determinants of the scope of supply chain e-collaboration

Proceedings of the 2016 International Conference on Industrial Engineering and Operations Management Kuala Lumpur, Malaysia, March 8-10, 2016

Determinants of the Scope of Supply Chain E-CollaborationTesfaye Tolu Feyissa

Department of Industrial and Management Engineering Indian Institute of Technology, Kanpur

208 016, UP, India. [email protected], [email protected]

R.R.K. Sharma Department of Industrial and Management Engineering

Indian Institute of Technology, Kanpur 208 016, UP, India.

[email protected]

Abstract—Supply chain management (SCM) has now evolved into a strategic, proactive function that plays instrumental role for competitive advantage. The growing strategic importance of SCM has given rise to the need for making use of advanced information technology (IT) such as the Internet for efficient coordination of the various supply chain (SC) activities. The need for SC e-integration is widely advocated both in business and academia. However, SC e-integration is not an easy venture, nor is it without risks and challenges. In this study, we investigate the requirements for SC e-integration, and the challenges and the risks associated with e-collaboration. Consequently, we propose the levels of SC e-integration matching the different circumstances which characterize a firm.

Keywords—Supply chain, integration, coordination, e-integration, e-adoption, e-collaboration, risks, requirements, strategy.

I. INTRODUCTIONSupply Chain (SC) may be defined as a network of facilities, processes and information all the way from raw material

suppliers through to ultimate consumers. The facilities include manufacturing units, storage warehouses, logistics, and wholesale and retail outlets, whereas the processes involve acquiring raw materials, transforming them into finished goods, and delivering the finished goods to customers. The terminology Supply Chain Management (SCM) is believed to have been introduced in the early 1980’s by R.K. Oliver and M.D. Weber, who were consultants in the field of logistics [1] [2] [3]. The recognition for its importance dating back to a century ago, when Harvad began offering it as a course in 1917, SCM is nowadays considered as a strategic function that can be deployed for competitive advantage [4]. Firms can no longer compete in the market unless they collaborate with their partners in the SC [5], which can be made possible undoubtedly through integration of the SC with the aid of state-of-the-art IT. As a result, electronic SC (e-SC) has emerged as a new way of business.

The seamless integration enabled in e-SC provides several benefits to SC members as it enables efficient coordination of the various SC activities. For example, automating the procurement procedure through e-procurement reduces the cost by an average of 8 to 12% of total purchases [6]. Because of this and other benefits, SC e-integration has gained strategic importance for the success of firms. Yet, it is not without costs, challenges and risks. This situation forces different firms to adopt different levels of SC e-integration.

II. LITERATURE REVIEWIn this section, we give a brief review of relevant literature starting with organizational strategic approaches. Then we explore

the antecedents, challenges and risks of SC e-integration.

A. Strategic ApproachesStrategy is a combination of the ends (goals) for which a firm is striving and the means (policies) by which it is intending to

reach the ends [7]. Michael Porter argues that every firm has a strategy [7]. Several researchers have studied strategy as a result of which they attempted to classify firms into different strategic groups. Some researchers ventured to classify strategies at firm level (e.g. [7], [8]), while others classified a certain dimension of strategy such as manufacturing strategy (e.g. [9]), marketing strategy, etc.

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On the basis of how firms define and solve three broad problems of organizational adaptation—the entrepreneurial problem, the engineering problem and the administrative problem, Miles & Snow et al. identified four strategic groups: Defenders, Prospectors, Analyzers, and Reactors [8]. The most distinct strategic groups in this typology are Defenders and Prospectors. The Analyzer strategy is a variation of these two basic strategy types. On the other hand, Reactors are organizations that lack response mechanisms to possible environmental changes, and hence are both inconsistent and unstable.

Defenders have narrow product and market domains in which they seek to create and maintain stability by protecting their domains from new entrants through competitive pricing and excellent customer service [8]. They are cautious and hence involve in limited product development related to their current products only, and gain incremental growth by penetrating the current market through product quality, but ignore new developments in the environment. They favor vertical integration, functional structure with extensive division of labor, high degree of formalization, centralization of decision making, simple coordination mechanisms and hierarchical channels of communication. They attempt to ensure efficiency through strict control and continuous improvement to their technology, which is cost-efficient and single-core. Finance and production experts are most influential in Defenders.

On the other hand, Prospectors have broad product and market domains [8]. They monitor environmental trends and introduce changes in the industry. Their growth results from product and market development and might happen dramatically. They avoid long-term commitment to a single technology, and focus on multiple, flexible prototypical technologies, and on technologies embedded in people. In addition, they practice low degrees of routinization, mechanization and formalization. They exercise decentralized control, horizontal information flows and complex coordination mechanisms. Marketing and R&D experts are most powerful in Prospectors.

Analyzers exhibit hybrid characteristics, as they operate both in a stable domain like the Defender and in a changing domain like the Prospector [8]. They focus on spotting new products and market opportunities while simultaneously maintaining their stable base. They conduct some R&D, and their environmental scanning focuses on marketing. Analyzers adopt loose matrix structure with both functional divisions and product groups, moderately centralized systems, both horizontal and vertical communication and information flows. They strive for efficiency in their stable sub-domain and flexibility in their changing sub-domain. In Analyzers, marketing and engineering experts are most powerful, followed closely by production experts.

Based on the relative importance that manufacturers give to 11 “competitive capabilities”, Miller & Roth classified manufacturers into three strategic groups: Caretakers, Marketeers and Innovators [9]. Accordingly, Caretakers are those organizations which compete on the basis of price. They tend to place relatively lower emphasis on improvement programs than their counterparts, and have the most mature and heavily standardized products. Caretakers are roughly the Defenders of the Miles & Snow et al.’s typology. Marketeers are organizations which exhibit market-oriented competitive capabilities. They focus on broad distribution, broad product lines, and responsiveness to changing volume requirements.

Innovators are those organizations which primarily focus on making changes in design and introducing new products quickly [9]. They make the least standardized products. Innovators invest more heavily in R&D than their counterparts, especially more heavily than the Caretakers. They place more emphasis on increasing their market share by developing new products for both old and new markets. Engineering and R&D are the strongest and most influential functional units in Innovators.

B. Factors Affecting SC E-Integration In the literature, the terms e-integration, e-adoption and e-collaboration have been used interchangeably to refer to the use of

information technology (IT) with the objective to coordinate SC activities. In this study, we continue to use them in the same way. In their research, Pant et al. related e-SC implementation to two important dimensions: complexity of a firm’s internal and

external operations and a firm’s ability to integrate its external partners [10]. They argue that a firm’s ability to e-integrate its external partners depends on the power it has over its external partners and the trust between the firm and its partners. They built a framework to recommend the level or depth of SC e-integration (whether partial or deep SC e-integration is required) for a firm based on combinations of the two e-SC implementation dimensions. They identified five types of firms, and suggested implementation strategies for each type. Accordingly, deep integration (meaning more strategic collaboration such as collaborative planning) is required where there is high complexity; partial e-integration such as that involving merely transactional level information sharing is sufficient where there is less operations complexity. Moreover, if the ability to integrate external SC partners is weak, a firm needs to focus more on internal integration and limited external integration.

Chen et al. proposed a SC e-integration strategy for transitional economies by classifying firms into 7 types based on three factors: the ability of the firm to integrate its external partners, information asymmetry and government influence [11]. Their model extends the work of Pant et al. which was developed for a SC in a free market economy, replacing a firm’s complexity of operations by information asymmetry; it also introduces government influence as a third factor. As such, one major objective of SC e-


Proceedings of the 2016 International Conference on Industrial Engineering and Operations Management Kuala Lumpur, Malaysia, March 8-10, 2016 integration is to mitigate information asymmetry. On the other hand, e-adoption and its perceived benefits are a result of the underlying social process; i.e., e-adoption and its strategic recognition depends on who makes the e-adoption decision, their interest in it, and whether they believe that it can address their priorities [12].

Huo et al. empirically investigated the impact of power and relationship commitment on supplier integration [13]. They classified power into mediated power (which includes reward, coercive and legal legitimate powers) and non-mediated power (which includes expert, referent and traditional legitimate powers). Moreover, they classified relationship commitment into two: normative relationship commitment (which is the feeling of identification of one SC member with another SC member and its internalization of the common norms and values), and instrumental relationship commitment (which is driven by rewards or punishments). Their study suggests that both supplier’s mediated power and non-mediated power lead to manufacturer’s relationship commitment to its supplier, which in turn leads to supplier integration, and further that supplier integration leads to better firm performance. Thus, they conclude that both a firm’s relationship commitment to its supplier and the supplier’s power positively influence supplier integration.

Similarly, Zhao et al. studied the impact of customer’s power and relationship commitment on customer integration, using data from companies in China [14]. They concluded that the customer’s expert power, referent power and reward power have positive impact on normative relationship commitment between the manufacturer and its customer; legitimate power has no impact on both normative and instrumental relationship commitments; reward power has high positive impact on both normative and instrumental relationship commitments; coercive power has a negative impact on normative relationship commitment but a positive impact on instrumental relationship commitment. They further showed that normative relationship commitment has a very strong positive impact on customer integration, while instrumental relationship commitment has no significant impact on customer integration.

According to Akyuz & Rehan, the major requirements in forming an e-SC are: (1) replacement of or integration with the legacy systems, (2) standardizing and streamlining internal processes (implementing BPR/redesign if necessary), (3) adoption, updating or integrating with the existing ERP of the enterprise, (4) streamlining external processes (implementing BPR/redesign if necessary), (5) collaborative planning and joint management of key business processes, and (6) business intelligence and decision support [15]. Akyuz and Rehan further noted that a firm should consider internal integration, prior to integration with suppliers and customers.

The relationship between SC coordination efficiency and organizational structure has also been studied in the literature. In this connection, Anderson & Bartholdi recommend the transformation of firms from the centralized paradigm to the decentralized one in order to increase efficiency, just like studies of insect societies demonstrate [16]. However, they caution that highly decentralized systems might fail, and suggest the need for some centralized authority, such as a manager, in order to see the bigger picture and override the process as required.

The new approach to SC management which advocates structural change has forced many firms to transform from vertical, departmentalized structures to horizontal, inter-departmental ones; this approach poses a big challenge to traditional organizations as it forces them to restructure themselves by breaking their old paradigms, such as departmentalization, division of responsibilities and hierarchies [17]. A firm’s ability to internally and externally integrate its SC is partially influenced by its organizational structure; flatness, decentralization and horizontal integration are positively related to SC integration [18].

C. E-Collaboration Challenges and Risks SC e-integration is inherently challenging since no system was created to share information with other systems [19]. The

successful implementation of an e-SC relies on identifying the associated challenges and risks, and systematically managing them. Ratnasingam identified four categories of perceived e-collaboration risks: technological, organizational, implementation, and relational risks [20]. Technological risks are those related to authentication, integrity, confidentiality; organizational risks include lack of top management commitment to devote high level of resources and financial capital, failure to negotiate enforceable legal contract by the core company and suppliers, high setup and connection costs, low employee morale, and less participative management; implementation risks include lack of uniform standards, unfriendly government policies and regulations, lack of regular audits, and poor business practices; relational risks are those which result from lack of experience of the core company (e.g. false perception of uncertainties, pressure to adopt IT, coercive power, lack of cooperation, etc.). Ratnasingam also notes the importance of SC e-collaboration risk management efforts to gain competitive advantage.

According to Akyuz & Rehan, developing an e-SC involves: technical challenges (such as the probability of inconsistent/incompatible information systems), and managerial/organizational challenges (failure to create mutual trust and eagerness to exchange information, lack of willingness to cooperate and collaborate) [15]. They argue that majority of the challenges in e-SC implementation are organizational and managerial rather than technical. Similarly, Villena et al. reported that the


Proceedings of the 2016 International ConferenKuala Lumpur, Malaysia, March 8-10, 2016 personal risks (compensation risk and emplointegration initiative negatively influence SC hand, Hwang et al. proposed from a case studbetween adopted e-SC information systems anchallenges faced during SC e-adoption initiativ

Another study reported that the existing liactors in the SC [12]. It further elaborates thabusiness models (e.g., fear of job loss), inequita

In this section, we build a theory that integration (SCEI). Based on the literature surve-integration. Seven of these factors are identidentified to be a determinant of scope for threlationships corresponding to the eight factorsshown in Figure 1 below. The hypothesis and e

Figure 1: Determinants

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III. HYPOTHESES relates different business situations that an organizatioveyed, we come up with a list of eight important factors ftified as determinants of the level of SC e-integration ahe benefits gained from SC e-integration. We propose s. The whole idea of the proposed relationships is illustraexplanation for each relationship are provided in a separat

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Proceedings of the 2016 International Conference on Industrial Engineering and Operations Management Kuala Lumpur, Malaysia, March 8-10, 2016 A. Workflow Complexity, Information Asymmetry and E-Integration

Obviously, SC e-integration is an attempt to coordinate SC activities by enabling the visibility of important information in a bid to efficiently carry out all SC activities. The need for enabling visibility becomes greater and greater with increase in workflow complexity, as more information is hidden in the presence of high workflow complexity. Thus we propose the following hypotheses: H1a: Workflow complexity is positively related to information asymmetry. H1b: An organization having high workflow complexity opts for deep SC e-integration.

B. Partner Loyalty and E-Integration Relationship commitment (RC) by a core company to its suppliers and customers involves transaction- and relation-specific

investments (such as dedicated employees and other assets invested in SC integration) [13] [14]. Thus, loyalty of the partner (supplier or customer) needs to be considered as a pre-requisite in SC e-integration. In fact, loyalty is often associated with a partner downstream in the SC. However, it is also associated with upstream channel members because of the existence of reciprocity in some cultures like in China. Even in other cultures, it is desirable to have loyal suppliers in the effort made to attain customer satisfaction. Thus, we may arrive at the following model and the subsequent hypothesis:

Partner Loyalty RC by Core Company SC Integration. H2: A firm enjoying high levels of customer and supplier loyalty opts for deep SC e-integration.

C. SC E-Integration, its Perceived Risk and Investment Requirement As shown in the literature, there is risk in SC e-integration perceived by firms [20] [12] [15]. Because of these perceived risks

and the high cost of e-integration software, hardware and information technology infrastructure, companies become skeptical about investing in e-adoption and hence prefer cheap e-SC software applications with reduced security and functionalities. For example, small and medium enterprises avoid the adoption of Electronic Data Interchange (EDI) due to its high setup and operating costs [23]. This leads us to the following hypotheses: H3: If SC e-integration involves high perceived risk (technological, organizational, implementation, or relational risks), then an organization prefers partial e-integration instead of full/deep e-integration. H4: A higher investment requirement for integration software, hardware and information technology infrastructure leads to partial SC e-integration.

D. Organizational Structures of Partnering Firms and SC E-Integration Flat, decentralized organizational structures are suitable for SC integration [18] [16] [17] as they facilitate timely and

responsive decision making. On the other hand, centralized and hierarchical structures tend to result in delayed and non-responsive decision making. If a firm continues in the traditional vertical, departmental structures while its SC partner has a horizontally integrated flat structure, then the two firms might find it difficult to align their SC activities. Thus, we propose: H5: The disparity in organizational structures of partnering organizations is associated with reduced benefits of SC e-integration.

E. Uncertainty Avoidance and E-Adoption Some companies involve in early SC e-adoption, while others follow the “wait and see” approach [12]. This is based on their

perception of cost, benefits and risk associated with e-adoption and the extent to which they are willing to tolerate uncertainty. Thus, we propose the following hypothesis: H6: Firms with low uncertainty avoidance (UA) are early e-adopters, while those with high UA are laggards in e-adoption.

F. Shared or Proprietary Industry Standards, and SC E-Integration Technical challenges which include the possibility of inconsistencies/incompatibilities of information systems of the different

parties in the SC hinder e-SC implementation [15] [22]. The effort to provide seamless integration calls for common standards, protocols and frameworks to integrate different platform applications over the Internet [15]. Thus, industry-level data exchange standards are recommended as a remedy to these challenges [22]. Hence we propose: H7: The lack of shared or proprietary industry standards forces firms to implement partial SC e-integration; the availability of shared or proprietary industry standards enables firms to implement deep SC e-integration.



G. Organizational Strategy and SC E-IntegrationIn order to represent most notable strategies of current firms, one may take Defenders and Prospectors from Miles & Snow et

al.’s typology, and Innovators from Miller & Roth’s taxonomy [24] [25]. With this representation, we relate the level or depth of SC e-integration to a firm’s strategy.

A firm’s power over its SC partners is an important factor that measures whether SC e-integration with external partners can be made possible; likewise, the complexity of a firm’s work flow is the factor that measures whether a partial or deep e-integration is required [10].

As Defenders manufacture most of their product components in-house [8], they are relatively free from suppliers’ influence. Moreover, through cost efficiency, Defenders offer low-price products to the market [8]. This enables them to achieve a considerable power over their customers. As a consequence, Defenders enjoy more power over their SC partners than Prospectors and Innovators. On the other hand, Prospectors and Innovators have more workflow complexity than Defenders as a result of the variety of their product lines and market domain [8] [9]. This implies that they need high SC e-integration to effectively coordinate their complex workflows. However, Prospectors and Innovators more usually switch from one supplier to another as they lack stability in their product and market domains [8]. This leads to underutilization of the suppliers’ full capacity. Moreover, they lack the commitment required of them by their partners. Hence deep supplier integration is comparatively less necessary for Prospectors and Innovators.

The above argument suggests the following hypothesis: H8: Defenders opt for deep SC e-integration, while Prospectors and Innovators opt for partial SC e-integration.

IV. CONCLUSIONThis conceptual paper discussed the requirements, challenges and risks of SC e-integration known in common SC literature. It

unveiled that some organizational situations facilitate SC e-integration while some others hinder it, and suggested the level of SC e-integration preferable under the given circumstances. Accordingly, we propose that a firm would opt for deep SC e-integration if it faces one or a combination of conditions of high workflow complexity, high customer and supplier loyalty, low perceived risk, low investment requirement, and highly available shared or proprietary industry standards. Moreover, uncertainty avoidance is negatively associated with SC e-adoption. The paper also proposed a relationship between organizational strategy and scope of SC e-integration. In this regard, we suggest that Defenders adopt deep SC e-integration, while Prospectors and Innovators adopt partialSC e-integration. Further, we propose that disparity in organizational structures of partnering firms is associated with reducedbenefits of SC e-integration.

This work adds to knowledge in the area, and may serve as a preliminary guidance in SC e-adoption decision-making for practitioners, and as a good motivation for researchers. Our future work would empirically test the hypotheses.

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Authors’ Profile: Dr. R.R.K. Sharma is a professor in the Department of Industrial and Management Engineering at Indian Institute of

Technology, Kanpur, India. He did his B.E. in Mechanical Engineering at Vishweshwariya Regional College of Engineering, Nagpur, India. He is a Fellow of Indian Institute of Management, Ahmedabad, India. He has published more than 120 articles in national and international journals. He is also winner of a number of prestigious awards and honors.

Tesfaye Tolu Feyissa is a PhD research scholar in the Department of Industrial and Management Engineering at Indian Institute of Technology, Kanpur, India. He did his B.Sc. and M.Sc. in Mathematics at Addis Ababa University, Ethiopia, and B.A. in Business Administration at Adama Science and Technology University, Ethiopia.


determinants of the scope of supply chain e-collaboration

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