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Abstract No: 002-0484
Supply Chain Integration in Nordic Firms
2nd World Conference on POM
April 30-May 3, 2004
Cancun, Mexico
By
PRABIR K. BAGCHI
Professor and Associate Dean
School of Business
THE GEORGE WASHINGTON UNIVERSITY
Hall of Government 205
Washington DC 20052, USA
Tel: (202) 994-2197; Fax: (202) 994 4930
e-mail: [email protected]
AND
TAGE SKJOETT-LARSEN
Professor
Department of Operations Management
Copenhagen Business School
Solbjerg Plads 3, 2000 Frederiksberg, Denmark
Tel: +45 38153400; Fax: +45 38152440
e-mail: [email protected]
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Supply Chain Integration in Nordic Firms
The world economy has undergone a profound transformation in recent years, spurred by
globalization and enabled by the rapid development and adoption of information and
communications technology. In today's competitive marketplace, few firms or nations can
ignore these forces that permeate businesses today. Companies all around are striving
hard to create better value for their customers and they realize the important role supply
chain management plays for better management of commercial transactions and
transaction-generated information. Realizing the synergies that exist in such disparate
functions as procurement, production, transportation, inventory control, distribution and
customer service, many companies have done away with their old organizational
structures. Fragmented activities slotted into multiple functions are yielding place to
integrated logistics function. Many companies have decided to look beyond the firewalls of
their organizations and include suppliers and customers for further operational synergy
and called it supply chain management.
Supply chain management links a firm with its customers, suppliers and other members of
the chain including transportation and warehousing companies. According to Handfield
and Nichols a supply chain encompasses all activities associated with the flow and
transformation of goods from the raw materials stage (extraction), through to the end user,
as well as the associated information flows [1]. Mentzer et al define a supply chain as a set
of three or more entities (organizations or individuals) directly involved in the upstream and
downstream flows of products, services, finances, and/or information from a source to a
customer [13].
While some researchers [3, 7, 9] have extolled the viability of the supply chain
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management concept as an effective competitive tool in the current global marketplace,
others have offered words of caution [5, 14]. The second group of researchers warns of
practical limitations of the reality of supply chains and lament that the process of making
complex supply chain networks work is not yet well understood.
A supply chain, as we define, consists of efficiently managing the flows of materials,
information, money and ownership of the goods exchanged via a network of facilities and
actors that procures raw materials and component parts, transforms these into
intermediate goods and sub-assemblies, builds the final products, and makes these
available to the global marketplace for consumption by the final customer. The emphasis
on both physical supply (inbound) and physical distribution (outbound) sides is not merely
on the immediate suppliers and customers, but often on suppliers’ suppliers and
customers’ customers. The interfaces upstream and downstream in the supply chain are
frequently enabled these days by a logistics information system (LIS) providing access to
each other’s business and manufacturing systems. Suppliers gain access to
manufacturers’ production plans and can reduce their reliance on uncertain forecasts.
Manufacturers obtain early warning about possible disruptions of supply due to unforeseen
events faced by the suppliers and can reschedule their plans and avoid costly disruptions
[1, 11, 12]. This rationale for linking all partners using a common information system in a
supply chain is to ensure a smooth flow of information pertaining to order, product design
and development, market intelligence, production scheduling, payments, and any other
information flow for managing coordination among the various actors in the supply chain.
Coordinating these flows in a network requires integration of supply chain partners to
ensure unhindered flows at each of the many buyer-supplier interfaces in a supply chain
network. Experts believe supply chain integration involves efficient management of
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information and closer organizational coordination among supply chain partners [9, 11, 12,
13].
Under the usual conditions of business uncertainty, the multi-echelon supply chain, we
described above, often gives rise to "speculative" buying at each buyer-supplier interface
downstream. At each interface, the extent of fluctuation due to speculative buying gets
amplified leading to what is known as “bullwhip” effect [11, 12]. As a result, the supply
chain as a whole often carries more inventories than the actual requirement and yet there
can be pockets where there is not enough. Customer dissatisfaction becomes common
and obsolescence often results [11, 12]. Logisticians frequently have to resort to rework
and transshipment increasing costs thereby. Many experts have shown that information
sharing and close communication and partnership within the supply chain can help reduce
the severity of “bullwhip” effects [11, 12,15].
In this research, we consider the challenges the extent of integration some European
companies have done with internal and external partners in the supply chain and review
the techniques employed to overcome the challenges. Specifically, we examine the role of
information technology and organizational linkages in obtaining supply chain integration.
First, we describe supply chain integration and examine the roles of and developments in
the areas of information technology and organization based on the published literature and
as they relate to supply chain integration. Second, we explain the research methodology.
Next, we describe the cases studied, analyze the responses received, build a conceptual
model describing the stages of supply chain integration highlighting the role of information
technology and organization structures. Then we report the results of a mail survey done
among a group of firms from selected industries in the Nordic countries. Finally, we offer
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our concluding remarks.
What is Supply Chain Integration?
In their seminal work, Lawrence and Lorsch [10] defined integration as, “the quality of the
state of collaboration that exists among departments that are required to achieve unity of
effort by the demands of the environment”. While this definition refers to integration
internal to a firm or organization, our emphasis here goes beyond the firm and
encompasses external entities that are players in a supply chain.
Bowersox, Closs and Stank have classified integration in a supply chain context into six
different types [3]. These are customer integration, internal integration, material and
service supplier integration, technology and planning integration, measurement integration,
and relationship integration.
Stevens [16] identified four stages of supply chain integration, where stage I represented
the fragmented operations within the individual company. Stage II focused on limited
integration between adjacent functions, e.g. purchasing and materials control. Stage III
required the internal integration of the end-to-end planning in the individual company and
stage IV represented the true supply chain integration including upstream to suppliers and
downstream to customers.
Lee outlines three dimensions of supply chain integration: information integration,
coordination and resource sharing, and organizational relationship linkage [11].
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Information integration refers to the sharing of information and knowledge among the
members in the supply chain, including sales forecasts, production plans, inventory status
and promotion plans. Coordination and resource sharing refers to the realignment of
decisions and responsibility in the supply chain. Organizational relationship linkages
include communication channels between the members in the supply chain, performance
measurement and sharing of common visions and objectives. As already mentioned
earlier, we view supply chain integration broadly in terms of information and organizational
integration. Accordingly, we restrict ourselves to examining the role of information
technology and organizational linkages for rallying the key members of a supply chain
network towards common goals for the supply chain.
In our study we have defined three stages of supply chain integration. Table 1 shows
some important differences between a high, medium and low integrated supply chain.
Communications systems are often inadequately connected and the information flows
often follow formal command paths with few direct contact points in a supply chain with low
integration. With high integration, there will often be many direct connections between
people at various decision levels across the inter-linked firms in the supply chain.
Technicians from the buyer will communicate directly with technicians of the supplier.
Production planners at the supplier will be in close contact with purchasing personnel at
the buying company.
Insert Table 1 about here
Supply chains with low integration will often have incompatible legacy systems, while well-
integrated supply chains may have implemented ERP systems such as SAP, Oracle, Baan
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or PeopleSoft. Another important difference is the focus on risk, cost and gain sharing. In
an integrated supply chain, the participants are expected to share the gains
proportionately to the risks and costs that are imposed in the collaboration. If there is no
balancing of gains and risks the collaboration will terminate sooner or later. Especially, in
the grocery industry the large retail chains have been reluctant to share gains with the
suppliers. As a result, the efficient consumer response initiative has had limited success
with notable exceptions, such as Wal-Mart and K-mart.
A highly integrated supply chain is also often characterized by joint investments in specific
capabilities or technology, e.g. development of common training programs, specific
production equipment or implementation of software packages. These investments are
often of limited value in alternative uses. Within the Japanese automotive industry
investments in relation-specific or co-specialized assets are often embedded in the
supplier-automaker relationships. A high degree of trust, information sharing and credible
long-term commitments to suppliers increase the willingness of both parties to make
relation-specific investments. Also, the U.S. and European car manufacturers and their
suppliers are becoming more willing to invest in relation-specific assets. An example is
Smart Ville, where seven first-tier suppliers have co-invested in a supplier park adjacent to
the assembly lines of DaimlerChrysler's production of the Smart Car in Hambach, France.
Other car manufacturers have adopted a similar concept. Thus, Volkswagen has built a
plant in Resende, Brazil, incorporating the ideas of heavy contribution of supplier capital.
Volvo Cars in Sweden has established a supplier park at the premises of a former
shipyard in the Gothenburg Harbor. Why haven’t these ideas been embraced by all?
During our research and consulting on supply chain management issues in various
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industries, we have not found many companies willing to bet their future on such close
integration with supply chain partners. While managers are often willing to share some
information within the supply chain to ensure smooth flow of materials, they would view
integration beyond with a relatively high degree of suspicion. We have been able to devise
a framework for explaining the behavior. The root cause for the lack of trust plaguing many
supply chains, as we see it, is the fear of loss of such elements of core competence as
proprietary technology, business plans and competitive strategy.
PURPOSE AND RESEARCH METHODOLOGY
This study seeks to understand the state of integration in supply chain networks in
Northern European firms. In particular, we want to identify the major issues and problems
these firms face in achieving integration in the supply chain and the tools and processes
they employ to overcome the challenges and obstacles. This study is done in two phases.
In the first phase, we adopt the case study method among five supply chains. In the
second phase we do a mail survey. In the case study phase, a sample group of mainly
firms from Northern Europe and European divisions of global firms, along with their supply
chain partners, were selected from the automotive, pharmaceutical, and electronic industry
groups. These three industry groups were selected, because they have been known as
leading industries in terms of advanced logistics solutions, extensive use of information
technology, and a highly competitive environment. Therefore, we would expect to find
prominent examples of high level of both information and organizational integration in
these industries. The focal companies chosen are acknowledged leaders in some
segments of the industries they represented. In addition, other key members of the
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respective supply chains were included in each supply chain. In selecting these suppliers
and customers, recommendations from the focal firms were taken into consideration. In
the case of a Swedish firm, it was not possible to establish contact with a key supplier´s
supplier and the customers were too fragmented. Therefore, the interviews were limited to
the relationships between the focal firm and its key supplier (a dyad). In the first phase,
there were 14 firms divided into four triads and one dyad. Each triad consisted of one focal
firm, one supplier, and one customer. We wanted to find out why the supply chain
integration process was launched and how it was being managed in these firms. That is,
we wanted to understand the scope of integration. Specifically, we wanted to explore the
processes and the related dynamics, the motivation of the involved parties, and the
challenges encountered in information and organizational integration in the supply chain.
For instance, how do the leading edge firms view the need for information integration?
What tangible steps, if any, are these firms taking to obtain visibility across the supply
chain? To what extent are these firms using inter-organizational teams for supply chain
management? How pervasive are these teams? According to Yin, a case study is
desirable when a “how” or “why” question is being posed about a current set of events,
over which the investigator has little or no control. Thus, the case study method was
chosen. The results of the case study are considered important and timely due to the
increasing importance attached to supply chain management in general, and specifically
due to the widespread adoption of contemporary information technology in supply chain
integration and repeated calls from experts for organizational integration with supply chain
partners. Triads provided us visibility of at least one echelon of the supply chain on both
demand and supply sides and also ensured that the responses from the focal firms were
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verified for accuracy. Multiple cases made it possible to trace the migration path for
achieving better supply chain integration.
In this study, we used semi-structured interviews to collect primary data. A thematized
questionnaire was used as a guide for each interview to avoid drifting the discussions in a
tangential direction and to ensure the coverage of the important research questions. In
order to achieve the required depth and understand the process dynamics, some
interviews spanned across multiple visits and included observation of actual workflow in
the respondent firms. To ensure construct validity, we collected data from multiple sources
in each respondent organization and the key informants in each company reviewed the
draft case study report. Care was taken to enlist experienced senior managers in order to
ensure their responses as truly representative of their firms' position. Use of multiple cases
ensured external validity, while data reliability was enhanced by having two researchers
simultaneously conduct the interviews.
In the second phase of this research, in order to get an overall view of the state of supply
chain integration in the Nordic countries it was decided to perform a mail survey in
selected industries in Denmark, Finland, Norway and Sweden. The selection of the
industries was based on researchers’ previous experiences and knowledge about the
“best practices” obtained from the logistics literature.
Table 2 shows the total population of firms, the sample size, and the response rate. A total
of 620 firms were included in the sample. The overall response rate was 12. Table 3
shows the industries included in the study. The population was limited to companies
employing at least 100 people and having operating revenue of at least 10 million USD.
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The population was downloaded from the AMADEUS company database
(http://amadeus.bvdep.com/).
Place Tables 2 and 3 here
The survey questionnaire comprised a section regarding the company (size, industry) and
the respondent’s area of responsibility. The section on ‘IT Integration’ was concerned with
the use and external access to ERP systems, Supply Chain Planning systems, use of
EDI/XML and participation in Electronic Marketplaces. The last section posed questions
on performance improvement as a result of integration in the supply chain. Most questions
were based on a five-point Likert-type scale. The questionnaire was pre-tested by three
selected companies and refined based on the comments received from the test
respondents. The industries were selected from a list of industries classified according to
the US-SIC nomenclature. The industries included were those, where we expected to find
the most advanced examples of supply chain collaboration.
To investigate if the nature and extent of involvement differ with company size, a
classification of the companies based on operating revenue has been made. In this study,
small companies have operating revenues less than 50 million USD. All other respondents
were classified as large companies.
DATA ANALYSIS
Table 4 provides a summary of the companies in the five supply chains studied in this
research.
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Insert Table 4 about here
Based on our analyses of the above cases, we have presented the salient characteristics
found in various models of supply chain integration using IT and organizational
transformation. We have also studied the scope of integration as these firms strengthen
their bonds. We have divided the integration achieved into three levels—low, medium and
high. Table 5 gives the integration path used by the sample firms using IT. For example, a
company still using legacy systems, including MRP II systems and relying on fax/phone
and limited e-mail/Internet use for communication with supply chain partners, has been
classified low on the IT integration scale. In contrast, we classify a company high on the IT
integration scale if it uses ERP and supply chain planning software, makes extensive use
of bar codes, EDI, and XML technology for communication and data transfer, and provides
supply chain partners online access to its production and sales plans.
Table 5 here
To better understand the effect of supply chain integration, in the second phase, the
respondents were asked to rate performance improvements after integration in eight
specific areas using a five-point Likert-type scale. Over 66% of the respondents confirmed
some improvements in order fulfillment lead-time after integration. This is important in as
much as across-the-board significant improvements may lure other firms to consider
embracing supply chain integration in their firms. No significant differences were noticed
between small and large firms. In terms of order fill rate, while about 35% of the small firms
reported improvement after integration, a larger number, about 60% of the large firms
realized similar improvements. It appears that larger firms, being better organized and with
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better systems and better coordination with supply chain partners, were able to achieve
higher improvements in order fill rate than the smaller ones.
As to production flexibility, 48% of the respondents perceived improvements occurred as a
result of supply chain integration and smaller and larger firms were dead even with similar
improvements realized. Again, this is an interesting result and merits some discussion. In
today’s competitive marketplace each company is trying various means to entice
customers to stay competitive. One of the surest means to do so is to become flexible so
as to be able to respond to customer needs in the shortest possible time. Clearly, both
small and large firms realize this and they are actively collaborating with supply chain
partners to become more responsive.
When it comes to total logistics costs, more than 63% reported reduction. Again, no
significant differences were found between the large and small firms. More than 33% of
the respondents from both large and small firms reported improvements in returns
handling and cost of processing returns, with smaller firms registering a slightly higher rate
of improvement (38%). Over 77% of the larger firms achieved improvement in the rate of
returns compared to 55% for the smaller firms although these differences were not
statistically significant. Almost 67% of the respondent managers believed on-time delivery
rates improved in their organizations with no significant difference noticed between small
and large firms. With respect to inventory turnover rates, while almost 21% of the small
firms reported performance improvement after integration, almost 43% of the respondents
from large firms realized similar performance improvements. The group differences in this
case were found to be statistically significant at 0.1 level (p<0.01). One possible
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explanation may be that larger firms are better organized and have better control over the
supply chain systems and processes and thus may be better placed to realize the
advantages of supply chain integration. Another explanation may be that larger firms have
the power and resources to implement concepts such as lean production, just-in-time
production and vendor-managed inventory and thereby push part of the inventory burden
upwards in the supply chain. Small and medium sized firms may not have similar
opportunities. Table 6 below summarizes these results.
Place Table 6 here
To understand the cause and effect relationship between the eight performance indicators
and supply chain integration variables, multiple regression analyses were carried out with
the above-mentioned eight performance metrics as dependent variables and with all the
predictor variables in the model. The predictor variables covered many areas for better
supply chain integration such as customer and supplier collaboration in design,
manufacturing, distribution, inventory management, software selection and
implementation, and length of relationship between them. The selection of the predictor
variables in the regression model was done by adding variables to the model one at a time
up to a point when an additional variable was not found to make meaningful incremental
contribution to the coefficient of determination (R2). This was further confirmed by ranking
the candidate variables in order of descending values of the t-statistic. Supplier and carrier
collaboration was found to be statistically significant for all the performance indicators
except production flexibility. This is a clear indication of the value placed by the
respondents on collaboration with key suppliers and carriers for performance
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enhancement. The next most important predictor was supplier/carrier collaboration for
distribution management. This determinant was found to be significant for all performance
indicators except production flexibility and inventory turnover ratio. Supplier/carrier
collaboration for supply chain network design was also one of the most significant
predictors and this was found to be statistically significant for all performance indicators
except production flexibility and on-time performance. The results of the multiple
regression analysis further showed that order fulfilment time, order fill rate, and production
flexibility were positively correlated with supplier and carrier involvement in R&D and
supply chain design. These relationships were found to be statistically significant.
Collaborating with suppliers in supply chain design activities such as facility location, mode
and carrier selection, and flow management, to improve supply chain efficiency has been
widely recommended in many studies. Our study supports this premise. However, both
order fulfilment and order fill rate showed significant negative correlation with
supplier/carrier collaboration in distribution. These results suggest that suppliers may not
positively influence direct customer satisfaction measures such as order fulfilment
including fill rates. Multiple regression tests with total logistics cost as the dependent
variable showed significant positive correlation with collaboration with key suppliers and
carriers in quality monitoring, R&D, and supply chain network design. An interesting and
somewhat surprising result was the significant negative correlation found between the
length of relationship with suppliers and performance measures such as production
flexibility and inventory turnover rates. An explanation could be that over time
complacency sets in and partners may take each other for granted and may not go the
‘extra mile’ to please each other and performance declines as a result. Although the
relatively low values of the coefficient of determination (R2) may raise a few eyebrows of
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some critics about the robustness of these results and we acknowledge the deficiencies,
yet we decided to report these to start a dialog and possibly further confirmatory research.
Performance improvement is influenced by a multiplicity of factors and we have chosen
only a few of them. Table 7 gives the excerpts of the results of the multiple regression
analyses.
Place Table 7 here
MANAGERIAL AND RESEARCH IMPLICATIONS
The message from what we witnessed is quite clear. Supply chain integration happens
when there are tangible benefits. While many respondents felt that supply chain integration
was desirable, the drive to accomplish integration has been rather uneven. In some firms,
respondents were not yet fully convinced of the need for close collaboration with suppliers.
While these managers had no objection to sharing some logistics and production plan
related data, they were not quite ready (or fully convinced of the need) to provide suppliers
access to sensitive and proprietary data pertaining to core competence areas. Thus,
collaboration at the design stage did not include suppliers as part of basic design teams.
Rather, in rare instances when collaboration prior to production took place, it was quite
often restricted to sharing broad ideas about future products and technology and the scale
of future production of new products. The scenario regarding IT integration is not much
different. While some companies have provided customers with IT integration via the
Internet, integration with suppliers is still in rudimentary stages. SMEs have certainly been
in the forefront in experimenting with IT integration and some have accomplished
significant advantages through closer working relationships with some key customers and
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suppliers. Larger multinationals have been somewhat slower in information technology
adaptation and integration with suppliers.
Much more research is needed in order to validate and qualify the results we have
presented in this paper. Further in-depth studies of supply chains are necessary to found
out what determines a high degree of integration and what are the impediments of
integration. Longitudinal studies of supply chains over a longer time period could also be
useful in order to find out if there exists a migration path towards more integration, or if
integration and disintegration are dynamic business models replacing each other over
time.
REFERENCES 1. P. K. Bagchi, "International Logistics Information Systems," International Journal of Physical Distribution & Logistics Management, Vol. 22, No. 9 (1992), pp. 11-19. 2. D.J. Bowersox, D. J. Closs, and M. B. Cooper, Supply Chain Logistics Management, (New York: McGraw-Hill/Irwin, 2002), p. 27. 3. D. J. Bowersox, D. J. Closs, and T. P. Stank, 21st Century Logistics: Making Supply Chain Integration a Reality (Oak Brook, IL: Council of Logistics Management, 1999). 4. S. Chopra and P. Meindl, Supply Chain Management: Strategy, Planning, and Operation (New Jersey: Prentice-Hall, 2001), p. 59. 5. M. C. Cooper, D. M. Lambert, and J. D. Pagh, “Supply Chain Management: More Than a New Name for Logistics,” The International Journal of Logistics Management, Vol. 8, No. 1 (1997), p. 10. 6. Forrester, J., W., “Industrial dynamics: A major breakthrough for decision makers,” Harvard Business Review, 38 (1957), pp. 37—66. 7. R. B. Handfield and E. L. Nichols, Jr., Introduction to Supply Chain Management ( New Jersey: Prentice-Hall, 1999). 8. J. Holmström, "Business process innovation in the supply chain - a case study of implementing vendor managed inventory", European Journal of Purchasing & Supply Management, Vol. 4 (1998), pp. 127-131. 9. D. M. Lambert, M. C. Cooper, and J. D. Pagh, “Supply Chain Management:
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Implementation Issues and Research Opportunities,” The International Journal of Logistics Management, Vol. 9, No. 2 (1998), pp. 1-20. 10. P. R. Lawrence and J. W. Lorsch, Organization and Environment: Managing Differentiation and Integration (Boston, MA: Harvard Business School Press, 1986). 11. H. L. Lee, "Creating Value through Supply Chain Integration," Supply Chain Management Review, September/October (2000), pp. 30—36. 12. H.L. Lee, V. Padmanabhan, and S. Whang, "The Bullwhip Effect in Supply Chains," Sloan Management Review, Spring 1997, pp. 93-102. 13. J. T. Mentzer et al., "Defining Supply Chain Management," Journal of Business Logistics, Vol. 22, No. 2 (2001), pp. 1-25. 14. S. K. Paik and P. K. Bagchi, “Process Reengineering of Port Operations: A Case Study,” The International Journal of Logistics Management, Vol. 11, No. 2 (2000); 15. Sterman, J. D. Business Dynamics (New York: Irwin McGraw-Hill, 2000), pp. 665-668. 16. G. C. Stevens, “Integrating the supply chain,” International Journal of Physical Distribution and Materials Management, Vol. 19, No. 8 (1989), pp. 3--8. 17. R. K., Yin, Case Study Research. (2nd ed.) (Newbury Park, CA: Sage Publications, 1994).
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Table 1: Characteristics of low, medium, and high integration in supply chains
Characteristics Low Integration Medium Integration High Integration Communication across the SC
• Few contacts points between companies
• Incompatible information systems
• Often legacy systems
• Lack of agreed upon procedure
• Regular contacts at top management level
• Rare operational level contact
• ERP systems installed
• Few EDI/Internet links
• Limited extranet
• Multiple contact points at all management levels
• Standardized operating procedure shared across the supply chain
• Compatible information systems
Shared decision-making
• Internal orientation
• Some collaboration with key customers/suppliers
• Inter-organizational orientation
• Common database
Risk, cost, and gain sharing
• Internal company focus
• Sharing with key customers/suppliers
• Supply chain focus
Sharing ideas and institutional culture
• Inward looking • Sharing with close partners in the SC
• Open exchange
Skills sharing • Few chosen areas
• Training of personnel
• Some supplier involvement in product development
• Frequent technology forums
• Early supplier involvement in NPD
• Group design teams
• Sharing across the supply chain
Investments • Company-specific
• Investments in human resources (exchange of personnel)
• Investments in IT systems
• Co-specialized investments (Joint investment in specific technology)
Formal lateral organizations
• No teams across the supply chain
• Cross-functional teams
• Key account managers
• Teams across the supply chain
• Primary allegiance to the team
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Table 2. Total Population, Sample Size, and Response Rate in the Selected Countries Country Total
Population Sample Size Percentage of
Population Response Rate Percentage
Denmark 376 180 48 15 Finland 331 160 48 9 Norway 216 100 46 12 Sweden 611 180 30 11 Table 3. Industries Included in the Sample Industry (US-SIC) Description 20 Food and kindred products 26 Paper and Allied products manufacturing 28 Chemicals and allied products manufacturing 30 Rubber and miscellaneous plastics products manufacturing 34 Fabricated metal products and, except machinery and
transportation equipment 35 Industrial and commercial machinery and computer equipment 36 Electric and other electrical equipment and components, ex.
Computer equipment 37 Transportation equipment manufacturing 38 Measuring, analyzing and controlling instrument; photographic,
medical, and optical goods; watches, and clocks manufacturing
TABLE 4. CASE STUDY DATABASE
Supply Chain
Supplier Focal Manufacturer Customer
Triad A Precision Mechanical components
Regional SME1
Medical Systems and pharmaceuticals
Division of large multinational pharmaceutical company
Articles for medical equipment
Division of a medium-sized pharmaceutical distributor
Triad B EDP-equipment
Large multinational company—manufacturer of computers and peripheral equipment
EDP-equipment
Large multinational company Manufacturer of EDP-equipment
Key account client within the toy industry
Large multinational company
Dyad C Exhaust systems
Large multinational company
Passenger Cars
Large multinational company
N.A.
Triad D Packaging materials
Regional SME
Healthcare
Manufacturer of drugs and nutritional healthcare
Distributor
Division of medium-sized pharmaceutical and drugs
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items
Large multinational company
distributor
Regional SME
Triad E Plastic molded parts
Regional SME
High-end audio and video equipment
Multinational company
Exclusive distributor/dealer of audio and video equipment
Regional SME
TABLE 5. STAGES OF INFORMATION INTEGRATION
Supply Chain Integration Using
LOW Integration MEDIUM Integration
HIGH Integration
Transaction systems • MRP II systems
• Legacy Systems
• ERP Systems
• Intra-company • Rigid interfaces
Value: Mechanization of existing processes
• ERP and Supply Chain Planning (SCP) systems
• Inter-company integration • Flexible interfaces
Value: Process Improvement
Communication Systems, Internet/extranet
• E-mail/Fax/phone
• Internet/extranet only used for limited purposes
• Few EDI/Internet links to customers & suppliers
• Extranet
• Extensive use of EDI/Internet/XML links within supply chain
Bar-coding and track-and-trace systems, Electronic POS (point-of-sale) data capture
Inventory visibility
• Only bar-coding of finished products
• Track-and-trace and electronic POS not used
• More extensive bar-coding, automated e-mail updates and confirmations
• Bar-coding from entry to dispatch
• Track-and-trace throughout the SC
• Key suppliers and customers connected
Vendor Managed Inventory (VMI)
Collaborate Planning, Forecasting and Replenishment (CPFR)
Customer Relation-ship Management (CRM)
Not used • Experimental stage with one or a few suppliers & customers
• Strategic suppliers have access to production plans, materials requirements, sales forecasts and orders
• CPFR/VMI with key suppliers/customers
• CRM with key customers
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Table 6. Performance Improvement Realized After Supply Chain Integration Performance Improvement in: Small Firms,
% Large Firms, %
Total, % Statistically Significant Diff.
Order Fulfillment Lead time 62.1% 71.0% 66.7%
No
Order Fill Rate 34.5% 60.0% 47.5% No Production Flexibility 48.3% 48.4% 48.3% No Total Logistics Cost 65.5% 61.3% 63.3% No Returns Processing 37.9% 30.0% 33.9% No Rate of Returns 55.2% 77.4% 66.7% No On-time Delivery 62.1% 71.0% 66.7% No Inventory Turn Ratio 21.4% 42.9% 32.1% Yes at 0.1 level
Note: Performance improvement scale ranged from 1=deteriorated, 3=Neutral or no change
and 5=Improved. Those respondents who indicated 4 or 5 have been included here.
Table 7. Results of Multiple Regressions
Dependent Variable Significant Predictor Variable(s)
Parameter Estimate
Model Coefficient of Determination (R2)
Order Fulfillment Time
Supplier/Carrier R&D Collaboration** Supplier/Carrier Distribution Collaboration* Supplier/Carrier Supply Chain Design Collaboration** Customer Inventory Management Collaboration** Customer Manufacturing Collaboration* Customer Supply Chain Software Implementation Collaboration**
0.38 -0.23 0.27 -0.29 0.12 0.18
0.32
Order Fill Rate
Measure Customer Satisfaction** Ask Suppliers about the Quality of Partnership* Supplier/Carrier R&D Collaboration** Supplier/Carrier Distribution Collaboration** Supplier/Carrier Supply Chain Design Collaboration* Supplier/Carrier Supply Chain Software Implementation Collaboration* Customer R&D Collaboration** Customer Inventory Management Collaboration* Customer Supply Chain Software Implementation Collaboration**
0.17 -0.17 0.36 -0.31 0.22 0.18 -0.24 -0.21 0.30
0.47
Production Flexibility
Solicit Customer Input for Service Design** Supplier/Carrier Procurement Collaboration* Customer Sales Administration Collaboration* Customer Supply Chain Software Implementation Collaboration* Average Length of Relationship with Key Customers*
0.14 -0.23 -0.13 0.17 -0.03
0.21
Total Logistics
Ask Suppliers about the Quality of Partnership** Supplier/Carrier R&D Collaboration**
-0.20 0.35 0.31
22
Cost Supplier/Carrier Distribution Collaboration* Supplier/Carrier Supply Chain Design Collaboration**
-0.31 0.38
Returns Processing Cost
Solicit Customer Input for Service Design* Supplier/Carrier R&D Collaboration** Supplier/Carrier Inventory Management Collaboration* Supplier/Manufacturing Collaboration* Supplier/Carrier Distribution Collaboration** Supplier/Carrier Supply Chain Design Collaboration** Supplier/Carrier Supply Chain Software Implementation Collaboration** Customer Sales Administration Collaboration** Customer Supply Chain Design Collaboration*
0.12 0.47 -0.23 0.19 -0.31 0.27 0.30 0.21 -0.20
0.63
Inventory
Turn
Measure Customer Satisfaction** Ask Suppliers about the Quality of Partnership** Supplier/Carrier R&D Collaboration** Supplier/Carrier Supply Chain Design Collaboration** Customer Manufacturing Collaboration** Customer Supply Chain Software Implementation Collaboration* Average Length of Relationship with Key Customers*
0.22 -0.43 0.13 0.38 0.10 0.05 -0.16
0.35
On-time Delivery
Supplier/Carrier R&D Collaboration* Supplier/Carrier Distribution Collaboration* CRM*
0.32 -0.23 0.06
0.20
Rate of Return
Supplier/Carrier R&D Collaboration** Supplier/Carrier Distribution Collaboration** Supplier/Carrier Supply Chain Design Collaboration** Supplier/Carrier Supply Chain Software Implementation Collaboration** Customer Inventory Management Collaboration* Customer Supply Chain Software Implementation Collaboration**
0.34 -0.22 0.16 0.26 -0.20 0.19
0.51
Note: * indicates significance at 0.1 level, ** indicates significance at 0.05 level
23