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The Impact of Supply Chain Integration on Performance

Daniel Dumke — Mon, 30 Jan 2012 14:09:15 +0000

An ongoing debate in supply chain management is about the degree to which companies should collaborate with their supply chain partners. In business and research the concept is called supply chain integration and may also be a useful strategy for reducing certain risks. And of course it is an often used strategy in supply chain management in general
Analyzing the effect of supply chain integration on performance therefore is an important issue in SCM research.

Supply Chain Integration

In the case of this study supply chain integration (SCI) can be defined as

the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organization processes. The goal is to achieve effective and efficient flows of products and services, information, money and decisions, to provide maximum value to the customer at low cost and high speed.

The authors split SCI in three dimensions: customer, supplier and internal integration.

Internal integration and external integration play different roles in the context of SCI. While internal integration recognizes that the departments and functions within a manufacturer should function as part of an integrated process, external integration recognizes the importance of establishing close, interactive relationships with customers and suppliers.

Methodology

The paper employs a survey design. Participants of the survey were manufacturing companies based in China.

Because of China’s size and economic diversity, we strategically selected five cities representing different stages of economic development.

Overall 4569 companies were contacted, 1356 questionnaires were distributed with a result of 617 usable replies.
Figure 1 shows profiles of the responding companies.

Figure 1: Company Profiles

The authors suggest the following hypothesis.

H1a. Internal integration is positively related to the operational performance of the manufacturer within a supply chain.

H1b. Internal integration is positively related to the business performance of the manufacturer within a supply chain.

H2a. Customer and supplier integration are positively related to the operational performance of the manufacturer within a supply chain, given the relationship between internal integration and operational performance.

H2b. Customer and supplier integration are positively related to the business performance of the manufacturer within a supply chain, given the relationship between internal integration and business performance.

H3a. Customer and supplier integration will moderate the relationship between internal integration and operational performance.

H3b. Customer and supplier integration will moderate the relationship between internal integration and business performance.

H4. An emergent taxonomy of manufacturers can be developed, based on their patterns of supplier, internal and customer integration.

H5a. The patterns of SCI are related to the operational performance of the manufacturer within a supply chain.

H5b. The patterns of SCI are related to the business performance of the manufacturer within a supply chain.

Results

The analysis of the survey offers several interesting results, these are the main points:

We found that most of our hypotheses were supported or partially supported, broadly indicating that SCI is related to performance.

Internal integration was directly related to both business and operational performance and that customer integration was directly related to operational performance.

Although supplier integration was not directly related to either type of performance, the interaction of supplier and customer integration was related to operational performance.

Our findings indicate that supplier integration is important to performance, but in a different way than internal and customer integration are.

Since the objective of SCI is to provide maximum value to the customer, the measurement of operational performance is necessarily customer-oriented.

Overall, the contingency approach reveals that internal integration forms the foundation upon which customer and supplier integration build. This suggests that companies should begin SCI with internal integration, laying the foundation for customer and supplier integration.

The configuration approach showed that the overall SCI construct was related to both operational and business performance.

The configuration approach also reveals that the effect of SCI is cumulative, providing significant insight for companies in implementing it.

Conclusion

The study shows that all three dimensions of supply chain integration are important for the performance of a manufacturing firm across industries. And China as the modern manufacturing hub is a great place to do research on this topic.

Reference:

Flynn, B., Huo, B., & Zhao, X. (2010). The impact of supply chain integration on performance: A contingency and configuration approach Journal of Operations Management, 28 (1), 58-71 DOI: 10.1016/j.jom.2009.06.001

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Merger Success and Supply Chain Integration

Daniel Dumke — Mon, 17 Jan 2011 13:34:00 +0000

What are the major obstacles to a successful merger? Today I’ll have a look at the 2003 article by Langabeer and Seifert. The authors argue that supply chain integration plays a major role before, during and after the merger.

Why is the Supply Chain Key?

The authors start by making the case for the supply chain as one of the major drivers of financial performance in a company. After analyzing quantitative data from 400 mergers during a ten-year period, exploring relationships between mergers, finances, and supply chain performance, the authors conclude that

Finding 1: Supply chain effectiveness drives financial results.

Supply Chain Integration and Merger Success

Furthermore, their data shows that the faster the company is able to integrate the new infrastructure, processes, systems, and people into the supply chain organization, the faster it will stabilize and show better results.

Finding 2: Integration is essential to post-merger success

Using a case study of Unilever they find that the supply chain integration effort needs to focus on certain key activities. These include:

Focus on the customer and on execution
Identify the dominant supply chain leader and organization
Conduct a final assessment of the processes, systems, network, people, and strategy
Establish clear execution and performance targets
Establish and continuously monitor an integration timeline

Supply Chain Participation in the Merger

The case data also shows that the early integration of supply chain management in the merger process can improve the outcome of the merger.

Finding 3: Supply chain participation in the merger process is essential

They pose a number of strategic questions which have to be answered beforehand:

What is the overall strategy and operational characteristics for the merged supply chain?
Is demand for the products of the two companies similar in pattern and volume?
What is the available capacity in terms of manufacturing, transportation, and warehousing assets?
How do the supply chain performance measures align?

Conclusion

In the paper I was missing a better description of the methods used to acquire findings mentioned. Of course the methodology is not always the most interesting part of a scientific paper, but leaving it out significantly diminishes the credibility, let alone the reproducibility of the results.

But the tenor of the paper is very convincing: Supply chain management should be included in all steps within the merger process to improve the success rate.

Reference:

Langabeer, J., & Seifert, D. (2003). Supply Chain Integration: The Key to Merger Success Supply Chain Management Review

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Supply Chain Integration as major Value Driver

Daniel Dumke — Mon, 11 Oct 2010 08:27:00 +0000

“Arcs of integration” is a concept developed by Frohlich and Westrook (2001) which describes the degree of integration of suppliers and customers within a Supply Chain.

Arcs of Supply Chain Integration (Frohlich and Westrook, 2001)

Methodology

This concept was developed within the scope of an international study on supply chain strategies. In this survey the authors used the mail survey research method to collect over responses form over 700 companies from all over the world (Asia/Pacific: 26%, Europe: 50%, North America: 14%, South America: 10%). Data was gathered not only on the supply chain integration of each respondent (eg. shared access to planning systems, shared production planning, knowledge of inventory levels), but also on performance parameters on each company (eg. market share, profitability, return on investment).

Strategies

There are two major tactics for supply chain integration:

coordination and integration of the forward physical flow of deliveries between suppliers, manufacturers and customers
backward coordination of information technologies and the low of data from the customer to the suppliers

The authors distilled five different strategies from the answers from the survey:

Inward-facing
for companies without much up- or downstream integration
Periphery-facing
only little integration in both directions (compared with other companies from the sample)
Supplier-facing
higher integration on the supply side, low integration on the customer side
Customer-facing
vis-versa to 3
Outward-facing
strong integration on the supply and customer side

Results

The results show that those companies applying an outward-facing strategy clearly recorded greater rates of performance compared to all other strategies.

Comparison of different Strategies for Supply Chain Integration (Frohlich and Westrook, 2001)

The authors draw the following conclusions from the data:

The outward-facing supply chain strategy is associated with the largest rates of significant performance improvements.
Manufacturers may be seriously jeopardizing performance by continuing to follow the inward-facing strategy.
Results for the supplier- and customer-facing strategies suggested that focusing on only the inbound or the outbound sides of the supply chain gained little more for manufacturers than adopting the periphery- or inward-facing strategies.
Over 40% of the sample was in the periphery-facing group. This suggests that periphery-facing may be the supply chain’s natural “equilibrium point” in terms of integration.

Conclusion

I can really recommend this article as a read and the first article I know which shows the connection between the degree of supply chain integration and performance levels.

Reference:

Frohlich, M., & Westbrook, R. (2001). Arcs of integration: an international study of supply chain strategies Journal of Operations Management, 19 (2), 185-200 DOI: 10.1016/S0272-6963(00)00055-3

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