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Department of Computer Information Systems
2006
Firm Performance Impacts of Digitally Enabled Supply Chain Firm Performance Impacts of Digitally Enabled Supply Chain
Integration Capabilities Integration Capabilities
Arun Rai
Georgia State University
, arunrai@gsu.edu
Ravi Patnayakuni
University of Alabama, Huntsville
, r.patnayakuni@uah.edu
Nainika Seth
University of Alabama, Huntsville
, patnayn@email.uah.edu
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Recommended Citation Recommended Citation
Rai, A., Patnayakuni, R., Patnayakuni, N., Firm Performance Impacts of Digitally-enabled Supply Chain
Integration Capabilities, MIS Quarterly, 30 (2), June 2006, 225-246. http://misq.org/;rm-performance-
impacts-of-digitally-enabled-supply-chain-integration-capabilities.html.
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Rai et al./Digitally Enabled Supply Chain Integration Capabilities
MIS Quarterly Vol. 30 No. 2, pp. 225-246/June 2006 225
RESEARCH NOTE
FIRM PERFORMANCE IMPACTS OF DIGITALLY ENABLED
SUPPLY CHAIN INTEGRATION CAPABILITIES
1
By: Arun Rai
Center for Process Innovation and
Department of Computer Information
Systems
J. Mack Robinson College of Business
Georgia State University
Atlanta, GA 30303
U.S.A.
arunrai@gsu.edu
Ravi Patnayakuni
Department of Accounting and
Information Systems
University of Alabama in Huntsville
Huntsville, AL 35899
U.S.A.
r.patnayakuni@uah.edu
Nainika Seth
Department of Accounting and
Information Systems
University of Alabama in Huntsville
Huntsville, AL 35899
U.S.A.
patnayn@email.uah.edu
1
V. Sambamurthy was the accepting senior editor for this paper. Rob
Fichman was the associate editor. Ted H. Clark and Prabhudev Konana
served as reviewers. The third reviewer chose to remain anonymous.
Abstract
Best practice exemplars suggest that digital platforms play a
critical role in managing supply chain activities and partner-
ships that generate performance gains for firms. However,
there is limited academic investigation on how and why
information technology can create performance gains for
firms in a supply chain management (SCM) context. Grant’s
(1996) theoretical notion of higher-order capabilities and a
hierarchy of capabilities has been used in recent information
systems research by Barua et al. (2004), Sambamurthy et al.
(2003), and Mithas et al. (2004) to reframe the conversation
from the direct performance impacts of IT resources and
investments to how and why IT shapes higher-order process
capabilities that create performance gains for firms. We
draw on the emerging IT-enabled organizational capabilities
perspective to suggest that firms that develop IT infra-
structure integration for SCM and leverage it to create a
higher-order supply chain integration capability generate
significant and sustainable performance gains. A research
model is developed to investigate the hierarchy of IT-related
capabilities and their impact on firm performance. Data
were collected from 110 supply chain and logistics managers
in manufacturing and retail organizations. Our results sug-
gest that integrated IT infrastructures enable firms to develop
the higher-order capability of supply chain process integra-
tion. This capability enables firms to unbundle information
flows from physical flows, and to share information with their
supply chain partners to create information-based ap-
proaches for superior demand planning, for the staging and
movement of physical products, and for streamlining volumi-
nous and complex financial work processes. Furthermore,
IT-enabled supply chain integration capability results in
significant and sustained firm performance gains, especially
in operational excellence and revenue growth. Managerial
Rai et al./Digitally Enabled Supply Chain Integration Capabilities
226 MIS Quarterly Vol. 30 No. 2/June 2006
initiatives should be directed at developing an integrated IT
infrastructure and leveraging it to create process capabilities
for the integration of resource flows between a firm and its
supply chain partners.
Keywords: Supply chain integration, IT infrastructure,
supply chain management, operational excellence, revenue
growth, customer relationships
Introduction
Capabilities of core interorganizational processes, such as
customer relationship management, supply chain manage-
ment, and contract manufacturing, are suggested as critical to
firm performance (Hagel and Singer 1999; Rayport and
Sviokla 1995; Sambamurthy et al. 2003). Their digitization
across the extended enterprise is being enabled by Web
technologies, workflow tools, portals for customers, suppliers,
and employees, and information technology innovations
targeted at supply chains and customer relationships. Firms
are investing in these technologies and related partnerships to
develop their extended enterprise capabilities.
Supply chain management (SCM) is a digitally enabled inter-
firm process capability that has been receiving significant
attention. Practitioner forums such as the Supply Chain
Management Council have been established and special issues
of Decision Sciences and Journal of Operations Management
have been recently published on the topic. However, in spite
of the key role of IT in the SCM phenomenon, thus far limited
scholarly investigation has been undertaken by the Infor-
mation Systems community. Our objective is to present a
theoretical viewpoint, supported by empirical evidence, on
how IT enables supply chain integration capability to yield
performance gains for firms.
Supply chain strategies focus on improvement and innovation
of end-to-end processes between firms and their customers
and suppliers (Lee 2000; Tyndall et al. 1998). Case studies
document problems caused by supply chain fragmentation
across different industries and best practice reports profile the
potential of IT to address them (Enslow 2000; Rai and
Sambamurthy 2002; Simchi-Levi et al. 2000). These descrip-
tions suggest that supply chain integration (1) requires
partners to share information and develop globally optimal
plans (Ho et al. 2002; Simchi-Levi et al. 2000), (2) optimizes
the staging and flow of materials by leveraging the visibility
of resources (Lee 2000), and (3) streamlines financial
operations such as billing and payments that are inter-
dependent on other activities such as ordering and delivery
(Mabert and Venkatraman 1998). In summary, supply chain
integration encompasses the integration of information flows,
physical flows, and financial flows between a firm and its
supply chain partners.
Supply chain integration can be hampered by fragmented IT
infrastructures that constrain information flows and activity
coordination (Barua et al. 2004; Sambamurthy et al. 2003).
In contrast, integrated IT infrastructures that are characterized
by common data standards and integrated applications enable
flows of information and coordination of activities across
functional units, geographic regions, and value network
partners (Broadbent et al. 1999). As illustrated below, such
integrated IT infrastructures for SCM are being exploited by
best-practice firms for superior performance.
1. United Parcel Service, one of the world’s largest logistics
service providers, has redefined its services from physi-
cal movement of packages to solutions for “synchronized
commerce.” Their IT architectures enable data integrity
and connectivity with customers’ applications, providing
real-time visibility of inventory that is stored or in-transit.
This visibility can be leveraged by customers to improve
inventory management, asset efficiencies, and market
responsiveness.
2
2. Cisco Systems has created a digital platform for the near
real-time transmission of information between customers,
contract manufacturers, and logistics providers. This
enables responsive collaborative planning and efficient
coordination of resources across its global supply chain
(Enslow 2000; Sabath and Frentzel 1997).
3. By leveraging IT to manage its supply chain, Dell
Computers has achieved dramatic results in performance
(Magretta 1998). Dell’s Web-enabled supply chain
enables it to maintain only four days of inventory and to
achieve negative cash conversion cycles with respect to
its financial flows (Fields 2003).
3
Despite the critical role of IT in SCM, theoretical and
empirical research pertaining to digitally enabled supply chain
integration phenomenon has been limited and piecemeal
(Sahin and Powell 2002). We draw on concepts from the
interrelated literature streams of organizational and IT-
2
Personal conversation with Laurie Johnson, Chief Information Officer, UPS
Supply Chain Solutions, Atlanta, Georgia.
3
It is important to recognize that Dell has undertaken several non-IT related
initiatives, such as colocation of supplier warehouses, pricing, and incentive
schemes, to shape its supply chain integration capabilities.
Rai et al./Digitally Enabled Supply Chain Integration Capabilities
MIS Quarterly Vol. 30 No. 2/June 2006 227
enabled capabilities, IT infrastructure, and supply chain
operations to develop key constructs and relationships
associated with IT-enabled supply chain integration. Speci-
fically, we focus on the constructs of IT infrastructure
integration for SCM, supply chain integration capability,
sustained firm performance, and the relationships among
them. We test our model by developing and validating mea-
sures for the constructs and examine the empirical validity of
posited relationships. Specifically, we address the following
questions:
1. What key properties define supply chain process
integration capability between a focal firm and its supply
chain partners?
2. How does IT infrastructure integration for SCM impact
supply chain process integration capability?
3. What are the performance consequences of IT-enabled
supply chain integration capability for a focal firm?
In the next section, we present the research framework used
for the study. We then specify constructs and relationships
associated with our research model. Subsequently, we
describe the empirical study, including instrument develop-
ment, data collection, measurement validation, and results.
We then interpret our findings and offer some concluding
comments in the final section.
The Research Framework
Traditionally, SCM issues have been investigated by opera-
tions management researchers with a focus on functional
problems, such as facilities location and transportation
(Geoffrion and Powers 1995), inventory management (Cohen
and Lee 1998; Mabert and Venkatraman 1998), materials
management, purchasing, and distribution (Scott and West-
brook 1991; Turner 1993). Similarly, IT impacts in the
context of SCM have been mostly investigated with a focus
on specific technologies and innovations, such as EDI
(Srinivasan and Kekre 1994), cellular manufacturing (Black
1991), and vendor-managed inventory (Ellinger et al. 1999).
Recent recommendations encourage researchers to focus
investigations on the interorganizational capabilities that
integrate a firm with its network of suppliers and customers
to create value for firms (Ho et al. 2002; Narsimhan and
Jayram 1998).
Extending on the resource-based view of the firm (Barney
1991), higher-order organizational capabilities are suggested
as a source of firm performance in the strategic management
literature (Grant 1996; Teece et al. 1997) and, more recently,
in the IS literature (Barua et al. 2004; Mithas et al. 2004;
Sambamurthy et al. 2003). According to this perspective, a
firm must develop capabilities to acquire, integrate, recon-
figure, and release resources that are embedded in their social,
structural, and cultural context. Developing these capabilities
is a long-term process that requires firms to make a series of
linked strategic decisions and moves related to IT resources
so as to blend them with organizational processes and
knowledge resources (Barua et al. 2004).
Viewed from the perspective of organizational capabilities
and resource-based theory, commonly available IT resources
cannot by themselves create sustained performance gains for
a firm (Floyd and Wooldridge 1990; Powell and Dent-
Micallef 1997; Zahra and Covin 1993). Accordingly, concep-
tual distinctions have been made between IT components
broadly available in the marketplace, integrated IT platforms
that require significant time and expertise for development
(Weill and Broadbent 1998), and IT-enabled processes that
deeply embed capabilities of IT platforms into organizational
processes (Bharadwaj 2000).
A well-integrated IT platform is much more than individual
physical components. It requires standards for the integration
of data, applications, and processes to be negotiated and
implemented in order for real-time connectivity between
distributed applications to be achieved (Ross 2003; Weill and
Broadbent 1998). From our perspective, an integrated IT
infrastructure enables consistent and real-time transfer of
information between SCM-related applications and functions
that are distributed across partners.
Such integrated IT infrastructures for SCM can be blended
with interorganizational processes to develop higher-order
capabilities for demand sensing, operations and workflow
coordination, and global optimization of resources. These
capabilities require firms to unbundle the three comple-
mentary flows of materials (Stevens 1990), information (Lee
et al. 1997), and finances (Mabert and Venkatraman 1998),
and integrate each of them with supply chain partners.
Accordingly, we consider information, physical, and financial
flows in our framing of a focal firm’s supply chain integration
capability.
Based on our discussion, we present the framework for our
study in Figure 1. IT infrastructure integration for SCM
represents a lower-order capability that can be leveraged to
develop a higher-order process capability (i.e., supply chain
process integration), which is a source of significant and sus-
tained performance gains for a firm. Given that we are sug-
Rai et al./Digitally Enabled Supply Chain Integration Capabilities
228 MIS Quarterly Vol. 30 No. 2/June 2006
IT
Infrastructure
Integration
for SCM
Supply Chain
Process
Integration
Firm
Performance
Performance
Process Integration
Capability
IT Integration
Capability
IT
Infrastructure
Integration
for SCM
IT
Infrastructure
Integration
for SCM
Supply Chain
Process
Integration
Supply Chain
Process
Integration
Firm
Performance
Firm
Performance
Performance
Process Integration
Capability
IT Integration
Capability
Firm
Performance
Data
Consistency
Cross-Functional
Application
Integration
IT
Infrastructure
Integration for
SCM
Operational
Excellence
Customer
Relationships
Revenue
Growth
Supply Chain
Process
Integration
Financial
Flow
Integration
Information
Flow
Integration
Physical
Flow
Integration
Firm Size
Consumer
Demand
Predictability
Control Variables
IT Integration Capability Process Integration Capability
Firm
Performance
Data
Consistency
Cross-Functional
Application
Integration
IT
Infrastructure
Integration for
SCM
Data
Consistency
Cross-Functional
Application
Integration
IT
Infrastructure
Integration for
SCM
Data
Consistency
Cross-Functional
Application
Integration
IT
Infrastructure
Integration for
SCM
Operational
Excellence
Operational
Excellence
Customer
Relationships
Customer
Relationships
Revenue
Growth
Revenue
Growth
Supply Chain
Process
Integration
Financial
Flow
Integration
Information
Flow
Integration
Physical
Flow
Integration
Supply Chain
Process
Integration
Financial
Flow
Integration
Financial
Flow
Integration
Information
Flow
Integration
Information
Flow
Integration
Physical
Flow
Integration
Physical
Flow
Integration
Firm SizeFirm Size
Consumer
Demand
Predictability
Consumer
Demand
Predictability
Control Variables
IT Integration Capability Process Integration Capability
Figure 1. Research Framework
Figure 2. Research Model
