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Role of compatibility and supply chain process integration in facilitating

supply chain capabilities and organizational performance

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DOI: 10.1108/SCM-05-2017-0187

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 Role of compatibility and supply chain process
integration in facilitating supply chain
capabilities and organizational performance
Rajesh Rajaguru
Tasmanian School of Business and Economics, University of Tasmania, Hobart, Tasmania, Australia, and
Margaret J. Matanda
Business School, The University of Sydney, Sydney, New South Wales, Australia

Abstract
Purpose – This study aims to investigate how compatibility between supply chain partners’ technological systems, as well as cultural and
operational values, enhance supply chain process integration. Additionally, the paper examines whether supply chain capabilities mediate the
relationship between supply chain process integration and organizational performance. The contradictory findings on the relationship between
supply chain process integration and organizational performance in prior research point to the need for investigating the possibility of supply chain
capabilities having a mediating effect on the link between the two factors.
Design/methodology/approach – The study used survey data from 302 managers and executives responsible for supply chain functions in food
and hardware retailing businesses in Australia. Structural equation modeling (SEM) was used to test the proposed hypotheses, and then Zhao et al.’s
(2010) procedure was used to test for mediation effects.
Findings – The results indicate that technical, operational and cultural compatibility facilitates supply chain process integration. In support of
dynamic capabilities theory, the study reveals the importance of integrating resources among supply chain partners to achieve supply chain
capabilities, operational and competitive performance. Additionally, the current study found supply chain capabilities to play a mediating role on the
relationships between supply chain process integration and organizational performance.
Originality/value – The paper contributes to supply chain management literature by identifying technical, operational and cultural compatibility as
antecedents to supply chain process integration. By revealing the mediating role of supply chain capabilities, the paper highlights how supply chain
process integration enhance operational and competitive performance.
Keywords Integration, Operational performance, Supply-chain management, Dynamic capabilities
Paper type Research paper

1. Introduction perspective and integrating processes and activities across the

In highly competitive business environments, individual
businesses no longer compete as separate entities, but rather as
members of distinct supply chains (Carter et al., 2015; Gligor
and Holcomb, 2012; Lambert and Cooper, 2000). Such
dynamic business environments require supply chain partners
to integrate and share resources and capabilities with both
upstream and downstream supply chain partners to attain the
desired benefits (Rai et al., 2006). Holding strategic
information and resources within the organization is unlikely to
provide key value to any organization as these can only create
value when shared with supply chain partners (Revilla and
Knoppen, 2015). According to Revilla and Knoppen (2015),
the combined information and knowledge is converted into
valuable capabilities that eventually propels superior
performance. Therefore, adopting a supply chain process
The current issue and full text archive of this journal is available on
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supply chain can create efficiencies and superior value that can
lead to superior supply chain performance (Devaraj et al., 2007;
Eriksson, 2015; Prajogo et al., 2016). For instance, sharing
information about changing consumer preferences and
consumption patterns detected at the point-of-sale by
downstream supply chain members such as retailers can help
upstream supply chain partners to revise their production and
distribution plans (Fawcett et al., 2007).
Consequently, sharing of resources and capabilities across
the supply chain has become increasingly important, as it
enhances supply chain capabilities that are required to attain
organizational level competitiveness and performance (Rai
et al., 2006; Wu et al., 2006). Supply chain capabilities are
viewed as the building blocks for supply chain management and
key determinants of organizational success and survival
(Morash et al., 1996). Such supply chain capabilities can be
leveraged through the integration of supply chain processes
across the supply chain (Chen et al., 2009b), which in turn can

Received 31 May 2017

Supply Chain Management: An International Journal
Revised 30 June 2018
24/2 (2019) 301–316 30 September 2018
© Emerald Publishing Limited [ISSN 1359-8546] 15 October 2018
[DOI 10.1108/SCM-05-2017-0187] Accepted 18 October 2018

301
 Supply chain process integration
Rajesh Rajaguru and Margaret J. Matanda
enhance supply chain resilience and robustness (Ponomarov
and Holcomb, 2009). Additionally, supply chain process
integration creates a sense of belonging among supply chain
partners that also inspires partners to become more entrenched
and valuable members of distinct supply chains or networks
(Bagchi and Skjoett-Larsen, 2002; Skipworth et al., 2015).
Therefore, investigating the supply chain from a process
integration perspective is important in enhancing supply chain
performance. Whilst prior logistics and supply chain literature
has examined the effect of supply chain collaboration and
integration on logistics, operational and supply chain
performance (Chen et al., 2009b; Cheng et al., 2016; Gimenez
and Ventura, 2003; Rai et al., 2006; Wu et al., 2006), limited
attention has been paid to examining how supply chain process
integration influences organizational performance through the
supply chain capabilities. Some scholars have specifically called
for more empirical work on how different supply chain process
integration dimensions interact with each other and impact
different organizational performance outcomes (Huo, 2012;
Eriksson, 2015). Therefore, the current study investigates the
mediating role of supply chain capabilities on the relationship
between supply chain process integration and organizational
performance. Prior research indicates that competitive
advantage and organizational performance can be achieved
through aligning supply chain processes and activities, but
research investigating the factors contributing to the creation of
supply chain process integration and its outcome is scarce
(Huo, 2012; Yu et al., 2013).
Literature found differences in supply chain partners’
hardware and software technologies (Claycomb et al., 2005;
Rajaguru and Matanda, 2011), organizational goals (Finley
and Srikanth, 2005) and data standardization and
synchronization to retard supply chain process integration
(Claycomb et al., 2005; Gligor and Holcomb, 2012).
Additionally, differences in cultural and operational practices
of supply chain partners can thwart the development of
enduring supply chain integration (Cadden et al., 2013; Sarkar
et al., 2001). Thus, to reduce such differences, there is a need
for ensuring technical, operational and cultural compatibility
between supply chain partners that are interested in integrating
their supply chain processes. Rajaguru and Matanda (2013)
further urge the need for more empirical research focusing on
investigating the effect of inter-organizational compatibility in
supply chain process integration. Hence, the current study
responds to calls from prior researchers (Chen et al., 2009a;
Rajaguru and Matanda, 2013) for empirical work on how
technical, operational and cultural compatibility impact supply
chain process integration.
While extensive research shows supply chain process
integration to provide a number of supply chain and
organizational benefits to supply chain partners (Armistead and
Mapes, 1993; Cheng et al., 2016; Claycomb et al., 2005; Kim,
2006), other scholars have found contrary results (Lee et al.,
2000; Sezen, 2008). These contradictory findings point to the
need for more research on the link between supply chain
integration and organizational performance. The contradictory
results also suggest that other factors may play a mediating
effect on the link between supply chain process integration and
organizational performance. Interestingly, Rosenzweig et al.
(2003) found competitive capabilities, such as product quality,
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delivery reliability, process flexibility and cost leadership to
mediate the effect of supply chain integration on organizational
performance. Similarly, Chen et al. (2009b) proposed a
conceptual model linking relationships between supply chain
integration, supply chain capabilities and performance, and
called for further research on these relationships. This call was
echoed by Prajogo et al. (2016), who specifically called for more
research investigating the relationship between logistics and
supply chain integration and firm-level competitive
performance. Using dynamic capability and congruency
theories as theoretical framework, we are building on the
research gap identified by above researchers and Rosenzweig
et al. (2003) and Chen et al. (2009b) frameworks. As a result,
we propose that the link between supply chain process
integration and organizational performance is mediated by
supply chain capabilities.
Therefore, we address the research gap suggested by
Rajaguru and Matanda (2013) and investigate the effects of
inter-organizational compatibility dimensions on supply chain
process integration that has not been covered before. We also
respond to calls for more research focusing on the effect of
specific supply chain process integration dimensions on
organizational performance (Eriksson, 2015; Feyissa et al.,
2018). First, the study examines the effect of compatibility on
supply chain process integration. Second, the study investigates
the direct effect of supply chain process integration on
organizational performance, as well as its indirect effects
through supply chain capabilities. Specifically, the study
addresses the following research questions:
RQ1. What are the compatibility factors that influence
supply chain process integration?
RQ2. What is the relationship between compatibility, supply
chain process integration, supply chain capabilities and
organizational performance?
RQ3. Do supply chain capabilities mediate the effects link
between supply chain process integration and
organizational performance?
The remainder of the study is organized as follows. In Section
2, the theoretical background and a review of the literature on
compatibility, supply chain process integration, supply chain
capabilities and organizational performance are presented,
culminating in the development of the hypotheses. A discussion
of methodology and results then follow. Finally, the article
concludes by outlining the study implications, limitations and
areas for future research.
2. Literature review
2.1 Organizational performance
In a highly volatile environment, organizations strive to achieve
competitive advantages and superior organizational
performance (Barreto, 2010; Morash et al., 1996). As a result,
extensive supply chain research has investigated the key role of
supply chain management in improving organizational
performance, and more specifically, the effect of supply chain
integration and supply chain capabilities in facilitating
organizational performance. Some researchers have linked
 Supply chain process integration
Rajesh Rajaguru and Margaret J. Matanda
these constructs to financial performance (Flynn et al., 2010;
Frohlich and Westbrook, 2001; Huo, 2012; Rosenzweig et al.,
2003), and others have linked them to market-based measures
(Yen and Hung, 2017; Zhao et al., 2008). Supply chain
management scholars usually view and measure organizational
performance as being composed of operational and competitive
performance dimensions (Fawcett et al., 2007) and have
investigated the critical role of supply chain integration in
enhancing organizational performance. Supply chain partners
with compatible systems, procedures and processes can share
capabilities and resources in real time, which, in turn, enhances
operational performance and competitiveness across the supply
chain (Claycomb et al., 2005; Fawcett et al., 2007). Such
compatible supply chain process integration assures the
availability of the right products, to the right consumers, at the
right time at a competitive price (Rai et al., 2006; Angeles,
2009), thereby enhancing supply chain partners operational
and competitive performance (Fawcett et al., 2007; Flynn et al.,
2010).
2.2 Compatibility
Compatibility refers to common experiences, values, principles
and business strategies that are shared by supply chain partners
(Rogers, 1983). Compatibility has also been recognized for its
ability to create synergies between partnering organizations
(Sarkar et al., 2001). According to congruency theory, there is a
need for compatibility between partnering organizations to
enhance supply chain relationships (Mitsuhashi and Greve,
2009; Sarkar et al., 2001). In prior literature compatibility is
conceptualized as a multidimensional construct composed of
technical and technological fit (technical compatibility),
cultural fit (cultural compatibility) and operational congruence
(operational compatibility) (Claycomb et al., 2005; Li and
Williams, 1999; Sarkar et al., 2001; Schraeder and Self, 2003).
In the current study, we also view compatibility as a tri-
component construct composed of technical, operational and
cultural compatibility.
Technical compatibility refers to congruency in the systems
and processes used between supply chain partners such as
information systems networks, software, point-of-sale (POS)
terminals, business technology and processes (Li and Williams,
1999; Park et al., 2004). According to Li and Williams (1999),
technical compatibility emanates from similarities in technical
processes of partnering organizations.
Operational compatibility, on the other hand, is the similarity
in capabilities and procedural issues that assume salience across
the supply chain (Claycomb et al., 2005; Sarkar et al., 2001).
Such operational compatibility facilitates trust, commitment
and information exchange between supply chain partners
(Sarkar et al., 2001).
Cultural compatibility refers to subjective norms, traditions,
beliefs and values (Buono et al., 1985; Sarkar et al., 2001).
Business failure may occur when organizations holding
incompatible values, norms and beliefs attempt to blend their
organizational cultures with supply chain partners during the
process integration (Sarkar et al., 2001). Further, cultural
incompatibility among supply chain partners creates strife and
suspicion (Sarkar et al., 2001).
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2.3 Supply chain process integration
Supply chain process integration is defined as the interaction
and collaboration between supply chain partners that intend to
form a network (Huang et al., 2014). Rai et al. (2006) view
supply chain process integration as the degree to which a focal
organization integrates its activities and processes with its
supply chain partners. Having supply chain process
perspectives is crucial in forming distinctive supply chain
networks that can help enhance efficiency and effectiveness
across the supply chain (Ellram and Cooper, 2014). Thus,
adopting supply chain process perspectives helps supply chain
members in coordinating the upstream and downstream flow of
activities, such as sharing of information, physical movement of
products, and automated transfer of resources, to assure the
availability of the right product to the right consumers (Chen
et al., 2009b; Rai et al., 2006). Prior literature operationalizes
supply chain process integration as a second-order construct
composed of three sub-construct components: information
flow integration, physical flow integration and financial flow
integration (Angeles, 2009; Rai et al., 2006).
Information flow integration is the extent to which operational,
tactical and strategic information is shared across the supply
chain, and had been identified as a crucial element in
facilitating supply chain activities and processes (Angeles,
2009; Patnayakuni et al., 2006; Rai et al., 2006). Information
sharing is critical within the supply chain, as it facilitates
collaboration and joint activities between supply chain
partners. Sharing of operational, tactical and strategic
information between supply chain partners through an
integrated system enhances not only the focal organizations’
performance (Li et al., 2006) but also the performance of the
whole supply chain (Rai et al., 2006). Consequently, assuring
the availability of undistorted and up-to-date marketing data
and information at every node within the supply chain is the key
to a successful supply chain (Childhouse and Towill, 2003; Li
et al., 2006). Well-aligned supply chain management processes
across the supply chain partners are the source of sustainable
competitive advantage and are hard to imitate (Prajogo et al.,
2016). Seamless sharing of data and information is only
possible if supply chain partners integrate their information
sharing mechanisms (Li and Williams, 1999). This enables the
sharing of operational and strategic information such as sales
data, demand planning, forecasting and changes in
consumption patterns, which facilitate both, upstream and
downstream supply chain partners’ efficiency and effectiveness
in managing the supply chain (Kim et al., 2006). In this study,
information flow integration is measured as the sharing of
operational and strategic information with supply chain
partners.
Physical flow integration is the degree to which a focal
organization and its supply chain partners jointly utilize
material optimization processes and procedures in the supply
chain to manage work-in-process inventory, as well as the flow
of materials and finished goods (Rai et al., 2006). Thus,
physical flow integration facilitates both upstream and
downstream movement of materials and finished goods.
Upstream supply chain processes, such as consumers and
retailers returning of damaged products to manufacturers and
manufacturers recalling of products that do not meet industry
standards, are efficiently and effectively managed through well-
 Supply chain process integration
Rajesh Rajaguru and Margaret J. Matanda
integrated supply chain systems (Rai et al., 2006). For
downstream supply chain management, physical flow
integration supports just-in-time delivery (Lowson, 2001),
automatic replenishment, vendor inventory control (Daugherty
et al.,1999; Ellinger et al.,1999), reduction of safety stock and
shelf space utilization (Ellinger et al.,1999; van Hoek, 2000).
Financial flow integration is the degree to which the exchange
of financial resources between a focal organization and its
supply chain partners is driven by integration (Rai et al., 2006).
An electronic and information systems enabled integrated
supply chain network results in simplifying and rationalizing
the sharing of financial resources between supply chain
partners (Rai et al., 2006). However, organizations often
hesitate to integrate their financial systems with upstream and
downstream supply chain partners (McConnack and Johnson,
2003; Rai et al., 2006), even though these are likely to enhance
their capabilities and facilitate transactions across the supply
chain.
2.4 Supply chain capabilities
Morash et al. (1996, p. 1) refers to capabilities as “those
attributes, abilities, organizational processes, knowledge, and
skills that allow a firm to achieve superior performance and
sustained competitive advantage over competitors.” According
to Chen et al. (2009b), supply chain capabilities provide an
important link between supply chain process integration and
organizational performance. Supply chain capabilities refer to
the ability of an organization to use internal and external
resources to facilitate supply chain performance (Bharadwaj,
2000; Wu et al., 2006).
Wu et al. (2006) identify supply chain capabilities in terms of
the ability of an organization to share information resources,
coordinate supply chain processes and to be responsive to
supply chain partners’ requests and final consumer needs. In
the current study, in line with Wu et al. (2006), we
conceptualize supply chain capabilities as a second-order
construct composed of information sharing, supply chain
coordination and supply chain responsiveness.
3. Conceptual framework and hypothesis
development
In prior research, supply chain management scholars have used
a combination of theories (Chen et al., 2009b) to explain the
complexity of supply chain management processes. Dynamic
capabilities and congruency theories have been identified as
appropriate theoretical frameworks to underpin the current
study. Congruency theory helps in explaining the role of
compatibility in facilitating supply chain process integration,
while the dynamic capabilities theory shows how supply chain
process integration is a critical factor in enhancing supply chain
capabilities and organizational performance.
Successful integration between supply chain partners
depends on the level of congruency in the partnering
organizations’ goals, technology, culture, and reward systems
(Claycomb et al., 2005; Li and Williams, 1999; Sarkar et al.,
2001). Conversely, lack of fit in partnering organizations’
culture, operational processes and technological systems can
result in misaligned business processes across the supply chain
(Li and Williams, 1999; Sarkar et al., 2001) and impede supply
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chain process integration (Claycomb et al., 2005; Rai et al.,
2006). In support of the above literature that highlights the
importance of congruency or compatibility between supply
chain partners, we explore the role played by three
compatibility dimensions (technical, operational and cultural)
in facilitating supply chain process integration.
Extant research highlights the crucial role resources, skills
and capabilities play in enhancing and securing organizational
competitiveness and performance (Barney, 1991; Barreto,
2010). The resource-based view (RBV) pioneered by Barney
(1991), on which the dynamic capability theory is built on,
argues that the competitive position of any organization
depends on its resource endowments and capabilities.
However, the RBV has been criticized for not comprehensively
explaining how these resources and capabilities can continually
generate value in rapidly changing and unpredictable
environments (Ambrosini et al., 2009; Wu, 2010).
Dynamic capabilities refer to “the firm’s ability to integrate,
build, and reconfigure internal and external competencies to
address rapidly changing environments” (Teece et al., 1997,
p. 516). According to Zollo and Winter (2002), dynamic
capabilities are a learned and stable pattern of collective action
through which the organization systematically generates and
modifies its operating routines in pursuit of improved
effectiveness. Dynamic capabilities are the capacity of
organizations to create, extend and modify its resource base
(Helfat and Winter, 2011). Thus, the dynamic capability
theory focuses on specific capabilities that can be measured
based on the benefits gained through relationships and
collaboration (Eisenhardt and Martin, 2000; Barreto, 2010).
Using dynamic capability theory in the supply chain
management context, Kirci and Seifert (2015) found that
competitiveness in the supply chain can be realized if
sustainability initiatives such as information transparency and
inter and intra-organizational integration can be implemented
across the supply chain. According to dynamic capabilities
theory, supply chain members integrate their resources and
capabilities to achieve competitive advantage (Cheng et al.,
2014; Teece et al., 1997). Thus, in line with dynamic
capabilities theory, this study investigates the role of supply
chain process integration in achieving supply chain capabilities
and organizational performance. As a result, relying upon
congruency theory and dynamic capabilities theory, the study
proposes and tests a conceptual model (Figure 1) that posits a
Figure 1 Conceptual framework
Operaonal
Performance
Technical
Compability
Supply Chain
Operaonal Process
Supply Chain
Capabilies
Compability Integraon
Cultural Compeve
Compability performance
Supply Chain Process Supply Chain
Compability Integraon Capabilies
Organizational
Performance
 Supply chain process integration
Rajesh Rajaguru and Margaret J. Matanda
relationship between compatibility, supply chain process
integration, supply chain capabilities and organizational
performance. The hypotheses developed from the conceptual
framework are discussed in the following sections.
3.1 Compatibility and supply chain process integration
Incompatible business processes between collaborating
organizations can hinder interactive e-businesses (Claycomb
et al., 2005), and integration across supply chain partners
(Mitsuhashi and Greve, 2009; Sarkar et al., 2001).
Incompatibility in technical, operational and cultural resources
also impedes supply chain integration (Li and Williams, 1999;
Claycomb et al., 2005; Sarkar et al., 2001). Therefore, supply
chain partners that have incompatible technical and
technological systems often have difficulties in developing
sustainable relationships and in integrating information
systems and processes with their supply chain partners (Li and
Williams, 1999; Rajaguru and Matanda, 2013). Hence,
ensuring technical compatibility beforehand is crucial for
successful supply chain process integration (Claycomb et al.,
2005; Li and Williams, 1999). The rapid development of
information and communication technology (ICT) has created
disparities among supply chain partners in technical and
technological platforms. Therefore, the software, hardware and
network systems used by partnering organizations need to be
compatible to achieve supply chain process integration (Li and
Williams, 1999). Thus, we hypothesize that:
H1. Technical compatibility between supply chain partners
influences supply chain process integration.
Both information systems and supply chain literature
emphasize the importance of congruency or fit in operational
processes of partnering organizations or supply chain partners
(Claycomb et al., 2005; Sarkar et al., 2001; Wu et al., 2013).
The exchange of information and material between supply
chain partners is often affected by operational complexities
(Wu et al., 2013). This further highlights the need for
operational compatibility between supply chain partners
(Sarkar et al., 2001). Thus, operational compatibility can
enhance the development of alliances and process integration
across the supply chain (Claycomb et al., 2005; Wu et al.,
2013). Wu et al. (2013) specifically encourage supply chain
partners to integrate their operations to enhance logistics and
supply chain performance. Hence, compatibility in operational
processes is important for supply chain process integration
(Claycomb et al., 2005; Wu et al., 2013). Therefore, the study
hypothesizes that:
H2. Operational compatibility between supply chain partners
influences supply chain process integration.
Differences in supply chain partners’ business norms, values
and culture impede the supply chain relationships (Claycomb
et al., 2005; Sarkar et al., 2001) and integration (Jarratt and
O’Neil, 2002). Jarratt and O’Neil (2002) further highlight the
crucial role of organizational culture in influencing
organizations’ decisions to building relationships and
integrating business processes. Thus, the study views cultural
compatibility as a key determinant of successful supply chain
process integration, and we hypothesize that:
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H3. Cultural compatibility between supply chain partners
influences supply chain process integration.
3.2 Supply chain process integration, supply chain
capabilities and organizational performance
Chen et al. (2009b, p. 35) state that:
[. . .] as a set of continuous restructuring activities, supply chain process
integration facilitates a firm to realign processes and resources more
effectively, thus contributing to the development of certain critical supply
chain capabilities.
It is evident from the literature that supply chain process
integration has the potential to facilitate the creation of unique
supply chain capabilities that can enhance organizational
performance (Chen et al., 2009b). Capabilities that are
embedded with the organizational processes are most likely to
create a set of organizational performance (Wu et al., 2006).
Chen et al. (2009b) proposed the possible relationship between
supply chain process integration and supply chain capabilities
and investigated supply chain integration as a bi-dimensional
construct composed of internal and external integration.
However, some scholars argue that external integration is more
crucial for supply chain performance than internal integration
(Droge et al., 2004; Frohlich and Westbrook, 2001). Viewing
supply chain process integration from an external perspective,
Rai et al. (2006) conceptualized integration as a tri-component
construct composed of information, physical and financial flow
dimensions.
Information flow integration involves establishing information
sharing processes across the supply chain to enable the transfer of
consistent information and knowledge throughout the supply
chain so as to facilitate a fast response to the dynamic challenges
in the marketplace (Li et al., 2006). Indeed, such integration
processes enhance supply chain capabilities such as inventory
management, supply chain coordination, and sharing of demand
and forecasting information across the supply chain (Angeles,
2009; Wu et al., 2006). Given the advances of information and
communication technology, downstream supply chain
partners can share not only customer order related
information but also demand and inventory data with supply
chain partners (Cachon and Fisher, 2000). Thus, accurate
and timely sharing of such information can enhance
suppliers’ ability to forecast demand, and retailers’ ability to
effectively serve end-customers by providing the required
products and services on time (Angeles, 2009; Li et al., 2006;
Rajaguru and Matanda, 2006).
Similarly, the integration of product flow can accelerate
supply chain partners’ capabilities to effectively and efficiently
distribute products in both upstream and downstream
directions (Angeles, 2009; Ellinger et al., 1999). Automated
product movement supported by process integration enhances
supply chain responsiveness, and thereby improves logistics
and operational performance (Rai et al., 2006). Additionally, by
facilitating seamless cash flows and the sharing of required
financial resources through the automation of payables and
receivables, supply chain process integration enhances supply
chain capabilities (Rai et al., 2006). For example, electronic
payment systems at the retailer level can automatically trigger
the payment process upon receiving products from suppliers,
thereby minimizing billing and payment costs and fraud
 Supply chain process integration
Rajesh Rajaguru and Margaret J. Matanda
(Patterson et al., 2018; Raina, 2014). Hence, supply chain
process integration facilitates supply chain capabilities by
improving forecasts, synchronizing production and delivery
processes, coordinating inventory-related decisions, and
shortening invoice payable and receivable cycle time (Lee and
Whang, 2000; Rai et al., 2006; Wu et al., 2006). Thus, it is
evident from the above literature that integration of supply
chain processes and activities enhance supply chain
capabilities, and we hypothesize that:
H4. Supply chain process integration between supply chain
partners positively influences supply chain capabilities.
Well-integrated supply chain processes facilitate co-creation of
efficiencies and generation of customer value that enhance
operational performance (Ralston et al., 2015; Gawankar et al.,
2016). By facilitating precise demand estimation and balancing
supply and demand, supply chain process integration enhances
supply chain partners’ operational capabilities that can
increases sales revenue (Anderson et al., 1994; Rai et al., 2006).
Additionally, the integration of physical, financial and
information flow activities improves operational performance
by minimizing inventory costs and enhancing operational
visibility and coordination of supply chain partners (Lee et al.,
2000; Rai et al., 2006). Thus, the integration of supply chain
processes can enhance operational excellence at different levels
of the supply chain. For instance, at the retailing level,
integration facilitates just-in-time delivery, cycle time reduction
(Lowson, 2001), automatic replenishment, vendor inventory
control (Daugherty et al., 1999) and shelf space utilization (Van
Hoek, 2000). Thus, we hypothesize that:
H5. Supply chain process integration between supply chain
partners positively influences operational performance.
According to Yen and Hung (2017), sharing of physical,
financial and information resources between supply chain
partners enhances the competitive performance of participating
organizations. Resource-based view and dynamics capability
theory illustrate that the integration of intangible and implicit
resources supports the achievement of competitive
performance within the supply chain (Huo, 2012). Such
integration found to influence competitive performance (Huo
et al., 2014). In the context of supply chain management,
competitive performance can be measured as performance
compared to competitors in terms of market share, customer
retention, sales growth and profitability (Fawcett et al., 2007;
Wu et al., 2006). We hypothesize that:
H6. Supply chain process integration between supply chain
partners positively influences competitive performance.
3.3 Supply chain capabilities, operational performance
and competitive performance
Extant literature indicates a positive relationship between
supply chain capabilities and organizational performance
(Chen et al., 2009b; Kim, 2009). According to the dynamic
capability theory, distinctive supply chain capabilities
developed through supply chain process integration enable
supply chain partners to achieve competitive advantage
(Olavarrieta and Ellinger, 1997). Supply chain capabilities
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Volume 24 · Number 2 · 2019 · 301–316
enhance sales volume and market share of participating
organizations by accelerating effective and efficient delivery of
products to consumers. They also enable supply chain partners
to tap into markets that may be inaccessible due to the
individual operation and distribution constraints (Wu et al.,
2006). Supply chain capabilities enable downstream supply
chain partners to effectively respond to customer queries
(Gawankar et al., 2016) thereby contributing to operational
performance. Prior research has found a positive association
between supply chain dynamic capability and operational
performance (Ju et al., 2016). As dynamic capabilities, supply
chain coordination and information sharing contribute to
superior organizational level operational and competitive
performance (Huo et al., 2014; Ju et al., 2016; Kim et al.,
2006). In line with this literature, we hypothesize that:
H7. Supply chain capabilities positively influence operational
performance.
H8. Supply chain capabilities positively influence
competitive performance.
H9. Operational performance positively influences
competitive performance.
Prior research suggests that supply chain process integration
does not necessarily lead to organizational performance, as
performance depends on the supply chain capabilities arising
from the integration process (Chen et al., 2009b). Therefore,
supply chain process integration is required to develop
distinctive supply chain and competitive capabilities (Hong
et al., 2010; Rosenzweig et al., 2003), that enhance
organizational performance (Wu et al., 2006). Such integration
supported capabilities offer organizations superior benefits and
a unique position in the market (Chen et al., 2009b). Supply
chain partners’ capabilities complement each other through
integration thereby enhance the operational and competitive
performance of each participating organization. Therefore,
supply chain capabilities have a mediating role on the
relationship between supply chain process integration and
organizational performance. Thus, we hypothesize that:
H10. Supply chain capabilities mediate the relationship
between supply chain process integration and
operational performance.
H11. Supply chain capabilities mediate the relationship
between supply chain process integration and
competitive performance.
4. Research methodology
A sample of 2,000 firms was randomly selected from the
Australian Center of Retail Studies (ACRS) database. The
sample included respondents from food and hardware industry
to assure generalizability. To identify the most appropriate key
informant, we undertook an exploratory study before the
survey. Senior level managers were chosen as key respondents,
as they are active participants involved in organizational and
supply chain oriented decision-making processes. Key
informants were expected to have worked for over a year in a
 Supply chain process integration
Rajesh Rajaguru and Margaret J. Matanda
supply chain or logistics management role to participate in the
study.
A mail-out package containing a copy of the questionnaire,
an explanatory statement that outlined the purposes of the
study and assured confidentiality and anonymity, and a return
pre-paid envelope, was mailed to respondents. The researcher
approached the respondents by phone and email to encourage
their participation. The returned completed questionnaires
were checked for missing data and outliers, and the incomplete
questionnaire were removed. In total, 302 completed
questionnaires were received, yielding a 15.1 per cent response
rate. Of the 302 responses, 196 responses (64.9 per cent) were
received within four weeks, and an additional 106 responses
(35.1 per cent) were received after we sent a reminder letter.
The response rate of 15.1 per cent is comparable to the average
response rate (15.3 per cent) achieved in prior supply chain and
business-to-business research (Kim et al., 2006; Rai et al.,
2006). SPSS and AMOS was used for analysis.
A non-response bias test was conducted comparing early and
late respondents (Armstrong and Overton, 1977; Churchill,
1979) on the key conceptual variables and demographic
variables used in the study. Late respondents were those who
returned the survey documents after receiving a reminder letter
(Claycomb et al., 2005). The non-response bias test results
indicate no significant differences across early and late
respondents on the key variables: organization size (t = 0.29,
p  0.05), supply chain process integration (t = 0.75, p  0.05),
compatibility (t = 0.73, p  0.05), operational performance (t =
0.83, p  0.05) and competitiveness (t = 0.38, p  0.05). Data
were then tested for normality assumption using Mardia’s
multivariate normality test (Gao et al., 2008). The sample
achieved the critical ratio score of below 1.96, indicating that
multivariate normality was not an issue. The Skewness and
Kurtosis scores for the univariate data were within the 62
benchmark, confirming the normality assumption (Gao et al.,
2008).
4.1 Development of measures
The measures were adopted from the literature and purified by
conducting in-depth interviews with 12 supply chain managers.
Measurement items for inter-organizational compatibility were
adapted from Claycomb et al. (2005), Rajaguru and Matanda
(2013), and Sarkar et al. (2001) and modified to suit the study
context. Whilst Sarkar et al. (2001) operationalized
compatibility as bi-dimensional construct composed of cultural
and operational compatibility, Claycomb et al. (2005) viewed it
as a unidimensional construct consisting of cultural and
technical measurement items. However, other scholars, such as
Li and Williams (1999) and Rajaguru and Matanda (2013)
emphasized the need to capture technical compatibility. In the
in-depth interviews, most respondents agreed that inter-
organizational compatibility was a multi-dimensional construct
consisting of technical, operational and cultural dimensions.
According to some of the respondents, inter-organizational
compatibility refers to “the chemistry being right between the
two firms” was found to be irrelevant to the study context and
was therefore removed from further analysis.
Measurement items for supply chain process integration
were adapted from prior research (Patnayakuni et al., 2006; Rai
et al., 2006). Supply chain process integration was
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operationalized as a tri-component factor composed of
physical, information and financial flow integration. The
original measurement items were developed for the
manufacturer level of the supply chain, and after consultation
of industry experts, these measurement items were adapted to
suit the retailing context. For example, the measurement item,
“supply chain member collaborates in calculating demand
forecasts” adapted with “our integrated systems allow us to
project and plan future demand with supply chain partners”.
The construct supply chain capabilities was measured as a
tri-component higher-order construct composed of
information sharing, supply chain responsiveness and supply
chain coordination (Kim et al., 2006; Wu et al., 2006). After
feedback from industry experts, some measurement items
adapted from the literature were modified to avoid inaccuracies
in responses. For example, “quick and effective response” was
seen as a double-barreled question and was therefore modified
and split into two measurement items. Operational
performance and competitive performance measures were
adapted from Fawcett et al. (2007). Measurement items were
reworded and modified to suit the study context.
All measurement items were measured using a seven-point
Likert-type scale anchored from 1 = very strongly disagree to
7 = very strongly agree. The questionnaire was pilot tested on
30 respondents from the study sample and modifications were
made to enhance face validity.
4.2 Measurement purification
Confirmatory factor analysis (CFA) was used to test the
measurement model and to assess the reliability and validity of
the data. The causal relationships between unobserved latent
factors and their measured indicators were assessed using CFA.
CFA was also used to test both convergent and discriminant
validity of the multi-item measures used in the study (Gerbing
& Anderson, 1992). A two-phase approach was followed to test
a measurement model and then the hypothesized structural
model (Mueller and Hancock, 2010). In phase one, the
measurement items used in the study were specified to load on
a pre-specified latent construct, and the model fit was assessed
using CFA (Mueller and Hancock, 2010). The overall
measurement model showed acceptable model fit ( x 2 =830;
df = 306) (p < 0.001); RMSEA = 0.07; GFI = 0.90; CFI =
0.93; NFI = 0.90). In the final measurement model, the
observed indicators were statistically significant (p < 0.05) and
the standardized loadings were all above 0.05 cut-off point.
Given that the standardized factor loadings for the
measurement items were greater than 0.50 with t-values greater
than 2.0, convergent validity was assumed (Hair et al., 2010).
To assess discriminant validity, average variance extracted
(AVE) values for the constructs used in the study were
calculated from the factor loadings. The AVEs for all the study
constructs were above 0.50 (see Table I), confirming
convergent validity at the construct level (Peng and Lai, 2012).
Further evidence of discriminant validity was assessed by
checking whether the AVEs for any two constructs or latent
variables were greater than the square of the correlation of the
constructs or latent variables (Gerbing and Anderson, 1992;
Fornell and Larcker, 1981). The results indicate that the
variables used in the model were distinctly different from each
other and did not correlate with variables measuring other
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Table I Results of CFA

Measurement items SFL t-value CR, AVE and Cronbach a
Compatibility (Claycomb et al., 2005; Sarkar et al., 2001; Rajaguru and Matanda,2013)
Technical compatibility
i. Our firm’s software is compatible with supply chain partners’ software. 0.76 13.02 CR 0.88
ii. Our supply chain partners’ information systems are technically compatible with those of our 0.84 15.56 AVE = 0.70
firm.
iii. Technical capabilities of our firm and supply chain partners are compatible. 0.91 19.21 a = 0.81
Operational compatibility
i. Our firm’s procedures are compatible with our supply chain partners’ business procedures. 0.81 13.97 CR = 0.84
ii. Managers from our firm and supply chain partners firms have similar professional skills. 0.83 13.58 AVE = 0.63
iii. Our firm’s operational processes are compatible with supply chain partners’ operational 0.74 12.29 a = 0.82
processes.
Cultural compatibility
i. Managers from our firm and those of our supply chain partners have compatible 0.71 14.23 CR = 0.86
philosophies in business dealings.
ii. The organizational values and social norms prevalent between our firm and our supply 0.90 18.27 AVE = 0.68
chain partners are congruent.
iii. The goals and objectives of our firm are compatible with those of our supply chain 0.85 16.21 a = 0.85
partners.
Supply chain process integration (Patnayakuni et al., 2006; Rai et al., 2006)
Information flow integration
i. Our integrated systems allow us to share customer needs and wants through sales data. 0.71 13.16 AVE =0.69
ii. Our integrated systems allow our firm to project and plan future demand with supply chain 0.93 23.47 CR = 0.90
partners.
iii. Integrated systems allow us to share delivery schedules with supply chain partners. 0.83 16.07 a = 0.84
iv. Integrated systems allow sharing of inventory data between supply chain partners. 0.83 15.84
Physical flow integration 0.86 16.78 CR = 0.90
i. Our firm jointly manages supply chain wide inventory with supply chain partners. 0.81 15.41 AVE =0.61
ii. Our firm jointly manages just-in-time delivery of products with supply chain partners. 0.71 12.87 a = 0.84
iii. Our firm jointly configures the flow of products with supply chain partners. 0.75 11.99
iv. Our firm and supply chain partners jointly work to reduce inventory holdings.
Financial flow integration 0.84 16.28 CR=0.84
i. Account receivable processes are automatically triggered when our firm ships products to 0.91 18.75 AVE =0.63
supply chain partners.
ii. Account payable processes are automatically triggered when our firm receives products 0.60 11.21 a = 0.87
from supply chain partners.
iii. Our firm has an integrated electronic fund transfer system with our supply chain partners.
Supply Chain Capabilities (Kim et al., 2006; Wu et al., 2006)
Information sharing
i. Our firm and supply chain partners share information frequently. 0.83 13.89 CR= 0.88
ii. Our firm and supply chain partners share information accurately. 0.76 14.90 AVE =0.63
iii. Our firm and supply chain partners share detailed information on business activities. 0.87 15.46 a = 0.83
iv. Timely information sharing is achieved between our firm and our supply chain partners. 0.74 12.95
Supply chain responsiveness
i. Our supply chain responds quickly to changing consumer needs. 0.81 14.50 CR = 0.90
ii. Our supply chain responds effectively to changing consumer needs. 0.82 16.02 AVE= 0.69
iii. Our supply chain responds quickly to changing competitors’ strategies. 0.89 12.40 a = 0.90
iv. Our supply chain develops new products quickly. 0.80 16.02
v. Our supply chain responds effectively to changing competitors’ strategies 0.74 14.55
Supply chain coordination
i. We are very satisfied with the collaborative relationships that we have with our supply 0.86 15.67 CR = 0.92
chain partners.
ii. We have good collaborative relationships with supply chain partners. 0.89 17.67 AVE = 0.80
iii. We have achieved efficiency in coordinating relationships with supply chain partners. 0.92 18.88 a = 0.89
(continued)

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Table I

Measurement items SFL t-value CR, AVE and Cronbach a

Operational Performance (Fawcett et al., 2007; Yu et al., 2013)
i. Our firm’s effectiveness in fulfilling requirements. 0.79 15.22 CR = 0.94
ii. Our firm’s effectiveness in responding to changes to market demand. 0.87 17.47 AVE = 0.68
iii. Our firm’s effectiveness in on-time delivery. 0.83 16.57 a = 0.92
iv. Reduction in lead time to fulfill customers’ orders. 0.72 13.29
v. Our firm’s effectiveness in delivering reliable quality products. 0.83 16.57
vi. Reduction in cost to reach customers. 0.85 17.25
vii. Reduction in overhead costs. 0.83 16.56
viii. Reduction in inventory costs. 0.86 17.52
Competitive Performance (Fawcett et al., 2007)
i. Sales volume increase compared to the competitors. 0.81 15.42 CR = 0.92
ii. Market share growth compared to the competitors. 0.84 17.21 AVE = 0.64
iii. Customer retention power compared to the competitors. 0.85 16.55 a = 0.88
iv. Sales volume increase compared to the past. 0.79 15.94
v. Market share growth compared to the past. 0.75 14.79
vi. Customer retention compared to the past. 0.76 14.95
Notes: The scale format for each of these measures was 1 = ‘strongly disagree’ to 7 = ‘strongly agree’. SFL = Standardized Factor Loadings; AVE = Average
Variance Extracted; CR = Composite Reliability

constructs. The standardized factor loadings from the CFA
model were used to calculate the composite reliability, which is
an indicator of internal consistency (Hair et al., 2010). The
composite reliability for all constructs used in the study ranged
between 0.81 and 0.92, exceeding the recommended threshold
of 0.70 (Hair et al., 2010; Nunnally, 1978), assuring internal
consistency. The CFA results are presented in Table I.
In line with the prior literature, supply chain integration and
supply chain capabilities were conceptualized as second-order
constructs (Angeles, 2009; Rai et al., 2006; Wu et al., 2006).
Second-order factor loadings that were used to measure the
corresponding construct were significant and above 0.7 (Hair
et al., 2010), confirming supply chain integration and supply
chain capabilities as higher-order constructs (see Table I for
second-order construct and its corresponding first-order
construct factor loadings). In addition, we compared the
proposed second-order construct model (Figure 1) with the
first-order construct model (Cheng et al., 2016; Tanriverdi,
2006). We constructed a model incorporating all first-order
latent variables of the constructs: supply chain integration and
supply chain capabilities, and we established paths linking the
independent and dependent variables with the first-order latent
variables. The overall fit statistics for the first-order construct
model ( x 2 = 1,699.38; df = 555 (p < 0.001); RMSEA = 0.08;
GFI = 0.80; CFI = 0.86; NFI = 0.81) was inferior to the
second-order construct model, and the chi-square differences
test ( x 2difference = 827.06, df = 234, p < 0.001) was in favor of
the second-order construct model (Table II).
4.3 Data analysis
A structural equation model (SEM) using the maximum
likelihood estimation method was used to test the hypothesized
relationships in Phase 2 of the analysis (Mueller and Hancock,
2010). AMOS 24 statistical software was used. The SEM was
developed linking the constructs: compatibility, supply chain
process integration, supply chain capabilities, operational
performance and competitive performance. The SEM results
indicate a satisfactory model fit, and the goodness-of-fit indices
( x 2 = 872.32; df = 321, p < 0.001; RMSEA = 0.07; GFI =
0.90; CFI = 0.93; NFI = 0.90) were better than the acceptable
threshold value (Hair et al., 2010).
The mediation effect of supply chain capabilities on the
relationship between supply chain process integration and
organizational performance dimensions (operational
performance and competitive performance) was measured
following the procedures suggested by Iacobucci et al. (2007)
and Zhao et al. (2010). To test for mediation, SEM was fitted,
and the direct and indirect paths were simultaneously specified
to estimate both the direct and indirect effects while partialling
out or statistically controlling for the other. Zhao et al. (2010)
decision tree was used to identify the type of mediation and
then Sobel (1986) z statistics was used to assess the degree of
mediation (Sobel, 1986).
Following this, alternative models were compared to assess
the superiority of the proposed mediation model (Aryee et al.,
2002). SEM was used to estimate several alternative models.
An alternative model (Model 2) was developed by removing the
direct path between supply chain integration and retailer
operational performance and tested for significance and model
fit (Cheng et al., 2016). Although the Model 2 provided
acceptable goodness-of-fit statistics, the differences in chi-
square value between the proposed model (Figure 1) and the
alternative Model 2 show that the proposed model still has a
better fit, and the difference is significant ( x 2difference = 4.27,
df = 1, p < 0.001). A second alternative model (Model 3) was
constructed by removing the direct path between supply chain
process integration and competitive performance and
compared with the proposed model, and the difference was
significant ( x 2difference = 5.13, df = 1, p < 0.001) with the
acceptable model fit. A third alternative model (Model 4) was
constructed by removing both direct paths originated from
supply chain process integration and compared with the

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Table II Descriptive statistics and correlations among the major constructs

Constructs 1 2 3 4 5 6 7 Mean SD
1. Technical compatibility 1.00 3.24 1.06
2. Operational compatibility 0.396** 1.00 3.93 1.02
3. Cultural compatibility 0.425** 0.589** 1.00 3.64 0.88
4. Supply chain process integration 0.389** 0.467** 0.356** 1.00 3.59 1.24
5. Supply chain capabilities 0.479** 0.438** 0.523** 0.598** 1.00 3.62 0.74
6. Operational performance 0.570** 0.345** 0.378** 0.473** 0.672** 1.00 3.27 0.73
7. Competitive Performance 0.378** 0.198** 0.243** 0.256** 0.297** 0.567** 1.00 4.25 0.93
Note: ** Correlation is significant at the 0.01 level (2-tailed)

proposed model and the difference was significant ( x 2difference = The positive and significant effect of technical compatibility on
10.11, df = 2, p < 0.001) with the acceptable model fit. The supply chain process integration indicates that integration is a
significant differences between the proposed model and the technical- and technological-oriented issue that requires a
alternative models indicate that the proposed mediation model common information system platform, as well as compatible
was better than the alternative models. software, hardware technologies and network systems. These
results support Li and Williams (1999) proposition that
5. Results and discussion technical compatibility is a requirement for achieving
collaboration and integration across the supply chain.
A profile of the key respondents (age, education and years of Supporting congruency theory, the results of the current study
experience) and organizations (industry type and organization indicate that the need for commonality in the technical
size) that participated in the study is provided in Table III. processes and technology of supply chain partners is a
Organizations that participated in the study were supermarket and prerequisite for supply chain process integration.
hardware retailers (64 per cent and 36 per cent respectively). In The results identify operational compatibility as a key
total, 72 per cent of the respondents that participated in the study determinant of supply chain process integration. The mutual trust
were male. Most of the respondents (88 per cent) had tertiary and commitment developed through operational compatibility
education. 52 per cent of the respondents had between one to five
(Sarkar et al., 2001) can contribute supply chain process
years of working experience in their respective industries, and 48
integration. Compatible operational procedures and managerial
per cent of the respondents had over five years of experience.
and operational capabilities of supply chain partners can minimize
The direct and indirect effect results from the SEM analysis
operational complexity and enable supply chain partners to
are presented in Table IV and Figure 2.
integrate their processes. Thus, the study results confirmed the
positive effect of operational compatibility on integrating
5.1 Direct effect information exchange and physical and financial transactions of
As hypothesized, the direct effect results indicate a positive and products and resources between supply chain partners.
significant effect of technical ( b = 0.647, p  0.001), The significant relationship between cultural compatibility and
operational ( b = 0.472, p  0.001) and cultural compatibility supply chain process integration supports Schraeder and Self’s
( b = 0.462, p  0.001) on supply chain process integration, (2003) findings, which emphasize the importance of
providing support for H1, H2 and H3. organizational culture in successful alliance formation. Values,
norms and beliefs of supply chain partners correspond with their
Table III Respondent and organization profile purpose of doing business. Such shared values support the
Respondent profile No. (%) development of trust and commitment to integrate their supply
chain processes. Organizational culture creates a favorable
Industry type environment in which long-term relationships and integrate supply
Supermarkets 194 64 chain processes between supply chain partners can be built. For
Hardware 109 36 example, Intel’s corporate culture encourages notebook producers
Years of experience in the industry to integrate their supply chain activities to assure automated
1-5 158 52 forward and backward flow of supply chain activities. Similar
6-10 95 31 integration has also been well developed among the producers and
11and above 49 17 processors of agriculture products and large retail chains.
Supporting H4, the results indicate a positive and significant
Gender
effect of supply chain process integration (b = 0.543, p  0.001)
Male 217 72
on supply chain capabilities. The integration of supply chain
Female 85 28
processes can create a sense of belonging among supply chain
Education level partners thereby encouraging collaboration and joint decision-
Post graduate 66 22 making. Such a sense of belonging and collaboration can motivate
Graduate 200 66 supply chain partners to share unique resources and capabilities
Other qualifications 36 12 that are required to address ever-changing market requirements.
By enhancing timely sharing of consumer need and demand

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Table IV Direct and indirect effect

Standardized Coefficient
Dependent variables Independent variables Direct Indirect Total Hypothesis
Supply chain process integration Technical compatibility (H1) 0.647*** NA 0.647* H1 supported
Operational compatibility (H2) 0.472*** NA 472* H2 not supported
Cultural compatibility (H3) 0.462*** NA 0.462* H3 supported
Supply chain capabilities Supply chain process integration 0.543*** NA 0.543* H4 supported
(H4)
Operational performance Supply chain process integration (H5) 0.198** 0.422* 0.620* H5 not supported
Supply chain capabilities (H7) 0.715*** NA 0.715* H7 supported
Competitive performance Supply chain process integration (H6) 0.085 0.478* 0.393* H6 not supported
Supply chain capabilities (H8) 0.231** 0.437* 0.668* H8 supported
Operational performance (H9) 0.483*** NA 0.483* H9 supported
Notes: *** = p  0.001; ** = p  0.01; * = p  0.05

Effectiveness and efficiency-oriented supply chain capabilities

Figure 2 Results: direct and indirect effects
Technical
Compability
0.647***
Operaonal 0.472**
Supply Chain 0.543***
Process
Compability Integraon
0.462***
Cultural
Compability
Data in parenthesis depicts indirect effect
Compability
Supply Chain Process
Integraon
Notes: *** = p d0.001; ** = p d 0.01; * = p d 0.05
information, supply chain process integration facilitates
coordination in the physical movement of products across supply
chain partners and assures the availability of right products to the
right customers at the right time. By predicting and responding to
consumer requirements in real time through integration, supply
chain partners achieve improvement in supply chain capabilities
such as logistics performance and supply chain responsiveness.
Supporting dynamic capabilities theory, the results indicate that
by sharing strategic resources and capabilities effectively and
efficiently, supply chain process integration enables the supply
chain partners to achieve critical supply chain capabilities such as
information sharing, supply chain coordination and supply chain
responsiveness.
Though the effects of supply chain process integration on supply
chain capabilities were found to be positive and significant, the
direct effect of supply chain process integration on the
organizational performance dimension, competitive performance
(b direct = 0.085, ns), was not significant. Thus, H6 was not
supported. However, the results indicate a positive and significant
effect of supply chain process integration on operational
performance (b direct = 0.198, p  0.01), providing support for H5.
The effect of supply chain capabilities on operational
performance ( b = 0.715, p  0.001) and competitive
performance ( b = 0.231, p  0.01) were found to be positive
and significant. Thus, H7 and H8 were supported.
can facilitate downstream supply chain partners ability to
respond to customers and other supply chain partners, thereby
Operaonal
Performance enhancing operational and competitive performance. As
0.198** (0.422*) suggested by Chen et al. (2009b), such capabilities enhance
0.715***
availability, timeliness and quality of transactions, and
Supply Chain 0.483*** positively influence customer value creation. Such value
Capabilies
creation improves organizations’ ability to satisfy and retain
0.231** (0.437*)
–0.085 (0.478*) customers and contributes to the attainment of competitive
Compeve
Performance
advantage. Supporting prior literature (Chen et al., 2009b;
Zhao et al., 2011), the study findings indicate direct and
significant effects of supply chain capabilities on both
Supply Chain Organizational operational performance and competitive performance.
Capabilies Performance
The positive and significant effect also emerged between
operational performance ( b = 0.483, p  0.001) and
competitive performance, supporting H9. These findings
indicate that operational performance facilitates the supply
chain partners’ ability to respond to dynamic changes in the
market and increase their competitiveness.
5.2 Mediation effects
The mediating effect of supply chain capabilities on the
relationship between supply chain process integration and
organizational performance (operational performance
and competitive performance) was assessed by fitting the direct
and indirect model simultaneously into the structural equation
model (Iacobucci et al., 2007; Zhao et al., 2010). The direct
and significant effect of supply chain process integration ( b =
0.543, p  0.001) on supply chain capabilities and the effect of
supply chain capabilities ( b = 0.715, p  0.001) on operational
performance indicate the mediating effect of supply chain
capabilities on the relationship between supply chain process
integration and operational performance, supporting H10. The
indirect effect of supply chain process integration on
operational performance was found to be positive and
significant ( b direct = 0.198, p < 0.01; b indirect = 0.422, p 
0.05; b total = 0.620, p  0.05). The significant Sobel’s z
statistics (z = 3.26, p  0.05), the positive direction in
multiplication of coefficients (a b c) and the significant direct
relationship between supply chain process integration ( b =
0.198, p  0.01) and operational performance indicate a
complementary mediation effect (Zhao et al., 2010) (Table V).
Thus, the results indicate that by facilitating supply chain

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Rajesh Rajaguru and Margaret J. Matanda
capabilities, supply chain process integration facilitates
operational performance. However, the complementary
mediation highlights the likelihood of omitted mediating
variables in the model (Zhao et al., 2010). In addition to supply
chain capabilities, other mediating variables could influence the
relationship between supply chain integration and operational
performance.
The direct and significant effect of supply chain process
integration ( b = 0.543, p  0.001) on supply chain capabilities
and the significant effect of supply chain capabilities ( b =
0.231, p  0.01) on competitive performance indicate the
mediating effect of supply chain capabilities on the relationship
between supply chain process integration and competitive
performance. Thus, H11 was supported. The indirect effect
was found to be positive and significant ( b direct = 0.85, ns;
b indirect = 0.478, p  05; b total = 0.393, p  0.05), while the
direct effect was not significant. The significant Sobel’s z
statistics (z = 2.78, p  0.05) and the non-significant direct
relationship between supply chain process integration ( b =
0.085, ns) and competitive performance indicate supply chain
capabilities fully mediate (Zhao et al., 2010) the link between
supply chain process integration and competitive performance.
The above study findings concur with prior research
(Rosenzweig et al., 2003) that suggest the link between supply
chain process integration and organizational performance
outcomes could be mediated by other factors. The results also
support Wu et al.’s (2006) findings that indicate the positive
effects of supply chain capabilities on market share growth.
6. Implications
This study makes a significant contribution to the supply chain
management literature and has implications for both theory
and practice. The study contributes to supply chain theory by
empirically testing the frameworks suggested by Chen et al.
(2009b) and Rosenzweig et al. (2003), that proposed a link
between supply chain process integration and organizational
performance through the mediating variable of supply chain
capabilities. The study also contributes to knowledge by
empirically testing the inconsistent findings on the link between
supply chain integration and organizational performance
(Droge et al., 2004; Flynn et al., 2010; Lee et al., 2000; Sezen,
2008). The current study extends supply chain management
theory by confirming the multi-dimensional nature of the
supply chain construct and empirically proving the different
effects of these dimensions on different supply chain
capabilities and organizational performance dimensions that
has been suggested in prior research (Eriksson, 2015). The
Table V Mediating effect of supply chain capabilities on the relationship between supply chain process integration and organizational performance
Hypotheses Sobel’s statistics
H10. Supply chain capabilities mediate the 3.26
relationship between supply chain process
integration and operational performance
H11. Supply chain capabilities mediate the 2.78
relationship between supply chain process
integration and competitive performance

Notes: = p  0.001;  = p  0.01;  = p  0.05
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study findings confirm prior work (Alfalla-Luque et al., 2015)
that has found supply chain process integration dimensions
have a differential impact on different organizational outcomes.
The study also extends Prajogo et al.’s (2016) study and
confirms the mediating role of supply chain capabilities on the
link between supply chain process integration and organizational
performance. Additionally, the study also extends the application
of dynamic capabilities as a theoretical framework to explain how
sharing resources across the supply chain that is facilitated by
process integration can create dynamic capabilities that can
enhance organizational performance.
In support of congruency theory, the study contributes to the
supply chain management literature by identifying and testing
the role of technical, operational and cultural compatibility
dimensions in facilitating supply chain process integration,
thereby providing evidence of why organizations need to take
cognisance of specific compatibility dimensions when
integrating processes with supply chain partners. The study
extends Rajaguru and Matanda’s (2013) findings and confirms
technical, operational and cultural compatibility as key
dimensions of inter-organizational compatibility and their
differential impact on supply chain process integration.
Moreover, this study contributes to the congruency theory by
extending its application from innovation adoption literature to
the supply chain management field of study.
Finally, by identifying the three specific compatibility
dimensions and examining their impact in supply chain
management, the study extends compatibility literature and
points to the need for more empirical work focusing on the role
of different capability dimension in supply chain management.
Indeed, the identification of a significant association between
cultural compatibility and supply chain capabilities clearly
point to the need for supply chain scholars to put more
emphasis on non-technical and operational factors, as well as to
search for more appropriate theoretical frameworks to explain
the relationships identified in the current study.
The study also has several implications for supply chain
managers. First, the study suggests that supply chain
practitioners to pay considerable attention to identify the
technical, operational and cultural factors that affect the
integration of supply chain processes. Second, given that
dynamic capabilities such as supply chain capabilities mediate
the link between supply chain process integration and
organizational performance, there is need for supply chain
managers to view supply chain integration as a strategic
decision. Indeed, some scholars have pointed out that
integration is not only about operational efficiency but should
Effects Hypotheses
Direct Indirect a b c support
0.198 0.620 0.077 Supported; Complementary Mediation
0.085 0.393 0.011 Supported; In-direct only Mediation
 Supply chain process integration
Rajesh Rajaguru and Margaret J. Matanda
also be undertaken for strategic reasons (Wiengarten et al.,
2014). Such an approach would enable senior supply chain
executives to effectively sense, reconfigure and deploy the
relevant dynamic capabilities required to maximize the benefits
accruing from supply chain integration. Third, the study
findings provide some guidelines to supply chain managers
concerning the hatch specific compatibility dimensions they
need to focus on to maximize specific benefits of supply chain
process integration. Thus, the study reinforces the need for
supply chain and operations managers to ensure the
compatibility of specific types of information and resource
sharing platforms used by supply chain partners before
initiating supply chain integration processes.
Fourth, in line with the extant supply chain and relationship
management literature (Chen et al., 2009b; Gligor and Holcomb,
2012; Kim et al., 2006), the study points to the need for supply
chain managers to create collaborative and integrated
relationships with supply chain partners to enhance supply chain
capabilities and performance. Through the integration of
physical, financial and information flow activities with supply
chain partners, individual supply chain members could enhance
responsiveness to supply chain partners and consumers. Such
integration can also enhance supply chain partners’ capabilities
and eventually enhance operational and competitive
performance. Fifth, the study findings point to the need for
supply chain managers to recognize that different dimensions of
supply chain process integration have a differential impact on
various supply chain capabilities and organizational performance
dimensions. Hence, there is need to clearly identify the supply
chain capabilities that need to be targeted to enhance the
required organizational performance. Finally, given that technical
compatibility emerged as a key determinant of supply chain
process integration, the current study findings suggest that supply
chain managers should consider integrating supply chain
processes through advanced automated information systems to
achieve both supply chain effectiveness and efficiency.
7. Limitations and future research
This study has certain limitations and these point to potential
areas for future research. The study relied on cross-sectional data,
using a single informant from each organization. A longitudinal
research study could investigate the possible effects of
compatibility dimensions before, during, and after supply chain
process integration. Future research could focus on identifying
the specific drivers of supply chain process integration at each
stage to provide more detailed implications of the supply chain
process integration. The study used survey data from the retailing
level of the supply chain and future research could investigate the
conceptual model from the perspectives of other supply chain
partners at different levels of the supply chain. Additionally, given
the complexity and context-specific nature of the various
dimensions of supply chain process integration and supply chain
capability factors that have been identified in prior research
(Silvestre, 2015), it was not possible to cover the entire domain of
these constructs in one study. Thus, future research could
investigate the effect of supply chain integration on other
potential supply chain capabilities, and other possible mediating
variables that influence the relationship between supply chain
process integration and operational performance. The
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investigation of other possible mediating variables would give
answers to the complementary forms of mediation identified in
the study and contribute to the further development of theory.
There may be major differences between small- and medium-
sized enterprises (SMEs) and large organizations on the
implementation of supply chain process integration, and the
effect of technical, operational and cultural compatibility may
also have varied outcomes. There is, therefore, a need for further
empirical work on the link between compatibility, supply chain
process integration and organizational performance in SMEs.
Some scholars contend that supply chain process integration
varies across countries, industries, plant sizes and product
categories (Alfalla-Luque et al., 2015; Flynn et al., 2010). Thus,
future supply chain research could test the relationships
identified in this study in different countries, industries and
product categories. Finally, given the complex nature of supply
chain management theory and the involvement of a network of
organizations in the supply chain, further empirical work in
different industry contexts could contribute to the generalizability
of the model and the findings advanced by this study.
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Corresponding author
Rajesh Rajaguru can be contacted at: rajesh.rajaguru@utas.
edu.au