Int. J. Value Chain Management, Vol. X, No. Y, xxxx
The network business model of cloud computing for end-to-end supply chain visibility Angga G. Suherman Toshiba Corporation Industrial ICT Solutions Company, 72-34, Horikawa-cho, Saiwai-ku, Kawasaki 212-8585, Japan Email:
[email protected]
Togar M. Simatupang* School of Business and Management, Bandung Institute of Technology, Bandung, Indonesia Fax: +62-22-2504249 Email:
[email protected] *Corresponding author Abstract: A new ontology is required to complement the change in business model due to a disruptive technology called cloud computing. The cloud computing technology has the potential to integrate a supply chain and create a better value network. The existing models from previous research are unable to map the benefits of cloud computing from the perspectives of multiple actors and highlight where exactly the benefits occur along the supply chain. The network business model is proposed to facilitate the adoption of the cloud computing technology that maps four key components namely value, activity, actor, and benefit. A case study involving a logistics company and a cloud solution provider was conducted to observe the adaptability and the rigidity of the model. Rather than going head-to-head with the license-based model such as ERP, cloud-based solutions integrate such systems and create an end-to-end visibility across the supply chain, which includes procurement, distribution, and inventory visibilities. Keywords: network business model; cloud computing; supply chain visibility; value chain management. Reference to this paper should be made as follows: Suherman, A.G. and Simatupang, T.M. (xxxx) ‘The network business model of cloud computing for end-to-end supply chain visibility’, Int. J. Value Chain Management, Vol. X, No. Y, pp.xxx–xxx. Biographical notes: Angga G. Suherman is a Product Planner at Toshiba Corporation in Japan. He is part of the team that promotes an open-source NoSQL database with time-series capabilities designed from the ground up for mission-critical IoT applications and big data. He is a trilingual in English, Japanese and Bahasa Indonesia, and often use the three interchangeably in day-to-day activities. He has held positions as a Field Engineer and Management Consultant at Schlumberger and Accenture respectively. He holds an MBA from Bandung Institute of Technology, and a BEng (Hons) in Electronic and Electrical Engineering from the University of Birmingham. Copyright © 20XX Inderscience Enterprises Ltd.
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A.G. Suherman and T.M. Simatupang Togar M. Simatupang is a Professor of Operations and Supply Chain Management at the School of Business and Management in Bandung Institute of Technology, Indonesia. He has extensively published in logistics and supply chain management journals. He has been attributed the Highly Commended Award by Emerald Literati Network for his research in supply chain management. His current research and teaching interests focus primarily on supply chain management, logistics systems, value chain management, creative economy, design thinking, and entrepreneurship.
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Introduction
Technology holds a vital role in today’s economy as it becomes seemingly ubiquitous across all businesses. In the late 1990s, the internet led to the dot-com bubble, where the market value of internet-based companies rapidly rose and caught traders by surprise. Within a few years, many of these early glorious internet start-ups found themselves collapsing and went bankrupt as they did not have a good business model to sustain the growth. Since then scholars such as Plank and Hooker (2014), Wu et al. (2013), Dhar (2012) and Mahadevan (2000) and Timmers (1998) initiated a study on e-business model to help internet start-ups understand their business and maintain their growth. The e-business model quickly evolved into a general business model (BM) that can be used throughout any industries (Marston et al., 2011; Faber, 2003). In the recent years, a new paradigm called cloud computing has become a hit amongst IT and business initiatives (Liu et al., 2016; Ojala and Tyrväinen, 2011). Gartner (2012) identified cloud computing technology and its derivatives among the top 10 strategic technologies. Many scholars argue that cloud computing technology could be as disruptive as the internet and that it can revamp obsolete business models. Arguably, with the rise of cloud computing technology, there is a need to do a research of new business model ontology that complements this change (Liu et al., 2016; Wu et al., 2013). Cloud computing technology can be used to achieve integration through collaboration of actors in the supply chain (Ojala and Tyrväinen, 2011). One of the advantages of using cloud computing is that it requires no up-front investment as it is offered as a service by the cloud service provider (Huang et al., 2013; Cegielski et al., 2012; Low et al., 2011). This means that a huge cost savings can be made by companies who adopt this technology. Despite of all the advantages of cloud computing, its benefits need to be carefully analysed. Existing business models from previous research are unable to show the benefits of cloud computing that involves many actors (Bellingkrodt and Wallenburg, 2013; Ojala and Tyrväinen, 2011; Wagner et al., 2010). The objective of this research is thus to construct a new business model ontology that would help supply chain managers to see how a technology enabler such as cloud computing can benefit their supply chain and help to integrate the actors in the network. The new business model ontology should take into account the perspective of multiple actors instead of just one party, so that collaboration between actors can be mapped out and benefits of the entire actors can be seen (Ojala and Tyrväinen, 2011). The paper is structured as follows. Literature reviews are conducted to see the state of existing research with regards to the business model for cloud computing. This follows finding out the conceptual model behind the business model itself, ontology of existing
The network business model of cloud computing
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business models, study on multi-actors innovation model, cloud computing ontology, and study of benefit realisation. The findings of these literature reviews are used as the foundation of the new business model construction. Then, the ontology of the network business model and its framework are explained. The framework is examined with real business data to see its adaptability and rigidity. A logistics company and a cloud solution provider were used to obtain the necessary data. Diagnosis of these companies is also conducted to see the gap in the cloud computing implementation. Finally, the last section consists of recommendations of the case, and conclusion of the paper.
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Literature review
Innovation involves the development of new processes and the know-how to maximise value (Jacobides et al., 2006). Currently in the more competitive industrial fields, it has been no longer enough to depend on internal innovation with the company’s competitive strategy (Ojala and Tyrväinen, 2011). Technological innovations of cloud computing usually have limited economic importance unless accompanied by collaboration with other partners to realise potential benefits (Marston et al., 2011). New know-how requires co-innovation to create value for the organisation and its partners (Lee et al., 2012). Collaboration to support co-innovation could be with customers and business partners. Organisations that better integrated their key internal processes with customers and business partners with clear objectives and well-defined procedures tend to get a better competitive advantage (Liu et al., 2016; Romero and Molina, 2011; Wagner et al., 2010). However, the current approaches are insufficient to facilitate multi-actor innovation in the attainment of the typical benefits of cloud computing (Ojala and Tyrväinen, 2011). From the following literature review, it is clear that an effective management of network innovation is needed to integrate business processes among partners. There are five areas of study reviewed namely value model, business model, cloud computing, multi-actors innovation, and benefit realisation. The existing platforms of each of these studies were reviewed comprehensively and the findings are explained in the following paragraphs. Then the next section proposes required model to fill the gap in the literature of multi-actor innovation in realising benefits of cloud computing. First, it was found that value-based notion can be used to map out a firm’s strategic thinking through innovation. Strategic thinking here involves the generation of the firm’s business model that creates competitive advantages for the firm. Five value models were compared: business model ontology (Osterwalder et al., 2010), technology strategy (Lin et al., 2014; Jacobides et al., 2006), service innovation (Wooder and Baker, 2012), marketing mantra (Kotler, 2008), and value delivery system (Lanning and Michaels, 1988). It was found that the element value creation and delivery are consistently present in all of the models. Second, business model is the logic of how a firm operates strategically to gain a competitive advantage. Pateli and Giaglis (2003) proposed a classification of business model research into six domains: definitions, components, taxonomies, representation, change methodologies, and evaluation models. It was found that many business models such as that of Weill and Vitale (2001), Chesbrough and Rosenbloom (2002), Faber et al. (2003), Shafer et al. (2005) and Osterwalder et al. (2010) had fulfilled the first four
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domains, but only a few had looked into the last two domains. In fact, all of the business models reviewed in this paper has not covered the change methodology domain. Third, the business benefits of cloud computing could be categorised into novelty, productivity, cost efficiency, business scalability, and environmental concerns. According to Gatepoint Research (2010), two issues that have been troubling supply chain managers are lack of visibility and process automation. Cloud solution is able to provide end-to-end visibility across the supply chain. IBM (2007) suggests that end-to-end supply chain visibility occurs in six stages of the supply chain: plan, source, making, delivering, selling and service. Technical obstacles limit visibility in demand-driven supply chain, where many trading partners are involved. IBM states that “visibility and collaboration capabilities allow monitoring upstream and downstream progress across the supply chain.” End-to-end supply chain visibility is possible through service oriented architecture such as cloud computing. Cloud computing also makes process automation becomes affordable for every company through its service model. Fourth, firms are required to collaborate with the others in order to create better value propositions and gain competitive advantage through multi-actors innovation. The logic of value creation can no longer be described using the traditional value-chain concept (Allee, 2002) because it maps out value activities in a sequential-manner and that it focuses on the physical goods instead of the value creation process (Vargo and Lusch, 2004). Value network logic underlying value based innovation has been proposed to replace value-chain concept. The logic describes value activities in a parallel-manner, linking the entire actors depending on the relationships that had been built between them. Business model schematics (Weill and Vitale, 2001) and e3-value model (Gordijn and Akkermans, 2001) are able to show clearly the relationships and exchanges between the actors. The more nodes present in the value network means the more difficult to align value propositions. According to Martinez and Bititci (2006), actors in a supply chain may have different value propositions and these need to be aligned in order to enhance the value proposition of the entire supply chain. They state that the types of value produced between the actors are still unclear and need to be defined. Qudrat-Ullah and Kane (2010) also argue that creating value for all actors is not an easy task, thus the dynamic features of value system need to be understood well by the management. Fifth, despite the increase, many companies still struggle to realise the benefits of their IT investments. The Standish Group (1995) discovered that only 16% of IT projects were successful. In 2009, it was found that the figure had doubled. Ward and Daniel (2006) proposed a benefit realisation model as they argued that the benefits of IT investments need to be managed. They came up with a benefit dependency network that analyses the change managements that are necessary in an IT investment. The gaps in the literature are summarised as follows. First, there is no concrete business model ontology that is able to show the position of value notions in a network, as well as the actors who are involved in this process, such as value creation or delivery. Second, it was found that there was yet a business model that was able to show the benefits of a technology enabler, such as cloud computing. Furthermore, each of the actors receiving the benefits, as well as its position of occurrence needs to be shown clearly. Only a few business models such as that of Gordijn and Akkermans (2001) and Weill and Vitale (2001) are able to show the interactions between multiple actors. Furthermore, the conceptual thinking now needs to move from the conventional value chain logic to value network logic, where actors in a network are not positioned sequentially but spread out like a network. Finally, not many business models have
The network business model of cloud computing
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mentioned the change management that is required during business model changes to ensure that the benefits of the new business model are realised.
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Conceptual model
Due to the multi-actor approach of the network business model, its definition must emphasise the importance of the value network. Therefore, the network business model is defined as the logic of how multiple actors in a supply chain collaborate to achieve integration across the value network. It is applicable in the logistics and supply chain management as it can map different processes of the supply chain from one end (upstream) to the other (downstream), and integrate the entire actors involved in it. Three existing business model frameworks namely business model canvas, e3-value model and business model schematics are used to construct the representation of the network business model. Finally, a benefit realisation method is used to describe the change methodology of switching from an obsolete business model to a revamped one. The network business model is used to do two major functions: mapping and diagnosis. The former process involves scanning raw business data and then categorising them into important processes and information that can easily be digested by the user. The latter means identifying gaps in the network business model so that improvements can be made and recommendations can be put forward. Four important components are included in the map: value, activity, actor, and benefit. It is identified that three value notions namely value creation, value delivery and value capture occur within a value network as shown in Figure 1. Value cycle is proposed to see the flow of value notions in a value network. Figure 1
Value cycle (see online version for colours)
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A.G. Suherman and T.M. Simatupang
Initially value proposition is proposed by the firm of interest. It is then communicated to the customers. Value is created by the other actors in the network including the firm of interest. The value is then delivered to the customers, and captured when it is acquired through payment of goods or services. The capital that is captured by the firm of interest is distributed to the rest of the actors, and the value cycle repeats. Activity mapping involves identification of two components namely key activities and key resources. Both of these components are used to see where the benefits of cloud computing can be used. There are two categorisation of actor mapping namely supply chain actors, and cloud actors. Interactions between these actors can be shown by identifying the role of actors in the network. Benefactors and beneficiaries of cloud computing can also be seen through actor mapping. Benefit mapping is the process of identifying cloud computing benefits in a supply chain. This process is highly dependent on actor and activity mapping because the benefits of cloud computing impact actors’ activities and resources. Diagnosis refers to identification of gaps so that improvements could be proposed. Mapping processes of the network business model can identify gaps in value, activities, actors, and benefits. To identify gaps in value, the position of the five value components is observed. Customer feedbacks can be compared with these components to see where the problems are located. Gaps in activities can be seen by thoroughly analysing key activities of every actor in the supply chain. Benefits’ gap can be seen by comparing the potential benefits of the cloud computing technology to the benefits that are already realised in the existing Network Business Model. In addition, benefit realisation model can be used to see the change management process occurring during the transition of business models. A systematic diagnosis can be done by measuring the key performance indicators (KPIs) of a particular business process of a company. KPIs help companies to see how well they are doing with regards to their goals and objectives. To analyse the benefits of cloud computing solutions systematically, KPIs such as spending of IT investment, implementation time of IT investment, responsiveness in handling goods need to be determined. For the supply chain and logistics domain, the main areas for the KPIs are as follows: warehouse, inventory, logistics, order fulfilment, shipment, and supply chain. Companies in a supply chain may have to look at different KPIs depending on their core competences. Three business model representations namely business model canvas, e3-value model, and business model schematics are compared in Table 1. It can be seen that e3-value components can be used to represent the nine building blocks of the business model canvas. However, the e3-value ontology provides no categorisation of some of the building blocks. For example, revenue streams can be illustrated using a combination of value object such as telephone connection fee and the outward value exchange going off of the market segment. This may create ambiguities and cause confusion to the user of e3-value. The notion of value creation, delivery, and capture are also not well defined in e3-value model. Components in business model schematics do not represent the entire value cycle. There are no representations of value proposition, key activities, and key resources of the business model canvas in Weill and Vitale’s business model schematics. On the other hand, the framework is excellent in mapping the actors and exchanges of a network.
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The network business model of cloud computing Table 1
Framework comparison (see online version for colours)
Notion Value proposition Value creation
Business model canvass
e3-value model
Business model schematics
Value proposition
Value offering
-
Actors , composite actor
Firms of interest, supplier, ally (actors), flows
Key partners
Key activities Key resources Value delivery
-
Value object
-
Channels
(Actors and value exchange)
Customer relationships
(Actors and value exchange)
Customer segments Value capture
Value activity
Flows Electronic or primary relationship
Market segment
Customer
Cost structure
(Value object and value exchange)
Flows
Revenue streams
(Value object and value exchange)
Flows
Others
-
Value interface value port
-
,
Note: Green tick means that these representations are adapted to the network business model framework.
Most of the e3-value components are adopted except for value offering and value port. The exchange components of the business model schematics are also adopted. The components show the direction and nature of the flow of exchange in three categories namely product/service, cash and information. It was found that this component is adequate to show the nature of value exchanges, thus value port is no longer required in the network business model. Two new components are added to the network business model: cloud benefits and cloud computing service. These components are added so that cloud computing benefits can be easily illustrated in the framework. Table 2 shows a comparison of the three existing business models and the network business model. Table 2
Mapping processes comparison (see online version for colours)
Process
Business model canvas
Value mapping
e3-value model
Business model schematics
Yes, but vague
×
Activity mapping Actor mapping Benefit mapping
Partially, not detailed Partially, no relationship Partial
Partial
Partial
Network business model
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A.G. Suherman and T.M. Simatupang
Osterwalder’s business model canvas is more descriptive and can be used to map out a business model from the strategic level perspective, whereas the e3-value model (Chesbrough and Rosenbloom, 2002; Gordijn and Akkermans, 2001) is more visual and detailed, and can be used to map out the business model from the tactical-level point of view. Business model canvas only maps benefit from the firm of interest point of view, whereas the e3-value model and business schematics (Weill and Vitale, 2001) are able to map the benefit exchanges of the entire actors in the network. However, both of the models do not have a benefit mapping process for a technology enabler. Illustration of the model is shown in the next section.
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Research method
The objective of this research is to propose new business model ontology to demonstrate how cloud computing as a technology enabler benefits the network members. The early literature review has shown the research gap as the starting point for developing a conceptual model. Following the seminal proposal of Yin (2014), there are five aspects of designing this case study: the phenomenon to be addressed in the study, its propositions or theoretical framework, its units of analysis, the logic linking the data to the propositions, and the criteria for interpreting the findings. An exploratory case study was adopted to determine the applicability of proposed model in the real setting. In this study, a main point is to ask how the network members realise benefits of cloud computing. An in-depth case study approach was used to provide an opportunity to get deep understanding of the innovation process which is unclear in many respects. New business model ontology is proposed as a theoretical framework. The ontology is structured using the framework designed by Pateli and Giaglis (2003). The network business model is offered to complement the change in business model due to the present of cloud computing. The notion of network is used here to emphasise the importance of collaboration between actors in the supply chain. The application of the model consists of three components. The first stage is the collection of data, which consist of corporate profile, list of actors, business processes and cloud benefits. The second stage involves process mapping and diagnosis of the network business model. This is the stage where raw data is transformed into information, which is then presented using a diagram called the network business model framework. Diagnosis of the network business model is conducted by comparing the before and after model of a company. The last stage involves analysis of the network business model. Four deliverables are expected from this implementation: Three network business models and a diagnosis of these models. The three network business models are: mapping of the conventional business process prior to any implementation of cloud solution, mapping of the current business process after implementation of the cloud solution, and a recommendation of the network business model that takes into account all aspects of cloud computing benefits that are yet to be adopted. A single-case case study was conducted. The case is one of the companies participating in the adoption of cloud computing. A conceptual model is used as an initial guide to design and data collection to take into account of existing knowledge in the area. The primary data were obtained through face-to-face interviews with informants at Bina Sinar Amity (BSA) (http://www.pt-bsa.co.id) as the cloud user and AurionPro (http://www.scmprofit.com) as the cloud solution provider. The interviews were carried
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out from different informants who view the focal phenomenon from diverse perspectives in order to reduce the bias. The introductory interview took around two hours to complete and was conducted at the BSA’s warehouse located in Jakarta. Next, two sessions of interview were conducted. The first session of the interview was done with the management of BSA, involving two respondents: BSA’s head of contract logistics, and general manager of marketing. The second session of the interview was done at the warehouse of BSA, involving one respondent: BSA’s assistant warehouse manager. The second interview took two hours to complete and was conducted with the Indonesian country manager of AurionPro’s SCMProfit. Other data sources include websites, seminar material, and direct observation. Some public data about five websites were used as sources: Sinar Mas Group, Asia Pulp and Paper (APP), Bina Sinar Amity, SCMProfit, and SMART websites. Supply Chain Seminar about BSA and the practice of logistics cloud computing were also used as data for this case study. Finally, direct observation of paper product manufacturer by APP was also conducted. The data in this research was collected using semi-structured interview protocol. The list of interview topics focused on determining how the case company had started to adopt and implement cloud computing and identifying what kinds of challenges the company deal with during the implementation. Triangulation was conducted by comparing the interview data, workshop documents, and public archives (Yin, 2014). All interviews were recorded, transcribed, and analysed. After the analysis, the results were presented to the company representatives to gain feedback and ensure verification.
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Findings
BSA has been using cloud solutions and the efficiency of their business processes has dramatically improved. Prior to using cloud computing solution, BSA handled data entry of its operations conventionally using pen, paper, and a lot of man-hours. The company was unable to track the stock in its warehouse accurately and there was no visibility of the goods in both of its warehousing and distribution activities. BSA wanted to apply the correct supply chain management into its business, backed up by a proper system. Initially, BSA’s top management looked into license-based warehouse management system (WMS) such as Red Prairie, Manhattan, 3PL+, and SAP. These systems adopt the license-based model, which requires an expensive initial investment and a lengthy implementation process. They state that the costs of initial investments are USD 350 K, USD 170 K, and USD 150 K for Red Prairie, Manhattan, and SAP respectively. In addition, there is an additional cost for every man involved during implementation at a rate of approximately USD 600 per man-hour. Implementation of Red Prairie may take six months or even a year. An alternative called cloud SaaS solution was used instead. BSA stated that the company wanted to give its customers real-time inventory visibility, as well as a high percentage of stock accuracy. All of these benefits should be affordable, thus a low-cost investment was preferred. They stated that these initial investment objectives have been fulfilled by the SaaS cloud solution. In addition, other benefits and advantages include easy to operate, flexible, and a higher degree of mobility.
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BSA is a logistics company, which focuses on warehousing and distribution activities of the supply chain. Cloud based solution (SaaS) automates their business processes. For its distribution activity, SaaS is combined with global positioning system (GPS) device, placed inside their vehicles to monitor the position of goods being delivered and to see the status of the delivery. Data from the GPS is updated in real-time to the system and reports can be made immediately. In addition, distribution KPIs can be generated to see the performance of the BSA’s distribution line. The initial implementation fee of SaaS WMS costs around USD 1,000. The implementation process includes designing, training and preparation, right from the beginning until the system goes live. Thereafter, BSA only needs to pay USD 250 per user per month. On each of BSA’s warehouse, five users are required, thus giving a total of ten users for both of its warehouses that are located in Cilincing and Marunda. This means that BSA only needs to pay $2,500 per month or $30,000 per year for two warehouses. On the contrary, WMS offered by SAP approximately costs USD 150,000 per warehouse, thus USD 300,000 for both of BSA’s warehouses. On top of this initial investment, the infrastructure needs to be maintained and upgraded due to depreciation, thus adding more into to the overall costs. Implementation of Cloud WMS at BSA only took one month. The first week was spent on designing the system. SCMProfit works with BSA to design a system that would fit into its business process. Two weeks were spent for training staff and operators, to make sure that they are able to run the system without a hitch. The fourth and final week was spent to prepare the system until it goes live. Just within one month, a system was already up and running. On the contrary, license based model usually takes a long time to complete. Manhattan’s WMS takes seven months to complete and SAP’s WMS usually takes one year. By the time the investment finishes, the business processes of the company may have already changed. For the change management process, the cloud system and a warehouse manager act as the enabling changes. The system has a performance management system that measures the amount of scans that each person has done in the warehouse. To ensure that everyone adapts to the change, a task manager delegates tasks to the workers when a delivery order is received. BSA is using AurionPro’s product for logistics and supply chain namely SCMProfit. SCMProfit is “the world’s leading provider of supply chain software solutions for market leaders across verticals.” As of 2016, the company has been operating in Indonesia for nine years. However, specifically for the supply chain domain, SCMProfit has been used by companies in Indonesia for the last six years. 80% of the SCMProfit customers in Indonesia are using their SaaS cloud solution, while the remaining is still using a licensebased model. The focus of SCMProfit is in logistics and supply chain, which include freight forwarding, warehousing, distribution, manufacturing, and trading warehouse. 80% of SCMProfit’s customer represents approximately 10–15 companies, most of which are in logistics. For manufacturing, SCMProfit has been used by Phillips Indonesia, and in the near future, Coca-Cola Indonesia, and Nestle Indonesia will be joining as well, once SCMProfit has obtained SAP certification. The product does not compete with ERP solution providers for manufacturers such as SAP, Oracle or Microsoft. Rather, it collaborates and integrates with each of the system. AurionPro’s Indonesian country manager claims that SCMProfit is the ERP for logistics, not manufacturing.
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Today, 70%–80% of order interactions between manufacturers and suppliers such as purchase order (PO) are still conducted manually. A system such as SCMProfit automates this process and increases the accuracy of order processing. The system takes care of the complex processing and suggests the best possible combination of orders for different suppliers. An ERP for logistics such as SCMProfit allows vendors to be connected with their customers (manufacturers) through an integrated system. This particular system gives the manufacturer a procurement visibility. There are two more types of visibility that can be obtained through SCMProfit: distribution and inventory visibilities. A manufacturer like Sinar Mas may choose to run its own warehouse or ask third party companies to do it for them. Regardless to which option the manufacturers take, they want to be able to know the quantity of raw materials and finished goods stock at various locations so that they can commit to the customers. The third party’s warehouse may not have the proper system that can offer an acceptable accuracy of their stock. It will also be difficult for the manufacturer to manage stocks at different warehouses run by different third parties when the paperwork is done manually. Manufacturers can use SCMProfit to solve this issue. Third parties can update the manufacturer’s stock at their warehouse so that the manufacturer can check on their stocks anytime. Better yet, a third party like Bina Sinar Amity can offer a high stock-accuracy and real-time inventory visibility by using a cloud based solution. In the end, a company wants to have visibilities across the supply chain, starting from procurement, manufacturing, warehousing, distribution, until the finished goods are received by the end customers. Without an existing ERP system such as SAP, Oracle or Microsoft, end-to-end visibility is not possible. Cloud-based logistics system integrates these systems together and gives end-to-end visibility across the supply chain. An analysis is conducted for one of the Sinar Mas Group’s business units, namely Asian pulp and paper (http://www.asiapulppaper.com). Network Business Model is used to map out APP’s conventional and current business model, prior to and after implementation of the cloud based solution. The models are shown in Figures 2 and 3 respectively. Figure 2 shows a diagram of APP’s conventional Network Business Model. It can be seen that there is no integration across the supply chain. Subsidiaries operating under the Sinar Mas Group are not integrated; each of them has their own internal system. A logistics company such as Bina Sinar Amity holds a very important role in the supply chain. The transportation and storage of both the raw material and finished goods are handled by the company. Due to the scope of Sinar Mas Group, many actors of the same role are involved in the supply chain. These actors are represented by double rectangular boxes called composite actors. Composite actors occur at the suppliers, logistics and outlets (customers of APP) stages. Collaboration between these actors form a web of relationships that Allee (2002) called value network. Unfortunately, in the conventional model the relationship between the actors only go as far as business partners. There has not been any plan to integrate the network together and create a better value network.
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Figure 2
Conventional network business model (see online version for colours)
Figure 3
Current network business model (see online version for colours)
Current Network Business Model
“TEXT”
Actors [text]
End customer
TEXT
Value Object
Outlets
Value Interface Payment Direct Purchase
Value Exchange
$
Point of Sale
Printing Documents
#
Market segment
“High Quality Paper”
Email
Cash
#
Product or Service
I
Information Value Creation
Composite Actor
Value Delivery Value Capture
text Cloud Benefits I
$
Resources
Cloud computing Service
# Finished Goods
Value Acquisition
$
Value Activity
Signed POD
Value Proposition
Firm of Interest
Logistics – PT. Bina Sinar Amity DO
Receiving
Put Away
Picking
Raw Material Inbound Handling
Dispatching Raw Material Warehousing
I
I
I
I
I
I
I
Barcode I I
Pulp Handling
Raw Material Outbound Handling
Tree Logging
Email
I
Payment
Tracking stocks
ASN
Low cost I
Customer Mngt.
#
#
Process Orders
# DO
SAP
Easy ordering
I
I
Instant POD
I
$
I
#
POD Email
#
POD
$
#
$
POD Transportation Service
PO
I
Operator
Supplier Payment Logs
I I
Finished Goods Transportation
I
Stock visibility
#
Stock accuracy
$
I
Internet
24 hour control
$
Logs
Signed POD
Email
Inventory visibility Finishing operations
Paper Mill
Paper Machine
Debarking
Chipping
Pulping
Drying
Bailing
Screening
Washing
Preparing Stock Bleach Pulp Mill Manufacturer - APP
I
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The position of the value components with regard to where it is in the supply is clearly mapped in the network business model. It can be seen that the value proposition of the supply chain is the high quality paper. The manufacturer of this paper is Pindo Deli, which produces a paper product with a brand name Bola Dunia. The end customers of Bola Dunia purchase the product for printing, and acquire such product directly from outlets such as hypermarkets, stationery and store. Actors who are involved in the value creation process are suppliers, logistics and manufacturers, whereas for the value delivery, logistics and outlets are involved. Value is captured when products or service are purchased by the end customers and flow to the entire supply chain. It can be seen that the key actors are suppliers, manufacturer, and partners. Benefit mapping is not seen in the conventional Network Business Model because a cloud solution has not been implemented. The activities of each actor are also mapped out. It can be seen that an actor may have several key major activities, which consists of a sequence of activities. For example, the paper manufacturer has two key major activities, pulp manufacturing and paper manufacturing. Within these key activities, there are several smaller activities, as illustrated in Figure 2. Figure 3 shows the existing network business model of APP. The manufacturer is now able to have inventory visibility over the goods stored at BSA’s warehouse. Reports can be automatically set to be sent to BSA’s customers daily, weekly or monthly. BSA’s customers can also request for an access to the system to have a 24-hour control over their stocks. Benefits of cloud are illustrated clearly in the diagram. The sources of cloud benefits are highlighted to see where the occurrence of the benefits and their corresponding beneficiary. For example, inventory visibility is obtained by the manufacturer when real-time goods information is made available through the cloud. BSA is able to have a high percentage of stock accuracy and stock visibility because it keeps track of the location of goods every step of the way within their warehouse. This is made possible due to SaaS cloud implementation, which takes advantage of RFID scanner that can easily identify goods’ information and its location. Other benefits of SaaS cloud include low cost, ease of ordering process, and instant proof of delivery (POD). Diagnosis of the business model is done by comparing the current business model with the offerings made by SCMProfit. There are a few things that can be improved in this supply chain to create a better value network. Only inventory visibility can be seen in the model. Procurement and distribution visibility are still missing. This means that there is no end-to-end visibility. The benefits of cloud only affect some of the actors, instead of the entire actors in the supply chain. It can be seen in Figure 3 that the value exchanges through the cloud service only involve the manufacturer and logistics company. There are gaps between these actors with the suppliers, outlets and even the customers. This means that the cloud benefits have not been used to their full potential. Interactions between the manufacturer with suppliers and customers are still done manually either by email, phone calls, or direct meetings. This means that many double entries are still occurring, valuable time keeps getting wasted and unnecessary costs such as hiring more men-power to do a particular job are still thrown away. The main KPIs for BSA as the logistics company and the manufacturer are shown in Table 3. It can be seen from Table 3 that the KPIs measurements are aligned with the three deliverables of Network Business Models namely conventional, current, and recommended, as illustrated in Figures 2 to 4 respectively. This type of diagnosis is very
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useful to see numerically where the gaps are present and what kind of opportunities can be achieved. Table 3
KPIs of network business models
Company BSA
KPIs
Conventional
Current
Recommended
Spending of IT investment
Navision (accounting) – USD 130,000 once + maintenance
SaaS – USD 1,000 (initial) + USD 250/user/month
SaaS – USD 1,000 (initial) + USD 250/user/month
Manhattan WMS – USD 170,000 once + maintenance Data entry time
Four hours/day
One hour/day
One hour/day
IT investment implementation time
Manhattan – 7 month
SaaS – 1 month
SaaS – 1 month
Stock accountancy
Unknown
100%
100%
Pallet movement 12 movements/day Manufacturer
6
15 movements/day
15 movements/day
Spending of IT investment
-
SAP – USD 150,000 once + maintenance
SaaS – USD 1,000 (initial) + USD xx/shipment/month
IT investment implementation time
-
One year
One to three months
Discussion
A few improvements could be made to the current network business model of Sinar Mas Group’s APP. First, the manufacturer of the supply chain holds a key role in the integration of the supply chain, thus APP subsidiaries should integrate their systems with SaaS cloud solution. An end-to-end visibility is achievable if the main player of the supply chain decides to adopt a cloud computing solution, such as SCMProfit. The first objective is to obtain a procurement visibility. In Figure 4, this benefit is shown by the cloud computing service located on the right hand side. The benefits of the automatic ordering process include: a reduction in human resource quantity, optimised procurement, and faster procurement process, and greater control over the vendors. APP already has inventory visibility because of cloud implementation at Bina Sinar Amity. However, APP uses many other third party storage providers that may or may not have a proper system. The manufacturer can opt to install Warehousing Management System modules into the system and use this on its key third party logistics providers. Its ERP system (SAP) can also be integrated with the cloud system so that there could be interactions between other modules such as Financial for order payments. One of the issues that BSA is facing is that it needs to create a new Advance Shipping Notice every time goods are coming to their warehouse. Manufacturing module of ERP can be integrated with cloud so that goods coming out of the factory would already have ASN
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embedded in barcodes attached to goods. This information will be used for the rest of its journey until it reaches the customers. Figure 4
Recommended network business model (see online version for colours)
A cloud distribution model should also be added. The issue here is the visibility of goods in terms of its status and location. Many third party transporters/distributors are involved in this process; therefore, obtaining visibility of the entire distribution is a challenge. A cloud solution for distribution should be made available to third party transporter who handles most of the distributions. Splitting cloud fees with the key distributors could be done through contracts, as long as the benefits favour both parties. It is important that these actors hold hands and move forward as a partner, rather than seeing each other as their customers. Proof of delivery can be delivered faster to the manufacturer through the system. Status and locations of goods can also be tracked down in real time, thus giving customers better value propositions in terms of being able to see the status of their orders. KPIs of distributions can also be generated as a report, thus allowing manufacturers to see the most optimum distribution lines. The cloud based system can ease transactions between actors. Purchase orders, delivery orders, and invoices can be integrated with financial modules of an ERP system such as that of Microsoft Navision. Transactions will be much easier to handle and quicker, thus allowing faster cash flow within the supply chain network. Due to its flexibility in cost, small to medium companies can adopt the cloud system and contributes towards the entire supply chain. Education of the cloud based system should be done across the supply chain so that the benefits can be seen by every actor. To obtain end-to-end visibility, it is important that the cloud system is able to bridge the gaps between different systems such as SAP, Microsoft, Manhattan, Red Prairie, etc. Therefore, before choosing a cloud service provider, it is important to analyse first the compatibility of the cloud system with other major systems. A good cloud system should be able to integrate and provide end-to-end visibility across the supply chain.
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Specifically for SCMProfit, there are two types of payment model for the cloud solution. One is based on the number of users per month, and the other one is based on the number of shipments per month. It is important that cloud users such as BSA and APP analyse the best payment model for their type of business. In this case, the best option for a logistics company like BSA is to go for the number of user/month model. For manufacturing companies such as APP, it is best that they go with the shipment/month model as there would be many users involved in the cloud system.
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Conclusions
The motivation for this paper is to come up with new business model ontology to accommodate the change in business model due to a disruptive technology namely cloud computing. It was found that the technology had the potential to disrupt existing business models and create new opportunities within the business industry. One of the significant benefits that can be obtained from cloud computing is the endto-end visibility across the supply chain, which means that supply chain managers can have greater control over their supply chain networks. Companies are moving forward together as partners to gain a competitive edge; thus, the new business model should look into networking and be able to map four main components namely value, activities, actors, and benefits. A new ontology called the network business model is proposed as a result. The network business model combines all the functionality of other models such as business model canvas, e3-value model, business model schematics, value delivery system, technology strategy model, and benefit realisation model into one model that can be represented by one diagram. The business model ontology is excellent at mapping the processes of a business through the nine building blocks. It is used by managements to see their business from the strategic-view but is lacking in the tactical and operational aspect of the business model. e3-value model and business model schematics are great at mapping actors and the exchanges occurring between these actors. However, they are lacking in identifying an actor’s position and role in terms of value notion. The network business model takes the actor and activity mapping concepts of the e3-value model and business model schematics, the value mapping concept of business model ontology, value delivery system, and other value models, and adds benefit mapping concept to create one framework that can be used to model a business model of not only an individual entity of a supply chain, but of the entire actors in the network. A case study was conducted to test the functionality and the rigidity of the network business model. Two companies were involved during data collection in the case study: Bina Sinar Amity and AurionPro. The cloud solution works best when it complements other existing systems that are already present in companies, such as ERP. To achieve end-to-end visibility, cloud computing needs to fill in the holes that the existing system is left open, and fill this hole by integrating different systems into one platform. The network business model was very useful in mapping the activities in the supply chain, as well as to see where in these activities the cloud benefits appear, and for whom the benefits are. It is also able to see the business model in terms of value notion, with regards to where the network value is created, delivered, and captured. The model is also able to systematically diagnose an existing business model to see what improvements could be made.
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Acknowledgements The authors would like to thank Mudjiyono Ridjan, Johannes M. Situmorang, and Prawoto at PT Bina Sinar Amity Logistics for their contributions as informants in providing real business data. The authors also would like to thank Valerij Dermol for all the help and support and two anonymous reviewers for providing constructive comments and suggestions in improving the contents of this paper.
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