportation Research, Part B,2004, 38 (1): 1-15
[9] Verhoef E.T. Second-best congestion pricing, the case of an unpriced alternative. Journal of Urban Economics , 1996,40:
279-302
[10] Verhoef E.T. Second-best congestion pricing in general networks, Heuristic algorithms for finding second-best optimal toll
levels and toll points. Transportation Research, Part B,2002,36: 707-729
[11] Yang H., Huang Haijun. Carpooling and congestion pricing in a multilane highway with high-occupancy vehicle lanes.
Transportation Research Part A, 1999, 33: l39-l55
[12] Liu L.N., McDonald J. Efficient congest tolls in the presence of unpriced congestion: A peak and off-peak simulation model,
Journal of Urban Economics, 1998, 44:352-366
[13] Liu L.N., McDonald J. Economic efficiency of second-best congestion pricing schemes in urban highway systems.
Transportation Research Part B,1999, 33:157-188
[14] Pressman I., 1970. A mathematical formulation of the peak-load pricing problem. Bell Journal Economics2, 304-324.
[15] Sheffi Y. Urban Transportation Network: Equilibrium Analysis with Mathematical Programming Methods. Englewood Cliffs,
New Jersey: Prentice-Hall. 1985
28
Fuzzy MPMP Production Planning Problem with Minimum
Risk Criteria
Abstract Based on credibility theory and two-stage fuzzy optimization method, this paper presents a new class of two-stage
minimum risk multi-product multi-period (MPMP) production planning model. Then we deal with the approximation of the MPMP
production planning problem. After that, a heuristic algorithm, which combines approximation approach, neural network (NN) and
simulated annealing, is designed to solve the production planning problem, and a numerical example is given to show the feasibility
of the algorithm.
Key words Production planning, Credibility theory, Two-stage fuzzy optimization, Approximation approach, Simulated annealing
1. Introduction
Uncertainty plays a key role in manufacturing systems. Thus, the accuracy of production planning is to a
large extent dependent on the presence of uncertainties. Because of the perfect forecast of production planning
problem, it attracts many researchers interests (Lin and Yao, 2000; Hodges and Moore, 1970; Wu and Chang,
2003; Hsu and Wang, 2001)[1][2][3][4]. In stochastic decision systems, Bakir and Byrne (1998)[5] considered an
MPMP production planning problem in stochastic environment. They dealt with a more realistic planning
environment with only stochastic demand. Subsequently, they developed a new demand stochastic LP model
based mainly on the theoretical presentation of two-stage deterministic equivalents.
Since the pioneering work of Zadeh (1978)[6], possibility theory was being perfected and became a strong
tool to deal with possibilistic uncertainty (Dubois and Prade, 1988; Nahmias, 1978; Wang, 1982)[7][8][9]. Many
researchers applied the theory successfully to fuzzy optimizations (Shih, 1999; Wang and Fang, 2001)[10][11].
Among them, Shih (1999)[10] applied three fuzzy linear programming models to solving transportation planning
problem. Wang and Fang (2001)[11] presented a fuzzy linear programming method for solving the aggregate
production planning problem with multiple objectives. Although possibility theory is very popular and widely
used in fuzzy community, the recent study (Liu and Liu, 2002; Liu and Wang, 2006)[12][13] showed that it is
credibility measure instead of possibility measure that plays the role of probability measure in a fuzzy decision
system, and an axiomatic approach based on credibility measure, called credibility theory, was developed by the
motivation of the fact (Liu, 2004)[14]. Based on credibility theory, Liu (2005)[15] studied a class of two-stage fuzzy
programming with recourse problem. More recently, Yuan and Liu (2006)[16] took credibility theory as the
theoretical foundation of fuzzy optimization, and developed a two-stage fuzzy production planning model with
fuzzy variable coefficients.
The purpose of this paper is to apply credibility theory and two-stage fuzzy programming theory to MPMP
production planning problem. We assume that the demand and cost are characterized by a fuzzy vector, and adopt
minimum risk criteria in the objective.
The rest of this paper is organized as follows. We first recall some basic concepts in Section 2, and then
propose a new class of two-stage fuzzy minimum risk production planning problem in Section 3. In Section 4, we
employ the approximation approach (Liu, 2006)[17] to the credibility objective of the MPMP production planning
model, and deal with the convergence of approximation approach. The convergent result facilitates us to
incorporate approximation approach, neural network (NN) and simulated annealing to solve the proposed
production planning problem in Section 5, and a numerical example is also given in Section 5 to illustrate the
feasibility of the algorithm. Section 6 summarizes the main results in this paper.
This research was supported by the National Natural Science Foundation of China (Fuzzy Random Programming with Recourse and Its Applications, No:
70571021).
29
2. Basic concepts
Given a universe , P ( ) is the power set of , and Pos is a set function defined on P ( ) . The set
function Pos is said to be a possibility measure (Wang, 1982; Klir, 1999)[9][18] if it satisfies the following
conditions:
Pos 1) Pos ( ) =0, and Pos ( ) =1;
Pos 2) Pos ( iI Ai ) = supiI Pos ( Ai ) for any subclass { Ai i I } of P ( ) , where I is an arbitrary index
set.
Based on possibility measure, a self-dual set function, called credibility measure Cr, is defined as (Liu and
Liu, 2002)[12]
1 c
Cr ( A ) = (1+Pos ( A ) Pos ( A ))
2
The triplet (, ( ), Cr ) is called a credibility space (Liu, 2006)[19].
Definition 1: Let (, ( ), Cr ) be a credibility space. If = (1 , 2 , , n ) is a function from to the
n
space , then it is called a fuzzy vector. As n = 1 , it is called a fuzzy variable.
The possibility distribution of is defined as (Liu, 2006)[19]
(t1 , t n ) = min{2Cr{ 1 ( ) = t1 , n ( ) = t n },1}
n
for any (t1 , , t n ) . It is also called the joint possibility distribution of fuzzy variables 1 , , n , and
denoted by 1 n (t1 , , tn ) .
Let be an m ary fuzzy vector. The support of the fuzzy vector , denoted , is defined as the closure
of the subset {(t , 1 , tm )
m
(t1 , }
, tm ) > 0
m
of , it is the smallest closed subset of
m
such that
Cr { ( ) } = 1 .
m
An m ary fuzzy vector is said to be bounded if its support is a bounded subset of .
30
I it : the amount of negative inventories or shortages of product i at the end of period t ;
+
qit : the unit cost of positive inventories of product i in the period t ;
qit : the unit cost of negative inventories or shortages of product i in the period t ;
aik : the process time of product i on the machine center k ;
d it : the demand for the i th product in t th period;
MCkt : the capacity of machine center k in period t ;
W : the recourse identity matrix.
In this paper, we present a new class of fuzzy two-stage production planning problem, in which there are two
optimization problems to be solved. The first-stage decision variables xit , which represent the amount of product
i to be produced in period t are fixed before observation of fuzzy event , here refer to the realization of
fuzzy variables coefficients. The second-stage decision variables I it are fixed after observation of fuzzy event
.
According to this scheme, we present a N -product T -period production planning problem. The
second-stage problem is formulated by assuming xit and to be fixed, and is as follows
i
Qt ( xit , ( )) = min qit ( ) I it
s.t . WI it = Axit + WI it 1 d it ( )
+
I it = I it I it
+
(1)
qit ( ) = qit ( ) qit ( )
+ +
I it 0, I it 0, qit ( ) 0, qit ( ) 0
i = 1,2, , N , t = 1,2, ,T .
and ( ) is obtained by piecing together the fuzzy components of the second-stage problem data qit ( )
and d it ( ) in problem (1). The solution of the model involves deciding what products should be produced and
how much of each product to produce. The inventory at the end of period t is available for withdrawal by the
next period, and provides the linkage between the periods of the multi-period model. There is no relation between
the shortages in periods t and t 1 . That is, backlogging is not allowed.
Suppose that the decision variable xit has to satisfy the following deterministic constraints:
aik xit MCkt , xit 0.
Now we want to speak about the solution of production planning problem, it is necessary to introduce
additional constraint on xit . Let K be the set of all those xit vectors for which problem (1) has a feasible
solution for almost every possibly realized fuzzy event . Then K can be expressed as
{
K = x | x
NT
{
, Cr Q ( x, ( )) < = 1 , } }
where is the fuzzy vector obtained by piecing together the fuzzy demands and some of fuzzy costs, and
T i
the vector x = ( x11 , x12 , , x NT ) . Qt ( xit , ( )) is the optimal value of problem (1) at fixed xit and ( ) ,
and is usually called second-stage value function in two-stage fuzzy programming with recourse (Liu, 2005)[14].
The vector Q ( x, ( )) = (Q1 ( x11 , ( )), Q2 ( x12 , ( )), , QT ( xNT , ( ))) . But when the Axit + WI it 1 d it ( ) , the
1 1 N
i + +
second-stage value function Qt ( xit , ( )) = min qit ( ) I it ; on the other hand, when Axit + WI it 1 < d it ( ) , the
i
second-stage value function Qt ( xit , ( )) = min qit ( ) I it . So the problem (1) has always optimal value at each i
NT
and t , thus we have K = .
0
Denote z ( x, ( )) = iN=1 Tt =1[cit xit Qti ( xit , )] . With a given threshold z , the excess credibility functional
31
{
QC ( x ) = Cr iN=1 Tt =1[ cit xit Qti ( xit , ( ))] > z
0
} = Cr { z ( x, ( )) > z } measures the credibility of revenue
0
0
profit z ( x, ( )) exceeding z .
As a consequence, the first-stage of production planning problem is formulated as follows
max QC ( x )
s.t . aik xit MCkt
(2)
xit 0
i = 1, 2, , N , t = 1, 2, ,T.
Combining problems (1) and (2), a fuzzy two-stage minimum risk MPMP production planning problem
can be built as
max QC ( x )
s.t . aik xit MCkt
(3)
xit 0
i = 1, 2, , N , t = 1, 2, ,T.
{
where QC ( x ) = Cr z ( x, ( )) > z
0
} , and
i
Qt ( xit , ( )) = min qit ( ) I it
s.t . WI it = Axit + WI it 1 d it ( )
+
I it = I it I it
+
(4)
qit ( ) = qit ( ) qit ( )
+ +
I it 0, I it 0, qit ( ) 0, qit ( ) 0
i = 1,2, , N , t = 1,2, ,T .
Note that credibility measure has self-duality property. If we denote C ( x ) = 1 QC ( x ) , then the above fuzzy
two-stage minimum risk MPMP production planning problem can be rewritten as the following equivalent form
min C ( x )
s.t . aik xit MCkt
(5)
xit 0
i = 1, 2, , N , t = 1, 2, ,T.
{
where C ( x ) = Cr z ( x, ( )) z
0
} , and
i
Qt ( xit , ( )) = min qit ( ) I it
s.t . WI it = Axit + WI it 1 d it ( )
+
I it = I it I it
+
(6)
qit ( ) = qit ( ) qit ( )
+ +
I it 0, I it 0, qit ( ) 0, qit ( ) 0
i = 1,2, , N , t = 1,2, ,T .
Because problem (5) and (6) include fuzzy variables coefficients which are often with infinite supports, they
are inherently infinite-dimensional optimization problems that can rarely be solved directly. Thus algorithms to
solve such optimization problems must rely on intelligent computing and approximation scheme, which results in
approximating finite-dimensional optimization problems. The issues of approximation approach and heuristic
algorithm will be discussed in the next section.
32
4. An approximation approach to credibility functions
In this section, we first discuss the approximation approach of a fuzzy vector with an infinite support by a
sequence of primitive fuzzy vectors with finite supports. In order to solve fuzzy two-stage minimum risk MPMP
production planning problem, it is required to evaluate the credibility function
{
C : x Cr z ( x, ( )) z
0
} (7)
where is the fuzzy vector obtain by piecing together the fuzzy demands and some of fuzzy costs.
For any given feasible decision x , we can evaluate the value of the credibility function (7) at x according
to the following methods.
Suppose that = (1 , 2 , , )
m
is a continuous fuzzy vector with the following infinite support
= mj =1 [ a j ,b j ] , where m = NT + l , 1 l NT , and [ a j ,b j ] is the support of j . Then we will try to employ
the approximation approach (Liu, 2006)[17] to approximate the possibility distribution function of by a
sequence of possibility distribution functions of discrete fuzzy vectors { s } . The detailed approach can be
described as follows.
For each integer s , the discrete fuzzy vector s = s ,1 , s ,2 , ( , s ,m ) is constructed as follows.
For each t {1, 2, , m} , define fuzzy variables s ,t = g s ,t ( t ) for s = 1, 2, , where the function g s ,t is
as follows
k k
g s ,t (ut ) = sup{ k Z , s.t . ut }, ut [ at , bt ] ,
s s
and Z is the set of integers.
1
From the construction of s ,t , for each , we have t ( ) s ,t ( ) < . Note that and s are
s
m ary fuzzy vectors, and t and s ,t are their t th components, respectively. Then we have
m
s ( ) ( ) = tm=1( s ,t ( )t ( ))2 , ,
s
which implies that the sequence { s } of fuzzy vectors converges to fuzzy vector uniformly.
In what follows, we refer to the sequence { s } of discrete fuzzy vector as the discretization of the fuzzy
vector .
The convergence of the approximation approach is ensured by the following theorem. As a consequence, the
{ }
original credibility function Cr z ( x, ( )) l can be estimated by the approximating credibility function
{
Cr z ( x , n ( )) z
0
} provided that n is sufficiently large.
Theorem 1: Consider fuzzy two-stage minimum risk MPMP production planning problem (5) and (6).
Suppose the fuzzy variables coefficients is a continuous and bounded fuzzy vector, and the sequence { n } of
fuzzy vectors is the discretization of , then for every feasible solution x , we have
0 0
lim Cr{ z ( x, n ( )) z } = Cr{ z ( x, ( )) z }
n
Proof: Since for any feasible solution x and every realization ( ) of fuzzy variables coefficients ,
z ( x, ( )) is not , which together with the suppositions of the theorem satisfy the conditions of Theorem 1
(Liu, 2006)[17]. As a consequence, the theorem is valid.
33
produce a heuristic algorithm for solving the two-stage minimum risk MPMP production planning problem. In the
preceding we have discussed the computation of the credibility function C ( x ) by approximation approach. It is
easy to see that the discretization of fuzzy variables coefficients is a time consuming process since in each
iteration of discretization, we have to solve the programming (7) in the second-stage many times. To speed up the
solution process, we desire to replace the credibility function C ( x ) by a trained NN, and design a heuristic
algorithm, which can be summarized as follows.
Algorithm 1: A heuristic algorithm
0
Step 1. Generate a set of input-output data for a credibility function C : x Cr{ z ( x, ( )) z }
by the proposed approximation approach;
Step 2. Train an NN to approximate the credibility function C ( x ) by the generated data;
Step 3. Set the initialized temperature and generate initialized state. Then calculate its corresponding
objective value by the trained NN;
Step 4. Check whether the outer-circulation terminated rule is satisfied. If yes, then report the optimal
solution and the optimal value; otherwise, go to the next step;
Step 5. Generate a new state by the state-produced function and calculate its corresponding objective value
by the trained NN;
Step 6. Check whether the new state is accepted by the state-accepted function. If yes, then update the current
state; otherwise, go to the next step;
Step 7. Check whether the inner-circulation terminated rule is satisfied. If yes, then go to the next step;
otherwise, return to step 5;
Step 8. Check whether the outer-circulation terminated rule is satisfied. If yes, then report the optimal
solution and the optimal value; otherwise, update the temperature and return to step 7.
In order to show the feasibility and effectiveness of the heuristic algorithm, we will consider the following
production planning problem with N = T = 3 , K = 4 , and the demands and costs are assumed to be triangular
fuzzy variables. The required data set for this manufacturing system is covered in Tab.1. The possibility
0
distributions of fuzzy demands and costs are provided in Tab.1. If a decision maker takes the level z = 20000 ,
then the fuzzy two-stage minimum risk production planning problem is formulated as follows
min C ( x )
i = 1, 2, 3, t = 1, 2, 3, K = 1, 2, 3, 4.
i.e., we are required to solve the second-stage programming problem 3000 times and obtain the second-stage
values z ( x, ( s )) for s = 1, 2, 3000 . Then the value of C ( x ) at x can be computed by the definition of
credibility.
Tab.1 The data set for production planning problem
The demand matrix ( d it )
Periods 1 2 3
Product
1 (30, 35, 40) (36, 42, 46) (25, 30, 38)
2 (33, 36, 42) (32, 37, 40) (35, 39, 45)
3 (22, 28, 33) (20, 26, 33) (36, 41, 46)
+
The cost matrix ( q )
it
Periods 1 2 3
Product
1 (10, 15, 20) (10, 16, 22) (10, 17, 24)
2 15 16 17
3 10 11 12
The cost matrix ( q )
it
Periods 1 2 3
Product
1 (85,90, 95) (95, 100, 105) (105,110,115)
2 70 80 90
3 85 95 105
35
Tab.2 The optimum production levels
Product X 11 X 12 X 13
Production Level 36 32 29
Product X 21 X 22 X 23
Production Level 22 33 42
Product X 31 X 32 X 33
Production Level 15 17 31
Using the method described above, we generate 3000 input-output data to train an NN to approximate the
credibility function C ( x ) . After that, the trained NN is embedded into a simulated annealing algorithm to
produce a heuristic algorithm.
If the inner-circulation terminated rule is repeated 3000 times and outer-circulation terminated rule is to set
the terminated temperature and to reduce temperature according to exponential rate with parameter = 0.999 ,
then the optimum production plan is reported in Tab.2, whose objective value is 0.100738. That is, the minimum
credibility of z ( x, ( )) 20000 is 0.100738, and because of credibility measure has self-duality property, the
maximum credibility of z ( x, ( )) > 20000 is 0.899262.
6. Conclusion
In this paper, we have presented a new type of fuzzy two-stage minimum risk MPMP production planning
problem. Since the possibility distribution of fuzzy variables coefficients has an infinite support, the minimum
risk MPMP production planning problem is inherently an infinite-dimensional optimization one that can be not
solved directly. Therefore, a heuristic algorithm, which combines approximation approach, neural network (NN)
and simulated annealing, was designed to solve the proposed production planning problem, and a numerical
example is provided to illustrate the effectiveness of the heuristic algorithm.
References
[1] Lin D.C., Yao J.S. Fuzzy economic production for production inventory. Fuzzy Sets and Systems, 2000, 111: 465-495
[2] Hodges S.D., Moore G. The product-mix problem under stochastic seasonal demand. Management Science, 1970, 17(2):
B107-B114
[3] Wu C.C., Chang N.B. Gray input-output analysis and its application for environmental cost allocation. European Journal of
Operational Research, 2003, 145: 175-201
[4] Hsu H.M., Wang P.Z. Possibilistic programming in production planning of assemble-to-order environments. Fuzzy Sets and
Systems, 2001, 119: 59-70
[5] Bakir M. A., Byrne M. D. Stochastic linear optimisation of an MPMP production planning model. International Journal of
Production Economics, 1998, 55: 87-96
[6] Zadeh L. A. Fuzzy sets as a basis for a theory of possibility. Fuzzy Sets and Systems, 1978, 1: 3-28
[7] Dubois D., Prade H. Possibility Theory. New York, Plenum Press, 1988
[8] Nahmias S. Fuzzy variables. Fuzzy Sets and Systems, 1978, 1: 97-101
[9] Wang P. Fuzzy contactability and fuzzy variables. Fuzzy Sets and Systems, 1982, 8: 81-92
[10] Shih L.H. Cement transportation planning via fuzzy linear programming. International Journal of Production Economics, 1999,
58: 277-287
[11] Wang R., Fang H. Aggregate production planning with multiple objectives in a fuzzy environment. European Journal of
Operational Research, 2001, 133: 521-536
[12] Liu B., Liu Y.-K. Expected value of fuzzy variable and fuzzy expected value models. IEEE Transactions on Fuzzy Systems,
2002, 10(4): 445-450
[13] Liu Y.-K., Wang S. Theory of Fuzzy Random Optimization, Beijing: China Agricultural University Press, 2006. 32(in Chinese)
[14] Liu B. Uncertainty Theory: An Introduction to Its Axiomatic Foundations. Berlin, Springer-Verlag, 2004
[15] Liu Y.-K. Fuzzy programming with recourse. International Journal of Uncertainty, Fuzziness and Knowledge-Based Systems,
2005, 13(4): 381-413
[16] Yuan G.Q., Liu Y.-K. Two-stage fuzzy optimization of an MPMP production planning model. Proceedings of 2006
International Conference on Machine Learning and Cybernetics: Vol 3-7. Dalian, China, 13-16 August 2006. 1685-1690
[17] Liu Y.-K. Convergent results about the use of fuzzy simulation in fuzzy optimization problems. IEEE Transactions on Fuzzy
Systems, 2006, 14(2): 295-304
[18] Klir G.J. On fuzzy-set interpretation of possibility theory. Fuzzy Sets and Systems, 1999, 108: 263-273
[19] Liu B. A survey of credibility theory. Fuzzy Optimization and Decision Making, 2006, 5(4): 387-408
36
Optimizing Designs to Improve the Blockage Behavior of
Emergency Networks
Abstract For transport networks, communication networks, and especially emergency evacuation networks, moving objects tend to
be not very obedient to any law. Each flow is stochastic and uncontrollable. We may fail to reach a maximum flow and get an
undesired maximal flow, which is called a saturated flow. This reflects on how inefficiently the network is utilized. Therefore it is
important to consider the values of the saturated flows in the process of designing the network. In this paper a model for optimizing
designs is proposed to improve the blockage behavior of originally designed networks. Three network examples are chosen to
illustrate the optimization procedure. Results show the rationality and feasibility of optimization designs.
Key words Emergency Network, Saturated flow, Blockage
1. Introduction
The maximum flow problem is often discussed in the classical network flow programming [1]. In the
corresponding model, normally flow distributions of arcs are supposed to be controllable, that is, arc flow values
can be increased or decreased arbitrarily as long as requirements for the restriction and conservation of capacity
are satisfied. However, this isnt coincident with reality. In the real world, some networks, such as transport
networks, communication networks, and especially emergency evacuation networks provide evacuation routes for
the crowd. In emergency situations, moving objects tend to move randomly. They are easy to be blocked at some
nodes (called structurally-blocking nodes in [3]) and no one is willing to withdraw a little. In this case the flow is
saturated and cant be increased any more. Its described as a saturated flow or a blocking flow. This flow is often
smaller than the maximum flow [2~3]. The smaller the flow is, the worse the flow capability of the network.
When the flow is the minimum saturated flow, the blockage of the network is the worst. This flow shows the
network at its most inefficient state. Therefore, the minimum saturated flow is equally important as the maximum
flow in the process of designing communication or transportation networks. Some algorithms of solving the
minimum saturated flow are presented in [4~7].
The concept on blocking flows was early presented in the maximum-flow algorithm of Dinitz [8]. The
blocking flows are intermediate values in maximum-flow algorithms [8~11]. Ning [2] first put forward the
blocking flow model in which blocking flows are studied as possible flow distributions in emergency evacuation
and similar situations. Additionally, some Japanese experts also discussed and researched on blocking flows. They
called it uncontrollable flows [12].
Ning [3] presented balanced networks in which capacity differences of the nodes except for the source and
the sink are all zero. Balanced networks are similar with proper networks in which every saturated flow is equal to
the maximum flow [13]. In these two kinds of networks, no blockage is possible to happen at any node.
Considering the flow can only be blocked at structurally-blocking nodes, an optimization design to decrease the
possibility of blockages in a network is discussed in this paper.
M. Iri [12] designed a model to improve the blockage of networks, but made no particular analyses. In this
paper, an optimization design model reducing the blockage in networks is introduced. The goal is to keep the costs
as low as possible, considering the restrictions by the lower and upper capacity, while changing the arc capacities
in the original design as to eliminate or at least decrease structurally-blocking nodes of the network as much as
possible in order to ensure the efficiency of the network.
37
2. Preliminaries
For a better understanding of the blocking flow theory, some principles are introduced as follows:
Definition 2.1 The sum of capacities of all arcs outgoing from the source is defined as the incoming flow of
networks.
Definition 2.2 If one path exists in a network from the source to the sink in which each arc is directed
forward and unsaturated, it is described as a forward directed augmenting path [3].
Definition 2.3 If there exists no forward directed augmenting path for a feasible flow in a network, this
feasible flow is called saturated flow of the network.
Definition 2.4 The saturated flow is said to be a blocking flow of the network, if its flow capacity is smaller
than the incoming flow of the network.
Definition 2.5 The saturated flow is defined as the minimum saturated flow, if it is the minimum of all
saturated flows of the network.
Definition 2.6 The capacity difference A at node A is defined as the difference between the sum of the
capacities of all arcs with A as its initial node and that with A as its terminal node, i.e.
A = [c(a) | v (a) = A] [c(a ) | v (a) = A]
i j (1)
c(a) denotes the capacity of arc a; vi(a) denotes the initial node of arc a; vj(a) denotes the terminal node of arc
a.
Definition 2.7 A network is called normalized network if the following conditions are satisfied for all nodes
in the network except for the source and sink: the capacity of each arc outgoing from node vi is less than or equal
to the total sum of the capacities of all arcs incoming to node vi. (The networks introduced in this paper are
normalized networks)
For example, for the network shown in Figure 1, the arc capacities are 1, node s is the source and node t is the
sink. The number in parenthesis beside each node is the capacity difference of the node. The numbers xij/cij beside
arcs are flow/capacity. In Figure 1(a), the flow is the maximum flow. In Figure 1(b), there exists no forward
directed augmenting path from the source to the sink and the flow is saturated. The flow value is 1 and obviously
smaller than the maximum flow 2. The flow in arc sB is unsaturated, but the flow of the arcs outgoing from node
B is saturated. If the flow is distributed according to Figure 1(b), it cant be increased any more. The capacity
difference of node B is negative, so its a structurally-blocking node of the network.
A(1) A
B(-1) B
Fig. 1(a) The maximum flow Fig.1(b) The minimum saturated flow
Definition 2.8 A network is called a blocking network, if there exists a saturated flow of the network
smaller than the maximum flow.
As shown in Figure 1(b), a blockage in a network only can happen, when structurally-blocking nodes exist.
Eliminating or decreasing the A of the structurally-blocking nodes as much as possible is critical to avoid the
occurrence or the probability of blockages. In the process of designing a network, avoiding structurally-blocking
nodes is vital in order to decrease the probability of blockages and to enhance the flow capability of the network.
38
3. The optimization design of improving the blockage of emergency networks
A network N=(V,E,s,t,c) is considered, with s the source and t the sink, V a finite vertex set and E a finite arc
set. For the original design of network N it is known:
1. The original designed capacities of arcs and the upper (lower) capacities
2. The incoming flow of network N, i.e. the possible maximum flow value from the source to the sink
3. The constructing cost per unit capacity of each arc in network N
Now the originally designed arc capacities are to be changed so that the capacity differences of the nodes
(except for the source and the sink) wouldnt be negative. Therefore, the problem to prevent blockages of the
network N is reduced to how to adjust the original designed arc capacities at the lowest cost, such that capacity
~
differences of the nodes (except for the source and the sink) are larger than or equal to zero, i.e. v 0, v V .
This paper discusses optimization of the original designed scenario of networks. Increasing or decreasing the arc
capacities is always relative to the original designed scenario. We assumed that the cost for increasing the unit
capacity is the same as the cost for decreasing the unit capacity for the same arc. The cost for increasing or
decreasing the unit capacity is denoted as b(eij) for arc eij.
We introduce the variable: c(eij ) = c~ (eij ) c(eij ) (2)
where c(eij) denotes the original designed capacity of arc eij and c~ (eij ) the capacity of arc eij in the
optimized design.
The objective function to be minimized is expressed as follows:
min( {b(eij ) c(eij ) | eij E}) (3)
Subject to:
nodes with negative capacity differences:
~
vi = {c(eij ) | eij E} {c(e ji ) | e ji E} + v i
= 0 vi V (4)
j j
where F is the incoming flow of network N, x(eij) is the flow of arc eij, mc1(eij), mc2(eij) are the upper and
lower limit of the capacity of arc eij.
39
A(5) A(0)
(5,7,2,1) (5,7,2,2) (7,7,2,1) (5,7,2,2)
(5,7,2,1)
e4 e4
(2,7,2,1)
s e1 t s t
e3 e1
e3
e2 e5 e2 e5
(5,7,2,2) (3,7,2,2)
(5,7,2,3) (5,7,2,3)
B(-5) B(0)
Figure 2(a) The original design of network 1 Figure 2(b) The optimized design of network 1
To improve the blockage behavior of network 1, we adjust the capacity differences of the nodes at the lowest
cost. Finally, the structurally-blocking node is eliminated from network 1.
The optimization model is formulated as follows:
The objective function is (the cost to be minimized)
min( {b(ei ) c(ei ) | ei E} (9)
Subject to:
5 c(e3 ) + c(e4 ) c(e1 ) 0 (10)
c(e5 ) c(e2 ) c(e3 ) = 5 (11)
c~ (e1 ) + c~ (e2 ) = F , e1 and e2 are the incoming arcs of network (12)
mc2 (ei ) c(ei ) + c(ei ) mc1 (ei ), ei E (13)
According to the above formula, we programmed this example with the software Lingo. the target value of
this model is -5, i.e. the cost of the optimized design of network 1 is lower than the cost of the original design. It is
decreased by 5 units. The results are shown in Table 1.
Table1 Comparing the optimized design with the original design of network 1
Capacity distribution of the Maximum flow Minimum Construction cost
arcs (e1,e2,e3,e4,e5) saturated flow
parameters of the original (5,5,5,5,5) 10 5 45
design
parameters of the (7,3,2,5,5) 10 10 40
optimized design
(8,10,2,2) e3 (5,10,2,1)
e1
(5,10,2,2)
e8
(2,5,2,4)
(6,10,2,3)
e7 t
s e2 e5
e9
(7,10,2,3)
e6 (10,10,2,4)
(9,10,2,2)
v2(-5) v4(7)
40
Table 2 Comparing the optimized design with the original design of network 2
Capacity distributions of the arcs Maximum flow Minimum saturated Construction cost
(e1,e2,e3,e4,e5,e6,e7,e8,e9) flow
Original design
(8,7,5,9,2,9,6,5,10) 14 9 163
parameters
Optimized design
(10,5,2,8,2,9,2,8,7) 15 15 131
parameters
(2,5,1,1)
(6,8,1,1) (2,10,1,1)
e4 e10
e1
(8,10,1,2) (1,5,1,2)
s e7 (6,10,1,2)
t
e2 v2(-3) v5(-6) e13
e3
(6,8,1,1)
e5 (3,5,1,2)
e14
(3,5,1,1) e8 e11 (10,10,1,1)
(3,5,1,2) e9
(3,6,1,1) v6(1)
v3(6)
Table 3 Comparing the optimized design with the original design of network 3
Capacity distributions of the arcs Maximum flow Minimum saturated Construction cost
(e1,e2,e3,e4,e5,e6,e7, flow
e8,e9,e10,e11,e12,e13,e14)
Original design (6,8,3,7,3,2,1, 6 3 87
parameters 3,3,2,6,2,6,10)
Optimized design (8,4,5,2,1,10,3, 17 17 113
parameters 1,3,1,7,9,10,10)
Analyzing the three network examples above, we can optimize the scenarios of the original designs. In
optimized designs, the structurally-blocking nodes are eliminated. The capacity differences of the nodes with
original negative capacity differences are changed to zero, and the capacity differences of nodes with original
nonnegative capacity differences are kept nonnegative.
In the optimized networks, the flow cant be blocked at any node. The minimum saturated flow equals the
maximum flow.
5 Conclusions
Network design is involved in many fields such as computer and communication systems, transportation
systems, etc. Traditionally, people think the network flow is controllable and distributed according to the demand,
i.e. designing and operating networks in an optimum way, so the maximum flow is often studied in the classical
network programming. In reality, especially in emergency networks, every moving unit tends to not obey any rule;
the flow is stochastic. Therefore, a blockage easily takes place at a structurally-blocking node. In this case the
blocking flow is smaller than the maximum flow of the network. The minimum of all blocking flows is called the
minimum saturated flow. In the process of designing one network, its important to avoid a blockage structure
(there exist no structurally-blocking nodes in the network) so as to improve the blockage behavior of the network.
How to optimize the original designed network at the lowest cost? In the practical alteration of networks, its
critical to modify the arc capacities of the network so that the capacity differences of the structurally-blocking
41
nodes can be increased to zero. Capacity differences of the other nodes can be restricted between zero and their
original designed values.
Networks after optimizing the design have lower utilization than balanced networks. Some arcs have
redundant capacities when the saturated flow reaches the maximum flow of the network. However it avoids the
possibility of blockage and keeps the cost for constructing the network low. This method is more applicable.
Research on the model of improving the blockage behavior of emergency networks has practical significance.
It serves as a guide on how to design networks preventing blockage. This research can also be extended to
reconstruct existing networks.
References
[1] Ford L. R., Fulkerson D. R. Flows in networks. NJ: Princeton University Press. 1962.
[2] X. Ning, Y. Shi. The maximum flow problem of a network in the emergency situation. In: Proceedings of the Second
International Conference on Systems Science and Systems Engineering, 555-558, International Academic Publishers, Beijing,
China. 1993.
[3] Xuanxi Ning, Angelika Ning. The blocking flow theory and its application to Hamiltonian graph problems. Shaker Verlag.
2006.
[4] Ning Xuanxi. Two-way flow-augmenting algorithm for solving the minimum flow problem of a network. Systems Engineering.
1997, 15(1): 50~57. (in Chinese)
[5] Ning Xuanxi. The minimum flow problem in a network and its Branch-andBound method. Systems Engineering. 1996, 14(5):
61~66. (in Chinese)
[6] M.Shigeno,I.Takahashi and Y.Yamamoto, Minimum Maximal Flow Problem: An Optimization over the Efficient Set, Journal
of Global Optimization 2003, 25: 425-443.
[7] Le Dung Muu, D.C. Optimization Methods for Solving Minimum Maximal Network Flow Problem.
www.mmm.muroran-it.ac.jp/~shi/MuuShi.pdf
[8] E.A.Dinic. Algorithm for solution of a problem of maximum flow in networks with power estimation. Soviet Mathematics
Doklady, 1970, 11: 1277-1280.
[9] Tarjan, R.E., Data structures and network algorithms. Society for Industrial and Applied Mathematics, Philadelphia, PA, 1983
[10] A.V.Goldberg and S.Rao, Beyond the flow decomposition barrier, Proc. 38th Annual IEEE Symposium on Foundations of
Computer Science (FOCS 1997), pp. 2-11.
[11] Mikhail J.Atallah, Algorithms and theory of computation handbook, CRC Press LLC, 1999: 7.12-7.14
[12] Iri Mason. Theory of uncontrollable flows-a new type of network-flow theory as a model for the 21st century of multiple values.
Computers Math Applic.1998.
[13] Lin Yixun, Li Xianglu, Deng Junqiang. The minimum saturated flow problem in emergency networks. OR Transactions. 5(2).
2001.
42
An Approach to Solve Large Scale Multiple Traveling
Salesman Problem with Balanced Assignment
Abstract A special case of multiple traveling salesman problem which requests the cities each traveling salesman visited to be the
same and the total tour length to be minimized is calculated by Lin-Kernighan algorithm with a two stage procedure. The calculation
result is satisfactory.
Key words TSP, MTSP, Lin-Kernighan algorithm
1. Introduction
The traveling salesman problem (TSP) is the classical problem in Combinatory Optimization filed, and the
multiple traveling salesman problem (MTSP) is the extension of TSP. A special case of MTSP could be defined as:
Given N cities and M traveling salesman and the distance matrix Dij = (d ij ) nn which shows the distance of any
two cities. Each of the M traveling salesman must visit some cities and each city can only be visited by one
salesman once. The original city of each route is uncertain and each salesman does not need go back to the
original city. If i j d ij = d ji , then such case could be described as Symmetric MTSP, otherwise Asymmetric
MTSP.
2. Solution method
In general, this problem can be viewed as a two level optimization problem, one level is how to divide the N
cities into M group, and the other is the route optimization problem. Compared with the classical TSP, such
problem is harder to solve and the solution space is larger than TSP. One possible solution is called the adding
virtual node method [1]. For example, assume 3 salesman and 13 cities, and one possible solution is: the first route
sequence for the first salesman is (1, 13, 7, 5, 8), the second route sequence is (2,12,9), the third route sequence is
(11,6,3,4,10).After adding virtual node 14,15,16,and make the distance of each original node and each virtual
node to be zero, the distance of each two virtual node to be infinite, then such problem could be transformed to the
traditional TSP. The corresponding solution is (1, 13, 7, 5, 8, 14, 2, 12, 9, 15, 11, 6, 3, 4, 10, 16).
Key Project Supported by National Natural Science Foundation of China (70431003); Innovative Research Team Project Supported by National
Natural Science Foundation of China(60521003)
43
For rat783 instance, it is a problem having 783 cities. When M=7, the optimization total route length is 8597.
The number of cities each salesman traveled is 2273259147198318 respectively.
Fig. 1 show the route sequence of each salesman.
To get the object of total tour length minimized often leads to the result that some salesman visits very few
cities and some visit quite a few. This is the unbalanced result. The object of total tour length minimized often
conflict with the object of balanced task. [3] In this paper, we propose a two stage method to get a balanced
solution. The solution includes two steps. The first is the optimization procedure and the second is the regroup and
re optimization procedure. Below show the detailed steps. First step: use the Lin-Kernighan algorithms to find a
solution which minimize the total tour length and keep the sequence of each salesmans travel route and then
discard the virtual nodes. After this step we get a TSP tour solution. To get a balanced solution, we need to cut M
edges whose total amount of length is max. In the process of cutting edges, we also have to follow the constraint
that the city numbers between any adjacent discarded edges is N/M. That is the regroup procedure. Tab. 2 is the
calculation result for all computation instances. Second step: after the regroup procedure, the original optimized
route is damaged and the new travel route for each salesman need to be optimized again. Fig. 2 shows the travel
route of each salesman after the first step. Fig. 3 is the final optimization route.
44
Fig. 3 route sequence of example Rat783 when M=7
Tab. 2 computation result when M=3, 5, 7
M=3 M=5 M=7
Name scale
balance balance balance
bier127 127 109272 135931 119947
Symmetric ts225 225 132637 138981 150792
rat783 783 9206 9982 9727
kro124p 100 37398 39222 37773
4. Conclusion
For a special case of MTSP which request a balanced assignment, we propose a two stage method to solve
such problem by using Lin-Kernighan algorithm. The computation result shows that such method is suitable and
efficient. Computation instance are all cited from the TSPLIB including symmetric and asymmetric problem. The
computation result is satisfactory.
References
[1] Lixin Tang, Jiyin Liu, Aiying Rong and Zihou Yang. A multiple traveling salesman problem model for hot rolling scheduling in
Shanghai Baoshan Iron & Steel Complex. European Journal of Operational Research, 2000, 124(2): 267-282
[2] S. Lin, B. W. Kernighan. An effective heuristic algorithm for the traveling salesman problem. Operation Research, 1973
(21):498-516
[3] Houqing Lu, Huidong Wang. Divide into equal task of MTSP. System Engineering, 2005, 23(2):19-21
45
Optimization Methods and Models Supplier Selection for
N-Product under Uncertainty: A Simulation-Based
Optimization Method
Abstract The paper considers supplier selection problem for N-product under uncertainty, that is, variable lead time of suppliers
and stochastic demand. The problem is a multi-level problem that includes both strategic and operational level. And the inventory
system of the Supply Chain (SC), which consists of costs of ordering and receiving order, purchasing cost and shortage cost, is the
key factor for the problem. A simulation-based optimization method is proposed to solve it. More specially, an inventory model
under variable lead time and random demand, such as, demand with a normal distribution, is presented and a genetic algorithm with
disperse-event simulation is developed for it to find the satisfying suppliers from a set of pre-selected candidates and at the same time
decide the order strategy, including the reorder level and order quality. A numerical example is attached to illustrate the method.
Keywords Supplier Selection, Genetic Algorithm, Simulation-base Optimization, Disperse-Event Simulation
1 Introduction
The issue of single-sourcing versus multiple-sourcing procurement systems has been discussed widely as a
result of the success of Japanese purchasing practices. And the uncertainty is one of the most important factors
that make the decision more difficult[1]. And supplier selection for N-product must be in concern for its more
close to the real situation. A simulation-based optimization method, which builds an inventory model under
variable lead time and random demand, such as demand with a normal distribution, is presented to solve it. The
model considers the inventory system of the Supply Chain, which consists of cost of setting up orders, cost of
receiving orders, purchasing cost and shortage cost. At last, a genetic algorithm with disperse-event simulation is
developed for it to find the satisfying suppliers from a set of pre-selected candidates. The order strategy is
determined at the same time.
2 Problem Description
2.1 Flow
Figure 1 shows that a cycle of the inventory level vs. time of one product, such as the jth product[2 3,4,5]. At
first, there is some inventory of the product. When it goes down to a certain count, the new orders of the product
are sent out. This is the reorder level. The orders are sent to the selected suppliers. A cycle starts at this time. After
the lead times of some suppliers, the inventory is replenished by each delivery. And the inventory continually
goes down for the demand at the same time. If the inventory goes to zero before next delivery, shortage occurs
and it results in demand-lost. In a manufacture firm, the assembly line will be stopped for the shortage, so the
inventory of all other products is affected and stays on current level. This situation remains till the next lead time
and the delivery of the supplier arrived. It assumed that the inventory goes higher than reorder level after the last
delivery, otherwise the system cannot form a renewal process and the decomposition analysis based on a cycle
does not work. When the inventory drops to reorder level again, new orders are sent out once more. This is the
end of a cycle and the start of a new cycle for the product.
46
Inventory
Level Max. Lead Time
A Cycle
2.2 Assumptions
1) Order Policy (s, Q), where sj is the reorder level of jth product and Qij is the order quantity of jth product
from ith supplier is adopted for the inventory system.
2) After a cycle of jth product, the inventory of jth product is above the reorder level, sj. This assumption
keeps the inventory system working continually.
3) Lead times are random variable, independent with each other, but not with the same distribution.
4) Unit time demand for finished product is a random variable too. And the demands for supplied products
are pro rata to it. For instance, a stool needs one seat and four legs, etc.
5) There is a capacity limit of each product for every supplier
2.3 Notations
M: Number of suppliers.
n: Number of products.
i: Supplier index.
j: Product index.
s: Reorder level; sj: Reorder level for jth product.
ij : = 1 shows that ith supplier for jth product is selected, 0 otherwise.
Qij: Order quantity for jth product from ith supplier in a cycle of jth product. Qij=0 if ij =0; Qij>0
otherwise.
Qj: Order quantity for jth product in a cycle of jth product. And Q j = m Qij .
i =1
47
3. Model Formulation
A. The cost of sending out orders and accepting the delivery for jth product in a cycle time is
K1 j + i =1 K 2ij .
m
T
B. The inventory holding cost for jth product in a cycle time is h j t =0
I j (t ) , where
I j (t ) = ( I j (t 1) + Qj (t ) d j (t )) + , if I j ' (t 1) + Q j ' (t ) > d j ' (t ) ,
I j (t ) = ( I j (t 1) + Q j (t ) j ( I j ' (t 1) + Q j ' (t )) / j ' ) + , if I j ' (t 1) + Q j ' (t ) < d j ' (t ) and
I j ' (t 1) + Q j ' (t ) > 0 , I j (t ) = I j (t 1) + Qj (t ) , if I j ' (t 1) + Q j ' (t ) < 0 .
j t =0 S j (t ) , where
T
C. The shortage cost for jth product in a cycle time is
S j (t ) = (d j (t ) I j (t 1) Qj (t )) + .
m
D. The purchasing cost for jth product in a cycle time is i =0
Pij Qij .
E. Constrains:
Q (t ) C .
Y
Capacity constrains: t =0 ij ij
q Q /Q q
m
Quality constrains: i =0 ij ij j aj .
5 A numerical example
More clearly, an illustrative numerical example is shown in this section. The example is based on a supply
chain of a manufacturer and its suppliers selection process. There are three products for assembling and supplied
by three suppliers. Table 1 shows the parameters of the model. The lead time fro each product is exponential
distributed, with mean value 28 for product 1, 23 for product 2 and 29.5 for product 3. And the demand rate is
random under normal distribution with mean 20 and variance 10. These data is deduced from the history
information of the firm. Using Gatool of Matlab for solving this model provides the results as shown in Table 2.
The main advantage of such an analysis for purchasing department is that the manger can select the best
supplier(s). Moreover, this approach provides the order policy (s, Q) in the operation level.
Table 1: Parameters for the model
product 1 2 3
supplier 1 2 3 1 2 3 1 2 3
K1j 285 253 311
K2ij 150 192 403 35 315 12 269 255 134
Pij 0.32 0.35 0.29 0.28 0.32 0.50 0.36 0.45 0.37
Cij 3200 2500 3500 1700 3900 2000 2800 2900 3100
hj 0.040 0.037 0.041
qij 0.91 0.87 0.86 0.90 0.89 0.95 0.91 0.92 0.89
qaj 0.875 0.881 0.877
j 0.35 0.28 0.33
j 1.2 4.6 7.3
References
[1] Dotoli, M.; Fand, M.P.; Meloni, C.; Zhou, M.C.A decision support system for the supply chain configuration[J]In: Systems,
Man and Cybernetics, 2003. IEEE International Conference on, Volume: 3 , Oct. 5-8, 2003Pages:2667-2672
[2] Jason Chao-Hsien Pan, Ming-Cheng Lo and Yu-Cheng Hsiao. Optimal reorder point inventory models with variable lead time
and backorder discount considerations. 2004, European Journal of Operational Research. Volume 158, Issue 2: 488-505
[3] Chuda Basnet and Janny M. Y. Leung. Inventory lot-sizing with supplier selection. Computers & Operations Research. 2005,
Volume 32, Issue 1: 1-14
[4] Zarandi, M.H.F. and Saghiri, S. A comprehensive fuzzy multi-objective model for supplier selection process. In: Fuzzy
Systems, 2003. FUZZ'03. The 12th IEEE International Conference on. 2003,Volume 1: 368-373
[5] Ruengsak Kawtummachai and Nguyen Van Hop. 2005. Order allocation in a multiple-supplier environment. International
Journal of Production Economics. Volumes 93-94: 231-238
[6] Hedlund, H.E. and Mollaghasemi, M. 2001. A genetic algorithm and an indifference-zone ranking and selection framework for
simulation optimization. Simulation Conference, 2001. Proceedings of the Winter. Volume 1: 417-421.
[7] Miller, B.L. 1997. Noise, Sampling, and Efficient Genettic Algorithms. IlliGAL Report No. 97001. University of Illinois at
Urbana-Champaign, Illinois Genetic Algorithms Laboratory, Urbana, IL.
50
A Feasible Case Study of Applying Critical Chain
Multi-Project Management in Semiconductor Turnkey
Services
Abstract We present a semiconductor supply chain model constructed under the concept of Theory Of Constraints (TOC) [1] as
well as Critical Chain Multi-Project Management [2] to monitor and control FABLESSs manufacturing orders throughout the entire
supply chain. The objective of Critical Chain Multi-Project Management is to assure that projects can be delivered on time. However,
whether Critical Chain Multi-Project Management is applicable for the assuring that orders, view as tasks or projects, can be
delivered on time in semiconductor turnkey services deserves to be studied. There are basically two major concepts in Critical Chain
Multi-Project Management. They are project buffer and buffer management in multi project operation. The former is utilized to
calculate the due date while the latter serves as the monitoring and control mechanism. The project buffer strongly influences the
due-date performance. Thus to verify the feasibility of the estimate of project buffer proposed by Dr. Goldratt is necessary. The
concept that Dr. Goldratt arbitrarily divided the project buffer into three equal zones for buffer management [2], which has been
criticized by many researchers, needs to be justified, too. A case with real world data is employed in this study. Simulation model
build in eM-Plant is experimented. Results show that the estimate of project buffer may not be proper while the buffer management
works well in this typical case.
Key words Critical Chain Multi-Project Management, Theory of Constraints, Supply Chain Management
1. Introduction
Critical Chain Multi-Project Management, a method of multi-project management, is employed in this study
to monitor and control FABLESSs manufacturing orders throughout the entire semiconductor supply chain. Its
objective is to make sure those orders can be delivered on time. As the IC design houses release their
manufacturing orders to the foundries, we view them as tasks or projects. However, whether Critical Chain
Multi-Project Management is applicable for the semiconductor turnkey services deserves to be studied. There are
basically two major concepts in Critical Chain Multi-Project Management project buffer and buffer
management. The former can be utilized to calculate the due date while the latter serves as the monitoring and
control mechanism. The project buffer strongly influences the due-date performance. Therefore to verify the
feasibility of the estimate of project buffer proposed by Dr. Goldratt [2] is necessary. Similarly, he arbitrarily
divided the project buffer into three equal parts for buffer management [2] (see Fig.1), which has been criticized
by many researchers and therefore, needs to be justified, too.
PB
51
2. LITERATURE REVIEW
In this part, we will review the turnkey services in the semiconductor industry briefly and then we will
pinpoint at the Critical Chain Multi-Project Management.
2.1 Turnkey Service
There are many different definitions and types of the turnkey services. Wu [3] classified two basic kinds of
turnkey services depending on who is in charge of it. One is controlled by the foundry FAB, the front end, and the
other is controlled by the assembly and final testing, the backend. The turnkey service managed by FAB will be
completed till the last stopfinal testing. That is the so-called one-stop shopping turnkey service and is the most
common definition in semiconductor industry. Additionally, it is the turnkey service scenario that we are going to
utilize when building the experimental model.
FAB
Finished
CP Assembly FT Goods
Feeding
Buffer
Non-critical A ctivity
Project
Buffer
Critical Activity C ritical A ctivity C ritical A ctivity
3. METHODOLOGY
This study treats turnkey services as one of the critical programs for the foundry fabrication (FAB). The
turnkey service is assumed to be managed by her production control (PC) staffs, who we view them as project
managers in Critical Chain Multi-Project Management. Our objective aims to ensure high performance of average
on-time-delivery percentage (AOTDP) through the usage of the concepts of Theory of Constraints and Critical
Chain Multi-Project Management. The Critical Chain Multi-Project Management has been proven to outperform
the PERT/CPM approach when dealing with constrained resource. But its applicability on semiconductor turnkey
service needs to be justified.
3.1 Estimates of Project Buffer and Feeding Buffer
There are two methods to estimate the size of buffers. They are (1) the cut and paste method and (2) the
root-square-error method. Detailed illustration, tutorial information and statistical stands can be found in the
following website: http://www.pdinstitute.com/ [6].We will utilize the root-square-error method instead of the cut
and paste method due to its implicitness.
The RSE method requires two estimates of task duration from individual contributor. One is the safe estimate,
which makes the estimator feel eased when making a commitment. In other words, this estimate must consist of
enough padding. The other is the average estimate, the one without any padding or protection. In addition, the
contributor should assume that the task would be worked at a full level of effort, with no interruption by
contingencies or external factors. What we view will serve as the expected value (see Fig.5).
S a fe E s tim a te (S )
A v e r a g e E s tim a te (A )
The difference of these two estimates, denoted as D, is treated as the magnitude of uncertainty to the average
estimate. Uncertainty: D = Safe Estimate (S) Average Estimate (A). For each task of a project, D is used to
calculate the most likely error or uncertainty in the project duration. The detailed calculation is shown in Fig.6.
The RSE method assumes independence between tasks. Moreover, one major flaw of this method is that the safe
estimates are subjective and dependent on contributors measurement. In other words, the feasibility of these data
provided from each task doesnt work. This does not seem sound and may be criticized.
53
(1) Collection of Average Esitmates
A1 A2 A3 A4 A5 A6 A7 A8
A1 A2 A3 A4 A5 A6 A7 A8 Project Buffer
However, experienced researchers may query that (1) how can we assume that cycle time per layer (CTPL) in
the FAB obeys normal distribution with iid and (2) why do we choose 80-percent-likely-to-be-done point instead
of 70% or 90% ones. For the former question, we have to clarify that the cycle time per layer we referred contains
processing time, down time and waiting/queue time. Each layer consists of dozens of steps. Processing time in the
FAB is constant when machine is stable or extremely high when machine is down. It is constant but the waiting
time isnt. There are many steps within each layer so that we apply the CLT and assume that they abide by the
normal distribution. Nonetheless, are layers independent with one another? We are also skeptical about it. Thus
we place this controversial issue in the future study, but only highlight the application of Critical Chain Project
Management. For the latter question, it will actually depend on the shop floor status, i.e., when the capacity is
approaching limit, we will suggest use 90% while lower utilization of equipments with 70% or even 60%. Here,
we utilize the 80% one as the initial searching point.
54
4.1Step one: Define the scenarios
Our turnkey service model is an intricate network under the charge of headquarters of FAB. There are six
parts in this study and each product will have its routing predetermined and priority of substitute plants (see
Tab.1). The upstream plant will not release all manufacturing orders to certain downstream plant so that the
product will be released by proportion to the top priority, the second one, and so on. In addition, all of the lots will
be delivered daily (8 am) from upstream to downstream except from FAB to CP, which is assumed to be real time
releasing.
Tab.1 Routing and Priority of Substitute Plant for each Part
Part type Fabrication Chip probing Assembly Final Test From
A FAB_01 CP_01 AS_01,02,03 FT_01 FABLESS_A
B FAB_01 CP_01 AS_01,02,03 N/A FABLESS_A
C FAB_01 CP_02 AS_04,03,02 FT_02 FABLESS_B
V FAB_02 CP_01 AS_01,02,03 FT_01 FABLESS_C
X FAB_02 CP_01 AS_01,02,03 FT_01 FABLESS_C
Y FAB_02 N/A FABLESS_D
90
80
70
60
AOTDP
50
40
30
20
10
0
1500 1575 1590 1620 1650 1800
According to Fig.8, we conclude the followings: (1) Critical Chain Multi-Project Management partially
works in this experimental simulation. It may indicate that the estimates of project buffer and lead-time are
probably inappropriate because we only have about 50 percent probability to have the lots completed on time at
CONWIP level of 5 percentages more under legacy dispatching rule. (Allow us to remind readers of the fact that
project buffer strongly affects the length of due date and therefore, influences the due-date performance.) This
55
phenomenon may result from the imprecision of our model for lack of detailed data, i.e., we only overlook from
the whole plant as jobs in and jobs out in the backend. Or, it may also result from the sensitiveness of the FAB.
Because when we release a few more lots into FAB, the cycle time ascend dramatically and it makes the
performance badly. (2) Buffer management of Critical Chain Multi-Project Management, in Figure 4-5 we call it
CCPM3, also partially works because its performance is merely the same with EDD. However, as the buffer
management plus CR (we call it CCPM3+CR here), it creates sublime AOTDP. It outperforms the other
dispatching rules obviously. Thus, we conceive what if it works when we divide the project buffer into more
zones? Therefore, we tested the performance again by cutting the project buffer and wish to stop at the best
AOTDP. Even so, this figure shows that it makes no difference as we did it. And (3) Since the project buffer may
not be appropriate, we try to utilize the simulation to designate the due date, which is used to calculate new project
buffer, and then re-check the feasibility of Critical Chain Multi-Project Management and performance under
different dispatching rules. Issue of determining due date is not the focus/purpose in this study.
4.3 Step three: Designate the Due Date and confirm it
To assign a due date, rule first in first out (FIFO) is employed as the foundation, on which the confirmation
and comparisons are based. We find the throughput cease increasing at CONWIP Level of 5 percentages more so
the mean cycle time of each product (50% OTDP) is assigned as new due date and the difference between the sum
of average cycle time per layer and due date are regarded as new project buffers. Now, we keep conducting
another experiment to confirm it. What we get is shown in Fig.9.
We conclude that Fig.8 shows consistency with Fig.9 that CCPM3+CR does prevail the others again and
achieves higher AOTDP. In addition, even we cut the project buffers into more sections but it doesnt make
significant difference (see Fig.10).
Performance
120
100
80
AOTDP
60
40
20
0
1500 1575 1590 1620 1650 1800
Fig.9 AOTDP Under Different Dispatching Rules with Designate Due Date
100
95
90
AOTDP
85
80
75
70
References
[1] E. M. Goldratt and J. Cox, The Goal: A Process of Ongoing Improvement, New York: The North River Press, 1986
[2] E. M. Goldratt, Critical Chain, New York: The North River Press, 1997
[3] W. C. Wu, A Study of Turnkey Service for Semiconductor, Master Thesis, Department of Industrial Engineering and
Management, National Chiao Tung University, HsinChu, Taiwan, ROC, 2001
[4] L. P. Leach, Critical Chain Project Management Improves Project Performance, Project Management Journal, Vol. 30, No.
57
2, 1999, pp39-51
[5] Herman Steyn, An investigation into the fundamentals of critical chain project scheduling, International Journal of Project
Management, Vol. 19, 2000, pp363-369
[6] http://www.pdinstitute.com/, Critical Chain Multi-Project Management Tutorials
[7] I. Miller and J. E. Freund, Probability and Statistics for Engineers, 2nd Edition, New Jersey: Prentice-Hall, 1977, pp169-170
[8] J. Y. Shieh, A Study of Dispatching Logic for the Photolithography Area and the Furnace Area in a Wafer Fab, Master
Thesis, Department of Industrial Engineering and Management, National Chiao Tung University, HsinChu, Taiwan, ROC, 1998
58
A Fuzzy Multi-Objective Programming for Optimization of
Reverse Logistics for Solid Waste
Abstract This paper develops a multi-objective mathematic model for the location of treatment sites and transfer sites for
municipal solid wastes. Based on the fuzzy satisfactory levels of objectives, a two-phase fuzzy algorithm is proposed. Through
solving the model, we can determine the locations and numbers of these sites and how to assign the generation sites to transfer sites.
Therefore, a reverse network for municipal solid waste is constructed. Finally, an example proves the availability of our approach.
Key words Reverse logistics, Multi-objective optimization, Solid waste, Fuzzy algorithm
1. Introduction
There are increasing interests in the reverse logistics research in last few years. From a logistical perspective,
the reverse logistics is opposite to the conventional forward logistics and has its own characteristics different from
the forward logistics[1]. It means the re-use activities give rise to an additional goods flow from the consumers
back to producers. The existing research is mainly concerning about the product recovery such as carpet waste[2]
copy machines[3]electronic equipment[4] but a few research concerning about the municipal solid wastes from the
reverse logistics perspective.
In recent years, modern society have experienced an increasing public awareness of minimize human
pollution, improving transport and disposal of waste and hazardous materials, and consequently, to minimize the
potential accidental risk. An important planning problem in environmental engineering field is locating landfills or
treatment facilities for waste and hazardous materials. This problem usually faces conflicting goals such as cost
and risk, so it is difficult to formulate and solve. Although these facilities are necessary for society, they usually
have a negative impact on property values or the quality of life because of pollution. Moreover, the public wants
these facilities as far away as possible, so these kinds of facilities are called undesirable facilities or obnoxious
facilities. If such facilities are located too far from urban areas which generate most of the solid waste, the
operating costs of transporting waste tends to increase, so there is a need to minimize the transportation costs,
which is in conflict with the original objective to locate landfills far from generation regions. This has led to
research on mathematical location models for undesirable facilities[5~9]. But uncertainty frequently plays an
important role in planning reverse logistics network. The random character governing solid waste generation, the
estimation errors in parameter values and the vagueness of planning objectives and constraints are all possible
source of uncertainty[10]. Chang applied fuzzy goal programming in dealing with several specific issues in the
integrated solid waste management in Taiwan[11~12]. Few papers focus on the simultaneous locating the transfer
stations and treatment stations. So, we propose a fuzzy multiobjective integer programming formulation that
incorporated the three important goals with fuzzy satisfactory level: cost-minimization, minimization of distance
between transfer station and dwell district and maximization of distance between treatment station and dwell
district. Our paper is a pioneering work in this area. The paper is organized as follows. In Section 2 we define the
problem and propose a multi-objective integer programming model. The model is transformed into a single
unified min-max goal model in section 3 and in section 4 the case study was based on the data collected from a
city in China to illustrate the application of the method for the optimization problem.
2. Model Formulation
With the fast economic development, the solid waste has been produced vastly in China. The amount
produced in China has overrun that produced in America since 2004. China has been the largest waste generation
country in the world. According to the estimate of the World Bank, China should build about 1400 landfills in the
59
next twenty years. If the treatment station is in the neighborhood of dwell district, it will impose ill impact on the
dwellers. Therefore, the dwellers hope that keep far way from their district. If the transfer station is far from the
dwell district, it will cause inconvenience to the dwellers. So, the dwellers hope it in the neighborhood of their
district. In a word, it is very important for the decision makers to choose the reasonable locations to build transfer
stations and treatment stations while minimize the sum cost of construction and transportation.
2.1 Assumptions
We give the assumptions as follows:
a) The solid waste generation area is the dwelling district. The more people, the more amount of solid
waste will be generated.
b) The transportation cost is linearly proportional to the transportation distance.
c) The generation rate of the dwelling district is constant in our planning period.
d) We will build one treatment station and several transfer stations.
2.2 Parameters and decision variables
Parameters :
i I index for dwelling district;
j J index for transfer stations;
k K index for treatment stations;
Hi size of population of dwelling district i ;
amount of waste generated per day per person;
Gk fixed cost associate for opening treatment station at site k ;
Fj fixed cost associate for opening transfer station at site j ;
dij Euclidean distance between dwelling district i and transfer station j ;
d jk Euclidean distance between transfer station j and treatment station k ;
dik Euclidean distance between dwelling district i and treatment station k ;
transportation cost per unit distance per unit amount ;
D maximum coverage of transfer station
Decision variables:
1 if a transfer station is located at site j 1 if a treatment station is located at site k
Xj = Yk =
0 otherwise , 0 otherwise
1 if district i is assigned to transfer station j
Z ij =
0 otherwise
2.3 Model
The model FMOLP is formulated as follows:
(1)
min F j X j + Gk Yk + H i ZijYk d jk + H i Zij dij
j k k j i i j
min W (2)
max P (3)
s.t. Z ij = 1, i I (4)
j
Z ij X j i Ij J , (5)
(6)
dik Yk P, i I
k
dij Z ij D (8)
60
(9)
Yk = 1
k
X j ( 0,1) , j J , (10)
Z ij ( 0,1) , i Ij J (11)
Yk ( 0,1) , k K (12)
The objective (1) minimizes the total cost including the fixed cost for opening stations and transportation cost.
Objective (2) minimizes the distance between dwelling district and transfer station which is defined in constraint
(7). Objective (3) maximization the distance between treatment station and dwell district which is defined in
constraint (6). Constraint (4) ensures every dwelling district should be assigned to one and only one transfer
station. Constraint (5) ensures only the open transfer station can receive the waste from the dwelling district which
is assigned to it while constraint (8) stipulates the generation area shouldnt be assigned to the transfer station
which cant cover it. Constraint (9) means only one treatment station will be build. Constraint (10)(11) and (12)
enforce the integrality restriction on the decision variables.
2.4 The membership function of objectives
In a minimization problem such as minimizing the distance from a transfer station to a dwelling district, the
objective stated by a Decision Maker (DM) is to be best less than an optimistic value f k+ , and be surely less than a
pessimistic value f k . This requirement possesses the fuzzy nature and can be treated by introducing the following
linear membership function[13]. Let f1 , f 2 , f 3 denote the objectives (1)(2)(3) respectively. It is assumed that the
kth membership function should be 1 if the objective achieves the optimistic value, 0 if the pessimistic value is not
achieved, and linear from 0 to 1. Such a linear membership function is illustrated in fig1.
f f 2
1
1 if f1 f1+ 1 if f 2 f 2+
1
1
f f1 f f2
f1 = 1 if f1+ f1 f1 f2 = 2 +
if f 2+ f 2 f 2
f2 f2
+
f1 f1
0 0 if f 2 f 2
if f1 f1
0 0
f1+ f1 f1 f 2+ f 2 f2
f3
0 if f 3 f3
1
f f
f3 = 3+ 3 if f 3 f3 f 3+
3f f 3
1 if f3 f 3+
0
f 3 f3+ f3
61
(14)
f1 f1 ( u )
s.t.
f1 f1+
(15)
f 2 f 2 ( u )
f 2 f 2+
(16)
f3 ( u ) f3
f3+ f3
Solving the model FMOLP1, the optimal value of satisfactory level of objective set can be attained. And
the optimal solution u to the equivalent problem which is feasible solution to the primary problem can also be
obtained. If the optimal solution u is unique, then it is the optimal solution to the primary problem, otherwise, a
model FMOLP2 that maximize the average satisfactory level of objective set is formulated as follows at the
second phase,
1 (18)
max = [ 1 + 2 + 3 ]
3
(19)
f1 f1 ( u )
s.t. 1
f1 f1+
(20)
f 2 f 2 ( u )
2
f 2 f 2+
(21)
f3 ( u ) f3
3
f3+ f3
1 , 2 , 3 [ 0,1] (22)
Solving this model, we can obtain an efficient solution to the primary problem with the maximum average
satisfactory levels of objective set.
4. Case study
To demonstrate how the model works and to verify its usefulness, the model was applied to the real-world
problem facing by the Gongyi city in Henan Province in China. We aggregated the waste generation areas into 30
population centers through clustering technology. The coordinate of the 30 centers and their size of population are
shown in table 1. Through prescreen, 10 candidate sites for opening transfer stations were determined and shown
in table 2. Five candidate sites for opening treatment stations are shown in table 3. According to the data from the
World Bank, in 2010, the amount of waste generated per day per person in China will be 1.1kg. The transportation
cost per kilometer per ton is 1.0.
Ling8.0 is an optimization software which can solve linear programminginteger programming and nonlinear
programming. We use this software to solve our problem. The positive ideal solution
is f1+ = 684.19, f 2+ = 10.15, f 3+ = 42.06 ,the negative ideal solution is f1 = 1008.90, f 2 = 52.16, f3 = 0 . The optimal
value of model FMOLP1 is 0.97 . Since the optimal solution is unique, so the solution to model FMOLP1 is
the optimal solution to model FMOLP. The results are showed in table 4. Figure 2 shows a graphic representation
of our solution.
62
Tab.1 Locations and costs of potential sites of transfer stations
No X Y cost No X Y cost
1 20.58 27.25 50 6 25.97 40.89 55
2 32.36 28.59 55 7 43.57 38.65 55
3 9.58 6.51 60 8 25.23 20.25 60
4 37.54 19.31 45 9 43.04 4.97 65
5 10.14 46.21 50 10 16.08 21.71 60
Tab.4 Solutions
Transfer station: Generation area allocated to the transfer station Treatment station to be build is potential site 1
31,3,4,5,6 Objective 1: 6,943,000
47,11,21,22,24 Objective 2: 11.6
515,17,18,19,20 Objective 3: 42.1
68,14,28,29,30
79,12,25,26,27
923
102,10,13,16
5. Conclusions
With the fast development of economy in China, the amount of solid waste is also produced increasingly. In
63
this paper, we proposed a model to design an integrate management system for municipal solid wastes from the
reverse logistics perspective.
1. The proposed model and solution procedure point to a number of directions for future work:
2. The model can be expanded to include the element of uncertainty involved in the location problem such as
the amount of waste generation.
The consideration of what-if scenarios involving changes in parameters values over time may be explored in
the future.
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0 10 20 30 40 50 60 70 80 0
5 10 15 20 25 30 35 40 45 50
Acknowledgements
This study is partially sponsored by a National Natural Science Foundation of China under Grant number
70471042, 70601011.
References
[1] Fleischmann M. Quantitative models for reverse logistics. Berlin: Springer-Verlag, 2001.
[2] Louwers D, Kip BJ, Peters E, Souren F, Flapper SDP. A facility location allocation model for the re-using carpet materials.
Computers and Industrial Engineering 1999, 36(4):1-15.
[3] Thierry M, Salomon M, van Nunen J, Van Wassenhove L. Strategic issues in product recovery management. California
Management Review 1995, 37(2):114-135.
[4] Jayaraman V, Guide Jr. VDR, Srivastava R. A closed-loop logistics model for remanufacturing. Journal of the operational
research society 1999, 50:497-508.
[5] Erkut, E., Neuman, S. Analytical Models for Locating Undesirable Facilities. European Journal of Operational Research. 1998,
40:275-291.
[6] G F List, et al. Modeling and Analysis for Hazardous Materials Transportation: Risk Analysis, Routing/Scheduling and Facility
Location. Transportation Science.1991, 25(2) 100-114.
[7] Current, J.R., S, Ratick. A Model to Assess Risk, Equity, and Efficiency in Facility Location and Transportation of Hazardous
Materials. Location Science. 1995,3:198-202.
[8] Mark, S. Daskin. Network and Discrete Location: Models, Algorithms and Applications. Wiley Interscience, New York, 1995.
[9] Emanuel, Melachrinoudis., Hokey Min., Xing Wu. A Multiobjective Model for The Dynamic Location of Landfills. Location
Science. 1995, 3(3): 143-166.
[10] N.B, Chang., Y.L.Wei. Siting recycling drop-off stations in urban area by genetic algorithm-based fuzzy multiobjective
nonlinear integer programming modeling. Fuzzy Sets and Systems. 2000,114: 133-149.
[11] N.B. Chang, S.F. Wang, Managerial fuzzy optimal planning for solid waste management systems, J. Environ. Eng. ASCE
1996,122(7): 649-658.
[12] N.B. Chang, S.F. Wang, A fuzzy goal programming approach for the optimal planning of metropolitan solid waste management
systems, European J. Oper. Res. 1997, 99(2): 287-303.
[13] H.J.Zimmermann. Fuzzy programming and linear programming with several objective functions. Fuzzy Sets and Systems
1978,1(1):45-55.
[14] Rongjun Li, E. Stanly Lee. Fuzzy multiple objective programming and compromise programming with pareto optimum. Fuzzy
Sets and Systems. 1993, 53: 275-288.
64
The FIP Problem with Uncertain Demand in Several Scenarios
Abstract In this paper a special FIP model is formulated to address the issue of locating facilities when there is uncertainty in
demand on the paths. Given several possible scenarios, the planner would like to choose a set of locations will perform as well as
possible over all future scenarios. This paper uses the Maxmin approach and regret approach to formulate two models to address the
FIP problem under uncertainty. A heuristic method is developed. Computational experiments are described and compared to the
solutions using branch-and bound.
Key words Facilities location, Uncertain demands, Scenarios, Heuristic
1. Introduction
The flow Interception problem (FIP) is proposed by Berman [1] and Hodgson [2]. The basic problem of FIP
[1] is to locate m facilities to intercept as much flow as possible from a given set of pre-existing flows on the
network. The FIP model assumes that the flows on each path are deterministic.
During the last two decades, uncertainty theory has experienced spectacular growth and is hotspot in the
location science. The present papers recognize uncertainty in the demand or population at the nodes of the
network or the different travel times between the nodes, which depend on the time of the day or day of the week.
Uncertainty theory has been considered in the traditional location models (P-median, center problem, set-covering
problem), which study on the problem of how locates the facilities to satisfy the demand from the nodes on the
network. Such as Weaver and Church (1983a,b, 1984)[3]-[5]; Mirchandani and Odoni(1979)[6]; Daskin and
Hagani (1984);[7] Daskin (1982, 1983, 1987)[8]-[10].
In this paper, we consider the flow interception problem with the uncertain demand on the paths. Uncertainty
is treated by the classic scenario approach in which different patterns of demand are realized in different scenarios.
These types of uncertainty are especially common in a logistic network. For example, the vehicle flows in a farm
product logistic network are seasonal. This situation implies that an optimal location of service stations for the
vehicles during the spring can be very far from acceptable during the summer. Therefore, both uncertain situations
have to be considered. Two approaches to the FIP with uncertain demand in several scenarios are considered. First,
over a range of possible demand scenarios, facilities are located in such a way as to maximum the minimum flows
intercepted in these given scenarios (MAXMIN approach). Second, over that same range of scenarios, facilities
are positioned in such a way as to minimize the maximum regret. A similar approach was used to locate the
facilities in a competitive environment, Serra and Revelle(1996)[11]. In the following section, two FIP models
with uncertain demand are presented, corresponding to the MAXMIN and REGRET approaches respectively. In
section 3, a heuristic method based on greedy algorithm is developed. In the section 4, computational experiments
are described and compared with the results using the branch and bound.
2. Problem formulation
2.1 The basic FIP model
The basic form of the FIP (Berman et al., 1992) [1] is to locate m facilities to intercept as much flow as
possible from a given set of pre-existing flows in the network; the interception occurs if a flow path pass
through at least one facility. The problem can be formulated as an IP problem as followed:
(FIP1)
Maximum f
pP
p yp
This research has been supported by National Natural Science Funds of China (No: 70601011).
65
n
Subject to x
j =1
j =m (1)
x
j P
j yp ( p P) (2)
y p , x j {0,1} ( p P, j N ) (3)
where f p is the demand flow along path p;
P is the set of nodes capable of capturing the flow on the path p;
1 if facility located at node j,
xj =
0 otherwise.
x
j =1
j =m (5)
x
j P
j yp ( p P) (6)
y p , x j {0,1} ( p P, j N ) (7)
where K is the set of the demand scenarios, k K ;
f pk is the demand flows along path p in the kth scenario .
The first set of constrains (4) is directly related to the objective. The left side of each constraint (one for each
scenario) represents the sum of flows intercepted in corresponding scenario. The right-hand side, F , is the same in
each constraint. The objective of the model is to maximize F . That is, the model is tried to find a set of
locations that will maximize the minimum flow intercepted when evaluated for all scenarios. The rest constraints
are as same as the constraints set of the basic FIP model.
2.3 The REGRET FIP model with uncertain demand in k scenarios
If the REGRET objective is used, the objective and constraint set (4) are replaced by the following objective
and constrains set:
Minimum F
Fk f pk y p F (k K ) (8)
pP
where Fk is the optimal objective, a known value, found when m facilities are located optimally in each
scenario k. The value is found by applying the basic FIP model to each scenario individually. The unknown
66
variable F in this case represents the largest regret evaluated over all scenarios. Therefore, the new objective is
to minimize F , that is, we seek to minimize the maximum regret over all scenarios. The objective improves as the
largest regret found in a given scenario is reduced. The regret can be expressed in relative terms. The regret from a
large optimal value may be large in absolute terms, but small in relative ones. Therefore, in some cases the
relative regret can be used, replacing constrains (4) by the following ones:
Fk f pk y p
p p
F (k K ) (9)
Fk
3. Solution method
Since the basic FIP is NP-hard, not to mention the MAXMIN FIP and the REGRET FIP, developing good
heuristic approaches is more appropriate than the optimal method in terms of solving efficiency, especially for
large-sized problems. This is especially true for the formulations proposed in this paper, due to the large number
of variables and constrains involved and to the constrains (4) in the MAXMIN FIP model and the constrains (8) in
the REGRET FIP model. In this paper, an exchange heuristic based on Teitz and Bart procedure [12] is developed
to solve both these formulations. The heuristic algorithm involves two phases. In the first one, an initial solution is
obtained to solve the basic FIP of each scenario. We can use the branch and bound by EXCEL or LINDO to solve
the small or medium problem. For the largest-sized problem, greedy algorithm is very efficient and extremely
robust to resolve the basic FIP in an authentic urban road network in Hodgson, Rosing and Storrier [13]. In the
second phase, a one-opt trade is solved to try to improve the initial objective. Phase 1 can be obtained as follows.
For each scenario, a FIP problem is used to find the optimal locations. Once the optimal locations are obtained for
each individual scenario, we can compute the intercepted flows that could be achieved in the other scenarios. This
can be represented in a matrix form, where each row represents a given scenario, and each column represents the
intercepted flows that are achieved given the optimal locations obtained in each scenario (row). For example, the
value of the matrix element f ij corresponds to the intercepted flows that would result for scenario j if the
optimal locations in scenario i were implemented. Therefore, initial locations for heuristic can be chosen
depending on the objective used. For the MAXMIN FIP model, the initial locations will correspond to scenario
(row) i where the smallest f ij is maximum. For the REGRET FIP model, the initial location will correspond to
the scenario i where the largest regret is as small as possible.
Once the initial locations are obtained, the second phase of the heuristic algorithm is used to improve the
objective. One location is traded during the iteration. If it leads to an improvement of objective, this location is
stored as the best solution. Otherwise, this location is ignored and the previous solution is restored. The one-opt
trade will be done for all the candidate nodes. The algorithm for the MAXMIN FIP model as follows:
Algorithm A:
Step 1: For each scenario, find the optimal location of m facilities where the intercepted flows are achieved.
(a basic FIP is solved for each scenario).
Step 2: Compute, again for each scenario, the intercepted flows are achieved for the location patterns (one
pattern for each scenario) found in step 1.
Step 3: Choose, as the initial location for the second phase, the location whose minimum intercepted flows
across all scenarios are the largest.
Step 4: Trade the location of one of the m facilities.
Step 5: Compute the intercepted flows achieved in each scenario. For the MAXMIN FIP model, if the
minimum intercepted flows are larger than before the trade, keep the solution. If not, restore the old solution.
Repeat steps 4 and 5 until all facilities and nodes have been exchanged in a complete cycle of trade.
Step 6: If the MAXMIN objective has improved after step 4 and 5, go to step 4 and restart the procedure.
When no improvement is achieved on a complete set of one-at-a-time trades, stop.
For the REGRET FIP model, the algorithm can be changed as follow:
67
Algorithm B:
Step 1: For each scenario, find the optimal location of m facilities where the intercepted flows are achieved.
( a basic FIP is solved for each scenario).
Step 2: Compute, again for each scenario, the intercepted flows are achieved for the location patterns (one
pattern for each scenario) found in step 1.
Step 3: Find, for each scenario j , the regret from optimally locating m facilities in all scenarios. The initial
solution is the optimal solution of the scenario where the largest regret is minimum.
Step 4: Trade the location of one of the m facilities.
Step 5: Compute the intercepted flows and regret achieved in each scenario. For the REGRET FIP model, if
the regret is smaller than before the trade, keep the solution. If not, restore the old solution. Repeat steps 4 and 5
until all facilities and nodes have been exchanged in a complete cycle of trade.
Step 6: If the REGRET objective has improved after step 4 and 5, go to step 4 and restart the procedure.
When no improvement is achieved on a complete set of one-at-a-time trades, stop.
4. Computational experience
The proposed model MAXMIN FIP and algorithm A are tested with a small-sized example network. For the
small-sized example network, the first phase to get the initial location of each scenario is solved by branch and
bound in EXCEL. The second phase of the heuristic algorithm is programmed by turbo C. All programs were
implemented on a Pentium personal computer. Consider the small-sized example network with 7 nodes and 10
arcs which is used with four different scenarios, shown in Fig.1[3]. The total number of paths in this network is 12.
Nodes and flows of each scenario for each path are given in Table 1.
6 5 4
1
2 3
Tab. 1 Nodes and flows information of four scenarios for each path in example network
A
path Nodes on the each path f fB fC fD
1 1-2 12 14 8 16
2 1-3-5 15 8 13 8
3 1-7-6 18 15 10 14
4 1-3 9 15 15 18
5 2-3-4 14 18 8 10
6 3-5-6-7 16 25 12 20
7 3-6-7 20 16 18 10
8 6-5-4 10 12 10 16
9 6-7-1-2 25 18 16 12
10 7-6-5 12 16 18 12
11 7-6-3-2 20 22 15 18
12 5-3-1 16 12 25 14
68
The solution to MAXMIN FIP model of this problem by the branch and bound is in table 2. The initial
solution to MAXMIN FIP model of this problem by the algorithm A is in table 3.
Tab. 2 The optimal solution to Maxmin FIP model by the branch and bound
m Nodes where facilities locate Intercepted flows
1 6 99
2 1 and 6 158
3 2,3 and 6 168
After the exchange heuristic based on Teitz and Bart procedure of algorithm A, the solution is as same as the
result of Table 2. For the largest-sized problem, greedy algorithm is very efficient and extremely robust to get the
initial solution. Then we can get the satisfy solution by the exchange heuristic algorithm.
5. Conclusion
The formulation has been presented to deal with the flow interception problem with uncertain demand in
several scenarios. Two different objectives were used: maximize the minimum intercepted flows across scenarios
(MAXMIN objective) and minimize the maximum regret across scenarios (REGRET objective). This last
objective can be formulated in absolute and relative terms. An optimal solution and a heuristic algorithm were
used to solve a small size problem.
In the models presented, each scenario is equally weighted. In the further study, we will concern the FIP
with uncertain demand in several scenarios which have different weights and the FIP with uncertain demand of
random distribution.
Tab.3 The initial solution to Maxmin FIP model by algorithm A
The optimal The optimal The optimal The optimal
solution for A solution for B solution for C solution for D
Nodes where facilities locate 6 6 3 6
A 121 121 110 121
m=1 Intercepted B 124 124 116 124
flow in each
scenario C 99 99 106 99
D 102 102 98 102
Nodes where facilities locate 3 and 6 3 and 6 3 and 6 1 and 6
A 175 175 175 173
m=2 Intercepted B 177 177 177 173
flow in each
scenario C 160 160 160 160
D 152 152 152 158
Nodes where facilities locate 1,4,7 2,3,6 1,2,6 1,3,6
A 187 187 187 187
m=3 Intercepted B 191 191 191 191
flow in each
scenario C 168 168 168 168
D 168 168 168 168
References
[1] Berman O., Larson, R.C. Fouska N., Optimal location of discretionary service facilities, Transportation Science , 1992, 26 ,
201-211
[2] Hodgson M J. A flow capturing location-allocation model. Geograph Anal, 1990, 22:270-279
[3] Weaver, J., Church, R., Computational procedures for location problems on stochastic networks. Transportation Science ,1983a,
17, 168-180.
[4] Weaver, J., Church, R.,. A median facility location problem with non closest facility service. Working Paper, Department of
Management Sciences and Statistics, College of Commerce and Business Administration, University of Alabama, 1983b,
83-101
69
[5] Weaver, J., Church, R., The vast median facility location model. Working Paper, Department of Management Sciences and
Statistics, College of Commerce and Business Administration, University of Alabama, 1984. 84-02
[6] Mirchandani, P., Odoni, A., Locations on medians on stochastic networks. Transportation Science, 1979, 13, 85-97.
[7] Daskin, M., Application of an expected covering model to emergency medical service system design. Decision Sciences, 1982,
13(3), 416-439.
[8] Daskin, M.,. A maximum expected covering location model: formulation, properties, and heuristic solution. Transportation
Science 1983, 17, 48-70.
[9] Daskin, M., Location, dispatching and routing models for emergency services with stochastic travel times. In: Ghosh, A.,
Rushton, G. (Eds.), Spatial Analysis and Location-Allocation Models. VanNostrand Reinhold, New York, 1987, 224-265.
[10] Daskin, M., Hagani, A.,. Multiple vehicle routing and dispatching to an emergency scene. Environment and Planning A ,
1984,16, 1349-1359.
[11] Serra, D., ReVelle, C., The maximum capture problem with uncertainty. Environment and Planning B, 1996, 62, 49-59.
[12] Teitz, M.B., Bart, P., Heuristic methods for estimating the generalized vertex median of a weighted graph. Operations Research,
1968,16, 955-965.
[13] Hodgson,M.J., Rosing, K.E., Storrier, A.L.Y., Testing a bicriterion location-allocation model with real-world network traffic:
The case of Edmonton, Multicriteria analysis: Proc XIth int Conf MCDM, Coimbra, Portugal, 1994.
70
Information Sharing Strategy and Data Processing Model for
SMLE Alliance
Abstract Small and Medium-sized Logistics Enterprises (SMLEs) in China can establish alliances to break the resource limitation
and improve their service quality. This paper mainly talks about what kinds of information should be shared to ensure an effective
cooperation and the information sharing strategy. A model for collaborative logistics plan-making system is also described
Key words Small and Medium-sized Logistics Enterprises (SMLEs), collaborative logistics, logistics plan, distributed database
1. Introduction
To carry out the target of building itself into the global manufacturing centre, it is important for China to have
an advanced and effective logistics industry. Logistics industry in western countries and Japan has finished the
acquisition and re-composition. Larger-scale logistics companies can provide professional services to a certain
industry. However, in China small and medium sized logistics Enterprises (SMLEs) make the majority of the
third-part logistics (3PL) companies which remain in quite primitive stage. Although they have certain amount of
resources such as warehouses and trucks, they still suffer for small scale and low reputation. At the same time,
problems in management, process design and personnels capability cumber their development. According to the
special situation in China, establishing alliance between SMLEs would be a good choice for them. Through the
sharing of information and cooperation provided by the alliances, SMLEs can offer more rapid and responsive
services to their customers. This paper mainly talks about the strategy in information sharing and processing.
71
The extent of information sharing exerts a direct influence on the effectiveness of cooperation. If the
knowledge information can be shared among alliance, smooth services can be provided and high competitiveness
achieved.
SMLE a3
Centric node
ais database
Data transformation
interface collection
for ai
All members public
Coordinating Logistics data
warehouse class information
server
server Cooperative class
information
Private class
information
Operating data
SMLE a 1 SMLE a2
The layout of distributed database is shown in Fig 2(A) and Fig 2(B). There are two main servers in the
centre node: logistics data warehouse server and coordinating server. Logistics data warehouse server stores the
information of finished tasks to support the logistics plan making process. While coordinating server has a
coordinating function among each members database according to a standard controlling and updating strategy. It
main function includes:
3.1 information transformation
Each node in the distributed database may have different data format because company may has its own
database storing many data in it before joining the alliance and this data format has proved effective. So it is
advisable to keep these data format to keep the high efficiency, low cost and familiarity it can provide. We design
72
a mechanism showed in the Fig 3 as following:
Data transformation
interface collection
for ai
Interface for
a1 and an
Take for example member a1 who has a different data format from member an. Considering both a1 and ans
format, we design a data transforming interface i (a1, an). In the same way, we can get I= {i(a1,a2), i(a1, a3), i(a1,
a4)i(a1,an)}, which is created, stored, managed in the centric node and transported to node a1.
3.1.1 public informations update
To what extent the information should be shared is a very important issue, for the alliance exists in a both
cooperative and competitive environment. Each SMLE has to keep some information as business secret to keep a
advantageous position in the competition, at the same time it has to share some information to carry out
cooperation.
The data stored in the distributed database can be put into three classes according to its sharing level: public
information, cooperative information and private information. Public information is the information to which all
members in the alliance has access. It includes each members location, business coverage and resources without
mention to their amount, availability and restricts. Cooperative information means the information required in
cooperative plan-making. When several members in the alliance form a dynamic team to complete a certain task,
they should share each others resource information and its restricts. Private information refers to the information
that company wants to keep as secret. It includes customers data and resources dynamic information. Using this
information, each partner can make its individual plan.
If member a1s public information changes (for example, it may have just set up a qualified warehouse for
dangerous chemical), a1 should inform the coordinating server in the centric node. Then the coordinating server
will modify the collection of all nodes public information and pass the new version of the collection to each node
by broadcast
73
a dynamic team set up for a certain task
res (Resource) resource can be described as res (type, amount); type represents certain kind of
transportation ability or storage ability
rep (Reputation) evaluation of a SMLEs ability to fulfill a plan
t (Task) a logistics task, t(res,ts,te): ts represents the time when we start using resource; te
represents the time when we stop using resource.
c (Commitment) allocation of a task to a agent: c (a,t)
p (Plan) the logistics plan: the collection of c(Commitment)
Member
selection
establishment of initial interface
logistics plan Private class
Information
Fig 4 Function of different class information Fig 5 member selection of dynamic team
74
order
Order
decomposing
interface
Order
allocation
interface
5. Conclusion
Information sharing strategy for SMLEs alliance can help logistics companies to carry out cooperation more
effectively, and the application of distributed database can reduce the cooperation cost and add flexibility to data
management and access control.
References
[1] Afsarmanesh H. Camarinhal. Federatedi information management for cooperative virtual organizations. In Proceeding of the
8th Int Conf on Database and Expert Systems Applications (DEX97)September1997
[2] Talluri S , Baker R C.A quantitative frame work for designing efficient business process alliances. International Conference of
Engineering Management and Control (IEMC) 1996:656-661
[3] XU Xiao Fei, ZHAN De chen, YE Dan. The establish of dynamic alliance and its integrated supporting system[J].Computer
Integrated Manufacturing Systems,19 98,4(1):9-15.
75
Solving Capacitated Facility Location Problem Using Tabu Search
Abstract This study proposes a tabu search heuristic procedure for the capacitated facility location problem. The heuristic procedure
uses recency based short term memory and frequency based long term memories performing diversification and intensification
functions. Its performance is tested through a computational experiment using test problems from the literature. It found optimal
solutions for almost all test problems. As compared to a Lagrangian heuristic method, the tabu search heuristic procedure found
much better solutions using much less CPU time.
Keywords: Capacitated facility location, Tabu search, Metaheuristics
1 Introduction
Facility location is a large area with a vast literature and numerous applications in the private and public
sectors [5][7][19][20]. This study focuses on the capacitated facility location problem (CFLP) that consists of m
potential sites where facilities may be located and n clients with demands that may be satisfied from any facility.
Each facility i has a capacity ai and each client j has a demand bj . The fixed cost of operating facility i is fi and the
unit transportation cost from facility i to client j is cij . The status of facility i zis represented by a binary variable yi
such that yi =1 if it is open and yi =0 if it is closed. The quantity shipped from facility i to client j is represented by
the variable xij . The CFLP is represented by the following mixed integer programming model.
i =1 j =1 cij xij + i =1 fi yi
m n m
min (1)
i=1 xij = b j
m
s.t. j = 1, ,n (2)
j=1 xij ai yi
n
i = 1, ,m (3)
In the model, the objective function (1) represents the total cost to be minimized. Constraints (2) ensure that
the demand of each client is satisfied and constraints (3) limit the amount of supplies to all clients from each
facility i to be within its capacity ay . Constraints (4) and (5) define the values that the variables can assume. By
assigning values to the binary variables, the resulting primal structure is a transportation problem. Setting bj =1 in
(2) and replacing the constraint in (3) for each i with xij yi , j = 1, , n, the CFLP model becomes a model for
the uncapacitated facility location problem (UFLP). In this study, a tabu search (TS) heuristic procedure is
developed to solve the CFLP. The TS procedure uses recency based short term memory and frequency based long
term memories to implement the main as well as the diversification and intensification functions. The
performance of the TS heuristic procedure is tested using test problems from the OR-Library [2]. The Lagrangian
heuristic (LH) method [3] is used as a benchmark to measure the performance of the TS heuristic procedure. The
CFLP has been studied extensively. Many exact algorithms and heuristic methods have been developed to solve it
in the last 40 years.
only if A B. A facility of a feasible solution can be closed and the resulting solution is still feasible only if A
ai B . However, if the current solution is feasible, the resulting solution is always feasible when a currently
closed facility iI0 becomes open. After the status of any facility i changes, the value of A is updated accordingly,
i.e., A A+ai if iI0 or AA ai if iI1 . Starting with all facilities closed, an initial solution is obtained in this or
Aa study by moving facilities iI0 to I1 in the order of decreasing values of ( n
b
j =1 j
n
)
/ j =1 cij b j ai fi until
In (6), each wi is a randomly generated integer in the interval (0, 215) and p assumes the value 99991, as
suggested in [16]. The hash value N determines the position where the total cost and the solution associated to the
partition of I are stored in the array.
Before the solution corresponding to a partition of I is evaluated, N is determined first through (6). If a
solution is already stored at position N of the array, the transportation problem was previously solved and the total
cost is retrieved. Otherwise, the feasibility of the partition is checked by comparing the total capacity of the open
facilities with the total demand. If feasible, the transportation problem is solved to obtain the minimum total cost;
otherwise, a minimum total cost is assigned to the partition. The minimum total cost and the solution are then
stored at position N of the array.
2.4 The Short Term Memory
The tabu tenure of a move is denoted by l . A facility is restricted to stay at its new status for at least l moves
after its status change unless the aspiration criterion is satisfied. The value of l is selected from the integers in the
interval [lmin ,lmax ]. Computational experience showed that the values of lmin and lmaxshould be related to m . A new
value for l is selected from the same interval when a new search cycle starts. The tabu condition is implemented
through the integer vector t . The element ti of trepresents the iteration number at which facility i changed its
status the last time.
At iteration k , a move switching the status of facility i is selected, such that,
zi = min{zi | i = 1, , m} (7)
The selected move is not tabu if (8) is not satisfied. In this case, the move is made. Otherwise, if (8) is satisfied, the
move is tabu and is made only if the following aspiration criterion is satisfied
zi < z0 . (9)
If tabu and (9) is not satisfied, the TS heuristic procedure sets zi , selects another move according to (7),
checks its tabu condition according to (8), and so on. This process continues until a move that is not tabu or tabu but
satisfies the aspiration criterion is found and the move is made. The short term memory process stops if z0 is not
improved after 1m moves, where 1 >0 is a parameter of the TS procedure.
2.5 The Long Term Memories
The long term memories are used to perform intensification and diversification functions. Residence
frequency and transition frequency memory structures are used for this purpose. An integer vector is used to
represent the residence frequency where the i th element i is the number of moves duringwhich facility i is open.
In the implementation, i is updated only when facility i changes its status from yi =1 to yi =0 . An integer vector
is used to represent the transition frequency where the i th element i is the number of times that facility i
changed its status. In the implementation, i is incremented each time when facility i changes status.
The criterion to select a facility i for a move at iteration k in the intensification process follows
thatproposed in [21], i.e.,
zi =min{ zi | i =1, , m}, (10)
where zi is definzwed as
78
and f denotes the average fixed costs, i.e., The intensification process stops if z0 is not
improved after (1 +2)m moves, where 2 >0 is a parameter of the TS heuristic procedure.
Residence and transition frequencies are used alternately to perform the diversification function. A move
switching the status of facility i is given a penalty pi . The updated residence frequency is represented by
if residence frequency is used or pi =i k
if transition frequency is used.
A move is then selected to switch the status of facility i according to
(12)
where, with a diversification parameter d , zi is defined as
(13)
The search process terminates after C search cycles have been executed. In the c th search cycle, a total of c
moves are made in the diversification process and c0 is used to count the number of moves that have been made in
the current diversification process.
2.6 The Tabu Search Procedure
A step-by-step description of the TS heuristic procedure is given in the following. These steps are roughly
grouped into different sections according to their functions.
Initialization
Step 1 Find an initial solution with a total cost z . Let z0 z and z00 z0 . Determine m1 . Choose values for
lmin and lmaxand select a l such that l [lmin ,lmax ]. Let ti l and i 0, i =1, , m ; let i 0 if yi =0 or i
l if yi =1 . Select values for the parameters 1, 2 and C. Let k 1, k0 1, c0 1, c 1.
Short Term Memory
Step 2 Obtain zi , i =1, , m .
Step 3 Select a move switching the status of facility i according to (7). Check the tabu status of the selected
move according to (8). If the move is tabu, go to Step 4; otherwise, go to Step 5. Step 4 Check the aspiration
criterion of the selected move according to (9). If (9) is satisfied, go to
Step 5; otherwise, set zi and go to Step 3.
Move Execution
Step 5 Let yi 1 yi and i i +1. If yi = 1 , let m1 m1 +1; otherwise, let m1 m1 y1 and
i i +k- ti . Let ti k and k k + 1. If zi <z0 , let z0 z and k0 k. If z00 <z0, let z00 z0.
Step 6 If k-k 0 1m , go to Step 2. If k-k0 (1 +2)m , go to Step 7. Otherwise, go to Step 10.
Intensification
Step 7 Compute zi azwccording to (11), i =1, , m.
Step 8 Select a move switching the status of facility i according to (10). Check the tabu status of the selected
move according to (8). If the move is tabu, go to Step 9; otherwise, go to Step 5. Step 9 Check the aspiration
criterion according to (9). If (9) is satisfied, go to step 5; otherwise, set zi and go to Step 8.
Diversification
Step 10 If c > C, Stop. If c0> c, go to Step 13.
Step 11 Compute zi according to (13), i =1, , m.
Step 12 Let c0 c0 + 1. Select a move to switch the status of facility i according to (12) and go to Step 5.
79
Step 13 Let c0 1, c c + 1, z0 z, k0 k. Reset the value of l such that l [lmin ,lmax ] and go to Step 2.
3 Computational Experiments
The TS heuristic procedure and the LH method [3] were coded in C. The computational experiments were
conducted on a desktop computer with a Pentium IV processor (2.8GHz frequency and 1GB memory). The values
of the parameters of the TS heuristic procedure used in the computational experiments are
lmin = [m / 6], lmax = [m / 3], d = 1000, 1 = 0.5, 2 = 0.5 and C = 5 for problems with m 50or C = 7 for
problems with m =100.
The 49 test problems with known optimal solutions in the OR-Library [2] are used for the computational
experiment. These test problems are divided into four sets. The first set has 13 test problems with mn=16 50;
the third set has 12 problems mn= 2550; the second set has 12 test problems with with mn=50 50;; while the
forth set has 12 test problems with mn=1001000 .
The computational results, i.e., solution quality and CPU time, obtained with the TS heuristic procedure and
the LH method [3] are reported in Table 1. The results in the rows labeled with TS1 are intermediate results
obtained before the long term memories are invoked and those in the rows labeled with TS2 are the final results of
the TS heuristic procedure. For each group of test problems, solution quality of a heuristic method is measured
with the mean gap and the percentage of problems for which optimal solutions are obtained by the respective
method. The gap in percentage for a test problem is the relative deviation between the total cost of the final
solution (i.e., the final value of z00 in the TS heuristic procedure) and that of the optimal solution. Using z final to
denote the total cost of the final solution obtained with a heuristic method and zopt to denote the total cost of the
optimal solution, the gap is defined as g =(z final zopt ) zopt 100% .
For each group of test problems, the mean CPU time in seconds taken by each solution method is reported.
For the TS heuristic procedure, the mean CPU time in seconds needed to reach the best solution is also reported.
The TS heuristic procedure outperforms the LH method for all these problems even before the diversification and
intensification functions are invoked. Compared to the LH method, the TS heuristic procedure without the long
term memories obtained better solutions but used a small fraction of CPU time. With the long term memories, the
TS procedure found even better solutions but still used much less CPU time. As the problems become larger,
relatively less CPU time is spent by the TS heuristic procedure to run additional search cycles. Lorena and Senne
[17] used the 12 test problems with mnfor their computation experiment. The solutions obtained with the LH
method in this study are very similar to those reported in their paper.
Table 1. Results of Test Problems from the Literature
Mean Time Mean Time to
Size ( mn) Heuristic Method Mean Gap Optimum (%)
(seconds) best (seconds)
TS1 0.000 0.048 0.033 100.00
16 50 TS2 0.000 0.091 0.053 100.00
LH 0.038 2.668 61.54
TS1 0.031 0.114 0.090 91.67
25 50 TS2 0.000 0.265 0.176 100.00
LH 0.042 6.426 58.33
TS1 0.103 0.813 0.582 75.00
5050 TS2 0.000 1.241 0.755 100.00
LH 0.119 22.223 50.00
TS1 0.312 342.307 311.649 58.33
1001000 TS2 0.003 547.261 509.930 91.67
LH 0.216 1557.013 50.00
4 Conclusions
This paper presents a TS heuristic procedure for the CFLP. Computational results show that this TS heuristic
procedure is very effective in finding good solutions. Without the use of the long term memories, the TS heuristic
procedure is more effective and efficient than the LH method. The employment of the long term memories
performing intensification and diversification functions further improves the effectiveness of the TS heuristic
80
procedure. Although using longer CPU time with the long term memories, the TS heuristic procedure takes only a
small fraction of the CPU time taken by the LH method. The use of the long term memories is especially effective
for larger problems.
References
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Operations Research, 1999, 86: 91-103.
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41:1069-1072.
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capacitated plant location problem, Information Systems and Operations Research, 1998, 37: 194-225.
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6:189-209.
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81
Research on the Hybrid Ant Colony Labor Division
Algorithm with Optimization and Its Application
Abstract In view of the deficiency of the existing heuristic methods and stochastic methods for task assignment problem, a hybrid
ant colony labor division algorithm with optimization is designed according to the internal similarity between the ant colony labor
division and the task assignment problems. The new algorithm integrates the advantages of the heuristic search in ant colony
optimization algorithm and the stochastic search of ant colony labor division. In the new algorithm, a strategy of reserving the current
optimal solution based on the elite ant colony is proposed and the threshold matrix is updated by rewarding and punishing the ant
colony, and the optimal task assignment is obtained by the stochastic search of labor division algorithm. Experiments on a real-life
problem validate that the new algorithm can converge to the satisfactory solutions in a short time stably.
Key words Ant colony optimization, Ant colony labor division, Task assignment
1. Introduction
Task assignment problem is a widely used traditional problem, which is applied in manufacturing, industrial
and agricultural production, transportation and services industry, such as production line scheduling, task
assignment of workers, multi-agent system job scheduling. Task assignment can be classified into balanced
problems and unbalanced problems. For the problems with one person per job or one job per person, Hungary
algorithm is a very effective heuristic algorithm [1]. But this kind of problems is rare in actual application, since
different work have to be finished by a variety numbers of people and people who work on the job have different
efficiencies due to the deviance of the work and their ability [2]. Therefore, it is necessary to solve this kind of
unbalanced task assignment problems with different methods, which belong to the typical NP-hard combinational
optimization problem that has no algorithm with polynomial time complexity to find out global optimal solutions [3].
The approximate methods to solve this kind of problems fall into two categories: heuristic method and
stochastic search method [4]. Heuristic method uses heuristic information, and performs search extension in the
most hopeful section with certain experience and principle. Heuristic is more efficient than uninformed search, but
it depends too much on the cognition and experience on the nature of problems, which makes it merely able to
solve problems that are not so complicated. Hungary algorithm mentioned above is one example. Some
academicians have improved Hungary algorithm to solve unbalanced task assignment problems and someone
transferred the problems to solve it with the solution methods for traditional problems, such as traditional
assignment problem and transportation problem[5]which also belongs to heuristic method since it also takes
advantage of heuristic information of problems. Although there are many heuristic algorithms in literatures trying
to get solutions of high quality, the results are still unsatisfactory [6].
However, stochastic method does not depend on the nature of problem. It firstly chooses multi solutions from
solution space, and checks the feasibility of them, then finds out the best solutions in these feasible solutions. The
advantage of stochastic method is simplicity, which can reach the solution in a short time. Many academicians
both in and abroad have solved this kind of problems with genetic algorithm, solve multiprocessor task scheduling
problem with genetic algorithm in literature [7], for example; besides, many academicians have tried improved
genetic algorithm and immune algorithm to solve this kind of problems [1,8].
But all these algorithms depend on the type of problems, which have no relation with algorithms themselves
in principle. On the basis of the internal similarity between ant colony labor division and task assignment problem
[9,10,11]
, this paper designs a hybrid ant colony labor division algorithm with optimization based on the heuristic
Supported by the National Natural Science Foundation of China under the Grant No. 60474077 and the Program for New Century Excellent Talents in University
of China under the Grant No. NCET-05-0653.
82
search of ant colony optimization algorithm and random search of ant colony labor division algorithm and applies
it to the solution of task assignment problems.
N
n j act = Sij (t ) (2)
i =1
ik (t + 1) = ik (t ), k j and k n j (4)
In the equations, nj indicates the sub sets similar to task j, and are learning and forgotten
coefficients, 1 1.
(3) Probability of join and exit
We use the same way in the basic model mentioned above:
s jn
P ( Sij = 0 Sij = 1) = (5)
s j n + ij n
84
optimal solution achieved by global elite colony is the best in all the previous iteration, however, the optimal
solution achieved by local elite colony is just the best in it own iteration.
In each iteration cycle, every colony achieves the solution independently. Elite colony is used to save the best
solution in the previous iteration, almost all the optimal solutions. At the same time, all the colonies will not
converge to the same solution so as to avoid the local optimal. After each iteration cycle, both local elite colony
and global elite colony are incensed.
3.3 Reward and punishment Strategy
(1) Reward Strategy
In each cycle, compare all the solutions achieved by ant colony, the best value is the optimal solution in this
cycle, the colony that achieves the best value is the local elite colony, and the ant colony should be awarded.
If the local optimal solution is global optimal solution as well, the corresponding ant colony is global elite
colony, award the colony for the second time.
Reward method: travel all the ants in the colony. If any ant is in the task, update its threshold that corresponds
to the task according to the formula (3).
(2) Punishment Strategy
In every cycle, after the test distribution for every ant colony according the labor division algorithm, if the
test distribution strategy of certain ant colony doesnt meet all the restriction, the ant colony should be punished.
Punishment method: travel all the ants in the colony. If any ant is in the task, update its threshold that
corresponds to the task according to the formula (4).
3.4 Optimization mechanisms
From the ant colony labor division model above, we can find that the formula (5) is a core formula, what is
used to calculate the probability of an ant involves in a task. In the formula (5), when keep constant, the larger s
is, the greater P is. This shows that when the stronger stimulating environment is, the greater the probability of
individual tasks response. However, when s keep constant, the larger is, the smaller P is. This shows that the
larger threshold value of individual, the smaller the probability of individual tasks response. From the above, we
can also see that the two attributes, environmental stimulation s and individuals response threshold , are the
most crucial variables. All the other formulae and attributes are based on them.
In the optimization process, a very important feature is that the past optimization information can be reflected
in the present search process so as to guide the search. In this algorithm, after several times vertical and
horizontal comparison, the past optimization information is saved in the response threshold matrix for every ant in
the colonies and use the reward and punishment strategy. At the same time, these thresholds guide the ants to
choose the tasks, in turn.
The overall optimization process of algorithm is shown in Fig. 1. In Fig. 1, AC is used to represent ant colony,
each horizontally to represent a cycle, and sub script to represent ant number in a cycle, and superscript to
represent cycle number for distinction.
Horizontal
Term 1 AC1 (1) comparison
AC2(1) ACl (1)
Horizontal
Term 2 AC1 (2) comparison
AC2(2) ACl (2)
Horizontal
Term C AC1 (C ) comparison
AC2(C ) ACl (C )
85
(1) Ant Colony Information
Each ant colony contains information as follows: environmental stimulation vector, each ants response
threshold matrix as well as learning and forgotten coefficients. The initial value of environmental stimulation
vector for each ant is just the same; both learning and forgotten coefficients remain unchanged in the entire
optimization process.
(2) Response Threshold Matrix
In the initialization of the first cycle, the response threshold matrix is generated randomly for each ant colony,
then with the end of each cycle, after the results were compared, the response threshold matrix will update
automatically according to the rule described in the previous section, make the ant colony to better direction,
detailed update process will be described in the below.
(3) Horizontal Comparison
At the end of each cycle, results of each ant colony in the cycle are compared, reward and punish each ant
colony according to the compared result.
(4) Vertical Comparison
In order to save the optimization information in the ant colony which have achieved the global optimal value
up to the current cycle, after the horizontal comparison, the comparison result will be compared with the optimal
value of history, and then according to this results, reward and punish each ant colony with the methods described
in section 3.3.
Fig.1 is the entire optimization process of several ant colonies. In this process, each ant colony completes
tasks and updates its response threshold according to Fig.2.
Initia threshold
matrix
Calculate the
allocation result
Each ant colony will complete its tasks according to its own characters, then compare the results of all the ant
colonies, and update the response threshold matrixes to accomplish their evolutions.
(1) Each ant colony will create an initial threshold matrix, and will update it after every term.
(2) Each ant colony will complete all its tasks by extended Ant Colony Labor Division Model in every term.
(3) Every time when the term is completed, the threshold matrixes will be updated by the results of vertical
and horizontal comparisons and the update rules are described in the above. An update example is given below.
Assuming that the threshold matrix of ant colony l is while term t beginning (Assuming that there are 3
ants in an ant colony, and 4 tasks), if we find out that by the comparison in the end of this term, ant 1 do task 1,
ant 2 do task 3, ant 3 do task 2 and 4 need to be rewarded, ant 2 do task 2, ant 3 do task 1 need to be punished, and
ant 3 do task 2 is a part of global optimal solution, then the threshold of ant l must be updated like this:
11 12 13 14 reward
11 12 13 14
ACl (t ) 22 23 24 AC ( t +1)
21 22 23 24
and
punish
21 l
31 32 33 34 31 32 33 34
The flow chart of the hybrid ant colony labor division algorithm with optimization is described in Fig.3.
86
Initiation
period:=1
period:=period+1
No
period>C
Yes
END
This is a typical task assignment problem. We can suppose independent variable x as follows
1 member i do the sub task j
x ij = (8)
0 member i don't do the sub task j
We can analyze the problem above and get the follow restriction:
(1) The largest number of the members that processing the same sub task at the same tine is Nc. In this case
Nc=3.
(2) As for each sub task, the largest finishing risk is Pc. In this case, Pc=0.2.
The optimizing goal is to minimize the risk of finishing all the sub tasks; that is to maximize the probability
of finishing all the tasks. We shift the minimizing goal to the maximizing goal aims at resolving easily. So, we can
found the following model subjecting to the above conditions.
87
n m
max f ( x) = [1 p(i, j )]xij
i =1 j =1
x {0,1}
ij (9)
m
S .T = xij N c
j =1
n
p (i, j ) xij Pc
i =1
4.2 The results and analysis
The ordinary operation research methods cannot solve the problem for the reasons that there exist n
consecutive parameters multiplying in the constraint 3. So we have to use Illumination Algorithm to find an
approximately solution in a short time.
According to the above algorithm, we implement computation by programming in the simulation
environment as follows: CPU of Celeron 1.3G, memory of 512M and compiled in VC6. Repeat the program for
20 times and we get the average running time is 0.8s.
Setting the learning coefficient to be 1.0, the forgotten coefficient separately to be 1.0, 1.05, 1.1 and 1.2, we
get the following results as shown in Fig.4.
Fig.4 The result computed through the algorithm Fig.5 The result computed through the algorithm
It can be inferred from Fig.4 that the larger the forgetting coefficient is, the quicker is the constringency of
the algorithm. It can also be inferred that the algorithm would fall into local furthest solution because of quickly
convergence when it achieves a certain value. Analyzing from the theory of the algorithm, we can find out that the
forgotten coefficient can influence the transformation of the matrix of the threshold value. The influence can be
described that the larger the forgotten coefficient is, the greater the transformation of the matrix of the threshold
value changes, and thus more quick convergence the algorithm makes. But when it achieves a certain value, the
algorithm can reach a local furthest value but can hardly get out of this value because the range of each
transformation is too large. It is the same situation when referring to the learning coefficient.
Then we keep the forgotten coefficient fixed and the learning coefficient changes into 1.0, 0.95, 0.9 and 0.8
respectively, we can get the following results as shown in Fig.5 after computation.
It can be inferred from Fig.4 that both the changes of the learning coefficient and the forgotten coefficient in
the situation above have some positive influence for the convergence. The four curves in Fig.5 all have
approximately the same trends as the curves in Fig.4 except that the convergence time of each curve moves up,
which is caused by the additional learning coefficient in Fig.5 while the forgotten coefficient is just the same as in
Fig.4. Moreover, the local furthest solution is much more unreasonable because of such quickly convergence as in
Fig.5.
88
5 Conclusions
One class of Hybrid Ant Colony Labor Division Algorithm with Optimization was brought forward and used
into the problem of task assignment. In the algorithm, the learning coefficient and the forgotten coefficient are
added in on the base of the threshold value update strategy of labor division model. Also the elite ant colony
concept is introduced based on consideration of the merits of the outstanding member strategy of generation
algorithm and Ant Colony Food Searching optimizing algorithm, which ensures that the algorithm could not only
use the self-organization characteristic of Ant Colony Labor Division Model, but also use the characteristic of Ant
Colony Food Searching optimizing algorithm. It is proved that the convergence speed of the algorithm is high and
the satisfactory solution can be reached in short time, and it is an effective algorithm to solve the task assignment
problem.
References
[1] Gan Yingai. Operational Research. Beijing: Tsinghua University Press, 2003. 128-134(in Chinese)
[2] Su Xiangding, Sun Tong, Ma Lin. Application of difference method in unequally assignment problem. Computer Engineering,
2005, 31(22): 178-180(in Chinese)
[3] Zhong Yiwen, Yang Jiangang. Immune genetic algorithm for independent tasks assignment problem in heterogeneous
environments. Mini-Micro Systems, 2006, 27(8): 1498-1502(in Chinese)
[4] Man Zailong. Task Assignment and Scheduling Based Genetic Algorithm. Ms D Thesis. Qingdao: Qingdao University, 2004(in
Chinese)
[5] Xiao Jixian, Han Runchun, Meng Xiangyun. A class of non-sure assignment problem and solution. Industry Technology
Economy, 2005, 24(4): 107-108(in Chinese)
[6] Braun T, Siegel H, Beck N. A comparison study of static mapping heuristics for a class of meta-tasks on heterogeneous
computing systems. In: 8th IEEE Heterogeneous Computing Workshop, 1999. 15-29
[7] Correa R C, Ferreira A, Rebreyend P. Scheduling multiprocessor tasks with genetic algorithms. IEEE Transactions on Parallel
and Distributed Systems, 1999, 10(8): 825-837
[8] Jiao Licheng, Wang Lei. A novel genetic algorithm based on immunity. IEEE Transactions on Systems, Man and
Cybernetics-Part A, 2000, 30(5): 552-561
[9] Dorigo M, Gambardella L M. Ant colony system: A cooperative learning approach to the traveling salesman problem. IEEE
Transactions on Evolutionary Computation, 1997, 1(1): 53-66
[10] Dorigo M, Maniczzo V, Colomi A. Ant system: Optimization by a colony of cooperation agents. IEEE Transactions on Systems,
Man and Cybernetics-Part B, 1996, 26(1): 29-41
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TSP problems in ant algorithm. Acta Electronica Sinica, 2006, 34(8): 1530-1533(in Chinese)
[12] Bonabeau E, Theraulaz G, Deneubourg J -L. Quantitative study of the fixed threshold model for the regulation of division of
labour in insect societies. Proc. Roy. Soc. London B, 1996, 263: 1565-1569
[13] Drigo M, Bonabeau E, Theraulaz G. Ant algorithms and stigmergy. Future Generation Computer Systems, 2000, 16: 851-871
[14] Li Shiyong, Chen Yongqiang, Li Yan. Ant Colony Algorithms With Applications. Harbin: Harbin Institute of Technology Press,
2004. 29(in Chinese)
89
Semicontinuty of the Solution Mapping of -Vector
Equilibrium Problem
Abstract In this paper, we study the -vector equilibrium problem (-VEP). Several existence results for -VEP were established.
We also investigate continuities of the solution mapping of -VEP. In particular, a result concerning the lower semicontinuity of the
solution mapping of -VEP is presented.
Key words -Vector equilibrium problem, Vector equilibrium problem, C-quasiconvexity, C-continuity, C-compactness
1. Introduction
The concept of -solution is very adaptable for the cases that the feasible regions are non-convex or non
closed sets. In fact, the original problems are the special cases of - approximate problems such as the famous
Eklands variational principle, which is an -solution rule for optimization problem. The concept of -solution also
is the basis of numerical computing, e.g., stability, well-posedness and so on. The interesting example of the
-equilibrium problem is the generalized game for -strategy in economics.
The notion of approximate solutions adapted in this paper follows from the concept of -efficiency originally
introduced in multiple objective programming by Loridan [17] in 1984. Two years later, White [27] introuduced
six alternative definitions of -efficent solutions and established the relationships between these concepts.
-efficiency for more general vector optimization problems are considered in [19, 21].For the concept of
-solution for (vector) variational inequality problem, Tammer [22, 23] studied the existence and the
generalization of Ekelands variational priciple. Since vector equilibrium problem is a very general mathematical
model covering vector optimization, vector variational inequalities and so on as special cases, the main motivation
of this paper is to study the behavior of the solution map of the parametric vector equlibrium problems by
following the idea of Loridan [17].
Let X be a real Hausdorff topological vector space and Z a real topological vector space. A set C Z is said
to be a cone if x C for any 0 and for any xC. The cone C is called solid if it has nonempty interior,
i.e., int C . A cone C is said to be pointed if C(-C) = { z } where z denotes the zero vector of Z. For any
set A Z, we let bd A and cl A denote the boundary and closure of A, respectively. Also, we denote A the
c
complement of the set A. For any set A of a real vector space, the convex hull of A, denoted by co A, is the
smallest convex set containing A.
Let f : X X Z and K X. For fixed intC, the -vector equilibrium problem (-VEP, for
short) is to find x K such that
Let : intC 2 be the set-valued mapping such that () is the solutions set of -VEP for intC,
x
i.e.,
We remark that -VEP is closely related to the vector equilibrium problem (VEP) which is to find x cl K such
that
90
Let S denote the solution set of VEP, i.e.,
If K is closed, then VEP becomes the ordinary vector equilibrium problem. The classical vector equilibrium
problems and its extensions have been extensively studied in the literature. See, [1, 2, 3, 6, 7, 8, 13, 20, 28] and the
references therein. We may regard solutions of -VEP as approximate solutions of the problem VEP. We remark that S
. Does not imply () ., for allintC.
2 2
Example 1. Let X = R, Z = R , C = R + , and K = (0, 2). Supose that f : X X Z defined by
semicontinuity of is presented.
We observe that our results in this paper can be employed to study the behavior of solution maps of parametric
vector optimization, parametric vector variational inequalities, parametric generalized games.
2. Preliminaries
Definition 2.1 (C-quasiconvexity, [9, 18, 24]). Let X be a vector space, and Z also a vector space with a
partial ordering defined by a pointed convex cone C. Suppose that K is a convex subset of X and that f is a
vector-valued function from K to Z. Then, f is said to be C-quasiconvex on K if it satisfies one of the following
two equivalent conditions:
(i) for each x1 , x2 K and [0,1] ,
f (x1 + (1 ) x2 ) z C , for all z C ( f ( x1 ), f ( x2 )) ,
where C ( f ( x1 ), f ( x2 )) is the set of upper bounds of f ( x1 ) and f ( x2 ) , i.e.,
is convex or empty.
Definition 2.2 (C-proper quasiconvexity, [24]). Let X be a vector space, and Z also a vector space with a
partial ordering defined by a pointed convex cone C. Suppose that K is a convex subset of X and that f is a
vector-valued function from K to Z. Then, f is said to be C-properly quasiconvex on K if for every x1, x2 K
and [0,1] we have either
f is said to be strictly C-properly quasiconvex on K if for every x1, x2K and (0,1) we have either
Usually we define cone concavity of f by the fact that -f is cone convex. However the following definition for
cone concavity is also natural.
Definition 2.3 (C-quasiconcave). Let X be a vector space, and Z also a vector space with a partial ordering
defined by a pointed convex cone C. Suppose that K is a convex subset of X and that f is a vectorvalued function
from K to Z. Then, f is said to be C-quasiconcave on K if for each z Z, the following set:
is convex or empty; f is said to be strictly C-quasiconcave on K if for each z Z, the following set:
91
is convex or empty.
Proposition 2.1. Let X be a nonempty compact subset of a real topological vector space and Z a real
topological vector space with a proper solid convex cone C. Suppose that f : X Z is (-C)-properly quasiconvex
on X. Then f is C-quasiconcave on X.
Proof. Let zZ and x1, x2{xX : f(x) z - intC}. Since f is (-C)-properly quasiconvex on X, for each x [x1,
x2]
Proof. Suppose to the contrary that there exists z (A + cl C) (-intC). Then there exist a A, c clC
and c intC such that . Hence , by Proposition 2.3. This
contradicts to the fact that A (-intC) = .
Proposition 2.5. Let Z be a real topological vector space and C a solid pointed convex cone in Z with k
intC. Then the following properties hold:
(i) for every z Z there exists t R such that z t k + intC;
(ii) for every z intC there exists t > 0 such that z -tk intC.
Proof. (i). Let z Z. -k + intC is a neighborhood of thet aZ. Since Z is a topological vector space, each
neighborhood of Z is absorbing. Hence there exists > 0 such that z (-k + intC), i.e., z (- k +
intC).
(ii). Let z intC. Then there exists a neighborhood U of Z such that z + u intC. Since Z is t.v.s., there
exists > 0 such that k U. Hence z - 1 k (z + U) intC.
3. Main Results
In this section, we will establish several results for -vector equilib rium problems. First we derive that ()
is not empty for intC under suitable conditions.
Theorem 3.1. Let X be a real Hausdor? topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X, that f is a vector valud
function from X X to Z. Also we assume that the following conditions:
(i) S := {x clK : f(x,y) intC for all y clK} ;
(ii) clK is compact;
(iii) f is C-continuous on X X.
Then -VEP has at least one solution for each intC.
Proof. Let intC and x S . Then by condition (iii), for each y clK there are neighborhoods u y of x
and v y of y such that
n
Since vY cl K and clK is compact, we can choose yi clK, i =1,...,n, such that v yI clK.
yclK i =1
n
Then for U := u
i =1
yi , we have
93
Hence
Consequently,
f(u,y) + intC for all u U and y clK.
Moreover K U because of x clK. Let x K U. Then f( x ,y)+ -intC for all y clK.
In particular, x (). Therefore the problem -VEP has at least one solution.
Example 2. Let f : R R R 2defined by
2
C = R+ and K = (-1,1). Then 1 S , i.e., S , clK is compact,and f is C-continuous on RR. Thus
-VEP has at least one solution for each > 0 by Theorem 3.1. Actually, x = 1 - is a solution of -VEP.
2
2
Example 3. Let f : R R R2 defined by ,K = [-1,1] and C = R+ . Then S
= and also for each (0,1), () = . We observe that we need not only conditions (ii)and (iii) but also (i)
in Theorem 3.1.
Corollary 3.1. Let X be a real Hausdorff topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X and that f is
a vector-valud function from X X to Z. Also we assume that the following conditions:
(i) S := {x clK : f(x,y) -intC for all y K} ;
(ii) clK is compact;
(iii) f is C-continuous on X X;
(iv) f(x,) is (-C)-continuous on bdK for some x S.
Then -VEP has at least one solution for each intC.
Proof. Let x S which satisfies condition (iv). Then for every y K,
f( x ,y) -intC. (1)
Suppose to the contrary that there exists y bdK such that f( x , y ) -intC.
By condition (iv), f( x ,) is (-C)-continuous at y bdK. Hence there exists a neighborhood V of y such
that
94
This contradicts to (1). Therefore for each y bdK,
f( x ,y) -intC,
i.e., for every y clK,
f( x ,y) -intC.
Hence x S , i.e., S
Now the result follows from Theorem 3.1.
Theorem 3.2. Let X be a real Hausdorff topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X and that f is a vector-valud
function from X X to Z with f(x,x) -intC for all x X. Also we assume that the following conditions:
(i) clK is compact convex;
(ii) f(x,) is C-quasiconvex on X for each x X;
(iii) f(,y) is (-C)-continuous on X for each y X;
(iv) f is C-continuous on X X.
Then the problem -VEP has at least one solution, i.e., () is nonempty for each intC.
Proof. Let for each y clK,
First, we show that G(y) is a KKM-map. Suppose to the contrary that there exists i [0,1], xi clK (i =
1,...,n) such that
Then
f(x, xi ) - intC, i = 1,...,n.
Hence by Theorem 3.1, the problem -VEP has at least one solution. Remark 3. We observe that the
condition that f is both C-continuous and (-C)-continuous doesnt imply that f is continuous. See, e.g.,
[18,Theorem 5.3 and Remark 5.4].
Remark 4. Theorem 3.2 is only one of variations of Theorem 3.1. Using various existance results for VEP, we may
obtain conditions of nonemptyness of S , and then we can derive another existence results for -VEP easily. If we
assume closedness of C, we may utilize existence results for genelized VEP in the following papers [4, 10, 11, 16].
Next, we show that the solution mapping of -VEP is upper semicontinuous on intC under some suitabloe
conditions.
Theorem 3.3. Let X be a real Hausdor? topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X, that f is a vectorvalud
function from X X to Z. Also we assume that the following conditions:
(i) K is compact;
(ii) f(,y) is (?C)-continuous on X for each y X;
95
(iii) () is nonempty for each intC.
Then is u.s.c. on intC.
Proof. Let and x ( ). Since K is compact, we can assume, without loss of generality,
x x K. Suppose to the contrary that x (). Then there exists y K such that f(x,y) +
-intC.Since Z is a topological vector space, there exists a neighborhood U of z such that f(x,y) + + U +
U -intC. Then f(x,y) + +U + U - intC (-intC - intC) -intC. Because of , x x, and
condition (ii), there exists a such that for every ,f( x ,y) + , -intC. This contradicts the fact
that x ( ).Hence x ( ). Therefore by Lemma 2.1, () is u.s.c. on intC.
Corollary 3.2. Let X be a real Hausdorff topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X, that f is a vectorvalud
function from X X to Z with f(x,x) -intC for all x X.Also we assume that the following conditions:
(i) K is compact convex;
(ii) f(x,) is C-quasiconvex on X for each x X;
(iii) f(,y) is (-C)-continuous on X for each y X;
(iv) f is C-continuous on X X.
Then is u.s.c. on intC.
Proof. The result follows from Theorems 3.2 and 3.3.
We now establish that the solution mapping of -VEP is lower semicontinuous on intC under suitable
assumptions.
Theorem 3.4. Let X be a real Hausdor? topological vector space. Let Z be a real topological vector space with a
solid pointed convex cone C Z. Suppose that K is a nonempty subset of X, that f is a vectorvalud function from X
X to Z. Also we assume that the following conditions:
(i) K is compact convex;
(ii) f(x,) is C-continuous on X for each x X;
(iii) f(,y) is strictly C-quasiconcave on K for each y K;
(iv) () is nonempty for each intC.
Then is l.s.c. on intC.
Proof. Let intC. Let V be an open set of X with () .
Suppose that x () and that x (), where (0,1). We choose x (x, x )
V, where (a,b) denotes the line segment between a and b.
Obviously x (). Because of condition (iii),
Since - clC is a closed set, for each v X there exist a positive number tv > 0 such that
Because of conditions (i) and (ii), by Lemma 2.2, f( x ,v) is Ccompact. Clearly f( x ,v) - tv +
UX
(2)
Since f( x , i )- t vi --clC, i = 1,...,n, there exist corresponding numbers t1,...,tn (0,1) such that
96
Let = min{t1,...,tn}. Then by Proposition 2.4,
Because of (2),
Accordingly
i.e.,
Next we find corresponding (0,1 -). Because of the way in selecting x , we have
or
Let K = {y K : f( x ,y) ( x0 ,y) + intC}. By condition (ii) and Proposition 2.2, A := {y X : f( x ,y)
f( x0 ,y) + intC} is an open set of X. Then Ac = {y X : f( x ,y) f(x0,y)+intC} is a closed set of X.
Hence K = (K A ) is a closed set, i.e., compact set. Because of Proposition 2.5, we have f( x ,v) f( x ,v) +
c
intC for all v K .Thus, for each v K there exists v (0,1-) such that
Hence
97
Putting = min{ v1 ,..., vn }, we have
Hence
Because of x ()
Therefore by (3)
( )
On the other hand for each v (K K ) , f x, v f ( x 0 , v ) + int C . Since x0 ( ) , we have
( )
f x, v + int C . Because of < (1 ) ,
from which it follows f( x ,v) + -intC for all v K, i.e., x () for all U. Hence is
l.s.c. at . Since is arbitrary, is l.s.c. on intC.
Corollary 3.3. Let X be a real Hausdor? topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X, that f is a vector valud
98
function from X X to Z with f(x,x) -intC for all x X. Also we assume that the following conditions:
(i) K is compact convex;
(ii) f(x,) is C-quasiconvex on X for each x X;
(iii) f(,y) is strictly (?C)-properly quasiconvex on K for each y K;
(iv) f(,y) is (?C)-continuous on X for each y X
(v) f is C-continuous on X X.
Then is continuous on intC.
Proof. The result follows from Theorems 3.2 and 3.5.
Corollary 3.4. Let X be a real Hausdorff topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X, that f is a vector-valud
function from X X to Z. Also we assume that the following conditions:
(i) K is compact convex;
(ii) f(., y) is (-C)-continuous on X for each y X;
(iii) f is C-continuous on X X;
(iv) f(., y) is strictly (-C)-properly quasiconvex on K for each y K;
(v) ( ) is nonempty for each intC.
Then is continuous on intC.
Proof. The result follows from Theorems 3.3 and 3.5.
Finally we show that nonemptyness of the solutions sets of -VEP implies that there exists a solution to VEP
under mild conditions.
Theorem 3.6. Let X be a real Hausdorff topological vector space. Let Z be a real topological vector space
with a solid pointed convex cone C Z. Suppose that K is a nonempty subset of X, that f is a vectorvalud function
from X X to Z. Also we assume that the following conditions:
(i) cl K is compact;
(ii) f(., y) is (-C)-continuous on X for each y X;
(iii) ( ) 0 ; for all intC.
Then S is nonempty.
Proof. Let { } intC, Z , and x clK . Then by condition (i), without loss of generality, we
assume x x and x clK . Suppose to the contrary that f(x, y) -intC for some y K. Then by condition
(ii), there is a 0 such that for all 0
f(x, y) -intC.
This contradicts to the fact that x ( ) Hence f(x, y) =-intC for all y K and thus x S from which the
result follows.
We remark that from the proof of Theorem 3.5, one can see that Condition (iii) in Theorem 3.5 can be replaced by
the condition that ( ) for some net { } intC such that Z .
4. Acknowledgement
This research was partially supported by the grant NSC 94-2115-M-110-004. The authors thank the referees for
their helpful comments and suggestions.
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100
Optimization of Distribution Network Design Based on
Retailer Satisfaction*
Zhang Min
School of Information Management, Wuhan University, P.R.China, 430072
Abstract There has emerged a growing inter-dependency amongst the parties in supply chain. With this inter-dependency has
come a realization that co-operation and partnership are essential pre-requisites for the achievement of long-term mutual benefit.
Now, optimization of distribution network design has become one of the most important problems in supply chain management. In
this paper, we base on the core manufacturing enterprise to select distributors. For distributor selection, we use the method combining
Network data envelopment analysis (DEA) with Activity Based Costing (ABC) approach to evaluate their relative validity and
complete the first stage of distributor selection. Here, we need to divide distribution process into several related sub-processes
according to ABC approach. After that, we study retailer demand and set retailer evaluation principles to the whole supply chain,
then we choose several primary retailers to mark the importance degree of each principle. A model is built to select supply chain
partnerships combination which can maximize retailer satisfaction. At the end of this paper, a numerical example is given.
Key words Optimization, Distribution network, Retailer satisfaction
1. Introduction
Throughout the public, private, and non-profit sectors, there is increasing experimentation with the use of
partnerships, alliances, and networks to design and deliver goods and services [1]. To supply chain management
SCM, it has been considered as a competitive strategy for integrating suppliers and customers with the
objective of improving responsiveness and flexibility of manufacturing organizations, and these organizations
have actively sought to reduce the number of partnerships, including suppliers and distributors, they do business
with. The motivations for this move towards partnerships rationalization are based partly upon economics, partly
upon the search for continuous quality improvement and innovation but also on a realization that there is a limit to
the extent to which multiple supplier relationships can be effectively managed [2].
As a result of these changes in SCM there has emerged a growing importance of construction of supply chain
distribution network partnerships. Vast literatures have been devoted to this field. A large body of research exists
examining different criteria of selecting suppliers, for example, five kinds of criteria of selecting suppliers:
performance, economy, entirety, fitment, and legality have been proposed (Lehamann and Shaughnessy, 1982) [3].
Another strand of research proposed that when enterprises select suppliers, some soft standards must be
considered such as management compatibility, goal consistency, suppliers strategic directionality besides such
quantization criterion as cost, quality, delivery date (Ellram, 1990) [4]. some researchers discuss criteria, methods
and theory frameworks of selecting partnersXin an Ma , 2000[5]. The selecting process of supply chain
partnerships is very complex, and a classic paper had reviewed related literatures and concluded 4 main methods
Weber, 1991[6]. So far, more methods are applied to select supply chain partnerships, such as ABC (Activity
Based Costing) approach, DEA (Data Envelopment Analysis), GA (Genetic Algorithm) and TOPSIS. Now,
combined application of these approaches has become popular, such as AHP/DEA and AHP/ TOPSIS [7].
So far, there are lots of researches on supply chain distribution network design, but few literatures study from
the aspect of retailer satisfaction. In fact, retailers are playing a very important role in SCM, and they have many
significant characteristics: (1) retailers themselves produce no products, they only provide service; (2) retailers
create values through some logistics process; (3) retailers are always stable and secular in supply chain
relationship;(4) retailers provide service for many organizations, so they do not depend on just one enterprise. In
supply chain, retailers are the service centers, information-collection centers and alarm centers. We can say that
retailer satisfaction stands customers satisfaction in some degree.
The objective of this article is to study an efficient approach to design distribution network based on retailer
satisfaction. In this paper, we consider to select distributors with some kinds of evaluation principles according to
This research has been supported by National Natural Science Funds of China (No: 70601011).
101
their different characteristics. For distributor selection, we use the method combining Network DEA with ABC
approach to evaluate their relative validity and complete the first stage of distributor selection. After that, we
study retailer demand and set retailer evaluation principles to the whole supply chain, then we choose several
primary retailers to mark the importance degree of each principle. A model is built to select supply chain
partnerships combination which can maximize retailer satisfaction. At the end of this paper, a numerical example
is given.
2. The model
2.1 Distributor selection
Distribution process in SCM consumes various resources and produces various values. Its performance
evaluation involves transformation efficiency among multi-inputs and multi-outputs. Here, we use a kind of
Network DEA model, which has proved to be fruitful in engineering and operations research applications, among
others to deal with distributor selection.
The traditional models for DEAtype performance measurement are based on thinking about production as a
black box. Inputs enter and outputs exit, with no consideration of the intervening steps. Consequently, it is
difficult, if not impossible, to provide individual DMU managers with specific information regarding the sources
of inefficiency within their DMUs. So when researchers apply DEA to specific industries or situations, they have
often added more structure to the model to better suit the application [8-11]. Network DEA model is widely used to
deal with this kind of situation, and it applies to DMUs that consist of a network of Sub- DMUs, some of which
consume resource produced by other Sub- DMUs and some of which produce resource consumed by other
Sub-DMUs. Network DEA model can be divided into input orientation and output orientation.
In this sector, we combine ABC with Network DEA model and divide distribution process into several
related sub-processes. In literature [12], it divided distribution process into sale sub-process, distribution
sub-process and service sub-process. In fact, distribution process consists of many logistics treatments, such as
transportation, distribution, storage and packaging, which may lead many quality problems. Distributors are not
charge of those fault products and they will return them to manufacturing enterprise, so products withdrawal
process is very important in distribution process. In this paper, we divide distribution process into sale sub-process,
withdrawal sub-process and service sub-process. Assume that there are n DMUs in distribution process.
Detailed operation processes in DMUj are shown in Fig.1.
y14j
x10j P1
y12j
20
x j y 24
j
input P2 output
0
x j y 23
j
x 30j P3
y 34
j
In distribution process, sale departments sell products to retailers. At the same time, they pass sale
information to service departments and withdrawal departments. After receiving sale information from sale
departments, service departments need to distribute products to retailers and transfer fault product information to
withdrawal departments, then withdrawal departments return these fault products to manufacturing enterprise [13].
In Fig.1, P1 stands sale sub-process, P2 stands service sub-process and P3 stands withdrawal sub-process. We
define that x 0j stands total capital input of DMUj and it is divided into three parts according to the three
sub-process x10j , x 20 30
j and x j . Outputs of DMUj are their service to retailers. Now, we describe each sub-process
102
in details: to P1, x10j is the capital input, y12j information to P2 in one output and y14j ( information to
retailers ) is another output; to P2, x 20 12
j is the capital input and y j ( information from P1 ) is another input.
y 23
j (information to P3) is one output and y 24
j (information to retailers ) is the other output. to P3, x30j is the
capital input, y 23 34
j information from P2is another input. y j (information to retailers ) is the output. Our
Network DEA model is described as M1:
0 + x0 + x0 = x0
x10 20 30 0
s.t. (1)
n n n
P1 :
j =1
1j 0 , 1 j y j y0 , 1 j y j y0
x10j x10
j =1
12 12
j =1
14 14
(2)
n n n n
P2 :
j =1
2j j x0 , 2 j y j y0 , 2 j y j y0 , 2 j y j y0
x 20 20 12
j =1
12 23
j =1
23 24
j =1
24
(3)
n n n
P3 :
j =1
3j j x0 , 3 j y j y0 , 3 j y j y0
x30 30
j =1
23 23
j =1
34 34
(4)
0 y0
y12 14
(5)
y023 y024 (6)
y034 + y14
0 y0
24
(7)
kj 0, x kj 0 0(k = 1, 2,3; j = 1, 2, n) (8)
y12j 0, y 23
j 0 (9)
In model M1, suffix j ( j = 1, 2, n ) is corresponding to one DMU and suffix 0 stands the evaluated
DMU. kj ( k = 1, 2,3, j = 1, 2, n ) is variable of Network DEA model. stands relative validity of evaluated
DMU. = 1 means this DMU is relatively effective, and < 1 means this DMU is relatively ineffective.
Expression (1) describes the quantitative relationship between sub-process capital inputs and total capital input.
Expression (2) describes constraints in P1 . Expression (3) describes constraints in P2 . Expression (4) describes
constraints in P3 . Expression (5) stands that information from sale departments to service departments not more
than that to retailers; expression (6) means that information from service departments to withdrawal departments
not more than that to retailers; expression (7) means that information from service departments to retailers is not
more than those from sale departments and withdrawal departments.
Input data into model M1 and solve it for n times, then we can get the relative validity of each evaluated
DMU. During distributor selection, we can exclude those relatively invalid distributors and remain distributors
with relatively high validity.
2.2 Models of selecting supply chain partnerships based on retailer satisfaction
Assuming that after the first stage of partnerships selection, the selected suppliers and distributors can
assemble into m kinds of supply chain partnerships combination. There are S retailers and each retailer has an
expected demand according to their history demands. In our model, we choose average cost(C), product quality
Q, response timeTand reliabilityRas our supply chain evaluation principles. The importance level of
each evaluation principle is divided into 10 degrees. Retailers mark these evaluation principles according to their
own experience. Our objective is to maximize retailer satisfaction, and this objective can be divided into 4
sub-objectives according to evaluation principles, they are cost minimization, quality maximization, response time
minimization and reliability maximization. For each evaluation principle, unit is different, so we need to
standardize these units. Our model is constructed as model M2 as following.
s t cij
Ci = min w j p (jc ) (10)
j =1 k =1 cmax
103
s t qij
Qi = max w j p (jq ) (11)
j =1 k =1 qmax
s t tij
Ti = min w j p (jt ) (12)
j =1 k =1 t max
s t rij
Ri = max w j p (jr ) (13)
j =1 k =1 rmax
In model M2, w j stands the expected demand of retailer j , p (jc ) stands the importance degree of retailer j to
evaluation principle C. p (jq ) stands the importance degree of retailer j to evaluation principle Q, p (jt ) stands the
importance degree of retailer j to evaluation principle T, p (jr ) stands the importance degree of retailer j to
evaluation principle R, cij stands the mark of evaluation principle C when retailer j select supply chain
combination i , qij stands the mark of evaluation principle ZQ when retailer j select supply chain combination i , tij
stands the mark of evaluation principle T when retailer j select supply chain combination i , rij stands the mark of
evaluation principle R when retailer j select supply chain combination i . At the same time,
cmax ( i ) = max {cij , j = 1, 2, s} , qmax ( i ) = max {qij , j = 1, 2, s} , tmax ( i ) = max {tij , j = 1, 2, s} and
rmax (i ) = max {rij , j = 1, 2, s} . Then, model M2 can turn into model M3 as following:
s t
cij
Ci ' = max 1 (c)
wj p j (14)
j =1 k =1 cmax
s t qij
Qi = max w j p (jq ) (15)
j =1 k =1 qmax
s t
tij
Ti ' = max 1 (t )
wj p j (16)
j =1 k =1 tmax
s t rij
Ri = max w j p (jr ) (17)
j =1 k =1 max r
Now, all the units have been standardized, so we get model M4:
s t c q t r
Z = max( Ci' +Qi +Ti' +Ri ) =maxwj 1 ik p(jc) + ik p(jq) +1 ik p(jt) + ik p(jq) (18)
rmax
cmax qmax tmax
i i
j=1 k=1
According to model M4, we can find out the optimal supply chain partnerships combination to maximize
retailer satisfaction.
3. Numerical example
3.1 Validity filtration
In this section, we use models proposed above to analyze distribution partnerships consisting of
manufacturing enterprises, distributors and retailers. Tab. 1 shows details of candidate distributors.
We put candidate distributor details in Tab.1 into model M1, solve it with Lingo and we can easily calculate
104
that distributor Y2 and Y5 are relatively valid.
3.2 Selecting supply chain partnership combination
After the first stage of partnerships selection, two candidate distributors are selected. They can form 2 kinds
of partnerships combination. In this sector, 5 primary retailers are chosen to evaluate supply chain performance.
Details are shown in Tab. 2.
We can get the values of these 4 kinds of supply chain partnerships combination according to model M4 as
Tab.3 shows. Comparing values of Z in Tab.3, we can draw a conclusion that with the combination M Y2,
retailers can maximize retailer satisfaction. Therefore, this supply chain alliance partner combination is our
optimal combination.
4. Conclusions
In this paper, we do some beneficial research on distribution network partnerships selection. We focus on
retailer satisfaction and study the simplest combination. But we just study single-product system and suppose that
retailer demand is known. In practice, retailer demand is often various, stochastic and dynamic. In the following
research, we will study supply chain partnerships selection with stochastic demand under dynamic environment.
On the other hand, computer aided decision will also be applied in our study.
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106
Optimizing Linear Optimization Problems under Fuzzy Relational
Yan-KuenWu
Department of Industrial Management,Vanung University,320,Chung-Li,Taoyuan,Taiwan,R.O.C.
Abstract Max-minand max-product compositions are commonly utilizedto optimizea linearobjective functionsubjecttofuzzy
relationalequations.Botharemembersintheclassof max-t-normcomposition. In this study, the max-star composition is considered for
the same optimization model, which does not belong to the max-t-norm composition. However, max-star composition generates some
properties of the solutionsetthatare similartothe max-productcomposition. Thankstotheseproperties,asimple value matrix with rules
can be applied to reduce problem size. Thus, this study proposes an effcient procedure for obtaining optimal solutions without
decomposing the problem into two sub-problems or nding all thepotential minimal solutions.
Keywords Fuzzy optimization,Fuzzy relational equations, Max-star composition
1 Introduction
In literature, the matrix-form representation of an optimization problem subject to a system of fuzzy
relational equations canbe described as
where ci R is the cost coecient associated with variable xi , A=[ aij ] is an m n nonnegative matrix
with aij 1, b=( b1 . bn ) is an n-dimensional vector with0 b j 1, and the operation o in (2) represents one
algebraic composition. In this study, operation o represents the max-star composition (Khorram, Ghodousian,
and Molai, 2006).
Let T={1,2,m}and J ={1,2,,n}be two index sets. Solving the constraint part of fuzzy relational
equations with max-star composition in (2) is to find a set of solution vectors x = ( xi ) iI such that
The (1)-(2) optimization problem subject to fuzzy relational equations with dierent algebraic operations has
been proposed. The typical framzeworks for the (1)-(2) model assume that operation o takes either max-min or
max-product compositions. Fang and Li (1999) indicated that the (1)-(2) model with max-min composition can be
converted into a 0-1 integer programming problem and solved using the branch-and-bound method. Wu, Guu, and
Liu (2002) improved Fang and Lis method by providing an upper bound for the branch-and-bound procedure. As
an application, the (1)-(2) model with a max-min composition has been employed for streaming media providers
seeking minimum cost while meeting the requirements assumed by a three-tier framework. For a detailed
description of problem, see (Lee and Guu, 2002). In solving the same optimization problem with positive cost
coecients in the objective function, Wu and Guu (2005) proposed a necessary condition for the optimal solution.
Based on this necessary condition, three rules have been applied to simplify the work of finding an optimal
solution.
Lu and Fang (2001) developed a genetic algorithm to solve the same mathematical problem yet with a
nonlinear objective function. Wang (1995) explored fuzzy relational equations based on the max-min composition
with multiple objective linear functions. Wang characterized some properties of ecient points and transformed
the problem into a multi-attribute decision problem. Loetamonphong, Fang, and Young (2002) extended the
analysis of the multi-objective optimization problem to the dierent model with nonlinear objective functions. A
genetic procedure was employed to obtain the Pareto optimal solutions. Based on the dierent objective function
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types, when the objective functionin (1)becomes Z ( x) = max iI {min(ci , xi )} ,Wang et al. called this model
the latticized linear programming problem (Wang, Zhang, Sanchez and Lee, 1991). Recently, Yang and Cao
(2005) extended the latticized linear programming problem to a situation with a geometric objective function.
Subjected to fuzzy relational equations with max-product composition for the (1)-(2) problem,
Loeta-monphong and Fang (2001) investigated a minimization problem with a linear objective function. They
separated this optimization problem into two sub-problems according to the nonnegative and negative coecients
in the objective function. The sub-problem generated by negative coecients can be solved easily by the
maximum solution. On the other hand, the sub-problem formed by the nonnegative coecients can be
convertedintoa0-1integer programming problem and then solved by the branch-and-bound method. Guu and Wu
(2002) identified a necessary condition for an optimal solution in terms of the maximum solution derived from
fuzzy relational equations. This necessary condition was utilized to provide an ecient procedure for solving the
minimization problem. Wu and Guu (2004) extended the fuzzy relational constraints with max-product
composition to a situation with a max-strict t-norm composition. They indicated that the necessary condition for
an optimal solution in terms of the maximum solution can also be applied to a situation of max-strict t-norm
composition.
This study is motivated by the work of Khorram, Ghodousian, and Molai (2006). They considered the
constraint part of problem (1)-(2), which consists of fuzzy relational equations with max-star composition.
Khorram, Ghodousian, and Molai decomposed this problem into two sub-problems that depend on the
nonnegative and nonpositive cost coecients in the objective function. According to their procedure, the
sub-problem formed by nonpositive coecients was solved by the maximum solution. Then, they removed
variables with nonpositive coecients from the objective function and proposed an algorithm to solve the
sub-problem formed by the remaining variables that are nonnegative coecients in the objective function under
the original constraint. Finally they combined the two solutions obtained from those two sub-problems to yield an
optimal solution for the (1)-(2) problem. Although they intended to present an algorithm to obtain an optimal
solution without finding all minimal solutions for the (1)-(2) problem, the optimal solution can not be guaranteed
to yield by applying their algorithm. To improve this situation, this study first provides a necessary condition for
an optimal solution of the (1)-(2) problem. A simple value matrix is then used to capture the contribution of each
variable in the objective function yielded by employing the necessary condition. Furthermore, more rules than a
previous paper (Guu and Wu, 2002) for dealing with the max-product composition are proposed to reduce
problem size. This value matrix and these rules facilitate the development of an ecient procedure for finding
optimal solutions without decomposing the (1)-(2) problem into two sub-problems.
2. Preliminarypropertiesformax-starcomposition
This section describes some proper ties of fuzzy relational equations with a max-star composition. More-over,
to solve the (1)-(2) problem for a general situation, this study pays attention to each component of an optimal
solution and how it is either 0 or the corresponding value of the maximum solution.
As in Di Nola et al. (1991), the triangular norm (t-norm for short) is a real function mapping from [0, 1] [0,1]
to[0,1] such that t(a,0)=0, t(a,1) = a, t(a, b)=t(b,a), t(a, t(b,c))=t(t(a,b),c), and t(a,b)t(a,c) if bc. The common
max-min and max-product compositions are specific cases of the max-t-norm composition. Obviously, the
max-star composition described in (3) does not belong to the class of max-t-norm composition since
max{0+a0a} 0 if a 0. However, some characteristics of the solution set obtained using the max-star
composition are similar to that in the max-product composition. To be precise, each component of the minimal
solution obtained from fuzzy relational equations with a max-product composition is either 0 or the corresponding
component value from the maximum solution (Guu and Wu, 2002). This is also true for max-star composition.
Now, this study explores the property of solution set X(A, b) to (2) with the max-star composition.
Lemma 1. If in the j th equation aij > b j holds for i I in (2), then the solution set X(A,b) is empty.
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Proof. Due to0 xi 1 and 0 aij 1, if aij > b j holds for i I in (2), then
{Since0 xi 1, xi has to equal zero for all i I if any solution exists in X(A,b). This is a trivial solution.
Hence, only two cases occur in the solution set X(A,b) for b j =0 in (2). It is either empty or the trivial solution.
Henceforth, this study assumes b j >0,jJ and the solution set X(A,b) .
From Lemma 1, this study obtains the necessary condition for the existence of a solution such that the
solution set X(A,b) in (2) is aij b j for all i I .
Lemma 2. If in the j th equation b j =1 holds for some jJ in (2) and X(A,b) , then the j th equation
in (2) has no eect.
Proof. Due to X(A,b) and 0 aij 1 for i I in (2), there is aij b j for all i I by the necessary
condition. This implies aij =1 for all i I in the j th equation b j =1 and the following equation holds
Definition 2. A solution x X ( A, b) is called the maximum solution if x x for all xX(A,b). On the
other hand, an x X ( A, b) is a minimal solution if x x implies that x = x , xX(A,b). Asolution x
*
*
X(A,b) is optimal for the (1)-(2) problem if Z( x )Z(x)for all xX(A,b).
Based on these definitions, the maximum solution of fuzzy relational equations with max-star composition
can be easily derived by applying the following operation:
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Hence, xi + aij aij xi b j holds for any value of variable xi, implying that xi + aij aij xi b j jJ.
Now, if xi is binding in the j th equation, then xi + aij aij xi = b j for all jJ(xi). Moreover, xi xi exists for
any solution x. Therefore, the following inequality holds:
This result suggests xi + aij aij xi = b j . Hence, xi is also binding in the j th equation.
Theorem 1. Let x = ( xi ) iI be the maximum solution. For any solution x = ( xi ) iI X(A,b), if xi is a
binding variable, then xi = xi
Proof. For any solution x = ( xi ) iI X ( A, b) , there are
Since xi is a binding variable, xi + aij aij xi = b j for some jJ. By Lemma 3, xi is also binding at the jth
equation. Hence, xi + aij aij xi = b j . Now, suppose that xi < xi , this then implies that
* *
xi = 0 or xi = xi for each i I .
* *
Proof. Each variable xi in a minimal solution is either nonbinding or binding. Suppose that xi is not a
*
binding variable and xi > 0 . Then a solution can be constructed for x by letting x 0 and x k = x
! ! ! *
i= k for all k
I and k i , respectively. It follows that x x , implying that x
! * *
is not a minimal solution. Hence, a
a binding variable, then xi = xi by
* * * *
nonbinding variable x i requires that x i = 0. On the other hand, if x i is
Theorem 1.
Theorem 2 reveals the necessary condition for any minimal solution of fuzzy relational equations with a
max-star composition. This necessary condition is that for any minimal solution x = ( xi ) iI , if xi is not a
* * *
* * *
binding variable, then xi =0. On the other hand, if xi is binding, then xi = xi . This same necessary condition
occurs in literature for fuzzy relational equations with a max-product composition. The primary aim of this study
is to present a novel and ecient procedure for minimizing a linear objective function under fuzzy relational
equations with a max-star composition. Now, this study proceeds with theoretical results for the (1)-(2) problem.
Theorem 3. Let x = ( xi ) iI be the maximum solution computed by (4). For any optimal solution
x * = ( xi* ) iI X ( A, b ) of the (1)-(2) problem, the i th component of x * is one of the following situations:
Proof. (1) For any optimal solution x * = ( xi* ) iI X ( A, b ) , xi* xi exists. Suppose xi* xi . Due to ci < 0 ,
this yields
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(3) Since xi* is a binding variable, xi* = xi by Theorem 1.
(4) For any optimal solution x , 0 xi xi 0 exists. Let Z ( x ) be the corresponding optimal value of
* * *
x * for the (1)-(2) problem. Since ci = 0 , it implies 0 = ci xi* = ci xi = 0 for any value xi* in[0, xi ]. This result
leads the following equation hold
Therefore, for any optimal solution x , if xi is not a binding variable with ci = 0 , then xi can be any
* * *
value in [0, xi ].
For any optimal solution x = ( xi ) iI X ( A, b) of the (1)-(2) problem, Theorem 3-(2) indicates that if
* *
The numerical elements in the i th row of M correspond to the contributions in the objective function by
setting xi = xi . Notably, if xi = xi is nota binding variable but has the nonnegative cost coecient ci 0 , then
the elements in the i th row of M will become mij =, jJ.
Depending on the value matrix M, this study creates several rules to reduce the problem. The idea underlying
the use of rules for reducing the problem is to fix as many as possible the i th component of optimal
decisionvariablesby0 or xi . To develop a procedure for finding the optimal solution, this study denotes the
following index sets for value matrix M.
Essentially, three cases occur in the index set J i (M ) for the variable xi = xi . They are J i (M ) = J ( xi ) ,
J i (M ) = J and J i (M ) =. For the first case, the index set J i (M ) is equivalent to binding set J ( xi ) whenever
xi = xi becomes a binding variable. When xi = xi can not become a binding variable (i.e., J ( xi ) =) but has a
negative coecient ci < 0 , then J i (M ) = J is the second case. If xi = xi can not become a binding variable
but has a nonnegative coecient ci 0 , then J i (M ) = is the third case. The index set I j (M ) represents that
the possible variables of x may be selected as a binding variable or a nonbinding variable with a negative
coecient in the j th equation. Now, some rules are proposed to optimize the (1)-(2) problem by employing the
value matrix M.
Rule 1. If there are some entry mij 0 in the value matrix M for some i I , then xi can be assigned to
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the i th component of any optimal solutions xi for those i I .
*
Rule 2. If a singleton I j (M ) ={ i } exists for some j J in the value matrix M, then xi is assigned to
the i th component of any optimal solution.
Rule 3. If I p ( M ) I q ( M ) for some p, qJ in the value matrix M, then the q th column of M can be
deleted.
Rule 4. If J s ( M ) J t ( M ) for some s, tI with 0 < ct xt < cs xs , then there exists an optimal solution
x * = ( xi ) iI with x s* =0.
Rule 5. Let I I and U iI J i ( M ) = J . If rI, r I , J r ( M ) J and iI ci xi < cr xi < cr xi = , then there
Rule 6. In the process of finding an optimal solution, if ck > 0 and J k (M ) = for some kI, then the
value 0 can be assigned to the k th component of the optimal solution.
Employing these rules in the value matrix M, this study presents a procedure to find optimal solutions. The
idea behind the procedure is to apply Rules 1-6 to fix as many values as possible for variables such that some
components of optimal solutions can be determined. Problem size is then reduced by eliminating corresponding
rows and columns from matrix M. When the problem size cannot be further reduced, the branch-and-bound
method is applied to solve the remaining undetermined variables. The procedure for finding optimal solutions for
the (1)-(2) problem with max-star composition is summarized as follows.
Step1 Compute vector x = ( xi ) iI by (4).
Step2 Check the consistency by verifying whether x oA =b. If it is inconsistent, then stop. (If the problem is
consistent, then x = ( xi ) iI is the maximum solution.)
Step3 Compute the index sets J ( xi ) for all iI and generate the value matrix M by (5).
Step4 Apply Rule1to first reduce the problem size, then as far as possible employ Rules 2-6 to determine the
values of as many decision variables as possible. Note that the priorityofRule1isto handle the components mij <0
before mij =0. Delete the corresponding rows and/or columns in M. (Hence, problem size is reduced.) Denote the
remaining sub-matrix by M again. If all decision variables have been set, go to Step 6.
Step5 Take the (remaining) value matrix M. Employ the branch-and-bound method to solve the remaining
undetermined decision variables. Obtain the optimal solution and stop the procedure.
Step6 Generate optimal solutions for the problem and obtain the optimal value.
4. A Numerical Example
In this section, an example subject to fuzzy relational equations with max-star composition is presented. This
example is taken from Khorram, Ghodousian, and Molai (2006). In solving this example by their procedure, the
problem was decomposed into two sub-problems and the optimal solution obtained had an optimal value of 1.23.
The proposed procedure in this study obtains an optimal solution without decomposing the problem into two
sub-problems and yields an optimal value of 1.43, which is less than that obtained using the algorithm developed
by Khorram, Ghodousian and Molai.
Example Consider the following optimization problem subject to fuzzy relational equations with max-star
composition.
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Solving this example according to the proposed procedure step by step, an optimal solution can be obtained
as
*
and the optimal value is Z ( x ) =1.43.
Remark. This example solved by the algorithm developed by Khorram, Ghodousian, and Molai obtains the
following solution.
*
The corresponding objective value for solution x is 1.23. Obviously, this solution is not optimal.
5 Conclusion
Thiswork considered an optimization probleminvolvedthe minimizationofa linearobjective function subject to
fuzzy relational equations witha max-star composition. Although the max-star composition does not belong to the
class of the max-t-norm composition, some characteristics of the solution set obtained using the max-star
composition are similar to that of the max-product composition. Precisely, each component of an optimal solution
obtained from fuzzy relational equations with max-star compo-sition can be either 0 or the corresponding
components value of the maximum solution. This useful property facilitates using a simple value matrix for
solving such an optimization problem. Based on this simple value matrix, some rules are proposed to reduce
problem size. Then, an effcient procedure is presented for computing optimal solutions.
References
[1] Khorram E., Ghodousian A., Molai A.A. Solving linear optimization problems with max-star com-position equation constraints.
Applied Mathematics and Computation, 2006,179: 654-661.
[2] Fang S.-C.,LiG. Solving fuzzy relation equations witha linearobjective function.Fuzzy Sets and Systems, 1999, 103: 107-113.
[3] Wu Y.-K., Guu S.-M., Liu J.Y.-C. An accelerated approach for solving fuzzy relation equations witha linearobjective function.
IEEETransactions onFuzzy Systems, 2002, 10(4): 552-558.
[4] Lee H.-C.,Guu S.-M.Onthe optimal three-tier multimedia streaming services.Fuzzy Optimization and Decision Making, 2002,
2(3): 31-39.
[5] Wu Y.-K., Guu S.-M. Minimizing a linear function under a fuzzy max-min relational equation constrain.Fuzzy Sets and
Systems, 2005, 150: 147-162.
[6] Lu J.,Fang S.-C. Solving nonlinear optimization problems with fuzzy relation equations constraints. Fuzzy Sets and Systems,
2001, 119: 1-20.
[7] Wang H.-F.,A multi-objective mathematical programming problem with fuzzy relation constraints. Journal of Multi-Criteria
Decision Analysis, 1995, 4: 23-35.
[8] Loetamonphong J.,Fang S.-C.,Young R.E. Multi-objective optimization problems with fuzzy rela-tion equation
constraints.Fuzzy Sets and Systems, 2002, 127: 141-164.
[9] Wang P.Z., Zhang D.Z., Sanchez E., Lee E.S. Latticized linear programming and fuzzy relation inequalities. Journal of
Mathematical Analysis and Applications, 1991, 159: 72-87.
[10] Yang J.-H., Cao B.-Y., Geometric programming with fuzzy relation equation constraints. Proceed-ings of the IEEE
International Conference onFuzzy Systems, 2005, 557-560.
[11] Loetamonphong J.,Fang S.-C. Optimization of fuzzy relational equations with max-product com-position.Fuzzy Sets and
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Systems, 2001, 118: 509-517.
[12] Guu S.-M.,WuY.-K. Minimizingalinearobjective function with fuzzy relation equation constraints. Fuzzy Optimization and
Decision Making, 2002, 1(4): 347-360.
[13] Wu Y.-K., Guu S.-M. A noteon fuzzy relation programming problems with max-strict-t-norm composition.Fuzzy Optimization
and Decision Making, 2004, 3(3): 271-278.
[14] Di Nola A.,Pedrycz W., Sessa E., Sanchez E.Fuzzy relation equations theory as a basis of fuzzy modelling: anoverview.Fuzzy
Sets and Systems, 1991, 40: 415-429.
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SECTION TWO
Operational Management
115
116
Virtual Cellular Manufacturing Systems:
Emerging Research Issues in Global Manufacturing &
Supply Chain Contexts
Nallan C. Suresh
Professor & Chairman, Dept. of Operations Management & Strategy
School of Management, State University of New York, Buffalo, NY 14260, USA.
Tel: 1 716 645 3279; Fax: 1 716 645 5078; E-mail: ncsuresh@buffalo.edu
Abstract The design of production systems is driven increasingly by major changes taking within global supply chain contexts.
This paper reviews emerging research pertaining to virtual cellular manufacturing (VCM) systems. A VCM system is a group of
resources dedicated to manufacturing of one or more part families, but the grouping may not be reflected by physical proximity of
resources such as machines and labor. Identifying such logical groups through the production planning and control system offers the
possibility of achieving the traditional advantages associated with cellular manufacturing such as lower cost, improved flow, higher
efficiency, simplified production control, better quality and rapid response in todays volatile conditions in globally dispersed supply
chains without changes to factory layouts. This paper reviews key findings of emerging streams of research in this area under the two
areas of operational and design aspects, and identifies future research needs.
Key words Virtual Cellular Manufacturing Systems, Global Manufacturing, Supply Chain
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Non-Reactive Reactive Capacity Systems Global Markets
Capacity Systems
The design of production systems, including cellular manufacturing systems for parts production, has to be
viewed within this global context. Along with the above developments, advances in information technology have
enabled more virtual configurations. In addition, given the increasing turbulence and volatility in global
businesses, risk mitigation and rapid response have been emphasized in recent years to avoid disruptions in global
supply chains.
The major implication for production systems, therefore, has been to ensure low-cost, high-quality outputs
associated with steady-state production, without losing flexibility and resilience. Given the above trends, we
consider a relatively new production configuration in the area of cellular manufacturing, specifically, virtual
cellular manufacturing systems.
Subsequently, the queuing theory-based models of Suresh (1991, 1992) showed that these results are
primarily due to the loss of routing flexibility (pooling synergy) when job shop work centers are partitioned when
converting to CL (stream 2 in Table 1). In the functional layout, each department is a multi-server system of
similar machines processing a common queue of jobs. After converting to CL, the machines get partitioned and
119
reassigned to different cells. This results in a loss of routing flexibility. Using queuing theory, it was shown that
significant adverse effects arise when such common queues are partitioned. This performance deterioration has to
be overcome through setup reduction, beyond a threshold level, before one can realize the benefits of CM.
The simulation studies of the 1990s (stream 3a in Table 1) explored various other conditions (e.g., inter-cell
movements, operation overlapping within cells) under which CL can outperform FL, despite the loss of routing
flexibility in CL. Several studies also extended FL-CL comparisons to dual resource constrained (DRC) systems
(stream 3b).
Stream 4 pertained to studies analyzing other, hybrid types of cellular systems. Stream 5 pertains to the
emerging area of virtual cellular manufacturing. First, Suresh & Meredith (1994) explored the impact of using part
family-oriented scheduling within a functional layout, given the loss of routing flexibility in physical cells. It was
shown that the VCM system performed better than CL and FL under moderate setup time reduction and
comparable lot sizes. This study utilized first come, first serve (FCFS) scheduling rule. Kannan & Ghosh (1996a;
1996b) and Kannan (1997; 1998) explored the use of several other part-family-oriented scheduling rules. They
investigated the performance of FL, CL and two virtual cell systems (VCM1 and VCM2). The performance of
VCMs was shown to be superior to FL, which in turn was superior to CL. VCM systems fared even better under
high shop load, unbalanced demand patterns and low lot sizes.
In Kannan & Ghosh (1996b), the relative performance of five types of VCM systems was investigated, based
on five different family selection rules. It was again shown that VCM generally outperforms CL and FL. Jensen
et al. (1998) considered a special case (a semi-conductor manufacturing system) consisting of a flow shop, with
occasional skipping of work centers, and with each department consisting of multiple machines, as in a job shop.
The utility of family-oriented scheduling was demonstrated when setup times are higher than a certain percentage
of processing times. However, when family setup times were less than 15% of processing times, there was no
advantage with family-based scheduling. All the above studies were based on single resource constrained systems.
The recent study of Suresh & Slomp (2005) extended the research to DRC system, considering both
machines and labor resources. This preliminary study indicates the following general results for the operational
performance of VCMs. Figure 2 shows these results for conditions in which the setup reduction possibilities are
relatively low, given not very similar parts within the family, very diverse range of tooling requirements, etc. In
this figure, when multi-functionality (cross-training) level equals one i.e. when each worker can perform only one
function, VCM system results in improved flow time and work in process inventory than FL. However, it is seen
that CL systems are not feasible at this level, and hence not shown in the figure for this setting, due to the fact that
cellular systems cannot operate without worker cross-training.
As the level of cross-training is increased to two, it is seen that the VCM system is most superior, in terms of
flow time and WIP, followed by the functional layout, and then the cellular layout. The worst-performing system
for this level of cross-training is seen to be the traditional cellular system.
80%
60%
% Improvement
40% VCM
FL
20%
0%
1 2 3 4 5 6
Cross-Training Level
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As the cross-training level is increased further, to a level of 3 and higher, the CL systems are seen to perform
best, followed by VCM which continues to be superior to the functional layout. Thus the adverse effects of
partitioning multi-serves queues of machines and labor are overcome in the traditional CL beyond a threshold
level of worker cross-training. Thus it is seen that with low levels of setup reduction possibility, and low levels
of cross-training, virtual cellular systems perform best. When high setup reduction possibilities exist, due to high
part family similarities, greater use of single minute exchange of dies (SMED) principles, etc. and with high
cross-training levels, CL systems tend to outperform both VCM and FL in the entire range. Some additional
findings may be seen from the recent study of Suresh & Slomp (2005).
The above results represent the state of current research in operational aspects of VCMs. These studies have
indicated the general range of applicability of VCM systems when they may outperform traditional CL and FL
systems. But much work remains to be done in comprehensively isolating the range of parameters where VCMs
can be profitably utilized.
References
[1] References & expanded version of the paper can be obtained by e-mailing the author at ncsuresh@buffalo.edu.
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A Study on the Performance Characteristics of Closed-loop
Asynchronous Automatic Assembly Systems
Abstract An automatic assembly system, a key tool for mass production, is generally composed of a number of workstations and a
transport system. While the workstations perform some preplanned operations, the transport system moves the assemblies from one
station to another. Usually an assembly is moved on an especially designed carrier called a pallet. The device that fixes the position
of an assembly on the pallet is called a fixture. A typical example of automatic assembly systems is a disk washer assembly system
which consists of more than forty stations. The complexity of analyzing the performance of an automatic assembly system is that the
overall performance is affected by many factors. These factors include: (i) the number of stations installed (ii) the number of pallets
installed (iii) ) the buffer units between two stations (iv) the reliability of the workstation (v) transport delay time. Therefore, one of
the major challenges to a design engineer is to find the optimal combination of the mentioned factors while maintaining the highest
productivity at a lowest cost. A simulation model written in C++ is particularly designed to study assembly systems with different
configurations. In our study we first use this simulation model to study the performance characteristics of closed-loop assembly
systems. The impact of each decision factor on the overall performance is also analyzed. The optimal configurations were then
identified. Finally, the guidelines for optimizing the overall performance of automatic assembly systems are provided.
Keywords Simulation, Automatic Assembly System (AAS), Factorial Experiment, Pallet Optimization
1. Introduction
An automatic assembly system is basically composed of a series of workstations performing simple
automatic operations and a transport system with transfers the assemblies from one station to another. Usually an
assembly is moved on a specially designed carrier called a pallet. The device that fixed the position of an
assembly on the pallet is automatic assembly systems can be classified as indexing systems and free-transfer
assembly systems according to the transfer system installed.
An indexing system transfers all assemblies simultaneously; consequently the entire assembly system stops if
any one of the workstations is down. Therefore, an indexing assembly system with several workstations can have
very high down time if the individual station reliability is not high. A free-transfer system, on the contrary, is
separated by buffer units. Hence, each individual workstation may operate independently without immediate
interference from the malfunction of the other workstations. Thus, the productivity of an assembly system can be
increased with a free-transfer configuration [1] environment. For the closed loop assembly systems (CLAS), a
finite number of pallets are installed. However, the number of pallets installed is not sufficient, workstations will
be frequently suffered. On the other hand, if too many pallets are installed, workstations will be blocked once a
workstation is jammed or malfunction. Moreover, the cost of pallets may be very high. Therefore, installing an
optimal number of pallets in a CLAS is one of the most challenging task to an engineer.
2. Literature Review
With the advancement of queuing theories, many approximate techniques and results originally developed for
studying the behavior of queues, have been employed to study assembly systems. In fact, assembly systems with
closed loop structures with finite pallets can be modeled as cyclic queues with a finite number of customers. In
1982 Koenigsberg [2] gave a review on the research concerning the cyclic queues an closed queue networks.
Other researchers have applied queuing approximations techniques in analyzing the performance of
manufacturing systems with queue structures [3, 4], Sanders and Kammath have developed RENA [5], an
appropriate approach to study cyclic queues, to estimate the production rates of the automatic assembly systems
with closed-loop structure with general station cycle times. While these approximate techniques have provided
good insights in understanding the performance of manufacturing systems, most of the models obtained are
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restricted to study assembly systems with simple topological structures with limited number of workstations.
Many researchers [6, 7, 8, 9, 10, 11, 12] have developed an approximate models that can analyze the performance
of closed-loop systems with finite buffer units and pallets. These models contribute approximate solutions in
estimating the overall productivity. However, some of the assumptions such as negligible transport time are not
realistic and cannot be practically applied in the real world situation.
Due to the complex nature of the analysis of the performance characteristics of assembly systems, many
researchers have attempted to study this type of problems by using simulation [12, 13, 14]. An excellent
presentation on the techniques for studying the performance characteristics of different types of assembly systems
can be found in Boothroyd [1]. Also, Buzacott and Shanthihumar have written an extensive review of modeling
techniques for manufacturing systems [3]. Law [15] analyzed the effects of different parameters by applying
experimental design techniques to collect and analyze the simulation data. Studies of the performance
characteristics of parallel stations using simulation have been presented by the authors [16, 17, 18]. Using
simulation approach, unrealistic assumptions can be relaxed and the results generated can reflect the actual
operations environment more accurately.
In this paper, we will first present the performance characteristics of closed looped assembly systems (CLAS)
with finite pallets. Critical factors affecting their performance are identified and their impacts are quantified.
Finally guidelines for selecting the right configuration to optimize the overall performance of CLAS are
presented.
3. Model Description
A discrete-event simulation model implemented using C++ was developed to evaluate and compare the
performance of CLAS under various assembly system design parameters. These systems consist of one dummy
load/unload station and a series of workstations. The mean processing time of each station is set to be equal. That
is, the whole system is said to be balanced. Assemblies are mounted on the pallets to transfer from station to
station on a continuous operating conveyor. A finite number of buffer units are installed among the workstations
(Fig. 1). The stochastic behavior of the systems was simulated by an appropriate probability distribution for the
random variables.
Normal Assembly
Defective Assembly
123
Table 1 State Condition(s) of Workstation
State Conditions for occurrence
Idle when no assembly carried by the pallet is available for immediate processing
Jammed when defective assemblies (components) are encountered
Force down when the downstream buffer units are full and consequently a completed assembly cannot be released
Busy when the station is processing a normal (non-defective) assembly
States 1 through 3 are classified as nonproductive since a workstation cannot operate on any normal
assemblies when it is in one of these three states. Therefore, the productivity of the system increases as the
duration of workstations in the productive states increases.
Below are the Assumptions of the Model:
(i) Process Characteristics of the Workstations
The assembly system is balanced. That is, every workstation shares the same mean processing time and
distribution.
(ii) Breakdown Characteristics of the Workstations
The only cause of breakdowns of a workstation is the jamming of a defective assembly, and the probability of
encountering a defective assembly is the same for all the workstations.
(iii) Repair Characteristics of Workstations
The repair time of workstations follows a random distribution.
(iv) Transport Time for the Pallets
The transport time unit is defined as the time required for a free running assembly to travel one buffer space
or a normal workstation. The transport time for buffer units and workstations are equal and constant.
(v) System Capacity
There are sufficient spaces for the last workstation to release its final product. Also, assemblies are always
available to feed the workstations. Consequently, the last station will never be blocked and the first station only be
starved when no pallets are available.
5. The Experiment
5.1 Input Parameter
To study the performance characteristics of the system, a factorial experimental design was used to analyze
the experiment output based on the following five control variables:
Total number of stations (N) is defined as the total number of workstations required to be installed to finish
all the assembly processes. Pallet ratio (P) is defined as the ratio between total number of pallets and the total
number of buffer units. Coefficient of variation of each workstation (CV) is defined as the variation of process
time due to jamming. Transport delay ratio (D) is defined as the ratio between the time for a pallet to travel one
unit buffer size and the mean processing time.
Two different levels for each factor were carefully chosen to represent typical system operating conditions.
For instance, the buffer size was set equal to one or five. In this way, total 32 (25) combinations of different
operating conditions were formed. The chosen levels represent the range of the factor in a typical automatic
assembly system. The high and low levels of each factor chosen are summarized in Table 2.
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Table 2 Values of the high/low levels of each factor
N P B CV D
The statistical results indicate that the main effects of the factors, N, P, B, CV and D, chosen within the
design region are significant at 99 percent level of confidence. In other words, all the studied factors can impose
statistically significant impact on the productivity of the system.
In terms of total products produced, the pallet ratio (P) appears to be the most significant factor among the
five studied factors. By increasing pallet ratio from 0.3 to 0.7, the total products produced are increased by more
than 24 percent. The second important factor is the buffer size (B) which can improve the productivity to 21%
when increasing the buffer size from 1 to 5 units. The coefficient of variance (CV) can also affect the productivity
by more than 10% when changing from low to high level. Among all the factors, the delay ratio (D) has the least
impact on the productivity, which is less than 4% reduction when changing from low to high level.
One of the main difficulties in analyzing the productivity of an automatic assembly system is due to the
interaction of different factors. Table 3 shows that, P B can significantly affect the productivity of an automatic
assembly system, while the interactions of other factors appear to be small. This suggests that P and B are highly
interactive factors, and thus should not be interpreted individually.
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6. The Impact of Pallets under Different Factors
In the previous sections, we can only conclude whether a factor has a statistically significant impact. To get
further insights into the behavior of the systems, more levels of each factor have to be chosen within the previous
design region for analysis. In particular, we are interested in determining whether the response (productivity) is
linearly or nonlinearly dependent on the factors. Also, we want to know the relationships between the pallet ratio
and the other factors under investigation. Three levels were chosen for N, B, CV and D to study their behavior in
detail. 10 levels were chosen for P for further investigation. Levels chosen for each factor are summarized in
Table 4. In this section, we will focus to discuss the interactive effects between the pallet ratio and different
factors.
Table 4 Studied factors and levels:
Value levels
Studied factors
(Low) (Mid) (High)
N 3 7 10
P 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
B 1 3 6
CV 0.01 0.03 0.05
D 0.1 0.2 0.3
6.1 Interaction between P and N
When N increases, more buffer units have to be installed to decouple the jamming effect of the workstations
installed. As a result, more pallets have to be installed to maintain the productivity of a system. Fig.2 shows that,
the productivity increases as the pallet ratio increases, and reaches the max value when pallet ratio equals 0.7.
When pallet ratio is higher than 0.7, the productivity drops as pallet ratio increases. It appears that productivity
and pallet ratio relates non-linearly under different N; and under all N levels. The optimal pallet ratio appears to
be 0.7. Also, it is noted that the productivity decreases as the number of stations increases. The phenomenon is
due to the fact that the overall reliability of the system decreases when the number of stations increases.
1
0.9
0.8
0.7
Productivity
0.6 N=3
0.5 N=7
0.4 N = 10
0.3
0.2
0.1
0
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Pallet Ratio (P)
0.9
0.8
0.7
Productivity
0.6
B=1
0.5
B=3
0.4
0.3 B=6
0.2
0.1
0
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Pallet Ratio (P)
0.8
Productivity
CV = 0.1
0.6
CV = 0.3
0.4
CV = 0.5
0.2
0
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Pallet Ratio (P)
0.9
0.8
0.7
0.6
Productivity
D = 0.1
0.5
D = 0.2
0.4
D = 0.3
0.3
0.2
0.1
0
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Pallet Ratio (P)
The second phenomenon concerns the optimal pallet ratio setting in a closed-loop AAS. When the number of
pallet is set between 0.6 to 0.8 of the total capacity of the system (all buffer units + all station units), the
productivity appears to achieve the maximum value. The productivity increases as the pallets ratio increase up to
0.6 and plateau off between 0.6 to 0.8; when the pallet ratio is further increased the productivity drops. Therefore,
a general guideline is that the pallet ratio should be set at least at 60% and should not add up beyond 80%.
If the number of pallets could not be changed due to economical reasons, changing the buffer size could be
another alternative for improving productivity. Although buffer size (B) and pallet ratio (P) both are very
significant factors on improving productivity, B relates nonlinearly with P in terms of the effect on productivity.
128
The simulation results showed that when P was lower than the optimal value, increasing the buffer size between
stations will significantly increase the productivity; while when P is equal to or higher than the optimal value,
although the effect is still there, adding buffer size is not likely to decouple the effectiveness caused by P, that the
productivity decreases as P continues to increase. This phenomenon suggests that, when P is lower than the
optimal value, adding buffer size between stations would help improving productivity; otherwise, adding buffer
size would have only limited impact. .
While both the pallet ratio and the buffer size are not allowed to change in the system, making effort on
decreasing the variance of stations could be another alternative plan for the engineers. The simulation results
indicated that, when the pallet ratio (P) is larger than 50%, decreasing the coefficient of variance (CV) of stations
will improve the productivity and the effect appears to be the same at all P levels higher than 50%. This
conclusion suggests that if both the number of pallets and the buffer size are fixed, keeping the jamming
probability of all the stations at the same level will help improving the total productivity.
Both D and N have negative impact on the productivity when they are changed from low level to high level.
To optimize the overall productivity, the number of stations should be minimized as more stations may potentially
increase the CV which in turn will lower down the overall productivity. That is, if possible, one should consider
minimizing the number of operations. Delay ratio which has the least impact on productivity within our design
region should be the last factor to be tuned.
While this paper has shown the performance characteristics of balanced CLAS, unbalanced CLAS and CLAS
with more complicated configuration such as systems with sub-loops and parallel stations have not been studied.
These types of related problems are under the investigation by the authors.
References
129
Container Slot Allocation Model with Liner Shipping
Revenue Management
Abstract Based on revenue management, the container slot allocation problem for liner shipping industry is studied quantitatively
under uncertainty circumstances. Firstly, a multi-leg capacity allocation model is proposed considering empty container
transportation and routing choice based on the analysis of the characteristics for liner shipping revenue management. Then, due to the
demand uncertainty, a novel robust optimization method is proposed to solve the model. Finally, a case study is formulated via
simulations. The results show that the robust optimization model get higher revenue than the deterministic linear programming model,
and that the model and solution method have application value to the revenue management problems for container liner shipping
companies.
Key words Liner shipping, Revenue management, Slot allocation, Robust optimization
1. Introduction
With the fast development of container shipping industry and the increasing intensity of competitive market,
the optimization of container transportation flow system has become a hotspot that arouses great concern from the
container transportation companies and interrelated organizations. As a representative service industry, container
liner shipping industry has the characteristics for the application of Revenue management (RM)[1,6]. However,
for the long voyage time and multiple routes, the liner shipping RM system has to consider the optimization
revenue of the whole transportation network. At the same time, owing to the reusing of containers and the
imbalance of trade development, the liner shipping companies have to consider not only the allocation of the
loaded containers, but also the transportation and stowage of the empty ones. Facing multiple routes and uncertain
demands, the liner companies have to decide how to allocate their limited transportation capacity effectively on
each line so as to transport the goods with maximum marginal contribution to the profit and achieve the goal of
revenue maximization. This is the problem our paper studied.
The literatures for revenue management are rich for airline passenger problem domain. While literatures are
relatively scarce for the liner shipping industry. Using actual booking data of the trans-Pacific westbound voyages,
Ha(1994) studied the capacity control policies of major commodities for a liner shipping company applying the
expected marginal revenue (EMR) model and the threshold curve model. The results of a total of 102 simulation
runs showed that the revenue management models effectively increased the freight revenue by controlling the
booking requests. Introducing a dynamic programming model of the booking process, Maragos(1994) studied the
dynamic capacity allocation and pricing problems for one-leg and multi-leg liner shipping companies. However,
the problems of empty container reposition and routing choice havent been considered in the above literatures.
As an important problem in liner shipping operation, empty container reposition problem has raised great concern
recently. Shen and Khoog(1995) established a decision support system to solve the empty container imbalance
problem. Lai et. al(1995) studied the container logistics and allocation problem by simulation and heuristic
method, which got the logistics policies for the reduction of operation and opportunity costs. However, with the
aim of cost reduction, these literatures didnt consider the revenue maximum problem of the whole voyages.
Considering all the mentioned factors, Chen and Lee(2002) proposed a liner shipping revenue management
problem, which is similar with this work. They provided a fuzzy multi-objective programming model, and the
uncertainty demand and customer satisfaction degree are all represented by fuzzy numbers in the model.
Considering more stochastic nature of demand and empty container reposition, Bu et. al(2005) proposed a robust
optimization model for multi-leg slot allocation problem, however they didnt consider routing choice problem.
Based on these literatures, we establish a stochastic optimization model for multi-leg slot allocation and routing
130
choice problem in this paper, and then we propose a novel robust optimization method to solve the model.
This paper proceeds as follows: In section 2, the optimal stochastic network capacity allocation models are
formulated. A novel robust optimization method is proposed to solve the models in section 3. In section 4, a case
study and discussions are provided, followed by some conclusive remarks and the research prospects in section 5.
2. Model Formulation
The following are the major Assumptions and notations for parameters and variables being used in this paper:
Suppose the parameters such as the loading and discharging rate, transshipping cost, ocean shipping costs and
land-carriage costs, and the average freight rates of each origin-destination port pair have been estimated. Suppose
l
L is the set of all the shipping lines of the company, each of which in the set has M legs and the calling ports are
known.
is the set of all the loading and discharging port pairs, that is = {(ij )} , where i is the index of loading
port and j is the index of discharging port.
P represents the set of all the feasible routes which is consist of the pairs in for all the lines, p is one of
the members in P.
rijkp stands for the unit revenue of shipping the k-type loaded container by route p between port i and port j,
which equals the freight rate subtracting transportation costs (and the costs include inland transportation fares,
ocean shipping rates, loading, unloading costs, and transshipping fares etc.).
Dijk denotes the demands of k-type loaded container between loading and unloading port pairs. Decision
variable xijkp represents the number of slots allocated to k-type loaded container shipping by route p from port i to
port j.
wijkf denotes the average total weight (tons) of each k-type loaded container delivered from loading port i to
discharging port j.
Cijl is the operational capacity of the vessel between port i and j in line l(unit: TEU, twenty-foot equivalent
units).
Wijl is the deadweight tonnage of the vessel (unit: ton). Suppose in one period of time, the average
repositioning demand of empty containers to be supplied port j is E j .
yijkp represents the number of slots allocated to k-type empty container shipping by route p from port i to
port j, wke is the average total weight (tons) of each k-type empty container, and cijkp is the corresponding costs
for empty containers repositioning.
We also define the following indicator function:
l 1,if route p passing the port pair(ij ) in line l
Aijp =
0, otherwise
So this multi-leg slot allocation model with routing choice can be given as below(M1):
K
Max (rijkp xijkp cijkp yijkp )
( ij ) pP k =1
s.t.
K
Aijp ( xijkp + yijkp ) Cij , (ij ) , l L
l l
pP k =1
K
Al ( w f x + we y ) W l , (ij ) , l L
pP k =1 ijp ijk ijkp k ijkp ij (M1)
xijkp Dijk , (ij )
pP
K
i:( yijkp E j , j : (ij )
ij ) pP k =1
xijkp , yijkp N {0}, p P, (ij )
131
The objective function of model M1 is to maximize total freight contribution (freight revenue minus
repositoning cost) from the shippment.The first constraint is the capability constraint, that is all the allocated slots
for loaded and empty containers cannot exceed the vessel operational capacity. The second is the deadweight
constraint, that is, the total weight of loaded and empty containers cannot exceed the vessel deadweight tonnage.
The third is demand constraint of the decision variable, due to the stochastic nature of the demand, which is
uncertain and the solving method will be given later. The next is the reposition constraint, which means the total
slots for loading empty containers must be greater than the repositioning demand of containers to be supplied port
j. The last one is the integer constraint of the decision variables.
s.t.
K
Aijp ( xijkp + yijkp ) Cij ,(ij ) , l L
l l
pP k =1
K
Al ( w f x + we y ) W l ,(ij ) , l L
ijk ijkp k ijkp ij
pP k =1 ijp
(M2)
xijkp max Dijk
pP { } s
,(ij ) , s , k = 1, K
K
yijkp E j , j : (ij )
i:(ij ) pP k =1
K
s = (rijkp xijkp cijkp yijkp )
(ij ) pP k =1
xijkp , yijkp N {0},(ij ) , p P
Where s = {1,2, , S } represents one of the scenarios, p s is the corresponding probability, such that
S
p s 0 and p s = 1 . The first term in the objective function is the expected revenue. The second one is the
s =1
mean absolute deviation of the revenue. The absolute deviation in the second term is for the constraints violation.
Together, these two terms can be viewed as a measurement of trade-off of solution robustness. The third term is a
model robustness measurement. The parameters and ijk are nonnegative weighting parameters, where can
132
be regarded as a risk factor for the decision-makers, and ijk are the penalty weights for the constraints violation.
3.2 An Novel Robust Optimization Method
The mean absolute deviation terms, however, introduce some complexity owing to increasing number of
artificial variables when the model is solved by linear programming. Recently, Li (1996) proposed a novel means
of solving a GP problem which is described as the following theorem (Theorem 1)[9]. Yu & Li (2000) proved that
it is a simple and computational efficiency method [18].
Theorem 1 (Li (1996)): A GP problem (F is a feasible set)
Min Z = f (X ) g
s.t. X F
can be linearized using the following form:
Min ZZ = f ( X ) g + 2
s.t.
g f (X ) 0
0
X F
s.t.
s ps s + s 0
s
s
Dijk xijkp + ijk 0
s
pP
K
p Aijpl ( xijkp + yijkp ) Cijl ,(ij ) , l L
P k =1
K
Aijp ( wijk xijkp + wk yijkp ) Wij ,(ij ) , l L
l f e l
(M3)
pP k =1
{ }
xijkp max Dijk ,(ij ) , s
s
pP
K
i:( yijkp E j , j : (ij )
ij ) pP k =1
K
s = (rijkp xijkp cijkp yijkp )
(ij ) pP k =1
s s
0 ij 0, (ij ) , s
x , y N {0}, (ij ) , p P
ijp ijp
Obviously, the above model is the typical integer linear programming model, and we can solve it easily by
some linear modeling package (such as Lindo, Cpex). However, due to the allocated slot numbers in each route as
the decision variables, the scale of the model will increase sharply once the lines or calling ports increase, and
model will become very difficult to solve. Which is known as the NP hard problem. Although we can solve it by
some heuristic or meta-heuristic methods(such as Genetic Algorithm, simulation annealing), we can only find the
near-optimal solution. However, it is not usual to transship more than two times for the high loading, unloading
and transshipping costs. So, in this paper we didnt try to search all the feasible routes, and just consider the
simple conditions such as direct delivery or just transshipping one time.
133
4. Case Simulation and Discussion
Two far east/American service routes of a liner company in China are studied as a case. There are five calling
ports in the two service lines, three of which lie in far east region and the other of which lie in American. The
following graph shows the voyage network(see Figure 1). There are 12 port pairs along with the two lines, if the
near ocean shipping is ignored. Based on the historical booking data, there are three scenarios of shipping demand,
which are shown as follows (see Table 1). For each scenario, the corresponding probability is 0.3, 0.6 and 0.1, and
the corresponding average rate lies in the bottom line of Table 1. The specification of voyage one is 1000 TEU
operational capacity, 7800 ton deadweight, and that of voyage two is 600 TEU operational capacity, 6900 ton
deadweight. The parameters, such as ocean shipping costs, transshipping costs, loading and unloading costs for
loaded containers, are given in table 2 and table 3 for each of the line.
1 3
Voyage
one
2 4 5
1 2 4 3 5
2 3
Voyage
two
1 5
Tab. 2 Average shipping costs for loaded containers in voyage one Tab. 3 Average shipping costs for loaded containers
in voyage two
1 2 4 5 3
1 0 26 39 219 245 1 5 3 2
2 389 0 13 193 219 1 0 183 203 365
4 376 389 0 180 206 5 245 0 20 219
5 196 222 235 0 26 3 196 379 0 170
2 26 209 229 0
3 170 196 209 415 0
Then, we get the solutions of the model using the optimization software LINDO 6.0.Table 4, 5 and 6 show
the allocation results, comparing the method of DLP and the method RO proposed in the paper.
4.1 The delivery routing choice
As is shown by the DLP solution in table 4, almost all the demands between port pairs are delivered by one
single voyage. Because the costs of loading and unloading and transshipping a container are much more than the
slot usage costs, the company will try to use direct shipping except the operational capacity of one voyage cant
afford to fully fill the demand. While we can see from the RO solution that the loaded containers from port 5 to
port 2 and the loaded and the empty containers from port 3 to port 1, are all delivered by the two voyages at the
same time. The reason is that considering the stochastic nature of the demands, the allocated slots for the loaded
containers from the solution of RO method are much more than that from DLP. Thus, the operational capacity of
one single voyage cant fill the slot demands. Then, although it will cost much for the company to use the
134
transshipping mode, the company have profit. That is why we can see that the transport plan from RO will get
more profit than that from DLP.
Tab. 4 Routing choice between port pairs for each of the voyage
DLP RO
voyage 1 voyage 2 total voyage 1 voyage 2 total
1-3 loaded 0 335 335 0 450 450
empty 0 0 0 0 0 0
1-5 loaded 0 265 265 0 150 150
empty 0 0 0 0 0 0
2-3 loaded 302 0 302 257 0 257
empty 0 0 0 0 0 0
2-5 loaded 365 0 365 335 0 335
empty 0 0 0 0 0 0
4-3 loaded 269 0 269 240 0 240
empty 0 0 0 0 0 0
4-5 loaded 64 0 64 168 0 168
empty 0 0 0 0 0 0
3-1 loaded 168 0 168 149 76 225
empty 120 0 120 98 22 120
3-2 loaded 0 179 179 0 240 240
empty 0 90 90 0 90 90
3-4 loaded 131 0 131 165 0 165
empty 85 0 85 85 0 85
5-1 loaded 168 0 168 225 0 225
empty 0 0 0 0 0 0
5-2 loaded 0 201 201 120 150 270
empty 0 0 0 0 0 0
5-4 loaded 117 0 117 158 0 158
empty 0 0 0 0 0 0
Total loaded 1584 980 2564 1818 1065 2883
empty 205 90 295 182 113 295
135
We can see from Table 6 that the leg with the lowest usage rate is from port 2 to port 1, usage rate is zero
under DLP and 12.5% under RO. The reason is that we didnt consider the near ocean shipping, at the same time
the shipping cost is relatively low from port 2 to port 4, most of the shipping loads carried by voyage one. For
such legs as leg 21, the company can take the policy of developing near ocean transportation or developing
alliance with other liners to lease the slots, which can raise the whole usage rate and then the profit level.
Tab. 6 The optimal slot allocation for voyage two
1-5 5-3 3-2 2-1
1-3 335 335 0 0
1-5 265 0 0 0
D 3-2 0 0 179 0
L
5-2 0 201 201 0
P
Total slots 600 536 380 0
Usage rate 100% 89.3% 63.3% 0%
1-5 5-3 3-2 2-1
1-3 450 450 0 0
1-5 150 0 0 0
3-1 0 0 76 76
R 3-2 0 0 240 0
O
5-2 0 150 150 0
Total slots 600 600 466 76
Usage rate 100% 100% 77.6% 12.6%
5 Conclusions
This paper develops a static multi-leg multi-line stochastic programming model on liner shipping revenue
management problems under uncertainty. In the model formulated, we consider empty container repositioning,
routing choice and stochastic demand, which reflect more realistic operation conditions of liner companies. A
novel approach of robust optimization is applied to solve the model. Based on the comparison of the solution
under the method of DLP and RO, we get some beneficial conclusions as followed: (1) The simulation results
show that the model based on revenue management has great application potential in liner shipping industry,
which can raise the profit of the liner shipping companies; (2) The robust optimization method proposed considers
more precise nature of stochastic demand, which gets higher usage rate and profit than the DLP method; (3) The
linearization technique of RO has much more application value, which makes widely available linear modeling
package be applied directly to the model.
Till now, the study on liner shipping revenue management is at the beginning stage and it becomes a more
and more hot research area with a high potential for developing new models and procedures to improve revenue,
and provide decision support to liner shipping companies: Firstly, revenue management is based on accurate
forecasting on demand, while the three-dimensional characters of ocean shipping demand depend on additional
factors such as seasonality patterns and the impact of weather etc., the simple and low-tech forecasting techniques
are not effective for accurately predicting cargo demand. New forecasting model or technique should be
developed. Secondly, this paper mainly studies a static network control policy. In fact, due to the stochastic and
dynamic characteristic of ocean shipping industry, the dynamic network control policy might be much more
needed. Finally, the philosophy of revenue management is to balance supply and demand through capacity
allocation and price, therefore, the dynamic pricing problem for liner shipping revenue management also has great
prospect.
136
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[14] Smith, B. C., J. F. Leimkuhler, et al. Yield management at American Airlines[J]. Interfaces ,1992, 22(1): 8-31.
[15] Talluri, K.T, and G. Van Ryzin. A randomized linear programming method for computing network bid prices[J].
Transportation Science, 1999, 33(2): 207-216
[16] Ting S.C. and G. H. Tzeng. Fuzzy Muli-objective Programming Approach to Allocating Containership Slots for Liner Shipping
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[17] Weatherford, L.R and , S.E. Bodily. A taxonomy and Research Overview of Perishable-Asset Revenue Management: Yield
Management, Overbooking and Pricing[J]. Operations Research ,1992, 40: 831-844.
[18] Yu C.S. and H.L. Li. A Robust Optimization Model for Stochastic Logistics Problems[J], International Journal of Production
Economics, 2000, 64:385-397
137
Production Order Evaluation Based on Neutral Network Model
Abstract For MTO manufacturing enterprise, evaluating production order is the core task in demand management and production
plan-making. Production order is a list which contains detail information about the product required by customer. Considering
different factors, such as the production-capacity, payoff capacity and the customer-relationship, etc. order acceptation is
multi-objectives (attribution) decision problem. This paper makes use of the neural network to establish a decision model, applies the
MATLAB neural network tool-box to solve the problem. In the BP neural network learning method, the weight is adjusted
continually to reduce the workload and gain more accurate results more quickly. An application case is used to show the
reasonability and feasibility of the method.
Key words Production order, BP neural network, Order selection, MATLAB tool-box
1.Introduction
Nowadays, more and more manufacturers are facing a market of make-to-order. In this market, the
order-selection decision-making problem is the core of demand management and production plan-making[1].
Production order of manufacturing enterprise is a list which contains detail information about the product required
by customer. Considering the production-capacity, payoff-capacity and the customer-relationship, etc, different
factors, order selection is multi-objectives decision problem. In the past, many researches about this kind problem
focused on decision and analysis methodssuch as ELECTRI, TOPSIS, and AHP method. These methods require
the person who makes the decision owner various specialized knowledge, for example, evaluating-system of
order-choosing, the multi-qualification of operation of enterprise, the circumstance of marketing, customer and so
on. The decider must allocate a weight to a factor of the decision-system to gain a decision matrix. Then compute
the priority of each production order, finally make the plan for production. But in the process of decision, it not
only needs cumbersome calculation, but also has many subjective factors; meanwhile, it cant make use of
previous successful cases. All of these will result in wrong of decision.
This paper offers a production order comprehensive evaluation method based on neural network. Through
inputting the initial value of many samples, unitary disposal of subject-layer, from neural cell of connotative-layer
to out put layer, finally the synthetic value is made sure to ascertain the reasonable priority sequence for
production orders. By training and learning the samples continually, adjusting the weights between the neural
cells of different layers, the relation of evaluated result and factor system is expressed. Meanwhile by using the
MATLAB-visible software, the neural network will be optimized (Through learning to ascertain the best number
of neural cells of the connotative-layer), consequently make the speed of network more quickly, the time shorter.
This will reduce the workload of evaluation, save the evaluating-time, accumulate and use the experience of
expert to make the process of evaluation automatically [2].
x1
x2
output
layer
xn input
net 2j = ( xi2 im ) 2 ( im )
2 2
140
(1) The error of the fourth layer is:
E
o4 = = eo (6)
net o4
(2) Modification of the weight between the third and the fourth layer must follow the below rule:
E
wko4 (K + 1) = wko4 (K ) (7)
wko4
is called learning-speed, in the paper, it is supposed that =0.15,
E E net o4 net o4
= = eo
wko4 net o4 wko4 wko4
(3) The third layer, because the weight is 1, so only need to calculate the error-item:
E E net o4 y k3
k3 = = = o4 wko4 (8)
net k3 net o4 y k3 net k3
(4) The second layer, error is as below:
E net k3 y j
2
E
=
2
j = = k3 y k3 (9)
net j
2
net k y j net j
3 2 2
The error-formula of the mean-error and standard deviation of error of the variable is as below:
E net j
2
E 2 x i im
2
= =j
im net 2j im ( im )2
(10)
E
=
E net j
2
2 xi im
=j
2
( )
2
im net 2j im ( im )3
(5) The regenerated formula of the mean-error and standard deviation of error of the variable of
connotative-layer is as below:
E
im (K + 1) = im (K )
im
(11)
E
im (K + 1) = im (K )
im
The coefficient , represents the learning-speed of the mean-error and standard deviation of error of
Gauss-function respectively.
3.4 Making use of MATLAB neural network tool-box to optimize the BP neural network
According to the feed-back arithmetic of BP neural network, weights will be adjusted continually,
consequently the error between the value of output and expectation value achieve minimum and the precision of
decision will be upgraded in a way. Meanwhile, the paper also consider another problemthe speed of decision.
As long as this, gaining of the result will be not only accurate but also quick. The method is better than former
methods on many aspects, for example, work efficiency, workload and so on.
In the neural network, the factor which affects the speed of training and learning is the number of neural cells
of connotative-layer. The number of neural cells of connotative-layer will affect the ability that the network
identifies the little change in the process. If the number is small, the network cant identify the little change
effectively in the process, if large, will prolong the time of training the network [5]. So far, there are many
researches in the field [6-7]. The paper adopt the MATLAB neural network tool-box to train the networks which
has different number of neural-cell of connotative-layer, by comparing the result to ascertain the best number of
neural-cell of connotative-layer. So in the condition of making the network convergent, the structure of the
141
network is simple and the speed of training is fast.
4. Application
A textile mill is facing an order selection problem recently, because the quality of its product is very good,
many customers order arrive in a time, this make it in a dilemma of how to chose production order to arrange
production plan. In here, suppose 5 orders are drawn out from the database, we evaluate them using the neural
network method to give priority to each order. It will help manufacturer to arrange production order scientifically.
Table 1 is the original data of order.
In table 1, we can see that some attributions of order are qualitative, and some are quantitative, before they
are processed, they must be changed using the formulas in section 3.2.
4.1 MATLAB program
The MATLAB program code is as below:
P=[0.75,1.5,0.75,0.8,0.85,0.9,0.75,0.75,0.8]; // input
T=[0.75,1.45,0.81,0.83,0.82,0.91,0.87,0.78,0.81]; //output
net=newff(minmax(P),[9 n 1], // suppose the number of the nodes of connotative layer is n
{'tansig','purelin','purelin'},'trainlm'); // training function
y1=sim(net,P);
net.trainParam.epochs=2000;
net.trainParam.goal=0.005;
net.trainparam.show=200;
net.trainparam.lr=0.05;
net=train(net,P,T);
y2=sim(net,P);
error=y2-T;//error
res=norm(error);
figure;
plot(P,T,'r+');//figure show
hold on
plot(P,y1,'g-');
hold on
plot(P,y2,'b--');
title('the output result of network after training ');
In the case, on the condition that other conditions isnt changed, changing the number of the nodes of the
connotative-layer and optimizing the structure of the neural network will accelerate the training and gage the
result of output.
4.2 Neural network training experimentation
In order to train the neural network to fit the requirement, through changing the number of the neural
cells of the connotative layer to operate the MATLAB program, it got different results:
(1) K=16
142
TRAINLM, Epoch 0/2000,
MSE 3.86663/0.005, Gradient 177.927/1e-010
TRAINLM, Epoch 1/2000,
MSE 0.00338366/0.005,
Gradient 1.66352/1e-010
TRAINLM, Performance goal met. The result is shown in Fig.2.
(2) K=12
TRAINLM, Epoch 0/2000,
MSE 3.36876/0.005, Gradient 64.2373/1e-010
TRAINLM, Epoch 2/2000,
MSE 0.000957722/0.005,
Gradient 0.125241/1e-010
TRAINLM, Performance goal met. The training result is shown in Fig.3.
(3) K=8
TRAINLM, Epoch 0/2000,
MSE 3.09546/0.005, Gradient 79.1297/1e-010
TRAINLM, Epoch 2/2000,
MSE 0.00105795/0.005,
Gradient 0.283564/1e-010
TRAINLM, Performance goal met. The training result is shown in Fig.4.
143
Fig.4 Neural network training result with K=8
From the network training experimentation-results, it is known that the error of training is least and the
training-time is shortest when the number of neural cell of the connotative-layer is 12. So we set 12 as the number
of the number of neural cell of the connotative-layer when designing the neural network, which is best for the
decision-model.
4.3. Production order evaluation result using neural network method
We use the trained neural network above to process the original data, it is easy to get the order evaluation
result. The output of each network is the value of priority of each order. Through calculating, these values are
0.721, 0.701, 0.781, 0.685, and 0.615, respectively. The basic rule is that the larger the value, the higher the
priority of the order. So the final sequence of production order is 3 1 2 4 5 . Using this sequence of
production order, the manufacturer can make a reasonable production plan for customer orders.
5. Conclusion
With drastic competition of global market, enterprise is in the face of a buyers market which is changed
quickly and cant be forecasted, the conventional pattern of production and operation response to the
marketing-change slower and slower[8]. How to enhance the agility of operation of enterprise, quickly respond to
customer requirement is becoming more and more important for manufacturers.
Bases on the BP neural network learning-algorithms, production order evaluation is easy to be finished and
get a satisfactory result of order priority. The evaluation-method based neural network can also do the
delicacy-analysis and eliminate the false-analysis for the problem [9]. Through the application case, it is shown that
the method is reasonable and feasible.
References
[1] Chen Zhixiang. Improved algorithms of ELECTRE-for production order evaluation. Group Technology & Production
Modernization, 2005, (2): 19-21
[2] Zhu Shijing Chen Ting. A neural network based model for multi-criteria comprehensive assessment. Systems
Engineering-theory & Practice, 1994, (9):74-80
[3] Feng Chenming Fang Deying. A multi-criteria comprehensive assessment for neural network method. Modern Management
Science, 2006, (3):61-62
[4] Zhang Jili. Fuzzy neural network control theory& engineering-application. Ha ErBin: Haerbin Industry University publishing
company, 2004.
[5] [He Zhen Liu Dongsheng. Using neural networks to control auto-correlated Process. Industrial Engineering Journal, 2006, 9
(6):85-90
[6] Cheng C.S. A multi-layer neural network model for detecting changes in the process mean [J].Computers & Industrial
Engineering, 1995, 28 (1): 51-61.
[7] Cheng C.S. A neural network approach for the analysis of control chart patterns. International Journal of Production Research,
1997, 35 (3): 667-697.
[8] FAN Bo. Research on demand management of productive corporation. Journal of Chongqing University (Social Sciences
Edition), 2002, 8(5):33-35
144
Distribution the TOC Way: Review and a Case Study
Abstract Supply chain management is an essential part in firms management, while distribution management is one of the most
important links in the chain. Traditional distribution management is the push style, which completely depend on the accuracy of the
forecast of the market demand which is not so reliable. Firms need a new way to solve their problems. In this paper, we introduce the
TOC solution to the distribution management and give a Europe fashion company as an example.
Key words Supply chain, Distribution, TOC
1. Introduction
Supply chain management has evolved over the latter half of the last century. During that time, the business
landscape has changed considerably and supply chain management has evolved in parallel with these influences.
By the new millennium, mass customization, increased customer expectations and fiercely intense competition
characterized the marketplace and chain versus chain competition became a significant factor in marketplace
success [1]. As organizations have shifted toward optimizing the extended enterprise in an increasingly dynamic
business environment, supply chain management has shifted its focus to inventory visibility in the chain. More
readily observable than other parameters, inventory is an important indicator of system performance and the
impacts of uncertainties from various sources, as these organizations continually refine the management of supply
chain. Regardless of the maturity of the approaches developed, managing inventory throughout the chain remains
a critical competitive factor for the supply chain. As such, continual refinement of the strategies used to manage
and reduce inventory in the chain is essential.
Before our statement, we should clarify the distribution boundaries first. The boundaries of distribution are
defined as follow: All activities and functions related to making the finished good products available to the market
and the raw materials available to production, including subcontracting. The shadowed part in Figure 1 is the
boundary of discussion:
As we need a reference standard or sample used for the quantitative comparison of properties, so we should
be aware of the distribution performance measures clearly.
The most commonly used performance measures in distribution are: Due Date Performance, Availability,
Lead Time, Inventory turns, Operating Cost, Quality.
There are many issues in the distribution system, and many scholars engaged in the research of this region [2]
[3]
, still, we found that there are quite a few literatures in china which concerned about distribution using the TOC
(Theory Of Constraints) methods. Therefore, our purpose of this dissertation is to introduce this new powerful and
145
effective method as a tool to resolve the problems that exist in the distribution system and we hope this paper
could be helpful to the firms in china who wants a higher performance in supply chain management.
600 1100
500 Shortages
Once we realized that the improvement of the current distribution system is indeed, the very first thing is to
make clear the current reality situation. Usually, people have very good intuition. When dealing with a system
whose performance we want to improve, we engage our thinking about what can be done to make it better. As
such, we tend to collect observations or complaints, from our own thoughts or what others say, that we believe
are the major problems of the system. These are the symptoms or complaints that tell us that the system is sick,
or we may call it low performance instead more clearly.
In fact, these symptoms or negative effects that you and other stakeholders (e.g. your customers, shareholders
etc.) are currently experiencing are called UnDesirable Effects (UDEs) in TOC [4]. These effects are Undesirable
in relation to the goal of your defined system and the vision. In here, we mean the distribution system. And Dr.
Goldratt and Eli had already collected those UDEs in the distribution system in the table as follows [5]:
Tab.1 Possible UDEs in the distribution system
Distribution Possible UDEs Other Functions possible UDEs
Too often there is a need for an urgent delivery Lost sales
Priorities constantly shift Reduced profit
Too many shortages Too low Return Of Inventory
Too many Inventory Items have too high inventory levels There is constant shift in priorities (in operations)
Too many Inventory Items are obsolete Lost customers
Dead Inventories level is too high Introduction of new products is often delayed
There are too many cross-shipments
There are too many customer returns
Delivery costs are too high
146
Actually, no matter how complex of any distribution systems are, the UDEs in the system would be in the
scale of Talbe1, which have been proved by many experienced consultant in reality of the Variable Vision project
of Goldratt School. Then we can use of Thinking Process of TOC to find the core problem of the current
distribution system, and the core cloud is as following:
Profitable
Dilemma
distribution
Protect Hold more
Sales inventory
After finding out the core problem of the distribution system, we need to take a logical analysis of the core
cloud, try to challenge every assumption of the cause-effect relationship in the cloud to find proper injection to
solve the problem, and these assumptions may be the key point to the direction of our solution.
In here, we found that in order to protect Sales we need to hold high inventory is based on three
assumptions:
a. Replenishment time is too long
b. Suppliers are not always reliable
c. Forecasts are inaccurate
So how can we operate according to a much more accurate forecast, operate with much reduced
replenishment time and increase reliability of re-supply without introducing a new more accurate forecasting
system, increasing investment in re-supply and replacing or re-educating vendors/suppliers becomes a significant
issue. Furthermore, we need to be aware of the reality of the distribution environment is that sales (or product
consumption) are remote from production and the tolerance time of the buyer is (much) shorter than the time it
takes production and shipping to make product available (at the point of sale or consumption).
147
4. TOC Solution
By now, as we know about what to change, and what to change to, then, we need to know about how to cause
the change, and the TOC solution is as following:
a. Establish the plant (Central) Warehouse(effect shown in Fig.4 )
b. At each place and for each product establish the inventory target according to the formula
c. Move to Order daily Replenish periodically
d. Monitor the inventory targets according to the zones
e. Re-examine policies of make to stock-make to order
f. Educate sub-systems to monitor execution using Dollar days measurements
g. And we use the buffer management statistics to create the POOGI.
5. An example
In this section, we use a Europe fashion retailer named WE which has had implemented the TOC methods in
their supply chain management as a case study example.
WE Europe is a medium size fashion retailer, with its European headquarters in Utrecht, the Netherlands, and
active in 6 countries within Europe-Netherlands, Belgium, Luxemburg, France, Germany and Czech, and it owned
219 stores total in these countries, with 2500 employees, of which 1200 FTE, and has 7000 new option
introductions per year. Its business process is shown in Fig.5, and WE used to implement traditional supply chain
management approach as a Push system as shown in the Fig.6, and of course, they have met the typical problems
as many other companies used to, and of course there is a low performance in their distribution system, they
concluded it as There is a stock, but not on the right location, Need for change!, which forced the executive of
WE made up their minds to change the existing system.
148
Fig.5 WEs business process
Then they made up their objective as: Improve economic profit by decreasing lead-time in the supply chain,
through which a faster and more efficient reaction can be realized on the demand of the customer. And they made
their 5 sub-projects (which actually are TOC solution as we have mentioned above):
. Build (season) collections and themes step by step
. Realize more flexibility with supplier contracts
. Introduce rolling budgets
. Measure KPIs (focus is on cash generation not cost reduction)
. Improve distribution from DC to shops
And the last two sub-projects are their todays focus. With the last sub-projects objective is to improve stock
availability in the shops, without increasing the stock level, there fore reducing stock outs and markdowns, and the
starting point is No forecast, but a responsive supply chain. Forecasting on SKU-location is extremely difficult
with 2-4 pieces of sales on style/color level a week and a life cycle of ca. 12 weeks.
The specific changes of TOC solution are as follows:
In Business, WE realize responsive SC process as: first, Leverage on aggregation of stock which made move
value offering point upstream and keep stock upstream in the EDC; Second, Use Integrated measurements which
Introduce operational KPIs, focus on lost sales reduction and increased inventory turnover; third, Lead-time
reduction: order daily, but replenish frequently. Last but not the least, Eliminate oscillation: retrieve transaction
data from the store to drive true demand.
In Organization, WE restructuring of planning department to create a clear split between pre season and in
season planning with Planners (tactical) and Traders (operational).
In System, WE support business process with a responsive SC solution, based on dynamic buffer
management and integrated measurements Viva cadena.
With these changes applied in Business, Organization and System, WE have successfully realized a
149
responsive supply chain, simplified shown in Fig.7.
After the implementation of the TOC solution, the performance of WE has significantly improved, as WE
calculated: Lost sales of 20% to last year. (The algorithm of lost sales is product not available in the store, taking
into account a substitution factor of 50%); 10% turnover increase directly related to a responsive supply chain;
Average stock level in the stores decreased, additional spin offs, but not yet realized; increased stock turnover;
less markdowns increased profitability. All in all, WE have successfully achieved their goal.
5. Conclusion
TOC is a continually developing method in many regions of management, according to our introduction, we
can now realize a powerful and effective tool in the distribution management and through the case we introduced
last, we may foresee the future vision of many firms in supply chain management within the TOC way, especially
in china. We would like to see many more successful cases like WE appeared in the near future with the
implementation of TOC.
The discussion herein has focused on admittedly simple scenarios for the sole purpose of applying the TOC
method in supply chain management, especially in distribution management. As many scholars have discussed,
the supply chain presents a significantly more complex and intricate environment [6]-[8], so an obvious area for
future research is the development of case studies which detail the application of these TOC principles and
analyze the performance of constraint-based methods in the chain environment. There are also many areas
which directly impact the supply chain objectives discussed, including:
1. supply chain layout considerations
2. pipeline design
3. the impact of control policies (order quantities, reorder points and safety stocks) in a chain employing
constraint-based control methods
4. effective control mechanisms for serial assembly operations in the supply chain
5. effectively blending the TOC concepts for enhanced chain performance. And comparing the
performance of this system against others based only on TOC approach.
While some of these topics have been addressed to varying degrees in the literature, it would be both
interesting and beneficial to research the impacts of these areas in a chain where constraint-based methods form
the basis of the overall system control. This would be particularly interesting in a chain that blends the concepts of
TOC to optimize the chains performance.
References
[1] Bernstein,F., A. Federgruen. Pricing and Replenishment Strategies in a Distribution System with competing Retailers.
Operation Research. 2003, 51:409-426.
[2] Biteran, G.,R. Caldentey. An overview of pricing models for revenue management. Manufacturing & Service Operations
150
Management. 2003,5:203-229
[3] Suwangruji, P. & Enns, S.T. Information and logic requirements for replenishment systems. International journal of Operations
and Quantitative Management, 2002, 8: 149-164
[4] Blackstone, J.H. Theory of constraints-a status report. International Journal of Production Research, 2001, 39:1053-1080
[5] Eli Schragenheim & H. William Dettmer. Manufacturing at Warp Speed. Press LLC. 2001:175-207
[6] Layden.J. Thoughts on supply-chain management. Manufacturing Systems. 1998,16(3):80-88
[7] Donovan.M. Is manufacturing a weak link in your supply chain? Industrial Management. 1996, 38(6):13.
[8] Evans.G..N., Towill.D.R and Naim.M.M. Business process reengineering the supply chain. Production Planning&Control.
1997,6(3):227-237
151
The Research on Distribution of Large Scale Chains
Enterprise with Time Window
Abstract A multi-depot heterogeneous fleet vehicle routing model with time windows and simultaneous delivery and pick-up is
presented for large-scale chains enterprise. The goal is to minimize the total cost of performing the pick-up and delivery services of
all the customers. Five types of costs are considered in the objective function: fixed costs for used vehicles, distance costs and travel
time costs along the selected routes, waiting time costs and penalty costs due to time-window and working time constraints violations,
profit due to pick-up. In order to solve the model, a three-phase hybrid genetic approach is introduced. The computation example
indicates applications of the model and the approach.
Key words Delivery, Pick-up, Large scale, Genetic algorithm, Chains enterprise
1. Introduction
There are two forms of distribution for chains enterprise: some enterprises outsource the work to third-party
logistics; others have distribution centers and vehicles, and delivery themselves. Distribution center planning and
routing optimization always can enhance competitive capacity and create value for company. In this paper, the
second form of distribution is discussed mainly. Generally speaking, the number and the location of distribution
centers as well as the number of vehicles are given. She/he must specify which vehicle services which customers
and what sequence to follow so as to minimize the total cost. In fact, although companies try their best to delivery
the right product to the right customer at the right time, there are also some returned products for product quality
or other causes. If we consider the pick-up when optimizing the distribution routing, it will enhance the utilization
of the vehicles and lower the cost, which is the aim of this paper.
This classical of logistic problems is usually known as the vehicle routing problem (VRP). After Dantzig and
Ramser presented it in 1959, several classes of vehicle routing problems have been studied in the literature.
CVRP(Vehicle Routing Problem with Capacity Constraints)and VRPTW (Vehicle Routing Problem with Time
Windows), each customer has an associated time window defined by the earliest and the latest time to start the
customer service. Time windows can be hard or soft. Currently, VRPTW optimization models are useful for a
variety of practical applications. However, some practical issues have not yet been addressed. Dondo and Cerda
(2007) present a novel three-phase heuristic/algorithmic approach for the multi-depot routing problem with time
windows and heterogeneous vehicles [1], but they dont consider pick-up. Min (1989) first presents Vehicle
Routing Problem with Pickups and Deliveries (VRPSDP) [2]. Halse (1992) advances a heuristic method to solve
the VRPSDP model [3]. Angelelli and Mansini (2002) present a column generation method for VRPSDP with
time windows [4]. Dethloff (2001) compares VRPSDP with other vehicle routing problems and develops a
heuristic algorithm to solve the problem [5]. Ropke and Pisinger (2006) review the models presented and first to
present a unified heuristic for a large class of vehicle routing problems with backhauls and solve it through an
improved version of the large neighborhood search heuristic method [6]. Bianchessi and Righini (2007) present and
compare constructive algorithms, local search algorithms and tabu search algorithms [7]; in particular ,they address
the issue of applying the tabu search paradigm to algorithms based on complex and variable neighborhoods and
propose several kinds of heuristic algorithms for the VRPSPD with indivisible demands, mixed pick-ups and
deliveries and both simple and composite demands. Zhang Jian yong and Li Jun (2006) give a hybrid genetic
algorithm to VRPSDP [8] .Qu Zhi wei et al. (2004) analyze the large scale delivery /collection problem with a
three-phase solution framework: first, the customers were segregated into districts according to the main road grid
This research has been supported by National Natural Science Funds of China (The Study on Reverse Logistics System Structure of Assembling Electronic
Products in Network Circumstance,No:70472033)
152
system; then the customer districts were assigned to vehicles using the vehicle flow formulation model and the
combined saving and 3-option algorithm, finally, the vehicle routes were determined as a traveling salesman
problem[9]; however, they assume a fixed fleet of vehicles of uniform capacity housed in central depot. Gendeau et
al. (1999), Chaziri and Osman(2003), Sral and Bookbinder( 2003) study the single-vehicle VRPB [10-12].
Based on the practical situation, we consider the multi-depot VRPSDP with time windows and heterogeneous
vehicles .In order to solve the model, we present a novel three-phase hybrid genetic approach.
The remainder of the paper is organized as follows. We start in Section 2 by presenting a comprehensive
description of VRPSDP with time window (VRPSDPTW) and formulate the model. Section 3 goes on developing
a hybrid approach for large-scale VRPSDPTW. Finally, in Section 4 some experiments are carried out to evaluate
the computational efficiency of the approach presented in the paper and we conclude with a summary.
153
assignment variable Yiv to allocate vehicle v to customer site i; () the assignment variable X pv to allocate vehicle
v to center p ; () the sequencing variable S ij to denote that customer site i is visited before j ( S ij =1), or
after ( S ij =0) ,else that S ij = M ( M denotes a large number).
2.4 Model
Given the above-defined goals and variables, the problem can be formulated as follows:
min z = (C vf X pv + ct TVv + CVv r0 l v'' + v Tv )) (1)
vV pP
Subject to
Y
vV
iv = 1, i I (2)
X
pP
pv = 1, v V (3)
1, x 1
l v' = Y jv w j ( f ( S ij )), v V , f ( x) = (4)
iI jI 0, x > 1
qv l v' w j + u j M (1 Y jv ), ( j I ) (5)
1, x = 1 (6)
qv YivY jv (li w j + u j M (1 g ( Sij Sij ) f ( Sij )), (i, j I ; i j ), g ( x) =
iI j I 0, x 1
l v' q v , v V (7)
l j q v , j I (8)
time costs T
vV
v v
, and penalty costs
(
iI
i max((ai Ti ),0) + i max((Ti bi ),0)) .
Assignment of nodes to vehicles: Eq. (2) states that every customer node i must be serviced by a single
vehicle v . Splitting the load to be picked-up from a customer site is a forbidden option.
Assignment of vehicles to depots: Constraint. (3) states that every used vehicle v should be allocated to a
single depot p to which it returns after visiting all the assigned customers. The required fleet size is a problem
variable to be determined simultaneously with the best set of routes and schedules.
Load of vehicle: Eq. (4) states that the load of every used vehicle when it leaves distribution center is equal
to the summation needs of customers to be delivered.
Load constraint: Constraints (5) - (8) state that the load of every used vehicle after it finished the service for
customer i (delivery the goods and pick-up goods) must never exceed its cargo-capacity qv .
154
Least traveling cost for vehicle v to arrive at node i: Constraint (9) states that the cost of traveling from
v
depot p to node i must be greater than or equal to c pi only if the node i is serviced by vehicle v ( Yiv = 1 ) housed
in depot p ( X pv = 1 ).
Relationship between traveling costs up to nodes i, j I on the same tour: Let cijv stands for the least
travel cost from node i to node j on the vehicle v. If both nodes (i, j ) are on the same tour and node i is visited
before j ( S ij =1), then constraint (10) states that the distance-based travel cost from the depot to node j ( C j ) must
always be greater than i by at least cijv . Constraint (14) states the service starting time at node j ( T j ) should be
greater than Ti by at least the sum of both the service time st i at node i and the traveling time t ijv . In case
node j is visited earlier ( S ij =0), (11) and (15) statement hold. If i, j I on the different tour, constrains (10),
(14), (11) and (15) are redundant.
Overall traveling cost along the tour assigned to vehicle v : Constrain (11) states that the overall traveling
cost incurred by vehicle CVv to complete the tasks must always be greater than the traveling expenses from the
depot to any customer i along the tour by at least the amount cipv .
Earliest service starting time at customer i: Constraint (13) states that the vehicle v will never begin the
service at the assigned node i before time ( t vpi + t v ) where t v denotes the leaving time of vehicle v from
distribution center.
Overall traveling time for vehicle v : Constraint (14) indicates that the total time required by vehicle v to
complete the tour is found by adding the sum of both the service time st i at node v and the travel time t ijv . Time
windows can be hard or soft. We consider the time windows as soft constrain. Time window constraints can be
violated at a finite cost and the vehicle can start the service at node i before time ai or after time bi . In such a
case, the constants a i and bi state the scope of violation of time windows. Constraint (19) applies just in case
the maximum allowed working time tvvmax is regarded as a soft constraint that can be violated at some penalty
cost.
(iii) Pick up the top node i on the list L ,and place it at the bottom of list K n .Initialize the parameters of
155
cluster Part n :
ai aPart n , bi bPart n , wi wPart n , st i stPart n , u i uPart n
Then delete customer i from list L, and make a copy of the current lists L as L1.
(iv) Pick up the top node j from list L1, and check wPart n + w j qv' ,if it is true ,go to step (v) else delete j
from list L1,repeat step (iv).
(v) Compute the distance d ij between customer j and its nearest node i on the list K n .Check d ij d max ;
if the expression is true , go to step (vi); else delete customer j from L1 and return to step (iv).
(vi) Verify the constraint: aPart n + stPart n + t ijv max(bPart n , b j ) ; if the expression is true, go to step (vii),
else return to step (iv).
(vii) Check the expression: aPart n + stPart n + t ijv + a j ; if it is true ,go to step (viii), else delete L1and save
the list K n and define Part n , return to step (iv).
(viii) Place node j at the bottom of list K n and update the parameters for cluster Part n as
follows: wPart n + wi wPart n ; max( aPart n + stPart n + t ijv , a j + st j a i ) stPart n ; uPart n + u i uPart n If
( bPart n > b j ) is true, then b j bPart n , delete customer j from lists L and L1, and go to step(ix).
(ix) If list L1 is empty, save the list K n defining the cluster Part n and proceed to step(x), else return to
step (iv).
(x) Repeat steps (ii)-(ix) until L is empty.
(xi) Calculate the cluster cancroids as well as the time and the distance between any pair of clusters defined
by the algorithm.
3.2 Assigning vehicles to distribution centers
Calculate average cost avr ( Yiv cip ) for p P , pick-up the smallest, so the vehicle v assign to distribution
iI
156
[10]
. For this study, we used maximum preserved roulette wheel selection.
3.3.5 Crossover operator
We apply special two-point crossover :If A,B are the parent , first select two points randomly ;second put
the genes before A as A1and after B as B1, finally delete the same genes. By now we get new children A2B2.This
method allows that A is the same as B, but they can product different children.
3.3.6 Mutation operator
After recombination, some children undergo mutation. We change order of two genes randomly for them.
3.3.7 Stopping criteria
'
This paper has two stopping criteria: (i) max generation (ii) F ( z max ) F ( z max ) < ,where can be set
F ( z max )
ahead.
4. Example
To show the computational performance of the proposed three-phase hybrid genetic approach for
VRPSDPTW, some examples are tested. Some parameters are generated randomly based on practical situation
and the runtime is analyzed. The runtime consists of two parts: time of heuristic algorithm t1 and time of genetic
algorithm t2. We analyze a chain enterprise which consists of five distribution centers locating at
{(20,10),(15,15),(16,16),(20,18),(0,20)};there are 9 vehicles and q v is generated randomly in the
range[150,200]and tvvmax in [2000,2500] etc.. Reclaim cost equals tenth of distribution cost, early punishing cost is
1(/m), late punishing cost is 3(/m),and the overtime cost is 0.5(/m).
4
3
time(s)
2
1
0
0 50 100 150 200
the number of customers
(i) We mainly analyze the runtime of heuristic algorithm t1 because t2 depends on the practical data and
stall criteria. The model is solved first by heuristic algorithm, and the change of runtime t1 is shown in Fig.1.It
shows that the value of t1 increases slowly with the number of customers and the algorithm suitable to solve
large-scale problem.
(ii) We analyze 3 enterprises consisting of 30, 50,100 chains nodes, respectively, and there are 9 vehicles
to fulfill the distribution task. The other parameters are same as above. The result is shown in Tab.1. It turns out
obviously that the hybrid approach can get a better result in reasonable time.
Tab.1 The result of three-phase approach
Number of Number of Time of heuristic Result of heuristic Total runtime Result after genetic
customers vehicles algorithm (s) algorithm (s) algorithm
30 9 0.3241 5.6097e+004 57.1801 4.5988e+004
50 9 0.4763 9.3258e+004 185.0269 6.9186e+004
100 9 1.8953 2.0972e+005 397.6718 1.7958e+005
5. Conclution
This paper presents a model of VRPSDPTW and a three-phase hybrid genetic approach to solve the model,
157
and get a better result. As different chain enterprise has different target because of their different competition
strategy, it turns out to be a multi-objective programming problem. How to solve those problems is a further work.
Additionally, how to completely consider the influence of reverse logistics to target function, this model still
needs to be improved.
References
[1] Dondo R., Cerda J. A cluster-based optimization approach for the multi-depot heterogeneous fleet vehicle routing problem with
time windows. European Journal of Operational Research, 2007, 176(3): 1478-1507
[2] Min H. The multiple vehicles routing problem with simultaneous delivery and pick-up points. Transportation Research, 1989,
23(4): 377-386
[3] Halse K. Modeling and solving complex vehicle routing problems, PhD thesis. Denmark: Institute of Mathematical Statistics
and Operations Research (IMSOR), Technical University of Denmark, 1992
[4] Angelelli E., Mansini R. The vehicle routing problem with time windows and simultaneous pick-up and delivery, in: Klose A,
Speranza M. G. , Van Wassenhove L. N.,Eds. Quantitative Approaches to Distribution Logistics and Supply Chain
Management, Springer-Verlag, 2002.249267
[5] Dethloff J. Vehicle routing and reverse logistics: The vehicle routing problem with simultaneous delivery and pick-up.OR
Spektrum, 2001, 23(1):79-96
[6] Ropke S., Pisinger D. A unified heuristic for a large class of vehicle routing problems with backhauls. European Journal of
Operational Research, 2006, 171(3): 750775
[7] Bianchessi N., Righini G. Heuristic algorithms for the vehicle routing problem with simultaneous pick-up and delivery.
Computers & Operations Research, 2007, 34(2): 578594
[8] Zhang Jianyong, Li Jun. Hybrid Genetic algorithm to vehicle routing problem with simultaneous delivery and pick-up.China
Journal of Highway and Transport, 2006, 19(4): 118-122(in Chinese)
[9] Qu Zhiwei,Cai Linning,Li Chen, Zheng Li. Solution framework for the large scale vehicle delivery/collection problem[J].
Tsinghua Univ(Sci&Tech),2004,44(5):581-584(in Chinese)
[10] Gendreau M., Laporte G., Vigo D.Heuristics for the traveling salesman problem with pickup and delivery. Computers &
Operations Research, 1999, 26(7): 699714
[11] Ghaziri H., Osman I.H. A neural net work algorithm for the traveling salesman problem with backhauls. Computers& Industrial
Engineering 2003, 44(2): 267281
[12] Sral H., Bookbinder J.H.The single-vehicle routing problem with unrestricted backhauls.Networks,2003,41(3):127-136
158
Multi-Objective Layout Optimization in Dynamic
Environments: A Heuristic Approach
Dong Ming1 , Liu Fei1 ,Hou Forest2 , Zhang Franky2, Chen Feng1
1 Shanghai Jiao Tong University, P.R. China, 200240
2 Intel Products (Shanghai) Ltd., P.R. China, 200131
Abstract This paper discusses the dynamic multiple stage facility layout problem with the unequal area departments. Layout
evaluation criteria considered include not only the traditional material handling cost but also the re-layout cost and other costs that
are not considered before. A heuristic algorithm is proposed to solve this NP-hard problem. The key point for this algorithm is how
to consider the functional layout and re-layout cost during the changing periods. The heuristic algorithm can also be used to reduce
the complexity of the solution searching procedure. Experimental results show that the proposed algorithm is effective.
Key words Layout design, Dynamic environment, Heuristic algorithm, Multi-objective optimization
1. Introduction
Facility layout design determines how to arrange, locate and distribute the equipment and support services in
a manufacturing plant. An efficient layout planning is quite important for a factory due to its complexity and high
re-layout cost.
There are several methods for solving the facility layout problem (FLP), such as a quadratic assignment
problem (QAP), a quadratic set covering problem (QSCP), a linear integer programming problem, and a graph
theoretic problem. Mathematical techniques usually involve the identification of one or more goals that the layout
should strive to achieve. A widely used goal is the minimization of transportation costs in the site. But there are
also some other quantitative indices for the plant layout evaluation, for example, work in process (WIP) inventory
(Benjaafar 2002), product lead time (Meng 1999), area utilization factor, and shape ratio factor (Wang 2005).
With the changing technology, market requirements vary quickly. Manufacturing facilities must be able to
exhibit high levels of flexibility and robustness despite significant changes in their operating requirements
especially in the high-tech industry. The complexity of FLP design increases when it is regarded as a dynamic
problem, i.e. the dynamic facility layout problems (DFLPs), which focus on minimizing the total cost over the
specified time horizon. Balakrishnan and Cheng (1998) gave a state-of-the-art survey about this problem.
The design of the semiconductor plant facilities for high volume production has traditionally been dominated
by functional or process layout, where work centers consist of groups of similar or identical machines that are
capable of performing the same type of unit process. But the manufacturing tools will be updated very quickly due
to the changing products. When the space of the plant is limited and many machines are need to re-location, the
solution for how to reduce the re-layout cost and optimize the whole facilities in the multi-periods is what we
consider in this paper.
The remainder of the paper is organized as follows. Section 2 develops a multi-objective optimization model
for multi-stage layout decisions. Section 3 describes the proposed algorithms on solving developed
multi-objective optimization problem. Section 4 presents and discusses the findings of this study. Section 5
concludes and offers suggestion for future research.
This research has been supported by National Natural Science Funds of China (No: 70571050) and Shanghai Pujiang Program (No. 05PJ14067).
159
adopted:
2.1 Material handling cost
In the unequal area department layout problem, most researchers only consider the material flow cost as
objective function. An effective facility layout and material handling design will reduce the operating cost of the
industry by 1030% (Tompkins and White 1996). The single product material flow cost can be formulated in the
following:
N N
Single-product C
j =1 k =1
f ( j, k ) d ( j, k , ) (1)
jk
where C is the transferring cost per unit, f(j ,k) is the material flow from department j to k, and d(j ,k, ) represents
the distance between j and k under the layout .
Considering many products are traveling among the departments, the total material handling cost equals the
summation of material handling costs of individual products:
N N
Multi-products:
all products P
MHCp = C p f p ( j, k ) d ( j, k , ) (2)
all products P j =1 k =1
jk
area for machine i, Carea is the cost per area. The useless area is defined as the space which cannot put the
smallest machine in it.
3. Methodology
3.1 Algorithm design
This algorithm is developed based on the two dimension bin packing problem and the experience used in the
industry. We extract the common senses and form some rules. By using the structure based on the knapsack
problem and these rules, we deal with this dynamic layout problem more efficiently and reduce the solution
spaces effectively. Furthermore, the meta-heuristic algorithms will be applied to search the optimal solution from
the large set of possible candidates.
The basic concept underlying the procedure proposed is very simple. There are machine tool lists from the
forecasting, which includes two parts, machines to be added and machines to be removed. But when designing a
layout, we have three actions: add new tool, remove old tool, and re-layout the old tool. Now, we consider the
re-layout the old tool as removing this tool and adding this tool in same period.
Figure 1 shows the detailed flowchart. The algorithm starts by finding the free spaces from the initial layout.
Then, go to the last period, find total remove List during the whole period. Remove these machines, and put the
machines in the add list. Obviously, there are too many possible solutions. Heuristic put in rules is developed to
select the solution candidates. When we put the departments in the area, there exist some situations that need to
relocate some machines. Then Fetching Rule is used. After finishing the last period, we check whether it is
reasonable. If its reasonable, we try to solve the problem with n-1 period. Otherwise, this solution is abandoned.
160
The result obtained is not a single optimized solution, but a good solution set. That means we have many possible
choices. Then, the objective function is used to judge these choices and Tabu search algorithm can be used to
reduce the complexity.
3.2 Put-in rules
When machines are going to be put in given free spaces, we do not need to re-layout any other machine. This
rule contains two main parts: (a) The free spaces are very limited, so all the departments must be put into the floor.
(b) Its easy to put all the departments to these area, so these department should be arranged as good as possible.
Then, we describe the procedure as following:
(1) Order all the departments by area or other characteristic.
(2) Find all the suitable area for this department i. Moreover, reversal is allowed.
(3) If there is no suitable area, combine the area. Then try again.
(4) If still no suitable area, we conclude that there is no solution. Try to use the fetch rule to re-layout some
machines.
(5) Put the department to the area, and cut the area into two new areas.
(6) Repeating this procedure until all departments are placed.
Add
List
List
Machine Machine
Machine
Relayout
2 cost=
50000 2 Machine 2 too
big for other free
area
2
1 3 Relayout
cost= 1 1
10000
4
A B C
Fig. 3 Selecting machine in the neighborhood
Ak is C A2k . Then the weight of each machine Ak can be obtained: WAk = C 1Ak + (1 )C A2k . In Figure
3, department 1 is fetched out. The rule for A is the longest adjacency between department 1 and the free area. The
rule for B is the lower re-layout cost between department 1 and 2. The rule for C is that department 1 is the only
choice because department 2 is too big to the free area, that means if department 2 is re-located, the department 2
will be located in the same place with high probability. In case of (b): Order the machine on add list by the area.
For machine i, look for the same type machines already on the floor, and find the total area.
Applying the above algorithm, the solution for this example can be obtained. Figure 5 gives the real-world
layout and Figure 6 shows the layouts from the periods 1 to 4.
It can be seen that the layout in each period is still functional, and the re-layout cost is relatively low. The
real-world layout is almost same as the results, and the comparison is given in Table 2.
162
Fig. 5 Real-world layout
Tab. 2 Comparisons between real-world layout and results from proposed algorithm
Useful space *space Total cost
Material handling cost Relayout cost Total cost
cost (Phase)
Phase2 225338 10000 1909 237247
Algorithm Phase3 227256 5000 3334 235590
Phase4 246767 102000 7328 356095
Phase5 237744 112000 3293 353037 1181969
Phase2 225338 10000 1909 237247
Phase3 227256 5000 3334 235590
Real layout
Phase4 247895 102000 7328 357223
Phase5 239436 112000 3293 354729 1184789
163
re-layout cost and the space utilization. Through the experiments, the results show that the proposed algorithm is
effective and practical for use.
References
[1] Balakrishnan, J., Cheng, C. Dynamic layout algorithms: a state-of-the-art survey, Omega- International Journal of Management
Science, 1998, 26(4):507-521
[2] Braglia M., Zanoni, S., Zavanella, L. Layout design in dynamic environments: analytical issues, International Transactions in
Operational Research, 2004, 12(1):1-19
[3] Bryan, A., Norman, A., Smith, E. A continuous approach to considering uncertainty in facility design, Computers & Operations
Research, 2006, 33:17601775
[4] Meng, G., Heragu, S.S., Zijm, H. Reconfigurable Layout Problem, International Journal of Production Research,
2004, 42(22):4709-4729
[5] Lin, L.C., Sharp, G.P., Quantitative and qualitative indices for the plant layout evaluation problem, European
Journal of Operational Research, 1999, (116):100-117
[6] Wang, Ming-Jaan, Hu, M.H., Ku, M.Y. A solution to the unequal area facilities layout problem by genetic
algorithm, Computers in Industry, 2005, 56(2):207-220
[7] Rosenblatt, M.J., Kropp, D.H. The single period stochastic layout problem, IIE Transactions, 1992, (24): 169-176
[8] Benjaafar, Saifallah. Modeling and Analysis of Congestion in the Design of Facility Layouts, Management Science, 2002,
48(5):679-204
164
A Centralized Inventory Policy for Open-Loop Reverse Supply Chain
Abstract As an extension to Gou et al.(2006)[9], this paper introduce a special inventory policy for the open-loop reverse supply
chain, in which the centralized returns center(CRC) is authorized to manage the inventories at local contract point(LCP) location. To
formulate the model, special technique has been used to translate the CRCs inventory and handling process into an Ek / M /1/
queueing system and thus the respective conclusions in queueing theory are utilized. Our purpose is to determine LCPs economical
delivery batch and CRCs handling batch to minimize the long-run average cost. Sensitivity analyses are also presented.
Keywords Reverse supply chain, Inventory management, Queueing system
1. Introduction
Reverse supply chain (RSC) is a series of activities required to retrieve a used product from a customer and
either dispose it or reuse it (Guide and Van Wassenhove, 2002)[12]. It is becoming more and more important for
modern business organizations. On one hand, people are confronted with serious environmental problems and thus
environmental regulations require firms to recycle the products they sell (Anindya, 2003)[1]. On the other hand,
reusing components of abandoned products can reduce material cost for manufactories (Guide et al., 2003)[10].
During the Past two decades, RSC has received special attentions by literatures. The first theoretical
framework of reverse supply chain is initiated by Lund (1984)[17], which is for remanufacturing. After that,
Thierry et al. (1995)[24] analyzed product recovery management and Toffel(2003)[25] discussed the strategic
importance of the end-of-life product management. Further, the empirical studies, which includes case studies and
survey-based studies, is also a focus for study of reverse supply chain. For the case studies, readers can see de
Brito et al.(2002)[5] for a review , for the survey-based studies, please see Rogers and Tibben-Lembke(2001)[22],
BlumBerg(1999)[2], Guide(2000)[11], Lieb et al. (1993)[15] for examples.
In spite of the literatures mentioned above, inventory management and modeling plays a significant role in
the research of reverse supply chain(Mabini et al., 1992, and Richter, 1996 a&b, for deterministic models; and
Pierskalla and Voelker, 1976, Cohen et al., 1980, Cho and Parlar, 1991, Var der Laan et al., 1996, and Inderfurth,
1996, Kiesmller and Scherer,2003 , Listes and Dekker,2005, DeCroix and Zipkin, 2005, Gou et al., 2006, for
stochastic models) [3] [4] [6][9] [13][14][16] [18][19][20][21] [26]. However, most of them are based on a closed-loop reverse
supply chain, where a in-house distribution center which combines forward and reverse distribution services is
adopted (Fleishmann et al., 1997)[7].
In fact, because reverse logistics is so different from the conventional forward practices, the question of
whether to handle reverse logistics in a forward distribution center(close-loop system) or in a separate facility
(open-loop system) arises often(Gooley, 2003)[8]. As described by Gooley (2003) [8], the right solution for the
question depends on the who, what and where of the reverse logistics and thus there is no absolute answer.
Along with this direction, an open reverse supply chain system which combines with a single centralized returns
center (CRC) and several independent local contact points(LCP) is discussed by Gou et al.(2006)[9].
In the system considered by Gou et al.(2006) [9], each LCP received a stream of random product returns from
consumers and delivery them to CRC independently as its inventory reaches its economical transportation batch
S , CRC handles those returned products with a batch Q (where Q = rS , r is an integer). Noting that a
company would rather set up several LCPs in different divisions of a city and a single CRC in an urban place,
LCPs are normally congregated in an adjacent area and CRC lies in a relative far place. Thus, it is reasonable for
CRC to transfer all the LCPs inventory in one dispatch to save the delivery cost.
As an extension of Gou et al.(2006) [9], this research introduce a new inventory control and delivery policy for
This work was supported by the National Natural Science Foundation of China (No. 70525001).
165
the reverse supply chain system. Under a special contract, CRC is authorized to manage the inventories at LCP
location. Therefore, CRC has the liberty of controlling the upstream transportation decision to accumulate a larger
delivery batch. In detail, once all the inventories of LCPs accumulate to the economic batch S , CRC transfers all
of them back immediately. Be the same as Gou et al.(2006) [9], CRC handle the product returns with a batch Q
(where Q = rS , r is an integer). The major issue is to determine the economical delivery batch S and
handling batch Q or r to minimize the long-run average cost. Sensitivity analyses are also presented.
This paper is organized as follows. Assumptions and the inventory process for each stage in the reverse
supply chain are described in detail in Section 2. Model development is in Section 3. In section 4, the effects of
each policy parameter on the final solutions and the supply chain costs are analyzed. Concluding remarks are in
Section 5.
Assumption 1: Each LCP receives a stream of product returns from customers which follows a Poisson
process with parameter i t ( i = 1, , m ). Further, to simplify the model, i = 0 ( i = 1, , m ) is assumed.
Assumption 2: Once alzl the inventories of LCPs reaches the economical transportation batch S , CRC
transfer all of them back immediately. Further, to simplify the model, assume that the delivery time is zero.
Assumption 3: CRC has a single server to handling those product returns, and the server handles the product
returns while the server is free with a handling batch of Q , the handling time L is random and follows an
exponential distribution with parameter .
Assumption 4: CRC has a maximum busy ratio 0 , where 0 is a given parameter which between 0.9 and
1.
The costs involved in the system constitute with: (i) the inventory holding costs occurred at LCP locations, (ii)
the delivery cost from LCPs to CRC, which includes a mainly fixed cost for each delivery and a minor cost for
each LCP be involved in a delivery; (iii) the inventory holding costs occurred at CRC location, and (iv) the
handling cost occurred at CRC, which includes a fixed cost for each batch cost and a minor cost for each unit
product return per unit time. To make these costs clearly, we list the related parameters as follows:
FD A mainly delivery cost for each delivery from LCPs to CRC
cD A minor delivery cost for each LCP which be involved in a delivery
FH A fixed setup handling cost for CRC for each handling batch
cH Variable handling cost for CRC per unit product returns per unit time
hL Inventory cost for LCP per unit product returns per unit time
hC Inventory cost for CRC per unit product returns per unit time
166
3. Model Development
3.1 The inventory holding cost at LCP locations
Looking all the LCPs as a single entity LCPS, it is easy to know that the product returns to LCPS is a
Poison process with parameters t , where = im=1 i = m0 . Fig. 2 presents an example of LCPSs inventory
process in which { X j , j = 1,2, } is the interval between two adjacent arrivals of product returns.
Define the period between two adjacent deliveries from LCPS to CRC as a delivery cycle, the average period
of each delivery cycle TL ,C is
TL ,C = E ( X 1 + + XS) = S / , (1)
and the mean of inventory cost at LCP locations for each delivery cycle is
S
S ( S 1) .
H L = hL E[ ( j 1) X j ] = hL (2)
j =1 2
Thus, the average inventory holding cost at LCP locations H avL is
H L ( S 1)hL . (3)
H avL = =
TL ,C 2
3.2 The Average Delivery Cost from LCPs to CRC
The costs occurred in each delivery cycle includes a fixed delivery cost FD and a variable delivery cost kcd ,
where k is the random number of LCPs occurred in a delivery. That is said the delivery cost for each delivery
cycle is
D = E[ FD + kcD ] = FD + cD E[k ] . (4)
Denote j represents whether LCPj be involved in a delivery from LCPS to CRC, thus
E[k ] = E[ j =1 j ] = mp j .
S
(5)
1 S
where p j = P ( j = 1) = 1 (1 ) . Thus the average delivery cost for each delivery is
m
D = FD + mc D p j , (6)
and the average delivery cost from LCPS to CRC Dav is
D F mcD 1
Dav = = D+ {1 (1 ) S } . (7)
TL ,C S S m
3.3 The Average Inventory Holding Cost in the CRC Location
To formulate the inventory cost of CRC, we look all the LCPs as a cyber entity LCPS and divide CRC into
two parts: CRC I and CRC II. In detail, CRC I receives product returns from LCPs with a batch of S
and keep them. However, once the inventory of CRC I accumulates to Q (where Q = rS , r is an integer), CRC
167
I transfer all the product returns to CRC II immediately. CRC II handles these product returns with a batch of Q .
The relationship of the inventory process between CRC and that of CRC I and CRC II is illustrated by Fig. 3.
In Fig. 3, { X (j I ) , j = 1,2, } is the time interval series of the delivery from LCPS to CRC, i.e.,
X (j I ) = k = jS +1 X j is a delivery cycle from LCPs to CRC.
( j +1) S
Define the period between two adjacent transfer from CRC I to CRC II as a transfer cycle, then the average
length of each transfer cycle TI , II is
rS
rS ,
TI ,II = E ( X 1( I ) + + X r( I ) ) = E ( X j ) = (8)
j =1
the mean of the holding cost for CRC I for one transfer cycle is
r
hC r (r 1) S 2 .
H I = hC E{ (r 1) SX (j I ) } = (9)
j =1 2
Thus, the average holding cost for CRC I is
(r 1)hC S
H avI = . (10)
2
Looking each batch of product returns from as a single customer, it is easy to know that the inventory process
for CRC II forms an EQ / M / 1 / queueing system, in which the customer arrival intervals is Erlang distributed
with parameters (Q, ) and the service time for each customer is exponential distributed with parameter .
Knowledge of queueing theory tells us that when = /(Q ) <1 is satisfied the average queue length for
EQ / M / 1 / system is
Nq = , (11)
Q ( z0Q 1)
where z0 >1 is a root of z Q+1 ( + ) z Q + = 0 (see Sun R.H. and Lee J.P., 2002, page 79-86 for a
reference)[23]. Thus, the average inventory cost of CRC is
hC ,
H avII = hC N q Q = (12)
v( z0Q 1)
where z0 >1 is a root of z Q+1 ( + ) z Q + = 0 .
168
Noting there is a z0 be included in equation (12), where z0 >1 is a root of z Q+1 ( + ) z Q + = 0 . In
fact, queueing theory also proves that z0 is unique existed (Sun R.H. and Lee J.P., 2002, page 79- 86)[23] and
Gou et al.(2006)[9] illustrates that
Q + + .
1< z0 (13)
Q +1
while = /(Q ) <1 is satisfied.
From equation (10) and (12), we get the average holding cost at CRC location H avC as follows:
(r 1)hC S hC
H avC = H avI + H avII = + (14)
2 ( z0Q 1)
where z0 >1 is a root of z Q+1 ( + ) z Q + = 0 .
3.4 CRC average handling cost
Since all the returned products which arrived in the CRC will be handled in the long-run. Therefore, for a
long enough period T , assuming that N times handling processes happened, then the mean of the variable
handling cost ( VHC ) is
c H T
E (VHC ) = cH QE ( L1 + + LN ) = (15)
The fixed handing cost ( FHC ) is
FH T .
E ( FHC ) = FH E ( N ) = (16)
Q
Thus, the average handling cost H avH is
E (VHC ) + E ( FHC ) cH FH
H avH = = + . (17)
T Q
3.5 The Total Cost and the Optimization Problem
From the discussions of subsection (i) to (iv), we get the expression of the long-run average cost of the
reverse supply chain system as follows:
h ( S 1) (r 1)hC S FD mc D 1 F hC c
C (r , S ) = L + + + {1 (1 ) S } + H + + H , (18)
2 2 S S m rS ( z 0 1)
rS
where = /(Q ) <1, z0 >1 is a root of z Q+1 ( + ) z Q + = 0 .
Note that the existing of z0 in equation (18), we denote
hL ( S 1) (r 1)hC S FD mc D 1 F hC c
f (r , S , z ) = + + + {1 (1 ) S } + H + + H . (19)
2 2 S S m rS ( z rS 1)
169
C (r * , S * ) C (r , S ) . Noting that each item in the right of equation (18) and (19) is positive, then for any solution
(r , S ) ,
FD 2( f ( r , S , z ) c H /
S* + 1, (21)
f ( r , S , z ) c H / hL
and if S * = S , we have
2{ f (r , S , z ) ( S 1)hL / 2 FD / S c H / } .
r* +1 (22)
hC S
In fact, equation (21) and (22) represents the bounds of (r * , S * ) . Utilizing these results, we represent the
algorithm for the optimization problem as follows.
Algorithm
Step1. Let r = 1 , S = [2 / v] + 1 , calculate the respectively cost f (r , S , z ) and get an bound of S * :
c c
upS = 2( f (r , S , z ) H ) / hL + 1 , lowS = FD /( f (r , S , z ) H ) .
2{ f (r , S , z ) ( S 1)hL / 2 FD / S cH / }
Step2. For each lowS S upS , let upR = +1 ,
hC S
calculate the respectively cost f (r , S , z ) for each pair of (r , S ) where 1 r upR and compare them to get
the optimal solution (r * , S * ) .
170
From equation (23), it is easy to know that: to a fixed r , f gets it minimum
In fact, when the efficiency of CRC is rather low, more and more product returns will be accumulated, and
thus larger delivery and handling batches will be advised. That will lead the inventory cost increase sharply.
Therefore, when CRCs efficiency is rather low, it is necessary to improve it indeed.
171
4.5 the hL and hCs Affection on the Optimal Solution
Changing hL and hC in a large variation, we get their affections on the optimal solution as follows (see Fig.
7): (i)as hL increases, r increases and S decreases. (ii)as hC increases, r decreases and S increases. In
* *
fact, noting that the larger hL (the smaller hC is), the smaller g / g r 1
is, thus a larger r is more likely be
advised.
4.6 the FD and cDs Affection on the Optimal Solution
Fig. 8 shows FD and cD almost have the same effects: as the increase of FD and cD , r decreases and
S increases. Equation (25) tells that the larger FD and cD is , the larger g r* / g1* is, thus a smaller r is
advised. Further, the increase of FD and cD means that the increasing of the delivery cost, thus it is reasonable
to has a large delivery batch to reduce to delivery cost.
Noting that g r* / g1* increases as FH increases, that means a larger r would likely be advised. Specially,
the fixed handling cost increases, it is reasonable to increase the handling batch thus S increases when r is
fixed. Further, no matter how high cH is, all the product returns have to be handled, thus the change of cH has
172
no affect to the final solution but the cost increase linearly.
5. Conclusions
In this paper, a centralized inventory policy is introduced for the open-loop reverse supply chain. Using a
special contract, CRC has liberty of managing the inventory of all the LCPs, just as the VMI management mode in
forward supply chains. Utilizing the conclusion of Ek / M / 1 / queueing system, a stochastic inventory model
for a single-CRC and multi-LCPs reverse supply chain system has been developed. Further, an algorithm is
developed to find the optimal solution and each parameters affection to the solution has been discussed.
Sensitivity Analyses tells us that: (i) the larger hL or FH is, the larger r is more likely be advised. (ii)
hC , FD , cD have the opposite affects. (iii) the change of cH has no effect to the (r , S ) solution. (iv) when the
CRCs efficiency v is rather low, it is necessary to improve it.
Some limitations of this study and further research for this area include: (i) The assumption that CRC has
only one facility to handle the product returns may not fit the fact, therefore, the case of multiple server be
included in the system should be discussed. (ii) We do not consider that the constraint of the transportation and
this should be discussed in the future model. (iii) The time erosion of a product's value is not considered in the
model and thus a penalty cost for each unit product per unit time may be introduced.
References
[1] Anindya R. How efficient is your reverse supply chain. ICFAI Press Effective Executive (Special Issue: Supply Chain
Management), January 2003.
[2] Blumberg DF. Strategic examination of reverse logistics and repair service requirements, need, market size, and opportunities.
Journal of Business Logistics, 1999, 20(2):141-159.
[3] Cho DI, Parlar M. A survey of maintenance models for multi-unit systems. European Journal of Operational Research, 1991,
51: 1-23.
[4] Cohen MA, Nahmias S, Pierskalla WP. A dynamic inventory system with recycling. Naval Research Logistics Quarterly, 1980,
27(2): 289-296.
[5] De Brito MP, Flapper SDP, Dekker R. Reverse logistics: a review of case studies. Working Paper: Econometric Institute Report
EI 2002-21.
[6] DeCroix GA, Zipkin PH. Inventory Management for an Assembly System with Product or Component Returns. Management
Science, 2005, 51(8): 1250-1265.
[7] Fleischmann M, Bloemhof-Ruwaard JM, Dekker R, van der Laan E, van Nunen JAEE, Van Wassenhove LN. Quantitative
models for reverse logistics: A review. European Journal of Operational Research, 1997, 103(1): 1-17.
[8] Gooley TB. The who, what and where of reverse logistics. Logistics Management, 2003, 42(2):38-42.
[9] Gou QL, Liang L, Huang ZM, Xu CY, A Joint Inventory Model For An Open-Loop Reverse Supply Chain, unpublished
working paper, USTC(Submitted to EJOR in Dec 2006), 2006.
[10] Guide Jr VDR, Jayaraman V, Linton JD. Building contingency planning for closed-loop supply chain with product recovery.
Journal of Operations Management, 2003, 21(3): 259-79.
[11] Guide Jr VDR. Production planning and control for remanufacturing: industry practice and research needs. Journal of
Operations Management, 2000, 18: 467-83.
[12] Guide Jr VDR, Van Wassenhove LN. The Reverse Supply Chain, Harvard Business Review, 2002, 80(2): 25-26.
[13] Inderfurth K 1996. Modeling period review control for a stochastic product recovery problem with remanufacturing and
procurement lead-times. Working paper 2/96. Faculty of Economics and Management, University of Magdeburg, Germany.
[14] Kiesmller GP, Scherer CW. Computational issues in a stochastic finite horizon one product recovery inventory model.
European Journal of Operational Research, 2003, 146(3): 553-579.
[15] Lieb RC, Millen RA, Van Wassenhove LN. Third-party logistics services: a comparison of experienced American and
European manufacturing. International Journal of Physical Distribution and Logistics Management, 1993, 23(6): 35-44.
[16] Listes O, Dekker R. A stochastic approach to a case study for product recovery network design. European Journal of
Operational Research, 2005,160(1): 268-287.
[17] Lund RT. Remanufacturing. Technology Review 1984; February/March: 19-29.
[18] Mabini MC, Pintelon LM, Gelders LF. EOQ type formulations for controlling repairable inventories. International Journal of
Production Economics, 1992, 28: 21-33.
[19] Pierskalla WP, Voelker JA. A survey of maintenance models: the control and surveillance of deteriorating systems. Naval
Research Logistics Quarterly, 1976, 23: 353-388.
[20] Richter K. The EOQ repair wand waste disposal model with variable setup numbers. European Journal of Operational
Research, 1996a, 95: 313-324.
173
[21] Richter K. The extended EOQ repair and waste disposal model. International Journal of Production Economics, 1996b, 43(1-3):
443-448.
[22] Rogers DS, Tibben-Lembke R. An Examination of reverse logistics practices. Journal of Business Logistics, 2001, 22(2):
129-48.
[23] Sun R.H. and Lee J.P., The Basis of Queueing Theory, Science Press: Beijing; 2002. p.79-86. In Chinese.
[24] Thierry M, Salomon M, van Nunen J, Van Wassenhove LN. Strategic issues in product recovery management. California
Management Review, 1995, 37(2): 114-134.
[25] Toffel MW. The growing strategic importance of end-of-life product management. California Management Review, 2003,
45(3): 102-129.
[26] Var de Laan E, Dekker R, Salomon M. An (S, Q) inventory model with remanufacturing and disposal. International Journal of
Production Economics, 1996, 46-47: 339-350.
174
Research on Development of Modern Logistic Industry in
Area along New Eurasian Land Bridge (Chinas Section)
Based on Spatial Economic Relationship
Abstract The New Eurasian Land Bridge (Chinas section) links China's eastern, central and western regions, Collaborative
development of the logistics in these regions is great significance for lower logistics costs, promoting regional economic coordination.
The New Eurasian Land Bridge regional logistics of the situation and characteristics of China is analyzed. Based on the structure of
freight and cargo space, the spatial economic relationship is established. Then methods to strength the collaborative development of
the New Eurasian Land Bridge (Chinas section) logistics are provided.
Key words Spatial economic relationship, Modern logistics, Collaborative development
1. Introduction
The New Eurasian Land Bridge (NELB) starts form Lienyungang of Jiangsu Provincetake our country
within the boundaries of Gansu sea, Lanchow-Sinkiangline as the skeleton, and through central Asia, European
countries and the Dutch port of Rotterdam. The NELB is 4,131 km in length in Chinese churchyard, traversing 10
provinces or regions in Chinese eastern, mid and western area, including Jiangsu, Shandong, Anhui, Henan, Sanxi,
Shanxi, Gansu, Ningxia, Qinghai and Xinjiang, radiant area also reaching Hubei, Sicuan, Neimenggu, etc. The
total area along the NELB is about 3,600,000 km2, taking up 37% of the national total area; there is about 0.435
billion population, accounting for 34.93% of the countrys, which shows it possesses a great important position in
Chinese socio-economic development.
New Eurasian Land Bridge in China's rapid economic development of the region, Modern logistics industry
quickly started and taking shape, Relying on new Eurasian Land Bridge Transportation Corridor, Convenient
network access is built up along regional logistics , For the development of regional economy has played an
important supporting role in safeguarding .Development of the modern logistics industry in the areas along, For
stimulate regional economic development along ,Promote the eastern, central and western development is of great
significance.
175
RMB. But its proportion in the GDP presented a slow downtrend, from 26.76% in 1995 to 22.35% in 2003, which
shows that the logistic industry efficiency is increasing gradually. The proportion of the total social logistic cost in
the GDP in 2003 is higher 1% than that of the country(21%), while higher 10%~12% than that of developed
countries or region such as America, Japan and Europe, which indicates that the whole operation efficiency of the
logistic system in the area is needed to be improved.
(3) Logistic Industry Adding Value
From 1995 to 2003, the total social logistic adding value was moved from 259.8 billion RMB to 549.8 billion
RMB, increasing more than 1.12 times, with average speed of 9.82% annually, similar to that of the GDP in the
same period. The scale of the logistic adding value is higher than the scale of the GDP, which indicates that with
the economic development the logistic socialization degree is increasing ceaselessly.
(4) Freight Volume and Freight Turnover
Since the NELB was opened up, the freight volume and freight turnover in the area are raised rather quickly,
which settles a profound base for the logistic development in the area. In 2003, the volume of freight hit 5.405
billion t, taking up 34.6% of that of the country, 1.8 times as much as in 1992. The freight turnover reached
1,275.4 billion t, making up 23.7% of that of the country, 2.23 times as much as in 1992.
In conclusion, the sustainable and stable development of economy in the area along the NELB brings an
enormous need for the logistic industry objectively, so as to boost its acceleration development. However, the fact
of the imbalance in the economic development between eastern and western region results in the imbalance of the
whole logistic industry development, different regions existing larger disparity, appearing the unbalanced situation
with developed in east while undeveloped in west.
2.2 Mainly Existing Issues and Restricting Factors for Development of Logistic Industry
Although some achievement has been made in the logistic development in the area, the issues such as the
imbalance of economic development in east and west and the lack of coordination and cooperation in the logistic
development are restricting the further development of the logistic industry in the area. Now the mainly exiting
issues are as follows:
(1) Lack of Necessary Coordination and Cooperation in Logistic Development in Area
(2) Lagging Construction of Logistic Infrastructure
(3) Policy Environment Should Be Developed
(4) Relatively Lagging Information Development in Area
All above issues will be resolved through reforming the development mode of the modern logistic industry in
the area along the NELB, under the leading and guidance of the NELB Coordinative Group of State Department,
the national and provinces relative departments.
176
There are two characteristics on the statistic data from 1998 to 2003:
(1) The total freight mutual volume of provinces and regions along the NELB is decreasing gradually from
the east to west.
(2) The freight is mainly transported and sell within local province.
The degree of the economic relationship is identified according to the proportion of freight dispatched
volume from each province or region in China to the province or region along the NELB in total freight
dispatched volume of the province or region, that is to say, if the proportion is lower than 5%, then the degree of
the economic relationship is low; and if higher than 10%, then high; if between 5% and 10%, then medium. The
spatial economic relationship based on the freight mutual volume is shown as Table 2 through analysis.
Tab. 2 Degree of Spatial Economic Relationship
Arrived
Jiangsu Shando ng Anhui Henan Shanxi Sanxi Gansu Ningxia Qinghai Xinjiang
Dispatched
Jiangsu H L H H H L L L L L
Shandong H H M M H L L L L L
Anhui H L H L L L L L L L
Henan H H H H L L L L L L
Shanxi H H L M H L L L L L
Sanxi H M L H L H L L L L
Gansu M L L L L L H L H L
Ningxia L L L L L H H H M L
Qinghai H L L M M M H L H L
Xinjiang L L L M L L H L L H
Notes: Hhigh, Llow, Mmedium.
The statistic result shows that the freight mutual volume between the eastern and the western section is
obviously less than that of within each section. The economic development level in the eastern section is higher
with close relationship and larger internal freight mutual volume; as located in deep inland, there has formed a
trade region in the mid-western section taking some big or medium cities (for instance, Xian, Lanzhou, Urumchi,
Yincuan, Xining, etc.) as centers. Such spatial economic status has provided a good opportunity to realize the
cooperation and development of the modern logistic industry in the area. Each province or region, especially the
eastern and mid-western section, can exert its economic advantage to strengthen the communication and
cooperation each other, so as to optimize the whole economic layout, promote the complete upgrade of the
regional economy, then boost the further development of the modern logistic industry in the area.
3.2 Analysis of Spatial Economic Relationship Based on Logistic Transportation Structure
(1) Freight Structure
With the gradual development of the economy in the area, the logistic transportation structure has been
evolved from singularity to diversification. From 1995 to 2003, the road transportation occupied a bigger
proportion, about 75%, in the freight volume, while the railway is about 15%. At the same time, the railway
posses the absolute proportion advantage in the freight turnover, stably keeping with over 50%.
(2) Average Transportation Distance
From 1996 to 2003, there is a little increasing trend in the average transportation distance for the road
transportation, with an increase of 1% annually; before 2000, the average transportation distance of railway waved
rather greatly, but after 2000, it is primarily stabled in 650 km (meet the inter-province communication
requirement), far longer than that of the road (between 60km to 65km, mainly within the province); the total
average transportation distance reached 224.916 km from 185.697 km, and the increase is so obvious that the
average speed is nearly 3% each year. All those indicates that the spatial economic relationship in the area is
closer increasingly, and the railway still is the main ligament connecting the economy of the trans-provinces, the
177
road plays a accessorial role in the spatial economic relationship, especially suited for the short-distance logistic
transportation within the province[1].
(3) Transportation Intension
The calculated result shows that the transportation intension indicated by the freight volume in the area is
decreasing gradually annually, but the industrial structure and product structure is developed to the orientation of
high value; the annual change scale of the transportation intension based on the freight turnover is relatively less,
so the economic relationship between provinces is more and more close, and the mutual material volume is
enlarged continuously and the transportation distance of freight is prolonging ceaselessly.
In conclusion, there is a trend of primary products flowing from the west to the east and finished products
from the east to the west for the spatial economic relationship in the area. With the advancement of the economic
level, it can estimated that provinces along the area will adjust their industrial structure layout step by step
according to each advantage on resource and technology, the mutual volume of the logistic transportation will
increase continuously with the types of freight orienting to high value and diversification, and based on meeting
the logistic requirement, the logistic transportation will gradually be adapted to high quality requirements such as
speediness, convenience, safety, economized packaging, so as to obtain the best socio-economic benefit.
The increasingly close of the economic relationship reflects the increasing enlargement of the economic and
logistic need in the area, at the same time requires reinforcing the cooperation of the modern logistic industry in
each layer for the local governments along the NELB, to provide powerful impetus for the sustainable
development of the logistic industry, expedite the upgrade of the development level so as to advance the core
competition of the whole economy in the area.
178
Fig.1 Whole Layout of Modern Logistic Development in NELB Area
References
[1] ZHAO Yi-ru, Developmental Comparison Between the Cities Along Yangtze River and Those Along the New Eurasia
Continent Bridge, Areal Research and Development, 2000,19(3),21-25
[2] ZHU Ying-minthe Developing Location and Developing Thought of the Continental Bridge Urban Axis, Economic
Geography, 2000,20(6),65-69
[3] LI Jun-ye, Demonstration Study on Unbalancing Development of Regional Economy, Journal of Transportation Systems
Engineering and Information Technolog,2002,2(2),14-18
179
A Simulation Based Research on Loading -Unloading
Strategy in Railway Container Terminal
Abstract With the development of logistics trade, the number of containers transported by train increases promptly, which makes
it grow important that how to improve the operation efficiency in a railway container terminal. In this paper, a simulation model of
load-unload process in a railway container terminal is built. Through running the model, some strategies are educed.
Key Words Simulation, Load-unload strategy, Railway container
1. Introduction
Railway container transportation had its spring in England, which has been an important form in international
transportation trade. In 2004, Railway department of china planned to build 18 railway container terminals, which
denoted a great development of railway container transportation trade. It brings a growing interest in research on
how to improve the operation efficiency in a railway container terminal.
Researchers have developed some approaches to address the problem of container transportation. Powell and
Carvalho[1]have analysed the allotment strategies of transport vehicles in railway container terminal. Bostel and
Dejax[2]have devided the operation process in a railway container terminal into two stages, one is how to set
containers, the other is the schedule of vehicles. Kim[3] has investigated the route of crane, and applied two
heuristic algorithms for solving the problem of routing yard side equipment.
For the past few years, with the development of simulation technique, simulation method has more and more
applications in researches of container transportation. Gambardella[4] has investigated the problem of resource
allocation and scheduling of load-unloading in a quay. Emrullah[5] has ascertained the bottle-neck in the process
of port container transportation by means of simulation, and proposed a new optimization strategy. Dahal[6]
built a simulation model to optimize the carrying system of port.
There has been many researches on operation in port, while study on railway container transportation is less.
in this paper, we build a simulation model to study the load-unloading strategy in the railway container terminal,
then we propose three strategies.
The rest of this paper is organized as follows. In the 2nd section, the layout of container yard, the operation
equipments and the process of load-unloading are introduced. We describe the simulation model in the 3rd section.
In the 4th section, we analyse the result of running the model, and propose three strategies. We give the
conclusions of this paper in the 5th section.
Key Project Supported by National Natural Science Foundation of China (70431003); Innovative Research Team Project Supported by National Natural Science
Foundation of China(60521003)
180
2.2 Load-unloading Equipment
There are three kinds of equipment in terminal: forklift(FL), container truck(CT) and gantry crane(GC).
CT carries container. FL loads/unloads container from train(CT) to CT(train). GC is set on stack which
loads/unloads container from stack(CT) to CT(stack). And it is necessary to be emphasized that one stack is
served by only one GC.
railway
Container yard
3. Simulation Model
We build the simulation model by the Object Oriented programming technique.
3.1 Class, Object and their attributions
Four classes are defined, they are: container class, FL class, CT class and GC class. Consequently, four
objects are defined which are class arrays. The size of array is the number of the equipments. And the attributions
of every object are shown as follow:
Attribution of CT={isGoing, isLoaded, load, isWaiting, is Operated, workPosition, waitTime, container}
The former five attributions are bool variables which describe the state of object. Other four are float type
variables. Their significances are:
isGoing: whether CT is moving between yard and train; isLoaded: whether CT is loaded; load: if CT is
carrying container from train to stack, its value is 0, or else its value is 1; isWaiting: whether CT is at the state of
waiting for GC or FL, if GC and FL are busy, CT has to wait; isOperated: whether CT is being served by GC or
FL. workPosition: marks the operation position of CT; waitTime: describe the time of waiting; container: marks
the next container will be operated.
Attribution of GC={isWorking, workTime, freeTime, waitQueue}
isWorking: whether GC is operating, a bool type variable; workTime: the time of operation, a integral
variable; freeTime: free time of GC; waitQueue: the number of CTs waiting for GC.
Arritribution of FL={isWorking, workTime, freeTime, waitQueue, workZone, container }
The significances of former four variables have no difference from those of GC. FL can move randomly, so it
has two additional variables. workZone: the operating area of FL; container: the next container will be dealt with
181
by FL.
Attribution of container={isLockLoad, isLockUnload}
isLockLoad: whether the container is locked by CT to carry it from stack to train; isLockUnload: whether the
container is locked by CT to carry it from train to stack.
3.2 Flow of simulation
Simulation flow is composed of four sub-flows: 1.carrying container from train to stack; 2.empty CT coming
back to train; 3.carrying container from stack to train; 4.empty CT coming back to stack. Here we only illuminate
the first sub-flow. It is shown in Fig.2, container train arrives terminal and all kinds of equipments enter their
operation areasCT judges whether container i has been locked by other CTs, if no, CT lock it as the next
operated container, otherwise CT judges container i+1CT moves to the container to be operatedCT judges
whether FL is free, if yes, FL unload the container from train and load it to CT, if no, CT wait until FL is
freeCT carries the container to stackCT judges whether GC is free, if yes, GC unload container from CT and
set it into stack, if no, CT wait until the GC is freeCT lock next container to be operated.
Container i is No
loaded?
Yes
i=i+1
Gantry crane is No
working?
Yes
Truck wait for a time step
Gantry crane is No
working?
Yes
Truck wait for a time step
Yes
182
will transform.
5. Conclusion
We build a simulation model for railway container terminal. After analysing the simulation
Tab. 2 Simulation Result
Free free
Waiting
Number Number time time Finishing
How to assign CT to tasks How to set container time of
of FL of GT of of Time(s)
CTs(s)
GCs(s) FLs(s)
Set to 1 stack 906 0 520 4418
Set to 2 stacks 562 0 452 4316
Set to 3 stacks 231 0 213 4226
Set to 4 stacks 95 0 91 4155
15
Set to 5 stacks 36 5 89 4087
Set to 6 stacks 30 60 87 4066
Set to 7 stacks 27 79 87 4050
Set to 8 stacks 21 88 90 4041
Set to 1 stacks 972 0 514 4368
Set to 2 stacks 768 0 437 4106
Set to 3 stacks 491 0 168 3998
All CTs unload then all CTs load Set to 4 stacks 289 0 87 3525
5 20
Set to 5 stacks 158 2 65 3039
Set to 6 stacks 94 11 58 2707
Set to 7 stacks 67 15 58 2645
Set to 8 stacks 43 14 51 2608
Set to1 stacks 1020 0 196 4315
Set to 2 stacks 876 0 122 4102
Set to 3 stacks 645 0 78 3967
Set to 4 stacks 378 0 67 3498
25
Set to 5 stacks 199 0 63 3000
Set to 6 stacks 83 3 53 2601
Set to 7 stacks 67 5 44 2580
Set to 8 stacks 65 8 37 2579
5 15 10 CTs unload and 5 CTs load, Set to 5 stacks 11 17 60 3952
5 20 12 CTs unload and 8 CTs load, Set to 8 stacks 15 19 36 2499
5 25 14 CTs unload and 11 CTs load, Set to 8 stacks 37 14 13 2287
6 26 17 CTs unload and 9 CTs load Set to 8 stacks 35 7 29 2002
7 30 20 CTs unload and 10 CTs load Set to 8 stacks 19 2 21 1810
8 30 20 CTs unload and 10 CTs load Set to 8 stacks 17 0 27 1795
184
results, we get 3 strategies: 1.the number of CT should match that of FL; 2. dealing with import containers
and export containers simultaneously will reduce the total operating time; 3.Distributing import containers to
different stacks is a good scheme.
References
[1] W.B. Powell, T.A. Carvalho, Real-time optimization of containers and flatcars for intermodal Operations, Transport Sci
1998,32(2):110-126.
[2] N. Bostel, P. Dejax, Models and algorithms for container allocation problems on trains in a rapid transshipment shunting yard,
Transport Sci 1998,32(4): 370-379.
[3] Ki young Kim, Kap hwan Kim, Heuristic Algorithms for Routing Yard-Side Equipment for Minmnizing Loading Times in
Container Terminals, Naval Research Logistics, Vol.50, 2003
[4] Gambardella L M, Mastrolilli M, Rizzoli A E. An optimization methodology for intermodal terminal management. Journal of
Intelligent Manufacturing, 2001,12(5): 521-534
[5] Emrullah D. Simulation model and analysis of a port investment. Simulation, 2003,79(2): 94-105
[6] Dahal K, Galloway S, Burt G. A port system simulation facility with an optimization capability. international Journal of
Computational Intelligence and Applications, 2003,3(4):395-412
185
A Fuzzy Evaluation Method of Integrated Logistics Service Networks
Zhao Zhiyan, Li Bo
School of Management, Tianjin University, Tianjin, P.R.China, 300072
Abstract This paper presents a simple and effective approach to evaluate the integrated logistics service networks. Considering the
three logistics service networks, the fuzzy language variables are introduced to represent the value of the criteria, and the weights of
assessing criteria are obtained by the average method of the evaluations by the Experts or the decision makers. Then the likelihood
degree of the trapezoidal fuzzy numbers is defined and the fuzzy complementary judgment matrix is given. Thus, the rankings of the
logistics service networks under each criterion and the synthetically criteria are both calculated. Finally, a simulation example is
given to show the validity and feasibility of the method.
Key words Integrated logistics service network, Multi-mode and multi-service, Trapezoidal fuzzy numbers, Evaluation
Introduction
After joining the WTO, the more and more enterprises in China will face the serious competition of
globalization. Global operation will increase logistics cost and complexity. Simultaneously, global operation will
make uncertainty increase greatly. Uncertainty results from longer distance and lead time. These unique
challenges will promote the development of an efficient and effective global logistics with supply chain strategy.
Of course, the challenges of global logistics vary significantly in different region of the world. The focus is the
search and the development of the logistics system. The one of the best and effective way is the integration of the
logistics service systems. For example, the application of multimode, multi-service is more and more popular.
The problem how to design a logistics model has been discussed by a lot of papers and many authors have
analyzed the logistics system of the multimode, multi-service network. For example, Ahuja et al (1993) [1] have
discussed this logistics network using the mixed integer programming, but they just have considered the small
network system, as the network size increase, the problems become more difficult to solve. Then, Crainic (2000)[2]
has offered the detailed, cost-minimizing operating logistics plans and Armacost(2000)[3] has developed a solution
techniques to route aircraft and express items in the UPS network. While these papers have only studied the
transportation of a single service level and havent provided the discussion for the multiple service level. Because
of the complexity of the multimode, multi-service network, the relationship between the logistics cost and the
service level generally is inverse; that is, the logistics cost will be reduced following the integration of multimode,
multi-service logistics, but the service level can not be improved; on the contrary, it can be decreased. With a
shorter planning horizon and an overall objective of minimizing inventory in the value-chain, the transportation
has become a critical factor in the distribution process. So Jonah C. Tyan and Fu-Kwun Wang(2001)[4] have
discussed an evaluation of freight consolidation policies in global third party logistics, There has been much
discussion of how a company gains competitive advantages through integrated management.
The integrated management is a trend. But, to the single mode of the logistics service of the enterprises in
China, what strategy should they take? This paper has discussed this problem based on the three operation modes:
(1) non-integrated network; (2) facility-integrated networks; (3)fully integrated networks. Firstly, the evaluation
attributes are put forward, and then the weights of assessing attributes and the performance indices of the three
kinds of the logistics model under the single attribute are obtained. Based on the concept of possibility degree of
the trapezoidal fuzzy numbers, the fuzzy complementary judgment matrix is obtained. Then, the rankings of
logistics model under every attribute and the whole are both calculated. Finally, a simulation example is given to
show the validity and feasibility of the proposed method.
This research has been supported by National Natural Science Funds of China (No. .70572045).
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along local delivery tours to the nearest regional consolidation terminal, these consolidation terminals consolidate
cargo within the region to the breakbulk terminal for efficient longhaul transportation. All break-bulk terminals
serve as hubs, although for smaller percentages of the total network volume. In non-integrated networks, air or
ground network operations are run independently. The scheduling methods for this type of network are relatively
simple and easy. But its costly.
a) b)
Facilities Routes
Consolidation terminal local route
Breakbulk terminal access route
Main hub long haul route
Fig.1 Single mode, single service network and partly integrated networks
However, if we adopt the method of integrated network, it will reduce the cost with higher complexity. When
integrating the facilities and the routing remaining independent, this is facility-integrated networks. The customer
can be served by the same closer terminal, although the routing (such as ground and air) remains independent. So
we can reduce the cost by decrease the number of terminal. If facilities and routes are integrated simultaneously, it
is fully integrated networks. In this case the pickup and delivery tour decrease as the density of customer increase,
see Fig 1(b). As the figure shows, multiple-route tours between breakbulk terminals are removed to avoid an
overcapacitated network. The main hubs are introduced to allow the longhual vehicles to accumulate higher
volumes.
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Start
Fuzzy Method
Ranking Vectors
Under Single Criterion
Fuzzy Linear
Weight Method
Ranking Vectors
Under Whole Criteria
Evaluation Results
End
Firstly, we consider to obtain the ranking vector of the different logistic networks under the single criterion.
One concept, the degree of likelihood, will be introduced. When the trapezoidal fuzzy numbers satisfy A B ,
the definition 1[6] is shown as following.
Definition 1: Assume A = ( a1 , a2 , a3 , a4 ) B = (b1 , b2 , b3 , b4 ) are the trapezoidal fuzzy numbers. The
degree of likelihood A B will be
b2 + b3 2a1
V (a b) = max{1 max{ , 0}, 0}
(a2 + a3 2a1 ) + (b2 + b3 2b1 )
2b4 a2 a3
+ (1 ) max{1 max{ , 0}, 0} (1)
(2a4 a2 a3 ) + (2b4 b2 b3 )
Where is shown the measure value of the decision maker for the risk. If = 1 , the decision maker is an
optimism and a risk seeker. If = 0 , the decision maker is a pessimist and a risk avoider. If 0 < < 1 , it is the
measure value of the different decision makers preference for risk.
The elements of the column j from the above judgment matrix X are shown the evaluation solutions of the
different logistics network Ai (i = 1, 2,..., m) under the criteria C j ( j = 1, 2,..., n) . Then the matrix for the
degree of likelihood is constructed by comparing two elements of the column j according to definition 1. It is
shown in formula (2).
V ( x1 j x1 j ) V ( x1 j x2 j ) ... V ( x1 j xmj )
V ( x x ) V ( x x ) ... V ( x2 j xmj )
P =
j 2j 1j 2j 2j
(2)
... ... ... ...
V ( xmj x1 j ) V ( xmj x2 j ) ... V ( xmj xmj )
j
It is known by the definition of the likelihood degree that the matrix P by this way must be a fuzzy
complementary judgment matrix. From the formula (1) of the likelihood degree matrix can be developed to rank
the vectors of the performance for the different logistics networks under the evaluation criterion j . It is shown in
formula (3).
1 m j m
i j = ( Pil + 1 ), i = 1, 2,..., m; l = 1, 2,..., m (3 )
m l =1 2
Therefore, the ranking vector W j {i j (i = 1, 2,..., m)}( j = 1, 2,..., n) can be calculated by formula (2). It
is shown the ranking vectors of the different logistics networks under the evaluation criterion C j ( j = 1, 2,..., n) .
By the same method, the ranking vectors of the different logistics networks can be analyzed by each evaluation
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criterion. Then we can find easily the strength and weakness of every logistics networks under the single criterion.
In order to solve the problem of the final ranking of the different logistics networks, the synthesis ranking
vector will be solved for the different logistics networks. The evaluation matrix can be obtained by the weighted
vector ( W ) multiplying by the judge matrix ( X ). It is shown in formula (4).
w1 x11 w2 x12 ... wn x1n
w x w2 x22 ... wn x2 n
Z = 1 21 (4)
... ... ... ...
w1 xm1 w2 xm 2 ... wn xmn
The synthesis evaluation vectors z{zi (i = 1, 2,..., m)} are the sum of the elements of Z in row. By
applying the formula (2) and (3) to the evaluation vector z{zi (i = 1, 2,..., m)} , the synthesis ranking vectors
z
W {iz (i = 1, 2,..., m)} for the different logistics networks can be obtained. Therefore, The best logistics network
can be chosen by comparing the synthesis ranking vectors.
4. Simulation Example
In order to prove the effectiveness of the proposed evaluation method, the three logistics networks mentioned
above have been chosen to evaluate their performances. Firstly, we have summarized the six criteria of the
evaluation: (1) Facility Utility; (2) Speed; (3) Cost minimization; (4) Service quality; (5) Reliability; (6)
Efficiency respectively. Here the trapezoidal fuzzy numbers are adopted to express the values of language
variables. Within the process of evaluation, the language variable set {Extra important (EI)Very Important(VI)
Important (I)Some important (SI)No Important (NI)}{Very Good(VG)Good(G)Fair(F)Poor(P)Very
Poor(VP)} respectively represents the important levels of evaluation criteria and performance level under each
evaluation criterion. The evaluations represented by the language values are firstly transferred to the trapezoidal
fuzzy numbers[5].
The relevant weights of the criteria will be defined by the experts and the decision makers of logistics
enterprises by the questionnaire designed for this research. Then the weighted vectors W can be obtained by the
average calculation of their evaluation results, shown in table 1. Further, the judgment matrix X can be
computed by the weighted average of the evaluation solutions, shown in table 2.
Tab. 1 The Criteria and the weights for the three logistic networks
Facility Speed Cost Service quality Reliability Efficiency
Criterion C1 C2 C3 C4 C5 C6
Criterion C1 C2 C3 C4 C5 C6 Synthesis
A 0.1971(3) 0.4782(1) 0.3542(2) 0.4755(1) 0.371(2) 0.3284(2) 0.3685(1)
B 0.3876( 2) 0.1067(3) 0.3688(1) 0.3198(2) 0.4623(1) 0.4701(1) 0.3606(2)
C 0.4153(1) 0.3351(2) 0.277(3) 0.2047(3) 0.1667(3) 0.2016(3) 0.2709(3)
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From table 3, we can see that A(fully integrated networks) is best. The difference (just 0.0079) between B
and A on the synthetically level is not very large, but there is the big difference between A, B and C(probably
0.19). Analyzing the reason, B has the separate routes but A has the integrated one, B could provide high quality
service with costly expense. So the total cost of B is higher compared with that of A. But here we suppose that A
can realize the best operation process and has the higher management level. To the logistics enterprises which are
operating in single mode and single service in China, from C to A, there is a long distance because of the poor
management level, but they can firstly take the partly integrated networks to increase efficiency and reduce the
total cost, and from the table 3, the partly integration like facility-integrated networks also can realize the higher
profit and create the value.
5. Conclusion
The effective management of the logistics networks requires a framework establishment for the performance
assessment. This framework provides the mechanism to evaluate the system performance for the different kinds of
logistics networks. This paper presents a simple and effective approach to evaluate the integrated logistics
networks by applying the language variables criteria and the relevant ranking theory of the trapezoidal fuzzy
numbers. Finally, the simulation example is given to show the validity and feasibility of the method.
References
[1] Ahuija, R., Magnanti,T., and Orlin, J.. Network flow: theory, algorithms and applications. Prentice-Hall, Inc., Englewood Cliffs,
N.J. 1993.
[2] Crainic, T.. Service network design in freight transportation. European Journal of Operational Research, 2000, 122(2): 272-288.
[3] Armacost A.. Composite variable formulations for express shipment service network design, Ph D dissertation, Massachusetts
Institute of Technology. 2000.
[4] Jonah C. Tyan, Fu-Kwun Wang. An evaluation of freight consolidation policies in global third party logistics, Omega
200331(1):55-62.
[5] Chung-Hsing Yeh,Yu-Liang Kuo. Evaluating passenger services of Asia-Pacific international airports. Transportation
Research , 2003, (7): 35-48.
[6] Xu zeshui. A method for priorities of triangular fuzzy number complementary judgment matrices. Fuzzy System and
Mathematics, 2002:16(1):47-50(in Chinese).
[7] Xu zeshui. A method for priority of fuzzy complementary judgment matrix. Journal of Systems Engineering, 2001,
16(4):311-314(in Chinese).
190
Formulation and Complexity Analysis for 3PL
Transportation Problems
Li Kunpeng
School of Management, Huazhong University of Science and Technology Wuhan, Hubei, 430074. P.R.China
Abstract Nowadays, it is popular to outsource transportation and distribution of finished products to third party logistics (3PL)
provider in many industries. In order to shorten response time from order receipt to delivery, and also to improve on time delivery
accuracy, manufacturing scheduling and transportation scheduling should be considered in a synchronization perspective. Thus, for
the decision of 3PL transportation, production capacity is an important constraint. In this paper, 3PL transportation problems are
classified. Formulation of each sub-problem is presented. Furthermore, computational complexity of each problem is proposed.
Keywords 3PL, Transportation, Synchronization, NP-completeness
1. Introduction
Many companies are enhancing their competitiveness by offering Just-in-Time (JIT) delivery. Costs or
penalties are incurred by delivering an order either earlier or later than the customers due-dates. Besides,
maintaining short response time from order acceptance to final delivery is one of the key competitive advantages.
Thus, many companies deliver products to customers directly after production without holding finished product
inventory. This is particular true for the industries with short product life cycle, such as consumer electronics
manufacturing, ready-mix concrete supplying and food catering industry (Garcia et al. 2004[1]; Chen and
Vairaktarakis, 2005[2]; Li et al., 2005[3]). In order to improve customer service and reduce production and
transportation costs, scheduling of assembly manufacturing and transportation should be synchronized with each
other.
Nowadays, due to the professional services provided by third party logistics (3PL) provider, it is more
efficient to outsource the transportation or distribution to 3PL. There are two types of operations. If 3PL only
serves one customer, the schedule of 3PLs vehicle is determined by the order completion time in manufacturing.
This type of operation is particularly true for 3PLs that providing road transportation services. On the hand, if 3PL
provides services to more than one manufacturer, the departure and arrival time of the vehicle is determined by
3PL rather than by the manufacturer. In addition, the unit transportation cost of each vehicle varies. The
manufacturer can book capacity on the available vehicles accordingly. Then, decision on allocation of orders to
the vehicles is made to utilize the booked capacity efficiently. The typical case is the air-cargo transportation
service provided by cargo airlines.
Chen and Vairaktarakis (2005) [2] addressed the integrated production transportation scheduling problem
considering the first type of 3PL operations, which is mentioned above. Conversely, the second type of 3PL
operations is considered in this paper. The objective is to find a joint schedule of production and distribution to
optimize the objective function that contains total distribution cost and the impact of maximum/average delivery
time. Li et al. (2005, 2006) [3] [4] formulated the problem of synchronized scheduling of assembly manufacturing
and air transportation to minimize total cost that consists of delivery earliness/tardiness cost and air transportation
cost. The air transportation problems studies are polynomially solvable by mathematical LP solvers.
Motivated by above application, this paper studies the second type of 3PL transportation problem on
consideration of synchronization with production. In other words, constraint of production issues should be
included in the model of the 3PL transportation problem. In this research, the production facility is assumed to be
a single machine. Thus, the constraints of production should be considered is production capacity. According to
order split or not in transportation, two different problems are formulated. Then, the computational complexities
of each problem are investigated mathematically.
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2. Assumptions
The 3PL transportation allocation problems formulated in this work are based on the following assumptions:
Decisions of transportation allocation are for the orders accepted in the previous planning periods.
All the packed products have same or similar dimensions.
Business processing time and cost, together with loading time and loading cost for each vehicle are included in
the transportation time and transportation cost.
Vehicle departure time is taken as the time that 3PLs vehicle set out from the manufacturers plant. Vehicle
arrival time is taken as the time that the vehicle reaches customer.
Orders released into production facility for the planning period are delivered within the same planning period
which means there are no production backlogs.
Assembly flow shop is single machine. The machine can process only one part at a time.
There are no machine breakdowns and preemptions.
Total manufacturing time of an order is directly proportional to the orders quantity.
Waiting penalties for orders before transportation are order independent, i.e., they are not determined based on
any job characteristics.
The starting time of the planning period is set equal to zero.
3. Problem Formulation
3PL provides several available vehicles in the planning period. The departure time, arrival time, available
capacity, and transportation cost of each vehicle are determined at the beginning of the planning period. In this
section, the 3PL transportation allocation problem is formulated as an Integer Linear Programming (ILP) model in
order to allocate the right orders to the right vehicle so as to minimize delivery cost, which consists of delivery
earliness penalty costs, delivery tardiness penalty cost, and transportation cost. Synchronization is incorporated
into the ILP model by the constraint that balances the total production rate with the transportation allocation.
The following notation is defined:
i the order index, i=1, 2, . N
f the vehicle index, f=1, 2,F
l the machine index, l=1, 2,L
k the destination index, k=1,2,K
Mi order is destination
Mf vehicle fs destination
Df the departure time of vehicle f at the manufacturing plant
Af the arrival time of vehicle f at the destination
Cf the transportation cost for per unit of the product when transported by vehicle f
Hf the available capacity of vehicle f
Qi the quantity of order i
i the delivery earliness penalty cost (/unit/hour) of order i
i the delivery tardiness penalty cost (/unit/hour) of order i
di the due date of order i
Eif the per unit delivery earliness penalty cost for order i when it is transported by vehicle f
Eif= Max(0, diAf)* i (1)
Lif the per unit delivery tardiness penalty cost for order i when it is transported by vehicle f
Lif= Max(0, Afdi)* I (2)
Xif 1 if order i is allocated to vehicle f, 0 otherwise.
Rl the production rate of machine l
B a large positive number
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|B| the absolute value of B
The ILP model for the 3PL transportation allocation problem is expressed as follows:
Min C f X if Qi + X if Qi ( Eif + Lif ) (3)
i f i f
Subject to:
X if = 1 for all I (4)
f
f L
X if ' Qi D f Rl for all f (7)
f ' =1 i l =1
The decision variable is Xif, which is non-negative integer variable. The objective is to minimize overall total
delivery cost which consists of total transportation costs, total delivery earliness penalty costs and total delivery
tardiness penalty costs. Constraint (4) confirms that one order is allocated to exactly one vehicle. Constraints (5)
ensures that if order i and vehicle f have different destination, order i cannot be allocated to vehicle f. Constraint (6)
ensures that capacity of vehicle f is not exceeded. Constraint (7) ensures that allocated orders do not exceed
production capacity. It ensures that allocated quantity can be supplied based on sufficient production capacity.
The output of the ILP model is the allocation of orders to vehicles. It indicates that each orders transportation
departure time is determined. According to the forth assumption in section 3, transportation departure time of an
order is taken as the assembly due date of the order.
Departure time of each vehicle is generated by assigning identical time intervals between each two adjacent
vehicles departure. The total number of vehicles is denoted by F. Each vehicle is assigned a vehicle number FN,
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which starts from 1 to F. Each vehicles departure time is then generated by the formula 24*FN/ F. Order due date
is drawn from uniform distribution. The earliest delivery time of an order is the sum of assembly processing time
and transportation time. Therefore, the range for order due-date is between Pi+Ti and 6(Pi+Ti), where Pi is the
orders assembly processing time and Ti is the transportation time. Once the quantity of each order for a given
instance is generated, the value of production rate (in hours) is generated from a discrete uniform distribution as:
PR = TQ * Uniform [1.2, 2]/24, where TQ is total quantity which equals the sum of all the orders quantity. Five
instances are generated for each test problem. Lingo 8.0 software is used to construct the mathematical
programming models. All the tested problems are solved on a Pentium 4, 2.4 GHz computer with 256 MB RAM.
Table 2 shows the computational time to obtain the optimal solution for each instance of the first four problems by
Lingo 8.0.
Tab. 2 Computational times for tested 3PL transportation problems
Computational time
Problem
Instance 1 Instance 2 Instance 3 Instance 4 Instance 5 Average
a b
15j3f 1s 0 0 0 1s 0.4s
20j4f 0 0 0 0 1 0.2s
25j5f] 1s 6s 2s 2s 2s 2.6s
30j6f 6m46s 9h19m9s >12h >12h >12h /c
a
indicates that the problem consists of 15 jobs and 3 vehicles with one destination
b
as shown in Lingo solver status penal, the solving time is 00:00:00
c
average computational time can not be obtained as the computational times of the last three instances are unknown.
It is observed that for small sized problems, i.e., the first three problems, the computational time to obtain the
optimal solution is trivial. However, the computational time increases significantly for most of the instances of
problem 30j6f. For problem 30j6f, instance 1 has the smallest computational time of 6 minutes and 46 seconds
according to Table 2. Then, the computational time increases significantly to 9 hours for instance 2. Furthermore,
for each of the three remaining instances, the computational time is more than 12 hours. After 12 hours, the
computation of Lingo is terminated due to the unacceptably long computational time, as a production shift is
normally less than 12 hours. These results clearly demonstrate the computational intractability of the 3PL
transportation problem studied in this paper.
5. Conclusions
This paper studied the 3PL transportation problem in context of supply chain synchronization. The
mathematical formulation of the problem is presented. To investigate the computational complexity of the
problem, a numerical experiment is conducted. The computational results indicate that this problem is
NP-complete.
References
[1] Garcia, J.M., Lozano, S. and Canca, D. Coordinated scheduling of production and delivery from multiple plants. Robotics and
Computer-Integrated Manufacturing, 2004, 20(3):191-198.
[2] Chen, Z.L. and Vairaktarakis, G.L. Integrated Scheduling of Production and Distribution Operations. Management Science,
2005, 51(4): 614-628.
[3] Li, K.P., Ganesan, V.K and Sivakumar, A.I. Synchronized scheduling of Assembly and Multi-Destination Air Transportation in
Consumer Electronics Supply Chain. International Journal of Production Research2005, 43(13): 2671-2685.
[4] Li, K.P., Ganesan, V.K. and Sivakumar, A.I. Scheduling of Single Stage Assembly with Air Transportation in A Consumer
Electronics Supply Chain. Computers & Industrial Engineering, 2006, 51: 264-278.
194
Study of the Partial Task Management under Constrained Resources
Abstract This paper presents a partial management technique (PMT) that decides which tasks should be assigned to the same
resource without explicitly defining management of these tasks to a particular resource. Our method simplifies the management and
scheduling steps while imposing a small or no penalty on the final solution quality. This technique is specially suited for problems
which have different resources constraints. Our method does not cluster tasks into a new task, as typical clustering techniques do, but
specifies which tasks need to be executed on the same processor. Our experiments have shown that PMT, which may produce
nonlinear groups of tasks, gives better results than linear clustering when multi-resource constraints are present. Linear clustering
was proved to be optimal comparing to all other clusterings for problems with timing constraints only. In this paper, if used for
multi-resource synthesis problem, linear clustering will produce inferior solutions.
Keywords Constrained resources, Task management, Scheduling
1. Introduction
In this paper, we present a method called partial management technique (PMT) which is able to improve
efficiency of a management and scheduling as well as quality of the final results. This has not only timing
constraints but also code and data memory constraints. These constraints define memory requirements for tasks
and communications and therefore influence task management and scheduling decisions. The data memory aspect
in embedded systems is especially important for signal and image processing applications which deal with
enormous amounts of data.
The aim of this work is to develop efficient techniques for an embedded system synthesis tool that accepts
system architecture description and an application specification given as a task graph and produces constraints
which will reduce complexity of the management and scheduling. PMT uses this task graph, generated from the
original specification. Therefore, the fine grain task graph can be used, which gives full optimization potential, but
possibly long run-times of synthesis tools. Our approach avoids deadlocks since it does not cluster tasks but
constraints task management within a group of tasks.
195
{size()denotes the size of the given data}
if metricsdata > metricstime then
nextTask = Tdata
else
nextTask = Ttime
{Task which decrease usage of more utilized resource has been chosen}
for all processors which can execute nextTask do
find minimum SnextTask
compute time usage factor tu for nextTask
compute code usage factor cu, for nextTask
compute data usage factor du, for nextTask
choose processor Pmin , which minimize tu + cu, + du,
schedule nextTask on Pmin
schedule all incoming communications and reserve communication buffers
RR \ {nextTask}U{tasks with all input data available}
The presented partial management technique is an extension of the prototype design system MATAS, as
presented in Fig.1. Our method introduces new constraints which limit the possible management of the tasks. The
idea of these constraints is to guide MATAS system towards better solutions. PMT constraints (1) state that all
tasks within the same group are assigned to the same processor and the related communication between these
tasks has duration zero.
Ti GnT j Gn : PTi = PTj , DCi , j = 0
(1)
We do not create new tasks from old ones but specify which tasks need to be assigned to the same processor.
And this is the only solution of this type which reduces the complexity of the task management and scheduling
problem without changing application model.
where w1, w2 and w3 are weights, In our experiments all weights are equal. ctgi,gj is the closeness measure for
196
time, ccgi,gj is a closeness measure for code memory, cdgi,gj is a closeness measure for data memory.
There are two crucial assumptions when computing closeness measures. The values in the dominator in (3),
(4), and (5) are always computed under an assumption that groups gi and gj execute on different processors. On the
other hand, the numerator is the minimal value under assumption that both groups execute on the same processor.
Each of the metrics may have a value lower than one and this will indicate that there is a possible gain if both
tasks groups are executed on the same processor.
min Pgi = Pgj Dgi + Dgj
ct gi , gj = (3)
min Pgi Pgj Dgi + Dgj + C gi , gj
where Dx, denotes the execution time of group x , and Cx,y denotes the communication time between group x
and y. The closeness value will be smaller with more communication time required to communicate data between
two groups. Small closeness value ctgi,gj indicates that there will be a gain in schedule length if both groups are
executed on the same processor.
CM gi + CM gj
min Pgi = Pgj
CM ( Pgi )
ccgi , gj = (4)
CM gi CM gj
min Pgi Pgj +
CM ( Pgi ) CM ( Pgi )
where CMx, denotes how much code memory is required by a group x, and CM(Px) denotes the amount of
code memory available at the processor which executes group x. The minimal relative usage of code memory
under the assumption that groups execute on the same processor is represented by numerator. This will be divided
by the sum of minimum relative usage of code memory for each of the groups executing on different processors.
The closeness function for code memory reflects, in relative terms, how much more code memory would be used
if two groups were grouped. Since the code memory is a resource which is reserved for the whole time it is
possible to use this type of metrics.
The most difficult resource to take into account is the data memory. Equation (5) presented below defines this
measure.
DM gi + DM gj
min Pgi = Pgj
CM ( Pgi ) (5)
cd gi , gj =
DM gi DM gj DM (Cgi , gj ) Cgi , gj
min Pgi Pgj + +
DM ( Pgi ) DM ( Pgj ) min( DM ( Pgi ), DM ( Pgj ))
DM Gx DM
T y G x
Ty DTy (6)
where DMx, denotes how much data memory is needed for group x temporary data. .
Each task is annotated with local data memory size multiplied by its execution time. For a given group all
data memory requirements are added and divided by the data memory size of the processor. In case when two
tasks are executed on different processors, an additional cost appears due to double reservation of data memory
buffers for communication. This cost is represented by a third term in denominator of equation (5). Since the
communication time can differ we assume that communication time is the average of possible communication
times. This cost is normalized by the smallest data memory size of one of the processors executing both groups.
The PMT decisions are difficult since the knowledge on management of tasks to processors is not available
yet. It is possible that grouping of two tasks will increase the schedule length. Therefore, each resource closeness
measure aims at reflecting the possible degradation or improvement of resource usage. Our PMT algorithm,
presented in Algorithm 2, initially starts with one task per group. It then computes closeness measures for each
pair of groups with a non-local communication. Each PMT iteration will merge two closest groups thus making at
least one communication local. The algorithm will stop when expected reduction of task graph is reached.
Algorithm 2. PMT algorithm
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for all i do
Gi = {Ti}
tasks-to-constraint =
while tasks-to-constraint > 0 do
for all non-local communications Ci do
Gp, = producer(Ci)
Gc = consumer(Ci)
clssi = closenessc, ,G,
select Ci with smallest clssi
merge groups Gp, and Gc
make all communication between merged groups local
tasks-to-constraint = tasks-to-constraint - 1
4. Real-life examples
Our technique was applied to a real-life example presented in [9]. Their problem is quite simplified from our
perspective since the application is mapped onto a homogeneous multiprocessor architecture consisting of 7
processors and a single bus. The authors also do not take into account code memory and precedence constraints.
However the application consists of large number of tasks and communications which makes it a good benchmark
example. Our MATAS/PMT system has been applied to this example and produced the results presented in Tab.1.
Tab.1 Experimental results for real-life example
Exp. Method Tasks constrained % of all tasks Deadline [ms] Bus Load [ms]
1 MATAS 0 0 1992 176
PMT 30 25 1992 176
2
Clustering 30 25 1992 176
PMT 60 50 2163 56
3
Clustering 60 50 2013 132
PMT 90 75 2395 2
4
Clustering 90 75 2394 130
The first experiment has no partial management constraints introduced by PMT. Therefore there is no
problem complexity reduction and it has a full optimization potential. Since the full search has not been performed
the obtained solution is not proved optimal. The lower bound for deadline of this example, with precedence
constraints and a given architecture, is equal to 1975 ms.
In the following experiments we compare linear clustering with PMT. Linear clustering uses the same metrics
as PMT for making clustering decisions.
In the second experiment 25% of tasks have been partially assigned by PMT or clustered. In this particular
case, a solution obtained with both PMT constraints and linear clustering give the same solution as in the previous
case. The problem complexity reduction has been achieved without penalty on a quality of the solution.
In experiment three and four both PMT and clustering simplified the problem at the expense of the achieved
deadline. However the obtained deadline still lies within 25% from the lower bound when the complexity of the
management problem was reduced by ratio 50% or 75%.
In experiment three the clustering with MATAS obtained shorter deadline than PMT with MATAS. In this
case, however, it was also checked that the constraints imposed by PMT do not exclude the solution found by
MATAS with clustering. In this particular case, clustering guided the MATAS system better. This real life
example shows that for problems where only time constraints are imposed the linear clustering will always give as
good result as non-linear methods like PMT. It conforms to the theory presented in [4]. This however is not the
case for multi-resource problem as indicated in further experimental results.
198
The experiment setups show that reduction of the search space resulted, in some cases, in decreased quality
of the solution. The deadline was increased slightly. However, consistent reduction of the heuristics runtimes
equal to the percentage of constrained tasks was achieved. The PMT method does not transform the problem itself,
it just adds partial management constraints. Clustering on the other hand transforms the problem and therefore it
influences not only task management but also scheduling of communications. The clustering itself did help to
improve the solution quality comparing to original MATAS approach but these solutions are usually not as good
as PMT can deliver.
5. Conclusions
Our partial management technique, presented in this paper, makes it possible to decrease the complexity of
the management and scheduling problem. During the search, managements of all tasks, within the same group, to
the processor is performed only once. This method works for architecture with communication structure. The
architecture resources can be of different nature, from simple ones, such as code memory, to more complex, such
as computation time or data memory. The experimental results indicate that PMT can simplify the problem by
removing inferior parts of the search space, which was observed in the second experiment setup of real-life
example.
Our heuristic is able to improve quality of the scheduling and management as it was observed in both random
experimental setups. It gives better results comparing to clustering as well as not pre-constrained original MATAS
approach.
References
[1] R. Dick, D. Rhodes, and W. Wolf. TGFF: task graphs for free. In Sixth International Workshop on Hardware/Software
Codeszgn), pages 97-101, 1998.
[2] M. M. Eshagian and Y. C. Wu. Mapping task graphs onto system graphs. In Computing Workshop, pages 147-160, 1997.
[3] Gerasoulis and T. Yang. On the granularity and clustering of directed acyclic task graphs. IEEE Transactions on Parallel and
Distributed Systems, 4:686-701, June 1993.
[4] D. Kadamuddi and J. J. Tsai. Clustering algorithm for parallelizing software systems in multiprocessors environment. IEEE
Transactions on Software Engineering, 26:340-361, April 2000.
[5] K. Mariott and P. Stuckey. Introduction to . The MIT Press, 1998.
[6] M. Senar, A. Ripoll, A. Cortes, and E. Luque. Clustering and remanagement-based mapping strategy for message-passing
architectures. In Parallel Processing Symposium and Symposium on Parallel and Distributed Processing IPPS/SPDP, 1998.
[7] R. Szymanek and K. Kuchcinski. A constructive algorithm for memory-aware task management and scheduling. In Ninth
International Symposium on Hardware/Software codesign, April 2001.
199
A Study on Guaranteed Delivery Time Based Inventory Model of
Component Commonality in Assemble-to-Order Systems
Abstract In this paper, we develops a guaranteed delivery time based inventory model of Component Commonality to consider the
assemble-to-order environment where components are replenished according to a pull-policy and demand is a function of a uniform
guaranteed delivery time. We focus on the dynamics between the guaranteed delivery time and its impact on commonality decisions.
Assembling products according to priority with common component is also considered. Based on the mathematical analysis, a
conclusion is reached that the effect of component commonality on inventory stock cost can be magnified by compression of
guaranteed delivery time. And it set up some rules for inventory stock management with lead time. Numerical examples from a case
study with a China automobile corporation are also setup to illustrate the impact of guaranteed delivery time on the role of
commonality under different cost structures.
Key words Guaranteed delivery time, Component commonality, ATO (Assemble to Order)
1. Introduction
The concepts of commonality and time-based competition are now attracting renewed attention as companies
are compelled to provide and manage an increasing product variety and to compete on speed.
In many product markets, remaining competitive requires offering a wide variety of products, customized to
meet each customers requirements. In this sort of environment, it may not be practical to stock all of the different
products, since there are just too many variations. Instead, manufacturers will stock components, and assemble the
products to order. One way to save money in an assemble-to-order environment is to reduce the number of
components by replacing a variety of unique components by a common component. The use of common
components for different products (commonality) is an important methodology for managing product variety and
maintaining competitiveness in the age of mass customization and supply chain competition. Typically in
assemble-to-order systems, it has been shown that replacing a number of specific components by a smaller
number of general-purpose, common components can reduce required safety stock levels due to the benefits of
risk pooling.
Meanwhile, in an increasingly intense competitive environment, time-based dimensions of a product are
becoming an increasingly important component in assessing strategic advantage. According to a survey conducted
by Miller and Roth (1988) and the research work reported in Blackburn (1991), most manufactures have shifted
their manufacturing strategies from cost and quality to speed. This shift is known as time-based competition. In
the 90s, Blackburn (1991) provides evidence that shows many firms compete on response time. Companies use
three main strategies to utilize speed to attract customers: (i) to serve customers as fast as possible, (ii) to
encourage potential customers to get a delivery time quote prior to ordering, and (iii) to guarantee a uniform
delivery lead time for all potential customers (So and Song, 1998). The paper of So and Song (1998) is perhaps
the first research paper directly addressing the issue of uniform guaranteed delivery time, In the case of a delivery
time guarantee, firms advertise a uniform delivery time for all customers within which they guarantee to satisfy
most customer orders. The length of the delivery time is a decision variable that directly affects overall demand.
Since the late 1980s, a large volume of operations management literature has recognized that customer demand
increases with lower delivery times (So and Song, 1998; So, 2000). Karmarkar (1993) pointed out that lead times
are most probably inversely related to market shares.
In this paper, we develops a guaranteed delivery time based inventory model of Component Commonality to
consider the assemble-to-order environment where components are replenished according to a pull-policy and
demand is a function of a uniform guaranteed delivery time. Assembling products according to priority with
This research has been supported by National Science Foundation of China (No: 70502015).
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common component is considered. This paper focuses on the dynamics between the guaranteed delivery time and
its impact on commonality decisions. Results show that the length of the delivery time not only directly affects
overall demand and cost, but also has some further impact on commonality decisions.
2. Literature Review
Commonality and postponement are not new concepts. Alderson (1950) was the first to analyze the concept
of postponement in marketing literature while Dogramaci (1979) provided an early study of component
commonality from a risk pooling perspective. The published literatures are mainly focused on these followed
fields.
2.1 Single-period model
Baker (1985) considered the impact of correlated component demands on safety stock requirements. He
pointed out that the traditional (safety stock) -policy might not be sufficient to provide the desired service level.
Baker, Magazine and Nuttle (1986) were the first to present the two-product, two-level, single-period inventory
model, which analyzed a problem with two end items with independent and uniformly distributed demands. They
drew the following conclusion: (1) the total inventory (in number of units) decreases with commonality; (2) the
inventory level of the common component is smaller than the combined inventory levels of the components it
replaces; (3) the inventory levels of non-common components increase with commonality. Gerchak, Magazine,
and Gample (1988) extended this analysis to consider general demand distributions and any number of products.
They considered the cost minimization subject to a service level constraint and found that while property (1) (see
above) is still true, (2) and (3) may not necessarily hold. Bagchi and Gutierrez (1992)s model maximizes the
service level for a fixed total number of units in stock. For exponential and geometric demand distributions, they
found that the marginal cost reduction increases with commonality. However, since neither of these papers
considers cost in their models, they do not help answer the question of whether commonality is still worthwhile
when the common component is more expensive than the ones that it replaces.
Eynan and Rosenblatt (1996) use the two-product, two-level inventory model of Baker et al. (1986), but
introduced a cost structure for the components. In particular, they demonstrated that commonality might not
always desirable to introduce commonality when the common component is more expensive. Several conditions
are provided under which commonality will result in lower inventory costs. Eynan and Rosenblatt (1997) then
consider the possibility of using both the common component and the separate components, and showed that this
can lower overall costs.
Eppen (1979) consider the related problem of warehouse consolidation or centralization. Using a
single-period model with normal demands, Eppen shows that holding cost and shortage cost are reduced by
storing a product in a single location, rather than at several locations.
Jnsson and Silver (1989) consider a model with any number of products that are assembled to order from a
number of different components. Some components are common to two or more products. The objective is to
maximize expected net profit subject to a budge constraint that limits the stocking level of components. Heuristics
and bounding procedures are developed. Jnsson et al. (1993) consider the same problem, but utilize a scenario
aggregation approach.
Cattani (1995) considers a different make-to-stock model where several products are replaced by a single
common product (separate components are not considered). Near-optimal stocking levels and costs are derived
using a single-period model with normal demands.
All of the previously mentioned work uses a single-period inventory model. It is assumed that components
are purchased only once, to satisfy all future demand. Unfortunately, very few inventory systems operate for only
a single period.
2.2 Multiple-period model
Gerchak and Henig (1989) consider a multiple-period model. They develop a very general model with any
number of products and components, and general demand distributions. Hillier (1999) extends the model of Baker
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et al. (1986) and Eynan and Rosenblatt (1996) to consider the multiple-period (or infinite-horizon) case.
Components are purchased at the beginning of each time period. The order-up-to levels are chosen to minimize
holding costs subject to meeting a service level constraint. Interestingly, the results are drastically different than
for the single-period model when the common component is more expensive than the unique components it would
potentially replace. While these are many situations in the single-period model where incorporating a more
expensive common component would be worthwhile, this is rarely the case in the multiple-period model.
Hillier (1999) consider a multiple-period, make-to-stock system in which products are stocked at the
beginning of each period, according to a forecast. After customer orders are received during the period, they are
filled using the stocked items. Demand that cannot be met due to shortages is backlogged to the following period,
but incurs a shortage or backlogging cost. It utilizes a very general model, with any number of products and
general demand distributions. A dynamic program was developed to minimize discounted purchasing (or
production), holding, and shortage costs. By comparing the total costs when using and when not using the
common products, one can determine under what scenarios it is beneficial to employ commonality.
Hillier (2000) considers a similar multiple-period, assembly-to-order model with Gerchak and Henig (1989),
and develops heuristics and bounds. It considers two different scenarios. In the first scenario, no component
commonality was utilized. Optimal stocking levels and costs were derived. In the second scenario, a common
component replaced similar components in each of the products. A heuristic was developed which give near
optimal solutions (typically with cost within 1 or 2% of optimal). Upper and lower bounds on the cost of the
optimal solution were also developed. Using these bounds, along with the optimal costs of the no commonality
scenario, the cost effectiveness of incorporating commonality can be investigated under a variety of
circumstances.
All these papers develop both heuristics and optimal solutions (with further assumptions) for the restricted
problem. Neither of these papers was able to derive expressions optimal stocking levels or costs. Also, the future
work in this area seems to consider a more complicated product-tree structure.
2.3 Service level model
Most authors used aggregate service levels in their models with the exception of Baker (1985). Bagchi and
Gutierrez (1992) studying the effects of increasing component commonality, found that, for a given aggregate
service level, the aggregate stock requirement decreases at an increasing rate. The general assumption made,
explicitly or implicitly, in previous studies is that the cost of each of the replaced components is equal to the cost
of the replacing common component, allowing the common components to be more expensive than those they
replace, and analyze cases in which commonality is still economically justified. Recently, Mirchandani and
Mishra (1999) studied the commonality problem in a two-stage assembly system with a product-specific service
level (PSL) requirement. They showed that since ASL may provide a higher than necessary service level, the use
of PSL leads to additional inventory savings.
2.4 Computational issues model
A number of authors have focused their research on computational issues in commonality models. For
example, Hillier (1999) developed bounds on the multi-period cost for Gerchak and Henigs (1986) profit
maximization model. Jnsson and Silver (1989), Jnsson et al. (1993), Tayur (1995) and Mirchandani and Mishra
(1999b) developed computational approaches to solve large-scale commonality problems.
2.5 Marketing, logistics, and supply chain perspectives models
In a manufacturing-distribution system, a considerable portion of the risk and uncertainty costs is due to
differentiation in form, place, and time. Postponement of the point of differentiation is an important means to
reducing or eliminating this risk and uncertainty. This has long been recognized and studied in marketing and
logistics literature.
2.6 Models with lead time
For the traditional inventory models, lead time is an insignificant factor in inventory modeling and
implementation. It is usually assumed that the lead time for an order to arrive is relatively short and constant.
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There are some examples in Fotter (1988) to explain that this is true in most of the time, however, there are
inventory ordering situation for which this is not the case. Liao and Shyn (1991) presented a probabilistic model
in which the order quantity is predetermined and lead time is a unique decision variable. Ben-Daya and Raouf
(1994) extended the Liao model by considering both lead time and the order quantity as decision variables. For
probabilistic demand, Tang (1994) propose a periodic review inventory model whose deterministic lead time is a
decision variable. James etc. (1999) regarded that a (Q, r) model with stochastic lead time could be a building
block in supply chain.
Most of the literatures on stochastic-lead-time models are either for a finite horizon (Kaplan, 1970; Ehrhardt,
1984), or based on approximations (Friedman, 1984; De Kok, 1993), or do not obtain parameters of the optimal
policy (Zalkind, 1978; Liberatore, 1979; De Kok, 1993).
Previous studies have a dedicated research in the fields of commonality inventory model, and in the field of
the inventory model with lead time. But there are few literatures considered the two fields together. This paper
aims to find the relation between component commonality inventory and lead time.
This study first set some assumption and notation in Section 3, and then put forward the model with and
without component commonality in Section 4. Section 5 has a case study with a China automobile corporation;
also the results are analyzed and discussed in this section. Section 6 presented some concluding comments.
Products: 1 2 1 2 1 2
Component: 3 4 5 6 3 7 6 7 8
Demand for product 1 follows a uniform distribution on the interval [0, B1 ( LT ) ], while demand for product 2
follows an independent uniform distribution on the interval [0, B2 ( LT ) ]. Since customer demand increases with
lower delivery times (Blackburn et al., 1992; So and Song, 1998; So, 2000; Ray and Jewkes, 2004), we can
assume that the demand parameters depends linearly on LT , i.e,
B i ( LT ) = aTi bi LT , i = 1,2 (1)
where LT denotes the guaranteed delivery time, aTi represent the constant part of the demand,
and bi represents the guaranteed delivery time sensitivities of the demand. Without loss of generality we shall
assume B1 ( LT ) B2 ( LT ) . Then, we break the guaranteed delivery time down into two parts, i.e,
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LT = L0 + L (2)
Where L0 denotes the minimum possible guaranteed delivery time, and L represents the compressible part of
guaranteed delivery time.
Combining (1) and (2) we can express Bi in terms of L and system parameters as
Bi ( L) = aTi bi ( L0 + L) = ai bi L (3)
where ai = aTi bi L0 . So ai denotes two times of the mean demand rate when L = 0 , and bi still
represents the guaranteed delivery time sensitivities of the demand.
The linear demand function will help us to obtain qualitative insights without much analytical complexity. It
also has the desirable properties that the lead time elasticity of demand are higher at higher guaranteed delivery
times (refer to Palaka et al., 1998).
Each product is assembled-to-order from various combinations of components which are supplied with a
pull-policy. At the beginning of each period, the inventory level of separate components reaches to S 3 S 4 S 5
S 6 respectively, and the inventory level of common components reaches to S 7 S 8 . We assume that each kind of
components can be supplied to a certain level at the beginning of each period, and when shortages occur, sales
will be lost. It is obvious that ordering cost has nothing to do with the commonality decision with such kind of
pull replenishment policy. Thus, three costs are considered in the model purchasing costs, holding costs, and
shortage costs.
Notations:
L compressible part of guaranteed delivery time.
S i stock level for component i at the beginning of each period(i=3,4,5,6,7,8).
Ci purchasing cost for component i(i=3,4,5,6,7,8).
h holding cost per unit.
x real demand for product 1 in each period.
y real demand for product 2 in each period.
C X shortage cost for product 1.
CY shortage cost for product 2.
f x ( x) density function for demand during one period for product 1.
f y ( x) density function for demand during one period for product 2.
E X (L) expected demand for product 1 in one period.
EY (L) expected demand for product 2 in one period.
204
B1 ( L ) x B2 ( L ) y
C NH = (C 3 + C 4 )h( S 3 ) f x ( x)dx + (C 5 + C 6 )h( S 6 ) f y ( y )dy
0 2 0 2
(6)
E ( L) E ( L)
= (S 3 X )(C 3 + C 4 )h + ( S 6 Y )(C 5 + C 6 )h
2 2
B1 ( L ) B2 ( L )
C NS = C X ( x S 3 ) f x ( x)dx + CY ( y S 6 ) f y ( y )dy (7)
S3 S6
Generally the service level is no less than 50%, so the stock level of components is higher than expected
demand. This restriction will help us to minimize the expected total cost and focus on commonality decision
without much analytical complexity.
Substituting (5), (6) and (7) into (4) and simplifying gives
B1 ( L)(C 3 + C 4 ) + B2 ( L)(C 5 + C 6 ) B ( L)
TC N ( S , L) = + ( S 3 1 )h(C 3 + C 4 ) +
2 4
(9)
B ( L) ( B ( L ) S 3 ) C X ( B2 ( L ) S 6 ) 2 CY
2
(S 6 2 )h(C 5 + C 6 ) + 1 +
4 2 B1 ( L) 2 B2 ( L )
Obviously the expected total cost function is a descent function of L , for a given L , the expected total cost
function is a polynomial function of S3 or S6 . Differentiating with respect to S3 and S6 , and the second-order
partial derivatives of the objective function (9) are
2TC N ( S , L) CX 2TC N ( S , L) CY
2
= , 2
= , (10)
S 3 B1 ( L) S 6 B2 ( L )
So (9) is joint convex in S 3 and S 6 , and setting the first-order partial derivatives of (9) equal to zero lead to
* *
following. The S 3 and S 6 that minimize TC N ( S , L) , denoted by S N 3 and S N 6 , satisfy (11) and (12). This solution
is unique and must be optimal due to the convexity of (10).
C X C3 h C 4 h
S N* 3 = B1 ( L) (11)
CX
CY C 5 h C 6 h
S N* 6 = B2 ( L ) (12)
CY
4.2 Model C
Referring to Fig.1b, component 7 is the common component. In optimal allocation, the relationship of the
inventory stock levels for components 3, 6 and 7 is S 7 S 3 ; S 7 S 6 ; S 3 + S 6 S 7 (see Jnsson and
Silver ,1989; Fong, Fu and Li, 2004). The optimization formulation for Model C is
TC C ( S , L) = C CP + C CH + C CS (13)
where TC C ( S , L) represents the expected total cost, C CP , C CH and C CS represent expected purchasing
costs, expected holding costs, and expected shortage costs respectively, and
B1 ( L ) B2 ( L ) B1 ( L ) B2 ( L )
C CP = C 3 xf x ( x)dx + C 6 yf y ( y )dy + C 7 xf x ( x)dx + C 7 yf y ( y )dy
0 0 0 0 (14)
= E X ( L)C 3 + EY ( L)C 6 + ( E X ( L) + EY ( L))C 7
205
B1 ( L ) x B2 ( L ) y
C CH = C 3 h( S 3 ) f x ( x)dx + C 6 h( S 6 ) f y ( y )dy +
0 2 0 2
B1 ( L ) B2 ( L ) x y
0 0 C7 h(S 7 2 2 ) f x ( x) f y ( y)dydx (15)
E ( L) E ( L) E ( L ) + EY ( L )
= (S 3 X )C 3 h + ( S 6 Y )C 6 h + ( S 7 X )C 7 h
2 2 2
B1 ( L ) B1 ( L ) B2 ( L )
C CS = C X ( x S 3 ) f x ( x)dx + CY ( y S 7 + S 3 ) f x ( x) f y ( y )dydx +
S3 S3 S7 S3
(16)
S3 B2 ( L ) S7 S6 B2 ( L )
S7 S6 S7 x
CY ( y S 7 + x) f x ( x) f y ( y )dydx +
0
S6
CY ( y S 6 ) f x ( x) f y ( y )dydx
If common components can not fill all the finished products, allocation of the common components should be
considered. While there are many papers consider the shortage of common components, few of them consider
such scenario. Many researchers used aggregate service levels in their models to define the probability of meeting
all demand (see Baker, Magazine and Nuttle, 1986; Gerchak, Magazine and Gample, 1988; Eynan and Rosenblatt,
1996), but they did not give the total shortage cost for each product respectively. Thus, when the shortage cost of
end products is different from each other, it is difficult to use cost structure in their models. Some researchers
considered the priority of one product (See Jnsson and Silver, 1989; Fong, Fu and Li, 2004), but they did not
present the shortage cost for each end product respectively either. This paper considers such scenario.
Give C X = 1 and CY = 1 , formula (16) can be transform into the formula (6) in the paper of Fu and Li. So their
model is a special case of ours. We assume that product 1 has the priority, when comment components 7 are not
enough for all products, we will allocate them for assembling product 1 first. Substituting (14), (15) and (16) into
(13) and simplifying gives
B1 ( L)C 3 + B2 ( L)C 6 + ( B1 ( L) + B2 ( L)C 7 ) B ( L) B ( L)
TC C ( S , L) = + ( S 3 1 )hC 3 + ( S 6 2 )hC 6
2 4 4
B1 ( L) + B2 ( L) ( S 3 B1 ( L)) 2 C X ( B2 ( L ) S 7 + S 3 ) 2
(S 7 )hC 7 + +( ( B1 ( L) S 3 ) +
4 2 B1 ( L) 2
(18)
S + S6 S7 2 2
( 3 )( S 3 + 3B2 ( L) S 3 2 S 7 S 3 S 6 S 3 3B2 ( L) S 7 + 3B2 ( L) 2 + S 7
6
2 ( B ( L) S 6 ) 2 ( S 7 S 6 ) CY
3B2 ( L ) S 6 + S 6 S 7 + S 6 ) + 2 )
2 B1 ( L) B2 ( L)
The expected total cost function is a descent function of L, for a given L, the expected total cost function is a
polynomial function of S3 , S6 and S7 . (18) is joint convex in S3 , S6 and S7 , and setting the first-order partial
*
derivatives of (18) equal to zero lead to following. The S3 , S6 and S7 that minimize TC C ( S , L) , denoted by S C3 ,
S C* 6 and S C* 7 , satisfy (19), (20) and (21). We can use Hessian Matrix to justify the unique and optimal of this
solution to be convex.
2
TC C C S CY S 3 CY S 3 C Y S 7 C Y S 3 S 7 C Y S 3
= hC 3 C X + CY + X 3 + + =0 (19)
S 3 B1 ( L) B2 ( L ) B1 ( L) B2 ( L)
2
TC C hB1 ( L) B2 ( L)C 6 CY B2 ( L) S 7 + CY B2 ( L) S 6 + CY S 7 S 6 CY S 6
= =0 (20)
S 6 B1 ( L) B2 ( L)
206
hB1 ( L) B2 ( L)C 7 + CY ( B2 ( L) S 7 B2 ( L) S 6 +
2 2 2
TC C S 3 2 + S 6 2 S 7 2 B1 ( L) S 3 + B1 ( L) S 7 B1 ( L) B2 ( L))
= =0 (21)
S 7 B1 ( L) B2 ( L)
4.3 Model D
Referring to Fig.1c, component 7 and 8 are the common component. It is obvious that, in an optimal
allocation, the inventory stock levels for common components 7 and 8 are the same (otherwise we carry extra
inventory that does not help reduce product shortage). The optimization formulation for Model D is
TC D ( S , L) = C DP + C DH + C DS (22)
where TC D ( S , L) represents the expected total cost, C DP , C DH and C DS represent expected purchasing costs,
expected holding costs, and expected shortage costs respectively, and
B1 ( L ) B2 ( L )
C DP = (C 7 + C8 ) xf x ( x)dx + (C 7 + C8 ) yf y ( y )dy = ( E X ( L) + EY ( L))(C 7 + C8 ) (23)
0 0
B1 ( L ) B2 ( L ) x y
C DH = (C 7 + C8 )h( S 7 ) f x ( x) f y ( y )dydx
0 0 2 2
(24)
E ( L ) EY ( L )
= (S 7 X )(C 7 + C8 )h
2 2
B1 ( L ) B2 ( L )
C DS = CY ( y S 7 + x) f x ( x) f y ( y )dydx (25)
S 7 B2 ( L ) S 7 x
We assume that product 1 has the priority, when comment components 7 and 8 are not enough for all
products, we will allocate them for assembling product 1 first. Substituting (23), (24) and (25) into (22) and
simplifying gives
( B1 ( L) + B2 ( L))(C 7 + C8 ) (4 S 7 B1 ( L) B2 ( L))(C 7 + C8 )h
TC D ( S , L) = +
2 4
(27)
( B ( L ) + B2 ( L ) S 7 ) CY
3
+ 1
6 B1 ( L) B2 ( L)
The expected total cost function is a descent function of L , for a given L , the expected total cost function is a
polynomial function of S7 . Differentiating to S7 , and the second-order partial derivatives of the objective function
(27) are
2TC D B1 ( L) + B2 ( L) S 7
2
= CY 0 (28)
S 7 B1 ( L) B2 ( L)
So (27) is convex in S7 , and setting the first-order partial derivatives of (27) equal to zero lead to following.
*
The S7 that minimize TC D ( S , L) , denoted by S D7 , satisfy (29) and (30). This solution is unique and must be
optimal due to the convexity of (28).
TC D ( B1 ( L) + B2 ( L) S 7 ) 2
= h(C 7 + C8 ) CY = 0 (29)
S 7 2 B1 ( L) B2 ( L)
2hB1 ( L) B2 ( L)(C 7 + C8 )
S D* 7 = B1 ( L) + B2 ( L) (30)
CY
4.4 A Comparative study of the models with or without component commonality
The expected total cost function (4), (13) and (22) are descent functions of L . When the guaranteed delivery
time decreases by L , the compressible part also decreased by L = LT . Compare Model C with Model N, the
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reduction of expected total cost is
TC N C ( SL L) = TC N ( S L* L , L L) TC C ( S L* L , L L)
TC N C ( S , L) = TC N ( S L* , L) TC C ( S L* , L)
Compare Model D with Model N, the reduction of expected total cost is
TC N D ( S , L L) = TC N ( S L* L , L L) TC D ( S L* L , L L)
TC N D ( S , L) = TC N ( S L* , L) TC D ( S L* , L)
5. Examples
Here we use examples from a case study with a China automobile corporation to explore the impact of
guaranteed delivery time on the role of commonality under different cost structures. We are also interested in
seeing how the benefits of employing commonality change with the guaranteed delivery time. These examples
should give insights into how commonality effects change under various situations. Two cost structures are
considered: (i) The cost of common component is be equal to unique component, the holding cost and shortage
cost are varied, and (ii) The cost of common component is more expensive than unique component, the holding
cost and shortage cost are varied.
5.1 The cost of common component is be equal to unique component
Suppose demands follow identical uniform distribution on the interval [0, B (L) ], and we have B (L) 400
2 L . Assuming equal costs (C3=C4=C5=C6=C7=C8=1), and h=0.1, 0.15, or 0.2, CX=CY=2 or 3. Thus there is
a cost reduction by using a common component and compressing guaranteed delivery time in this case. The
results of our comparison between Model C and Model N are plotted in Fig.2a. Comparison between Model D and
Model N is also studied and results are plotted in Fig.2b.
From the Fig.2a, it is seen that a larger reduction of the expected total cost from Model N to Model C is
achieved with a shorter guaranteed delivery time. As the lead time becomes shorter, more shortage cost leads to
more benefits of commonality, and as the holding cost increase the benefits becomes larger and larger. Thus the
shortage cost and holding cost have compound effect on the benefits of commonality with a shorter guaranteed
delivery time.
208
Fig.2b Comparison between Model D and Model N
From the Fig.2b, it is seen that a larger reduction of the expected total cost from Model N to Model D is also
achieved with a shorter guaranteed delivery time, and Model D gains greater benefits than Model C. But, unlike
Fig.1a, as the lead time becomes shorter, more shortage cost leads to less benefits of commonality. Though, the
benefits increase as the holding cost increase, there is no compound effect with shortage cost and holding cost.
5.2 The cost of common component is more expensive than unique component
Suppose demands follow identical uniform distribution on the interval [0, B (L) ], and we have B (L) 400
2 L . To assess the effect of component costs on commonality, we consider cases involving different costs (C3
C4C5C61;C7C81.01) and results are plotted in Fig.3a. and Fig.3b (h=0.1, 0.15, or 0.2, CX=CY=2 or
3). Thus there are both decrease and increase in cost by using a common component and compressing guaranteed
delivery time in this case. The results of comparison between Model C and Model N are plotted in Fig.3a.
Comparison between Model D and Model N is also studied and results are plotted in Fig.3b.
From the Fig.3a, it is seen that if there is a reduction of the expected total cost from Model N to Model C
with the longest guaranteed delivery time, a larger reduction will be achieved with a shorter guaranteed delivery
time, but if there is a negative benefit at the beginning, commonality will cost more with the lead time decrease.
The compression of guaranteed deliver time amplifies the effect of commonality. As the shortage cost or the
holding cost increase, it will more likely to have positive effect on the benefits of commonality with the lead time
compressing. The shortage cost has more impact on the benefits than the holding cost, and the shortage cost and
holding cost have compound effect on the benefits. Thus Model C is very sensitive to component cost.
209
Fig.3b Comparison between Model D and Model N
From the Fig.3b, it is seen that a larger reduction of the expected total cost from Model N to Model D is
achieved with a shorter guaranteed delivery time, and Model D gains much more benefits than Model C. But,
unlike Model C, Model D is not very sensitive to component cost. Fig.3b. has many similar features with Fig.2b.
As the lead time becomes shorter, more shortage cost leads to less benefits of commonality. Though, the benefits
increase as the holding cost increase, there is no compound effect with shortage cost and holding cost.
6. Conclusions
In this paper, we develops a guaranteed delivery time based inventory model of Component Commonality to
consider the assemble-to-order environment where components are replenished according to a pull-policy and
demand is a function of a uniform guaranteed delivery time. Previous studies have a dedicated research in the
fields of commonality inventory model, and in the field of the inventory model with lead time. But there are few
literatures considered the two fields together. This paper focuses on the dynamics between the guaranteed delivery
time and its impact on commonality decisions. The impact of guaranteed delivery time on the effect of
commonality on inventory cost is examined. Besides, we consider the allocation tactic of the common
components, when common components can not fill all the end products. We consider the priority policy, and the
total shortage cost for each product is given respectively. This can be useful for practicing managers when the
shortage cost of end products is different from each other. Beyond the specifics of the model, our analysis creates
a framework for thinking about the relationship between guaranteed delivery time and commonality decisions.
And it set up some rules for inventory stock management with guaranteed delivery time.
Results show that the length of the delivery time not only directly affects overall demand and cost, but also
has some further impact on commonality decisions. And the benefits of commonality increase with lower
guaranteed delivery time when the common component is the same expensive as the components it would replace,
but this is shown not to be the case if the common component is more expensive than the components it would
replace. When the benefits of risk pooling outweigh the added purchasing costs, a larger reduction will be
achieved with a shorter guaranteed delivery time, while the added purchasing costs dominate the benefits of risk
pooling, commonality will cost more with the lead time decrease. Based on the mathematical analysis, a
conclusion is reached that the effect of component commonality on inventory stock cost can be magnified by
compression of guaranteed delivery time.
In future research on this problem, it would be interesting to extend this model to incorporate the influence of
the component supplier lead time and using a (Q, r) replenishment policy, considering the finished product
delivery time and component lead time simultaneously. Another extension of this work may be conducted by
considering other allocation tactics of common components when shortage occurs and compare the impact of
210
different allocation tactics on the shortage cost and total cost for the model developed in Section 4. Another would
be to extend to a model with multiple end products and fairly general demand patterns.
References
[1] Alderson, W., 1950. Market efficiency and the principle of postponement, Cost and Profit Outlook, September 3.
[2] Bagchi, U., Gutierrez, G., 1992. Effect of increasing component commonality on service level and holding cost. Naval
Research Logistics 39, 815832.
[3] Baker, K.R., 1985. Safety stocks and component commonality. Journal of Operations Management 6, 1322.
[4] Baker, K.R., Magazine, M.J., Nuttle, H.L., 1986. The effect of commonality on safety stock in a simple inventory model.
Management Science 32, 982988.
[5] Blackburn J ., 1991. Time Based Competition, Richard D.Irwin,Homewood,Illinois.
[6] Blackburn, J.D., Elrod, T., Lindsley, W.B., Zahorik, A.J., 1992. The Strategic Value of Response Time and Product Variety. In:
Voss, C.A. (Ed.), Manufacturing StrategyProcess and Content. Chapman and Hall, London (Chapter 13).
[7] Dogramaci, A., 1979. Design of common components considering implications of inventory costs and forecasting. AIIE
Transactions 11, 129135.
[8] Ehrhardt, R., Mosier, C., 1984. A revision of the power approximation for compution (s,S) policies. Management Science
(pre-1986). Linthicum: Vol. 30, Iss. 5; p. 618 (5 pages)
[9] Eppen, G. D., 1979. Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem. Management Science
25, 498-501.
[10] Eynan, A., Rosenblatt, M.J., 1996. Component commonality effects on inventory costs. IIE Transactions 28, 93104.
[11] Eynan, A., Rosenblatt, M., 1997. An analysis of purchasing costs as the number of products components is reduced.
Production and Operations Management 6, 388397.
[12] Fong, D.K.H., Fu, H., Li, Z., 2004. Efficiency in shortage reduction when using a more expensive common component.
Computers & Operations Reseach 31, 123-138.
[13] Gerchak, Y., Henig, M., 1986. An inventory model with part commonality. Operations Research Letters 5, 157160.
[14] Gerchak, Y., Henig, M., 1989. Component commonality in assemble-to-order systems: Models and properties. Naval Research
Logistics 36, 6168.
[15] Gerchak, Y., Magazine, M.J., Gample, A.B., 1988. Component commonality with service level requirements. Management
Science 34, 753760.
[16] Hillier, M.S., 1999. Product commonality in multiple-period, make-to-stock systems. Naval Research Logistics 46, 737751.
[17] Hillier, M.S., 2000. Component commonality in multiple-period, assemble-to-order systems. IIE Transactions 32, 755766.
[18] Jnsson, H., Silver, E.A., 1989. Common component inventory problems with a budget constraint: Heuristics and upper bounds.
Engineering Costs and Production Economics 18, 7181.
[19] Jnsson, H., Jrnsten, K., Silver, E.A., 1993. Application of the scenario aggregation approach to a two-stage, stochastic,
common component, inventory problem with a budget constraint. European Journal of Operational Research 68, 196211.
[20] Kaplan, R.S., 1970. A dynamic inventory model with stochastic lead times. Management Science (pre-1986). Linthicum: Vol.
16, Iss. 7; p. 491 (17 pages)
[21] Karmarkar, U.S., 1993. Manufacturing lead times. In: Graves, S.C., RinnoyKan, A.H.G., Zipkin, P.H. (Eds.), Logistics of
Production and Inventory. In: Handbooks in Operations Research and Management Science, vol. 4. North-Holland (Elsevier
Science Publishers B.V.), Amsterdam, The Netherlanhds.
[22] Liao, C.J., Shyu, C.H., 1991. Analytical determination of lead time with normal demand. International Journal of Operations
and Production Management 11, 7278.
[23] Miller, J., and Roth, A., 1998. Executive Summary of the 1988 North American Manufacturing Futures Survey. Boston
University Roundtable, Manufacturing.
[24] Mirchandani, P. and A.K. Mishra, 1999. Component commonality: models with product-specific service constraints, Working
paper, Katz Graduate School of Business, University of Pittsburgh.
[25] Palaka, K., Erlebacher, S., Kropp, D.H., 1998. Lead time setting, capacity utilisation, and pricing decisions under lead time
dependent demand. IIE Transactions 30, 151163.
[26] Ray, S., Jewkes, E.M., 2004. Customer lead time management when both demand and price are lead time sensitive. European
Journal of Operational Reseach 153, 769-781.
[27] So, K.C., Song J.S., 1998. Price, delivery time guarantees and capacity selection. European Journal of Operational Research
111, 2849.
[28] So, K.C., 2000. Price and time competition for service delivery. Manufacturing and Service Operations Management 2 (4),
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[29] Tayur, S. R., 1995. Computing optimal stock levels for common components in an assembly system, Working paper, GSIA,
CMU.
[30] Zalkind, D., 1978. Order-level inventory systems with independent stochastic leadtimes. Management Science (pre-1986).
Linthicum: Vol. 24, Iss. 13; p. 1384 (9 pages)
211
Outsourcing Decision-Making of Equipment Maintenance in
Process Industries
Abstract Proper equipment maintenance can help process industries operate effectively and safely. While equipment maintenance
outsourcing can improve efficiency, it may bring about a lot of risks. However, rational outsourcing decision-making is an effective
risk mitigation strategy. In this paper, we consider equipment maintenance vendor selection problem in process industries, and
develop a 0-1ILP model to achieve the optimal solution. Finally, we present a numerical example as demonstration analysis.
Key words Process industries, Equipment maintenance, Outsourcing risk, Outsourcing decision-making, the model
1. Introduction
The production of process industries is continuous. The successful operation of production equipment is very
important for process industries. Thus, proper equipment maintenance can help process industries operate
effectively and safely. With the development of third-part logistics, more and more manufacturers prefer
outsourcing equipment maintenance to doing it themselves. Although equipment maintenance outsourcing can
improve efficiency, it may bring about a lot of risks. However, rational outsourcing decision-making is an
effective risk mitigation strategy. So it is necessary to study how to make optimal decision of equipment
maintenance outsourcing in process industries.
There are not a few papers that are interested in. Flix C. Gmez de Len Hijes et al. present some
maintenance strategy based on a multi-criterion classification of equipments [1]. An economic model is presented
for the optimization of preventive maintenance in a production process with two quality states in [2]. J.Pongpech,
and D.N.P. consider a periodic preventive maintenance policy which achieves a tradeoff between the penalty and
maintenance costs [3].With the development of third-part logistics, many manufacturer outsource equipment
maintenance. This phenomenon catches up the attention of research persons. Fan Tijun et al. put forward three
outsourcing patterns for equipment maintenance [4]. Nine outsourcing strategies of equipment maintenance
outsourcing for enterprises are put forward and analyzed qualitatively in [5]. Cui Nanfang et al. research on
integrated spare parts management in equipment maintenance outsourcing [6]. Though outsourcing brings
manufacturer efficiency, it brings about a lot of risks. A. Hoecht, Trott investigates the innovation-related risks
that can arise from strategic outsourcing and adopts a trust, collaboration and network perspective for this analysis
[7]
. Kweku-Muata et al. offer a method and some mathematical models for analyzing risks and constructing
incentive contracts for IS outsourcing [8]. Ton G. de Kok researches on Capacity allocation and outsourcing in a
process industry [9].
Though there are many literatures that fully research on equipment maintenance outsourcing, outsourcing
risks, outsourcing in process industries respectively, they seldom consider these fields together (i.e. outsourcing
decision-making of equipment maintenance in process industries). In this paper, we study the equipment
maintenance outsourcing problem in process industries. This paper is organized as following. The equipment
maintenance outsourcing decision-making problem is described in section 2 and a 0-1 ILP model is built in
section3. Then a numerical example is presented in section 4. Finally the conclusion and future work are
presented in section 5.
This research has been supported by National Natural Science Funds of China (No:70472030 and 70472057).
212
2. The Problem Description
It can be defined as a selection problem of equipment maintenance vendor. The manufacturer aims to achieve
the maximal profit within particular maintenance cost and risk cost. Supposed the number of equipment
maintenance vendor is n, and v j means equipment maintenance vendor j. Let rj denote the profit that v j brings
about to the process manufacturer. Let c j be the equipment maintenance cost that the manufacturer should pay
to v j and d j be the risk cost that v j might result in. Let cT denote the maximum total money that t cT would
like pay for equipment maintenance. Let cT mean the maximum total risk cost that the manufacture can bear.
These can be expressed in table 1.
Tab.1 Profit-cost Matrix
v1 v2 Vn
profit r1 r2 rn
Maintenance
c1 c2 cn cT
cost
Risk cost d1 d2 dn dT
3. The Model
We develop a 0-1 integer linear programming (see figure 1) for the problem above. Let x j be whether the
process industry manufacturer selects vendor j, and If x j =0, vendor j isnt selected. The objective function denotes that
the manufacturer want to achieve maximal profit through equipment maintenance outsourcing. But the
manufacturer wont pay no more than expected for outsourcing, and this can be express as the first constraint.
There are some risks exist in the outsourcing (i.e. releasing of commercial secrets, dishonesty of vendors etc.), so
every vendor may bring some risks cost to the manufacturer, and the second constraint denotes that the
n
max z = rj x j
j =1
c j x j cT
manufacturer dont want accept too much risks cost. j =1
n
s.t. d j x j dT
j =1
x = 0, or1 j = 1, 2, ,n
j
Figure 1 the Mode
How to select proper vendor? We can build the 0-1ILP model (see figure 1), and use LINDO 6.1 to solve it
(see figure 2).
213
max 2x1+7x2+3x3+5x4+6x5
ST
x1+5x2+6x3+4x4+3x5<=15
3x1+4x2+2x3+3x4+5x5<=12
end
INT 5
The optimal solution is present in figure 3. Thus the manufacture should select vendor 1, vendor 2 and vendor
5 in this circumstance.
References
[1] Flix C. Gmez de Len Hijes, Jos Javier, Ruiz Cartagena. Maintenance strategy based on a multi-criterion classification of
equipments. Reliability Engineering & System Safety, April 2006, Vol. 91(4): 444-451
[2] Sofia Panagiotidou, George Tagaras. Optimal preventive maintenance for equipment with two quality states and general failure
time distributions. European Journal of Operational Research, July 2007, Vol. 180(1): 329-353
[3] J. Pongpech, D.N.P. Murthy Optimal periodic preventive maintenance policy for leased equipment. Reliability Engineering &
System Safety, July 2006, Vol. 91(7): 772-777
[4] Fan Tijun, Chen Rongqiu, Cui Nanfang. Outsourcing patterns of equipment maintenance. Huazhong University of Science &
Technology, (Nature Science Edition), Mar. 2003, Vol. 31(3): 81-83
[5] FAN Tijun, CHEN Rongqiu, CUI Nanfang. Strategic Analysis of Equipment Maintenance Outsourcing. Chinese Journal of
Management Science, Aug. 2003, Vol. 11(4): 47-53
[6] CUI Nanfang, QU Kui, YANG Huili. Integrated Spare Parts Management in Equipment Maintenance Outsourcing. Softs
Science, 2005, Vol. 19(5):57-59
[7] A. Hoecht, Trott. Innovation risks of strategic outsourcing. Technovation, May-June 2006, Vol. 26(5-6): 672-681
[8] Kweku-Muata, Osei-Bryson, Ojelanki K. Ngwenyama. Managing risks in information systems outsourcing: An approach to
analyzing outsourcing risks and structuring incentive contracts. European Journal of Operational Research, October 2006, Vol.
174(1):245-264
[9] Ton G. de Kok. Capacity allocation and outsourcing in a process industry. International Journal of Production
Economics, December 2000, Vol. 68(3): 229-239
214
A Location-Allocation Problem Applying in Scrap Steel
Recycling Network Design
Abstract In recent years, quantities of steel production in countries all over the world are increasing fast. However many
developing countries advance their steel production at the expense of consuming mass of iron ore, coke, and sacrificing environment.
Standing on the point of environment protection and natural resource saving, many experts appeal that the iron and steel industry
should exert itself to utilize less iron ore, and more scrap steel instead. Realizing advantages and essentiality of using scrap steel, it is
necessary to find out some feasible methods to estimate whether and how manufacturers can get profit from recycling and what the
impact factors are. As a matter of fact, whether recycling scrap steel can increase the profit of a steel-making facility heavily depends
on how effective reverse logistics operate. In this paper, we establish a closed-loop supply chain aiming at illustrating the whole
business in the iron and steel industry from steel-making to scrap steel recycling. Then focusing on the reverse chain, we further
explain some base-knowledge of scrap steel and analyze characteristics of its recycling more detailed. Finally we formulate a
location-allocation model only considered for the obsolete scrap steel recycling which is a branch of the reverse chain on the
condition of multi-collection centers and multi-consumer zones.
Keywords Reverse Logistics, The iron and steel industry, Scrap steel, Recycling, Location-allocation model
1. Introduction
In recent years, the total global output of crude steel in iron and steel industry goes up steadily at rate of
exceeding 2.4 percent averagely. Along with the increasing quantity of steel production, the demand of scrap steel
is rising simultaneously. Many developed countries make steel using short procedure technology of electrical
furnace adding scrap steel, which result in more than 70% of steel output is made by scrap steel. On the contrary,
some developing countries advance their steel production at the expense of consuming mass of iron ore, coke, and
sacrificing environment. Standing on the point of environment protection and natural resource saving, many
experts appeal that the iron and steel industry should exert itself to utilize less iron ore, and more scrap steel
instead.
Effective utilization of scrap steel can bring many advantages to the iron and steel industry[7]. Firstly, it can
help to save energy. Steel-making is a major consumer of energy comparing with other industry. While most
energy is consumed before iron-making procedure such as mining, mill run, agglomeration, etc. Using scrap steel
to substitute molten iron can overleap these procedures so that contribute to save mass of energy. In ideal
condition, using scrap steel only needs nearly 1/3 energy that iron mineral needs to make steel product. Secondly,
it can help to save investment. Increasing global competition in steel market forces the iron and steel industry to
cut down its investment, improve product quality, and reduce manufacture cost to the top of them bent. Since
scrap steel is much cheaper than pig iron, manufacturer can save about 67% purchasing cost by using it. Thirdly, it
can help to reduce pollution of environment. The contamination venting from steel-making production includes
CO2, scoria, steel residue, mass of solid wastes and chemic sewage. And more than 80% of them are created in the
procedures as mining, mill run, agglomeration, coking, and steel-making. Using scrap steel can overleap some of
these procedures; hence we can minimize the pollution at an inferior limit. Lastly, it can help to reduce quantity of
transportation. Using scrap steel can reduce 70% quantity of transportation. On the one hand, decreasing quantity
can reduce general costs and increase productivity; on the other hand, it can relax the pressure of transportation,
and save transportation tool. Standing on this point, recycling scrap steel has some benefit for social development.
Realizing advantages and essentiality of scrap steel recycling, it is necessary to find out some feasible
Fund: National Natural Science Foundation of China (70625001 70601004), Scientific Research Key Project of MOE (104064)New Century Excellent Talents
Support Plan of MOE (NCET-04-280)
Authors: Yang LIU(1982~), Tel83678349Email: doris198221@163.com
Jiafu TANG (1965~), Tel83678349Email: jftang@mail.neu.edu.cn
215
methods to estimate whether and how manufacturers can get profit from recycling and what the impact factors are.
As a matter of fact, whether recycling scrap steel can increase the profit of a steel-making facility heavily depends
on how effective reverse logistics operates. Therefore it is essential to integrate the proper management method
with the characteristics of scrap steel recycling network to try to gain the maximum profit.
So far, there are few people integrate reverse logistics with the iron and steel industry, which results in lack
of literatures in this field. Comparing with other countries, there are more researchers studying on raw materials
recycling in the iron and steel industry in American and Japanese. And the issues they mainly take attention on
include improvement of raw material recycling processing procedure, techniques of industrial wastes disposal,
raw materials recycling network design, market analysis and forecast, etc. Nakajima (2002) investigates amounts
of steel processing scraps generated by the Japanese industry in order to develop materials flow analyzed by an
input-output table. And also he analyses the iron and steel scrap flow in Japan for the purpose of understanding
the supply and demand system of the scrap at the present time and knowing the detail and precise scrap flow. Taki
(2005) attempts to give a detailed description of the actual state and features of steel-can recycling. And as a result
of the LCA (life cycle assessment) of steel cans, based on the fact that steel products are being used cyclically in
steel products, he has proved that steel cans are environment-friendly containers with low CO2 emissions and
energy consumption during life cycle. J. van den Brink (2002) has illuminates a Cycle of Matter model, which
covers scrap flows between the three main actors defining the cycle, i.e. scrap users, scrap generators and scrap
dealers; and incorporates the generation and use of three types of scrap, i.e. home scrap, prompt scrap and
obsolete scrap. His paper presents the main results of a detailed study of the national scrap recycling industry of a
developing country, Tanzania. The scrap flows in the Cycle of Matter model were estimated on the basis of
specially tailored surveys amongst scrap users, producers and traders, and on the basis of secondary data and
coefficients derived from the literature. Also the paper demonstrates that the model is a powerful tool for the
analysis of the scrap cycle and reveals that Tanzania possesses large surpluses of scrap.
In this paper, we establish a closed-loop supply chain aiming at illustrating the whole business in the iron and
steel industry. Then focusing on the reverse chain, we further explain some base-knowledge of scrap steel and
analyze the characteristics of its recycling detailedly. Finally we formulate a location-allocation model only
considered for the obsolete scrap steel recycling which is a branch of the reverse chain on the condition of
multi-collection centers and multi-consumer zones. We wish this work can give some scientific and beneficial
advises on scrap steels recycling to manufacturers in the iron and steel industry.
The rest of this paper is organized as follow. In section 2 we establish a closed-loop supply chain for the
whole business of steel products, and then make some analysis and illustration about it. In section 3 we formulate
a location-allocation model focusing on obsolete scrap steel recycling. Finally we conclude this paper in section 4.
216
Wastes Disposal Wastes Disposal
Materials
The Iron and steel facility Metal manufacturing facilities Products Customer zones
Disposal Wastes
Fig. 1 Closed-loop supply chain for the whole business of steel products
217
We know the annual supply and demand of obsolete scrap steel. Then we want to find out which collection center
should be open and how much scrap steels should they handle with the objective to minimize the total cost of the
network.
The model can be formulated as a mixed integer programming in the following section.
1
2
3.2 Notation
Parameters:
I : be the number of customer zones
J : be the number of potential collection centers
0: denotes scrap steel processing facility
a : be the transportation cost of obsolete scrap steel per unit of weight and per unit of distance between each
pair of customer zone and collection center
b : be the transportation cost of obsolete scrap steel per unit of weight and per unit of distance between each
collection center and scrap steel processing facility
c j : be the opening cost of collection center j
dij : be the distance between customer zone i and collection center j
e j 0 : be the distance between collection center j and scrap steel processing facility
i : be the total quantities of obsolete scrap steel generated by customer zone i in a time period
: be the total demand of scrap steel processing facility for obsolete scrap steel
H j : be the maximal storage capacity of collection center j
Decision variables:
pij : be the total quantities of obsolete scrap steel transported from customer zone i to collection center j
q j 0 : be the total quantities of obsolete scrap steel transported from collection center j to scrap steel
processing facility
1 if collection center j is open 1 if customer zone i and collection center j have business
xj = yij =
0 otherwise 0 otherwise
218
1 if collection center j and scrap steel processing facility have business
z j0 =
0 otherwise
3.3 Model
Based on above, we formulate an allocation-location model as follow
I J J J
Min adij pij yij + be j 0 q j 0 z j 0 + c j x j (1)
i =1 j =1 j =1 j =1
Subject to
J
pij yij = i i {1,2,...,I } (2)
j =1
J
q j0 z j0 = (3)
j =1
I
pij yij = q j 0 z j 0 j {1,2,...J } (4)
i =1
I
pij yij H j x j j {1,2,...J } (5)
i =1
J
xj 1 (6)
j =1
J
yij 1 i {1,2,...,I } (7)
j =1
J
z j0 1 (8)
j =1
z j0 x j j {1,2,...J } (10)
1
y pij i yij i {1,2,...,I } , j {1,2,...,J }
M ij (11)
M is a big enough number
1
z q j0 z j0 j {1,2,...J }
M j0 (12)
M is a big enough number
The objective function expresses the cost structure of the obsolete scrap steel recycling network, which
consists of transportation costs and fixed opening costs. Constraint (2) ensures all obsolete scrap steels generated
by each customer zone will be collected by collection centers. Constraint (3) guarantees that the demand of scrap
steel processing facility for obsolete scrap steels will be satisfied. Constraint (4) is input and output balance
equations, they ensure that the output of each collection center must equal to the input of it. Constraint (5) is
capacity constraint; it ensures that the storage capacity of each collection center cannot be exceeded. Constraint (6)
ensures that there must be at least one collection center existing in the network to collect scrap steel from
customer zones. Constraint (7) guarantees that each customer zone will have at least one collection center to allow
for it, and constraint (8) guarantees that scrap steel processing facility will have at least one collection center to
supply scrap steel for it. Constraints (9)-(12) are logical constraints. They express that any two depots in the
219
network have business must found on the basis that the two depots are open.
The problem is a non-linear integral programming, and we can apply many algorithms on its solving. For
instance, we can utilize characteristics of constraints and apply Lagrangean relax algorithm to decompose the
problem into several sub-problems. And then through solving all sub-problems and relax iteration process, we can
finally get the optimal solutions.
4. Conclusions
This paper applies reverse logistics in the iron and steel industry, and formulates a location-allocation model
to choose the proper locations of collection centers from a set of potential locations, taking the capacities of them
into consideration simultaneously. Although this model has omitted some actual effective factors, it can help to
make a macro-decision on the scrap steel recycling network design.
References
[1] Moritz Fleischmann. Quantitative Models for Reverse Logistics. New York: Springer-Verlag Berlin Heidelberg, 2001.
[2] J.van den Brink. The Tanzanian scrap recycling cycle. Technovation, 2002, 22:187-197
[3] A.I.Barros, R.Dekker, V.Scholten. A two-level network for recycling sand: A case study. European Journal of Operational
Research, 1998,110: 199-214
[4] Andreas Klose, Andreas Drexl. Facility location models for distribution system design. European Journal of Operational
Research, 2005, 162: 4-29
[5] Shams-ur Rahman, David K.Simth. Use of location-allocation models in health service development planning in developing
nations. European Journal of Operational Research, 2000,123: 437-452
[6] HUANG Guang-qiu, WANG Guo-zheng, ZHOU Jing. A Genetic Algorithms Approach to Optimum Locating of Multiple
Stations in Logistics transportation. Microelectronics and Computer, 2006, 23 (3): 47-50
[7] Zhang H.. Sustainable utilization of scrap iron and steel resource in China. Chinese Journal of China Population, Resources and
Environment, 2003, 13(2): 106-110
220
A Dynamic Inventory/Allocation Problem Based on Internet Auctions
Abstract We study a dynamic inventory/allocation problem by selling items through Internet Auctions. We address both finite and
infinite horizon models with the objective of maximizing total expected discounted profit or long-run average expected profit. We
show that the period inventory is managed based on the classical (j, J) policy for the finite horizon models, a stationary (j, J) policy
for the infinite horizon discounted profit and average profit.
Key words Inventory control, Internet auction, Markov decision process, Optimal (j, J) policy
1. Introduction
In this paper, we study the problem for a seller who uses an online auction mechanism for selling a
replenishment product. The number of bidders in each period as well as the individual bidders'valuations are
random. The seller purchases his good from an outside suppler at the ordering cost including both a fixed ordering
cost and a variable cost proportional to the amount ordered. There is a holding cost for inventory and a leadtime
for replenishment. The seller must decide on how to replenish his stock over time to maximize his profits. Such a
problem is clearly important, not only in the retail industry, but also in manufacturing environments in which
production/distribution decisions can be complemented with auction/pricing strategies to improve the firm's
bottom line.
Traditional inventory models focus on effective replenishment strategies and typically assume that a
commodity's price is exogenous determined. In recent years, however, a number of industries have used
innovative pricing strategies to manage their inventory effectively. These development call for models that
integrate inventory control and pricing strategies. A body of research exists about dymamic combined pricing and
inventory strategies (for example, Thomas, 1974; Thowsen, 1975; Federgruen and Heching, 1999; Chen and
[1, 2 , 3, 4 , 5 ] [1]
Simichi-Levi 2004a, b) . Thomas (1974) considered a model that includes a fixed ordering cost and he
[ 4,5]
proposed a simple policy called (s, S, p) to control the system. Chen and Simichi-Levi (2004a, b) proved that
such a policy is indeed optimal when (1) demand is additive in a finite time horizon, and (2) the seller's objective
is to either maximize total expected discounted profit or maximize average long-run profit in the infinite-horizon
[ 2]
model, but not necessarily so under multiplicative demand uncertainty in a finite time horizon. Thowsen (1975)
considered a model that has zero fixed ordering cost and showed that a base-stock-list-price policy is optimal and
[ 3]
the optimal price is a decreasing function of the starting inventory. Federgruen and Heching (1999) extended
Thowsen's work to a more general setting. They showed that, with general stochastic demands, a
base-stock-list-price policy remains optimal when price can either be changed arbitrarily or decreased only.
A parallel stream of research combines optimal auction and inventory control, which is a relatively new topic.
[ 6] [ 7 ,8 ]
Van Ryzin et al. (2004) , based on Vulcano et al. (2002a, b) , studied the optimal auctioning and ordering in
an infinite horizon inventory-pricing system. They showed that a base-stock, reserve-price-auction policy is
[ 2] [ 3]
optimal similar to a base-stock-list-price policy in Thowsen (1975) and Federgruen and Heching (1999) .
This policy says that optimal allocation can be achieved by conducting a first-price or second-price auction with a
fixed reserve price in every period; The reserve price is related only to the replenishment cost of the good; The
optimal replenishment policy is to order up to a fixed base stock level at the end of each period. An assumption
made by Ryzin et al. is that the quantity of items offered is determined before ending the auction. In Du et al.
[9]
(2005) , an allocation problem is studied for selling a given number of items in the given number of online
auctions, where the quantity of items offered to each auction is determined before opening the auction. Based on it,
we study, in this paper, the problem for a seller who uses an auction mechanism for selling a replenishment
This research has been supported by National Natural Science Funds of China (The studies about some problems in revenue management, No: 70571049)
221
product with fixed ordering cost. We show that the optimal replenishment policy for this question is quite simple
[1] [ 4,5]
similar to the optimal replenishment policy in Thomas (1974) , Chen and Simichi-Levi (2004a, b) , that is,
the period inventory is managed based on the classical (j, J) policy.
The remainder of this paper is organized as follows. In Section 2, a dynamic inventory/allocation problem by
selling items through Internet auctions is described and Markov decision process model is presented. In Section 3
we characterize the optimal policy for a general finite planning horizon and extend the results for the
finite-horizon model to the infinite-horizon case under both the infinite horizon discounted criterion and the
long-run average profit criterion. Finally, Section 4 is concluding section.
2. The Model
The problem here is described as follows. The seller sells items through sequential Internet auctions. He sets
auctions in an Internet web one by another. The duration of each auction is fixed with the length of t 0 . At the
beginning of each auction, the seller should determine how many items from his hand to be auctioned in this
auction. On the other hand, the seller can order items from his supplier at the beginning of the auction. It is
assumed that the leadtime for each order is t 0 . That is, the items he ordered at the beginning of a period will
arrive at the beginning of the next auction.
We suppose that customers arrive according to a Poisson process with the arrival rate . Each customer is
risk-neutral. Moreover, each consumer wishes to purchase at most one item and she has a valuation on each item.
The valuation is private and symmetric, i.i.d, draws from a uniform distribution F (.) , which is strictly increasing
[ ]
with a continuous density function f (.) on an interval v, v , with F (v ) = 0 and F (v) = 1 . This means
that customers are independent private valuation (IPV). Furthermore, it is assumed that each customer will bid
honestly for the auctioned items, for example, when the mechanism of the auction is the first-price sealed-bid for
multiple items.
Each auction is a multi-item auction with reserve price v . For such an auction with s items, each of the s
highest bidders will win an item if her bid is not less than the reserve price, and pays the value of her bid for the
item. The total profit of the seller from the sequential auction is the sum of the profit gained from each auction.
The seller's objective is to maximize his total profit.
The notations are as follows. The epoch is defined as the beginning of an auction.
n : index for horizons.
i : state variable, the stock level at a period.
j : decision variable, the order quantity at a period.
s : decision variable, the number of items offered to the auction at a period. So, 0 s i + j .
h : holding cost per item per unit time. The item is given to the winners at the end of the auction.
K : setup cost for one order.
c : a variable ordering cost per item.
: the one period discount factor.
[9]
Then, from Du et al. (2005) , we know that the probability of exactly m bidders arriving whose bids are
larger than or equal to v is given by
( v v ) m
( v v ) s 1
qm = e m! ,m 0; ps = qm = 1 qm , (1)
m=s m =0
Where
t 0
= .
vv
The revenue gained by the seller (not including the holding cost) from the auction when s items are offered
is given by
222
s
s ( s + 1) s 1 s m + 1
r ( s ) = Ebk = sv + ( v)( s m)qm , (2)
k =1 2 m=0 2
and the transition probability is
qi l , is<li
pil = ps , l =is (3)
0, l < i s, or l > i.
[9]
About the revenue function r(s), we have the following lemma from Du et al. (2005) .
Lemma 1: The revenue function r (s ) is strictly concave and increasing with s .
Define
1 if j > 0,
( j) =
0 otherwise.
The ordering cost function includes both a fixed cost and a variable cost and is calculated for a period as
K ( j ) + cj . At a period, if the initial inventory is i , the order quantity is j , and the number of items offered
to the auction is s , then the one-period expected profit is r ( s ) K ( j ) cj hi .
The objective for the dynamic inventory control based on Internet auctions is to decide on joint ordering and
allocation policies so as to maximize total expected discounted profit over the entire planning or the long-run
average profit for the infinite-horizon case.
To find the optimal strategy for the problem. Let Vn (i ) be the maximum total expected discounted profit
(discount relative to period n ) when n periods remain in the plan and the current inventory level is i . Then,
the optimality equation for the finite horizon is as follows, for n = 1,2, , N ,
Vn (i) = max {K ( j) cj + r(s) + qmVn1 (i + j m s)} hi (4)
j 0,0si + j
m=0
with boundary condition V0 (i ) = 0 for i 0 . This means that the remaining items at the end have no
value at all.
3. Results
In the finite horizons, by the induction method we show that the optimal replenishment policy is quite simple
[1] [ 4]
similarly to the optimal replenishment policy in Thomas (1974) and Chen and Simichi-Levi (2004a) . To
find the optimal strategy, we have due to equation (4) that
Vn (i) = max {K ( j i) c( j i) + r(s) + qmVn1 ( j m s)} hi .
j i ,0s j
m=0
Let
g n ( j , s ) = r ( s ) cj + q
m =0
m V n 1 ( j m s ),
s n ( j ) = max{ s s g n ( j , s ) 0 , s = 1, 2 , , j },
223
Vn (i ) = max { K ( j i ) + g n ( j , s n ( j ))} + (c h )i
j i
Since g n ( j ) = g n ( j , s n ( j )) is strictly concave, it is easy to show that the following theorem holds by the
induction method.
Theorem 1: For any n , we have
1) Vn (i ) is concave in i ;
2) there are two constants j n < J n such that at state i with n periods remaining, it is optimal to order
* *
Theorem 1 suggests that the inventory strategy is a ( j , J ) policy for the finite horizon discounted problem
when a seller uses an auction mechanism for selling a replenishment product with fixed ordering cost: if the
*
inventory level at the beginning of period n is no more than the reorder point j n , an order is placed to raise the
*
inventory level to the order-up-to level J n ; otherwise, no order is placed.
Observe that in the case of the standard stochastic inventory problem, it is natural to expect that a stationary
( j , J ) policy is optimal for both the infinite horizon discounted criterion and the long-run average profit
criterion since a (j, J) policy is optimal for its finite horizon counterpart. We consider the infinite-horizon case
where all data are stationary. By using the method of successive approximation we show that the optimal values
and the optimal polices for the infinite horizon discounted criterion is exactly the limit of those for the finite
horizon discounted problem; and at the same time we show that the convergence of discounted profit optimal
values and policies to the long-run average profit optimal values and policies by vanishing discount approach. Our
main result is the following theorem.
Theorem 2: A stationary (j, J) type policy is optimal for either the infinite horizon discounted criterion or the
long-run average profit criterion.
Theorem 2 suggests that a stationary (j, J) type policy is optimal for either the infinite horizon discounted
criterion or the long-run average profit criterion, similarly to the optimal stationary inventory policy in Chen and
[ 5]
Simichi-Levi (2004b) .
4. Conclusions
In this paper, we study the problem for a seller who uses an auction mechanism for selling a replenishment
product. The number of bidders in each period as well as the individual bidders'valuations are random. The seller
purchases his good from an outside suppler at the ordering cost including both a fixed ordering cost and a variable
cost proportional to thze amount ordered. There is a holding cost for inventory and a leadtime for replenishment.
The seller must decide on how to replenish and allocate his stock over time to maximize his profits. We consider
the problem to be a Markov decision process. We then address the properties of the optimal inventory policy in
both finite and infinite horizon models with the objective of maximizing total expected discounted profit or his
time average value, and show that the period inventory is managed based on the classical ( j , J ) policy for the
finite horizon model and a stationary ( j , J ) policy is optimal for either the infinite horizon discounted profit or
the average profit. Surprisingly, although pricing and Internet auctions are so different mechanism, we obtain the
same replenishment policy under both inventory control with innovative pricing strategies and inventory control
based on Internet auctions.
Further research may include the inventory control problem that is combined auction and list-price. Often,
firms that sells with an auction mechanism also use a regular, fixed-price mechanism in parallel. In this retail
setting, this is often achieved by using each mechanism in a different channel. In industrial settings, a firm may
have fixed-price demand as a result of long-term contracts, while at the same time participates in auctions from
spot-purchase customers. In addition, ours is a lost sales model. One may further consider the inventory control
when backorder is allowed.
224
References
[8] Thomas, L. J. Price and production decisions with random demand. Operations Research, 1974, 22: 513-518
[9] Thowsen, G. T. A dynamic, nonstationary inventory problem for a pricing /quantity setting firm. Naval Research Logistics
Quarterly, 1975, 22: 461-476
[10] Federgruen, A., A. Heching. Combined pricing and inventory control under uncertainty. Operations Research, 1999, 47(3):
454-475
[11] Chen, X., D. Simchi-Levi. Coordinating inventory control and pricing strategies with
[12] random demand and fixed ordering cost: the finite horizon case. Operations Research, 2004a, 52(6): 887-896
[13] Chen, X., D.Simchi-Levi. Coordinating inventory control and pricing strategies with random demand and fixed ordering cost:
the infinite horizon case. Mathematics of Operations Research, 2004b, 29(3): 698-723
[14] Van Ryzin, G. J., G. Vulcano. Optimal auctioning and ordering in an infinite horizon inventory-pricing system. Operations
Research, 2004, 52(3): 346-367
[15] Vulcano, G., G. J. van Ryzin, C. Maglars. Optimal dymamic auctions for revenue management. Management Science, 2002a,
48(11): 1388-1407
[16] Vulcano, G., G. J. van Ryzin, C. Maglars. Optimal dymamic auctions for revenue management. Manufaturing and Service
Operations.Management, 2002b, 4(1): 7-11
[17] Du, L., Q. Hu, W. Yue. Analysis and evaluation for optimal allocation in sequential Internet auction systems with reserve price.
Dynamics of Continuous, Discrete and Implusive System, Series B: Application and Algorithms, 2005, 12(4): 617-631
225
Reliability of Transportation Network Service Capacity
Based on Effective Agile Theory*
Abstract In the paper, the new concept of effective agility is proposed. The relation of Just-In-Time transportation service and
effective agility is shown based on k-shortest path theory. The method for evaluating the reliability of transportation network service
capacity is given. The traffic assignment model with link capacity constraints on the concept of effective agility is proposed and GAs
solution is designed. Case study with the developing software shows that the effective agility concept and calculating method for
reliability of transportation network service capacity are feasible and promising for practical using.
Key words Effective agility, Transportation Capacity, Railroad network, Reliability, Genetic algorithms
1. Introduction
Todays markets are becoming dynamic and competitive and a firms successful management needs to be
able to adapt to the continuous change and learn from its environment. One of the ways for the success of
enterprise is to become agile in the procedure of its productions and operations. Agile theory came from Agile
manufacturing (AM) that has been defined as the capability of surviving and prospering in the competitive
environment of continuous and unpredictable change by reacting quickly and effectively to changing markets,
driven by customer-designed products and services. Critical to successfully accomplishing agile manufacturing
are a few enabling technologies such as the standard for the exchange of products (STEP), concurrent engineering,
virtual manufacturing, information and communication infrastructure, etc. The AM could lower manufacturing
costs, increase market share, satisfy the customer requirements, facilitate rapid introduction of new products,
eliminate non-value added activities and increase manufacturing competitiveness [1,2].
Agile manufacturing is complementary to quick response to an initiative initially developed for the industry
such as textiles, clothing, footwear and transportation. Quick response manufacturing (QRM) is an expansion of
time-based competition (TBC) strategies which use speed for a competitive advantage. Essentially, QRM stems
from a single principle by reducing lead times[1]. Quick response refers fundamentally to speed-to-market of
products which move rapidly through the production and delivery cycle, from raw materials and component
suppliers, to manufacturer, to retailer and finally to end consumers. In recently research, people found that QRM
not merely mean to shorten the production time but to produce in time. Thus, the agility should be the effective
agility. The quick response really denotes that the agile manufacturing be produced as quickly but as the customer
request. However, few works of the effective agility and its applications are reported openly.
Evaluating the reliability of transportation network serve capacity is one of the important works of
transportation department. The reliability of network service capacity also refers to one of the important areas in
transportation science. In China, the research on reliability of transportation service capacity is mainly limited in
lines and stations [3,4]. Few works have been found in the fields of network service capacity reliability. In other
countries, Ref. [5] proposed a model and an algorithm for measuring the reliability of road network service
capacity. Ref. [6] gave a method for evaluating the reliability of double-container railroad network capacity in
U.S.A. Since the works are based on the maximum OD output with not considering the network mileage and OD
structure, the results are not satisfied for network features. Ref. [7] proposed a concept of effective network
service capacity and its measuring method considering the network features. Thus, the reliability of network
service capacity will be addressed on the concept and its measuring method of Ref.[7].
The remainder of the paper is organized as follows: first, the new concept of effective agility and the
**
Supported by National Natural Science Foundation (No.70371014), Doctoral Foundation (20040004012) of China.
226
reliability concept of transportation network service capacity based on effective agility is proposed. In Section 3,
the calculating method for reliability of network service capacity is proposed. In Section 4, case study for
measuring reliability of network service capacity is presented. Finally, the conclusions are given in Section 5.
227
could only be transported through other paths. Suppose the number of paths is set as k when the accepted service
level based on effective agile transport time is given. Then the number of potential feasible paths is less than k
when some paths are interrupted. Sometimes the paths are not interrupted completely and the capacity is partially
influenced for some time. The influencing on these paths capacity should be considered either. Suppose there be
X uncertain scenarios. x represents a set of stochastic factors that happens in the same time for each scenario
x and x X . The stochastic factors include natural and manual aspects as operations delay, device failure, and
X
environments influence, etc. Px is denoted as the probability of X stochastic scenarios, Px 0 and Px = 1
x =1
x
the Max-KESCTN is set as Z max-KECCTN .
Since the Max-KESCTN is the maximum output provided by railroad network system, it reflects the
maximum possibility to carry the OD flows to their destinations with all k shortest possible paths. Its reasonable
to use the ratio of expectation value of Max-KESCTN under various scenarios that might influence the network
capacity to the maximum Max-KESCTN under ideal scenario to reflect the reliability of the network capacity.
Suppose the reliability of network service capacity is R , we have
X x
Z max-KESCTN
R = Px (1)
x =1 Z max-KESCTN
3.2 Method for Calculating Max-KESCTN
(1) Predict the maximum transport demand for each O-D flow of the planning year.
(2) Calculate the k-shortest paths for each O-D flow [8] on effective agility concept;
(3) Adjust the k-shortest paths according to the actual cars flow route manually if some paths are enforced or
fixed.
(4) With the capacity constraintsaccording to maximum ton-kilometers output objective, the O-D flow will
be assigned on different route with model and GAs method shown in Section 3.3 and 3.4.
(5) The sum capacity of all assigned flow times the line costs(such as line length)is the Max-KESCTN.
3.3 General Freight O-D Flow Distribution Model Based on K-shortest Path
Definitionsm ---- mth O-D flow, m M, M is the index set of whole O-D flows; i---- ith link, i L , L is the
link set of the network; p---- pth route, p ,
m m
is the route set of the mth O-D flow might select with
m m
K-shortest path methods; L p ---- link set of the pth route selected by mth O-D flow; N ---- the demand of mth
m
O-D flow; N max --- the maximum demand of mth O-D flow in planning year; Ci ---- the capacity of ith link;
wi ---- cost of ith link; pm ---- boolean variable, 1, if mth O-D flow selects pth route; 0, otherwise; aim, p ---- the
flow added on link i of pth route when it is selected by mth O-D flow; when pm = 1 , which is equal to N m , when
pm = 0 which is equal to 0.
Freight car flow distribution model based on K-shortest path is formulated as follows:
max Z = wi aim, p (2)
mM p m iLmp
s.t.
aim, p = pm N m , m M , p m , i Lmp (3)
aim, p Ci , iL (4)
mM pm
pm = 1 , m M (5)
p m
0 N m N max
m
m M (6)
228
pm {0 ,1} , m M , p m (7)
In the model, Equation (3) is the O-D flow conservation constraint, Equation (4) is service capacity
constraints of links, Equation (5) denotes each O-D flow can only select one route from all possible routes of the
route set, Equation (6) denotes that each OD flow is within 0 and the maximum volume in the planning year.
Equation (7) is logical constrains. With the objective seeks for maximum, the freight car distribution model could
be easily evaluating the maximum k-degree effective service capacity of railroad network.
3.4 Genetic Algorithms (GAs) Solution
The above model belongs to a large scale mixed 0-1 programming model and GAs are used for the solution.
K-shortest path could be solved with existing method[8]. The GAs are simply stated as follows:
(1) Chromosome decode: 0-1 decoding method is used. Each chromosome represents a potential solution of
the routes selection by whole O-D flows. The length of a chromosome is equal to the total route number
potentially selected by all O-D flows. Each gene represents one possible route, 1 denotes that the route is selected,
and 0 denotes that the route is not selected. From constraints (5), each O-D flow can only select one route once
time. For example, chromosome 100,010,,010 denotes each O-D flow have three 3 possible routes, each OD
flow adopts its maximum volume in the planning year.
(2) Fitness function: Let f z be total service capacity of railroad network, f k be objective value of kth
chromosome, be a constant, k be the fitness of kth chromosome.
Cars flow distribution for Max-KESCTN, f k = sum of flow times the cost for all links - the penalty w if the
constraints (4) are not satisfied, w = penalty coefficient overflow volume for each link; and
fitness k = f k / f z .
(3) Selection strategy: We give more reproductive chances to the populations that are the most fit. The M
highest-rated chromosomes will be preserved to next generation.
(4) Genetic operators:
Crossover operator adopts partial marching crossover method. The marching point must be the separation
point of two O-D flows to guarantee the flexibility of the crossover chromosome. Mutation operator adopts
multi-point mutation method. Each time one O-D point is selected for randomly mutation operation. Constraint (5)
should be satisfied to guarantee the flexibility of the mutation chromosome.
(5) Convergent condition:
Predefined maximum number of generation or time limit is reached.
The detailed procedure of GAs could be found in Ref.[9]. If more exact results are needed, the minimum gap
between each link capacity and accumulated flow on that link along one path will be used as the flow of the
unassigned OD flow path. Then, the final OD flow assignment result will be used to calculate the Max-KESCTN.
Moreover, the new added flow along with the previous assigned flow could be recalculated in the GAs. The
procedure could be iterated for many times until no more new flows are added to the final result.
4.Case Study
The test network is composed of 8 nodes (stations) and 12 links. The network structure and link costs are
shown in Fig.1. The upper bound of each link capacity is shown in Fig.2. The forecasting maximum OD flows is
shown in Tab.1.
2 2 10
2 4 7 8
2 4 7
2 1 8
6 8
3 2 8
1 3 4 5 8 1 4 5 8
6
1 8
2 3 5 6
4 6
3 6 3 6
Fig.1 The network structure and link costs. Fig. 2 The upper bound of link capacity.
NoteThe data are all with conversion units. The lower bound of capacity is 0.
229
Tab.1 The forecasting maximum OD flows
O\D 1 2 3 4 5 6 7 8
1 0 1 1 1 1 1 1 1
2 1 0 1 1 1 1 1 1
3 1 1 0 1 1 1 1 1
4 1 1 1 0 1 1 1 1
5 1 1 1 1 0 1 1 1
6 1 1 1 1 1 0 1 1
7 1 1 1 1 1 1 0 1
8 1 1 1 1 1 1 1 0
5. Conclusions
The paper proposed the concept of effective agility and reliability of transportation network service capacity
on effective agility. K-shortest path technology is used as a bridge to connect the transport service level and
effective agile concept. Based on the traffic assignment model on K-shortest path and GAs solution, a new method
230
to calculate the reliability of railroad network service capacity is proposed. Real instance with the developing
software shows that the concepts and calculating methods of network service capacity are feasible and promising
for large scale practical using. The method has been used for evaluatzing the reliability of east-north China
railroad network service capacity. It provides useful demonstration for further understanding the reliability
concept of railroad network service capacity. Future study will be paid on how to exactly evaluate the influence of
empty car flow, temporary passenger trains and station capacity. Also, the distribution regulation of the uncertain
factors on reliability will be further considered.
References
[1] Gunasekaran, A. Design and implementation of agile manufacturing systems, International journal of production economics.
1999,62(1):1-6.
[2] Cao, Q.; Dowlatshahi, Shad. The impact of alignment between virtual enterprise and information technology on business
performance in an agile manufacturing environment, Journal of operations management. 2005, 23(5):531-551.
[3] Zhu Xiaoli, Xiamiao Li. The Approach of Improving the Reliability of Timely Railway Freight Transit, China Railway, 2004,
(1):51-54. (in Chinese)
[4] Feng Bingjie. Evaluation on the reliability of Marshalling Station Operations. Gansu Science and Technology, 2005, 21(11):
133-134. (in Chinese)
[5] Chen, A., Yang, H., Lo, H. K. & Tang, W. H.. Capacity reliability of a road network: an assessment methodology and
numerical result, Transportation Research Part B, 2002(36):225-252.
[6] Cho. D. J., E. K. Morlok and Z. L. Chen. Efficient Algorithms for Measuring the Reliability of Transportation Network System
Capacity. Working Paper, University of Pennsylvania, Philadelphia, 2002.
[7] He Shiwei, Rui Song, Zhonglin Lei, Li Zhang. Efficient Methods for Evaluating the Effective Carrying Capacity of Railroad
Network System. the 86th Annual Meeting of Transportation Research Board, Washington, DC, America., January 21-25, 2007.
[8] Rink K.A., E.Y. Rodin and V.Sundara Pandian. A simplification of the double-sweep algorithm to solve the K-shortest path
problem, Applied Math. Lett., 2000, 13(8): 77-85.
[9] Michalewicz, Z. Genetic Algorithms + Data structures = Evolution Programs, Springer-Verlag, Berlin. 1994.
231
Information Increment and Information Value in Supply Chains
Abstract Information plays the most important role in supply chain management. In this paper, concepts of information increment
(I) and value of information (VOI) are introduced; then, the relationship between them is analyzed. Information increment is
defined as the status cognition change compared with the real status. An opinion is then presented that I and VOI are strongly and
positively correlated. For supply chain applications, a general analysis framework with a common ordering policy, APIOBPCS, is
established to reveal the functioning mechanism of information. Capacity constraints are introduced into the analysis for improving
the practicability of the ordering policy models. The proposed opinion is proved through simulation experiments.
Key words Information management, Supply chain management, Information increment, Value of information
1. Introduction
Information flow, with the highest frequency, the most complex structure and the fastest transformation,
controls and dominates material, capital and value flow in supply chain processes. The whole supply chain can be
operated efficiently only by using accurate information. Information plays an indispensable role in supply chain
cooperation, the main function of which involves: transaction, decision-making, strategic planning and managerial
controlling. The problem of supply chain information management (SCIM) has been widely researched in the
world. The theoretical layer, including the measurement, evaluation and classification of information, is the
preliminary work of applied researches. The aim of this research is to quantitatively analyze the relationship
between information and its value through definition of information increment; and to demonstrate the positive
correlation between them.
In economics, game theory and payoff matrix are used as primary instrument and framework in VOI analysis.
Afriat (1967) examines a situation where only finitely many observations of prices and consumption-bundles of
an agent are available[1]; Aumann (1974) models the information structure in a Bayesian game by a partition of the
state space into disjoint cells[2]. Since then, almost all VOI researches were carried out within Bayesian
information structure. Gould (1974) defines Value of Correct Information (VCI)[3]; Gilboa and Lehrer (1991)
examine situations of single decision maker, and then propose a method to evaluate information[4].
There have been considerable interests in applying VOI theory to weather forecasting, financial investment,
transportation management and animal behavior. Studies in the field of SCIM, especially VOI researches,
however, are still limited. The quantitative research, characteristics and mechanism of information as well as
effective selection method have been paid relatively less attention. Most past efforts have been spent on Bullwhip
Effect analysis, information risk and information sharing. Bourland et al. (1996) investigate the value of
information sharing when lead-times of distributor and manufacturer are different[5]; through discussions of
lead-time, demand forecasting and Bullwhip Effect, Chen (1998) demonstrates the necessity of information
sharing[6]; Gavirneni (1998) studies the information sharing problem under a two-echelon supply chain model[7];
Cachon and Fisher (2000) show how information could be effective to the manufacturer when the distributor uses
an order batching policy[8]. Among all the works mentioned above, only Chen (1998) discusses the value of
demand information sharing of supply chain members. However, information sharing, as a kind of information
utilization mechanism, is different from information itself. Therefore, the value of information sharing should not
be confused with the concept of VOI. Since none of the above studies investigate information and VOI
characteristics in supply chains, this study is designed to fill this research gap.
In this paper, VOI in supply chains according to supply chain information characteristics is defined. The
concept of information increment is used as a key for investigating the direction characteristics of information.
Then, with a common ordering policy APIOBPCS, quantitative analysis about information increment and VOI is
This research has been supported by National Natural Science Funds of China (Research on supply chain information management based on control engineering
and information theory, No: 70572014; 70521001).
232
carried out via simulation experiments. Lastly, the results are discussed and a general framework for supply chain
information management studies is proposed.
2. Related concepts
2.1 Information and value of information
This paper follows the opinion of Zhong (2002)[9] that information takes effect by changing the
environments status cognition. According to this cognition, decision makers adjust themselves in order to
maximize their utility, which can be expressed as a function of the real environment status T* and the decisions
he/she makes, D. Then the utility function can be written as U ( D; T * ) , and furthermore U (T0 ; T * ) , considering
the corresponding relationship between decisions and status cognition, T0.
The value of information can be calculated as the utility difference before and after the decision maker
receives the information. Let the anterior cognitive status be T, and the posterior cognitive status T after
information X is received. Then the value of X is
V ( X ) = U (T ; T ) U (T ; T )
* *
(1)
where is the mean value, is the standard deviation and Euclid distance measure is adopted. Vector (, log)
is one-one corresponded with all the points in 2-dimensional real plain. To extend the range of the vectors latter
part from positive to the whole real axis, logarithmic standard deviation is used here.
233
establish relationships between IQ and VOI. This paper brings real status into consideration of information
quantity to propose the concept of information increment (I). The information increment of information X is
defined as
E ( X ) = I (T ; T ) I (T ; T )
* *
(6)
The value of I will be positive if the decision maker makes relatively correct cognition move; and negative
vice versa.
Obviously, considering I as a function of posterior status cognition, the following features can be
discovered,
(1) E ( X ) is positive/negative, if and only if I (T ; T * ) is more/less than I (T ; T * ) ;
(2) E ( X ) = 0 , when T = T ;
(3) E ( X ) = maximum , when T = T .
*
This paper proposes the opinion that I and VOI are positively correlated.
where Ot and D t are the order and demand estimation of period t; AINVt-1 and AWIPt-1 are the actual
inventory and work-in-process level in period t-1, DINV and DWIP the desired inventory and WIP level, Ti and Tw
artificial parameters respectively. Exponential smoothing is used for demand forecasting. For detailed description
about this policy, see Disney et al. (2003, 2000)[11][12].
3.2 Capacity constraints
Capacity is usually assumed infinite in cybernetics-based supply chain researches, which greatly reduces the
authenticity of supply chain models. Here, a production system is defined to be a combination of an ordering
system and capacity constraint, and the capacity Ca is a function of estimated demand distribution parameters, or
Ca = F ( , ) , where and are the estimations of mean value and standard deviation of demand. Capacity
constraint works as an ideal limit filter. Assuming the demand process is Gaussian distributed, and no exterior
resources are capable for the manufacturer, then the order process will follow a continuous-discrete hybrid
distribution which is Gaussian under capacity Ca, whereas the probability on Ca will be
+
p (C a ) = 1 F (C a ) =
Ca
f ( x ) dx (8)
The above-mentioned constraint is the only dissimilarity between the ordering policy used by the
manufacturer and the one discussed in section 3.1. Among other aspects, they are identical. e.g., output and WIP
are respectively order and on-the-way products. The manufacturer satisfies customer needs and minimizes the
costs via adjusting the capacity constraint according to demand estimation. As can be seen, the real demand
distribution here is actually environments real status which is discussed in Section 2; and the estimated
distribution is in fact the status cognition. The value and function of information in supply chains can be revealed
and calculated using this model shown as Fig.1.
234
Fig.1 The information effect model of a supply chain manufacturer
The dashed frame in Fig.1 representing a production system consists of a smoothing filter (the ordering
policy APIOBPCS) and a limit filter (the capacity constraint). The decision maker of the production system
collects various kinds of available exterior information concerning the demand status, and therefore changes its
estimation about the demand distribution (upper dashed curves in Fig.1). The capacity constraint is then adjusted
according to the new estimation.
3.3 The cost structure of a supply chain member
Production costs involved in this paper, or costs produced by demand fluctuation, consists of the following
two kinds:
T
Inventory/backorder cost C I = ( v1 AINVt + v2 BOt ) , brought up by redundancy or deficiency for
t =1
satisfying customers demands, where v1/v 2 is the unit cost of inventory/backorder, AINVt/BOt the
inventory/backorder level in period t.
T
the unit cost of producing/ordering adjustments, and ORATEt the production/order rate in period t. For descriptive
analyses of these two forms of costs, see Dejonckheere et al. (2002)[13].
Besides, fixed cost should be given full consideration since capacity is considered, which can be defined
as CF = T v4 Ca , where v4 is the fixed cost per unit capacity, and Ca is the current capacity.
Accordingly, the total cost of the system should be the sum of these three kinds of costs listed above, or
CT=CI+CP+CF.
4. Simulation experiment
4.1 Model Settings
Disney et al. (2002) provide several sets of optimized APIOBPCS parameters[14]. In this paper, small
adjustments are made based on these optimized parameters in order to obtain more distinct simulation results. Let
Tp=3, Ta=4, Ti=1, Tw=1.5 since slight adjustments of parameters will affect neither the convexity of the cost
curves, nor any of the following results.
The settings of v1, v2, v3 and v4 are also based on the above purpose. Again, such behavior will not affect the
characters of the research object. The parameters used are v1=0.5, v2=1, v3=2, v4=3.
4.2 The positive correlation between I and VOI
MS-EXCEL 2003 and SPSS 11.0 are used in this research for simulation experiment and statistical analysis.
The length for each simulation scenario is 10,000 time periods.
Firstly the relationship between cost and capacity is managed to attain. 151 different values of demand
deviation from 0.1 to 1.5 and 141 values of capacity from 0 to 1.5 with an increment of 0.01 are used to simulate
various cost performances. In each scenario of different deviation and capacity, 100 samples of cost values are
generated, the average of which is then set to be the expected cost in this scenario. Finally a cost matrix of
151141 is generated. The total calculation amount is at the 1011 level. By investigating optimal capacities and
minimum costs under each deviation level, Fig.2 can be attained.
235
0.4
Capacity
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5
Standard Deviation
Irregular fluctuations are seen in Fig.2 due to errors in random number generating and calculating. But still
the trend is obvious that higher capacity is necessary for greater demand fluctuation. Through regression analysis
using SPSS, the optimal capacity decision rule can be attained. Here linear regression is used for simplicity.
C a ( ) = 0.177 + 0.1085 . (9)
*
Assuming that the decision-maker is limit-rational, Equation (9) can be used as a decision rule for capacity
settings according to his/her opinion about the real demand distribution. In order to attain the relationship between
demand deviation estimation and cost, (9) should be substituted into the cost matrix. Then the relationship
between estimated deviation and cost is clarified, as in Fig. 3.
80000 Cost
70000
60000
50000
40000
30000
20000
10000
0
-0.61-0.050.52 1.08 1.65 2.21 2.78 3.34 3.91 4.47 5.04 5.60 6.17 6.73
Estimated Deviation
Fig.3 Relationship between estimated deviation and cost when demand is N (0, 1) distributed
Some explanations about this figure should be made here that during the substitution some data with negative
deviation values are generated inevitably, which disobeys the mathematical definitions. Hence, these data are
disposed without any possibility to affect the final results.
Using Fig.3 and relevant data, the relationship between I and VOI can now be investigated. Let the actual
standard deviation of demand be *, the anterior deviation estimation =0.4, the posterior estimation , then VOI
can be calculated as follows,
V ( X ) = CT ( | ) CT ( | ) (10)
* *
Likewise, based on Equation (5) and (6), effective information increment in this situation will be:
E ( X ) = log log log log (11)
* *
236
V (X) 6000 V (X ) 10000
5000
4000
0
2000
-0.6 -0.4 -0.2 0 0.2 0.4
0 -5000
-2 -1.5 -1 -0.5 E (X )
-2000 0 0.5 -10000
-4000
E (X ) -15000
-6000 -20000
-8000 -25000
-10000 -30000
-12000 -35000
-14000
-40000
a. 2<*, or 1 and 2 on the same side of * b. 2 >*, or 1 and 2 on the different side of *
The Pearson, Kendall and Spearman correlation coefficient of I and VOI are 0.814, 0.932 and 0.955
respectively. This discovery reveals a strong positive correlation between them, which indicates the necessity to
consider I as an important reference in information evaluation and selection. Besides, several other findings from
Fig.4 are as follows,
(1) I and VOI reach their peak values when the estimated and real parameters of demand distribution are
identical. I and VOI have upper bounds, and they reach these bounds only when estimation is totally correct.
(2) When the anterior and posterior estimations are identical, which means the supply chain member has not
received any information or no information is utilized, I=0, VOI=0.
(3) The supply chain member receives negative or false information if I is negative. Moreover, the greater
estimation differs from reality, the more harm false information will do to the decision maker.
(4) Fig.4b reveals the scenarios that 1 and 2 are in different sides of *, in which it is impossible for anterior
and posterior estimations to be equal. Due to the discrepancies between utility and information quality curves, the
phenomenon may appear that I and VOI will not be zero simultaneously, which explains why the curve in Fig.4b
does not pass through the origin point.
5. Conclusion
This paper proposes the concept of information increment in supply chains according to supply chain
information characteristics. Information increment is defined as status cognition change compared with the real
status. Then, the relationship among information quantity (IQ), information increment and value of information
(VOI) is analyzed. Capacity and cost settings are introduced into a common ordering policy APIOBPCS so that
the effect of information to supply chain performance can be revealed. Through simulation experiments, the
strong and positive correlation between I and VOI is proved. This result is particularly useful in understanding
information functioning mechanism as well as in information evaluation and selection. The result shows that it is
possible for supply chain members to select information by information increment. By choosing high increment
information and eliminate low/negative increment information, supply chain members will effectively utilize
information into correct cognitions, to maximize information value and efficiency.
This research concentrates on the two roles a supply chain member is playing: 1) transforming demand
signals into order signals by an ordering policy (filter), and 2) adjusting itself according to its optimal decisions
based on cognitions and rations (information subject). Hence, a framework is established in this paper for supply
chain information management problems using control engineering theory and information theory. By
distinguishing the two roles mentioned above, this methodology reflects with more clarity how information affects
supply chain members. Meanwhile, the general pattern of decision-result, which is popular in related literatures,
is expanded into cognition-decision- result by this methodology. In this paper, linear regression is used for
making decision rules; capacity is used as the decision variable and production cost is used as a performance
measure. In fact, various kinds of decision making and performance measuring methods can be applied in this
framework.
237
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Computers and Industrial Engineering, 2002, 43(1-2): 27-58.
238
Information Sharing in a Supply Chain with Learning Effect
Abstract We study the impact of information sharing across decentralized retailers in a supply chain. The manufacturer supplies
similar products to multiple retailers and each retailer serves its independent end market. Retailers face one period of demand and can
satisfy the demand by ordering in the first period or back-ordering some of the demand and satisfying it in the second period. The
wholesale price in the second period is decreasing in the total order size, across the retailers, in the first period. We show that retailers
have no incentives to share information about their private values when equilibrium order quantities are interior, i.e., the order size is
between zero and the demand. This result is contrary to the result in oligopoly models on information sharing. In addition, we show
that the impact of information sharing is decreasing when there are more retailers.
Key words Supply chain, Learning effect, Information sharing, Bayesian Nash equilibrium
1. Introduction
Information technology development has facilitated companies to transfer and handle information more
efficiently. Collaboration between partners or competitors through information sharing had become a common
phenomenon in our economy. For example, Convisint.com, an online information platform was formed by three
big automakers (Ford, GM and Daimler-Chrysler) in early 2000. Through this e-market, they can share
information on product design and production plan with their suppliers. However, companies constantly
examine whether information sharing is beneficial i.e., whether it is in their self interest to share information.
Interesting, while many companies, such as Renault, Nissan, Mitsubishi and Peugeot, joined Nisteveo later, others
have not joined. In fact, Volkswagen made it own e-market VWgroupsupply.com.
Obviously, there are many factors that influence a firm's incentives to share information. These include (a)
where the firm is located in a supply chain, (b) how this firm competes with others, (c) what type of information is
going to be disclosed, etc. Without a specific framework, it is hard to predict the outcome of information sharing.
In this paper, we focus on the effects of information sharing in an environment with a supplier learning curve.
In many industries, the wholesale price declines as industry production volumes increase. A key factor that
drives such price decreases is known as the learning curve or the "learning-by-doing" effect. This means that a
product's unit cost decreases due to the accumulated experience in producing and selling the product. In a supply
chain setting, the buyer's expectation of supplier's learning curve will affect his procurement strategy, which in
turn impacts price reductions and his long-term cost.
In oligopoly literature there is a line of research investigating incentives for oligopolists to share their
private information about uncertain demand conditions or production costs. General assumptions include: (1) the
uncertain variable can be a common value (e.g., the intercept in demand function) or a firm-specific value (e.g.,
each firm's production cost); (2) firms must reach an agreement on information sharing before they obtain private
signal about their true private state; and (3) once an agreement is reached, each firm will exchange information
truthfully according to the agreement. Novshek and Sonnenschein(1982)[1], Clarke (1983)[2], and Gal-or (1985)[3]
analyze the Cournot game with uncertain demand conditions, while Gal-or (1986)[4] and Shapiro (1986)[5]
consider the Cournot game with uncertainty about each firm's private production cost. Li (1985)[6] investigates
uncertainty in both demand and production cost. Vives (1984)[7] and Gal-or (1986)[4] compare the equilibria under
different competition: Cournot and Betrand. Raith (1996)[8] proposes a general framework for analyzing
information sharing in oligopoly. A general result given by these works is that the equilibrium outcome of
information sharing will reach two extreme points: no information sharing or full information sharing, depending
on the competition type (i.e., Cournot or Bertrand) and product type (i.e, complement or substitute). Vives
This research has been supported by research grant No. 06XNB033 from Renmin University of China.
239
(1999)[9] summarizes these results and concludes that firms in Cournot competition with a homogeneous product
have no incentives to share their private information about the common value. In addition, information sharing
will benefit social welfare in Cournot competition with demand uncertainty.
Along the supply chain literature, research is focused on the value of vertical information sharing and its
effect on bullwhip effect (Lee and Whang (1997)[10]). Cachon and Fisher (2000)[11] study the value of sharing
demand and inventory information in a two-level supply chain with one supplier, N identical retailers, and
stationary stochastic customer demand. They find that the value of reducing lead times and increasing delivery
frequency is more significant than information sharing. Both Li (2002)[12] and Zhang (2002)[13] consider the
supply chain with one manufacturer and multiple competing retailers. They study the incentives for retailers to
share their private information with the manufacturer under Cournot and Bertrand competition. More recently,
Guo et al. (2006)[14] address supply chain partners' incentives for information sharing from the perspective of
designing an information system. They prose a macro prediction market to effectively elicit and aggregate useful
information about systematic demand risk. See Chen (2003)[15] for a more detailed review on information
sharing in supply chains.
In this paper, we focus on a supply chain consisting of independent retailers who share upstream supply.
Retailers face one period of demand and can satisfy the demand by ordering in the first period or back-ordering
some of the demand and satisfying it in the second period. The wholesale price in the second period is
decreasing in the total order size, across the two retailers, in the first period. This decrease in wholesale price
captures the market learning effect of aggregate orders that has been extensively documented in the empirical
literature. In this model, we are interested to answer following questions:
(1) Are there incentives for retailers to exchange demand information?
(2) What is the effect of retailers on their incentives to share information?
(3) What are the impacts of different schemes of information sharing on retailers' behavior?
The rest of this paper is organized as follows. In section 2, we present the structure of the. In section 3, we
analyze both interior and boundary Bayesian Nash equilibria and their effects on the choice of information sharing.
Section 4 concludes this work and suggests some possible extensions.
2. The Model
2.1 Information Structure
In the current model, we will consider a different information structure from those used in previous
economics literature, which we term an information partition. Suppose there are n players who share the same
demand distribution and define N by N = {1, , n} . In this information scheme, a prior probability is assigned to
each possible demand state and all these demand states are divided into some partitions. When demand
information is shared, each retailer only reports the rank of the partition to which his demand belongs. Specifically,
we assume that there are 2M demand states for each retailer and the size of each partition is 2M ' , where M ' < M .
If K = {1, , 2 M } denotes the set of demand state, then we can divide the state set K into J equal-size subsets K j ,
where j {1, , J } and J {1, , 2 M } . In addition, we assume K i K j = for i j . Decision on J is made
at the first stage of the game, which specifies the extent of information sharing. For example, J = 2M refers to
specific (full) demand information, while J = 1 refers to no information sharing. Then, at the second stage of the
game, retailer i observes his own demand di and reports his partition K i ( {K1 , , K J }) to other retailers. For
example, if each retailer has 4 demand sates, we can divide the state set into two subsets: {1, 2} , which includes
the two lowest demand states, and {3, 4} , which includes the two highest demand states. Each retailer can report
to other retailers the partition in which his demand lies after he observes his own demand state. Thus, the finer the
partition, the greater the information that is shared among retailers. In other words, the size of partitions measures
the extent of information sharing.
2.2 Demand Structure
At the first stage of the game, retailers make an agreement regarding the extent of information sharing. Thus,
240
the state set K is divided into J equal-sized subsets K j , where j {1, , J } . Then, at the second stage of the game,
retailer i observes his own demand di , and reports his partition
K i ( {K1 , , K j }) to other retailers. Given this information, retailer i determines his order quantity qi to
maximize the expected profit as follows:
i (qi ) = rdi p1qi (di qi )( pb + p2 (qi + E[q ]))
j N \ i
j
k K j
qk Pk
where E[q j ] = .
k K j
Pk
Given retailer i's profit function, the Cournot Nash equilibrium is a vector of order quantities q , such
that qi = arg max i (q1 , , qi1 , qi , qi+1 , , qn ) . Thus, each retailer maximizes his own profit, holding the decision of
qi
Information
Sharing
1
3. Structural Results
In this section, we derive some structural results for the interior equilibrium, in which each retailer's
equilibrium order quantities are always between zero and his own demand. We shall show that in this case
information sharing always worsens performance, thus no sharing is the dominant strategy. We extend the model
to a case with n players and four demand states, i.e., N = {1, , n} and K = {1, , 4} . Then for each demand
state, d k = Dk / n , where k K and Dk is an exogenous number. Thus, the total market size has a fixed
expected value regardless of n. Without loss of generality, we assume that d1 < d 2 < d3 < d 4 . In the following, we
will compare three schemes of information sharing: no information sharing, partial information sharing and full
information sharing. We assume that market conditions guarantee interior Cournot equilibria.
3.1 Interior Equilibrium
Let qi denote the retailer i's order quantity when he has demand di , where i N = {1, , n}
pb + p2 p1 + (di j i E[q j ])
and di {d1 , d 2 , d3 , d 4 } . By the first order condition, we have qi = .
2
Assume qi = a + bdi by , taking this back into the above equation, we
p + p2 p1 di (n 1)a + b (n 1) / n p + p2 p1 (n 1) 1
have a + bdi = b + . Therefore, a = b and b = .
2 2 2 (n + 1) 2n(n + 1) 2
From the first order condition, we know the conditional expected profit is
i = (r p1 )di + (di qi ) 2
Thus, in the first stage of the game, the unconditional expected profit under no information sharing is
241
iNIS = EkK [(r p)d k + (d k qi ) 2 ]
dk
= (r p1 ) Pk d k + ( b) 2
k K k K 2
Similarly, we can derive the profits under PIS and FIS (more detailed analysis please refer to Wu (2005)[16]).
By comparing profits under three strategies, we have the following theorem about information sharing.
Theorem 1 If the interior equilibrium is guaranteed in the second stage of the game, each retailer is worse
off by sharing more information, i.e., iNIS > iPIS > iFIS . Thus, no information sharing is the dominant strategy
in the first stage of the game.
Proof. It can be verified that
(n 1) 2 (( P1 + P2 ) A1 + ( P3 + P4 ) A2 ) 2
iNIS iPIS = >0
4(n + 1) 2 ( P1 + P2 )( P3 + P4 )
(n 1) 2 (( P1 + P2 ) B1 + ( P3 + P4 ) B2 ) 2
iPIS iFIS = >0
4(n + 1) 2 ( P1 + P2 )( P3 + P4 )
and
(n 1) 2 ( kK Pk d k2 ( kK Pk d k ) 2 )
iNIS iFIS =
4(n + 1) 2
where A1 = d3 P3 + d 4 P4 , A2 = d1 P1 + d3 P2 , B1 = (d3 d 4 ) 2 P3 P4 , and B2 = (d1 d3 ) 2 P1 P2 .
This also suggests that the difference in profits is decreasing in the number of players in the market. In other
words, the impact of information sharing is diminishing when there are more players who have thinner market
shares.
3.2 Boundary Equilibrium
The above results show that when quantity equilibria are interior, full information sharing is always
dominated by no sharing. In this section, we show that there exist cases in which some equilibrium quantities may
be on the boundary. Let qL and qH denote the interior order quantities which reach the low boundary and high
boundary respectively, i.e., qL arg min{qiNIS , qiPIS , qiFIS i N } and qH arg min{di qiNIS , di qiPIS , di qiFIS i N } .
Let I k denote the set of retailers whose demand state is k K .
Theorem 2 If the quantity equilibrium is interior, the first order quantity reaches the low boundary
is qL = {qiFIS I1 = {i}} ; the first order quantity reaches the high boundary is qH = {qiFIS I 4 = {i}} .
Proof. In the case of no information sharing, it is obvious that the order quantity is lower when a retailer
has a low demand. While in the case of full information sharing, the minimal order quantity is qi when retailer i
is the only one who has the lowest demand, i.e., I1 = {i} . Now we only need to prove both a + bd1 and
a '1 + bL + (n 1)bH are larger than a1 + b1 + (n 1)b4 . Note that
pb + p1 p2 (n 1) d1 a + a (n 1)
a + bd1 (a1 + b1 + (n 1)b4 ) = + a1 + 1 4
(n + 1) 2n(n + 1) 2 n +1
(n + 1)d1 (n 1) nd1 (n 1)d 4 (n 1)(d 4 d1 )
= > >0
2n(n + 1) n +1 2n(n + 1)
and
(n 1)(2(d 4 d3 )( P1 + P2 ) P3 + (d 2 d1 )( P3 + P4 ) P2 )
a '1 + bL (n 1)bH (a1 + b1 + (n 1)b4 ) = > 0.
2(n + 1)( P1 + P2 )( P3 + P4 )
Therefore, in all the equilibrium quantities under three information sharing schemes a1 + b1 + (n 1)b4 will be
the first to hit the lower bound.
Similarly, we can prove that a4 + (n 1)b1 + b4 will hit the higher bound first.
Theorem 2 sheds some light on the properties of boundary equilibria, in which some equilibrium quantities
may be on the boundary. In this case it is difficult to obtain structural results on the impact of information sharing.
242
However, some insights can be obtained through further numerical study.
3.3 Model Extension: Continuous Demand Distribution
Suppose there are one supplier and n retailers/buyers, and each retailer's demand follows a uniform
distribution, i.e., di ~ U [d1 , d 2 ] .
At stage 1, retailers make an agreement on how precise they will disclose their private demand, which is
observed at the beginning of the second stage by each retailer. Specifically, they decide on a precision index m,
and the interval [d1 , d 2 ] is divided into m segments, which are indexed by j {1, , m} . Let = (d 2 d1 ) / m ,
which represents the length of each segment. After retailer i observes his demand di , he will report his location ki
to the public, i.e., d1 + (ki 1) < di < d1 + ki . Obviously, larger m implies that the more precise information is
shared. When m = 1 , there is no information sharing. When m = , there is full information sharing. Given m, after
demand information is shared, each retailer's location index K = {ki : i = 1, , n} is public knowledge. Thus,
information set available to retailer i is Ii={K,di,}.
Retailer i's expected cost is
i ( I i ) = qi ( I i ) p1 + (d i qi ( I i ))( p2 + pb (qi ( I i ) + E[q j ( I j )]))
j i
(n 1)(d1 )
p p2 pb
A0 = 1 2 , A = , A = , and A = 1 .
(n + 1)
1 2 3
2(n + 1) n +1 2 2
4. Concluding Remarks
In this paper, we consider a strategic procurement problem faced by retailers who face independent demand
markets but share supplier capacity. The main contribution of this research is that we employ a new information
structure-information partition, which had not been used in previous related literature. We establish that the
243
equilibrium solution to our problem matches the solution for a Cournot game with retail competition. We show
that retailers have no incentives to share information about their private values when equilibrium order quantities
are interior, i.e., the order size is between zero and the demand. This result is contrary to the result in oligopoly
models on information sharing. In addition, we show that, under constant market conditions, the number of
retailers may affect their incentives to share information. The impact of information sharing is decreasing when
there are more retailers.
It would be worthwhile to do further numerical analysis on multiplayer game to investigate if the number of
retailers will change the choice of information sharing. It is also interesting to explore the mixed structure of
information sharing, for example, partial retailers form information sharing group while exclude others joining
them.
References
[1] Novshek W. Sonnenschein H. Fulfilled expectations Cournot duopoly with information acquisition and release, Bell J. Econ.
1982:13:214-218.
[2] Clarke R. Collusion and incentives for information sharing, Bell J Econ. 1983;14:383-394.
[3] Gal-Or E. Information sharing in oligopoly, Econometrica 1985;53:329-343.
[4] Gal-Or E. Information transmission: Cournot and Bertrand equilibria, Rev. Econ. Stud. 1986;53:85-92.
[5] Shapiro C. Exchange of cost information in oligopoly, Rev. Econ. Stud. 1986;53:433-446.
[6] Li L. Cournot oligopoly with information sharing, Rand J Econ. 1985;16: 521-536.
[7] Raith M. A general model of information sharing in oligopoly, J. Econ. Theory 1996;71:260-288.
[8] Vives X. Duopoly information equilibrium: Cournot and Bertrand, J. Econ. Theory 1984;3:71-94.
[9] Vives X. Oligopoly Pricing: Old Ideas and New Tools, The MIT Press, Cambridge, 1999.
[10] Lee HL, Padmanabhan P, Whang S. Information distortion in a supply chain: The bullwhip effect. Management Sci.
1997;43:546-558.
[11] Cachon G, Fisher M. Supply chain inventory management and the value of shared information. Management Sci.
2000;46:936-953.
[12] Li L. Information sharing in a supply chain with horizontal competition. Management Sci 2002;48:1196-1212.
[13] Zhang H. Vertical information exchange in a supply chain with duopoly retailers. Production and Operations Management
2002;11:531-546.
[14] Guo Z, Fang F, Whiston AB. Supply chain information sharing in a macro prediction market. Decision Support Systems
2006;34:427-438.
[15] Chen F. Information sharing and supply chain coordination. In: S.C. Graves and A.G. De Kok, Editors, Handbooks in
Operations Research and Management Science: Supply Chain Management: Design, Coordination and Operation, Elsevier
Publishing Company (2003) Ch.7.
[16] Wu J. Information Visibility and Its Impact in a Supply Chain. Ph.D. dissertation, Krannert School of Management, Purdue
University, West Lafayette, IN, 2005.
244
A Study of the Production Planning and Control System for
Remanufacturing
Abstract This paper delves into the basic logic behind the production planning in a remanufacturing environment after considering
the differences between remanufacturing and the traditional manufacturing processes, and has laid out a framework of its material
requirement planning. We have taken into account the input priority of materials (remanufactured over first-time) as well as the
capacity constraints in disassembly and reassembly etc, and come up with a production planning model for remanufacturing. To be
exact, firstly we forecast the flow of returned cores, and also suggest the disassembly probability to be dynamically updated, thus
determine the purchase of first-time parts. Secondly we have done a linear programming optimization of disassembly planning of
cores in each period including capacity constraints. Thirdly, we have discussed the determination of safety stock of cores and parts in
order to reduce the uncertainties. At last, an example is given to illustrate the model.
Key words Remanufacture, MRP, Core, Remanufactured parts
1. Introduction
In the new millennium, environmental protection is no longer a remote notion, but has become a social
endeavor to save the world in which we live in. Producer-responsibility legislation is just one of its kind to hold
manufacturers responsible for the whole life cycle of their products, which not only requires the proper handling
of waste and pollution in the production processes, but in the remaining product life cycle as well. It is highly
necessary to recycle the EOL (end-of-life) products in order to re-use the resources and to protect the environment.
Lund (1983) defines remanufacturing as an industrial process in which worn-out products are restored to like-new
condition. Through a series of industrial processes in a factory environment, a discarded product is completely
disassembled. Usable parts are cleaned, refurbished and put to inventory. Then the new product is reassembled
from the old and, where necessary, new parts to produce a fully equivalent - and sometimes superior - in
performance and expected lifetime to the original new product. While remanufacturing is environmentally sound,
its production planning faces a great degree of uncertainty involving the time to recycle these used products (a.k.a.
cores), the quality and quantity of cores, and the disassembly processes etc. Traditional production planning
control theories fall short of the requirements of remanufacturing. So how to make a tailored production planning
specifically for remanufacturing is one question that awaits a proper answer.
2. Review of Literature
In the research of reverse logistics network, previous studies are mostly based on the assumption of
independent distributions of product return and demand. Teunter (2001) assumes both the return and demand
processes are independent, and they are stable in volume. Minner & Kleber (2001) assume the demand and return
and independent, and these two processes are continuous. Bayindir et al (2003) assume both the return and
demand processes are independent homogeneous Poisson processes. But Kiesmuller & Van der Lann (2001)
assume the demand and return are related in probability. Brito & Dekker (2003) assume if product demand are
homogeneous Poisson processes, then the return of cores is also of the same distribution, and these two
distributions are independent.
In the literature of disassembly and product recovery, Thierry et al. (1995) conclude that there is uncertainty
in the timing and number of core returns as well as the conditions of cores after a close study. Guider Jr. (1997)
points out three aspects that complicate the remanufacturing process, that are probabilistic recovery rates of parts
from the inducted cores, unknown condition of the recovered parts until inspected, thus leading to stochastic
This research has been supported by the National Natural Science Funds of China (An Economical Analysis & Optimization of Recovery Processing Policies
about Discarded Product, No.70472080)
245
routings and lead times. These aspects have a direct influence on the production planning and control in
remanufacturing. Guide (1997) suggests the necessity of safety stock in a remanufacturing system in order to
reduce the uncertainties.
In the remanufacturing PPC literature, Geraldo Ferrer and D Clay Whybark (2001) correlate recycling
quantity with sales volume, and take into account the different disassembly probability of parts from cores. They
have determined the purchase and disassembly planning of cores based on the MRP logic. But they do not
incorporate capacity constraint or the availability of purchased cores in their model. Clegg A.J. et al (1995) utilize
linear programming to solve the optimization problem of material requirement planning in remanufacturing. Karl
Inderfurth et al(2001) suggests the separation of the disassembly part from the combined reassembly and
manufacturing part, treating the parts that are up to the standard as a source of input to the reassembly planning.
Thus the standard MRP approach can be extended to incorporate the flows of return, the availability of
components or products after disassembly and remanufacturing operations in a hybrid system.
This paper is a study of the production planning and control (PPC) system for remanufacturing. We will first
analyze the difference between the MRP tailored for remanufacturing and the standard MRP in view of the
complicating characteristics of remanufacturing. And then well discuss how the standard MRP can be extended
to incorporate remanufacturing. The model constitutes of two parts, part requirement as well as part supply which
include the returned cores and first-time parts. Disassembly planning of cores and relevant inventory control
decisions are made as well. We have also imposed capacity constraints in all the main procedures in our model, in
order to see how the part requirement can be satisfied by the disassembly yields and parts purchased combined in
a more realistic perspective.
The recovery process for assembled products usually goes as follows: First its disassembly. Its very
important for a successful recycling program. Materials can only be recycled and usable parts be remanufactured
after disassembly. Then its inspection and sorting. The first class of parts is up to grade, and is ready for
reassembly or repair purposes. The second class isnt up to standards, but can go to reassembly after some repair
or refurbishing. The third class is completely useless as parts, but the material that makes the parts are salvageable.
They make up a renewable resource for part manufacturing; this is sometimes referred to as material recovery.
246
4. The Characteristics of Production Planning for Remanufacturing
The production planning in a remanufacturing environment is complicated by such issues as the uncertainties
in the timing and quantity of cores, the parts recovered from cores etc. These characteristics may include, but not
limited to:
4.1 The Uncertainty in Returns of Cores
The overall production planning in a remanufacturing facility has to take into account not only the market
demand (which includes the short-term market forecast and the orders taken from customers), and the quantity of
returned cores as well. The timing and quantity of core returns depend on the conditions of a product, the
advancement of technologies and the sales volume of products. These uncertainties are much greater than the
lead-time forecasting in traditional purchasing system, and complicate the forecasting in the quantity of cores,
which is quite difficult to ensure accuracy. A small inaccuracy in the forecast of returned cores will lead to
unrealistic production planning, which may render all consequent planning useless.
4.2 The Imbalance between Returns and Demand
Imperfect correlation between returns of remanufacturable cores and market demand for remanufactured
product is almost inevitable. And when this occurs, it will give rise to two kinds of problems. When return
exceeds demand, it will lead to excess stock of remanufactured products, in which case holding cost will be a
problem; when demand exceeds return, it is hard to meet the customers need in time, thats an opportunity cost
for the remanufacturer. So remanufacturer have to balance the return and demand in order to maximize profit, and
this asks for flow-of-return planning on the basis of trading off between inventory cost and OOS (Out Of Stock)
cost.
4.3 The Uncertainties in the Disassembly of Cores
Disassembly of cores is a crucial procedure in the whole of remanufacturing process. Cores are often of
different qualities because of different conditions, and this complicates the disassembly. Disassembling
procedures are far from standardized all because of the innate uncertainties. And cores are disassembled according
to DBOM (Disassembly Bill Of Material) in a stochastic way, and may involve destructive forces. So disassembly
is not simply the reverse of assembly, and such characteristics must be considered in disassembly planning.
247
disassembly capacity constraint and inventory control of both cores and parts. The remanufacturing PPC system
comprises of two parts: one is the requirement planning of remanufactured parts; the other is the supply planning,
which includes the parts disassembled from cores as well as parts that are made from first-time material (which
are purchased). We can see how the logic works in Fig.2.
Master Reassembly Schedule
Parts
N
DBOM Sufficient Cores Purchase
Planning
Y
Core Disassembly
Planning
N
Feasible?
Y
Inventory Control
The production planning of remanufacturing starts from forecasting, this leads to aggregate production plan
which consolidates into Master Reassembly Schedule (MRS). MRS combined with BOM and part inventory can
determine the part requirement. Since the remanufactured parts are the primary resource to satisfy the part
requirement, so the forecasting of cores must be made ahead of that of first-time parts. After that, the disassembly
planning should pass the capacity planning analysis, to ensure its feasibility. If it passes, shop floor planning is
made according to it. When it fails, that means a portion of cores that exceeds the capacity will not be
disassembled, and that fall-short part requirement would only be met by first-time parts. The actual shop floor
operations involve the inventories of cores and remanufactured parts, which have to be kept at reasonable levels.
248
product in time period is Qmt = mt . And the total capacity in reassembly has to be considered. Suppose the
standardized reassembling time of Pm is Tm, while the machine centre has a total capacity of A; and Rm stands for
the revenue for Pm per unit. So we have:
max Rm Qmt
M
T
m =1
m Qmt A (1)
0 Qmt mt
The master reassembly schedule that passes reassembly constraint consolidates into the final schedule
followed by part requirement planning.
6.1.2 Gross Part Requirement
As BOM shows what kind of parts are used in each product, and how many, let B(Pm,Ci) indicates the
number of part Ci used in product Pm. Then the gross requirement of each part in each period is reflected by the
product of B(Pm,Ci) and the quantity of Pm to be produced. Let Gt(Ci) indicate the gross requirement of Ci in
period t:
M
Gt (Ci ) = B( Pm , Ci ) Qmt (2)
m =1
The disassembly yield of cores is not constant, so theres a real need to keep a record of the disassembly
probability, which is the probability of a certain part Ci that can be disassembled from core Pm, indicated by Yt(Pm,
Ci). And also we suggest that the DPR to be dynamically updated, an exponential smooth definition is introduced:
Yt (Pm , Ci ) = Yt1(Pm, Ci ) + (1 )Yt2 (Pm , Ci ) 0 1 (5)
249
t +n I t +n M
min W = Pt (Ci ) STPt (Ci ) + (1 ) Pt ( Pm ) STCt ( Pm )
n =t i =1 n =t m =1 (6)
s.t. 0 D( Pm ) min{STCt 1 ( Pm ), DCt ( Pm )
6.3 Net Part Requirement Deficit
In a remanufacturing facility, parts exist not only in part inventory, but also in cores yet to be disassembled.
So the net requirement of parts is determined by the two inventories.
It is necessary to estimate the disassembly yield from cores before we can estimate the net requirement deficit
of parts. The DPR are combined with BOM and the number of cores scheduled to be disassembled to calculate the
expected number of parts that can be obtained in a certain period, as follows:
M
Dt (Ci ) = Dt ( Pm ) B( Pm , Ci ) Yt 1 ( Pm , Ci ) (7)
m =1
where Dt(Ci) = the number of part Ci that can be obtained by disassembly in period t;
Dt(Pm) = the number of core Pm that are scheduled to be disassembled in period t.
By comparing the net requirement from (3) with the disassembly yield from (7), we can see whether that
requirement can be met. If not so, a net requirement deficit NDt(Ci) is in place:
NDt (Ci ) = N t (Ci ) Dt (Ci ) (8)
When net requirement deficit occurs, that is when NDt(Ci)>0, it means the part inventory of the last period
combined with the disassembly yield of the current period can not meet the net part requirement. So when this
occurs, the fall-short amount (here refer to as deficit) can only be compensated by additional purchase (or
manufacturing) of first-time parts. Let PPt(Ci) denote the quantity of purchase of part Ci in period t, then it must
satisfy that PPt(Ci) NDt(Ci). And if theres a lead time of Li period, then the purchase (or manufacturing) order
must be released in period t- Li.
POPt Li (Ci ) = PPt (Ci ) (9)
If the part inventory exceeds a certain level, then possible sales should be considered.
6.4.2 Safety Stock of Parts
Safety stock should be set up to offset some of the uncertainties in disassembly. Suppose according to
statistics, the mean disassembly time of core Pm is LDm, with variance of DLm ; while the mean demand for part Ci
2
in one period is Gi, with variance of Gi ; and c indicating the service level, so the safety stock of parts SSP(Ci) is
2
as follows:
250
assumption, and goes directly into inventory).
STCt ( Pm ) = STCt 1 ( Pm ) + Rt ( Pm ) Dt ( Pm ) (12)
SSC ( Pm ) = Z m Lm Dm
2
+ Dm2 m2 (13)
7. Example
To illustrate our model, we will give out an example to explain the PPC system for remanufacturing in
numbers. Heres the assumption: A company produces six homogeneous remanufacturable products P1-P6,
utilizing parts of C1-C9. The BOM is listed in Tab.1 below. The prices of the cores of P1-P6 are 88, 42, 48, 40, 44,
34 respectively; and the parts are 30, 20, 10, 10, 9, 8, 2, 2 and 2. Theres an inventory of 150 for each kind of core
at the beginning of week 1. The initial inventory is 200 for each kind of part. The maximum disassembly capacity
for each core in each week is 220. The minimum ordering quantity is 500.
Tab.1 Bill of material
C1 C2 C3 C4 C5 C6 C7 C8 C9
P1 2 2 4
P2 1 2 2
P3 2 2 4
P4 1 2 2
P5 2 2 4
P6 1 2 2
The disassembly probability record (DPR) records the disassembly probability of each part from cores, which
is obtained statistically, shown in Tab.2.
Tab. 2 Disassembly probability record
C1 C2 C3 C4 C5 C6 C7 C8 C9
P1 0.5 0.3 0.5
P2 0.4 0.4 0.6
P3 0.4 0.35 0.5
P4 0.5 0.4 0.6
P5 0.5 0.3 0.4
P6 0.4 0.25 0.5
Suppose the planning is made for each week and the planning horizon is 4 weeks. Heres the master
reassembly schedule, listed in Tab.3.
Tab.3 Master reassembly schedule
Period (in weeks) 1 2 3 4
P1 200 150 200 200
P2 100 100 150 100
P3 300 250 250 250
P4 250 250 200 200
P5 50 100 100 100
P6 100 100 150 150
251
Material requirement planning is, in this case, the part requirement planning. Well choose part C3, and
explain in detail how its requirement planning is made. Tab.4 shows the requirement planning of C3. The gross
requirement in the first line is derived from MRS from Tab.3 and BOM from Tab.1 combined, which is double the
quantity of P3, P5 and P6 combined. The expected arrival in the second line is the parts ordered from the previous
planning horizon but arrived in this horizon, and the lead time is one week. The net requirement in the third line is
the difference between gross requirement and the sum of expected arrival and the inventory of the last period.
Tab.4 Material requirement planning of part C3
C3 0 1 2 3 4
Gross Requirement (G) 800 800 850 850
Expected Arrival (SOP) 400 0 0 0
Net Requirement (N) 200 670 724 768
Parts in Cores (ED) 330 296 315 322
Net Requirement Deficit (ND) 0 374 418 458
Actual Disassembly Yield (D) 330 296 306 310
Expected Part Inventory (STP) 200 130 126 82 42
Part Purchase (PP) 0 500 500 500
Purchase Order Release (POP) 500 500 500 0
Part Sale (SE)
The net requirement of parts is firstly met by disassembly yields from returned cores, rather than purchased
parts. The return quantity of cores relating to part C3 are given in Tab. 5. It should be noted that the mean return
of the three is 231, 81, 125 respectively, and the occurrences are Poisson distribution.
Tab.5 Return of cores (partial)
1 2 3 4
The initial inventory of cores is all 150. So combined with the return, we know the inventory level at the
beginning of each period. (Return of the current period cannot be used immediately by assumption, thus goes into
inventory.)
Disassembly planning is done via LP according to equation (16)-(18). The main constraints are to balance
disassembling tasks over the periods, and to meet the overall requirement. A final plan, see Tab.6.
Tab.6 Disassembly plan of cores (partial)
1 2 3 4
The return and the disassembly plan together determine the inventory of cores (see Tab.7), which helps to
determine the quantity of parts that exist in cores (together with BOM from Tab.1 and DPR from Tab.2), which is
ED in line 4 of Tab.4. Net requirement can be derived after ED is calculated.
The actual disassembly yield in line 6 of Tab.4 is determined by the disassembly plan from Tab.6 and BOM
from Tab.1.
252
Tab.7 Core inventory at period start (partial)
1 2 3 4
All the rest of Tab.4 is derived in a simple manner. If there is a net requirement, it is firstly met by
disassembly yield (D); if the yield is not sufficient, then theres the net requirement deficit (ND) in line 5, which is
completely met by part purchase (PP) in line 8. The order of the part purchase should be released according to the
lead time, thats line 9. Part inventory in line 7 are calculated according to equation (10), which is the last to be
settled. And if the inventory experiences a build-up, then possible part sales should be considered.
8. Conclusion
Remanufacturing is a brand-new manufacturing model which takes in cores as the primary material resource.
The whole process differs from the traditional in many ways, which include the recycling uncertainty, the
disassembly complexity and the varying conditions of cores. All these ask for new requirements of and
modifications to the traditional PPC system. We have incorporated disassembly and reassembly capacity planning
into the standard MRP, and put forward a remanufacturing MRP with the help of linear programming. But
multi-time remanufacturing of a certain part, especially the serial-number-specific part, will cause a
cost-ineffective problem, and asks for adjustments to the system. It is left to be discussed in future research.
References
[1] Lund. Remanufacturing: United Stated Experience and Implications for Developing Nations. The World Bank, Washington,
DC, 1983
[2] Teunter, R. Economic ordering quantities for remanufacturable item inventory systems. Naval Research Logistics, 2001, 48(6):
484-495.
[3] Minner, S. and Kleber, R. Optimal control of production and remanufacturing in a simple recovery model with linear cost
functions. OR Spectrum, 2001 Vol. 23: 3-24.
[4] Bayindir et. al. A model to evaluate inventory cost in a remanufacturing environment. International Journal of Production
Economics, 2003, 81-82: 597-607.
[5] Kiesmuller G.P. and Van der Laan E. An inventory model with dependent product demands and returns. International Journal
of Production Economics, 2001 Vol. 72: 73-87
[6] Marisa P. de Brito, Rommert Dekker. A Framework for Reverse Logistics. ERIM Report Series Reference No.
ERS-2003-045-LIS. April 2003. 6~16
[7] Thierry,M.C, Salomon,M., Van Nunen, et al. Strategic production and operations management issues in product recovery
management, California Management Review, 1995, 37: 114-135
[8] Guider Jr.,V.D.R., M.E. Kraus, and R. Srivastava. Scheduling policies for remanufacturing, International Journal Production
Economics,1997, 48(2): 187-204.
[9] Guide Jr, Srivastava R. Buffering from material recovery uncertainty in a recoverable manufacturing environment. Journal of
the Operational Research Society, 1997, 48: 519-529
[10] Geraldo Ferrer, D Clay Whybark. Material planning for a remanufacturing facility. Production and Operations Management.
Summer 2001.10.2. 112-124
[11] Clegg A.J., Williams D.J. and Uzsoy R. Production planning for companies with remanufacturing capabilities. Proceedings of
the 1995 IEEE Symposium on Electronics and the Environment, IEEE, Orlando FL, 1995. 186-191
253
A Production I1nventory Model for Intangible Deteriorated
Items with Demand-Dependent Deteriorating Rate
Abstract An inventory model has been proposed for intangible deteriorating items with demand-dependent deteriorating rate under
the circumstance in which the demand rate is changing exponentially with time. The production rate is constant and shortages are not
allowed in the inventory model. This inventory model is suitable for the situation in which The deterioration is intangible and the
demand rate is changing exponentially with time. The total average inventory cost is derived and the optimal expression can be
obtained for production scheduling period, maximum inventory level, total average cost and the cycle time of inventory
replenishment in this paper. At last, numerical examples are performed and discussed.
Key words Inventory model, Deterioration, Demand-dependent deteriorating rate
1. Introduction
The deterioration of many items during storage period is a real fact. In recent years, deteriorating inventory
models have been widely studied by researchers. However, in the existing literature of inventory models for
deteriorating items, The products deterioration is physical and the deteriorating rate is assumed to be either
constant or variant with time. None of them considered the fact that, in some situations, The products deterioration
is intangible and the deteriorating rate has a relationship with demand.
In practice, The products deterioration is intangible and the deteriorating rate may be influenced strongly by
the demand, namely the deteriorating rate may go up or down with the demand rate. This situation generally arises
in the case of inventories of fashionable goods and high technology products such as fashionable clothes,
computers, electronic components, electrical appliances and so on. These products have a common character that
they have a short life cycle time in the marketplace because of the rapid speed of innovation of products or the
changes of customers preferences.
Ghare and Schrader [1], first, proposed an inventory model having a constant rate of deterioration and a
constant rate of demand over a finite-planning horizon. Dave and Patel[2] studied an inventory model with
deterministic but linearly changing demand rate and constant deterioration rate over a finite planning horizon.
They assumed replenishment intervals of equal lengths in their model. Hollier and Mak[3] developed inventory
replenishment policies for deteriorating items with a declining demand. Moncer Hariga[4] developed an optimal
inventory lot-size model for deteriorating items with general continuous time-varying demand over a finite
planning horizon. The deterioration rate was assumed to be a constant fraction of the on-hand inventory.
S.Papachristos and K.Skouri[5] studied a continuous review inventory model over a finite-planning horizon with
deterministic varying demand and constant deterioration rate. Chao-ton Su and Chang-wang Lin[6] presented a
production-inventory model for deteriorating products in which the demand rate is assumed to decrease
exponentially, shortages are allowed and the deteriorating rate is assumed to be constant. The above investigations
only considered the constant deteriorating rate rather than variable deteriorating rates.
Covert and Philip[7] extended Ghare and Schraders model. They presented an economic order quantity model
for a variable rate of deterioration by assuming a two-parameter Weibull distribution. Shah[8] suggested a
generalization model by allowing shortages and using a general distribution for the deterioration rate. Mishra[9]
formulated an inventory model with a variable rate of deterioration, a finite rate of production and no shortage;
however, he solved only a special case of the model under very restriction assumptions. Deb and Chaudhuri[10]
assumed the rate of production to be uniformly finite and considered the rate of deterioration to be time-dependent,
allowing backlogged. Goswami and Chaudhuri[11] developed a general inventory model in which time-propotional
deterioration rate was considered. H.Yan Tce Cheng[12] developed a general production-inventory model in which
I (t1 ) = I m (4)
Using the boundary conditions (3), the solutions of the equations (1), and (2) are
t
I (t ) = at + e , 0 t t1 (5)
t (t1 +t2 )
I (t ) = e e , t1 t T (6)
Again I(t1)=Im implies
t1
I m = I (t1 ) = at1 + e
(7)
= e t1 e (t1 +t2 )
According to the equation (7), the relationship between variables t1 and T can be expressed by following
equations:
1 a
t2 = ln(1 t1 ) t1
(8)
= g1 (t1 )
1 a
T = t1 + t2 = ln(1 t1 ) (9)
Furthermore, according to (8) and (9), the equations can be derived as follows:
dt2 a
= 1 (10)
dt1 a t1
dT a
= (11)
dt1 a t1
The deterioration cost over the period [0, T] is listed as follows:
t1 t1 + t2
In(12)
t1 t1
acd cd cd
cd1 (t ) I (t )dt = ( te t + e t )dt
0 0
acd acd cd cd
= t1e t1 (e t1 1) + t1 (e t1 1) (13)
2 2
t1 + t2 t1 + t2
1 1
cd 1 (t ) I (t )dt = cd ( e (t1 +t2 ) + t )dt
t1 t1
256
cd cd cd
= t2 + e t2 (14)
2
2
acd acd cd
CD = t1e t1 (e t1 1) + (t1 + t2 )
2
(15)
cd t1 cd t2
e + e
2 2
The inventory carrying cost over the period [0, T] is shown below:
t1 t1 + t2
Where
t1
a t1
I (t )dt = 2 t1
2
(e 1) t1 (17)
2
0
t1 + t2
t1 + t2 (t1 +t2 )
I (t )dt =
2
e
2
e (18)
t1
Therefore
ch a 2 ch t1 c c + t2 (t1 +t2 )
CH = t1 2 (e 1) h t1 + h 2 e t1 ch e (19)
2 2
Hence the total average cost over the period [0, T] is given by
CS + C D + C H
K1 (t1 ) = (20)
T
Furthermore,
dK (t1 ) (C + CD + CH ) dT 1 dCD dCH
= S + ( + ) (21)
dt1 T2 dt1 T dt1 dt1
In (21)
dCD cd a t1 cd c dt2
= te + (1 e t1 ) + d (1 e t2 ) (22)
dt1 1 dt1
dCH c c dt2 (t1 +t2 ) ch (1 + t2 ) dt
= ch at1 h h e + (1 + 2 )e (t1 +t2 ) (23)
dt1 dt1 dt1
The necessary conditions for K(t1) to be minimum is
dK (t1 )
=0 (24)
dt1
d 2 K (t1 ) d 2 K (t1 )
provided > 0 for that value of t1 . The expression of is also derived as follows.
dt12 dt12
257
d 2T d 2t2 a2
= = (26)
dt12 dt12 ( a t1 ) 2
d 2CD acd t1 a cd t1 t1 cd 2
t2 d t 2 c dt2 t2
= e + t e c e + (1 e ) + d e (27)
dt12
1 d
dt12
dt1
d 2CH d 2t2 (t1 +t2 ) dt
2
= ch a + ch (1 + t 2 ) 2
e ch t2 (1 + 2 ) 2 e ( t1 +t2 ) (28)
dt1 dt1 dt1
4. Numerical examples
As the model proposed in this paper is suitable for intangible deteriorating items with demand-dependent
deteriorating rate under the circumstance in which the demand rate varies exponentially with time, three kinds of
numerical cases are presented in the following to illustrate the practicality of the model. The parameters in the
three cases are listed in Tab.1, The optimum values are calculated and the results are shown in Tab.2.
Tab.1 The values of parameters in the model
Parameters Case 1 Case 2 Case 3
12.0 12.0 10.0
(units)
170.0 170.0 180.0
(units/month)
0.01 0.05 0.1
a (units) 300.0 300.0 300.0
cd ($/unit)
10.00 10.00 10.00
ch ($/unit/month)
1.0 1.0 1.0
CS ($ for each new cycle)
500.00 500.00 500.00
5. Conclusion
In practice, Some products deterioration is intangible and the deteriorating rate may be influenced strongly by
the demand. However, in the existing literature of inventory models for deteriorating items, none considered the
fact. In this paper, we study the problem and propose a production inventory model for intangible deteriorating
items with demand-dependent deteriorating rate under the circumstance in which the demand rate is changing
exponentially with time and the production rate is constant. This inventory model is suitable for the situation in
which the demand rate is varies exponentially with time. The formulae about the minimum average inventory cost,
the optimal production time, the optimal replenishment cycle time and maximum inventory level have been
derived. The developed model is solved by using the Newton-Raphson method. Results presented in the paper
provide a valuable reference for decision-makers in planning production and controlling inventory. Three
numerical examples have been performed at last.
References
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[2] U.Dave,L.K.Patel. (T, Si) policy inventory model for deteriorating items with time proportional demand. Journal of operational
258
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[4] Moncer Hariga. Optimal EOQ models for deteriorating items with time-varying demand. Journal of the Operation Research
Society, 1996, 47: 1228-1246
[5] S.Parachristos, K.Skouri. An optimal replenishment policy for deteriorating items with time-varying demand and
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[6] Chao-ton Su, Chang-wang Lin. A production inventory model which considers the dependence of production rate on demand
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323-326
[8] Y.K.Shah. An order-level lot-size inventory for deteriorating items. AIIE Transaction, 1977, 9: 108-112
[9] R.B.Misra. Optimum production lot-size model for a system with deteriorating inventory. International Journal of Production
Research, 1975, 13: 495-505
[10] M.Deb, K.S.Chaudhuri. An EOQ model for items with finite rate of production and variable rate of deterioration. Opsearch,
1986, 23: 175-181
[11] A. Gowami, K.S.Chaudhuri. Variations of order-level inventory models for deteriorating items. International Journal of
Production Economics, 1992, 27(2): 111-117
[12] H.Yan, Tce Cheng. Optimal production stopping and restarting times for an EOQ model with deteriorating items. Journal of the
Operation Research Society, 1998,49: 1288-1295
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Indian Journal of Pure Applied Math, 1988, 19: 1043-1053
[14] Zaid T.Balkhi, Lakdere Benkherouf. A production lot size inventory model for deteriorating items and arbitrary production and
demand rates. European Journal of Operation Research, 1996, 92 (2) : 302-309
259
The Impact of Positive Externality on Returns Policy
Abstract This paper studies the impact of positive externality upon a supply chain in which returns policy is used to coordinate
the channel. We focus on a typical situation where the retailer can internalize the positive externality effect while the manufacturer
can not. We find that the retailer will overstock than channel optimal quantity. When the effect of externality is stronger or returns
compensation is greater, the retailers order quantity deviates more from channel optimal decision. When returns policy is offered,
the positive externality effect will benefit the retailer but hurt the manufacturer.
Key words Externality through sales, Returns policy, Newsvendor model, Stochastic model
1. Introduction
In a few industries, manufacturers, who rely upon independent retailers to redistribute their products, adopt
returns policy to coordinate the supply chain and improve his profit. Returns policy, also called buyback contract,
is a contract between manufacturer and retailer in which the retailer can return partial or unlimited unsold units for
partial or full refund from the manufacturer at the end of the selling season. As mentioned in Emmons and Gilbert
(1998)[1], returns polices are often used to encourage larger orders from retailers selling style goods or perishable
merchandise, which can be characterized by uncertain demand, long production lead times and short selling
seasons. Some examples are listed in Granot and Yin (2005)[2] and Bose and Anand (2007)[3], including
newspapers, books, recordings, fashion wear and clothing, health and beauty products, dairy products, and
perishable services, such as airline tickets and hotel rooms. Nowadays more and more products have short
life-cycle.
Pasternack (1985)[4] is the first to study channel coordination through returns policy. Returns policies as
coordination mechanisms are then studied in a few contexts. Bose and Anand (2007)[3] studies where retail price is
fixed. Emmons and Gilbert (1998)[1] and Granot and Yin (2005)[2] study where the retailer have the power of
price-setting. Lu et al. (2007)[5] extends the problem to two period model. The role and effectiveness of returns
policies have been studied in a few papers, such as Padmanabhan and Png (1995)[6], Emmons and Gilbert (1998)[1],
Tsay (2001)[7], and Granot and Yin (2005)[2]. It has been verified that returns policy can coordinate supply chain
and improve mutual benefit in several situations. For a review of coordinating contracts, please refer to Cachon
(2003)[8].
However the advantage of returns policies may be exaggerated, since these papers only consider a single
product. While in practice, the retailer seldom carries only one product and it is known that purchased products
will affect the customers consequent demand, the single-product returns policy model may be quite harmful. Few
studies on multiple-product problem when there exists positive externality effect, except Netessine and Zhang
(2005)[9]. However they do not consider the impact of positive externality on a coordinated supply chain.
We study in this paper a supply chain composed of a manufacturer and a retailer. The manufacturer produces
a short life-cycle product and sells to a retailer with a returns policy. Customers who purchase this product will
incur additional demand for another product in the same store of the retailer. Such an complementary effect,
called positive externality through sales, is common in business, e.g. TV and DVD player, PC and printer, where
the later product is often an auxiliary product which can enhance the performance of the previous product. People
often search for the previous product at first, and then consider its auxiliary. This paper only considers one-way
relationship.
The purpose of this paper is to investigate the impact of positive externality on supply chain coordinating
with a returns policy. The retailer is offered a returns contract while facing an opportunity to gain external benefit
from overstocking. We assume the retailer can internalize the positive externality effect while the manufacturer
This research is supported by the National Natural Science Foundation of China, Grant No.70525001. The authors gratefully acknowledge this generous support.
260
can not. The research questions we address are:
(i) What is retailers optimal response to the manufacturers coordinating returns policy?
(ii) How will the retailers order quantity deviate from channel optimal quantity?
(iii) How will positive externality affect each partys profit?
Our main findings are:
(i) The retailer will overstock than channel optimal quantity;
(ii) When the effect of externality is stronger or returns compensation is greater, the retailers order quantity
deviates more from channel optimal decision;
(iii) When returns policy is offered, the positive externality effect will benefit the retailer but hurt the
manufacturer.
The remainder of this paper is organized as follows: In section 2, we formally present the model. In section 3,
we first analyze the retailers best response to a given returns policy and then describe returns policy that the
manufacturer should offer if he wants to coordinate the channel. In section 4, we study the impact of externality
on channel order quantity and profits. In section 5, a numerical analysis is presented to provide more managerial
insights.
2. Model formulation
A manufacturer produces a short life-cycle product called product A and sells to a retailer at a wholesale
price of w per unit. To encourage larger orders from the retailer, the manufacturer offers a contract that allows
the retailer to return unsold units for a credit of b per unit at the end of the selling season. The retailer commits
to an order quantity before the selling season and then sells to customers at a fixed retail price. However the
retailer holds more than one product. The demand of another product hold by the retailer, say product B, will be
indirectly affected by the stocking decision of product A in the following manner: a deterministic portion of
customers who purchase product A will then purchase product B. Thus, the demand of product B is composed of
two parts: one is from initial allocation and another is incurred by the sales of product A. Such a case occurs when
product B is a complement of product A. Similar demand models is used by Netessine and Zhang (2005)[9], Wang
and Parlar (1994)[10], Netessine and Rudi (1999)[11], Boyaci (2002)[12].
Tab. 1 Notations
c A , cB Production cost per unit of product A, B, respectively
F ( x, y ) Joint distribution of ( DA , DB )
v A , vB Salvage value per unit of product A, B, respectively
261
A5: the initial demand distribution is independent of each other. We use FA ( x) to refer to the distribution of
product As demand.
To simplify, we set the goodwill penalty of product B to zero.
We also assume the following conditions hold to avoid unreasonable solutions:
vA < c A < wA < p A , vA < bA < wA < p A , and vB < cB < pB .
We assume per unit sales of product A will incur unit demand for product B. For a given QA , the
effective demand of product B is
DBe (QA ) = DB + min{DA , QA } (1)
The retailers expected profit is composed of two parts, one part rA from product A and the other part rB
from product B, thus r = rA + rB , where
rA = ( p A w)QA ( p A b) E[QA DA ]+ g A E[ DA QA ]+ (2)
In the following sections, unless otherwise stated, channel refers to the channel of product A. Channel
expected profit is A = rA + m .
product B will be sold out, given QA and QB . About this function we have the following lemma.
Lemma 1: (i) (QA , QB ) is increasing in QA if QA < QB / , remains stable else;
(ii) (QA , QB ) is decreasing in QB .
(iii) For any constant (0,1) , there exists a ( ) satisfying ( , ) = .
Proof: see the appendix.
Lemma 1 states that the more product A is ordered, the more possible the last unit of product B will be sold
out. On the contrary, the more product B is ordered, the less possible the last unit of product B will be sold out.
However order more product A over a threshold will not help selling product B.
To maximize the expected profit from product B, the following condition must hold,
( pB cB ) (QA , QB ) = (cB vB )(1 (QA , QB )) ,
which means the possible revenue and the possible loss from the last unit of product B ordered is equal and
the retailer will not benefit from stocking more product B. In this way, we obtain the following proposition,
*
Proposition 2: (i) The optimal order quantity of product B, QB (QA ) is determined by the following
condition,
cB vB
(QA , QB* ) = . (5)
p B vB
262
cB vB
Let be such that (, ) = , then we have following properties.
p B vB
(ii): If QA < , QB (QA ) is increasing in QA , else if QA , QB (QA ) = .
* *
*
(iii): QB (QA ) is greater than the original optimal order quantity of product B.
Proof to 2(i) is omitted.
Proof to Property 2(ii) is through direct use of Lemma 1.
Proof to Property 2(iii) is quite straight, since QB (QA ) > QB (0) for any QA > 0 .
* *
Property 2(ii) means it is better to order more product B when more product A is ordered, unless too much
product A has been ordered. When this happens, it is best to order a specific quantity determined only by the
demand distribution and product Bs cost and price parameters.
Property 2(iii) means the optimal order quantity of product B is greater when considering product As
affection.
These results can be explained like this, since product B is a complement of product A, the more product A is
ordered, the more it will sell and the more demand of product B will be incurred. For the retailer it is better to
stock more product B to meet the increased demand.
About the retailers profit from product B, we have
*
Proposition 3: When QB (QA ) is adopted from (5), the retailers expected profit from product B, rB is
increasing in QA .
drB dr r
*
Proof. Since QB (QA ) is adopted from (5), we have =0 B = B .
dQB dQA QA
p cB
Note that Pr{QB (QA ) > DB } = 1 (QA , QB ) = B
* e *
, we have
p B vB
drB
= ( p B vB ) E[QB* (QA ) DBe ]+
dQA QA
= ( pB vB ) Pr{QB* (QA ) > DBe }Pr{DA > QA }( )
= ( pB cB ) Pr{DA > QA }
>0
Here we impose an assumption that the initial demand is independent of each other.
Proposition 3 states that if the retailer acts wisely enough, his profit from product B is always increasing
when ordering more product A, which means the retailer can internalize the positive effect of externality of
product A.
3.2 Retailers optimal order quantity of product A
It is common that the order quantity of product A is not fixed in the returns contract. In such a situation the
retailer will seek to find an optimal order quantity which maximizes his own total expected profit r . After
examining the first order condition, we obtain the following optimality condition:
Proposition 4: The retailers optimal order quantity of product A, QA is determined by
p A w + g A + ( p B cB )
Pr{DA < QA } = . (6)
p A b + g A + ( p B cB )
Property (i): QA is affected by the price and cost parameters of product B, while independent of product Bs
demand distribution.
Property (ii): QA is increasing in .
Proof: Note that
263
drA dE[QA DA ]+ dE[ DA QA ]+
= ( p A w) ( p A b) gA
dQA dQA dQA
So we get
drA
= ( p A + g A w) ( p A + g A b) Pr{DA < QA }
dQA
drB
Together with = ( pB cB ) Pr{DA > QA } , we obtain
dQA
d r
= ( p A + g A w + ( pB cB )) ( p A + g A b + ( pB cB )) Pr{DA < QA }
dQA
After examining the second derivative of r , we can see r is concave. Setting the first derivative of r
to zero we get the optimality condition.
The two properties can be obtained directly from equation (6).
Corollary 5: The demand information or goodwill penalty information perceived by the manufacturer is
distorted.
From proposition 4, the retailers decision will deviate from the manufacturers expectation. This will cause
the manufacturer to readjust his estimation information about the demand and the retailers cost and price
parameters. While retail price is easy to observe, the demand information and goodwill penalty information is
difficult to observe. Since the manufacturer sets the returns contract well ahead of selling season, when the retailer
orders, his forecast of market demand can be different from that of manufacturer.
3.3 The manufacturers coordinating returns policy
For the manufacturer product A is his only concern, since he does not have correlation information about
product B and he has no control over product B, either. So his pricing and returns policy aims at maximizing his
expected profit ignoring product B.
When no return is allowed, the underage and overage cost perceived by the retailer are per unit
p A + g A w and w v A , respectively. Note the channel underage and overage cost are per unit p A + g A c A
and c A v A , respectively. It has been pointed out in literature that this leads to channel inefficiency, where
retailer will stock less than channel optimal quantity. This is quite intuitive since retailer bears more than the total
channel overstock risk while he receives only part of channel revenue.
To coordinate the channel the manufacturer offers a returns contract, which can reduce the overstock risk the
retailer bears. Through returns policy the manufacturer can improve channel efficiency and mutual benefit. On
returns policy there are lots of papers. To summarize, we have the following proposition.
Proposition 6: The manufacturers coordinating returns policy ( w, b) satisfies
pA + g A cA pA + g A w
Pr{DA < QA* } = = . (7)
pA + g A vA pA + g A b
The proof is omitted here, please refer to related literature.
Note from Proposition 6, there exist a set of possible contract parameters can coordinate the channel. Each
pair of ( w, b) specifies the channel profit allocation between the two parties.
pA + g A cA
Let Pr{DA < QA* } = , we get
pA + g A vA
w = (1 )( p A + g A ) + b (8)
Proposition 7: In a coordinated channel, m is increasing in b .
264
Proof. m = ( w c A )QA* + (vA b) E[QA* DA ]+
Q*A
= [(1 )( p A + g A ) + b c A ]QA* (b v A ) FA ( x)dx
0
Q*A Q*A
= [ QA* FA ( x)dx]b + [(1 )( p A + g A ) c A ]QA* + v A FA ( x)dx
0 0
Q*A
So we need only prove QA* > FA ( x)dx . This holds since
0
Q*A Q*A
0
FA ( x)dx <
0
FA (QA* )dx = QA* .
This proposition tells us that when return compensation increases, the manufacturer actually allocates himself
a greater proportion of channel profit.
effect of externality. Let QA , represent the retailers optimal order quantity and service level, respectively,
when he faces a coordinating returns policy and considers the effect of externality. Here service level refers to the
probability that demand for product A can be satisfied. Based on analysis in the previous section, from equation (6)
and (7) we have
pA + g A cA
* Pr{DA < QA* } = (9)
pA + g A vA
p A + g A w + ( p B cB )
Pr{DA < QA } = (10)
p A + g A b + ( p B cB )
From the above two equations, it can been seen that the optimal channel decisions QA ,
*
* are independent
of returns contract parameters ( w, b) while the retailers optimal decisions internalizing externality effect are
related to returns contract parameters ( w, b) . Since the retailer can internalize the effect of externality of product
A, his decision may deviate from the channel optimal decision. Next we compare the retailers optimal decision
with the channel optimal decision, and analyze which factors affect such a deviation and how. We have:
Proposition 8: When the manufacturer offers a coordinating returns policy, and the retailer internalizes the
positive externality effect,
(i) QA > QA , > ;
* *
*
(ii) Since QA is independent of , we need only prove QA is increasing in , which follows from
Proposition 4.
265
*
(iii) Since QA is independent of b , we need only prove QA is increasing in b .
Note that a coordinating returns policy satisfies w = (1 )( p A + g A ) + b , so
* *
* ( p A + g A b ) + ( p B cB ) 1 *
= = 1
p A + g A b + ( p B cB ) ( p B cB )
1+
pA + g A b
Since 1 > 0 , it is easy to see is increasing in b . Since demand distribution function is monotonic
*
5. Numerical analysis
To illustrate the impact of externality on the manufacturers profit and channel efficiency we use a numerical
example. The initial demands of product A and B are uniformly distributed over (0, 400] and (0,100] ,
respectively. Other parameters are set to the following values: p A = 100 , c A = 40 , v A = 20 , g A = 20 ,
pB = 50 , cB = 10 , vB = 5 . We calculate the ratio of profit loss as:
[expected profits without externality] - [expected profits with externality]
.
[expected profits without externality]
We plot the ratio of profit loss in Fig. 1.
266
Fig. 1 Ratio of profit loss
It can be seen from Figure 1 that as the externality effect increases, the ratio of profit loss increases, for both
the manufacture and the channel. As the buy back price increases the situation is worsen. For example, the
channel profit will drop over 4% when b = 80 and = 2 . Moreover we can observe the ratio of channel profit
loss is always greater than that of manufacturer in a given situation.
6. Conclusions
This paper studies the impact of positive externality on a supply chain in which returns policy is used as
coordination mechanism. We focus on a typical situation where the retailer can internalize the positive externality
effect while the manufacturer can not. We find that the retailer will overstock than channel optimal quantity and
when the effect of externality is stronger or returns compensation is greater, the retailers order quantity deviates
more from channel optimal decision. When returns policy is offered, the positive externality effect will benefit the
retailer but hurt the manufacturer, especially when returns compensation is greater.
Note that when the retailer can set retail price the problem will be more complex and this could be further
studied.
Appendix
PROOF OF LEMMA 1:
QA + + +
(i) When QA < QB / , (QA , QB ) = dx f ( x, y )dy + dx f ( x, y )dy
0 QB x QA QB QA
[1] Emmons, H. and S. Gilbert. The Role of Returns policies in pricing and inventory decisions for catalogue goods. Management
Science, 1998, 44(2): 276-83.
[2] Granot, D. and S. Yin. On the Effectiveness of Returns Policies in the Price-Dependent Newsvendor Model. Naval Research
Logistics, 2005, 52():765-779.
[3] Bose, I. and P. Anand. On returns policies with exogenous price. European Journal of Operational Research, 2007,
178:782-788.
[4] Pasternack, B. A. Optimal Pricing and Returns Policies for Perishable Commodities. Marketing Science,1985, 4(2):166-176.
[5] Lu Xiangwen, Song Jing-sheng and Amelia Regan. Rebate, returns and price protection policies in channel coordination. IIE
Transactions, 2007, 39:111-124
[6] Padmanabhan, V. and I. P. L. Png. Returns policies: make money by making good. Sloan Management Review, 1995, Fall:
65-72.
[7] Tsay, A. A. Managing retail channel overstock: Markdown money and return policies. Journal of Retailing, 2001,77:457-492.
[8] Cachon, G. Supply chain coordination with contracts, Supply chain management: Design, coordination and operation, S.
Graves and T. de Kok (Editors), Handbooks in Operations Research and Management Science, Vol. 11, Elsevier, Amsterdam,
2004, Chap. 6.
[9] Netessine, S. and F. Zhang. Positive vs. Negative Externalities in Inventory Management: Implications for Supply Chain
Design. Manufacturing & Service Operations Management, 2005, 7(1): 5873.
[10] Wang, Q. and M. Parlar. A three-person game theory model arising in stochastic inventory control theory. European Journal of
Operational Research, 1994, 76: 83-97.
[11] Netessine, S. and N. Rudi. Centralized and competitive inventory models with demand substitution. Operations Research, 1999,
51: 329-335.
[12] Boyaci, T. Inventory competition and coordination in a multiple-channel distribution system. Working Paper, 2002, McGill
University.
268
Study on a Model of Lean Supplier Management Based on
the Lean Production
Abstract Lean production needs lean supply that puts forward much stricter requirements on suppliers. The nucleus of a lean
supply is lean supplier management. In this paper, we present a model of lean supplier management between an OEM and its
suppliers for the objectives of eliminating wastes, reducing cost and improvement continuously based on the lean production. This
model includes supplier selection and categorization, supplier improvement, supplier certification and supplier evaluation. First, the
supplier selection process and some basic principals about selection criteria are developed, and all suppliers will be categorized so
that different management measures can be used effectively. Then, we design the Supplier Quality Assessment process that focus on
a comprehensive, continuous improvement of suppliers quality system and processes utilizing benchmarked and time-proven
techniques. Finally, the index system of performance evaluation on lean suppliers is given in order to understand what performances
a supplier has achieved over the past period, to identify chances that a supplier will be improved, and to provide evidences for
re-certification of suppliers during next period.
Key words Lean production, Lean supplier management, Selection and categorization, Quality assessment, Performance evaluation
1. Introduction
With uncertainty in competitive business environment, OEMs placed in the middle of supply chain are facing
challenges about product variety, lower cost and better quality. Lean thinking which aims eliminating wastes,
reducing cost and improvement continuously provides a strategic guiding tool for OEMs so as to gain competitive
advantages[1]. Therefore, the lean production approach pioneered by Toyota is being adopted by lots of OEMs,
especially in the electronic industry, such as DELL and KODAK. The term lean embodies a system that uses
less of all inputs to create outputs similar to the mass production system but offering an increased choice to the
end customers[2]. For full effectiveness, the lean production system must be extended down through the supply
chain. The need for minimal inventory for cost and quality reasons and early detection of defects requires a
kanban supply arrangement[3]. Suppliers need to deliver frequently, in small quantities, as required to the point of
use with total quality guaranteed eliminating the need for incoming inspection. Suppliers are also involved in the
design of components with assemblers, organizing their supply base into a tired hierarchical structure. It means
that an OEM adopting lean production approach and its key suppliers (called lean suppliers) should be locked
together in long term. Suppliers are not only the most direct outer element which influences manufacturers'
production and business, but also the key factor which guarantee the quality, price, delivery and service of the
product. This paper focuses on an electronic manufacturer and its suppliers from an OEMs perspective. For the
sake of convenience, an electronic manufacturer will be referred to as the Company throughout the paper. In this
paper, we will present a framework for lean supplier management based on the lean production. Then, we will
focus on how to select lean suppliers, control quality of lean suppliers, and evaluate performances of lean
suppliers.
269
Market Business
Commodity Strategies
Drivers Strategy
Categorize
Supplier Performance
Evaluation
Improved Supplier
Base
Define Metrics and Productivity Project
Expectations Center
Improve(Verify) Certified
Suppliers
The purpose of the framework is to manage the Companys portfolio of suppliers, utilizing Total Quality
Management techniques, so that increased productivity results from the optimal deployment of resources. Based
on this framework, supplier management activities may be divided into two parts: the first part is aimed at
selecting a new supplier, the second part is to manage those suppliers who have been in the Companys supplier
base. If a new supplier is selected and verified, it will enter into the Companys supplier base and then can be
managed by the second part activities. The first part will be described in Section 3. The second part includes the
followings:
(1)Supplier quality assessment: This is a comprehensive, on-site evaluation of suppliers quality system and
processes. Utilizing benchmarked and time-proven techniques, a supplier is assessed for its ability to meet the
Companys quality and cycle time expectations. This aggressive, evidence-based approach is used to identify the
suppliers current capabilities, focus on continuous improvement and ability to meet ever-increasing demands.
Section 4 will give the details.
(2)Performance evaluation: Performance evaluation is to examine those suppliers in the Companys supplier
base over past period by way of some indexes such as quality, delivery, cost, responsiveness & support and
innovation. So the Company may know on which level its each supplier will be placed and then should take some
corresponding effective measures to improve. Section 5 will describe the specific evaluating methods.
(3)Productivity project center: Productivity here refers to the ability to cash quality and/or reliability
improvements. It is expected that suppliers who are in the Companys top 80% spend will provide a number of
productivity ideas to the Company each year. In fact, the Company can establish a supplier on-line idea database
in which a supplier is encouraged to connect to and put forwards proposals for productivity. Productivity project
center is a process to manage these proposals and track information about the adoption of these proposals. The
information is very helpful for the specific commodity manager to make sourcing decisions.
(4)Supplier certification: Certification is the designation/status earned by a supplier who consistently
demonstrates excellent levels of quality, productivity, and delivery performance. By means of certification,
suppliers may benefit from systematic improvements which potentially increase the suppliers profit margin, first
consideration for new business and visible recognition from the Company; the Company may benefit from
confidence in the suppliers quality systems to consistently produce defect-free and reliable products/services,
products/services are received when needed, and continual (year- over- year) productivity improvements. If a
degradation of supplier performance occurs at any time, and causes significantly negative impact on the Company
operations, the suppliers certification status will be withdrawn. Although certification is not the prime objective
of supplier management, it is the Companys vision to have all of key suppliers (top 90% spend and critical)
270
become certified. In this way, the Company may build a competitive and world-class supply base and ensure
optimal deployment of valuable resources.
In this framework, the improved supplier base is dynamic. Maybe new selected and verified suppliers are
input. Meanwhile, a suppliers data will be upgraded based on its performance over past period. Those suppliers
who dont pass the certification will be kicked out.
272
guideline only.
4.2 The Supplier Quality Assessment
The Supplier Quality Assessment process is a comprehensive, on-site evaluation of suppliers quality system
and processes. Utilizing benchmarked and time-proven techniques, a supplier is assessed for its ability to meet the
Companys quality and cycle time expectations. This aggressive, evidence-based approach is used to identify the
suppliers current capabilities, focus on continuous improvement and ability to meet ever-increasing demands.
Elements of the assessment include:
(1)Management of the quality system and business: Organization, commitment, measurement and reporting,
training, cost analysis, continuous improvement activities and teams, and customer feedback.
Tab.2 Quality tools matrix
Category Define Metrics Identify Gaps Improve (verify)
Strategic Concurrent product / process design; Voice Value Analysis and Value Management-By-Fact(MBF);
of the Customer (VOC); Quality Function Engineering (VA/VE); Pugh Concurrent product / process
Deployment (QFD); Cycle time Concept Selection; Process design; Design for x
methodology; Defect measurement / 6 Mapping; Process capability; (DFX); Mistake proofing /
sigma; Failure Modes and Effects and Descriptive statistics; Graphical fail-safing; Seven basic
Criticality Analysis (FMECA) / Failure techniques quality tools; Data
Modes and Effects Analysis (FMEA); interpretation / presentation
Reliability methods; Process capability;
Data interpretation / presentation; Design of
Experiments (DOE);Decision and risk
analysis
Key Item VOC; QFD; Defect measurement / 6 sigma; VA/VE; Pugh Concept MBF; Design for x (DFX);
Item Quality Process; FMECA /FMEA; Selection; Process Mapping; Item Quality Process; Mistake
Reliability methods; Process capability; Cycle time methodology; proofing / fail-safing; Seven
Data interpretation / presentation; DOE; Toleratzing; Item Quality basic quality tools; Data
Decision & risk analysis Process; Process capability; interpretation / presentation
Descriptive statistics; Graphical
techniques
Manage-By-E Defect measurement / 6 sigma; FMECA Process Mapping; Graphical MBF; Design for x (DFX);
xception /FMEA; Reliability methods; Seven basic techniques Cycle time methodology;
tools; Data interpretation / presentation; Mistake proofing / fail-safing;
Decision & risk analysis Seven basic quality tools;
Data interpretation /
presentation; Statistical
software
80% Spend Defect measurement / 6 sigma; Data Process Mapping; Graphical Seven basic quality tools;
(subset of interpretation / presentation techniques; Benchmarking Data interpretation /
Approved) presentation; Strategic Cost
Analysis
100%Spend Defect measurement / 6 sigma; Data Graphical techniques Seven basic quality tools;
(Approved) interpretation / presentation Data interpretation /
presentation
(2)Process capability: Understanding of customer requirements, specification review, order entry, use of
process flow maps, capability studies, and identification of key process parameters that affect ability to meet
customer requirements, and process control.
(3)Change control: Customer notification of supplier caused changes, audit trails, and revision management.
(4)Process control: Training, data collection and usage, ongoing control criteria, use of statistical and
problem-solving tools, and process evaluation and improvement.
(5)Control of purchased and non-conforming materials: How data is defined, tracked, analyzed, and used to
improve the purchasing, design, contract, and production processes.
(6)Corrective and preventive action: Analysis of problems, implementation of solutions to prevent recurrence
of problems, usage of data to identify trends and prevent potential problems, internal auditing, and verification of
effectiveness of solutions.
Although the assessment utilizes several ISO900X concepts, it goes beyond ISO documentation evaluation,
into the effectiveness of the processes themselves. ISO registration does not necessarily correlate to a successful
273
Supplier Quality Assessment result.
In Fig.2, the second level has eighteen indexes in which each index is evaluated a score between 0 and 5; the
first level has five indexes, i.e. quality, delivery, cost, responsiveness & support and innovation, where the score
of each index is equal to its weight (shown in Fig. 2) multiply the average score of its second level indexes. All
scores of the first level indexes are summed to be the final score of a supplier. The full score is 100. In general, the
evaluators may be those who contact with suppliers daily inside the Company, usually from the plan department,
the purchasing department, the product development department, the quality management department, the
production department and etc.
6. Conclusions
Modern enterprises have begun to realize the suppliers great influence to them and regard the establishment
and development of the cooperation relation with suppliers as their business strategy. Lean production needs lean
supply that puts forward much stricter requirements on suppliers. No doubt, lean supplier management has
become one of the key success factors for an OEM. In this paper, we describe some practices on lean supplier
management such as supplier selection and categorization, quality control and assessment, performance evaluation.
Of course, lean supplier management covers more than these. The purpose of this paper is just to provide some
useful tools and methods for those who want to improve their supplier management based on the lean production.
References
[1] Lewis, M.A. Lean production and sustainable competitive advantage, International Journal of Production and Operations
Management, 2000, 28 (8): 959978
[2] Womack, J.P., Jones, D.T. From lean production to the lean enterprise, Harvard Business Review, 1994, 75: 93103
[3] Ronan M. Lean supply: the design and cost reduction dimensions, European Journal of Purchasing and Supply Management,
274
2001, 7:227242
[4] Lamming, R. Squaring lean supply with supply chain management, International Journal of Operations and Production
Management, 1996, 16 (2): 183196
[5] New, S., Ramsay, J. A critical appraisal of aspects of the lean chain approach, European Journal of Purchasing and Supply
Management, 1997, 2 (2): 93102.
275
Study on Lead Time Inventory Models Based on Customer
Waiting Time
Abstract Traditional inventory models usually ignore the customer selection behavior facing stockout or predigest the economic
and credit lost caused by customer waiting time. The relationship between the customer waiting time and the order lead time is
modeled. A new algorithm is put forward to solve the model. A numerical example is given to prove the effectiveness of this model.
Key words Customer waiting time, Lead time, Customer lost, Inventory
1. Introduction
Motivated by the philosophy of just-in-time (JIT), in the area of production/inventory control, many papers
that have discussed the issue of changing the givens, as in Silver[1], have been presented. Givens such as lead
time and set-up time are regarded as fixed parameters in the traditional production/inventory models. However in
the practical situations, givens may be changed by various efforts[2].For example, the ultimate goal of JIT is to
eliminate waste, and the successful experience of the Japanese has evidenced that this goal can be achieved
through actions such as shortening lead time, reducing set-up time cost and improving quality. Also,
Time-based-Competition has forced firms to analyze and optimize time as a competitive advantage[3].
In recent years, the issue of shorting lead time has received a lot of interest. A great emphasis in reducing
lead time is to lower the safety stock, reduce the loss caused by stockout, increase the service level to the customer
and gain the competitive advantages in business. Liao and Shyu[4] first presented a probabilistic inventory model
in which the order quantity was predetermined and lead time was a unique variable. Lead time is decomposed into
n components each having a different crashing cost for reduced lead time in that paper. Consequently, the lead
time crashing cost is described using a piecewise linear function. Ouyang and Chang[2], Ben-Daya and Raouf[5],
Ouyang[6], moon and choi[7], Hariga and Ben-Daya[8] and Manas Kumar Maiti and Manoranjan Maiti[9] also
developed various analytical inventory models to explore the lead time reduction problem. In above papers,
Ben-Daya and Raouf[5] developed a model that considers both lead time and order quantity as decision variables.
Later, Ouyang et al[2] extended the models considering shortages where the total amount of stockout is considered
as a mixture of backorders and lost sales. But they assumed a given service level and, therefore, the reorder point
is fixed.
In the above inventory models with stockout loss considered, the authors assume lead time demand follows a
Normal distribution and the fraction of the shortage that will be backordered is fixed . Then 1- is the fraction
of the lost sales under stockout. They study on the lead time problem with the object of the minimum expected
annual total cost when equals 0, 0.5, 0.8 and 1. But in practical situations, the probability of lost sales depends
on the comparison between customer waiting time under stockout and the reach time of products. That is, the
probability of lost sales depends on the relationship of customer waiting time and lead time.
With the above consideration and based on classical production/inventory control strategies, first the concept
of customer waiting time is introduced and the quantitive relationship between customer waiting time and lead
time is analyzed. Then the inventory model is studied on with a mixture of backorders and lost sales, where the
relationship between customer waiting time and lead time, the lead time, lot size and the reorder point are decision
variables. And the model is solved by iterative algorithms. Furthermore, a numerical example is given to illustrate
the results and concluding remarks are made.
This research is supported by National Natural Science Funds of China (No: 70332001).
276
2. The relationship between customer waiting time and lead time
Under the theory of Time-base-competition, the competitive advantage for firms is instant response to
customer demands. Based on traditional inventory strategies and practical situations, we assume customers know
that they need to wait under stockout. If the reach time of products exceeds the waiting time, customers will
cancel the buying behavior then lost sales occur. Because of the homogeneous character to waiting time for a
special customer segment of some product and in order to simply the model, we assume that the waiting time of
different customers is the same, denoted by , with reference to the dealing method to customer utility threshold
considering customer expected utility in Li[10]. The relationship between and L under stockout is studied
on then.
Consider the supply chain of a single product consisting the supplier, retailer and customers. When the
inventory decreases to the reorder point r , the retailer reorders with order lot size Q . After a lead time L , products
arrive and satisfy customer demands. We assume every customer orders one product and the lead time demand is
denoted by X and follows Normal distribution X ~ N ( DL, L ) and r = DL + k L P( X > r ) = P( Z > k ) = q , k
is the safety factor and q is customer service level.
We assume the retailer determine r and L of a single period based on historical and forecasted demand.
Because of the complexity of customer arrival time, we assume the time of reordering is 0 and we begin to
analyze the arrival time from time 0. We assume the arrival time is a random variable and is denoted by Y and
Y followings a normal distribution Y ~ N ( t , t ) . Its distribution function and density function are FY ( y ) and
fY ( y ) respectively.
Under stockout and if L y , customer waiting time is larger than the reach time of products, customers
may wait and backorders occur. Although there is no any lost sale, the credit loss occurs to the supply chain.
If < L y , the waiting time is smaller than the reach time and lost sales occur. Then more credit loss occurs to
the whole supply chain.
In a inventory per cycle, set Ew as expected customer backorders, then
L L
Ew = ( x r ) f X ( x ) fY ( y )dxdy = E ( x r ) + fY ( y )dy (1)
r L L
3. Basic model
In this paper, we study the lead time reduction problem on the lot sized reorder point inventory models with a
mixture of backorders and lost sales, where the relationship between customer waiting time and lead time and lot
size, reorder point and lead time are decision variables. Specifically, when lead time demand follows a Normal
distribution, we established the following expected annual total cost function:
C (Q, r , L) = set-up cost + holding cost + stockout cost +lead time crashing cost
AD Q D D( + 0 ) D
= + h( + r DL + El ) + Ew + El + R( L) (3)
Q 2 Q Q Q
i 1
as R( L) = ci ( Li 1 L) + c j (v j u j ) , L [ Li , Li 1 ] ( i = 1, 2,..., n ),
j =1
where
Q: lot size,
D: annual demand rate,
A : set-up cost per order,
h : annual inventory holding cost per unit,
: shortage cost per unit short,
277
0 : marginal profit per unit,
E ( x r )+ : expected demand shortage at the end of cycle E ( x r ) + = L (k ) ,where
(k ) = (k ) k [1 (k ) ] , and denote the standard normal probability density function and distribution
function, respectively,
ui , vi , ci : i th component of lead time has a minimum duration ui and normal duration vi , and a
crashing cost per unit time ci , i = 1, 2,..., n . For convenience, let c1 c2 ... cn ,
Li : length of lead time with components 1, 2,..., n crashed to their minimum duration,
n i n
Li = v j (v j u j ) ( i = 1, 2,..., n ).Also let L0 v j ,
j =1 j =1 j =1
i 1
R ( L) : lead time crashing cost per cycle R ( L) = ci ( Li 1 L) + c j (v j u j ) , for L [ Li , Li 1 ] .
j =1
And R( L0 ) = 0 .
The optimal Q, r , L pair is determined with the objective of minimizing the expected annual total cost in
order to make inventory strategies. Differentiating equation (3) with respect to Q and r in any given interval
( Li , Li 1 ) yields.
C (Q, r , L) AD h D D( + 0 ) D
= 2 + 2 Ew El 2 R ( L) (4)
Q Q 2 Q Q2 Q
C (Q, r , L) E D Ew D( + 0 ) El
= h+h l + + (5)
r r Q r Q r
Where
Ew L E L
= f X ( x)dx fY ( y )dy ; l = f X ( x)dx fY ( y )dy .
r r L r r 0
Let F (r ) = f X ( x)dx , so
r
Ew L E L
= F (r ) fY ( y )dy ; l = F (r ) fY ( y )dy .
r L r 0
2 C (Q, r , L) 2 C (Q, r , L)
From equations (4) and (6), it is obvious to see > 0 and > 0 . So equation (3) is
Q 2
r 2
convex with respect to Q and r in any given interval ( Li , Li 1 ). Let C (Q, r , L) / Q = 0 and C (Q, r , L) / r = 0 ,
then:
1/ 2
2 D[ A + R ( L) + Ew + ( + 0 ) El ]
Q= (7)
h
hQ
F (r ) = L
(8)
[ hQ + D( + 0 )] 0
L
fY ( y ) + D fY ( y )
L
D 0 D
+(h + ) E ( x r ) + fY ( L ) + E ( x r ) + fY ( L) (9)
Q Q
278
D fY ( y )dy + 0
L L
fY ( y )dy
2 C (Q, r , L) 1 1 L
0 0 L3 / 2 (k )
hk L h
3 / 2
fY ( y )dy + (10)
L2
4 4 0 Q
So equations (10) <0, for given Q and r , C (Q, r , L) is concave with respect to L , L [ Li , Li 1 ] , and the
minimum expected annual total cost will occur at the end points of the interval.
279
Tab3 Summary of the results the optimal procedure
Li Q r C (Q, r , L)
0 4 121 75 2991
1 4 121 70 2905
2 4 121 66 2832
5. Conclusions
Traditional inventory models usually ignore the customer selection behavior facing stockout or predigest the
economic and credit lost caused by waiting time. This paper study the relationship between customer waiting time
and the lead time, establish the inventory models when lead time demand and customer waiting time both follow
Normal distributions. A new algorithm is put forward to solve the model. A numerical example is given to prove
the effectiveness of the model. It may be an interesting research topic to investigate the lead time demand follow
general distributions. Moreover, a possible extension of this work may take more complex customer arrival times.
References
[1] Silver, E. A., Pyke, D. F. and Peterson R. Inventory Management and Production Planning and Scheduling. New York: Wiley,
1998
[2] Liang Yuh, Ouyang, Hung Chi Chang. Lot Size Reorder Point Inventory Model with Controllable Lead Time and Set-up Cost.
Int J of Systems Science, 2002, 33(8):632~635
[3] G. Jr. Stalk. Time - the Next Source of Competitive Advantage. Harvard Business Review, 1988, 4:41~51.
[4] Liao,C. J. and Shyu, C. H. An Analytical Determination of Lead Time with Normal Demand. International Journal of
Operations and Production Management, 1991, 11:72~78.
[5] Ben-Daya. M and Raouf. An Inventory Models Involving Lead Time as Decision Variable. Journal of the Operational Research
Society, 1994, 45:579~582
[6] Ouyang L., Yeh, N. and Wu, K. Mixture Inventory Model with Backorders and Lost Sales for Variable Lead Time. Operations
Research Society, 1996, 47:829~832
[7] Moon, I. and Choi, S. A Note on Lead Time and Distributional Assumptions in Continuous Review Inventory models.
Computers and Operations Research, 1998, 25: 1007~1012
[8] Hariga, M. and Ben-Daya, M. Some Stochastic Inventory Models with Deterministic Variable Lead Time.European Journal of
Operational Research, 1999, 113:42~51
[9] Manas Kumar Maiti, Manoranjan Maiti.Two-storage Inventory Model with Lot-size Dependent Fuzzy Lead-time under
Possibility Constraints via Genetic Algorithm. European Journal of Operational Research, 2007, 179:352~371
[10] Li L. The Role of Inventory in Delivery to time Competition. Management Science, 1992, 38 (2): 182~197
[11] Hadley, G. and Whitin,T. Analysis of Inventory Systems, New Jersey: Prentice-Hall ,1963
[12] Ouyang, L. Y., Chen, C. K. and Chang, H. C. Lead Time and Ordering Cost Reductions in Continuous Review Inventory
Systems with Partial Backorders. Journal of the Operational Research Society, 1999, 50:1272~1279
[13] Sven Axster.A Simple Procedure for Determining Order Quantities under a Fill Rate Constraint and Normally Distributed
Lead-time Demand. European Journal of Operational Research, 2006, 174: 480~491
[14] Wikner J. Continuous to Time Dynamic Modeling of Variable Lead Times. Int J of Production Research, 2003, 41:2787~2798
[15] Sunil Chopra, Gilles Reinhardt and Maqbool Dada. The Effect of Lead Time Uncertainty on Safety Stocks. Decision Sciences,
2004, 34: 12~24
[16] Sarker, B. R. and Coates, E. R. Manufacturing Setup Cost Reduction under Variable Lead Times and nite Opportunities for
Investment. International Journal of Production Economics, 1997, 49: 237~247.
280
The Method Based on the PSO Algorithm for the Order
Planning of the Steel Plant
Abstract This paper constructs an integer programming model for the order planning, which considers inventory matching and
production planning simultaneously and regards minimizing the total cost of earliness/tardiness penalty, tardiness penalty in delivery
time window, production, inventory matching and order cancellation penalty as the objective. Then, this paper adopts the PSO
algorithm as the solution strategy and also designs the heuristic rules to repair infeasible solutions. The numerical analysis shows that
the model satisfies the production process, and the solutions obtained by this method are superior to those obtained by the method
that considers inventory matching and production planning in different phases. So, the model and the algorithm are valid.
Key Words System Engineering; MTO (make to order); MTS (make to stock); Order planning, inventory matching, Particle
swarm optimization (PSO)
1. Introduction
Recent years, order planning has become a focus in the research field of production management in iron-steel
industry. In order to meet the demand of multi-category and small-lot, iron-steel enterprises should consider the
planning strategy based on MTO (Make-to-Order). Order planning is quite important in the MTO management
system of iron-steel enterprises. Paper [1] presented an integer programming model for order planning in
iron-steel enterprises based on the MTO management system, and presented a genetic algorithm as the solution
strategy. Besides on time delivery, the iron-steel factories should also consider the utilization ratio of inventory
and equipment. Paper [2] presented an order planning model with multi-objectives. On the other hand, customer
demands are unbalanced. For ensuring the utilization ratio of the equipment, the factories ought to forecast new
orders basing on the certain rules. It is just the production method of MTS (Make-to- Stock) that the factories keep
the products which are produced according to the forecast orders as inventory so as to meet the future demands.
Inventory matching is necessary under the MTS production method. Many researchers have studied the inventory
matching problem. Kalagnamam researched the matching of finished products and semi-finished products
separately with the objectives of maximizing the inventory matching and minimizing the loss of the remaining
materials[3].
Actually, in order to improve the market service level as well as to ensure the interior production economy,
the iron-steel factories usually adopt the production mode which combines the concepts of MTO and MTS[4].
After received the customer orders, firstly, the steel factory go to the step of inventory matching, that is, pick the
products that satisfy the customer orders from the stock and deliver directly. Then make production planning for
the orders which cannot be matched with current inventory and decide the processing time of the orders in each
process[5]. However, inventory matching and production planning could influence each other. Paper [6] considered
inventory matching and production planning jointly, considered the entire processing line as only one process, and
from material input to products output, every order should be finished in one period.
On the basis of paper [6], this paper studies the order planning considering both inventory matching and
production arranging simultaneously based on the MTO-MTS management architecture, and develops an integer
programming model for order planning, presents a modified PSO algorithm with heuristic repaired strategy for
infeasible solutions to solve the model.
This paper is supported by National Natural Science Fund of China (No.70501018, 70602031) and 211 Project of Shanghai University of Finance &
Economics.
281
2. Mathematical model of order planning
2.1 Description of the order planning problem
In iron-steel enterprises, according to the demands of customer orders, inventory matching picks the finished
products in stock which have right qualification. The inventory products steel grade should not be lower than the
quality requirement of the order (on the assumption that one order can match with not more than one kind product
in stock). According to the constraints, production planning assigns the processing period of every process to the
orders which are waiting to be produced.
Based on the MTO-MTS production model and following the requirements of management integration, this
paper works out the order planning on the basis of considering five days as the period unit, aiming at the orders in
two months (eight period units) and taking both inventory matching and production planning into considerations.
Considering that there are N due orders in planning horizon [1, T ] , when making order planning, there are three
choices, i.e., inventory matching, workshop producing and order cancellation.
The procedure of inventory matching/production planning is just as follow. Suppose that there
are N orders, J processes and K kind of inventory products, the weight of every order, delivery time,
production routine (refers to the processes passed through and machines available to use in every process) and
material specifications are all known, every order follows the same processes and the production capacity of every
process is fixed. To meet the order demands, order planning decides whether to use the inventory matching or
workshop producing (production period in every process) under the preconditions of satisfying the production
capacity constraints and the sequence relations in order to minimize the total penalties for the orders. (Every order
should pass all the processes. In the same period unit, only two processes of every order could be finished at
most.)
Notations:
N denotes the total quantity of the orders;
K denotes the quantity of the kinds of inventory products;
J denotes the total quantity of the processes;
T denotes the planning horizon;
i denotes the demand weight of order i ;
Qk denotes the weight of inventory product k ;
E jt denotes the production capacity of process j in period t ;
[ a i , bi ] denotes the delivery time window of order i ;
i denotes the delivery time penalty coefficient of unit weight of order i in the time window;
i denotes the earliness penalty coefficient of unit weight of order i ;
denotes the tardiness penalty coefficient of unit weight of order i ;
i
Decision variables:
1, order i chooses to match with inventory k
Yik =
0, otherwise
282
Where i denotes the index of order, j denotes the index of process, t denotes the period.
i = 1,..., N , j = 1,..., M , t = 1,..., T
The decision-making factors mainly include:
'
1) Matching cost coming from inventory matching. Assume that the steel grade order i requires is k , the
actual steel grade of the matching inventory product is k and the cost coming from the inventory matching with
order i is ik , which is the material lost penalty caused by material cutting according to the order specification.
ik k, k' belong to the same steel sequence and in the same steel grade
'
C ik = ik + hik g kk ' k, k' belong to the same steel sequence but k has higher steel grade than k
k, k' do not belong to the same steel sequence
Where gkk denotes the unit cost of using high-quality products as normal products, hik denotes the matching
weight of order i and the inventory product with steel grade k.
2) Cost of workshop producing of the orders. In order to obtain the production economy, utilization ratio of
the equipments should not be too low. So when the production quantity of process j in period t is less than the
minimal production lot, the penalty cost should be considered, which is denoted by unit penalty coefficient vj.
3) Penalty about time of delivery. This paper designs a penalty function to ensure that the delivery time in
time window could be earlier. If the order delivery time is out of the time window but still in the acceptable scope
of delivery time, the delivery belongs to tardy delivery and the unit penalty coefficient is i . If the order delivery
time is ahead of the time window, the delivery belongs to early delivery and the unit penalty coefficient is i.
4) Penalty of order cancellation. If in the acceptable tardy delivery time, the plants still could not deliver the
products, so that order cancellation penalties should also be taken into consideration.
2.2 Mathematical model
The mathematical model is formulated as follows:
N
min f1 = i i min(max( X iJt t a i ,0), bi a i ) (1)
i =1
N
min f 2 = i i max(a i X iJt t
0+ i i max( X iJt t bi ,0) (2)
i =1
N T K
min f 3 = i p i [1 X iJt Yik ] (3)
i =1 t =1 k =1
N K
min f 4 = C ik Yik (4)
i =1 k =1
T J N
min f 5 = v j max( (E jt X ijt i ),0) (5)
t =1 j =1 i =1
The combined objective function is constructed as below ( 1 , , 5 are the weight coefficients):
min f 6 = min( 1 f1 + 2 f 2 + 3 f 3 + 4 f 4 + 5 f 5 ) (6)
s.t.
N
Yik hik Q k k = 1, 2, ,K (7)
i =1
T K
X iJt + Yik 1 i = 1,2, ,N (8)
t =1 k =1
N
X ijt i E jt j = 1,2, , J , t = 1,..., T (9)
i =1
T T
tX ijt tX i ( j +1) t j = 1, , J 1 , i = 1,2, ,N (10)
t =1 t =1
283
J
X ijt 2 i = 1,2, , N , t = 1,..., T (11)
j =1
N t t
I j 0 + ( i X ijq i X i ( j +1) q ) I j max j = 1, 2, , J 1 , t = 1,..., T (12)
i =1 q =1 q =1
Where, objective function (1) denotes the penalty when delivery time is closer to bi in the time
window [ a i , bi ] . J denotes the last process of the order. Objective function (2) denotes the earliness/tardiness
penalty. Objective function (3) denotes the order cancellation penalty. Objective function (4) denotes the
inventory matching cost. Objective function (5) denotes the penalty for insufficient utilization of production
capacity. Constraint (7) denotes the quantity constraint of inventory. hik denotes the weight of inventory product
k which is matched by order i , considering that inventory matching might cause the material lost, hik is
usually a little large than order weight i . Constraint (8) ensures that the same order could not choose both
inventory matching and workshop producing at the same time, in addition, every order could match only one kind
of inventory product at most. Constraint (9) denotes the production capacity limitation of each process, that is, in
unit period the production quantity of one process could not be larger than its production capacity, besides, in
order to keep a certain utilization ratio of the equipments, production quantity must be larger than a certain
proportion of the production capacity. Constraint (10) ensures that if order i is being processed in one process, it
must pass through the following processes and the production period of the next process should not be larger than
the production period of the former process. Constraint (11) ensures that in the same period, every order could
finish not more than two processes. Constraint (12) ensures that in every period and every process, the inventory
of goods in process should not exceed the inventory capacity of each process.
284
s
( s ) = 0.9 0.5 (15)
MaxStep
In order to ensure the global search ability, this paper adopts the method in which many particle swarms fly
separately and parallel and the swarms exchange outstanding individuals periodically.
3.2 Encoding for the PSO algorithm
The subsection natural number coding method this paper adopts is showed below:
Lr = [c r1 , c r 2 , c rN ; p r11 , p r12 , p r1J , p rN 1 , p rNJ ] . Where, vector Lr represents the position of
particle r in every dimension(a solution of r ) . [c r1 , c r 2 ,, c rN ] represents the first half of the coding,
which denotes the inventory matching, in which c ri ( 0 r R , 1 n N ) represents order i matches with
inventory c ri . p rij ( 1 j J ) denotes the production period of order i in process j , if p rij = 0 , it means
order i will not be produced in process j . [ p r11 , p r12 , p r1J , p rN 1 , p rNJ ] represents the last half of the
coding, in which [ p ri1 , p ri 2 , p riJ ] is the subpart of the last half of the coding and denotes the production period
of order i in process 1, , J . If the values of [ p ri1 , p ri 2 , p riJ ] are all zero, it means that order i is not going
to be produced; if the values are all bigger than zero, the order is going to be produced. c ri and p rij should not
be bigger than zero at the same time, that is, one order cannot be both matched with inventory and produced in
workshops.
3.3 Creation of initial feasible solutions
One order cannot be both matched with inventory and produced in workshop, so in order to satisfy constraint
(8), the last half of the coding is created first. Pick an integer randomly in range [ T , T ] as the value of p r11 . If
the value falls into range [ T ,0] , set p r11 = 0 and p r12 = 0,..., p r1J = 0 , which means the order will not be
produced. If p r11 > 0 , pick an integer randomly in range [ p r11 , T ] as the value of p r12 and analogize the
other values in turn to create the value of pr1 j , which is the production period of the first order in every process.
In the same pattern, the production period in every process of the other orders is got, now the last half of the
coding is created. Then, creating the first half of the coding, if order i is not produced ([ p ri1 , p ri 2 , p riJ ] are
all zero), pick an integer randomly in range [1, K ] as the value of cri , which means order i matches with
product cri . If order i will be produced, set c ri = 0 . So in this manner, a particle is created. R particles could
be created in the same way and form a swarm, L swarms in all should be generated. The particles created
following the steps above could satisfy constraints (8), (10) and (11).
Then the heuristic repair of infeasible solutions could ensure constraints (7), (9) and (12), and L R initial
feasible solutions are obtained.
3.4 Procedure of the Algorithm
From the design of the algorithm above, the Procedure of PSO algorithm is showed below:
1) Initialize all the parameters. Inertia coefficient w0 = 0.9 ,cognitive parameter c1 = c 2 = 2.0 , maximal
iterations MaxStep =500, particle quantity R =100, swarm number L =10 and so on.
2) Every swarm create R feasible particles randomly, and there are L swarms altogether.
Compute the value of objective function (6). Initialize the current solutions of the particles as the best
solutions for each particle till now, initialize the best solutions of the individuals of the swarms as the best
solutions of every swarm and initialize the best solution of all the swarms as the global best solution.
3) For s = 1 to MaxStep
For l = 1 to L
For r = 1 to R
Use function (13) and (14) to move the particles;
Repair the infeasible solutions by infeasible solution repairing strategy;
End For
285
On the basis of the objective value computed by function (6), update Pg (the best solution of swarm l ) and
l
End For
Update Pg (the global best solution);
l
If n%10=0, the swarms integrate two by two randomly, pick out 30% of the particles and exchange Pr for
each other;
n + + (Statistic of iterations);
Update inertia coefficient according to function (15);
End For
4) End. Output the experiment results such as Pg
4. Computational experiments
This paper adopts VC++ to programs and runs on the Pentium M. The basic data is that planning horizon
T = 8 (take five days as a period unit); J = 3 (steel-making and casting, hot rolling and cold rolling); particle
number R = 100 , swarm number L =10, maximal iterations MaxStep =500.
Set the penalty coefficients in objective function i = 0.02, i = 0.1, i = 1.0, p i = 20.0 , unit penalty of
utilization ratio v j = 9 , lowest utilization ratio = 0.7 , matching penalty coefficient ik = 0.2 i , penalty
coefficient of high-quality products matched with orders of low steel grade demand g kk ' = 0.4 . Set the initial
inertia coefficient (0) = 0.9 and cognitive parameter c1 = c 2 = 2.0 .
Test each data group ten times separately, statistic the best target value BF, average target value AF, worst
target value WF and record the results of order planning corresponding to BF , computing time and average
convergence iterations( target value is computed by objective function (6)). Tab. 1 shows the computation results
of the instances, and the order arranging results corresponding to the BF of the instances.
Tab. 1 Computation results for the instances
Orders for Orders for Earliness Tardiness Canceled
N BF AF WF time inventory production orders orders orders
(S) matching
30 173706 179283 189844 49 13 17 3 2 0
Tab. 1 shows that on the basis of satisfying strict constraints such as the inventory quantity, intermediate
inventory capacity and production capacity, the model in this paper arrange inventory matching and production
planning reasonably and ensures that most of the orders could deliver on time.
Fig. 1 shows the convergence curve of an algorithm computing result for N=40, K=6, Q=10000.
Fig. 1shows that within 10 generations the target value has fast convergence rate and could get to the satisfied
value within 100 generations. This paper also does contrast analysis between the results of
first-matching-then-producing (FMTP) and those of considering them jointly (take N = 40 as example, the
program runs 5 times and the best result is obtained). The FMTP processing rule is that match the orders first, then
make production planning for the unmatched orders and cancel the orders which are not included in any
production plans. Tab. 2 shows the results.
286
1000000
900000
Convergence curve
800000
700000
600000
Target value
500000
400000
300000
200000
100000
0
0 20 40 60 80 100 120 140 160
Iterations
Table 2 indicates that the target value of the model that optimize inventory matching and production planning
jointly is improved by 16% than that of FMTP.
5. Conclusion
On the basis of MTO-MTS production model, in order to improve the integrated production management
level of iron-steel enterprises, reduce inventory and production cost, this paper brings inventory matching into the
process of order planning and constructs the joint optimization model in which inventory matching and workshop
producing is considered jointly. According to the characters of order delivery, a penalty function which ensures
that the delivery time could be as early as possible in the time window is created. On the basis of the specialty of
the model, this paper adopts the PSO algorithm as the solution strategy and also designs the heuristic rules to
repair infeasible solutions. The computational results show that the model is feasible and the algorithm is valid.
Experiments show that when process number increases, the position renewal of PSO algorithm might create a
lot of infeasible solutions and the resolve capability might degrade seriously. And because of the large amount of
the model constraints, when the program keeps the feasibility of the solutions from beginning to the end, the
searching space is limited. Therefore, how to design more efficient algorithm and solution strategy for the order
planning model is one of the researching directions in the future.
References
[1] Zhang Tao, Wang Meng-guang, Tang Li-xin. The model and algorithm for the order planning of the steel plant. Control Theory
and Applications, 2000, 17(5): 711-715(in Chinese)
[2] Shixin Liu, Jiafu Tang, Jianhai Song. Order-planning model and algorithm for manufacturing steel sheets [J]. International
Journal of Production Economics, 2006, 100: 30-43
[3] Kalagnanam J, Dawande M, Trumbo M, et al. Surplus inventory matching problems in the process Industry. Operations
Research, 2000, 48(4): 505-516
[4] Ivo J.B.F. Adan, Jan van der Wal. Combining make to order and make to stock. OR Spektrum, 1998, 20: 73-81
[5] Hu Kunyuan, Chen Wenming, Wang Dingwei, Zheng Binglin. Research for joint optimization of inventory matching and
production planning considering mass factor. Systems Engingeering-Theory Methodology applications, 2004, 13(3):
200-204(in Chinese)
[6] Hu Kunyuan, Chang Chunguang, Zheng Binglin, Wang Dingwei. The model and algorithm for joint optimization of inventory
287
matching and production planning in steel plant. Information and Control, 2004, 33(2): 177-180(in Chinese)
[7] Chang S C. Scheduling flexible flow shops with no setup effects. IEEE Trans on Robotics and Automation, 1994, 10(2):
112~122
[8] Kennedy J, Eberhart R.C. Particle Swarm Optimization. In:Proc. IEEE Int'l. Conf. on Neural Networks, IV.Piscataway,
NJ:IEEE Service Center, 1995. 1942-1948
[9] Zeng Jianchao, Jie Jing, Cui Zhihua. Particle Swarm Optimization Algorithm. Beijing: Science Publishing Company, 2004(in
Chinese)
[10] Ioan Cristian Trelea. The particle swarm optimization algorithm: convergence analysis and parameter selection. Information
Processing Letters, 2003, 85:317325
288
Positioning Model of Purchasing Based on Kraljics Purchasing
Portfolio Matrix and Factor Analysis
Abstract Kraljics purchasing portfolio matrix is the most important analytical tool in sourcing supply management. Considering
the abstract and the difficulty of quantification of the matrixs two dimensions, the indicators of the matrix was established and
quantified in the study. The materials purchased were classified from Kraljic matrixs dimension respectively by using factor analysis.
The final location of materials in Kraljics purchasing portfolio matrix can be confirmed from the first two categorized results.
Finally, a case was presented to demonstrate the effectiveness of the model.
Key words Positioning model of purchasing, Kraljics purchasing portfolio matrix, Factor analysis
1 Introduction
Currently, purchasing cost constitutes the majority of the total cost of goods sold (Gadde and Hakansson,
2001)[1]. The purchasing of materials has also become increasingly important because they account for a large part
of the value creation related to the buying firms products and services. The change has been accompanied by
increasing attention to purchasing, as a field of strategic interest, both from managers and researchers. Reducing
purchasing cost is one of the most efficient strategies to enhance profit. Therefore, purchasing management is
becoming an essential strategic issue. Given the variety of materials procured, especially in some large enterprise,
the kinds of materials reach to ten thousand or even more. Consequently, the need for differentiated approaches to
purchasing tactics is increasing, which confronts firms with new challenges. The positioning model of purchasing
aimed at developing distinctive purchasing and supply strategies, and improving the efficiency of purchasing
management.
Classification method based on ABC-analysis has been used widely in inventory management, also in
provisioning management. Traditional method based on ABC-analysis simply classified the materials into three
groups according to some factors that it is not perfect to the purchasing management of enterprise in practice. For
instance, supposed material A is high supply risk but low profit impact, and material B is opposite. Using
traditional ABC-analysis and considering the factor of consumption amount, material A and material B probably
will be positioned in the same category and thereby taken same purchasing strategy. Obviously, its not meeting
the demand of purchasing management, and the classification of A and B need to be subdivided further. Kraljic
(1983)[2] introduced the first comprehensive portfolio approach for purchasing and supply management. Its
general idea is to minimize supply risk and make the most of buying power Kraljics approach including the
construction of a portfolio matrix that classifies products on the basis of two dimensions: profit impact and supply
risk (low and high). Profit impact means the potential contribution to the total profit of enterprise. Supply risk
plays an important role to that whether purchasing materials can be adequately supplied. The result is a 22
matrix and a classification in four categories: strategic, bottleneck, leverage and non-critical items, see Fig.1. Each
of the four categories requires a distinctive approach towards suppliers.
The Kraljic portfolio approach is generally considered as an important breakthrough in the development of
theory in the field of purchasing and supply management (Syson, 1992)[3]. Syson concluded that Kraljics
approach represents the most important single diagnostic and prescriptive tool available to purchasing and supply
management. Lamming and Harrison (2001) [4]confirmed that Kraljics matrix remains the foundation of
purchasing strategy for many organizations across different sectors. In contrast with a growing acceptance and use
of purchasing portfolio models, there are puzzles and unanswered questions. The dimension of matrix is too
abstract and without specific and measurable indicators, and is not given detailed methods to quantify it.
High
bottleneck strategic
Supply risk
non-critical leverage
Low High
Profit impact
290
Tab.1 indicators of supply risk
The number of
one level two level three level
indicator
number A1
the degree of substitutable
function A2
purchasing batch A3
annual procurement rates A4
market attractiveness
demand stability A5
attribute of materials number of supplier A6
lifecycle of material A7
depreciation
lifecycle of terminal product A8
inventory cost A9
importance impact on the final product A10
out of stock loss A11
291
y ij y j
xij = , (i = 1,2, , n) (1)
sj
1 n 1 n
( yij y j )
2
where yj = yij s j =
n j =1 n 1 j =1
(2) Factor analysis
Factor analysis is a statistical approach that can be used to analyze interrelationships among a large number
of variables and to explain these variables in terms of their common underlying dimensions (factors). It involves
finding a way of condensing the information contained in a number of original variables into a smaller set of
dimensions with a minimum loss of information.
Let X be the random vector for sample with m variables X 1 , X 2 , X P . The factor model postulates that X is
linearly dependent on a few unobservable random variables F1 , F2 , Fm called common factors, and m
additional sources of variation e1 , e2 ,..., e p called errors. The factor analysis model is:
The random vectors e are assumed to satisfy the following conditions: E[e] = 0 . The effect of vectors is
neglected. Therefore, we have
X = AF (4)
(3) Confirming the weighting of each factor
The principle for selecting the important factors was based on the principle proposed by Kaiser. Eigenvalue is
larger than one, and cumulative variance contribution percent greater than 85%. Some change is need to factor
loading matrix using varimax orthogonal rotation method. And then we can capture the important factors of
sample data: f1 , f 2 ,... f m , and their corresponding variance contribution percent b1 , b2 ,..., bm . The weighting of
each indicator w1 , w2 ,..., wm is defined as:
bj
wj = m
( j = 1, 2, , m) (5)
b
i =1
i
292
High
bottleneck strategic
20%
Supply risk
non-critical leverage
Kraljics purchasing portfolio matrixs dimension respectively by using factor analysis, we choose 20 percent
as division point for Kraljic matrix, the final location of material in Kraljics purchasing portfolio matrix can be
confirmed from the first two categorized results. For example, bottleneck items are defined by 80% ranks of profit
impact and 20% ranks of high risk. (See Fig.2)
3.3 Positioning results and relevant strategy analysis based on Krajlic matrix
Each of the four categories requires a distinctive approach towards suppliers. (1)Strategic items represent a
considerable value to the organization in terms of large impact on profit and a high supply risk. Often strategic
products can only be purchased from a few suppliers or even single source, causing significant supply risk. The
general recommendation for supplier management in this quadrant is to develop solid win-win strategic
relationships with suppliers and long-term contract with key suppliers which should always contribute to the
competitive advantage of the firm. Even in the case of a strategic partnership, enterprise should try to restrict or
reduce the dependence on the supplier involved. By making the product less complex, alternative solutions are
within reach. If necessary, new suppliers are developed. (2)Bottleneck items are by definition of low value and of
high risk. Bottleneck items cause a lot of problems and risks. Volume insurance, vendor control, security of
inventories and backup plans are recommended here. The most common alternatives refer to the productor to the
supplier (searching, managing and developing suppliers, or cross-sourcing). The possibilities within the bottleneck
quadrant are: keeping stocks, hedging, Internet buying, broadening the specifications, searching for alternative
sources, and risk analysis in combination with contingency planning, standardization and pooling of their
purchasing requirements etc. (3)In general, leverage items can be obtained from various suppliers. These products
represent a relatively large share of the end products cost price in combination with a relatively low supply risk.
The buyer has many possibilities and incentives for negotiation, since small percentages of cost savings usually
involve large sums of money (Olsen and Ellram, 1997)[9]. At the same time the supply risk is minimal. These
characteristics justify an aggressive approach to the supply market (e.g. Van Weele, 2000)[10]. Therefore, leverage
items allow the buying company to exploit its full purchasing power, for instance through tendering, target pricing
and product substitution. The generally preferred leverage position can be used for a rather aggressive supplier
management. Competitive bidding and short-term contracts are feasible options to exploit the leverage position.
Since suppliers and products are interchangeable, there is no need for long-term supply contracts. (4)Non-critical
items usually have a small value per unit. Non-critical items require efficient processing, product standardization,
order volume and inventory optimization, and reducing the logistic and administrative complexity. Preferably,
non-critical items are put together in large quantities, increasing the buying power of the firm, if necessary, a
process of standardization, bundling of purchasing requirements, individual ordering, and efficient processing is
pursued. The pooling strategy is executed by a framework agreement with a preferred supplier, systems
contracting (Elliott-Shircore and Steele, 1985)[11], a Vendor Managed Inventory system, or an e-procurement
solution.
293
4 Application of model
4.1 Case introduction
A total number of ten sample variables were selected at random from one manufacturing industry in Wuhan.
The case studies entailed the use of factor analysis to evaluate supply risk. To the part of potential profit impact
analysis, we only give the final evaluation results. The sample data see tab 3. The process of calculation was
neglected and the final position was given (see tab.4)
Tab.3 Sample data
indicator
A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12
number
1 9 1 270 406272 5 1 20 18 13995.45 5 870 1
2 0.87 2 5 5 17 15 3 5 5 650000 1 5
3 0.89 1 40 1 12 12 1 3 3 5600 1 3
4 0.96 7 15 3 1 20 5 3 3 556650 3 2
6 0.85 7 2 1 4 56 1 3 3 650000 5 26
7 0.97 1 30 5 36 1 3 3 5 17600 5 4
8 0.84 2 10 1 7 3 5 5 3 890000 3 11
9 0.82 4 60 3 16 28 1 3 3 56720 1 2
10 0.99 2 10 5 60 8 3 5 5 21463 3 5
(Notation A1A2A24 is consistent with Tab 1)
294
4.2 Results analysis
From tab.8, we can see the difference between the positioning method based on Kraljic matrix and factor
analysis and the method based on traditional ABC analysis clearly. For example, the material 4 was classified in
to category B according to consumption rate and it doesnt need to pay more attention to it. But its substitutability
is low, and if there is accident for supply, it will be hard to find new substitute to provide it timely. Furthermore,
the life cycle of its terminal product is short, so the purchasing risk is high. By the means of factor analysis, the
material 4 belongs to high supply risk and high profit impact materials that is strategic item, so we should attach
more importance to it. Material 1and 6 were classified as category A by ABC-analysis simultaneously. In fact,
they are different obviously by the way of factor analysis. Material 1 has high supply risk and common profit
impact, but material 6 has common supply risk and high profit impact. Therefore the purchasing strategy of
material 1 and 6 should be different.
5 Conclusions
The paper presents the conception of positioning model of purchasing based on Kraljic matrix and factor
analysis, and then illustrates its application. The positioning results of tab 8 reveal the main difference between
these two positioning methods. Compared with traditional ABC analysis, the positioning model based on Kraljic
matrix and factor analysis considers almost all relevant factors that affect procurement, and it is more accurate and
efficient. Furthermore, the positioning model resolves the abstract of Kraljic matrix and difficulty to quantify
issues.
References
[1] Gadde, L.E., Hakansson, H.,. Supply Network Strategies. Wiley, Chichester. 2001:45-60
[2] Kraljic, P., Purchasing must become supply management. Harvard Business Review, 1983,61(5):109- 117
[3] Syson, R.,. Improve Purchase Performance. London, Pitman Publishing. 1992
[4] Lamming, R.C., Harrison, D.,. Smaller customers and larger suppliers: the potential for strategic purchasing approach: a case
study. Proceedings of the 10th International IPSERA Conference, Jonkoping, Sweden, 2001:595610
[5] Kamann, D.J.F.,. Matrices, cubes and triangles in purchasing. Poster Presentation at the Ninth International IPSERA
Conference, London, Canada, 2000:16
[6] Cui N.F., Kang Y., Lin S.X., 2006. Study of Purchasing Positioning Mode Based on suppliers threshold. Chinese Journal of
Management Review. 2006,18(4):54-58 (in Chinese)
[7] Gelderman, C.J., Van Weele, A.J.,. Strategic direction through purchasing portfolio management: a case study. Journal of
Supply Chain Management, 2002,38 (2):3037
[8] Dubois, A., Pedersen, A.C.,. Why relationships do not fit into purchasing portfolio modelsa comparison between the portfolio
and industrial network approaches. European Journal of Purchasing & Supply Management, 2002, 8 (1):3542
[9] Olsen, R.F., Ellram, L.M.,. A portfolio approach to supplier relationships. Industrial Marketing Management, 1997,26
(2):101113
[10] Van Weele, A.J.,. Purchasing Management: Analysis, Planning and Practice. Chapman & Hall, London. 2000
[11] Elliott-Shircore, T.I., Steele, P.T.,. Procurement positioning overview. Purchasing and Supply Management ,1985,12:2326
295
Research on Coordinated Replenishments by Alternative
Supply Sources in a Logistics System
Abstract This paper sets up two models in two-level logistics system with two distributors and two retailers. In the first model, the
distributor makes ordering for one retailer only, in the second model, the distributor can act as alternative supply source when the
other one is out of stock. It is shown by theoretical and computational analyses that the model with coordinated replenishments by
alternative supply sources outperforms the other one with regard to reducing reorder point and total costs of the logistics system.
Key words Alternative supply sources, Coordinated replenishments, Inventory and transportation costs
1. Introduction
Logistics cost contributes to a large percent of operation cost in many companies. So, it is vital to reduce the
logistics costs in order to obtain advantage in competitions, and inventory cost is of major consideration among
them.
The researches on inventory problems are abundant, while some of them focus on coordinated replenishment.
Kleywegt and Nori (2002, 2004) proposed inventory models under Vendor-Managed Inventory(VMI) situation,
but they only considered direct delivery due to the complexity of the algorithm. Cheung and Lee (2002) examined
two information-based supply chain, specifically, they considered a supplier serving multiple retailers located in a
close proximity. Minkoff (1993) used a markov decision process (MDP) Model to describe an integrated logistics
system with stochastic demand, and his objective is about the inventory and transportation optimizing. In order to
reduce inventory costs, Cetinkaya and Lee (2000) set up VMI model, in which the supplier has the option of
delaying delivery in anticipation of orders from other retailers. Bertazzi and Paletta (2005) consider a complex
logistics system, which studied two different types of VMI police, and Axsater and Zhang(1999), used a new kind
of retailer policy to satisfied customer demand, but in these models there were only one facility to supply the
retailers. Different from above researches, Leon and Chakhlevitch (2001) considered about coordinated
replenishments by alternative supply sources, but they took all the parameters of two models as the same, which
has less reality.
As the current researches seldom consider about the coordinated replenishments, and those with coordinated
replenishment are much simple based on the assumption, deep researches on this aspect is needed and valuable.
2. The Problem
Considering in a two-level logistics system, there are a supplier S, two distributors D1D2 and two retailers r
r. The system distributes one kind product to customers, and the demands faced by different retailers are Poisson
processes with different means. We assume that the supplier S has unlimited stock, transportation distances
between any two facilities in the logistics system are constant, so do the lead times of the distributors and the
retailers. Each facility orders in batches and applies the (R,Q)-type ordering policy with order quantity depending
on facility level. Whenever the inventory position at the facility declines to reorder point R, an order of size Q
units is placed to the upstream facility.
The costs considered include transportation costs, holding costs in the distributors, and holding and shortage
cost in the retailers. The holding costs are charged for each unit in stock per time unit in distributors and retailers.
The retailers also incur shortage costs for each backordered unit per time unit.
Denote Di as distributor i , and ri as retailer i , the other notations in the paper are as follows:
296
i : demand rate at retailer i , i = 1,2
Ri : retailer i s reorder point, i = 1,2
Qi : retailer i s batch size, i = 1,2
R0i : distributor i s reorder point (in units of retailer i 's batches) , i = 1,2
Q0i : distributor i s batch size (in units of retailer i 's batches) , i = 1,2
L0i : distributor i s lead time, i = 1,2
Lij : retailer j s lead time from distributor i , i = 1,2 , j = 1,2
M ij : transportation cost per order from distributor i to retailer j , i = 1,2 , j = 1,2
M 0i : transportation cost per order placed by distributor i , i = 1,2
h0i : distributor i s holding cost per unit per time unit, i = 1,2
hi : retailer i s holding cost per unit per time unit, i = 1,2
li : retailer i s backorder cost per unit per time unit, i = 1,2
I Dn i : inventory on hand at distributor i in model n ( times of retailer i 's batches), i = 1,2 , n = 1,2
I rni : inventory on hand at retailer i in model n (times of retailer i 's batches), i = 1,2 , n = 1,2
S rni : backorders at retailer i in model n (times of retailer i 's batches), i = 1,2 , n = 1,2
3. The Model
Two models are set up in the considered two-level logistics system. In model 1, the distributor supplies one
retailer only, in model 2, the distributors can act as alternative supply sources when the other distributor is out of
stock. See Fig.1 and Fig. 2 for reference.
Model 1:
In model 1, we assume that distributor i only supplies retailer i , i = 1,2 . If retailer i places an order and
distributor i is out of stock, the retailer's order is backordered at the distributor. In this situation, the system is a
combination of two identical serial systems which can be considered separately.
The total average cost of the system can be given by:
TC 1 = C
i =1,2
1
Di + C
i =1,2
1
ri (1)
1 1
where CDi and Cri are the average cost at distributor i and retailer i per unit time, which can be calculated
respectively as follows:
( )
CD1 i = h0i E I D1 i +
i
Q0i
M 0i i = 1,2 (2)
( ) ( )
Cr1i = hi E I r1i + li E S r1i +
i
Qi
M ii i = 1,2 (3)
( )
1
where E I Di is the mean of the quantities of the inventory at distributor i, E I ri and E S ri denotes ( ) 1
( )1
The work is supported by National Natural Science Foundation of China (Project Topic: Integrated Research on location of distribution center, inventory and
transportation decisions under uncertain environment. Project No. 70301001)
297
respectively the means of the inventory and backorder at retailer i.
1 1
( ) ( )
1
In the following, we illustrate the procedures calculating E I Di , E I ri and E S ri . ( )
Denote respectively (R0i , Q0i ) and (Ri , Qi ) be the ordering policies followed by distributor Di and
retailer ri , i = 1,2 . For the purpose of simplicity, let Wi represent the whole of ri and Di , then Wi is under a
(R, Q0i ) policy, where R = Ri + Qi + R0i [3]. Denote IP(t ) be the echelon inventory position(on-hand plus
on-order inventory minus backorders) at the supplier's level at time t , IP be the random variable with a
distribution given by the steady-state distribution of IP(t ) ,it is easy to see that IP is uniformly distributed in
[R + 1, , R + Q0i ][6]. Then E (IPr ), the effective echelon inventory position at the retailers' level (inventory at
i
and in transit to the retailers, minus backorders at the retailers), can be calculated as follows [3]:
IP D(L0i ) if IP D(L0i ) Ri
( )
E IPri = (4)
IP D(L0i ) mQi others
where IP D (L0i ) is the steady-state echelon inventory level of Wi ( inventory at the supplier and retailers
plus inventory in transit to the retailers minus backorders at the retailers). So, the effective on hand inventory level
of distributor Di is as follows:
0 if IP D(L0i ) Ri
EI( )1
Di ( )
= IP D(L0i ) E IPri = (5)
mQi others
where D (L0i ) is the customers demand during lead time L0i and m is the largest integer satisfying
IP D(L0i ) mQi > Ri in both (4) and (5).
( ) ( )
Let E ILri = E IPri D (Li ) (6)
where D(Li ) is the customers demand during lead time Li , then we can get the means of the inventory and
backorder at retailer i:
( ) ( ( )) ( )
E I r1i = max 0, E ILri E S r1i = max 0, E ILri ( ( )) (7)
Model 2:
In model 2, the retailers can be coordinated replenished by alternative distributors. That is ,when
retailer i places an order and distributor i is out of stock, the retailer's order is transferred to distributor j if
distributor j s on hand stock is available, else the order is backordered at the distributor. However, an alternative
ordering supposes a higher transportation cost. In this situation, the total average cost of the system can be given
by:
TC 2 = C
i =1,2
2
Di + C r2i
i =1,2
(8)
Pi i + (1 Pi ) j
and ( )
C D2 i = h0i E I D2 i +
Q0i
M 0i i = 1,2 , j = 1,2 and i j (9)
( ) ( )
Cr2i = hi E I r2i + li E S r2i +
i
Qi
[ ]
M ii Pi + M ij (1 Pi ) i = 1,2 , j = 1,2 , and i j (10)
Where Pi (i = 1,2 ) is the probability that retailer i orders from distributor i [5]. Observably, when Pi = 1 , (9)is
the same as (2), so do (10) and (3).
In the part, we divided all the states of model 2 into four parts according to the inventory level of the
{ } { } {
distributor, that is, State a: I D1 > 0, I D2 > 0 , State b: I D1 = 0, I D2 = 0 , State c: I D1 > 0, I D2 = 0 , and State
2 2 2 2 2 2
}
298
{ 2 2
}
d: I D1 = 0, I D2 > 0 . Let Pa , Pb , Pc , Pd be the probabilities of the four sub-states, which can be gained through
simulation.
Then we get : I D2 i = Pa I Da i + Pb I Db i + Pc I Dc i + Pd I Dd i i = 1,2
Besides, let r represent the whole of r1 and r2 , then r has its own batch size Qr and reorder point Rr .So E (IPr ) ,
the effective echelon inventory position at the retailer r s level, can be calculated as follows:
IP D(L01 ) if IP D(L01 ) Rr
E (IPr ) = (12)
IP D ( L ) mQ others
01 r
where x1 and x2 are the proportions in times that r1 and r2 get their supplies from D1 . Qr = x1Q1 + x2Q2 ,
Rr = Ri + Qi ( x1Q1 + x2Q2 ) . The effective on hand inventory level of distributor D1 : E I Dc 1 , can be ( )
i =1, 2 i =1, 2
of consumer demand U (t ) can be calculate as U (t ) = T IP(t ) . U (t ) is the sum of U 1 U 2 ,which are the
demand amount of retailer r1 and r2 ,and they can be obtain by random disaggregation.
Then we can get
( ) ( )
E ILri = E IPri D(Li ) = Ti U i D(Li ) (14)
and
( ) ( ( )) ( )
E I r2i = max 0, E ILri E S r2i = max 0, E ILri i = 1,2 ( ( )) (15)
where Ti denotes detailer ri s reorder-up-to inventory leveland D(Li ) is customers demand during the
retailer lead time Li .
299
4 The Examples
In this part , we can see the results reports from a simulation study that evaluates the total costs of the two
models above.
We give the parameters as follows: 1 = 3, 2 = 2 , h01 = 6, h02 = 5 , h1 = h2 = 7 , l1 = 10, l2 = 9 ,
M 01 = M 02 = 80 , M 11 = M 22 = 50 , M 12 = M 21 = 65 , L01 = L02 = 5 , L11 = L12 = 1 , L12 = L21 = 1.5 .
2M (h + l )
And Qi can be obtained using the EOQ formula[5] Q = ,and we get Q1 = 9, Q2 = 8 . Because
hl
we assume that the distributors reorder point R0i and batch size Q0i are both times of Qi , we
choose R01 = 9,18,27 ; R02 = 8,16,24 ; Q01 = 9,18,27,36 ; Q02 = 8,16,24,32 . Our objective is to evaluate the
values of reorder points Ri which minimize the average total costs of the two models.
In the results form, we use a new parameter Radio(TC1 - TC2) / TC2, in order to show the advantage of
model 2 in total costs.
Through the form above, we can see that in general the reorder points in model 2 are not exceed model 1, and
all the total costs in model 2 are less than that in model 1. Obviously, these are advantages of model 2 because of
coordinated replenishments by alternative distributors.
5 Conclusion
snotesole of retailer This paper sets up two models in two-level logistics system with two distributors and
two retailers. In the first model, the distributor makes ordering for one retailer only, in the second model, the
distributor can act as alternative supply source when another one is out of stock. By comparing the differences in
the evaluating results, we can see the advantages of model 2 because of coordinated replenishment by alternative
distributors. But there is also shortcoming in the model evaluating, for example, the cases we choose do not
include all the possibility because aggregate of cases is too large.
Above all, it is shown in this paper that the model with coordinated replenishments by alternative supply
sources outperforms the other one with regard to reducing reorder point and total costs of the logistics system. We
will deeply research on this aspect, and it is hoped that new achievement can be obtain in the later.
References
[1] Kleywegt A.J., Nori V.S., Savelsbergh M.W.P. The stochastic inventory routing problem with direct deliveries. Transportation
300
Science, 2002, 36:94 -118
[2] Kleywegt A.J., Nori V.S., Savelsbergh M.W.P. Dynamic Programming Approximations for a Stochastic Inventory Routing
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[3] Cheung K.L., Lee H.L. The inventory benefit of shipment coordination and stock rebalancing in a supply chain. Management
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1993, 41:77-90
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Heuristics, 2005, 11:393-419.
301
Solving the Joint Replenishment Problem with
Warehouse-Space Restrictions Using a Genetic Algorithm
Ming-Jong Yao
Department of Industrial Engineering and Enterprise Information, Tunghai University,
180, Sec. 3, Taichung-Kang Road, Taichung City, 40704 Taiwan, R.O.C.
Email: myao@thu.edu.tw
Abstract This study is an extension of the Joint Replenishment Problem (JRP) that takes into accounts warehouse-space restrictions.
The focus of this study is to determine the lot size of each product under power-of-two policy to minimize the total cost per unit time
and to generate a feasible replenishment schedule of multiple products without exceeding the available warehouse-space. In order to
solve this problem, we propose a hybrid genetic algorithm (HGA). We utilize the ability of multi-dimensional search of GA to obtain
candidates in the solution space, and test the feasibility of any candidate using the proposed heuristics. By our numerical experiments,
we demonstrate that the proposed HGA could effectively solve the JRP with warehouse-space restrictions. Therefore, it could serve
as an effective decision-support tool for the logistic managers.
Keywords: Inventory, joint replenishment problem, scheduling, genetic algorithm, warehouse space
1. Introduction
In this paper, we are interested in obtaining an optimal replenishment strategy for a distribution center with
limited warehouse space available for inventory storage. The decision maker concerns with the determination of
lot sizes and replenishment schedules of n products in the distribution center. The focus of this study is to
optimally coordinate the replenishment of products so as to minimize the total costs incurred per unit time without
violating the warehouse-space restrictions.
This study is actually an extension of a well-known lot sizing and scheduling problem, viz., the Joint
Replenishment Problem (JRP). However, without considering the warehouse-space restrictions, one could
encounter an infeasible replenishment strategy for the practice in the distribution center even he/she is able to
obtain an optimal solution of the conventional JRP. Therefore, we are motivated to study the JRP considering the
warehouse-space restrictions and to propose a solution approach to support the managers decision making in the
distribution center.
2. Literature Review
The objective of the JRP is to minimize the total cost incurred per unit time. The cost terms considered
generally include setup costs and inventory holding costs. Most of early studies assume that the replenishment
cycle time of product i (denoted by Ti) is equal to a positive integer ki times B, i.e., Ti= ki B, where B is a basic
period. Also, it is usually assumed that the replenishment frequency for major setup, denoted by k0, is always set
to 1 in the JRP.
The JRP has been studied over thirty years, and extensive research efforts have been addressed to attempt
efficient heuristics for solving the JRP. One may refer to van Eijs (1993), Viswanathan (1996). Wildeman, et al.
(1997) and Lee and Yao (2003) However, all the solution approaches in the literature did not take into accounts
the warehouse-space restrictions when solving the JRP.
It is assumed that the replenishment in lots arrives at the warehouse only at the beginning of some basic
period in this study. Many researchers have been studying the scheduling of cyclic jobs or lots to minimize the
peak requirement of production resources. For instance, one may refer to Park and Yun (1985), Yao (2001) and
Yao, et al. (2003). Recently, Murthy, Benton and Rubin (2003) devoted themselves to solve the lot scheduling
problem so as to minimize the maximum warehouse space requirement given fixed replenishment lot sizes (and/or
replenishment cycles) of multiple products. Murthy, Benton and Rubin (2003) commented that the scheduling of
an activity in a given basic period does not affect the capacity requirement in basic periods in which this activity is
not scheduled. It is unlike the situation in inventory replenishment of multiple products where inventory left over
302
at the end of the last basic period becomes the inventory at the beginning of the next basic period. Using the
assumption that the replenishment cycle time of each product is an integer multiple of a basic period, Murthy,
Benton and Rubin (2003) formulated a mathematical model and proposed a heuristic for solving the lot scheduling
problem.
A decision maker may first ignore the warehouse-space restrictions and apply the solution approaches for the
conventional JRP to solve the problem. However, he/she often finds that the obtained solutions are infeasible for
the practice of the distribution center since the maximum warehouse-space required exceeds the available size.
Therefore, we are encouraged to study the JRP considering the warehouse-space restrictions and to propose a
solution approach to support the managers decision making in the distribution center.
Note that the author referred to Murthy, Benton and Rubins (2003) mathematical model for the derivation of
the constraints discussed in this subsection. Given a vector of multipliers (k1 , k2 , , kn ), we denote a
replenishment schedule for such a vector as X(k1 , k2 , , kn ), ( x1 (k1 ), x2 (k2 ),..., xn (kn )) where xi (ki ) is the
earliest scheduled replenishment time point of product i. For a value of basic period B, I it ( xi (ki ), B) is the
inventory level of product i at time t (as a function of xi (ki ) and B since the replenishment quantity of product i
is qi = di ki B ). Denote si as the warehouse space required for a unit of product i. Define St ( X(k1 , k2 , , kn )) as
the total warehouse space requirement at time t; then, St ( X(k1 , k2 , , kn ), B) = i =1 si I it ( xi (ki ), B) . Also, for a
n
its maximum warehouse space requirement. Let W max be the warehouse space available. If
S max ( X(k1 , k2 , , kn ), B) W max , we have a feasible replenishment schedule for the solution (k1 , k2 , , kn , B).
Let lcm() be an operator that takes the least common multipliers of a set of integers. Now, we are ready to
summarize the mathematical model for the JRP with warehouse-space restrictions under PoT policy as follows.
n n
Minimize TCPoT (k1 , k2 , , kn , B) = (1/ B) A / k0 + (ai / ki ) + ( B / 2) ki di hi (1)
i =1 i =1
n n
B(K ) = 2 ( A / k0 ) + (ai / ki ) di hi ki (7)
i =1 i =1
After normalizing fitness, we used a roulette wheel mechanism for selecting chromosomes for reproduction.
In our GA, we consider the elitism process to overcome the problem of losing the superior chromosomes in each
304
population because of the random nature in selection and the effect of crossover and mutation (Hunter, 1998). By
referring to Beans (1994) strategy, we copy 20% of the chromosomes with the best fitness value directly to the
next generation.
4.1.3 The genetic operators
Those chromosomes, that survive the selection step, undergo the alternation by two genetic operators, namely,
crossover and mutation, to generate the rest of the 80% of the chromosomes in the next generation.
In this study, we choose uniform crossover in our GA for its crossover operations since uniform corossover,
like multi-point crossover, has been claimed to reduce the bias associated with the length of the binary
representation used and the particular coding for a given parameter set (Pohlheim, 2004). In a uniform crossover,
we first create a crossover mask, which is the same length as the chromosome structure, at random. The parity of
the bits in the mask indicates which parent will supply the offspring with which bits. For each bit the parent who
contributes to the offspring is chosen randomly with equal probability when applying a uniform crossover. One
offspring is produced by taking the bit from the first parent if the corresponding mask bit is 1 or the bit from the
second parent if the corresponding mask bit is 0. And, the other offspring is created using the inverse of the mask.
Next, we apply the mutation operator to the population that just experienced the crossover operator. The
mutation operator randomly chooses ones among the genes of all chromosomes in the population with a fixed
mutation rate (denoted by MR), and it flips the chosen genes.
4.1.4 The parameter setting in our GA
Here, we present our heuristic rules for setting the parameters of our GA. First, the termination condition of
our GA uses the following rule: it stops the evolutionary process as the best-on-hand solution shows no
improvement during the last 50 generations. Recall that n is the number of items. Based on our numerical
experiments, we recommend the population size to be set as PS = 10n. In our GA, the crossover rate (CR) and the
mutation rate (MR) vary linearly during the evolutionary process. In the beginning of the evolution, we set the
crossover rate at a higher level (CR = 0.90) while the mutation rate is lower (MR = 0.05), so that our GA can take
advantage of the chromosomes characteristics. During the evolutionary process, the crossover rate decreases by
0.001 for each generation and the mutation rate increases by 0.01 after 100 generations. The crossover rate and the
mutation rate stop their variation as they reach a specified level, i.e., CR = 0.20 and MR = 0.20, respectively. As
the crossover rate decreases, the chromosomes may become similar to one another during evolution. Therefore,
we increase the mutation rate (to raise the diversity of the population) at the same time so that our GA can still
explore new regions in the search space. We believe that our GA shall take the best advantage of the intrinsic
parallelism of the genetic algorithms (i.e., a majority of different chromosomes were evaluated at each generation
by using a uniform crossover operator) and such a varying parameter setting.
4.2 The generation of feasible repleni
Our focus here is to introduce a feasibility testing procedure and a binary-search procedure to generate of a
feasible replenishment schedule for each candidate solution obtained by the GA.
4.2.1 A feasibility testing procedure
The proposed feasibility testing procedure, namely, Proc FT, attempts to obtain a feasible replenishment
schedule.
Given a vector of replenishment multipliers K and a value of basic period B, we denote X(K) as a candidate
replenishment schedule and L(X(K), B) as the maximum warehouse-space ement (MWSR) when using the
replenishment sche(X)K. An overview of the feasibility testing procedure is as follows. Assume that we are given
a valf B and a vector of multipliers K = (k1 , k2 , , kn ) and W max . We first use an Initial Schedule Procedure,
namely, Proc.IS, to replenent schedule X1(K), and calculate the corresponding MWSR of L(X1(K),B).
Determine L* as the best Mobtained to date and X* as its corresponding schedule. (Since X1(K) is the first
replenishment schedule then set L* = L(X1(K),B) and X*=X1(K) after Proc.IS is done). Obviously, when
L* W max , i.e., the nning ho larger than the available warehouse space W max ,we obtain a feasible replenishment
305
schedule. We define an indicator in Proc FT. If a feasireplenishment schedule is obtained in Proc FT, is equal
to 1; otherwise, = 0. After Proc.IS, if one secures no feasible replenishment schedule, i.e., = 0, we employ a
Schedule Smoothing Procedure to improve L* until = 1 or L* can nolonger be improved. If L* has not been
improved for consecutive iterations, we stop the procedure (Proc FT) where the value of is a thresho
criterion for termination (which should be defined at the discretion of the anayst). Otherwise, randomly choose a
subset of products for re-optimization, fix the replenishment schedule for the rest of the products, and return to
start another run of local search.
4.2.2 A binary-search procedure
If one can employ Proc FT to generate a feasible replenishment schedule for a given vecto of
K = (k1 , k2 , , kn ) and its corresponding local minimum B(K ) , then it surely secures an optimal value for the
given vector of K. But, re exists no feasible replenishment schedule for (K , B(K )) , then we need to search foa
value of B, denoted by (K , B(K )) , so as to enable (K , B(K )) to feasible replenishment schedule with the
minimal ob function value K.
When generating a feasible replenishment schedule, the major concern is the maximum warehouse-space
requirement S max ( X(K ), B) = max{St ( X(K ), B)} . Therefore, the easiest way to fix an infeasible replenishment
0 t <
5. Numerical Experime
In this section, by benchmark examples, whe will show that the proposed hybrid genetic alorithm (HGA) is an effective
solution approach for solving the JRP with warehouse-space restrictions.
Here, we use six benchmark examples presented in Fujitas (1978) paper to evaluate the performance of the
proposed HGA. Note that the optimal solution of the JRP without warehouse-space restrictions serves a lower bound on
the optimal objective function value of the JRP with warehouse-space restrictions. Also, recall that Lee and Yaos (2003)
algorithm obtains an optimal solution fozr the unconstrained JRP under PoT policy, which is denoted as UTC.
Furthermore, we let CTC be the objective function value of a solution for the JRP warehouse-space restrictions. Then,
we could make use of UTC as a benchmark to define a performance index (which is a measure of Relative Error), namely,
RE as shown in (9).
RE = [(TCC TCU ) / TCU ] 100% (9)
We also use the results from Lee and Yaos (2003) algorithm to set the value of W max , i.e., the warehouse
space available. Note that Lee and Yaos (2003) algorithm solves the optimlution for the JRP by picking the one
with the minimum objective function value among many local optima. Let (K l , Bl ) be the lth local optimum
obtained by Lee and Yaos (2003) algorithm. Then, we set the space available by
W max = max{Smax ( X(K l ), Bl )} 65%.
l
We first collect the relative error (RE) and the run time after solving each of six benchmak examples by the
propose HGA for 30 trials because of the random nature of the genetic algorithm. We summarized our
experimental results in Table 2.
306
Table 2 shows the RE of the best solution among all the 30 trials of the proposed HGA is close to the average
RE. Therefore, the solution quality of the proposed HGA is very stable. Also, we may observe the average run
time of the proposed HGA is less than 130 seconds for these six examples. The proposed HGA is efficient to
obtain a close-to-optimal solution. Consequently, the proposed HGA may serve as a decision-support tool for the
managers facing the JRP with warehouse space restrictions.
6. Concluding Remarks
This study is an extension of the Joint Replenishment Problem (JRP) that takes into accounts
warehouse-space restrictions. The focus of this study is to determine the lot size of each product under
power-of-two policy to minimize the total cost per unit time and to generate a feasible replenishment schedule of
multiple products without exceeding the available warehouse-space. In order to solve this problem, we propose a
hybrid genetic algorithm (HGA). We utilize the ability of multi-dimensional search of GA to obtain candidates in
the solution space, and test the feasibility of any candidate using a new heuristic, namely, Proc FT. By our
numerical experiments, we demonstrate that the proposed HGA (using a uniform crossover operator and varying
crossover rates and mutation rates) could effectively solve the JRP with warehouse-space restrictions. Therefore,
it could serve as an effective decision-support tool for the logistic managers.
Table2: The computational results of the six benchmark examples.
The best solution The Proposed HGA
Date Set RE Average RE Aveage run time
1 0.95% 0.98% 77.20
2 0.21% 0.25% 94.80
3 1.05% 1.25% 85.16
4 0.69% 0.75% 62.45
5 0.13% 0.14% 63.72
6 0.12% 0.18% 124.10
Average 0.53% 0.59% 84.57
Reference
[1] Bean, J. C. Genetic algorithm and random keys for sequencing and optimization. ORSA Journal on Computing, 1994, 6:
154-160.
[2] Fujita, S. The application of marginal analysis to the economic lot size scheduling Problem. AIIE Transactions, 1978, 10:
354-361.
[3] Hunter, A. Crossing over genetic algorithms: the Sugal generalized GA. Journal of Heuristics, 1998, 4: 179-192.
[4] Lee, F.C. and Yao, M.J. A global optimum search algorithm for the joint replenishment problem under power-of-two policy.
Computers and Operations Research, 2003, 30: 1319-1333.
[5] Marzouk, M. and Moselh, O. Constraint-based genetic algorithm for earthmoving fleet selection. Canadian Journal of Civil
Engineering, 2003, 30: 673-683.
[6] Murthy, N.N., Benton, W.C. and Rubin, P.A. Offsetting inventory cycles of items sharing storage. European Journal of
Operational Research, 2003, 150: 304-319.
[7] Park, K.S., Yun, D.K. Optimal scheduling of periodic activities. Operations Research, 1985, 33: 690-695.
[8] Pohlheim, H. Evolutionary Algorithms: Principles, Methods, and Algoorithms [online]. Available from
http://www.geatbx.com/index.html, 2001 [accessed on 6 May 2004].
[9] van Eijs, M.J.G. A note on the joint replenishment problem under constant demand. Journal of the Operational Research
Society, 1993, 44: 185-191.
[10] [10] Viswanathan, S. A new optimal algorithm for the joint replenishment problem. Journal of the Operational Research
Society, 1996, 47: 936-944.
[11] Wildeman, R.E., Frenk, J.B.G., Dekker, R. An efficient optimal solution method for the joint replenishment problem. European
Journal of Operational Research, 1997, 99: 433-444.
[12] Yao, M.J. The peak load minimization problem in cyclic production. Computer and Operations Research, 2001, 28: 1441-1460.
[13] Yao, M.J., Elmaghraby, S.E., Chen, I.C. On the feasibility testing of the economic lot scheduling problem using the extended
basic period approach. Journal of the Chinese Institute of Industrial Engineering, 2003, 20: 435-448.
307
An GA-based Alternative Approach on the Capacitated
Warehouse Allocation of Customers with Uncertain Demands
Abstract With the increasing importance of seamless supply chain integration to business success, the role of warehouses has
become more of flow-through transshipment facilities intended for timely order fulfillment than inventory stocking points. The
ability to serve all customers in a timely manner becomes even more important in nowadays supply chain network. One of the most
effective ways of enhancing this strategic position of warehouses is to serve customers from an alternative warehouse when an
assigned warehouse is due to stock outs because of the uncertain demands from customers. In this paper, we consider a capacitated
warehouse allocation problem with uncertain demands. Firstly we deal with this problem via an alternative approach with a primary
and a secondary warehouse for customers. Secondly this problem is formulated as an Integer Programming model and solved by
using a genetic algorithm. In the GA approach, all candidate solutions are encoded as a permutation of the warehouse labels, and the
evaluation of them are based on the total shipping cost of both the primary warehouses and the nearest secondary warehouses to all
customers. Finally, the application of the proposed GA to a real world problem and numerical analysis show its high effectiveness
and efficiency.
Key words Supply chain network, Capacitated allocation, Uncertain demands, Genetic algorithm.
1. Introduction
Many systems in warehouse management are characterized by providing goods at their locations to a given
set of fixed points or customers. Usually warehouse location analysis typically assumes that all customers
demands could be served by the warehouse to which customers are assigned. But it is not always the case in
practice because of the uncertain demands from customers. It is very common that the customer orders cannot be
filled entirely from one warehouse inventory due to stock outs because a 100% in-stock policy for all possible
demand levels would require too much safety stock to be practical. A well-accepted operational strategy in this
situation is to supply a customer with part of goods from an alternative warehouse. Although it surely results in
additional transportation cost, it can maintain a high level of stock availability to the customers.
Early in 1989, Pirkul investigated this problem in considering the situation of facility location with primary
and secondary facility requirements (Pirkul, 1989). It is an uncapacitated facility problem that locates
uncapacitated facilities among a set of potential sites to minimize cost of serving a number of demand points each
requiring service from two different facilities. Recently, Meshkat and Ballou considered a capacitated warehouse
location problem with uncertain stock availability (Meshkat and Ballou, 1996). Here the uncertain stock
availability means that a customer demand may not definitely supplied by one warehouse, i.e., each warehouse
may serve as both a primary and a secondary warehouse for some customers. However, this problem with
uncertain stock availability of warehouses does not receive much attention from researchers.
In contrast with the well-known location/allocation problem (e.g., Domschke and Drex, 1984; Aikens, 1985;
Wilson, 1986; Current et al., 1990; Geoffrion et al., 1995), this facility location problem with primary and
secondary facilities is NP-hard and commonly it can be dealt with by the conventional techniques like Lagrangian
Relaxation (Pirkul, 1989) and heuristics (Meshkat and Ballou, 1996). Usually they are not efficient or effective to
solve larger scale problems. On the other hand, the location of facilities may be or could be fixed firstly because
of some geographical and practical reasons for some companies in practice. Therefore, the consideration of
allocation of customers to facilities or warehouses with a primary and a secondary warehouse makes the problem
simpler and more practical.
In this paper, we consider a capacitated warehouse allocation problem with a primary and a secondary
warehouse for customers. This problem is different from the existing related warehouse location problem, but it is
still more complicated than the well-known generalized assignment problem (Cattrysse and Van Wassenhove,
The research work was partially supported by National Nature Science Foundation of China (No. 70671095).
308
1992). Therefore, it is also NP-hard. We formulate this problem as an Integer Programming model but we solve it
by using a genetic algorithm approach. In the GA approach, all candidate solutions are encoded as a permutation
of the warehouse labels, and the evaluation of them are based on the total shipping cost of both the primary
warehouses and the nearest secondary warehouses to all customers. The application of the proposed GA to a real
world problem and numerical analysis show its high effectiveness and efficiency.
2. Modeling Formulation
To simplify the model formulation, we take the same assumption of Meshkat and Ballou (1996), i.e., where a
primary warehouse location is known, its secondary warehouse location is also known. The secondary warehouse
may simply be the nearest warehouse to the primary warehouse, or with the lowest shipping cost in place of
shipping the out-stock goods from there to the customers. Fig.1 gives out an illustration of such kind of supply
chain network with three warehouses.
Given m customers and r warehouses, the capacitated allocation problem with a primary and a secondary
warehouse for customers can be formulated as the following integer programming:
m r m r
min f =
i =1 j =1
wijdi xij +
i =1 j =1
wij (1 - ) di zij (1)
subject to:
r
j =1
xij = 1, i = 1,2, , m (2)
j =1
zij = 1, i = 1,2, , m (3)
m m
i =1
di xij +
k =1
(1 - )dk zkj qj, j = 1,2,, r (4)
309
wij = unit shipping cost for customer i when the primary warehouse assigned to it is warehouse j
wij = unit shipping cost for customer i when the secondary warehouse assigned to it is warehouse j
qj = supply capacity for warehouse j
1 if warehouse j serves customer i as the primary warehouse
xij =
0 otherwise
1 if warehouse j serzves customer i as the secondary warehouse
zij =
0 otherwise
The objective function minimizes the total shipping cost related to satisfying the primary and secondary
demands for all customers. Constraint sets (2) and (3) state that for every customer there should be only one
primary and one secondary warehouse to supply goods. Constraint set (4) guarantees that all goods from one
warehouse to satisfy the primary and secondary demands for customers are within the supply capacity of that
warehouse. Constraint set (5) states that the same warehouse cannot serve both as the primary and secondary
warehouse for a given customer. Constraint set (6) expresses the integrality condition for all decision variables.
Since the above formulation is equivalent to a generalized assignment problem, it falls within the category of
NP-complete combinatorial optimization problem. In the following section, we will discuss our proposed GA
approach on this NP-hard problem.
where
fk j = Fkj(x) Pkj(x) (8)
m m
Fkj(x) =
i =1
wijdi xij + i =1
wij (1 - ) di zij (9)
m m
+[
i =1
di xij +
k =1
(1 - )dk zkj - qj ]/qj ,
m m
Pkj(x) = g if i =1
di xij + k =1
(1 - )dk zkj > qj (10)
m m
1, if i =1
di xij +
k =1
(1 - )dk zkj qj
Equation (10) guarantees that all those individuals violating capacity constraints be penalized with a positive
factor greater than 1 (where is an adjustable parameter for the severity of penalty, 1 2). If an individual
violates a capacity constraint, the individual will be less selected for the next generation in the evolutionary
process due to the greater increase in its objective value.
311
4.3 Modification
Besides penalizing those infeasible individuals generated in initial population or genetic operation (crossover
and mutation), it is possible to further improve the algorithm by using a problem-specific heuristic operator. Here,
we adopt a modification operation similar to a perturbation mutation. Let Cj represent the set of the customers
assigned to warehouse j in a chromosome. If the total customers demands exceed the capacity of warehouse j, i.e.,
m m
i =1
di xij +
k =1
(1 - )dk zkj > qj, then a single randomly selected customer i is reassigned from
warehouse j to the next warehouse (in the order of j+1, , r, , j-1) which has sufficient remaining capacity (if
one can be found). After reassignment, if xi,j+1 + zij+1 > 1, it is necessary to re-allocate the secondary warehouse
for customer i. Fig. 3 illustrates this mutation process on an infeasible chromosome.
The modification process improves the feasibility of all individuals by reassigning customers from
overly-burdened warehouses to less-utilized warehouses, but also improves savings in shipping costs by
reassigning customers to a warehouse with lower shipping cost.
4.4 Genetic Algorithm Procedure
The steps operated in our proposed GA approach for the capacitated warehouse allocation of customers with
a primary and a secondary warehouse problem is as follows:
Step 1. Generate an initial population of N (population size) randomly individuals (candidate solutions). Each
of the initial individuals is generated by randomly assigning a customer to a warehouse. All integer numbers in a
chromosome are between 1 to r and generated with the probability of 1/r.
Step 2. Generate a pool of child solutions by crossover and mutation operation on randomly selected
parents with a pre-determined rate (crossover rate and mutation rate). A
simple one-point crossover operator is adopted, in which a crossover point p (1 < p < m) is selected randomly
and the child solution is generated by combining the first p genes of one parent with the remaining m p genes of
the other parent, or vice versa with equal probabilities. An exchange mutation procedure follows the crossover
operation. It operates an exchange of elements in two randomly selected genes on a randomly selected parent.
Step 3. Improve all infeasible individuals in the sense of not satisfying the capacity constraints according to
the procedure in Subsection 3.3 and replace those infeasible ones.
Step 4. Decode all individuals to obtain the candidate solutions and their fitness values according to the
procedure in Subsection 3.2.
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Step 5. Select a new population of N individuals for the next evolutionary generation (iteration) by using the
( + )-selection strategy.
Step 6. Repeat Steps 2-5 until a given generation number. The best candidate solution found so far will be
the optimal or near-optimal solutions of the solved problem.
4. Algorithm Applications
Actual data taken from Min and Melachronoudis (1999) and Melachrinoudis and Min (2000) are used to test
the proposed GA for this problem. To ensure the confidentiality of the data, a real firm facing this problem is
referred to as Alpha. Alpha produces and distributes chain link fences and their related hardware items to a
total of twenty-one customers (e.g., retailers including Home Depot and Lowes) across the U.S. To avoid
overlapped distribution and any duplicated delivery efforts with the existing distribution network in the Midwest,
South and West, Alpha plans to move its current warehouses from Boston, Massachusetts to a new location in a
Mid-Atlantic state. After initial screening, the seven candidate sites considered are: Baltimore in Maryland,
Williamsport in Maryland, Wheeling in West Virginia, Pittsburgh in Pennsylvania, Erie in Pennsylvania,
Harrisburg in Pennsylvania, and Boston in Massachusetts. Among these seven sites, a decision maker (logistics
manager) can choose any arbitrary number of warehouses. For an illustrative purpose, we consider Baltimore in
Maryland, Williamsport in Maryland, and Wheeling in West Virginia as the potential warehouses, denoted as
warehouses 1, 2, and 3. All shipping cost data between these warehouses and their customers are recapitulated in
Tab.1.
Tab.1 First Year Unit Shipping Cost (in Dollar)
Unit Shipping Cost at Warehouse j Demand
Customer i
1 2 3 (in unit)
Wallingford 2.9 3.2 3.5 113,644
Ankeny 3.9 4.0 4.3 25,360
Posen 3.5 3.6 3.5 82,507
W.Chicago 3.5 3.6 3.6 80,159
Indianapolis 3.3 3.4 3.0 75,274
Louisville 3.3 3.4 3.1 116,064
Boston 3.1 3.3 3.8 329,263
Baltimore 2.5 2.9 3.0 162,106
Westland 3.2 3.3 3.0 151,417
Blaine 4.0 4.1 4.6 40,833
Charlotte 3.1 3.3 3.4 97,758
Auburn 3.1 3.4 4.0 63,643
Kenvil 2.8 3.0 3.2 367,379
Menands 3.0 3.2 3.6 276,387
Columbus 3.1 3.2 2.6 85,180
West Chester 3.2 3.3 2.8 79,662
Philadelphia 2.7 3.0 3.1 122,560
Pittsburgh 2.9 3.0 2.4 106,198
Nashville 3.5 3.6 3.5 57,305
Richmond 2.7 3.0 3.2 119,524
Milwaukee 3.6 3.7 3.8 60,096
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probability in all 20 trials. The total shipping cost is $7980344.00 and the optimal allocation for all customers is
as follows.
If we assume that all customers 90% demands are supplied by their primary warehouses and the rest 10%
demands are supplied by their secondary warehouses, i.e., = 0.9. With the same approach as described above,
the new optimal solution for this case can be also obtained by 100% in probability in all 20 trials. The total
shipping cost is $8021597.00 and its optimal allocation for customers with a primary warehouse and a secondary
warehouse is as follows:
Compared with two results, it shows that the salespersons could seek out a nearby warehouse and have a
customers demand shipped from an alternative warehouse when stock outs occurred in a local warehouse.
Although the total shipping cost will increase by about 5%, this strategy for customers allocation guarantees that
the warehouse service level can reach to 100% (90% demands are filled from a primary warehouse and 10%
demands are filled from a secondary warehouse). Actually, by varying the value of , we can easily obtain
different alternatives of the warehouse allocation with uncertain stock availability for customers.
Tab.2 The Results of Numerical Experiments
Problems Customers Warehouses Flexibility Cost Increasing Rate
1 30 3 10 % 2.13 %
2 40 4 10 % 2.00 %
3 50 5 10 % 1.95 %
4 60 6 10 % 1.98 %
5 70 7 10 % 1.32 %
6 80 8 10 % 1.59 %
7 90 8 10 % 1.68%
8 100 8 10 % 1.46%
9 120 10 10% 1.82%
10 150 10 10% 1..91%
In further testing the effectiveness of the proposed GA approach on this warehouse allocation problem, we
Fig. out ten larger scale numerical examples from 30 customers to 150 customers), which are generated randomly
with the unit shipping cost uniformly and randomly distributed in the range of [20, 50] and the customers
demands uniformly and randomly distributed in the range of [1000, 100000]. By using the same GA and set of
parameters as analyzed above, Tab.2 summarizes the best results in all 20 trials for each problem.
In Tab.2, flexibility is defined as the possibility of 10% demand of a customer filled out by a secondary
warehouse when its assigned warehouse is out of stock. The results show that the warehouse allocation in this way
may guarantee 10% customers demand being filled out under the condition of uncertain stock availability only
within about 2 % increase in total shipping cost.
5. Conclusion
Warehouse allocation problem is not a simple problem in practice. There are many practical factors to be
considered to give out a satisfying allocation alternative for logistics managers. In this paper, we considered a
warehouse allocation problem with uncertain demands or stock availability. Combined with the shipping cost, we
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dealt with this strategy by allowing a primary warehouse and a secondary warehouse to fill the demands for all
customers. Generally, this problem was formulated as an Integer Programming, but we solved this problem by a
genetic algorithm approach. The application on a real-world problem showed the effectiveness of the genetic
algorithms approach on this problem.
Despite the proven merits of the proposed algorithms, further research work needs to be done to make the
model more adaptable to practice. First, all warehouses can be with varying capacities instead of the equal
capacities. Second, all demands filled by secondary warehouses should be balanced as fare as possible to avoid
the focusing fill-out on one or more warehouses. Furthermore, Future research work should be extended to such
warehouse allocation problem with various types of warehouses as private, public, and contract warehouses and
different combination of transportation carriers.
References
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[2] Cattrysse D, Van Wassenhove L N. A survey of algorithms for the generalized assignment problem. European Journal of
Operational Research, 1992, 60: 260-272
[3] Current J R, Min H, Schilling D A. Multiobjective analysis of location decisions. European Journal of Operational Research,
1990, 49(12): 295-307
[4] Domschke W, Drex A. An International Bibliography on Location and Layout Planning. Heidelberg: Springer, 1984
[5] Gen M, Cheng R. Genetic Algorithms and Engineering Optimization. New York: John Wiley & Sons, Inc, 2000
[6] Geoffrion A M, Morris J G, Webster S T. Distribution system design, In: Drezner Z, eds. Facility Location: A Survey of
Application and Methods. New York: Springer, 1995. 181-198
[7] Meshkat H, Ballou R H, Warehouse location with uncertain stock availability. Journal of Business Logistics, 1996, 17(2):
197-216
[8] Melachrinoudis E, Min H. Dynamic relocation and phase-out of a two-echelon, hybrid plant and warehousing facility: a
multiple objective approach. European Journal of Operational Research, 2000, 123(1): 1-15
[9] Min H, Melachrinoudis E. The relocation of a hybrid manufacturing and distribution facility from supply chain perspectives: a
case study. Omega, 1999, 27(1): 75-85
[10] Pirkul H. The uncapacitated facility location problem with primary and secondary facility requirements. IIE Transactions, 1989,
21(4): 337-348
[11] Wilson A G. Industrial location models 1: a review and an integrating framework. Environment and Planning A, 1986, 18:
175-205
315
Evolution of Manufacturing Systems: from Product
Competitive Advantage towards Collaborative Value
Creation
Yongjiang Shi
Cambridge University, The United Kingdom
Abstract As the emerging requirements for business growth and technology development, the boundary of a manufacturing
system has been extended from factory towards various types of network relationships. The missions of manufacturing system are
also transformed and re-defined. This paper, based upon research work in different industrial sectors in the last ten years,
introduces a manufacturing system evolutionary picture from which four main types of manufacturing systems can be identified and
analysed in order to understand their characteristics of system and behind strategic drivers or intentions. The paper suggests that the
classical manufacturing strategy theory should be adapted into a contingency strategy to respond the manufacturing evolutions and
treat different systems interdependently. It also suggests a new conceptual framework for further research on new manufacturing
evolution and contingency strategy.
Key words Manufacturing, System Evolution, Network Behavior, Globalisation
1. Introduction
During the last two decade, the boundaries of the manufacturing system have been extended from the factory
to the international manufacturing network (Shi and Gregory, 1998)[1], as well as to the supply network (Lamming,
et al 2000)[2], the value network (Bovel and Martha, 2000)[3],, and the global manufacturing virtual network (Li, et
al, 2000)[4],. This has been driven by intensified competition, the fragmented market, globalised collaboration,
and faster technology innovation. What are the implications of the manufacturing evolution to practitioners and
academicians? Has the mission of manufacturing system been changed, or the value creation mechanisms and
business principles changed? What are the new relationships between effectiveness and efficiency in
manufacturing industry in the new information, communication technology and knowledge era?
This paper seeks to answer the questions, by identifying the evolution of manufacturing system and some key
challenges to the classical manufacturing strategy theory, especially from the perspectives of the networked
manufacturing system and value-based manufacturing strategy. The analysis and discussion draw upon recent
eight-year case studies conducted by the Centre for International Manufacturing of the University of Cambridge
involving a wide range of industrial sectors. The original purpose of the case studies was to focus on networked
manufacturing systems from either geographic expansion or vertical externalisation or both perspectives in order
to understand the new manufacturing systems behaviour and design process. The frameworks introduced in the
paper are preliminary but explore a general picture of evolutionary development of corporate international and
collaborative manufacturing system. The paper provides an integrated understanding of current theories and
practices from both international and inter-firm aspects as well as seeks to identify the driving forces and
developing trends of manufacturing evolutions.
The authors contact is Centre for International Manufacturing, Cambridge University, E-mail: ys@eng.cam.ac.uk
316
Besides MNCs international expansions, it has become more popular for all types of companies to downsize
and outsource their non-core business tasks and to set-up inter-firm collaborations (Lambert, et al, 1998;
Lamming et al, 2000; Brewer, et al, 2001)[7][2][8]. This development has pushed the manufacturing system further
into a new relationship beyond the traditional concept of the firm that owns and internally operates their factories.
Currently, it is no longer a secret that, although a company may only own a very small portion of a supply chain,
they are still strategically able to co-ordinate or integrate the whole supply chain to deliver a competitive product
to its targeted market. It is equally interesting to notice that there are increasing observations about geographic
clustering emerging worldwide (Piroe and Sabel, 1984; Porter, 1998) [9][10]. The clusters actually form different
supply networks some of them are internally self-sufficient in a region and others are virtually integrated with
other clusters. The two types of supply networks demonstrate that inter-firm collaborations have emerged as a
new type of manufacturing system.
Combining both developments, as the Figure 1 illustrates, a new type of manufacturing network can be
derived with the characteristics of international and inter-firm relationships. The new combination provides a
new operational environment for manufacturing system to access, optimise and operate its strategic resources.
The global manufacturing virtual network (GMVN) was suggested to explore the new generation of
manufacturing architecture (Li, Shi and Gregory, 2000; Shi and Gregory, 2002) [4][11]. Many other researches on
global outsourcing and partnership also seeks to develop the system with similar architecture and strategic
capabilities pursuing higher value and innovation (Normann and Ranfrez, 1993; Parolini, 1999; Bovel and
Martha , 2000) [12][13][3].
- intensified competition forces
and
competence and narrow down business
every player to focus on its core
Key
Key Driving Forces of Ownership Extension:
Global Mfg.
Supply Chain
or Supply Virtual Network Drivers Forcing
innovation
Network, (GMVN);
Ownership Exte
Outsourcing, Make or
an
Value
Buy Decision, Virtual Integration/Synt
Enterprise, Extended Constellation;
Company, Agile Mfg, Value hesis of the Both
-technology
Why does a manufacturing system have to evolve into a such complex relationship? Company has no other
choice. In many circumstances, when there are traditional product-based competitive advantages, which even
achieve the order winning criteria, this still cannot satisfy new corporate demands. For example, a case study
demonstrates that a very successful order-winning UK aerospace engine company was deeply shocked by
comparing its profitability with its other American competitors and by the huge pressures from its shareholders.
The reasons for such unpredicted shocks were not only the cruel results of their product success and at the same
time their financial failure, but also a huge challenge to their traditional ideas relating to the excellence of their
product design, technology, engineering, and production. The company indeed had been very successful to gain
much more orders and a greater market share than any other competitors in the world because of its modularised
engine platform, advanced manufacturing technologies, and the best engine performances. However, at the same
time, while the company enjoyed the advantage of more orders and production activities, its competitors have
initiated to change the rules of the game. The UK companys proud engines were recognised as a commodity
317
and integrated under its competitors solution packages. The competitor companies were fully engaged into a new
service business by providing the total solution of power to airline companies. The competitors had also
outsourced a large portion of their manufacturing to their Far East suppliers, and redefined manufacturing system
as a value creation system rather than product-oriented production or transition system. This was the time when
the UK company realised that the traditional best manufacturing capabilities were no longer good enough for
future competition and value creation. They realised that the manufacturing system and its strategy would have
to be extended to match the changed rules of market competition. Therefore, the manufacturing system has to be
capable of not only providing competitive products but also finding a proper position in an innovative solution to
final customers.
From this case study and an understanding of the trends of the manufacturing system towards a network
relationship (Figure 1), the following lessons could be learned: (1) The traditional manufacturing strategy
focusing on a product and its effective factory might not be enough, especially for creating higher business value.
(2) Manufacturing system has been extended into new operational space international and inter-firm relationship
mainly because of new competition game and strategy. (3) Manufacturing system boundary changes imply
manufacturing strategy also needs to be changed in terms of its contents and process.
Based on the three basic directions that the manufacturing system is heading towards in the matrix (Fig. 1),
the following four sections of the paper will review each of the evolutionary direction, and analyse their main
impacts on the missions of manufacturing system.
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product or existing market or even both together. From Ansoff model, manufacturing strategy actually can play
very critical roles in every four grid. In the new market development, manufacturing system can provide many
new potentials from perspectives of international dispersion, especially by globalising existing product, and
function similarity, mainly by exploiting products core technology or function to penetrate into other related new
market segments. In the new product development, manufacturing can have even wider contributions from
global product, platform or modularity development, widening product ranges, strengthening the economies of
scope, towards a whole supply/value chain operations and total solution providence to existing customers. Even
in the diversification of business development, manufacturing strategy also can have strong influence on corporate
strategy and business growth. The power can come from not only manufacturing capability, internal business
mechanism and their replication in other business units, which are the most critical implications of resources
based view in strategic management, but also identification of new business opportunities through building up,
scanning and positioning in a widen value network based on demands of final customer which might mean a
completely new territory for the firm but still have strong relationship with current business (Bovet and Martha,
2000) [3].
Therefore, the classical manufacturing strategy will continuously play its critical role in many manufacturing
companies and help them sharpen products competitive edge and gain more market share. But, for more and
more companies, seeking higher value creation and innovative product/service or solution to new customers, the
classical manufacturing strategy is not aggressive enough to generate new ideas, capture potential opportunities,
move to a better position in a supply/value chain, and cultivate manufacturing system itself with new strategic and
evolutionary capabilities. From this perspective, the paper suggests that different scenario based manufacturing
strategies will be more effective for extending the manufacturing function and designing a more effective
manufacturing system than the classical or a universal model.
3.2 A Contingency Manufacturing Strategy for Different Manufacturing Systems
Based on Ansoff business development model and the four types of manufacturing systems analysis in Fig 1,
it is significant to make a link between both together and develop a contingency manufacturing strategy.
The contingency manufacturing strategy can be structured from both corporate strategy and manufacturing
system perspectives. As corporate strategy has covered much wider issues that manufacturing system
themselves can independently solve, it might be more effective to build the contingency manufacturing strategy
based on characteristics of manufacturing systems:
International manufacturing networks can mainly contribute to new market development and partially
support new product development in the corporate strategy development matrix
Supply networks (inter-firm alliances) can significantly contribute to new product development,
especially to define companys position in the supply network, and support diversification
Global manufacturing virtual (supply) networks can mainly contribute to the value network or
constellation in order to develop hidden business opportunities and run globalised collaborations
This contingency manufacturing strategy pushes manufacturing system towards not only the network
relationships but also business level directly linking with corporate strategy. There could be four types of
manufacturing strategies dealing with different levels of manufacturing systems from factory/ plant level, to
international dispersed factory network, to inter-firm factory network, and further to GMVN. It is worth to
realise that, as network relationship becomes more complex and a dominated feature, focal companys role in a
network is reduced as well as the strategy becomes more emerged than planned (Mintzberg, et al, 1997) [17].
3.3 How far the Boundary should be Pushed: Effectiveness of Manufacturing System
It is arguable that the extension of manufacturing boundary is confusions of decision hierarchy between
manufacturing function, business, and corporate levels. Many gaps are emerging between the levels when
manufacturing environments are changing dramatically. But if there is no serious debate from both discipline
and inter-discipline aspects, academic opportunism would not be able to establish fundamental transformation
between paradigms. However, on the other hand, any ignorance of the emerging challenges will cause further
319
fragmentation of the body of knowledge, like a buzz-word brand replacing deep understanding of a phenomenon,
and damage theoretical integration and eventually fail to deliver synthesised and implement-able knowledge.
It is important to notice that there is no intention in this paper to change manufacturing strategy to whole
business strategy and cover every business function. Other functions like marketing and even new product
introduction (NPI) should still play their own roles in the business strategy areas. But manufacturing system and
strategy, as they coordinate resource to satisfy external requirements, have to or should open a wider window
engaging with new opportunities for higher value and growth.
When Skinner first time raised the question about manufacturing effectiveness and argued the differentiation
between efficiency and effectiveness, it was very similar to be challenged by the question how far the
manufacturing system boundary should been extended. Skinner pushed it to product - the outcome of
manufacturing system, which has fundamentally changed peoples mindset about manufacturing and operations
management. It is very logical to define a systems mission first and then design it and later operate it. The
effectiveness should lead the efficiency, or doing the right thing first and then doing it rightly (Skinner, 1985) [18].
The current debates on boundaries of manufacturing system and strategy is still about the system
effectiveness. The effectiveness represented by product is not enough now, mainly because that even a very
successful product with many orders and larger market share nowadays may still not be able to generate higher
value, as the previous case demonstrates. More fundamentally, the core challenge might be not only the
profitability issues but also the life-warning signal indicating a business course or the rule of a game has been
changed. If the company fails to sense the change and still focuses on its product order-winning criteria, its
innovation power will be damaged and sustainability will be jeopardised. Especially, in the new knowledge
economy, the manufacturing effectiveness and its determinants have been fundamentally evolved from physical
product based competition towards the new competition on potential opportunity identification and flexible
organisation of global resources. One of the key performance criteria is the value to the stakeholders.
Manufacturing system, as the real power engine of manufacturing companies, has to upgrade its mission or
effectiveness from order-winning towards value creation as well as appropriation.
The new evolution of the effectiveness of manufacturing system implies a new definition of manufacturing
which represents the full cycle of business process from understanding markets through product and process
design to operations and distribution, taking into account economic, financial and people issues. The
manufacturing also defines the cycle boundary starting from a market and also ending at it. Nowadays rarely has
a company that can own this full cycle. Manufacturing strategy therefore should decide its position,
collaboration, and more importantly dynamics adapting itself to its environments.
3.4 Relationship between Positioning and Capability in Strategy Development
One of the new contributions of Slack and Lewis most recent book is their strategic reconciliation a
balanced view between market requirement (or strategic positioning) and operations resource (capability
development) (2002)[14]. Their process oriented strategy demonstrates the strategy formation mechanism. The
reconciliation actually not only solves a long-term debates between Porters positioning school (1985) [19] and
resource-based view (Panrose, 1959; Teece, et al 1997) [20][21] in strategic management area but also provides an
implementable procedure. This is a serious contribution from operations management to strategic management,
which illustrate the richness of manufacturing and operations management from both practical and theoretical
aspects.
3.5 New Frameworks for Research and Manufacturing Strategy
New challenges to manufacturing system and strategy create a new context of manufacturing strategy
research. This can be demonstrated into a three-dimension space that provides a new vision highlighting three
key dimensions supply/value chain, internationalisation, and externalisation or collaboration.
The generic three-dimension strategic environment indicates the key decision areas, and the future
manufacturing system should be built with these four basic building blocks:
Supply and/or Value Creation Network Manufacturing system and its tasks must be defined along the
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supply/demand or value-creation networks by proposition, configuration and optimisation for higher value
and competitive advantages;
Strategic Collaboration (Externalisation) A spectrum of collaboration including intra-firm
coordination and inter-firm co-operation has to be evaluated and decided. In the inter-firm collaborations, it
also has wide span of choices from strategic alliances for longer term commitment towards virtual
community, or arm length trading relationship development for more flexibility;
Manufacturing Internationalisation Manufacturing system is no longer a single site factory. It has to
decide not only geographic expansion or dispersion but also internationalisation evolution process and
cross-cultural integration;
Strategic Synthesis Process The above three dimensions cannot work independently in the current
global competition environment. Therefore, it is essential to synthesise them into an integrated
manufacturing system with a systematic strategy process and most appropriated technology including cyber
platform.
The above scenarios create four types of manufacturing systems from factory, towards international
manufacturing network, inter-firm supply network, and global manufacturing virtual network (GMVN).
Therefore, process of the contingency manufacturing strategy should depend upon each type of manufacturing
system, and have its own contexts and contents of decision areas. There is no doubt that needs more research
work to understand, develop and validate.
4. Conclusion
This paper is based on recent eight-year case observations undertaken in many multinational corporations in
the aerospace, automotive, engineering, garment and electronics industries. Original objectives aim at the
evolutionary process of the manufacturing system beginning with a factory-based system and moving towards a
globally collaborated inter-firm network. It attempts to explain why manufacturing companies evolve into this
more and more self-uncontrollable relationship. The questions raised from the research are beyond that the
classical or existing theory of manufacturing strategy can answer.
As manufacturing system contexts change, the manufacturing systems with new boundaries, mission,
architecture, mechanism and capability have to be adapted to reorganise new functions in order to satisfy external
requirements. As manufacturing system evolves into quite different relationship oriented networks, a universal
process of manufacturing strategy process is not specific enough to fully satisfy the strategic planning and system
design, a contingency manufacturing strategy therefore is demanded. In manufacturing industry, taking
advantage of and leveraging other companies existing resources becomes more important than self-owning these
resources which implies that various types of inter-firm collaborations are therefore the preferred architecture.
In the collaboration, understanding the dynamics and keeping a balance are more and more critical in the spectrum
of collaboration from one end of corporate hierarchy, to international strategic alliance, and towards a networked
virtual enterprise, geographic clustering, and free market end.
These new challenges ask new solutions for industry. They require not only a new architecture of the
manufacturing system based more on an inter-firm relationship but also require a new strategy process with a
context-based contingency framework. To achieve the new tasks, the new conceptual framework with three
main dimensions for the networked manufacturing system and the new contingency manufacturing strategy
process are needed in order to guide the further research, integrate different disciplinary knowledge, and
eventually manufacturing business practices.
References
[1] Shi, Y. and M. Gregory, (1998). International Manufacturing Networks to develop global competitive capabilities, Journal of
Operations Management, Vol. 16
[2] Lamming, R. et al., (2000). An Initial Classification of Supply Networks, International Journal of Operations and Production
Management, Vol. 20
321
[3] Bovel D. and J. Martha, (2000). From Supply Chain to Value Net, Journal of Business Strategy, July-August
[4] Li, X., Y. Shi and M. J. Gregory, (2000). Global Manufacturing Virtual Network (GMVN) and Its Position in the Spectrum of
Strategic Alliance, in Dierdonck and Vereecke (eds), Operations Management: crossing borders and boundaries: the changing
role of operations, EurOMA 7th International Annual Conference, Ghent, Belgium, June 4-7 2000, pp330-337
[5] Flaherty, M.T. Coordinating International Manufacturing and Technology, in M. E. Porter (eds), Competition in Global
Industries, Harvard Business School Press, 1986
[6] Ferdows, K. (1997). Making the Most of Foreign Factories, Harvard Business Review, March-April
[7] Lambert, D.M., Cooper, M.C. & Pagh, J.D.,1998, 'Supply Chain Management: Implementation Issues and Research
Opportunities', International Journal of Logistcs Management, 9,2,1-19
[8] Brewer, A.M et al (eds.), (2001). Handbook of Logistics and Supply-Chain Management, Pergamon
[9] Piroe and Sabel, (1984). The second Industrial divide: possibilities for prosperity, Basic Books
[10] Porter, M. (1998), Clusters and the new economics of competitiveness, Harvard Business Review, December
[11] Shi, Y. and M. Gregory, (2002). Global Manufacturing Virtual Network (GMVN): its dynamic position in the spectrum of
manufacturing collaborations, in UJ Franke (ed), Managing Virtual Web Organisations in the 21st Century: issues and
challenges, Idea Group Publishing
[12] Normann and Ranfrez, (1993). From Value Chain to Value Constellation: designing interactive strategy, Harvard Business
Review, Aug-Sept.
[13] Parolini, C. (1999). The Value Net: a tool for competitive strategy, John Wiley Books
[14] Slack N and M Lewis, (2002). Operations Strategy, Pearson Education Limited
[15] Skinner, W. (1969). Manufacturing: Missing link in Corporate Strategy, Harvard Business Review, May-June
[16] Porter, M. (1986). Competition in Global Industries, Harvard Business School Press
[17] Mintzberg, H. et al (1997), Strategy Safari, Free Press
[18] Skinner, W. (1985). Manufacturing: the Formidable Competitive Weapon, John Wiley & Sons
[19] Porter, M. (1985). Competitive Advantages: Creating and sustaining superior performance, Free Press
[20] Penrose, E., (1959), The Theory of the Growth of the Firm, Oxford: Oxford University Press
[21] Teece, D, G Pisano, and A. Shuen, (1997). Dynamic Capabilities and Strategic Management, Strategic Management Journal,
Vol. 18:7, pp 509-533
322
SECTION THREE
DECISION THEORY AND APPLICATION
323
324
Efficiency Improvement with Minimum Amelioration
Abstract Decision makers are keen to seek a practical and feasible way to improve the efficiency of their firms. Current DEA
researches mostly focus on efficiency measurement, which can not satisfy the desire of decision makers. The current study develops
an approach to deal with this issue. Differing with the model proposed by Gonzalez (2001)[21], this article provides a modified model
to re-allocate the inputs and outputs of inefficient DMUs with minimum amelioration by considering the preference of decision
makers and other factors which impact the learning process. It is shown that Gonzalez model is a special case of the modified model.
Further, a heuristic algorithm is proposed to solve the model.
Key words DEA, Efficiency improvement, Minimum amelioration, Heuristic algorithm
1 Introduction
Decision makers are keen to seek a practical and feasible way to improve the efficiency of their firms, as
illustrated by Edvardsen (2003)[1] and Zheng Jinghai (2000)[2]. Some studies devote their efforts to efficiency
improvement within the framework of principal-agent contractual theory (e.g. Leibenstein, 1996) [3], while others
consider technical inefficiency as the result of a lack of knowledge or managerial ability (e.g. Farrel, 1957) [4].
Correspondingly, efficiency improvement may be achieved through incentive or learning process under various
assumptions (e.g. Bogetoft, 1994) [5].
Alternatively, Data envelopment analysis (DEA), incepted by Charnes[6], has been popular as a
non-parametric model in dealing with the efficiency of a decision making unit (DMU) relative to an empirical
production possibility boundary. Traditional DEA methods(e.g. Charnes et al., 1978; Banker et al., 1984; Brockett
et al., 1997; Cooper et al., 2000, etc)[6], [7], [8], [9] readily produce a range of efficiency scores reflecting different
sources of inefficiency and reference sets of observed DMUs, which give a clear glimpse of how the effort can be
paid out by decision makers to improve the efficiency of their DMUs. Moreover, current DEA researchers show
great lights on efficiency measurement(e.g. Bogetoft and Hougaard, 1999; Coelli, 1998; Dervaus et al., 1998; Frei
and Harker, 1999; etc)[10], [11], [12], [13] to reach the EPF with a special way, and suggest some information for
decision makers to make out well in production process in a theoretical way, such as distance function (Shephard,
1953; Fare and Grosskopf, 2000)[14], [15], gradient method (Peng, 1997; Wang and Wang, 2000)[16], [17], deviation
minimization (Wu, 2004)[18] and multi-objective projection (Guan and Ma, 2003)[19], etc.
Other than previous researches which concerned more with the problems of measuring inefficiency, several
researchers showed a great interest in searching a practical benchmarking and best practice for inefficient DMUs
to learn from. It has been applied in various areas, for instance, bank system (Schaffnit et al., 1997)[20], Chinese
state enterprise (Zheng et al., 2000)[2], etc. Also, Gonzalez (2001)[21] described a most relevant benchmark for
inefficient DMU to imitate. He argued that the more similar an inefficient firm in inputs is to an efficient firm, the
shorter the path it goes through onto the efficient frontier. A concept of input-specific contractions is brought
forward and the sum of all inputs contractions is coincided with the smallest input-specific contraction under the
assumption of convexity of the boundary set. Gonzalez (2004)[22] also focus on the knowledge component to
proposes a learning strategies that based on the similarity between inefficient firm and benchmark firm. However,
the technical and managerial circumstance of the benchmarking firm can not be imitated entirely, which results in
the possible failure of the inefficient firm to become efficient.
This paper is characterized as the following aspects:
1. In spite of Gonzalezs model, focusing on the only consideration of the total change of inputs, this paper
pays more attention to the total change of both inputs and outputs, which provides decision makers more
appropriate and practical information to plan a further improvement.
325
2. A generalized model is provided to depict the problem of efficiency improvement with a minimum
amelioration. It is more concerned with decision makers preference and the costs when regulating current inputs
and outputs concurrently, which can be regarded as the selection of weights in objective function. As a result,
Gonzalezs model is a special case of the model this paper proposed.
3. In this paper, the calculation amount solving the model is lower than Gonzalezs model when the sum of
the number of inputs used and outputs produced is larger than 3. Since DEA shows an illustrious predominance in
dealing with efficiency evaluation of multiple inputs and multiple outputs, the advantage in calculation amount is
obvious.
The rest of the paper is organized as follows: section 2 describes a generalized model of minimum
amelioration for inefficient model, and a simplified model without the consideration of decision makers
preference and cost in learning process is provided. A heuristic algorithm for the solution of efficiency
amelioration model is displayed in section 3. Section 4 compares the difference between the model provided in
this paper and Gonzalezs model, and show how the model advances ahead. Conclusions are made in last section.
s.t. x
j =1
j ij = xi 0 i , i = 1,2,..., m (1)
j =1
j y rj = y rj + r , r = 1,2,...s
j , r , i 0, where ( xi 0 i , y rj + r ) is efficient
Where the significance of model (1) lies in is that, the total amount of the inputs and outputs been
re-allocated in the process of efficiency improvement for inefficient DMU to be projected onto the efficient
I O
boundary is the least. P and P reflect the preference of decision maker or any other factors that may be
considered in decision procedure respectively, for instance, changing cost, etc.
In order to guarantee the new DMU, denoted as the combination of ( xi 0 i , y r 0 + r ) , the following
transformation is provided
m s
Min P I i 0 + P O r 0
i =1 r =1
s
s.t. u r ( y r 0 + r 0 ) = 1 (2)
r =1
w (x
i =1
i i0 i0 ) = 1
m s
w x u
i =1
i ij
r =1
r y rj 0 j = 1,2,..., n
326
xi 0 i 0 0; i = 1,2,..., m
r 0 0, r = 1, , s
u r , wi , r = 1,2,..., s; i = 1,2,..., m
I O
Now we devote our interests to the solution of model (2) by ignoring the weights P and P , which can
be decided by decision maker. A simplified model is proposed
s m
Min r 0 + i 0
r =1 i =1
s
s.t. u
r =1
r ( yr 0 + r 0 ) = 1 (3)
w (x
i =1
i i0 i0 ) = 1
m s
wi xij u r y rj 0
i =1 r =1
j = 1,2,..., n
xi 0 i 0 0; i = 1,2,..., m
r 0 0, r = 1, , s
u r , wi , r = 1,2,..., s; i = 1,2,..., m
If DMU 0 is inefficient, the optimum value of model (3) is not equal to zero (otherwise, DMU 0 is DEA
(weak) efficient). The following proposition corresponding to model (3) is reached.
s m
Proposition 1:
r =1
r0 = 0 or
i =1
i0 = 0 when model (3) reaches its optimization.
s m
Proof: Let u r r 0 = 0 ,
r =1
w
i =1
i i0 = 0 , model (3) can be converted to
Min 0 + 0
s
s.t. u r =1
r yr0 + 0 = 1
w x
i =1
i i0 0 = 1 (4)
m s
wi xij u r y rj 0
i =1 r =1
j = 1,2,..., n
u r , wi , 0 , 0 0; r = 1,2,..., s; i = 1,2,..., m
(A) model (4) is the same as the following model
10
Min (1 + 0 )(1 )
1+ 0
1 s
10
s.t.
1 + 0
u
r =1
r yr0 =
1+ 0
(5)
m
1
1+ 0
w x
i =1
i i0 =1
327
m s
1
( wi xij u r y rj ) 0 j = 1,2,..., n
1 + 0 i =1 r =1
0 , 0 0; u r , wi 0; r = 1,2,..., s; i = 1,2,..., m
1 1 10
Let u r =
'
u r , wi' = wi , r = 1,2,..., s; i = 1,2,..., m , 0 =
1+ 0 1+ 0 1 + 0
Model (5) is equivalent to
Min (1 + 0 )(1 0 )
s
s.t. u
r =1
'
r yr0 = 0 (6)
w x
i =1
'
i i0 =1
m s
w x u
i =1
'
i ij
r =1
'
r y rj 0 j = 1,2,..., n
Moreover, the coefficient wi , which is the only difference between model (3) and (4) when
i 0 = 0, i = 1, , m ,, has no effect on the objective function and the objective of the two models rest only with
m
the regulation of outputs. In other words, the optimum value is reached when
i =1
i0 = 0 , which gives a proof to
1 m
1+ 0
10
w xi =1
i i0 =
10
(7)
m s
1
( wi xij u r y rj ) 0 j = 1,2,..., n
1 0 i =1 r =1
0 , 0 0; u r , wi 0; r = 1,2,..., s; i = 1,2,..., m
1 1 1 + 0
Let u r =
''
u r , wi'' = wi , r = 1,2,..., s; i = 1,2,..., m , 0 =
1 0 10 10
Model (7) is equivalent to
328
Max (1 0 )(1 0 )
s
s.t. u
r =1
''
r yr0 = 1 (8)
w x
i =1
''
i i0 = 0
m s
Proposition 1 shows that, either contract current level of the inputs or expand current level of the outputs, is
the alternative way to transform inefficient DMUs into efficiency with the exertion of minimum amelioration,
while re-allocating the inputs and outputs concurrently is excluded.
2.2 Re-distribution of inputs and outputs
Supposing r , i ; r = 1,, s, i = 1,, m , 0 , 0 represent the unique optimum amelioration of model
* * * *
(4), a linear re-distribution model is provided to dispatch 0* , 0* into each input and output. The output-oriented
re-distribution model is as follows
s
Min
r =1
r0
s
s.t.
r =1
*
r r0 = 0* (9)
r 0 0, r = 1,2,..., s
When re-allocating the inputs of inefficient DMU, an input-oriented re-distribution model is
m
Min
i =1
i0
m
s.t.
i =1
*
i i 0 = 0* (10)
xi 0 i 0 0, i = 1,2,..., m
In model (9), 0* must be re-distributed in the special output that coincides with the largest r* . If the
largest r is not unique, 0 can be dispatched freely among the corresponding outputs, which doesnt affect
* *
the optimum amelioration of inefficient DMUs. Moreover, it provides a special space for decision makers to
adjust the resources of inputs and outputs as their preferences. A similar analysis is applied in considering
redistributing inputs corresponding to model (10).
3 A heuristic algorithm
Obviously, model (3) is a non-linear programming, and can not be solved directly. Comparing model (3) with
model (4), (9), (10), we conclude that the optimal solutions of model (4), (9), (10) consist of a feasible solution of
329
model (3), which is also an approximate optimal solution of model (3). With a deep consideration of this point, a
heuristic algorithm is suggested
Step 1: solve model (4), and we get the optimal value r , i ; r = 1,, s, i = 1,, m , 0 , 0 ;
* * * *
Step 2: solve model (9) and (10) according to the optimum value of Step 1, and we get the optimal solution:
, r = 1,, s; i*0 , i = 1,, m
*
r0
Step 3: compare the optimal solutions of model (9) and (10) and select the less of the two solutions as the
approximate optimal solution of model (3).
We solve model (3), (4) and Gonzalez model, the results are illustrated in Fig 1. A, B, C and D are efficient
while E, F are inefficient. (E1, E2, E3), (F1F2F3) represent the reference points of E and F onto the best
practice frontier according to model (3), (4) and Gonzalez model respectively. Gonzalez model prefers to
ameliorate a special input whose level is the maximum of current levels for the reason that it chooses a weighted
m
i0
way as x
i =1
, While model (3) can alter the weights with regard to the preference of decision makers and any
i0
other factors that influence the improvement process, and model (4) shows a simplified instance of this method.
x2
6
F1
5
F
A
F2
4
3 B F3
E
2 E2
E1
1 E3 C
D
1 2 3 4 5 6 7 8 x1
Fig 1: projection comparison of the three models
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4.2 calculation amount comparison
Gonzalez model is optimized by calculating the contraction in each input-specific input and select the
smallest one, while model (3) is approximately optimized by the heuristic algorithm which combines the optimal
values of model (4), (9), (10).
In order to eliminate the difference between Gonzalezs model and model (3), an extension is provided in the
former one by considering both inputs contraction and outputs expansion in Gonzalez model. Now consider n
observed DMUs, with s outputs produced by m inputs, the calculation amount is equal to m + s and 3 with
respect to an inefficient DMU by Gonzalez model and model (3) respectively, moreover, the total calculation
amount of the inefficient DMUs is equivalent to n0 (m + s ) ( n0 is the number of inefficient DMUs) and
3 n0 . For instance, the data set in table 1 includes 6 DMUs using 2 inputs to produce an output. The calculation
amount is equal to 3 times for each inefficient DMU E and F and the total calculation amount is equal to 6
according to Gonzalez model, which is the same as model (3) in this paper. If n0 = 5, m = 6, s = 4 , the
calculation amount is equal to 10 and 3 times, while the total calculation amount is 50 and 15 respectively, which
can show a great advantage of the heuristic algorithm of model (3) over Gonzalez model.
That is to say, the (total) calculation amount is growing as a great speed with the growth of the number of
inputs and outputs.
5 Conclusion
In this paper, we proposed a generalized DEA model focusing on efficiency improvement to satisfy the desire
of decision makers, who are not willing to improve technical efficiency of their firms according to traditional
DEA models. Unlike current contexts, we care more about various factors which show a relative influence in
learning process and can not be ignored, such as preference of decision makers, re-allocation cost of inputs and
outputs, etc. We study a simplified model instead of the generalized DEA model, ignoring the weights in objective
function, and suggest a heuristic algorithm to find out an approximate optimal solution for efficiency
improvement. We also make the following intriguing observation about the difference among various DEA model
based on a numerical study: the calculation amount using the heuristic algorithm is much lower than the one using
Gonzalez model, which is another advantage of the paper. It would be an interesting task for future research to
investigate efficiency improvement further.
Acknowledgements
This work was supported by the National Natural Science Foundation of China (Grant No. 70525001).
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332
A Method of Fuzzy Multi-Attribute Group Decision-Making
Problem with Linguistic Variable
Deng WeiWu Qizong
School of Management and Economics, Beijing Institute of Technology, P.R.China, 100081
Abstract For some fuzzy multi attribute group decision making problem, we prefer to make decision firstly and integrate the
experts opinion later. When the opinion expressed by linguistic variable or qualitative indices , the operation will be difficult . In this
paper , we present a method to deal with the problem including information of linguistic valuation in fuzzy multi-attribute group
decision-making . The method is simple and convenient , an example is given to explain it.
Key words Borda function, Fuzzy multi-attribute group decision making , Integrating, linguistic variable
1. Introduction
In the field of engineering and economics, there exist a common decision making problem, such as reservoir
location problems, project management, producing planning, etc. In these cases, a group consist of some
professional experts is needed to choose and valuate a set of feasible solutions under multi-attributes. For these
attributes, some could be represent by a quantitative form, but some are hard to get quantitative number, it
depends on the experts familiarity degree of certain field. When an expert has not enough information or
confidence to get quantification and appraisal for the unfamiliar field, they may give a qualitative valuation or
judgment by natural linguistic variable. Fuzzy mathematic is a very effective method to deal with linguistic
variable , it usually can be represented by a fuzzy number.
Furthermore, in terms of difference of led by preferences and appraisal among different attributes, decision
makers may have not uniform ranking and results for the feasible solutions. Thus, how to integrate opinions of
experts and conclude the groups rank and choice is very important.
Surveying the research literatures, there are two ways to deal with the problem. One is aggregating the rank
first and making decision the latter, that is, first aggregating each decision makers valuation fuzzy number under
singular objective to a group valuation number, then aggregating each group valuation number under singular
objective to a multi-objective group valuation number , where obtaining a set of group valuation numbers ,
comparing the numbers . In paper [1,2,3], five feasible aggregating methods have been presented, and their
characters have been compared . The other way is making decision first and synthesizing the latter, that is
aggregating each decision makers valuation fuzzy number under singular objective to a multi-objective group
valuation number first, then comparing the numbers of different decision makers and ranking , aggregating the
ranking order at last.
In this paper, we present a feasible method to deal with fuzzy multi-attribute group decision-making problem
including linguistic variable: experts give their valuations and weights of every attribute, which may be qualitative
or quantitative form , depending on experts knowledge ; for the former , decision makers represent the linguistic
valuation and weight by a trapezoidal fuzzy number ; for the latter ,deal the quantitative valuation and weight with
a dimensionless yield form ; Secondly , decision makers integrate these fuzzy numbers originating form single
attribute by a comprehensive number , rank the feasible solutions by Bass-Kwakernaak fuzzy number ranking
method , it means a single experts preference ; Lastly , aggregate the solutions rank by Borda function , thus we
get the group rank and group choice .
The paper is organized as follows: In section 2, we give some preliminary definitions and method of dealing
with linguistic variable. In section 3, theory of trapezoidal fuzzy number and Bass-Kwakernaak fuzzy number
ranking is introduced, we main concern on Arithmetic of trapezoidal fuzzy number and Bass-Kwakernaaks
ranking method. In section 4, fuzzy valuation index value s computation and ranking is explained, it is an
important step to integrate valuation index of group decision making ; In section 5, group ranking indexs
333
computation theory is introduced, we take Borda point to rank the projects; In section 6, we present the step of our
method, clarify the algorithm step; In section 7, we give an example to explain the method , it is proved to be an
effective method.
low W (low)(0.2,0.4,0.4,0.6)
moderate W (moderate)(0.3,0.5,0.5,0.6)
high W (high)(0.5,0.7,0.7,1)
higher W (higher )(0.7,0.8,0.8,1)
For the sake of the compatibility of quantitative objective and qualitative objective expressed by linguistic
variable, we make steps as follow: deal with the attribute of quantitative objective properly,then transform the
attribute number into a dimensionless index[4]that is a four-dimensional number.
Suppose the attribute value of project Ai under the quantitative objective C j is V ij ,while
i = 1,2, , m, j = n1 + 1, , n ,its dimensionless value has given by:
V 1 j (V 1 j + + V mj ) for benifit objective
V ij =
h
1 1 (1)
1 V ij [(V 1 j + + V mj )] for cos t objective
i = 1, , m; j = n1 + 1, , n; h = 1, , l.
Qualitative objectives dimensionless value can be expressed by:
E ij = ( E ij , E ij , E ij , E ij ), i = 1, , m; j = n1 + 1, , n; h = 1, , l.
h h h h h
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3.Arithmetic of trapezoidal fuzzy number and Bass-Kwakernaaks ranking method
Definition 2 Suppose ( a1 , b1 ; c1 , d 1) and ( a 2 , b2 ; c 2 , d 2) are trapezoidal fuzzy number, then the sum of
them is a trapezoidal fuzzy number too, and
(a1 , b1 ; c1 , d 1) (a 2 , b2 ; c 2 , d 2) (a1 + a 2 , b1 + b2 , c1 + d 1 , c 2 + d 2)
Where means fuzzy sum.
Definition 3 Suppose ( a1 , b1 ; c1 , d 1) and ( a 2 , b2 ; c 2 , d 2) are trapezoidal fuzzy number, then the product
of them is a trapeziform fuzzy number, Bonissone define the product by[5]:
(a1 , b1 ; c1 , d 1) (a 2 , b2 ; c 2 , d 2) (a1 a 2 , b1 b2 , ; d 2 + a 2 c1 c1 d 2 , b1 c 2 + b2 d 1 d 1 c3)
Base on the stochastic model of multi-attribute decision making problem, Bass and Kwakernaak found the
multi-attribute decision making model under fuzzy environment, and give a method of fuzzy number ranking[6],
the method usually become other methods referrence and norm.
Definition 4 O / X = {i , O / X ( i | x1 , x 2 , , x n )} , i N , xi I , where I means [0,1] , and fuzzy set
O / X s eigenfunction is defined by
1, xi x j , j N ,
O / X (i | x1 , x2 , , x n)} =
0, otherwise.
Where N is natural number set.
O / X is a condition set which describes the preference of fuzzy set, that is:
A known project Ai belong to preference set if and only if xi x j , j N
Definition 5 O = {i , O (i )} is called a fuzzy preference set, when its membership function is:
where O (i ) represents the possible degree of fuzzy set Ai being a optimal selective project.
The fuzzy preference set can be make sure of the ranking of fuzzy sets. When there are only two fuzzy sets,
formula (2) can be simplified as follow:
O (i ) = sup min{ A ( x1), A ( x 2)} 1 2
(3)
x1 x 2
According as Bass-Kwakernaaks fuzzy preference relation, the fuzzy set which has largest peak value(the
variables value when its membership degree is 1) is selected by a best project.
E ij = (cij , d ij ; ij , ij ), W j = (a j , b j ; j , j ), i = 1,
h h
h h h h h h h h
, m; j = 1, , n, h = 1, ,l
Note r ijh = W hj E ijh r ijh is defined by formula (4):
r ij = (a j cij , b j d ij ; a j ij + cij j j ij , b j ij + ij j j ij )
h h h h h h h h h h h h h h h h h
(4)
i = 1, , m; j = 1, , n; h = 1, l
Aggregate singular decision makers valuation value of each attribute to fuzzy valuation index value F ih of
multi-attribute:
1 h h
h h h
F i = n [( E i1 W 1 ) ( E i 2 W 2)
h
( E in W hn)], i = 1, , m; j = 1, , l. (5)
When fuzzy index F ih is giveneach decision makers should rank the selective projects. F ih is a trapeziform
335
fuzzy number , according to Bass-Kwakernaaks ranking method, the projectsranking can be achieved by the
corresponding peak value. When the projects peak value is lager ,the project should be ranked by a preferential
place.
where A = { A1 , A2 , , An} is a set of selective projects, N ( x y ) represent the decision makers number
which makers believe project Ai is prior to project A j .
According to the value of f B ( Ai ) ,we can get the group preference ranking of all projects and select the
project which has a largest Borda point as a optimal project.
6.Algorithm step
Based on the analysis and discussion above, we conclude the algorithm step of the Fuzzy Multi-attribute
Group Decision-making Problem with Linguistic Variable:
Step 1 Give selective projects and its valuation objective, classify the objective into two sorts: qualitative
objective and quantitative objective;
Step 2 Deal each quantitative objective with a dimensionless value according to formula (1), and represent
the value by a four-dimensional number ;
Step 3 Give linguistic variable of weight coefficient and qualitative objective, find its membership function
expressed by fuzzy number;
Step 4 Each decision maker give his valuation value of linguistic variable of all weight coefficient and
qualitative objective;
Step 5 Get each decision makers fuzzy valuation index r ijh based on weight analysis according to formula
(4);
Step 6 Get each decision makers fuzzy valuation index F ih of multi-attribute according to formula (5), rank
the projects based on the number of peak value according to Bass-Kwakernaak ranking method;
Step 7 Get each projects Borda point f B ( Ai ) according to formula (6), rank the project based on the value
of f B ( Ai ) , select the optimal project which has the largest f B ( Ai ) .
7.Example
Water conservancy project is a great project relating to the national economy and the people's livelihood,
strict item evaluation must be argued before progressing. Usually some selective projects have been put forward,
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it is a very complex system and not been made decision by a singular person, it is a multi-attribute of group
decision making problem.
Suppose four experts (or four sorts of experts: such as governor, engineer, environmentalist, economist) have
been invited to evaluate the item, they review projects of item from their familiar field ,such as investment, time
limit, preventing floodwater, generating electricity and environmentalism. Since difference of knowledge and
information of experts, they may give an exact computation value for some attribute, but for other attribute, they
can only give a linguistic valuation value by the word good or common. For example, governor may have
enough knowledge and information about investment and time limit based on finance and budget plan, so for the
two attributes, they can give their quantitative evaluation. But for other attributes such as preventing floodwater,
generating electricity and environmentalism, professional knowledge must be mastered, so they can hard to give
an exact quantitative value. Similarly, for given evaluation of different projects by the experts, weight coefficients
of attributes are not a positive appraisal, they incline to be described by linguistic variable. So using method of
fuzzy group decision making helps to improve the veracity of decision, debase the risk of decision.
Suppose weight coefficients of attribute evaluated by experts are shown by Tab. 2, experts evaluation of
projects is shown by Tab. 3.
Tab. 2 experts evaluation of weight coefficients of each attribute
Deal each quantitative objective with a dimensionless valuegive linguistic variable of weight coefficient and
qualitative objective, find its membership function expressed by fuzzy number, as shown by Tab. 4.
Tab.4 qualitative and linguistic variable objectives fuzzy number represent
preventing generating Environment
Experts Projects Investment Time Limit
floodwater electricity -alism
A1 (.34,.34,.34,.34) (.31,.31,.31,.31) (.3,.5,.5,.6) (.7,.8,.8,1) (.3,.5,.5,.6)
Governor A2 (.16,.16,.16,.16) (.20,.20,.20,.20) (.5,.7,.7,1) (.7,.8,.8,1) (.7,.8,.8,1)
A3 (.5,.5,.5,.5) (.49,.49,.49,.49) (.7,.8,.8,1) (0,0,0,.3) (0,0,0,.3)
A1 (.2,.4,.4,.6) (.30,.30,.30,.30) (.22,.22,.22,.22) (.32,.32,.32,.32) (.5,.7,.7,1)
Engineer A2 (0,0,0,.3) (.16,.16,.16,.16) (.35,.35,.35,.35) (.65,.65,.65,.65) (.7,.8,.8,1)
A3 (.3,.5,.5,.6) (.54,.54,.54,.54) (.43,.43,.43,.43) (.03,.03,.03,.03) (.2,.4,.4,.6)
A1 (.48,.48,.48,.48) (.2,.4,.4,.6) (.26,.26,.26,.26) (.5,.7,.7,1) (.42,.42,.42,.42)
Environ A2 (.17,.17,.17,.17) (0,0,0,.3) (.29,.29,.29,.29,) (.5,.7,.7,1) (.58,.58,.58,.58)
-mentalist
A3 (.35,.35,.35,.35) (.3,.5,.5,.6) (.47,.47,.47,.47) (.2,.4,.4,.6) (0,0,0,0)
A1 (.27,.27,.27,.27) (.2,.4,.4,.6) (.7,.8,.8,1) (.38,.38,.38,.38) (.44,.44,.44,.44)
Economist A2 (.15,.15,.15,.15) (.2,.4,.4,.6) (.5,.7,.7,1) (.48,.48,.48,.48) (.5,.5,.5,.5,)
A3 (.58,.58,.58,.58) (.5,.7,.7,1) (.7,.8,.8,1) (.14,.14,.14,.14) (.06,.06,.06,.06)
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Weight coefficients of attribute given by experts are expressed by fuzzy number,as shown by Tab. 5.
Tab.5 Weight coefficients of attribute
preventing generating Environment
Experts Investment Time Limit
floodwater electricity -alism
Governor (.7,.8,.8,1) (.7,.8,.8,1) (.3,.5,.5,.6) (.2,.4,.4,.6) (.2,.4,.4,.6)
Engineer (.3,.5,.5,.6) (.3,.5,.5,.6) (.7,.8,.8,1) (.7,.8,.8,1) (.5,.7,.7,1)
Environ
(0,0,0,.3) (.2,.4,.4,.6) (.5,.7,.7,1) (.7,.8,.8,1) (.7,.8,.8,1)
-mentalist
Economist (.7,.8,.8,1) (.5,.7,.7,1) (.2,.4,.4,.6) (.3,.5,.5,.6) (.2,.4,.4,.6)
Decision makers fuzzy evaluation index r ijh of each project based on weight coefficients analysis, as shown
by Tab. 6.
Decision makers fuzzy evaluation index F ih of multi-attribute, as shown by Tab. 7.
h
Tab. 6 decision makers fuzzy evaluation index r ij
h preventing generating Environment
r ij Projects Investment Time Limit
floodwater electricity -alism
A1 (.238,.272,.238,.272) (.217,.248,.217,.248) (.09,.25,.03,.25) (.14,.32,.08,.32) (.06,.2,0,.2)
1
r ij A2 (.112,.128,.112,.128) (.14,.16,.14,.16) (.15,.35,.05,.35) (.14,.32,.08,.32) (.14,.32,.08,.32)
A3 (.35,.4,.35,.4) (.343,.392,.343,.392) (.21,.4,.15,.4) (0,0,-.06,0) (0,0,-.06,0)
A1 (.06,.2,-.02,.2) (.09,.15,.09,.15) (.154,.176,.154,.176) (.224,.256,.224,.256) (.25,.49,.15,.49)
2
r ij A2 (0,0,-.06,0) (.048,.08,.048,.08) (.245,.28,.245,.28) (.445,.52,.445,.52) (.35,.56,.29,.56)
A3 (.09,.25,.03,.25) (.162,.27,.162,.27) (.301,.344,.301,.344) (.021,.024,.021,.024) (.1,.28,.02,.28)
A1 (0,0,0,0) (.04,.16,-.04,.16) (.13,.182,.13,.182) (.35,.56,.3,.56) (.294,.336,.294,.336)
3
r ij A2 (0,0,0,0) (0,0,.06,0) (.145,.203,.145,.203) (.35,.56,.3,.56) (.406,.464,.406,.464)
A3 (0,0,0,0) (.06,.2,0,.2) (.235,.329,.235,.329) (.14,.32,.1,.32) (0,0,0,0)
A1 (.189,.216,.189,.216) (.1,.28,.02,.28) (.14,.32,-.04,.32) (.114,.19,.114,.19) (.088,.176,.088,.176)
4
r ij A2 (.105,.12,.105,.12) (.1,.28,.02,.28) (.1,.28,0,.28) (.144,.24,.144,.24) (.1,.2,.1,.2,)
A3 (.406,.464,.406,.464) (.25,.49,.15,.49) (.14,.32,.08,.32) (.042,.07,.042,.07) (.012,.024,.012,.024)
h
Tab. 7 Decision makers fuzzy evaluation index Fi of multi-attribute
h
Projects Fi
A1 (.149,.258,.113,.0.258)
1
F i A2 (.1364,.2556,.0924,.0.2556)
A3 (.1806,.2384,.1446,.2384)
A1 (.1556,.2544,.1196,.2544)
2
F i A2 (.2176,.288,.1936,.288)
A3 (.1348,.2336,.1068,.2336)
A1 (.1628,.2476,.1368,.2476)
3
F i A2 (.1802,.2454,.1598,.2454)
A3 (.087,.1698,.067,.1698)
A1 (.1262,.2364,.0742,.2364)
4
F i A2 (.1098,.224,.0738,.224)
A3 (.17,.2736,.138,.2736)
338
According to Bass-Kwakernaak method, rank the projects though comparing with the peak values, then for
Governor, his ranking is A1 A2 A3 ; for Engineer, his ranking is A2 A1 A3 ;for Environ-mentalist, his
ranking is A1 A2 A3 ;for Economist, his ranking is A3 A1 A2 .
Considering each projects Borda point, put number 2, 1, 0 into the first, second, third place project, we get
project A1 s Borda point is f B ( A1) 22+12+00 6; project A2 s Borda point is f B ( A2)
21+12+014project A3 s Borda point is f B ( A3) 21+10+032.
So the groups ranking is A1 A2 A3 the optimal project is A1 .
8.Conclusion
For a certain of multi-attribute group decision making, consider making decision first and synthetizing later ,
transform the qualitative objective and linguistic variable of weight coefficient into a trapezoidal fuzzy number,
aggregate each decision makers valuation under singular objective to a fuzzy valuation number under multi
objective, rank the fuzzy number based on Bass-Kwakernaaks possible density ranking method ,get decision
makers ranking of projects under a singular object, integrate the group ranking of projects according to the value
of Borda point.
The method is feasible and logistic, give a way to solve multi-attribute group decision making problem.
References
[1] Andras B, Lucien D, Istvan B. Combination of fuzzy numbers representing expert opinions. Fuzzy Sets and System,1993(57)
[2] Buckley J T. Ranking alternative using fuzzy numbers. Fuzzy Sets and Systems,1985(15)
[3] Oser P, Dias Jr. Ranking alternatives using numbers. A Computational approach. Fuzzy and Systems,1993(56)
[4] Dubois D, Prade H. Fuzzy Sets and Systems. Academic Press, New York,1980
[5] P.P.Bonissone. A pattern recognition approach to the problem of linguistic approximation in system analysis.IEEE 1976
International Conference on Cybernetics and Society,1979
[6] S.M.Bass and H.Kwakernaak. Rating and ranking of multiple aspect alternatives using fuzzy sets.Automatica,1977(3)
[7] Yue Chaoyuan. Decision making theory and method. Beijing: Science Press,2003
[8] Fu Wei, Meng Bo. A method of fuzzy multi-objective group decision making. System engineering and electronic
technology,1996(12)
[9] Song Ricong, Chen Hanlin. Multi-objective fuzzy group expectation method. Transaction of Sichuan normal university, 1997
(9)
[10] Li Rongjun. Fuzzy multi-criteria decision making theory and its application. Beijing: Science Press,2002
339
Research on E-Business Investment Decision Making Based
on Option Games
Han Guowen
Economics and Management School, Wuhan University, Wuhan, 430072, P.R.China
Abstract The theory of option games being the combination of two successful theories, namely real options and game theory, has a
great potential to applications in many real situations. E-business investment has the character of large scale and high uncertainty.
This paper employs the option games model to research the E-bank investment decision-making.The real option method can avoid
the pitfall of Net Present Value(NPV) approach for e-business investment decision-making. But it ignores the interaction between
competitors. In the light of the problems existing in e-business investment decision- making, this paper employs the option games
models to study the decision-making for e-business investment. It can consider the key factors such as uncertainty, flexibility, and
timing, the effect of competition for each firm.
Keywords E-business, Optimal timing, Option games, Competition environment
1Introduction
The e-business develops so fast since it comes into being. Many firms know the development potential of the
e-business, and plan to invest it. However, the customers demands of the e-business change frequently and the
competition environment is intense, the e-business investment has the high degree of uncertainty. Under uncertain
environment, we always apply real options method to make decision, compare the investment as American option,
and think that waiting can make the firm acquire more information and the high value of the investment
opportunities. This kind of investment decision method gives the project decision more flexibility comparing with
NPV method, but it considers the uncertainty term of the investment only. It doesnt consider the competition
environment of the firms. In fact for acquiring preemption in vigorous competition environment, the firms usually
rush ahead to invest e-business. That is to say, the problem of e-business investment under uncertainty and
competition is demanding a more rigorous framework.
Fudenberg and Tirole(1985)[1] early combined real options with strategic interaction of firms, discussed game
theory on how to choose the optimal timing of firms investment decision under uncertainty. Dixit and
Pindyck(1989)[2] expanded Fudenberg-Tirole models, studied the situation of new market with option method
under uncertain environment supposing that the investment revenue followed a geometric Brown motion.
Huisman and Kort expanded the new market model to study the technology upgrading of two firms in current
market, considered the uncertain demands influence on technological innovation investment making decision.
Smets(1993) [3]established continuous-time model of option games that considered rational strategic between two
firms, and used the mixed strategy theory to analyze the Nash equilibrium in the duopoly models under
uncertainty both symmetrical and asymmetrical. Dixit and Pindyck(1994)[4] studied the case under imperfect
competition, analyzed market, perpetual option and imperfect information of two competitors in continuous-time,
then gave the leader and follower threshold and value. The first option games textbook appeared with Huisman
(2001)[5], focusing important theoretical models of option games in continuous-time mainly for technology
applications. Before, Grenadier (2000)[ 7] edited a good selection of option games papers. A nice new addition is
the forthcoming textbook of Smit & Trigeorgis (2003) [7]focusing mainly discrete-time option games models, in a
light and thorough approach, with many practical examples.
As for the field of e-business investment decision making, many researchers considered uncertainty while
applying real options to the analysis of investment opportunity. But they didnt consider the factor of competition.
In order to solve the problems and shortages existing in current e-business investment evaluation and decision,
this paper employs the option games models to make decision for e-business investment. It can consider the key
factors such as uncertainty, flexibility, and timing, the effect of competition for each firm.
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2Option games analysis on e-business investment decision-making under competition
We consider two identical, risk neutral and value maximizing firms that can make a e-business investment
expenditure I(>0) to active on a market. They have the symmetrical strategies. This means that the "entry" of a
firm affects the current profit flow of the other firm reducing the profit flow because this model considers
negative externalities. The firms face a (inverse) demand curve expressed by the profit flow p(t) for given by:
p (t ) = Y (t ) D ( N i , N j ) (1)
Where D( Ni, Nj ) is a deterministic demand parameter for firm i, which depends on the status of firms i and j.
Ni=1 means that firm i invested. Ni=0 means that firm i has not invested yet, and the possible values of D( Ni, Nj)
are: D(0, 0) means that both firms not invested yet (but there is a profit flow YD(0, 0) because the firms are
already active in the market);D(1, 0) means that firm i invested and is the "leader" because the firm j has not
invested yet; D(0, 1) means that firm i is the "follower" because only the other firm j has invested becoming the
leader; and D(1, 1) means that both firms invested in the market (simultaneous investment). Y(t) is the stochastic
demand shock following a geometric Brown motion:
dY (t ) = Y (t ) + Y (t ) dz (2)
Where is the expected rate of return, is the volatility, dZ is the Wiener incrementIf the operational cost
is zero, p(t) is interpreted as profit flow.
The deterministic demand parameters have the additional constraint of negative externality given by the
inequality: D(1,0)> D(1,1)> D(0,0)> D(0,1).
According to real options, there is a typical optimal timing problem and the solution is performed backwards.
This means that first we need to estimate the value of the follower (given that the leader entered before), and then
the leader value given that the leader knows that the optimal follower entry can happen in the future.
2.1 The follower value and investment threshold
Supposed that the leader has entered the market, we use partial differential equation to calculate the follower
value F(Y) and investment threshold YF. F(Y) is given by the ordinary differential equation (ODE) below:
1 2 2 '' '
Y F + YF rF + YD(0,1) = 0 (3)
2
'' 2 2 '
Where r is risk-free rate, F = F / Y F = F / Y YD(0,1) is profit flow. The ODE solution is a
homogeneous solution of type AY 1 + BY 2 , plus a particular solution.
1 2 2 2
We get two roots of the equation: + ( 0.5 ) r = 0
2
2 2 2
1 ( 0.5 ) + 2 r
1, 2 = (4)
2 2 2
Because of boundary conditions and 2 is negative root, constant B=0. According to value matching
conditions and the smooth pasting, we can get:
Y D (1,1)
F (Y = YF ) = F I (5)
r
D (1,1)
FY (Y = YF ) = (6)
r
From that we can get:
1
YF 1 D (1,1) D (0,1)
A= (7)
1 r
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1 ( r ) I
YF = (8)
( 1 1)( D (1,1) D (0,1))
YD(1,1)
F (Y ) = I if YYF (10)
r
Assuming the leaders investment time is TL. It is the time that the project value hits the leaders investment
threshold. Then the follower investment timing TF can be expressed as:
TF = inf{t TL : Y YF } (11)
By substituting equation (15) into equation (13), we can get in the enterprise value V(Y) in monopoly phase.
Therefore, we can get the leader value from the equation below:
YD(1,0) Y Y ( D (1,1) D (1,0))
L (Y ) = +[ ] 1 F I Y < YF (16)
r YF r
If YYF, the value of becoming leader is equal to the value of becoming follower, which is equal to the
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value of simultaneous investment S(Y):
YD(1,1)
L (Y ) = S (Y ) = I YYF (17)
r
Supposing the leader knows that the optimal investment strategy of follower is investing at the moment when
TF = inf{t 0 : Y YF } .The optimal investment strategy of the leader is investing at the moment when
TL = inf{t 0 : L (Y ) = F (Y )} .
3Empirical analysis
Both firm A and B intend to invest in e-business in this field and B is the main rival of A. They are balanced
players in games. Assumption = 5% , = 20% , r = 10% , I = 20 , Y (t = 0) = 1 ,
D (0,1) = 1, D (0,0) = 2, D (1,1) = 2.5, D (1,0) = 4 . D (0,1) = 1, D (0,0) = 2, D (1,1) = 2.5, D (1,0) = 4 According to these
parameters, we can get: 1 = 1.6085 , YF = 1.7623 , when Y < 1.7623 , YL = 0.57 .
From figure 1 we can know that, when the demand Y < YL = 0.57 (Leader entry), the optimal strategy of
firm A is not investing. Meanwhile, firms investment opportunity value is equal to option value. When
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YL = 0.57 , the value of leader A is higher than followers value and simultaneous investment value. At this time,
the optimal strategy of firm A is entering the e-business market, to acquire higher monopoly profits. When the
demand YF = 1.7623 (Follower entry), simultaneous investment value is higher than leader value of A, the
optimal strategy of the follower B is entering the market, acquiring simultaneous investment profits with A. So
point YF = 1.7623 is the investment threshold of firm B in symmetric duopoly.
If using general option making-decision method, we can get the optimal investment timing YM = 2.6434 .
Because competition erodes the value of e-business investment flexibility, investment timing with consideration
of competition is different from that got from general real options.
4. Conclusion
E-business investment is featured as large scale and highly uncertainty. Using real options can avoid the
disadvantage of NPV method. But it ignores the interaction between competitors. This paper applies model of
duopoly timing option games, takes into account the uncertainty and competition. There are preemption and
simultaneous strategy equilibrium according to different initial time and model parameters. Under the threat of the
rival, the firm may preempt e-business investment, or waiting if the rival has invested early. Competition erodes
the value of e-business investment flexibility; investment timing with consideration of competition is different
from that got from general real options. It has some significance of guidance and practice in e-business investment
decision-making of firms.
References
[1] Fudenberg D,Tirole J. Pre-emption and rent equalization in the adoption of new technology.Review of Economic Studies,
1985,No.52:383-401.
[2] Dixit A ,Entry and Exit Decisions under Uncertainty, Journal of Political Economy.1989, No.6: 620-638
[3] Smets,F, Exporting versus FDI: The effect of uncertainty, strategic interactions, Working paper. 1991,Yale University, New
Haven, CT
[4] Dixit A K,Pindyck R S.,Investment under uncertainty, 1994,Princeton, NJ: Princeton University Press
[5] Huisman K J M.,Technology investment: A game theoretic real options approach,2001,Boston(MAU S A): Kluwer Academic
Pub.
[6] Grenadier,.S.R.,Option exercise games: An application to the equilibrium investment strategies of firms.Review of Financial
Studies,2002,No.15:691-721.
[7] Smit,H.T.J,L.Trigeorgis,.Flexibility and commitment in strategic investment, working paper, 2003,Tinbergen institute, Erasmus
University, Rotterdam.
344
Resolve the Multi-Factor Tradeoff Problem in Bid
Evaluation by Using Computer Regression Analysis
Abstract Customarily modern procurement adopts a multi-purpose procurement way, so a tradeoff problem of different indexes in
the evaluation system of bids will often be encountered. The purpose of this paper is to provide a new method to resolve the problem
by using regression analysis. This method can evaluation all bids with some cheap computer software. By proving the scientificity of
this new method, the author thinks that it can avoid the defects of the past evaluation methods efficiently.
Key words Regression analysis, Bid evaluation, Tradeoff in different indexes
1. Introduction
Customarily modern procurement adopts a multi-purpose procurement way, so a tradeoff problem of
different indexes in the evaluation system of bids will often be encountered. This paper aims at the defects of the
past evaluation methods, such as high cost, subjectivity of indexes, and doing with the linear-factors tradeoff only.
In this paper, the author proposes a new supporting method of bid evaluation. The old thinking style usually sums
all the factorial indexes in certain proportions, which are called Weight Variables, then making an overall
estimation, however, the new method this paper proposed goes beyond it and considers one key factor of all
estimated factors as the function of others, then performs the regression analysis by using the estimation results of
all bidders' indexes as the sample, finally evaluates all the bids through the comparison of the residuals or sorting
them by using the equivalent-benefit curves or setting up a indexes-related evaluation system. This method can
effectively avoid the affection of subjective factors and the judging errors, furthermore, solve the complex
tradeoff problems that other methods can hardly resolved. This method can do the regression analysis by using
some cheap computer software, so we can save some costs and enhance the efficiency of our procurement.
2. Backgrounds
Purchasing by invitation to bid of the present commercial and public ministers always bases on multi-aims
procurement, which dont take price to be the only considered item, but under the condition of fulfill the budget
constraint and other basic requirement to choose from a propriety of lower price, good quality and better service
so etc evaluate items to arrange and form the best suppliers. In other words, that means purchasing the most worth
commodities, services and projects at an acceptable range of price, which not equals to the lowest price.
Which pair of the resultant could be the best? How to measure the competitors advantage equations act on
different aspects, with an order to get an integrated result? Normally saying, every suppliers of bidding
competitors cannot gain the championships in every item, such as better quality and more functions means for
higher cost and price meanwhile; priority in price perhaps stands for less service. Especially in condition of
modern times, all sorts of enterprises will emphasis the individualized and characteristics development and
extrude several parts advance. Therefore scientifically solve the trade-off between each counting items and
figures, which is a necessary question for us to cross over in the way of gaining procurement aim and achieve
efficiency optimization.
2.1 Characterization of methods existed
Nowadays, aiming at this puzzle, both alien and domestic research and implement raised a lot of methods,
such as AHP, Incidence Matrix, Link Relative Method, blurring evaluation method, better range selecting and
berange selecting so etc. We held this consideration that, these methods basically follow the same consideration
during the problem-solving of multi-factors, which take a lot of specialistic experiences to be foundation, bring
some concrete arithmetic to measure each evaluate items weight and so, take every factors to be counted into the
345
last assess result in the form of some firmed weight. Showed in formula (1),
m
W j = wi sij (1)
i =1
The main difference between them are the methods and arithmetic of gaining the weight wi, but basically the
same in summarizing these different factors together in some special proportion which in fact decides the
character of this formulas science and justice factor. Some of the methods do not compute each bids plus mark
but only compare them across, which actually are the same as be based on weights{ wi}.
2.1 Limitation of traditional methods
This paper thinks, the methods that are often adopted have several radical disables:
2.1.1 Settled assessing system defaults the only relationship of linear substitution between each factors, but
actually associative of most factors are non-linear.
Take quota fk and fl randomly, led by function (3)
s k W sl w 2s
= = l which is a constant figure 2k = 0 (3)
sl W s k wk sl
So, the relationship between sk and sl are linear. For example, when sk and sl separately stand for price and
quality of the product, if the two vendors products are distanced by sl in quality and wl wk sl in price, so
they may gain the same mark after the two factors integrated. In another words, purchase better products one
should pay much more money in a fixed proportion.
In the real economic world, the purchasing factors effect each other, get a familiar relationship, but not surely
to be linear. Still take price and quality to be example, if the relationship is linear, we can take a straight line A in
Fig.1 to represent. But when it comes to the technologic product to be bided, one should cost a lot and spend a lot
of money on renewing and D&R, which cost fringe cost increase, that is 2 sk sl2 > 0 , such as curve B, in the
chart. According to matured products, it decreases apparently in fringe cost, 2 sk sl2 < 0 , such as curve C.
The Line Ssprice in the chart is price-control line (the most acceptable highest price), use traditional methods to
assess the bid, if purchasing the high-tech product, we must have take price discrimination toward bidders who
improve their products quality in triangle zone I (its essential is discrimination to the high tech); if purchase for
low technology products, it means overestimate of bidders price advantages in zone II, make a fault choice, and
low purchase effect.
2.1.2 What they take on deciding quota of ultimately reference are from experts experience and experiences in
the past, which cannot avoid the subjective deflection.
When deciding each factors quotas of each methods, mainly take two kinds of effect: one is make those hard
346
and difficult ones more easier to compute and compare; the other one is to use unique method to acquire experts
opinion or take multiple solve to so many experiences in order to eliminate their objectiveness. But actually, for
its final quotas are decided by mans subjective judge, we cannot delete every subjective error.
2.1.3 To acquire a integrate evaluation using different quotas, may effect the advantages and disadvantages of
product and service, and cause some faults in assessment and even unable to make decision.
Make all sort of assessing factors together to a multiple result and which usually make part of the real
condition effected by others and not be displayed on the final result. For example, some bids have a prominent
advantage in some aspects while faint in other aspects, always can gain a high mark in its only advantage; and
some bids are good at some special aspects while others are bad, so in the total mark, good one will balance the
bad ones. Actually and normally, participants in the same bid always the same in their abilities, so the methods of
multi-factors tradeoff always do not effect and cannot work well to distinguish their goods or bad. Besides that,
such as shown on chart 1, the bids in the same curve a get the same marks, we cannot make a proper choice, and
should do a new tradeoff between the price and technology again, but traditional method can not do anything but
only subjective decision.
2.1.4 Matrix assess system centered by quota-combination has many limitations in areas of application, and
gain a high cost and low efficiency in frequently amending its system.
To compute the quotas scientifically and avoid the subjective decision, we should collect specialists disposal
as more as possible; and, according to purchase of different products and services, the quotas are different, the
flexible of assess system is not high, objectively need different purchase need different experts to recalculate the
quotas. All of these activities will cost a lot. If we take a single purchase, it is not accountable to establish a
one-life purchasing assess system in spending; and to those participate in different purchases, it also costs a lot in
continually calculating quotas again and again.
2.1.5 Disable of automatization.
Besides, nowadays most methods only provide compute methods when compute the quotas, cannot directly
apply in computer mathematic software disposal, they can either work by hands or take software quadric
development, which is high cost and low efficiency.
3. Methodology
To solve the questions raised above, we provide an almost new bid-assess method, introduce it as below:
When take tradeoff to k factor quotas such as s1s2s3sk ,set up one central factors target function as
below:
s1=(s2s3sk) (4)
And we take all of the figures provided by each tender document and assess result of each bid to be one
figures of the samples, and add figures acquired from market survey, to build up the sample. Take statistical
regression analysis, to get regression functions IV in distinctiveness . Assess and queue the real value s1, fitted
value s1 and residual value (s1 s1 ) of each bid, to make decision support for definite bid-choosing.
Normally, we can take value and value-grade to be s1 (this is main because price is the central factors of bid
evaluation, which can directly reply the question of worth or not to purchase at a set price. Surely when tradeoff
between different factors, one can choose other quota), s2s3sk separately stand for quality, service,
technology, function and so etc quotas and assess mark. So the real meaning of function IV is: to acquire set
quality, services, technology, functions and so etc to form a reasonable price of products and services. This
reasonable is decided by available market but not subjectively opinions from experts, with a objective character.
To be simply, we only take s1 as tender offer and s2 as product quality to be illustrated. We show this s1
and s2 provided by each bidder and its measured figure to be drawn on this s1- s2 coordinate system, each point
presents for a bidder. We make use of regression analysis to deal with the regression equation s1=(s2), and draw
its curve on this coordinate system (as is in the Fig.2).
Curve in the chart relatively and accuracy displays the relationship of tradeoff between price and quality. The
347
points on the curve, equals to each other on the sense of worth-for, one can choose a high price bid while fund
abundant and choose low-price one when fund-in-shortage. The points in the zone below the curve represent the
bids, the farther points distance the curve, the higher the product effectiveness be. Meanwhile the points among
the zone above the curve are just opposite. The advantages and advantages in quality and price tradeoff
represent by the points and curve, can be chosen as the base of bid-assess
Therefore, this kind of bid-assess breakthrough a traditional thought of sum each factors together to gain a
multiple evaluation. The balance formed by each factors is decided by all bidders, who represent the objective
market rules, which avoiding the subjectively thinking, and this method can be substituted by solvable linear
factors, and solve the tradeoff of non-linear factors, which cannot be worked out by traditional methods. And this
method is generally used for each products and services biding.
Which is more important that we only use the compute methods of Mathematical statistics, we can take
Mathematica, Mathslab, SAS so etc lower price common mathematic software to solve them in computers
conveniently.
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B1= {X i (s1 j s1 j ) > 0, X i X } (5)
{ (
B2= X i s1 j s1 j = 0, X i X) } (6)
If s1 is a more smaller more better factor (means procurement performance negative related with it. For
example, the quote), seeing from the procurement benefit, the B3 is better than B2, B2 is better than B1.so we can
make B3 or sample within the B3B2 to re- return to the regression analysis, find out another equivalent-benefit
curve stand for more excellent supplier community l2, and make B3 or B3B2 further demarcation; thus again
and again, until the concentration of Bi can't make again back to the regression analysis. Thus, we completed all
taxis for bids, and provide the further basis to choose the bid.
5.3 Evaluation with associated-standard system
Retrogressive method can be used separately to trade off two or more indexes. it can deal with indexes
whatever linear correlation or nonlinear correlation ,beside this ,this method can combine with other method.
For example, take the traditional weight-based method as the main way to evaluate the bid, and then take this
method as assistant to analyze the factors which are hard to trade off. Indexes-related evaluation is one of these
modes.
This kind of method is the method that gets scores with each index, and then adds the weighted values of
them. Get grade of each supplier, but for the parts of the indexes at last.
We should take the dynamic indexes as foundation to the grade, building up the associated-standard system.
For example, when we assess the price of the j-bid (use s1j to express), the adoption is not the united standard
(the price of all bidders carry on the comparison with the same price standard, and calculate to get a mark), but
according to the products quality, function, capability, after-sales service etc that in the bid documents. Then find
out a prices standard which find out from the regression equation by using the other related indexes ( s1j, s2j,
s3j,skj).Also is to say, not simple with the high and low of the quote to assess the price of the bidders, but see
whether the quote is reasonable from the comparison of the product quantity, function, after-sales service etc.
6. A simple example
An enterprise invites bids to buy a batch of components, and its target is to control the price between $9 and
$11. Eleven suppliers offer the quote and provide the main technique index in bid documents, and all accord with
the requests. In addition, the tenderee master three groups related data, for the sake of convenience, treating it as
three conjecture bidders. Now we only use the residual to trade off the two factors:
Establish s1 as quote price, the s2 as performance evaluation. After carrying on the analysis to the sample,
then use mathematica4.0 to process regression calculation and test, each data is in the following Tab.1:
Tab.1 Data of the example
Bider 1 2 3 4 5 6 7
s1 8.5 9.35 9.50 9.70 9.75 9.85 9.975
s2 25 26.75 27 27.25 28 28.75 29.5
s1 s1 -0.0239398 -0.023916 0.03299 0.145798 -0.034307 -0.125471 -0.163325
(s1 s1) s1 -0.00281645 -0.00255786 0.00347263 0.0150307 -0.00351866 -0.0127382 -0.0163734
Taxis 6 7 10 14 5 2 1
Bider 8 9 10 11 12 13 14
s1 10.3 10.45 10.5 10.575 10.65 10.8 10.85
s2 30 30.5 31 32 32.5 32.75 33
s1 s1 0.0635847 0.120202 0.078377 -0.0381971 -0.069246 0.023786 0.0136642
(s1 s1 ) s1 0.00617327 0.0115026 0.00746448 -0.00361202 -0.00650197 0.00220241 0.00125937
Taxis 11 13 12 4 3 9 8
The Mathematica language statement inputs and the outputs in the mathematica4.0 about the problem are
350
listed as Fig.3, and so,
2 3
s 1=-117.342+12.0945 s 2+0.387388 s 2 + 0.00419969 s 2 (8)
PValue=4.1306410-9 (9)
Shown as the equation (9), the significance of the regression equation (8) is very strong, it shows that the
evaluation result is rather accurate.
Use the residual relative value as the basis of the bid evaluation. Because the price is a more smaller more
better evaluation factor, so the relative value for negative is in the first rank. From the table one, ordinal number
for 7 and 8 of bid compare in the product function-price is the best, the number for 5, 1, 2, 11 and 12 of the bid
offer the price are all reasonable. Although other bids are some to have the advantage on the technique function, it
quoted to exceed the value of its product.
At here, we carried on to trade off the evaluation to two factors only, but most in general use mathematics
software ( such as mathematica4.0) and data analysis software( such as SAS) and both can handle diverse many
orders regression calculation with more than one unknown quantity, thus can carry on tradeoff more than two
factors. Here no use to give examples.
7. Conclusion
The method that this text put forward can be used separately to trade off two or several factors, moreover,
this method can handle indexes whatever linear correlation or nonlinear correlation. In addition, beside this, this
method can combine with other method. for example, take the traditional indexes and weight-based method as the
main way to evaluate the bid, but take this method as assistant to analyze the factors which are hard to trade off. In
addition we can still use weighted indexes method for the bid evaluation. But we set up dynamic indicator: for
example. We assess the indexes of the price (set up it as), we should take different standard which find out from
the regression equation by using the other related indexes (s1j, s2j, s3j,,s kj).
Also is to say, not simple with the high and low of the quote to assess the price of the bidders, but see
whether the quote is reasonable from the comparison of the product quantity, function, after-sales service etc.
351
References
[1] CHEN Jian. On the comprehensive evaluation method of construction bid evaluation. Journal of Nanping Teachers College,
2006(02):25-30(in Chinese)
[2] Li Ping, Gu Xingyi. Study on the indicator system and method of evaluating bidders in inviting tenders and Evaluation.
http://www.wenloo.com/WenLooPage112658-4.htm(in Chinese)
[3] LIANG Wei, LIU Man-feng. Research on technological innovation project selection appraisal system. Science-Technology and
Management, 2006(05):55-60(in Chinese)
[4] HUANG Yong-chun,QI Guo-you,ZENG Sai-xing. A new method of bid evaluation. Construction Management Modernization,
2006(3):51-53(in Chinese)
[5] SONG Hui-gang. Research on application of evaluating method to equipment bidding procurement. Journal of Dalian
University of Technology(Social Sciences), 2005(03)(in Chinese)
[6] Wu baixue. Present situation and analysis of appraise tenders method for building market. Fujian Architecture & Construction,
2006(06) (in Chinese)
352
Monotonic Vector Space Model and Its Partition Algorithms
Abstract: This paper presents a model: monotonic vector space (MVS) .It is a special vector space where there exist some
monotonic functions . the model have wide application in image processing ,system capability engineering etc .This paper
mainly deal with the requirementbased partition operation in MVS and two algorithms are proposed .one is for the continuous
MVS ,another is for discrete type .The algorithm for partition of continuous MVS is based on hyperbox approximation . The
algorithm for partition of discrete MVS is based on greedy tactics. The two algorithms could partition MVS with high efficiency
based on specified requirements .
Key words: Monotonic vector space, Hyperbox approximation ,Greedy tactics ,Partition algorithm
1.INTRODUCTION
Monotonic vector space (MVS) is a special vector space where there exist some monotonic functions. Many
practical problems can be considered as operations in the MVS. For example, if the vector space is composed of
system capability indexes[1], the capability index requirement analysis is a partition operation in MVS. The
screening operation in MVS could be applied for sensibility analysis for system capability index [2] [3].
Latin-cubic sampling [4] operation in MVS could greatly reduce variance, therefore it is high valuable for
simulation experiment in system capability engineering. In this paper, the main topic is requirement-based
partition algorithm which could be applied for image processing ,system capability engineering etc .
353
3.The algorithm for requirement-based partition operation in continous MVS
3.1 Some definitions and theorems
Based on fu and the constraints on requirements, producing the MVRL is how to find out the points meeting
requirements. Generally speaking, it is very difficult to get the direct function. So, the paper deals mainly with the
method to get MVRL without direct functions.
Definition 2. The minimal envelop hyperbox (MEH). The cross product of each dimensions interval
[lower bound, upper bound]. For simplicity, it is set to [ 0,V1] [ 0,V2 ] [ 0,Vn ] , subject to Vi Vi .
Assuming that x, y are the dimensions of a MVS, the MVRL is the point set meeting the inequality
x + y 2 4 ( x 0, y 0), the field [0, 2] [0, 2] is the minimal envelop hyperbox (MEH). Any point in the
2
MEH is not bound to be in MIRL, but any point outside the MEH is bound not to be in MIRL.
Definition 3. The maximal equally-divided and included hyperbox (MIH) and its opposite hyperbox. Set a
coefficient K [0,1], let = [ 0, KV1] [ 0, KV2 ] [ 0, KVn ] , Pl , and K > K ,
[0, K V1] [0, K V2 ] [0, K Vn ] Pl , is the maximal equally-divided and included hyperbox.
= ( KV1, V1] ( KV2, V2 ] ( K Vn, Vn ] is corresponding opposite hybperbox.
The above mentioned equally-divided means using the common K to divide each dimension. For example,
in the above example, x 2 + y 2 4( x 0, y 0); the field [0, 2] [0, 2] is the minimal envelop hyperbox
(MEH), [0, 2] [0, 2] is the maximal equally-divided and included hyperbox (MIH). ( 2, 2] ( 2, 2] is
opposite hyperbox. K = 2 2.
Theorem . Any point in the opposite hyperbox of the maximal equally-divided and included hyperbox does
not meet the system requirement, namely, is not in the MIRL.
3.2The algorithm to requirement-based partition operation
This algorithm recursively approximates MVRL by the maximal equally-divided. The steps are as follows:
1) Get the minimal envelop hyperbox(MEH),
1.1) K = 1;
1.2) all dimension except the kth dimension are set to 0 (the minimal value). For the monotonic property of fu,
binary method are applied to get the upper bound of the kth dimension. The process is to get the worst possible
value, namely the upper bound, when other dimensions are set to the best value, namely the lower bound .
1.3) if k = n, the cross product of interval [0, upper bound ] of each dimension is the minimized envelop
hyperbox (MEH), go to 2). Else k=k+1; go to 1.2).
2) Get the MIH.
2.1) Judge whether the volume of MEH is smaller than the value E (which represents the exit condition) or
not. If true, make interpolation, and exit. If certain an dimensions interval in the MEH is smaller than certain a
value, the dimension need not be divided any more, so dimensions decreased.
2.2) Obviously, according to the monotonic property of fu, when K1 K2 ,
fu ( K1V1, K1V2 K1Vn ) fu ( K 2V1, K 2V2 K 2Vn ), so that the binary method can be applied to get the K (the
dividing ratio for MIH) and so MIH are acquired.
2.3) Every dimension of MEH is divided into two intervals. One is inside the MIH, and the other is outside.
The inside field is indexed by 0, and the other one indexed by 1. So, there are 2n (n is total number of
dimensions) interval combinations, every element in these combinations is an dimensions interval which indexed
by 0 or 1 in the above-mentioned way. All combinations just correspond to binary digit from 0 to 2n1.
Number 0 is the MIH (every element in this combination is indexed by 0), and any point inside it meeting the
system requirement. So, it should be saved. Number 2n1 is the opposite hyperbox for MIH (every element in this
combination is indexed by 0). According to Theorem 1, any point inside it does not meet the system
requirement. So, it should be removed. For the rest of combinations, number 1 to 2n2, every one is regarded as
the new MEH, and go to 2) and processed recursively.
354
Now, the process of algorithm is illustrated in Fig. 1. Assume that the MVRL is the point set
{( x, y ) | x 2 + y 2 r 2 ; x 0; y 0}, the rectangle with dashed line is MIH. First according to the monotonic
property of fu, to and fro, we search the proper point to get the MIH along the diagonal of MEH (indexed by 00
in the figure) by binary method. And then, get rid of the opposite hyperbox (indexed by 00 in the figure), the
other hyperbox is respectively regarded as MEH, then perform the process recursively to get all MIHs of which
the MVRL is composed.
355
for example ,the initial RV of combination #3#3#3#4 is 108*54/108+54+54*108/108+54=72;
When some a combination is calculated, if it meet the requirement ,all elements in under-cut set are cut.
Otherwise, all elements in up-cut set are cut.
Step2. Based on greedy tactics, scan the combination table (it is indexed by a heap structure in order to find
the combination with the maximal RV quickly ) and select the combination with the maximal representative
value. Assume the combination #I1#I2 #I3 #I4 with the maximal RV .
(1) If the combination #I1#I2 #I3 #I4 meets the requirement, all elements in under-cut set will be cut, thus
under-cut set of every combination in combination table could decrease. The way to decrease elements number
of under-cut set for the combination #J1# J2 #J3 #J4 is as follows: let #Ki =min(#Ii , #Ji ) , the total
number of elements in adjusted under-cut set for #J1# J2 #J3 #J4= #J1# J2 #J3 #J4 - #K1# K2 #K3 #K4 ,if
#K1# K2 #K3 #K4 is not in the combination table , the total number of elements in under-cut set for #J1#
J2 #J3 #J4 remain unchangeable.
(2) If the combination #I1#I2 #I3 #I4 doesnt meet the requirement, all elements in up-cut set will be cut,
thus up-cut set of every combination in combination table could decrease. The way to decrease elements number
of up-cut set for the combination #J1# J2 #J3 #J4 is as follows: let #Ki =max(#Ii , #Ji ) , the total
elements number of adjusted up-cut set for #J1# J2 #J3 #J4= #J1# J2 #J3 #J4 - #K1# K2 #K3 #K4 ,if #K1# K2
#K3 #K4 is not in the combination table , the elements total number of up-cut set for #J1# J2 #J3 #J4 remain
unchangeable.
Step 3. Adjust the combination table. If the selected combination meets the requirement, delete it and all
elements in its under-cut set in the combination table. Otherwise, delete it and its up-cut set. For example, if
combination #3#3#3#4 meets the requirement , all the elements in under-cut set such as : #1#1#1#1
#1#2#2#2#3#3#3#3 etc in the combination table would be delete.
Step 4, According to the adjusted RV of every combination, go to step 2 until the combination table is empty.
An illustrative example is as follows:
The problem is
x = 2(#1), 3(#2), 4(#3), 5(#4)
y = 2(#1), 3(#2), 4(#3), 5(#4)
Assume there is four dimensions : x, y, z , u in MVS, let ( ) ,so
z = 2(#1), 3(#2), 4(#3), 5(#4)
u = 2(#1), 3(#2), 4(#3), 5(#4)
the total combinations number is 44 = 256.
the requirement condition is x + y + z + u 50
2 2 2 2
The above-mentioned algorithm is applied to quickly find the combinations which meet requirement
condition.
Step 1 find the combination with the maximal RV from combination table. Initially, #3#3# 2#2 with the
maximal RV 36 is located
Step 2 delete all the elements in the under-cut set for combination #3#3#2#2 in combination table.
Step 3 adjust up-cut or under-cut set for the residual combinations in combination table and then recalculate
the RV.
With combination #4#1#1#1 as example , the adjusting process is the following:
Get the intersection combination of #4#1#1#1 and #3#3#2#2Min#4#1#1#1, #3#3#2#2
= #3#1#1#1
Judge the combination #3#1#1#1 is in under-cut set or not .If it is in, adjust under-cut set and RV
for #4#1#1#1 as the following way : The total number of elements in adjusted under-cut set for #4#1#1#1=
The total number of elements in under-cut set for #4#1#1#1- The total number of elements in under-cut set
for #3#1#1#1= 4-3 = 1.And then adjust RV on the basis of new total number of elements in under-cut set.
The adjusted RV is 4.7. The adjusted RV of other combinations is listed in combination table as fig.3.
356
Perform the above steps until the combination table is empty. In this example, after 67 iterations all the
combinations meet requirement ,such as :#1#2#2#4,#2#1#2#4, ,#3#3#2#2 etc , are acquired.
Approximately only one quarter of all combinations are calculated in the example. the algorithm is of high
efficiency.
find the combination #3#3# 2#2 with the The under-cut set
maximal RV from combination table. and then for combination
delete all the elements in the under-cut set for #3#3#2#2
combination#3#3#2#2in combination table. #1#1#1#1
#2 #1#1#1
#3#1#1#1
#3#2#1#1
#3 #2 #2#1
#3#3#1#1
#4#2#1#1 2 48 8.57
#4#3#1#1 3 16 10.9
357
5 conclusion
Monotonic vector space (MVS) is a special vector space where there exist some monotonic functions. This
model have wide application in image processing ,system capability engineering etc. This paper mainly deal
with the requirement-based partition operation. Two algorithms have been proposed. The future research should
include :
Applying SVM (support vector machine )[5] for high-efficiency partition operation in MVS.
Other operations in MVS such as :sampling ,screening ,set operation ,searching etc, which could be
applied for solving many practical problems .
References
[7] Hu jian wen etc.A novel complex-system-view-based method for system effectiveness analysis: monotonic indexes space.
Science in china, series F.2006,1
[8] Bettonvil, B., Kleijnen, J.P.C., 1996. Searching for important factors in simulation models with many factors: sequential
bifurcation.[J] European Journal of Operational Research 96 (1), 180-94.
[9] Cheng, R.C.H. (1997), Searching for important factors: sequential bifurcation under uncertainty.[C]Proceedings of the 1997
Winter Simulation Conference, edited by S. Andradottir,K.J. Healy, D.H. Withers and B.L. Nelson, pp. 275-280
[10] McKay, M.D., Beckman, R.J., Conover, W.J.. A comparison of three methods for selecting values of input variables in the
analysis of output from a computer code. [J]Technometrics 1979 21 (2), 239245
[11] N. Cristianini and J. Shawe-Taylor AN INTRODUCTION TO SUPPORT VECTOR MACHINES(and other kernel-based
learning methods) Cambridge University Press, 2000
358
Fitting Analysis of the Airport Passenger Throughput Based
on Arima Model
Abstract The airport passenger throughput has been increasing fast in resent years in China. Its quite important for airline
companies and airports to study the throughput and accurately forecast the trend in the future. In this paper, ARIMA model is used to
study it and the applicability of the model is discussed. By the numerical example the course of fitting with ARIMA model is shown
and the steps of testing are given. The outcome shows that ARIMA model successfully describes the trend of the airport passenger
throughput.
Key words Airport passenger throughput, ARIMA model, Non-stationary time series
1 Introduction
With the rapid developing of economy in China, airplane is utilized more and more as an important transport
tool. In 2006, the passenger throughput of the capital airport amounted to be more than 48 million. Its about 20%
more than that in 2005. The rapid increasing of the airport passenger throughput brings much income to airline
companies and airports. But at the same time, it takes an enormous challenge to them because the scale of airport
must satisfy the requirement of the passenger throughput, and the scheduling of flights in airline companies must
adapt to the changing of the passenger throughput. Therefore, the status of the airport passenger throughput need
to be discussed and the trend need to be forecasted.
The airport passenger throughput has been studied in many articles. Similarly much research is on the
highway passenger transport volume, the power generation and etc. Some methods, such as artificial neural
networks [1, 2], Holt-Winters [3], wavelet analysis [4], grey method [5], and so on, are used in forecasting. But the
applicability of the methods in the research of the airport passenger throughput is in discussion. This may impact
the effect of the methods seriously.
In this paper, ARIMA model is founded to describe the changing of the airport passenger throughput and the
capital airport is taken as an example. Also the applicability of the model is discussed.
2 ARIMA Model
In 1970, Box and Jenkins proposed ARIMA model [6] (Autoregressive Integrated Moving Average) which is
applicable for the non-stationary time series. The principle of the model is as follows. At first it transforms the
non-stationary time series into stationary ones by differences for several times. Pricing and estimating parameters
for the stationary time series are following. Then the value of p and q are got and the time series can be fitted and
forecasted according to ARIMA (p,d,q) model. In essence ARIMA model is the same as ARMA model after
transforming the non-stationary time series into stationary ones. That is, the non-stationary time series
Yt {y1 , y 2 , y 3 } are transformed into the stationary ones Wt which adapts to ARMA(p,q) model by
differences, such as Yt = Yt Yt 1 Yt = (Yt ) = (Yt Yt 1 ) , and so on.
2
That is,
( B)Wt = ( B)et (2)
( B) = 1 1 B 2 B 2 q Bq (4)
40000.00
35000.00
Value
30000.00
25000.00
20000.00
15000.00
12 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 12 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 33 3 34 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 6
0 12 3 4 5 6 7 8 9 0 12 3 4 5 6 7 8 9 0 12 34 5 6 7 8 9 0 1 2 34 5 6 7 8 9 0 12 3 4 5 6 7 8 9 0
Case Number
The curve in Fig.1 shows the trend of ascending, and some samples make a great difference. Therefore, we
deal with the passenger throughput with the logarithm, and make the first difference. Then the outcome is shown
in Fig.2.
0.60
0.40
0.20
Value
0.00
-0.20
-0.40
-0.60
12 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 6
0 12 3 4 5 6 7 8 9 0 12 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 12 3 4 5 6 7 8 9 0 12 3 4 5 6 7 8 9 0
Case Number
Coefficient
1.0
Upper Confidence Limit
Lower Confidence
Limit
0.5
0.0
ACF
-0.5
-1.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Lag Number
Coefficient
1.0
Upper Confidence Limit
Lower Confidence
Limit
0.5
artial ACF
0.0
-0.5
-1.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Lag Number
In Fig.3 and Fig.4, its clear that the auto-correlation function and the partial auto-correlation function is
heavy-tailed. Therefore ARMA model is applicable. And also we can see that the value 1 and 2 are beyond the
confidence interval. Thus the value p and q cannot beyond 2. So well fit the time series with ARIMA (1,1,1),
ARIMA (2,1,1), ARIMA (1,1,2), ARIMA (2,1,2) separately. The best ARIMA model will be chosen and used to
forecast the passenger throughput.
Generally the method of judging models is to compare the value of AIC (Akaike's Information Criterion) and
BIC (Schwarz's Bayesian Criterion), and the value is smaller, the model fits better.
By comparing the outcome of the models, we find that the value of AIC and the BIC of ARIMA (1,1,1) is
smallest. And all statistics can pass t-test.
361
Tab.1 Residual Diagnostics
Value
Number of Residuals 59
Number of Parameters 2
Residual df 56
Adjusted Residual Sum of Squares 1.403
Residual Sum of Squares 1.718
Residual Variance .024
Model Std. Error .156
Log-Likelihood 26.572
Akaike's Information Criterion (AIC) -47.144
Schwarz's Bayesian Criterion (BIC) -40.911
1.0 Coefficient
Upper Confidence Limit
Lower Confidence
Limit
0.5
ACF
0.0
-0.5
-1.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Lag Number
362
1.0 Coefficient
Upper Confidence Limit
Lower Confidence
Limit
0.5
artial ACF
0.0
-0.5
-1.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Lag Number
In Fig.5 and Fig.6, the value of ACF and PACF of the residual series are all in the stochastic interval which
shows that the residual series is white noise series. It indicates that the difference of the fitting value of the model
and the original value is not significant.
The comparison of the fitting value by ARIMA (1,1,1) and the original value is shown in Fig.7.
45,00
40,00
35,00
Value
30,00
25,00
20,00
15,00
135 7 9 1 1 1 1 12 2 2 22 3 3 3 3 3 44 4 4 4 5 5 5 5 5
135791357913579 13579 13579
Case Number
In Fig.7, it shows that the trend of the fitting curve of ARIMA (1,1,1) is according with that of the original
value, and most of the points fit well. From the fitting value and the original value we get the error is 8.27%. That
is to say the model is quite accurate.
5 Conclusions
By analyzing the data of passenger throughput of an airline company in the capital airport, the ARIMA (1,1,1)
model is founded to fit the scale of passenger throughput in this paper. The model is quite simple for use and
reflects the fact well. So it could be used to schedule the flats and cost in airline companies and airports.
References
[1] Petrowski A. A pipelined implementation of the back-propagation algorithm on a parallel machine. Artificial Neural Network.
1991.
363
Xiao Bin, Liu Lu, Liao Cheng. Artificial Neural Networks Method for Predicting the Airport Passenger Throughput.
Aeronautical Computer Technique, 2000, 30(3):8-11.
[2] Li Xiaotong. Comparison of Holt-winters models and X-11 models in prediction. JOURNAL OF ZHANGJIAKOU
TEACHERS COLLEGE, 2006, 16(2):70-73. (in Chinese)
[3] Liang Qiang, Fan Ying, Wei Yiming. A long-term trend forecasting approach for oil price based on wavelet analysis. Chinese
Journal of Management Science, 2005, 13(1):30-36. (in Chinese)
[4] Jiang Zhihua, Zhu Guobao. Grey Model-GM (1, 1) and Its Application to Predicting Transportation Volume. Journal of Wuhan
University of Technology (Transportation Science & Engineering), 2004, 28(2):305-307. (in Chinese)
[5] Peter J B, Richard A D. Time series theory and methods (Translated by Zheng Tian). Beijing: Higher Education Press, 2001. (in
Chinese)
[6] Wei Xue. Methods and application of statistical analysis in SPSS. Beijing: Publishing House of Electronics Industry, 2004.
Voor D, Dougherty M, Watson S. Combing Kohonen maps with ARIMA time series model to forecast traffic flow.
Transportation Research Part C, 1996, 4(5):307-318.
Jiaxun Ni, Wei Yuan, Danhui Yi, and so on. Applied statistics. Beijing: China Renmin University Press, 1992. (in Chinese)
Cihua Liu. Stochastic process (the Second Edition). Wuhan: Huazhong University of Science and Technology Press, 2001. (in
Chinese)
364
Research on the Knowledge Reorganization Methods of
Emergency Plans
Abstract When emergencies break out, decision-makers should quickly get useful knowledge quickly for effective commands and
assignments. Emergency Plans usually can be the action plans or guidelines for quick responses to emergencies. So, if the emergency
plans could be decomposed, and reorganized into new knowledge according to the content of documents, we can supply relative
knowledge pieces to decision-makers. Absolutely, it will improve the ability of to emergency quick responses. For solving the
problems above, a comprehensive classification of emergency plans is proposed firstly in this paper. Then, we analyze the structure
of text, including the physical structure of text and the logical structure of text, and get the characteristics of the text structure on
emergency plans. At last, we do some research on the methods of knowledge reorganization on emergency plans based on different
levels, which include the classification of emergency plans, the physical structure of text and the logical structure of text. Using the
knowledge reorganization methods proposed in this paper, the objective of quickly obtaining the knowledge of emergency plans is
established.
Key words Emergency plans comprehensive classification, Physical text structure analysis, Logical text structure analysis,
Knowledge reorganization
1. Introduction
The frequent occurrences of emergencies bring much damage to society in recent years. For reducing the
losses to the most, working out correct emergency plans is imperative under such a circumstance. At present, the
research on the classification, constitution and dynamic management of emergency plans is earlier in foreign, and
the technique and methods in quick response is comparatively mature (Linet and Ediz,2004; Girgin and
Unlu,2005)[1][2]. In domestic, the research on emergency plans is becoming a new topic of general interest. A
survey for the Attention of Science Tendercy on Emergency Plans in cnki shows that the research on emergency
plans has ascended in line from the beginning of 2002 to the end of 2005.The research mostly focuses on the
classification (Wu Zongzhi and Liu Mao,2003)[3], constitution and management (Zhong Kaibin and Zhang
Jia,2006; Wang Ting and Huang Chao,2006; Liu Yongfa,2005)[4][5][6], formal description(Li Hongchen and Deng
Yunfeng,2006)[7] of emergency plans, and so on.
When emergencies break out, the decision-makers should quickly get the useful knowledge for effective
command-assignment. Emergency plans is the action plan, action guideline and action direction for quick
response to emergencies, they tell the answers to what is it, how to deal with it, who will execute it, when
will they do, what kinds of resources will be used, where are these resources and so on, in the process of
before, during, and after emergency. In critical condition, the knowledge should be got as soon as possible for
decision-making, such as a document, a definition, a clause, a flow or a technique. So, if the emergency plans
This research has been supported by National Natural Science Funds of China (No: 70571011, 70431001 ).
365
could be decomposed, and reorganized into new knowledge according to the content of documents, we can supply
the relative knowledge pieces to decision-makers. Absolutely, it will improve the ability for quick response to
emergencies.
For solving the problems presented above, a way of comprehensive classification is firstly presented in this
paper through integrating several existing classifications. Secondly, we will analyze the text structure of
emergency plans, including the physical structure and the logical structure of text, for getting the characteristics of
the text structure of emergency plans. Thirdly, we will discuss several methods of knowledge reorganization
based on different levels, which are the classification of emergency plans, the physical structure and the logical
structure of text. By using the knowledge reorganization methods, the objective of obtaining knowledge of
emergency plans is established. At last, the ability of quick response to emergencies is improved.
Analyzing several kinds of classification presented above, we find that all of emergency plans can be
classified into Natural Disaster, Industry Accident, Public Health Event and Social Security Incident emergency
plans, except for the master state and local emergency plans. For example, the Special State Emergency Plan can
be also classified into four kinds as shown in Fig.2. So, we cluster all levels master emergency plans, including
the state, local, into one separate class. Then, combining the way of classification presented in paper [6], we
366
classified emergency plans into five classes, which are Natural Disaster Emergency Plans, Industry Accident
Emergency Plans, Public Health Event Emergency Plans, Social Security Incident Emergency Plans and the
Master Emergency Plans, as shown in Fig.3. It is a good method to reasonably organize the emergency plans. At
the same time, the problems of isolation, intercross and contradiction among emergency plans could be also
avoided in a certain degree.
367
the same document, or distributed in different documents. Taking one section of the State Earthquake Emergency
Plans as example, the situation that interrelated paragraphs together demonstrate one subject is shown in Fig.5.
Documents
368
knowledge reorganization from different levels of the comprehensive classification, the physical text structure and
the logical text structure. Thereby, we can provide useful knowledge to the decision-makers for quick response to
emergencies.
4.1 Knowledge Reorganization Based on Classification of Emergency Plans
At the macro-level, we regard a whole document as the smallest knowledge unit. Actually, the classification
of emergency plans is a method of knowledge reorganization, which is called clustering reorganization. It is a
method that we can reorganize a mass of disperse, stochastic, out-of-order knowledge into a new knowledge
system using the way of classifying and clustering. And the reorganized knowledge can be orderly, effectively
used in that system.
By this way, all of the emergency plans are reorganized. We can quickly get the needed emergency plans that
relate to certain emergencies. But a whole document is regarded as the smallest knowledge unit, which is a way of
reorganization with coarse-grain. At critical situation, the decision-makers should quickly get the useful
knowledge pieces, such as a definition, a clause, a flow or a technique, not a whole document. So in order to
satisfy the knowledge that users need, we should reorganize knowledge in more deepen level.
4.2 Knowledge Reorganization Based on Physical Structure of Emergency Plans
We have analyzed the physical structure of emergency plans, and got the characteristics of them. At the
middle-level, one chapter, section or paragraph itself accounts for a clear subject, can be seen a single knowledge
unit. And we regard one paragraph as the smallest knowledge unit. Based on the classification of emergency plans,
we reorganize the knowledge according as the physical text structure of emergency plans. Then, the
decision-makers can get one or more chapters, sections, paragraphs which have natural clear subject in a whole
document, supporting higher-level decision-making for quick response to emergencies. We take the Operational
Mechanism of Master State Plan for Rapid Response to Public Emergencies as example for obtaining knowledge
nodes at different hierarchy, which are a definition, flow or a technique and so on, as shown Fig.6.
However, this kind of knowledge reorganization exists much defect .The retrieved knowledge is sets of
chapters, sections, paragraphs, texts in the document. It is lack of considering semantic relation among them. But,
the decision-makers usually need to know more concrete and detailed knowledge.
4.3 Knowledge Reorganization Based on Logical Structure of Emergency Plans
The text of emergency plan has its own traits in logical structure. In general, a clear subject is usually
explained by one or more paragraphs, which together consist of a knowledge piece according to their semantic
relation. The interrelated paragraphs may be distributed in different paragraphs of the same document, or
distributed in different documents. At the micro-level, we regard paragraph as the smallest knowledge unit based
on comprehensive classification and physical hierarchy division on emergency plans text. Through analyzing the
logical characteristics of text, the semantic relation among interrelated paragraphs is created. At last, the
knowledge is reorganized at the micro-level.
369
As we can see, the semantic relation among paragraphs is the most important in the process of knowledge
reorganization by the logical structural traits of text. So, how to create the semantic relation? Obviously, providing
what kind of knowledge is driven by the requirement of users. The answer of users question is sometimes the sets
of interrelated paragraphs-knowledge piece that have semantic relation in logic. And the questions are extracted
from the text of emergency plans. They are from the content of the text. So we can extract all the potential
questions from the emergency plans according to certain method. In terms of their attribute and category, the
questions are collected, reordered and reorganized. This is a method of reorganizing knowledge at the level of
logic. Using this method, the documents of emergency plans are transferred a knowledge system that the
decision-makers can use directly at the micro-level.
5. Conclusion
In this paper, a comprehensive classification of emergency plans is firstly presented. Then we concluded the
characteristic of text structure by analyzing the physical and logical structure of emergency plans. Finally, we
discussed the methods of knowledge reorganization on emergency plans based on different levels, which include
the classification of emergency plans, the physical structure of text and the logical structure of text. Using the
knowledge reorganization methods proposed in this paper, the objective of quickly obtaining the knowledge of
emergency plans is established, and the ability of quick response to emergencies is improved.
References
[1] Linet zdamar, Ediz Ekinci and Beste Kkyazici.Emergency Logistics Planning in Natural Disasters, Annals of Operations
Research, 2004, 129(4): 217~245
[2] S. Girgin, K. Unlu and U. Yetis. Use of GIS as a Supporting Tool for Environmental Risk Assessment and Emergency
Response Plans, Comparative Risk Assessment and Environmental Decision Making, 2005(38): 267~274
[3] Wu Zongzhi, Liu Mao. Gradation and Categorization System of Emergency Plan for Major Accidents and Their Main Contents,
China Safety Science Journal,2003(1):15~18(in Chinese)
[4] Zhong Kaibin, Zhang Jia. Discussion on Constitution and Management of Emergency Plans, Social Sciences of Gansu,
2006(3):240~243(in Chinese)
[5] Wang Ting, Huang Chao. Research on the Constitution of Serious Accident Plans for Police Officers, Journal of Jiangsu Police
Officer College,2006(5): 9~12(in Chinese)
[6] Liu Yongfa. Emergency Plans and Necessities for Constituting Emergency Plans, Disaster Reduction in China,
2005(19):33-35(in Chinese)
[7] Li Hongchen, Deng Yunfeng, Liu Yanjun. Formal Description of Emergency Plans, Journal of Safety Science and Technology,
2006,2(4):29~34(in Chinese)
[8] Wang Jian, Zhou Zhiying, Xiao Huiyong. The Design and Implementation of Structured Text Retrieval System, Engineering
and Application of Computer,2003(19):133~135(in Chinese)
[9] Liu Liyang. Data Mining and Knowledge Discovery in Database, Henan Radio Televition University, 2000(3):42~43(in
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Chinese)
[10] Losiewicz P, Oard D W, Kostoff R N. Textual Data Mining to Support Science and Technology Management, Journal of
Intelligent Information Systems,2000(15):99~119
[11] Xu Shudong. Knowledge Creation and Knowledge Reorganization, Journal of Information, 2002(6):24~25(in Chinese)
371
Relative Closeness Method for MAGDM with Heterogeneous
Information
Li Dengfeng
Department Five, Dalian Naval Academy, Dalian, Liaoning 116018, P. R. China
Abstract The aim of this paper is to develop a new methodology for fuzzy multi-attribute group decision making (FMAGDM)
with heterogeneous information. In this paper, different distances are used to measure difference between an alternative and the ideal
solution (IS) as well as the negative ideal solution (NIS). A new relative closeness (RC) method for FMAGDM is developed by
introducing the multi-attribute ranking index based on the particular measure of closeness to the IS. The RC method determines a
compromise solution, providing a maximum group utility for the majority and a minimum of an individual regret for the
opponent. Effectiveness of the method proposed in this paper is illustrated with a real example of the equipment system whole
alternative evaluation.
Key words Multi-attribute group decision making, Decision analysis, Linguistic variable, Fuzzy set
1. Introduction
Fuzzy multi-attribute group decision making (FMAGDM) problems are wide spread in real life decision
situations[1][2][3]. The evaluation of different alternatives often involves multiple decision makers (DMs) from
different areas with distinct knowledge and multiple attributes need to be taken into account. These attributes may
have different kinds of nature, either quantitative or qualitative, and assessment information provided by DMs can
be vague or uncertain[4][5]. Many aspects of uncertainties in this type of problems have non-probabilistic
characteristics since they are related to imprecision and vagueness in meanings. Therefore, linguistic descriptors,
such as likely and impossible, are used by DMs to describe an event. In such cases, the fuzzy linguistic approach
provides a systematic way to represent linguistic variables in a natural decision-making procedure[6][7][8]. It does
not require a DM to provide precise values of an alternative on qualitative attributes such as risk and reliability. So
it can be used as a complementary tool to classical methods to deal with uncertainty, and especially linguistic
information is suitable for representing attributes in situations which are too complex or too ill-defined to be
reasonably described in conventional quantitative expressions. Therefore, it is not uncommon that decision
frameworks for modeling these problems could be heterogeneous, namely, the assessments provided by DMs may
be measured in different formats such as real numbers and intervals for quantitative attributes and linguistic terms
and linguistic labels for qualitative ones according to DMs knowledge areas and the nature of evaluated attribute.
There exist several common-used methods such as the Technique for Order Preference by Similarity to Ideal
Solution (TOPSIS) developed by Huang and Yoon[6]. However, these methods can only deal with decision
problems with homogeneous information. In this paper, a new relative closeness (RC) methodology for solving
FMAGDM problems with heterogeneous information is proposed. In this methodology, different distances are
used to measure difference between an alternative and the ideal solution (IS) as well as the negative ideal solution
(NIS). The multi-attribute ranking index is introduced based on the particular measure of closeness to the IS,
which is developed from the weighted Minkowski distance used as an aggregating function in a compromise
programming method.
This research has been supported by National Natural Science Funds of China (Differential Game Theoretical Models of Fire Allocation for Warship Formation
and Decision System, No: 70571086).
372
( t = 1, 2, 3, 4 ), where Ot is an attribute set in which attribute function value is linguistic, fuzzy number, interval
value and real number, respectively.
Let z ijk be rating of x j ( j = 1,2, , n ) on oi ( i = 1,2, , m ) given by pk ( k = 1,2, , K ). Namely, z ijk
equals to aijk S k when oi O1 or (aijk , bijk , cijk , d ijk ) when oi O2 or [bijk , cijk ] when oi O3 or bijk R +
when oi O4 . Where S k = {s0k , s1k , , s gk k } is a linguistic term set given by pk ( k = 1,2, , K ), and the
semantics of each term s hk ( h = 1,2, , g k ) is given by a trapezium fuzzy number ~
shk = (ahk , bhk , chk , d hk ) defined
in the [0,1] interval. Then the above FMAGDM problem can be concisely expressed as Y k = ( z ijk ) mn
( k = 1,2,, K ), which is referred to as a fuzzy decision matrix usually used to represent the FMAGDM problem.
Let z = ( z1kj , z 2k j , , z mj
k
j
k T
) , which is sometime regarded as alternative x j .
Since the physical dimensions and measurements of m attributes are different, so the Y k ( k = 1,2, ,K )
need to be normalized using the following normalization method.
For ratings z ijk = aijk S k ( oi O1 ), multi-granular information need to be unified, i.e., experts preferences
must be transformed into a single linguistic term set that we call basic linguistic term set (BLTS) denoted by
S 0 = {c0 , c1 , , cT } . To do this, the granularity of the BLTS has to be as high as possible. Once the BLTS S 0
has been selected, the following multi-granular transformation function is applied to transform every
linguistic value into a fuzzy set defined on S 0 :
: S k F (S 0 )
( stk ) = { th / ch | th = max min{ s k ( y ) , ch ( y )}, h {0 ,1, , T }} ( stk S k )
y t
Where S k = {s0k , s1k , , s gk k } and S 0 = {c0 , c1 , , cT } with T g k , F ( S 0 ) is the set of fuzzy sets
defined on S 0 , and si ( y ) and ch ( y ) are the membership functions of the fuzzy sets associated to stk S k
and ch S 0 , respectively. Then z ijk = aijk S k is transformed into a fuzzy set
and
ai min = min{aijk z ijk = (aijk , bijk , cijk , d ijk ), ( j = 1,2, , n; k = 1,2, , K )} ( oi O2 )
In a similar way, rating z ijk = [bijk , cijk ] ( oi O3 ) is normalized as follows
where
ci max = max{cijk z ijk =[bijk , cijk ], ( j = 1,2, , n; k = 1,2, , K )} ( oi O3 )
and
373
bi min = min{bijk z ijk =[bijk , cijk ], ( j = 1,2, , n; k = 1,2, , K )} ( oi O3 )
and
bi min = min{bijk | j = 1,2, , n; k = 1,2, , K} ( oi O4 )
Thus, Y k ( k = 1,2,
, K ) is transformed into the normalized matrix, which can be concisely expressed as
R = (r ) mn . Denote r = (r1kj , r2kj , , rmjk ) T , which is sometime regarded as x j .
k k
ij j
k
using some fuzzy ranking method according to profit attribute and cost attribute, respectively, and denoted by
z ik +(aik + , bik + , cik + , d ik + ) . In a similar way, max{[bijk , cijk ] | j = 1,2, , n} ( oi O3p ) or
min{[bijk , cijk ] | j = 1,2, , n} ( oi O3b ) is computed using some interval number ranking method, respectively,
and denoted by z ik + = [bik + , cik + ] . max{bijk | j = 1,2, , n} ( oi O4p ) or min{bijk | j = 1,2, , n} ( oi O4b ) is
computed, respectively, and denoted by z ik + = bik + . Let z k + = ( z1k + , z 2k + , , z mk + ) T be attribute value vector of the
IS x k + . In a similar way, let z k = ( z1k , z 2k , , z mk ) T be attribute value vector of the NIS x k .
Step 2: Normalized each fuzzy decision making matrix. Y k , z k + = ( z1k + , z 2k + , , z mk + ) T and
z k
= (z , z ,
k
1
k
2 ,z ) k
m
T
( k = 1,2, , K ) are normalized using Eqs. (1)-(4), denote the normalized matrixes and
vectors as R , r k k+
= (r , r ,
1
k+
2
k+
,r ) k+ T
m and r k = (r1k , r2k , , rmk ) T .
Step 3: Determine the group attribute weight vector. Let ik be weight of attribute oi ( i = 1,2, ,m)
given by pk k = 1,2, , K . Then the group weight i
G
( i = 1,2, , m ) is a solution of the following
nonlinear programming problem
L m m
min{z = ( il iG ) 2 | iG = 1, iG 0, (i = 1,2, , m)} (5)
l =1 i =1 i =1
Using Lagrange function method, the optimal solution of Eq. (5) is derived as follows
L
iG = il / L (i = 1,2, , m) (6)
l =1
Step 4: Compute the distance between each alternative and the IS as well as MIS for each DM. Difference
between the normalized values rijk of x j and ri k + of x k + on oi O1 is described as a distance using
similarity measurement
1 (rijk , ri k + ) =| t ijk t ik + | / T (7)
Where
374
T T T T
t ijk = h ijhk / ijhk , t ik + = h ihk + / ihk + (8)
h=0 h =0 h=0 h =0
Obviously, 0 1 (rijk , ri k + ) 1 . The distance ( p -power of Minkowski distance) between the normalized
values of x j and x k + on all oi O1 is defined as follows according to Eq. (7)
1 p (rOk1 j , rOk1+ ) = (
oi O1
i
G
1 (rijk , ri k + )) p (9)
Obviously, 0 2 (rijk , ri k + ) 1 . The distance between the normalized values of x j and x k + on all
oi O2 is defined as follows according to Eq. (10)
2 p (rOk2 j , rOk2+ ) = (
oi O2
i
G
2 (rijk , ri k + )) p (11)
Obviously, 0 3 (rijk , ri k + ) 1 . The distance between the normalized values of x j and x k + on all oi O3
is defined as follows according to Eq. (12)
3 p (rOk3 j , rOk3+ ) = (
oi O3
i
G
3 ( rijk , ri k + )) p (13)
Using Eqs. (9), (11), (13) and (15), the distance between x j and x k + for pk is defined as follows
In a similar way, the distance between the normalized values of x j and x k on all oi O1 is defined as
follows
1 p (rOk1 j , rOk1 ) = (
oi O1
i
G
1 (rijk , ri k )) p (17)
where
T T
1 (rijk , ri k ) =| t ijk t ik | / T , t ik = h ihk / ihk (18)
h=0 h=0
The distance between the normalized values of x j and x k on all oi O2 is defined as follows
2 p (rOk2 j , rOk2 ) = (
oi O2
i
G
2 ( rijk , ri k )) p (19)
where
2 (rijk , ri k ) = p [( ik ijk ) p + 2( ik ijk ) p + 2( ik ijk ) p + (ik ijk ) p ] / 6 (20)
The distance between the normalized values of x j and x k on all oi O3 is defined as follows
375
3 p (rOk3 j , rOk3 ) = (
oi O3
i
G
3 (rijk , ri k )) p (21)
where
3 (rijk , ri k ) = p [( ik ijk ) p + ( ik ijk ) p ] / 2 (22)
The distance between the normalized values of x j and x k on all oi O4 is defined as follows
4 p ( rOk4 j , rOk4 ) = (
oi O4
i
G
4 ( rijk , ri k )) p (23)
where
4 (rijk , ri k ) =| ik ijk | (24)
Using Eqs. (17), (19), (21) and (23), the distance between x j and x k for pk is defined as follows
Step 5: Compute relative closeness degree of each alternative for each DM. Let
p (r k + ) = max{ p (r jk , r k + )} p+ ( r k ) = max{ p (r jk , r k )}
1 j n 1 j n
+ k+ , k (26)
p ( r ) = min1 j n
{ p (r jk , r k + )} p (r ) = min 1 j n
{ p (r jk , r k )}
p (r k + ) p (r jk , r k + ) p (r jk , r k ) p (r k )
p ( r jk ) = k + (1 k
) (27)
p ( r k + ) p+ (r k + ) p+ ( r k ) p (r k )
Where k [0,1] is a compromise coefficient, which may be regarded as a weight of decision strategy for
closing to the IS x k + . Obviously, 0 p (r jk ) 1 and the larger p (r jk ) , the better the alternative x j
(corresponding to r jk ) for pk . Let p (r jk ) denoted by pjk . Then relative closeness degrees of each x j for all
pk can be expressed concisely in matrix format as follows p = ( pjk ) K n .
Step 6: Compute weights of each DM. Using weights ik of oi i = 1,2, , m for each pk k = 1,2, ,K
and the group attribute weights i
G
in the Step 3, weights k
of each pk can be derived from the following
nonlinear programming problem
K m K
min{Q = [k ( ik iG )]2 | k = 1, k 0, (k = 1,2, , K )} (28)
k =1 i =1 k =1
Using Lagrange function method, the optimal solution of Eq. (28) is derived as follows
K m m
k = { [ (ik iG ) 2 / (lt lG ) 2 ]}1 (29)
t =1 i =1 i =1
Step 7: Compute relative closeness degree of each alternative. Let p+ = ( p+1 , p+2 , , pK
+
) T and
p = ( p1 , p2 , , pK
) T be relative closeness degree vector of the IS x + and NIS x , respectively, where
pk+ = max{ pjk | j = 1,2, , n} and pk = min{ pjk | j = 1,2, , n} ( k = 1, 2, , K ).
The distance between x j ( j = 1, 2, , n ) and x + as well as x is defined as follows
K
p (x j , x+ ) = p [ (
k =1
k +
pk pjk )] p , (30)
Let
p ( x + ) = max{ p ( x j , x + )} p+ ( x ) = max{ p ( x j , x )}
1 j n 1 j n
+ + , (31)
p ( x ) = min
1 j n
{ p ( x j , x + )} p ( x ) = min
1 j n
{ p ( x j , x )}
376
In a similar way to Eq. (27), relative closeness degree of alternative x j is defined as follows
p ( x + ) p ( x j , x + ) p ( x j , x ) p ( x )
p (x j ) = + (1 ) (32)
p ( x + ) p+ ( x + ) p+ ( x ) p ( x )
Where [0,1] is an coefficient. Obviously, 0 p ( x j ) 1 and the larger p ( x j ) the better x j .
Ranking order of all x j ( j = 1,2, , n ) is generated according to the decreasing order of p ( x j ) and the
optimal alternative of the group is obtained.
4. A Real Example
Consider a real problem of the equipment system whole alternative evaluation. In this problem, there exists a
group of three experts (or DMs) which has to choose one best alternative from three alternatives to be
demonstrated on equipment systems based on a two-level attribute system. In this attribute system, there exist 14
attributes in first level such as airspace, target, maneuverability, C3I and developing risk and 39 attributes in
second level such as maximum and minimum combat height, radar echo area, velocity, working environment and
technology risk. Data information is omitted.
Using the RC method, alternative x2 is selected as the best one for the group and ranking order of three
alternatives is x2 x1 x3 . Computation in detail is omitted.
5. Conclusion
There exist lots of FMAGDM problems with homogeneous information which may be expressed in different
formats such as real numbers, intervals, linguistic terms and linguistic labels according to DMs knowledge areas
and the nature of evaluated attribute. Such problems is solved using the new RC methodology of compromise
ranking developed by introducing the multi-attribute ranking index based on the particular measure of closeness to
the IS. The RC method determines a compromise solution, providing a maximum group utility for the
majority and a minimum of an individual regret for the opponent. The implementation process,
effectiveness and feasibility of the RC method proposed in this paper are illustrated with a real example of the
equipment system whole alternative evaluation. It is expected that the RC method can be applied to many fields
such as management and military.
References
[1] Chen C. T. Extensions of the TOPSIS for group decision-making under fuzzy environment. Fuzzy Sets and Systems, 2000, 114:
1-9
[2] Hwang C. L., Yoon K. Multiple Attributes Decision Making Methods and Applications. Berlin Heidelberg: Springer, 1981
[3] Li Dengfeng, Yang Jianbo. Fuzzy linear programming technique for multiattribute group decision making in fuzzy
environments. Information Sciences, 2004, 158: 263-275
[4] Li Dengfeng. An approach to fuzzy multiattribute decision making under uncertainty. Information Sciences, 2005, 169 (1-2):
97-112
[5] Martnez L., Liu Jun, Yang Jianbo, Herrera F. A multi-granular hierarchical linguistic model for design evaluation based on
safety and cost analysis. International Journal of Intelligent Systems, 2005, 20(12): 1161-1194
[6] Opricovic S., Tzeng G. -H. Compromise solution by MCDM methods. European Journal of Operational Research, 2004, 156
(2): 445-455
[7] Wang R.-C., Chuu S.-J. Group decision-making using a fuzzy linguistic approach for evaluating the flexibility in a
manufacturing system. European Journal of Operational Research, 2004, 154 (3): 563-572
[8] Zadeh L. A. Toward a generalized theory of uncertainty (GTU) An outline. Information Sciences, 2005, 172: 1-40
377
A Maxmin Model for Allocating the Fixed Cost Based upon DEA
Abstract Based on DEA (Data Envelopment Analysis), this paper has studied how to allocate the fixed cost among decision
making units (DMUs) in a reasonable way. It has proven that all DMUs can be DEA efficient if the allocated cost is treated as an
additional input in efficiency measurement. Based upon this conclusion, a maxmin allocation model is proposed in a global
perspective, which uses a set of common weights to search the DMU with the minimum allocated cost step by step until there is no
flexibility space in allocating the fixed cost for any DMUs. It is followed by a comparison to traditional approaches.
Key words DEA, Cost, Allocation, Maxmin
1. Introduction
Data envelopment analysis (DEA) has been proven an effective tool for performance evaluation and benchmarking,
since it was first introduced by Charnes et al. (1978). Recently, one of most important applications of DEA technique is
to allocate the fixed cost among peer decision making units (DMUs). Cook and Kress (1999) first make a try to solve
the problem under DEA structure. In their approach, they presume that the allocated cost can be seen as a new input
measure to all DMUs. Then according to the two principles: efficiency invariance and Pareto-minimality, the
equitable allocation is achieved by solving several linear programming problems. However, in the general case,
their approach relies on finding a single efficient DMU e.g. via a cone-ratio (Charnes et al. 1990) approach. Based
upon Cook and Kress theoretical foundation, Cook and Zhu (2005) extend the approach to other DEA models
(CCR, BCC) with input and output orientations, and give a feasible (but not optimal) cost allocation.
With the same assumption of treating the allocated cost as a new input, Beasley (2003) provides an
alternative DEA-based cost allocation approach by maximizing the average efficiency across all DMUs and
adding additional constraints and models to obtain a unique cost allocation. However, two shortcomings exit. One
is that the proposed model, a non-linear programming, causes a bit computational difficulties for decision makers.
The other is that it may be difficult in allocation operation, since there is a huge gap between the minimum
allocated cost and the maximum one.
The reminder of this paper is organized as follows. The next section develops models for characterizing and
measuring the efficiency of each DMU taking into account its allocated cost. It is followed by that the proof that
all DMUs can be DEA efficient. Then, based upon the conclusion, a Maxmin model is proposed in Section 3. In
section 4, the obtained allocation is compared to traditional approaches in rationality and allocation operation
perspective. Conclusions and directions for future research are given in the last section.
2. Efficiency evaluation
Suppose we have n independent homogeneous decision making units, where each DMU j ( j = 1, 2, , n )
consumes m inputs xij , i = 1,2,..., m to generate s outputs y rj , r = 1,2,..., s . A cost R is to be distributed
n
among n DMUs. And the allocated cost to DMU j is denoted as R j , R
j =1
j = R . Considering the allocated
cost, here, we use the following model to evaluate the relative efficiency of DMU 0
s
u r yr 0
Max m
r =1
= E0
vi xio + R0
i =1
This research was supported by the National Natural Science Foundation for Distinguished Young Scholars of China under Grant 70525001.
378
s
s.t. u r y rj
j (1)
m
r =1
1
v x
i =1
i ij + Rj
R
j =1
j =R
u r , vi , Ri 0, r , i, j
where E 0 is denoted as the relative efficiency of DMU 0 . On this definition of relative efficiency, refer to
Beasley (2003), it has explicitly set weight factor of the allocated cost to one for simplicity.
Theorem 1: Each DMU from model (1) can be DEA efficient.
Proof: Consider equations as follows:
s
u r y rj
j = 1, 2,..., n (2)
m
r =1
=1
v x
i =1
i ij + Rj
R
j =1
j =R
u r , vi , Ri 0, r , i, j
Apparently, the feasible solutions to equations (2) are not only feasible, but also optimal ones to model (1).
Therefore, if equations (2) have feasible solutions, then all DMUs can be DEA efficient.
n n
Let vi = 0, i ; u l = R / y lj , l {1,2,..., s}, u r = 0, r l ; R j = R y lj / y lj , j , then
j =1 j =1
s n
u r y rj y lj R / y lj
u l y lj
= 1 , j=1,2,,n
j =1
Ej = m
r =1
= = n
Rj
v x
i =1
i ij + Rj R y lj / y lj
j =1
n n n
R
j =1
j = R y lj / ylj = R
j =1 j =1
u r , vi , Ri 0, r , i, j
n n
Thus, vi = 0, i ; u l = R / ylj , l {1,2,..., s}, u r = 0, r l; R j = R ylj / ylj , j is a feasible
j =1 j =1
solution to equations (2), which means all DMUs from model (1) can be DEA efficient.
3. Maxmin-allocation model
Let consider the following model:
Max min R j
u ,v 1 j n
s m
s.t. R j = u r y rj vi xij , j = 1, 2,..., n (3)
r =1 i =1
Rj =1
j =R
u r , vi , R j 0 , r , i, j
379
s m
From the equations (2), the allocated cost of DMU j can also be expressed as R j = u r y rj vi xij ,
r =1 i =1
j = 1, 2,..., n . And model (3) has two multiple objective functions. However, if let min R j = , the model (3)
1 j n
s m
s.t. R j = u r y rj vi xij , j = 1, 2,..., n (4)
r =1 i =1
R
j =1
j =R
R j , j = 1,2,..., n
u r , vi , R j 0 , r , i, j
Algorithm for getting the Maxmin-allocation
Step 1: Let l = 1 , solve model (4) to get the optimal solutions 1 , u1r , v1i , R1 j , r , i, j ; All DMUs can be
* * * *
s m
s.t. R j = u r y rj vi xij , j J 2l 2 (5)
r =1 i =1
s m
R j = u r y rj vi xij = 1* , j J 1
r =1 i =1
s m
R j = u r y rj vi xij = 2* , j J 2l 3
r =1 i =1
R j , j J 2l 2
n
R j =1
j =R
u r , vi , R j 0 , r , i, j
Denote the optimal solutions to model (5) as l* , u lr* , vli* , Rlj* , r , i, j . Then, J 2l 2 can be divided into two
subsets:
J 2l 1 = { j Rlj* = l* , j J 2l 2 }
380
R *j = 1* j J1
*
optimal allocation is R = 2
*
j J 3 where k* > k*1 > ... > 1* .
( R1* , R2* ,..., Rn* ) = j
R *j = k* j J 2 k 1
Deduction 1 > > ... > and u kr , v ki , Rkj , r , i, j are also optimal solutions to model (4).
* * * * * *
k k 1 1 ,
Deduction 2The optimal allocation is unique. (from the computing procedure, it is easy to know)
The common weights can be denoted as r* = u kr* , i* = v ki* , r , i , then the optimal allocated cost can be
s m
express as R j =
*
r* y rj i* xij , j J . The proposed approach can have following properties:
r =1 i =1
The property shows that, with the same input profiles, the DMU with higher output profiles will afford more.
Property 2. To any two DMUs, such as DMU l and DMU k l , k {1,2,..., n} if
xil xik , i = 1,2,..., m, y rl = y rk , r = 1,2,..., s , then Rl* Rk* .
The proof is similar to that of Property 1.
It shows that, with the same output profiles, the DMU with lower input profiles will afford more.
4. Allocation Comparison
In this section, we illustrate the proposed method for the cost allocation problem using the same data set in
Table 1 as was given in Cook and Kress (1999). It involves 12 DMUs, 2 outputs and 3 inputs with R=100.
Table 1 Data sample
DMU Input 1 Input 2 Input 3 Output 1 Output 2
1 9 39 350 67 751
2 8 26 298 73 611
3 7 31 422 75 584
4 9 16 281 70 665
5 6 16 301 75 445
6 17 29 360 83 1070
7 10 18 540 72 457
8 5 33 276 78 590
9 5 25 323 75 1047
10 6 64 444 74 1072
11 5 25 323 25 350
12 6 64 444 104 1199
381
Step 3: Let l=2, run model (5) and so on,
Step 12: J 212 1 = {12} , J 212 = , then computing procedure stops. The optimal solution 12* = 13.562 .
*
The allocated cost to each DMU j is doneted as R j , as given in second column of Table 2. In order to
make comparison to traditional approaches, for simplicity, we denote the allocation results based upon Cook and
CK B
Kress (1999), Beasley (2003) as R j , R j respectively.
more, another DMU pairs, such as DMU10 and DMU12 have similar relationship as compared to
DMU 9 and DMU 11 , for X 10 = X 12 , Y10 < Y12 . As from the results of Cook and Kress (1999),
R10CK = R12CK = 10.08 , While from our approach, we have R10* = 12.125> R12* = 13.562. Therefore, Our approach
has this property (Property 1), while Cook and Kress (1999) does not.
Since Beasleys results shows R9 = 15.11 > R11 = 1.58, R10 = 10.08<R12 = 13.97 , so his approach is
B B B B
similar to ours for that property. However, the ratios between the allocated costs of DMU pairs are different. For
example, from Beasleys results, R9 / R11 = 15.11/1.58 = 9.5633 , while from our model,
B B
R9* / R11* = 11.843/3.9588 = 2.9916. Apparently, The ratio based upon Beasleys approach is bigger than ours.
Let take a look at the ratios of output profiles of DMU pairs, it shows that Y9 / Y11 = 75 / 25 1047 / 350 3 .
Therefore, Our approach has some advantage in fixed cost allocation operation, as compared to Beasleys.
5. Conclusion
In this paper, we put forward a DEA-based approach for fixed cost allocation problem. By the comparison of
numerical example, it shows that proposed method is relatively reasonable and executive as compared to the
traditional approaches. Possible further research is to take into account the competition among the various DMUs.
Therefore, using the integration of DEA and Game Theory to solve the problems will be remarkable for further
studies.
382
References
[1] Charnes, A., Cooper, W.W., Rhodes, E. Measuring the efficiency of decision making units. European Journal of Operational
Research 1978; 2: 429444.
[2] W.D. Cook, M. Kress, Characterizing an equitable allocation of shared costs: A DEA approach, European Journal of
Operational Research 119 (1999) 652661.
[3] A. Charnes, W.W. Cooper, D.B. Sun, Z.M. Huang. Polyhedral cone-ratio DEA models with an illustrative application to large
commercial banks[J]. Journal of Econometrics, 1990, (46): 7391.
[4] Wade D. Cook, Joe Zhu, Allocation of shared costs among decision making units: a DEA approach, Computers & Operations
Research 32 (2005) 21712178
[5] J.E. Beasley. Allocating fixed costs and resources via data envelopment analysis [J], European Journal of Operational Research
147 (2003) 198216
383
Empirical Analysis on the International Competitiveness of
China Telecommunication Operators
Abstract This paper aims at setting up one suite of evaluation indicator system which is objective and quantifiable from the view
of financial report information disclosure for further analysis and utilization. Furthermore, the international competitiveness of
selected typical operators will be analyzed in order to evaluate the competitiveness of China major operators and to find the gaps and
disadvantages. Also the bottle-neck of the competitiveness will be described so as to dig out the root reasons and the way for
improvement.
Key Words Telecommunication Operators, International Competitiveness, Competitiveness Analysis
1. Introduction
In the year of 2002, the split of original China Telecom by northern and southern is a milestone which
indicates China telecommunication market has stepped into one new scenario of competition by six major
operators which include China Telecom (CT), China Mobile (CMCC), China Netcom (CNC), China Unicom
(CU), China SATCOM (CSC) and China Railcom (CRC). According to the WTO agreements, this market will be
opening to outside world step by step. The foreign capital will enter the value added telecommunication market
even the telecom infrastructure. The huge potential of Chinese market makes China will definitely be the
destination of the major telecommunication operators all over the world. The foreign operator with abundant
capital will first enter the most profitable city and most likely they will build up the partnership with local
operators which will cause more heavy competition environment for other local operators. So the competitiveness
analysis of local operators is the high priority of the management team as well as the telecom industry surveillance
department.
2. Literature review
Among the research of the competitiveness analysis, the most effective one is the International
Competitiveness Analysis (WEF and IMD, 1980). Based on competitiveness theory research, this analysis has
built up the total quantitative appraisal index system.
Since 1990, some scholar start to research the reform of China Telecommunication industry and the research
was focused on how to break the exclusive monopoly situation and bring up the competitive environment as well
as to split the original China Telecom in order to construct other new operators. Nowadays, the development of
China telecommunication industry under the market competition environment becomes the new focus of the
scholars and the research will follow two prospective. First, from the industry point of view, the research will
focus on the introduction of reforming experience of western developed countries and the solution for China based
on Chinas specific situation. The other way, from the view of the enterprise, the scholar will focus on the
marketing, competitiveness and management style. Beside these, there is very little research on the competency
indicator system of telecommunication enterprises. In recent years, some scholars have turned their direction to
competitiveness research. Summing up their views, the indicators for positioning operator normally include the
following items, market share and leadership of the market, the influence to the market, the development and
transformation of the new technology, the effective distribution of the telecom resources including external and
internal resources, the positioning for HR input and output, capital operation capability, integrated international
This research has been supported by National Natural Science Funds of China (Capability of Logistic Enterprises Facing to Supply Chain
Competition,NO:70472002)
384
competency represented by this company, service accepted level and the internal governance integrity.
Based on the above summary, we can say that current study has never setup the analysis system of the
international competitiveness of telecommunication operators from the view of financial report utilization .This
paper will focus on this based on abundant data source and setup this system which is objective, quantifiable from
the view of financial report information disclosure.
operators
4.1 Original data sample of telecommunication operators
This paper takes CT, CMCC and CU as the target for China telecommunication operators international
competitiveness analysis since they are most typical operator in China. Among them, CT is the largest fixed line
operator while CMCC is the largest mobile operator of China. CU is the only integrate telecommunication
operator in China with all kinds of service licenses. Several international operators were taken into account for
comparison such as Verizon, Vodafone, BT and NTT. The following calculation is based on the company annual
financial report of 2004 and 2005.
4.2 The comparison for the international competitiveness of operators by each indicator
Since it is very difficult to collect the original data and the report currency unit of each company is not the
same, this paper use Million US$ as the standard for calculation.
4.2.1 The comparison of operator scale is shown as the Fig.1, Fig.2 and Fig.3.
385
Total Asset 2004
100000 Operating Income 2004 Total Asset 2005
90000 Operating Income 2005 300000
80000 250000
70000
60000 200000
50000 150000
40000
100000
30000
20000 50000
10000
0
0
on
V e
CU
CT
od T
CC
TT
on
CU
CC
n
ne
CT
BT
TT
iz
izo
fo
af
N
CM
er
CM
N
er
a
od
V
V
10000
Total Fixxed Asset 2004
Total Fixed Asset 2005
5000
300000
250000 0
200000
n
e
CU
CT
BT
CC
TT
on
o
-5000
iz
af
N
150000
CM
er
od
V
100000
-10000 V
50000 Net Profit 2004
0 -15000 Net Profit 2005
on
V e
CU
CT
od T
CC
TT
on
B
iz
af
-20000
CM
er
V
For the comparison of company scale, Vodafone is several times as CMCC and the scale of the other foreign
operator are far more beyond China operators expect BT. The operating income of domestic enterprises are far
more behind foreign operators. The fixed asset of BT is on the same level with China operators but the Verizon
and NTT are several times of that. In short, the scale of domestic operators is still very small compare to foreign
operators even the total scale of all three domestic operators is less than half of the NTT. One of the reason is
China modern telecommunication only has 50 years history while US operators has more than 100 years history.
The other reason is that foreign operators expand fast through acquisition and capital operations. Vodafone is not
recognized by the world until the US$120B merge with Mannesmann. International operation is also one major
reason for this kind of huge scale. For instance, Vodafone has subsidiaries in 29 countries.
4.2.2 The comparison of enterprise profitability is shown as the Fig.4, Fig.5, Fig.6 and Fig.7.
386
Return on Total Sales 2004(%)
Return on Total Sales 2005 (%) Return on Total Asset 2004(%)
n
V e
CT
od T
TT
on
izo
B
CM
-10.00%
N
af
er 0.00%
V
-15.00%
CU
CC
n
V e
CT
od T
TT
-5.00%
on
izo
B
CM
-20.00%
N
af
er
V
-25.00% -10.00%
Fig.5 Return on Total S ales Fig.6 Return on Total Asset
Comparison Comparison
Total Subscriber
160 2004(M )
60% EBITDA 2004(%) Total Subscriber
140
EBITDA 2005(%) 2005(M )
50%
120
40% 100
30% 80
60
20%
40
10%
20
0% 0
n
e
CU
CT
BT
CC
TT
on
n
e
CU
CT
BT
CC
TT
on
iz
o
af
N
CM
iz
er
af
N
CM
od
er
V
od
V
V
From the data we can see that CT, CMCC has higher net profit, return on total assets and EBITDA rate than
four foreign operators. The return on total assets of China Mobile in 2005 was 10 times of NTT. The return on
total sales is also far beyond many foreign operators except CU while the gap is not very wide. However, if
careful study, the reasons for such high profit margins of domestic enterprises, is not so optimistic. One very
important reason is that China has no fully open and competitive markets. All the operators are still large
state-owned enterprises with the uniform fee system. Profitability therefore could not directly reflect the overall
competitiveness. In contrast, facing the increasing pressure from foreign operators, domestic enterprises should
improve their internal and competitive edge, in addition to cultivating their own advantages other than cheap
human capital. This can improve their overall competitiveness.
4.2.3 The comparison of Operation Ability is shown as the Fig.8 and Fig.9
387
Operating Expenditure
ARPU 2004($) Percentage 2004
140.00% Operating Expenditure
450.00 ARPU 2005($) Percentage 2005
400.00 120.00%
350.00 100.00%
300.00 80.00%
250.00 60.00%
200.00
40.00%
150.00
20.00%
100.00
0.00%
50.00
on
V e
CU
CT
BT
CC
TT
0.00
on
iz
af
N
CM
er
od
CU
V
CC
n
ne
CT
BT
TT
izo
fo
CM
N
er
a
V
V
The total number of subscribers of three China operators is far more beyond foreign operators except CU
slightly lower than Vodafone. China operators have large-scale users and the total number of subscribers of the
three companies has reached 100 million in 2005. CMCC has the most subscribers among those seven. It is
mainly because China is a country with a large population and owns the world's largest telecommunications
market. But the indicators reflect ARPU is not optimistic compare to the situation. The ARPU of China operators
is at the lowest level compared with foreign operators. China Telecom's ARPU is only US$4.8 in 2005, less than
one-tenth of the foreign enterprises. One of the reasons is that China is a low-income country with very low GDP
per capita. But the other main reason is lack of commercial users.
4.2.4 The comparison of management level is shown as the Fig.10, Fig.11 and Fig.12
2.00 0.7
0.6
1.50
0.5
1.00 0.4
0.3
0.50
0.2
0.00
0.1
CU
CC
n
e
CT
BT
TT
on
izo
0
CM
N
af
er
od
V
V
CU
CC
n
e
CT
BT
TT
on
izo
CM
af
N
er
od
V
V
The data shows the first two indicators have no much more difference from the foreign operators but labor
productivity is relatively far behind. In recent years, most of the large telecommunications companies started to
reduce costs by reduce the number of employees. Till 2004, British Telecom (BT) has reached a total of 13,000
layoffs and nearly one-third of the company's call center was closed. Before the merger, AT&T wireless
announced in 2003 to implement cost reduction programs and planed to cut about 1,000 staff, equivalent to 3% of
388
the total employee.
As shown in the Tab.2, from 2002 to 2004, the communications giant NTT company labor costs has a visible
downward trend in contrast to the CMCC and CU which has a rising labor expenditure. However, the per capita
labor costs are still low compare to foreign operators. This is definitely the major reason why China operators
could survive with such a low level productivity. With the economic globalization, all countries will gradually
come to the same per capita labor costs. China will no longer have this advantage so increase the labor
productivity is critical for the sustainable development of China operators.
4.2.5 The comparison of Technology level is shown as Fig.13
As shown in the Fig.13, CMCC and CU have a slightly lower technology-intensive than foreign operators but
CT has a larger gap. This is not due to China operators not attach importance to the development of technology,
but little input- output. China operators attach great importance to the pursuit of new technologies, focus on the
expansion of scale, for foreign operators the focus of technology is the stability and integrated network. In this
regard our operators should strengthen mutual cooperation and avoid wasteful duplication of resources and
increase input-output.
0.40
0.30
0.20
0.10
0.00
CU
CC
n
ne
CT
BT
TT
izo
fo
CM
N
er
a
od
V
V
389
We assume the original data matrix is
( )
X = X ij mn . (1)
During the analysis, m=7, Representing number of sample enterprises; n=13, Representing number of
indicator.
After treatment, we assume the data matrix still is X = X ij mn ( ) (2)
X ij
i =1
(3)
5.2.3 Calculate the weighting of index j
The Entropy value of index j:
m
e j = ln (1m ) Pij ln Pij
i =1 (4)
Difference coefficient of index j:
g j = 1 ej (5)
gj
The weighting of index j: w j = n (6)
gj
i =1
5.2.4 Calculate Enterprise Comprehensive International Competitiveness Indicator Value under Entropy
weighting method:
n
vi = w j Pij
j =1
(7)
5.3 Results
The calculation results are shown as Tab.3.
It can be seen that there is not a big change in the ranking of the overall capacity of the seven sample
operators in 2004 to 2005. Vodafone was ranked first in two years, scoring over many domestic operators from
the ranks. British Telecom declined from 3 to 6. In general, the domestic operators are ranked lower than foreign
operators, China Unicom ranked last. The top four, except NTT which is all service operator, all the other three
are mobile operators and this indicate that mobile communication operators are more competitive than fixed line
operators.
6. Conclusion
In general, the telecommunication is still one weak industry in China. The opening of the market brings us
the opportunities as well as the threat. The limitary opening is very benefit to the foundation of the effective
390
competition. And this is the key for the deeply reform of China telecommunication industry through building up
the modern enterprise system. At the same time, the introduction of modern management philosophy will
accelerate the internationalism of China operators. On the other hand, we will be ready for the potential threats
such as loss market share, brain drain, etc. There are some other issues which we have to take into account that the
protective policy from government will be declined and cancelled finally which means the domestic operators
have to increase its own competitiveness for the upcoming threat and competition.
Based on the above analysis plus the development of world telecommunication industry, the competition
environment for China operators is very tough. With the decreasing or disappearing of the policy of state support
gradually, China telecommunication operators must take precautions, through the study of foreign enterprises in
personnel, capital, and operating management experience, taking effective measures to enhance their
competitiveness and to ensure that enterprises have sufficient strength to meet the challenge of foreign operators.
References
[1] Cang Jigang. The research on China telecommunication operator competitiveness. Wuhan: Wuhan University Press, 2005.
[2] Zhou Yonghe. The research on China mobile telecommunication operators competitiveness. Heilongjiang: Heilongjiang
University Press, 2005.
[3] Li Guang. The research on competitiveness evaluation indicator system of the 21 century enterprise. Productivity
research,2000,6:137-138
[4] He Chao, Feng zongxian.The analysis on international competitiveness of China telecom business. Journal of Shanxi business
school, 2002,15(2):24-27
[5] Liu Zhongmin. The research on evaluation and application of enterprise competitiveness. Ms D Thesis. Liaolin: Liaolin
engineering and technology university,2004
[6] Gao Yinzi. The construction of telecom enterprise competition model and Quantitative indicator system. Ms D Thesis. Beijing:
Beijing University of Posts and Telecommunications,2003
[7] China telecom industry analysis report. http://www.cei.gov.cn/,2005
[8] China telecom industry analysis report. http://www.cei.gov.cn/,2006
391
An Improved Approach to Conjoint Analysis for the
Complex Decision-Making
Abstract The classical conjoint analysis (CA) has three drawbacks in computing preference values of the evaluated objects.
Firstly, the three estimation methods of profile utilities may be invalid. Secondly, the three methods do not well reflect inherent
interactive relations of complex systems. Thirdly, CA does not consider inaccurate characteristic of evaluators judgments. Therefore,
conclusions made by the classical CA are probably incorrect. To overcome these three drawbacks, according to the thought of the
meta-synthesis from qualitative analysis to quantitative analysis of complex system theory, and based on the theory of the technique
of fuzzy neural network, the improved approach to CA for the complex decision-making is presented. The numerical demonstration
verifies that the developed approach is able to obtain rank of evaluated objects much closer to the real, and proves to be more
reasonable than the classical CA.
Key words Complex system, Conjoint analysis, Fuzzy neural network, Evaluated object
1. Introduction
Conjoint analysis (CA) which was called conjoint measurement is an approach for evaluating system
problems by using multivariate statistical analysis (Luce and Tukey, 1964)[1]. It is mainly used to infer valuators
profile utilities and attribute utilities of evaluated objects (EO). CA has widely been used in various fields, such as
marketing analysis, R&D of new products, projects selection (Lee, Cho and Lee, 2006; Rohae, 2003; Probert,
Dawson and Cockrill, 2005; Pullman, Moore and Wardell, 2002; Sethuraman, Kerin and Cron, 2005)[2][3][4][5][6].
Least squares (Shen and Ke, 1998)[7], LINMAP (Misha and Umesh, 2005)[8], MONANOVA (Noguchi and
Ishii, 2000)[9] are the currently primary estimation methods of profile utilities (EMPU). Viewing from the
principles of estimating profile utilities, the theoretical foundation of least squares, LINMAP, MONANOVA is
linear regression, linear programming and variance analysis, respectively. The three methods assume profile
utilities meet presumptive formulae. Then using preference scores given by evaluators to fit the formulae (i.e.,
least squares, LINMAP) or directly using the formula and scores to compute (i.e., MONANOVA), so profile
utilities of EOs are generated. It is highlighted that the formulae are employed to approximately reflect
mechanisms of systems. However, although the approach of fitting formulae bases on statistical theory, issues that
the presumptive formulae can not pass statistical tests and EMPUs are invalid will appear. Directly compute
profile utilities betaking the formula will result in an issue that conclusions derived are unreliable, because of the
unreasonably presumptive formulae. The reason that engendering the above issues is, problems that CA
researches on almost are decision-making problems of complex systems which possess the non-linearity,
emergence and semi-structured characteristics (Gentil and Montain, 2004)[10]. Considering mechanisms of
complex systems are difficult to identify, so it is generally hard for valuators to presume similar modality of
presumptive formulae to systematic inherent rules. In addition, preference scores given on the basis of subjective
judgments are inaccurate. But in the light of CAs principle, valuators should present determinately numerical
judgments which are obviously contradictive to really subjective judgments of them. For overcoming the issues
and validly calculating profile utilities of EOs, through using the complex system theorys thought of
meta-synthesis from qualitative analysis to quantitative analysis for reference (Gu and Tang, 2005) [11] and
introducing the technique of fuzzy neural network (FNN), an improved approach to CA for complex
decision-making is developed in this paper.
The subsequent structure of the paper is as follows. In section 2, CA is briefly introduced and the drawbacks
of CA are analyzed. Section 3 develops the improved approach to CA for complex decision-making. Then, the
This research has been supported by National Natural Science Funds of China (Research on a Semi-Empirical and Semi-Theoretical Analytic Hierarchy
Approach of Exceeding AHP/ANP, No: 70471015) and Innovation Foundation of Jilin University (No: 2004gl1).
392
numerical analysis is conducted in section 4 to demonstrate the developed approach is effective and scientific. The
paper concludes with final remarks in section 5.
combinations of different attribute-levels as virtual EOs (VEO). (3) Inviting valuators to evaluate VEOs and
present their preference scores by employing sequencing method or scoring method. And scoring method is more
popular, which includes Likert scale and 1 to 100 likelihood-of-acquisition scale. (4) Selecting one of EMPUs. (5)
Calculating profile utilities of EOs.
Least squares of EMPUs is in common use (Dahan and Scinivasan)[14]. The principle of it to calculate profile
utilities is additive model. Namely,
P
U = v pq p x pq p (1)
p =1
In formula (1) and (2), Y donates preference scores of EOs, a denotes the intercept of fitting function. x pq p
stands for dummy variables of different attribute-levels, x pq p =1 when z pq p appears, otherwise, x pq p =0. And
v pq p is a fitting parameter, which means the attribute utility of the pst attribute at the q p st level. Let be the
393
reflect substitution relation, nevertheless do not indicate supplement, match relation among attributes.
(3) The traditional CA does not consider inaccurate characteristic of valuators judgments.
According to the principle of CA, preference scores of researches are subjectively given by valuators. Both
social psychology and cognitive psychology deem judgments of people are not accurate. Inaccurate judgments do
not imply objective mechanisms are distorted by people, on the contrary, it reflects cognitive limitations of people
(Utkin and Augustin, 2007)[15]. It is evident that judgments and evaluations presented by valuators satisfy the
reality. Consequently, adopting fuzzy numbers to describe analysis and judgments of valuators is reasonable.
However, CA requires that valuators should present determinately numerical judgments. It is highlighted that the
demand is contradictive to subjective judgments of valuators.
394
samples, and the k th sample can be expressed by ( L1( kj1) , L(2kj)2 , , L(Ijk ) Tk )
I
L1( kj )
1 Tk
L(Ijk )
I
Step 3: Training BP-FNN. Using K learning samples to train the BP-FNN by the BP algorithm and
adjusting the number of hidden layers and that of hidden nodes in each hidden layer by controlling learning error,
then the optimal neural network can be obtained.
0 1 2 3 4 5 6 7 8 9 x
Step 4: Computing VEOs fuzzy numbers of profile utilities (FNPU). Input L1( kj1) , L(2kj)2 , , L(kIjI) of Ok to
the trained BP network, then FNPUs k = [ k , k , k ] can be derived in fuzzy output layer.
Step 5: Ranking VEOs. At present, mainly ranking methods of fuzzy numbers includes three kinds, i.e., the
intuition method, the -cut method and the calculation method. But all methods of the three kinds only use partial
information of fuzzy numbers. Hence, the paper adopts the comprehensive ranking method of fuzzy numbers to
sort k ( 1 k K ), which well includes information of fuzzy numbers (Hu and Jiang, 2001)[17]. Sorting k
involves three steps. Firstly, determining number interval [c, d] that fuzzy numbers belong to. Secondly,
computing fuzzy standard deviations k = ( k 2 + k 2 + k 2 k k k k k k ) /18 , fuzzy
means X k = ( k + k + k ) / 3 , fuzzy information quantities Ek = 1 2( k k ) /[3(d c)] of k . At last, computing
restraining indices k = Ek X k + ( Ek 1) k of fuzzy numbers, and ranking VEOs according to k . The rule of
ranking is, if k is bigger than the kth VEO is more excellent.
4. Numerical demonstration
Here is conducted the experimental comparative analysis between the BP-CA and the classical CA by a
numerical example. Its aim is to prove the validity of the BP-CA.
4.1 The numerical example and assumptions
The numerical example is that ten valuators evaluate twelve EEOs A1A12. They are combined by two
attributes r1, r2 which each has seven attribute-levels.
Suppose that there exists the nonlinear formula (3) which includes r1, r2, y, and let it be a nonlinear system in
reality, where, y denotes the real profile utilities of EOs.
y = r12r2 + r1r22 + 10(r1 + r2 ) + 100 (3)
According as the attributes, the levels and the demand for EOs numbers of the classical CA (Shen and Ke,
1998)[7], 24 EOs including both A1A12 EEOs and B1B12 VEOs are provided by orthogonal arrays. They are
listed in Tab. 1.
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Tab.1 Attributes and corresponding levels of EOs
EOs A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12
Seeing that inaccurateness of objective judgments, there must be some errors between profile utilities judged
by valuators and real utilities of EOs. To simulate the inaccurate judgments, supposing that profile utilities y ' of
each EO evaluated by ten valuators satisfy a normal distribution. And the paper refers the method of generating
data satisfying normal distribution in the eighth reference (Mishra and Umesh, 2005), so the normal distributions
the great probability of occurrence is the real profile utility of the EO and the standard deviation is 1/5 of the real
profile utility. Here linguistic variables are applied to represent preference evaluations y '' given by valuators,
and assume that evaluations are about superiority and inferiority of EOs. Let the maximum and the minimum y '
of 24 EOs respectively be the lowest bound and highest bound, namely, 66.73 is the lowest bound and 4332.20 is
the highest bound, and then nine intervals are divided. The approach to simulate preference evaluations of
valuators is, if y ' of EOs are subject to intervals [66.73, 565.67], [515.67, 1039.61], [989.61, 1513.55], [1463.55,
1987.49], [1937.49, 2461.44], [2411.44, 2935.38], [2885.38, 3409.32], [3359.32, 3883.26], [3833.26, 4332.20],
then the linguistic evaluations of EOs are worst, worse, bad, less than bad, moderate, less than good, good, better,
best, respectively. If an EOs y ' simultaneously falls into two intervals, then randomly choose an interval, and
the linguistic evaluation corresponding to the chosen interval is the preference evaluation of the EO.
4.2 Computing FNPUs of EEOs based on BP-CA
According to the steps of BP-CA, the structure of BP-FNN can be constructed by letting r1, r2 of EOs be the
inputs and y '' be the output of network. On the condition that the learning rate is 0.1 and the learning error is
0.0001 of BP algorithm, the A1A12s FNPUs listed in Tab. 2 are computed.
Tab.2 EEOs FNPUs computed by BP-CA
EEOs A1 A2 A3 A4
FNPUs [0.9981.0003.000] [1.0001.0003.000] [1.0001.0002.995] [1.0001.0003.001]
EEOs A5 A6 A7 A8
FNPUs [0.9991.0003.000] [1.0001.0013.001] [0.9991.0012.999] [1.0001.6013.600]
EEOs A9 A10 A11 A12
FNPUs [1.0001.8993.900] [3.5015.4987.500] [4.0006.0017.900] [3.0985.1047.100]
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4.4 Comparative analysis between the two orders computed and the real order of EEOs
Let ST , S F be the orders of A1A12 respectively computed by the classical CA, BP-CA, and let S R be the
real order of A1A12. According to attribute utilities, FNPUs and real profile utilities of EEOs, ST , S F , S R are
gained and listed in Tab. 4.
Tab. 4 ST, SF, SR of A1A12
EEOs A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12
ST 12 11 8 7 10 9 6 5 4 3 2 1
SF 9 10 12 7 8 6 11 5 4 2 1 3
SR 10 11 12 7 9 6 8 5 4 2 1 3
In order to easily testify validity of the BP-CA, ST , S F are respectively compared to S R , and the
comparative results are showed in Tab. 5.
Let the proportion of EOs number of N (N=0, 1, 2, 3, 4) sequence between S F and S R to the number of
EEOs be Pr op( S F , S R , N ) , then the meaning of Pr op( ST , S R , N ) can be easily known. By Tab. 5, it can be
found that Pr op( S F , S R , 0) is obviously more than Pr op( ST , S R , 0) , and Pr op( S F , S R , 1) , Pr op( S F , S R , 2) are
respectively less than Pr op( S F , S R , 1) , Pr op( S F , S R , 2) . It is suggested that the computational precision of
BP-CA is evidently higher than the traditional CAs. In addition, BP-CA well and truly identifies the three EEOs
A10, A11, A12 which rank the preceding three sequences in S R . However, the traditional CA does not recognize
exact sequences of A10, A11, A12 in S R , and deems the EEO A12 which ranks the third is the best. Thus in view of
both the computational precision of approach and the ability to identify the best EEO, the BP-CA is more
excellent than the classical CA. The results of numerical analysis verify the order obtained by BP-CA is closer to
the real order of EEOs, and computational effects are superior to the classical CA. Therefore BP-CA is practically
valuable to solve real problems.
Tab. 5 ST, SF Respectively Compared with S R
ST S R SF SR
Difference Between
Two Orders Number Proportion Cumulative Number Proportion Cumulative
(%) proportion (%) (%) proportion (%)
0 Sequence 4 33.33 33.33 9 75.00 75.00
1 Sequence 4 33.33 66.66 1 8.33 83.33
2 Sequence 2 16.67 83.33 0 0 83.33
3 Sequence 1 8.33 91.66 1 8.33 91.66
4 Sequence 1 8.33 100.00* 1 8.33 100.00*
Total 12 100.00* - 12 100.00 -
*Note: The real sum of deviations should be 100%, but the value is 99.99% because of computing errors.
5. Conclusions
It is intended in this paper that the three estimation methods of profile utilities may be invalid and do not well
reflect inherent interactive relations of complex systems when they are employed to compute profile utilities of
evaluated objects. Meanwhile, CA does not consider inaccurate characteristic of valuators judgments. To
overcome above shortcomings, based on the theory of CA, referring to the complex system theorys thought of
meta-synthesis from qualitative analysis to quantitative analysis, through introducing the technique of fuzzy
neural network, an improved approach to CA for the complex decision-making (i.e., the BP-FNN based approach
to CA for complex decision-making) is presented in this paper. The distinguished advantages of the presented
approach lie in that it can effectively approximately capture inherent laws of complex systems on the condition
that systems non-linear mechanisms are unclear, and it is a general approach which can be used to dispose
varieties of linear and non-linear systems problems. The results of numerical demonstration show the order
397
obtained by BP-CA is closer to the real order of evaluated objects, and computational effects are superior to the
classical CA. Therefore the improved approach to CA for complex decision-making can scientifically solve real
decision problems. It can be expected for its wide application to more real world problems.
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Vessel Systems. Journal of Huazhong University of Science and Technology, 2001, 29 (1): 76-78 (in Chinese)
398
Applying Fuzzy Set and Rough Set to Evaluate Risk Level in
IT Project Management
Abstract Risk evaluation is an importance process in IT project management. Aiming at there are some problems during the IT
project risk management, this paper uses the method of fuzzy set and rough set, which integrates the advantage of the two theories,
and constructs the risk level evaluation index system and the evaluation model of IT project, and exemplifies the evaluation system
and model.
Key words Fuzzy, Rough set, Risk evaluation, Evaluation model, IT project
1. Introduction
The evaluation of risk level in IT project management is more difficult because there is a wide rang of
unique characters: often referring a great investment and more complicated evaluation indexes, the managements
ability, the grate correlative degree and low diaphaneity of information, the high dynamic of communication, and
there are many indexes that cant be quantitatively measured. Therefore it seems a nonstructural questions, for
which the experience, knowledge and preference of the decision-maker play an important role in decision-making.
As the complexity of decision process, it is believed that hardly this problem could be resolved perfectly by only
one theory.
This paper proposes an evaluation model of risk level based on fuzzy set and rough set, which can solve risk
level of multilayer indexes. The model integrates the advantage of rough set and fuzzy set: First, it calculates the
significance of attribute through RS theory, to build first class indexes weight set. It does not require any
additional empirical information of data, such as probability in statistics, and it can judge whether or not all the
indexes have the same significance under the given condition only by the known information, so the weight of
each attribute could be evaluated according to its significance. The weight is gained by analysis of the similar
project data in the past, and therefore is more objective than hypothesis or just adopting the experts experience.
Then Attributes reduction helps to reduce the complexity of computation. At last a method of fuzzy
comprehensive evaluation integrates all experts' opinions effectively and gives a reasonable evaluation result.
This research was supported by the National Natural Science Foundation of China under Grant 70571025, and also supported by the DanGui Project of
Huazhong Noraml University.
399
hierarchy process (AHP) , the entropy value of information, the least squares method based on Frank-wolfe.
Especially, the fuzzy and the rough set theory, which were introduced to forecast and determine the weight of risk
factors, has become a prevalent way in those years.
2.2 Knowledge denotation of IT project
According to rough set theory, the data being disposed can be expressed by a knowledge denotation system,
which is mainly described by the essential information of the objects. Rough set regards knowledge as the ability
to classify objects, and it uses a decision table to describe knowledge system.
Definition1: knowledge denotation system can be seen as S =< U , C D,V , f > , where U = {x1 , x1 ,..., x n } is a
nonempty finite set of objects. A = C D Are attributes set, which is divided into two subsets: C stands for
condition attributes and D stands for decision attributes. V = expresses the value field of attributes, and
Va
a A
Vr is the range of the attribute value. f : U A V is a function, which means that selecting a element from
set U randomly, it can always find a Vr from set V coincident with the attribute in set C and
D: a A, x U , f ( x, a ) Va .
2.3 The risk factors analysis of IT project
There are many kinds of IT projects; each kind differs in characteristics. Referring to article [8], this paper
gives a general risk evaluation index system, which is shown in fig.1. The system considers both the interior
factors and exterior factors in IT project, which is divided into three classes. The first class describes the index
kinds. It contains 5 indexes. Each index is divided into 2 to 3 sub indexes, which forms the second class. It
represents the index factors, and then the third represents index items. When it comes to an actual project case, we
can choose some indexes from this general index system to evaluate, according to the category of project and the
evaluating demands.
Tab. 1 The main risk factors of IT project
Index Explanation Symbol
Technology difficult C1
Project complexity
Sections involved C2
(D1)
Influence on operation C3
Innovation C4
Design level
Practicability C5
(D2)
Security C6
The risk
evaluation Team risk HR structure C7
system of IT (D3) Personal quality C8
project
Number of similar projects C9
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T : F( X ) F(Y ) , A T ( A) = B Then extend the two commutations to fuzzy sets, and the
~ ~ ~
f : X F (Y ) , x f ( x) = B can be called fuzzy mapping form X to Y .
There are four main step during the constructing of evaluation risk model as shown below:
Step1:Let X = {x1 , x 2 , , x n } Y = { y1 , y 2 , , y m } .
~ ~ ~ r r r
f : X F (Y ) , xi f ( xi ) = B = i1 + i 2 + + im = (ri1 , ri 2 , , rim ) F (Y ) , i = 1,2, , n then the
y1 y2 ym
fuzzy matrix can be constructed by row of ( ri1 , ri 2 , , rim ) , and the fuzzy relation can be made certain only as
follows
r11 r12 r1m
~ r r22 r2 m
R f = 21 (1)
rn1 rn 2 rnm
~ ~
Where , R f ( xi , y i ) = rij = f ( xi )( y j ) .
Step2 :Supposed a fuzzy matrix is given as follows:
r11 r12 r1m
r21 r22 r2 m
R= (2)
rn1 rn 2 rnm
~ ~ ~ ~
Let f R : X F(Y ) , xi f R ( xi ) = (ri1 , ri 2 , , rim ) F (Y ) , where, f R ( xi )( y i ) = rij = R ( xi , y i ) ,
~ ~
i = 1,2, , n j = 1,2, , m . f R is the fuzzy mapping from X to Y , the fuzzy mapping f R can also be
made certain.
Step3 :Weight values of factors using AHP
In the process of construction of judgment matrix, inconsistency of judgment in decision-makers mind will
cause inconsistency of judgment matrix. Just when judgment matrix is consistent completely, the largest
eigenvalue of A equals n, that is max = n ; while, if judgment matrix is inconsistent, there will be max > n , and
at this situation max n can be used to test the degree of consistency of judgment matrix. Calculation of
Consistence Index (CI) is as follows:
max n
CI = (3)
n 1
The value of CI is the smaller, the consistency of judgment matrix is the higher. When CI = 0 , judgment
matrix is consistent completely. Since variance of consistency may be caused by random events, when check
whether judgment matrix is consistent or not, it is necessary to compare CI with RI (Random Index) so that
obtain CR (Consistence Rate).
CR = CI / RI (4)
RI is related with order of matrix, and the larger the value of order is, the larger probability of occurring
random variance is. The relation between RI and order of judgment matrix is as follows (As show in Tab. 2):
Tab. 2 RI of judgment matrix (From the first-order matrix to the ninth-order matrix)
Order 1 2 3 4 5 6 7 8 9
RI 0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45
Generally, as to judgment matrix whose order is larger than 3 ( n 3 ), if CR 0.1 , the estimation of aij in
matrix A are consistent on the whole; if CR 0.1 , variance of estimation from consistency is too large,
401
therefore some indexes must be adjusted until obtaining satisfactory degree of consistency.
Additionally, basing on CR = 0.1 and the values of RI in Table.2, it is easy to calculate unique critical
) corresponding to specific order of matrix ( n ). The formula is as follows:
eigenvalue ( max
= CR * RI *(n 1) + n
max (5)
(As showed in Tab.3).
Then obtain max
Tab.3 of judgment matrix( from the first-order matrix to the ninth-order matrix)
max
Order 1 2 3 4 5 6 7 8 9
RI 0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45
max 0 0 3.116 4.07 5.45 6.62 7.79 8.99 11.34
, it indicates aij in A are inconsistent, so aij must be adjusted. After adjusting aij ,
If max > max
. When max < max
calculate once again until fulfill this condition: max < max , ANC can be used to calculate the
weight of indexes: firstly, make each column of judgment matrix normalization; secondly, calculate the sum of
each row, then obtain a vector; finally, make the vector normalization, and the result will be the weight of indexes.
n
aij = aij / aij (6)
i =1
Therefore, weight values of indexes on each level have been obtained. Assume that WAB is the weight i
values of judgment matrix A-B, then weight of each index can be expressed as follows:
WACi = WABi WBCi i (8)
Step4: Statistical calculation. In order to resolve the problem that it is difficult to integrate with many indexes
with different dimensions, after finishing collection of data, these original data need to be adapted so that all data
have the same dimension, and this process is dimensionless. After eliminating the effect of different dimensions,
the value of weight can be used to indicate the importance of index. Assume that evaluation index system A has
m first-level indexes and n second-level indexes, moreover the i th first-level index contains nt
second-level indexes. The equation (1) can be expressed this relation.
m
n = nt (9)
t =1
where WBi is the value after dimensionlessand Di is the value before dimensionless.
Therefore, the risk factors evaluation set can be constructed. In the set of W = ( w1 , w2 , , wn ) , then do the
operation of max-min, in other word , the integration evaluation matrix can be calculated as follows:
B =W R (11)
3 An example
Suppose there are some IT project need to evaluated, and the risk factors set is D = {D1 , D2 , D3 , D4 , D5 }
Where u1 means Project complexity; u 2 means Design level; u 3 means Team risk; u 4 means Project
experience; u 5 means Maintenance capability. The evaluation set is defined as V = {v1 , v 2 , v3 , v 4 , v5 }
402
where, v1 means high, v 2 means rather high, v3 means normal, v 4 means rather weak, and v5 means weak.
The single risk factor evaluation matrix can be constructed as following table. Supposed there are 10
experts in each evaluation team and the result are listed as in Tab.4.
Tab. 4 The weight of risk factors in IT project
Factors set Evaluation set V
D v1 v2 v3 v4 v5
D1
5(c11) 3(c12) 2(c13) 0(c14) 0(c15)
Project complexity
D2
3(c21) 4(c22) 2(c23) 1(c24) 0(c25)
Design level
D3
2(c31) 3(c32) 2(c33) 3(c34) 0(c35)
Team risk
D4
0(c41) 4(c42) 2(c43) 2(c44) 2(c45)
Project experience
D5
3(c51) 2(c52) 1(c53) 3(c54) 1(c55)
Maintenance capability
Let cij ( i = 1,2, ,5 j = 1,2, ,5 )is number of the approved to the Di in v j ,and let
cij
rij = 5
( i = 1,2, ,5 )
c
j =1
ij
c
j =1
ij = 10 is the number of experts. So the single factor evaluation matrix is as follows:
In order to give the accurate evaluation result, we should do the unitary operation , and all the risk rank can
be measured with 1. So the evaluation set can be express with V = (1, 0.8, 0.7, 0.6, 0.5) T , then :
1
0.8
P1 = B1 V = (0.26, 0.34, 0.19, 0.16, 0.05) 0.7 = 0.786
0.6
0.5
By the same waythe risk level of the other IT project can be calculated , so the risk level order are as
follows: P2 > P1 > P4 > P3 .
4. Conclusion
The research of risk evaluation is a focus of attention for IT project in recent years. This paper introduces a
integrative evaluation model of IT project based on fuzzy set and rough set, which gives a simple and objective
way to solve the risk decision problems with multilayer indexes. This method can help the managers to estimate
the risk rank according to the analysis results, so that they can adjust the development strategy so that it ensures
the project will be successful in the fullest extent.
403
References
[1] Qing. Rough set and its illation [M]. Beijing: Science press,2001
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(2000) 3-10.
[3] B.W boehm, Software risk management: principles and practices[C]. IEEE software 8(1),191,32-41
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Set[C]. International Conference Service System and Service Management. 2006:1044-1049
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[7] Chen Degang a, Zhang Wenxiu b, Daniel Yeung. Rough approximations on a complete completely distributive lattice with
applications to generalized rough sets[J]. Information Sciences,2006,176: 18291848
[8] V.Carr, J.H.M. Tah. A fuzzy approach to construction project risk assessment and analysis:construction project risk
management system[J]. Advancees in Engineering Software. 2001,32: 847-857
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[10] Linda Wallacea, Mark Keilb, Arun Rai. Understanding software project risk: a cluster analysis. Information & Management[J],
2004,42:115125
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Sciences,2000,34: 285-302
[12] Rajen B. Bhatt, M. Gopal. On fuzzy-rough sets approach to feature selection[J] .Pattern Recognition Letters,2005,26:965975
404
Research on the Dynamic Choosing Question about Network
Product Compatibility and Price
Sheng Yongxiang
School of Economics and Management, Jiangsu University of Science and Techology, Mengxi Road 2, Zhenjiang, P.R.China ,212003
Abstract The network product compatibility and the price are the network product producing enterprise manage policy-makings
the important aspect. This thesis embarks from the demand and infer the demand function, considering the product of the network
effect, the compatibility as well as the price. According to the network products market of the actual situation, the thesis establishes
three dynamic choosing model forms , considering the product compatibility and has carried on the computation with the reversion
induction, moreover carries on the example analysis to the third form.
Key Words Network products ,Compatibility Prices ,Choice
1. Introduction
otherwise the machine is not compatible. All network users think that the product compatibility is very
popular performance. In determining what type of networking products, All network users think that the
compatibility and price is a major factor. Domestic Scholars mainly do research on products differentiation and
firms compatibility choice, external network and Standard communications and enterprise compatibilitys
competition with the game theory[1][2][3][4]. Foreign scholars mainly do research on the computer industry
compatibility and network externality problem with the defense equilibrium[5][6][7][8][9][10]. However, considering
the price and the compatibilitys factors not are not related with the game theory. From the demands of consumers
this paper derives demand functions ,considering the effect of the network, compatibility and price. Considering
the actual market situation of network products, this has established three forms of the choice of a dynamic model
about product compatibility and price. Not only reverse inductive method are used for the calculation, but also to
analyze the third example form.
This Project was supported by the National Natural Science Foundation of China under Grant 70472005.
405
buy product one. The consumer who has h preference, needs to pay the transferring cost t(1-h)2, in addition to pay the
price of p2 when to buy product one.
(2)Network effect. When the value of products for the consumer increases with an increase of the
introduction of the product or compatible product in the volume, it is a network externality. It is an integral part of
consumer income, the consumer is willing to make the necessary expenditures. Using e>0 is represent for the
markets strength of the network effect. In the media market, the value of e is greater , but the value of e is small
in the furniture market. Using ni(i=1,2) is expressed for the network size of product i. It depends on the enterprise
with its opponents of the past sales xb and the future sales xp.
n i = x i + x i + s ij ( x j + x j ) = ( x i + s ij x j ) + ( x i + s ij x j )
p b p b p p b b
To determine the demand decided by the market, we in addition to know the past sales of this enterprises and
his opponents, need to know the future sales of this enterprises and his opponents. A realistic assumption is :
x1p = x1 x 2p = x 2 . After calculating, the two demand function for the two enterprises are:
x1 ( s12 , s 21 , p1 , p 2 ) = 12 + [( p 2 p1 ) + 12 e( 2(( x1b + s12 x 2b x 2b s 21 x1b ) + s )]
x 2 ( s 12 , s 21 , p 1 , p 2 ) = 1
2 [( p 2 p 1 ) + 1
2 e ( 2 (( x 1b + s 12 x 2b x 2b s 21 x 1b ) + s )]
Among them , = 1
2 t e ( 2 s1 s 2 ) s = s12 s 21 .
1
s12 s 21 p1 , p2 2
Figure1 The sequential chart about the enterprise choosing the compatibility and determining the price again
406
1 (s1 , s2 , p1 , p2 ) = ( p1 c){12 + [( p2 p1 ) + 12 e(2((x1b + s12 x2b x2b s21x1b ) + s)]} (1)
p 2R ( p1 ) = 12 [ P2 + C + 1
2 12 e ( 2 (( x1b + s12 x 2b x 2b s 21 x1b ) + s )] (4)
Price reaction functions show the prices of the two enterprises complement each other, that is to say, the price
of rival products is higher, the price of the product is higher. The intersection of the two functions is given the
price reaction function of equilibrium :
p 1B ( s12 , s 21 ) = C + 1
2 + 16 e ( 2 (( x1b + s12 x 2b x 2b s 21 x1b ) + s ) (5)
p 2B ( s12 , s 21 ) = C + 1
2 16 e ( 2 (( x1b + s12 x 2b x 2b s 21 x1b ) + s ) (6)
When they are balanced , the prices increase With the increasing of the marginal cost c and the relative
compatibility s . We Can further deduce the two enterprises balanced output function and balanced profit function :
. x1B ( s12 , s 21 ) = 1
2 + 16 e ( 2 ( x1b + s12 x 2b x 2b s 21 x1b ) + s ) (7)
x 2B ( s12 , s 21 ) = 1
2 16 e ( 2 ( x1b + s12 x 2b x 2b s 21 x1b ) + s ) (8)
1B ( s12 , s 21 ) = 1
36 ( 3 + e [ 2 ( x1b + s12 x 2b x 2b s 21 x1b ) + s )] 2 (9)
2B ( s12 , s 21 ) = 1
36 (3 e[2( x1b + s12 x 2b x 2b s 21 x1b ) + s )]2 (10)
In the third stage of the game, enterprise 2 chooses the compatibility s 21 to maximize the expected profit
function under the condition of the expected profit function.
2B ( s12 ,s21 )
s21
=0 (11)
R
We get s 21 = s 21 ( s12 ) then Substitute 1B ( s12 , s 21 ) and get 1B ( s12 , s 21 R ( s12 )) .
In the first stage of the game, enterprise 1 chooses the compatibility s12 to maximize the expected profit
function under the condition of the expected profit function.
d1B ( s12 ,s21R ( s12 )
ds21
=0 (12)
We get s12 = s12 , then substitute s12 into the above formulas and get s 21 p1 p 2 .
* * * * *
3.2 Two enterprises have determined the compatibility about products at the same time, then determined
their own prices in order.
Two enterprises have determined the compatibility about products in the first stage which are s12 s 21 at the
same time ,then determined their own Competition prices in the second stage and in the third stage. That is shown in
Figure 2.
s12s21 p1 p2 1,2
Figure2 The sequential chart about two enterprises simultaneously determining the product compatibility and determining the
price again successively .
407
We use the same principal according to the profit functions for the two enterprises are:
1 ( s12 , s 21 , p1 , p 2 ) = ( p1 c){ 12 + [( p 2 p1 ) + 12 e(2(( x1b + s12 x 2b x 2b s 21 x1b ) + s )]} (1)
In order to solve the sub-game refined Nash equilibrium in the model, we set out from the third stage with
backward induction method to compute.
In the third stage of the game, for the fixed degree of compatibility s12 s 21 p1 , enterprise 2 maximize his
2
own the profit function 2 ( s12 , s 21 , p1 , p 2 ) . Using the first-order condition p2
=0, we can get the price response
functions about enterprise two. p2R ( s12 , s21 , p1 ) .
In the second stage of the game, for the fixed degree of compatibility s12 and s 21 ,we substitute
R
p ( s12 , s 21 , p1 ) into the profit function of enterprises one and also maximize the profit function of enterprise one
2
1 ( s1 , s 2 , p1 , p 2R ) . Using the first-order condition p11 =0, We can get the price reaction function of enterprise one
2
p 1R ( s 12 , s 21 ) .
In the second stage
of the game , we substitute the obtained
R R R
p ( s12 , s 21 ), p ( s12 , s 21 , p ( s12 , s 21 )) respectively into the profit functions of enterprise one and enterprise
1 2 1
1
two ,at the same time ,we use the first-order condition s12
=0 s 2 =0 and get two enterprises values of
21
compatibility s12 = s s 21 = s
* * * *
12 21 .We further backward substitute and get p1 p 2 .
3.3 Two enterprises firstly have determined the compatibility about products at the same time , then
determined their own prices at the same time.
Two enterprises have determined the compatibility about products in the first stage which are s12 s 21 at the
same time ,then determined their own Competition prices at the same time in the second stage. That is shown in Figure
3.
s12,s21 1,2
p1,,p2
Figure3 The sequential chart about two enterprises simultaneously determining the product compatibility and simultaneously
determining price.
408
1
In the first stage of the game, at the same time we use the first-order condition s 12 =0
2
s 21
=0,then solve the values of compatibility about these two enterprises ,and at last we again substitute
* *
backward them and get p1 p 2
4 . Conclusions
In this paper we consider the network scale factor, the unit cost of producing enterprises, the compatibility
factor, transferring cost factor and the number of consumers, and then has established three models on the price
and compatibility ,and further compute enterprise one and enterprise two how to choose the compatibility and
price. Through three models calculation, we get the following conclusions:
(1) The direction of the two manufacturers compatibility can be asymmetric ,but asymmetry will affect the
profits.
(2) For enterprises, the choosing orders on compatibility and price would affect the profits of these
enterprises.
(3) For symmetrical enterprises of standardized products, prices and profits are the same.
References
[1] Lu Wen LongChen Hong Ming.Product DifferentiationS and CompatibilityS options [J] Huazhong University of Science
and Technology Journal 2003.12 69- 71.
[2] Lu Wen LongChen Hong Ming. China's Third-generation Mobile Network and External Communications Standards
Competition. [J] Management Engineer Journal2004.4 113- 115.
[3] Liu Rong Jiao .Compatible Competition Game Analysis [J] China Industrial Economy 2003.2 83- 89.
[4] Wang Jiao Information industry standard selection problem JInformation Science 2006.1 130- 134.
[5] Bresnahan TGreenstein S. Technological competition and the structure of the computer industry [J].Journal of Industrial
Economics , 1999 (47):1-40
[6] Brynjolfsson EKemerer C. Network Externalities in the microcomputer software : an Econometric analysis of ten
spreadsheet market [J].Management Science , 1996 (42):1627-1647
[7] Calbral LSalant D. Monopoly pricing with network externalities[J]. International Journal of Industrial Organization , 1999
(17):199-214
[8] [8]Farrell J , Saloner G. Installed base and compatibility : Innovation ,product preannouncements ,and predation [J]. American
Economic Review 1986 (76):940-955
[9] Katz MShapiro C. Systems competition and network effects [J]. Journal of Economic Perspectives , 1994 (8):93-115
[10] Matutes CRegibeau P. Mix and match : product compatibility without network externalities[J]. Rand Journal of Economics ,
1988 (19):221-234
409
Military Conflict Decision Modeling Based on Fuzzy Hypergame
Abstract In real military conflicts, the army commander of each side should maximally utilize tactical cheat to produce a wrong
impression to the opponent in order to realize his own objectives, so the options and the outcome preference order of the opposite
side perceived by the commander is imperfect and uncertain. In this paper, the military conflict situation is modeled as a first-level
hypergame with fuzzy linguistic preference perceptions. A fuzzy numbers ranking method is used to determine the crisp preference
perception vectors. The process of hypergame stability analysis is given for obtaining the hypergame-preserving equilibrium or
hypergame-destroying equilibrium. According to these hypergame equilibria, the most possible outcomes of military conflicts can be
efficiently forecasted. A simulation example is provided to illustrate the method.
Keywords Military conflict, Hypergame analysis, Equilibrium outcomes, Fuzzy preference perceptions.
1. Introduction
Military conflict decision is a process to make the action plan based on the conflict situation perceived by the
commander. In real military conflicts, the army commander of each side should maximally utilize tactical cheat to
produce a wrong impression to the opponent in order to realize his own objectives, so the information about the
opposite side is imperfect and uncertain. The options and the outcome preference order of the opposite side
perceived by the commander may be wrong. Therefore, the military conflict situation can not be modeled by a
simple game, and the traditional conflict analysis [1, 2], which is a powerful decision analysis method to forecast
the most possible outcomes of a conflict, is not suit for such military conflict environment with wrong perception
information. On the contrary, hypergame [3-8] is an efficient framework to deal with such conflict situations. In a
hypergame, the players involved may have incorrect subjective perception about the other players options,
strategies, or preferences, or even be unaware of some of the players in the game.
Fraser, Wang and Hipel [4, 5] analyze the Cuban missile crisis and the Falkland Island crisis using
hypergame theory, respectively. Wang and Hipel [6] model the Persian gulf war between Iraq and the U.S.-led
Allied forces as a hypergame, and use hypergame analysis to explain how misunderstandings affect the behavior
of each decision maker as well as the possible conflict resolutions. In these papers, players in hypergame situation
all express their perception about the opponent players preference information using crisp forms. But because of
the ambiguity existing in available information as well as the essential fuzziness in human judgement, the
commander in complex military conflict just can express their preference perception using uncertain forms, such
as linguistic variables etc. In this paper, we suppose that each commander in military conflict perceives the
opponent players outcome preferences over outcome space using the linguistic values or labels [7, 8],
subjectively represented by the trapezoidal fuzzy numbers. We model the military conflict situation as a fuzzy
first-level hypergame. In the face of the fuzzy linguistic preference information, a fuzzy numbers ranking method
[9] is used to determine the crisp outcome preference perception vectors. The process of hypergame stability
analysis is given for obtaining the hypergame-preserving equilibrium or hypergame-destroying equilibrium.
According to these hypergame equilibria, the most possible outcomes of military conflicts can be efficiently
forecasted. Finally, a simulation example verifies the feasibility and effectiveness of the proposed method.
This work is supported by National Natural Science Foundation of China (No: 70471031) and Scientific Research Foundation of Naval University of
Engineering (No: HGDJJ06004).
410
most preferred outcome on the left and least preferred on the right, then a preference vector (PV) is formed for
player i and denoted by Vi . In a game with complete information, there are no misperceptions, each player is
represented by only one PV, and all the players see the same set of PVs. Consequently, a two-person game can be
formed by a set of PVs:
G = {V1 , V2 } . (1)
In real military conflicts, the commanders interpretations of the preference vector can be different from one
another because of misperceptions. Denote Vij to be player i's PV as interpreted by player j. Vij is often
different from Vi , so that the game played by player j will be different from the one played by player i. Since
each players game can be formed by the PV of the player himself and the perceived PV of the opponent, player
j's game, H 0j , j = 1, 2 , can be expressed as
H10 = {V1 , V21} , H 20 = {V12 ,V2 } . (2)
Then, the conflict can be modeled as a first-level hypergame.
V V
H 1 = { H10 , H 20 } = 1 , 12 . (3)
V21 V2
In the first-level hypergame model (3), a key difficulty is determining the PV of the opponent. Because of the
ambiguity existing in available information as well as the essential fuzziness in human judgement, each army
commander (player) can not perceive the opponent players preference information clearly. We suppose that each
commander just perceives the opponent players outcome preferences over outcome space using the linguistic
values, which are subjectively represented by the trapezoidal fuzzy numbers. Denote (o1 , o2 , , oK ) to be K
outcomes in the outcome space O = S1 S 2 , and trapezoidal fuzzy number aijk = (ijk , ijk , ijk , ijk ) ,
0 ijk ijk ijk ijk 1 , k = 1, 2, , K , be player i's preference for outcome ok perceived by player j. Then, the
military conflict with fuzzy preference perceptions can be modeled as
{a12 , a122 , , a12K }
1
V
H 1 = {H10 , H 20 } = 1 2 1 ,
K . (4)
{a21 , a21 , , a21} V2
then D is a defuzzification function, and D(a) is the defuzzification value of fuzzy number a .
This function is the mean of the two areas defined respectively by the left and the right slopes of the fuzzy
411
number, and the vertical axis. Based on defuzzification function D , we can define a crisp total ordering for fuzzy
numbers.
Definition 3: Suppose that S is a set of fuzzy numbers, for any distinct ai , a j S , an ordering for fuzzy
numbers is defined as: 1) if D(ai ) < D(a j ) , then ai < a j ; 2) if D(ai ) = D(a j ) , then ai = a j ; 3) if D(ai ) >
D(a j ) , then ai > a j .
For the fuzzy outcome preference perceptions aijk = (ijk , ijk , ijk , ijk ) , i, j = 1, 2; k = 1, 2, , K , since
(a ) = [ + ( ), ( )] , using (6), the defuzzification value of a
k
ij
k
ij
k
ij
k
ij
k
ij
k
ij
k
ij is
1 1 k 1
D(aijk ) =
2 0
[ ij + ( ijk ijk ) + ijk ( ijk ijk )]d = ( ijk + ijk + ijk + ijk ) .
4
(7)
According to definition 3, the bigger D(aijk ) is, the more preferred the outcome o k is. So, we can determine
the crisp outcome preference perception vector Vij according to the defuzzification values D(aijk ) , k = 1, 2, ,K .
Based on the crisp outcome preference vector, hypergame stability analysis is carried out in a two-step
procedure [4, 5]. The first step is the individual stability analysis, which is performed for the individual players in
their own games using the solution concept of Fraser and Hipel [1]. As a result, the resolutions to the conflict are
predicted in accordance with each players viewpoint. In the second step, the overall stability is calculated based on the
individual strategy selections.
The individual stability analysis of game H 0j for the player j is performed according to the PV of the player
himself V j and the perceived PV of the opponent Vij . In this stage, when a player can unilaterally change his
situation from an outcome to a more preferred outcome by changing his strategy, given that the strategic selection
of its counterpart remains the same, the more preferred outcome is called a unilateral improvement (UI) from the
original outcome for the player. Each outcome for a given player is classified to the following three types:
rational (r), sequentially sanctioned (s) and unstable (u). An outcome is rational for a player if it has no UI from
the outcome. An outcome is sequentially sanctioned for a player if, after it invokes an UI, its counterpart can make
a sequential improvement and bring about a less preferred outcome to original one for the player. An outcome is
unstable for a player if there is at least one of its UIs unsanctioned.
An outcome is stable for a player if, due to the other players sequential sanctioning, he has no UI which can
improve his situation to a more preferred outcome. After examining the stability of each outcome for each player,
the stability of outcomes across players is analyzed.
Definition 4: An outcome is an equilibrium perceived by player j if it is stable for all players according to the
individual stability analysis of game H 0j .
According to definition 4, assume the set of stable outcomes for player i in game H 0j to be O (j i ) , the set of
equilibrium outcomes perceived by player j can be expressed as follows.
E j = {o k | o k O (j i ) , i = 1, 2} = O (1) (2)
j Oj . (8)
Based on the set of equilibrium outcomes perceived by player j, the stable strategy sq* and the set S *j of
stable strategies for player j can be determined as
S *j = {sq* S j | o k = ( s p , sq* ), o k E j } , j = 1, 2 . (9)
where s p Si , i j , and outcome o k , which is combination of strategy s p of player i and strategy sq* of
player j , is an equilibrium perceived by player j.
The overall equilibria for the first-level hypergame are formed by combining each players stable strategies in
the individual games. Denote
E = S1* S2* . (10)
Definition 5: E is called the set of overall equilibria for the first-level hypergame. If outcome
e = ( s1* , s2* ) E , and e E1 E2 , then e is called a hypergame-preserving equilibrium. If e = ( s1* , s2* ) E , and
e E1 E2 , then e is called a hypergame-destroying equilibrium.
412
According to definition 5, a hypergame-preserving equilibrium is an equilibrium perceived as solution
by all players in the hypergame. A hypergame-destroying equilibrium is an equilibrium that at least on of the
player believes e is not a solution. Based on these hypergame equilibria, the most possible outcomes of military
conflicts can be efficiently forecasted.
Tab.2 gives the outcome preference vector of each country. Due to the incomplete information and
misperceptions, every country can not perceive the opponent countrys outcome preferences accurately and
clearly. They use the linguistic values, which are subjectively represented by the trapezoidal fuzzy numbers, to
express their perception for the opponent player outcome preferences as follows:
a121 = (0.90, 0.95, 0.95, 1.00), a21
2 3
= (0.75, 0.85, 0.85, 0.95), a21 = (0.40, 0.50, 0.60, 0.90),
4 5
a21 = (0.10, 0.30, 0.40, 0.70), a21 = (0.60, 0.70, 0.75, 0.75), a216 = (0.50, 0.70, 0.80, 0.90),
7 8 9
a21 = (0.80, 0.85, 0.95, 1.00), a21 = (0.30, 0.45, 0.55, 0.60), a21 = (0.65, 0.75, 0.85, 0.95),
a10 11 12
21 = (0.55, 0.65, 0.70, 0.75), a21 = (0.20, 0.50, 0.50, 0.80), a21 = (0.10, 0.20, 0.30, 0.40),
a13
21 = (0.40, 0.60, 0.70, 0.80);
1
a12 = (0.25, 0.35, 0.45, 0.55), a122 = (0.30, 0.35, 0.40, 0.45), a123 = (0.65, 0.75, 0.85, 0.95),
a124 = (0.85, 0.90, 0.95, 1.00), a125 = (0.35, 0.50, 0.50, 0.65), a126 = (0.50, 0.70, 0.70, 0.90),
a127 = (0.10, 0.20, 0.30, 0.40), a128 = (0.70, 0.80, 0.90, 1.00), a129 = (0.20, 0.40, 0.50, 0.70),
10
a12 = (0.60, 0.65, 0.70, 0.75), a1211 = (0.30, 0.60, 0.60, 0.90), a1212 = (0.80, 0.95, 1.00, 1.00),
13
a12 = (0.30, 0.40, 0.45, 0.60).
Using (7), calculate the defuzzification values D(aijk ) , k = 1, 2, ,13 , as follows:
r211 =0.950, r212 =0.850, r213 =0.600, r214 =0.375, r215 =0.700, r216 =0.725, r217 =0.900,
r218 =0.475, r219 =0.800, r2110 =0.663, r2111 =0.500, r2112 =0.250, r2113 = 0.625;
r121 =0.400, r122 =0.375, r123 =0.800, r124 =0.925, r125 =0.500, r126 =0.700, r127 =0.250,
r128 =0.850, r129 =0.450, r1210 =0.675, r1211 =0.600, r1212 =0.938, r1213 =0.438.
According to the defuzzification values D(aijk ) and definition 3, the crisp outcome preference perception
vector V21 and V12 can be determined and listed in Tab.3.
413
Since V21 V2 , V12 V1 in the overall first-level hypergame H 1 , country A and country B are playing separate
games. Hence,
V V
H 1 = { H10 , H 20 } = 1 , 12 .
V21 V2
Tab.4 and Tab.5 give the individual stability analysis of game H10 and H 20 , respectively. In Tab.4 and
Tab.5, when a player has more than one UI from a given outcome, the UIs are written in a column below the
outcome, where the more preferred UIs at the top and the less preferred at the bottom. All the outcomes are
marked as r, s or u above them according to their types of stability. If an outcome is a perceived equilibrium, it is
marked by an E, otherwise, it is not an equilibrium and marked by a X.
0
Tab.5 The individual stability analysis of game H 2
Stability r s s r r s s r s s u u u
V12 12 4 8 3 6 10 11 5 9 13 1 2 7
A
12 12 6 3 5 5 12 6 3
UI 4 9 4 10 11
8
Stability r r r s s r u u u u u u u
V2 1 7 2 9 5 13 6 10 3 11 8 4 12
B
7 2 7 13 2 13 7 2 13
UI 9 5 10 9 5 10
6 3 11
Outcomes 1 2 3 4 5 6 7 8 9 10 11 12 13
Equilibrium perceived by B X X X X E X X X E X X X E
Form Tab.4, in H10 , stable outcomes for country A are 3, 4, 5, 6, 8, 9, 10, 11 and 12, while 1, 2, 6, 7, 9 and 10
are stable for country B. the outcomes 6, 9 and 10 are stable for both players and equilibria perceived by country
A. Form Tab.5, 3, 4, 5, 6, 8, 9, 10, 11, 12 and 13 are stable for country A and 1, 2, 5, 7, 9 and 13 are stable for
country B. Thus the outcomes 5, 9 and 13 are equilibria perceived by country B. So,
E1 = {6,9,10} , E2 = {5,9,13} .
According to the above sets of equilibrium outcomes perceived by two countries, the stable strategies for
414
country A are A-2: Attack from the sea and (A-1, A-2): Attack from the air and the sea, the stable strategy for
country B is (B-1, B-2): Defend the air and the sea. That is
S1* ={A-2, (A-1, A-2)}, S 2* ={(B-1, B-2)}.
5. Conclusion
The military conflict situation is modeled as a fuzzy first-level hypergame in this paper. A defuzzification
function is first used to rank the fuzzy outcome preference perception and determine the crisp outcome preference
perception vectors. The process of hypergame stability analysis is then given for obtaining the hypergame-
preserving equilibrium or hypergame-destroying equilibrium. According to these hypergame equilibria, the most
possible outcomes of military conflicts can be efficiently forecasted.
References
[1] Fraser N M, and Hipel KW. Conflict Analysis: Models and Resolutions. New York: Elsevier, 1984
[2] Li Ming. Military decision modeling with conflict analysis. Proceedings of the 1996 IEEE International Conference on Systems,
Man and Cybernetics. 1996. 2552-2557
[3] Wang M, Hipel K W and Frase N M. Solution concepts in hypergames. Applied Mathematics and Computation. 1989, 34:
147-171
[4] Fraser N M, Wang M, and Hipel KW. Hypergame theory in two-person conflicts with application to the Cuban missile crisis.
Information and Decision Technologies. 1990, 16: 301-319
[5] Hipel KW, Wang M, and Fraser N M. Hypergame analysis of the Falkland Island crisis. Internat. Stud. Quart. 1988, 32:
335-358
[6] Wang M, and Hipel K W. Modeling misperceptions in the Persian gulf crisis. Proceedings of the 1991 IEEE International
Conference on Systems, Man and Cybernetics. 1991. 1989-1995
[7] Song Yexin., Wang Qian. and Li Zhijun. A group decision making method for integrating outcome preferences in hypergame
situations. In: Lipo, W., Yaochu, J. (eds.): Fuzzy Systems and Knowledge Discovery. Lecture Notes in Artificial Intelligence,
Berlin Heidelberg New York, Springer-Verlag. 2005, 3613: 676-683
[8] Song Yexin, Li Zhijun, and Chen Yongqiang. Fuzzy Information Fusion for Hypergame Outcome Preference Perception.
Intelligent Control and Automation, 2006, 344: 882-887
[9] Liou T S , Wang M J. Ranking fuzzy numbers with integral value. Fuzzy Sets and Systems. 1992, 50: 247-255.
415
Research on Inferring ELECTRE-III s Parameters and a
Case on Naval Gun Weapon System Integration
Abstract ELECTRE-is one of important Multiple attributes decision making (MADM) methods for system integration. Setting
parameters in ELECTRE- is a vital and difficult step. In this paper, a method of inferring ELECTRE-s parameters with
incomplete information based on robustness analysis is presented. First, ELECTRE- is transformed into a continuous smooth
function of each parameter vector. Then, an analysis structure by maximizing robustness margin is provided. By this structure,
several parameters inferring algorithms are also discussed. At last, a naval gun weapon system integration problem is put forward and
analyzed based on the method above.
Key words Robustness analysis, Multiple attributes decision making, ELECTRE-, Naval gun weapon system
1 Introduction
Classical parameters (such as weights, cut or threshold) setting methods in MADM methods usually base on
decision makers common sense or intuition, and result is often rigid. Due to human experiences uncertainty, this
way is more or less arbitrary which may minify the decision makings creditability. There are two approaches that
acknowledge this difficulty and try to remedy it: sensitivity analysis and robustness analysis. Sensitivity analysis
is a way to estimate how much the parameters vary when leading to a constant result, or to find which is the most
sensitive parameter and which is a substitute action for the optimal. The studies about sensitivity analysis are
numerous. But sensitivity analysis has its disadvantage of requiring an estimated center value for each parameter
and only considering the corresponding solution. It is also often performed on a single parameter at a time, and
ignores the possible interdependencies between parameters. Furthermore, sensitivity analysis is theoretic rather
than practical. Robustness analysis is a hotspot in recent years which wins academes great attention, and is
supposed to be an effective way replacing sensitivity analysis on processing imperfect information in MADM.
Compared to sensitivity analysis, robustness analysis considers parameters combination rather than a single
parameter at a time. It tries to know whether the conclusion changes (or not) when the parameter values vary,
rather than how the parameters vary without changing conclusions. Moreover, it has a more extensive
consideration, including environment parameters, method models and model parameters. There some
representative contribution including the studies of Roy, Vincke, Kouvelis and Yu, Dias, etc., which exploited our
scope on robustness analysis. Vincke proposed a formalism to define the concepts of robust solution and robust
method. His concept of robustness is that no solution contradicts the first one [1][2][3]; Kouvelis and Yudefine
robust solution as a rank with the best worst-case behavior in the context of discrete optimization problems[4]; Dias
defines robust solution as a scenarios combination that holds the rank unchanged with incomplete information[5], which
is also the background concept of this paper. In sum, Robustness analysis is a new direction in MADM, which
emphasizes that uncertain factors should be considered, and the optimal solution must be also robust and neutral.
ELECTRE- is one kind of important MADM methods based on valued outranking relation. How to set
parameters is an important step for ELECTRE-. In the second section , the problem to be discussed is
formulized, including ELECTRE- method, its transform and the incomplete informations denotation. In the
third section, a frame of robustness analysis method based on classical optimization theory is presented, which is
applied in inferring ELECTRE-s parameters in the fourth section. First, the constraints are transformed into
continuous smooth functions of parameters vector. Then several inferring algorithms of parameters are provided
by maximizing robustness margin based on mathematics programming.
The shipborne weapon system has became more enormous, more complex and more expensive to cope with
increasing surface and air threat, which will conflict with relatively skimpy military budget and limited loadage
capability. As a subsystem of warship combat system, naval gun weapon system plays an important role and takes
416
on many missions. How to obtain an optimal system integration plan, which will make the efficiency, cost, rate of
progress, life force, reliability, maintainability, percent of tonnage to be a suited level generally, is always a
pivotal problem for weapon system analysis expert and warship design department. MADM methods have been
applied in the integration of many weapon system.The fifth section provides an illustrative example of naval gun
weapon system integration as a case study on the method of inferring ELECTRE- s parameters. Furthermore, it
is discussed that this method can also be applied to other MADM methods in the last section.
2 Formulation
2.1 ELECTRE- method
The outranking relation construction is based on the alternatives set A = {a1 , a 2 , , a n } . To obtain the
outranking relation between the alternatives ai and a k ( ai , a k A ), concordance test and disconcordance test
proceed as follows:
1) Basic information
Let J = { j J : j = 1,2, , m} denote the set of attribute indices. y j (ai ) denotes the evaluation of an
alternative ai A on the attribute j . All the attributes are assumed to be benefit type, namely the higher the
value, the better it is. Let w ={ w1 , w2 , , wm } denote the set of weights proposed by decision makers. q j is
preference indifference threshold between alternatives on the j -th attribute, p j denote strictly preference
threshold ,and v j denote veto threshold. Namely when the preference attribute value between y j (ai ) and
y j (a k ) exceeds v j , the judgment that alternative ai generally outranks a k is no longer accepted.
2) Define concordance indices and disconcordance indices
C (ai , a k ) is defined as concordance indices of alternative couples ( ai , a k ) A 2 in ELECTRE- method:
C (ai , a k ) = j =1 w j c j (ai , a k ) j =1 w j
m m
(1)
where
0 if y j ai yj a k qj
c j (ai , ak ) = 1 if y j ai y
j a k pj (2)
y
j ai y j a kq j
otherwise
p jq j
Index c j (ai , ak ) denotes the degree of preference ai over a k on the j -th attribute, and C (ai , a k )
denotes the measurement that sustains the judgment ai outrank a k .
Disconcordance indices is d j (ai , a k ) :
0 if y y pj
j a k j ai
d j ( ai , a k ) = 1 if yj a k y
j ai vj (3)
y
j a k yj a i p j
otherwise
v jp j
d j (ai , a k ) denotes the measurement that rejects the judgment ai outrank a k .
c j (ai , ak ) d j (ai , ak )
1
y j (ak )
0
y
j ai pj y
j ai qj y j (ai ) y
j ai+ pj y
j ai+ vj
417
In Fig. 1, horizontal axis denotes y j (a k ) , vertical axis denotes the function values of c j (ai , ak ) and
d j (ai , a k ) , in which broken line is c j (ai , ak ) function, and dashdotted line is d j (ai , a k ) function.
Suppose
J + = { j J | d j (ai , ak ) C (ai , ak )}
(4)
J = { j J | d j (ai , a k ) > C (ai , a k )}
J + (ai , ak ) denotes the subset of J that d j (ai , a k ) C (ai , a k ) , J (ai , ak ) denotes the subset that
d j ( a i , a k ) < C ( ai , a k ) .
3) Define valued outranking relationship
Define valued outranking relationship between alternative couple ( ai , a k ) as S (ai , a k ) :
C ( a i , a k ) if j J +
1 d j ( ai , a k ) (5)
S ( ai , a k ) =
C ( ai , a k ) if j J
jJ ( ai , ak ) 1 C (ai , a k )
Then
D ( a i , a k ) = D j ( ai , a k ) (7)
jJ
Then
S ( ai , a k ) = C ( a i , a k ) D ( ai , a k ) (8)
By the valued outranking relation S (ai , a k ) , it is possible to define a family of nested crisp outranking
relations S :
S = {( ai , a k ) A A : S (ai , ak ) }, [0.5,1] (9)
is belief level that S (a i , a k ) satisfies S .
2.2 Transformed ELECTRE-
From the formulas (6)~(8), there is a nonlinear relationship between S (ai , a k ) and w , which is difficult to
be solved. Furthermore the subset of attributes J cant be integrated into programming function. The Ref. [6]
studied the weights and veto thresholds in S (ai , a k ) , and also consider that S (ai , a k ) is a continuous
undifferentiable nonlinear concave function of w .
To make classical optimization methods applied easily, S (ai , a k ) is transformed as follows.
Transformed disconcordance index d ' j (ai , a k ) is
0 if y y uj
j a k j ai
d ' j ( ai , a k ) = 1 if y j a k yj a i vj (10)
y
j a k y j ai uj
otherwise
v j u j
418
c j (ai , ak ) d ' j (ai , ak )
1
y j (ak )
0
y
j ai pj y
j ai qj y j (ai ) y
j ai+uj y
j ai+ vj
Then
D' j (ai , ak ) = Min{1,1 d ' j (ai , ak )} (12)
Denoted as
p = ( p1 , p 2 , , p m ) P R m
Denoted as
q = (q1 , q 2 , , q m ) Q R m .
419
6) Veto indifference threshold space
(a) u l j u j u u j , j J ;
(b) v j u j p j ;
(c) u j = p j + j (v j p j ) .
Denoted as
u = (u1 , u 2 , , u m ) U R m
Suppose
= {w, , p, q, v, u}
The parameters space
= W P Q V U
Then
(MP)
S (ai , ak ) + (ai , ak ) S
, j J
denotes every parameters in the section 2.3, and denotes constrained domain.
Definition 2: Let
= S ' ( ai , a k )
is Robustness Margin of alternative ai outranking a k , 0 1 .
The rank is more robust when is larger.
Definition 3: If the programming (MP) have solution, the maximum of ( max ) can be obtained which is
called maximum robustness margin, and the solution is optimal parameter vector opt .
ELECTRE-s parameters inferring algorithm:
1) Problem formulation: Define alternatives set A and attributes set J ; Experts assign evaluation values
y j ( ai ) .
2) Set initial parameters : Set initial parameters 0 , parameters constraints, and other ELECTRE-s
parameters;
3) S + and S : Obtain S + and S by ELECTRE-;
4) max and opt : Solve the programming (MP) to obtain maximum robustness margin max and optimal
420
parameter vector opt ;
5) S ' (ai , ak ) : Obtain the indices S ' (ai , ak ) by ELECTRE- with opt , ai , a k A ;
6)Rank : Obtain the rank of set A by S ' (ai , ak ) .
j =1 w j c j (ai , ak ) D' (ai , ak ) j =1 w j + (ai , ak ) S (MP1)
m m
w j = 1, w j , w W , j J ,
j =1
The programming (MP1) is a linear programming of weights w and cutting level . The optimal
estimation of w and can be obtained by simplex method.
4.2 Inferring Preference parameters
1) Inferring preference threshold q j and preference indifference threshold p j
When inferring preference threshold q j and preference indifference threshold p j at single attribute j ,
other parameters are fixed. The programming (MP) is segmented and concave is difficult to solved. A eclectic
method is to smooth the segmented function c j (ai , ak ) :
0 if j (ai , ak ) q u j
c j (ai , ak ) = 1 if j (ai , ak ) p l j (17)
( (a , a )q j ) /( p jq j ) otherwise
j i k
Then the constraints of (MP) can be embodied as follow:
Max ( p j , q j )
s.t. ( + C ) m w / w c (a , a ) (a , a ) S +
j j =1 j j j i k i k
D' (MP2)
+ +
C j ) j =1 w j / w j c j (ai , a k ) (ai , ak ) S
m
-(
D'
j pj p j ,q j qj q j , j J
l u l u
p
j =1 w j
m
C j ( ai , a k ) = C ( a i , a k ) w j c j ( ai , a k )
If the programming (MP2) has solution, the optimal preference threshold p opt
j and optimal preference
421
indifference threshold vector q jopt can be obtained.
2) Inferring preference threshold vector q and preference indifference threshold vector p
The segmented function c j (ai , a k ) is smoothed in the same way as above. If the programming problem has
solution, the optimal preference threshold vector p opt and optimal preference indifference threshold vector qopt
can be obtained.
4.3 Inferring Veto parameters
1) Inferring veto threshold v j and veto indifference threshold u j
Other parameters are fixed when veto threshold v j and veto indifference threshold u j of single attribute
j of single attribute j are inferred. The programming (MP) is also is segmented and concave. The smoothed
function d ' j (ai , a k ) is:
0 if j (a k , a i ) u l j
d ' j (ai , a k ) = 1 if j (a k , a i ) v u j (18)
( (a , a )u ) /(v u ) otherwise
j i k j j j
Then:
Max (u j , v j )
s.t. ( + ) / C D j ' d ' j (ai , ak ) (ai , ak ) S
+
(MP3)
-( + + ) / C D j ' d ' j (ai , ak ) (ai , ak ) S
u l j u j u u j , vl j v j vu j , j J
Decision makers attach different regard on every attribute in terms of special integration problem. Weights
reflect decision makers preference. Suppose attributes set of naval gun weapon system is w ,
w ={efficiency; cost; risk; applicability; compatibility; life force}
According to the algorithm of section 3, the process of naval gun weapon system integration is listed as
422
bellow:
1) Standardized attributes values of three feasible integration alternatives are provided in Tab.2, initial
weights vector w0 is listed in Tab. 3. Parameters constraints are set as follows, which are more or less simple
but has its generality:
0.3 w1 0.5 , 0.1 w2 0.2 , w1 2w2 , 0.1 w3 0.2 , 0.1 w4 0.2 , w5 0.1 , 0.1 w6 0.2 , = 0.001 ,
0.4 0.6 , 0.5 m j 0.7 , 0.5 p j 0.7 , 0 q j 0.2 , 0.5 j 0.7 .
4) Resolve programming (MP2) and (MP3). The optimal threshold vectors are listed in Tab.4:
Tab. 4 The optimal threshold vectors
Attribute 1 2 3 4 5 6
( p opt , q opt ) (0.7,02) (0.5,0.2) (0.5,0.2) (0.6,0.1) (0.7,02) (0.7,0.2)
(u opt , vopt ) (0.7,02) (0.6,0.1) (0.6,0.1) (0.6,0.1) (0.7,0.2) (0.7,02)
References
[1] Roy, B., A Missing Link in OR-DA: Robustness Analysis, Foundations of Computing and Decision Sciences, 1998, 23(1):
141-160.
[2] Vincke, P., Robust Solutions And Methods in Decision Aid, Journal of Multi-Criteria Decision Analysis 1999, 8(1):181-187.
[3] Vincke, P., Robust and Neutral Methods for Aggregating Preferences into an Outranking Relation, European Journal of
Operational Research, 1999, 112(2): 405-412.
423
[4] Vincke, P., About the Application of MCDM to Some Robustness Problems, European Journal of Operational Research, 2006.
176(3): 645-658.
[5] Kouvelis P., Yu G., Robust Discrete Optimization and Its Application, New York: Kluwer Academic Publishers, 1997.
[6] Luis C. D., Joao N. C., On Computing ELECTREs Credibility Indices under Partial Information , Journal of Multi-Criteria
Decision Analysis 1999, 8(1):74-92.
[7] Figueira J.(Ed.), Multiple Criteria Decision Analysis: State of the Art Surveys, New York: Kluwer Academic Publishers, 2005:
346
424
A Co-Marginalistic Contribution Value for Set Games on Matroids
Abstract The purpose of this paper is to explore the possibility of characterizing a co-marginalistic contribution value on the space
of set games restricted by matroids. Their axiomatic characterizations include global efficiency and equal treatment property, and one
kind of axiom of co-coalitional marginalistic monotonicity, which is a modification of the axiom of monotonicity.
Keywords CMC-value, Axiomatic characterizations, Matroid
1. Introduction
A cooperative TU-game is described as a triple ( N , v, ) , where N is a finite players set, is the set of
N
real numbers, and v is a mapping from 2 to . In TU-games, the gain of coalitions is considered to be a real
number. But if the result of cooperation in cooperative games is expressed by a set instead of a real number, then
the new model studied first by Hoede [1], are called set games, which is a triple ( N , v, u ) where N is a finite
player set, u denotes an abstract set, called universe, v is a mapping v : 2 2 with v ( ) := , so the worth
N u
v ( S ) of coalition S is a subset of the universe U If no confusion arises, we call ( N, v) a set game. Let G ( u )
denote the space of set games and n be the cardinality of N . A solution concept f ( N , v ) is a mapping
value if f ( N , v ) is a singleton for any set game ( N , v ) G ( u ) . Aarts et al. [2] have discussed some values
characterized by the additivity, analogous to that for TU-games, and other standard axioms. The individually
marginalistic value for monotonic set games( v ( S ) v ( T ) whenever S T N was proposed by Aarts et al. [3].
A coalitional power value for set games, which is equivalent to the individually marginalistic value for monotonic set
games, was discussed by Sun et al.[4]. Sun et al.[5] have characterized a co-marginalistic contribution value for set
games, which can be considered to be the analog of the solidarity value for n -person TU-games in [6]. One type of
values, called semi-marginialistic values for set game, was presented by Sun et al.[7]. The root of their
characterization's idea was from Young [8]. The Shapley value for games on matroids was discussed by Bilbao et al. [9]
[10]. Two type of values for set games on matroids were characterized by Sun et al. [11] [12]. Our purpose in this paper
is to explore the possibility of characterizing the co-marginalistic contribution value on the space of set games restricted
by matroids.
The organization of this paper is as follows: Section 2 recalls some results of matroid. Section 3 introduces
the set games on matroids and co-marginalistic contribution value characterized by three axioms for set games on
matroids.
2. Matroids
Assume that the following two rules of cooperation between players hold. If a coalition can form, then any
sub-coalitions is feasible. In general, the players that take part in the formation of a coalition have common
interests. Therefore, any subset of these players has at least the same common interests. Secondly, if there are two
coalitions where the cardinal diers in one element, a player of the largest can join with the smallest making a
feasible coalition. For this reason, we will define the feasible coalitions by using combinatorial geometries called
matroid. In the following we will discuss the co-marginalistic contribution value for set games on matroids.
Definition 2.1. A matroid is a pair ( N , M ) consisting of a finite set N and a collection M of subsets of
N satisfying the following properties:
This research has been supported by National Natural Science Funds of China (No: 70571065).
425
(i). M
(ii). If S M and T S then T M
(iii). If T , S M with S = T + 1 , then there exists i S \ T such that T {i} M .
Example 2.2. Let E be the set edges of a graph G and let M = M ( G ) be a family that consists of those
subsets of E that do not contain a cycle of G , The matroid ( E, M ) is called a graphic matroid or forest
matroid of G .
If M = 2 , then it is called the trivial matroid ( consist of all subsets).
N
Instead of the formal approach above mentioned, the next characteristics of a matroid will be of importance
throughout the remainder of this paper. Elements of a given matroid are called independent set and furthermore,
for a given set system ( N , M ) and S N , a subset B S , B M is called a basis of S if
B {i} M for all i S \ B . That is, B is a basis of S when B is a maximal feasible subset of S . For
every S N , all bases of S have the same cardinality.We call the bases of N the bases of the matroid ( N , M ) .
The property (ii) in Definition 2.1 implies that the subsets of any basis are independent sets and thus,
2 B M for every basis B B ( M ) , where B ( M ) is the family of bases of N . We suppose that
{i : i S} = N
S M
any basis B B ( M ) , a set game ( B, vB ) is obtained by restricting v to the power set of B , i.e., for any
S B , vB ( S ) = v ( S ) .
Let
M
(u ) be the collection of all set games on the matroid M . In the following, we will discuss a
value for set games on the space ( u ) and let ( N , v, M ) denote a set game on the space M ( u ) . A value f
M
iN
s, T N , S T refer to the proper subset S of T .
Definition 3.2. A co-marginalistic contribution value, or shortly CMC-value on the set game space
M
(u )
is a member of the family of set game-theoretic values of the following form: for all i N .
CMCi ( N , v, M ) = v (T ) v (T { j}) = v (T ) v (T { j})
T M jT T M jT
iT iT
= CMC CMC v
T
v
T = CMCi ( B, vB ) (1)
T M BB ( M ) T B BB ( M )
iT iT
satisfying CMCTv CMCTw for all T M , where the co-marginalistic contribution CMCTv =
v (T ) \ v (T { j} )
jT
Lemma 3.4. If a value f on M ( u ) has the global efficiency and co-marginalistic contribution
monotonicity property, then f i ( N , v, M ) CMCi ( N , v, M ) holds, for all ( N , v, M ) and all i N .
Proof. Suppose a value f on
M
(u ) has the global efficiency and semi-marginalistic monotonicity
property. Let( N , v, M ) M ( u ) be a set game and i N .In order to show the
inclusion f i ( N , v, M ) CMCi ( N , v, M ) , let x f i ( N , v, M ) , but assume, on the contrary,
x CMCi ( N , v, M ) . Define a new set game ( N , w, M ) as follows:
co-marginalistic contribution monotonicity of f , but this equality contradicts the facts that x f i ( N , v, M )
and x f i ( N , w, M ) . This contradiction completes the proof, provided we establish the claim
above-mentioned. Let S M with i S . We distinguish two cases. If x v ( S ) , then w ( S ) = v ( S ) and it
holds that
CMCSw = w ( S ) \ w ( S { j} ) = v ( S ) \ v ( S { j} ) = CMCSv . (5)
jS jS
CMCSw = w ( S ) \ w ( S { j} ) = v ( S ) \ { x} \ w ( S { j} )
jS jS
= v ( S ) \ v ( S { j} ) = CMCSv . (6)
jS
Theorem 3.5. (cf. Sun et al.[5]) For any basis B B ( M ) , there exists a unique value f on the space of set
game ( u ) ( B being the set of players) having the global efficiency, the equal treatment property and the
co-marginalistic monotonicity. The value f is described as follows: for any i B ,
427
f i ( B , vB ) = v ( S ) \ v ( S { j}) = CMC ( B, v ) . i B (7)
S B jS
iS
Theorem 3.6. There exists a unique value f on the set game space
M
(u ) satisfying the global efficiency,
the equal treatment property and the co-marginalistic contribution monotonicity. The value f is described as
follows: for any set game ( N , v, M ) M ( u ) and for any i N ,
fi ( N , v, M ) = CMCi ( N , v, M ) (8)
Proof. It is easily proved that the co-marginalistic contribution value CMC ( N , v, M ) has the global
efficiency, the equal treatment property and the co-marginalistic contribution monotonicity. In order to show the
uniqueness of Theorem 3.6, we only prove the following chain: for any i N ,
CMCi ( B, vB ) = CMCi ( N , v, M ) fi ( N , v, M )
BB ( M )
f i ( B , vB ) = CMCi ( B, vB ) (9)
BB ( M ) BB ( M )
By Lemma 3.4 and Theorem 3.5, the remainder of proof is that, for any i N , the conclusion
f i ( N , v, M ) fi ( B, vB ) holds. It is sufficient to verify that, for any i B and for any basis
BB ( M )
B B ( M ) of the matroid M , fi ( N , v, M ) fi ( B, vB ) . Let us proceed in three steps for the above claim.
The elementary set game ET for any T N with T is defined by ET ( S ) = u whenever T = S ,
otherwise ET ( S ) = .For any S M with ( v (T ) ET )
iS ,
T M
( S ) \ ( v (T ) ET ) ( S \ { j}) ( v (T ) ET ) ( S ) \ ( v (T ) ET ) ( S \ { j}) since,
jS T M T B jS T B
if S B with i B , ( v (T ) ET ) ( S ) \ ( v ( T ) ET ) ( S \ { j} )
T M jS T M
= v ( S ) \ v ( S \ { j} ) = ( v (T ) ET ) ( S ) \ ( v (T ) ET ) ( S \ { j} ) , and otherwise,
jS T B jS T B
( v (T ) ET ) ( S ) \ ( v (T ) ET ) ( S \ { j}) = .By the co-marginalistic contribution
T B jS T B
monotonicity of the value f , we have that
fi ( N , v, M ) = f i N , ( v (T ) ET ), M fi N , ( v (T ) ET ), M (10)
T M T B
Next we claim that, for any i N and for any i B ,
fi N , ( v (T ) ET ), M = f i N , v (T ) \ v (T \ { j} ) ET , M (11)
T B T B jT
The reason is that, for any S M with i S , the conclusion
( v (T ) ET ) ( S ) \ ( v (T ) ET ) ( S \ { j} ) = v (T ) \ v (T \ { j} ) ET
T B jS T B T B jT
428
( S ) \ v (T ) \ v (T \ { j}) ET ( S \ { j}) holds. We also have that, for any
T B
jS jT
T B, fi N , v (T ) \ v (T \ { j} ) ET , M f i N , v (T ) \ v (T \ { j} ) ET , M Then,
T B
jT jT
we obtain that
fi N , v (T ) \ v (T \ { j} ) ET , M fi N , v (T ) \ v (T \ { j} ) ET , M Beca
T B T B
jT jT
use the value f has the global efficiency, the equal treatment property and the co-marginalistic contribution
monotonicity, we have that
fi N , v (T ) \ v (T \ { j} ) ET , M = v (T ) \ v (T \ { j} ) . (12)
jT jT
Furthermore, we have
f N , v (T ) \ v (T \ { j}) E
i T , M = v (T ) \ v (T \ { j} ) = f i ( B, vB ) ,
T B jT T B jT
iT
the last equality following from Theorem 3.5. Thus,we know that
fi N , v (T ) \ v (T \ { j} ) ET , M fi ( B, vB ) (13)
T B
jT
Combining (10), (11) and (13), we read that, for any i B and any B B ( M ) ,
f i ( N , v , M ) f i ( B , vB ) , (14)
And
f i ( N , v, M ) f i ( B , vB ) . (15)
BB ( M )
References
[1] Hoede C Graphs and games, Memorandum 1065, Faculty of Applied Mathematics, University of Twente, Enschede, The
Netherlands. 1992
[2] Aarts H, Funaki Y, Hoede C. Set games, Homo Oeconomicus XVII (1/2), 137-154, (ACCEDO Verlagsgesellschaft, Munchen
2000), In : Power Indices and Coalition formation, (Manfred J. Holler, and Guillermo Owen, eds.), Kluwer Academic
Publishers, Dordrecht, The Netherlands. 2000
[3] Aarts H, Funaki Y, Hoede C A marginalistic value for monotonic set games. International Journal of Game Theory, 1997, 26,
97-111.
[4] Sun H, Zhang S, Li X A coalitional power value for set games. Acta Mathematicae Applied Sinica, English series. 2003,19:
417-424
[5] Sun H, Zhang S, Li X, Driessen T, Hoede C, A co-marginalistic contribution value for set games. International Game Theory
Review,2001, 3, 351-362.
[6] Nowak A, Radzik T. A Solidarity Value for n-Person Transferable Utility Games.International Journal of Game
Theory,1994,23, 43-48
[7] Sun H, Driessen T, Semi-marginalistic values for set games. International Journal of Game Theory, 2006, 34, 241-258.
[8] Young P, Monotonic solutions of cooperative games. International Journal of Game Theory, 1985, 14, 65-72.
[9] Bilbao J, Driessen T, Jimnez Losada A, Lebrn E, The Shapley value for games on matroids: The static model. Math. Meth.
Oper. Res., 2001, 53, 333-348.
[10] Bilbao J, Driessen T, Jimnez Losada A, Lebrn E, The Shapley value for games on matroids: The dynamic model. Math. Meth.
Oper. Res., 2002, 56, 287-301.
[11] Sun H, Driessen T. A individually marginalistic value for set games on matroids. 2nd Cologne Twente Work Shop on Graphs
429
and Combinatorial Optimization, University of Twente, The Netherlands, 116-120. (14th-16th, May 2003.)
[12] Sun H, He H, A semi-marginalistic value for set games on matroids, proceedings the eighth national conference of operations
research society of China, 2006, 610-615.
430
Dynamic Features Extraction in Soybean Futures Market of China
Abstract By applying symbolic data analysis (SDA), this paper investigates the dynamic features of soybean futures market of
Dalian Commodity Exchange (DCE) during 2002 to 2004. First, interval data is created by classifying mass futures contracts as
different years and different residual time to their deadlines; and then DIV clustering method is applied on these interval data which
produces further simplified cubic time series table of interval symbolic data and greatly reduces the dimension of the sample space.
Based on that, factor analysis of interval data is adopted to extract dynamic principal characteristics of soybean futures, which
reduces the dimension of the variable space. The results of the case study, which are rightly coincident with the realities, verify the
application value of SDA in analyzing mass, dynamic and complex data.
Keywords Mass data, Soybean futures, Cubic time series table, Interval data, Factor analysis
1. Introduction
In the analysis of large scale data set, high dimension of both sample and variable spaces leads to complex
computation and it is also difficult to obtain the integral structure of the data set. To solve the problem, E.Diday
(1988) proposed a brand-new way of data analysis - symbolic data analysis (SDA), which is a kind of multivariate
statistic analysis technique oriented to large scale database retrieval and capable of multilevel analysis. Extended
from traditional data, cells of data table in SDA could be not only quantitative or qualitative but also a concept,
multivalued variable, interval or distribution. Because of those advantages of SDA, it is especially effective in
knowledge exploring to the data set of large scale and complex types.
In the traditional multivariate statistic analysis, principal component analysis provides an efficient way for
data reduction. In the field of SDA, Cazes (1997) presented principal component analysis (PCA) on interval data,
and Lauro, Verde and Palumbo proposed factor discriminant analysis method on symbolic data. Based on global
PCA on cubic time series data table, Wang, Hu (2003) introduced global PCA on cubic time series table of
interval data, which was successfully applied in features extraction in stock market of China. There are three
advantages of it: 1) SDA realizes dimension reduction in the sample space; 2) PCA performs dimension reduction
in the variable space; 3) analysis on cubic time series data set explores dynamic features of the complex system.
This paper applies global PCA on cubic time series table of interval data to the dynamic features extraction in
soybean futures market of China. In section 2, modeling method of global PCA on cubic time series table of
interval data is introduced. After that, section 3 adopts the method to analyze principal factors of the soybean
futures market of China. Finally, we give a conclusion of the paper in section 4.
This research has been supported by National Natural Science Funds of China (No: 70531010, 70521001, 70371007), and Beijing Natural Science Funds (No:
9052006).
431
x1t [ x11t , x11t ] [ x1t p , x1tp ]
where Z t = = t
, (t = 1, , T ) , and observation xi is an interval object.
xnt [ xnt 1 , xnt1 ] t t
[ xnp , xnp ]
xit , a hyperrectangle in the p-dimension space, can be described by a matrix with 2p rows and p columns
where each row contains the coordinates of one vertex of the hyperrectangle in Rp, which can be denoted as
xit1 xit2 xipt
t
x xit2 xipt
Vi = i1
t 2
t
x xit2 t
xip p
i1 2 p
Fj1
4
Fj = , j = 1, 2, ,m
FjT
f1tj f ( t ,1)
ij
Fjt = , fij = (i = 1, , n; j = 1, , m; t = 1,
t
where ,T ) .
t (t ,2 p )
f nj fij
(3) Conduct the interval principal components of Z
Let {
fijt = min f ij(t ,1) , , fij(t ,2
p
)
}, f t
ij {
= max f ij(t ,1) , , fij(t ,2
p
)
}; then fijt = fijt , f ijt is the interval
value of the i interval object on the j principal component. And the interval principal components of Z, denoted as
F1,F2,,Fm, are conducted by
Fj1
Fj = , j = 1, ,m 5
FjT
432
f1tj f1 j , f1 j
t t
where F j =
t
= , ( j = 1, , m; t = 1, ,T )
f njt f t , f t
nj nj
Finally, according to the loading plot and the rectangle projections of the interval objects on the factorial
plane, we can find the dynamic features of the original complex system with much integrated and simplified
results.
Fig.1 Change tendencies of the contracts in trading volume and open interest
433
3.2 Dynamic factor analysis of the five classes of contracts
Apply global PCA on cubic time series interval data of the five classes of the contracts from 2002 to 2004.
The cumulate contribution proportion of the first two principal components is 77%, and the loading plot is shown
in Fig.2 which exposes the relationships of the first two principal components and the original variables.
Furthermore, plot the interval principal components of the five classes of contracts in 2002~2004, which
illustrate the features and change tendencies of the soybean futures market in price (component 1) and trading
434
(component 2) aspects.
From the direction of the first component in Fig.4, we can find the following features of the futures market in
price:
1) contracts are fairly divided by time, which implies a yearly rise of the price in the futures market;
2) contract intervals in 2003 range larger, which implies higher fluctuations of contract price in 2003;
3) the disparities of the average price of different class of contracts is enlarged in 2004, where class I, II, III
are higher than class IV, V.
Besides, we can see from the direction of the second component in Fig.4 that:
1) contract trading of 2003 is more active than that of 2002 and 2004;
2) in 2002~2003, trading activity of class II, III is higher than class IV, V and the trading disparities between
different classes tend to expand, while in 2004, the trading of class III and IV increased a little, which implies the
trading time of the speculators in the soybean futures market generally advanced.
3.3 Radar-graphs of the five classes of contracts in 2002~2004
To compare with the above results of factor analysis, radar-graphs of the five classes of contracts in 2002~2004
are listed below. In Tab.2, each row gives comparisons of the five classes of contracts in the variables of balance price,
trading volume and open interest of every year; while each column reflects the dynamic change tendencies of the five
classes of contracts in every variable.
Tab.2 Comparisons of the five classes of contracts in 2002~2004
435
It is similar with the above results of PCA: in the same year, there is no great difference between the five
classes of contracts in price, but large disparity in their trading volume and open interest where class II, III are
higher than class IV, V; besides, the contract price has been increasing from 2002 to 2004, while the trading
activity is higher in 2003.
4. Conclusion
This paper introduces and applies SDA technique to overcome difficulties of traditional modeling methods on
large scale data set. Following the idea of data package, it realizes the reduction in both sample and variable
spaces but without destruction to the original internal logic relationship of the dataset, which efficiently solves the
contradiction of hard management of the mass data to its easy collection and storage.
In this paper, SDA is applied to the simplification and the dynamic factor extraction in the soybean futures
market of DCE. By classifying and clustering mass futures contracts as different years and different residual time
to their deadlines, cubic time series table of interval symbolic data is constructed, which greatly reduces scale of
the data set. Based on that, global PCA on interval data is adopted to extract dynamic principal characteristics of
soybean futures. The results of the case study are proved same with the actual status, which verifies the validity
and rationality of the modeling method in integrating and extracting information of the multidimensional and
dynamic complex system.
Reference
436
Extension of the VIKOR for Decision-Making Problems
under Fuzzy Environment
Wang Yongchun
Doctoral Student Squadron, Dalian Naval Academy , Liaoning, China, 116018
Abstract The multiple attribute decision making (MADM) problem with fuzzy data is investigated in this paper, initiated with a
desire to utilize a fuzzy decision making tool in the configuration evaluating of C3I systems in service. In some cases, determining
exact values of the attributes are difficult and as result, their values are considered as fuzzy data, which can be described by linguistic
values or triangular fuzzy numbers. Therefore, the aim of this paper is to extend the compromise method VIKOR for
decision-making problems under fuzzy environment. An algorithm is presented to determine the most preferable choice among all
possible choices when data is fuzzy numbers. The procedure of the proposed algorithm is illustrated with a real example.
Key words MADM, VIKOR, Triangular fuzzy number, Compromise, Majority rule
1. Introduction
This research was initiated with a desire to utilize a fuzzy decision making tool in the configuration
evaluating of C3I systems in service for their technical maintenance. Attributes such as information accuracy,
information consistency, system availability and picture completeness are considered. From a methodological
point of view, the equipment configuration evaluating problem is a fuzzy multiple attribute decision-making
problem where fuzzy assessments are considered. MADM problems, arise in many real-word situations (Chen and
Hwang, 1992; Chu and Lin, 2003; Hwang and Yoon, 1981; Ma et al., 1999; Malakooti and Zhou, 1994) [4,8,13,18,19],
are of importance in a variety of fields including engineering, economics, etc. For a review of the various MADM
methods the reader is referred to, for example, Hwang and Yoon (1981), Chen and Hwang (1992), Stewart (1992)
and Yoon and Hwang (1995). Liang and Ding have made these attributes of MADM problems into objective and
subjective categories (Ding and Liang, 2005)[12]. Chu and Lin have extended TOPISIS method into fuzzy
environment for robot selection (Chu and Lin, 2003)[8]. Wang and Parkand have resolved a MADM problem
based on fuzzy preference information on alternatives (Wang and Parkand, 2005)[22]. In the equipment
configuration evaluating decision problem, where ranking and selection is required. MADM situations are
characterized by the following interrelated problems:
The problems involve fuzziness and the decision maker has the difficult task of choosing the best alternative
among the many alternatives. The imprecision comes from a variety of sources such as (i) unquantifiable
information, (ii) incomplete information, (iii) no obtainable information (Chen, and Hwang)[6]. In many cases the
decision maker has inexact information about the alternatives with respect to an attribute.
The classical MADM methods cannot effectively handle problems with such imprecise information. These
classical methods, both deterministic and random processes, tend to be less effective in conveying the imprecision
and fuzziness characteristics. This has led to the development of fuzzy set theory (FST) by Zadeh (Buckley, 1985;
Chen, 2000; Chen et al., in press; Dimova et al., 2006; Zadeh, 1965; Zadeh, 1975(a))[1-3,11,23,24], who proposed that
the key elements in human thinking are not numbers but labels of fuzzy sets. FST is a powerful tool to handle
imprecise data and fuzzy expressions that are more natural for humans than rigid mathematical rules and
equations. It is obvious that much knowledge in the real world is fuzzy rather than precise. In C3I system
ranking/selection problems, decision data of MADM problems may be have some structures such as bounded data,
ordinal data, interval data, and fuzzy data. Without losing generality, assume that the decision data are expressed
by fuzzy numbers.
From a systematical and practical point of view, the equipment configuration evaluating problem is a fuzzy
multiple attribute decision-making problem where the relativities and conflicts among multiple attribute are
This research has been supported by National Natural Science Founds of China (Differential Game Theoretical Models of Fire Allocation for Warship Formation
and Decision System, No: 70571086)
437
considered (Chen et al., 2005; Chiu et al., 2004; Chu, 2002) [5,7,9]. The VIKOR method was developed for multiple
attribute optimization of complex systems. It determines the compromise ranking-list, the compromise solution,
and the weight stability intervals for preference stability of the compromise solution obtained with the initial
(given) weights. This method focuses on ranking and selecting from a set of alternatives in the presence of
conflicting attributes. It introduces the multiple attribute ranking index based on the particular measure of
closeness to the ideal solution (Lin et al., 2005; Opricovic and Tzeng, 1994)[17,20]. In this paper, by considering the
fact that, in some cases, determining exact values of the attributes are difficult and as result, their values are
considered as fuzzy data, which can be described by linguistic values or triangular fuzzy numbers. Therefore,
VIKOR is extended to develop a methodology for solving MADM problems under fuzzy environment.
The rest of the paper is organized as follows: next section presents the MADM problem under fuzzy
environment. Section 3 presents an algorithm to extend VIKOR to deal with the MADM problem with triangular
fuzzy numbers. In Section 4, the proposed algorithmic method is illustrated with an example. The final section
gives short conclusions.
438
~
c( N ) = (t + n + r ) 3 (3)
~ ~ ~ ~
(M ) and (N ) denote the discrete degrees of fuzzy triangular numbers M and N from their
barycenters, respectively
~
( M ) = [(l 2 + m 2 + u 2 lm lu mu ) 18]1 2 (4)
~
( N ) = [(t 2 + n 2 + r 2 tn tr nr ) 18]1 2 (5)
~ ~ ~ ~
R ( M , N ) is the mean area ranking method of triangular fuzzy numbers M and N
2
M~ ~ ~ ~
> N , if s ( M ) > s ( N )
~ ~ ~ ~ ~ ~
R 2 ( M , N ) = M = N , if s ( M ) = s ( N ) (6)
~ ~ ~ ~
M < N , if s ( M ) < s ( N )
~ ~ ~
Where s ( M ) denotes the mean area index of the fuzzy triangular number M , shown in Fig.2, and s ( N )
~
denotes that of N
~ ~
s ( M ) = (l + 2m + u ) 4 , s ( N ) = (t + 2n + r ) 4 (7)
~ ~ ~ ~
And d ( M , N ) is the distance of M and N .
~ ~ 1
d (M , N ) = (| l t | + | m n | + | u r |) 2 (8)
3
~ ~ ~y ( x) ~
~y ( x) N M M
1
1
~ M~ ( x)
s (M )
x
x 0
0
l t n m u r c( M )
~ ~ ~
Fig.1. The triangular fuzzy number M and N Fig.2. The barycenter index c( M ) and mean area index
~ ~
s ( M ) of the triangular fuzzy number M
W = (w1 , w2 , , wm )
T
~
Where ij is a triangular fuzzy number and ~ij = ( ijl , ijm , iju ) . wi is the weight of attribute f i .
~
Step 2: Construct the fuzzy normalized decision matrix. Linear normalization can be used to calculate f ij .
439
~ ijl ijm iju
f ij = ( f ijl , f ijm , f iju ) = * , * , * (10)
j j j
~ ~ ~ ~ ~
F k = { f 1 k , f 2 k , , f m k } = {min
j
( R k f ij ) | i = 1,2, , m} , k = 1 or 2 (13)
Step 4: Calculate group utility indexes S j , individual regret indexes R j and the compromise indexes Q j .
In the VIKOR method, the multiple attribute measure for comprise ranking is developed from the L p -metric
used as an aggregating function in a compromise programming method. The L p -metric with fuzzy triangular
numbers can be calculated according to Eq.(8) as follows:
1 p
m ~ ~ ~ ~
L p, j = [ wi d ( f i * , f ij ) d ( f i * , f i )] p , 1 p ; j = 1,2, ,n (14)
i =1
Then
m
~ ~ ~ ~
S j = L1, j = wi d ( f i * , f ij ) d ( f i * , f i ) , i = 1,2, , m ; j = 1,2, ,n (15)
i =1
~ ~ ~ ~
R j = L , j = max[ wi d ( f i * , f ij ) d ( f i * , f i )] , i = 1,2, , m ; j = 1,2, ,n (16)
i
Q j = v ( S j S * ) ( S S * ) + (1 v) ( R j R * ) ( R R * ) (17)
Where
S * = min
j
S j , S = max S j , R * = min
j
R j , R = max R j
j j
S * is with a maximum group utility (majority rule), and R * is with a minimum individual regret of the
opponent. Alternatives must also be the best ranked by S or/and R . This compromise solution is stable
within a decision making process, which could be: voting by majority rule(when v > 0.5 is needed), or by
consensus v 0.5 , or with veto ( v < 0.5 ). Here v ( 0 v 1 ) is the weight of the strategy of the majority of
attributes (or the maximum group utility).
Step 5: Rank the preference order of all alternatives according to Q j , S j and R j in decreasing order. The
results are three ranking lists. Propose as a compromise solution the alternative ( a ) which is ranked the best by
the measure Q (minimum) if the following two conditions are satisfied:
C1. Acceptable advantage:
Q(a) Q(a) DQ (18)
Where a is the alternative with second position in the ranking list by Q ; DQ = 1 (n 1) ; n is the
number of alternatives.
C2. Acceptable stability in decision making:
Alternative a must also be the best ranked by S or/and R . If one of the conditions is not satisfied, then a
set of compromise solutions is proposed, which consists of:
Alternatives a and a if only condition C2 is not satisfied, or
Alternatives a, a, , a ( N ) if condition C1 is not satisfied; and a ( N ) is determined by the relation
440
Q(a ( N ) ) Q(a) < DQ for maximum N (the positions of these alternatives are in closeness).
4. Numerical example
In this section, we work out a numerical example to illustrate the VIKOR method for decision-making
problems with triangular fuzzy numbers. A case study of comparing five C3I systems ( x1 , x 2 , x3 , x 4 , x5 ) in service
was conducted to examine the applicability of this VIKOR method with triangular fuzzy numbers. Four technique
and tactic capabilities, such as information accuracy F1 , information consistency F2 , system availability F3 and
picture completeness F4 , are identified as the evaluation attributes for these systems.
Steps 1: The triangular fuzzy number decision matrix is shown in Tab. 1. Suppose that the vector of
corresponding weight of each attribute is W = (0.125,0.315,0.5,0.06) T .
Steps 2: The triangular fuzzy number normalized decision matrix is calculated, according to Eqs.(10) and (11)
and shown in Tab. 2.
Steps 3: The ideal and negative ideal solution are calculated, according to Eqs.(12) and (13), here k = 1 , and
shown in bottom of Tab. 2.
Tab. 2 The triangular fuzzy number normalized decision matrix
Alternative F1 F2 F3 F4
x1 (0.35,0.52,0.69) (0.39,0.41,0.45) (0.69,0.87,1.00) (0.14,0.53,1.00)
x2 (0.39,0.62,0.85) (0.21,0.22,0.24) (0.47,0.47,0.48) (0.25,0.40,0.53)
x3 (0.17,0.24,0.35) (0.92,0.97,1.00) (0.30,0.49,0.63) (0.15,0.24,0.33)
x4 (0.10,0.17,0.21) (0.17,0.19,0.22) (0.39,0.41,0.46) (0.41,0.51,0.68)
x5 (0.52,0.74,1.00) (0.65,0.67,0.69) (0.71,0.75,0.77) (0.54,0.66,0.80)
~*
f (0.52,0.74,1.00) (0.92,0.97,1.00) (0.71,0.87,1.00) (0.54,0.66,1.00)
~
f (0.10,0.17,0.21) (0.17,0.19,0.22) (0.30,0.41,0.46) (0.14,0.24,0.33)
Steps 4: The group utility indexes( S j ), individual regret indexes( R j ) and the compromise indexes( Q j ) are
calculated, according to Eqs.(14)-(17), here v = 0.5 , and shown in Tab 3, together with three corresponding
ranking lists.
Steps 5: According to Q j , S j R j and the acceptable conditions C1 and C2, the compromise ranking list of
the five candidates is X 5 , X 1 , X 3 , X 2 , and X 4 . Obviously, the satisfactory selection is candidate X 5 and X 1 .
441
5. Conclusion
VIKOR is a helpful tool in multiple attribute decision making, particularly in a situation where the decision
maker is not able, or does not know to express his/her preference at the beginning of system design. The obtained
compromise solution could be accepted by the decision makers because it provides a maximum group utility
and a minimum of the individual regret of the opponent. Considering the fact that, in some cases, determining
precisely the exact value of the attributes is difficult and that, their values are considered as fuzzy data, therefore,
in this paper VIKOR under fuzzy environment has been extended. Also, an algorithm to determine the most
preferable choice among all possible choices, when data is triangular fuzzy numbers, is presented. The main
ranking result is the compromise ranking list of alternatives, and the compromise solution with the advantage
rate.
References
[1] Buckley J.J., Fuzzy hierarchical analysis, Fuzzy Sets and Systems 17 (1985) 233-247.
[2] Chen C.-T., Extensions of the TOPSIS for group decision-making under fuzzy environment, Fuzzy Sets and Systems 114 (2000)
1-9.
[3] Chen C.-T., Lin C.-T., Sue-Fn Huang, A fuzzy approach for supplier evaluation and selection in supply chain management,
International Journal of Production Economics, in press.
[4] Chen S.-J., Hwang C.-L., Fuzzy Multiple Attribute Decision Making: Methods and Applications, Springer, New York, 1992.
[5] Chen M.-F., Tzeng G.-H., Michael Tang, Fuzzy MADM Approach for Evaluation of Expatriate Assignments, International
Journal of Information Technology and Decision Making, 4 (2) (2005) 1-20.
[6] Chen, S.J., Hwang, C.L., Fuzzy Multiple Attribute Decision-Making: Methods and Applications. Springer-Verlag, New York.
1992.
[7] Chiu Y.-C., Shyu J.Z., Tzeng G.-H., Fuzzy MADM for Evaluating the E-commerce Strategy, International Journal of Computer
Applications in Technology, 19 (1) (2004) 12-22.
[8] Chu T.-C., Lin Y.-C., A Fuzzy TOPSIS Method for Robot Selection, Springer-Verlag, London, 2003.
[9] Chu T.-C., Selecting Plant Location via a Fuzzy TOPSIS Approach, Int J Adv Manuf Technol, 20 (2002) 859-864.
[10] Cook W.D., Kress M., A multiple-criteria composite index model for quantitative and qualitative data, European J. Oper. Res.
78 (1994) 367-379.
[11] Dimova L., Sevastianov P., Sevastianov D., MADM in a fuzzy setting: Investment projects assessment application,
International Journal of Production Economics, 100 (1) (2006) 10-29.
[12] Ding J.-F. Liang G.-S., Using fuzzy MADM to select partners of strategic alliances for liner shipping, Information Sciences,
173 (1-3) (2005) 197-225.
[13] Hwang C.-L., Yoon K., Multiple Attribute Decision Making: Methods and Applications, Springer, Berlin, 1981.
[14] Li D.-F., Fuzzy Mutiobjective Many-Persion Decision Makings and Games, National Deference Industry Press, Beijing, 2003,
2-7 (I), 39-57 (II).
[15] Li D.-F., An approach to fuzzy muticriterion decision making under uncertainty, 169 (1-2) (2005) 97-112.
[16] Li D.-F., Yang J.-B., Fuzzy linear programming technique for multicriterion group decision making in fuzzy environments, 158
(1-4) (2004) 263-275.
[17] Lin J.-H., Tzeng G.-H., Jen W., Utilizing VIKOR to make ERP system supplier selection decision, Agriculture and Economics,
34 (2005), 69-90.
[18] Ma J., Fan Z.-P., Huang L.-H., A subjective and objective integrated approach to determine attribute weights, European J. Oper.
Res. 112 (1999) 397-404.
[19] Malakooti B., Zhou Y.Q., Feed forward artiDcial neural networks for solving discrete multiple criteria decision making
problems, Management Sci. 40 (1994) 1542-1561.
[20] Opricovic S., Tzeng GH., Compromise solution by MADM methods: A comparative analysis of VIKOR and TOPSIS.
European Journal of Operational Research, 156 (2) (2004) 445-455.
[21] Opricovic S., Tzeng G.H., Defuzzification for a Fuzzy Multicriterion Decision Model, International Journal of Uncertainty,
Fuzziness and Knowledge-based Systems, 11 (5) (2003), 635-652.
[22] Wang Y.-M., Parkand C., Multiple attribute decision making based on fuzzy preference information on alternatives: Ranking
and weighting, Fuzzy Sets and Systems 153 (2005) 331-346.
[23] Zadeh L.A., Fuzzy sets, Inform. and Control 8 (1965) 338-353.
[24] Zadeh L.A., The concept of a linguistic variable and its application to approximate reasoning, Inform. Sci. 8 (1975) 301-357(a),
199-249(b).
442
Extended Models to Non-uniqueness of Cross Efficiency in
Cross Efficiency Evaluation
Abstract Cross efficiency evaluation has been considered as a powerful extension tool of Data Envelopment Analysis that provides,
not only a unique ordering among the Decision Making Units (DMUs), but also eliminates unrealistic weighting schemes without
requiring the elicitation of weight restrictions from application area experts. But a factor which possibly reduces the usefulness of
cross evaluation method is that the ultimate cross efficiency may not be unique because the weights which maximize evaluated
DMUs simple efficiency may not be unique. This paper seeks to extend the model of Doyle and Green (1994), in which the ultimate
cross efficiency of every DMU is achieved by introducing a secondary objective function. In this paper, different secondary objective
functions are used to determine the ultimate cross efficiency, and the proposed models with the objective functions different from
each other can be applied under different circumstances denoting different meanings.
Key words Data envelopment analysis (DEA), Cross efficiency
1. Introduction
Data envelopment analysis (DEA) is concerned with comparative assessment of the efficiency of decision
making units (DMUs). While it has been proven an effective approach in estimating the empirical efficient
frontiers and measuring the relative efficiency of peer units, its flexibility in weighting multiple inputs and outputs
and its nature of self-evaluation have been criticized. Cross-evaluation method is a DEA extension tool that could
be utilized to identify good overall performers and rank DMUs since it was proposed by Sexton et al. (1986). Its
main idea is to use DEA in a peer evaluation instead of a self-evaluation. There are two principal advantages for
cross-evaluation method: (1) it provides a unique ordering among the DMUs; and (2) it eliminates unrealistic
weight schemes without requiring the elicitation of weight restrictions from application area experts (Anderson,
Hollingsworth, and Inman, 2002).
Cross efficiency evaluation has been used in various applications, e.g., efficiency evaluations of nursing
homes (Sexton et al.1986), R&D project selection (Oral, Kettani and Lang, 1991), preference voting (Green,
Doyle and Cook, 1996), and others. However, as noted in Doyle and Green (1994), the non-uniqueness of the
DEA optimal weights possibly reduces the usefulness of cross efficiency. Specifically, cross efficiency scores
obtained from the original DEA are generally not unique, and depending on which of the alternate optimal
solutions to the DEA linear programs is used, it may be possible to improve a DMUs (cross efficiency)
performance rating, but generally only by worsening the ratings of others. Sexton et al. (1986) and Doyle and
Green (1994) propose the use of secondary goals to deal with the non-uniqueness issue. They present aggressive
and benevolent model formulations. In the case of the benevolent model, for example, the idea is to identify
optimal weights that not only maximize the efficiency of a particular DMU under evaluation, but at the same time,
maximize the average efficiency of other DMUs. In the case of the aggressive model, one seeks weights that
minimize the average efficiency of those other units.
The purpose of the current paper is to extend the model of Doyle and Green (1994) by introducing various
secondary objective functions. Each new secondary objective function represents an efficiency evaluation
criterion. With these new models, one can compare the efficiency scores and get a better picture of cross
efficiency stability with respect to multiple DEA weights. The rest of this paper is organized as follows. Section 2
presents the cross efficiency evaluation approach. Extended models are introduced in section 3. Conclusions are
given in section 4.
The research has been supported by Chinese National Science Fund for Distinguished Young Scholars (No: 70525001) and Special Fund for Graduates of
Chinese Academy of Sciences for Science and Social Work (Innovation Groups).
443
2. Cross Efficiency Evaluation
Suppose we have a set of n DMUs, and each DMU j produces s different outputs from m different inputs.
The ith input and rth output of DMU j ( j = 1, 2,..., n) are denoted by xij (i = 1,..., m) and yrj ( r = 1,..., s ) ,
respectively. Cross efficiency is often calculated as a two-phase process. The first phase is calculated using the
standard DEA model, e.g., the CCR model of Charnes, Cooper and Rhodes, (1978).
*
Specifically, for any DMU d under evaluation, the efficiency score Edd under the CCR model is given by
the following optimization problem:
s
max E dd = urd rrd
r =1
Subject to (1)
m
v
i =1
id xid = 1
s m
u rd y rj vid xij 0
r =1 i =1
j = 1,...., n
u rd , vid 0
where vid and urd represent ith input and rth output weights for DMU d .
The cross efficiency of DMU j , using the weights that DMU d has chosen in model (1), is then:
s
u *
rd yrj
Edj = r =1
m
, d , j = 1, 2,..., n (2)
v
i =1
*
id ijx
where (*) denotes optimal values in model (1). For DMUj ( j = 1,2,..., n) , the average of all E dj ( d = 1,2,..., n),
1 n
E j = E dj , referred to as the cross efficiency score for DMUj.
n d =1
We point out that model (3) can be also expressed equivalently in the following deviation variable form:
Min d
m
s.t. v
i =1
id xid = 1,
s m
j = 1,..., n.
u r , vi , j 0, for all r, i, j.
where d is the deviation variable for DMU d and j the deviation variable for the jth DMU. Under
this model, DMU d is efficient if and only if d* = 0. If DMU d is not efficient, then its efficiency score is
1- d . ( d can be regarded as a measure of inefficiency). We refer to the deviation variable j as the
*
d-inefficiency of DMU j.
Note that optimal weights obtained from model (1) (or model (3)) are usually not unique. As a result, the
cross efficiency defined in (2) is arbitrarily generated, depending on the optimal solution arising from the
particular software in use (Despotis, 2002). To resolve this ambiguity, a secondary goal in cross efficiency
evaluation is introduced. As discussed above, Doyle and Green (1994) present benevolent and aggressive model
444
formulations that seek to identify optimal weights that not only maximize the efficiency of a particular DMU
under evaluation, but also minimize (maximize) the average efficiency of other DMUs. One form of the
benevolent model focuses on finding a multiplier bundle that maximizes the ratio of outputs to inputs for the
composite DMU made up of the n-1 peer units. (The composite DMU is created by aggregating the outputs and
inputs for all n-1 peer units). The aggressive form of this would involve minimizing the ratio for the composite
unit.
Let us now examine various forms of secondary goals for aiding in cross evaluation. For purposes of
presentation, it is convenient to use model (3) as a basis for this discussion.
3. Extended Models
Let the (CCR) inefficiency of DMU d be d* . Now we consider the following models with different
objective function, but with the same restrictions, which was used to determine the optimal weights in model (3)
of DMUd to evaluate other DMUs.
n
Min 'j
j =1
s m
s.t. urd yrj vid xij + 'j = 0,
r =1 i =1
j = 1,..., n.
(4)
m
vid xid =1
i =1
s
urd yrd = 1 d*
r =1
'j 0, j = 1,..., n.
urd , vid , 'j , 0, for all i, r , j.
445
the effect of added constraints, 'j 0( j = 1,..., n), is to make the maximum deviation; they do
not change the feasible region of decision variables.
1 n '
Min | j ' |
n j =1
s m
s.t. urd yrj vid xij + 'j = 0,
r =1 i =1
j = 1,..., n.
m
(6)
vid xid =1
i =1
s
urd yrd = 1 d*
r =1
2 2
linear programming:
1 n '
Min
n j =1
(a j + b 'j )
s m
s.t. u
r =1
d
r yrj vid xij + 'j = 0, j = 1,..., n.
i =1
m
v
i =1
d
i idx =1
(6)
s
u
r =1
d
r yrd = 1 d*
1 n '
a 'j b 'j = 'j j , j = 1,..., n.
n j =1
urd , vid , a 'j , b'j , 'j 0, for all i, r , j.
The proposed Model (4), (5) and (6) with the same restrictions which means DMUd chooses the weight
combinations that make its efficiency equal to 1 d , the objective functions different from each other can be
applied under different circumstances denoting different meanings.
Remark 1: In Model (4), minimizing the sum of inefficiency 'j is equivalent to maximizing the sum of n
efficiency values given to n DMUs aims to gain the whole optimization. This criterion is intuitively appealing. We
can easily imagine that all DMUs are thought to attempt to maximize their performance ratio, then the sum of
their ratios should tend to be large within the given constraints. This model may be especially applicable to a
system seeking for the whole optimization. For example, a supply chain consisting of a set of business entities that
are involved in the design, development, manufacture and distribution of products.
Remark 2: To minimize the maximal inefficiency j is equal to maximize the minimal efficiency among
'
n efficiencies in Model (5) tends to take sides of the weak DMUs, this principle has been proved to have good
performance in Troutt (1997), such as identifying the same site as optimal for the superconducting supercollider
(SSC) problem, applying to the full data set of educational programs etc.
Remark 3: The objective function in Model (6) computes mean absolute deviation (MAD) of a set of data,
446
namely, the average of the absolute deviations of data points from their mean, hence, minimizing the objective
function tries to decrease their efficiency difference, which to some extent demonstrates an equalitarian principle.
In the above models, when DMUd under evaluation is changed (i.e., xid , i = 1,..., m ; y rd , r = 1,..., s and
d are changed in the constraints), different optimal solutions of vid and u rd are obtained. We obtain n
optimal weight vectors Wd = ( v1 ,..., vm , u1 ,..., u s ) , d = 1,..., n. Using this Wd , the cross efficiency for
* d* d* d* d* *
u d*
r y rj
E j (W ) =
d
* r =1
m
, d , j = 1,2,..., n. (7)
v
i =1
d*
i ijx
1 n
Ej =
n d =1
E j (Wd* ), j = 1,2,..., n. (8)
4. Conclusions
Because DEA weights are generally not unique, the related cross efficiency may not be unique either. It is
this non-uniqueness phenomenon that can undermine the usefulness of the cross evaluation method. This paper
seeks to extend the model of Doyle and Green (1994), in which the ultimate cross efficiency of every DMU is
achieved by introducing a secondary objective function. In this paper, different secondary objective functions are
used to determine the ultimate cross efficiency, and the proposed models with their different objective functions
can be applied under different circumstances.
References
[1] Anderson T R, Hollingsworth K B, Inman L B. The fixed weighting nature of a cross-evaluation model. Journal of Productivity
Analysis, 2002, 18 (1): 249-255
[2] Charnes A, Cooper W W, Rhodes E. Measuring the efficiency of decision making units. European Journal of Operational
Research, 1978, 2(1): 429-444
[3] Charnes A. Cooper W W. Preface to topics in data envelopment analysis. Annals of Operations Research, 1985, 2(3):5994
[4] Despotis D K. Improving the discriminating power of DEA: focus on globally efficient units. Journal of the Operational
Research Society, 2002, 53(6): 314323
[5] Doyle J, Green R. Efficiency and cross efficiency in DEA: Derivations, meanings and the uses. Journal of the Operational
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[6] Green R, Doyle J, Cook W D. Preference voting and project ranking using DEA and cross-evaluation. European Journal of
Operational Research, 1996, 90(4): 461-472
[7] Troutt M D. Derivation of the Maximin Efficiency Ratio model from the maximum decisional efficiency principle. Annals of
Operations Research, 1997, 73(6): 323338
[8] Oral M, Kettani O, Lang P. A methodology for collective evaluation and selection of industrial R&D projects. Management
Science, 1991, 37(7): 871-883
[9] Sexton T R, Silkman R H, Hogan A J. Measuring Efficiency: An Assessment of Data Envelopment Analysis. San Francisco:
Jossey-Bass, 1986. 32
447
Evaluating the Comparative Performance of the Regional S&T
Competitiveness of China: A DEA Application and Problem
Abstract The evaluation and study of S&T competitiveness is not mature enough and in the course of continuous research. Based
on systematically analyzing the indicator system of regional S&T competitiveness, we use TOPSIS method to empirically examine
the gross S&T competitiveness, structural S&T competitiveness and comprehensive S&T competitiveness of 31 provinces of China,
and then select data envelopment analysis (DEA) to evaluate the comparative performance of the regional S&T input and output
factors of China. The results of DEA evaluation shows that 18 provinces are relatively efficient in 31 provinces, which are Jilin,
Heilongjiang, Anhui, Fujian, Hunan, Hainan, Chongqing, Yunnan, Tibet, Gansu, Xinjiang, Beijing, Shanghai, Shaanxi, Tianjin,
Zhejiang, Hubei and Guangdong and 58.1 percent of total provinces; the other 13 provinces are inefficient and 41.9 percent of total
provinces. Contrasting the order of TOPSIS with the result of DEA, we discover such a perplexing problem: some provinces with
obviously weak S&T competitiveness, the S&T productive efficiencies of which are effective very much, are even the benchmarks of
the provinces with very strong S&T competitiveness. The cause of this problem is possibly that the convex and conical hypotheses of
DEA arent fulfilled when the 31 provinces are estimated together.
Key words Scientific and technical competitiveness, Data envelopment analysis, TOPSIS
1. Introduction
Scientific and technical (S&T) competitiveness has become the key tache of the industrial sustainable
development and displaying the country or regions competitiveness. The research of evaluation on S&T
competitiveness has acquired some development at home and abroadamong which the comparatively famous
evaluations include The World Competitiveness Yearbook of IMD (2006)[1], Global Competitiveness Report of
WEF (2006)[2], the correlative portion in Human Development Report of UNDP (2001)[3], and the relatively
systemic studies in China such as Annual Report of Regional Innovation Capability of China (Research Group on
Development and Strategy of S&T of China, 2006)[4], China Sustainable Development Strategy Report (Research
Group of Sustainable Development Strategy of CAS, 2006)[5], Statistical and Monitorial Result of S&T Change of
China (Science and Technology Information Statistics Center of MOST of China, 2007)[6] and so on.
Some other evaluations that adopt one or several indicators also have certain value for the thorough research
of the S&T Competitiveness. Nelson et al. (1992) study the condition of American technological leadership with
many indicators, such as Scientists and Engineers Engaged in R&D per 10,000 Workers, Expenditures for
R&D as Percentage of GNP, Country Shares of World High-Technology Exports, etc[7]. Roessner et al. (1996)
develop four "input" indicators of a nation's future capacity to compete in international markets in high technology
products and three "output" indicators of a nation's current international competitiveness[8]. Hicks et al. (2001) use
the patent indicators to inquire the changing composition of innovative activity in the US between different areas
or different type organizations[9]. McAleer et al. (2005) introduce the patent success ratio to measure the
innovative activity in the US over the period 1915-2001[10]. In order to analyze the technical innovation and flows
of knowledge from and to these cities, Maspons et al. (2004) examine the patents of 14 European cities during
1991-1995 and 1996-2001[11]. Through patent analysis, Bhattacharya (2004) compares the inventive activity and
technological change between India and China during 1996-2001[12].
But no indicator system and compute model that are uniform and perfect have been presented yet because of
the complexity of S&T system. So the evaluation and study of S&T competitiveness is not mature enough and in
the course of continuous research. Making a comprehensive view on the monograph and paper at home and
abroad, its not difficult to see that S&T competitiveness is a concept which has definitely intuitionistic meaning
but cant been exactly defined, and that the regional S&T competitiveness desiderates deeper, more systemic, and
more extensive study in both theory and practice. Data envelopment analysis (DEA) that is used to estimate the
This research was supported by the soft science project of public bidding of Hefei (2006-303).
448
Persons Engaged in S&T Activities
Scientists and Engineers
Industrial Enterprises
/ Population (Year-end)
efficiency of S&T competitiveness is one of the important things, and it deserves aborative discussion much more
when aiming especially at the S&T productive efficiencies of the regions (the provinces) in China.
449
2. Establishment of evaluation indicator system
Factors involved are large in quantity and intricate in relation when comparing and evaluating the S&T
competitiveness of every province. The provinces in this paper, if not narrating especially, are 22 provinces, 4
municipalities, and 5 autonomous regions, dont include Hong Kong, Macao, and Taiwan. Systemic analysis and
evaluation on their S&T competitiveness isnt an easy thing. Firstly we need to search various indicators as much
as possible, establish rather complicated evaluation indicator system, and construct rather comprehensive analysis
framework. And then we filter purposively according to the relativity among factors, reduce some less important
indicators, and obtain the indicators with proper quantity and definite meaning gradually. The constructional
process of such an intricate indicator system is on the basis of some principles, and the established system is not
the simple combination of some indicators, but must be a uniform integer among which there is organic relation
and must consolidate maturity and independence, scientificity and feasibility, systematism and hierarchy,
activeness and stability as well as universalism and regionality well. The foundation of indicator system should be
a dynamic process, and needs to regard the combination of complexity and simpleness, commonness and
emphasis, the microcosmic and the macroscopic, the short-time and the long-time. A rather reasonable evaluation
indicator system of the regional S&T competitiveness in China is established based on the authors sufficient
reference to the research harvest of many experts and scholars (see Fig.1).
The aim of this indicator system is to exactly judge every provinces true comprehensive S&T
competitiveness in certain period. The comprehensive S&T competitiveness can be regarded as being converged
by the two types of competitiveness, gross S&T competitiveness and structural S&T competitiveness. The
gross S&T competitiveness is composed of three modules, gross S&T input, gross S&T output and S&T
foundation, among which the combination of gross S&T input and gross S&T output can be named as gross S&T
ability. The structural S&T competitiveness is also composed of three modules, structural S&T input, structural
S&T output and S&T foundation, among which the combination of structural S&T input and structural S&T
output can be named as structural S&T ability. Some concrete indicators are set below every module: gross
S&T input module, gross S&T output module, structural S&T input module, and structural S&T output module
are displayed by seven concrete indicators respectively; S&T foundation module is displayed by four concrete
indicators. The relationship between concrete indicators and modules is presented in Fig.1. Every module of this
evaluation system is not only independent but also relative, has respective content and characteristic, and forms its
different indicator type. But they correlate tightly and restrict each other, and constitute multi-hierarchy and
multi-dimensionality evaluation system of comprehensive S&T competitiveness altogether.
3. Evaluation methods
3.1 TOPSIS method
TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) initially presented by Hwang and
Yoon (1981)[13] is a greatly effective method for solving multi-criteria decision-making problems, with which the
condition of every provinces S&T competitiveness can be studied and be ranked in accordance with the relative
closeness. The TOPSIS method consists of several steps in which the key is to calculate the relative closeness to
the ideal solution:
E i
Fi =
*
, i = 1,2, ,n (1)
E i + E i+
where E i+ is the separation distance of each province to the ideal solution; E i is the separation distance of each
province to the negative-ideal solution.
3.2 DEA
DEA is a rather effective method for estimating the productive efficiency which has many concrete models,
and CCR (developed by the famous operational researchers, Charnes, Cooper and Rhodes, in 1978)[14] is selected
450
in this paper which is also the most basic model, mainly used to estimate the gross efficiency made up of scale
efficiency and technical efficiency of the multi-output-multi-input DMUs. Suppose that n DMUs (Decision
Making Units) are considered, each DMU has p inputs and q outputs, the DMUs in this paper are the provinces
that will be measured. Generally if DMU1 is estimated, the CCR model can be constructed as follows:
min
n
s.t. i X i + s = X 1
i =1
n
(2)
i =1
i Yi s + = Y1
i 0, i = 1,2, , n
s + 0, s 0
where Xi is the input vector of DMUi, Yi is the output vector of DMUi and is the relatively comprehensive
efficiency score.
451
frequency this DMU is used to construct DEA-efficient surfaces of the other provinces. Generally speaking the
DMUs on the efficient surface are comparatively ideal compared with that estimated DMU.
Contrasting the order of TOPSIS with the result of DEA, we discover such a perplexing problem: some
provinces with obviously weak S&T competitiveness, the S&T productive efficiencies of which are effective very
much, are even the benchmarks of the provinces with very strong S&T competitiveness. For example, Hainan,
such a province with very weak S&T competitiveness (ranked number 27), actually becomes the powerful
competitor of the other 10 provinces in terms of S&T productive efficiency, and especially can become the
learning goal of such huge provinces in S&T as Jiangsu (ranked number 4) and Shandong (ranked number 5). The
cause of this problem is possibly that the convex and conical hypotheses of DEA arent fulfilled when the 31
provinces are estimated together. So the new evaluation manner must be applied, which sorts the DMUs first, and
then respectively uses DEA evaluation on different classes supposing the classes accord the corresponding
hypotheses.
Tab.1 The S&T competitiveness of provinces of China and the DEA evaluation results
Ranked by TOPSIS Method DEA Evaluation
Serial Gross Structural Comprehen Frequency of the
Provinces S&T S&T -sive S&T Efficiency DMU in the Efficient DMU
Number
Competiti Competiti Competiti Score Surface Constructing the
-veness -veness -veness Efficient Surfaces
1 Hebei 14 24 19 0.829 24,12,13,28 0
2 Shanxi 21 20 22 0.655 21,10,13,28,18 0
3 Inner Mongolia 26 29 29 0.911 21,28,12 0
4 Jilin 17 11 14 1.000 4 0
5 Heilongjiang 15 17 17 1.000 5 2
6 Anhui 18 15 18 1.000 6 0
7 Fujian 16 12 12 1.000 7 0
8 Jiangxi 24 27 24 0.864 13,12,22,28 0
9 Henan 12 26 16 0.810 28,12,24,13,30 0
10 Hunan 13 16 15 1.000 10 2
11 Guangxi 23 19 21 0.996 12,13 0
12 Hainan 29 23 27 1.000 12 10
13 Chongqing 19 10 13 1.000 13 11
14 Sichuan 9 8 9 0.779 23,22,28 0
15 Guizhou 27 28 28 0.910 5,13,12 0
16 Yunnan 20 25 23 1.000 16 0
17 Tibet 31 31 31 1.000 17 0
18 Gansu 25 18 20 1.000 18 1
19 Qinghai 30 30 30 0.586 21,10,13 0
20 Ningxia 28 21 26 0.677 21,12,13,28 0
21 Xinjiang 22 22 25 1.000 21 4
22 Beijing 1 1 1 1.000 22 4
23 Shanghai 3 2 2 1.000 23 3
24 Shaanxi 11 5 10 1.000 24 2
25 Tianjin 10 3 6 1.000 25 1
26 Liaoning 7 9 8 0.800 28,12,13,22,5,25 0
27 Jiangsu 4 6 4 0.952 28,23,31,12,13,22 0
28 Zhejiang 6 7 7 1.000 28 10
29 Shandong 5 13 5 0.870 28,23,13,12 0
30 Hubei 8 14 11 1.000 30 1
31 Guangdong 2 4 3 1.000 31 1
Note: The data source is got by computing the data of China Statistical Yearbook, China Statistical Yearbook on Science and
Technology and WanFang Data Web from 1999 to 2003.
5. Conclusion
Based on the authors sufficient reference to the research harvest of many experts and scholars, a rather
reasonable evaluation indicator system of the regional S&T competitiveness that has thirty-two indicators is
established. We argue that the comprehensive S&T competitiveness can be regarded as being converged by the
two types of competitiveness, gross S&T competitiveness and structural S&T competitiveness. Each kind of
452
comprehensive is formed by different module. At the same time, each module possesses content and characteristic
of its own, and forms respectively the different indicator kinds, and has established the foundation to carry out the
comprehensive appraisement of the regional S&T competitiveness of China. We use TOPSIS method to
empirically examine the gross S&T competitiveness, structural S&T competitiveness and comprehensive S&T
competitiveness of 31 provinces of China. Then we adopt DEA to evaluate the comparative performance of the
regional S&T input and output factors of China. The results of DEA evaluation indicate that 18 provinces are
relatively efficient in 31 provinces, which are Jilin, Heilongjiang, Anhui, Fujian, Hunan, Hainan, Chongqing,
Yunnan, Tibet, Gansu, Xinjiang, Beijing, Shanghai, Shaanxi, Tianjin, Zhejiang, Hubei and Guangdong and 58.1
percent of total provinces; the other 13 provinces are inefficient and 41.9 percent of total provinces. These
conclusions are credible on certain level, but also have one problem that does not allow overlooking. The DEA
evaluation based on the input-based CCR model, treating all the provinces equally without discrimination, on the
assumption that the convex and conical conditions can be fulfilled at the same time, isnt perfect. The case
analysis shows some provinces with very weak S&T competitiveness actually become the powerful competitors
of many provinces with strong S&T competitiveness and this kind of analysis result, having certain problems, is
irresponsible to some extent. Hence, some provinces with very strong S&T competitiveness may be evaluated and
judged on the basis of classification.
References
[1] IMD. The World Competitiveness Yearbook 2006. Lausanne: IMD, 2006
[2] WEF. Global Competitiveness Report 2005-2006. Geneva, Switzerland: World Economic Forum, 2006
[3] United Nations Development Programme. Human Development Report 2001: Making New Technologies Work for Human
Development. Beijing: China Financial & Economics Publishing House, 2001(in Chinese)
[4] Research Group on Development and Strategy of Science and Technology of China. Annual Report of Regional Innovation
Capability of China 2005~2006. Beijing: Science Press, 2006(in Chinese)
[5] Research Group of Sustainable Development Strategy of CAS. China Sustainable Development Strategy Report 2006. Beijing:
Science Press, 2006(in Chinese)
[6] Science and Technology Information Statistics Center of MOST of China. Statistical and Monitorial Result of S&T Change of
China 2006. www.sts.org.cn, 2007(in Chinese)
[7] Nelson P.R., Wright G. The rise and fall of American technological leadership: the postwar era in historical perspective. Journal
of Economic Literature, 1992, 30(4): 1931-1964
[8] Roessner J.D., Porter A.L., Newman N., Cauffiel D. Anticipating the future high-tech competitiveness of nations: indicators for
twenty-eight countries. Technological Forecasting and Social Change, 1996, 51(2): 133-149
[9] Hicks D., Breitzman T., Olivastro D., Hamilton K. The changing composition of innovative activity in the US: a portrait based
on patent analysis. Research Policy, 2001,30(4): 681-703
[10] McAleer M., Slottje D. A new measure of innovation: the patent success ratio. Scientometrics, 2005, 63(3): 421-429
[11] Maspons R., Escorsa P. Flows of knowledge from and to cities: an analysis for Barcelona using patent statistics. Research
Evaluation, 2004, 13(2): 104-117
[12] Bhattacharya S. Mapping inventive activity and technological change through patent analysis: A case study of India and China.
Scientometrics, 2004, 61(3): 361-381
[13] Hwang C.L., Yoon K. Multiple Attribute Decision Making: Methods and Applications. New York: Springer-Verlag, 1981
[14] Charnes A., Cooper W., Rhodes E. Measuring the efficiency of decision making units. European Journal of Operational
Research, 1978, 2(6): 428-444
453
Auctioning Total Permitted Pollution Discharge Capacity
under a Uniform Price
Abstract Divisible goods auction is examined as a competition allocation method for total permitted pollution discharge capacity
(TPPDC), in which the marginal cost of pollutant treatment is regarded as a polluters private information. An important and
interesting equilibrium result is deduced for the auction under a uniform price with a general and continuous marginal cost function,
which help to improve the creditability and validity of the pollutant gross control and the environmental plan.
Key words Divisible Goods Auction, Uniform Price, Total Permitted Pollution Discharge Capacity
1. Introduction
As a strategy for environmental management, Pollutant Gross Control (PGC) may prevent the eco-system
from worsening within certain limits, and help achieve sustainable development. As a limited resource, total
permitted pollution discharge capacity (TPPDC) relates directly to every participant (comprising each polluter,
each enterprise and the government), and has an important impact on the implementation of PGC and
improvement of social conditions. A reasonable allocation policy for TPPDC should lead to decreased pollutant
discharges and a reduction in overall control costs.
TPPDC may be classed as divisible goods, whose allocation usually involves complicated private information.
Its values depend on location, enterprise and pollutant discharge period. Recently, considerable attention has been
given to the use of auction by divisible goods with uniform price. Back and Zender[6,7] demonstrate how such a
uniform-price auction can yield sensible results, consider the strategic difference between unit-demand and
divisible goods auctions, and compare uniform-price and discriminatory auctions. This research has motivated
further theoretical analysis of the divisible goods auction. Wang and Zender[9] derive an equilibrium bidding
strategy for a divisible goods auction involving asymmetrically informed risk-neutral and risk-averse bidders
when there is random non-competitive demand. Recently, Kremer and Nyborg[10] used a model of fixed supply
divisible-good auctions, to study the effect of different rationing rules on the set of equilibrium prices. Damianov[8]
then showed that a low-price equilibrium cannot exist in a uniform price auction with endogenous supply, if the
seller employs a proportional rationing rule and is consistent when selecting among profit-maximizing quantities.
At the time of writing, much research [3,5,11] has been undertaken on TPPDC, but little published work is
available on allocation by means of a divisible goods auction based on a declared cost function or a quoted price
function. The present paper proposes an allocation model that utilizes a uniform price-based divisible goods
auction aimed at improving the social creditability and validity of TPPDC allocation, in which the marginal cost is
regarded as private information belonging solely to each polluter.
2. Problem Statement
Let Gi and qi[0,) (i=1,2,......,n) denote the actual pollutant discharge capacity and the permitted pollution
discharge capacity respectively of the ith polluter, and n is the total number of polluters. The allocation of TPPDC,
Q0, may be described by qi = Q0 , 0 qi Gi , i = 1,2 , n.
i
The cost function of treating surplus pollutant x = Gi qi of the ith polluter is given by i (x) . Let
d i
g i (x ) = 0 denote the marginal cost of pollution treatment. Then, d i 0 , which means the
dx dqi
This work was supported by the National Science Foundation of China under Grant No. 70471077.
454
marginal cost of pollution treatment reduces as the permitted pollution discharge capacity rises.
For simplicity, it is supposed that the government allocates TPPDC, Q0, under a uniform price
p = g i (Gi qi ) ( i = 1,2, , n ) in which the marginal cost g i ( x ) is declared by the ith polluter. This
polluter must pay pqi in order to be allocated the permitted pollution discharge capacity qi . The governments
decision goal is Max pQ0 . Further, let vi ( x ) denote the actual marginal treatment cost to the ith polluter. Then, a
p
0 qi Gi , i = 1,2 , n
Proposition 1. Suppose the marginal treatment costs declared by n polluters in Model D are the same as
p = g ( x ) . If the equilibrium price is p * and the equilibrium permitted pollution discharge capacity of the ith
tends to zero as dg (x )
* *
polluter is qi , then p increases.
dx x= x *
Proof. The declared marginal treatment costs are the same, xi = x at any price p, and so the allocated
capacity of the ith polluter is qi = Gi x .
Suppose the jth polluter causes a deviation from the equilibrium point (by improving gj(x) in order to gain an
increase in qj), leading to a new equilibrium price p = g ( x ) > p . Then j and the other ith polluters ( i j ) will
*
be allocated q j ( x ) = Q0 (Gi x ) and Gi x respectively. Thus, the income of the ith polluter will be
i j
Uj =
Gj
G j q j ( x )
(v ( y ) g (x))dy
j
dU j dg ( x ) dG j d ( q j (x ))
dy + (v j (G j ) g (x )) (v j (G j q j ( x )) g ( x ))
Gj
So, = ,
dx G j q j ( x ) dx dx dx
dU j dg ( x ) dq j ( x )
or, = q j ( x ) + (v j (G j q j ( x )) g ( x )) .
dx dx dx
dg (x )
Letting dU j = 0 , then
dx x = x*
(G j x * ) (n 1)(v j (x * ) p * ) = 0 .
dx x = x*
Thus, dg ( x )
= (n 1)
v j x* p* ( ) (2)
dx x = x* G j x*
Equation (2) shows that the jth polluters optimal deviation should be to return to its status quo. The equation
also indicates that when dg (x ) is sufficiently large at the equilibrium point of the marginal cost
dx x = x *
any decision by the government. Actually, Max pQ0 of Model D is completely determined by polluters. So, the
p
lower the benefit to the government, the larger the polluters income. Consequently, to improve government
decisions and limit the scale of false declarations by polluters, the equality restriction should be modified so
455
that q
i
i Q0 . To achieve this, the government should announce an upper limit on Q0 , and determine the actual
capacity Q according to the principle of maximizing government income based on all polluters specific
declared marginal costs or prices. Not only will government decisions be significantly improved, but also the
creditability and validity of TPPDC allocation be enhanced.
3. An Auction Model
To improve allocation efficiency and obtain the actual cost information from each polluter, we suppose that
the allocation problem (N,q,d) satisfies the criteria listed below:
1) The marginal treatment cost gi (x) declared by the ith polluter is invariably less than the actual treatment
cost vi(x), namely g i ( x ) < vi ( x ) . This qualification is required only near the equilibrium point.
2) i , dg i (x ) 0 and dvi (x ) 0 . In other words, the marginal costs increase with pollution treatment
dx dx
capacity x, such that g i ( x ) = a i x + bi (where ai 0 and bi 0 represent the variable and the fixed cost
coefficient, respectively). This corresponds to sewage treatment in which a higher level of pollution treatment
leads to a larger marginal treatment cost or increased difficulty in achieving the treatment target.
3) The governments goal is to maximize its income
pqi = pQ , raised from TPPDC allocation by
i
choosing a specific total capacity Q Q0 and a uniform price p>0. Hence,
Max pQ
qi = Q Q0
(E) i
s.t. g (G q ) = p, i = 1,2 , n
i i i
0 q i G i, i = 1,2 , n
cost or price g i ( x ) .
5) There is no co-operation among the polluters.
Conditions 1)-5) may be thought to describe an auction model of completely divisible goods under a uniform
price. The following conclusions may be drawn regarding Model E.
Proposition 2. In Model E, the governments optimal decision will be Q * = Q0 .
*
Proof. Suppose that the equilibrium price is p , and an equilibrium total capacity chosen by the government
is Q * where Q * < Q0 . If there exists a polluter i who can profit from the deviation of the equilibrium while the
deviation can also make a profit for the government (p *
)( )
Q * + p * Q * (where > 0, > 0
and p
*
), then the players (comprising the government and the polluters) will reach their equilibrium
(Q *
+ )
only while Q * = Q0 .
p vi
g
p*
Gi-q* x
(
Fig.1 Sketch map of O G i q i* , p * )
456
Assuming the actual marginal cost for the ith polluter satisfies vi Gi q i* > g i Gi q i* = p * at the ( ) ( )
equilibrium point, then there must exist a neighborhood O Gi q , p ( *
i
*
) at the point in which there exists
y < vi ( x ) for (x, y ) O (Gi q , p ), as illustrated in Fig.1.
*
i
*
other words, the government makes a profit. Otherwise, the allocated capacity qi of the ith polluter satisfies
qi qi* according to g i' because p < p * . So its income will be
Gi
Gi qi
vi ( x )dx pqi = [
Gi qi*
Gi qi
(
vi ( x )dx p qi qi* ] + [ ) Gi
Gi qi*
vi ( x )dx pqi* ]
which means the ith polluter will also profit by its smart deviation. Thus by accumulating the players profits,
the former equilibrium capacity Q * chosen by the government must increase until Q * = Q0 .
Proposition 2 shows that the government maximizes its income by choosing Q according to polluters
specific declared costs or prices, but the optimal decision of the government will still be Q * = Q0 because of the
income maximization principle. Comparing with Model D, the measure of no-fixed total actual allocating capacity
Q can be seen as a governmental threat strategy to polluters that can stop the reverse competition of quoted prices
among polluters in D, which is proved by Proposition 3.
*
Proposition 3. In the final equilibrium of Model E, the optimal price p obtained by a government satisfies
1 1
( ) ( )
vi xi* Max v k x k* p * vi xi* Min v k x k* .
n i n i
( ) ( )
k
k
Proof. The allocated capacities q1 , q 2 ,..., q n may be regarded as functions of a uniform price p, where
dqi
q i = Q q j and 0 (i=1,2,,n).
j i dp
First, according to the optimization condition and Proposition 2, the governments goal Max pQ should
p
*
satisfy at p :
dQ Q0 (4)
=
dp p= p * p*
dq j
( ( )
qi* vi xi* p *
j i dp
) =0
p = p*
( ( )
Namely, qi* = vi xi* p * ) dqdp j
+
dqi
dp i i ( ( )
+ v x * p * dqi
dp
)
j i p= p *
p = p* p = p*
457
( ( )
vi xi* p * )dQ
dp *
(
+ Max v k x k* p *
k
( ) )dqdp
i
(5)
p= p p = p*
( ( )
Q0 vi xi* p *
i
)dQ
dp
( ( )
+ Max v k x k* p *
k
)dQ
dp
p = p* p = p*
( ( ) ) ( dQ
= vi xi* p * + Max v k x k* p *
i k
dp
( ) ) (6)
p = p*
1
p* ( )
vi xi* Max v k x k*
n i
( )
k
1
Also, p * ( ) ( )
vi xi* Min v k x k* if vi (xi* ) p * is minimized in Equation (5).
n i k
Proposition 3 shows that Model E can guarantee a base price of allocation or auction for a government, and
the government can almost gain the actual average marginal treatment cost of the polluters, provided n is
sufficiently large. In contrast, Model D possibly induces very low quoted prices.
4. Conclusions
This paper examines a method for modeling a divisible goods auction under a uniform price based on a
continuous marginal cost function, which may be applied to the allocation of total permitted pollution discharge
capacity. By assuming that polluters are symmetric, such that their marginal treatment cost functions v(x) and
pollutant discharge capacities G are each the same, it has been shown that the government obtains an equilibrium
n 1 *
price, expressed as p * =
n
( )
v x . This price is in accordance with, but more universal in applicability than an
equilibrium price derived by Back[7] and Damianov[8], who used deductions from quoted price lists to determine
only the low bound of the equilibrium price p* for symmetric bidders. The equilibrium price obtained herein may
be fitted to the practical allocation and auction of many divisible goods or resources, such as network bandwidth,
land, and electric power.
References
[1] Zhang W. Game Theory and Communication Economics. Shanghai: Sanlian Publishing Company, 1996.
[2] Ma Z., Dudek D. Pollutant Gross Control and Pollutant Discharge Right Trade. Beijing: Chinese Environment Science
Publishing Company, 1999.11.
[3] Wang X., Xiao W., Hu Z. Two Methods and Efficiencies Comparing of Discharge Right Initial Allocating. Natural Science
Development, 2004, No.1.
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218-232.
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147-159.
458
Application of the Fuzzy Simulation in the Evaluation
Investment of Advanced Manufacturing Technology
Zhao Zhenwu1Tang Wansheng2
1 School of safety, Civil Aviation University of China, Tianjin 300300, P.R.China
2 School of Management, Tianjin University, Tianjin 300072, P.R.China
Abstract In this paper, a model for the evaluation of investments in advanced manufacturing technology is developed. The
development of the model combines the three dimensions of financial criteria, strategic criteria and risk criteria. The economic
criteria is addressed using the fuzzy net present value analysis. And fuzzy variables are used to replace the uncertain variables in the
strategic criteria and risk criteria. The analytic hierarchy process and fuzzy set theory are applied to build the model. Then fuzzy
simulation is employed to dispose of the evaluation model. Three number values are expressed with the efficient plane method. In
this way, the uncertain variable existing in the evaluation process can be well solved. So the result tends further rationally. Finally,
the model is utilized to assess three advanced manufacturing technology investment projects.
Key words Advanced manufacturing technology, Fuzzy variable, Fuzzy simulation, Analytic hierarchy process
1 Introduction
Advanced Manufacturing Technology (AMT) is a modern method of production incorporating highly
automated and sophisticated computerized design and operational systems[1]. AMT aims at manufacturing high
quality products at low cost within the shortest delivery time. AMT is typically reflected by the achievements in
high precision and sophisticated automation manufacturing operations. So the cost of AMT investment project is
high. AMT investment project has a big risk and a long payback period. How to appraise the investment project
correctly and effectively and make the scientific investment decision is the prerequisite and key of obtaining the
good investment benefit. Then the method for the evaluation of investment in AMT seems very important.
A lot of researchers, e.g., Lefley [2,3], Abdel-Kader and Dugdale [4] had put forward different factors for the
evaluation of investment in AMT. But the use of precise values does not reflect the qualitative and subjective
nature of many factors. There are many fuzzy factors in AMT project, such as produce flexibility, product quality,
management level, product demand fluctuation[5]. The model is designed to permit estimated fuzzy values and to
provide a consistent method of accounting for these factors. Many researchers employed analytic hierarchy
process (AHP) to make investment decision of AMT[6-8], but traditional AHP expresses the uncertain variable with
the precise value, which doesnt fit in with reality[9]. Wilhelm and Parsaei[10] developed fuzzy AHP to deal with
the model for fuzzy factors, but the deconvolution of fuzzy numbers exists while utilizing fuzzy subtraction and
division operation in this kind of method. To overcome this shortcoming an AMT investment model based on the
fuzzy simulation method and hierarchical structure analysis is developed. The model is designed to permit fuzzy
variable and dealed with fuzzy simulation technology, then the result for the evaluation of investment in AMT is
more objective.
The remainder of this paper is organized as follows. The next section provides some basic concepts about
fuzzy variables and fuzzy simulation technique. This is followed by the proposed model based on fuzzy
simulation. Then the proposed method is employed to evaluate investment projects, which illustrates the designed
method is implemented easily and effective. Finally, some conclusions are offered.
Supported by National Natural Science Foundation of China(No. 70171004) and Scientific Research Fund of CAUC(No. 06qd01s)
459
Nahmias [11] and Liu [12] provided the following axioms:
Axiom 1 Pos{} = 1 .
Axiom 2 Pos{ } = 0 .
Axiom 3 Pos{ i Ai } = sup i Pos{ Ai } ,for any collection in { Ai } in () .
Axiom 4 Let i be nonempty sets on which Pos i {} (i = 1,2, , n) satisfies the first three axioms, respectively,
and = 1 2 n .Then
Pos{ A} = sup Pos 1 { 1 } Pos 2 { 2 } Pos n { n }
( 1 , 2 , , n ) A
1
Cr { r} = [Pos{ r} + Nec{ r}] ,
2
Where (u ) is the membership function of .
Definition 4: (Liu and Liu [13]) Let be a fuzzy variable on possibility space ( , P( ) , Pos ). Then the
expected value E [ ] is defined as
for any .
2.2 Fuzzy Simulation
Generally, it is difficult to calculate the expected values of fuzzy variables with generic membership
functions. In what follows, we introduce fuzzy simulation technique for estimating the expected values of fuzzy
variables (see [13], [14]).
Let f : R n R be a function, and = (1 , 2 , , n ) is a fuzzy vector defined on the possibility space
( , P( ) , Pos ). Then f () is also a fuzzy variable whose expected value is
0
(1)
460
5) Generate randomly r from [a, b]
1
6) If r 0 , then e e + Cr{ f () r} ,where Cr{ f () r} = (max {vk f (( k )) r} + min{1 vk f (( k )) < r}) .
2 1k N 1k N
1
7) If r < 0 , then e e Cr{ f () r} where Cr{ f () r} = (max {vk f (( k )) r} + min{1 vk f (( k )) > r}) .
2 1k N 1k N
Product Process Customer Product Management Manufacture Volatility Life of Capability of Reliability Experience in
quality flexibility requirements research level period of demand market technology of supplier the company
Where xt is the net cash flow arising at the end of year t , I 0 is the initial investment at time 0, r is the
discount rate, and n is the projects life. These variables are crisp numbers. But in AMT investment project,
These variables are represented by a triangular fuzzy number, which is more rational. Then fuzzy net present
value ( FNPV ) is calculated as follows:
n
xt
FNPV = I0 , (2)
t =1 (1 + r ) t
Where xt is the fuzzy net cash flow arising at the end of year t , I 0 is the fuzzy initial investment at time 0,
r is the fuzzy discount rate, and n is the projects life. xt , I 0 and r are fuzzy variables, then the expected
value of FNPV is
n xt
E [FNPV ] = E I0 . (3)
t =1 (1 + r )
t
As there are fuzzy variables in the denominator and molecule, the expected value of fuzzy variable E [ FNPV ]
is estimated by fuzzy simulation technique introduced in formula (1).
3.2 Strategic criteria
Strategic criteria includes product quality, production flexibility, customer requirements, product research,
management level and manufacture period. The weight and performance measure of these factors are qualitative
variables. They are expressed with the linguistic variables. Accordingly, the fuzzy weight of the linguistic
variables is
W ={VI, I, MI, MU, U}= {(0.7,1.0,1.0 ), (0.5,0.7,1.0), (0.2,0.5,0.8), (0,0.3,0.5), (0,0,0.3)} , as shown in Fig.2.
461
Fig.2 Membership function of the weight Fig.3 Membership function of the performance
The importance weight of the factor in strategic criteria is denoted Wi which belongs to W . Suppose Ak
denotes an alternative k (k = 1,2, , m) and Lsaki denotes the fuzzy linguistic rating for alternative Ak with
respect to strategic criteria. Lsaki belongs to Ls . Then the fuzzy strategic criteria measure of alternative Ak is
denoted Fsmak and can be computed as follows:
1 n
Fsmak = (Wi )(Lsaki ) .
n i =1
(4)
Wi and Lsaki are fuzzy variables, then the expected value of Fsmak is
1 n
E [Fsmak ] = E (Wi )(Lsaki ) . (5)
n i =1
As there are fuzzy variables in the multiplication, the expected value of fuzzy variable E [ Fsmak ] is estimated
by fuzzy simulation technique introduced in formula (1).
3.3 Risk criteria
Risk criteria includes Volatility of demandlife of marketcapability of technologyreliability of supplier and
experience in the company. The weight and performance measure of these factors are qualitative variables. So
they are expressed with the linguistic variables.
The importance weight of the factor in risk criteria is denoted Wrj which belongs to W . Suppose Ak denotes an
alternative k (k = 1,2, , m) and Rakj denotes the fuzzy linguistic rating for alternative Ak with respect to risk criteria.
Rakj belongs to Ls . Then the fuzzy risk criteria measure of alternative Ak is denoted Frmak and can be computed
as follows:
(Wrj )(Rakj ).
1 s (6)
Frmak =
s j =1
Wrj and Rakj are fuzzy variables, then the expected value of Fsmak is
1 s
E [Frmak ] = E (Wrj )(Rakj ) . (7)
s j =1
As there are fuzzy variables in the multiplication, the expected value of fuzzy variable E [ Frmak ] is estimated
by fuzzy simulation technique introduced in formula (1).
3.4 Selecting the best project
Using the above steps, three values should be produced for each AMT project. The higher value of financial
criteria or strategic criteria is the better. For the risk criteria, the lower value is the better as it means less
associated risk. In principle it would be possible to combine the three major dimensions of financial criteria,
strategic criteria and risk criteria into a single project score. However, this combination would mean a significant
loss of information[15]. Thus, the efficient plane suggested by Accola (1994) is used. The selection of an
alternative from the set of alternatives on the efficient plane depends on the relative preferences of decision
maker(s) for financial criteria, strategic criteria and risk criteria. Any alternative located on the efficient plane
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dominates other alternatives below the plane. As shown in Fig.4, the alternative on the efficient plane bounded by
four alternatives A, B, C and D is better than the alternative E, F and G.
4. An illustrative example
In this section, the fuzzy simulation technique presented in the previous section is demonstrated via a
numerical example. Suppose that three AMT alternatives (, , ) are evaluated. The investment period (t) is 6
years and the fuzzy discount rate ( r ) is (0.07,0.08,0.09) . The initial investments ( I 0 ) and net cash flows ( xt ) at end
of year t to the planned horizon are as in Tab.1.
Tab.1 fuzzy value of I 0 and xt
6
/ 10 yuan / 106yuan / 106yuan
I0 (0.6,0.8,0.9) (0.7,0.9,1.1) (0.7,0.8,0.9)
x1 (0.21,0.23,0.25) (0.19,0.21,0.23) (0.20,0.23,0.24)
x2 (0.25,0.26,0.29) (0.24,0.25,0.28) (0.24,0.26,0.27)
x3 (0.31,0.35,0.38) (0.33,0.34,0.36) (0.32,0.33,0.34)
x4 (0.27,0.28,0.29) (0.23,0.24,0.26) (0.25,0.26,0.27)
x5 (0.23,0.24,0.25) (0.19,0.20,0.22) (0.20,0.21,0.22)
x6 (0.22,0.23,0.24) (0.18,0.19,0.20) (0.17,0.18,0.21)
According to (3), the expected values of FNPV is computed by fuzzy simulation technique introduced in
formula (1). The number of N is 5000 times in fuzzy simulation. Here, the program is written in Microsoft Visual
C++ 6.0 and run on a PC. The results sorted by expected value in descending order are shown in Tab.2.
Table.2 Expected values of FNPV
alternative expected value / 106yuan
0.459
0.232
0.333
The weight of the importance of each strategic factor is determined qualitatively and its equivalent triangular
fuzzy number is shown in Tab.3. And the performance of each alternative with respect to each strategic factor is
determined qualitatively and their equivalent triangular fuzzy numbers in Tab.3.
Tab.3 Weight and performance of each strategic factor
factor weight
product quality (0.5,0.7,1.0) (0.6,0.8,1.0) (0.6,0.8,1.0) (0.3,0.5,0.7)
production flexibility (0.2,0.5,0.8) (0.3,0.5,0.7) (0.8,1.0,1.0) (0.8,1.0,1.0)
customer requirements (0.7,1.0,1.0) (0.8,1.0,1.0) (0.6,0.8,1.0) (0.3,0.5,0.7)
product research (0.2,0.5,0.8) (0.6,0.8,1.0) (0.3,0.5,0.7) (0.6,0.8,1.0)
management level (0.5,0.7,1.0) (0.6,0.8,1.0) (0.3,0.5,0.7) (0,0.2,0.4)
manufacture period (0.2,0.5,0.8) (0.3,0.5,0.7) (0.3,0.5,0.7) (0.6,0.8,1.0)
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According to (5), the expected values of Fsm is computed by fuzzy simulation technique. The number of N
is 5000 times in fuzzy simulation. The results sorted by expected value in descending order are shown in Tab.4.
The weight of the importance of each risk factor is determined qualitatively and its equivalent triangular
fuzzy number is shown in Tab.5. And the performance of each alternative with respect to each risk factor is
determined qualitatively and their equivalent triangular fuzzy numbers in Tab.5.
Tab.5 Weight and performance of each risk factor
factor weight
Volatility of demand (0.5,0.7,1.0) (0,0.2,0.4) (0.3,0.5,0.7) (0.6,0.8,1.0)
life of market (0.2,0.5,0.8) (0.3,0.5,0.7) (0,0.2,0.4) (0,0.2,0.4)
capability of technology (0.5,0.7,1.0) (0,0,0.2) (0.3,0.5,0.7) (0.3,0.5,0.7)
reliability of supplier (0.2,0.5,0.8) (0.3,0.5,0.7) (0,0.2,0.4) (0.3,0.5,0.7)
experience in the company (0.2,0.5,0.8) (0.3,0.5,0.7) (0.3,0.5,0.7) (0,0.2,0.4)
According to (7), the expected values of Frm is computed by fuzzy simulation technique. The number of N
is 5000 times in fuzzy simulation. The results sorted by expected value in descending order are shown in Tab.6.
Then the expected values of each criteria are used in developing the efficient plane as shown in Fig.4. The
efficient plane bounded by four alternatives A, B, C and D depends on the decision makers preferences. It should
be noted that project dominates the other two alternatives. Project provides the highest expected value of
financial criteria, the biggest expected value of strategic criteria and the lowest risk. So the Project is valued
to invest.
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5. Conclusion
In this paper a model for AMT investment decision making is developed. The model is built with analytic
hierarchy process based on fuzzy simulation, in which the weights of criteria and performance measures of
alternatives are all represented by fuzzy variables. In this way, the evaluation process accords with the actual
conditions more. At the end of this paper, an example showed that the proposed method could obtain exact
evaluation results, and can be implemented easily.
References
[1] Hunt V. D., Dictionary of Advanced Manufacturing Technology[M], New York: Elsevier,1987.
[2] Lefley F., Capital investment appraisal of advanced manufacturing technology[J], International Journal of Production Research,
1994,32(12):27512776.
[3] Lefley F., Strategic methodologies of investment appraisal of AMT projects: a review and synthesis[J], The Engineering
Economist, 1996,41(4):345363.
[4] Abdel-Kader M. G. and Dugdale D., Evaluating Investments in Advanced Manufacturing Technology: A Fuzzy Set Theory
Approach[J], British Accounting Review, 2001,33(4):455-489.
[5] Wilhelm M. and Parsaei H., A fuzzy linguistic approach to implementing a strategy for computer integrated manufacturing[J],
Fuzzy Sets and Systems, 1991,42 (2):191-204.
[6] Accola W., Assessing risk and uncertainty in new technology investments[J], Accounting Horizons, 1994,8(3):. 19-35.
[7] Parsaei H. and Wilhelm M., A justification methodology for automated manufacturing technologies[J], Computers and
Industrial Engineering, 1989,16(3):363373.
[8] Boucher T. and MacStravic E., Multiattribute evaluation within a present value framework and its relation to the analytic
hierarchy process[J], The Engineering Economist, 1991,37(1):132.
[9] Cheng C. H., Yang K. L. and Hwang C. L., Evaluating attack helicopters by AHP based on linguistic variable weight[J],
European Journal of Operational Research, 1999,116(2):423-435.
[10] Wilhelm M. R. and Parsaei H. R., A fuzzy linguistic approach to implementing a strategy for computer integrated
manufacturing[J], Fuzzy Sets and Systems, 1991, 42(2):191-204.
[11] Nahmias S., Fuzzy variable[J], Fuzzy Sets and Systems, 1978, 1:97-101.
[12] Liu B., Uncertainty Theory: An Introduction to its Axiomatic Foundations, Springer-Verlag, Berlin, 2004.
[13] Liu B. and Liu Y., Expected value of fuzzy variable and fuzzy expected value model[J], IEEE Transactions on Fuzzy Systems,
2002, 10(4):445-450.
[14] Liu B., Theory and Practice of Uncertain Programming, Phisica-Verlag, Heidelberg , 2002.
[15] Accola W., Assessing risk and uncertainty in new technology investments[J], Accounting Horizons, 1994,8(3):19-35.
465
Survey on Rough Set Theory Based on Connection Degree
Abstract Rough set theory is a relatively new soft computing tool to deal with vagueness and uncertainty. It has received much
attention of the researchers around the world. In recent years, rough set theory based on connection degree has become a focus
subject in rough set research. The basic concepts and models of rough set theory are introduced and the extension rough set model
based on connection degree is analyzed in details. In the end, a method to determine the value of connection degree is proposed.
Key words Rough Set, Connection Degree, Set Pair, Variable Precision, Fuzzy Set Pair
1 Introduction
Rough set theory is proposed by Zdzislaw Pawlak in the early 1980s[1,2], and now it has been widely
conceived as a mathematical tool to deal with vague and uncertain information system, and it has been an
available method in decision theories and applications research. Unlike other theories which are proposed to deal
with vagueness and uncertainty such as fuzzy theory[3,4], Dempster-Shafer theory[5,6], bayes theory, etc. Rough set
theory does not need any preliminary or additional information about data, i.e. rough set theory is objective[7].
Therefore, in recent years, rough set theory has become a focus subject and proved to be very useful in practice,
and it seems to be of fundamental importance to artificial intelligence, cognitive sciences and data mining[8].
Classical rough set theory mainly concerns complete system, in which all the attribute values of each object
are known, but most information systems are incomplete in practice, i.e. attribute values of objects may be
unknown(missing, null). To deal with information system, Krysckiewicz, Stefanowki and Tsoukeas proposed new
rough set model in which they extended the equivalence relation to tolerance relation and similarity relation[9~11],
and Wang proposed a new rough set model based on limited tolerance relation[12]. Subsequently relevant method
to deal with incomplete information system has been developed. Based on these researches, Huang Bin and Zhou
Xianzhong proposed a new rough set model based on connection degree (set pair) [13~15] which is introduced by
Zhao Keqin[16,17]. Subsequently, researches on rough set based on connection degree have risen in recent
years[18~26], and it has been a focus research field of rough set theory. In this paper, well take an overview of
researches on rough set theory based on connection degree.
This research has been supported by National Natural Science Funds of China (No: 70571032), China Postdoctoral Science Foundation(No: 20060390916),
Jiangsu Planned Projects for Postdoctoral Research Funds(No: 0601019C)
466
where C and D are disjoint sets of condition and decision attributes, respectively.
Suppose given an information system S = U , A, V , f , X U , and B A .The task is to describe the
set X in terms of attribute values from B . To this purpose, two operations assigning to every X U are
defined as two sets B ( X ) and B( X ) , called the B -lower and the B -upper approximation of X ,
respectively, and defined as follows:
B( X ) = {x U RB ( x ) X }, B( X ) = {x U RB ( x ) X } (1)
Hence, the B -lower approximation of a set X is the union of all elements that are included in X , whereas
its B -upper approximation is the union of all elements that have a nonempty intersection with X . The set
BN B ( X ) = B( X ) B( X ) (2)
will be referred to as to the B -boundary region of X .
If the boundary region of X is the empty set, i.e., BN B ( X ) = , then X is exact with respect to B . In the
opposite case, i.e., if BN B ( X ) = , then X is referred to as to rough (inexact) with respect to B .
where * denotes missing values or null values. Based on this tolerance relation, lower approximation and
upper approximation can be defined as follows:
TB ( X ) = {x x U , TB (x ) X } , TB ( X ) = {x x U , TB ( x ) X } (4)
According to definition of tolerance relation, one may find that null value is equal to all possible values,
which may classify two objects that have different attribute values into a class. So tolerance relation is too
relaxant. To solve this problem, Stefanowki proposed dissymmetrical similarity relation.
3.2 Rough set model based on dissymmetrical similarity relation
Rough set model based on dissymmetrical similarity relation is proposed by Stefanowki[11]. In this model,
dissymmetrical similarity relation S B is introduced, where S B is defined as follows:
S B ( x ) = { y b B, b( x ) = * or b(x ) = b( y )} (5)
and based on this dissymmetrical similarity relation, similarity sets RB ( x ) and RB1 ( x ) are defined
by: RB ( x ) = { y y U and x S B ( y )} , RB ( x ) = { y y U and y S B ( x )} , and generally RB ( x ) RB ( x ) .
1 1
According to the definition of RB ( x ) and RB ( x ) , lower approximation X B and upper approximation X S can
1 S B
be defined by:
X SB = { y y RB ( x ), x X } (7)
By comparing dissymmetrical similarity relation with tolerance relation, Stefanowki proved that lower
S B
approximation X B and upper approximation X S based on dissymmetrical similarity relation is an
improvement of lower approximation TB ( X ) and upper approximation TB ( X ) based on tolerance relation, i.e.,
467
TB ( X ) X BS and X SB TB ( X ) .
For the dissymmetry of dissymmetrical similarity relation, two objects that in the same class may be
classified as different class, that is to say, dissymmetrical similarity relation is too rigorous. To overcome this
defect, Wang Guoyin proposed a new rough set model based on limited tolerance relation.
3.3 Rough set model based on limited tolerance relation
For dissymmetrical similarity relation is too rigorous, a new rough set model based on limited tolerance
relation is proposed by Wang Guoyin[12]. In his model, limited tolerance relation is defined as follows:
Suppose S = U , A, V , f , B A , let PB ( x ) = {b b B and b( x ) *} , define
L B ( X ) = { x x U , LB ( x ) X } (9)
LB ( X ) = { x x U , LB ( x ) X } (10)
It can be proved that the rough set model based on limited tolerance relation is an improvement of rough set
model based on tolerance relation or dissymmetrical similarity[12], i.e. TB ( X ) LB ( X ) X B and
S
X SB LB ( X ) TB ( X ) .
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u ( A, B ) = a + bi + cj (11)
where a = s / n, b = f / n, c = p / n . Obviously, 0 a, b, c 1 and a + b + c = 1 .
4.2 Rough set model based on connection degree
In rough set model based on connection degree, set pair is introduced in tolerance relation. The main concept
of this idea can be interpreted as follows[13~15]:
For the incomplete information system S = U , A, V , f , B A , suppose that B = n , for x U , let
{
R 2 = ( x, y ) U U y PB 2 ( x ) } (13)
If ( x, y ) R 2
, it means that the ratio of mutual attributes of x and y to all attributes is no less than 2 ,
and there are no contrary attribute values between x and y . Accordingly, lower approximation R
2
(X ) and
upper approximation R
2
(X ) can be defined by:
R 2 ( X ) = {x x U , R 2 ( x ) X } (14)
R 2 ( X ) = {x x U , R 2 ( x ) X } (15)
It can be proved that rough set model based on connection degree is an improvement of rough set model
based on limited tolerance relation, i.e., LB ( X ) R ( X ) and R 2 ( X ) LB ( X ) . And one can control the
2
tolerance class in some way by thresholds 2 , which is consist with the notion of human-machine interface.
4.3 Rough set model based on -identical degree similarity relation
In rough set model based on -identical degree similarity relation[23], identical degree is introduced so that
two objects would be classified into an element set only if they satisfied common similarity relation and their
identical degree exceeded (or equaled to) threshold.
-identical degree similarity relation in this rough set model is defined as follows:
Suppose S = U , A, V , f , B A , define -identical degree similarity relation SIM (B ) as:
SIM (B ) = {( x, y ) U U a B, a( x ) a( y ) , TB (x, y ) / B } (16)
{a B, a( x ) = a( y ), a(x ) = 1}, x y
where TB ( x, y ) = , and denote element set of x as:
B, x = y
B ( x ) = { y U (x, y ) SIM (B )} (17)
According to the definition of element set B ( x ) , lower approximation apr ( X ) and upper
(X )
approximation apr can be defined respectively by:
apr
( X ) = {x U B (x ) X } (18)
( X ) = {x U B (x ) X }
apr (19)
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4.4 Variable precision rough set model based on set pair
Variable precision rough set model is the extension of classic rough set model, it introduces precision
threshold by which a certain extent classification error is permitted. By combining variable precision rough
set model with set pair theory, Liu Fuchun proposed a new rough set model[20,21]. In this rough set model, a
concept of relatively classified fault rate is introduced so that the element set of x can be adjusted by both
connection degree and precision degree . The relation in this model is defined similarly as that of rough
set model based on connection degree:
Suppose that S = U , A, V , f , B A , define element set of x as:
S B ( x ) = { y U u ( x, y ) = a + bi + cj, a + b } (20)
and lower approximation R ( X ) and upper approximation R ( X ) are defined respectively by:
(
R ( X ) = {x U c S B ( x ), X } ) (21)
( )
R ( X ) = {x U c S B (x ), X < 1 } , (22)
where
0, if S B ( x ) =
( )
c S B ( x ), X =
(23)
1 S B ( x ) X / S B ( x ) , if S B (x )
Variable precision rough set model based on set pair is an improvement of rough set model based on
connection degree, which may make it possible to find relationship between irrelevant data.
4.5 Fuzzy set pair rough set model
According to the notion of truth-membership grade and false-membership grade in vague set[27],
fuzzy set pair rough set model is proposed by combining fuzzy theory with rough set model based on
connection degree. The main idea of this rough set model can be interpreted as follows[26]:
Let U and W be two finite nonempty universes. R is a binary fuzzy relation from U to W . Define the
mapping F : U F (W ) by: F ( x )( y ) = R( x, y ) , ( x, y ) U W . Denote u F ({x}, {y}) = a + bi + cj , where
a represents the truth-membership grade of y to F (x ) ; b represents the grade of uncertainty-membership of y
to F ( x ) , and c represents the false-membership grade of y to F ( x ) . Define the F relation of x as follows:
S F ( x ) = { y u F ( x, y ) = a + bi + cj, y W ,a + b ,0 1} (24)
It represents the set of elements in W whose false-membership grade to F ( x ) is not more than 1 . Based
on the definition of S F ( x ) , lower approximation RF ( X ) and upper approximation RF ( X ) are defined
RF ( A)(x ) = A( y ) (25)
yS F ( x )
RF ( A)( x ) = A( y ) (26)
yS F ( x )
As fuzzy set theory is introduced, this rough set model can be more effective in consistent with human
subjective thought, which is significative in practice.
5 An Method to Determine
In the rough set model introduced above, it is necessary to determine the value of ,which needs
preliminary knowledge of man, and in practice, how to set the value of is a difficult and important problem.
To solve this problem, here we propose a tentative method based on relative positive region to determine the value
470
. The main process of this method can be described as follows: Firstly, compute relative
of identity degree
positive region POS C (D ) according to each , and find out the relative positive region POS C (D )
*
6 Conclusion
Classic rough set theory mainly deals with complete information system, in which all the attribute values of
each object are known, and in practice, most information systems are incomplete, i.e. attribute values of objects
may be unknown(missing, null). To deal with information system, many new rough set models are proposed.
Among these new models, rough set model based on connection degree has received much attention of the
researchers. In this paper, we discussed a series of rough set models based on connection degree, and in the end, a
tentative method is proposed to determine the value of .
References
[1] Pawlak. Z. Rough sets. Int. J. Comput. Inf. Sci. 11(1982), 341-356.
[2] Pawlak. Z. Rough sets: Theoretical Aspects of Reasoning about Data. Kluwer Academic Publishers 1992.248
[3] Zadeh. L. A. Fuzzy set. Information and Control ,1965 ,8 (3) :338-353.
[4] Zadeh L. A. Fuzzy sets as a basis for a theory of possibility. Fuzzy Sets and Systems, 1(1978):3-28
[5] Dempster. A. P. A generalization of Bayesian inference. Journal of the Royal Statistical Society , 1968 ,30 : 205 -247.
[6] Skowron. A. and Grzymala-Busse. J. W. From rough set theory to evidence theory. In Advances in the Dempster-Shafer Theory
of Evidence. R. R. Yaeger, M. Fedrizzi, and J. Kacprzyk, Eds. Wiley, New York, 1994, 193-236.
[7] Pawlak. Z., Busse, J. G., Slowinski. R, et al. Rough Sets. Communications of the ACM, 1995, 38(11):89-95.
[8] Liu Q. Rough Sets and Rough Reasoning. Beijing: Science Press, 2001.254
[9] Kryszkiewicz M. Rough set approach to incomplete information systems. Information Sciences.1998, 112: 39-49.
[10] Kryszkiewicz. M. Rules in incomplete information systems, Information Sciences, 1999, 113: 271-292.
[11] J. Stefamowski, A. Tsoukeas. On the extension of rough sets under incomplete information, International Journal of Intelligent
System, 1999,16(1): 29-38.
[12] Wang G Y. Extension of rough set under incomplete information systems. Journal of computer research and development, 2002,
39:1238-1243.
[13] Huang B., Zhou X. Z. Rough set model based on set pair analysis in incomplete information system. Computer Science, 2002,
29: 1-3 (in Chinese).
[14] Huang B., Zhou. X. Z. Extension of rough set model based on connection degree under incomplete information systems.
Systems engineering-theory & practice, 2004, 1:88-92(in Chinese).
[15] Huang B., Zhong. B., Zhou X. Z. Improved Rough Set Model Based on Set Pair. Computer Engineering and Applications, 2004,
2: 82-84(in Chinese).
[16] Zhao K. Q. Set pair analysis and its preliminary applications. Hangzhou: Zhejiang Science and Technology Press, 2000.198 (in
Chinese).
[17] Huang D. C., Zhao K. Q., Lu Y Z, et al. The fundamental operation of arithmetic on connection number a+bi+cj and its
applications. Mechanical & Electrical Engineering Magazine, 2000, 17: 81-84 (in Chinese).
[18] Lv D., Wu M. D. The Combination of Set Pair Analysis and Rough Set. Computer Engineering and Applications, 2005, 33:
176-178 (in Chinese).
[19] Zhao X., Liu T. M., Xiang Y. D. Extension of rough set model based on weighted connection degree in incomplete information
systems. Computer Applications, 2005, 25(4): :824-826(in Chinese).
[20] Liu F. C. Variable Precision Rough Set Model Based on Set Pair Analysis. Computer Engineering and Applications,
2005.10:74-76(in Chinese).
[21] Liu F. C. An Algorithm for Attributes Reduction in Variable Precision Rough Set Model Based on Set Pair Analysis. Computer
Engineering and Applications, 2006,5:8-10(in Chinese).
471
[22] Zhang C. Y., Liu B. X. One Direction Transfer Rough Sets Model of Incomplete Information System Based on SPA. Computer
Engineering, 2006, 32(14):33-34(in Chinese).
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200626(3):666-667(in Chinese).
[24] Chen S. Q., Tang Z. H., Xiao J. H., Algorithm of Data Mining Based on Rough Sets Pair Analysis and Its Application.
Computer Applications,2004, Vol.24, No.6, 74-77.
[25] Zhang C. Y., Xu G.L., Liu B. X. The Method of Set Pair Analysis Based on Rough Set Theory. Journal of Hebei Institute of
Technology, 2006, Vol.28, No.1, 97-100.
[26] Zhou L., Shu L. Rough Set Model Based on New Set Pair Analysis. Fuzzy Systems and Mathematics, 2006, 20(4):111-116.
[27] Gau W. L. ,Buehrer D. J., Vague sets. Systems, Man and Cybernetics, 1993, 23 (MarchApril) : 610614.
472
A Study on the Safety Situation and Countermeasures to
Chinese Natural Resources
Zhao Guohao
Shanxi University of Finance and Economics, P.R.China, 030006
Abstract The natural resources safety is an important part of the national security, which influences a nations politics, economy,
national defense, society etc. The overall construction of the Chinese middle-class family society puts forward a higher request to the
natural resources safety. A key problem of Chinese natural resources safety lies in the deficiency and lack of the management system.
To deal with the problem is to establish the scientific development view of the natural resources, to perfect the natural resources
management system, to build up diversified structure of resources ownership, to set up the scientific and reasonable natural resources
price-setting mechanism, to participate actively in the global strategy of the natural resources, and to realize the sustainable
development of Chinese social economy.
Keyword Natural resources, Resources management, Countermeasure
This research has been supported by Shanxi Natural Science Foundation in China(Study on Theory and Application to Resources Management Systems
Engineering, No: 200611042)
473
economy; surplus economy and resources limitation; the stage of the resources limitation the Chinese economy is
now in. The Chinese economic scale and the strength are still unceasingly strengthening. The production amount,
consumption amount and the import amount are in the high level in the world. But, the rapid growth of the
economy depends mainly on the over-consumption of water, soil, mineral and other scarce resources and the
destruction of the environment. But the lack of the water, soil, and the mineral resources is the long-term
bottleneck that restricts the Chinese national economy development. The impact of yearly 8% increases target on
the resources, shows in data: every GDP coal consumption is 480,000 tons per billion Yuan; every GDP oil
consumption is 55,000 tons per billion Yuan; every GDP waste water amounts are 2 million tons about per billion
Yuan; every GDP water resource spoilage that can not be handled is 80 million Yuan every billion Yuan about; A
total energy consumption for every 10,000 Yuan GDP is 3 times of world average level; a total energy
consumption for every ton steel in some steel enterprises is 40% higher than international level, the power
enterprises fire electricity coal consumption is 30% higher than international level, every 10,000 Yuan GDP
water consumption is 5 times of world average level, every 10,000 dollar GDP energy consumption is 3 times of
world average level. How can such high resources consumption and such large need prop up society economic
growth? The waste and the low efficiency in the natural resources usage aggravate the Chinese natural resources
safety crisis.
2. An Analysis of the Factors that Influence the Chinese Natural Resources Safety
The reasons that cause the resources limitation mainly lie in: the rapid growth of the population, the slow
progress of the technique progress, the problem between the macroscopic policy and the microscopic mechanism,
the change of world resources market and the inharmonious global resources management. Undoubtedly, as far as
the problem of natural resources safety is concerned, politics factor, ethics factor, technology factor etc. play big
roles, but, the deficiency and vacancy of the system play a decisive role and this is the deep root of the worsening
Chinese natural resources safety.
2.1 The imperfection of natural resources management
Chinese current state-owned natural resources management system is based on the traditional economic
system and the operating mechanism, and characterized by the non-ownership natural resource management, this
is not suitable for the socialist market economy development. There are many shortcomings. First, paying too
much attention to technique management while paying relatively less attention to the ownership management. The
natural resources management should include the ownership management and technique management at the
meantime. However, judging from the regulation of the Chinese state-owned natural resources management,
either in the aspect of laws, or in the practice of the management, much more attention is paid to technique
management while neglecting the ownership management. Second, emphasizing decentralized management and
the lack of centralized management. Different natural resources have different value. Because of the requirement
for the classified management of state-owned natural resources, many administration departments have been
constituted. This, to some extent, neglects the unity of the resources ownership and the value of the scarce
economic resources, which actually turns the national ownership into department ownership and local ownership.
Third, taking administrative method as major management method and using economical method as auxiliary one.
Under the conditions of state ownership of the natural resources and the administrative management, the major
method of the government managing the natural resources is administrative method, namely the examination and
approval systems of the resources development and the plan ration system of resources use. Economic method is
introduced into the state owned natural resources management system reform such as the exploitation fee, but
there still exists the problems of weak economic methods and insufficient or absurd economic lever. Fourth,
focusing on the monopoly of the ownership and neglecting the fluidity of ownership. The monopoly of the
state-owned natural resources can not make the state owned natural resources ownership participate in the
merchandise fluxion process, which has a bad effect on the optimized distribution of state owned natural
resources.
474
2.2 The flaw in resources ownership system
The relationship of the Chinese natural resources ownership is not clear and the transaction of resources
ownership is not smooth. The un-safety of resources ownership will have an effect on the expectation of the user
and influence the value of the natural resources on the owner and the form of the transaction. According to
Chinese law, the natural resources belong to the state. Because the natural resource state ownership is exercised
by State Council and the concerned departments, this makes the resources ownership manifest the national interest
and the benefit of central authorities. The basic situation is that the relationship of the Chinese natural resources
ownership is not clear. Various departments, areas, associations and individual implement plundering mining for
capturing the natural resource exploitation right which causes the over-consumption of the natural resource and
the waste is serious. In the meantime, the transaction of the Chinese resources ownership lacks transition, at
present, only the concerned law of the land and the mineral resources ruled that these resources can be traded
conditionally, but there is a blank of other resources transaction. But the condition of the mineral resource
transaction is that money-seeking transaction is prohibited. This transaction is only another form of the
government administration arrangement or assignment; the real ownership transaction is not existed.
2.3 The imperfection of the natural resources pricing system
Because of the misleading of the traditional natural resources values and the inertial strength of the long-term
planned economy system, there are many flaws in the Chinese natural resources price formation mechanism. First,
at the natural resources management system aspect, there is no reasonable system foundation in forming the
natural resources price. Second, although part of Chinese natural resources price has been let loose, some natural
resources are still of national price setting, which makes the price lack flexibility, the price is not reflected from
the supply-demand relation of the market. Third, the Chinese natural resource on-hand merchandise market is not
very standard and the plan color is very thick, and the natural resources stock market is at the beginning stage, and
is not very mature. Fourth, in the natural resources pricing process, there is a gap between the natural resources
market price-setting and the government price-setting. The governments regulation of the natural resource prices
is not clear and not continuous. Fifth, as far as the concrete price-setting method is concerned, the government
plan color is strong, lacking scientific and rational natural resources price-setting method.
2.4 The lack of the transacting system in responding to the natural resources globalization
The uneven distribution of the world natural resources and the quick development of the economic
globalization make the natural resources globalization become an irresistible current. While using international
natural resources market to seek development, Chinese rich natural resources and the frail resource industry is
also placed on international natural resources market that is full of risk and hardship. The character of transaction
strategy of Chinese natural resources choice is shown as the following: depending passively on the import of
natural resources to satisfy a natural resources need; depending too much on native natural resources, which will
lead to losing the good opportunity to import natural resources; the export of natural resources being in the form
of low price raw material; the increase of the native natural resources need forcing the government to adjust
transaction strategy of Chinese natural resources choice, which becomes the inevitable outcome of the
governments active adjustment of the import and export relationship of natural resources inside and outside the
nation.
References
[1] Moffatt I. On measuring sustainable development indicators. International Journal of Sustainable Development and World
Ecology, 1994, (1): 97-109
[2] Zhao Guohao. Study on Natural Resources Management for Sustainable Development in China. In: Zhang Henry, Zhang Suodi,
Guo Shufen, eds. Advances in Management of Technology. Marrickville: Aussino Academic Publishing House, 2006. 201-205
[3] Moffatt I. Sustainable Development --- principles, analysis and policies. The Parthenon Publishing Group, 1995. 88-90
[4] Zhao Guohao. Scientific Progress and Sustainable Development. Journal of Shanxi Institute of Economic Management, 1997,
(4): 15-17 (in Chinese)
[5] Zhao Guohao. Analysis on the system Elements of Sustainable Development. Quantitative & Technical Economics, 1998,
(2):18-20 (in Chinese)
477
SECTION FOUR
INFORMATION MANAGEMENT AND E-COMMERCE
479
480
A Comparison of Domestic and Overseas Current Situation
of Web-Based Survey Research
Abstract During the past twenty years, web-based survey has played an influential role both in business enterprises and other
organizations. Web-based survey, adopted with emerging information technology, attracts extensive attentions of both the academic
and industry field, but also encounters many problems. This paper reviews the relevant literatures on web-based survey both in China
and abroad, with the method of bibliometric analysis. Comparing domestic and overseas current situation of web-based survey
research, we classify current web-based survey researches into different categories by their contents, and figure out each categorys
advantages and disadvantages. At last, we construct the model of web-based survey research in order to give a clear perspective in
web-based survey research. Following the model that we constructed, we get the table of classification of contents in web-based
survey research and point out current situation in each class.
Key words Web-based survey, Comparison research, Bibliometric analysis
1. Introduction
Simon Chadwick, who was the former president and now is Cambiar Companys partnership and market
research chief supervisor, has made a new global market research companys study that is concerned with 50
global market research companies and 43 large scale market research service users. The results are: 25-30% of all
survey research will be conducted online by 2010; Todays $1.3 billion online research market will triple to $4
billion by 2008.This increase will major from the research companies that possess ready-made customer crowd,
the companies that enter web-based survey field recently and the various new web-based surveys methods.
Meanwhile the proportion that web-based survey expense takes market research general budget will ascend from
28% in 2004 to 33% in 2006. Evidently web-based survey has been more and more approved by the market
research companies.
Compared with web-based survey in practice, research in this field is backward especially in China. The
purpose of this paper lies in comparison between domestic and overseas web-based survey research in the
contents and methods in order to make a suggestion that promotes domestic web-based survey
2. Method
This paper uses bibliometric and comparison research method. Datum are from some of the domestic and
overseas databases, including CNKI, VIP Information Database, ELSEVIER, ABI, EBSCO and INSPEC. We
classify the information for the research methods and contents, and analyze the advantages and disadvantages of
the present research in order to give some advices.
3. Comparison of the present web-based survey research between domestic and overseas
This part will introduce the current situation of foreign and domestic web-based survey .In view of the fact
that the present domestic related research is comparatively fewer, so the point of this part is to introduce the
achievements of foreign research .In the next part we will compare these information, in order to construct the
model of web-based survey research, and give suggestion of the web-based survey research in China.
3.1 Overseas present situation and application of web-based survey
From management aspect, overseas mainstream research for web-based survey may approximately divide
into the following two kinds:
1) The research about the advantages and disadvantages of web-based survey.
This kind of research is the key issue of web-based survey research, and foreign scholars often use empirical
approach(Coderre2004Griffis2003McDonald2003Ilieva2002Cobanoglu2001 Elfrink,2000
Dommeyer,2000 Couper,1997 Mehta,1995 Schuldt,1994 etc.)[1][2][3][4][5][6][7[][8][9][10].Through carrying out
481
statistical analysis for the data gotten by survey, they compared some aspects of the web-based survey with
telephone survey and mail survey, such as response rates, response time, response content, response quality and
survey cost etc..
The shortcoming of this kind of research:
This analysis carries out merely for web-based survey in specific field. Research has no theory as a result,
which cause the research of same purpose is repetitive; plenty of research results are identical. None of the above
makes much contribution to web-based survey theory. And the research result is hard to have an actual guidance
role for how to effective enforcement web-based survey. This research is so superficial that couldnt uncover the
true reasons that will influence the response rates.
2) The research for web-based survey response rates.
This kind of research is mainly concerned with how to take corresponding measures to raise the response
rates of web-based survey. Some foreign scholars(Deutskens2004Dillman, 2000Church, 1993Yammarino,
1991etc.)[11][12][13][14]put forward that there are 4 factors which influence web-based survey response rates:
Incentive, follow-up letter, the length of the questionnaire, and the question present way. Foreign experts in this
field (Deutskens, 2004; etc.) make some empirical studies. This kind of research may divide into 2 following
subclasses:
The research for the incentive of web-based survey.
In this aspect, proper application of incentive as well as correct time to use incentive is the key problem that
researchers try to solve. The major content of this research is so clear that we may sum it up in Fig.1. In Fig.1, M
shorts for money incentive; O shorts for non-money incentives; R shorts for rear-incentive. I is short for
initiative-incentive. Many studies focus their objects on comparing the differences of these four incentive methods
in order to find a favorable method or a method combination to improve the response rate and the data quality
from the survey.
OI MI
M
O
OR MR
The disadvantages of this subclass are:The researchers focus on the incentive effect on the web-based survey
only in the interviewers perspective. Put excessivez stress on the response rates other than the response quality.
No practical model is constructed. Researches of identical purpose are repetitive. How to use incentive correctly
in the right time is still a problem that has not been solved.
(1) Factor such as follow-up letter, question expression and length of questionnaire which influence response
rates in web-based surveys.
These roles of factors in web-based survey response rates are unusually examined in the same research
(Bachmann, 2000; Dillman, 1998; etc.)[15][16] .This part of research adopt completely empirical approach. The
result of research shows that follow-up letter (the 5-7 day after the first questionnaire) and a brief questionnaire is
helpful to raise response rates. Comley ( 2000 )[17] has even suggested a formula of response rates according to the
number of questions in a surveys first page: Response rates 40%(8% the number of questions in first
page); Structured, multi-media questionnaire type is helpful to raise response rates. Additionally, foreign scholars
think that web-based survey is more suitable for the traditional semi-structured problems. But an empirical study
carried out by our team before (The Effect of Incentive and sponsorship in Web-Based Surveys: An Empirical
482
Study " ) has not supported this viewpoint.
The problem of this kind of research:Experts only study in several factors that could influence web-based
survey in their opinion, but no one integrate other scholars achievements to get the crucial factor of how to carry
out web-based survey effectively. A former paper of our team ("An Exploratory Method on Evaluating Feasibility
of Web-Based Survey") presents a method of evaluating web-based survey's feasibility. 20 variables that influence
the success of the web-based survey are confirmed in which the factor of incentives is not contained. Therefore
we need to study further in the factors which will influence the web-based survey.
The numbers encompassed in the Table 1 are collected from partial foreign mainstream databases (keywords
are: web-based survey \ internet-based survey), has listed the paper number of web-based survey, and most of
these paper are empirical and quantitative studies. However, there are a number of researches for the identical
purpose (only different in the research field); there are few papers that have played an actual guidance role for
web-based survey study.
Table 1 paper publication numbers associated with web-based survey in the foreign periodical databases
Database ELSEVIER ABI EBSCO INSPEC
Paper number 155 282 463 176
(1)The characteristic of web-based survey: There is a kind of papers described the characteristic of
web-based survey, most of which are referred to the comparison with the traditional survey. The merit of
web-based survey concentrates in low cost, speed, objectivity, reliability and without time and region limit; its
main limitation is that the representative of sample is hard to guarantee, and the background of sample is hard to
know.
(2)Methods of web-based survey: Methods include sending E-mail, using website, discussing on net, and
tracing the whole process. At home scholars already start to study how to improve traditional web-based survey,
such as the E-mail questionnaire survey method based on network interpersonal relation.
(3)Enhancement and improvement of web-based survey: Enhancement and improvement concentrate on
statistical method, as reducing error of sampling, measure error and response error and etc.. Scholars have put
forward some improvement measures.
(4) Developing Web-based survey system: The key issue of system design is technology, such as using ASP
to develop web-based survey systems and etc..
(5)The application of web-based survey: The literatures have put forward some available plan to suit for
different business, most of which concentrate on the application of web-based survey in education.
Domestic web-based survey research is mainly from statistics, studying the choice of web-based survey
sample and the control of survey deviation as well as various related researches. Generally speaking, these papers
are lack of scientific study approach and viewpoints that can be strongly supported by the reliable datum.
483
According to the same problem such as the advantages and shortcomings of web-based survey, there are plenty of
repetitive researches. There are few original studies. Empirical and quantitative study approaches are blanks in
domestic web-based survey research. Therefore few papers of web-based survey researches can be found in high
level periodicals.
4. Analyses
According to the process of implementing a web-based survey, we may draw the process of web-based
survey for Fig.2; we may also have specific aim through Fig.2 for web-based survey research.
The explanation for Fig.2 is as follows:
Client: The organization that need to carry out web-based survey. Since Client and Investigator may be a
same organization, Client shows with dotted line. Even if Client and Investigator are the same one, the problem,
such as how project division and operation division to communicate effectively, is still a worthwhile issue to
study.
Investigator: The organization that actually operating the web-based survey.
Questionnaire: The survey style that is used in web-based survey, such as e-survey, w-survey, pop up and
int-survey.
Respondent: The persons that will answer the Questionnaire.
Feed-forward: The activity that Investigator has taken before getting response, such as incentive and
follow-up letters.
Feed-backward: The activity that Investigator takes after getting the response.
External factors: The objects not included in web-based survey, such as other survey approaches.
External factors
Feed-forward
Feed-backward
Based on web-based survey model mentioned above, we conduct a classification according to different
survey content. This kind of structural thought is helpful to know which aspect of web-based survey research we
should start first, as well as which part in domestic research has shortcomings which need strengthened.
According to this thinking way, we put forward Table 3.
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Continuation
No. Study Field Study Content (Examples) Overseas Domestic
Feed-forward and What kind of Feed-forward can make Respondent
5 NR
Respondent like to respond
Feed-backward and
6 How to get useful information from response
Respondent
Web-based survey The advantages and disadvantage of web-based
7
and Environment survey compared to other surveys.
Subjective factors (such as personality and
8 Investigator preference) and Objective factors (such as budget, NR NR
technology and time limit) of Investigator
Subjective factors(such as personality and
9 Client preference)and Objective factors(such as technology NR
condition and leisure time limit) of Client
10 Questionnaire The style of Questionnaire
*: The number of denotes the quantity of papers aiming at this kind of problem published in both domestic and overseas
periodicals.5 are the highest standard.
NR stands for this classification has not been concerned, or papers publication number is few.
5. Conclusion
To sum up, though web-based survey developed very quickly in last a few years, and there are many
researches about web-based survey, the research field is very narrow, and the high level papers, original papers as
well as the research that can take affect for web-based survey practice are very few. For the web-based survey
whose application is so strong, the research achievement may play a great guidance role for practice. Therefore, it
is urgent to reinforce the study in this field.
Now there are no or few researches in web-based survey involving problems as follows: evaluation of the
web-based survey performance, right time to use web-based survey, verification the role of incentive that uses in
web-based survey, assessment of availability of using web-based survey in specific project, and the theoretical
model of applying web-based survey. However, there is no doubt that those researches are extremely important
for the effective development and application of web-based survey. These directions need further research and
these studies are possible and necessary.
References
[1] Coderre F, Mathieu A, St-Laurent N.Comparison of the quality of qualitative data obtained through telephone, postal and email
survey, International Journal of Market Research , 2004, 46 (3): 347-358.
[2] Griffis S, Goldsby J T, Cooper M.Web-based and mail surveys: A comparison of research, data, and cost, Journal of Business
Logistics, 2003, 24 (2): 237-255.
[3] McDonald H, Stewart A.A comparison of online and postal data collection methods in marketing research, Marketing
Intelligence & Planning, 2003, 21 (2): 85-95.
[4] [4] Ilieva J,Baron S,Healey M N.Online surveys in marketing research: pros and cons, International Journal of Market Research,
2002 , 44 (3) : 361-376.
[5] Cihan Cobanoglu, Bill Warde, Patrick J Moreo.A comparison of mail, fax and web-based survey methods, International Journal
of Market Research, 2001,43(4): 441-455.
[6] Bachmann P D, Elfrink J, GaryV.E-mail and snailmail face off in rematch, Marketing Research, 2000,11 (4):11-15.
[7] Curt J Dommeyer, Elanor Moriarty.Comparing two forms of an e-mail survey: Embedded vs. attached. Market Research
Society.Journal of the Market Research Society, 2000, 42(1): 39-53.
[8] Mick P Couper.Survey introductions and data quality, Public Opinion Quarterly, 1997, 61(2):317-339.
[9] Mehta R, Sivada E.Comparing response rates and response content in mail versus electronic surveys. Journal of the Market
Research, 1995, 37 (4):429-439.
[10] Schuldt, Barbara A, Totten, Jeff W. (1994).Electronic mail vs. mail survey response rates, Marketing Research, 1994,
6(1):36-40.
[11] Elisabeth Deutskens, Ko de Ruyter, Martin Wetzels, Paul Oosterveld.(2004).Response Rate and Response Quality of
Internet-Based Surveys: An Experimental Study, Marketing Letters, 2004, 15(1):21-37.
[12] David R Schaefer, Don A Dillman. (1999). Development of a standard e-mail methodology: results of an experiment, Public
Opinion Quarterly, 1999, 62:378-398.
[13] Church, A.H.Estimating the effects of incentives on mail response rates: a meta-analysis, Public Opinion Quarterly, 1993,
57:6279.
485
[14] Yammarino, Francis J., Skinner, Steven J., Childers, Terry L.Understanding Mail Survey Response Behavior: A Meta-Analysis,
Public Opinion Quarterly, 1991, 55 (4):613-640.
[15] Bachmann P D, Elfrink J , GaryV. E-mail and snailmail face off in rematch [J ]. Marketing Research, 2000, 11 (4):11 15.
[16] David R Schaefer, Don A Dillman.Development of a standard e-mail methodology: Results of an experiment, Public Opinion
Quarterly, 1998, 62(3):378-398.
[17] Peter Comley.Communications: Moderated e-mail groups, Market Research Society.Journal of the Market Research Society,
2000, 42(1):111-113.
486
Factors Influencing Consumers Repeated Online Shopping
in China: An Empirical Study
Abstract Those who have experience with online shopping dont repeat their behaviors much, and to overcome consumers
repeated online shopping barriers is very helpful in enlarging the volume of e- commerce. This paper investigates the factors that
influence Chinese consumers repeated online shopping by empirical method. The result shows trade reliability, personal information
security, credit standing of website, payment and delivery, marketing combination, shopping interface and so on are indicators,
among which trade reliability, personal information security and credit standing of website are of greater importance.
Key words E-commerce, Online Shopping, Repeat
1. Introduction
According to the investigation made by ACNielsen, 63 percent of online people have experience with online
shopping (2005) [1]. However, they dont often repeat their behaviors. The investigations of CNNIC shows only a
quarter of online people often shop online (2006) [2]. During the survey, lots of consumers talked about their
worries about online shopping, which are partly different from those of people who never shop online. In theory,
it costs less and is easier to maintain old consumers than to attract new buyers (Reichheld and Schefter, 2000) [3].
Therefore, it will be of great significance to find out why those have experience with online shopping dont repeat
their behaviors if we want to enlarge the volume of E-trade.
In this paper, we are trying to answer the following two questions through our survey to those who repeat
online shopping:
1. What factors influence the consumers to repeat shopping online?
2. What is the cognitive sequence of significance of these factors?
2. Literature Review
In recent years, the topic of online behaviors has been studied from different angles. On the whole, these
studies are mainly concentrated in the intention of online shopping and adopting of online shopping, and quite few
researches on consumers repeated online shopping have been found. Bhattacherjees study (2001a) [4] is one of
the very first attempts to explain consumer online repurchasing behavior. His proposed model was formulated on
the basis of expectation and confirmation theory (ECT), and postulated satisfaction, confirmation, and loyalty
incentives as salient factors affecting consumer online repurchasing.
Prior research on consumer online repurchase placed more emphasis on the impact of psychological factors.
For instance, considerable attention has been given to the study of trust (Warrington et al., 2000; Lee and Turban,
2000) [5][6] and satisfaction formation (Bhattacherjee, 2001b; Khalifa and Liu, 2001) [7][8] in the context of
consumer-based electronic commerce. A few studies, however, have attempted to investigate the impact of
product/service characteristics, medium characteristics, and online shop and intermediary characteristics on
consumer online repurchasing. For instance, Liang and Lai (2002)[9] was one study that explored the impact of
web page design. Gefen and Devine (2001) [10], Dai Lei (2006)[11] focused on investigated the effect of service
quality on consumer online purchase continuance. Similarly, Pingjun and Bert (2005)[12] investigated the effect of
price perceptions on customers intention to return.
3. Method
3.1 Sampling Collection and Respondents Characteristics
Online people were the research objective of the study, and all the samples were randomly selected from
them. We adopted the form of response with guerdon by distributing 4000 questionnaires in all. Finally, 3218
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copies were returned, among which 2615 were effective, including 920 responded by those having online
shopping experience.
The studys respondents consisted of more males (55%) than females (45%), with a wide variety of age
groups mostly in the 18-30 age groups (66%). Accordingly, 66% of the sample was spinsterhood, 84% of the
subjects had at least some college education.
3.2 Survey Variables
A questionnaire was made to collect data from consumers. Before the formal survey, we ascertained the
primary influencing factors based on the relevant literature review, apart from which we also conducted two
brainstorm meetings and 12 deep interviews to 12 samples. Finally, we designed the questionnaire based on the
pretest which covered 120 samples.
The questionnaire described 33 factors from online shopping environment and online shops (Tab.1), and the
former contains 1-18 variables and the latter contains 19-33 variables. All items adopted 7-point Likert scale,
among which 1 means strongly unimportant, 4 means average, and 7 means strongly important. The
respondents were demanded to judge the significance of these factors according to their own cognizance of online
shopping.
Tab.1 Survey variables
Code Survey Variables Code Survey Variables
X1 leak risk of bank card information X18 dislike using the computers and the internet
X2 leak risk of individual privacy X19 can not find satisfactory goods
X3 worrying about the deal is a cheat X20 slow responding from the sellers
X4 difficult to judge the product quality X21 unsatisfactory price
X5 visual differences between picture and goods X22 no attractive promotion
X6 risk of late delivery X23 no desirable payment way
X7 no after service or inefficient after service X24 no satisfactory delivery
X8 no abundant sort of goods as traditional shopping X25 high delivery cost
X9 slower speed compared with traditional shopping X26 no beautiful shopping interface
X10 higher cost compared with traditional shopping X27 inconvenient shopping interface
X11 not content with shopping experience X28 incomplete information about goods
X12 not content with the glory feeling of traditional shopping X29 unclear information about goods
X13 difficult to learn how to shop online X30 slow speed of the website
X14 can not find and obtain the goods fleetly X31 uncertain credit standing and popularity of
website
X15 complex process of order/payment
X16 unsafe internet resource X32 no authoritative security identification
X17 unfamiliar with internet using X33 complex balancing procedure
4. Results
4.1 Tests on Online Shopping Environment
4.1.1 Data test
The survey adopted Cronbachs Alpha coefficient as the testing standard to observe the internal consistency
of each item in the questionnaire. The Reliability Analysis procedure in the Scale module of SPSS13.0 was used
to calculate the Cronbachs Alpha coefficient, which was 0.758, indicating the questionnaire was reliable. The
exploratory factor analysis of SPSS13.0 was used to test the validity, the outcome of which showed that all the
communalities of the survey variables were above 0.4, so the questionnaires constructing validity met the
requirements.
4.1.2 Factor analysis
In order to express the structure of the original questionnaire with fewer variables and maintain most
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information provided by the original data, we adopted SPSS13.0 to analyze the 18 variables by using principal
components of factor analysis. Bartlett Test of Spherality Sig. = 0.000. KMO Measure of Sampling Adequacy =
0.729. The result revealed five factors with Eigenvalue of one or higher that explained 60.749% of the cumulative
variation. According to the included information, we named these five factors as:
Convenience factor mainly refers to whether it is easy to find and use the internet or learn to shop online,
and whether online shopping processes is more convenient than traditional shopping. It includes six variables:
X13 (difficult to learn how to shop online), X14 (can not find and obtain the goods fleetly), X15 (complex process
of order/payment), X16 (unsafe internet resource), X17 (unfamiliar with internet), X18(dislike using computers
and the internet).
Trade reliability factor mainly refers to whether the whole online shopping processes such as goods
information, quality, exchange, delivering and after-service are reliable. It includes five variables: X3 (worrying
about the deal is a cheat), X4 (difficult to judge product quality), X5 (visual differences between picture and
goods, X6 (risk of late delivery), X7 (no after service or inefficient after service).
Usefulness factor mainly refers to whether the online shopping can satisfy consumers needs such as sort of
goods, shopping efficiency, cost, shopping feeling and so on compared with traditional shopping. It includes three
variables: X8 (no abundant sort of goods as traditional shopping), X9 (slower speed compared with traditional
shopping), X10 (higher cost compared with traditional shopping).
Shopping feeling factor mainly refers to whether online shopping can satisfy consumers in the aspects of
shopping experience and glory feeling compared with traditional shopping. For instance, consumers are content
with shopping experience in the shopping mall, and are they content with online shopping? It includes two
variables: X11(not content with shopping experience), X12 (not content with the glory feeling of traditional
shopping).
Individual information security factor mainly refers to that whether it is secure such as offering the
information of bank card, individual phone and address on the net. It includes two variables: X1 (leak risk of bank
card information) and X2 (leak risk of individual privacy).
4.1.3 Sequence of influencing degrees of the factors
7
5
Mark
1
security
Convenience
Usefulness
ndividual information
Trade reliability
Shopping feeling
The above five factors can basically explain why many consumers repeat their online shopping. However,
what is the influencing degree of each factor to the consumers? We need to calculate their mean values to sort the
factors.
489
About their mean values, trade reliability factor ranks the first (5.36 points) and personal information
security the second (5.19 points), with a slight distinction. The third, the fourth and the fifth are respectively
usefulness (3.28 points), convenience (2.91 points), and shopping feeling (2.9 points) factors. All these
mean values drop below 4 points, and there is a slight distinction between convenience and shopping feeling
factors. Fig.1 shows the mean value of each factor.
The above sequence resulted from sample data, and we use 2 Related Samples Tests Procedure in SPSS13.0
to further test the rationality of deducing the collectivity order according to sample order. Through the test, the
Asymp. Sig. (2-tailed) between trade reliability and personal information security was greater than 0.05 on
the confidence interval of 95%, but those between trade reliability, individual information security and
usefulness were both less than 0.05 (Tab.2). The Asymp. Sig. (2-tailed) between shopping feeling and
convenience was greater than 0.05, and those between other factors were all less than 0.05. This means on
influencing degree no difference exists between trade reliability and individual information security,
shopping feeling and convenience, and other order is objective.
Tab.2 2 Related samples tests procedure on online shopping environment
Trade reliability - Individual
Individual information
information security - Trade reliability- Usefulness - Shopping feeling-
security Usefulness Usefulness Shopping feeling Convenience
Asymp. Sig. 0.440 0.000 0.000 0.002 0.788
Marketing combination
Credit standing of Website
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6. Marketing Suggestions
6.1 Disseminate Online Shopping from the Security Angle
Those who have experience with online shopping still worry about the security; therefore, it is necessary to
disseminate online shopping from the security angle, alleviate the negative effect of the reports made by the media
to the consumers and strengthen their confidence in security.
6.2 Enhance the Security of Online Shopping such as The Third Authentication
After all, online shops are virtual, whose quitting cost is lower compared with traditionally real shops.
Besides, it is more difficult to obtain evidence when there are trade dissensions. All this increases consumers
worries about credit standing of online shops. Doing the work about The Third Authentication can reduce
consumers worries.
6.3 It is Necessary for Online Shops to Perfect Their Supporting Services
The goods and service provided by online shops still have some defects, and online shops can perfect their
supporting service by providing more flexible payment and delivery way, better description of goods information
and marketing combination and so on.
References
[1] Xinhua News Agency. ACNielsen: 60 percent of online people have experience with online shopping in China. Beijing
Business Today , 2005-11-14(in Chinese)
[2] CNNIC. Statistical survey report on Internet development in China.
[3] http://www.cnnic.net.cn/index/0E/00/11/index.htm, 2006(in Chinese)
[4] Reichheld F.F. and Schefter P. E-Loyalty: Your secret weapon on the Web. Harvard Business Review, 2000, 78(4): 105131
[5] Bhattacherjee A.. An empirical analysis of the antecedents of electronic commerce service continuance. Decision Support
System, 2001a, 132(2):201-214
[6] Warrington T.B., Abgrab N.I., and Caldwell H.M.. Building trust to develop competitive advantage in E-Business relationships.
Competitiveness Review, 2,2000, 10(2):160-168
[7] Lee M.K.O. and Turban E. A trust model for consumer Internet shopping. International Journal of Electronic Commerce, 2001,
6(1): 7592
[8] Bhattacherjee A.. Understanding information systems continuance: An expectation confirmation model. MIS Quarterly, 2001b,
25(3): 351-370
[9] Mohamed Khalifa, Vanessa Liu. Satisfaction with Internet-based services: A longitudinal study. 2001: 601-606
[10] Liang, Ting-Peng and Hung-Jen Lai. Effect of store design on consumer purchases: An empirical study of on-line bookstores.
Information & Management, 2002: 431-444
[11] David Gefen, Pat Devine. Customer loyalty to an online store: The meaning of online service quality. ICIS, 2001: 613-618
[12] Dai Lei. An empirical study of affecting B2C website continuance based on E-SQ. Logistics Management, 2006: 39-42(in
Chinese)
[13] Pingjun Jiang Bert Rosenbloom. Customer intention to return online: Price perception, attribute-level performance, and
satisfaction unfolding over Time. European Journal of Marketing, 2005, 39(1/2): 150-174
492
Risks versus Intendance Policies to Information Systems
Engineering in China*
Abstract In this paper, firstly, the inherent risks of duality mechanism in information system developing are illustrated. Secondly,
the functions of intendance are proved on the basis of each risk preference of all three participants and then the necessary and
sufficient conditions that the functions put into effect are pointed out. As a result, the ongoing intendance policies of China are
analyzed and the positive functions, whereabouts of lacks and overwork are demonstrated.
Key words Information system, Engineering, risk, Third-party intendance, Intendance policy analysis
1. Introduction
Today, information management is the most prevalent applications field of IT if we divide IT applications
into three categories as science computation, automation, and information management. Usually information
systems engineering is the most investment project in an enterprise of China when the enterprise to be perfection
by high-tech. However, to build information systems successfully, which mainly contents information
management, not or not only depends on IT, but mostly depends on how to organize and manage the developing
process, it is very unlike to other application fields of IT. Unfortunately, the market characteristics of China today
is:
a. In generally, owners are short of IT knowledge;
b. The diseased credit standing in contractors market;
c. The faultiness of technical standards system of the state;
d. With time goes on, IT is more complex, the cost of information systems is going larger and larger, and the
information engineering is playing a more and more important role.
With all these factors, we know that:
a. Information is far from completeness;
b. Information from participants is asymmetric, and the abilities to process information are also asymmetric;
c. Competition of market in Chinese is insufficient;
d. Technical risks have a tendency of increasing.
In view of above cases, and the software crisis remains as before additionally, it is clear that there are adverse
selection risks and moral hazards in information systems engineering.
It is an effective way to introduce the third-party intendance to reduce the risks. The state intendance policies
are an important part of the intendance mechanism. The Ministry of Information Industry of China announced
The Temporary Provisions to Information Systems Engineering Intendance (called it for short as TPISEI
later), The Management Methods for the Qualification of Information Systems Engineering Intendance Firms
and The Management Methods for the Qualification of Information systems engineering intendance engineer
(called them for short as Methods later). They come into force from the 15th, December 2002 and the 1st, April
2003 separately. Base on what risks that the information systems engineering in traditional organization
construction usually meets, this paper analyzes the functions of the intendance mechanism to inhibit risks, and
what conditions that the functions running need, and also discusses the environment adaptation to the state
intendance policies.
*
Fund by: National Nature Science Fund, No. 70371046
Fund by: top-notch talent of Beijing, 2007
493
2. Risks in engineering and intendance system
The intendance system is a set of scientific management institutions. It concludes a systematic mechanism, a
perfect organized system, a perfect technical means, and strict canonical methods and procedures. It accomplishes
its mission by the organic running of every part. To be specific, the intendance system turns the two-party system
to a three-party system, which are owner, supervisor and contractor. According to the TPISEI, the definition of
information systems engineering intendance is a set of actions performed by intendance firm, who has to be a
corresponding qualification and committed by the owner to supervise and manage information systems
engineering project according as relevant legal provisions, technical standards and the contract of information
systems engineering.
2.1 Risks in binary mechanism
First, there are only two participants in the traditional information systems engineering process. They are the
owner and the contractor. This is a binary mechanism. In this mechanism, there are always risks of adverse
selection no matter how about the markets competition and the tendency of the owner because of the intense
asymmetric information and the imperfect credit system. That is, an agent (contractor) may hide his type
(information) before an agreement making, and then the principle (owner) does not know the type of the agent. So
the contract of principle-agency can only be made on the basis of the average expected value. And then dominant
agents in type, their products have high quality and prices, have to withdraw from the market. Consequently the
market will lose its efficacy. In the long run, the benefits of all participants in the information systems engineering
will suffer great loss.
Second, if the attitude of contractor is risk-averse, then the owner will face the moral hazard. That is, a
principle cannot supervise an agents performances but can only observe the results of contract. Moreover the
results are good or not are determined by two factors: one is the behavior of the agent; the other is the natural
condition that you cannot supervise. So the agent who wants to evade risks would say the low return ascribe to the
unfavorable natural conditions, and therefore without being censured by the principle.
From the above analysis, it is known to us that the risks of information systems engineering project involves
technical risk, natural environment risk and organization risk. The risks caused by binary mechanism belong to the
organization risk, which is the necessity to introduce the third-party intendance system.
2.2 Risk analysis of the intendance mechanism
With the assumed market characteristics above, we can analyze and introduce the sufficient condition of the
intendance mechanism from the attitudes of the three participants to risk.
According to the utility theory, all peoples attitude to risk can be divided into three types, which are
risk-favored, risk-neutral and risk-averse. Assuming u(x) as an individual utility function, if u is a convex
function, it is said the individual is risk-favored. If u is a concave function, it is said the individual is risk-averse.
If u is a linear function, it is said the individual is risk-neutral. That is to say that the marginal utility of
risk-favored is progressive, the marginal utility of risk-averse is regressive and the marginal utility of risk-neutral
is invariant.
The first attitude to risk cannot exist isolated. That is in one transaction, a rational person will not only pursue
return. This attitude is often related to the individuals strategic profile. So we will analyze the three participants
last two attitudes to risk next. Like table 1, there are 8 kinds of combination come from the three participants
attitudes to risk.
From No. to No. conditions, the contractor, which is dominant in information, is risk-neutral.
According to the principle-agency theory, the behaviors of contractor can be supervised without any cost, so there
are only technical risks and environmental risks and no organizational risks. In No. and No. conditions, the
behaviors of the intendant can also be supervised without any cost, so it is no use to introduce intendance
organizations at all. Because of the intendant try to avoid risks, the behaviors of intendant have no constraint in
No. condition, thus the intendant become the only winner of all three participants. While in No. condition,
494
more unfortunately, the owner pay for the mere intendance fee but without any reward. So in these four conditions,
if regardless of the technical effects of intendance (when there is enough competition in the market, the technical
effects of intendance is not important), it is not suitable to introduce intendance mechanism.
Tab.1 The combination of the attitude to risk of the three participants
intendant
The attitude to risk of the
owner and intendant neutral averse
The attitude to risk owner owner
of contractor
neutral averse neutral averse
neutral
contractor
averse
No. to No. conditions are more realistic, at these conditions, contractor try to avoid risks. In No.
and No. conditions, intendant is risk-neutral, and he is always faithful to owner. Because the asymmetric
information, owner will try to build an incentive mechanism to share risks with contractor. Thus introducing an
intendant not only can make up for the asymmetric information in some extend, but also can reduce the possibility
of the punishment for the fault of contractor. Under this circumstance, the introduction of intendance mechanism
will benefit to all the three participants.
In No. to No. conditions, intendant is risk-averse. Owner has to make an incentive mechanism not
only for intendant but also for contractor. So we cannot say whether it is right to introduce intendant and must
consider whether the arrangement of the incentive mechanism is reasonable. Because it is more difficult to
observe the behaviors of supervisor, owner has to build incentive mechanism according to the team theory. The
main problem is how to avoid the phenomenon of hitchhike. It can be proved that when the original fortune of
contractor and intendant or the owner is high enough, there will be a Pareto optimization for introducing
intendance mechanism.
From above, No. condition is the ideal one. It is no necessary to introduce an intendant, and at the same
time, the social resources will be used in most efficiency. In other words, that is say social welfare is in most value.
In the last four conditions, it is more effective to introduce the third-party intendance mechanism especially in No.
and No. conditions, because it will benefit for all the three participants. No. and No. conditions are
more common. All the three participants can benefit from it also if intendance contract is appropriate.
One thing must be known that the reality is more complicated than our analysis above. For example, on one
hand, the three percipients attitudes to risk are not public knowledge or you have to pay for it to know; on the
other hand, their attitudes maybe not a constant, they may change with the change of time and occasions. We
know from the above analysis of the basic combination, the more complicated the condition is, the less negation
of the function of the intendance is, and the higher requirements to the arrangement of the intendance mechanism
are needed.
2.3 Analysis of the environmental adaptability of intendance mechanism
Different intendance mechanisms are needed in different social and economic environment, and the same
intendance mechanism plays different roles in different social and economic environment. We will analyze the
environmental requirements of the function of intendance mechanism next, and mainly take No. and No.
conditions as examples on the basis of the Chinese market characteristics.
1. Basically speaking, mechanism arrangement is to find results of the information engineering project and
the proper way to the share of risks, so the lower the uncertainty of the outside environment is, the higher interest
three participants will get, and the higher social interest will be, and vice versa. So an open, fair and impartial
outside environment is essential for the intendance mechanism to play an important role.
2. If contractor work hard more can bring more profit to owner, the function of intendance will be more
remarkable, and vice versa. So this is an important factor for owner to consider when he chooses a project to be
495
supervised and price an intendance contract.
3. The original intention to introduce an intendance is to get the observed values of behaviors of contractor,
so business ability of an intendant is very important. Owner has no chance to know the supervisors ability clearly,
so the public policies of the government become a key problem.
4. In order to prevent intendant from hitchhike, an appropriate intendance mechanism is needed, the
threshold of entrance to intendancy market should be heightened and the residual claim right of intendances
should be given.
5. To avoid the resentment of contractor to intendant or the dispute between them two, perfect laws and
regulations, improved technical standards are needed.
6. To avoid the relationship of principal-agency emerging between a contractor and an intendant,
corresponding laws and regulations and a board of arbitration are needed.
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4. Conclusions and proposals
From the above, introducing the intendance mechanism to information engineering is not the purpose but just
a mean. It meets the requirements of present social and technical environment of China today. Though intendance
is not all-purpose, the intendance mechanism of China needs to be redesigned and improved. Through the analysis
of the functions of intendance, we can get the correct direction of the environment of the organization and support
of the corresponding policies. Through the study of the environment of the intendance mechanism, the positive
function, lacks and overwork of present policies are shown clearly to us.
So here are some proposals to TPISEI and Methods published by the State Information Engineering
Department.
1. To improve and carry out the Standard of the Process of the Software Development, promote the
visualization of supervision and operational ability of intendance. A set of standards of intendance about
information industry should be promulgated as soon as possible. And its content should arrange in intendance
process and include tools of metric, assess and forecast in order to reduce technical risks and improve
organizational criterion of intendance.
2. To Found and perfect the credit database of intendance firms and contractors after todays classification of
intendance firms. And the database should publish regularly in the name of the government to reduce hidden risks
and avoid the malignant competition.
3. All the technical ability and the organizational ability should be paid attention to when the qualification of
intendants are classified. If intendants can be introduced technically and artistically, they will advance the
development of information-engineering projects and will not be refused by the other two participants. So
intendants qualification should be fixed up, they should be people who have no less than five year experience.
It is surprised that there is no any report of the regulation of the intendance about information engineering in
western countries in where a high level of information they are. Lots of information and technique consulting
firms served with humanness, such as EDSDavidGartnerQ/P. They enter the process of informatization of
their clients as the third party and serve their clients perennially and professionally from analyzing of the trend of
the informatization to making of information plan and selecting of the application systems, they cooperate with
their clients in many ways, instead of just do some certain projects, on the basis of a long and steady cooperation
relationship.
It has been proved since the latest 10 years in practice, the consulting mode play an active role. That is to say
the mechanism arrangement is system engineering and there is no best mode of the mechanism but a proper one.
The reason for the mode of western country lies in that they have a perfect social credit system and a complete
technical standard. But this is just an ideal condition for us. So from the economics we know that under such
circumstance the administrative means should be decreased and the organizational meaning should be enhanced.
Furthermore, the humane meaning of the western firms shows us that they respect contractors and they think it is
active to introduce the intendance mechanism in all process of an enterprise informatization.
Meanwhile the arrangement of the intendance mechanism is a dynamic process and it must be changed with
the social and economic environment. This is still a problem for us to make further research.
References
[1] Zuo M Y. The Analysis of Intendance Mechanism in Information Systems Project with Management View. Applications of the
Computer Systems, 2000,15(5):7-9(In Chinese)
[2] Fang D Y, Li M Q. The Analysis of Intendance Mechanism in Information Systems Project with Economics View. Journal of
Industrial Engineerings Engineering Management, 2003, 17(2): 98-102 (In Chinese)
[3] Zhang W Y. Game Theory and Information Economics. Shanghai, China: In publishing in the San Lian book corp. of Shanghai
and the peoples publish of Shanghai, 1996. 420, 508 (In Chinese)
[4] The Ministry of Information Industry of China (MII). The Temporary Provisions to Information Systems Engineering
Intendance. Files of the MII in information series, 2002, No.570. (In Chinese)
[5] The Ministry of Information Industry of China (MII). The Management Methods for the Qualification of Information Systems
497
Engineering Intendance Firms and The Management Methods for the Qualification of Information systems engineering
intendance engineer. Files of the MII in information series, 2002, No.142. (In Chinese)
[6] Freimut B, Sascha U. Management of Explicit and Implicit Knowledge in Consulting Companies, Proceedings of the
International Conference on Information Technology: Coding and Computing, ITCC.02.
[7] Eliot R, Peter D. Models for Understanding the Dynamics of Organizational Knowledge in Consulting Firms. Proceedings of
the 34th Hawaii International Conference on System Sciences 2001.
498
Research on Core Competence of Enterprises in Electronic
Business Management Mode
Hao Chunlu
on-job doctorate postgraduates of Wuhan Univeristy of Technology
Deputy Director General of the First Cadres Department of the Organization Departments
of Liaoning Provincial Committee of the Communist Party of China, P.R. China, 110006
Abstract In the 21st century of knowledge economy, the development of enterprises has shifted from a resources-oriented one to a
market-oriented one, and also, enterprises have entered into a new phase of international competition. As for enterprises, core
competence is represented. It expresses not only by its own advantage of inner resources, but also, and even more, by the
recombination of its inner and outer resources, or say a strategic alliance with core enterprises play the leading role.
Electronic-business as a new type of business mode, plays an important role in the transformation of the core competence of the
enterprises. This paper, form the perspective of supplying chain management, is to study the core competence of enterprises in
electronic business mode with the aid of the BCGs Growth-Share Matrix.
Keywords E-business, Supply chain management, Core competence, Non-zero-sum competition
1. Introduction:
From the 1990s, computer network technique has been quickly developing. Information processing and
transmission are breaching the restriction of time and space. Computer network and globalization of the economy
are irreversible trends. Along with acceleration of the integration and globalization of world economy began to
emerge and is speedily developing. E-business, here, is in its narrow sense. It refers to the effective business that
realized through techniques of computer network and network communication.
Since professor Poter has made the systemic expatiation and analysis of competitive strategy, it has stricken
root in peoples heart. Implement of e-business has helped to promote the strategic transformation shifted from
traditional antagonist mode of Win-Lost to the concurrent mode of Win-Win, which aiming at benefit of both of
the parties. The application of the network technique in business has changed the way of the functioning of the
market and also the rule. Internet as a channel of information transmission and two-way communication, is free,
open, fair and almost costs none. It has broken free from the restriction of time and space, making all the
enterprises communicate with one another fairly and freely, no matter where it is, large or small. Now B2B is
widely applied in business and rule of competition is one of cooperative type, which pursuing Win-Win. It
stresses to win great opportunities of development through cooperation and sharing knowledge. It aims to develop
business opportunities together and bear risks together. This paper, with e-business as restrictive condition, is to
study the specified form of core competence with the aid of BCGs Growth-Share Matrix and supply chain
management(SCM), on the basis of the theory of non-zero competition which contains a spirit of cooperation.
2. SCM in E-business
1.1 The definition of supply chain
Supply chain includes production supply chain and logistics supply chain. Traditional theory believes that
supply chain embraces purchasing development department, productive department, warehouse, delivery
department and others that involved in production and distribution. There, supply chain is considered as a process
inside the manufacturing enterprise. But in this paper, supply chain means the combination of the inside
enterprises supply chain and the outside enterprises supply chain, that is the realignment of the four flows
(information flow, distribution flow, business flow and fund flow) or to form a functional network of supplier,
producer, distributor, tradesman and final consumer along with the process when raw material is processed and
then turned into semi-products and final products that can be distributed to the customers. It is not only simple
chain of logistics, information and funds which links the supplier and the consumer, but also a value added chain.
499
Raw material has its value added during the process of productions and packing, transportation and meanwhile
benefit is brought to each parties that engaged in the activity.
Table 1 The supply chain
fund flow
1.2 E-SCM
Supply Chain Management, abbreviated as SCM, is defined as the following process: based on the
understanding and grasp of the inherent laws and interrelation of each supply chain link, enterprises regulate
physical distribution information flow, fund flow, value flow as well as service flow which are involved in various
links between production and circulation process, by virtue of the functions management such as planning,
organization, direction, coordination, controlling and maximum efficiency, and therefore enterprises are able to
provide the greatest service for consumers at the minimum cost. There is an enterprise plays the key role in the
typical supply chain. It is called core enterprise. Core enterprise is the coordination center of information flow and
physical distribution. Its downstream relates from seller to user, and its upstream is composed of supplier and
suppliers supplier. Core enterprise, as the information center obtain information from its upstream, and after the
combination process, it passed them to the upstream enterprise. Besides, core enterprise is of the function of
physical distribution center. Suppliers of parts deliver their kinds of spare parts to the core enterprises and, after
assembly and other forms of processing thereof. The processed are passed to user by downstream enterprises.
Information flow and physical distribution are required to coordinate organically. Only in this way, can supply
chain obtain its competitive power.
The basic advantage of supply chain management (e-SCM) lying in collecting and dealing with lots of supply
chain information through network technique. Through the application of e-business, we can carry effective
management on lots of the supply chain information resources, and improve efficiency of the whole supply chain.
E-SCM can provide such service system as the information handles automatically, customer's order performance,
the purchase management, inventory control and logistics distribution etc. with raising fluxion efficiency of goods
and service in the supply chain. The main path of e-business supporting SCM: Through making use of such
e-business technique as the EDI (the Electronic Data Interchange), EFT (the Electronic Funds Transfer) and ECR
(the Evaluated Cash Receipt) and so on, plus with two typical pattern as QR (the Quick Response) and ECR (the
Efficient Consumer Response), promoting the extensive application of the integration SCM.
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Table 2 E-SCM
bank
supplier client
payment/
EDI bargain
supply core enterprise
transportation/storage client
4. Through the BCGs Growth-Share Matrix to analyse the enterprises core competence
Under e-business management, by the adoption of B2B business management strategy,the enterprise realizes
to fit together effectively of the resouces of different types in different enterprises, and thus become the strategic
alliance of enterprises that different business type combine.Through the valid organization and harmony of the
alliance inner part ,the enterprises core competence can be carried out. By virtue of different classification of
different business type in enterprise divided by the BCGs Growth-Share Matrix, we can study how the enterprise
passes different strategies on this foundation to carry out its core competence.
The operation of an enterprise is divided into four types by the the BCGs Growth-Share Matrix: Problem,
star, the cash cow and thin dog.
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Table 3 The BCGs Growth-Share Matrix
22%
The rising
rate
of
the market the star the problem
10%
0
10X 4X 2X 1X 0.5X 0.1X
3.1 Carrying on analysis the four types divided by the BCGs Growth-Share Matrix
The problem business means that the business with the high market growth rate and relatively low market
quota. This is usually the new business of an enterprise. In order to develop the problem business, the enterprise
must build up the factory, increase the equipments and personnel, then it will catch up with the market with quick
development, and exceed the rival. All these mean a great deal of funds devotion.
The star business means that the business with the high market growth rate and relatively high market quota.
It can be regarded as the leader of the market with high speed, and it will become the enterprises cash cow
business. However, this does not mean the star business can certainly bring billowing money for the enterprise,
because the market grows up still in the high speed. The enterprise must continue to invest, in order to keep the
same rising percentage as the market, and beat off the rival.
The Cash cow business points out that the business with the low market growth rate and relatively high
market quota, this is the leader in the mature market, it is the source of cash in the enterprise. Because the market
is already mature, the enterprise doesnt need to pump capital to expand the market scale. Being the leader in the
market at the same time, this business possesses the advantage of the scale economic and high limit profits,
therefore all these can bring a great deal of source of money for the enterprise. With" cash cow" business, the
enterprise usually pays funds on account and supports other three kinds of business that needs a great deal of cash.
The "Thin dog" business means that the business with the low market growth rate and relatively low market
quota. Under general circumstance, this business is usually tiny benefit even to be bad. The reason of the
existence of thin dog business is more about the factor of the affection. Although it is always tiny benefit
management, similar to the dog of the person which has been kept for many years and the host is very unwilling to
throw it away. In fact, thin dog business usually needs to take up a lot of resources, such as the funds, the time
of the management, and in most times this business is something to lose more than gains.
3.2 The BCGs Growth-Share Matrix and the enterprises core competence
According to the classification of the operation of the enterprise divided by the BCGs Growth-Share Matrix
and non-zero-sum competition theory, we analyze what kind of management strategy the enterprise adopts to
shape the enterprise of strategic alliance in the process of competition. Therefore, we can realize keeping and
raising the core competence of the enterprise.
Based on non-zero-sum competition theory, the enterprise becomes a strategic alliance mainly according
to two factors. On one hand the enterprise business belongs to the core business of that business enterprise or just
edge business. On the other hand it refers to the position the enterprise takes up in the business realm: the leader
or the follower. In the meantime, we treat the star, the cash cow business as the enterprises' core business, and the
problem, the thin dog business as the enterprises edge business. Under the above-mentioned restricted conditions,
the enterprise becomes four kinds of strategic alliance in the competition the cooperation mutually. Therefore, the
enterprise's core competence is expressed in this four kinds of strategic alliances.
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Table 4 The enterprises become the strategic alliance game
The countermeasure of the enterprises The market position the enterprise takes up in the industry
The strategic significance lead chase
of the enterprises business defense chase
keep reorganization
Aim at star,the cash cow core business of the business enterprise, if this item of the enterprise is in the
leading position, the enterprise taking part in the strategic alliance is placed in the defense position,constituting the
defense game.The enterprise participating in the strategic alliance mainly has two purposes: One is to acquire the
market and technique, to keep the existing market and technique advantage; the other is to insure the resources
supply. Through the above-mentioned game,the enterprise attains a purpose of keeping its core competence.
If this item of the enterprise is in the chasing position in the industry, the enterprise participating in the
strategic alliance is placed in the chasing position, constituting to chase game.The enterprise participating in the
strategic alliance mainly has the following purpose: through the alliance, it can learn the advanced technique or
the management method from the leading company, or acquire a new sale outlet, and then through a strategic
alliance to improve its core competence and raising its own competitive position in industry.
Aim at problem, the thin dog edge business of enterprise, if this item of the enterprise is in the leading
position in the industry, the enterprise participating in the stragegic alliance is placed in the keeping position,
constituting to keep game. The enterprise participating in the strategic alliance mainly has the following purpose:
It mainly makes use of the beneficial position to obtain the biggest benefits, through strategic alliance to extend its
own sale share further,and then making use of the market advantage to keep its core competence more,through the
best exploitation of the edge business to raise its whole core competence.
If this item of the enterprise is in the chasing position in the industry, the enterprise participating in the
strategic alliance is placed in the reorganizing position, constituting reorganization game.The enterprise
participating in the strategic alliance mainly has the following purpose: The purpose of the alliance is for creating
some advantages and value, making the enterprise sell out that business at a reasonable value finally.
Reorganizing the business it is about to give up through the strategic alliance to acquire the biggest income,in
order to maintain and raise its whole core competence.
References
[1] Ge Renliang & Wei Xuejun, The Influnence On Supply Chain Mnagement Exerted by E-business, Business Research,
Sept.,2002
[2] Yuan Chunhui & Zuo Zhenlin & Liang Xiongjian, E-Business Rallys Enterprise Value Chain, Beijing Normal University
Journal, Sept.,2002
[3] Chen Changbin & Chen Gongyu, To view E-SCM rationally, Business Research, Sept.,2002
[4] Li Guilin & Li Yuling, Three Magic Formula For Elevating Competive Power of Enterprise, Business Research, Apri., 2002
[5] Li Sanbo, On Problems Exsiting in Chinese E-Business and Respective Countermeasures, Business Research, Jan., 2002
504
The Xia-Jin Bridges Impact on Local Tourism of both Sides
of the Taiwan Strait from the Customer Value Perspective
Abstract To simulate the impact of the construction of the Xia-Jin (Xiamen-Jinmen) Bridge on local tourism as seen from the
customer value perspective; incorporating governments on both sides of the Taiwan Strait as corporations, Taiwan residents as
customers, and the construction of the Xia-Jin Bridge as a form of product or service in our research and analysis with respect to
customer value. The aim of this research is to determine how functional value and emotional value contribute towards customer
satisfaction and behavioral intentions in the customer value model. From our LISREL analysis of the simulated data, we found that
positive relationships exist in both emotional value on customer satisfaction and customer satisfaction on behavioral intentions.
Key words Customer value, Customer satisfaction, Behavioral intentions
1. Introduction
Discovering and fulfilling customer value has become the fundamental goal in modern corporate
management, since every customer possesses a unique perception of value. Albrecht (1994) believed that
customer value is a marketing concept based on the specific needs of customers, as well as a strategy whose goal
is to satisfy that specific need. Kotler (1997) also pointed out that customer value is customers' overall
perception of how products are able to satisfy their needs. For this reason, a growing number of firms are
adopting the customer centered approach, which starts by treating each customer as a unique entity, and
developing products or services that satisfy the needs and expectations of each customer. Hence customer value
based concepts or theories such as customer-orientation, relationship management, creation of customer value,
value marketing, and modeling and analysis of customer value, are often adopted in marketing.
The aim of this research is to evaluate and analyze the impact pattern of customer value by simulating the
customer value theory, designating the construction of the Xia-Jin Bridge as a product or service, the governments
of both sides of the Taiwan Strait as corporations, Taiwanese residents as customers, and tourism as our subject
industry.
Previously, professional studies conducted on the Xia-Jin Bridge were mostly feasibility analyses and models
of various advanced construction methods, or evaluations on the effectiveness of new bridge-building techniques.
Only a few of them were aimed at determining its interactions with local tourism from the customer value
perspective, what the expected impacts are, and how they influence tourists' consumption patterns (customers
behavioral intentions). These are the main questions that we seek to answer. Based on the above motivations,
this research is aimed at determining the impact of the Xia-Jin Bridge on local tourism as seen from a customer
value perspective, which shall be a helpful guide in the construction of the bridge.
2. Literature Review
2.1 Customer Value
Zeithaml (1995) defined customer value as consumers' evaluation of overall product effectiveness based on
the benefits and costs associated with acquiring products. Monroe (1990) stated that historical theories on
consumer behavior were established on the basis that consumers act rationally under adequate information;
however in reality, we all live in a world of imbalanced information, where consumers develop preferences and
choices based on their own product evaluations. Hence Monroe believed that consumers recognition of value is
an exchange between recognized benefits and recognized sacrifices; their relationship is denoted as: recognition of
value = recognized benefits / recognized sacrifices. Zeithaml believed that recognition of value is consumers'
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evaluation of overall product effectiveness based on the benefits and costs associated with acquiring such product.
Based on Zeithaml's definition of the recognition of product value, Bolton and Drew (1991) defined service
value as consumers' evaluation of overall service satisfaction based on the effectiveness, benefits and costs
associated with acquiring services. Cronin, Jr., Brady, Brand, Jr. and Shemwell (1997) consolidated all previous
studies of service value and redefined service value as a mathematic function between the quality and costs of
service.
Bolton and Drew (1991); Monroe (1990); Morton and Rys (1987); Willians and Soutar (2000) conducted
extensive research on customer value, or customers' overall evaluation of products and services. This perception
is developed over the course of product or service purchases in relation to the benefits received and the costs
associated (either monetary or non-monetary); this perception is highly personalized at the conscious level.
Consolidating the above studies on customer relationship, we have identified two major aspects for determining
customer value: functional value and emotional value, which shall be the main focus in the rest of the research.
2.1.1Related Models of Customer Value
Cronin, Jr., Brady, and Hult (2000) consolidated previous studies relating to service value; after analyzing 6
service sectors they concluded that service value influences customers' satisfaction as well as their behavioral
intentions.
Model 1: Concluded based on the relevant studies on service value that a direct relationship exists between
its value and performance results.
Model 2: Concluded based on the relevant studies on satisfaction that a direct relationship exists between
satisfaction and performance results.
Model 3: Concluded based on previous research on the relationship between service quality, satisfaction, and
behavioral intentions that service quality ultimately affects behavioral intentions through value and satisfaction.
Model 4: Concluded that behavioral intentions is not only affected by service value and satisfaction; the
service quality also needs to be taken into consideration.
2.2 Customer Satisfaction
Kotler believed that customer satisfaction is how products or services purchased differ from customers'
expectations; in other words, it is a reaction towards the difference between actual and expected outcomes. By
consolidating the viewpoints of Churchill and Surprenant (1982); Engel, Blackwell and Miniard (1995), the level
of customer satisfaction is determined in relation to consumers' expectations and the actual performance of the
products or services; the difference between them indicates whether the products or services are satisfactory or
unsatisfactory. If the actual benefit derived from using the product matches or even exceeds expectations, the
customer becomes satisfied or very satisfied; otherwise the customer becomes unsatisfied or very unsatisfied.
Customer satisfaction is an evaluation process where customers compare the actual benefits against their
expectations after taking into account all costs associated during the purchase; the process can generate either
favorable or unfavorable feelings and emotions.
2.3 Behavioral Intentions
Boulding, Kalra, Staelin and Zeithaml (1993) believed that customers' awareness of service quality will
impact their satisfaction towards the overall service, which subsequently influences their behavioral intentions.
According to the research conducted by Zeithaml, Berry and Parasuraman (1996), behavioral intentions can be
either beneficial or detrimental. Beneficial behaviors strengthen the relationship between the customer and the
company, which may include compliments and preferences towards the company, increased purchases of the
company's products or vouchers etc; on the other hand, detrimental behaviors may include avoidance of any
association with the company or reduced purchases of the company's products. Therefore behavioral intentions
can be used as an indicator of customer loyalty. Oliver (1980) believed that consumers' perceptions towards a
certain product or service are derived from personal experience; consumers then develop their willingness to
purchase based on these perceptions.
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3. Methodology
3.1 Conceptual Framework
Figure 1 depicts the conceptual framework of the study.
Function
al
value
Customer
Behavioral
satisfaction
intentions
Emotiona
l
value
3.2 Hypotheses
Based on the structures of research conducted previously by scholars, our hypotheses are established as
follows.
H1: There is a positive relationship between functional value and customer satisfaction. Williams and
Soutar (2000) discovered in their research that consumers' perceptions towards functionality such as the quality of
tour design, package price, the comfort of tour buses and hotels, and the professionalism of tour guides, etc., may
influence consumers' final attitude, which subsequently affects customer satisfaction.
H2: There is a positive relationship between emotional value and customer satisfaction. In the same
research, Williams and Soutar also pointed out that emotional value is consumer's perception after experiencing
the tour. Throughout the tour, consumers may experience different emotions and feelings that contribute toward
the final ratings on their tours, which subsequently affect customer satisfaction.
H3: There is a positive relationship between customer satisfaction and behavioral intentions. Boulding,
Kalra, Staelin and Zeithaml (1993) believe that customers' awareness of service quality will affect their overall
satisfaction, and the satisfaction with service quality will subsequently change customers' behavioral intentions.
3.3 Quantifying the research variables
The quantification of variables was done using the Likert 5-scale measurement. Based on previous relevant
definitions, this research defines functional value as "customers' subjective perception towards the overall
functionality of products and services during the course of their experiences", and defines emotional value as
"customers overall perception during the course of experiencing products and services on the emotional level".
We used qualitative scales in our questionnaire to quantify both functional and emotional values, and amended
them according to specific industry characteristics as developed by Sheth et al in (1991).
Based on previous relevant definitions, this research defines customer satisfaction as "evaluation and
perception developed after consumption". To quantify, we designed an integrated survey as recommended by
Fornell (1992) and Bolton (1991); we defined customers' behavioral intentions as "the likelihood that customers
may change their attitudes, intentions, and recommendations to others based on their evaluations and feelings
derived from an experience". We integrated a number of approaches and amended the quantifying method as
suggested by Fornell and Gronholdt et al. (2000).
3.4 Research subject and samples
This research is aimed at determining the impact of the Xia-Jin Bridge on local tourism as seen from the
customer value perspective, by studying a sample of consumers in Taiwan. The rationale behind this was that
507
consumptions in both Xiamen and Jinmen were almost entirely contributed by non-local tourists; this sample was
appropriate for the industry of our research. In addition, tourism in both regions was highly competitive, vital
and representative of the local economies. The development of tourism is also heavily associated and dependent
upon customer value.
Gerbing and Anderson (1988) recommended a sample size of at least 150 for LISREL to achieve
convergence and good fit. Hair et al. (1998) believed that when estimating parameters using the maximum
likelihood method, a sample size above 100 is a minimum requirement; too small a sample results in inadequacy
of convergence or fit. The subjects of this survey spread across a wide range of sectors including tourism,
schools, hospitals etc; a total of 160 effective responses were collected, which satisfied the minimum sample size
for LISREL. 49.1% of subjects were male, 50.9% were female, and consumers between ages 21 and 40
comprised 87.9% of the sample; in terms of educational level, college was the most common standard, being 57%
of the entire sample; subjects earning NTD 20-35 thousand and 35-50 thousand per month formed the majority of
the sample, accounting for 34.5% and 19.4%, respectively.
3.5 Reliability and validity
Reliability is the primary standard for evaluating a measurement tool. It indicates the accuracy and
precision of a measurement procedure; through which we are able to determine whether the measured results are
consistent and stable. In this research, we used Cronbachs to evaluate the reliability of the factors and the
clustering effect between variables. As we can see in Figure 1 below, the reliability of our research variables
ranged between 0.72 and 0.83; according to previous studies, a Cronbachs above 0.7 indicates high
significance.
As we can see in Table 1, the means and standard deviations of each variable are displayed in columns 2 and
3; the numbers along the diagonal line are the Cronbachs produced from the reliability analysis. To better
understand the level of correlation between functional value, emotional value, satisfaction and behavioral
intentions for each variable, we used Pearson correlation to determine whether the relationships for each variable
were significant. The numbers along the diagonal line are correlation coefficient between the pairs of variables;
the greater the coefficient, the stronger the correlation between variables. As we can see in the following figure,
positive correlations exist between each variable of our research.
Table 1 Mean, Standard Deviation, and Correlation Coefficients
Variable M SD Functional value Emotional value Customer satisfaction Behavioral intentions
Functional value 4.13 .56 (.78)
Emotional value 3.72 .69 .53** (.72)
Customer satisfaction 3.64 .76 .51** .61** (.82)
Behavioral intentions 3.73 .70 .41** .66 .68** (.83)
Note. *<.05, **<.01, Cronbachs displayed in ( )
Validity is the appropriateness, which is a necessary characteristic for measurement tools to correctly capture
observations required for the research; it must achieve the purpose of its measurement for the test to be valid. In
our research, validity is the appropriateness of measurement tools. If the measure (questionnaire) covered all of
the structures and content that this research intended to discuss, we can conclude that it had excellent content
validity. In other words, the questionnaire is considered highly valid if it asks for the answers we need.
Content validity can not be determined statistically. Our questionnaires were designed based on theory with
reference to similar contents and questionnaire items utilized in previous studies, and amended according to the
specific industry characteristics of our research, reviewed and tested by scholars, specialists, consumers and other
relevant personnel. This research should be able to satisfy the validity requirement.
Factor analysis is a statistical tool used to simplify variables and analyze for groups that exist between
variables or search for common sectors behind each variable. There are two types available: exploratory factor
analysis, EFA, and confirmatory factor analysis, CFA. Since this is a confirmatory research study, we chose the
508
confirmatory approach for our factor analysis. The variance explained was listed in Table 2 below, after
conducting a factor analysis across each sector using SPSS 10.0. Using principal component analysis, the KMO
test (Kaiser-Meyer-Olkin measure of sampling adequacy) and the test for sphericity both reached a level of
significance, therefore we continued with the extraction of principal factors. We extracted four variables using
the varimax method; they were functional value, emotional value, customer satisfaction and behavioral intentions.
Table 2 Factor Analysis
Variable KMO Variance explained
Functional value 0.70 71.22%
Emotional value 0.71 67.02%
Customer satisfaction 0.72 84.54%
Behavioral intentions 0.80 71.17%
Of these, customer satisfaction explained the highest proportion of variance (84.54%), and the variances
explained by other factors were all above 67%, indicating a good factor analysis result.
4. Discussion
From the entire model, we believe that customer value affects consumers behavioral intentions through the
perception of satisfaction. The GFI of this model was 0.91 and reached a level of significance; also it has been
suggested by scholars that other indicators can be used for testing; for example, the CFI of 0.96 and the NFI of
0.94 both reached a level of significance, hence this model is considered acceptable.
Based on the estimated parameters provided by LISREL, we tested whether these parameters under each
variation fall within our prescribed range to determine whether these hypotheses were valid. The estimated
parameters of hypotheses H2 and H3 were found to be positively related; however the estimated parameter of
hypothesis H1 did not reach a level of significance, therefore we were unable to conclude that our findings
supported the hypothesis.
References
510
[8] Cronin, J. J. Jr., M. K. Brady, and G. T. Hult. Assessing the Effects of Quality, Value, and Customer Satisfaction on Consumer
Behavioral Intentions in Service Environments. Journal of Retailing, Vol. 76, Iss. 2, 2000, pp. 193-218
[9] Engel, J. F., R. D. Blackwell, and P. W. Miniard. Consumer Behavior. 8th ed, Dryden Press, Texas, 1995
[10] Ennew, C. T. and M. R. Binks. Impact of Participative Service Relationships on Quality, Satisfaction, and Retention: An
Exploratory Study. Journal of Business Research, Vol. 46, 1999, pp.121-132
[11] Fornell, C. A National Customer Satisfaction Barometer: The Swedish Experience. Journal of Marketing, Vol. 55, 1992,
pp.1-21
[12] Gerbing, D. W. and J. C. Anderson. An Updated Paradigm for Scale Development Incorporating Unidimensionality and Its
Assessment. Journal of Marketing Research, Vol. 25(2), 1988, pp.186-192
[13] Gronholdt, L., A.Martensen, and K.Kristensen. The Relationship Between Customer Satisfaction and Loyalty:Cross-Industry
Differences. Total Quality Management, Vol.11, 2000, pp.509-515
[14] Hair, J.F. Jr., R.E. Anderson, R.L. Tatham, & W.C. Black. Multivariate Data Analysis. 4th, Englewood Cliffs, Prentice-Hall
Inc., New Jersey, 1998.
[15] Kenichi O. The Mind of the Strategist. Harmondsworth: Penguin Books, 1983
[16] Kotler, P. Marketing Management: Analysis, Planning, Implementation, and Control. 9th ed., New Jersey: David Borkowsky,
1997
[17] Monroe, K. B. Pricing: Making Profitable Decisions. 2nd ed, McGraw-Hill, New York, 1990
[18] Morton, J. and M. E. Rys. Price Elasticity Prediction: New Research Tool for the Competitive '80s. Marketing News, Vol. 21,
1987, pp. 18
[19] Oliver, R. L. A Cognitive Model of The Antecedents and Consequences of Satisfaction Decisions. Journal of Marketing
Research, Vol. 17, Iss. 4, 1980, pp. 460
[20] Patterson, P. G. and R. A. Spreng. Modeling the Relationship Between Perceived Value, Satisfaction and Repurchase Intentions
in a Business-to-Business, Service Context: An Empirical Examination. The International Journal of Service Industry
Management, Vol. 8(5), 1997, pp.415-432
[21] Sheth, J. N., B. I. Newman, and B. L. Gross. Consumption Values and Market Choices-Theory and Applications. Cincinnati,
OH: South-Western Publishing Co., 1991
[22] Williams P. and G.N. Soutar. Dimensions of Customer Value and the Tourism Experience: An Exploratory Study. ANZMAC
2000 Visionary Marketing for the 21st Century: Facing the Challenge, 2000, pp.1415-1421
[23] Wilson, T. D. An Integrated Model of the Buyer-Seller Relationship. Journal of Academy Science, Vol. 23, No. 4, 1995
[24] Zeithaml, V. A., Leonard L. Berry, and A. Parasuraman. The Behavioral Consequences of Service Quality. Journal of
Marketing Vol. 60(April), 1996, pp. 31-46
[25] Liao Sen-Guei , Yang Su-Lan. Research on the Relationship Between Environment, Value, and Customer Satisfaction. National
Taipei University of Technology, Conference of Knowledge and Management, November 2003 319-236
511
Studying on Customer Demands Information Processing
Abstract With the development of economy and society, customers are unsatisfied with the stereotyped products, the
individuation voice come up. As customers usually describe their demands in nature language, it presents challenges: the demands
are usually conflicting with each other and are often imprecise. The paper studies the operation process of handling customer demand.
Two methods are proposed in this research. The first method classifies customer demand using natural language processing
techniques in order to obtain customer demand unit. The second method determines the priority of customer demands. These
methods of processing the customer demands will help the manufacturer adjust their product design and reduce the risk of customer
dissatisfaction.
Key words Ccustomer demand , Semantic decomposition, Priority of customer demands
1. Introduction
The findings in Kalakota and Robinson show developing a new customer costs more than six times the effort
of keeping a present one[1]. Hence, any demand of the existing customer needs to be treated more positively.
While for most situations, due to insufficient technical knowledge and lack of awareness about specifications,
customers may present demands with some inexact meanings. Many service managers revealed that the customer
demands often received with verbally vague description and hard to handle. Thus, the fuzzy demands of the
customers will lead to great difficulty in product design. For product design, two important issues need to be
addressed. First, the existing customer demands of the features of the current products. Second, customers
expectations of new product features. However, the voice of the customer is generally expressed in laymans
language and not explicitly in terms of product features. In order to process such expressions, a method is needed
to decompose and classify these expressions to enable the new demands to be explored.
2. Literature Review
2.1 QFD Review
QFD finds extensive use in a variety of industrial applications. Thus, QFD is a critical research issue in the
fields of design, production and quality engineering [2]. Cristiano have highlighted that the literature in the United
States associated with QFD can be categorized into three groups: (i) introductory materials; (ii) surveys and case
studies that illustrate the application of QFD; and (iii) extensions and improvements to the QFD methodologies [3].
The extension and improvement of QFD to elicit customer needs, has been addressed by Fungand ReVelle. Fung
develop a hybrid method for customer needs elucidation and analysis for preparing quantitative variables in
functional requirements [4]. They also present a quantitative mapping between the customer attributes and product
characteristics [5]. A CRIS system that employs fuzzy sets is also presented to enable the effective interpretation of
qualitative customer attributes into quantitative form so that the mapping between customers attributes and
product characteristics can be performed more effectively.
2.2 Semantic analysis in natural language processing
The customer demands are normally expressed using natural language mostly in laymans terms. For
example, customers may require easy to handle or good performance for a new car. When collecting
information on product features from a large group of customers, computerization of the data processing is needed
in order to help improve the understanding of customer demands and reduce the processing time. However, the
use of computers can result in difficulties in directly extracting information from the customers expressions. Such
difficulties have been frequently discussed, and many applications or techniques have been developed to solve this
problem. Among them, Natural Language Processing (NLP) provides a feasible solution [6]. In the field of
Artificial Intelligence (AI), the focus of NLP is on the knowledge necessary to understand natural language. AI
deals with language as a phenomenon of knowledge representation and use. The objective of NLP can be achieved
512
by using syntactically driven parsing and semantic grammar [7].
2.3 Ranking or prioritizing customer demands
Two methods being used most to ranking the customer demands: potential gain in customer value index,
analytic hierarchy process.
Hom proposed the Potential Gain in Customer Value (PGCV) index, which is an extension of a common
marketing analysis method [8]. In such an analysis, a survey is designed to obtain customer ratings on the
importance of certain product features and their performance. Through the survey, the priority order of product
features is measured based on two essential dimensions: (i) the customers perception of the importance of the
product features; and (ii) the performances of the individual features. The two dimensions form an
Importance/Performance (IP) chart. The location in the four quadrants (A, B, C and D) of an IP chart denotes the
strategic implication of the product features.
An AHP framework has been used to determine the priority of customer requirements for an industrialized
house construction scenario [9]. The customer requirements are decomposed into a hierarchical structure. The
relative importance of customer requirements at each level is determined by a pair-wise comparison. The relative
importance of each requirement at the lower level is multiplied by the priority weight of its upper level. The final
priorities of the customer requirements are calculated using this bottom-up procedure.
Customer Demands
During the decompositions, the original customer demands should be protect and keep the original means. If
d1 , d 2 ..., d n are the demand unit, DE (d ) is the demand information which demand d expressed,
then: DE (d 1 ) DE ( d 2 ) ....... DE ( d n ) DE ( d ) .
3.2 Demand decomposition
We should decompose the original fuzzy and unambiguous customer demand in order to modeling the
analysis tree. There are two important questions: How to control the decompose dimension, when should we stop
decomposition. How to decompose demands?
The process of demand decomposition can be figure as:
Customer Mind
Expressi
Fuzzy demands
Semantic analysis
Decompose Rules
Demand Unit
If d1 , d 2 ...d n are the demand units, means there are no repetition between the demand units. The rules
of decomposition can be expressed as:
514
DE (d ) DE (d1 ) DE (d 2 ) ... DE (d n )
(d i , d j ) DE (d i ) DE (d j ) = (i j )
Customers usually use natural language to describe their expectation. These describe language includes the
customers demands for the products. We can mine the demands in the words through semantic rules. For
example, the customer demands for a camera:
Cheap
Customer demands
Yarage
Demand Information
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4. Conclusions
This research mainly achieved in processing of customer demands. Firstly, defined the demand unit and
modeling the demand unit analysis tree. Secondly, use semantic to decomposes the demands. Thirdly, we
determined the priority of demand units. The result show that although customer demands are usually described in
laymans terms, they can still being processed by using semantic analyses. And given the ratings of importance
and degree of satisfaction for customer demands, the fuzzy method can be used to determine their priority. Based
on the priority of demands, the manufacturer can adjust their product design and reduce the risk of customer
dissatisfaction.
References
[1] Kalakota, R., Robinson, M. E-business roadmap for success. New Jersey: Addison-Wesley.1999
[2] Cohen, L.Quality Function Deployment, a How to Make QFD Work for You, AddisonWesley, Reading, MA.1995
[3] Cristiano, J.J., Liker, J.K. and White, C.C. Key factors in the successful application of quality function development. IEEE
Transactions on Engineering Management, 2001.48(1), 8195
[4] Fung, R.Y.K., Popplewell, K. and Xie, J. An intelligent hybrid system for customer requirements analysis and product attribute
targets determination. International Journal of Production Research, 1998.36(1), 1334.
[5] ReVelle, J.B., Moran, J.W. and Cox, C.A. The QFD Handbook, Wiley, New York, NY.1998
[6] Obermeier, K.K. Natural Language Processing Technologies in Artificial Intelligence, Ellis Horwood, Chichester, West Sussex,
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York, NY, 1992. 9971015.
[8] Hom,W.C. Make customer service analyses a little easier with the PGCV index. Quality Progress, 1997.30(3), 8993.
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QFD: an industrialized housing application. 2004.26(4), 7279.
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[11] Barry OSullivan. Constraint-based Product Structuring for Configuration [A]. Proceedings of the 15th European Conference on
Artificial Intelligence (ECAI 2002) [C]. Amsterdam: IOS Press, 2002,41-46
516
The Evaluation of Knowledge Management Performance
Based on AHP
Liu Peide1,2
1 Economic Management School, Beijing Jiaotong University, Beijing ,China, 100044
2 Information Management School of Shandong Economic University, Jinan, China250014
Abstract The evaluation of knowledge management performance is not only an important way to know the level of knowledge
management of enterprise but also a necessary component of it.This paper first describe the current situation of knowledge
management performance evaluation in and out of home,the indicator system of knowledge managements performance evaluation
and AHP based model are presented on the basis of the ralated reference and also do some example research.The examples
demonstrated that: hierarchy process method can do well in evaluation.
Key words Knowledge-based systems, AHP, Performance evaluation.
1 Introduction
Following the knowledge economys appearance, knowledge as the organizational intellective capital, has
become to the first tactic resource during the development of economy. Moreover, the management of knowledge
is the important instrument to improve the organizational competitive power and to drive the development of
social economy, just as Peter F. Drucker, the master of management, said in Knowledge Management, if we said
that the science management, which is at the beginning of the industrial economy, was the first revolution of
enterprise management, during human being making for the 21st century, the management of enterprises allover
the world will welcome the second revolution knowledge management with the coming of knowledge
economy. [1] Carl Frappaolo, the executive vice-president of the American Delphi and the enterprise knowledge
management consultant, thinks: knowledge management is the application of collective wisdom to improve the
overall response and innovation, a new provided approach to let the enterprises realize the sharing of explicit
knowledge and implicit knowledge. [2] In enterprises, the one who masters the up-to-the-minute knowledge, who
invents and creates the new knowledge, who produces use value with more knowledge, will obtain the
predominant position in the next competition [3].
In short, knowledge management puts emphasis on changing the management pattern to improve the
competitive power using the knowledge and the capital of person with ability; applies itself to change the
employees work attitude and behaviors through modern instruments and estimate open and trustful interior
environment in the enterprises, which can make the employees to collaborate and share knowledge resource,
accomplish more difficult task, bring more benefit and achieve higher goal.
There needs a system to measure and evaluate the effect of the enterprise knowledge management. Such
system lets the manager see the shortcomings of management, know where the key factors exist, and provide
theoretic evidence for organization to improve its knowledge management. So the evaluation of the knowledge
managements effect is the essential part of the knowledge management process.
The knowledge management performance evaluation, which can reflect a organizations management status
of knowledge and the organizations developing trend in the future, is a important way that let the organization
meet and know the level of its knowledge management; let the enterprise make a comparison of knowledge level
between the former and the later, or among other relative enterprises, find experiences and lessons, then, make a
better use of the existed advantages of knowledge management , find problems which exist in the knowledge
acquainting, sharing, innovation, utilization etc, and give mending measures aiming at these problems; it provide
decision-making evidence for giving a right instruction to the development of enterprise knowledge management,
and achieve the purpose of improving further knowledge management level and enhance the enterprises
competitive power; meanwhile, it also can validate the disciplinarian problems brought forward from the research
of knowledge management, find the new problems needed to be solved in the enterprise knowledge management,
517
impel the development of enterprise knowledge management science.
518
4 The analytic hierarchy process method knowledge management system evaluation
4.1 The ascertainment of evaluating factors
The set of evaluating factors (Table 1) is a muster of knowledge management systems evaluating indicators.
4.2 Computing the weighted set of evaluating factors
The analytic hierarchy process method, just AHP method for short, is to express a complex decision-making
problem as a sequential step-up hierarchy structure, compute the comparatively weightiness measurement of
diversified decision-making behaviors, scheme and decision-making object under different rule and the whole rule,
and then rank them according to the measurement, providing decision-making evidence for the
decision-makers[12]. The steps to solve the real problems using AHP method is as follows:
(1)Establishing the problems step-up hierarchy structure. According to the elementary analysis, divides the
factors into several groups, and each group present a hierarchy. Then, ranks them as the sequence: the top layer,
several relative middle layers and the bottom layer. The top layer presents the purpose of solving problems, just at
which the AHP wants to arrive. The middle layers is the involved intermediate links while reaching the purpose,
namely tactic layer, restricted layers, rule layer etc. The bottom layer displays the measures or policies used to
solving problems.
(2) Determining the comparative judgment matrix. The judgment matrix presents the situation of the
comparative weightiness of this layers relative factors, aiming at some factors of the upper layer. Supposing that
the factors Ak of A layer have relation to the next layer B1,B2, ,Bn, constitutes the judgment matrix as follows
(figure 1). In the figure, Bij presents the weight indicator of comparative weightiness of Bi toBj, relative to factor
Ak. Its crucial to determine this weight. We usually adopt the two methods: expert decision and individually
subjective decision[12]. Expert decision is to invite relatively specialized experts considering the content of the
evaluating problems, let the experts make comparison between factors using AHP according to the form of
experts suggestion designed in advance. We constitute the judging matrix by filling in the result of the
comparison, then synthetically analysis and compute the experts judging matrix to obtain the problems ordered
weighted value. The individually subjective decision constitutes the judging matrix by comparing the cognitive
and understanding level of individuals. This paper adopts the first method which let the experts give their
determination to the mutually important degree of indicator systems each layer.
AHP adopts the 1~9 marking method, brought forward by Satie, to constitute the judging matrix. Obviously,
relative to the judging matrix, there have:
bij = 1 , bii = 1 . (1)
b ji
(3) The single hierarchy sort. The single hierarchy sort computes the weighted value of this layers factors
weightiness, according to some of the upper layers factors.
The single hierarchy sort can come down to compute the eigenvector and eigenvalue of judging matrix B.
That is to compute the eigenvector and eigenvalue which can satisfy the formula 2.
BW = MAX W (2)
Thereinto, MAX is the maximum of eigenvalue of B. W is the normalized eigenvector corresponding to
MAX . Adopting the square root method, compute it as:
519
n
n b
j =1
ij
Wi = (3)
n n
bi =1
n
j =1
ij
Thereinto, i,j=1,2,,n
So, W =( W1 , W2 ,...Wn ) just the eigenvector we are aftering.
n
1 ( BW ) i
MAX =
n
i =1 Wi
(4)
n is the number of ranks of judging matrix. When the CR< 0. 10, we think the judging matrix has satisfying
consistency. Otherwise, we should adjust it to obtain the satisfying consistency.
5) The whole hierarchy sort
The whole hierarchy sort is to compute the weighted value of all factors weightiness in this layer according
to the upper layer by taking advantage of all results of the single hierarchy sort in the same layer. The single
hierarchy sort is just the whole hierarchy sort for the top layer.
520
5 The performance appraisal of knowledge management and demonstration research
5.1 Construct judgment matrix
Via the investigation of 15 experts, it structure the judging matrix, eigenvector and consistency examine:
(1). Judgment matrix A-A1: (2). Judgment matrix A1-B:
By computing, the above judgment matrixes all satisfy consistency and every right has no logical mistake.
We can get a clearly chief table that indicate the appraising knowledge of enterprises information management
guideline system, in other words is arrangement compositor, after confirming overall target, decomposing target,
building appraisal standard system and finishing every righted target(table 3), the numbers in the right bracket is
the right of itself higher-up target, the overall right express the right of the relatively second class target.
5.2 Demonstration analysis
Appraising some electrical information enterprises knowledge management performance indicators by 10
experts, the average is as follows:
Bi 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Ci 76 80 57 70 78 73 65 75 88 92 94 96 74 74 75 68 75 87
We can get the objective appraise by basing equation 6 , replacing I i and Ci. So the overall knowledge
management score is 78.
6 Conclusion
Knowledge management performance is a complex system project, whose aim is finding the weakness of the
enterprise and consummating it, thereby accelerates the organized competition improvement. This paper bases the
literature 11, skimpily appraising the system target, building arrange mental evaluating mathematics model and
overall appraising system which could manage the knowledge performance. It is approved by instance: we will
get the same affection by using arrange mental appreciable method.
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Table 3 the overall compositor of appraising knowledge of enterprises information management guideline system
Indicator 1 Indicator 2 weight Ij
B1 Management structure (0.2344) 0.05837
B2 Enterprise system (0.5895) 0.14678
A1 Organizational capita l(0.2490)
B3 Enterprise culture (0.1268) 0.03157
B4 Staff satisfaction (0.0492) 0.01225
B5 Knowledge structure (0.2385) 0.03919
A2 Human capital (0.1643)
B6 Updatingknowledge capacity (0.6250) 0.10269
B7 Professional skills (0.1365) 0.02243
B8 Technologically advanced level (0.1634) 0.02034
A3 Technology capital(0.1245 ) B9 New technological achievements (0.5396) 0.06718
B10 R & D input level (0.2970) 0.03698
B11 Market share (0.5030) 0.02927
References
[1] Peter Druse. Knowledge Management. BeiJing: China Renmin University Press, 1999
[2] XingMian etc. Application in the Management of Knowledge Evaluated of Fuzzy Multistage Appraisal. Operations Research
and Management Science, 2004.3:86-89.
[3] Wei Jing. Nature of Knowledge and firm's Knowledge Management. Science Research Management. 2000.21
[4] Verna Allee. Knowledge Evolution. 1998
[5] Szala Marek. Two-level Pattern Recognition in a Class of Knowledge-based Systems. Knowledge-Based Systems, 2002,
Vo1.15,(1), 95-101
[6] Wei Jing. New Strategic Thinking on Enterprise AcquisitionsEnterprises Acquisitions and Integration Management Model
Based on Core Competence. Science Press,2002, 6
[7] Wei Jing. Technological Capability of Enterprise. Science Press, 2002. 3
[8] Huang Lijun. Methods of Evaluation of Enterprise Knowledge Management System. Information Studies: Theory &
Application, 2002(4):273-275.
[9] Zhu Qihong. An Evaluation Model on the Knowledge Management of Enterprise Based on the Artificial Networks. Science of
science and Management of S.& T. 2003.(8):32-34.
[10] Liu Xisong, etc. The Appraisal Model of Knowledge-based Management. Commercial Research, 2004(1):1-2.
[11] Jiang Ronghua. Research on the Evaluation of Knowledge Management Performance. Central South University, 2004.3
[12] Zhang Zhifeng. 2004:11-12. Research on Library Website of University Based on Quantitative Analysis. Wuhan University,
2004 11-12.
[13] Li Enke, Xu Guohua. Comprehensive Evaluation of Information Systems Using the Analytic Hierarchy Process. Journal of the
China Society for Scientific and Technical Information. 1998,(6).
522
A Study of Pricing Patterns for Keyword Advertising Auction
Abstract Which pricing pattern for keyword advertising is the more profitable: pay-per-impression, pay-per-click, pay-per-call, or
pay-per-sale? In this paper, we address ourselves to answer this problem. We set about this work from two processes of keyword
advertising purchasing and publishing. We think the behavior in purchasing process is based on how to use or publish it. Hence,
we formally define the keyword advertising by investigating the publishing process of keyword advertising. To compare various
pricing patterns, we set up a direct mechanism. We use the revenue equivalence theorem (RET) and other routine methods in the
auction theory to solve the above problem. One of our main conclusions is based on reasonable assumptions that the expected
revenues of the search engine are the same whether under pay-per-call or pay-per-sale if payment happens after click-through.
Key words keyword advertising, RET, pay-per-click, pay-per-call, pay-per-sale, affiliated signals
1 Introduction
There was a relative universal phenomenon: a new thing has often more than one name. So does the keyword
advertising. Both the sponsored search and keyword(s) advertising (auction) are prevalent. Some researchers
employ the term search engine advertising[3]. Paid search advertising sometimes appears in a few papers, such
as [7]. The phenomenon implies that the keyword search marketing is still in its infancy and the more innovation in
the field will continue to emerge. It is the case that attracts us to study it.
We can divide these names into two categories according to their last word. One ends in the word
advertising, the other in auction. In fact, from the perspectives of the advertisers, auction is the purchasing
process of rights of publishing ads and advertising is the process of exercising it. Paying our attention to
different process can lead to two kinds of perspectives and methods of investigating the new economic mechanism,
though both are not opposite completely. Much of previous research on the issue has focused on its feature of
auction. For example, [5] investigates generalized second price auction (GSP) which is used by Google and other
search engines. [1] presents a truth auction for keyword auction. Few researchers have studied keyword auction
from the perspective of the advertising. Only the literature [8] sets up a model involving some concepts in
advertising. In this paper, we think that the advertisers behaviors in auction depend on how to use the auctioned
object and hence our analysis begins with the process of publishing ads. See section 2.
From the start, the search engines have been concerned with how to set prices [6]. So far, search engines have
already created various pricing models since the appearing of Internet advertisement. In fact, a brief history of
Internet advertisement is rapid evolution of the pricing models. At the beginning of integrating the advertising into
the web, the pricing model of online ads is the same as offline ones. The web sites charge a fixed fee for either a
given period (for example, one year, just as an outdoor ads) or the times of showing (typically, one thousand, just
as print ads) on a site. This pricing pattern is called pay-per-impression in this paper.
In 1997, Overture introduced auction to sell search advertising, which make the online advertising enter into
an important stage - keyword advertising. The basic idea behind the mechanism is that advertisers bid on their
willingness-to-pay for the right to have their advertising link display on the result page associated with a specific
search terms (for instance, digital cameras) and then pay only when a user actually clicks on the ads link (hence,
pay-per-click). Although Google redesigned the rule of payment and adopted GSP in 2002, it does not go
beyond the implication of the idea. The idea is great! It creates billions of dollars market for search engines and
makes the keyword advertising be the fastest-growing part of the advertising industry [4].
However, the pay-per-click mechanism cannot avoid click fraud that the rivals or even the search engines
The keyword advertising is a form of targeted online advertising provided by search engines, in which the ads orderly displayed on the result page associated
with a special keyword. For example, when users input mp3 in the search box, search engine will send the users to the result page which includes the ads of
selling mp3 along with the natural search results. Most search engines employ auctions to allocate the position to advertisers, hence it is also referred to as
keyword auction.
523
employ software-powered websites generating lots of ineffective clicks for advertisers. A natural extension is
pay-per-call advertising. In 1999, Ingenio pioneered this pricing pattern and Findwhat and AOL signed up as
Ingenios partner in 2004 and 2005, respectively. We use Findwhat as an example to explain this pricing pattern.
The order of advertising displayed on result page for specific keyword depends still on the bids the advertisers put.
But when the user clicks on the ads link, she is sent not to the websites of the advertisers, but to the page managed
by Findwhat, which includes the brief depiction for the advertisers and their offers. Along with the ads link, there
is a free phone call button on the result page. The Findwhat would charge the advertisers only when the users
click on the button and talk live to the advertisers.
Obviously, this pattern can solve the problem of click fraud to a large extent. In addition, the users who used
the free phone button have stronger desire to purchase products than the users who just click on the ads link.
Therefore, the advertisers will prefer this pattern and put higher bids under this pattern than under pay-per-click
pattern. If so, pay-per-call is not ultimate end-result. The holy grail of advertising should be pay-per-sale. This
is not only a theoretical design. In real world, Bill Gross, who invented the pay-per-click model in 1997, founded
a search engine, SNAP, and has started to provide this service [4]. For instance, United Airlines places ads links on
SNAPs search pages, but it pays nothing when somebody clicks or calls, but only when somebody actually buys
a ticket.
After all, both pay-per-call and pay-per-sale are far from mature just as pay-per-click in real world. Hence,
this nicely gives us the enough space to study. A basic and important problem is which pricing pattern is the best
for the search engine or advertisers. In section 3 and section 4, we address ourselves to this work. In particular, we
set up a direct mechanism to depict a kind of keyword advertising in section 3 and solve it in section 4. The
conclusions are arranged in section 5.
Since one advertiser is allowed to publish just one ad, we use the same letter, i , to denote the advertiser and its ad in this paper. This doesnt lead to
confusion.
524
interactive communication. Generally, when an audience takes action ak in keyword advertising, the state of
adverting i changes from aki 1 to aki . Therefore an sequence of states, a i = (a i , a i ," , a i ) , is called state set for
1 2 l
ad i . Either action set or state set can depict interactive process of a given keyword advertising. Henceforth, to
avoid cumbersome notation, we will use a = (a1 , a2 ," , al ) to denote state set or action set.
For any two states ar , as and 1 r < s l , we define transition probability (r , s) as the probability that the
state of an ad changes from ar to as . Mathematically, transition probability (r , s) can be expressed through
conditional probability of the state as given the state ar, that is, (r, s) = Pr(as|ar). For 1 r < s < t l , we
have (r , t ) = (r , s) ( s, t ) . It is important to put some constraints on transition probability (r , s) . In this paper,
there are two basic assumptions on (r , s) .
Assumption 1. When 1 r < s c , (r , s ) depends on position of ad slot on the result page and thus on
bidders bids. Thus, we rewrite it as j (r , s ), 1 j J , where J denotes the total number of advertising positions
at auction.
Assumption 2. When c < r < s l , (r , s ) doesnt depend on position of ad slot on the result page and is
irrelevant to bidders bids.
Note ac denotes click-through particularly through this paper. Both assumptions imply that for an ad i , the
predecessor states of aci are related to bids the advertisers (bidders) put, while the successor states of aci are
related to other private information the advertisers possess except valuation. Intuitively, the order of ad slots on
the result page can only affect the probability that the users choose ads. Once the user fix on the particular one and
click it, the initial order cant affect subsequent behaviors on the ad.
Combining these two components action set and transition probability, we can characterize the keyword
advertising from the viewpoint of the publishing process.
Definition 2.1 (keyword advertising) Keyword advertising K = (a, ) has two components: A set of possible
action a = (a1 , a2 ," , al ) for all users and a transition probability vector (r, r+1) = Pr(ar+1|ar).
According to this definition, al denote the last action the user takes, that is, buying the products or sending a
verification message to the search engine, just as on the most auction webs.
3 A Direct Mechanism
Now, we investigate the purchasing process of the keyword advertising. Generally, a selling mechanism has
three main components: a set of valuation messages for each bidder, an allocation rule, and a payment rule. In this
section, we depict keyword auction as such a mechanism with these components. We will deduce some important
results in next section.
For a given term, suppose there are J advertising positions for auction and I advertisers (bidders). We
index positions of the ads by j = 1, 2, , J and bidders by i = 1, 2, , I. We ignore reserve price and hence any
participator can gain just one position allotted by the auctioneer according to allocation rule. Thus, we
assume I J . In addition, we only consider the case under which the advertisers pay their bids when the typical
action appears, that is, the generalized English auction.
What is the object sold in the keyword auction? This is a basic problem but difficult to answer. In most
literature, advertising positions are regarded as objects to be sold and hence keyword auction become an example
of multiple objects auction. But a bidder is allowed to just bid one price though there are differences across
advertising positions. Also, a bidder is allocated only one position. The changes make a big difference between
the keyword auction and multiple object auctions. In this paper, the answer for this question is the behavior that a
potential buyer (i.e. a user of search engine or an audience of the advertising) takes typical action one time, so we
view the keyword auction as a single object auction. This idea is also natural since payment happens just when
the user takes typical action. The bidders thus reckon the value of typical action for themselves.
3.1 The Valuation of Typical Action
Now we investigate how to valuate the typical action. From the perspective of an advertiser i , the valuation
525
of typical action, xi , can be divided by two parts: marginal benefits coming from one effective showing, vi , and
the probability, , that the state of i s ad transits from at to al . Hence, the valuation of the typical action can
be written
xi = x(vi , t ) = vi (2)
Although the bidder i knows her marginal benefits vi and the value of t , she doesnt know exact value of
typical action since is unknown for her. The probability depends on the order of her ad on the result page
and then depends on all bidders private information. Hence, the valuation structure (2) is interdependent or
affiliated. The bidder i s private information, vi , is summarized as the realization of the random variable V ,
and is called i s signal. Therefore includes the signals of the other bidders. To compute the affiliated
valuation, we assume that all bidders are risk-neutral. Thus, the bidder i evaluates the value of in view of its
expectation as shown below.
J
E ( ) = Pj (vi ) j (t , l ), 1 t l (3)
j =1
where Pj (vi ) is the probability that the bidder i with signal vi get the j th position on the result page and
j (t , l ) denotes conditional probability Pr(al | at ) when her ad lies in the j th position. So we can rewrite the
valuation function of the bidder i with the signal vi as follow
J
xi = x(vi , t ) = vi Pj (vi ) j (t , l ), 1 t l (4)
j =1
Suppose that the function x is increasing and continuous in all its arguments. Each bidders signal vi is
private information but is drawn independently from a common distribution F (v), v [ v , v ] . In accord with the
assumptions in most literature on auction theory, we assume F (v) is twice-differentiable, and its density
function, f (v) , is positive anywhere on [ v , v ] .
The bidder i s valuation, xi , is the function of i s signal, vi by (4). Thus, xi is also the realization of the
random variable, X , whose distribution and density function of the valuation x are denoted by G( x)
and g ( x) = G ( x) , respectively. The domains of both the functions G ( x) and g ( x) are [ x , x ] . We will show the
relationship between F ( x) and G ( x) in (19) of the appendix.
Next, lets compute the probability Pj (vi ) in (4). Let b = ( x) denote equilibrium bidding function of the
bidder with signal v . Note that the bid is a function of the valuation x . Since the bidders are risk neutral, we have
(0) = 0. Suppose ( x) is strictly increasing (we will verify this later) and its inverse bidding
function x = 1 (b) . If all other bidders bid according to the same function ( x) , the bidder i s probability of
winning j th position by putting bid b is
I 1
G ( (b)) (1 G ( (b))) , j = 1," , J
1 I j 1 j 1
p j (b) = (5)
I j
Since in equilibrium a bidder bids b = ( x) , its equilibrium probability of winning j th position is
I 1
Pj ( x) = p j ( ( x)) = I j j 1
G ( x) (1 G ( x)) , j = 1," , J (6)
I j
Furthermore, the probability that the bidder with type v wins j th position, Pj (v) , can be written as
I 1
Pj (v) = Pj ( x(v)) = I j j 1
F (v) (1 F (v)) , j = 1," , J (7)
I j
The derivation of (7) can be found in appendix.
3.2 Allocation and Payment Rule
Let qi = q ( xi , t ) denote the probability that the bidder i s ad enters into the state ati when he reports his
value to be xi and all other bidders report their values truthfully. In other words, q( xi , t ) is just the probability
An effective showing of keyword advertising implies the audience of advertising becomes eventually a consumer.
When it is not necessary to be explicit about identity subscripts, we will suppress the subscripts.
526
that the bidder i get the object typical action an audience of the advertising takes in the mechanism. In
particular,
J
qi = q( xi , t ) = Pj ( xi ) j (1, t )i = 1, 2," I , 1 t l (8)
j =1
where j (1, t ) denote the probability that ad i enters into state ati when ad i lies in the position j .
Since we just consider generalized first price pricing, that is, the bidders pay their bids. Therefore,
let mi = m( xi , t ) denote the expected payment of i when her report is xi and all other bidders tell the truth, we
have
mi = m( xi , t ) ( xi ) q ( xi , t ) (9)
In particular, m(0, t) = (0)m(0, t) = 0.
3.3 The Direct Mechanism
The equations (4), (8) and (9) form a mechanism, {xi , q ( xi , t ), m( xi , t )}i = 1, 2," I , 1 t l , where xi is a set
of valuation messages for each bidder, q( xi , t ) is a allocation rule and m( xi , t ) is a payment rule. This is a
direct mechanism which depicts the keyword auction with the typical action at under generalized first pricing
pattern.
J
Let H r , s ( xi ) = Pj ( xi ) j (r , s ) denotes expected probability that the bidder i s ad enters into state as
j =1
from state ar when she reports her valuation xi , then for all i = 1, 2," , I and 1 t l , we have
xi = x(vi , t ) = vi H t ,l (vi ) , q( xi , t ) = H1,t ( xi ) , m( xi , t ) ( xi ) H1,t ( xi ) (10)
4 Main Results
In this last section, we use a simple auction mechanism to characterize keyword auction. Thus, we can
employ some ready results in classical auction theory to solve many problems appearing in keyword auction.
Search engine (auctioneer) faces the problem of how to choose typical action at to maximize its revenue, while
the advertisers (bidders) want to know how to choose their bids to optimize their payoffs.
We use the revenue equivalence theorem (RET) to answer the above two problems. First, we have
following proposition.
Proposition 4.1 The mechanism (11) is incentive compatible.
Proof we only show that allocation rule q( xi , t ) = H1,t ( xi ) is strictly increasing. In fact, we immediately
arrive at the conclusion from the lemma 3.1.
Proposition 4.1 suggests the revenue equivalence theorem (RET) holds, that is, the expected payment of a
bidder with signal v and valuation x = x (v ) is
x
m( x, t )q( x, t ) x q (u , t )du (12)
x
RET implies that the expected payments in any two incentive compatible mechanisms with the same allocation rule are equivalent up to a constant. So-called
incentive compatible means a direct revelation mechanism in which truth telling is an optimal strategy for each agent. Formal definition of these concepts and
regular proposition can be found in most literature on auction theory or microeconomic theory.
527
1 x
( x)x
q ( x, t ) x
q (u , t )du (13)
Also, we have (a) ( x) is increasing with regard to x ; (b) When t > c , ( x) is independent of t ; (c)
When t c , the necessary condition for maximizing ( x) is
x x
x
H1,t (u ) t du
=
x
H1,t (u )du
(14)
H1,t ( x) t H1,t ( x)
5 Conclusion
The result of Proposition 4.3 is unusual. It suggests that the search engines expected revenue under
pay-per-call pattern are not more than that under pay-per-sale pattern. Also, pay-per-click is not pricing pattern
under which the search engine can optimize its expected revenue. Pay-per-click may be apt to operate. Another
implication is the advertisers dont bid higher price under pay-per-sale pattern than under pay-per-call pattern. But
this doesnt agree with the real world. There are two reasons. One is the pattern in the real world isnt the same as
the one in our paper completely, such as the assumption of risk neutral. The other is an ineffective showing of the
advertising, i.e., the ad doesnt increase sales and is also useful to advertisers. Increasing sales isnt only one
objective of advertisers, and brand awareness may lie in the intention of the advertiser. This is natural extension of
this search.
528
References
[1] Aggarwal G, Goel A, and Motvani R. Truthful auctions for pricing search keywords. In: Association for Computing
Machinery(ACM), ACM Special Interest Group on Electronic Commerce(SIGEcom) eds. Proceedings of the 2006 ACM
Conference on Electronic Commerce, Ann Arbor, MI, 2006. New York: ACM Press, 2006, 1-7
[2] Chen Jianqing, Liu De and Whinston A B. Designing share structure in suctions of divisible goods. First Workshop On
Sponsored Search Auctions (SSA05), 2005.
[3] Douzet Alexandre. An investigation of pay per click search engine advertising: modeling the PPC paradigm to lower cost per
action. Second Workshop On Sponsored Search Auctions (SSA06), June 11, 2006, Ann Arbor, Michigan In Conjunction With
ACM Conference On Electronic Commerce (EC06), 2006.
[4] Economist group. Online advertising: pay per sale. The Economist. October 1, 2005
[5] Edelman B, Ostrovsky M, Schwarz M. Internet advertising and the generalized second price auction: selling billions of dollars
worth of keywords. Stanford Research Paper No.1917, 2005.
[6] Fain D C, Pedersen J O. Sponsored search: a brief history. Second Workshop On Sponsored Search Auctions (SSA06), June
11, 2006, Ann Arbor, Michigan In Conjunction With ACM Conference On Electronic Commerce (EC06), 2006.
[7] Jansen B J, Resnick M. Examining searcher perceptions of and interactions with sponsored results. Second Workshop On
Sponsored Search Auctions (SSA06), June 11, 2006 Ann Arbor, Michigan In Conjunction With ACM Conference On
Electronic Commerce (EC06), 2006.
[8] Liu Shulin, Rong Wenjin. Bidding strategy in keyword auctions: a new economic viewpoint. In: the Third Pan-Pacific Game
Thoery Conference. Beijing, October 20, 2006.
Appendix
Derivation of the equation (7)
Let X = w(V ) . We suppose w(V ) is increasing function and there exists inverse function V = w1 ( X ) . Both
X and V are random variables. Thus, we have
G ( x) = Pr( X x) = Pr( w(V ) x) = Pr(V w1 ( x)) = F ( w1 ( x)) = F (v) (19)
Replacing G( x ) with F (v ) in (6), we obtain (7). Note that this proof has nothing to do with the particular
form of w() as long as w() is increasing function. We can easily verify the valuation function (4) is
increasing.
Proof of Proposition 4.2
Combining (9) and (12), we immediately have the equilibrium bidding function (13). Next, we mainly show
parts (a), (b), and (c).
(a) Substituting q( x, t ) = H1,t ( x) (by (10)) into (13), we have
1 x
( x)x
H1,t ( x) x
H1,t (u )du (20)
By Lemma 3.1, H1,t ( x) > 0 , ( x) > 0 , that is, ( x) is increasing with regard to x .
(b) When t > c , according to assumptions 1 and 2, we have
J J
x = v Pj (v) j (t , l ) = v (t , l ) Pj (v) = v (t , l ) (22)
j =1 j =1
and
J J
q ( x, t ) = P i j ( x) j (1, c) (c, t ) = H1,c ( x) (c, t )
i j ( x) (1, t ) = P
j (23)
j =1 j =1
529
From (22) and independence of (t , l ) and v , we know G( x ) = F ( x (t , l )) . Let
J
I 1
H 1,c (v) = H1, c ( x (v)) = F (v) (1 F (v)) j (1, c)
I j j 1
(25)
j =1 I j
This suggests H 1,c (v) is unrelated to t . Let (v, t ) = ( x(v)) , thus we have
1 v (t ,l )
(v, t ) = ( x(v))v (t , l ) H1,c (u )du (26)
H1,c (v) x
and
J
q ( x, t ) = P
i j ( x) (1, t ) = H ( x)
j 1, t (30)
j =1
H1,t ( x) x
( x)x H1,t (u )du (31)
That is,
( x) (v, t ) v (v, t ) (v, t )
= + =
t v x = x (v )
t t x = x (v )
t x = x(v)
1 H ( x) x x H1, t (u )
= 2
H ( x)
1, t
{ 1,t
t 0
H1,t (u )du H1,t ( x)
0 t
du} (35)
( x)
Let = 0 , we immediately get (14).
t
Proof of Proposition 4.3
From (9), (13), and (15), we have
x
(t ) = I Ex (m( x, t )) = I Ex ( ( x)q ( x, t )) = I E ( xq( x, t ) q(u, t )du ) (36)
x
Expending the right-hand of (36) according to the definition of expectation, and via some routine
530
transformations we have
x x
(
= I Ex ( xq ( x, t ) q (u, t )du ) = I xq( x, t ) q(u, t )du g ( x)dx
x x
x
x )
x
= I xq( x, t ) g ( x)dx I
x
x
Using integration by parts on the second term, and since G ( x ) = 0 and G ( x ) = 1 , we have
x x x
= I xq ( x, t ) g ( x)dx I q ( x, t )dx + I G ( x)q( x, t )dx
x x x
x x 1 G ( x)
= I ( xg ( x) + G ( x) 1) q( x, t )dx = I x x q( x, t ) g ( x)dx
x
g ( x)
(a) When t > c , (22) and (23) hold. Replacing variable of integration x with v in (16) and noting
G ( x) = F (v) and g ( x) = f (v) (t , l ) , we have
v 1 F (v ) 1
= I v (t , l ) (t , l ) H 1,c (v) (c, t ) f (v) (t , l )dv
v
f (v ) (t, l)
v 1 F (v )
= I ( c, l ) v H1,c (v) f (v)dv (37)
v
f (v )
By (37) is independent of t .
(b) When t c , (29) and (30) hold. Let x = w(v) = v (c, l ) H t ,c (v) , and w(v) is monotonically increasing.
Thus, we have G ( x) = F (v) and g ( x) = f (v) w(v) . Similarly, Replacing variable of integration x with v in
(16), we have
v 1 F (v ) 1
= I v (t , l ) H t ,c (v) w(v) H 1,t (v) f (v) w(v)dv
v f (v ) w(v)
v 1 F (v )
= I v (t , l ) H t , c (v) w(v) H 1,t (v) f (v)dv
v
f (v )
Substituting w(v) = (c, l ) {H t ,c (v) + v H t,c (v)} into the above equation, we have
v 1 F (v )
= I v ( c, l ) H t , c ( v ) (c, l ) [ H t ,c (v) + v H t ,c (v) H 1,t (v) f (v)dv
v
f (v )
v 1 F (v ) v
= I ( c, l ) v H t ,c (v) f (v)dv v (1 F (v)) H t, c (v) H 1,t (v)dv (38)
v f (v ) v
The second integration in the square bracket of (38) is equal to
v v
v (1 F (v)) H t,c (v) H 1,t (v)dv = v (1 F (v)) H 1,t (v)dH t , c (v)
v v
v v v
= (1 F (v)) H t , c (v) H 1,t (v)dv + vf (v)) H t ,c (v) H 1,t (v)dv v(1 F (v)) H t , c (v) H 1, t (v)dv
v v v
v 1 F (v ) v
= v
H t ,c (v) f (v)dv v v (1 F (v)) H t ,c (v) H1, t (v)dv (39)
v
f ( v )
Substituting (39) into the (38), we have
v
= I (c, l ) v (1 F (v)) H t ,c (v) H 1, t (v)dv (40)
v
531
The Model Research of the Knowledge Transfer and Sharing
in the ERP Implement
Yunfeng Shi1Lingling Zhang12, Xiuyu Zheng1
1
School of Management, Graduate University of Chinese Academy of Sciences, Beijing (100080), P.R.China
2
Chinese Academy of Sciences Research Center on Data Technology and Knowledge Economy, Beijing (100080), P.R.China
Abstract The paper carries on a research to the ERP implement from the angle of the knowledge transfer. After analyzing the
process of the knowledge transfer and sharing, it analyzes the obstacle and existent problem of the transferred and shared knowledge
in the ERP implement. And it tries to use wuli shili renli (WSR) systems approach to solve the model of the knowledge transfer and
sharing in the ERP implement.
Key words ERP implement, The knowledge transfer, Wuli shili renli (WSR)
1. Introduction
The ERP has become the widespread adopted information system of the manufacturing industry. But the ERP
implement circumstance doesn't give satisfaction. According to statistics, there is only 10%-20% success rate in
all the China MRPII/ERP system implement items. Currently, some scholars start the research the angle of
knowledge management to the ERP implement process. The think establishing the knowledge management
strategy in the ERP implement process and creating valid knowledge transfer environment and path etc. are good
for obtaining, applying the ERP related knowledge. They play an important part to carry out to transfer the key
knowledge to business enterprise in the ERP implement , also being good for ERP implement success(Linda
Argote and Paul Ingram2000)[1].The ERP implement generally adopts the model of the third consultative
company participating. Concretely see, the formation process of ERP software, the consultation process of
consultative adviser in the ERP implement, the application process of ERP software in the business enterprise, the
personnel's training process and the process of the consultative adviser's customer to ERP software are a transfer
process of many corpuses and crossing over more long time.
The paper tries to carry on a theories quest to the ERP implement from the angle of the knowledge transfer.
The studied contents mainly include the process of knowledge transfer and sharing in the ERP implement, the
corpus transfer and sharing contents, the existent problems of the knowledge transfer and sharing and the
countermeasure of raising the knowledge transfer and sharing efficiency.
This research has been partially supported by grants from National Natural Science Foundation of China (No. 70501030 and 70531040, Innovation Group
70621001), National Natural Science Foundation of Beijing (No.9073020).
532
According to the definition of knowledge above mentioned and combining the characteristics of the business
enterprise ERP implement, carry out ERP the knowledge type of the ERP implement as follows:
(1) Explicit knowledge: Such as the craft, standard, norm, manual guide, regulation system, report, template,
record etc., belonging to explicit knowledge, also are Organization knowledge. For example, the craft process
belonging to the knowledge of Know-what , some Technical specifications belonging to the knowledge of
Know-why , guide and template etc. belonging to the knowledge of Know-how , the manpower manager
understanding professional personnel belonging to the knowledge of Know-who . When the ERP implement
establish an implement team, the item representative director controls of the Know-who knowledge contributes
to a set to set up a reasonable team, being advantageous to an ERP implement's problem to resolve.
(2) Tacit knowledge: Such as personal technique, trade secret, operation behavior, each professional experts
judicative opinion to the design text file in the business process reorganization, some usual operation practice of
the section and business enterprise etc.. The knowledge does not come out with the form performance of
documents, belonging to explicit knowledge, but playing an important part to the result of the ERP implement.
3. The process research of the knowledge transfer and sharing in the ERP implement.
3.1 The factor analysis that the ERP implement knowledge transfer
Currently, the ERP implement generally adopts the model of the third consultative company participating.
The corpus of the knowledge transfer and sharing include the ERP software square; carry out business enterprise
square and consultation adviser square. Combining six types of knowledge transfer in the business enterprise
information-based corpus of Meiyun Zuo (Meiyun Zuo 2004) [4], expand Nancy M. Dixon (Nancy M. Dixon, 2002)
five types of scopes that knowledge transfers mode for organize more[5]. The ERP implement corpus' knowledge
transfers and shares type and mode guide as table 1 showed.
Tab.1 ERP implement corpus' knowledge transfers and shares type and mode
transfer corpus transfer direction knowledge type transfer type transfer
mode
ERP software Carry out The ERP software explicit knowledge as contract type strategy
business transfers toward the main transfers transfer
enterprise implement business
enterprise as main
consultative Carry out Double explicit knowledge contract type experts
adviser business tacit knowledge transfers transfer
enterprise instruction type
transfer
stipulation type
transfer
ERP software consultative Double explicit knowledge as orientation type far transfer
adviser main transfer
3.2 The knowledge transfer and transform research in each stage of the ERP implement
The consultation process of consultative adviser in the ERP implement, the application process of software in
business enterprise, the training process of personnel and the process of the consultative adviser's customer to
ERP software are the different knowledge at carry out corpus of transfer a conversion, are built-up study of
organization to promote process. Ikujiro Nonaka (Nonaka I., H.Takeuchi, 1995; Nonaka I., N.Konno, 1998;
Nonaka I., R.Toyama, N.Konno, 2000; Nonaka I., P.Reinmoeller, D.Senoo, 1998) put forward the theory of
knowledge creating[6] [7] [8] [9]. The knowledge creation is epistemology and existence of knowledge to talk about
two dimension interactions but occurrence. The whole ERP carries out process to also take place in the knowledge
and the implement corpus here thus of interaction. We apply Ikujiro Nonaka four kinds of modes that the
knowledge convert to the ERP implement, showed the knowledge transfer of the knowledge transfer and sharing
process in the ERP implement.
533
Tab.2 The knowledge transfer and transform in each stage of the ERP implement
Socialization(tacit Externalization(tacitex Combination(explicitexplic Internalization(explicitt
tacit) plicit) it) acit)
Chose a type The each corpus The organization turns Each corpus synthesizes an Comprehension and
in the early organization aim and system target information from the source feedback the other party
years personnel influences concept of various each kind information
mutually
Design an The mutual The implement require of Carry out the information The team persist in
implement influence between ERP is expressed or analysis of business enterprise carrying out the aim,
the implement conceptualism data and business process target and strategy
team member
Keep on an The mutual Express with the forms, Information analysis of Apply and control under
improvement influence in the such as theories, concept problem comprehension and way
improvement and cause and effect diagnosis
activity between the relation...etc
implement team
member
(1) The knowledge transfer and conversion in the early time of choosing a stage in the ERP implement: At
carry out business enterprise ERP software to choose a stage, the business enterprise recommends through
manufacturer's software, the software recruit to bid and the consultation recruit to bid etc. form realization
mutually of the exchanges of information knowledge of the demand and supply, transfer with share. Such as
figure 2 showed.
knowledge margin
finance
reputation etc.
implement enterprise
Tacit knowledge Tacit knowledge requirement
requirement ERP knowledge ERP knowledge analysis
analysis Software function etc. Advanced management consult with
software Explicit knowledge Investigate principle etc. recommendatio
recommend Software demo Related text file Explicit knowledge
recruit to bid n
Interview, record Solution etc. recruit to bid
Invite bids book etc.
(2) The knowledge transfer and conversion in the design time of the ERP implement: consultative adviser and
implement business enterprise take out manager and IT personnel to constitute an ERP implement troops from
each section. The consultation process of consultative adviser, the software applying process in the business
enterprise, the training process and adviser's customer to ERP software mainly take place at this stage. This is an
important stage of different knowledge transfer a conversion between implement corpus.
In the ERP implement the adviser provides an information-based solution to the enterprise ,IT item
implement methodology, required analyzes knowledge, risk, quality, change management...etc. various required
knowledge of ERP implement. The ERP implement process business enterprise's pressing document data and
adviser that need to be provided according to contract's handing over the text file of business enterprise
consignation thing is explicit knowledge to transfer, and the more important is the transfer and sharing of tacit
knowledge. The tacit knowledge of the consultative adviser such as the profession implement experience, the ERP
work thinking mode, and ERP software use technique etc. transfer and share to the enterprise personnel. The tacit
knowledge of the enterprise personnel, such as corporate culture tradition, management usual practice, a process
534
design technique especially of the business enterprise etc. transfer to the consultation advisers. Complete business
process reorganization and ERP software to turn to install at the customer of that business enterprise just in this
kind of mutual knowledge transfer and sharing.
Strategy program
Information-based level
Corporate culture etc.
Implement enterprise
(3) The knowledge transfer and conversion of an improvement stage in the ERP implement: There must be a
adjusted excellent turn according to the actual movement even two developments until attain an comparative
stability appearance after the ERP top line circulating. This process is predominated by the implement personnel
of business enterprise. The process of the business enterprise customer and the implement personnel discover
problems, diagnosis analysis problems, solve problems are the process which continues to communicating,
making use of, verifying the expect experience knowledge. Adjust, revise and deepen the comprehension or the
understanding of the ERP knowledge passing this improvement activity. For example, consult with exterior
adviser or manufacturer, the scope of the knowledge transfer and sharing expand to the business enterprise
exterior personnel in this stage. Consultative adviser or software manufacturer generally get an implement result
feedback from the after-sales service.
Discover problem
Analyse and diagnosis problem Certain problem processing
Continue to communicate, make use of,
and validate expected knowledge and The circumstance of the software
experience uses
Information-based target
Implement strength,etc.
Implement
Tacit knowledge enterprise Tacit knowledge
ERP knowledge ERP related knowledge After-sales
After-sales Technique experience Experience technique consultation/c
consultation/co of the software usag application ostomers
stomers etc. Explicit knowledge
feedback enterprise feedback
Explicit knowledge Solution etc.
Problem solution Related record
The problem need
to solve
Fig.3 The knowledge transfer and conversion of an improvement stage in the ERP implement
535
ERP software, the implement business enterprise and consultation adviser's knowledge of these threes
transfer and share in the whole implement process each other promote mutual influence, became a knowledge to
transfer with commonly shared of circulating chain, promote an ERP implement together.
4. The problem and the obstacle analysis of the knowledge transfer and sharing in the ERP
implement
The ERP implement is a change of business enterprise management, the responsibility, power, benefit of each
section faces to reallocated, not only facing a strategic problem, but also needing to solve for the military tactics
concrete problem of attaining the purpose but adoption in the implement. Not only need to consider technique
means a problem, but also need to consider a background habit humanities problem. So we can say the ERP
implement is a systems engineering for synthesizing. We can use system methodology consideration to resolve an
ERP implement problem.
The problem and obstacle of the knowledge transfer and sharing in the ERP implement mainly body now as
follows a few aspects:
(1) The knowledge characteristic in the ERP implementwuli. In the ERP implement, speaking from the
knowledge itself the main factors of baffling the knowledge transfer and sharing are the appearance, faintness,
complexity of knowledge, the transferred amount and the knowledge profession. Implement corpus lack
understanding to the related knowledge and its relation. And the business enterprise and consultation square
doesn't value or follow like sheep the other party knowledge. Scoop out degree to value and investigation of the
tacit knowledge, such as experience and technique...etc. not enough.
(2) The method and the tool in the ERP implementshili. The method and tool application of the
knowledge transfer and sharing are not enough, lack a related training; lacking the measure, the technique support,
physical space or terrace of management of the guarantee knowledge, making the output knowledge in the activity
can't keep effectively with management, also making the knowledge transfer and sharing to lack a convenient
outlet.
(3) The people in the ERP implementrenli. Lacking a mechanism, cultural atmosphere of the knowledge
transfer and sharing, can not provide enough inspiring inducement for the knowledge owners and enough
knowledge accrual foreground to the knowledge sharing person causing the implement activity of knowledge
transfer and sharing can not launch well.
5. The model and the countermeasure of raising the efficiency of knowledge transfer and
sharing in the ERP implement
Jifa Gu professor etc. put forward the system method of wulishilirenli. is a new method which
trying to use determine the nature, continuous, multilayer, the rank preface and image thinking of comprehensive
of the person's reasonableness structure to solve the management problem (Jifa Gu and Fei Gao, 1998) [10]. In the
WSR system methodology, Wuli refers to the mechanism of material sport, which usually answers what is; Shili
refers to work of truth, which usually answers the question of how to do; Renli refers to how to get along with
people, which answers the problem of how should do and best how to do (Jifa Gu and Xipu Tang, 2006) [11].
The knowledge transfer and sharing in the ERP implement means various knowledge that the implement needs at
carry out corpus in certain way and the outlet transfer and share. The knowledge, method, person constitute to the
WSR in the knowledge transfer and sharing. In the ERP implement the process of the knowledge deliverer
transfers the knowledge to the knowledge receiver, because of knowledge characteristic, the knowledge deliverer
and knowledge receiver it would cause the obstacle of the knowledge transfer and sharing in the ERP implement.
It can overcome the obstacle of the knowledge transfer and sharing in the ERP implement process passing
adopting homologous measure from the WSR three aspects and creating the condition of the knowledge transfer
and sharing. Such as figure 4 showed.
(1)Wuli: Define knowledge object and transfer object definitely, then clear what knowledge deliver in what
536
person with sharing. The explicit knowledge transfers comparatively in brief and the knowledge quality can
request definitely and control. So first of all the explicit knowledge transfers and shares between the corpus must
be guaranteed. Tacit knowledge because of its tacit characteristic isn't easily known, so it needs to notice
excavation. For example, the expectation of business enterprise leadership and key customer belongs to ERP
implement target knowledge, the software implement and usage experience of the consultation adviser etc. .
Moreover, must notice the fusion of knowledge between the corpuses. The business enterprise personnel's
knowledge and consultation adviser's knowledge is with each other to repair a mutual communication, can't be
pure limit with who is lord.
Knowledge Sharing
Knowledge of Knowledge of
Sharing channel i i
(2)Shili: The different knowledge transfers between different object need to adopt different methodsand
tools, and also need to provide a related applied training. Guaranteeing the knowledge transfer need to provide
measure, the technique support, physical space or terrace, such as knowledge map, knowledge base, knowledge
management terrace etc.. Succeed to carry out knowledge transfer sharing, also need Ba, set up the scene,
making the knowledge deliverer, make knowledge receiver can participate in the knowledge transfer and sharing
more conveniently, would like to transfer and receive knowledge from the angle of the sensitive and the will
angle.
(3)Renli: The will and intention of the Knowledge transferring corpuses are the obstacles in the process of
transferring. The knowledge is personal weapon of competition, so should provide encourage prompting
inducement for the knowledge deliverer, provide enough knowledge accrual foreground for the knowledge
sharing person, make both parties have full motive to carry out the knowledge sharing. In the ERP implement, the
key is to adopt effective prompting, promote the tacit knowledge to share, drive tacit knowledge sharing with the
benefits.
Wuli shili renli are three aspects that the knowledge transfer and sharing need to synthetically consider.
While facing a concrete problem we can concretely analyze the environment appearance of place according to that
time the concrete problem, have to lay particular emphasis on the three aspect of wuli shili renli and selection
points.
6. Conclusions
Carrying on theories quest to the ERP implement's result from the knowledge transfer angle, which provides
an all new angle for the theory research of the ERP implement. It not only contribute to the development and
perfect of the ERP implement theories, also enrich the application of the knowledge transfer theories. The paper
analyzes the process of the knowledge transfer and sharing in the ERP implement, the knowledge contents of
transfer and sharing between the corpuses and puts forward wuli shili renli (WSR) systems approach to solve the
problems of the knowledge transfer and sharing in the ERP implement.
537
References
[1] Linda Argote, Paul Ingram. Knowledge transfer:A Basis for Competitive Advantage in Firms. Organizational Behavior and
Human Decision Processes, 2000, 82(1May): 150-169
[2] Ikujiro Nonaka. A Dynamic Theory of Organizational Knowledge Creation. Organization Science, 1994, 5(1): 14-37
[3] Davenport TH, Prusak L. Working knowledge:How organizations manage what they know. Boston: Harvard Business School
Press, 1998. 65
[4] Meiyun Zuo. Six knowledge transfer of the organizations applying enterprise informatization. The calculator system
application, 2004, 8: 72-74
[5] Nancy M. Dixon. Common knowledgeThe shared method and the case of the business enterprise knowledge. Shugui
Wang , qunhong Shen, tran. Beijing: People's post and tele publisher, 2002. 30-160
[6] Nonaka I., H.Takeuchi. The knowledge Creating Company: How Japanese Companies Creat the Dynamics of Innovation? New
York: Oxford University Press,1995. 38-45
[7] Nonaka I., N.Konno. The concept of Ba: Building a Foundation for Knowledge Creation. California Management Review,
1998, 40(3): 40-54
[8] Nonaka I., R.Toyama, N.Konno. SECI, Ba, and Leadship: A Unifying Model of Dynamic Knowledge Creation. In Teece, D. J.,
and I.Nonaka(Eds. ), New Perspectives on Knowledge-Based Firm and Organization. New York: Oxford University Press,
2000. 69-75
[9] Nonaka I., P.Reinmoeller, D.Senoo. The ART of Knowledge. European Management Journal, 1998, 16(6 Dec. ): 673-684
[10] Jifa Gu, Fei Gao. To See Wuli Shili Renli Systems Approach from the View of Management Science. Systems Engineering
Theory & Practice, 1998, 8: 1-4
[11] Jifa Gu, Xipu Tang. Wuli Shili Renli Systems Approach: theory and application. Shanghai : Shanghai Science and technology
educates publisher, 2006. 7-21
538
A Framework of Identifying IT Application Capabilities
Based on IS Lifecycle
Abstract Information technology (IT) application capabilities are the necessary conditions of information systems (IS) success and
improving firm competitiveness. For better measuring and developing IT application capabilities, dimensions of IT application
capabilities should be identified in detail. In this paper, we drew on the process-oriented perspective to develop a framework of
identifying IT application capabilities which was named IT application capabilities matrix. The vertical dimension of the matrix is
five steps of IS lifecycle, the horizontal dimension is IT-related application capabilities which is constituted of IT infrastructure
capabilities, technical IT application capabilities, managerial IT application capabilities, IT integration capabilities, IT-related
transformational capabilities and IT-related dynamic capabilities. The framework of identifying IT application capabilities based on
IS lifecycle provides a base of IT application capabilities evaluation and development, which can help improve the success ratio of IS
and firm competitiveness.
Key words Information technology, IT application Capability, Resource-based view, IT business value
1 Introduction
In fierce and dynamic competitive environment, many firms have been using IT to decrease products or
service cost, increase operation efficiency, improve management and decision, and enhance firm competitiveness.
Some theoretical and empirical studies have shown that IT capabilities are strongly positive related to firm
competitiveness[1-5], but there are few researches on the evaluation of IT application capability and how to develop
IT application capability. In order to measure and enhance IT application capabilities, one method of identifying
IT application capabilities is needed firstly.
In this paper, we developed a framework of identifying IT application capability based on IS lifecycle, the
framework can be divided into two steps, one is decomposing the IS lifecycle into five periods which are strategy
plan, system analysis, system design, system implementation, system operation management, maintains and
evaluation. The other one is identifying the IT application capabilities in every period of IS lifecycle, IT
capabilities includes IT infrastructure capabilities, technical IT capabilities, managerial IT capabilities, IT
integration capabilities, IT-related transformational capabilities and IT-related dynamic capabilities. After the two
steps, one IT application capabilities matrix can be brought forward.
2 Literature Review
During the past two decades, both business managers and academic researchers have shown considerable
interest in understanding how IT helps to improve firm competitiveness. According to sequential order, those
researches can decompose into three phases, the first is on the relationship between IT investment and
productivity, the second is on the relationship between IT resources and competitive advantage, and the third is on
the relationship between IT capabilities and firm competitiveness.
2.1 IT investment and productivity
In the year of 1987Robert M.Solow, a Nobel laureate in economics, published a short paper in the New
York Book Review, he brought forward the productivity paradox in IT investment firstly [6]. From then on,
academic researchers have verified the relationship between IT investment and productivity or other value output
form macro-level, industry-level, firm-level and process-level, but the results are as varied as the findings of the
studies that generated the debate, there are direct positive [7-10], indirect positive [11-12] and no relationship [6,13]
between IT investment and productivity. The reasons for productivity paradox are measurement errors, time lag,
inappropriate management and productivity redistribution [14]. In fact, IT investment is just a necessary condition
Foundation Item: Project supported by National Natural Science Foundation of China (Grant NO: 70671024)
539
of productivity, IT investment only can transform into IT resources under appropriate management which can
increase the IT conversion effectiveness [15] and the alignment among technology business competitive
environment.
2.2 IT resources and competitive advantage
Building on the assumptions that strategic resources are heterogeneously distributed across firms and that
these difference are stable over time, the resource-based view argues that the source of competitive advantage is
the value, rare, low inimitable, low substitutability resources [16-17]. Firms IT resources include IT infrastructure,
technical IT resources, and human IT resources. A quality IT infrastructure can provide firms with information
share across different departments, innovation, utilizing business opportunity, and responding the change of
business strategy [18], integrated and flexible IT infrastructure is one important kind of organizational capabilities,
so it may be one source of competitive advantage [19-20]. Technical IT resources are the business applications of
deploying IT infrastructure, for example CAD, CAPP, ERP, EC, these applications can be used for increasing
operation efficiency, improving information quality, reinforce, reinforcing the relationship between firms and the
profit-related, so the technical IT resources with alignment to business operations may be one source of
competitive advantage [21-22]. Human IT resources refer to specificity and knowledge, which comprise of technical
skills and specialty, and managerial skills and specialty. Technical skills and specialty include programming,
system analysis and design and so on; managerial skills and specialty include IS project management experience,
communicational skill with business personnel. Human IT resources can lead to effective integration between
business plan and IT plan, develop the applications costly which can support business operation effectively, and
communicate with business departments and forecast requirement, so human IT resource may be one source of
competitive advantage [1,4].
Based on the above-mentioned propositions, many researches have made empirical study the relationship
between IT resources and competitive advantage, but the results are inconsistent, these paradoxical results due to
IT resources cant meet value, rareness, imitability, and non-substitutability entirely, so IT resources isnt the
source of sustained competitive advantage (SCA), these resources can result in short term competitive advantage
at most. In article IT Doesnt Matter, Carr argues that IT is ubiquitous, increasingly inexpensive, and accessible
to all firms. As such, it cannot provide differential advantage to anyone, because it is scarcity (not ubiquity) that
creates the ability to generate supernormal rents. He notes that IT is following the pattern of railroads and
telegraphs, where, as a mainly replicable, standardized infrastructural technology, its benefits are accessible to all
and cannot create advantage.
2.3 IT capabilities and firm competitiveness
Mixed empirical results are always an invitation to seek better theory [23]. For seeking for SCA and firm
competitiveness, researchers draw on capability theory, core competency theory, and dynamic theory to find the
IT-related sources of firm competitiveness. In the prior literatures, the IT capability elements of firm
competitiveness are listed in tab.1.
Tab.1 IT Capability-related Elements of Firm Competitiveness
Authors Research type IT capability-related sources of firm competitiveness
Powell and Dent-Micallef [12] theoretical Flexible culture, strategic planning-IT integration, and supplier relationships
Capabilities of collecting, organizing and maintaining information The right
Marchand et al [25] theoretical
behaviors and values for working with information
Bharadwaj [1] empirical IT capability
540
From the finding of prior researches, we can come to a conclusion that the source of firm competitiveness is
IT capabilities, not IT resources. Like Santharam and Hartono stated that Firms rated as having superior IT
capability were found have better profit and cost ratios compared to the industry average.
3 Typologies of IT Capability
In order to identify IT application capability, typologies of IT capability are studied to shed some lights on the
classification of IT application capability. Capabilities are the complex routines which decide the efficiency of
transform inputs to outputs [28], IT capabilities are the routines which firms use IT resources for supporting
business operation. Previous literatures, like Bharadwaj, thought IT capabilities to be a single dimension that are
strongly positive to firm competitiveness, researches now increasingly argue that IT capability is a
multidimensional concept [2]. Many typologies are brought forward from about 7 perspectives, include impact
perspective, resources perspective, evolvement perspective, centre perspective, effect perspective, function
perspective, and carrier perspective. Tab.2 summarizes the major tenets and limitations of the seven perspectives.
Another related typology of IT capability is nine core IT capabilities of Feeny and Willcocks [31-32], they
suggest all these capabilities are necessary for firms to meet the three enduring challenges of (a) uniting business
and IT vision, (b) delivering IT services, and (c) designing an IT architecture. The IT capabilities are:
(1) Leadership Integrating IS/IT effort with business purpose and activity.
(2)Business Systems Thinking Envisioning the business process that technology makes possible.
(3)Relationship Building Getting the business constructively engaged in IS/IT issues.
(4)Architecture Planning Creating the coherent blueprint for a technical platform that responds to current
and future business needs.
(5)Making Technology Work Rapidly achieving technical progress by one means or another.
(6)Informed Buying Managing the IS/IT sourcing strategy that meets the interests of the business.
(7)Contract Facilitation Ensuring the success of existing contracts for IS/IT services.
(8)Contract Monitoring Protecting the businesss current and future contractual position.
(9)Vendor Development Identifying the potential value added of IS/IT service suppliers.
Tab.2 Seven Typologies of IT Capability
Perspectives Focus Classification Advantages Disadvantages
541
As other capabilities, some firms capabilities are superior to others, partly because of the factors
out-controlled of firms, and partly because wisdom and skills of firm management. Besides leading to deep
understanding of IT application capability, those typologies also provide with the base of empirical study, but
those typologies of IT capability are too general to do the empirical study, we need one more detail and
operational classification of IT application capability, one new framework is needed.
Generalization
New System Lifecycle
System Development Process
Strategic
Planing
System
Analysis
System
Reference Design
System
Implementation
new system operation,
old system operation, maintenance
maintenance and evaluation
Old System Lifecycle
Time
543
Tab.4 Framework of Identifying IT application capability based on IS Lifecycle
cap
Technical Managerial Integration Transformation Dynamic
steps Infrastructure
capability capability capability capability capability
desirability
enactment
obligation analysis
tech analysis
Investment tech tracking
tech innovation
regulation organization analysis environment
Strategic framework
information business strategy transformation strategy scanning
Planning building
management information innovation environment
sourcing
policy alignment
strategy making
team building
top management
commitment
feasibility
analysis communication
tech tracking
requirement with top process analysis
environment
System analysis management data analysis
process analysis scanning
Analysis investigation and communication information
environment
research and work with alignment
alignment
logic system business personnel
design
framework
design
policy tech tracking
code design process design
establishment to environment
System database design data analysis organization design
ensure IS scanning
Design input/output information process design
integration and environment
design alignment
flexibility alignment
process design
module design
physic system
implementation
database top management
tech tracking
establishment commitment
organization change environment
System programming user participation
communication process change scanning
Implementation and debugging user training
change management environment
data preparation project
alignment
and import management
system
conversion
operation
daily management tech tracking
management
System Operation, security and environment
system
Evaluation and privacy communication change management scanning
evaluation
Maintenance suddenness environment
system
management alignment
maintenance
5 Conclusions
In this paper, we bring forward a framework of identifying IT application capabilities based on IS lifecycle,
this framework not only take into account the integration between IT and business system, but also focus on the
alignment between firm and competitive environment, so the framework can lead to the integration and alignment
among IT, business, and competitiveness. The framework of identifying IT application capabilities based on IS
lifecycle can be used for evaluation and development of IT application capabilities, and enhancement of ratio of IS
applications and firm competitiveness.
References
[1] Bharadwaj A. A resource-based perspective on information technology capability and firm performance: an empirical
investigation. MIS Quarterly, 2000, 24(1): 169-196.
[2] Santhanam R., Hartono E. Issues in linking information technology capability to firm performance. MIS Quarterly, 2003, 27(1):
125-157.
[3] Peppard J., Ward J. Beyond strategic information systems: towards an IS capability. Journal of Strategic information systems,
2004, 14: 167-194.
[4] Ravichandran T., Lertwongsatien C. Effect of information systems resources and capability on firm performance: a
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resource-based perspective. Journal of Management Information Systems, 2005, 21(4): 237-276.
[5] Pavlou P., Elsawy O. From IT leveraging competence to competitive advantage in turbulent environments: the case of new
product development. Information Systems Research, 2006, 17(3): 198-227.
[6] Solow R.M. Wed better watch out. New York Book Review, 1987, 12: 36.
[7] Porter M., Millar V. How Information Gives You a Competitive Advantage. Harvard Business Review, 1985, 63(4): 149-160.
[8] Wiseman C. Strategic Information Systems. Homewood, Illinois: Irwin, 1988.
[9] Davis L., Dehning B., Stratopoulos T. Does the market recognize IT-enabled competitive advantage. Information &
Management, 2003, 40: 705-716.
[10] Teo T., Wong P., Chia E. Information technology (IT) investment and the role of a firm: an exploratory study. International
Journal of Information Management, 2000, 20: 269-286.
[11] Clemos E., Row M. Sustaining IT advantage: the role of structural difference. MIS Quarterly, 1991, 15(3): 275-292.
[12] Powell T.C, Dent-Micallef A. Information technology as competitive advantage: the role of human, business and technology
resource. Strategic Management Journal, 1997, 18(5): 375-405.
[13] Carr N.G. IT doesnt matter. Harvard Business Review, 2003, 81(5): 41-49.
[14] Brynjolfsson E. Beyond the productivity paradox. Communications of the ACM, 1998, 41(8): 49-55.
[15] Weil P. The relationship between investment in information technology and firm performance. Information Systems Review,
1992, 3(4): 307-333.
[16] Wernerfelt B. A resource-based view of the firm. Strategic Management Journal, 1984, 5: 171-180.
[17] Barney J. Firm resource and sustained competitive advantage. Journal of Management, 1991, 17(1): 99-120.
[18] Weil P., Subramani M., Broadbent M. Building IT infrastructure for strategic agility. Sloan Management Review, 2002, 44(1):
57-65.
[19] Broadbent M., Weil P., Clair D. The implications of information technology infrastructure for business process redesign. MIS
Quarterly, 1999, 32(2): 159-182.
[20] Ross J., Beath C., Goodhue D. Develop long-term competitiveness trough IT assets. Sloan Management Review, 1996, 38(1):
43-55.
[21] Melville N., Kraemer K., Gurbaxani V. Information technology and organization performance: an integrative model of IT
business value. MIS Quarterly, 2004, 28(2): 183-322.
[22] Wade M., Hulland J. The resource-based view and information system research: review, extension, and suggestions for future
research. MIS Quarterly, 2004, 28(1): 107-142.
[23] Soh C., Markus M. How IT creates business value: a process theory synthesis. Proceedings of the 16th Annual International
Conference on Information Systems, Amsterdam, the Netherlands, 1995, December, 29-41.
[24] Mata F., Fuerst W. Barney J. Information technology and sustained competitive advantage: a resource-based review. MIS
Quarterly, 1995, 19: 487-505.
[25] Marchand D., Kettinger W, Rollins J. Information orientation: people, technology and bottom line. Sloan Management Reviews,
2000, summer: 69-80.
[26] Dehning B, Stratopoulos T. Determinants of a sustainable competitive advantage due to an IT-enabled strategy. Strategic
information Systems, 2003, 12:7-28.
[27] Bhattand G., Grover V. Types of information technology capabilities and their role in competitive advantage: an empirical
study. Journal of Management Information Systems, 2006, 22(2): 253-277.
[28] Collis D. How valuable are organizational capability. Strategic Management Journal, 1994, 15(8):143-152.
[29] Zhang S., Huang l. An analysis of IT capability of enterprises based on the consideration of resources. Tongji University
Journal of Social Science Section, 2003, 14(4):52-56 (in Chinese).
[30] Wu Xiao-bo, Hu Bao-liang, CaiQuan. The framework and paths acquiring competitive advantage through information
technology capability. Science Research Management, 2006, 27(5):53-58 (in Chinese).
[31] Feeny D., Willcocks L. Re-designing the IS function around core capabilities. Long Range Planning, 1998, 31(3):354-367.
[32] Willcocks L., Feeny D., Olson N. Implementing core IS capabilities: Feeny-Willcocks IT governance and management
framework revised. European Management Journal, 2006, 24(1):28-37.
545
Study on Product Lifecycle Management Coordination
Management System Model of the Shipbuilding Enterprise
Abstract The paper takes the product lifecycle management (PLM) of shipping as the object of study, analyzes the market pattern
of world shipbuilding enterprise, presents PLM coordination management system models of the shipbuilding enterprise according to
the present situation and trend of development of the shipbuilding enterprise of our country, describes the solution scheme of each
layer, including the resource layer based on the relational database, the function layer based on the ontology and the workflow, the
network layer based on J2EE and XML, the agent layer based on the multi-agent, the user layer based on the comprehensive
coordination. The system model conforms to the actual informationization demand of the shipbuilding enterprise and the trend of
development of the advanced manufacturing technique, it has certain reference value and the practical application value.
Key words Shipbuilding, PLM, Coordination Management, Ontology, Web Service and XML
1.Introduction
Expanding the shipbuilding industry forces is proposed for the first time in the national
Eleven-Fivedevelopment plan, the Chinese shipbuilding industry not only must do in a big way, but also must
do strongly. The broad market prospect and the advantageous historical opportunity for our country shipbuilding
industry development has been provided, for the shipbuilding center moves easterly, the international marine
transportation industry recoveries and the world demand of shipping growths massively[1],our country is
formulating the corresponding industrial policy, taking the shipping industry ability, the structure, the layout as
the master line, promoting the reorganization of the shipbuilding enterprise, to cultivate the big shipbuilding group
possessing the international competitive power. In 2006 first half year, the quantity finishing building shipping,
the quantity continuing the order forms of new shipping and the quantity handholding shipping order forms
occupies the world market share separately 15.3%, 27.1% and 20.3%[2]. The proportion of the Chinese
shipbuilding industry which occupies in the global market is rising obviously. The Chinese shipbuilding industry
has already faced with the huge development opportunity. It is imminent to speed up the innovation system
construction, promote comprehensive scientific research development layer, set up the international brand form
and form the proprietary intellectual property rights and certain influence brand in the world.
But in highly speed growth behind, there are still plenty of shortcomings not to be ignored in the shipbuilding
industry. Facing keen competition environment, the shipbuilding enterprise only use information technique,
synthesize advanced manufacturing technique and the modern management pattern, establish integrated
information system to be able to enhance synthesis competitive ability. At present, the information system of the
domestic shipbuilding enterprise is mostly set up in the traditional partition manufacturing process workshop type
kind of work in a factory specialization foundation, each system often is the independent information isolated
island, isomerism system cannot realize the highly effective data transmission and the transformation respectively,
coordination of the design, manufacture and management is bad. It is the trend of development of the digitized
shipbuilding to take the comprehensive digitization, the comprehensive modulation and the network platform as
the technical supports in order to realize digitization design, manufacture, management and integrated system,
then establish dynamic shipbuilding virtual enterprise alliance.
This research has been supported by National Natural Science Foundation of China (Study on Data Model of Large-piece One-of-a-kind Manufacturing
Enterprise, No:70472005).
This research has been supported by Shipping Advanced Design and Manufacture Technique Emphasis Laboratory
of Jiangsu Province of China(Construction of Shipbuilding Virtual Enterprise for Agile Manufacturing, No: CJ0605).
This research has been supported by Colleges and Universities Natural Science of Jiangsu Province of China(Study on Key Technologies of Shipbuilding Virtual
Enterprise Information Integration Based on Web Service, No:06KJD120062).
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2.Overall structure of PLM coordination management system models of the shipbuilding
enterprise
Says from the digitization angle of the shipbuilding enterprise, the enterprise needs all information
integration correlation to the PLM. PLM is the integrated platform of enterprise informationization, integrating
with exterior process or the system, forming the product knowledge and the circulation architecture which is
sufficiently use in the upstream and downstream of product lifecycle[3]. Since PLM has been proposed at the end
of 20 century, the development is extremely rapid and becomes the attention focus of global manufacturing
industry. PLM is the integrated platform of CAD/CAPP/CAM, PLM supports the parallel engineering, PLM is the
integrated frame of CIMS. PLM is the solution which take the product as a core, stretches across the entire
enterprise and the supply chain from the region, covers from the entire life cycle from the product conceptual
phase continuously to the end of the product from the time, thus enables the enterprise to adjust the management
method and the management way effectively in the digital economical time to give free rein to the unprecedented
competitive advantage. From the product demand of human to the product elimination, in the value chain which
penetrate product entire life cycle, each department of the enterprise has formed as an integrated, organic whole,
various departments of this whole closely coordinates with each other. Looking from the present domestic and
foreign research situation to the PLM, PLM belongs to a kind of new idea, no matter how looked from the
fundamental research or the actual application condition, it is still at the start stage. Therefore, It has a wider
significance to carry on the fundamental research and the practical application for PLM.
Market Material Blueprint Technology Project Ship Maintenance Ship Recuperation Workflow
Management Management Management Management Management Management Management Management
System System System System System System System System
Modeling Language:UML
Resource
Layer
Database Knowledge Model Method
Library Library Library
PLM of the shipbuilding enterprise is the advanced management technique how the shipbuilding enterprise to
reorganize fast the organizational structure, business process and resources disposition in the ships product entire
547
life cycle to realize the overall benefit maximization, facing the ship owner and the ship market. It is the extension
and development of CAX technique. PLM and ERP, CRM, SCM and so on together constituted the main
foundation construction of IT application of the shipbuilding enterprise. PLM coordination management system of
the shipbuilding enterprise refers to the computer hardware and software system which the shipbuilding enterprise
applies PLM technique. It is key to provide a unified management platform to help the shipbuilding enterprise
carry on the comprehensive excellent management to the ship owner, the ship market, the brand, the sale, the
service, the decision-making, the execution, the organization, the team, the achievements, the knowledge and the
innovation and so on, so as to promote the shipbuilding enterprise to enhance the operation efficiency, reduce the
operation cost and promote the overall benefit. It is the information platform and the link to connect with the
various business departments of the shipbuilding enterprise. Fig.1 shows the PLM coordination management
system models of the shipbuilding enterprise.
3. Each layer solution of PLM coordination management system models of the shipbuilding
enterprise
3.1 Resource layer
The resource layer expresses the origin of system resources, including interior resources and exterior
resources of the shipbuilding enterprise, consisting of the unified knowledge library, the model library, the
database, the method library, being responsible to respond to retrieval request, memory and safety control and so
on. The resource layer is the sharing mechanism and the process monitoring coordination mechanism based on the
correlation database and the knowledge library, through this mechanism to realize to share data information and
process of ship product, through expansion of the shipbuilding enterprise various members' function to realize to
cooperate with each other. At present, the popular general commercialization relational database management
system is SQL Server, The relational database has provided the most basic function of data management. The
database modeling language adopts UML[4], which describes the static structure with a kind of class, it not only
defines the static structure, but also indicates the relation like connection, the dependence, the polymerization and
so on.
3.2 Function layer
3.2.1 Knowledge expression of shipbuilding domain based on ontology
The concept of ontology origins from the philosophy domain . In the domain of information system and
knowledge system. Ontology, one kind of method of knowledge expression, stresses on the semantic stratification
of knowledge description comparing it with the other means. So Ontology is appropriate for expressing domain
knowledge in many research area[5], therefore, the paper also uses ontology to express the knowledge of
shipbuilding domain. Ontology is the explicit standard sharing the generalization, thus ontology may define public
glossary for some domain in order to share knowledge information. On the basis of massive research, many kind
of description languages of ontology[7] was born, including RDF,RDF_S, OIL , DAML, CycL, Ontolingua, OWL,
KIF,PSL [7]and so on. PSL is an international language which reorganizes different application process of life
cycle of manufacturing industry, its goal is to find one kind of neutral standard language of process description
standard, in order to integrate the correlation application in the manufacture life cycle process, therefore, the paper
chooses PSL to describe the knowledge of shipbuilding domain. The structure of PSL includes three parts, namely
PSL Core, Outer Core , PSL Extension. PSL Core includes 12 relations,2 functions,2 constants,17 truths and 5
definitions supporting truth. PSL makes the formalized stipulation for the behavior description, behavior
occurrence, the object involved in behavior and the order behavior occurring successively and so on, which
applies in the manufacture domain.
3.2.2 System management based on workflow
PLM system of the shipbuilding enterprise needs to manage each kind of information and data, including the
material information, the production information and the product information and so on. The product information
includes the documents, the blueprint, the components, the craft as well as each kind of connection among them.
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The information only participates in the entire flow of shipbuilding to achieve completely the goal of PLM in the
coordination management.
The workflow technique[8] is one kind of new technologies which started internationally to form at the
beginning of 1990s .A workflow includes group of activities as well as the ordinal response between them, the
process and the condition of start and the termination, as well as the description. The workflow resolves the
business activities into the task, the role, the rule and the process that have been defined to complete the execution
and the monitoring, in order to achieve the goal that enhances production organization level and the working
efficiency. The question that workflow studies is to achieve some anticipated target, according to a group of
pre-definition rule, cause the business process to transmit between many participants to provide the advanced
method for production management of enterprise. Fig.2 shows the workflow management model of PLM system
of the shipbuilding enterprise.
User Request
Workflow Engine
Market Management
Workflow System
Ma o rk f
Sy tio n
ter low
W
m
ial
s te
f low era
M Sys
rk cu p
Model of
an a tem
Shipbuilding Domain
Wo R e
ge
ip
me
Sh
Resource Organizati
Model on Model
S yst
an
Main
Procedure
em
Wor k
Model
em Te Wo r
ys t nt chn kf l
olo ow
lo w S agem e gy S
r kf an M a ys tem
W o ec t M nag
em
roj en t
P
549
provider and user, use SOAP to exchange the data on the basis of reciprocity between the application procedures,
use WSDL to define module description standard mechanism based on XML , use WSDL to describe the essential
details so as that the service solicitant can use the specific service, use UDDI to provide the distributed registering,
issuing and discovering ,standard mechanism of Web Service based on Web.
Developing tool of the network layer is J2EE. J2EE is a standard architecture, it provides a multi-layered
application architecture based on the module, taking the application server as the core, as well as the feasibility,
extendibility, manipulity and security of the system. The communication mechanism of database is JDBC-ODBC .
Fig.3 shows the network layer model of PLMS of the shipbuilding enterprise.
Unique Resource
HTTP/ JSP Adapter of EIS
Web Browser SOAP Database
(Applet Container) JDBC
RMI-IIOP
Ship Material
Supplier CRMAgent Transforming
Indirect
Agrnt Resources Resources
Agnet
SCMAgent
Resource Layer
Other User
Agrnt ERPAgent
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The interaction layer is composed of interface agent and client agent, mainly accomplishing the interaction
work between system and people, gaining the information coming from the system outside. The business layer is
composed of many agent such as CAD Agent from design stage, CAE agent from project stage, CAM agent from
making a stage and so on, the key is how to realize business processing dynamic reorganization and make use of
useful resources to do out intellectualized decision of strategic importance. The resource layer is composed of
agent using and translating resources, mainly completing various operation for system resources.
3.5 User layer
The amicable human-computer interaction interface must be provided for the different user to operate PLM
system on different computer. Different enterprise also is able to request having diversity to man-machine
interface according to respective operation objective. System model brought forward in the paper has provided
unified cooperation management platform and the business gateway for all personnel of the shipbuilding
enterprise, including design personnel, process personnel etc. The various enterprise business and cooperation can
carry out within this unified environment. The cooperation management platform realizes sufficiently the
seamless integration and coordination cooperating of enterprise. Every business module of the PLM of
shipbuilding enterprise is integrated by the cooperation management platform, forming a rapid and intense
connection organic entirety, removing the isolative information fundamentally, gaining the coordination , the
interactive and integral benefits.
4. Conclusion
PLM system is the kind of typical management technique applying to the shipbuilding enterprise.The paper
brings forward the PLM system model by the fact on entire life cycle theory of ship product. The information
integration system model of coordination management is brought forward basing on PLM of ship product,
simultaneously, the resolution scheme of every layer. The model brought forward in the paper bases on the current
situation of the shipbuilding enterprise in world and the rapid development and implicit needs of our country
shipbuilding enterprise. The model sufficiently combines with the actual informatization need about current
manufacturing enterprise and the development trend of the advanced manufacturing technique. The model
provides a reference frame for the further study and actual application of PLM of the shipbuilding enterprise.
References
[1] Zhang Yaoguang. Layout Characteristic and Future of the World Shipbuilding Industry. Economic Geography, 2002,22
(6):716-719
[2] China Industrial Association of Ship Industry. Economy Operation Analysis of the Whole Ship Industry in the first half of 2006.
www.shipbuilding.com.cn, 2006.9.8
[3] Kazuo Muto, Hisashi Kubota. Trends and Verification of 3D CAD/CAE/CAM/CAT/NET Work Systems and PLM Systems in
Advance Automotive Manufacturing Technology. Review of Automotive Engineering, 2006(27): 337-344
[4] C.A.Costa,J.A.Harding,R.L.M.Young.The application of UML and an open distributed process framework to information
system design. Computer in Industry, 2001,46 (1):33-48
[5] Alexander Smirnov,Michael Pashkin,Tatiana Levashova and Nikolai Chilov. Ontology-based support for semantic
interoperability between SCM and PLM. Int.J.Product Lifecycle Management, 2006,1(3): 289-295
[6] Vladimir Samoylov and Vladimir Gorodetsky. Ontology Issue in Multi-agent Distributed Learning. In: V. Gorodetsky, T. Liu,
and V.A. Skormin (eds.): AIS-ADM 2005, LNAI 3505. 215-230,2005
[7] Craig Schlenoff, Michael Gruninger, Florence Tissot, et al. The Process Specification Language(PSL) version 1.0[R]. USA
National Institute of Standards and Technology,2000
[8] Wil van der Aalst, Kees van Hee, Workflow Management: Models, Methods and Systems Cambridge, MIT press,
2002:101-120
[9] Ray Lai. J2EE Platform Web Service. Zhou Bin, et al.tran. Beijing: Electronic Industry press, 2005:210-240
Suhas Joshi. Web Service Integration. EAI Journal. 2003.8:30-35
551
Design of Link Structure of Electronic Commerce Website
Abstract Websites are good communication media between enterprise and customer under the Electronic Commerce circumstance.
Since the bandwidth of network is very limited today, the quality of commerce is especially influenced by the link structure of
website. Therefore, it's theoretically and practically important to research on the design and optimization strategy of website structure.
This paper chiefly focuses the design of basic link structure of website. The average visiting time of customers is estimated by
analyzing the downloading time and selecting time on each web page. From the standpoint of shortening the average visiting time of
pages with greater importance, this paper proposed an approach for designing of website's basic link structure. This approach
provides site designers with one useful tool in practice.
Key words Electronic commerce, Website design, Tabu search, Link structure
1. Introduction
The basic link structure is hierarchy of website that is expressed as tree structure and is considered firstly by
the designer of website structure. Generally designers design the basic structure website according to the
important of website. But because the quantity of pages that are contained in the electronic commerce website
contains is huge, completing the design of basic structure with handwork is difficult. The page of a commodity
page is nearer to the homepage, its level is lower, the possibility that it will be visited is bigger, the commodity
has more opportunities to be purchased by the customer [1-2]. Because the quantity of commodity that can be
demonstrated by each index page t is not infinite, it is not impossible to put all pages of the website the top layer,
therefore the design of website structure should be optimized. This paper presents an automatic method of design
the basic website structure, the designer need only input the initial basic link structure of the website and the
relative importance of each page, they can get the most optimized basic link structure of website. The work of this
paper has provided a new method to design a basic link structure of fast, reasonable and large-scale electronic
commerce website.
0 0
1 2 1 2
3 4 5 6 3 4 5 6
7 8
For example in Fig.1, page 5, 7 and 8 are combined to introduce a kind of commodity (left graph), if we
abstract these 3 pages as a commodity page (right graph), the commodity page can correspond with the
commodity one by one. Therefore, each commodity homepage may belong to a series of index pages. For
example, in the right graph of Fig.1 the page 5 may belong to the index page 2 and 0, the page 4 may belong to the
552
index page 1 and 0.
Obviously each commodity page has a lowest level index page. In the design stage, the designer needs to
determine which index page each commodity page should belong to.
This is the goal of the design. If the website has m index pages and n commodity pages, its suffix set is Im and
In respectively. We use matrix A={ai,j} {i, j Im } to represent the connection structure between the index pages.
It is relatively stable.
We use matrix X={xi,j} {i Im , jIn } to represent the link structure between the index pages and the
commodity pages. ai,jxi,j{0,1}. If ai,jxi,j=1, it means the link from the page i to the page j exists, otherwise the
link does not exist. Therefore the count of the index page i can be calculated. The equation is shown as follow:
li = a
jIm
i, j + x
jIn
i, j , iIm (1)
Now we estimate the time from users open page i to they leaves it. The time is longer, the page is more
difficult to visit, otherwise it is easier. The time is composed of two parts:
(1) Average downloading time Di : it is mainly decided by the transmission speed v of network and the
page size Vi, it can be calculated with (2).
Di = Vi / v , i ImIm (2)
(2) Average selecting time Si : it relates the link counter of the page.
Because the care degree of page of different people is different, the browsing speed and the custom are
dissimilar, thus the time each browser arrives the identical page respectively is also different. But regarding a
certain website structure, in order to reach the identical page different browsers all need to pass the same way and
index pages. Considered the general browsers choose the next page in the way of gradual filtration, therefore we
can use the method of simulating the visit process to determine Si. So we hypothesize:
Hypothesis 1: The user uses the choice method of circular browsing links. After each circulation they only
care about the residual li/a (a>1) links. When there is only one link the circulation is over.
Hypothesis 2: The average time that user visit each link is t, the selecting time can be calculated with (3).
Obviously when a=2, Si = (2li-1)t.
log a (li ) ali 1
Si =( ak )t= t , iIm (3)
k =0 a 1
Only considered basic links, in order to reach each commodity page the customers have to pass its all upper
index pages. Suppose j(jIn) is the upper index page set of the commodity page j, therefore the downloading
time, selecting time and total time of commodity page j may be determined separately by (4)(6).
Tdj =
D + Di
i j
i
, (jIn) (4)
Tsj = S
i j
i , (jIn) (5)
x
j In
i, j Li iIm (9)
1 Td (10)
n j In
Td j ( X )
1
n
Ts ( X )
j In
j Ts (11)
Equation (7) is object function; (8) means each commodity page can only link one respective index page; (9)
is the link count constraint of each index page; (10) is the constraint of the greatest average downloading time of
commodity page; (11) is the constraint of the greatest average selecting time of commodity page. Td, Ts, Li (iIm),
Hj (jIn) in the model are constants. Tdj (X), Tsj (X), Tj (X), jIn are middle variable which are determined by
(1)(6).
3. Algorithm design
Because the upper index page set j(jIn) of the commodity page j is difficult to be expressed with analytic
format, obviously the above model belongs to the nonlinear programming, it is unable to apply the classical
algorithm directly. But we can use preferential assign algorithm to solve this problem. This algorithm can be
simply described: it assigns those index pages important and as many as possible commodity pages in turn
according to the index page level from high to low. Preferential assign algorithm is simple and easy to realize,
when its feasible domain is small, this algorithm may not get the feasible solution. In order to insure we can get
the feasible solution, we must seek a better algorithm.
Genetic algorithm, tabu search, simulated annealing algorithm and other intelligent optimization algorithms
can solve above problem [5]. But because there are lots of the pages in the electronic commerce website and the
scale of website structure optimization is big, the efficiency of this algorithm is the key factor that should be
considered. From the application situation, tabu search (TS) has the high search efficiency. Therefore this paper
selects TS algorithm as the solution algorithm. We will introduce the primary factors of the TS algorithm designed
for above problem:
<1> Initial solution: (8) makes each commodity page only has a direct index page. So we can use reduplicate
natural number code. Initial solution makes each commodity page belong to the lowest level index page to which
the commodity page can belong.
<2> Domain structure: the definition of current solution is: the solution set that makes a commodity page j
belong to the next index page to which the commodity page can belong. The object function of the unfeasible
solution in the solution domain adds a big positive number to guarantee it is bigger than any value of the object
function of the feasible solution.
<3> Tabu list and long-term table: tabu list records TabuSize motions that are just passed, in this paper
TabuSize = 9. Long-term table F|N records how many times the commodity page moves and exerts frequency
penalty: f(X) =f(X)+ wpenalty(j).
<4> Absorb level function: When the object function value of some solutions in the tabu list surpasses the
best solution in the history, the taboo is canceled.
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4. Conclusion
This article has established the data model for design link structure of electronic commerce website and
proposed preferential assign algorithm and the TS algorithms. The two algorithms can both achieve the goal of
optimize. The preferential assign algorithm is easy and feasible, but the result is insufficiently ideal, and it may
not be able to get the feasible solution. TS algorithm needs algorithm design, but it may get the optimized result.
This optimized method proposed by this paper has certain theory significance for the design of the structure of
electronic commerce website.
References
[1] Nakayama T, Kato H, Yamane Y. Discovering the gap between Web site designers expectations and users behavior[J].
Computer Networks, 2000, 33: 823--835
[2] Garofalakis J, Kappos P, Mourloukos M. Web site Optimization using page popularity [J]. IEEE Internet Computing, 1999,
Jul.Aug: 22--29
[3] Wang Y W, Wang D W, Design strategy of web page for e-supermarket [A], Jiang Pingyu et. al, International Conference on
eCommerce Engineering, Xian: China Machine Press, 2001,101--107
[4] Yen B P, Fu k. Accessibility on web navigation [A], Jiang Pingyu et. al, International Conference on eCommerce Engineering,
Xian: China Machine Press, 2001,30--37
[5] Kim J, Yoo B. Toward the optimal link structure of the cyber shopping mall [J]. Int. J. Human-ComputerStudies, 2000, 52:
531-- 551
555
Mitigating Risks in Software Projects Through Phased
Development Process A Real Options Analysis
Abstract Managing risks of software projects is a challenging task due to the rapidly changing environment. This paper aims to
introduce the concept of staging strategy in financial literature into software project risk management. Real options theory is explored
to justify phased software development process in uncertain environment. It is found that phased development process provides
additional value for software projects and is a good tool to mitigate risks. The approach we present can help to understand and
improve the flexibility of software process produced by multi-phase development scheme.
Key words Software project, Risk management, Real options, Phased development process
1 Introduction
Information technology is seemed by organizations as a key resource of competitive advantage, such as
reducing the inventory cost effectively, improving production efficiency, and facilitating better customer
relationship management. Unfortunately, however, the productivity gains from IT investments may be neutral or
negative due to the nature of high risks that characterizes most software project [1]. Unsuccessful management of
software project risk can lead to a variety of problems, such as cost and schedule overruns, unmet user
requirements, and failing to deliver business value of software systems.
Most research related to software risk management has been limited to risk reduction, which aims to reduce
the probability of software risks to the lowest point. For example, the project manager would decide to spend
more time on elaborate system design or employ an experienced consultant to mitigate the risk of technical
complexity. Unfortunately, however, not all software project risks can be eliminated by action and some of them
need to be hedged. Risk hedging strategies are well accepted in financial risk area, but have not got enough
concern in software risk management. There are few tools available to help project managers develop effective
strategies to hedge risks in software projects and related theory base is also insufficient.
In this paper, we present an analysis on the value of staging the software project development process to
hedge software project risks based on real option theory. As discussed by Kumar [2], the theory of real options is
a useful framework for understanding risk hedging in software projects. Many software project management
decisions can be conceptualized as real options and the qualitative insights provided by real options theory are
mostly consistent with decision makers intuition. The approach we present can help to understand and justify the
strategy of multi-phase scheme in software project management.
This article is organized as follows. In the next section, we explain the value of applying staging development
strategy in managing software project risks. And then, we present a scenario which involves the development of
an ERP system, where a growth and compound options are adopted to demonstrate the effect of staging decision
on risk hedging. Finally, section 4 provides some conclusions of our work and discusses some possible extensions
for future research work.
This research has been supported by National Natural Science Funds of China (No: 70571025)
556
focus of this paper is particularly on the application of staging strategy in hedging software risks
Multi-staged financing is a well-accepted risk hedging strategy for venture capital firms in finance literatures.
Researchers advocate that multistage strategy help the venture capitalist minimize private information costs by
becoming an insider and by imposing management changes to protect his investment. Hsu [4] used Geskes
compound option approach to value the options inherent in the multi-staging scheme. Dubil [5] developed a
simulation methodology for comparing the risk of a multistage venture financing strategy vs. an up-front
financing plan. Its found that risk mitigation due to multi-staging was significant in itself, irrespective of any
agency issues.
In fact, the staging strategy in software development has been already covered in the software engineering
literature. The spiral model developed by Boehm [6] is, in essence, a phased project structure. At the beginning of
each phase, investments are made to develop and evaluate variant approaches for meeting the objectives of the
phase. The project is re-evaluated at the end of each phase, and then plans for the next phase are developed.
Sullivan et al. [7] interpreted in terms of options that the spiral model is much more effective than the waterfall
model. By developing and evaluating various approaches in each phase, an option is created to choose the best
solution identified. More importantly, the investment in each phase creates an option to decide whether or not to
invest in the next phase. It can be seemed as compound options, which increases value under uncertain
environment. Panayi and Trigeorgis [8] employed the concept of the multi-stage option concept in the valuation of
two actual case-study applications. It is shown that the options valuation can justify investment in multi-stage
projects even though a project has a negative static NPV when considered in isolation.
To the best of our knowledge, few literatures have discussed the risk hedging effect of staging scheme for
software development in terms of real options theory. One exception is Erdogmus [9], who developed a
methodology to value and plan commercial software development under multiple source of risk. The presented
methodology combines real options analysis with earned-value based estimation. Based on prior works, this paper
attempts to introduce the multi-staging strategy to software risk management, and illustrate its value on risk
hedging in the real options framework.
To reduce risk, project managers must be allowed to change their decisions as new information about
uncertainty factors becomes available. This is the core concept of managerial flexibility in real option theory.
Staging decision in project management equals to exercising a defer option, thus acquires a kind of this flexibility.
For the further justification and quantification for the value of staging decision, the next section presents a case
illustration and use the real option model to quantify the extra benefits obtained through staging decision.
2 2
where
1
In(V ) + (r 2 ) 1 In(V
1
) + (r 2 ) 2
h1 = V 2 , M 2 (4)
h2 =
1 2
558
associated with staging strategy is worth US$ 99,775 more than the initial schedule. The extra value calculated by
real option analysis approach can be interpreted in several aspects:
Software projects are usually characterized by high risky nature, and the benefit streams are uncertain and
affected by many risk factors. It has been shown that traditional NPV analysis tends to underestimate the
investment in uncertain environment, sometimes by as much as a factor of two [12]. Real option analysis are able
to capture the value managerial flexibility ignored by existing net cash flow method, therefore gives a more
effective valuation for risky software projects.
The development of the ERP system is divided as two developing stages, thus gives the managers a waiting
option. If the outcome of the first round development turns out to be favorable, the remaining part of the
developing tasks could be performed to accomplish the whole system. In the contrary case, the implementation
could be shut down temporarily or even abandoned to hedging serious risks.
One of the most common risks embedded in software project is misunderstanding the requirements or unclear
requirements definition. The developing efforts in building inventory management system will help to learn about
the actual need of end users. Because the inventory management module is highly related to other parts in ERP
system, then a more robust and acceptable requirements definition could be achieved in subsequent development
phase.
Certain software projects, especially large scale projects such as ERP systems, will take on high complexity.
If new technology is used, or if there are a large number of required links to other external systems, the
development task will become even more difficult. A pilot project could provide the opportunity for team
members to learn about specialized skills required by the project, or develop some software tools that would
reduce the risk of complexity.
Sensitivity analysis can identify the most influential inputs on the value of options. This will help decision
makers to make optimal use of a phased strategy for planning software process. In what follows, we discuss the
relationship between the expected payoffs, the variance, costs in each phase and the extra value of the phased
strategy.
150
Extra value
100
50
0
250 300 400 500 600 700 800 900
Expected payoffs (thousand dallars)
250
Extra value
200
150
100
50
0
20% 30% 50% 70% 90% 120% 150%
Volatility of payoffs
Figure 1 shows that, with the project expected profit increase the extra value of phased development process
559
arise slightly at first, and then dropped sharply. This shows that when the project has a high yield,
decision-makers tend to invest on the software project in a lump to acquire returns as soon as possible. The phased
strategy is less effective.
In the option pricing formula, the risk of investment projects is measured by the volatility of expected payoffs.
The payoffs from investments fluctuate far more from the expectation, the greater the risk it represents. Sensitivity
for the volatility is shown in figure 2. Obviously, when faced greater risks of software projects, it is sensible to
stage the development process to alleviate serious risks, and the greater the risk, the more obvious the benefits of
the phased strategy.
120
100
Extra value
80
60
40
20
0
10% 30% 50% 60% 70% 80% 90%
Cost ratio of the second phase
Figure 3 show that the cost structure of software process has an impact on the effectiveness of phased
strategy. As can be seen, the greater the cost of the second phase (that is the first stage of the development costs
less), the more noticeable the benefits arising from phased process. This is mainly due to the change of the value
of the waiting option embedded in phased process. With a smaller cost of the first round, more capital has been
postponed until the second round of the input, and then produces greater value of the waiting options and more
efficiency of phased process.
References
[1] [1] Salerno, L. M., What happened to the computer revolution? Harvard Business Review, 1985. 63(6): pp. 129 138.
[2] [2] Kumar, R. L., Managing risk in IT project: an options perspective. Information and Management, 2002. 40: pp. 63-74.
[3] [3] Benaroch, M., Managing Information Technology Investment Risk: A Real Options Perspective. Journal of Management
Information Systems, 2002. 19(2): pp. 43-84.
[4] [4] Hsu, Y., Staging of Venture Capital Investment: A Real Options Analysis, in Financial Management Association
European Meetings. 2002: London.
[5] [5] Dubil, R., The Optimality of Multistage Venture Capital Financing: An Option-Theoretic Approach, in Financial
Management Association European Meetings. 2005: Siena, Italy.
[6] [6] Boehm, B. W., Spiral Model of Software Development and Enhancement. Computer, 1988. 21(5): pp. 61-72.
[7] [7] Sullivan, K. J., Chalasani, P., Jha, S., and Sazawal, V., Software Design as an Investment. Activity: A Real Options
Perspective, in Real Options and Business Strategy, Trigeorgis, L., Editor. 1999: London. p. 215-262.
[8] [8] Panayi, S. and Trigeorgis, L., Multi-Stage Real Options: The Cases of Information Technology Infrastructure and
International Bank Expansion. Quarterly Review of Economics and Finance, 1998. 38(Special Issue): pp. 675-692.
[9] [9] Erdogmus, H., Valuation of learning options in software development under private and market risk. The Engineering
Economist, 2002. 47(3): pp. 308-353.
[10] [10] Black, F. and Scholes, M., The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 1973. 81: pp.
637-659.
[11] [11] Geske, R., The Valuation of Compound Options. Journal of Financial Economics, 1979. 7: pp. 63-81.
[12] [12] Tallon, P., Kauffman, R., Whinston, A., and Zhu, K., Using Real Options Analysis for Evaluating Uncertain Investments
in Information Technology: Insights From The ICIS 2001 Debate. Communications of the Association for Information Systems,
2002. 9: pp. 136-167.
[13] [13] Miller, L., Choi, S. H., and Park, C. S., Using an options approach to evaluate Korean information technology
infrastructure. The Engineering Economist, 2004. 49(3): pp. 199-219.
[14] [14] Benaroch, M. and Kauffman, R. J., A Case for Using Real Options Pricing Analysis to Evaluate Information Technology
Project Investments. Information Systems research, 1999. 10(1): pp. 70-86.
561
Building on Management Knowledge Platform of Outsourcing
Abstract The management knowledge platform of outsourcing decision was built. According to the interactive condition of
knowledge during outsourcing, three levels information platforms, EDI, the client/server networking and the intelligent agent, are
used to construct the decision-making model of outsourcing knowledge management and information management platform; the
construction of outsourcing management knowledge platform contains the basic equipment structure framework of soft and hard
wares; it makes up the drawback that once lacked of outsourcing decision platform.
Key words Outsourcing, Platform design, Decision-making, Knowledge management
1. Introduction
Outsourcing management involves not only the multitudinous factors of outsourcing decision, such as degree
of core product manufacture specification(MS), degree of losing, the production cost, suppliers manufacturing
capacity, the operational specifications, the corresponding external environment and so on, but also the
interrelation between supply and production operation, supply and sale, supply and finance. Complex products,
such as automobile, motor whose quantity of parts and components is between 200 and 300, often have from 300
to 500 suppliers [1][2]. Their subjects of outsourcing decision relate to various departments such as corporation
planning, R&D, financial, information management, purchasing department and so on. Therefore, it is necessary
to build an outsourcing management knowledge platform to collect the extensive information to support
outsourcing decision. It appears more obviously in virtual manufacturing organization and decentralized
manufacturing mode under the background of rapid response and agile manufacturing [3][4].
he outsourcing management platform, aiming at the goal of enterprises long-term performance, is not only
an information system platform, but also a knowledge management platform. Therefore, besides selecting
appropriate infrastructure and relative solution of software and hardware, it is requisite that an effective
mechanism of knowledge management and control[5].
This research has been supported by National Natural Science Funds of China (70572038),and the foundation of Key Lab of
Information Management & Information Economics of Education Ministry, PRC. ( 0607-39).
562
User
Supplier type
Supplier selection
Dedicated Intelligen
Client/Server mode
EDI t agent
Internet /Intranet/extranet
mode mode
Hardware infrastructure
The knowledge interaction can be analyzed through the depth and width of manufacturers and suppliers
knowledge and information interaction. The depth means the hierarchical of manufacturers and suppliers
interaction, which includes mono-layer and multi-layer. The mono-layer refers to the manufacturers and the
suppliers interact directly. The multi-layer refers to that the manufacturers and suppliers not only interact with
subsystem or module, but also interact with the suppliers of their suppliers. Moreover, the multi-layer cooperation
might be cross-layer in series, or integrating fusing mode in virtual networking. The width refers to the scope of
knowledge and information interaction during the cooperative process of manufacturers and suppliers. This
563
interaction includes data interaction, manufacturing specification interaction and expertise interaction.
According to the target of knowledge interaction, outsourcing can be divided into three types, arms length
purchasing, integrated supply-chain, and virtual integration, see Fig.3.
Integration Virtual
Arms length
Supply chain integration
Arms length purchasing: parts of product are diffusively manufactured separately, without too much
relationship among them. It just needs simple combination according to some kind of specification. This kind of
outsourcing includes modular, high standardized product, for example, personal computer hardware
manufacturing. The character of this kind outsourcing is the low knowledge interaction of manufacturers and
suppliers, as well as the high product modulation. Usually, mass customization products can be finished by the
approach.
Integrated supply chain: during the outsourcing progress, the final integration of various parts, with complex
boundaries among them, needs close cooperation. Due to the process of decentralized manufacture takes
outsourcing by the subsystem or the part as the unit, it requires a little knowledge and information interaction.
And the long-term, fixed cooperation has to be kept between manufacturers and suppliers. The case is
Just-In-Time manufacture in the automobile manufacture industry.
Virtual integration: during the outsourcing progress, various outsourcing business, with highly complex
boundary and low degree of modulation, needs very frequent, thorough information sharing and interaction. This
kind of business often is divided into the production and operation of job-shop, the small batch, the customized
product or service. This kind of cooperation, usually accompanied with the character provisional, requires
intelligent agent to accomplish its manufacture process. For example, agile manufacturing, intelligence
manufacturings mode. Besides, IS/IT (information system/information technology) outsourcing, recently
popularized, belongs to this kind. Considering IT industry quickly renew and highly professional, it is difficult to
realize the enterprises information completely depending upon its own strength.
Therefore, ASP Corporation arises at the historic moment. The customized service is provided by specialized
IT Company. However, in view of different business processes of different enterprises, it is impossible to adopt
the arms length purchasing which is the promptly solution schemes. During the outsourcing cooperation process,
the suppliers work is not only making the structures description of manufacturers business process, but also
communicating directly with relative department personnel by using information network. The ASP provider and
the manufacture enterprise unifies closely in together.
564
used to transfer mass files in the international trade. The typical data exchange is order transferred to suppliers,
such as document number, date of availability, content description, dealer, product quantity, and unit price and so
on. Thus it can be seen that the information transmitted by EDI is so limited that it could not meet the requirement
for the data processing, the information statistics, the management methods and analysis models in more complex
cooperation such as concurrent engineering and cross-country manufacturing. By means of that kind of
technology, the communication of the most fundamental and necessary production, technology or engineering is
conducted by cooperation enterprises to ensure the manufacturing process continuous executing.
Secondly, Internet/Intranet/Extranet network level. Along with the increasing of outsourcing scope and
cooperation depth, more widespread domain cooperation is demanded by the requirement that valuable,
satisfactory product is required by the ultimate users. For instance, the cooperative scope is not merely restricted
between the manufacturer and the direct part-supplier, but extends from the first level system-capability partner to
second level and even to the more preliminary supplier. Considering the scope of function, the kind of cooperation
covers from supply to manufacture, to the retailing allocation, the sale, until to the post-sale service entire
supply-chain. Moreover, its quantity is far more than the first level. The knowledge management infrastructure
system, which meets the management demand of this level manufacturing process, includes Internet, Intranet and
Extranet.
Thirdly, intelligent multi-agent level. Along with the enhancement of knowledge interaction level, a huge
system which is composed by above supply-chain system cannot work high efficiently without a set of highly
intelligent agent system. Therefore, the intelligent multi-agent level is upgrade from the second level and aim at
knowledge management and manufacturing mode is transferred into integrated holonic intelligent manufacture
system.
The coordination of multi-agent system is the essential core of intelligent knowledge management system.
There are three kinds of unavoidable difficulties in coordination of multi-agent system. Firstly, a coordinate
mechanism base on the agent cooperation manufacture: to design a mechanism which could coordinate knowledge
and information sharing and respective benefit of various partners. Secondly, to design an auction coordinated
mechanism which takes consideration agents as media. Following issues should be solved: How to induce
divergent interest subjects to coordinate in the auction by taking agent as medium? What are the basic principles
to enhance the agent to cooperate behavior? How to train the agent to study cooperation rather than using
procedure to limit cooperation? What are the credit principles built in the agent system? Finally, integrating the
multi-agent enterprise modeling performance and human factors should be taken a consideration, e.g. how to
coordinate the relationship between the system and humans?
Fig. 4 is the multi-agent-intelligence enterprise knowledge management model[6] (fine line is information
flow and knowledge flow, heavy line is material flow).
There are four kinds of agent system in the model: execution organization which seeks the opportunity and
entire enterprises knowledge management strategy, production organization which seeks and controls the
production knowledge; supply-chain organization which is in charge of the distribution knowledge; market
module which is responsible for the market knowledge.
Knowledge enterprises based multi-agents require a knowledge management platform to conduct the
activities, and various enterprises need right platform to support their business, therefore, the platform selection is
required.
565
Execution
Knowledge module
enterprise
Other
agents
Price Investment
agent agent
Other enterprises
Sale
agent
Other Buyer
Production agemt agent
module
( real factory)
E- Market
Other module
agents
Cost Operation
agent agent
Other
agents
Distribution Retailer
agent agent
Warehouse
agent
Supply chain
module
Cell(5)
Cell(4) Cell(6)
Integration Integration module
supply chain supply chain
Cell(7)
Basic dedicated
communication Cell(8) Cell(9)
Arms component
length outsourcing
First, during the virtual integrated outsourcing, for the sake of completing the cooperative mission, it is
566
necessary to share the different organizations knowledge. Therefore, the goal of knowledge management is
breaking the barrier, promoting knowledge fusing, accelerating knowledge shifting. The object of knowledge
management technological infrastructure is to supply the enable technology which could be meet above
requirement. The precondition of this process is appraised correctly knowledge to be shared.
Second, outsourcing involves different organizations personnel participation. Moreover, the number of
participating organizations may be immense. Therefore, to the manufacturers, there must be another mechanism to
protect their knowledge. With the high intelligent knowledge management system, this step must be limited
reasonability in case corporation competence disclosure. There are two main strategies used to solve the problem.
One is technology approach: establishing firewall, acquiring authority for the different participators according to
the practical work demand, as well as managing it dynamically, promptly. The other one is the governing structure
approach. According to different knowledge management demand, different structure relationship is adopted to
control knowledge. The former is a short-term, realistic and concrete knowledge management, and the latter is
long-term, virtual, abstract knowledge management.
User
Platform type
Supplier type
Make or outsourcing
decision-making Canonical operation;
Original innovation
Losing degree of MS
Supplier selection
Core degree of MS
Cost/ Quality/
delivery
Data warehouse
Enterprise core
operation system
Global database
ERP module
The main functions completed by the platform are making in-house or outsourcing decision-making and
supplier selection. The main activities include identifying losing degree and core degree of parts and put forwards
567
the right manufacturing strategies of parts according to relative models; Identifying suitable type of supplier in
light of their canonical operation and original innovation; Identifying the suppliers in view of their cost, quality,
and date of delivery. Besides, the platform also could conduct supply management which is not involved in this
article. Above knowledge and information about decision is acquired from data and relative database. That
includes the product manufacturing specification database, the manufacturing specification losing degree database,
the suppliers original innovation database, the suppliers canonical operation database and the suppliers supply
ability database.
The data warehouse is connected to enterprise core operation system (ERP model); Meanwhile, it is
connected to global database.
7. Conclusion
On the basis of the suppliers and manufacturers knowledge interaction condition during the outsourcing
process, outsourcing is divided into three levels: arms length purchase, supply-chain and virtual integration, and
its information technology is also divided into three levels. In addition, a two-dimension structure matrix which is
composed of indice (outsourcing level and information platform) has been built and furthermore a
decision-making model of outsourcing knowledge management and information management platform has been
built.
References
[1] Tayles M. and Colin D. Moving from make /buy to strategic sourcing: the outsourcing decision process. Long Range Planning,
2001,34(5) : 605-622
[2] Barthelemy J. IT outsourcing: evidence from France and Germany. European Management Journal, 2001, 19 (2):195- 202
[3] Wu F., Li H.Z., Chu L. K. and D. Sculli. An outsourcing decision model for sustaining long-term performance. International
Journal of Production Research, 2005, 43(12): 2513-2535
[4] Wu F., Li H.Z., Chu L. K. and D. Sculli. Supplier selection of outsourcing: A manufacturing knowledge protection perspective,
in Mak, K. L. eds. Logistics Strategies and Technologies for Global Business. The Proceeding of ICLSCM 2006, Hong Kong,
2006, 45
[5] Jesper M. Framework for outsourcing manufacturing: strategic and operational implications. Computers in Industry, 2003,
49(1): 59-75
[6] Wu D. J. Software agents for knowledge management. Expert System with Application, 2001, 20(1):51-64
568
EAI(Enterprise Application Integration)Conceptual
Architecture Composition in Telecom Industry
Yang Hongbin
School of Economics and Management, Beijing University of posts and telecommunications, P.R.China, 100876
Abstract In this article, we provide an approach to the creation of a Conceptual level System Component Model specific to
Enterprise Application Integration (EAI) in telecom. As a byproduct, EAI specific Architectural Decisions, and an EAI specific
Architecture Overview Diagram will also be generated.
Key words EAI, Conceptual Architecture, Telecom supporting system, Web Services, Integration
1. Foreword
The telecommunications industry has seen rapid and continuous change in the last few years. Standards have
changed, new technologies have emerged, customer preferences have evolved, and markets have matured.
Telecom carriers have over a number of years created a complex web of interconnected applications each with its
own means of communicating with other systems. As new systems are introduced, they too must be interfaced
with each of these legacy applications, making every step more difficult to perform and more costly. This is a
particular problem for todays telecommunication industry.
A well-implemented EAI solution can achieve this. EAI seamlessly joins business-to business applications to
allow systems to talk to one another without frontiers and without separate P2P interfaces. For
telecommunications firms that can mean creating end-to-end revenue stream stability that not only addresses
revenue/cost leakage but also helps to recover money more quickly.
2. Research technique
2.1 Overview
Our reference architecture covers two major elements: Business Rules and EAI Workflow. More
fundamentally, EAI solutions deliver savings of development costs and can reduce operational in comparison to
P2P solutions. This paper focuses on the preparation of the conceptual EAI Component Model to facilitate that
selection. Figure 1 below depicts the placement of this technique within the scope of total system development,
and with respect to the related EAI techniques.
S e le c t T o ta l S y s te m E A I is d e p e n d e n t o n
A c tiv itie s fr o m C A D
Engagem ent M odel
a n d c o n s t r a in e d b y
th e to ta l S y s te m
O u t lin e S o l u t io n D e s ig n . A s a r e s u lt ,
R e q u ir e m e n t s
Solution Outline
th e s e c o r e te c h n iq u e s
a r e n o t a p p lie d u n til
O u t lin e A p p lic a t io n M o d e l s u ffic ie n t d e f in it io n o f
th e to ta l s y s te m
d e s ig n is c o m p le te .
O u t lin e A r c h it e c t u r e M o d e l
P la c e m e n t o f E A I
Macro Design
D e s ig n A r c h it e c t u r e M o d e l E A I A t t r ib u t e s B lu e p r in t
C o m p o s it io n D e f in e s E A I C o n c e p t u a l
Solution
Outline
C om ponent M odel
E A I C o n c e p tu a l
D e t a il R e q u ir e m e n t s & A r c h it e c t u r e C o m p o s it io n
A p p l ic a t io n M o d e l S e le c t io n f o llo w s s p e c if ic a t io n o f
E A I P r o d u c t S e le c t io n ( n o EAI C om ponent M odel
Design
Macro
u n iq u e te c h n iq u e )
Micro Design
E A I S y s t e m D e s ig n C o m p le t e s c o m p o n e n t a n d
o p e r a t io n a l m o d e l s p e c if ic a t io n
R e f in e A r c h it e c t u r e M o d e l
E A I B r o k e r in g D e s ig n f o llo w in g p r o d u c t s e le c t io n
Design
Micro
E A I A d a p t e r D e s ig n
E A I P ro c e s s M a n a g e m e n t
C o m p le t e s d e s ig n s p e c if ic a t io n
D e s ig n
fo r th e c o re E A I c o m p o n e n ts
D e f in e P h y s ic a l A p p lic a t io n E A I C o m m o n S e rv ic e s
D e s ig n D e s ig n
569
Note that prior to initiating product selection the component model will need to be elaborated to a
specification level. Both product selection and component model specification are well documented already in the
Method, and those techniques are not replicated here. The only EAI unique aspect to specification of the
component model, is the use of the EAI Attributes Blueprint as the consolidated source of parameters for the
model.
The EAI Conceptual Architecture is expressed through a number of work products. These are tabulated.
With the exception of those indicated, composition of an EAI architecture is dictated by the existing techniques
for these work products.
Tab.1 - Conceptual architecture work products
Work Products Involved In Conceptual Architecture Work Products focus of this
technique
ARC 100 Architectural Decisions X
ARC 101 Architecture Overview Diagram X
ARC 118 Change Cases
ARC 108 Component Model X
ARC 102 Reference Architecture Fit Gap Analysis
APP 011 System Context
ARC 107 Architectural Template
ARC 301 Current IT Environment
ARC 111 Deployment Units
ARC 119 Nonfunctional Requirements
ARC 310 Standards
ARC 117 Viability Assessment
APP 303 Detailed Gap Analysis
ORG 006 Future Organization Design
EAI conceptual component model composition is achieved in five basic steps, as depicted in Fig.2. These
steps are:
Make initial EAI architectural decisions
Identify required EAI services
Partition the EAI subsystem into smaller subsystems, where required
Identify EAI technology categories present, to align components with available product configurations
Apply integration architectural patterns to coalesce and confirm the required components.
Throughout these steps, architectural decisions are being made and confirmed.
M a k e I n itia l A r c h it e c t u r a l D e c is io n s
F o c u s o f th is I d e n t if y E A I S e rv ic e s
te c h n iq u e p a p e r
P a r t itio n t h e S y s t e m M ake
R e m a in in g
A r c h it e c t u r a l
I d e n t if y E A I C a t e g o r ie s D e c is io n s
A p p ly A r c h it e c t u r a l P a t t e r n s
S ta n d a r d s te p s fo r c r e a tin g o r
u p d a tin g th e W o r k
P r o d u c ts a re n o t c o v e r e d C r e a t e o r U p d a t e W o rk P r o d u c t s
in th is te c h n iq u e p a p e r
570
2.2 Make Initial Architectural Decisions
Tab.2 indicates the set of EAI Architectural Decisions that should be made up front for architecture
composition. These decisions will ultimately be documented in the Architectural Decisions work product. To form
these initial decisions, perform a systematic inspection of the attributes for each EAI facilitated interaction
tabulated in the EAI Attributes Blueprint. If additional information is needed to make the decision, consult the
clients architects and solution experts. It is best if the clients appointed integration architect is directly involved
throughout this process. When that is not possible, review the recommended initial decisions with the client for
approval.
The execution notes for framing and making these decisions are contained in Section 8 Confirm
Architectural Decisions. Tab.2 contains links to these execution notes, as well as background information, for
each decision to be considered.
Tab.2 - Initial EAI architectural decisions to make
Architectural Decision Topics That Apply Link to Execution Notes Link to Background Info
Utilization of the EAI Infrastructure Utilization of the EAI infrastructure Utilization of the EAI Infrastructure
EAI Functionality within Business Applications EAI Functionality within Business EAI Functionality within Business
Applications Applications
Business Application Insulation End Point Insulation Business Application Insulation
Failure and Exception Handling Failure and Exception Handling Failure and Exception Handling
Event-triggered versus Batch Interaction Styles Event-triggered versus Batch Interaction Event-triggered versus Batch
Styles Interaction Styles
Object or Component Platform Standards Object or Component Platform Standards Object or Component Platform
Standards
Routing Routing Routing
Message-oriented vs. Remote Procedure Message-oriented vs. Remote Procedure Message-oriented vs. Remote
Call/Object-oriented Call/Object-oriented Procedure Call/Object-oriented
Business Object Documents Business Object Documents Business Object Documents
General EAI Model (Centralized vs. End Point General EAI Model (Centralized vs. End General EAI Model (Centralized vs.
Services) Point Services) End Point Services)
Functionality/Performance Trade-offs Functionality/Performance Trade-offs Functionality/Performance
Trade-offs
571
External Internal
Customers External Networks Firewall / Proxy Business Adapters B2B Integration Broker
/ VPN Server Applications
Internet
Small
Large Value Added
Network Web App
( Server
Internal Users EAI Hub
Queues Process
Call Centers Order Entry Manager
Management (Websphere
Suppliers Commerce Suite)
Dashboard
Personal Robotics CRM
(Siebel Integration
Majestic Motion eBusiness)
Broker
Controllers
ERP
(SAP R/3:
FI/CO, HR, S/D)
Data
Mart
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3. Research conclusion
The potential benefits of EAI are evident to telecom business but many firms struggle to achieve these when
EAI solutions are not implemented guided by a coherent and well-defined Conceptual Architecture or are
hindered by other obstacles such as:
1.the issues involved in the complex world of governance. EAI touches on all systems and all parts of the
organization making it an extremely sensitive operation and one difficult to get wide acceptance for. Again an
internal sponsor alleviates these difficulties
2.the implementation of the EAI solution who sticks to a standard template rarely fits with the firms existing
systems and infrastructure or answers their needs
References
[1] W3C Org. Web Services Description Language (WSDL) Version 2.0[S] http://www.w3.org 2003-9
[2] JAMES SNELL,DOUG TIDWELL,PAVEL KULCHENKO, PROGRAMMING WEB SERVICES WITH SOAP,OREILLY
[3] DIRK KRAFZIG, KARL BANKE, DIRK SLAMA, ENTERPRISE SOA: SERVICE-ORIENTED ARCHITECTURE BEST
PRACTICES, PRENTICE HALL PTR, 2006
[4] ERIC NEWCOMER,GREG LOMOW, UNDERSTANDING SOA WITH WEB SERVICES, ADDISON-WESLEY, 2006
[5] Rahul Sharma , Beth Stearns, Tony Ng. J2EE Connector Architecture and Enterprise Application Integration ,Prentice Hall
PTR; (December 14, 2001)
[6] IBM Corp. An EAI Solution using Websphere Business Integration2003
[7] K.Hammer. Web services and Enterprise Integration,EAI Journal,11,2001
[8] Matjaz Juric, Ramesh Nagappan, Rick Leander, S. Jeelani Basha Professional J2EE EAI Peer Information
Inc.(December 2001)
[9] Gregor Hohpe, Bobby Woolf Enterprise Integration Patterns: Designing, Building, and Deploying Messaging Solutions
Addison-Wesley Professional (October 10, 2003)
[10] Fred A.Cummins Enterprise Integration: An Architecture for Enterprise Application and Systems Integration Wiley (February
1, 2002)
[11] W3C Org. Web Services Description Language (WSDL) Version 2.0[S] http://www.w3.org
[12] 2003-9
573
Online Training Industry Supply Chain System Planning
Based on CAS Theory
Abstract This paper applies Complex Adaptive System Theory in online training industry supply chain system planning. It
provides Multi-Agents simulation method for online training industry supply chain system planning. The paper analyzes that online
training industry supply chain system is a kind of Complex Adaptive System. Then it provides a model to plan the supply chain
system with CAS theory. Finally it gives a simulation process using Swarm software.
Key words System planning, Online training, Supply chain, CAS, Simulation
1. Introduction
Online training industry is undergoing rapid development in China, which includes the development of
training content, E-learning platform development, as well as training through the Internet transmission to learn
and process. The research of the supply chain system of online training will help us to understand more clearly
trades of online training system. And the players in the industry can formulate business strategy better. The supply
chain includes suppliers, manufacturers, distributors, retailers, users and other entities in the supply network. The
supply chain also includes enterprise activities across various functional departments. This paper analyzes the
online training industry supply chain system with the characteristics of complex adaptive systems. Online training
industry chain as a complex adaptive system cant be planned completely by an independent enterprise. In
planning the supply chain process, we must consider the optimization of the supply chain system. Meanwhile we
have to consider each individual optimization in supply chain. The system includes a number of individuals. So
considering each of them has become difficult. Application of CAS system for supply chain planning can solve
this problem to some extent.
574
Direct
Content provider
provider
Platform proveder
Agent
The sale channel of online training can be divided into direct marketing channels, agents and distributors.
Online teaching is essentially an online service rather than substantive articles. Nowadays bank transfer, pay
phone, online payments, electronics commerce and other means of payment and logistics are constantly improving.
All these make direct marketing has become an important channel for online training. Direct marketing can reduce
the cost of sales, but after all, is impossible to form a national network for access channel. Therefore agents and
distributors are also the important forms of marketing channels. Online training products can be made in the
low-cost form of the study cards in little size, minimal weight. Its logistics costs is very low, so there was no need
to establish a multi-agent system. Implemented the flat sales, only a small number of agents can be established in
all major regions. The profit of agents in the industrial chain depends on the operation of the integrated marketing
strategy.
Cards retailers are also a part of sales channels as sale terminals. The characteristics of online education make
the channel flat. Developers to promote education are also likely to give retailers larger profit margins. The
proportion of total retail sales of online training is according to the price policy of developers. Online retailers are
mainly in the training of IT education centers and product sales place, such as stores, specializing in software,
computer market, and other training institutions.
Learner is the ultimate buyer of online teaching provided by the developers. Learning cards bought from
various channels, visiting to the network through the Internet content and service providers, operating platform,
acquiring knowledge and studying skills. These realize the value of online training. Online learners is the key
element in achieving revenue in the whole industry value chain.[1]
575
interaction can be considered totally. It goes further than traditional viewpoint that statistics is the only way from
micro to macro. CAS theory believes that statistics method cant describe the agents, because of the adaptive and
subjective characteristics.
Fourth, CAS theory introduces the stochastic factor. It improves the descriptive capability of CAS theory. Its
basic idea can be summarized that stochastic factors affect not only system condition but also the organization
structure and behavior format. The agents in Complex Adaptive System can study experience and memory these
experience. So CAS theory goes beyond the general stochastic method.[2]
Fifth, CAS shows emergence and self-organized features. CAS sometimes may happen something that is not
in its schedule. It is named emergence. And no single program of agent completely determines the systems
behavior, in spite of the fact that each one of the agents holds common heterogeneous schemas [2]. It is CAS
self-organized features.
M : the number of members in a certain supply chain, N : the number of market, Cost : the cost of
production and sale, Y j : the output of member j , F : function of cost, C1 : the cost of transportation and sale
in one market, C2 : the cost of transportation and sale in different market, Di : the requirement of market i , D :
the total requirement.[5]
For the international enterprises, they can adopt total profit of supply chain enterprises as the evaluation
index:
576
vt (ek ,t , ot' 1 ) = max pt (ek ,t , ot' 1 , ot ) + k , k 'vt 1 (ek ,t 1 , ot ) Formula (2)
ot t
k'
Vector k : exchange rate, ek ,t : the state when exchange rate equals k at term t , o and : strategy
and potential strategies collection, p : the function of profit after tax, k ,k ' : the probability of exchange rate
vector k divert to k ' , v : the maximum profit after tax of members under present exchange rate, : the
[5]
discount rate.
4.2.4 Adjustment parameters of supply chain system:
Number of supplier and distributor, supply price and distribution price can be adjustment parameters. These
parameters can be adjusted in simulation process. The adjustment can impact total profit.
Operator Agent
577
sustain Multi-Agent simulation modeling. ModelSwarm and ObserverSwarm class can construct main framework
of simulation program. And SwarmObject class can define the agents.
Swarm simulation program construction step as following:
5.2.1 Define Supplychain ModelSwarm
Using @interface Supplychain ModelSwarm: Swarm can define a class. Its a subclass of Swarm.
5.2.2 Define Agents
Using @interface Supplychain: SwarmObject can define a subclass of SwarmObject. It inherits the basic
attribute of SwarmObject. Then define its bias and behaviors.
5.2.3 Create Agents
In ModelSwarm, buildobjects method can create simulation agents.
5.2.4 Arrange Supply chain Model Swarm schedule
This step includes Model Actions and Model Schedule confirmation
5.2.5 Create Supplychain ObserverSwarm
Supply chain Observer Swarm can be defined as the subclass of GUIS warm using @interface Supply chain
Observer Swarm : GUIS warm.
5.2.6 Create data diagram
Data diagram is used to express the running status of system.
5.2.7 edit main function
Main function is used to control other functions.
Through upside supply chain planning process, we can join following contents into the simulation model:
selection of suppliers, selection of distributors, supply chain evaluation index and other parameters of the supply
chain. The results of model running guide us find better planning of the certain supply chain.
6 discussion
Online training supply chain as a kind of complex adaptive system, its planning cant be done completely by
an independent enterprise. Online training system is the formation of various enterprises business strategies
according to their own situation and the results of decision-making environment. Thus, in the supply chain
planning process, we must consider the optimization of the supply chain system. Meanwhile we have to consider
each individual optimization in the supply chain. The system includes a number of individuals. So considering
each of them has become difficult. Application of CAS system for supply chain planning can solve this problem
to some extent. The supply chain planning is a total win mechanism planning. Because supply chain is an
integrated body, we must consider the emergence of supply chain system. Supply chain system planning provides
online training system planning a good idea.
This paper work for analyzing this multi-agent systems training industry supply chain, and online training
industry supply chain planning application CAS theory. Furthermore it provides the theory of supply chain
planning model based on CAS framework, and the use of software simulation models and simulation steps by
Swarm software. Construction of follow-up are mainly concentrated in specific types of Agents, Agents
coordination mechanism between the definition and parameters related to the restructuring, Simulation on the
supply chain planning system to achieve the reference guide.
References
578
[7] Zhao tao , sun kinyan, sun haihong, li gang The Analysis and Modeling of Supply Chain system-based on CAS System
Engineering Theory and Practice 2003.11:10-11( in Chinese )
[8] Wang huanchen System Planning and Its Method System Engineering 2000.3:3-4(in Chinese)
[9] Kumara SRT, Ranjan P, Surana A, Narayanan V. Decision making in logistics: A chaos theory based analysis. CIRP
ANNALS-MANUFACTURING TECHNOLOGY . 2003 52 (1): 381-384
[10] Zhao lindu Supply Chain and Logistics Management Theory and Practice Engine Industry Press 2003.4:238(in Chinese)
[11] Kumara SRT, Ranjan P, Surana A, Narayanan V. Decision making in logistics: A chaos theory based analysis. CIRP
ANNALS-MANUFACTURING TECHNOLOGY .2003 52 (1):381-384
[12] Rao JJ, Ravulapati KK, Das TK A simulation-based approach to study stochastic inventory-planning games
INTERNATIONAL JOURNAL OF SYSTEMS SCIENCE 2003 34 (12-13): 717-720
[13] Lee H L, Billington C. Material Management in Decentralized Supply Chains. Operations Research, 1993 5: 835-838
579
A Tool for Risk Mitigation in Public Sector IS/IT Projects:
An Evidence-Based Information Systems Project Risk Checklist
Abstract The design, development and implementation of Information Systems (IS) in the Public Sector are perceived to have been
plagued by failure and ongoing problems. This is reflected in the number of such case-studies being currently used in teaching and
training situations. This visibility is due the duty of accountability that forces the sector to disclose any emerging failure.
Consequently, the sector is more vulnerable to criticism and public inspection, but it is also an ideal research field in risk
management practices. This paper presents a study of Information Systems Project Risk Management aimed at identifying a risk
ontology and checklist that will enable decision making and mitigation strategy planning in IS development. The study is based on
a qualitative approach anchored on a critical literature review followed by a thorough case-study survey. The final ontology was
divided into five main categories: Pre-Project, Customer, Project Management, Technological Issues, and Development Methodology.
This ontology is designed to fit in real life systems development cycles and is aimed at supporting risk assessment and control.
Key words Information Systems, Risk Management, Risk Assessment, Risk Identification, Risk Checklist
1. Introduction
Risk assessment is a vital process in any effective Information System (IS) development. In fact, risks are
intrinsic to any project and risk taking is a necessary component of any process of decision-making (Nunes and
Annansingh, 2002)[1]. Poor risk management of IS projects often leads to failure, a situation not uncommon in
both the public and corporate community. Failures have been linked to incorrect market positioning, inadequate
business and risk strategies, poorly informed decision-making based on insufficient information and without due
authorisation from senior management (Nunes and Annansigh, 2002)[1]. Also, the situation is often exacerbated
by absence of clearly defined risk limits, deliberately misleading reports, inadequate intra-organisational
communication concerning risk vulnerability, superficial or unrealistic risk control, poor knowledge of the
business environment and lack of timely decision-making. As a result, various interested parties such as
shareholders and other corporate entities are deprived of valuable information, which could lead to the
formulation of more comprehensive and reliable risk systems, particularly as they relate to information systems.
However, as proposed by Keil et al. (1998)[2], before we can develop meaningful risk management strategies,
however, we must identify these risks. Therefore as Drucker (1975)[3] proposed: "While it is futile to try and
eliminate risk, and questionable to try and minimise it, it is essential that the risks taken are the right risks." So if
it is not practicable to eliminate risks altogether, it must certainly be possible to manage projects in a way that
recognises the existence of the risks and prepares, in advance, methods of dealing with them if they occur (Cadle
and Yates, 2001)[4]. This entails two major activities risk identification and risk management. Risk identification
and assessment are therefore the fundamental basis for the entire risk management process (Nunes and Annansigh,
2002)[1].
This paper aims at proposing a risk identification ontology in the form of a checklist that aims at supporting
risk assessment, decision making concerning risk control and the planning of risk mitigation strategies. This
ontology was constructed through an evidence-based approach closely linked to the reality of development and an
analysis of failure emerging from real-life case-studies.
580
need, namely clear checklists that can be used at the planning phase and as the basis for risk assessment.
Consequently the following overarching research questions were formulated:
What constitutes a good IS project risk identification checklist?
How can a risk identification checklist be created?
What should be the content of such a checklist?
In attempting to respond to the above research questions and aims, this research project employed an
inductive qualitative research methodology through a combination of critical literature review and a process of
case study survey. Specifically, this research was performed using a desk study approach, exclusively using
secondary sources. The strategy here is to adopt an inductive argument in order to explore failure and problems
as experimented by different organisations, through the analysis of published and publicly available case-studies.
Therefore, this study adopts a desk research approach through critical case-study survey analysis, that is, the study
surveys non-theoretical secondary sources, based on applied research.
The methodological framework on Fig.1, adapted from Bhandari et al. (2005)[5], was selected as the
overarching research design. This framework encompasses the following four inductive steps and is based on
the framework proposed by Yin (1984)[6]:
performing a critical literature review on IS risk management and risk assessment was carried in order to
provide a theoretical background to the study and establishing an initial proposition of main categories of risk in
IS development for further exploration and critical analysis;
establishing an appropriate set of case-studies was selected on the basis of its validity, descriptive value and
reliability (in this case: 10 public sector case-studies following an Anglo-Saxon tradition);
performing an analysis of individual case studies by using the key set of categories and theoretical knowledge
as guides;
producing a synthesis of the different case-studies to provide a response to the research question and to
establish the risk identification ontology.
Research
Question
Critical Literature
Review
Establishing Key
Risk Categories Individual Case-Study Critical Review and
Critical Analysis Synthesis
Case-Study
Selection
Theory
Extension
Fig.1 - Framework of a Case-Study Survey Inductive Approach adapted from Bhandari et al. (2005)[5].
After careful consideration, it was decided that in order to identify risks in IS projects, the natural strategy
would be to study and analyse cases of failure of this type of project. Past failure causes and events, can be
interpreted as risks in future projects. Failure has had different degrees of visibility. In particular the failure of
IS projects in the Public Sector has been the media delight (Harrin, 2007)[7] for a number of years now, due to
the requirements for transparency and accountability in the sector. In no other sector are IS/IT projects perceived
to have been so plagued by failure and ongoing problems. This is reflected in the number of such case-studies
being currently used in teaching and training situations, and on the growing public concern on this type of project.
In the UK, this is clearly illustrated in a recent report put together by the Parliamentary Office of Science and
Technology in 2003 entitled Government IT Projects that aims to improve the success rate of public sector IT
projects and highlight common pitfalls. This visibility is due the duty of accountability that forces the sector to
disclose any emerging failure and submit to the scrutiny from political and social institutions. This certainly
makes IT projects in the sector more vulnerable to criticism and public inspection, but also makes these projects
581
an ideal research instrument in risk management practices. Therefore, the research team behind this study took
the deliberate decision to select 10 case-studies from an Anglo-Saxon tradition Public Sector, as shown in
Appendix 2, specifically from the UK, US and New Zealand. This choice is rooted on to very high levels of
transparency, detail, trustworthiness and credibility of the information disclosed about these failures.
Nevertheless, although these case studies are all from the Public sector, they represent different areas of
application and different national contexts, albeit in an Anglo-Saxon environment. The intention was to, within
the same sector, cover a diversity of areas of application and of organisational context.
Pre-Project Customer
Project
Management
Development Technological
Methodology Issues
This holistic conceptual model aimed at establishing a manageable set of key risk categories in order to
proceed with the analysis of the case-studies as proposed in the framework in Fig.1. The conceptual model itself
resulted from the critical literature review and a synthesis of a number of existing holistic models. In particular,
the conceptual model proposed was strongly influenced by propositions by Hughes and Cotterell (2002)[17] and
Cadle and Yates (2001)[4].
4. Research Findings
4.1. Pre-Project
Pre-project preparations and contracting are critical to the success of any type of project (Dvir et al, 1998)[18].
Before the project kicks-off, both the project team and the customer need to have a good and agreed
understanding of the requirement specifications, contractual relationships, project scope and constraints (e.g.
budget, technology in use, interfaces with other systems both internal and external, etc), organisational
environment, as well as the business environment. Cadle and Yates (2001)[4] proposed that the contract is the
582
most serious critical risk factor in IS projects, since the contract is the negotiation and enforcement tool used by
all parties to convey their needs, concerns and relationships. The risks are particularly significant if the project
scope is ill-defined or not firmly agreed between parties. Furthermore, ill-defined or ambiguous requirement
specifications are equally dangerous (Shull et al., 2000)[19], and likely to originate problems of usefulness and
deviations from both timelines and budgets. These are well known risks and identified even in the earlier days of
computing as discussed by Bostrom and Heinen (1977)[20]. These were found to be a prevalent cause of failure
by the analysis of the case-studies. In particular, these problems became apparent in the Integrated National
Crime Information System (INCIS) Project developed for the New Zealand Police. In this case the results were
catastrophic. The final information system produce was hopelessly inadequate:
The scope of INCIS has never been satisfactorily addressed in the documentation. In the
initial Information Systems Planning exercise the scope was defined as intelligence within the
Police. At no time were the boundaries set, or the role if INCIS defined and set in context within
the Police.
Subsequently, INCIS became an information rather than an intelligence system, radically
affecting the scope of the project. There seems to be a great deal of confusion at even this
broad-brush level of definition.
INCIS - Small (2000:33-34)[21]
Cadle and Yeates (2001)[4] claim that ambiguous roles of partners in project planning and scoping, as well as
unclear relationships between these parties should be considered as important risks. This research found clear
evidence of these risks in most of the case studies surveyed. This was particularly evident in the London
Ambulance Service (LAS) Case Study:
The intention with the award of the contract to SO was for them as the lead contractor to take
on the overall project management responsibility although there is no specific reference to this in
the contract. This role later became ambiguous as SO struggled to manage their own input to the
project and LAS became more responsible by default for project management. The suppliers are
clear that it was in reality LAS, through the Director of Support Services and the contract analyst,
who were providing project management.
LAS - Finkelstein (1995)[22]
These problems can be further compounded by internal political difficulties in the customers organization as
discussed in the next section. In terms of pre-project some of these internal issues were crucial in all of the
case-studies analysed. Lack of understanding of organisational politics, culture and internal relationships were
found to create close to insurmountable problems. This confirms the findings of other researches, such as Nah et
al. (2001)[23] who suggest that top management support is needed throughout the implementation and top
management needs to publicly and explicitly identify the project as a top priority.
Finally, in terms of pre-project, it is in the early project planning process that catastrophic risks are often
ignored and not taken into account. Planning needs to account for adequate resources (funds, staff, equipment,
etc) and should precede the actual contract whenever possible. An important part of this early planning must
also encompass the substitution of current systems and whenever necessary the interfacing with other systems.
This was identified as a crucial risk factor in a number of case-studies, namely in the US Navy ERP project:
DODs [US Department of Defence] past history of not implementing systems on time and
within budget. The project faces numerous significant challenges and risks that must be dealt with
as the project moves forward. For example, 44 system interfaces 6 with other Navy and DOD
systems must be developed and implemented. Long-standing problems regarding the lack of
integrated systems and use of nonstandard data within DOD pose significant challenges and risks
to a successful Navy ERP interface with these systems.
US Navy ERP GAO (2005)[24]
In fact, the majority of failure causes identified in the case-studies could have been avoided if careful
583
planning would have done before the contract. The contract needs to be suitable for the specific project with
clearly defined payment schedule and backup plans in case of delays and other unexpected emergencies.
Additionally, a clear business plan and vision is required to steer the direction of the project and enable efficient
monitoring throughout its life-cycle. These findings confirm a widely accepted view in the literature that a good
plan should follow a sound business case based on a clear understanding of both long-term strategic and
short-term tangible benefits. In accordance to this business case, planning should provide for efficient use
resources, monitoring of costs, assessment and mitigation of risks and the adherence to sound quality standards.
4.2. Customer
Customers are not always familiar with modern Information and Communication Technology (ICT) and their
inherent affordances and risks. This may result in undue optimism and overambitious expectations by customers,
which may result in overambitious requirement specifications and unwillingness to accept the final system after
development. This was a recurrent theme in all the case-studies surveyed and a reality even in organisations
with a long tradition of in-house IS design and development. Furthermore, the internal constitution and politics
of the customer may represent result in another important subset of risks. IS projects require full cooperation
from all involved parties. Conflicts between user departments and internal political difficulties can bring conflict
of interests to the surface and create great difficulties to IS functional analysis, design and testing, as well as, final
acceptance. Risks emerging from these internal realities where apparent all through out the analysis, particularly
in highly complex organisations such as US Department of Defence:
Until DOD develops and implements an effective strategy for overcoming resistance,
parochialism, and stovepiped operations, transformation efforts, as envisioned by the 1995 task
force report, will not be successful and the department will be faced with the continued
proliferation of numerous business systems that are nonintegrated, duplicative, and waste limited
resources.
DOD DTS GAO (2006)[25]
Furthermore, projects that may zlead to a significant change in organizational structure and culture may result
in strong user resistance and cause a serious of risks. Managers on the customer side have therefore a very
crucial role mediating and negotiating this change, as well as preparing the organisation to accept the new system.
4.3. Project Management
Poor project management is universally accepted as a major cause of risk and failure in IS projects. The
literature in the field is very rich and exhaustive. The results of this analysis seem to confirm the vast majority of
theoretical assertions by authors in the field. This study identified risks around three main areas: human resource,
project planning and project monitoring and reporting.
Deficiencies in project planning and team building are well known risk factors (Kasser, 1998)[26]. Cadle and
Yates (2001)[4] suggest that a full and complete project plan may not necessarily be presented before the contract
but a comprehensive and proper project management strategy needs to be initiated as soon as possible.
Furthermore, a well balanced team including both well and less experienced analysts and SW developers needs to
be built. Finally, efficient communication channels linking project managers, project team, customer managers
and end-users the essential to ensure flows of information and feedback. These communication channels are
viewed as the key of final success in IS development and implementation (Cadle and Yates, 2001)[4]. Finally the
plan should include formally defined and agreed milestones and deliverables (Holland and Light, 1999)[27].
These milestones and timelines enable appropriate project monitoring and control, as well as timely mitigation
decisions whenever risk events emerge. Management of these deadlines needs to be met in order for the project
to stay within agreed schedules and budgets and to maintain project team credibility.
More interestingly, this research identified that it was in reporting and documenting project progress that the
majority of public sector managers failed. This may have been due to prevalent public sector cultures, or just
lack of specific training for IT project management roles. Project management remains, however, an umbrella
term for many elements involved in systems failure. Therefore technical, technological and methodological
584
problems are often misunderstood or confused with project management.
4.4. Technological Issues
Similarly with project management issues, technological causes of failure have been debated in the field of IS
since its early beginnings. Also in this case, most of these studys findings are in accordance with the very
exhaustive and extensive literature in technology risk factors. The study identified both stability and
compatibility of hardware and software platforms as a major cause of problems. Furthermore, this survey shown
that unproven or unfamiliar technologies may cause disappointment and lead to under-performance or conflicts
with unrealistic expectations of technology. However, the study also confirmed that risks lie also with the
technological development infrastructure, namely with unknown or unfamiliar programming languages,
development tools and even development methods.
4.5. Development Methodology
Methodological problems have often been confused with project management. In fact, these are very
separate issues. Different design and development methodologies may result in very different project structures
and risks. There are well known differences between agile and structured methodologies, with defenders of both
approaches engaging in fierce discussions and theoretical arguments. For the practitioner however, these
differences are more then theoretical and hypothetical. As identified in this study, choosing a methodology out
of fashion or positioning in the field, may bring severe risks to the project and increase probability of delays and
budget overruns.
One of the persistent oversights of IT practitioners and programmers is usually the systems analysis stage of
IS projects. Concentration in technical concerns of design and programming has systematically led reductionist
interpretations of requirements, functional specifications, end-user needs and organisational constraints. This
technological induced blindness is persistent in the SW sector is still prevalent today. In fact, the lack of user
consultation and holistic awareness of organisational needs was found to be on of the critical failure factors in
most of the case studies surveyed.
Similarly, system designing, as the next step, is carried often out on the basis that a full comprehension of
organization background and requirements has been achieved. This stage requires constant communicating
within the project team as well as between the project team and the customer. Design ranging from the
overcomplicated to the reductionist may have profound implications in the success of IS projects. In order to
ensure that the project team is producing what the customer requires, it is a good strategy to have customers
agreement on designs and prototypes before the starting heavy processes of programming. Again in this case,
the lack of consultation with the customer may lead to significant needs from actual requirements and decrease
chances of acceptance of the final system.
System Development and Testing is probably the more critical phase of any IS project. Adequate
programming and testing methods and techniques need to be adopted. The use of unstable and sometimes
incompatible SW and HW hardware platforms may represent a significant risk for the project. More importantly,
the use of emergent fashions and sometimes unproven methods and tools may result in easily predictable risks and
slippages in timelines and budgets. Finally, it was found in almost cases that the lack of a thorough and inclusive
testing strategy is an unacceptable risk and one of the major causes for disaster.
5. Conclusions
The checklist presented in this paper aims at supporting both practitioners and researchers in their risk
thinking and assessment. For practitioners, the checklist is an important decision making support tool and is
aimed at helping in risk identification and assessment activities. For researchers, on the other hand, the checklist
provides a first attempt at establishing a risk ontology and a point of departure for further research. Future
research in this area should aim at completing this first proposal, but also linking these risk factors to both causes
and consequences.
A major conclusion of the case study survey is that a considerable amount of risk factors are clearly incurred
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even before the start of the formal project. All these factors, identified in the pre-project dimension, severely
pre-determine the future of the project and create very predictable risks that could be avoided if given due
consideration. In fact, this research found evidence that risk thinking should start very early as part of
pre-project and not, as most of the modern design and development methodologies propose, solely as part of the
development process itself. For instance DSDM proposes risk thinking as part of the functional model iteration,
RUP proposes risk analysis and assessment as part of the inception phase, and finally, even XP a proclaimed
risk-driven approach (Li et al., 2006)[28] only really formally advocates risk thinking during release planning. It
is clear from findings of this study that risk thinking must start long before this, in fact, long before contracts are
established.
References
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1998: 41 (11): 76-83.
[3] Drucker P. Management: Tasks, Responsibilities, Practices. London: W. Heinemann Ltd, 1975.
[4] Cadle J, Yeate D. Project management for information systems. Harlow: Financial Times/Prentice Hall, 2001.
[5] Bhandari P, Nunes M, Annansingh F. Analysing the Penetration of Knowledge Management Practices in Organisations through
a Survey of Case Studies. In Proceedings of the 4th European Conference on Research Methodology for Business and
Management Studies (ECRM 2005), 21/22 April 2005, Universit Paris Dauphine, Paris, France, 2005. 37-45.
[6] Yin R. Case study research: Design and methods. Beverly Hills. CA: Sage Publishing, 1984.
[7] Harrin, E. Between a rock and a hard place. IT Now, 2007, 49(1): 6-8.
[8] Chapman C, Ward S. Project Risk Management: Processes, Techniques and Insights. New York: John Wiley &Sons, 1997.
[9] Kliem R, Ludin I. Reducing Project Risk. Aldershot: Gower Publishing Limited, 2000.
[10] Mantel S, Meredith J, Shafer S, Sutton M. Project Management in Practice. New York: John Wiley & Sons, 2001.
[11] Pritchard C. The Project Management Communications. London: Toolkit Artech House, 2004.
[12] Drori O. From Theory to Practice or How Not to Fail in Developing Information Systems. Software Engineering Notes, 1997,
22 (1): 85-87.
[13] Jalote P. Software Project Management in Practice. Boston: Addison-Wesley Professional, 2002.
[14] Taylor J. Managing Information Technology Projects: Applying Project Management Strategies to Software, Hardware and
Integration Initiatives. New York: American Management Association, 2003.
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[16] Brown M. Mitigating the risk of information technology initiatives: Best practices and points of failure for the public sector. In:
Garson G. (ed.) Handbook of Public Information Systems. New York: Marcel Dekker, 2000. 153-164.
[17] Hughes B, Cotterell M. Software project management. London: McGraw-Hill, 2002.
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Socio-Technical Theory. MIS Quarterly, 1997, 1 (4): 11-28.
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Appendix 1 A Proposition of an Information Systems
Project Risk Checklist
587
Project Risk Dimensions ID Risk Factors
Pre-Project
Human Resource 1. Reluctance by the customer to attend project meetings.
2. Inappropriate staffing and/or personnel shortfalls.
3. Inappropriate project team structure.
4. Inexperienced team members in core business or technology project components.
5. Lack of clear processes of accountability and responsibility.
6. Lack of commitment to the project by team members.
7. Inadequate balance of junior and senior staff in the project team.
Project Planning 8. Lack of effective processes of estimation.
9. Lack of effective quality control and assurance according to agreed standards.
10. Ill-definition of milestones and related deliverables.
11. Ineffective risk identification and assessment.
12. Ineffective planning for risk mitigation and/or avoidance.
13. Lack of clear project management structure and methodology.
Project Monitoring and Reporting 14. Inappropriate project reporting.
15. Unrealistic monitoring of timeliness and budgets.
16. Ineffective risk monitoring according to contract, requirement specifications, time
boxes and prioritization of features.
17. Inappropriate human resource management.
18. Lack of leadership and/or motivating attitudes by project managers .
Technological Issues
IS infrastructure and base 1 Emerging or unproven technologies.
technologies
2. Incompatible technologies with project constraints and/or requirements.
3. Erroneous, ambiguous or incomplete technology feasibility studies.
4. Unfamiliar technologies to the design and development team.
5. Unstable or incompatible HW infrastructures and platform.
Development technologies 6. Emerging or unproven programming and debugging technologies.
7. Overly complex or time demanding programming and debugging technologies.
8. Unfamiliar development environment to the project team.
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Project Risk Dimensions (cont.) ID Risk Factors
Development Methodology
12. Poor dialogue, negotiation and communication with the end-users and the
organisation in general.
System Design 13. Poor dialogue between designers and analysts.
14. Poor dialogue between designers and end-users.
15. Overcomplicated designs that may result in system extremely heavy and complex
systems.
16. Non-use of prototyping to negotiate design solutions with the customer.
17. Non-compliance with prioritization and specifications agreed in previous stages.
18. Designs emerging out of fashion or current trends rather then explicit needs.
System Development and Testing 19. Poor dialogue between designers and programmers.
20. Attempt to produce a complete and perfect system in one go.
21. Unstable and/or incompatible software and hardware system platforms.
22. Initiate programming before design is fully agreed and/or complete.
23. System testing without final user involvement.
24. Inadequate testing the final integrated system before final implementation.
25. Programming without agreed communication channels between programmers.
26. Programming without agreed information sharing channels between
programmers.
27. Programming without agreed processes for sharing and re-use of common code
between programmers.
28. Code emerging out of fashion or current trends rather then explicit needs.
29. Programmer-oriented coding instead of user-oriented.
System Installation 30. Lack of planned and agreed systems installation and cutover processes.
31. Lack of a user training plan and insufficient user training before installation.
32. Initiate training without complete testing.
System Maintenance 33. Lack of a clear and agreed maintenance plan.
34. Assignment of unqualified staff for systems administration and maintenance.
589
Assessing Risks through Information Systems Failure
Probability Based on the Life Cycle Theory
Abstract Many information system (IS) failures may result from the inadequate and ineffective assessment of project risk. Since
the risk of IS development project is full of dynamic variability during the life cycle, consistent evaluation, coordination and
avoidance is needed. Moreover, little is known about integrated function of all kinds of risk factors in the course of IS project
development. The model of IS development project risk assessment and failure probability during the life cycle has been established,
combining the risk, the life cycle theory, dynamic characteristics and IS failure probability. Risk factors in the life cycle are identified
and assessed by risk exposure analysis. The definition and measurement of IS failure probability are first presented, in one hand
predicting the success of IS project implementation and in the other hand analyzing the integrated influence of risk factors. Finally,
risk reducing strategy is introduced based on the assessment result, so as to reduce the high risks being identified and improve the
probability of success in IS development.
Key words Information Systems development, life cycle, IS failure probability, risk reducing strategy
1. Introduction
With the development of Information Technology (IT) and improvement of IS development project
management. Implementations of IS are growing rapidly in our country. Many tools such as prototyping, data
modeling and structure design are used in IS and software development. However, too many IS development
projects end in failure. It is reported that fully 25 percent of all IS and software projects are cancelled outright[1]. A
survey from Standish Group in 1995 indicated that 52.7% of IS project in the US run over their budgets and
schedule. 31.1% are fully cancelled and only 16.2% are successfully finished within the schedule and budgets[2].
The probability of success of IS development projects is not high in the course of informationization. Therefore,
how to avoid IS failure and reduce the risk of IS development receive great attention. IS researches propose to
identify and assess the risk factors of IS project and make risk reducing plan in order to execute risk track and
control, reducing IS development failure probability and making IS project valued.
To avoid the high probability of system failure, IS researchers have attempted to identify factors threatening
successful IS development. Risk assessment is fully researched and result in plenty of estimating instruments.
Boehm summarized some software risk assessment tools[3]. Typical risk identification techniques include
checklists, examination of decision drivers. Risk analysis techniques include performance models, cost models,
network analysis and quality factor analysis. Risk prioritization techniques include risk exposure analysis and risk
reduction leverage analysis. Risk varies in different phases of IS development life cycle. Researchers presented
some valuable risk-oriented system development approach to combine the variation. Boehm has built spiral
models based on the waterfall models and evolutionary development models, integrating life cycle theory, risk
and prototypes and provided a kind of risk driving software development approach[4]. In this model, project goals,
constraints, methods, risk factors, risk resolutions in each round and the plan for the next round was analyzed. The
model not only can make two development models transformed but also had many other advantages. It paid
attention to the reuse of current system, provides a mechanism for incorporating software quality objectives into
software product development and focuses on eliminating errors and unattractive alternatives earlier. After this,
Boehm get the mode upgraded and presented a win-win spiral models which integrated Win-Win Theory and
W-Theory[5]. In 2001, IEEE Standard for Software Life Cycle Processes presented a risk management process
model and makes it a standard[6]. Gang et al established a risk avoidance model in the phase of software bidding
based on the life cycle theory, combining the life cycle and risk avoidance[7].
However, too many models, approaches and theories recognized and analyzed the IS development risks only
This research has been supported by National Natural Science Funds of China (No: 70571025).
590
from project failure perspective. They estimated risks, prioritized and avoid risks. In other words, researchers only
analyzed the factors which influence the IS project success. To which extent does IS project fail? How does the
risk vary in all the phases and how to recognize the dynamic variance? To which extent does the integrated effect
of all risk factors influence the project? These problems have little been studied. Thereby, this paper puts forward
the definition of IS failure probability and established the risk management model of IS development project
based on the life cycle theory, attempting to address two problems: (1) How to identify and assess the variance of
risk factors in all phases of the life cycle? (2) How to measure IS failure probability from the result of risk
assessment so as to effectively estimate, control and avoid IS failure?
Risk management model of IS development based on the life cycle theory is showed in fig.1. This model
integrates risk analysis, planning and IS failure probability in each phase of the life cycle to decide which will be
done in the next phase. When moved from one phase to the next, risk identification and assessment are needed. If
the result of assessment shows the low probability of IS failure, risk planning will be made before moving to the
next phase. If it shows the high probability of IS failure, the project will stay and adjust to make resolution until
the high probability of IS success. The judgment is executed through all 8 phases and is ended when the project is
finished.
2.1 Risk identification
When moved from one phase to another, risk identification and assessment are needed to be categorized due
to its complexity to hold the essence of risk factors. Full category bothered managers very much while incomplete
category lets decision makers ignore important risks. Risk factors can be identified by two approaches. One
method is to describe all risks by fixed structure in theories and models from a complete perspective. But it makes
distance from actual situations. The other method is to empirically conclude risk factors presumed that IS risks are
statistically distributed which become close to the practice of IS management. Tab.1 integrates the two approaches
591
and summarizes IS development risk factors and risk variables from the literature.
2.2 Risk assessment
In practice, not only can project managers find risk factors referring to Tab.1, but also identify them by
questionnaire and statistical methods. The assessment of risk factors will be executed after the identification.
While lots of risk assessment methods existed, risk exposure analysis is most widely used including estimated
probability and loss of unsatisfied outcome. Risks are prioritized from calculates risk exposure in order to find the
factors most influence IS success and make risk resolution. The calculation of risk exposure can be represented as
follows:
RE=P(UO)*L(UO) (1)
RE is Risk Exposure. P(UO) is probability of unsatisfied outcome and L(UO) is the loss of unsatisfied
outcome. Tab.2 shows the result of risk exposure analysis of an IS project in a Chinese construction company
during the phase of code and unit test. The loss and the probability are estimated by 20 users and development
members of the project who used expert scoring in the course of IS development. The loss ranges from 0 to 10
while the probability ranges from 0 to 1. The score of probability and loss is calculated by weighted average and
confirmed by all the members. Risk exposure of risk factors can be drown by weighted average from risk
exposure of risk variables.
Tab.1 IS development risk factors and variables
Risk Factors Risk Variables Literatures
F1:Project size V1:Application size [8]
V2:Multiple implementers [9]
V3:Many external suppliers [13]
F2:Organization V4:Lack of top management support [11]
environment V5:Change in organizational management [11]
V6:Strategies and politics conflict [9]
V7:Resources shifted away from the project [9]
F3:Requirements V8:Unclear or incorrect system requirements [11]
V9:Continually changing system requirements [11]
V10:Undefined project success criteria [9]
V11:Lack of user support [11]
F4:User V12:Users resistant to change [11]
V13:Conflict between users [9]
V14:Low user responsibility [9]
V15:Technological newness [11]
F5:Technology V16:High level of technical complexity [9]
V17:Immature technology [9]
V18:Large number of links to other systems required [9]
V19:Personnel shortfalls [3]
F6:Team V20:Rrequent conflicts between development team members [3]
V21:Inadequately trained development team members [9]
V22:Team members not familiar with the tasks being automated [9]
V23:Lack of expertise [3]
V24:Lack of an effective project management methodology [9]
F7:Planning and control V25:Project progress not monitored closely enough [9]
V26:Poor project planning [3]
V27:Inexperienced project manager [11]
V28:Inadequate estimation of budgets [9]
V29:Inadequate estimation of project schedule [9]
F8:Market and V30:Change of market reducing project value [12]
competitions V31:New substituted product, service and technology [10]
V32:Opposite behaviors from external organizations [12]
The top ten risks in this IS development are: project size, personnel shortfalls, inadequate estimation of
592
project schedule, change in organizational management, continually changing system requirements, poor project
planning, undefined project success criteria, lack of an effective project management methodology, inexperienced
project manager and unclear or incorrect system requirements. Risks of project size and personnel shortfalls are
very high. Large project size leads to the complex requirements analysis. That requirements are still changing in
the phase of code is quite negative. Furthermore, project team has no detailed plans and strict control, especially
weak in terms of organization and team. In fact, this project is ended in implementation phase. Risk exposure
analysis of each phase is showed in Tab.3. The light color area represents the high level of risks, the deep color
area represents the very high level of risks and .means the project is cancelled.
Obviously, application size and requirements changing are two risk variables most influencing IS success
during the life cycle. In the late period of the project, change in organizational management, personnel shortfalls
and inadequate control make the project a failure destiny.
2.3 IS failure probability analysis
Most researchers tended to identify risk factors from a failure perspective. However, they dont describe to
which extent the IS project will be a failure. In fact, IS failure probability is able to be measured from the result of
risk assessment. Webster defined failure as a failing to perform a duty or expected action while the Standish
study defined project failure as either a project that has been canceled or a project that does not meet its budget,
delivery, and business objectives. Researchers viewed IS failure as two situations from software developer
perspective[14]. If the project is completed, IS failure means developing a product that causes customer discontent.
If the project is cancelled, IS failure means not learning anything that can be applied to the next project. We
defined IS failure probability as the probability of discontent outcomes resulted from risk variables from a risk
perspective. Two aspects are involved in discontent outcomes: one is probability of unsatisfactory outcomes and
the other is losses of unsatisfactory outcomes. Therefore, IS failure probability is an integration of all risk factors.
IS failure probability can be measured by the following formula:
[Pi (UO) Li (UO)]
R(F) = {Pi (UO) } (2)
i=1,2...n [Pi (UO) Li (UO)]
i=1,2...n
R(F) represents IS project failure probability. P(UO) means the probability of unsatisfactory outcomes. L(UO)
represents losses of unsatisfactory outcomes. i is the number of each risk variable and n represents the total
number of risk variable.
593
Continued
Risk Risk Loss caused by Probability of Rusk exposure of risk Rusk exposure
factors variables unsatisfactory outcome unsatisfactory outcome variables of risk factors
V15 6 0.2 1.2 0.88
F5
V16 5 0.1 0.5
V17 6 0.1 0.6
V18 6 0.2 1.2
V19 10 0.8 8 4
F6
V20 6 0.1 0.6
V21 7 0.5 3.5
V22 5 0.6 3
V23 7 0.7 4.9
V24 7 0.9 6.3 5.77
F7
V25 6 0.6 3.6
V26 8 0.8 6.4
V27 7 0.9 6.3
V28 8 0.6 4.8
V29 8 0.9 7.2
F8 V30 6 0.2 1.2 1.23
V31 6 0.3 1.8
V32 7 0.1 0.7
In this case, the IS project failure probability in the Chinese construction company above could be measured.
The result is showed in Tab.4 which tells us that the IS failure probability in this company in the early period of
the project is high. In the phase of requirements analysis, IS failure probability exceeds 50%. The IS failure
probability is increasing with the project evolved and is cancelled in the end.
P1 P2 P3 P4 P5 P6 P7 P8
594
Continued
P1 P2 P3 P4 P5 P6 P7 P8
Tab.4 IS failure probability in each phase of project during the life cycle
Conception Development Implementation Ending
P1 P2 P3 P4 P5 P6 P7 P8
R(F) 0.408 0.519 0.582 0.618 0.704 0.782 0.846 1
595
Tab.5 System development risks and risk resolution
Risk resolution Risk factors
F1 F2 F3 F4 F5 F6 F7 F8
S1:Use prototypes I I C
S5:Hide complexity C C
S6:Avoid change I C I C
3. Result analysis
The variance situations of risk factors and IS failure probability in each phase of the project life cycle could
be described from the data above. Risk exposure analysis and the change of IS failure probability of the project
from the construction company are showed in Tab.6. R1(F) is the IS failure probability after the risk resolution has
been taken.
Tab.6 Variance of risk exposure and IS failure probability during the life cycle
Risk Exposure and Conception Development Implementation Ending
IS failure probability
P1 P2 P3 P4 P5 P6 P7 P8
RE(F1) 1
3.5 3.77 4.07 4.07 4.07 4.03 4.03
RE(F2) 1
0.8 0.8 1.98 3.05 4.68 6.23 7.9
RE(F3) 1
2.5 4.43 5.4 5.4 6.1 6.67 6.97
RE(F4) 1
2.05 2.13 2.1 1.68 1.48 4.3 6.2
RE(F5) 1
0.73 0.98 1.83 2.1 0.88 4.75 6.5
RE(F6) 1
2.46 3.1 3.48 3.92 4 5.08 6.5
RE(F7) 1
1.88 2.77 3.9 4.6 5.77 6.57 6.8
RE(F8) 1
0.63 1.03 1.03 1.03 1.23 3.57 5.6
R(F) 0.408 0.519 0.582 0.618 0.704 0.782 0.846 1
R1(F) 0.356 0.468 0.492 0.533 0.678 0.765 0.831 1
596
Before risk resolution After risk resolution
IS failure rate
0.8
0.6
0.4
0.2
0
P1 P2 P3 P4 P5 P6 P7 P8
Phases of IS development life cycle
Fig.2 The trend of IS failure probability in each phase of the life cycle
The project size is maintaining a high level while the organization risk factor changed a lot after the code
phase. Moreover, requirements are considered as high risk after the requirements analysis phase resulted from
large application size. Requirements of subsystem are uncertain. The project has been obtaining users support
until implementation for the reason that the system could make uses work much easier. However, at the end of
the project, users are not capable of doing anything to save the system. There is no difficulty in technology at the
beginning of development. But when moved into the system integration phase, large number of external links of
subsystems existed. More and more technical problems need to be solved and the problems get even worse. Team
operates well at the beginning but some major team members are shifted away for some reasons leading to
significant influencing IS success. The project is out of control in the code phase. The schedule is overrun and
project leaders lack of efficient methodology which result in imprecise planning. Market and competition risk is
not high, but the project lasts too long and external organizations are bothered which makes this risk higher and
higher. In a word, large project size and unclear requirements are the main reasons for this IS failure. Team
turnover and organization changes increase the distance from success.
The trend of IS failure probability in each phase of life cycle is showed in fig.2. IS failure probability is not
high in the feasibility phase while it has a tendency to failure in the requirements phase. After detailed design
phase, IS failure probability is increasingly growing and is cancelled at last. From the relationship with risk
factors and IS failure probability, each risk factor is undeterminable to IS failure for the reason that the IS failure
probability is high while each risk factor exposure is not too high. Thereby, the integrated effect of every risk
factor leads to IS failure. Risk resolution plays an important role in the early 4 phases. However, inhibiting
strategy influences less and less after the code phase. Only is relied on compensating strategy reducing the risks.
In another hand, Change in organizational management, personnel shortfalls and large application size risks could
not appropriately be avoided.
4. Conclusion
The study constitutes a risk assessment model of information systems development by bringing in the
concept of IS failure probability which transforms the risks identified and assessed to IS failure probability, not
only predicting the future of IS development but also indicating the integrated influence of each risk factor to IS
project. The result of risk exposure analysis can be used to make risk planning in the next step. Whats more, if
the risk exposure or IS failure probability exceed the threshold, risk mitigating strategies could be taken to reduce
the probability of IS failure. Managers could better planning and monitoring the project in each phase of the life
cycle and make right decisions prior to the next phase. It has also been demonstrated that the model could
successfully applied in practice.
Risk assessment and the trend of IS failure probability could be deeply penetrated by several techniques such
as regression analysis and factor analysis. More and more IS projects will be applied with this model for widely
used.
597
References
598
The Research of Project Performance-Oriented of Software
Process Improvement Model and the Decision Support System
Abstract Currently research about relationship between project performance and process improvement, the thesis analyzes the
insufficient of the traditional model-driven software process improvement. The theoretical framework is discussed about
performance of the project -driven of process improvement; to achieve this framework, the performance of a project-oriented
decision support system logical model is established. Put forward the software project development strategies of the continuous
performance evaluation and the software process improvement.
Key words Software Project Performance, Software Process Improvement, Decision Support System
1. Introduction
Software Crisis has baffled the global informatization for many years, many experts, both home and abroad,
has tried to get the theories and methods to resolve this problem from varies aspects. From the management
aspects, software development project is typically of the insufficient of completely planning, understanding and
controlling of the whole development process, in addition, the project doesnt have a well definite management
framework(Ibbs CW, 2000). Management is the most essential problem of software development, rather than
technologies, however, technologies just affects parts of the project(Mark C Paulk, 1989). Because the success
of software project doesnt just depend on the technologies, people has made great efforts and dont get effect
through the narrow technologies, and they have to turn for help of management technologies(Fang deying, 2003).
In 1987, Watts S.Humphrey and his partners, who are the Software Engineering Institute of Carnegie Mellon
University(SEI),had improved the study of process consciousness and capability in software organizations, the
process improvement includes three aspects: Process definition, process measurement and process improvement.
Since the process of software development is not visual, and is highly dynamic process which is influenced by
technique development, personnel flowage, market change and some other factors, so it increases the complexity
of the process; traditional process measurement just proposed basic methods and some basic steps and principles
of establishing the measurement, it neglected the formalize support of establishing measurement and the
arithmetic support of measurement process, so it couldnt complete measurement process repetition and
self-optimize improvement(Wang qing, 2005); the existing process improvement models consider the objective
factors excessively, and these models are insufficient on study of the integrative objective of software project
performance, at the same time, they neglect the projects own characters, the difference situation of the project
organization and the continuance and evolvement of process improvement, so process improvement is very
difficult to get expectant effort.
Firstly, this thesis specifies the signification of the software project performance, and analyses the
relationship between software project performance and process improvement, and establishes performance-driven
software project process improvement model; secondly, according to the state of software project organization,
the characters of the project and the corresponding arithmetic, we have discussed project performance forecast and
the mechanism of process improvement model based on the instances which are similar with the completed
projects; we also create the logic model of the process improvement decision support system based on
performance evaluation, and we propose process improvement strategy of continuous improvement, in order to
provide useful attempt for improving software project performance.
The paper is funded project: The national natural science fund (the NO.70571025), Shandong Province science and technology
attack project (the NO. 2006GG2301002).
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2. Software project performance signification
The signification of software project performance comes from enterprise performance, however, because of
different stakeholders of the project, the signification is different. Linda Wallace(2004) proposed that software
project performance should include product effort and process performance; product effort presents whether the
final software product of project development is successful or not, and there were seven items to measure product
performance: reliability of software, facility maintainability, the seamless between system function and user
requisitions, the degree of user satisfactory, response time, facility use and integrated quality level; process
performance described whether the self of development process is successful or not, and there are two targets to
estimate process performanceTime and budget, she deemed if organization could complete the desired quality
software costing the prearranged time and budget, the level of project process performance was highly. Kwan-Sik
(2006) divided the software project performance into subjective performance and objective performance.
Subjective performance contains product effort and process performance; product effort describes the quality,
function and some other aspects of completed software project by the organization, and it belongs to self-product
characters; process performance describes the process of project development, it mainly includes: the knowledge
obtained by the organization, cooperative ability of team relationship and dominative ability by the project
development process. Objective performance contains costs and time. Subjective performance reflects the
individual viewpoints of the person who estimates the performance evaluation, this performance can be influenced
by the persons subjective judgment and identifying ability, so it was difficulty to form standardization; objective
performance is facility for collecting data and evaluating. Kwan definition includes the whole contents of Wallace
definition, additionally; he proposed that the organization obtained development experience, the organization
numbers obtained knowledge and project development ability was improved after the organization completing a
project; all the above were defined as process performance. Kwan definition of software project performance is
more accurate than Wallace definition both from the main-body and the object of software project evaluation, and
it describes the influences of organization and project performance from project development process, more
completely.
We analyze the performance from the stakeholder of the project, the user pays attention to usability of the
software; developer pays attention to performance of the project, in other word, the developer attends whether the
project can be completed using prearranged time and budget, and the quality of the software product is satisfied;
however, the manager of software organization pays more attention to control of progress, commutation of team
and the capability that the organization obtains knowledge(James.J.Jiang, et,al.2004).
According the above, the components of software project performance is described in Tab.1.
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management process, improvement process and training process; software engineering process improvement
includes defining process, developing process, maintaining process and so on; support process includes creating
documents process, configuration management process, quality assurance process, verifying process, estimating
process and so on. Organization process improvement model mainly includes IDEAL, PCDA, ICASE and other
models; team process and individual software process improvement is TST of SEI and PSP, typically. This
improvement models provide a whole sets of patterns and methods of development of organization, team and
individual.
Currently, process improvement of software organization generally belongs to model-driven, in other words,
organization chooses firstly the quality standard (such as CMMI, ISO15504, ISO9126) and a improvement model
(such as IDEAL, PCDA, ICASE and so on), then the organization implements process improvement by the steps
of the model, software organization only copies mechanically and applies slavishly the improvement models and
quality standards, they think they will get benefit if the improvement following the steps of the models. However,
model-driven improvement only provides the method of process improvement; software organization cant deal
with the details, such as: What are the concrete objectives of process improvement? Which links should be
improved? What is the critical success factor of the process? How and when to improve? Many organizations
devote a lot of energies into the process improvement, but there are hardly efforts, and they cant obtain the initial
desirability.
Software process improvement obviously improves project performance(Mullaly, 2006), the objective of
process improvement is to establish standardization of software process, so that the organization effectively
produces software products satisfied user demands using limited time and costs, the organization obtains
knowledge and technology as well, therefore, according to the above definition of project performance, we deem:
the finally objective of process improvement is to improve the holistic level of project performance, so the
dependence of process improvement should take the project performance improvement as coreperformance
drives software project process improvement. Process improvement, firstly, is made expectant performance of the
project through communication between the users and software organization; secondly, forecasting the project
performance using mathematic models, according to the current state of the software organization and the
characters of the self-project (simply called Forecast Performance); the third, measuring the matching degree
between expectant performance of the project and forecast performance, if forecast performance could achieve
expectant performance, the current software organization state satisfies the project requests, and it is unnecessary
to improve the process spending excessive costs, if cant achieve expectant performance, regular strategies of
project process improvement should be generated through process improvement decision support system, and
improve process implementation according to SPI theories; fourthly, after each phase has been completed, the
evaluation of the current phase and the estimation of the performance for the next phase should be made by
decision support system, generating new improvement strategies, so as to avoid the improvement deviation. The
performance-driven process improvement model we proposed in this paper is shown in Fig.1.
Management Process
Improvement
Engineering Process
Improvement
Software Objective Support Process
Organization Performance Improvement
Project Process
Software Process Improvement
Process forecast
Project Performace
Performance Decision Support
system
Product
User
Performance
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4. Creating process improvement decision support system based on project performance
evaluation
Software project process improvement belongs to bi-structure decision. However, the time and costs, which
describe the objective project performance, are measurable and are computed easily, its structure is well; the
subjective performance is the project performance result that is obtained through certain mathematical model, a
set of subjective index system and experts evaluation, it belongs to non-structure problem; the generation of
process improvement rule strategy is non-structure as well. Therefore, it is feasibility to establish
performance-oriented evaluation software project process improvement decision support system; its logic model is
shown in Fig.2.
Assessment Arithmetic
Model-base Database of The Base
(instances completed projects (basic
illative (Instance-base) arithmetic)
model)MB DB AB
Get
Explain Get Match Get Explain Arithmeti
Model Model Instance Model Arithmetic c
Model-base Database Arithmetic Base
Management Management System Management System
System DBMS Use ABMS
MBMS Arithmeti
Request
Model Request Use c
Use Model Instance Request
Instance
Arithmetic
Human-Computer
Dialogue Unit
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results of performance are different(S.Pennypacker, 2006); certainly, the more projects developed by the
organization, the more experience it would have, and the performance level will be higher. Since CMMI is model
professionally used for software project process improvement, the paper considers CMMI Table as quality
forecast index system. Project own character index system can be identified through verified, because there is
more or less difference among the characters of different projects, so both the software organization and the users
of the project, should sufficiently understand the characters of the project, so that the project performance forecast
is more reasonable. Software project performance forecast index system can be verified through looking on
document and interviewing experts.
4.1.2 Creating completed projects database
The essential of software process improvement is analyzing and improving the current development project
process, using the experience of completed projects. The previous studies didnt pay more attention on collecting
real-time data, most process improvement depend on subjective perceptual knowledge, and the deviation is
serious. We deem: during developing the project, timely analyzing, recording and arranging the real data of the
current organization sate, project character and completed project performance in each phase of the project
development, especially the data during project process being improved, then creating database of the completed
software projects in the standard manner, those can provide reference for the process improvement of new similar
software project, therefore, the software project holistic performance would be improved.
4.2 Creating model-base system
The design of model-base system mainly includes some designs and completion, such as organization
structure of model-base, the function of mode-base management system, the language of creating model-base and
so on. A concrete model can generally be characterized into three parts: input data, output data and algorithms of
model. Model-base is the core component of decision support system; its quality directly affects the performance
of the system.
4.2.1 Choosing project performance forecast model
Accurate forecast of software project performance is very important for the organization for accurately
making plan of time and costs, and for process improvement (L.Mitchell, Victoria,2006), forecast performance
refers to software organization, self-project characters and other factors, so, many methods can be used to evaluate
project performance, such as Analytical Hierarchy Process , Artificial neural network , Fuzzy mathematics , Data
Envelopment Analysis (DEA), Gray Correlative Degree Method Analysis(GCDM), Genetic Algorithm and
combinations of one or more methods. Because each method has merits and shortcomings, the results of project
performance evaluation are not completely consistent. Decision-makers choose models depending on software
project characters, sometimes, they also choose several models, and all of the results reinforce each other and
correct the faults of each result of the project evaluation performance.
4.2.2 Search models similar with the completed projects
Similar instances search model is generally characterized into two types, one is the Nearest-neighbor method,
ascertaining eigenvalue by expert evaluating, Probability Analysis method, Analytical Hierarchy Process, this
type introduces into experts subjective suggestions during assessing, however, the main problem of this type
excessively depends on experts knowledge, so different expert groups make different efforts; the other type is
that training the eigenvalue by Artificial Intelligence, this type optimizes this eigenvalue directly using the data of
completed project, so as to automatically obtain the eigenvalue. All the above models can be included in decision
support system model-base, according to the compare between the project forecast performance and expectant
performance, organization state and project characters, we search for the instances similar with the current
software project using single model or integration of several models in the database of completed software project;
we also sufficiently consider the various results of different models, so that the exist experience can be used
accurately, and regular strategy of process improvement is generated. At the same time, the real state of the
current project process improvement and the veracity of the evaluation results by different models should be
recorded correctly in the completed project database, then the evaluation for the model is formed gradually, and
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those are the foundation that perfection and widely used of the system.
5. Conclusion
We propose a new model based on performance process improvement frame and decision support system,
after analyzing the relationships between software project performance and process improvement; at the same
time, we provide concrete steps of the building and the execution for this model. Comparing with the previous
passive mode-driven process improvement methods, initiative performance-driven process improvement focuses
on the central improving function of performance in the organization process improvement, and conveniently
achieves agreement and participation of stakeholders; the strategy, which is based on multi-model performance
evaluation of completed projects and process improvement, can verify and reinforce among different models, and
presents holistic level of project performance more completely and objectively. the process improvement method
more accords with the real situation of software project development, avoiding the shortcoming aroused by single
model which cant present the holistic content; continuative performance evaluation and the strategy of each
project phase solve the problem of dynamic changes of organization and project, and finally achieves the
objective of improving project performance and the rate of successfully developing software.
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software development process maturity and project performance. Information & Management 2004(41): pp:279~288.
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performance measurement: Evidence in Korea. The Journal of Systems and Software, 2006(2)pp:1~10.
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Research of the Collaborative E-Business System Constructed
Abstract: The conceptions of the Collaboration and Collaborative Effect are introduced in this paper at the beginning, and then we
will give the meaning of the collaborative E-Business and present the functions it should possess. Based on these statements, we will
point out the deficiencies of the BPEL4WSebXML and RosettaNet E-Business standards that can realize collaboration among
corporations to a certain degree through analysis. At the end, we will put forward a collaborative E-Business model in order to
realizing inter-enterprise collaboration.
Key Words: Collaborative Effect, Intangible Resource, Collaborative E-Business, Inter-Enterprise Collaborative.
1. Introduction
In the current context of global economic and market integration, the competition among enterprises is
gradually replaced by the competition among the supply chain whose core is the main Enterprise Group. The
perspective of enterprise management of optimization of individual companies have gradually expanded to the
whole supply chain, managers of enterprises not only need to consider the optimization and synergy of the internal
resources, but also think about how to meet the demand of customer efficiently at low cost from the point of view
of the whole supply chain, and thus involving the problems of the collaborative management spanning
companies[1]. Therefore, the realization of collaborative management spanning enterprises will be the
development goals of e-business in the next stage.
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to purchase, produce and market. All these ensure the high level efficiency and lower cost of the supply chain.
(3) The integration and synergy of the strategy. The perspective of the strategy management of the enterprise
on the supply chain should not be limited to the enterprise itself, but rather from the point of view of the strategy
management of the whole supply chain. Common commercial interests are the basis for cooperation between
enterprises, so win-win is the most fundamental protection which ensures the realization of the collaboration
between the partners on the supply chain. Therefore, the strategy synergy and the integration mechanism of the
Collaborative E-Business are the basis of sustaining the relationship between the partner companies on the supply
chain.
For the long-term interests, the relationship of the partner companies must be changed and coordinated
strategically when the enterprise on the supply chain face the change of internal and external environment, and
this will affect the alternation of the integration of the business process and interaction of the recourses. When the
strategy of the company changes, the pattern of integration of the business process may be adjusted, and the
content and the extent of the resources exchanging corresponding to the business process must be altered as well[4].
For these reasons, Collaborative E-Business cannot only play roles of realizing strategy synergy and integration,
but adjusting integration of the business process and interaction of resources among companies which are
operated under the framework of Collaborative E-Business according to the alternation of the strategy of the
enterprise.
We know that knowledge can be divided into the Generic Knowledge and the Specific KnowledgeJensen
and Meckling,1988, and the Specific Knowledge are the basis of the competitive advantage for the corporation
for it is impractical for the competitors to copy due to the high cost of transferenceWernerfelt, 1984; Barney,
1991. From this structure we can catch that the contents of the information are closer to the Specific Knowledge
of the enterprise as the information referring to higher layers. For instance, the information about orders can be
treated easily by the employees who just need to be familiar with the business process; but the information about
the distribution plan are connected to the Specific Knowledge of the manager; similarly, the information about the
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new product development have close relationship with the Specific Knowledge of the developer. Therefore, when
the e-business works on the different layers in the structure of the information, they will exert different effects on
the collaboration and produce different competitive advantages.
(1) Although BPEL4WS can transport the information in any layers in theory, BPEL4WS mainly achieve the
communication and integration of the independent system that work inside of the enterprise from the view of
business process. It can deal with information from different systems and execute relevant operations positively
but do nothing for the information from the layers higher than the one of commerce in short term automatically.
For BPEL4WS has not provided dictionary specification of business terms for the cooperation among the
corporation yet, so it can only support the collaboration from the layer of fundamental information about
commerce in short-term through integrate the information system of these enterprises.
(2) ebXML provides particular business process specification for the cooperation of the enterprise in the
Business Process Specification Schema, and the pattern of the business process of the enterprise working under
the ebXML framework must meet the need of BPSS. In the Core Components, ebXML defines neutral terms for
commerce, which make it possible for the firm to do e-business across different industries easily. From the view
of the function of ebXML, we can see that it has realized the transport of the fundamental information about the
commerce in short-term and supports one-way or two-way transmission of the information about the commerce in
long-term, but it neither can treat data about the commerce collaboration nor support the forming and transference
of the strategy decision. So it is important to realize that the collaboration of the enterprise under using ebXML is
from the perspective of commerce collaboration.
(3) Compared to BPEL4WS and ebXML, the integration of the enterprise operating under the RosettaNet
framework locates on a higher level of collaboration. The PIPs (Partner Interface Process) of the RosettaNet not
only allow integrating the business of order management, releasing the information of the new product and so on,
but support and integrate the ERP system in each corporation in order to meet the need of integration and
collaboration across the organizations throughout the supply chain, it especially enables discerning and
exchanging all kinds of forecast information, producing plan or marketing plan and information about inventory
among the business partners from the ERP system. Even, RosettaNet is able to support Vendor Managed
Inventory, which is a kind of high-level integration for the enterprise relying on the supply chain. In this situation,
the PIPs and the RosettaNet Dictionary not only pay attention to the fundamental information about transaction,
but also the transport of the real-time information of inventory and all kinds of information about planning. For
this reason, we can find that compared to BPEL4WS and ebXML, which can only exert effect on the information
layers under the commerce cooperation, RosettaNet is able to support transferring the information about decisions
and strategy collaboration positively. However, the RosettaNet standard does not reference the more deep level
strategy and process like BPEL4WS and ebXML.
(2) The layer of Collaborative E-Business for business process integration is the basis for the companies in
the supply chain to place their core ability. The business processes are the mechanisms that bring about the
efficacy of the functional units of the enterprise to the supply chain, so integration of the internal business process
and the business process between companies is the foundation of cross-enterprise synergy. The layer for business
process integration can integrate the business process efficiently and dynamically. BPEL4WS, ebXML and
RosettaNet have all supplied business process integration mechanisms, so we can use these standards to support
the business process integration directly.
(3) The layer of Collaborative E-Business for service is to realize the interaction and synergy of the resources
between companies. In order to get the collaborative effect between enterprises, we should activate intangible
resources of the integration of the enterprise and lead to the accumulated knowledge of the enterprise flowing
among not only the enterprise but also the business units and departments of these enterprises. Then the efficiency
of the individual tangible resource would be enhanced and collaborative effect will appear during the enterprise
integrating finally. We can bring about the synergy function, such as sharing knowledge and information between
companies, customer synergy, partner synergy and so on, by the layer of service.
(4) The layer of Collaboration E-Business for operation shows the roles and the synergy links of the
companies on the supply chain. The synergy design and synergy manufacture can make the design of the
production meet the requests of the customers, they can happen in the business between producers and vendors, or
in the business among suppliers, producers and vendors. In order to remove the information obstacle between
producers and customers, synergy sale emphasizes the sharing of the information of orders and prices between
producers and channel members. At the same time, the synergy relationship is different according to the different
roles between the companies. For instance, stock companies will pay more attention to the financial synergy with
609
their partners.
(5) The layers of Collaborative E-Business for plans and control play the role of strategy coordination and
synergy on the layers for operation, the layer for service and the layer for business process integration. Strategy
includes the expectation of the long-term profit of the company, and the formulation of the short and long term
plans is based on the strategy, so the change of the strategy must trigger the adjustment of the day-to-day action of
the company, as well as provide the capability for alternation of the fundamental service that support the operation
action. The formulation of the strategy should not only suit the interest of company itself, but also include the
interest of other companies in the supply chain. In order to complete win-win between companies, the strategy of
one company should be in keeping with the needs of the whole supply chain, otherwise the synergy relationship
will be broken. So this layer should be the coordination and control layers for the whole framework of
Collaborative E-Business. The formulation of the strategy relies on the information of the environment, the
company itself and its partners. Therefore, the layer for operation, the layer for service and the layer for business
process integration supply enough information for the managers of the company to form and alter the strategy.
zAll the companies in the supply chain work in the framework of the Collaborative E-Business. First, a
company could work out its strategy in according with the strategy of the supply chain relying on the module of
strategy synergy, and then the company can choose its synergy partners according to the strategy and build
synergy relationships with its partners through the layer for operation, the layer for service and the layer for
business process integration, finally each company acts according to their roles under the framework of
Collaborative E-Business. Management of the companies may alter their strategy through the information from
the layer for operation, the layer for service and the layer for business process integration. Now, each company
working under the framework of Collaborative E-Business can break the obstacles that block the sharing and
flowing of the intangible resources between companies, activate the intangible resources of the company group
and enhance the efficiency of utilization of the tangible resources, allowing the collaborative effect to be realized
among the participating companies.
6. Conclusion
To acquire lasting competitive advantages in the environment of intense competition, the corporations have
looked to integrating their resources with their partners in order to obtain better performance because of the effect
of division of labor based on specialization. In this paper, we have pointed out that companies can break the
obstacles that block the transport and sharing of the intangible resources between companies through
Collaborative E-Business. Although there are several kinds of collaborative e-business standards such as
BPEL4WS, ebXML and RosettaNet, they only can support the collaboration based on the lower-level information.
We should realize the higher-level synergy and integration of the strategy and the resources if we want to get a
collaborative effect. Therefore, we propose a Collaborative E-Business model based on the BPEL4WS, ebXML
and RosettaNet to bring about the synergy between partner companies in the supply chain.
In the paper we have indicated that the enterprise can realize the transport and sharing of the intangible
resources among companies through collaborative e-business. However, some problems worth while to be studied
are how to guarantee that the collaborative partners may choose to not reveal these intangible resources and
information about these resources to the competitor in the same way or they would not utilize these intangible
resources to compete with the corporation. At the same time, the relationships among the firms will be closer as
the level of the integration among them become higher, so the enterprise will face higher cost when they separate
themselves from the collaborative relationship because of the change of the environment. Therefore, companies
need to carefully consider how to balance the cost resulted from breaking way the relationship and the opportunity
cost for maintaining the collaboration and how to resolve the confliction between dynamic state and collaboration
under the framework of collaborative e-business.
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References
[1] Barney,J.B.Firm resources and sustainable competitive advantage, Journal of Management, 199117(1): 99-120
[2] Itami, H.Mobilising Invisible Assets, Cambridge, Ma: Harvard University Press.1987.62-67
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[4] Gary A Langenwalter.Enterprise Resource Planning and Beyond: Integrating Your Entire organization. St. Lucie Press.
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Index of First Authos
Liu Chengming 392
B
Liu Liping 212
Bu Xiangzhi 130 Liu Nan 19
C Liu Peide 517
Liu Shan 590
Chang Yaping 487
Liu Shulin 523
Chen Tao 556
Liu Shuren 221
Cheng Du 481
liu Yang 215
Chien Yung-Tsai 505
Liu Zhixin 13
Cui Nanfang 145
Lu Xinyuan 399
D
M
Da Qingli 152
Meng Jie 431
Deng Wei 333
Minghe Sun 76
Dong Jichang 3
Ming-Jong Yao 302
Dong Ming 159
N
F
Nallan 117
Fang Deying 493
Q
G
Qi Ershi 71
Gou Qinglong 165
Qiu Jie 138
Guo Chonghui 8
S
H
Sheng Yongxiang 405
Han Guowen 340
Song Rui 226
Hao Chunlu 499
Song Yexin 410
He Bo 59
Sun Hao 425
He Liang 345
Sun Shiyan 416
His-Hsien Yu 51
Hu jianwen 353 W
613
Xu Xianhao 254
Z
Xu Zhiduan 269
Zha Yong 325
Y
Zhang Tao 281
Yan Lei 276 ZhangMin 101
Yang Hongbin 569 Zhao Guohao 473
Yang Jun 65 Zhao Jinshi 574
Yang Limao 605 Zhao Yong 454
Yan-KuenWu 107 Zhao Zhenfeng 289
Yongjiang Shi 316 Zhao Zhenwu 459
Yu Benhai 599 Zhao Zhiyan 186
Yuan Guo-qiang 29 Zheng Aihua 296
Yunfeng Shi 532 Zhou Gengui 308
Zhou Xianzhong 466
614