Collaboration As A Means Of Inter Firm Integration Commerce Essay

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This chapter will give an general idea of past research in specific dimensions of supply chain integration that are related to the research problem. Initially, different concepts of intra- and inter-organizational collaboration are discussed. Association of information technology and integration is then presented in two categories, information sharing and information integration tools. After that, literatures about performance measurement systems in the perspective of supply chain will be reviewed

The term "Collaboration" is still developing in the perspective of supply chain and authors have had different approaches towards it. Perhaps the most referred one collaborative planning forecasting and replenishment (CPFR) (Simatupang and Sridharan,. 2005; Barratt, 2004; Skjoett-Larsen et al., 2003; Stank et al., 1999).

To enlighten on some of the ambiguities about collaboration, Barratt (2004) attempts to present a deeper understanding of some basic issues. First, he argues that there are number of questions which the answer would show the requirement to internal or external collaboration between partners, namely: focusing solely on activities like planning and omit other related activities such as forecasting or replenishment; running inappropriate promotions; poor communication throughout organization; organizations' little understanding of their own processes; conflicts due to different performance measures in different part of supply chain; poor decision-making due to large amount of information from various sources, etc. Secondly, there are number of areas where we can collaborate in the supply chain. Generally we can either have vertical or horizontal collaboration (see figure 2.1). Fawcett and Magnan (2002) described in terms of vertical collaboration, the observation shows that even between the best supply chain companies, integrative practice tends to span only a triad of companies - typically the company plus one tier up and downstream. Third, it is also important that we understand whom should we collaborate with. Collaboration is not just about mounting close information exchange based relationships at an operational level of activity, but also desires to be implemented at tactical and strategic levels in the organisations across the supply chain (Vereecke and Muylle, 2006). Bagchi et al. (2005) has proposed as the fundamental definition for their research in supply chain integration.

External Collaboration


Internal Collaboration

External Collaboration


External Collaboration


External Collaboration

(Other Organizations)

Vertical Collaboration

Horizontal Collaboration

Figure: 2.1 The Scope of Collaboration: Generally

Source: (Barrat, 2004)

Lastly, elements of supply chain collaboration are categorized in three groups (see figure 2.2): cultural elements includes collaborative culture, internal and external trust, mutuality, information exchange, and openness and communication. Second group represents the desirable elements for collaboration to be successful: joint decision-making, cross functional activities, process alignment, and accurate supply chain metrics. The last group represents some strategic elements for the collaboration to be sustainable: the role of technology, representing the business case, resources and commitment, intra-organizational support, and the corporate focus.

Cross functional activities

Process Alignment

Joint Decision Making

SC Metrics

Resources/ commitment




Business Case







Openness and Communication

Collaborative Culture






Figure 2.2 Elements of supply chain collaboration

Source: (Barratt, 2004)

Collaboration is close cooperation between business associates or units engaging in joint efforts to meet consumer needs with minimum costs and suggest that supply chain members should have joint approach towards collaboration. They suggest a framework of supply chain collaboration, this framework include five features: collaborative performance system, synchronization of decision, innovative supply chain processes, incentive alignment, and sharing of information (see figure 2.3) (According to Simatupang and Sridharan, 2005). The framework illustrates that how different elements of collaborative supply chain can work with each other to attain improved performance; for example, if information sharing is able to provide appropriate, accurate, and timely information for effective decision-making, then the shared connection between information sharing and decision synchronization is significant.

Figure 2.3 The architecture of supply chain collaboration

Source: (Simatupang and Sridharan, 2008)

According to Min et al. (2005) there are two main conceptualizations of collaboration. First, collaboration as an inter-organizational business process where partners work together toward common goals that equally benefit them (Mentzer et al., 2001; cited by Min et al., 2005) and processes include mutual decision-making (Stank et al., 2001), joint problem-solving (Spekman et al., 1997; cited by Min et al., 2005), etc. Second, collaboration has been viewed as a foundation of interorganizational relationships which parties involved work together and share information, resources, andcertain degrees of risk in order to accomplish mutual objectives (Bowersox et al., 2003; cited by Min et al., 2005).

Min et al. (2005) gave a conceptual model for collaboration of supply chain (see figure 2.4) which covers sequence of such relationships including antecedents, collaboration, and consequences.


Strategic Intend

Internal Alignments

Relationship Orientation

Relationship-specific Investment

Free flow of Information and heightened Communication



Information Sharing

Joint Planning

Joint Problem Solving

Joint Performance Measurement

Leveraging Resources and Skills





Reinforcement and Expansion of Relationship

Figure 2.4 A conceptual model of supply chain collaboration

Source: (Min et al., 2005)

Van Donk et al. (2008) distinguish between simple (high volume, low product variety, large batches, make-to-stock, and costs as a major order-winner) and complex (low volume, high product variety, small batches, make-to-order, and flexibility among the main order-winners) business conditions. Complex conditions correspond with a high level of uncertainty within the supply chain. They state and empirically show that only complex business conditions require a high level of supply chain integration. However, they also show that shared resources (capacity used to serve different customers) limit the possibilities to perform integration while buyer focus (singling out capacity for the purpose of serving one customer) is an enabler for supply chain management integration. A combination of uncertainty and shared resources is seen as one of the most difficult ones and it seems that many food manufacturers are exactly in that position. Figure 2.5 summarizes the above relationships.

Integration is necessary, but limited by the shared resources

High levels of Integration, typical practices are close cooperation, daily communication, and joint problem solving

Low level of Integration, typical practices aim at efficient information and material flows

Integration is easy to achieve but there is little need for it

Shared Resources

Buyer Focus



Business Condition

Figure 2.5 Context and supply chain integration

Source: (Van Donk and Van der Vaart, 2004)

Based on the taxonomy presented in figure 2.5, Van Donk et al. (2008) has recently examined the limitations and difficulties of supply chain integration in food industry. Four essential integration strategies are established to overcome troubles naturally exist in food supply chains: when there is uncertainties in volumes, it is suggested that manufacturers give attention to on buyer-focused or virtual buyer-focused operations. If there are different demand for purchasers then it is good to make use of mutual planning; and, in case of uncertain marketplace, frequent forecast caused by production, integrated planning and scheduling should be put into practice.

2.2 Information Technology and Integration

This section enlighten the two perspectives of IT integration in supply chain i.e. information sharing and information integration tools.

2.2.1 Information Sharing

In recent years many studies have give emphasis to the importance of information sharing within the supply chain (Simatupang and Sridharan, 2008; Yao et al., 2007, Bagchi and Skjoett-Larsen, 2002; Mentzer et al., 2000; Stank et al., 1999). While there is no doubt that information technology can reduce costs, the formation of a business model and utilization of information is also crucial (Trkman et al., 2007). Mentzer et al. (2000) have seen information sharing as one of the enablers of partnering implementation and state that collection, creation, management, and communication of information are critical to the efficiency, effectiveness, and competitive advantage of any supply chain. Simatupang and Sridharan (2002) discuss that this flow of data enhances visibility across both internal functions and organizations. It is said that variety of data is usually shared between members like resource availability (e.g., capacity, inventory, etc.), status of performance (e.g., time, quality, costs), status of processes (e.g., forecasting, ordering, delivery, replenishing), and the status of contract. They believe that information sharing can benefit members at both strategic and tactical levels where mutual understanding of competitive advantage, lessening demand uncertainty, and joint decision-making are at the heart of collaboration. According to Yu et al. (2001) uncertainties rise when perfect information can not be secured; therefore, by augmenting shared data between all participating members of supply chain which leads to whole system improvement, uncertainty and consequently negative impacts of bullwhip effect, a phenomenon where orders to supplier tend to have a larger variance than sales to the buyer, can be reduced or eliminated.

Vendor-managed inventory (VMI) and CPFR are the partnership programs primarily developed to encourage retailers to share information. VMI, also known as continuous replenishment or supplier-managed inventory, is one of the most widely discussed partnering initiatives for encouraging collaboration and information sharing among trading partners where vendor decides on the appropriate inventory levels of each of the products and suitable policies to maintain those levels. However, retail-level information is one of the major limitations of VMI system. This is due to the fact that retailers are closer to the marketplace and consequently have better knowledge about consumers, but they are not usually involved in demand forecast process in typical VMI programs. CPFR, on the other hand, could be seen as the solution for the problems that are encountered in adaptation of VMI because it requires all supply chain partners to jointly develop demand forecasts, production and purchasing plans, and inventory replenishments (Sari, 2008). The role of information sharing from CPFR perspective is discussed in many other studies (Skjoett-Larsen et al., 2003; Stank et al., 1999; Mentzer et al., 2000).

Zhou and Benton (2007) have considered three aspects of information sharing: information sharing support technology, information content, and information quality. Information sharing support technology includes the hardware and software needed to support information sharing. Information content refers to the information shared between manufacturers and customers. Information quality measures the quality of information shared between manufacturers and customers (e.g. accuracy, recency, frequency, etc.). Fawcett et al. (2007) state that many organizations have only focused on technological side of information sharing and did not get desired returns on their investment and believe that this is due to lack of investment on organizational culture. Accordingly, the research evaluates the role of information sharing capability in two dimensions - willingness and connectivity - towards operational and competitive performance improvement (see figure 2.6).

Figure 2.6 A contingency perspective of information sharing capability as a strategic enabler

Source: (Fawcett et al., 2007)

As depicted in figure 2.7, their interview with various companies has led to introduction of two-by-two connectivity-willingness matrix. For example in quadrant IV where levels of connectivity and willingness are both high, relationships are strategic and built on high levels of trust; accurate data about joint decision-makings are shared in a timely basis; and, opportunities are available for high levels of collaboration.

Other subjects have also drawn attention regarding information sharing. For example, advantages of information sharing and replenishment co-ordination for supply chain members are said to be: (1) sharing information alone would provide cost savings and inventory reduction for supplier, but it would not benefit retailer much; (2) combining information sharing with replenishment co-ordination would result in cost savings and inventory decrement for both retailer and supplier; (3) the underlying demand process would significantly influence the magnitude of cost savings and inventory reductions associated with information sharing and replenishment co- ordination (Lee et al., 1996; cited by Zhao et al., 2002).

Figure 2.7 The connectivity-willingness matrix

Source: (Fawcett et al., 2007)

2.2.2 Information Integration Tools

Nowadays, companies are trying to improve their agility level with the objective of being flexible and responsive to meet the changing market requirements. In an effort to achieve this, many companies have decentralized their value-adding activities by outsourcing and developing virtual enterprises (Gunasekaran and Ngai, 2004). All of these highlight the importance of information technology and its infrastructure in integrating partnering firms in supply chain. Enterprise Resource Planning (ERP) Systems

Enterprise resource planning (ERP) was created from development of its predecessor's software applications, material requirements planning (MRP) and manufacturing resource planning (MRP II). In the late 1960s MRP was born through a joint effort between some machinery manufacturers and IBM corporation and was a state- of-the-art method for planning and scheduling materials for complex manufactured products. MRP II was developed in 1980s with newer capabilities; In fact, the backbone was MRP, but re-written in modern code (Jacobs and Weston Jr., 2007). ERP is defined as a "framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage" (Blackstone and Cox, 2005; cited by Jacobs and Weston Jr., 2007). Another definition is given by Beheshti (2006): "An ERP system is a set of business units of an organization such as financial, accounting, manufacturing, and human resources into a tightly integrated single system with a common platform for flow of information across the entire business".

Whilst many benefits of ERP implementation like eliminating redundancies usually occur in separate legacy systems, transferring from functionally oriented organizations to process oriented ones, standardisation of business applications, and more agile supply chain are cited in different studies (Swafford et al., 2008; Beheshti, 2006; Akkermans et al., 2003), failure cases should also been concerned. Ke and Wei (2008) have investigated the role of leadership and organizational culture in implementation of ERP system. They state that ERP implementation imposes a great challenge on an adopting organization to foster a culture that is conductive to its success. It is also said that top management actions (e.g. right strategic vision of ERP adoption, setting up learning structures, dispensing contingent rewards, etc.) can manipulate organizational culture. Impact of ERP on SCM was investigated by Akkermans et al. (2003) and findings show that there are: (1) SCM opportunities for ERP: mass customization, standardization, and global IT usage; (2) SCM shortcomings of current ERP systems: lack of extended enterprise functionality, lack of flexibility in adapting to changing supply chain needs, lack of advanced decision support capabilities, and lack of open, modular system architecture. Another research about ERP implementation was also conducted in Swedish firms by Olhager and Selldin (2003). Results show that there is a high adoption of ERP systems within Swedish manufacturing firms; in addition, core production management modules involved in the customer order process and also financial accounting and control have recognised to be the most implemented modules. In an attempt to find impact of ERP on corporate performance, Hendricks et al. (2007) discovered that early adopters of ERP systems has stronger improvements in profitability but not in stock returns. Adoption of EDI / XML Technologies in Supply Chain

Electronic data interchange (EDI) is a rapidly growing technology, even though it has been widely available since the beginning of the 1980s (Lim and Palvia, 2001). It is defined as "the direct computer-to-computer communication of inter-company and intra-company business documents in a machine-readable standard format" (Crum et al., 1998). Agi et al. (2005) call it a type of inter-organizational information technology that enables trading partners to exchange data automatically between their information systems. Lim and Palvia (2001) state that in addition to general benefits of EDI like faster processing speed, greater accuracy, reduced costs, competitive advantage, improved operations, security, tracking and control, etc., there are also positive impacts on customer service. Their study revealed that product availability, order cycle time, and distribution system (malfunction, flexibility, and information) was improved through EDI implementation. Machuca and Barajas (2004) presented the same positive impact on decreasing bullwhip effect and supply chain inventory costs. Widely-usage of EDI in food and automotive industry is also probed in other studies; for instance, an empirical research in the food industry showed that while most firms use EDI for the frequent and routine transactions, invoices, and purchasing orders, they are not using it for coordinated activities like transferring schedules, production, and sales; moreover, companies tend to do more EDI activities with their customers than their suppliers (Hill and Scudder, 2002). Small and medium-sized enterprises (SMEs) in automotive industry have also lots of opportunities in implementing EDI systems with their supply chain partners (Tuunainen, 1999).

The extensible markup language (XML) was developed by the World Wide Web Consortium (W3C) in 1998 and defined as "data format for structured document interchange on the web" (Buxmann et al., 2002). Owing to the rapid development of XML in recent years, enterprises have set operating standards for their electronic document-interchange procedures using XML format. This has improved the efficiency of data interchange (by allowing users to define and describe document formats and structures) between enterprises, and has led to the role of EDI in this field becoming much diminished (Fu et al., 2007).

A study of 329 European companies by Nurmilaakso (2008) suggests that firm size, employee skills, and e-business functions has positive influence on moving from EDI-based to XML-based e-business frameworks in supply chain integration; furthermore, XML-based e-business frameworks has more effect on the adoption of e- business functions.

2.3 Supply Chain Performance

Supply chain performance and effective management of supply chains have been increasingly recognized as critical factors in gaining competitive advantage for firms (Sezen, 2008). Different aspects of supply chain performance have been discussed by both scientists and practitioners in recent years; however, most of these studies have focused on two major areas. First, determining factors that explain why some supply chain performances are better off; second, proposition of measurement systems for supply chain performance. In the next section I review these two categories.

2.3.1 Enablers of Efficient Supply Chain

According to Zhao et al. (2002), among many factors that can influence the performance of a supply chain is forecasting. This is because under demand uncertainty, supply chain members can not plan and decide on their inventory and production; thus, sharing information for predicting matters seems to be decisive within supply chain partners. They studied the interactions between inventory replenishment decisions by retailers and production decisions by suppliers based on a simulated model. Their assessment exposed that information sharing can significantly influence supply chain performance, and sharing future order information with supplier is more beneficial than sharing only the future demand information. It is also said that, while data sharing is usually useful for suppliers in different situations, it can be harmful in terms of cost and service level for retailers especially when capacity is low. Effect of information sharing on performance is partly supported by Fawcett et al. (2007). As discussed earlier in section 2.2.1, they evaluated the impact of information sharing capability in two dimensions- willingness and connectivity - on operational and competitive performance. Despite the slight influence on competitive performance, both affect the operational performance (willingness had stronger effect). Jonsson and Gunnarsson (2005) elaborate on how internet can be used as an enabler to create customer value and effectiveness for supply chain members by developing integrative logistics operations. The research implies that three routes can be considered for this purpose: (1) from business strategy perspective, supply chain partners are striking for utilizing internet in order to link shortfalls in logistics operations; however, there are deficiencies at the beginning, (2) a gradual increase in efficiencies emerges in form of intensified external customer-perceived value, and (3) application of internet in this stage is seen as an instrument for continuous cost reduction, rationalization of transaction sequences, and process streamlining. They see these three principles as a short-term strategy for enhancing supply chain performance.