The impact of supply chain integration on performance: A contingency and configuration approach

TL;DR: The findings of both the contingency and configuration approach indicated that SCI was related to both operational and business performance, and indicated that internal and customer integration were more strongly related to improving performance than supplier integration.

About: This article is published in Journal of Operations Management.The article was published on 2010-01-01 and is currently open access. It has received 2535 citations till now. The article focuses on the topics: Supply chain & Supply chain management.

Summary

1. Introduction

• Researchers have long articulated the need for a close, integrated relationship between manufacturers and their supply chain partners (e.g., Lambert et al., 1978; Armistead and Mapes, 1993).
• These incomplete and evolving conceptualizations have led to inconsistent findings about the relationship between SCI and performance (e.g. Devaraj et al., 2007; Germain and Iyer, 2006; Das et al., 2006; Stank et al., 2001a).
• The authors suggest that customer and supplier integration moderate the relationship between internal integration and performance, building upon its foundation.
• In relating SCI patterns to performance, the authors examine both operational and business performance measures, which allows drawing more comprehensive conclusions.

2.1. Definition of SCI

• The SCI construct is relatively new as an area of research, although there is an extensive body of research on unidimensional supply chain relationships, examining collaborative relationships between a manufacturer and either its customers or suppliers (Paulraj et al., 2008; Mabert and Venkataramanan, 1998; Spekman et al., 1998; Fawcett and Magnan, 2002).
• The authors build upon the existing literature on the SCI construct, including the manufacturer (internal integration) and extending from it both directions (customer and supplier integration), and building upon its gaps to develop a parsimonious definition of SCI.
• While operational coordination can only lead to operational benefits, strategic coordination provides both operational and strategic benefits (Sanders, 2008).
• This definition also emphasizes intra- and inter-organization processes, since SCI is comprehensive and encompasses a variety of activities, including many that are focused on materials, transportation and administrative tasks (Bowersox and Morash, 1989; Hillebrand and Biemans, 2003).
• Finally, the authors emphasize the customer-facing nature of SCI, stating that its primary objective is to provide maximum value for the customer.

2.2. Dimensions of SCI

• Consideration of the dimensionality of SCI is important in understanding the way that the individual dimensions operate, as well as how they function jointly.
• It is the degree to which a manufacturer structures its own organizational strategies, practices and processes into collaborative, synchronized processes, in order to fulfill its customers’ requirements (Cespedes, 1996; Kahn and Mentzer, 1996; Kingman-Brundage et al., 1995) and efficiently interact with its suppliers.
• 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.

2.3. Contingency approach to SCI

• Contingency theory (Lawrence and Lorsch, 1967; Thompson, 1967) argues that no theory or method can be applied in all instances, in other words, that there is no one best way to design an organization (Scott and Cole, 2000).
• It employs a reductionist approach, treating an organization as decomposable into independent elements (Sinha et al., 2005).
• The environment that an organization operates within shapes its structures and processes.
• Structural contingency theory (Chandler, 1962; Lawrence and Lorsch, 1967; Galbraith, 1973) suggests that how well an organization performs depends on the extent to which the strategy that it seeks to pursue is aligned with its design.
• This alignment between strategy and performance is described as ‘‘fit’’ in the strategic management literature (Drazin et al., 1985; Venkatraman and Prescott, 1990; Milgrom and Roberts, 1995).

2.3.1. Relationship between internal integration and performance

• Just as internal fit indicates consistency among structural characteristics within an organization (Drazin et al., 1985; Venkatraman and Prescott, 1990; Milgrom and Roberts, 1995), internal integration recognizes that different departments and functional areas within a firm should operate as part of an integrated process.
• This calls for an integrated customer order fulfillment process, in which all involved activities and functions work together.
• Neely et al. (1995) listed cost, time, quality, delivery and flexibility as important measures of operational performance.
• Internal integration is positively related to the operational performance of the manufacturer within a supply chain.

2.3.2. Relationship of customer and supplier integration to performance

• According to structural contingency theory, external fit indicates consistency between an organizational structure and the strategy it pursues in response to its external environment.
• A close relationship between customers and the manufacturer offers opportunities for improving the accuracy of demand information, which reduces the manufacturer’s product design and production planning time and inventory obsolescence, allowing it to be more responsive to customer needs.
• In an integrated supply chain, development of a strong strategic partnership with suppliers will facilitate their understanding and anticipation of the manufacturer’s needs, in order to better meet its changing requirements.
• Their argument rests on the notion that external uncertainties and linkages must be internally absorbed into the proper places in an organization and that the primary impediment to achieving the benefits of external SCI is intraorganizational barriers to internal integration.
• 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.

2.3.3. Moderating effects

• Contingency theory also suggests that individual dimensions of SCI will interact to affect performance.
• A manufacturer’s efforts in external supplier and customer integration help it take full advantage of its internal integration, in order to achieve better operational performance.
• Germain and Iyer (2006) found that the interaction between internal integration and customer integration was related to logistics performance, which in turn was related to financial performance.
• The authors hypothesize two- and three-way interactions between the dimensions of SCI.
• Customer and supplier integration will moderate the relationship between internal integration and business performance.

2.4. Configuration approach

• This approach is somewhat limited.
• While it allows detailed examination of the relationship between the dimensions of SCI and performance, its reductionism causes it to be unable to handle complicated organizational phenomena from a holistic perspective.
• Results from a contingency approach can also be difficult to interpret when some of the interactions are nonsignificant.
• A third issue related to the contingency approach is the multicollinearity between the independent variables that comprise a related construct like SCI that is often present.
• The configuration approach argues that, when organizational elements are consistent with each other, a holistic, rather than piecemeal, analysis should be applied (Miller, 1986; Ward et al., 1996).

2.4.1. Configurations of SCI

• The configuration approach focuses on establishing patterns or profiles.
• According to configuration theory (Miller, 1986), the alignment of strategy and systems or practices is reflected in the patterns observed in practice.
• Since different companies may place differing degrees of emphasis on the individual dimensions of SCI, various configurations of SCI exist.
• While some may have well integrated internal systems, they may not have extended this approach to customers and suppliers, while others may be strong in customer or supplier integration and weaker in their internal integration.
• There is a need for a taxonomy which is based on significant gaps between the groups, in order to have better insights about the relationship between SCI patterns and performance.

2.4.2. Impact of SCI patterns on performance

• Configuration theory suggests that the emergent patterns of SCI will be related to operational performance in different ways.
• It argues that organizations perform better when they develop better configurations of interconnected elements (Drazin et al., 1985; Sinha et al., 2005).
• Furthermore, the relationship of SCI to performance may be determined by the pattern SCI, in terms of the strength and balance of the three dimensions.
• Supplier and internal integration help manufacturers reduce mistakes and waste, through information sharing and joint planning, which is directly related to business performance.
• The patterns of SCI are related to the business performance of the manufacturer within a supply chain.

3.1. Questionnaire design and measures

• The authors surveyed the literature to identify valid measures for related constructs and adapted existing scales to measure internal integration (Narasimhan and Kim, 2002), customer and supplier integration (Narasimhan and Kim, 2002; Morash and Clinton, 1998), operational performance (Frohlich and Westbrook, 2001; Beamon, 1999; Vickery et al., 2003) and business performance (Narasimhan and Kim, 2002).
• When there were no reliable and valid existing measures, the authors developed new measures, based on their understanding of the constructs and their observations during company visits and interviews.
• The Chinese version was then translated back into English by another operations management professor, and the translated English version was checked against the original English version for discrepancies.
• In Hong Kong, a bilingual version of the questionnaire was used.
• There were two preliminary assessments of the questionnaire.

3.2. Sampling and data collection

• Data were collected from manufacturing companies in China.
• Guangzhou and Shanghai have enjoyed a higher degree of economic reform and marketization, and Hong Kong is one of the freest economies in the world.
• Follow-up telephone calls and mailings were used to improve the response rate (Frohlich, 2002) and address potential missing data issues.
• A profile of the respondents is presented in Tables 1 and 2, indicating that they represent a variety of industries and their distribution is representative of the concentration of industries in the cities studied.
• Analysis of Harmon’s single-factor test of common method bias (Podsakoff and Organ, 1986; Podsakoff et al., 2003; Hochwarter et al., 2004) revealed nine distinct factors with eigenvalues above or near 1.0, explaining 72.1% total variance.

3.3. Reliability and validity

• Each variable’s cumulative proportion was plotted against the cumulative proportion for several test distributions, revealing that the data appeared to be approximately normally distributed.
• The authors first used CFA to evaluate convergent validity as suggested by O’Leary-Kelly and Vokurka (1998).
• Each measurement item was linked to its corresponding construct, and the covariance among the constructs was freely estimated.
• The estimates for the average variance extracted (AVE) were higher than 0.50 for four constructs, and 0.46 for the fifth construct.

4.1. Contingency analysis of SCI

• Hierarchical regression analysis was used to test hypotheses 1– 3.
• In the second step, the authors assessed the relationship of customer and supplier integration to operational or business performance, given the relationship between internal integration and operational or Table 4 Regression results for operational performance.
• Adding customer and supplier integration to the model yielded a significant change in R2, indicating that the addition of customer and supplier integration contributed significantly to the predictive power of the model.
• Therefore, the results only partially supported hypothesis H2a.
• The interactions between customer or supplier integration and internal integration were not statistically significant, while there was a significant interaction between customer and supplier integration.

4.2.1. Emergent taxonomy of SCI

• H4 posits that an emergent taxonomy can be developed, based on the internal, supplier and customer integration of manufacturers.
• The other three SCI patterns were balanced, with similar levels of customer, supplier and internal integration within each pattern.
• This difference between the patterns was weaker than their difference in SCI strength.
• Fig. 3 indicates that the clusters were differentiated from each other by the discriminant functions representing SCI strength and SCI balance.
• Between 96.3% and 98.7% of the respondents were correctly classified, indicating very high predictive ability.

4.2.2. Relationship between SCI patterns and performance

• Analysis of variance was used to test the relationship between SCI patterns and performance.
• Scheffe post hoc analysis was used to determine differences between specific patterns.
• The High Uniform pattern had the best operational performance, followed by the High Customer Leaning pattern.
• Similarly, there was not a significant difference in operational performance among the Medium Uniform, Low Uniform, and Medium Customer Leaning patterns of SCI.
• Table 9 also shows the relationship between SCI pattern and business performance, revealing that the High Uniform and High.

5. Discussion

• The authors found that most of their hypotheses were supported or partially supported, broadly indicating that SCI is related to performance.
• The interaction of supplier and customer integration was related to operational performance.
• This suggests that companies should begin SCI with internal integration, laying the foundation for customer and supplier integration.
• The authors High Uniform pattern is similar to their OutwardFacing pattern, which included the upper quartile of both customer and supplier integration, and their High Customer Leaning pattern is similar to Frohlich and Westbrook’s (2001) Customer-Facing pattern.
• SCI pattern is related to performance and SCI capability is cumulative in improving performance, which was not revealed by the contingency approach.

6. Conclusions and limitations

• This study extends the existing research on SCI in several important ways.
• Second, this research describes SCI in three dimensions: internal, customer and supplier integration, finding that internal integration forms the foundation upon which customer and supplier integration build.
• While their study makes a significant contribution to the SCI literature and has important implications for practice, there are some limitations and opportunities for future studies.
• These relationships may not be the same for all company sizes, industries or regions.

Figures

Table 2 Respondent characteristics.

Table 3 Descriptive statistics.

Table 5 Regression results for business performance.

Fig. 1. Change of percentage in agglomeration coefficient.

Table 7 Discriminant analysis.

Fig. 2. Taxonomy of supply chain integration.

Table 9 Analysis of variance.

Table 1 Profiles of responding companies.

Frequently asked questions

Q1. What have the authors contributed in "The impact of supply chain integration on performance: a contingency and configuration approach" ?

This study extends the developing body of literature on supply chain integration ( SCI ), which is the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intraand inter-organizational processes, in order to achieve effective and efficient flows of products and services, information, money and decisions, to provide maximum value to the customer. The authors study the relationship between three dimensions of SCI, operational and business performance, from both a contingency and a configuration perspective. Furthermore, the results indicated that internal and customer integration were more strongly related to improving performance than supplier integration. 

Q2. What are the future works mentioned in the paper "The impact of supply chain integration on performance: a contingency and configuration approach" ?

While their study makes a significant contribution to the SCI literature and has important implications for practice, there are some limitations and opportunities for future studies. Because integration between customers, suppliers and manufacturers is developed over time, it will be fruitful for future research to examine the evolution of SCI patterns in a longitudinal fashion. Second, because the data were only collected from manufacturers, future studies can broaden their scope by collecting data from all supply chain partners, including suppliers, manufacturers and customers. Future research should examine cross-cultural differences in the relationship between SCI and performance. 

Q3. How did the authors obtain a representative sample?

To obtain a representative sample, the authors used the Yellow Pages of China Telecom in each of the four mainland China cities and the directory of the Chinese Manufacturers Association in Hong Kong as their sampling pool. 

Q4. What did Devaraj et al. (2007) find?

Devaraj et al. (2007) found that customer integration did not have a significant direct effect on operational performance, but only moderated the effect of supplier integration on operationalperformance. 

Q5. What is the way to assess the common method bias?

To further assess common method bias, confirmatory factor analysis was applied to Harman’s single-factor model (Sanchez and Brock, 1996). 

Q6. What is the average variance for each construct?

The estimates for the average variance extracted (AVE) were higher than 0.50 for four constructs, and 0.46 for the fifth construct. 

Q7. What was the third step of the analysis?

The third step assessed the relationship between two- and three-way interactions of internal, customer and supplier integration and operational or business performance, in order to determine whether there was a moderating effect. 

Q8. What is the relationship between supplier integration and operational performance?

Supplier integration may not contribute to operational performance directly, but instead interacts with customer integration in improving operational performance, reflecting the importance of manufacturers’ integration with both downstream and upstream supply chain partners.