Production Planning & Control

The Management of Operations

ISSN: 0953-7287 (Print) 1366-5871 (Online) Journal homepage: http://www.tandfonline.com/loi/tppc20

The effect of IT-enabled supply chain integration

on performance

Wantao Yu

To cite this article: Wantao Yu (2015) The effect of IT-enabled supply chain
integration on performance, Production Planning & Control, 26:12, 945-957, DOI:
10.1080/09537287.2014.1002021

To link to this article: http://dx.doi.org/10.1080/09537287.2014.1002021

Published online: 08 Apr 2015.

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 Production Planning & Control, 2015
Vol. 26, No. 12, 945–957, http://dx.doi.org/10.1080/09537287.2014.1002021

The effect of IT-enabled supply chain integration on performance

Wantao Yu*
Norwich Business School, University of East Anglia, 102 Middlesex Street, London E1 7EZ, UK
(Received 13 September 2013; accepted 20 May 2014)

Companies increasingly rely on information technology (IT) to improve supply chain management practices. However,
past evidence suggests that implementing IT in the supply chain process does not guarantee enhanced firm performance.
This study extends prior supply chain research by conceptualising supply chain integration (SCI) as a multidimensional
construct in the context of IT implementation and exploring the effect of multiple dimensions of IT-enabled SCI on
performance. The conceptual framework is tested using data from a sample of 214 manufacturing firms in China. The
Downloaded by [University of Sussex Library] at 18:46 07 October 2015

results indicate positive direct relationships between IT implementation and three dimensions of SCI, namely internal,
customer and supplier integration. The results also suggest that IT-enabled internal integration is significantly and
positively related to both operational and financial performance.
Keywords: IT implementation; supply chain integration; manufacturing; operational performance; financial performance;
China

1. Introduction
It has been well-recognised that information technology
(IT) is an essential ingredient for business survival and
success (Gunasekaran and Ngai 2004). In recent years,
there has been increasing interest in understanding the
use of IT in managing the supply chain process (Baihaqi
and Sohal 2013; Li et al. 2009; Prajogo and Olhager
2012; Wu et al. 2006). Previous research has identified
the importance of IT in achieving an integrated supply
chain (Ganotakis, Hsieh, and Love 2013; Gunasekaran
and Ngai 2004; Li et al. 2009). Implementation of IT in
supply chains can enable a firm to develop integrated
supply chains to leverage the resources and knowledge
of their suppliers and customers, which in turn leads to
superior firm performance (Schnetzler and Schönsleben
2007; Tippins and Sohi 2003). Supply chain integration
(SCI) refers to organisational processes to integrate sup-
pliers, customers and internal functional units in order to
optimise the total performance of all partners in the sup-
ply chain (Flynn, Huo, and Zhao 2010; Frohlich and
Westbrook 2001; Lau, Yam, and Tang 2010). SCI is a
multidimensional construct (Flynn, Huo, and Zhao
2010). The literature reveals consensus that there are
mainly three types of SCI: internal integration, customer
integration and supplier integration (Flynn, Huo, and
Zhao 2010; Wong, Boon-itt, and Wong 2011; Yu et al.
2013). SCI is considered one of the major factors in
improving performance (Alfalla-Luque, Medina-Lopez,
and Dey 2013; Alfalla-Luque, Medina-Lopez, and
Schrage 2013; Cigolini and Rossi 2008; van der Vaart
and van Donk 2008). Thus, this research posits that
implementing IT in supply chains would facilitate three
dimensions of SCI and consequently deliver operational
and financial profits.
The value of IT can be streresearch contributions and
even drawngthened when it is embedded throughout the
supply chain (Powell and Dent-Micallef 1997). In a
dynamic business environment, implementing informa-
tion technologies (e.g. enterprise resource planning
(ERP), radio frequency identification (RFID) and elec-
tronic data interchange (EDI)) in supply chains has
become more important for a firm to effectively manage
its information, material and financial flows (Baihaqi and
Sohal 2013; Li et al. 2009; Prajogo and Olhager 2012;
Vickery et al. 2003). IT has been recognised as a critical
factor in enhancing supply chain management (SCM)
practices, through its support on integrating business pro-
cesses across different functional departments and exter-
nally (across firm boundaries) with upstream suppliers
and downstream customers (Gupta and Capen 1996; Koh
and Saad 2006; Li et al. 2009; Vickery et al. 2003). IT
can facilitate communication across functional areas and
collaboration among supply chain partners through the
sharing of information on production planning and con-
trol that dictate supply chain activities (Gunasekaran and
Ngai 2004; Karoway 1997). Thus, this research argues
that IT implementation is an important enabler of SCI.
However, many previous studies (e.g. Flynn, Huo,
and Zhao 2010; Swin, Narasimhan, and Wang 2007;
Won, Boon-itt, and Wongg 2011) viewed SCI as a

*Email: Wantao.Yu@uea.ac.uk

© 2015 Taylor & Francis

 946
stand-alone resource without considering the effect of IT
implementation.
Although there have been a number of studies that
have investigated the effect of IT on supply chain and
inter-organisational relationships (e.g. Bakos and
Brynjolfsson 1993; Bensaou 1997; Chae, Yen, and Sheu
2005; Stump and Sriram 1997), most of these studies
focused on the buyer–supplier relationships, excluding
the important central link of internal integration.
Recently, several empirical studies (e.g. Li et al. 2009;
Prajogo and Olhager 2012; Vickery et al. 2003) have
reported positive effects of IT implementation on SCI.
However, all those studies conceptualised SCI as a unidi-
mensional construct, aggregating internal, supplier and/or
customer integration in a single construct. Leaving out
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the important central link of internal integration or exam-
ining SCI as a single construct may hide some important
research contributions and even draw inaccurate conclu-
sions (Flynn, Huo, and Zhao 2010). Conceptualising SCI
as a multidimensional construct, this research argues that
internal integration should not be ignored when investi-
gating the effect of IT implementation on supply chains.
This research sets out to investigate the following
question: What is the effect of multiple dimensions of
IT-enabled SCI on performance improvement?
IT investments involve costs and risks (Wu et al.
2006). While organisations continue to invest in IT, there
is much debate regarding the benefits accruing from these
expenditures (Byrd and Marshall 1997). Implementing IT
in the supply chain process does not guarantee a stronger
firm performance (Wu et al. 2006). Therefore, it is impor-
tant for decision makers to identify what IT-enabled SCI
effort is important to performance, which will provide
insights about strategies for pursuing IT-enabled SCI.
Based on previous studies (e.g. Flynn, Huo, and Zhao
2010; Wong, Boon-itt, and Wong 2011; Yu et al. 2013), in
this study, SCI is conceptualised as a multidimensional
construct that includes three dimensions (i.e. internal inte-
gration, customer integration and supplier integration). By
doing so, this study can provide valuable guidelines for
practicing managers to decide how to devote their IT
resources to managing an integrated supply chain process,
by investing in either internal or external integration with
customers and/or suppliers, in order to achieve greater per-
formance and consequently higher value for their firms.
Furthermore, although the effect of SCI on firm per-
formance has been widely studied (e.g. Droge, Jayaram,
and Vickery 2004; Flynn, Huo, and Zhao 2010; Frohlich
and Westbrook 2001; Rosenzweig, Roth, and Dean 2003;
Swink, Narasimhan, and Wang 2007; Yu et al. 2013), the
literature on the relationship has reached mixed
conclusions (Flynn, Huo, and Zhao 2010). The
inconclusive and often contradictory results demand
further investigation of the association between SCI and
performance outcomes. By conceptualising SCI as a
W. Yu
multidimensional construct in the context of IT
implementation, this study helps elaborate on the mixed
empirical findings about the effect of SCI on performance.
Additionally, unlike previous studies that examined SCI
as a stand-alone resource without considering the effect of
IT (e.g. Flynn, Huo, and Zhao 2010; Swink, Narasimhan,
and Wang 2007; Wong, Boon-itt, and Wong 2011), this
study investigates the importance of IT implementation in
facilitating SCI. For example, Flynn, Huo, and Zhao
(2010) examined the relationship between three
dimensions of SCI and firm performance and found that
SCI is related to both operational and financial perfor-
mance; however, their study did not consider the impor-
tant role of IT implementation as a potential enabler of
SCI. Thus, this study is unique in that it examines SCI in
the context of IT implementation. This study extends
prior supply chain research by empirically exploring the
effect of multiple dimensions of IT-enabled SCI on
performance.
2. Literature review and research hypotheses
2.1. Supply chain integration
To compete within today’s highly dynamic marketplace,
supply chains should be integrated and aligned (Lee
2004). SCM is based on the integration of all activities
that add value to customers, from the product design stage
to delivery (Gunasekaran and Ngai 2004). There is a
growing recognition that firms need strategic resources
that lie beyond their boundaries to gain competitive
advantages (Das and Teng 2000). To obtain these
resources and reduce transaction costs, SCM practices are
implemented to achieve superior supply chain perfor-
mance, requiring internal cross-functional integration
within a firm and external integration with suppliers or
customers (Alfalla-Luque, Medina-Lopez, and Dey 2013;
Kim 2009; Swink, Narasimhan, and Wang 2007; van der
Vaart and van Donk 2008; Zhao et al. 2011). SCI refers to
the degree to which a firm can strategically collaborate
with its supply chain partners and collaboratively man-
age the intra- and inter-organisation processes to achieve
effective and efficient flows of product and services,
information, money and decisions with the objective of
providing maximum value to customers at low cost and
high speed. (Zhao et al. 2008, 374)
Consideration of the dimensionality of SCI is important
in understanding the way that the individual dimensions
operate, as well as how they function jointly (Flynn,
Huo, and Zhao 2010). Accordingly, this research concep-
tualises SCI as a multidimensional construct that includes
three main dimensions, namely internal integration, cus-
tomer integration and supplier integration. Internal inte-
gration refers to functional departments within a firm act
as part of a collaborative and synchronised process in
 Production Planning & Control
order to meet customer requirements (Flynn, Huo, and
Zhao 2010; Stock, Greis, and Kasarda 1998; Zhao et al.
2011). Internal integration facilitates sharing real-time
data and information across business functions, strategic
cross-functional collaboration and coordination of logis-
tics activities with other functional areas, which allow
the firm to gain competitive advantages and superior firm
performance (Chen and Paulraj 2004; Droge, Jayaram,
and Vickery 2004; Frohlich and Westbrook 2001;
Rosenzweig, Roth, and Dean 2003; Zhao et al. 2011).
Customer and supplier integration refers to joint plan-
ning and strategic information sharing and collaboration
between a focal firm and its upstream suppliers and
downstream customers in managing a collaborative and
synchronised process in order to meet customer require-
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ments (Chen and Paulraj 2004; Fisher et al. 1994;
Ragatz, Handfield, and Scannell 1997; Ragatz,
Handfield, and Petersen 2002; Wong, Boon-itt, and
Wong 2011; Zhao et al. 2011). By extending the scope
of information sharing and collaboration to include sup-
ply chain partners, such external integration enables a
firm to establish strategic relationships with suppliers
and customers and jointly develop strategies facing mar-
ket opportunities, which in turn maximises the value of
the supply chain (Flynn, Huo, and Zhao 2010; Frohlich
and Westbrook 2001; Narasimhan and Kim 2002;
Stevens 1989; Zhao et al. 2011). As mentioned above,
the conceptualisation of SCI used in this research is dif-
ferent from that used in some previous studies, which
either ignored the important central link of internal inte-
gration or evaluated SCI as an aggregated construct.
2.2. IT-enabled supply chain integration
Figure 1 presents the proposed conceptual framework
that investigates the effects of the three dimensions of
IT-enabled SCI on performance (financial and
Figure 1. Research model.
947
operational). The research model is proposed for each
IT-enabled SCI dimension because this study intends to
clarify the distinct effects of each IT-enabled SCI dimen-
sion on performance. The numbering of the arrows in
Figure 1 refers to the hypotheses developed below.
Previous research has identified the importance of IT
in enhancing SCM. The bottom line is that it is impossi-
ble to achieve an effective supply chain without IT
(Gunasekaran and Ngai 2004). There is an evidence that
implementing IT in supply chains can improve the accu-
rate information flow and in turn increase the informa-
tion processing capabilities of a relationship, which
consequently leads to greater inter-organisational
collaboration (Bensaou 1997; Chae, Yen, and Sheu
2005; Gunasekaran and Ngai 2004; Subramani 2004).
Successful implementation of IT is often viewed as an
enabler of SCI (Chae, Yen, and Sheu 2005), including
internal, customer and supplier integration. IT has the
potential to manage the information flow and to provide
links that support internal integration cross-functional
areas and strategic collaboration among supply chain
partners (Brandyberry, Rai, and White 1999; Li et al.
2009; Schnetzler and Schönsleben 2007; Vickery et al.
2003). The implementation of IT in supply chains (e.g.
ERP, RFID, etc.) can integrate and coordinate material,
information and financial flows among supply chain
members including suppliers, manufacturers, retailers and
final users (Li et al. 2009; Prajogo and Olhager 2012).
Prajogo and Olhager (2012) suggested that IT plays
a vital role in developing SCI in the following major
aspects. First, IT enables a firm to increase the amount
of information sharing in supply chains and reduces the
complexity of information sharing and communication
with their supply chain members, such as customers and
suppliers. Second, IT allows a firm to provide real-time
supply chain information (e.g. real-time integration and
connection among all internal functions, real-time
 948
visibility of inventory level, delivery schedules, logistics-
related operating data, and production planning and
capacity) for its functional departments and supply chain
partners, which helps the firm to manage and control its
supply chain activities more effectively. Third, IT also
facilitates cooperative forecasting and scheduling
between a firm and its business partners such as custom-
ers and suppliers, which leads to better inter-firm
collaboration. In this context, IT serves as a key enabler
of SCI through capturing, managing and sharing of
important information regarding business processes
across different functional areas within a firm and across
inter-organisational boundaries (such as customers and
suppliers) (Frohlich and Westbrook 2001; Kelle and Ak-
bulut 2005; Li et al. 2009; Sanders and Premus 2002;
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Vickery et al. 2003). Vickery et al. (2003) argued that
integrated information systems enable all functional
departments (e.g. manufacturing, marketing, R&D,
finance, etc.) within the firm to access and transmit infor-
mation. IT implementation can also help to facilitate
external integration with customers and suppliers. For
example, implementing informational technologies such
as ERP and EDI in supply chains allows for effective
communication between a firm and its customers and
suppliers, which consequently facilitates customer and
supplier integration (Mukhopadhyay, Kekre, and
Kalathur 1995; Vickery et al. 2003).
By focusing on inter-organisational collaboration,
some studies have reported the positive effects of IT
implementation on buyer–supplier relationships (Bakos
and Brynjolfsson 1993; Ganotakis, Hsieh, and Love
2013; Ragatz, Handfield, and Scannell 1997; Subramani
2004). For instance, Ragatz, Handfield, and Scannell
(1997) identified that the use of common and linked
information systems (such as EDI) is a key success fac-
tor for integrating suppliers into the new product/service
development process. Ganotakis, Hsieh, and Love (2013)
also found that the adoption of information systems that
enhance information sharing is important for the effec-
tive communication with suppliers and with wider net-
work members. Subramani (2004) found that IT
deployments in supply chains lead to closer buyer–
supplier relationships. By evaluating SCI as an aggre-
gated construct, some studies have examined the effect
of IT implementation on SCI. For example, Vickery
et al. (2003) viewed the use of integrative information
technologies as a core enabler of SCI, and empirically
identified that IT implementation is an antecedent of the
development of SCI. Li et al. (2009) modelled IT imple-
ment as an enabler of SCI and found that IT implemen-
tation affects SCI directly. In a more recent study,
Prajogo and Olhager (2012) found that IT and informa-
tion sharing have significant effects on SCI. Unlike these
previous studies, this research conceptualises SCI as a
multidimensional construct, and examines the effect of
W. Yu
IT implementation on multiple SCI dimensions. Based
on the foregoing arguments and theoretical perspectives,
the following hypothesis is proposed:
H1: IT implementation has a significant effect on (a) cus-
tomer integration, (b) internal integration and (c) supplier
integration.
2.3. SCI and operational performance
SCI is widely considered by both practitioners and
researchers to be a vital contributor to operational perfor-
mance (Prajogo and Olhager 2012; Wong, Boon-itt, and
Wong 2011). Internal integration involves information
sharing between internal functions, strategic cross-func-
tional coordination and/or working together across differ-
ent functional areas, which enables different functional
areas within a manufacturer such as R&D, purchasing,
manufacturing and marketing departments to work clo-
sely in supporting concurrent engineering and design for
manufacturing (Flynn, Huo, and Zhao 2010; Huo 2012;
Rosenzweig, Roth, and Dean 2003; Wong, Boon-itt, and
Wong 2011). Effective cooperation among these func-
tions can fulfil the changing requirements of customers
and facilitate operational performance of the manufac-
turer, such as delivery, cost, quality and flexibility
(Droge, Jayaram, and Vickery 2004; Huo 2012;
Narasimhan and Kim 2002; Stank, Keller, and Closs
2001; Wong, Boon-itt, and Wong 2011). Previous studies
have identified a positive relationship between internal
integration and operational performance (Flynn, Huo,
and Zhao 2010; Wong, Boon-itt, and Wong 2011).
There is growing evidence to suggest that the higher
the level of customer and supplier integration, the
greater the operational benefits accrued by firms
(Frohlich and Westbrook 2001; Wong, Boon-itt, and
Wong 2011; Zailani and Rajagopal 2005). Since cus-
tomer integration creates opportunities for leveraging the
intelligence embedded in collaborative processes, it
enables manufacturers to reduce costs, create greater
value and detect demand changes more quickly (Flynn,
Huo, and Zhao 2010). Supplier integration is a valuable
source of competitive advantage because it enhances
responsiveness, flexibility and timesaving capabilities
which collectively translate into value (Michael and Tan
2001). When suppliers are involved in supply manage-
ment processes, contributions to higher quality, greater
sharing of cost savings, closer cooperation to achieve tar-
get costs and reduced time-to-market for new products
are more easily attained (McGinnis and Vallopra 1999).
To date, studies examining the relationships between
customer and supplier integration and operational perfor-
mance have yielded mixed results (Flynn, Huo, and Zhao
2010). While some empirical studies have reported no
significant association between customer and supplier
integration and operational performance (e.g. Devaraj,
 Production Planning & Control
Krajewski, and Wei 2007; Shin, Collier, and Wilson
2000; Swink, Narasimhan, and Wang 2007), others have
found a positive association between customer and sup-
plier integration and operational performance (e.g.
Droge, Jayaram, and Vickery 2004; Frohlich and
Westbrook 2001; Rosenzweig, Roth, and Dean 2003;
Wong, Boon-itt, and Wong 2011). Based on the theoreti-
cal arguments and empirical evidence, the following
hypothesis is posited:
H2: (a) customer integration, (b) internal integration and
(c) supplier integration are significantly related to opera-
tional performance.
2.4. SCI and financial performance
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It has been well acknowledged that SCI (internal,
customer and supplier integration) enhances financial
performance. Although SCI has been widely considered
by both practitioners and researchers as a vital contributor
to improved firm performance (Droge, Jayaram, and
Vickery 2004; Flynn, Huo, and Zhao 2010; Frohlich
and Westbrook 2001; Prajogo and Olhager 2012;
Rosenzweig, Roth, and Dean 2003; Swink, Narasimhan,
and Wang 2007; van der Vaart and van Donk 2008;
Vickery et al. 2003; Yu et al. 2013; Zailani and Rajagopal
2005), the empirical examinations of the relationship are
still ambiguous. By investigating the strategic importance
of arcs of SCI in improving firm performance, Frohlich
and Westbrook (2001) found that the widest degree of arc
of integration with both suppliers and customers is signif-
icantly and positively associated with performance
improvement (such as market share and profitability).
Droge, Jayaram, and Vickery (2004) found that external
integration with suppliers and customers has a direct
positive influence on market share, while internal integra-
tion has a positive direct effect on financial performance
(e.g. return on assets, return on investments and return on
sales). Rosenzweig, Roth, and Dean (2003) identified a
direct positive relationship between integration intensity
and two financial performance measures: return on assets
and the percentage of revenues derived from new prod-
ucts. However, some empirical studies found no direct
relationship between SCI and financial performance.
Vickery et al. (2003) failed to find a significant direct
relationship between SCI and firm performance, conclud-
ing that the relationship of SCI to financial performance
is indirect and fully mediated by customer service.
Swink, Narasimhan, and Wang (2007) found that supplier
integration has a direct positive effect on market perfor-
mance, while customer integration has a direct negative
effect on market performance (e.g. market share and prof-
itability). In a recent study, Flynn, Huo, and Zhao (2010)
found that internal integration is positively and signifi-
cantly related to financial performance, while supplier
949
and customer integration are not directly related to finan-
cial performance. The mixed findings of previous studies
indicate that the relationship between SCI and financial
performance needs further investigation. Based on fore-
going arguments and theoretical perspectives, it can be
argued that SCI drives superior financial performance.
Thus, the following hypothesis is posited:
H3: (a) customer integration, (b) internal integration and
(c) supplier integration are significantly related to finan-
cial performance.
3. Methodology
3.1. Sample and data collection
The theoretical framework was tested using a survey of
manufacturing firms in China. Geographically, the survey
comprised sample firms in a number of regions and
provinces, such as Beijing and Hebei province (north
China), Henan province (central China), Zhejiang prov-
ince (east China) and Guangdong province (south
China). To gain a representative sample, the Yellow
Pages of China Telecom were used. A key informant
was identified in each randomly selected manufacturer
with the help of guanxi networks (such as personal con-
nections with government officials, industrial authorities
and local universities), which has been found to ensure
success in collecting research data using questionnaire
survey in China (Peng and Nunes 2008; Zhao, Flynn,
and Roth 2006). The respondents had titles such as
CEO/president, director, supply chain manger, operations
manager, and marketing and sales manager, and most of
them had been in their position for more than five years.
Thus, it is reasonable to expect that the respondents
could offer deep insights into the functional activities
and be knowledgeable about the issues under study.
Following previous research (e.g. Dillman 2000;
Frohlich 2002; Zhao, Flynn, and Roth 2006), several
approaches were used to maximise the response rate and
minimise response bias in subjective data obtained from
the respondents. The questionnaires were sent to 736
manufacturing firms that agreed to participate in the
study. Each questionnaire was accompanied by a cover
letter indicating the main purposes of the study and
potential contributions. The letter also assured complete
confidentiality to the respondents. Additionally, to
encourage participation and improve the response rate,
the respondents were also promised a summary of the
research findings. Follow-up calls were made to encour-
age completion and return of the questionnaires and to
clarify any questions or concerns that potentially had
arisen (Frohlich 2002; Zhao, Flynn, and Roth 2006). A
total of 221 responses were received. Seven returned
questionnaires were discarded because of incomplete
information, which resulted in 214 useable responses.
 950 W. Yu

The effective response rate was 29.08%. A profile of the
respondents is reported in Table 1.
3.2. Nonresponse bias and common method bias
Nonresponse bias was assessed by comparing early and
late respondents on three important demographic vari-
ables, including industry type, annual sales and number
of employees (Armstrong and Overton 1977). The t-test
results indicate no significant statistical difference
(p < 0.05) among the category means for number of
employees and company sales across different industry
groups. Thus, nonresponse bias does not appear to be a
major problem. The potential for common method bias
was assessed using three main steps. First, Harmon’s
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factor analysis (CFA) was applied to Harman’s
single-factor model (Flynn, Huo, and Zhao 2010;
Podsakoff et al. 2003). The model fit indices (χ2/df
(1823.448/377) = 4.837, CFI = 0.536, IFI = 0.541,
TLI = 0.501, RMSEA = 0.134, SRMR = 0.128) were
unacceptable and were significantly worse than those of
the measurement model. This suggests that a single-fac-
tor model is not acceptable, thus common method bias is
unlikely. Third, a latent factor representing a common
method was added to the measurement model, which is
the strongest test of common method bias (MacKenzie,
Podsakoff, and Fetter 1993; Podsakoff et al. 2003; Zhao
et al. 2011). The resulting fits were not significantly dif-
ferent from those of the measurement model
(RMSEA = 0.056 vs. 0.052 for the model with the com-

one-factor test using exploratory factor analysis (EFA)
was conducted (Podsakoff et al. 2003). The EFA
revealed five distinct factors with eigenvalues above 1.0,
explaining 62.326% of total variance. The first factor
explained 31.663% of the variance, which is not the
majority of the total variance. Second, confirmatory
mon method factor; CF1 = 0.924 vs. 0.938; IF1 = 0.925
vs. 0.940; TLI = 0.915 vs. 0.925). Also, the item load-
ings for their factors are still significant in spite of the
inclusion of a common latent factor. Based on the
results, it can be concluded that common method vari-
ance bias is not an issue in this study.

Table 1. Demographic characteristics of respondents. 3.3. Measurement and survey design

An extensive literature review was conducted to identify
Number of Per measurement scales from previous work. Because the
firms cent
scales adapted from the literature were in English, the
Industries original scale was first developed in English and then
Arts and crafts 3 1.4 translated into Chinese, in order to ensure the reliability
Building materials 16 7.5
Chemicals and petrochemicals 18 8.4
of the questionnaire. A back-translation process was then
Electronics and electrical 22 10.3 used with the assistance of an outside translator to ensure
Equipment manufacturing 25 11.7 conceptual equivalence (Wong, Boon-itt, and Wong
Food, beverage and alcohol 24 11.2 2011; Zhao et al. 2011). A number of questions were
Jewellery 2 0.9 reworded to improve the accuracy of the translation and
Metal, mechanical and 27 12.6
engineering
to make it relevant to business practices in China. To
Pharmaceutical and medical 15 7.0 further assess the reliability and validity of the measure-
Publishing and printing 6 2.8 ment items, two academics from the field of SCM
Rubber and plastics 13 6.1 reviewed the questionnaire and provided feedback. The
Textiles and apparel 25 11.7 questionnaire was then pilot tested with two directors
Toys 4 1.9
Wood and furniture 14 6.5
and one president in China in order to ensure that the
Annual sales (in million Yuan) questions were clear, relevant and easy to interpret
Below 10 44 20.6 (O’Leary-Kelly and Vokurka 1998). Minor changes to
10–50 56 26.2 the scales were made based on the feedback from the
50–100 30 14.0 academics and industrial experts.
100–500 37 17.3
500–1000 17 7.9
The measurement items and their sources are pre-
1000–2000 10 4.7 sented in Table 2. SCI was conceptualised as a multidi-
2000–5000 8 3.7 mensional construct that includes three main dimensions:
Above 5000 12 5.6 internal, customer and supplier integration (Flynn, Huo,
Number of employees and Zhao 2010; Wong, Boon-itt, and Wong 2011; Zhao
1–99 24 11.2
100–199 33 15.4
et al. 2011). All these items were measured on seven-
200–499 45 21.0 point Likert scales from 1 (not at all) to 7 (extensively).
500–999 39 18.2 IT implementation was measured using several items that
1000–4999 34 15.9 focus on the implementation of IT in supply chains
5000–9999 20 9.3 (Gunasekaran and Ngai 2004; Wu et al. 2006). All items
10,000 or more 19 8.9
were also measured on a seven-point scale from 1
 Production Planning & Control 951

Table 2. Construct reliability and validity analysis.

Factor Reliability and

Construct loadings t-values validity
1. IT implementation (Gunasekaran and Ngai 2004; Wu et al. 2006) α = 0.788; CR = 0.795;
AVE = 0.565
We renew hardware or equipment for operations and supply chains 0.832 –
We use advanced IT for operations and supply chains, for example ERP, etc. 0.697 10.787
Our employees are well trained in the use of new IT 0.719 11.203

2. Customer integration (Flynn, Huo, and Zhao 2010) α = 0.794; CR = 0.799;

AVE = 0.500
The level of sharing of market information from our major customer 0.654 –
Our major customer shares point of sales (POS) information with us 0.749 8.920
Our major customer shares demand forecast with us 0.789 9.238
We share our available inventory with our major customer 0.624 7.726

3. Internal integration (Flynn, Huo, and Zhao 2010) α = 0.869; CR = 0.872;

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AVE = 0.577
Enterprise application integration among internal functions 0.667 –
Integrative inventory management 0.788 10.025
Real-time searching of the level of inventory 0.796 10.114
Real-time searching of logistics-related operating data 0.802 10.167
Real-time integration and connection among all internal functions from raw 0.738 9.491
material management through production, shipping and sales

4. Supplier integration (Flynn, Huo, and Zhao 2010) α = 0.874; CR = 0.878;

AVE = 0.548
The participation level of our major supplier in the design stage 0.561 –
Our major supplier shares their production schedule with us 0.804 8.271
Our major supplier shares their production capacity with us 0.752 7.971
Our major supplier shares available inventory with us 0.779 8.130
We share our production plans with our major supplier 0.794 8.217
We share our demand forecasts with our major supplier 0.725 7.797

5. Operational performance (Flynn, Huo, and Zhao 2010; Wong, Boon-itt, and α = 0.839; CR = 0.838;
Wong 2011) AVE = 0.468
Our company can quickly respond to changes in market demand 0.648 –
Provide reliable delivery to our customers 0.588 7.389
The lead time for fulfilling customers’ orders is short 0.706 8.584
Our company can promote products’ quality 0.809 9.468
High reliable products that meet customer needs 0.564 7.125
Our company can provide a high level of customer service 0.757 9.045

6. Financial performance (Flynn, Huo, and Zhao 2010) α = 0.869; CR = 0.871;

AVE = 0.581
Growth in sales 0.540 –
Growth in profit 0.759 7.732
Growth in market share 0.741 7.634
Return on investment (ROI) 0.888 8.307
Growth in return on investment (ROI) 0.835 8.107
Model fit statistics: χ2/df (599.757/362) = 1.657; RMSEA = 0.056; CF1 = 0.924; IFI = 0.925; TLI = 0.915; SRMR = 0.060

(strongly disagree) to 7 (strongly agree). The measures
for operational performance were adapted from Flynn,
Huo, and Zhao (2010) and Wong, Boon-itt, and Wong
(2011). The respondents were asked to rate the degree of
agreement or disagreement with statements relating to
operational performance using a seven-point scale
(1 = strongly disagree; 7 = strongly agree). With regard
to financial performance, consistent with Flynn, Huo,
and Zhao (2010), the respondents were asked to assess
their performance outcomes relative to the performance
of main competitors over the last three years. The indica-
tors were measured using a seven-point Likert scale
(ranging from 1 = much worse than competitors to
7 = much better than competitors).
Two control variables were used in the research
model: firm size and industry type. Firm size, operationa-
lised by number of employees, was controlled because
larger firms may have more resources for managing
 952 W. Yu

supply chain activities, and thus may achieve a higher
level of IT-enabled SCI compared with small firms (Zhao
et al. 2011). Industry types were controlled because firms
in different industries may have different levels of
IT-enabled SCI and performance (Devaraj, Krajewski,
and Wei 2007).
4. Data analysis and results
Following a two-step procedure (measurement model
and structural model) suggested by Anderson and
Gerbing (1988), structural equation modelling (SEM)
was used to test the proposed theoretical framework. The
analyses and results are described in more detail below.
Downloaded by [University of Sussex Library] at 18:46 07 October 2015
exceeds the minimum value of 0.50 suggested by Fornell
and Larcker (1981). Thus, it can be concluded that the
constructs express sufficient convergent validity.
Discriminant validity was evaluated by comparing
the correlation between the construct and the square root
of AVE. As shown in Table 3, the square root of AVE of
all the constructs is greater than the correlation between
any pair of them, which provides evidence of discrimi-
nant validity (Fornell and Larcker 1981). Table 3 also
reports the means, standard deviations and correlations
of all the theoretical constructs.
4.2. Structural model
Table 4 and Figure 2 present the results of structural

model analysis using AMOS 21. As shown in the table,

4.1. Measurement model
A CFA was used to assess the unidimensionality of the
theoretical constructs. According to the CFA results sum-
marised in Table 2, it can be concluded that the measure-
ment model is acceptable and its unidimensionality is
confirmed (Byrne 2009; Hair et al. 2006; Hu and Bentler
1999; Kline 2005). The Cronbach’s α and composite reli-
ability of all the constructs exceed the widely recognised
rule of thumb of 0.70, which indicates adequate reliabil-
ity of the measurement scales (Fornell and Larcker 1981;
Nunnally 1978; O’Leary-Kelly and Vokurka 1998).
The convergent validity of each measurement scale
was evaluated by conducting CFA using the maximum-
likelihood approach (O’Leary-Kelly and Vokurka 1998).
Table 2 shows that all indicators in their respective con-
structs have statistically significant (p < 0.001) factor
loadings greater than 0.50, which suggests convergent
validity of the theoretical constructs (Anderson and
Gerbing 1988; Zhao et al. 2011). The CFA results also
reveal that the standardised coefficients for all items
greatly exceed twice their standard errors and that the
standardised coefficients for all variables are large and
significant (all the t-values are larger than 2). Therefore,
all items are significantly related to their underlying the-
oretical constructs. Additionally, the average variance
extracted (AVE) of each construct is either close to or
the overall fits of the structural model are acceptable
(Hair et al. 2006; Hu and Bentler 1999; Kline 2005).
As mentioned above, two control variables of firm size
and industry types were included in the model. It was
found that the variables do not have an effect on opera-
tional and financial performance with the exception of
firm size, which has a negative effect on operational
performance. Table 4 indicates that IT implementation
has a significant positive effect on three dimensions of
SCI, which provides support for H1a-c. Internal integra-
tion is positively and significantly related to both opera-
tional and financial performance, which lends support
for H2b and H3b. Supplier integration is positively and
significantly associated with financial performance.
Hence, H3c is supported. However, as shown in
Figure 2, there is no statistically significant relationship
between customer integration and operational and
financial performance, and between supplier integration
and operational performance. Thus, H2a, H2c and H3a
are rejected.
5. Discussion and conclusion
5.1. Theoretical implications
The empirical findings support the proposed theoretical
framework, indicating that IT-enabled SCI is related to

Table 3. Descriptive statistics.

Mean SD 1 2 3 4 5 6
a
1. IT implementation 4.838 1.254 0.752
2. Customer integration 4.669 1.193 0.557** 0.707
3. Internal integration 5.342 1.035 0.743** 0.545** 0.760
4. Supplier integration 4.544 1.169 0.441** 0.582** 0.458** 0.740
5. Operational performance 5.643 0.757 0.447** 0.256** 0.492** 0.226** 0.684
6. Financial performance 4.512 0.948 0.328** 0.149* 0.232** 0.277** 0.266** 0.762
Note: aSquare root of AVE is on the diagonal.
**p < 0.01; *p < 0.05 (2-tailed).
 Production Planning & Control 953

Table 4. Results of hypotheses 1–3 tests using SEM.

Structural paths Standardised coefficient t-values Hypothesis test

IT implementation → customer integration (H1a) 0.740*** 7.897 Supported
IT implementation → internal integration (H1b) 0.895*** 9.414 Supported
IT implementation → supplier integration (H1c) 0.586*** 6.174 Supported
Customer integration → operational performance (H2a) −0.120 −1.122 Not supported
Internal integration → operational performance (H2b) 0.709*** 5.172 Supported
Supplier integration → operational performance (H2c) −0.016 −0.196 Not supported
Customer integration → financial performance (H3a) −0.097 −0.858 Not supported
Internal integration → financial performance (H3b) 0.204† 1.717 Supported
Supplier integration → financial performance (H3c) 0.268** 2.746 Supported
Model fit statistics: χ2/df (698.855/420) = 1.654; RMSEA = 0.056; CF1 = 0.911; IFI = 0.913; TLI = 0.902; SRMR = 0.069
***p < 0.001; **p < 0.01; †p < 0.10.
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Figure 2. Statistically significant paths.

performance. IT implementation has a significant effect
on three SCI dimensions, namely internal, customer and
supplier integration. More specifically, it is found that
IT-enabled internal integration is significantly related to
both operational and financial performance, while cus-
tomer integration is not directly related to either financial
or operational performance. By conceptualising SCI as a
multidimensional construct in the context of IT imple-
mentation in supply chains, this study provides meaning-
ful implications for both academics and practitioners,
which have not been identified in previous studies (e.g.
Flynn, Huo, and Zhao 2010; Li et al. 2009; Prajogo and
Olhager 2012; Subramani 2004; Vickery et al. 2003).
This study extends prior supply chain literature by
conceptualising SCI as a three-dimensional construct
consisting of internal, customer and supplier integration,
which creates a holistic understanding of the relation-
ships between IT implementation and multiple SCI
dimensions. The finding that IT implementation directly
affects the three dimensions of SCI is consistent with
several studies (e.g. Li et al. 2009; Vickery et al. 2003).
IT implementation acts as a core enabler of SCI. IT can
facilitate communication (e.g. information sharing, joint
planning, cross-functional teams and working together)
across functional areas and collaboration among supply
chain partners through information sharing (e.g. inven-
tory level, production planning and control and demand
forecast) throughout the supply chain (Gunasekaran and
Ngai 2004; Li et al. 2009; Vickery et al. 2003). IT
implementation allows different departmental functions
to integrate and share information more effectively. The
more a firm has invested in information technologies, the
more likely it is that the firm will achieve integration
internally across functional areas (Vickery et al. 2003),
which in turn strengthens external integration with cus-
tomers and suppliers. In today’s dynamic and competi-
tive environment, manufacturing firms are forced to
make greater investments in information technologies.
Over the last few years, most leading manufacturers in
China have made significant advances in IT. Most
 954
manufacturers have begun to put heavy emphasis on
implementing information and technologies in operations
and supply chains (e.g. ERP, RFID and EDI) to achieve
competitive advantages. Thus, this research reinforces
the importance of IT implementation in improving SCI.
This is an important point for manufacturing firms when
they consider investing in information technologies for
SCM (Gunasekaran and Ngai 2004; Li et al. 2009).
This study found that only IT-enabled internal inte-
gration is significantly and positively associated with
both operational and financial performance among the
three dimensions of SCI. However, while IT-enabled
supplier integration significantly affects financial perfor-
mance, customer integration is not directly associated
with either types of performance. The finding of the
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important role of internal integration in improving
performance is consistent with several studies (Droge,
Jayaram, and Vickery 2004; Flynn, Huo, and Zhao 2010;
Stank, Keller, and Closs2001; Wong, Boon-itt, and Wong
2011). IT-enabled internal integration, such as informa-
tion sharing between internal functions, strategic cross-
functional coordination, joint planning and working
together across different functional areas, allows the
manufacturer to improve financial and operational perfor-
mance (Flynn, Huo, and Zhao 2010; Rosenzweig, Roth,
and Dean 2003). This is an important finding because
many previous studies examining effects of IT imple-
mentation on SCI and/or inter-organisational collabora-
tion (Li et al. 2009; Prajogo and Olhager 2012;
Subramani 2004; Vickery et al. 2003) did not consider
internal integration as a dimension of SCI or evaluate
SCI as an aggregated construct. While conceptually cor-
rect, such an approach may obscure some important
research contributions and generate erroneous conclu-
sions (Flynn, Huo, and Zhao 2010). The finding provides
evidence that building collaborative relationships with
suppliers allow manufacturers to achieve superior finan-
cial performance. This finding is supported by several
studies (e.g. Droge, Jayaram, and Vickery 2004; Frohlich
and Westbrook 2001). Although the importance of inter-
nal and supplier integration in improving business per-
formance has been widely studied (Flynn, Huo, and
Zhao 2010; Wong, Boon-itt, and Wong 2011), this study
is unique in that it examines SCI in the context of IT
implementation. Implementation of IT in supply chains
involves costs and risks, it is important to inform manag-
ers precisely what IT-enabled SCI effort allows them to
achieve in terms of superior performance. By evaluating
SCI in three dimensions, this study provides preliminary
evidence of the importance of including internal integra-
tion in developing IT-enabled SCI patterns and the
importance of internal integration in delivering financial
and operational benefits.
The results indicate that customer integration is not
directly associated with either type of performance
W. Yu
outcomes and that supplier integration is not directly
related to operational performance. Although this finding
seems counterintuitive, it does not come as a surprise
when reviewing previous studies. Although the relation-
ship between SCI and business performance has been
extensively studied, the empirical evidence is mixed,
inconsistent and even confusing (e.g. Droge, Jayaram,
and Vickery 2004; Flynn, Huo, and Zhao 2010;
Rosenzweig, Roth, and Dean 2003; Swink, Narasimhan,
and Wan 2007; Vickery et al. 2003; Wong, Boon-itt, and
Wong 2011; Yu et al. 2013). For instance, Swink,
Narasimhan, and Wan (2007) found that customer inte-
gration has a direct negative effect on market perfor-
mance and supplier integration is negatively associated
with certain aspects of operational performance (quality
improvements). Devaraj, Krajewski, and Wei (2007)
found that customer integration does not significantly
affect operational performance, but moderates the effect
of supplier integration on operational performance. In
general, the literature on the relationship between sup-
plier and customer integration and operational perfor-
mance reached mixed findings (Flynn, Huo, and Zhao
2010). This study did not find any evidence of the rela-
tionship; a possible explanation for this finding is that,
unlike previous studies (e.g. Flynn, Huo, and Zhao
2010; Swink, Narasimhan, and Wan 2007; Wong,
Boon-itt, and Wong 2011) that examined SCI as a stand-
alone resource without considering the effect of IT, this
study examines IT-enabled SCI. Therefore, it can be sug-
gested that considering the important role of IT imple-
mentation will help clarify the nature of the relationship
between SCI and performance. In the context of IT
implementation in supply chains, integrated information
systems enable all functional departments (e.g. manufac-
turing, marketing, R&D, finance, etc.) within the firm to
access and transmit information (Vickery et al. 2003).
Manufacturers may be more predisposed to internal IT
investments to ensure the high priority of information
sharing across functional areas within their firm, because
internal integration may be perceived as offering more
certain outcomes and offer a higher level of control.
These findings accentuate the importance of internal inte-
gration in securing performance gains. Thus, it can be
argued that simply integrating with customers and sup-
pliers will not in itself deliver operational gains; how-
ever, by disaggregating SCI into its constituent parts,
this study clarified what aspects of IT-enabled SCI are
more effective in improving the operational and financial
performance of manufacturers.
5.2. Managerial implications
The findings of this study drive meaningful managerial
implications. First, one of the important implications is
that managers must understand that high level of SCI
 Production Planning & Control
needs the support of IT implementation. In today’s
dynamic and completive environment, IT has a key role
to play in supporting supply chain. The implementation
of IT along a supply chain has increasingly become a
necessity for enhancing SCI, such as RFID, EDI and
ERP. Therefore, to build internal integration across dif-
ferent functional departments and strategic collaboration
with suppliers and customers, it is important for manu-
facturers to effectively manage the implementation of IT
in their supply chains. Second, although the implementa-
tion of IT in supply chains is essential, it involves signif-
icant costs and risks. An important question for
managers is what IT-enabled SCI their firm should
develop to achieve superior performance, investing in
internal and/or external integration with customers and/or
Downloaded by [University of Sussex Library] at 18:46 07 October 2015
suppliers. The results indicate that IT-enabled internal
integration significantly affects both operational and
financial performance among the three dimensions of
SCI. This finding provides valuable guidelines for man-
agers that higher priority should be given to IT-enabled
internal integration effort, which allows manufacturers to
achieve superior performance outcomes. However, sup-
plier integration should not be ignored because building
a strong strategic partnership with suppliers based on IT
implementation is manifestly important for a manufacture
to improve financial performance. In summary, a signifi-
cant insight from this research is that managers should
develop IT-enabled SCI capability to achieve superior
performance in a competitive environment, but given the
potential risks and costs involved in IT investments, it is
important for managers to recognise what IT-enabled
SCI effort is actually likely to deliver profits.
6. Conclusions and suggestions for future research
In today’s dynamic environment, companies are increas-
ingly relying on IT to improve the supply chain process.
However, the impacts of IT-enabled SCI on performance
are not yet well understood. This study contributes to the
literature by developing and empirically testing a theoret-
ical framework that investigates the relationship between
multiple dimensions of IT-enabled SCI and performance.
The results reveal that IT implementation has a signifi-
cant positive effect on three SCI dimensions and that IT-
enabled internal integration is significantly related to
both operational and financial performance. The findings
of this study also provide useful guidelines for managers
to decide how to devote their IT resources to managing
an integrated supply chain process.
While this study makes significant contributions to
research and practice, there are some limitations that
present opportunities for future research. First, this
research was directed to investigating the effect of IT
implementation on SCI; there are other types of
IT resources that may also affect a firm’s SCI, such as
955
IT alignment, knowledge and IT management, education
and training, and management commitment to IT for
SCM (Gunasekaran and Ngai 2004; Wu et al. 2006).
Future research may incorporate these in examining the
effects of IT on SCI. Second, Chae, Yen, and Sheu
(2005) argued that the effect of IT on SCI is not prede-
termined; some partnership characteristics (such as trust,
dependence, use of power, information sharing and rela-
tionship commitment) may influence IT implementation
in supply chains. Future research may extend the theoret-
ical framework proposed in the present study by explor-
ing how these factors influence IT-enabled SCI and
performance. Finally, because the survey data were only
collected from manufacturers, future research can
broaden its scope by collecting data from various supply
chain partners, such as customers and suppliers.
Notes on contributor
Wantao Yu is a lecturer in Operations
Management at Norwich Business School,
University of East Anglia. His research
interests include supply chain integration,
integrated green supply chain management,
environmental sustainability, and retail
operations and logistics. His work has been
published in journals such as International
Journal of Production Economics, Interna-
tional Journal of Operations & Production Management,
Industrial Marketing Management, and IMA Journal of
Management Mathematics.
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