Supply chain (SC) integration is considered one of the major factors in improving practices. Based upon some concerns regarding the constructs, measurements and items used, this paper analyses survey-based research with respect to the relationship between SC integration and performance. The review shows that there are significant differences in the factors and constructs used to measures SC integration. A detailed analysis shows that, at the level of items, three categories can be distinguished: attitudes, practices and patterns. So far, the distinctive role of each of these three categories and how they interact has not been addressed explicitly in research. An analysis of the performance measures adopted shows that, in the survey studies so far undertaken, there has been a clear preference for measuring the performance of the focal firm only, and this through using subjective measures. Based upon this initial analysis, this paper seeks to explore avenues for further research that could better distinguish attitudes, patterns and practices plus their interrelationships. We also argue for focusing further research on SC integration within individual buyer’supplier relationships and examine the impact of this relationship on performance. Further arguments are put forward for incorporating power and business conditions, given their relevance, in future SC integration research.
The global business environment including agribusiness is in a state of transition, being influenced by globalisation, strategic alliances, merger and acquisition, business process and reengineering. These strategic approaches are altering the focus of overall management of businesses and influencing the ultimate goal ‘ reaching the end-users by shifting from mass-marketing to customised marketing and emphasising relationship-based marketing in all fields. The rapid advancement of information technology is also having its affect on businesses and their management. These changes in turn effect the management of supply chains of all businesses. Generally speaking, the widespread success of any business depends on the efficient utilisation of its supply chain, which links all the participants and players of that particular business. The chain usually starts from the gathering of raw materials or goods and finishes when the good is supplied to the ultimate end-users, the customers. The effective and efficient management of supply chains is challenging, and requires clear understanding of the components of supply chain management (SCM). SCM is usually concerned with managing the chain involving all the participants of the supply of particular product or service starting at the very core of a business. Competitors are also considered a part of the supply chain network and managed under the chain. As a result SCM is considered to be an integral part of the core competencies of a business, enhancing competitive advantage over its competitors.
1.1 Introduction to the Topic
A supply chain can be defined as a series of companies that eventually make
products and services available to customers, including all of the functions
enabling the production, delivery, and recycling of materials, components, end
products, and services. The ultimate goal in supply chain management is to create value for the end customers as well as the organisations in the supply chain network. To accomplish the ultimate goal, organisations in the supply chain must integrate process activities internally and with customers and suppliers externally. Yet in most organisation the situation is chaotic.
Lack of supply chain integration is expensive for companies. For example, in the
USA the National Institute of Standards has estimated that inadequacies in
managing inventory, scheduling and accounting information costs the automotive
and electronics industries a combined total of almost $9 billion annually, or about
1.2 percent of the value of shipments in each industry (NIST, 2004). The report
also claims that almost all of these costs could be eliminated with optimally
integrated systems for exchanging information throughout supply chains. The
academic literature is also clear on the importance of integration. The academia
continuously enhances the body of knowledge, linking supply chain integration to
performance improvement; but knowledge is lacking in terms of a prescribed manner by which companies can achieve integration across operations internally, and with suppliers and customers externally.
Further, the actual pathway chosen by a focal company is of interest. Study proposed an integration model in which companies tend to follow a pathway to supply chain integration that progresses through separate stages; choosing to integrate internally before integrating with external supply chain members (Stevens, 1989). However, Gimenez (2004) and Potter et al.(2004) identified exemplar companies that did not follow the internal/external
integration route; hence this thesis aims to investigate the actual pathways taken
when companies set out to achieve supply chain integration, in order that the company might one day select the most appropriate one for its specific supply
Investigating supply chain integration in practice
This thesis is based around a five step approach that provides academia with a
sound methodology to investigate how companies achieve supply chain
integration in practise. This gives practitioners clear guidance when integrating
their supply chain by providing supply chain integration assessment tools and
techniques for each identified step.
In particular, a research methodology needs to be identified allowing the researcher to investigate in depth the current status of supply chain integration within a focal company.
Further, Gimenez (2004) as well as Romano (2003) point out that a close
examination of the barriers to supply chain integration is critical because the
removal of barriers between and within organisations seems to be the crucial issue
in integrating the supply chain. Naylor et al. (1999) also point out that the goal of
an integrated supply chain is the removal of all barriers to ease the flow of
material and information flow. However, academia has a better understanding of
the external barriers to supply chain integration than the internal ones. Therefore the investigation into internal integration is rather broad, identifying and
categorising common internal barriers to supply chain integration. The
investigation into external integration is more specific, focusing on power and
dependency. Cox (1999), and van Donk and van der Vaart (2004) identified that
the key barrier to external supply chain integration is the power and dependency
structure present between organisations. Once the current state is identified and
the barriers to supply chain integration understood, researchers can investigate
how supply chain integration is achieved including actual pathways to supply
chain integration, using longitudinal case studies.
The last decade has brought a dramatic shift in the nature of competition for most companies. Technological advances, particularly in information technology, coupled with globalization, the rise of complexity and shrinking time horizons are driving order-of-magnitude changes in the competitive demands on strategic management of business and on the management of supply chains.
These competitive pressures have a strong direct effect on supply chain strategy and integration. Integrating activities both within and beyond organizational boundaries has become and will continue to be a major challenge for supply chain executives. Integration efforts now extend beyond traditional product-process design and functional integration to focus on extra-organizational links with customers and suppliers. The object is to produce “supply chain-enhanced” products and services.
Our examination of supply chain integration focuses on two key issues–alignment and linkage–both inside an organization and across organizations.
1. Alignment refers to common vision, goals, purpose and objectives across organizations, functions and processes in the supply chain. Alignment ensures that there is consistency in the direction and objectives as these plans and decisions are made.
2. Linkage refers to the communication and sharing of information needed for planning and decision-making, and the interaction of people involved in planning and decision-making. Linkage ensures that the information necessary for decision-making is available, and that different functions and entities in the supply chain are working with the same data as decisions are made.
3. Supply chain alignment and linkage do not happen in a vacuum. Supply chain management is a part of the broader management of an enterprise, and it must support the broader business strategy of the enterprise.
4. Business Strategy defines how the firm intends to compete in the markets or market segments it pursues. Broadly speaking, a firm can compete on low cost or through differentiation. Supply chains can contribute significantly to both sets of goals. However, different business strategies are likely to be best supported by different supply chains and supply chain management decisions. A business strategy based on speed of innovation and fast time to market would require a different network of suppliers, a different manufacturing infrastructure and a different distribution infrastructure than a strategy based on low costs. It is therefore critical that the strategies pursued and the decisions made by the supply chain group be consistent and aligned with the overall strategy of the enterprise.
Supply Chain Strategy Planning Decisions relate to coordinating supply chain management decisions with business strategy, product/ service design decisions and with designing the physical supply chain. The right infrastructure, in terms of technology, people, control systems, relationships, policies and procedures are critical in facilitating alignment and linkage.
2. Review of Literature
2.1 Literature Review
The purpose is to provide a foundation for the thesis on the basis of
the literature currently available. Emphasis is placed around the concept of supply
chain integration and, in particular, on supply chain assessment as well as barriers/enablers and achieving supply chain integration in practise. The literature review is predominantly based on the latest publications in the key areas of supply chain management. All of the research questions analysed in this thesis are first raised in this chapter. These questions have been designed to provide solutions to topics not comprehensively addressed in the current literature, and are therefore areas that require further research and validation.
Initially, the broad field of supply chain management is discussed. The terms
‘supply chain’ and ‘supply chain management’ are clarified and precisely
defined in the terms used in publications by renowned experts in the field. This is
followed by a brief historical overview of the supply chain management concept.
Further, a number of the key published methodologies for evaluating supply chain
practises is reviewed. However, the main thrust of the literature review concerns
itself with the major contributions that have been made over the years to the topic
of supply chain integration. The key contribution of this thesis is the close and in depth exploration of how companies actually achieve supply chain integration in
practise. Hence, change management in supply chains cannot be ignored. Finally,
a conceptual model is developed that enables the researcher to evaluate supply
chain integration practises and investigate pathways to supply chain integration.
2.2 Research Area
One of the most significant changes in the paradigm of modern business
management is that individual businesses no longer compete as solely
autonomous entities, but rather as supply chains (Christopher, 1998). Business
management has entered the era of supply chain competition and the ultimate
success of a single company will depend on management’s ability to integrate the
company internally as well as externally (Lambert et al., 1998). Lambert et al.
8 highlight that supply chain management is part of a wider concept termed
business management. Supply chain management offers the opportunity to capture the synergy of intra- and inter-company integration and management by taking a holistic/systems perspective regarding the various activities, functions, and systems required to bring a product or service to market (Vickery et al., 2003).
One key theme within supply chain management is the integration of customers
and suppliers externally and functions internally to optimise material and
information flow. Recently, academia started to investigate barriers/enablers to
supply chain integration because the removal of barriers between and within
organisations seems to be a critical issue along the path to supply chain
integrating the supply chain (Gimenez, 2004; Romano, 2003). Finally, supply
chain integration in practise is reviewed. Next, the concept of supply chain
management is described, followed by the identification of a supply chain
definition used for this thesis.
2.3 Supply chain management: A theoretical framework
In recent years, the area of supply chain management has become very popular.
This is evidenced by marked increases in practitioner and academic publications,
conferences, professional development programs, and university courses in the
area (Burgess et al., 2006). However, the concept of supply chain management is
not particularly well-understood and many authors have highlighted the necessity
for a clear definition and conceptual frameworks of supply chain management
(Cooper et al., 1997; Croom et al., 2000; New & Payne, 1995; van der Vaart &
van Donk, 2007). One of the main problems is that supply chain management is
such a broad notion that it can be approached from many different angles:
purchasing and supply, operations management, relationship management,
logistics and transportation, industrial organisation, marketing, or strategic
management to name a few (Croom et al., 2000). The breadth of the concept is
also the main reason why it still lacks a unitary and a widely accepted definition.
3: Research Methodology
3.1Research Application and Design
The research is descriptive as it will be conducted on the basis earlier research that has been conducted in this area. These former researches will be taken as references to understand the present scenario and the analysis will be done based on the outcomes.
3.2 Data Collection
This research will be based on Secondary data collected from-
4.1 Reason for integrated supply chain
An integrated supply chain allows manufacturers to look into business processes across multiple suppliers and across disparate platforms to follow materials and components wherever they are ‘ expanding traditional supply chain management beyond tracking materials, information, and finances as they move from supplier to manufacturer.
As ERP solutions provider Eresource notes, integration transforms the supply chain into a network of relationships among trading partners. This almost always means linked computer systems.
Effective supply chain integartion starts with C-level commitment at the buyer. WBresearch notes, ‘The heart of an effective supply chain is the purchasing department that initiates all ordering documents. As such, the manager of the purchasing function or the company officer to whom purchasing reports is the final authority on supply chain management decisions.’
So even though proper supply chain integration will include representatives from sales, engineering, logistics, and purchasing to verify customer needs, confirm deliverability, and iron out transportation, the C-level executive overseeing purchasing must back the project.
To get suppliers on board with supply chain integration, buyers must demonstrate that it is in suppliers’ best interest to do so. When correctly done, WBResearch notes, an integrated supply chain benefits everyone, even though ‘the buyer has the most to gain.’
Supply chain consultant Ron Edmonson echoed this sentiment, saying that since supply chain integration focuses on processes associated with reducing costs along the supply chain, ‘a totally integrated supply chain enables an end-user to more efficiently and cost-effectively manage manufacturing, inventory, and transacted costs.’
This is because in what Edmondson calls ‘an integrated supply relationship,’ every aspect of the supply chain process ‘ including ‘acquisition, storage, logistics, installation, post-shipment support, and information system’ ‘ is analyzed and streamlined, thereby ‘eliminating redundancy of effort and cost, and improving service levels.’
One of the most notable case studies on the benefits of supply chain integration from the manufacturer’s point of view focuses on Procter & Gamble. Ten years ago, when P&G’s products and services offerings expanded rapidly, the company’s intense focus on in-store sales and price promotions played havoc with product demand, causing short-term, marketing-induced spikes in demand. As a result, P&G spent millions in ‘huge manufacturing capacities, inventories, warehouses, and logistics’ to keep up with fluctuating demand.
Searching for a better way, P&G modified its supply chain focus, both internally and with suppliers and customers, evolving their from marketing to production, inventories, and logistics in response to changing business requirements. This included a much-studied partnership with Wal-Mart that allowed P&G to ‘virtually eliminate price promotions and streamline its logistics and continuous replenishment programs,’ which resulted in reduced variations and uncertainties in demand and lower costs overall.
As a manufacturer, then, integrated supply chains provide the ability offer customers shorter lead times and lower inventory costs. Integrating supply chains can help pinpoint where problems are occurring along the process, enabling businesses to take surgical action and further reduce costs to improve the final price.
Benefits are even more fundamental than that, however. David Caruso, principal of David Caruso and Associates, a consulting firm specializing in manufacturing supply chain strategy, said integrated supply chains are powerful incentives for customers to commit to doing business with you. ‘To build long-term relationships with customers today, you need to listen to and understand them,’ he said. ‘This requires that you maintain a holistic view of those customers. You can obtain such a broad-spectrum view from a variety of data sources, including your supply chain systems, sales and marketing, customer service and field service systems, internal database information, and knowledge gathered from unstructured interaction with customers.’
As Caruso explained, integrating supply chains helps businesses ‘look beyond tactical order fulfillment and gain a better understanding of customer wishes for customized products and services ‘ which can help the company differentiate its offerings and increase profits.’
4.2 Steps in Integrated Supply Chain
Integrating transportation into your supply chain may seem like a daunting task. By taking advantage of modern transportation management solutions significant step-by-step approaches can be initiated to take on the challenge.
Look at taking these immediate steps:
1. Save on Inbound Freight: When working with suppliers, work with them to separate the cost of goods from freight. This provides visibility of the actual cost of freight so transportation management practices can be applied to reduce inbound shipping costs. Ultimately, companies achieve this reduction by not paying the up-charged shipping costs and directing suppliers to use the least cost transportation method as determined by your own company’s carrier agreements’not the vendor’s.
2. Make money on Outbound Freight: First, get rid of the static routine guide and use actual cost instead of simple parameters such as weight & mode. You will be greatly surprised at the savings, not only within the LTL mode, but also between modes. Secondly, look for ways to optimize your transportation practices to lower transportation costs. Such practices offer the ability to make more money in “prepay and add” applications where transportation costs to the customer should consistently be viewed as a profit center.
3. Generate and Surface Quality Data to See Financial Impact of Inbound and Outbound Freight: Data is critical in the generation of meaningful financial reports. This puts emphasis into detailed electronic transactions, the appropriate technologies, and smooth integration into the financial reporting system. Immediately, a company will be able to view: the financial impact of cost of transportation (inbound and outbound) into cost of goods sold, ability to meet customer-driven service levels, and more.
4. Empower Customer Service: Enable customer services to see accurate transportation price information. This delivers real-time accuracy while eliminating guesses, estimates or call-backs. The transaction can be closed faster and shipping profitability is maintained at a desired margin.
In closing, constantly negotiating with and between carriers to get the lowest prices does not offer a sustainable competitive advantage particularly if competitors can get the same deals. Optimized transportation management integration into the supply chain requires not only optimized rates, but optimized inbound and outbound transportation management practices across the organization.
Supply chain assessment techniques-
General supply chain performance assessment is predominantly undertaken using
maturity models. Maturity models are rooted in the field of quality management
(Netland et al., 2007). While numerous different types of maturity models have
been developed, relatively few models for analysis of supply chains and logistics
were found in the literature. Most of the reported means of diagnosing supply
chains and logistics problems are based on analytical and numerical models
(Chopra & Meindl, 2001). Benchmarking techniques are also frequently used. In
contrast, assessment techniques encompassing the entire supply chain are scarce.
The literature divides maturity assessment techniques into commercially and
academically derived techniques.
Supply Chain Operations Reference Model (SCOR)-
The SCOR model is probably the most well-known commercially available
supply chain assessment technique. This model was developed in the mid-1990s
by a cross-industry consortium of over 70 companies in the USA called the
Supply Chain Council. The SCOR model is based around four generic supply
chain management functions of: Planning, purchasing, manufacturing, and
distribution (Huan et al., 2004). SCOR defines common supply chain
management processes in each function and matches these with best practise,
22 benchmarked performance measures, and use of software. The purpose is to
provide a generic framework for measuring supply chain performance and
identifying areas for improvement (Power, 2005). However, Huang and Mak
(2000) identified that a seemingly endless variety of supply chains exist in
practise and this benchmarking approach is fraught with danger and will clearly
result in errors as ‘oranges are compared with apples’.
4.3 Issues In Supply Chain Integration
The Five Most Common Supply Chain Management issues-
1. Unable to apply the right metrics to manage supply chains effectively
By far the most ‘popular’ challenge, finding and implementing the right metrics remains a problem in supply chain management. This includes disputes about the right metrics between supply chains, product lines or departments within a company, agreeing on definitions and calculations, having too many metrics or too few metrics, difficulty benchmarking and difficulty finding metrics that are supported ‘of-the-shelf’ in reporting tools.
Our practitioners recommend using Supply Chain Operations Reference Model (SCOR) metrics. SCOR metrics are the de facto standard for measurement. This allows you to move the discussion from what to measure and how to calculate to selecting metrics from a list. Plus, software companies have integrated SCOR in their scorecard and dashboard solutions and benchmarking is available through SCOR mark’ and other service providers.
2. Difficulty prioritizing supply chain improvement efforts
Companies struggle to identify where to deploy their expert resources and in what sequence. Problem solvers are scarce, you want them to work on those problems that have the biggest impact on your supply chain performance. This includes lack of a standard approach (every group has their own methods with varying results), internal politics, lack of fact-based prioritization, capabilities/skills are limited to few key individuals.
If you operate in a project environment than Problem Solving with SCOR’ will help you establish the processes for identification and prioritization of your key resources. For companies interested in establishing this as a structural supply chain management capability; Adopt M4SC’ to identify and develop strategic supply chain management initiatives.
3. Performance is lagging
Whether you are driven by the need to reduce costs or inventory, need to improve customer satisfaction, or want to increase the speed to respond to market changes, performance gaps continue to make it on our top 5 list. Do you know how to improve the performance of a lagging metric without negatively impacting your other key metrics?
The SCOR?? framework was developed with this problem in mind. Since 1996 our practitioners have used SCOR metrics, processes, practices and skills to assess supply chain performance and develop sound supply chain networks and processes operated by skilled staff. Problem Solving with SCOR’ is recommended to continue the discussion how to solve supply chain problems using proven techniques.
4. Complexity of supply chains
Serving many different customers with a wide varity of products and services may result in a complex, global, network of suppliers, factories, warehouses, transporters, customers and others. The complexity of such a network is hard to unravel and makes it difficult to find where and why problems occur. This includes challenges like: “We don’t know what our supply chains are”, “What is the right number of supply chains?”, the desire to standardize processes.
You are not alone, many of our member practitioners have complex businesses. Those that excel at supply chain management know how to segment products and customers in order to develop and maintain the right supply chain strategy, network, processes and resources. The M4SC’ framework was developed to address these types of problems. And if you are not ready to adopt M4SC just yet, consider SCOR Fundamentals’ andProblem Solving with SCOR’ training to understand how SCOR?? can help your supply chain improvement projects.
5. Finding and holding on to supply chain talent
Although supply chain management is now a generally accepted and understood function in a company, it is difficult to find true supply chain talent. Supply chain management covers multiple disciplines and it can therefore be difficult to find that all-round supply chain person. How many people in your organization have deep and wide knowledge of planning, sourcing, manufacturing, distribution and order management functions? How many can see the supply chain as a whole? This includes problems like finding the right people, reducing attrition and developing hiring, training and redeployment plans.
4.4 Measures Of Integrated Supply Chain
1.Non-response bias- Even though our response rate was high, the question of non-response bias still arises. The possibility exists that the firms who did not respond are different from the respondents, and our sample does not represent the non-responders. Assuming that the late responders are similar to the non-responders, we compared early responders with the late responders. The first 25% of the sample was compared against the last 25% of the sample. The hypothesis could not be rejected that the mean of each of the 17 item-responses was the same for the two groups, using 2-tailed t-test at p = 0.05. The lowest p was 0.193. Similarly, a Pearson Chi square test on an organisational characteristic (number of workers) rejected the null hypothesis that there was an association between organisation size and tardiness in response (p = 0.848). These tests give confidence that the non-response bias in our study is minimal.
2.Content validity- All the measures in this instrument were obtained from existing literature. In addition, two academics and two practitioners reviewed the measures and suggested changes for clarity. After data collection Pearson correlation coefficients between all the different measures were examined. None of the correlations were found very high (highest = 0.715), suggesting that there was no multi-collinearity. Item to sum-of-items correlations were also high (0.523 to 0.787). This gives confidence that the items measure the same construct. However, the correlation of Q6 with the criterion was particularly low (0.307). For this reason, this item was dropped from further analysis. All the correlations were statistically significant at p = 0.001.
3.Factor Analysis- Factor analysis was carried out on the data (after removing Q6) using the principal components (PCA) method of extraction. The determinant of the correlation matrix was calculated as 0.0000697, which is more than 0.00001, indicating that the correlation matrix is suitable for factor analysis. This justifies a single general factor, which has an eigenvalue of 8.309. However, this factor explains only 55.39% of the total variance in the data. The scree plot also has a less pronounced elbow at component number 4, which justifies three factors.
The third component is associated with an eigenvalue of 0.876, which is higher than 0.7, regarded generally as the lowest acceptable value. The three-factor solution will also explain 67.55% of the total variance. Thus SPSS was directed to find a three-factor solution, and to rotate the vectors using the varimax procedure for interpretability.
1.Sample size- Sample size is an important factor in the reliability of factor analysis. A ratio of 10-15 cases per variable is commonly suggested. With 16 items in our questionnaire, the number of cases should be 160-240. This criterion is comfortably met by our sample size of 273. Another measure of sampling adequacy is the Kaiser-Meyer-Olkin (KMO) statistic, which is calculated by SPSS. The KMO statistics for our data is 0.949. This confirms that the data is highly suitable for factor analysis. Still other measures for sampling adequacy are the diagonal elements of the anti-image correlation matrix, which should be at least 0.5 for a satisfactory factor analysis. The lowest diagonal element in the SPSS results is 0.922, ensuring sampling adequacy.
2.Correlation matrix- Individual item-total and item ‘ criterion correlations were checked as mentioned earlier to ensure that the items belonged to the same construct. One item (Q6) was excluded on this account. Another measure to ensure that the items are not independent, is the Barlett’s test of sphericity, whose null hypothesis is that the correlation matrix is an identity matrix (no correlation at all). SPSS results show that the set of our remaining variables pass Barlett’s test at p < 0.001.
3.Degree of fit- The degree of fit of the hypothesised 3-factor model to the data can be assessed by the reproduced correlations matrix. For a perfect fit, this matrix should be identical to the original correlation matrix of the variables.
The ideal value of the diagonal elements (the communalities) is 1. With the exception of variable Q14, which has a communality of 0.449, all of our variables have a communality of more than 0.6, the average communality being 0.676. This indicates a satisfactory fit. A good fit is also indicated when the residual correlations (difference between the original correlations and the reproduced correlations) are small. A commonly used criterion is to have less than 50% of the residuals less than 0.05 in absolute value. SPSS output shows that for our three-factor solution, 68% of residuals have an absolute value of less than 0.05.
4.Scale reliability- A common measure for testing whether the different items of the scale measure the same construct is the Cronbach’s alpha. This measure for our scale the three factors is given in Table 7 below.
Cronbach’s alpha statistic.
Scale Cronbach’s Alpha
15 ‘ item scale 0.940
Communications factor 0.900
Coordination factor 0.895
5.Test-retest reliability- Test ‘ retest reliability can only be ultimately tested by carrying out the data collection exercise again. A split sample factor analysis can give an indication of the test-retest reliability of factor analysis. Our survey respondents were asked whether company’s production is mainly based on make-to-order or make-to-stock policies. There were 143 responses indicating mainly make-to-order production; 91 respondents indicated mainly
make-to-stock production (many respondents wrote ‘both’; some responses were missing). We extracted three-factor models for both of these sub-samples.
6.Predictive validity- Even though as discussed above, each of the factors appear to measure a different dimension, and the entire scale measures a common construct, this does not confirm that they measure what one would understand as internal supply chain integration. We had included a criterion question in our survey instrument to test this. This criterion, in our opinion, is a summary measure for the latent variable of internal supply chain integration. The correlation of the criterion with the item totals in the factors and the entire scale is given in Table below.
Correlations of item totals with the criterion
Coordination dimension 0.736
Communication dimension 0.712
Affective relationship dimension 0.750
Internal supply chain integration 0.778
All of the correlations are high. The correlations are all significant at the p = 0.01 level (two tailed test). These correlations give us a great deal of confidence that the scales measure dimensions of internal supply chain integration.
4.5 The Three layers of supply chain Integration
Historically, integration of logistics management was identified as the primary
challenge of the 1990s to gain and maintain customer loyalty and a competitive
advantage. More recently the scope of integration has broadened considerably from a logistics perspective to a supply chain integration perspective as academia recognised the potential savings to be gained from integrating the management of the various actors in a supply chain. Nowadays, supply chain integration is perceived as the degree to which an
organisation manages intra- and inter-organisation processes to achieve effective
and efficient flows of products, services, information, money and decisions, with
the objective of providing maximum value to its customers.
Hence, most supply chain literature considers supply chain integration as the collaborative effort in linking internal functions, suppliers and customers. One possible explanation for the inconsistency of the supply chain integration definition and research variables is the confusion that surrarounds the supply chain integration topic. Some scholars understand supply chain integration as the integration with customers and suppliers only, while other scholars also take internal functional integration into consideration. Hence, academia lacks a unified view of supply chain integration. Thus, the exclusion of internal integration creates the first layer of confusion over the concept of supply chain integration.
Finally, academia adds a third layer of confusion around the supply chain
integration concept. Different scholars focus on different aspects, when studying
supply chain integration. Researchers often focus only on a small area of supply chain integration so that research findings are often constrained.
The conclusion that can be drawn from Tables, is that integration
as a concept is ill defined and not well understood (Frohlich & Westbrook, 2001),
which leaves the concept of integration in serious scientific doubt. Van Donk and
van der Vaart (2005b) are among a small group of authors who doubt the concept
of supply chain integration. They argue that integrative practises should have
greater exploitation in the circumstance of high demand uncertainty. The practises
can then be limited to physical flow and stock management when customer
demand is known to be relatively uncertain. They comment that integrative
practises are hardly possible, or feasible, in circumstances of shared resources and
limited capacity (van Donk, Akkerman & van der Vaart, 2008). Finally, van der
Vaart & van Donk (2006) argue that integration also depends on business
characteristics. Arguing along the same lines, de Teville et al. (2004) conclude
from their research that demand integration is only warranted when there is
sufficient demand variability. In addition, supplier and customer integration has
been particularly scrutinised. Cox (2001) argues that not all relationships should
be fully integrated. Indeed, the relationship type adopted should be matched to
supplier and customer dependency. Swink et al. (2007) show how four different
forms of strategic integration have both benefits and dis-benefits. Mann et al
(2008) argue that the structures of monolithic organisations and global supply
chains are similar and that, consequently:
1.Wealth is being globally redistributed (e.g. changed labour wage structures
across the globe as jobs shift from country to country).
2.Political institutions are being affected (e.g. Wal-Mart, as a dominant and
most visible face of the biggest supply chain, is more powerful than the
majority of nation states).
3.Life chances are being influenced (e.g. supply chains that span national
borders result in lost jobs or reduced availability of jobs, loss of local
culture, death of local businesses and crafts’)
It is important to emphasise that the debate in the literature is not about full
integration versus zero integration. Rather, it is about how much integration is
justified and under what circumstances. The answer to these questions depends
very much on the nature and purpose of the supply chain. For example, it is
difficult to envisage any circumstances in which internal material and information flow optimisation will not prove essential for competitiveness. Hence, the
proponents clearly outweigh the opponents. Maloni and Benton (2000) provide a
list of potential benefits for supply chain integration:
1.Reduced uncertainty for customers in (a) material costs, (b) quality, (c)
timing and lead times, and (d) availability and responsiveness;
2.Reduced uncertainty for suppliers in (a) market, (b) understanding of
customer need, and (c) product/material specifications;
3.Reduced uncertainty for both in (a) convergent expectations and goals, (b)
reduced effects from externalities, (c) reduced opportunism, (d) increased
communication, and (e) shared risk and reward;
4.Cost savings from (a) decreased administration costs, (b) decreased
switching costs, and (c) integration of processes and technologies;
5.Enhanced responsiveness from (a) joint product and process development,
(b) faster time to market, and (c) improved cycle time.
This section has examined the confusion that exists around the concept of supply
chain integration. However, Ho et al (2002) point out that the development of
supply chain management theory begins with the establishment of a clear
conception of its meaning. Hence, it is important to clearly define the author’s
view regarding supply chain integration, which is presented next.
4.6 Authors view of supply chain Integration
Not only has the supply chain integration construct been used to study a number
of different organisational phenomena, it has been defined in a number of
different ways. Additionally, many authors who have studied integration offer no
formal definition of the construct. The end result is that this commonly researched
construct does not have a single, accepted definition (Pagell, 2004). However,
from the literature, it emerges that integration can support business processes at
two different levels; internal and external. Internal integration aims at overcoming
the functional silo boundaries. The goal is inter-departmental collaboration that
brings departments together into a cohesive organisation (Kahn & Mentzer, 1998).
External integration, aims at overcoming the individual company boundaries and advancing integration to an overall supply network integration. The below figure depicts
the author’s view of supply chain integration. This is the perspective adopted for
the remainder of this thesis, which is in line with that of many other authors. The supply chain shown in Figure represents a simplified supply chain network structure. The enterprise in the middle is referred to as the focal company. Figure further highlights the information and product flows, and the key supply chain business processes penetrating functional silos within the focal company and the various corporate silos across the supply chain. Figure presents the need for internal integration of key functional areas such as engineering, sourcing, logistics, and operations. External integration with customers and suppliers (see Figure) through a distribution network is highlighted. The end consumer purchases products based on cost, quality, availability, maintainability, and reputation and a hope they
satisfy requirements and expectations. Internal and external integration aims at a more effective use of the combined resource base, together with better integrated information and material flows.
However, external integration is often viewed as partnerships and strategic alliances, which is somehow contradictory to the initial aim of optimising material and information flow. Therefore, Gimenez (2004) focuses solely on the maturity of vendor managed inventory (VMI) practises in a focal company to identify the level of supplier integration. Others have focused on advanced information systems such as EDI to identify the degree of external integration. Frohlich and Westbrook (2001) likewise place most
emphasis on information flow and communication channels when investigating
‘arcs of integration.’ Therefore, it can be argued that partnerships and strategic
alliances go beyond external integration and the pure optimisation of material and
information flows. Supply chain integration represents a promising though intricate concept that is still maturing. To support this maturation, more research is required to identify
critical drivers of, and barriers to, the integration process because the removal of barriers between and within organisations seems to be a critical issue in integrating the supply chain. This section has presented the authors view of supply chain integration, although due to its intricate nature no single definition is provided. Next, key barriers and drivers to supply chain integration are discussed.
4.7 Barriers and enablers to supply chain Integration
Many scholars acknowledge the existence of barriers to, and enablers of,
achieving supply chain integration in both internal and external areas of supply
chain integration; however, in-depth investigations are rare.
4.7.1 Internal barriers and enablers to supply chain Integration-
Barriers to internal integration have origins in traditional functional practises
related to organisational structure, measurement and reward system, information
technology, and supply chain skills (Wisner et al., 2005). However, internal
barriers are not well understood. Storey et al. (2005), for example, identified that
much of the supply chain literature underestimates organisational and behavioural
complexities. The two key publications in the field of barriers to, and enablers of, internal
supply chain integration are by Gimenez (2004) and Pagell (2004). Gimenez
focuses on the barriers to implementing supply chain management programs by
interviewing managers at 14 different businesses in the Spanish grocery sector.
The key barriers identified are organisational culture and attitudes of people
working in the company, functional silos, and information systems and
technologies (a full list of the barriers Gimenez identified can be found in
Appendix A.1). Pagell also argued that the main barriers are people in the form of
the structure and culture at the plant, reward systems and the amount of formal
and informal communication. Despite their contribution to knowledge, both
studies have limitations. Pagell only focuses on the interfaces of three different
departments within a focal company: purchasing, manufacturing and marketing;
thereby ignoring interfaces with other internal departments. Gimenez only
captures the management perspective on the barriers and therefore ignores barriers
that management staff is unaware of. Lambert and Cooper (2000), Pagell, and
Gimenez all state that further research in supply chain barriers is required. This
thesis aims at contributing to knowledge in the field of internal barriers to supply
chain integration by raising the following research question:
Research Question 2: What barriers obstruct internal supply chain
integration in practise?
Many key barriers, when addressed appropriately, serve as supply chain
integration enablers; variables that managers can address to design and manage
any key business processes internally (Romano, 2003).
4.7.2 External barriers and enablers to supply chain Integration-
External barriers to supply chain integration span the whole range; from a lack of
a culture of sharing information or trust.
However, a number of academic studies have identified trust as the key external
integration characteristic fostering collaborative behaviour. Trust is defined here as the
degree to which companies perceive each other as credible and benevolent and it
has a positive effect on the degree of supply chain integration. However, trust is also one of the biggest uncertainties in relationships. A high level of trust is evidenced by data sharing throughout the supply chain and, more importantly, in trust being placed in people.
One of the greatest deterrents to trust is one’s relative power. Power and dependency in relationships has been studied extensively. The power phenomenon can be defined as the ability of one entity in the chain to control the decision of another entity. Further, the balance of power can be held by the company buying or supplying. However, power as a concept is of little analytical value since the nature of power itself is less important than the origins of power.
Dependence, being the inverse of power, is the reliance of one party on the other
in maintaining a relationship to achieve respective goals (Emerson, 1962).
Dependence makes possible the establishment of control mechanisms over the
The literature draws a distinction between buyer dependency and supplier
dependency. Supplier dependency typically exists when the buying company is
significant for the supplier; the buying company has a high percentage of the
supplier’s total market. Conversely, buyer dependency
can be characterised as having a high need for, but relatively low possibility of,
integrative practises with suppliers (Cox, 2004). Currently, only limited attention
has been given to measuring power and dependency in relationship management. However, van der Vaart and van Donk (2007) conclude that power and dependency in external relationships should be measured since the concept is among the main factors shaping and influencing integration. Due to the overall importance of
power and dependency for external supply chain integration, this thesis places
increased emphasis on this particular phenomenon by raising the following
Research Question 3a: What is an appropriate technique to measure power
and dependency across inter-organisational boundaries?
Research Question 3b: How do power and dependency affect external
supply chain integration?
Many initiatives within the field of supply chain management and operations
management are directed toward the removal of barriers to ease the material and
information flow (Naylor et al., 1999). However, the removal of barriers implies
change from the current supply chain practise to a more integrated way to do
business. This thesis intention is not to study change in particular. Rather, the
interest is on the routes companies take to further integrate their supply chain.
How is supply chain integration actually achieved? Therefore, the concept of
supply chain change cannot be completely ignored when studying the
pathways/routes to supply chain integration.
4.8 Supply chain change
The integration of a supply chain requires change internally and also externally
with suppliers and customers. These changes target the removal of supply chain
integration barriers to ease the material and information flows. Here, two distinct
forms of change within supply chain management are discussed; a more gradual
change process termed continuous improvement, and radical change in the form
of Business Process Reengineering.
Business process reengineering-
Business process reengineering (BPR) is the Western answer to continuous
improvement. BPR is a radical change approach because it triggers
change of many kinds, not just of the business process itself. Job designs,
organisational structures, management systems, anything associated with the
processes are reengineered in an integrated way. Process reengineering is founded
on two key ideas:
1.Business should be viewed horizontally, not vertically, and should focus
on business processes rather than on functional areas, departments, etc.
2.The only way to change the way the company works is to apply very
aggressive change management concepts, involving people at every level,
and communicate extensively throughout the organisation.
A BPR initiative is commonly seen as a twofold challenge. Firstly a technical challenge, which is due to the difficulty of developing a process design that is a radical improvement of the current design. Secondly, a socio-cultural challenge, resulting from the severe
organisational effects on the people involved, which may lead them to react
against those changes. Many authors identified the socio-culture challenge as the
more critical one.
Several well-known management philosophies exist that can scope and guide the
overall course of a reengineering project, such as Total Cycle Time Compression, the Lean Enterprise approach. However, a discussion of these various approaches is outside the scope of this thesis. More importantly, the similarities between BPR and supply chain integration are further explored here.
Supply chain integration and BPR are seen as two complementary philosophies.
However, Evans et al. (1995) argue that after full and successful business process
re-engineering, internal integration will be achieved. The authors undertook an indepth
literature review to identify the change areas when implementing an
integrated supply chain or undertaking reengineering.
4.9 Achieving supply chain Integration
4.9.1 Supply chain Integration in theory and practice-
Despite more than 20 years of academic publications there remains a significant
gap between supply chain theory and practise. Many scholars report that few
companies are actually engaged in extensive and advanced supply chain
integration practises (Akkermans et al., 1999; Halldorsson et al., 2008; Harps &
Hansen, 2000; Kilpatrick & Factor, 2000; Towill et al., 2002, Zailani &
Rajagopal, 2005). Fawcett and Magnan (2002) carried out a multi-method research approach
involving both surveys and case study interviews in the USA. Their findings
reveal that supply chain practise seldom resembles the theoretical ideal and only
very few companies have truly begun to establish a supply chain management
culture. These companies have begun to map their supply chain, analyse value
propositions and core competencies, and evaluate the appropriateness of existing
and future supply chain relationships (Fawcett & Magnan, 2002). Towill et al.
(2002) carried out detailed case studies on 20 supply chains from the European
automotive sector; a sector well-known for its advanced supply chain practises
(e.g. Toyota Production System). They found that 80% of the sample struggle to
be internally integrated, with the remainder advancing further, towards external
integration. McAdam and McCormack (2001) presented a qualitative study of the
relationship between managing business processes and managing supply chains.
They found little evidence of companies actually exploiting the integration of
business processes in their supply chains (McAdam & McCormack, 2001).
Similar findings were reported by Potter et al. (2004), who concluded that,
although the steel supply chain has evolved between 1990-2001 towards an
integrated structure, there are currently constraints imposed by organisational
Many books reporting on customer responsive supply chain practises are using
Procter & Gamble, together with Wal-Mart, as best practise examples. Storey et
al. (2005) investigated Procter & Gamble’s supply chain practises with key
customers (retailers) and reported that while a customer responsive supply chain is
technical feasible both parties lack top management support to implement the
Recently, quantitative studies report the poor application of the supply chain
management concept. Zailani
and Rajagopal (2005) report that companies are still in their infancy stage when it
comes to supply chain management and integration with customers and suppliers.
Supply chain integration is a desirable concept; however, practitioners seem to
struggle with its successful application. Certain barriers exist that hinder the
implementation of an integrated supply chain. Poirier and Quinn (2003) report
that companies within such industries as high technology manufacturing,
telecommunications, and wholesale distribution, had moved into more advanced
levels of supply chain management in parts of their business application areas.
Overall, however, the vast majority of companies reported a poor uptake of the concept of supply chain management.
4.9.2 Pathways to supply chain Integration-
Narasimhan and Kim (2001) note that much of the research on integration has
been predicated on the assumption that integration occurs in distinct stages.
Possibly the most influential work regarding a stage process towards supply chain
integration is by Stevens (1989), who proposed a four stage evolutionary model of
supply chain integration: baseline integration, functional integration, internal
integration, and external integration. Figure represents Stevens (1989)
Stevens (1989) suggests that companies follow an integration process that goes
through different stages by integrating internally first and then extending the
integration process to other supply chain members externally. Empirical evidence as well as case study research support the evolutionary integration model developed by
However, it has been shown that even similar companies may progress through
quite different stages to achieve a fully integrated, seamless supply chain
have codified the evolutionary integration model by Stevens and applied it to 20
value streams from the automotive sector. Although none portrayed the
characteristics of the traditional structure, three (15%) are shown as undergoing
functional integration. However, thirteen (65%) of the value streams were in the
process towards internal integration. Only four (28%) had progressed beyond this
stage towards external integration. This work particularly highlights that it is
unusual for supply chains to display all the characteristics of a particular stage at
the same time, therefore indicating that Stevens’ stepwise progression does not
always reflect reality (Potter et al., 2004). Further, Gimenez’ (2004) qualitative
study identified one exemplar that did not follow Stevens integration model.
Finally, Halldorsson et al. (2008) report that managers seem to achieve more
successful integration externally with their suppliers and customers than they do
internally with their managers and departments.
Many researchers have identified a lack of understanding/knowledge regarding
the path to further integrate the supply chain. Frohlich and Westbrook
(2001), in their award winning paper, raise the question of what are the necessary
steps towards supply chain integration. Pagell (2004) likewise identified that there
is far less research on how to achieve integration and that what research does exist
tends to look at a specific factor such as the use of information technology or a single set of purchasing practises. Lacking in the literature is a comprehensive study on the pathways to
supply chain integration including factors that enable and inhibit integration. This
thesis aims to close this research gap in understanding, and investigate what
routes companies take to integrate their supply chain. Hence, the following
research question is raised:
Research question 4: What is an effective methodology to investigate
supply chain integration maturity, barriers, and enhancement in practise?
Research question 5: In what ways do companies pursue supply chain
integration in practise?
Research question 6: How do companies achieve supply chain integration
In the light of the preceding discussions, existing supply chain integration models need to be tested and also a suitable research methodology that enables the researcher to investigate pathways to supply chain integration needs to be identified or, in case of need, developed. Then, the overarching research question can be addressed.
In order to be able to answer the overarching research question, a conceptual
model is needed capable of capturing all relevant characteristics of supply chain
integration. Currently, there is no commonly agreed framework for the
components of supply chain integration (Zhao et al., 2008). Van der Vaart and van
Donk (2007) proposed one conceptual model focusing on three main categories;
attitudes (e.g. attitude towards customers or suppliers), practises (e.g. EDI and
VMI) and patterns (e.g. face-to-face contact with suppliers and customers).
However, their model is conceptual only and externally focused. Hence, a new
conceptual model capable of capturing the essence of internal and external
integration is proposed next.
4.10 Assessing supply chain Integration in practice
Stevens (1989), Towill (1997b), Kim (2006) and Das et al. (2006) concluded that
advanced supply chain management practises lead to a higher level of supply
chain integration. Supply chain practises are viewed as tangible activities or
technologies that play an important role regarding integration. Hence, advanced
supply chain integration practises have been identified in the literature (Potter et
al., 2004). The authors identified 10 supply chain integration practises. An additional 12 practises have been identified (including intangible characteristics that have been reported as being critical to supply chain integration) to capture a focal company’s supply chain
integration status. The combined set of 22 characteristics has been grouped into
five different categories termed; information generation and sharing; relationship
management; technology integration; people/culture; and performance outcome.
The developed conceptual model enables the researcher to clearly evaluate the effect of the change process on supply chain integration. The Evans et al. (1995) categories for comparison of business process reengineering and supply chain management, set the basis for the developed conceptual model because the authors identified that companies that have already integrated the supply chain will have likely have already travelled the same path as business process reengineering. Further, a detailed literature review for each proposed
category has been conducted, which resulted in 22 supply chain integration practices.
4.10.1 Information generation and sharing-
Information integration makes inventory and production visible throughout the
supply chain, creating a more congenial climate for collaborative planning and
forecasting. Data includes production schedules, forecasts or delivery data between different functions within a focal company and with other supply chain members like customers, suppliers or carriers. Many improvements within supply chains are enabled by
developments in the areas of information sharing.
Four information integration characteristics are:
operational data, visibility, communication, and performance measures.
In the traditional supply chain setting, operational data is not shared. However, as
supply chain practises improve, the sharing of information becomes more critical
and expands from sharing within a function to extensive sharing within the focal
organisation. The last stage includes suppliers and customers in the data sharing
activity; however, many academics argue that prior to the extensive sharing of
information, trust needs to be built up between the focal company and its external
entities (Wisner et al., 2005).
Holweg et al. (2005) developed a four stage integration model where visibility
played a crucial part. They argue that reducing uncertainty via visibility of
information flow is a major objective in supply chain integration. Unpredictable
or non-transparent demand patterns have been identified as causing artificial
demand amplification. This leads to poor service levels, high inventories and
frequent stock-outs. In the traditional supply chain, no visibility is present. The
visibility of information improves internally until full pipeline visibility is reached
in the seamless supply chain stage (Holweg et al., 2005)
Pagell (2004) identified communication as one of the key enablers to supply chain
integration. Bagchi and Skjoett-Larsen (2002) similarly identified that supply
chain management requires various actors at all levels of hierarchy in multiple
organisations to work and communicate together for achieving a common goal.
The traditional supply chain value reflect poor communication practises.
Communication strongly improves internally and externally until multiple contact points at all management levels have been established (Bagchi & Skjoett-Larsen,
The final characteristic is integrated measurement systems, which are required to
manage and coordinate supply chain operations. Good metrics and strong
measurement systems serve to provide timely feedback that enables management
to take corrective action and for superior results. These systems must track
performance across the borders of internal functional areas and external supply
chain partners, measuring the operations of the overall supply chain (Stank et al.,
1999b). Bagchi and Skjott-Larsen (2002) developed and successfully tested a
three stage performance measurement model ranging from low integration over
medium to high levels of integration. Again, the traditional supply chain value
reflects poor performance measurement.
4.10.2 Relationship management-
Relationship management is concerned with the integration of key customers and
suppliers. Without a foundation of effective supply chain organisational
relationships, any efforts to manage the flow of information or materials across
the supply chain are likely to be unsuccessful (Power, 2005). Five key integration
practises have been identified and are presented in Table.
Characteristics NA Traditional SC Functional SC Reactive SC Seamless SC
(Spekman et al.,
1998) Open market
bargaining ‘ large
supplier base Co-operation ‘
(longer contracts) Co-ordination ‘
information linkages Collaboration ‘
with supplier of
(Holweg et al., 2005) Poor customer
service Reactive customer
service Some few major
integration Lasting relationships
with customers of
(Ellram & Carr,
1994) Reactive buying Independent
procurement Essential business
function Internally and
VMI / CPFR (Holweg
et al., 2005) Not implemented Used only in an
experimental stage Implementation stage
with a few supplier /
customers CPFR/VMI with
key suppliers and
SC strategy (Peck &
Juttner, 2000) None Each function
individual Company aligned Supply chain aligned
Relationship management assessment
Spekman et al. (1998) identified a four stage transition regarding supplier
relationship management. In the first stage, supplier relationship management is
immature. Companies have a strong price focus, and manage a large supplier base
with predominantly adversarial relationships. As supplier relationship
management practises mature, the company significantly reduces the number of
suppliers and engages in longer-term contracts. The third stage is termed coordination.
Here the focus is on information linkages with key suppliers and
improvement of material and information flow. Collaboration with suppliers of
choice is the final stage. Here, the focus is on optimising material and information
flow with key suppliers. The terminology choice in the seamless supply chain
stage points to their being no supplier dominance present in those relationships.
Holweg et al. (2005) proposed a four stage collaboration model focusing on
VMI/CPFR and customer relationship management. In the traditional supply
chain stage, companies purely react to customer demand; techniques like VMI and
CPFR have not been implemented. The poor information flow leads to high
inventory and frequent stock outs, which is associated with poor customer service.
In the functional supply chain setting, customer and supplier still order
independently, yet exchange demand information to overcome poor customer
service. This step is frequently advertised as the first implementation of VMI
and/or CPFR. In the reactive supply chain stage, key customer integration is
achieved using long-term contractual agreements. VMI and CPFR practises are
mature. In the seamless stage, all key customers of choice are closely linked to the
focal company, with extensive information exchange and VMI/CPFR practises
(Holweg et al., 2005).
Ellram and Carr (1994), propose a four stage purchasing development model. The
first stage is the passive stage. Purchasing is viewed as a reactor to requests from
the other departments. Many of purchasing’s legitimate activities are handled by
other functions outside of purchasing. In the independent stage, purchasing
departments spend time to professionalise the purchasing function by introducing
formalised supplier programs. In the third stage, purchasing departments are
viewed by top management as essential business functions. Purchasing is
expected to support and strengthen the company’s competitive advantage (e.g.
providing timely information to all departments in the company about changes in
price and availability of materials). In the integrative stage, the company’s
competitive success rests significantly on the capabilities of the purchasing
Mejias-Sacaluga and Prado-Prado (2002) highlight the importance of strategic
alignment. To take full advantage of the supply chain approach, the supply chain
strategy for key customers and suppliers need to be linked to the overall business
strategy. Pagell (2004), and Peck and Juttner (2000) point out that in an ideal
world, all the companies within a supply chain are committed to a single and
aligned proactive strategy.
4.10.3 Technology Integration-
Ideally a company’s IS system provides effective support for the functioning of
the supply chain. The overall information systems architecture must be capable of
linking and coordinating the information systems of the individual parties into a
cohesive whole (Fawcett & Magnan, 2002). Bagchi and Skjoett-Larsen (2002)
developed and successfully tested a three stage information integration model.
Table 2.14 represents Bagchi and Skjoett-Larsen’s model for the functional supply
chain, reactive supply chain and seamless supply chain column. A fourth column
(traditional supply chain) has been added reflecting a poor uptake on information
Characteristics NA Traditional SC Functional SC Reactive SC Seamless SC
system (Bagchi &
Skjoett-Larsen, 2002) No IT system
being used Bar coding of
products Increased bar-coding,
with key players Track-and-trace
the supply chain
Data transfer system
(Bagchi & Skjoett-
Larsen, 2002) Manual ‘ facsimile
or telephone PC based IS (EMail,
Extranet) Few EDI/Internet
links to customer /
suppliers Extensive use of
links within SC
(Bagchi & Skjoett-
Larsen, 2002) Separate
incompatible MRP/MRP II legacy
system ERP/DRP with MRP
II / intra company /
rigid interface ERP + SC planning
inter company /
Technology integration assessment
Track and trace systems monitor the real-time location of materials. This real-time
information improves a company’s response to customer questions regarding
deliveries. Track and trace systems also allow those receiving goods to be
prepared when materials arrive and thus to perform all the loading, unloading, and
corresponding administrative work in a more efficient manner (Chopra & Meindl,
2006). The seamless supply chain has full pipeline visibility. In complete contrast,
the traditional supply chain has no IT system in use.
Electronic data interchange (EDI) technology provides suppliers with information
about their production needs by giving suppliers access to production planning
and control systems, vendors can then arrange deliveries without the need of any
paper transaction (Gattorna & Walters, 1996). Similarly, the cash flow is
optimised by timely payments using EDI. Reduction of payment delays
significantly lowers the cost of doing business and makes the supply chain more
efficient, and supports external integration (Bagchi & Skjoett-Larsen, 2002). The
seamless supply chain makes extensive use of EDI technology, whereas the
traditional supply chain typically still uses facsimile and phone.
ERP systems are primarily built on transactions-based systems, while supply
chain management provides visibility, planning, collaboration, and control across
and beyond the enterprise. Hence, ERP and supply chain management should be
integrated to provide higher business value (Bose et al., 2008). Bose et al. further
identified that the successful implementation of an ERP system resulted in a
strong increase of order fulfilment as well as a considerable reduction in
inventory. The seamless supply chain has a fully integrated transaction system
with flexible interfaces, whereas the traditional supply chain applies separate
independent and incompatible transaction systems.
Supply chain management requires various actors at all levels of the hierarchy in
multiple organisations to work together to achieve a common goal. Managing and
coordinating the human/people factor along the supply chain is therefore very important (Trkman et al., 2007).
Characteristics NA Traditional SC Functional SC Reactive SC Seamless SC
(Towill, 1997) Multiple decision
points Single decision
point for each
process Single decision point within organisational
control from single
(Bagchi & Skjoett-
Larsen, 2002) None Functional teams
only Cross functional
teams / key
account manager Teams across the
supply chain ‘
1995) Separate almost
departments Discrete business
functions Less hierarchical,
structure Process orientated
(Harrington, 1995) Defensive
watching our backs Internal team focus,
functional trade offs Willingness to
trade-offs Embrace change,
Supply chain focus
(Stevens, 1989) Asset focussed /
quick fix Inbound or
outbound flow /
cost focus Process flow / cost
focus Customer focus
KPI (Wisner et al.,
2005) None Functional driven Cross functional Supply chain aligned
People/ Culture assessment
Towill (1997b) identified decision points as a key attribute in supply chain
management. He defines decision points as points where information is brought
together and acted upon. Potter et al. (2004) developed and successfully tested a
four stage integration model including decision points. The traditional supply
chain consists of multiple decision points. The functional supply chain has
reduced these down to a single point for each process. In a reactive supply chain, a
single decision point within the organisational boundary is present whereas the
seamless supply chain is defined as a coordinated control from a single point
(Potter et al., 2004).
Part of supply chain integration is the capability to process relevant information.
One type is investment in information systems (see Table 2.14) and the other is
establishment of lateral linkages. Lateral linkages could be direct contact between
managers at different levels and from different functions or companies,
establishing project teams (Lambert & Cooper, 2000). Those linkages provide a
mechanism for decentralised general management decisions, which provides
flexibility to a supply chain.
Bagchi and Skjoett-Larsen developed and successfully tested a three stage lateral
organisation model. Here a fourth column (traditional supply chain) has been
added reflecting no lateral organisations in place.
Some researchers opine that flatter organisations work better than hierarchical
ones. The traditional, hierarchical model of management prevalent in most enterprises drives
control and efficiency by segregating business activities into standardised subtasks,
which is represented by the traditional supply chain (Hewitt, 1994). The
new principle suggests that the people who do the work should make the decisions
and that the process itself can have built-in controls. Pyramidal management
layers can therefore be compressed and the organisation flattened, which is
represented by the seamless supply chain (Hammer, 1990).
Organisational culture also plays a role in integration. Culture is defined as the
‘set of values, guiding beliefs, understandings, and ways of thinking that is shared
by members of an organisation and is taught to new members as correct’; it is viewed to be critical when integrating the supply chain. A very defensive culture is present in the
traditional supply chain, where individuals purely react to the given orders. In the
functional supply chain, a team approach has developed, where individuals are
prepared for functional trade-offs. In the reactive supply chain, individuals have
developed a willingness to improve and an acceptance of change. Here, people are
prepared for internal trade-offs on a company level. In the seamless supply chain,
individuals embrace change and have developed an understanding for external
The fifth category is supply chain focus. To achieve a high level of integration
there is a need for all parties in the supply chain to change from a product and cost
focus to a customer orientation (Gattorna & Walters, 1996; McAdam &
McCormack, 2001). Stevens (1989) describes supply chain focus as a critical
characteristic for supply chain integration. He uses a four stage supply chain
integration model. In Stage 1 the supply chain has a strong asset and quick fix
focus. Stage 2 is defined by an inbound or outbound flow and cost focus. Stage 3 includes the cost for the entire process,
whereas Stage 4 takes a strong customer focused approach.
The final category is human resources key performance indicators (KPIs). Supply
chain integration can be achieved by establishing cross-functional human
resources key performance indicators (Bagchi & Skjott-Larse, 2002; Lee, 2000).
Cross-functional KPIs will help to overcome the silo mentality present in many
companies. Hence, it is important to align supply chain goals with the incentive
system of the focal company. Performance reviews of managers should include
their ability to integrate processes internally and externally and to meet overall
supply chain goals (Wisner et al., 2005). In the traditional supply chain, no human
resources performance indicators are present. The functional supply chain is
focusing on functionally driven KPIs, whereas the reactive supply chain is
represented by cross functional KPIs. Here, rewards are given to staff working
successful in cross-functional teams. The seamless supply chain aligns the human
resource KPIs with the overall supply chain goals (Wisner et al., 2005).
4.10.5 Performance Outcome-
Supply chain integration is expected to improve material and information flow
and hence improve the overall performance of the supply chain. The Table below
enables the researcher to identify the impact certain integration characteristics
have on material and information flow.
Characteristics NA Traditional SC Functional SC Reactive SC Seamless SC
(Stevens, 1989) Functional,
uncoordinated Fragment of
company Fully coordinated
within company Integrated across
1989) High levels; multiple
between echelons Each company
function buffered No intermediate
company boundaries Minimal strategic
Lead times (t)
(Stevens, 1989) Long storage,
distribution Few reduction in
storage, process and
distribution time Strong reduction in
storage, process and
distribution time Minimised
(Bagchi & Skjoett-
Larsen, 2002) Functional,
uncoordinated Fragment of
company Fully coordinated
within company Integrated across
Stevens (1989) identified four stages of supply chain integration. The traditional
supply chain represents the fragmented operations within the individual company,
defined by functional uncoordinated material flow, high levels and multiple stockholding
between echelons and long storage, process and distribution time. The
functional supply chain is defined as having limited integration between
functions. Here, a fragment of coordination within the focal company is present;
inventory is buffered at each company function and a few reductions in storage,
process, and distribution time are present. The reactive supply chain requires
internal integration in the individual company, defined by fully coordinated
material flow within the focal company, no intermediate inventory except at
company boundaries and strong reduction in storage, process and distribution
time. Finally, the seamless supply chain extends upstream to suppliers and
downstream to customers. Material flows are integrated across company
boundaries, minimal strategic inventory exists in the supply chain and the lead
time is minimised (Stevens, 1989).
Bagchi and Skjoett-Larsen (2002) extended the performance outcome of supply
chain integration by also focusing on integrated information flow. Here,
information flows alongside the material. In Stage 1, information flows are
functional and uncoordinated. Stage 2 is defined as having a fragment of
coordination within the company. In Stage 3, a full coordination of information
flow within the company is present. In the final stage, information flows are
coordinated, even across company boundaries.
In order to verify the characteristics in Tables, the findings have been compared with Gimenez’ (2004) assessment of nine manufacturers and six retailers where the comparison highlights that there does appear to be good consistency with Gimenez’s assessment.
The research contained in this thesis is in the field of supply chain management
and, more specifically, concerns supply chain integration. The concept of supply
chain management was highlighted, and an historical review of its development
presented. Further, the scope of the supply chain management concept was
discussed. Some different methodologies used to evaluate current supply chain
practises were also presented. Here, the Quick Scan Audit Methodology has been
identified as being potentially most suitable to investigate supply chain integration
The central focus of the literature review is the concept of supply chain
integration. The literature identified three layers of confusion’ regarding supply
chain integration. The first layer is the range of the integration concept; some
authors include internal integration, others solely focus on external integration.
The second layer is introduced by the industry focusing on different supply chain
integration practises. Finally, academia adds to the confusion around the concept
of supply chain integration by focusing on selected small areas of supply chain
integration. The three layers of confusion combined highlight that the concept of
supply chain integration is ill defined and not well understood. The literature lacks
a common, universal view of supply chain integration. The confusion around the
supply chain integration topic also reflects the different views of supply chain
management by different researchers (Mann et al., 2008). The author’s view on
the supply chain integration concept has been described and another definition has
been added to the literature; one which the author judges to be very valuable for
the understanding of supply chain integration.
Barriers to, and enablers of, supply chain integration were highlighted because
academia has already identified that removal of barriers is critical for integration
of the supply chain. As a consequence brief mention was made of change
management within the supply chain. Finally, the conceptual model of the supply
chain integration evaluation tool was presented. This tool enables the researcher to
map out the current level of supply chain integration in practise and the impact of
change initiatives on supply chain integration. This tool also represents the
author’s understanding and scope of the concept of supply chain integration. A
main purpose of this chapter was to identify the present shortfalls and thus the
areas requiring further research. As a result, six research questions in the area of
supply chain integration have been formulated.
6. Discussions and Findings
A tightly integrated supply chain for a small or large business is a network of businesses and contractors that provide raw materials, transportation, manufacturing, distribution, warehousing and retailing services. Businesses rely on efficient supply chains to provide a high level of customer service, while meeting sales and profit targets. Information technologies, including enterprise resource planning systems, are at the core of integrated supply chains.
Flexibility- Tight supply chain integration gives management operational flexibility to respond rapidly to external events, such as the actions of competitors and changes in customer demand. Companies can gather intelligence through their supply chains, which allows them to be generally aware of what their competitors are planning months in advance. For example, if a competitor launches a new product, an electronics manufacturer could leverage its integrated supply chain to source the parts, activate a marketing plan and rush a prototype from the design stage to the launch stage in a few weeks.
Inventory Management- Integrated supply chains improve inventory management, which means fewer overstocked and understocked conditions. Overstocking may result in higher storage costs and product obsolescence, while understocking could mean losing customers to competitors. Tight integration means that retailers can quickly adjust their inventory orders weeks or months in advance of anticipated changes in customer demand to ensure that the right amount of stock is on hand. Speed is essential in global supply chains because raw materials and finished goods are often transported over long distances. Tightly integrated supply chains also facilitate just-in-time manufacturing, in which companies assemble and manufacture products as the orders come in.
Profit Margins- Operating flexibility and tight inventory management lead to a lower cost structure, which results in higher profit margins. By responding rapidly to changes in the competitive and customer environments, small businesses are able to remain competitive and maintain or grow their top and bottom lines. Tight integration provides companies with visibility not only into their own operations but also into their suppliers’ operations, which allows for collaborations on reducing costs and driving margins.
Considerations- Tightly integrated supply chains can serve as early warning systems. For example, if a supplier is experiencing cash flow problems, customers will find out quickly and they can start making alternative arrangements. Some customers may step in and loan the supplier some working capital so that they can continue operating. Supply chain integration usually involves upfront costs and disruptions in operations as people are trained on new information systems.