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: bagchi@gwu.edu

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: tsl.om@cbs.dk

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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