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To cite this document:
Suhaiza Zailani Premkumar Rajagopal, (2005),"Supply chain integration and performance: US versus East Asian companies",
Supply Chain Management: An International Journal, Vol. 10 Iss 5 pp. 379 - 393
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Introduction
The challenges associated with getting a product or service to
the right place at the right time intensified as competition in
the 1990s did. In todays manufacturing environment, one of
the key challenges is to be both efficient and contribute to
high effectiveness. If the 1980s were about vertically aligning
operations with business strategy (Hayes and Wheelwright,
1984), the 1990s have been about horizontally aligning
operations across processes (Ghoshal and Bartlett, 1997). In
this globalized era, most industries will not be able to survive
by simply optimizing internal structures and infrastructures
based upon business strategy. The most successful
manufacturers seem to be those that have carefully linked
their internal processes to external suppliers and customers in
unique supply chains. The trends can be seen as below, where
todays dynamic era, e-business and supply chain are
integrated and play a vital role towards an organizations
competitive advantage and sustenance. Manufacturing
organizations orientation towards customer satisfaction has
brought the realization of potential benefits and importance of
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379
Literature review
Supply chain management and demand chain
management
The concept of supply chain partnership extends the
perspective of operations from a single business unit to the
whole supply chain where relationships are formed between
two independent members in supply channels through
increased levels of information sharing to achieve goals and
benefits in terms of reductions in total costs and inventories.
It is a set of practices aimed at managing and coordinating the
supply chain from raw material suppliers to the final usercustomer to gain win-win situation.
A number of researchers suggest that better performance
can be achieved by consolidating customer and supplier bases,
removing unnecessary steps in the chain, speeding up
information and material flows, and creating long-term
partnerships with major customers and suppliers to leverage
the capabilities of several companies in the chain. Previous
management theory in the area of SCM can be broadly
divided into two main categories. The first category studies
primarily the chain structure (e.g. Handfield and Nichols,
1998; Kanji and Wong, 1999; Gattorna, 1998; Lee, 1993; Lee
et al., 1992; Towill, 1997; William, 2002). The second group
is primarily about industrial networks and the relationships
between organizations in the chain (e.g. Lee, 2000, 2002;
Lambert et al., 1998; Harland et al., 1999; Mohr and
Spekman, 1994; Monczka et al., 1998). Some scholars
suggest using the term demand chain management instead
of SCM (Vollmann, 1996; Simchi-Levi, 1998). This puts
emphasis on the needs of the marketplace and designing the
chain to satisfy these needs, instead of starting with the
supplier/manufacturer and working forward. In this research,
the emphasis on the customer needs is adopted as the starting
point for supply/demand chain management.
Methodology
To address the research questions and investigate the
difference in characteristics of relationship across the supply
chain integration and performance between East Asian and
US companies, the research team did an extensive literature
review on multiple aspects of supply chain and performance
indicators of East Asian and US companies. This article was
carried out in three phases. In the first phase, a number of
operations management related journals were flipped to select
about thirty research articles related to supply chain concepts
and practices. This was to identify major independent
variables that attributed to success of supply chain
management. In the second phase, investigation efforts
narrowed down to supply chain management research
conducted in East Asia and the US. With that, the team
was able to sieve out the current research variables. In the
third phase, comparisons were made between East Asian and
US companies indicators of supply chain integration and
performance.
Hypotheses
H1.
H2.
H3.
H4.
Internal integration
.
System-wide system integration among internal functions.
Narasimhan and Kim (2002) view a system-wide
integrated network as an essential determinant of supply
chain performance. Traditional managers are concerned
about the functions of their own departments
(Premkumar, 2002). Each function is bureaucratic in
nature, but this concept is not advisable a successful
supply chain. Cross-functional behavior is relevant. So,
internal functions should be integrated (Narasimhan and
Kim, 2002).
External integration with suppliers
.
Companys integration with suppliers. This refers to
company working closely with suppliers and viewing the
latter as an important component of supply chain
(Narasimhan and Kim, 2002). In this article, this
variable also encompasses the degree of involvement and
influence suppliers have in the companys decision. It also
measures how closely suppliers work with company to seal
a deal (Narasimhan and Kim, 2002).
.
Level of strategic partnership with suppliers. Partnership has
been used to refer to closer, longer-term relationships with
suppliers (as cited in Premkumar, 2002). The level of
strategic partnership or alliances refers to the degree of
partnership the company formally ad informally forms
with suppliers (Narasimhan and Kim, 2002).
Information sharing
Information sharing refers to exchange of information among
company, customers and suppliers. Lee (2002) stated that
information should be interoperable, which means that one
system can talk to another. Information links between internal
primary data repositories and business applications and those
of partners allow faster demand forecasting and planning
(Premkumar, 2002). Premkumar adds that the technological
Dependent variables
Performance of manufacturing companies can be evaluated
by a number of key competitive priorities (Krajewski and
Ritzman, 2002). Three major categories are:
383
(1) Quality.
(2) Delivery.
(3) Flexibility.
Customer relationship
Based on the work of Ballou (2004), elevating customer
relationship would mean advancing through levels of
customer service to customer satisfaction, to customer
success (the three Ss). One more dimension added is
customer feedback. Supply chain is part of total product
offering that must assure value for final customers.
Flexibility
Chopra and Meindl (2004) defines the following flexibility
dimensions as follows:
.
Customer service flexibility. The ability to accommodate
special customer service requests.
.
Order flexibility. The ability to modify order size, volume or
composition during logistics operation.
.
Location flexibility. The ability to service customers from
alternative warehouse locations.
.
Delivery time flexibility. The ability to accommodate
delivery times for specific customers.
Productivity growth
Productivity is a measure of the effective use of resources,
usually expressed as the ratio of output (goods and services)
to input (labor, materials, energy, and other resources) used
to produce them (Stevenson, 2002; Chopra and Meindl,
2004). It is usually expressed as:
Productivity
Output
Input
Results
The following tables (Tables I and II) will show clearly how
US and East Asian companies differ in supply chain
integration tactics and how these affect the different
performance measures of the companies. Furthermore,
Tables III and IV will summarize which of them support the
hypotheses. As shown in Tables I-V, some important findings
can be derived in better understanding the relationship
between supply chain management and performance:
.
Supply chain integration: information sharing, internal
integration, external integration with suppliers, external
integration with customers plays a significant role in the
overall success of a business. It was able to significantly
beat revenue and profitability projection in terms of
market share growth, sales growth and creation of
competitive advantage.
.
Most of the companies extensively integrate their
organization with upstream suppliers and downstream
customers by pursuing a strategy with a broad arc of
integration. Growing evidence suggest that the higher the
level of integration with suppliers and customers in the
supply chain the greater the potential benefits. Noted that
companies with the greatest arcs of supplier and customer
integration have the largest rates of performance
improvement.
Productivity growth
Current period productivity 2 previous period productivity
Previous period productivity
Quality
Harland (1996a, b) states three factors as determinants in
choosing suppliers in order to improve quality performance:
(1) Ability to meet quality standards.
(2) Ability to deliver products on time.
(3) Performance history.
Quality has always been one of the most important
performance criteria in purchasing (Chapman and Carter,
1990; Freeman and Cavinato, 1990; Willis, 1998; Burt et al.,
2003; Ballou, 2004; Vollmann et al., 2005; Heizer and
Render, 2005).
Delivery
Coyle et al. (2003) states three delivery dimensions:
(1) Delivery speed.
(2) Production lead-time.
(3) Delivery reliability.
Implication
This article leads to two important findings. First, evidence
suggested that there were different supply chain integration
strategies that manufacturers followed. Around the world
these different supply chain strategies can be empirically
classified into at least five valid types, defined by the direction
(towards suppliers and/or customers) and degree of
integration. These five groups (inward-, periphery-,
supplier-, customer-, and outward-facing) have both
intuitive appeal and statistical validity in a reasonably large
international database. They can be defined, in terms of the
direction and degree of their similar supply chain activities, by
their quite different arcs of integration. This classification
could be of potential value to future researchers and is capable
of further refinement (e.g. the periphery-facing group the
largest in our article might yield further sub-classifications).
Second, the greatest degree (or broadest arc) of supply chain
Dimension
Productivity/growth
Information sharing
Benchmarking
with suppliers
Supplier selection
with customers
Supplier participation
Customer relation
Japanese electronics
Information sharing internal integration Sharing product technology
industry (Fujitsu, Mitsubishi, External integration with suppliers
with suppliers; sourcing
NEC, NTT, Sumitomo, Toyota) External integration with customers
strategies; long-term
relationship
Japanese and Korean
Information sharing
Supplier integration level
All has positive impact on:
manufacturing companies
External integration with customers
internally, with customer, with sales growth; market
Internal integration
supplier
share; and profitability
External integration with suppliers
External integration with customers
Korea semiconductor
Information sharing
Information sharing
Mutually profitable
industry
Internal integration
Lasting cooperation
outsourcing partnership
External integration with suppliers
Risk sharing
Consistent
External integration with customers
Efficient communication
Creation of competitive
Continuous improvement
advantage
Samsung product: home
Manufacturing capability
Information sharing
appliances
Internal integration
Assets specificity
External integration with suppliers
Cooperative behavior
External integration with customers
Capabilities requirement of
buyer to supplier
Criticality of parts
Requirement capabilities
congruence
Information sharing
Internal integration
External integration
External integration
Information sharing
Internal integration
External integration
External integration
Toyota, Japan
with suppliers
with customers
Independent variables
Table I Previous empirical studies on supply chain management integration and performance of East Asian companies
Performance
quality
Improve quality
as customer
defines
requirements
Quality
Improve
Improve
Elimination of
problems and
concerns
Communication
improvement
Improve
customer
Feedback and
satisfaction
Customer
Delivery relationship
Improve inventory
level to support
demand efficiently
Improve
Flexibility
385
Independent
variables
386
Noramco, USA
External
integration with
suppliers
External
integration with
customers
Information
sharing
Internal
integration
External
integration with
suppliers
External
integration with
customers
1995 American Society for Quality Information
Automotive Division membership sharing
Internal
integration
External
integration with
suppliers
External
integration with
customers
Nokia, USA
Information
sharing
Reliable
information flow
American manufacturing
companies in South-eastern USA
Information sharing
Reliable information
flow
Good co-operation
Good relationship and
understanding
Production scheduling
processes
Forecasting processes
Organizational issues
Supplier relationship
Customer relationship
Involvement
Quality-focus
Long-term relationship
Reduced supplier-base
Dimension
Outputs increased by 33
percent
Profitability increased to
200 percent
Productivity/growth
All improve
quality
Quality
Table II Previous empirical studies on supply chain management integration and performance of US companies
Improved from 90
days to two days
All improve
quality
Less reliable
delivery
performance
Delivery
Customer
relationship
Flexibility
(continued)
387
Table II
Information
sharing
Internal
integration
External
integration with
suppliers
External
integration with
customers
Information
sharing
Internal
integration
External
integration with
suppliers
External
integration with
customers
Information
sharing
Internal
integration
External
integration with
suppliers
External
integration with
customers
Information
sharing
Internal
integration
Independent
variables
Productivity/growth
Quality
Profitable growth
Increase market share
Increase the revenue
Responsiveness
Improved the
quality
innovative
Integrated partnership
improves demand chain
efficiency
Dimension
Lower the
delivery costs
Improved delivery
Delivery
Customer
relationship
Integrated partnership
improves flexibility in
schedule
Flexibility
Supply chain integration and performance
Supply Chain Management: An International Journal
Table III Characteristics of relationship across the supply chain integration and performance in East Asian companies
H1
No.
Companies
1
2
3
4
5
6
Toyota, Japan
Taiwan 500
Fujitsu, Mitsubishi, NEC, NTT, Sumitomo, Toyota
Japan & Korean Manufacturing Co.
Korea Semiconductor Industry
Samsung product: home appliances
H2
H3
H4
Support
Support
Support
Support
Support
Support
Support
Support
Support
Support
Support
Support
Support
H3
H4
Support
Support
Support
Support
Support
Support
Support
Support
Table IV Characteristics of relationship across the supply chain integration and performance of US companies
H1
No.
Companies
1
2
3
4
5
6
7
H2
Support
Support
Support
Support
Support
Support
Support
Support
Support
Table V Characteristics of relationship across the supply chain integration and performance in US companies
No. Independent variables
US co.
Remarks
Information sharing
Internal integration
Information sharing
Reliable information flow
Formal and informal communication
Access to planning systems
Sharing production plans
Production-scheduling processes
Forecasting processes
Organizational issues
Technological innovation
Organization culture
Knowledge of inventory mix/levels
Alignment of corporate strategy with SC
practices; common logistical
Packaging customization equipment/containers
Information sharing
Benchmarking
Sharing product
technology with
suppliers
Integration and
control
Supplier integration
level-internally
Manufacturing
Capability
Supplier selection
Supplier participation
Sourcing strategies
Long-term relationship
Supplier integration
level-supplier
Assets specificity
Cooperative behavior
Capabilities
requirement of buyer
to supplier
Recommendation
The role of supply chain management has been well
documented. However, there has been an advantage and.
SCM has yet to be fully implemented in local companies.
However, the idea of supply chain has been accepted
positively by some of the local companies even though there
are pitfalls being recorded by researches in the
implementation of SCM. The introduction of just-in-time
(JIT) production at Proton cars, Malaysia has shown the need
for an extension of supply chain management from an internal
approach to an external approach. JIT is a disciplined
approach to improving overall productivity and eliminating
waste. It provides for the cost-effective production and
delivery of only the necessary quantity of parts at the right
quality, at the right time and place, while using a minimum
amount of facilities, equipment, materials and human
resources. JIT is dependent on the balance between the
suppliers flexibility and the users flexibility. The
disadvantages are seen as the cost involved, the openness
required by the development process and the need to manage
change. The role of SCM is seen as a virtue to reduce the
number of suppliers so as to reduce variability and improve
product quality. The main advantages are found to be better
quality, reduce costs and the ability to produce products,
which are highly desirable in the marketplace. Partnering and
forming alliances benefits the vertical integration without even
taking over companies. It is therefore important to emphasis
on long-term strategy associated with developing the supplier
base. As it is now, the local companies (i.e. Proton) have only
been developing the supplier-manufacturer relationship and
the linkage with customers through information network has
389
Conclusion
The need to react to market changes and the critical role of
supply chain in meeting this need, and the potential benefits
of integrating the supply chain can no longer be ignored. This
potential, however, will be realized only if the
interrelationships among different parts of the supply chain
are recognized, and proper alignment is ensured between the
design and execution of the companys competitive strategy. It
is hoped that these findings on the impact supply chain
integration has on performance of a company, will help our
local companies gear up to invest more resources and time in
this area. It is crucial that the local companies start to be an
agile and learning organization so that they continuously
reinvent themselves by integrating its key strategies with the
suppliers and customers. In the twenty-first century with the
acceleration of globalization, it is even more critical that local
companies start to take note and position themselves of which
the consequences could prove to be fatal.
Future research
This section makes three suggestions for further research, and
concludes with a general observation on the significance of the
increasing importance of supply chain research for the field of
operations management:
.
This article draws on data from electronics manufacturers
and related logistic companies. There may be particular
characteristics to these supply chains that do not apply to
other sectors. Sector specific studies of arcs of integration
and their relation to performance improvement will
potentially yield different insights.
.
Since this article primarily focused on manufacturing,
future research might also include data from purchasing
and marketing representatives to better gauge the degree
of supplier and customer integration.
.
The role of the internet and supply chain integration
seems potentially profound. How can the new media best
be deployed to broaden arcs of integration more swiftly
and at less cost than hitherto?
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