IT applications in supply chain organizations: A link between competitive priorities and organizational benefits

Journal of Business Logistics, 2002 by Sanders, Nada R, Premus, Robert

The philosophy of supply chain management (SCM) is founded on collaboration among supply chain partners (Andraski, 1998; Stank, Keller, and Daugherty, 2001). Central to collaboration is the exchange of large amounts of information along the supply chain, including planning and operational data, real time information, and communication. Information is seen as the "glue" that holds together the business structures that allow supply chains to be agile in responding to competitive challenges (Child and Faulkener, 1998; Evans and Wurster, 1997). The backbone of the supply chain business structure is information technology (IT) which is used to acquire, process, and transmit information among supply chain partners for more effective decision making. IT can be viewed as serving as an essential enabler of SCM activities (Mabert and Venkataramanan, 1998).

Exponential growth of technological capability has provided numerous choices in IT applications geared toward improving functional integration, coordination, and decision making. Selecting appropriate IT applications is a daunting task for managers given the wide array of rapidly changing and costly technologies, with often only anecdotal evidence of achievable performance measures. Decisions relative to adoption of specific IT applications need to consider alignment with the organization's competitive priorities (Grover and Malhotra, 1997; Huff and Beattie, 1985). Organizational competitive priorities should drive the types of IT applications used, with the anticipation that they will directly lead to measurable benefits. Selection of proper IT applications should be based on a clear understanding of the business model and desired benefits (Kathuria, Anandarajan, and Igbaria, 1999).

Research to date has shown that IT has the overall potential of providing a significant competitive advantage to firms (Earl, 1993; Ives and Jarvenpaa, 1991). We postulate that IT sophisticated companies focus on a specific set of competitive priorities, different from their less technologically sophisticated counterparts. Further, based on the literature, we assume some degree of alignment between these priorities, the specific IT applications selected by these firms, and the measurable benefits achieved. Using this conceptual framework, our study profiles organizational differences between firms based upon level of IT use. Three key dimensions are examined: 1) organizational competitive priorities; 2) choice of specific IT applications; and 3) performance measures achieved.

BACKGROUND

Improvements in IT are significantly changing the role of logistics by breaking down organizational barriers and allowing information to flow freely between supply chain partners. As supply chain management and cycle time compression emerge as central strategies of logistics management, effective IT becomes necessary to support logistics processes (La Londe and Masters, 1994; Sheombar, 1992). IT has automated many routine logistics activities, enabling managers to focus on strategic issues and core competencies. Intermediate supply chain activities, such as distribution, are being reformulated to truly add value to the chain (Benjamin and Wigand, 1995). These logistics activities, termed "supply chain" or "value chain," are enabled and supported by the use of IT (Lewis and Talalayevsky, 1997).

A high level of IT capability has been shown to provide a clear competitive advantage and can be a differentiating factor in terms of company performance (Earl, 1993; Kathuria, Anandarajan, and Igbaria, 1999). Bowersox and Daugherty (1987) identified information technology as one of the common factors associated with advanced logistics practices. Clinton and Closs (1997) used the Bowersox and Daugherty typology to relate firm practice to organizational strategy. The Clinton and Closs study confirms differences between strategies based on a number of factors, including information technology.

The extended enterprise model, developed by Bowersox and Daugherty (1995), Bowersox, Closs, and Stank (1999), and modified by Edwards, Peters, and Sharman (2001), identifies key attributes of firms moving toward world-class logistics. An integrated IT system is identified as a key component of this framework. The highest level firms within this framework operate seamlessly across boundaries due to IT capability that enables information to flow in real time.

Specifically, the type of IT used largely determines the nature and quality of interactions the company has with customers, suppliers, and trading partners. Some authors refer to IT as the company's "digital nervous system" (Prahalad and Krishnan, 1999). However, while IT is a critical element of SCM, IT is not a source of value by itself. Rather, the proper selection of IT supports and enhances the functioning of value-added processes. The importance of aligning IT applications between characteristics of the application and the needs of the business has consistently been emphasized in the literature (Malone and Rockart, 1991; McFarlan, 1984; Thurwachter and Rich, 2000).