2009 International Conference on Management of e-Commerce and e-Government

An E-commerce Based Supply Chain Model of Chain Catering Enterprises

Weijie Guo, Huan Qi Qiujun Guo

Department of Control Science and Engineering School of Public Administration
Huazhong University of Science and Technology Huazhong University of Science and Technology
Whuhan, China Whuhan, China
hustguoweijie@gmail.com

Abstract—By means of comparing the traditional and e-
commerce based supply chain of chain catering enterprises, a
mathematical model of the latter is given. This model is built
according to costs and profits, combined with characters of
supply chain of chain catering and the merits of e-commerce.
By quantizing factors of all concerns, the corresponding
equations are given. The optimization method of the net profit
and its optimal solution are obtained by simulation
experiments. In the mean time, some issues of the e-commerce
based supply chain and the further description of the logistics
distribution problem are presented.
Keywords- e-commerce; chain catering enterprises; supply
chain; mathematical model
I. INTRODUCTION
The supply chain of chain catering enterprise is based on
chain catering enterprises as core, information network as
support. System engineering methods are applied to manage
the process from production of raw material to finished food
that is transferred to customers. The supply chain makes the
information flow, capital flow and logistics of producers,
suppliers, and headquarters of the chain catering enterprise,
distribution centers, stores and customers running freely. It
activates the connection between catering products and the
market into an optimized operating condition and brings
profit to all the members in the supply chain.
However, in the chain catering business of China,
distribution centers and the logistics are not very efficient
characters of visibility, intelligence, real-time decision
making and synchronization [2].
In addition to previous marketplace demands and global
competition, the advent of e-commerce has created a more
demanding landscape. Organizational structures of the future
will possess the attributes of the electronic supply chain,
where technology linkages tie many corporations and
outsourced functions together enabling low-cost partner
switching and a high flexibility. It is expected that the
electronic supply chain is to flourish from the increased
investment [3]. It links all entities in the supply chain with
Internet and/or EDI connections. It has been called boundary
less [4], spherical [5], circular [6], reconfigurable [7], and
even chameleon [8]. The electronic supply chain is highly
adjustable. It rotates to meet the demands within and around
all the enterprises.
II. SUPPLY CHAIN MODEL BASED ON E-COMMERCE
For the chain catering enterprises, an entire supply chain
includes headquarters, purchasing bases, suppliers,
distribution centers, logistics and stores, which contains raw
material purchasing, production, transportation, storage,
research and sales [9]. The model is shown in figure 1.
Operation Financial
department department
Business Purchasing
information information
(Uniform distribution center)

because of the low level of network and information Raw

Order Order

technology. The high efficiency common distribution and the Store 1

Network platform

material
producer Supply
information supporting system are absent. These problems Distribution
……

yield an increasing cost of chain catering business in some

Order Order
level, and slow down the development of brand and scale of Raw
material Store n
the catering business. suppliers Supply Distribution
As the continuous development and application of
information technology, e-commerce is more and more used
in the management of supply chain to form the electronic Warehouse
supply chain which is a communication and operation center
of virtual network. It connects suppliers, business partners Figure 1. Supply chain of chain catering enterprise.
and customers to an integrated cooperation. From the
information flow, capital flow and logistics to customers, the Compared to traditional supply chain, the electronic
electronic supply chain accomplishes the value enhancement based model can be demonstrated as figure 2. From these
of one or more enterprises [1]. Therefore, M. Ghiassi defined two models, we know that network platform is the key part
the electronic supply chain as one based on e-commerce and of the supply chain. Based on the transparent information
internet, and stated that the electronic supply chain has service that the network platform provides to all the partners,

978-0-7695-3778-8/09 $26.00 © 2009 IEEE 322

DOI 10.1109/ICMeCG.2009.16
the efficiency of ordering and supplying increases. In the
mean time, the uniform distribution center reduces the cost
and makes the supply chain easy to standardize and manage.
Raw Raw
material material
suppliers producers
Non-uniform
distribution
Wholesaler
Non-uniform
distribution
Dealer
Non-uniform
distribution
Headquarter
Non-uniform
distribution
Store 1 … Store n
Figure 2. Model of electronic supply chain.
Other nodes of the supply chain are composed by
suppliers and stores, which have relationship through the
network platform. Downstream stores provide order
information to the upstream suppliers through the network
platform, while suppliers provide supply information to
stores. Different stages are composed by different
enterprises, but for the network platform manager—
headquarter, orders, logistics, storage, computation,
operation and finance are required maintenance, for example,
supplier selection, logistics that satisfy the order, and
routinely customer services. Moreover, enterprises in each
stage also take part in the adjustment of marketing and sales
activities.
A. Cost model
The activity cost of the network platform is consisted by
three parts: one is the cost of direct service for stores, one is
the cost that occurs in the coordination with supplies when
the network platform provides products to stores, and the
other is the cost of indirect service for stores.
Referring to the traditional distributor model, the activity
cost includes several types: maintenance cost of stores,
maintenance cost of suppliers, processing cost of orders,
accomplishment cost of orders, storage cost and cost of
system establishment [10].
The maintenance cost of the store is defined as the cost
that the headquarters spends time and other resources to
handle the routine activities. The time that the headquarters
spends is the function of the scale of stores (total income),
complexity of transaction (number of destinations), number
of different products, and number of orders. The
maintenance cost for store i is
yi ,1 = β1 ∑ Ps Qis + β 2 SiT + β 3 ki ,
S :s∈SiT
where yi ,1 is the maintenance cost for store i, i=1，……，n;
S is the total products that suppliers provide, s=1，……，m;
β1 , β 2 , β3 are cost rates of income, number of products,
and number of orders, respectively; Ps is the price for
product s, which is the same for each store because of the
transparent price on the network platform; Qis is the order
quantity for store i purchasing product s; SiT is the total
products that store i purchases though the network platform,
and different stores may order different products; ki is the
number of orders of store i.
The maintenance cost of supplier is defined as the cost
for the headquarters to keep the suppliers. According to the
product quantity of each store i, the maintenance cost for the
supplier to assign specific products proportionally is
⎛ n
⎞
∑ ∑Q
yi ,2 = β 4 ⎜ Qis is ⎟, (2)
S :s∈SiT ⎝ i =1 ⎠
where yi ,2 is the maintenance cost of supplier; β 4 is the
supplier maintenance cost rate, for example, supplier
identification and maintenance activities.
The processing cost of orders is defined as the cost that
store i releases orders and suppliers responds though the
network platform in one stage
yi ,3 = β5 ki + β 6 K i , (3)
where yi ,3 is the processing cost of orders; β5 and β 6 are
order release and response rates, respectively; ki is the
number of released orders of store i; Ki is the number of
responded orders of suppliers.
The accomplishment cost of orders is defined as the
transportation cost that suppliers send orders of store i
though the uniform distribution center
yi ,4 = β 7 ∑ Qis + β8 ∑ K i d is , (4)
S :s∈SiT S :s∈SiT
where yi ,4 is the accomplishment cost of orders; β 7 is the
product accomplishment rate, for example, loading or
unloading ordered products; β8 is the transportation rate, for
example, products transportation and files delivery; dis is the
distance between product s and store i.
The storage cost is defined as the occupancy rate of
storage and capital. The storage and capital cost for store i is
yi ,5 = β 9 qi , (5)
where β9 is the cost rate of warehouse volume and its
capital occupancy; qi is the inventory of store i, which may
reduced to a small amount because of the network platform
and the uniform distribution.
The cost of system establishment Y includes network
building and maintenance. The total cost C is
n 5
C = ∑∑ yi , j + Y . (6)
i =1 j =1
B. Profit model
(1)
Compared to the traditional distributor model, the main
merit of the network platform is information sharing, which
increases the efficiency of order, supply and delivery. The
profit of the headquarters for store i is
J i = pi ,1 ∑ Ps Qis + pi ,2 ∑ d is + f i , (7)
S :s∈SiT S :s∈SiT
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where J i is the profit; pi ,1 and pi ,2 are the handling and parameters in the model can be simplified as constants. The
optimization model is
transportation price of products, respectively; f i is the
⎛ ⎞
membership fee for store i. We set up the optimization model ⎜ ⎟
using the profit of the headquarter as the objective ⎜ p i ,1 ∑ P s Q is − β 1 ∑ PQs is ⎟
n
⎜ S :s∈SiT S :s∈SiT
⎟
n
⎜ Qis ⎟
max J = ∑ J i − C max J = ∑ ⎜ − β 4 ∑ n − β 7 ∑ Qis ⎟ + E
i =1
(8) i =1 ⎜

⎜
S :s∈SiT
∑ Qis S :s∈SiT ⎟
⎟
n⎛ ⎞ n 5 i =1
= ∑ ⎜⎜ pi ,1 ∑ Ps Qis + pi ,2 ∑ d is + fi ⎟⎟ − ∑∑ yi , j − Y , ⎜ ⎟
i =1 ⎝
⎜ i ,2 ∑ is
+ p d − β 8 ∑ K d
i is ⎟
S :s∈SiT S :s∈SiT ⎠ i =1 j =1 ⎝ S :s∈SiT S : s∈SiT ⎠
where QisL ≤ Qis ≤ QisU , disL ≤ dis ≤ disU ; •isL and •Uis are the ⎛ ⎞
n ⎜ β ⎟ (10)
minimum and maximum limits of variables. The value of the = ∑ ∑ Qis ⎜ pi ,1Ps − β1 Ps − n 4 − β 7 ⎟
order amount can be obtained according to the history ⎜ ⎟
transaction data. These two inequalities constitute the
i =1 S :s∈SiT
⎜
⎝
∑i =1
Qis ⎟
⎠
constraints. Therefore, the net profit model can be expressed n
+∑ ∑ d is ( pi ,2 − β8 K i ) + E.
as a nonlinear programming problem. Conclusions can be i =1 S : s∈SiT
drawn by this model: where E is a constant that satisfies QisL ≤ Qis ≤ QisU ,
• The merits of decision-making of the network
platform are highlighted by this model. disL ≤ dis ≤ disU . This equation can be considered as a
• Though the activity cost analysis in the application constrained multivariable nonlinear function maximum
of supply chain, the network platform can coordinate problem with a variable number 2 × i × s . According to
the order amount of each store according to the real different order amounts and distances to stores, we can
occurrence of every activity to reduce the total cost. obtain different optimal solutions. This equation can be
• The order amount can be adjusted to reduce the total solved with practical situations. Here, we choose an example
cost according to the demand of each store. to explain. Assuming there are two stores, i=2, purchasing
• The optimization principle of the net profit function two kinds of product s=2, we expand the equation as follows
⎛ β4 ⎞ ⎛ β4 ⎞
should be followed when opening new stores or max J = ⎜ p1,1 P1 − β1 P1 − − β 7 ⎟ Q11 + ⎜ p1,1 P2 − β1 P2 − − β 7 ⎟ Q12
⎝ Q11 + Q21 ⎠ ⎝ Q12 + Q22 ⎠
choosing new suppliers. The dynamic optimization
cost model can be established according to the profit ⎛ β4 ⎞ ⎛ β4 ⎞
+ ⎜ p2,1 P1 − β1 P1 − − β 7 ⎟ Q21 + ⎜ p2,1 P2 − β1 P2 − − β 7 ⎟ Q22
and storage cost of each store. ⎝ Q11 + Q21 ⎠ ⎝ Q12 + Q22 ⎠
+ ( p1,2 − β8 K1 ) d11 + ( p1,2 − β 8 K1 ) d12 + ( p2,2 − β8 K 2 ) d 21 + ( p2,2 − β8 K 2 ) d 22 + E.
C. Simulations (11)
We utilize an example to simulate the simplified Assuming for each i and s, QisL = 10 , QisU = 30 ,
optimization model. Substituting the cost model into the net
profit optimization model, we have disL = 10 , disU = 100 . In the mean time, assuming p1,1 = 10 ,
⎛ ⎞ p1,2 = 1 , p2,1 = 2 , p2,2 = 100 , P1 = 10 , P2 = 100 , β1 = 0.5 ,
⎜ ⎟
⎜ p i ,1 ∑ Ps Qis + pi ,2 ∑ d is − β1 ∑ P s Q is ⎟ β 4 = 0.1 , β 7 = 0.1 , β8 = 0.8 , K1 = 100 , K 2 = 10 , we
⎜ S:s∈SiT S:s∈SiT S :s∈SiT
⎟
n
⎜
max J = ∑ ⎜ − β 2 SiT − β 3ki − β 4 ∑ n
Qis ⎟ n
obtain the optimal solution 53107.8. The constraints in this
− β 5 ki ⎟ − Y + ∑ fi
i =1 ⎜ S :s∈SiT
∑ Qis ⎟ i =1 circumstance are
⎜
⎜
i =1 ⎟
⎟ [Qis dis ] = [30 30 30 30 10 10 100 100] . If
⎜ − β 6 K i − β 7 ∑ Qis − β8 ∑ K i d is − β 9 qi ⎟ (9)
⎝ S:s∈SiT S :s∈SiT ⎠ the constraints are vary in the range of 10 ≤ QisL ≤ 30 ,
⎛ Qis ⎞
⎜ pi ,1 ∑ Ps Qis − β1 ∑ Ps Qis − β 4 ∑ n ⎟ QisU = 30 , 10 ≤ disL ≤ 100 , disU = 100 , the histogram of
⎜ S:s∈SiT
⎜
S :s∈SiT S:s∈SiT
∑ i =1
Qis ⎟
⎟ optimal solutions is shown in figure 3.
n
⎜ ⎟
= ∑ ⎜ − β 7 ∑ Qis + pi ,2 ∑ d is − β8 ∑ K i d is ⎟ + e. 12000
i =1
⎜ S:s∈SiT S:s∈SiT S :s∈SiT
⎟
⎜ − β 2 SiT − β 3ki − β5 ki − β 6 K i − β 9 qi ⎟ 10000
⎜ ⎟
⎜ ⎟
⎝ ⎠ 8000
where e is a constant. In above equation, because of the
Amount

membership fee f i for store i and the cost of system 6000

establishment Y are fixed, we can combine them as e. The 4000

cost rate of number of orders is β3 for the network platform, 2000

which are order release and response cost rate β5 and β 6 0

4 4.2 4.4 4.6 4.8 5 5.2 5.4

(They can be considered as very small constants). The

4
Optimal Solutons x 10

inventory qi of store i in the warehouse could be reduced Figure 3. Histogram of optimal solutions.
down to a small amount. Therefore, the influence of these

324
 III. LOGISTICS OF CHAIN CATERING BUSINESS
From the network based supply chain model we know
that the network platform has accomplished information
sharing and order release/response of supply and demand.
The logistics are accomplished by the uniform distribution
center which utilizes the direct transfer model (figure 4). In
the whole supply channel, the distribution center transfers
the products rather than keep them for a long time.
In figure 4, warehouse is applied as a transportation
assembling facility and a rapid response storage, in which the
products are assembled as a whole load and delivered to the
downstream of the supply chain to reduce the transportation
cost. In the supply chain, the scale of the warehouse should
be controlled by the profit model. In this way, the network
system is applied to ensure information sharing and rapid
orders response. Suppliers, the distribution center and stores
should be integrated to guarantee the separation and
transportation processes are completed in the required period.
Meanwhile, we can pack the entire load from suppliers to the
distribution center to reduce the total transportation cost.
Operation department
Dispatch
Network platform
Store 1
Raw Direct transfer
center
material
producer Distribution center
Classification
Receive Send
Raw
material
Storage
suppliers Store n
information
Warehouse
Figure 4. Distribution model of direct transfer.
The key point of the network based distribution center is
transferring products rapidly in the supply chain. Order
release/response is accomplished by the network platform.
325
This strategy needs an efficient information system to
coordinate and synchronize the distribution center, suppliers
and stores, which is a critical part for applying this model.
IV. CONCLUSIONS
The cost and profit of supply chain of chain catering
enterprises based on e-commerce platform is modeled and
analyzed. Problems that need to be considered in the e-
commerce are proposed. We used simulation to analyze the
optimal solutions of the model and explained some logistics
problems in the supply chain.
Excellent inside and outside environments are critical for
effective operation of supply chain of chain catering
business. Using the e-commerce technology, the efficiency
and accuracy of information transfer are increased. Hence,
all the enterprises and departments in the supply chain are
integrated to be a very competitive union. From the analysis,
e-commerce based supply chain has more merits on
information flow, capital flow and logistics than the
traditional one. It offers enterprises intervisibility for the
whole supply chain using the latest information technology.
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