SUPPLY CHAIN INTEGRATION

PRODUCTION REPORT

SUBMITTED BY: AASTHA DAWANI (22337)

SUBMITTED TO: MA’AM FALAK SHAD MEMON
 TABLE OF CONTENTS
SUPPLY CHAIN INTEGRATION.................................................................................................2
INNOVATION-ORIENTED SUPPLY CHAIN INTEGRATION FOR COMBINED
COMPETITIVENESS AND FIRM PERFORMANCE................................................................3
INTRODUCTION:.................................................................................................................... 3
(a) MEASUREMENT:......................................................................................................3
(b) SAMPLING AND DATA COLLECTION:...................................................................4
ANALYSIS RESULTS:............................................................................................................4
(a) RESPONDENT PROFILES:......................................................................................4
(b) Results:..................................................................................................................... 5
(c) Measurement Model:...............................................................................................5
(d) Structural Model Analysis:......................................................................................5
(e) Research Hypotheses:............................................................................................5
DISCUSSION AND MANAGERIAL IMPLICATIONS:.............................................................5
SUGGESTIONS AND LIMITATIONS...................................................................................6
THE EFFECT OF INTERNAL COMMUNICATION AND EMPLOYEE SATISFACTION ON
SUPPLY CHAIN INTEGRATION.............................................................................................7
INTRODUCTION:................................................................................................................. 7
HYPOTHESIS OF THE STUDY:..........................................................................................7
RESEARCH METHOD AND DATA:....................................................................................7
MEASURES......................................................................................................................... 8
MEASUREMENT MODEL....................................................................................................8
STRUCTURAL MODEL.......................................................................................................8
DISCUSSION AND IMPLICATIONS....................................................................................8
CONCLUSIONS, LIMITATIONS, AND FUTURE RESEARCH............................................9
Firm boundary decisions in solution business: Examining internal vs. external
resource integration............................................................................................................. 10
INTRODUCTION:............................................................................................................... 10
METHODS AND DATA......................................................................................................11
FINDINGS.......................................................................................................................... 11
DISCUSSION..................................................................................................................... 12
CONCLUSION................................................................................................................... 12
 SUPPLY CHAIN INTEGRATION

Supply chain integration has been divided into three parts.

1. Customer Integration
2. Supply Integration
3. Internal Integration
Customer integration is also called forward integration, in this companies try to remove the
Middle man and connect directly with customers. It helps the firm to know its customers more.
More information firms gets more they can cater needs accordingly.
Supply integration is also known as backward integration. It is a well-known term where a firm
Become its own supplier. They don’t just produce raw materials for themselves but for others
too. It is a part from where firm can earn profits from its competitors.
Internal integration helps the firm to integrate the data between the departments.
Integration is a very important part of the organization. Globally Competition is increasing and
every company is trying to get an upper hand, integration helps the organizations to achieve
that. It gives them the edge over the competition, help them understand the customer more and
helps them reduce cost in the long term.
We will discuss three articles on integration that were researched very widely on multinational
companies.
1. Innovation-Oriented Supply Chain Integration For Combined Competitiveness And Firm
Performance
2. The Effect Of Internal Communication And Employee Satisfaction On Supply Chain
Integration
3. Firm Boundary Decisions In Solution Business: Examining Internal Vs. External
Resource Integration
INNOVATION-ORIENTED SUPPLY CHAIN INTEGRATION FOR COMBINED
COMPETITIVENESS AND FIRM PERFORMANCE
(Peirchyi Lii and Fang-I, 2015)

INTRODUCTION:
Taiwan has set its position as a world manufacturing concern because of it’ high cost
effectiveness but that is being endangered by China and other developing countries.
Innovative goods and services must be launched to achieve position in Market, a single
manufacturing advantage would not be sufficient to sustain competitiveness of Taiwan.
Single set of advantages aren’t reliable because competitors are very aggressive in the
market and they will come with counterstrategies. Furthermore, if market environment will
change, consumer preferences will too. Taiwan enjoy the advantage of low cost because of
high production rate. In this era where products get easily replaced, to increase firm’s
profitability not just supply chain partnerships but creating products that are not rapidly
copied by the competitors is very important.
Supply chain integration helps in improving supply chain management and creates value. It
not just help in integrating internal functions but also cooperate with suppliers, consumers,
and others to increase effectiveness. Firm must change structure and behavior to attain and
sustain required resources. Alliances are very important to get mutual benefits. When
globally competition is increasing every day, firms need to reconsider the importance of
supply chain integration. Not just integration but improving cross organizational flow is also
very important. It can be done through mutual aid, tradeoff and mutual benefits. They must
be prioritized by firms as competition has been increasing. High supply chain performance is
possible when customers and suppliers are integrated by the firm using SCI.
Changing business environment and changing consumer buying patterns are a big concern
and that’s where SCI creates value for the firm. It helps in evaluating firm’s performance
from strategic to marketing. To increase competitive advantage in future, which supply chain
integration approach is more valuable and need to be adopted.

MEASUREMENT AND DATA ANALYSIS:

(a) MEASUREMENT:
7-point Likert scale was adopted. 1 was strongly disagree and 7 was strongly agree. Three
dimensions of supply chain integration: internal, suppliers and customers were included as it is
a diversified concept.
This study used measures developed by (Narasimhan and Kim, 2002), (Morash and Clinton,
1998), (Flynn et al, 2010), (Cagliano et al, 2006), and (Swink et al, 2007).
(b) SAMPLING AND DATA COLLECTION:
Content validity was insured by supply chain and inventory management professionals, before
mailing the survey. Persons from sales, production, and research and development department
were chosen as respondents who were responsible and familiar with supply chain operations of
their respective firms.
Many previous studies were considered before adopting this measure and some measures
were specifically developed for this research. Surveys were sent in Chinese but after receiving
responses it was translated back to English. All the questions were measured under 7 point
Likert scale.

ANALYSIS RESULTS:

Supply chain integration and firm performance in Taiwan’s electronic industry was main purpose
of this research. Manufacturers from this industry were given a questionnaire survey. Managers,
staff and engineers from sales, production and procurement who had knowledge about practical
aspect were targeted. 57 different dimensions were measured in this questionnaire. It was in 6
parts, classified according to subject perception of the respondent. SPSS 19 and LISREL 8.8
were used to analyze the results.
Relevant literature articles were used to form the first draft of the questionnaire. Variable item
questions were asked that can fulfill requirement of validity. To check the reliability and validity
of the questions a pretest was implemented. Comments that returned were helpful to produce
the finalized version of the questionnaire.
Using statistical analysis of SPSS version 19, pretest was analyzed. Highest α value was of
supply chain integration that was 0.857, lowest α value was for combinative competitive
capabilities of 0.683. Each construct was separately measured using Cronbach α to check
reliability. With exception of combinative competitive capabilities all others had greater than 0.7
that means high reliability.
(a) RESPONDENT PROFILES:
Final survey was sent to respondents of 750 companies through email. Follow-up emails and
calls were made to remind the respondents to fill the questionnaire. A total of 578 responses
came from 750, from which 98 were useless as there was missing data. Now total no of usable
were 480 responses that was 64% of the total. 29.2% were respondent from electronic industry,
18.5% from IT. Persons who have worked for 5-8 years accounted for 35.8%, in R&D there
were nearly 26%, in purchase department there were nearly 25.2% and in marketing nearly
21%.
NON-RESPONSE BIAS

To examine this, early and late responded was compared. They were grouped in two parts. One
with 50 early responded and other with 50 late respondents. In any research construct,
independent sample t test showed that there was no statistically significant difference between
the two groups.

(b) Results:
All the variable were tested using LISERL software with a covariance matrix for the input.

(c) Measurement Model:

If the data is acceptable fit or not, can be examined through CFA before testing a structural
model. Once we find the best measurement model, structural could be tested.
Model modification was implemented because model fit was far from acceptable. Result showed
that values of GFI were above 0.9 and value RMSEA below 0.2 that clearly means it is a good
fit. Overall result measurement model had also a good fit.

(d) Structural Model Analysis:

After evaluating the fit model, GFI was 0.8, CFI was 0.9, NFI was 0.9, RMSEA was 0.1, RMR
was .13 and NNFI was 0.9. Value greater than 0.8 is accepted for GFI. RMSEA is a close fit
here because it is considered good when it is less than 0.5, whereas till 0.8 it is called fair.

(e) Research Hypotheses:

Sample size in this study is 480 that meets the requirement of maximum likelihood estimation
method. It is used to estimate theoretical model of γ and β.
H1a proposed a positive relationship between innovation and customer integration. It was
supported as the estimate was 0.42 with t being 7.65 and p less 0.01. H1b was relation between
innovation and supply chain integration, it was also supported as estimate was 0.62. H1c
relation between innovation and internal integration had an estimate of 0.53 and it was also
supported.
Relationship between supply chain integration and competitive capabilities was determined in
hypothesis 2 (H2). For customer integration estimate was 0.18, for supply integration estimate
was 0.36 and for internal integration estimate was 0.17. Relationship was significant as direct
relation with SCI was observed.
H3 estimate showed negative relation between customer integration and firm performance. For
supply integration and internal integration with firm performance was a positive and direct
relationship.

DISCUSSION AND MANAGERIAL IMPLICATIONS:

Innovation showed positive effects on supply chain integration. Result was consistent with study
by (Kamath and Liker, 1990). Also two other researchers (Campbell, 1998) and (labahn and
Krapfel, 2000) also suggested the new product development. This finding suggest that due to
allot competiveness in the market, Taiwanese electronics and technology markets should not
only highly innovate the products but higher degree of innovation orientation leads to higher
supply chain integration. Product variations can be created by supply chain partners to meet the
demand. It is a very important strategy, additionally innovation oriented firms focuses on
customer value and customer relationships.
Secondly there is an association between supply chain integration and combinative competitive
capabilities. Greater the level of SCI, higher the competitive capabilities. In recent years,
companies has notice the importance of supply chain integration. Global competition had made
the market very tough, product life cycle has decreased moreover upgrades in technology are
very expensive. SCI helps the firm to manage R&D of new products, obtain more information
from the market and help in removing old products. Due to facilitation of integrated information,
firm performance is benefits highly from supply chain integration. Successful integration helps
firm identify customer preferences, improve sharing market information, enable to respond fast,
facilitate satisfying customer needs and creating a constant and compact flow.
Before this Taiwan was highly focused on increasing productivity, reduce costs but after the
global awareness of environmental issues and intense competition they have to rely on other
factors. China and other developing countries when joined the game by reducing manufacturing
cost, Taiwan changed its way towards innovation.
Companies are now paying special attention towards differences in characteristics of the
industry. They are paying close attention to find technology breakthrough to achieve the
advantage in quality and cost of the product. Taiwan industry must develop internally to keep up
with the global competition. Now a day’s business success and survival completely depends on
continual innovation. In addition downstream integration can be used to reach customers in
timely manner.

SUGGESTIONS AND LIMITATIONS

China and other countries are moving their industries where cost of production is very low,
Taiwan also need to have moving production to cater needs of the customer and also keep
looking for the new markets. This questionnaire could have been filled by even higher authority
person like deputy general so that we could get the clear idea what higher management of the
firms think about supply chain integration.
This research was only conducted on one industry but many other industries like food, textile
etc. can be covered through this type of research and a broad perspective can be taken from
that.
 THE EFFECT OF INTERNAL COMMUNICATION AND EMPLOYEE
SATISFACTION ON SUPPLY CHAIN INTEGRATION
(Mark A. Jacobs, Wantao Yu and Roberto Chavez, 2015)

INTRODUCTION:
Moving the right product, at right time and at right place is a difficulty that many firms have to
encounter now a days. One of the main reason of having this challenge is that researchers treat
HR topics such as communication and satisfaction separate from SCM. To attain increase in
performance, supply chain integration is one the important strategy today. Improved
organizational performance can be achieved by enabling managers to influence relation with
suppliers.
Integration creates customer value and improve profitability by managing material, information
and monetary flow. There are two types of integration in which the main focus is. First one is
internal integration, this integration helps the organization grow internally. It helps them to share
the information between the departments. More knowledge is good for every department.
Another one is external integration. This can be divided into two sub parts. First one is backward
integration, in this company expand its business by acquiring its supplier. They not just supply
raw material for themselves but they sell it to others and increase their profitability. Another one
is forward integration, firm take over the logistics and supply the finished goods to their
customers themselves.

HYPOTHESIS OF THE STUDY:

HYPOTHESIS 1a: positive relationship between internal organization communication and
internal integration.
HYPOTHESIS 1b: Positive relationship between internal organization communication and
external integration.
HYPOTHESIS 2a: Positive relationship between employee satisfaction and internal integration.
HYPOTHESIS 2b: Positive relationship between employee satisfaction and external integration.
HYPOTHESIS 3: Positive relationship between internal integration and external integration.

RESEARCH METHOD AND DATA:

To get the meaningful insight, research was conducted in China. A survey was sent to the top
companies of China. These companies were chosen carefully and it was made sure that all the
regions: North, west, east, south and central are covered. Only top management like CEO,
President, High level managers and director of supply chain management, marketing, marketing
and sales who have been in the company for more than 5 years, were required to fill this survey.
Scale was first developed in English and for the ease of the respondents, it was translated in
Chinese. A pilot test was conducted to ensure questions are easy to interpret and important, it
was taken by two directors and one CEO. Minor changes were made after the test.
After finalizing the survey, 736 manufacturing companies were sent the survey. Confidentiality
was insured to respondents. To increase the response rate, they were promised that they will be
provided summary of the findings. Follow up was also done to clarify any questions regarding
the survey.
221 completed surveys were obtained from which seven were discarded due to missing data.
To check non response bias, a t test was run for early respondents and late respondents. But
they found out they was no significant difference found. Three methods were used for possible
common method bias. First factor had 38% variance that’s not the majority. It suggested that we
shouldn’t be worried about common method bias. In second test Harman’s single factor model
was used, which showed in significant results. Third test was conducted using Lindell and
Whitney test, which showed number of employment year is not a problem. Three test should
that common bias should not be the problem at all.

MEASURES
7 Likert scale was used in all the questions asked.

MEASUREMENT MODEL
CFA was used to assess the validity of the model, it showed the result more than 0.50 that
means it is statistically significant. Two other models were used to measure the validity of the
data. First one was SEM and second one was Partial Least Squares (PLS) modelling and both
showed unbiased results.

STRUCTURAL MODEL
Primary structural model was used. Model result showed internal integration and external
integration has positive relationship with internal communication. Employee satisfaction has
positive relationship with external integration. Other results proved that employee satisfaction is
mediator between internal communication and internal integration.
Three structural path were created. First one was internal communication to internal integration,
next one is internal communication to external integration and last one is internal integration to
external integration. Result showed there is not moderate relationship between these three
variables.

DISCUSSION AND IMPLICATIONS

Can be seen in detail below relationship between employee satisfactions and internal
integration. Specifically intermediary role of employee satisfaction between internal
communication and internal integration. Employee satisfaction proved to be mediation model for
these variables, most importantly between internal communication and internal integration.
Other than that, satisfaction get affected by external integration. McAfee suggested that firm can
develop a good SC strategy through firm’s human resource strategy. Due to scarce research on
human resource effect on supply chain integration, we could determine it first. But many
researches have been conducted on how service quality and firm performance improve when
employee satisfaction is high. The thought of both of them having relationship is very scarce.
That’s why this research try to fill that gap. Employee satisfaction is not just a moderator in the
study but a very crucial mediator.
They found out internal integration bridge the gap between external integration and external
communication. Internal integration fully become the link between employee satisfaction and
external integration. This research found out that to do external integration, we have to work on
internal integration first. Internal integration will help develop employee satisfaction and it will
help external integration.
This research also supported Social capital theory. This research is implied more in developing
economies where markets are developing rapidly. Prior this research many studies were
conducted but all of them were focused either on developed economies or on western culture.
But in this study, in non-western culture mediator of employee satisfaction was found.
This research suggests that before implying integration strategy firm should have good
communication with related parties. Communication is most important part for implying
integration strategy. Communication has direct impact on employee satisfaction which in the
end help internal integration. Interestingly, employee satisfaction can be both road block and
accelerator to integration. This can happen that manager invests a lot of time on employee
satisfaction, but does not assure effective integration process. Because internal integration work
as a mediator between satisfaction and external integration, so manager should understand
higher the satisfaction, higher will be external integration. It is very important for the manager to
understand this process to reach manufacturing success.

CONCLUSIONS, LIMITATIONS, AND FUTURE RESEARCH

One of the most important finding is employee satisfaction being a mediator. It creates impact
on employee communication on internal integration. A firm must establish good relation with its
trading partners. It will help improve market performance. Tactics to improve internal
communication or satisfaction is not the area of the study. While this research bring the light on
facilitators of internal integration.
While we were focusing on the significance of the study, now we would discuss about the
limitations of the research. Element of time was not considered in this study, future studies
should have the roll of time in it. This research was mainly focused on non-western culture, this
will also be considered part of limitation. This research was conducted in China, so only
Chinese economy proved this model, what if it does not work on developed country or it does
not work on other countries rather than china. Other than this survey was taken from
manufacturing industries, service firms were not even considered. Researching service firms is
a great opportunity in future for researchers. It will create context to differ between goods and
service industries.
New study revealed the relationship between supply chain integration and internal
communication but answer to this situation hasn’t been properly investigated yet. Many other
studies can be conducted concentrating the relationship between supply chain management
and human resource management.
Other than that role of integration to increase the performance of firm is one of the essential part
of this research. Not just external but internal integration helps the organization grow. This will
be an essential part for every growing organization to compete in the market.

FIRM BOUNDARY DECISIONS IN SOLUTION BUSINESS: EXAMINING

INTERNAL VS. EXTERNAL RESOURCE INTEGRATION
(Anna Salonen and Elina Jaakkola, 2015)

INTRODUCTION:
Solution based business is an urgent need for the manufacturers now a days, due to high
competition. There isn’t enough studies show how firms chooses between internal integration
and external integration. We try to find the drivers that lead the manufacturers to choose
between internal integration and external integration. To analyze this four interrelated
conceptions were taken. These conceptions were identity, competence, efficiency, and power.
Two global manufacturers, Wärtsilä and Kone were examined using these boundary
conceptions. One company chose to integrate internally and other chose to integrate externally.
METHODS AND DATA

Data was collected from interviews. 34 interviews were conducted from different hierarchical
level employees. Using multiple persons confirmed the validity of the data. Interview with each
person lasted for 1 or 2 hours and every interview was recorded. 12 persons were from the firm
Wartisila and 15 from Kone. Highest duration of the interview was from group vice president of
Wartisila of 158 minutes, followed by Senior Vice President, Technology and R&D of Kone of
155 minutes. These interviews were taken in the first phase of study that was from 2006 to
2010.
In second phase of the study, group interview were taken. They made total 7 interviews, in
which there were employees from both the companies. They were conducted in two phases, in
first one they made groups and took 4 interviews. In the second phase chose 3 important
persons like vice presidents and conducted those 3 interviews.

FINDINGS
INTERNAL INTEGRATION OF WÄRTSILÄ
Wartsila, a Finland firm is a leading marine and energy supplier worldwide. Its turnover is in
billions. Firm has acquired many companies in past and now have developed a huge portfolio,
consisting of 100s of things in the energy and marine products. But this time Wartsila chose to
develop itself internally rather than acquiring another. To manage and control such a huge
portfolio is a difficult job and keep expanding it without having control and complete knowledge
between the departments is a mistake that shouldn’t be committed so Wartsila chose to internal
integration rather than external.
EXTERNAL INTEGRATION OF KONE
Kone is also a company from Finland. It is an elevator and electric door manufacturing
company. It is currently in top 4 elevator manufacturing companies in the world. Kone believes
in acquiring external partners to ease their way towards the customers. In past they have
acquired their suppliers and now they have started giving the services. They are doing
everything from point 0 to the ending point. There turnover is in billions and they expect to
continue this path to increase profitability.

DISCUSSION
From applying that four distinct points we identified the following information.
Identity view suggested that firm’s approach towards it product identity is very important. Both
the companies have history of integration while Kone just focused on being an elevator
company and wasn’t that much complex to need internal integration at that moment but
because Wartsila wanted to become a company with a lot of products in its portfolio, they had to
focus on internal integration.
Competence view suggested that maximizing value of the current network is an important part.
Wartsila created value for its value because field of knowledge were not distinct, they were
closely related. Kone chose external as the field of knowledge were distinct.
Third is efficiency. Wartsila required a lot of information exchange due to high level products
portfolio. Information like this can be effectively managed within the organization. While Kone
information can be modularized with integrated systems.
Last is power. Wartsila need to empower itself internally as there are still competitors in the
market and making a seamless service is a necessity for the firm. But Kone being just an
elevator producing company, believed in acquiring and integrating.

CONCLUSION
They key drivers have given a broad view, in which situations company chooses the type of
integration. It is completely dependent on the company and the products it make. If one has
chosen to concentrate on just one product and is determined to make the product journey
seamless then they choose to do external integration.
But when a company isn’t focused on a single product, they keep acquiring other companies
and add numerous products to their portfolios, they can’t manage to have external integration
for all of them. That’s why those kind of companies move toward internal integration where they
can keep themselves informed about every product.