Better integration and higher performance in the supply chain: The role of collaborative relationships
by Christos S. Tsanos, Ph.D., Research Fellow
The question on the relationship between supply chain integration and supply chain-wide performance has received substantial attention in the supply chain research community. Ever since Stevens (1989) mentioned the strategic importance of integrating partners across the supply chain and suggested performance benefits in the form of lower costs, lower inventory levels and, most importantly, higher levels of customer service, the conclusive establishment of a positive relationship between these two phenomena is a sought-after yet elusive goal. The first empirical results appeared in Armistead and Mapes (1993) whose qualitative field study on 38 firms in the United Kingdom indicated a positive relationship between the level of supply chain integration and manufacturing performance. Since then, a substantial stream of research for examining the relationship between supply chain integration and supply chain performance has been developed. However, meta-reviews of the relevant research show that there is no unanimously accepted evidence on the positive relationship between integration and performance (Fabbe-Costes and Jahre, 2007; 2008). As a response to these ambivalent results, additional research is required to untangle the contingencies and operational circumstances under which integration and performance may be positively related.
It has been proposed in practitioner literature that the formation and management of collaborative relationships among supply chain partners can lead to improved levels of integration and performance. For example, Motorola reported a 45% revenue increase and a 82% increase in units shipped per supply chain employee, 40% improvement in material expenses, as well as reduction in defects and improvements in product quality, manufacturing efficiency and on-time delivery rates in just the first year of its successful supply chain integration efforts (Cooke, 2007). Sony reported improvements of 40% in forecast accuracy and 18% in in-stock levels at stores from integrating its Sales and Operations Planning (S&OP) and Collaborative Planning, Forecasting and Replenishment (CPFR) functions (Kato, 2011), while Starbucks reported cost savings of $500 million in two years from improving supply chain integration (Cooke, 2010). In all these successful efforts, strengthening relationships with suppliers and customers and collaborating in key supply chain operations were key aspects. However, a survey performed in 2010 reported that only 2 out of 10 collaboration efforts delivered significant results (Benavides and de Eskenazis, 2012), suggesting that there may be factors affecting the success of collaborative supply chain relationships which have not been adequately investigated.
Integration appears to be motivated by appropriate organisational and operational conditions in order to have a positive effect on performance. Recent research has turned to the investigation of factors related to the behaviour of companies when developing collaborative relationships within the framework of a supply chain. The behavioural antecedents of supply chain relationships constitute an intuitively appealing set of conditions for achieving higher integration that has not been examined extensively in practice. For example, Tokar (2010) observes that 'little published research in logistics and SCM journals focuses on developing knowledge concerning human behaviour, judgement and decision making and integrating that knowledge into models, processes and tasks'. The manifestation of interfirm behavioural factors such as trust and commitment and subsequently the nature of the relationships between supply chain partners, is ultimately characterised by the interactions between the persons involved. Issues such as trust, commitment and justice can affect the goals of decision makers but are significantly unaccounted for in logistics and supply chain research (Tokar, 2010).
Recent research results (Tsanos, 2016) suggest that a set of behavioural factors (namely, trust, commitment, mutuality and reciprocity) appear sequentially and affect the development of collaborative supply chain relationships and in turn integration and performance: mutual and reciprocal terms of engagement in a relationship between two exchange partners foster trust among them, and trust leads to increased commitment in the relationship, which is a prerequisite for higher information integration (in the form of sharing of critical and often proprietary information) and operational integration (in the form of joint coordination and co-decision on supply chain operations). Higher operational integration is in turn positively associated to higher supply chain -wide performance in the form of higher efficiency and effectiveness of supply chain operations.
These results show strong support for integration and performance benefits from the development of collaborative supply chain relationships that rely on behavioural closeness between partners. By agreeing on mutual and reciprocal rules and norms in their relationships, supply chain managers can ameliorate partners' unwillingness to undertake risks, such as sharing of proprietary information and fear of opportunism, associated with entering into closer collaboration and overcome barriers such as reluctance to organisational transformation and structural inertia (Fawcett et al, 2015). Reducing these risks increases trust and commitment to the common goals of the collaborative relationship and can lead to higher integration and performance for the entire supply chain.
Armistead, C., & Mapes, J. (1993). The impact of supply chain integration on operating performance. Logistics Information Management, 6(4), 9-14.
Fabbe-Costes, N., & Jahre, M. (2007). Supply chain integration improves performance: the Emperor's new suit? International Journal of Physical Distribution & Logistics Management, 37(10), 835-855.
Fabbe-Costes, N., & Jahre, M. (2008). Supply chain integration and performance: a review of the evidence. The International Journal of Logistics Management, 19(2), 130-154.
Fawcett, S. E., McCarter, M. W., Fawcett, A. M., Webb, G. S., & Magnan, G. M. (2015). Why supply chain collaboration fails: the socio-structural view of resistance to relational strategies. Supply Chain Management: An International Journal, 20(6), 648-663.
Stevens, G. C. (1989). Integrating the supply chain. International Journal of Physical Distribution & Materials Management, 19(8), 3-8.
Tokar, T. (2010). Behavioural research in logistics and supply chain management. The International Journal of Logistics Management, 21(1), 89-103.
Tsanos, C.S. (2016). An investigation of the behavioural antecedents of supply chain relationships and their impact on supply chain integration and performance. Ph.D. thesis, Department of Management Science and Technology, Athens University of Economics and Business.