Causal linkages in supply chain management: An exploratory study of North American manufacturing firms

Decision Sciences, Summer 1998 by Narasimhan, Ram, Jayaram, Jayanth

ABSTRACT

In this paper we investigate the key causal linkages in supply chain management. We propose a conceptual framework and test this framework on data from 215 North American manufacturing firms using structural equation modeling techniques. Three major research issues are addressed in this study: Do sourcing decisions affect the degree to which firms achieve manufacturing goals of cost, flexibility, dependability, and quality? Does the degree of manufacturing goal achievement lead to higher customer responsiveness? Does the degree of manufacturing goal achievement lead to higher internal manufacturing performance? The study examines the relationship among sourcing decisions, manufacturing goals, customer responsiveness, and manufacturing performance. The results support the notion that an integrated supply chain involves aligning sourcing decisions to achieve manufacturing goals that are set to respond favorably to the needs of customers.

Subject Areas: Production/Operations Management, Strategy and Policy, and Structural Equation Modeling.

INTRODUCTION

Supply chain integration and management has recently received a great deal of attention from researchers and practitioners alike. Xerox, Hewlett Packard, Allied Signal, and Siemens are examples of firms that have attempted to operationalize supply chain integration with varying degrees of success in their respective industries (Leenders, Nollet, & Ellram, 1994). Research on supply chain management has tended to focus on individual functions (purchasing, manufacturing, logistics) and their responsibilities (Cavinato, 1992; Scott & Westbrook, 1991; Turner. 1993). This body of literature has not examined the causal linkages and processes that comprise the supply chain. Despite the growing use of the concept of supply chain management in many manufacturing firms, little empirical research dealing with aspects of supply chain integration exists.

This study is concerned with the content issues of supply chain management, the central question being: What are the relevant variables or key decisions that impact the effectiveness of supply chain management? To address this question, we propose a new framework of supply chain integration. The proposed "decisions-oriented" research framework is somewhat different from the ones used in other studies in the literature that focus on "materials flow" or "infrastructural integration" (see, e.g., Armistead & Mapes, 1993; and Stevens, 1990). In our view, the discussion of and inquiry into supply chain integration must center on causal linkages that exist among key strategic decisions along the supply chain. Accordingly, this paper identifies the key strategic decisions in the form of constructs. The causal structure among these constructs is presented as a conceptual model. The conceptual model is then tested using data from a sample of North American manufacturing firms.

This paper is organized as follows. First, the relevant literature is reviewed and a framework of supply chain integration is presented. Next, the conceptual model and the data used for testing the hypotheses are introduced. An overview of structural equations modeling (the technique used to test the model in this study) is provided. The results from the structural equation modeling analysis are presented and discussed. Finally, some suggestions are offered for future research.

LITERATURE REVIEW AND RESEARCH FRAMEWORK

Armistead and Mapes (1993) conducted a field study of managers in the U.K. to investigate the extent to which greater integration along the supply chain improves quality and operating performance. Strength of integration was measured as a composite index of ratings on five items: (1) extent of shared ownership of master production schedules; (2) level of adherence to manufacturing plans; (3) use of job titles that span traditional functions (e.g., supply chain manager); (4) extent of integration of information systems; and (5) level of visibility and spread of information. The results of their study indicated that increasing the level of integration does increase manufacturing performance. However, this study was based on a sample size of 38 firms and the authors did not formally test causal linkages. To our knowledge, this is the only article that has examined empirically the association between supply chain integration and performance. The research framework in our study is conceptually different from Armistead and Mapes. Our study utilizes a larger sample size, focuses on supply chain decisions, and differs in the statistical methodology employed.

Berry, Towill, and Wadsley (1994) discussed current practices of supply chain management in the U.K. electronics industry and developed a dynamic simulation model to estimate the benefits derived from successful implementation of supply chain management. Bleil (1993), in a practitioner-oriented article, laid emphasis on sourcing strategies, supplier management, and sole sourcing to reduce cycle time and costs. The relevance and importance of integrating the manufacturing and engineering capabilities of suppliers with that of the buying firm to achieve cost and quality targets and manufacturability of components was discussed by Burt (1989).