The role of information integration in facilitating 21st century supply chains: a theory-based perspective

Transportation Journal, Spring, 2008 by Cheri Speier, Diane Mollenkopf, Theodore P. Stank

Abstract

Existing literature provides a number of examples that illustrate how systems that integrate information from multiple organizations can support supply chain capabilities. The literature, however, lacks theoretical support to facilitate an understanding of the magnitude of information system integration required to support the scope of relational and supply chain strategies an organization may have in place. This article uses the strategy-structure-performance paradigm to position information integration relative to the nature of relationships within the broader supply chain strategies a firm employs. The framework presented is a first step towards a more holistic and theory-based approach to understanding the link between information integration and supply chain performance, and is designed to serve as a basis for future research in this area.

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Today's business environment has been described as one of hyper-competition (D'Aveni 1994)--products are developed faster than ever before and have shorter life cycles, customers have higher expectations regarding the capabilities of products and services, and firms must respond to these demands while aggressively cutting costs (Edwards et al. 2001; Zhang et al. 2003). Furthermore, the global nature of today' s business environment allows firms to move into new markets as many historical entry barriers have been transcended. To cope with this more intensive, dynamic competitive environment, many firms are strengthening and more formally managing the relationships they have with supply chain partners in order to reduce uncertainty and increase firm performance (Bowersox et al. 2006; Foster 2006).

As firms develop capabilities to more effectively integrate their business processes with vendors and customers to gain competitive advantage in the marketplace, they must extend their focus beyond the internal value chain and manage the broader supply chain (Defee and Stank 2005). Supply chain management is "the systemic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole" (Mentzer 2001, 18). Lambert et al. (1998) complement this definition by emphasizing the importance of integrating business processes across supply chain firms in order to deliver value to end-customers.

Supply chain management leverages external firm relationships to develop inter-firm coordination resulting in increased operational performance and shareholder value maximization (Christopher and Ryals 1999). Such relational strategy requires that firms create structures and processes that integrate the cross-organizational behavior of supply chain partners, creating a common vision and objectives (Rodrigues et al. 2004). Integration is essential to aligning multi-firm operations into a supply chain system.

The requirement for more demanding relationships to enable firms to respond to the challenges of globalized operations and increased competition heightens the importance of leveraging the capabilities of information systems (Sambamurthy et al. 2003). Information systems play a critical role in integrating the processes and information that facilitate the creation of value within firms and across the supply chain (Bowersox et al. 2006; Porter 1991). Information integration between firms enables the entire supply chain to become responsive to end-customer needs, potentially replacing inventory with information as a means to satisfy customer needs. Thus, effective information system investments can create competitive advantage for a firm within and across the supply chain as a capability for creating value (Bowersox et al. 2006; Bowersox et al. 1999; Foster 2006).

Both information sharing and integration are increasingly viewed as a means to create world-class agile and responsive supply chains (Sambamurthy et al. 2003). There is a growing body of research demonstrating that information sharing and integration benefits lead to enhanced supply chain performance. Much of this research focuses on a specific technology (e.g., EDI) and often finds a positive relationship between information sharing/integration systems investments and firm performance (Daugherty et al. 1995; Esper and Williams 2003; Mukhopadhyay and Kekre 2002). In addition, a broader examination of information sharing system and supply chain management has been examined, typically focusing on supply chain integration and subsequent performance outcomes (Malone et al. 1987; Sanders and Premus 2005; Subramani 2004; Vickery et al. 2003).

While there is intuitive appeal to the linkage between information integration and responsive supply chain and empirical support for this linkage, other recent research demonstrates that investments in information sharing and integration do not always result in greater supply chain effectiveness. There are a multitude of reasons why information integration does not always lead to enhanced supply chain performance, including an unequal distribution (and realization) of benefits derived between partners (including zero benefits) (Saeed et al. 2005; Yan et al. 2001; Yao and Dresner 2008), specific supply chain and market structures are less likely to generate supply chain performance benefits (Grover and Saeed 2007), the nature of the information shared is too unreliable or provides no additional value than what information a partner already has (Cachon and Fisher 2000; Sahin and Robinson 2005), information sharing occurs before business processes re-engineering such that performance is not enhanced (Poirier and Quinn 2003; Zhu and Kraemer 2002), and finally, information sharing and integration, while useful, does not guarantee that an organization can take advantage of this information in a way to enhance performance (Grover and Saeed 2007).