International Journal of Operations & Production Management

Leveraging the impact of supply chain integration through information technology

Evelyne Vanpoucke Ann Vereecke Steve Muylle
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Evelyne Vanpoucke Ann Vereecke Steve Muylle , (2017)," Leveraging the impact of supply chain integration through
information technology ", International Journal of Operations & Production Management, Vol. 37 Iss 4 pp. -
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 Leveraging the impact of supply chain integration through

information technology

Abstract

Purpose Companies increasingly exchange information to work more closely with supply

chain partners. Although information exchange is a critical element for up- and downstream

partnerships, this study indicates that it is not a guarantee for improved performance and
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should be combined with other integration tactics to fully capture its benefits.

Methodology Using a global sample in the industrial sector, a moderated mediation

framework for both upstream and downstream integration, which links integration tactics to

operational performance, was empirically tested.

Findings This research shows that operational integration is indispensable to capture the

benefits of information exchange. In addition, it points out that the impact of the use of

information technology is stronger for upstream integration.

Practical implication While the data shows that the use of information technology

significantly improves the delivery performance in the supply chain, it also signals to

managers how and when to invest in supply chain integration tactics.

Originality This paper contributes to a better understanding of the supply chain integration-

performance link, by clarifying some of the inconsistencies in previous literature and by

simultaneously analysing upstream and downstream implications.

Research paper

Keywords Information exchange, Supply chain integration, Operational performance,

Information technology

1
 1. Introduction

The importance of supply chain integration is largely unquestioned (e.g., Leuschner et al.,

2013). Supply chain integration entails designing well-coordinated flows of information and

materials that help firms create smooth processes throughout the extended supply chain. It

includes exchange processes as well as coordination tactics between supply chain partners

(Mackelprang et al., 2012). Smooth information and material flows blur boundaries between

supply chain parties, and enable firms to reduce uncertainty in the supply chain created by the
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bullwhip effect (Lee et al., 1997). For example, smooth flows enable firms to adopt lean

processes in the supply chain, leading to more reliable order cycles and inventory reduction

(Prajogo and Olhager, 2012).

Although prior research confirms the overall positive impact of supply chain integration on

performance (e.g., Schoenherr and Swink, 2012), Mackelprang et al. (2014) point to

unknown moderators to explain the variance in magnitude within the supply chain

integration-performance link. These unknown moderators might potentially be a result of

differences within the integration construct as “it is an aggregate with respect to processes,

information, technology, etc.” (Mackelprang et al., 2014, p. 87). Focusing on these different

dimensions of integration, the aim of this research is to unbundle these dimensions of

integration and uncover contingencies with respect to their underlying tactics, and their

potential impact on operational performance.

Although previous studies have already described and classified different supply chain

integration tactics, few have investigated the interconnections among these integration tactics

and their resulting impact on operational performance. Leuschner et al. (2013), for example,

analyze the impact of individual integration tactics, such as information integration and

operational integration, on performance, but do not consider interrelationships among these

integration tactics. Zhou and Benton (2007) do consider these interrelationships, but they do

2
 not take them into account when relating them to operational performance. By including

these interrelationships among integration tactics, the understanding of the integration-

performance link can be enhanced and contrasting findings in prior research potentially

addressed. Thus, the first aim of this research is to enhance our understanding of how the

interrelationships among integration tactics influence operational performance.

The use of information technology (IT) plays a central role in enabling supply chain

integration. It allows supply chain partners to increase the volume and complexity of
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information exchange. It also enables real-time information sharing, which increases

visibility in the extended supply chain (Prajogo and Olhager, 2012). Li et al. (2009) argue

that IT use only indirectly affects performance through the use of supply chain integration

tactics, even though most researchers (e.g., Leuschner et al., 2013) include IT use as part of

the supply chain integration measure. The latter makes it difficult to understand the specific

role of IT use, either as an enabler for information exchange or as an enabler for operational

integration, in supply chain integration tactics. Therefore, the second aim of this research is to

clarify how IT use interacts with these different and interrelated integration tactics in the

supply chain. As part of this, this study also evaluates whether IT use upstream and

downstream in the supply chain results in similar operational advantages for the focal firm.

The article is organized as follows: the literature is reviewed in section 2. In section 3, the

hypotheses are presented. In section 4, the data collection and research method are described,

and in section 5, the analyses discussed. The results are presented in section 6. The theoretical

and managerial implications of the findings are discussed in sections 7 and 8, and limitations

and directions for further research are formulated in section 9.

3
 2. Literature review

The literature on supply chain integration, the role of IT in supply chain integration, and the

link with performance, is reviewed, and forms the theoretical foundation for the research

framework.

2.1. Supply chain integration

Supply chain integration is a set of activities concerned with the coordination of product

flows between supply chain partners, including transactions, materials movements,

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procedures and optimization processes, taking into consideration the underlying information

flows (Frohlich and Westbrook, 2001; Sahin and Robinson, 2002). At the tactical level, the

literature suggests two interrelated forms of integration, i.e., information exchange and

operational integration tactics (e.g., Kulp et al., 2004; Leuschner et al., 2013; Frohlich and

Westbrook, 2001). Information exchange refers to the coordination of information transfer

and communication, while operational integration points to joint activity development,

collaborative work processes and coordinated decision making among supply chain partners

(Giménez et al., 2012).

At the strategic level, supply chain managers have to decide on the extent (i.e., the degree of

supply chain integration) and the direction (i.e., upstream and/or downstream) of these supply

chain integration tactics (see Frohlich and Westbrook, 2001). In terms of direction, the

literature distinguishes between supplier and customer integration. Supplier integration

creates visibility upstream in the supply chain and helps to reduce the focal firm’s uncertainty

- a key determinant of transaction costs (see Williamson, 1989) - , inventory, and, the

bullwhip effect (Lee et al., 1997). More specifically, information lowers uncertainty arising

from changes in orders, demand volatility, and lead-time fluctuations, and, therefore, acts as a

substitute for inventory. Customer integration encompasses flows of information, service,

and materials to customers; it also includes information flowing back from customers to the

4
 focal firm. The attention and resources the supplier commits to these activities, such as online

information search, order customization, transaction execution and customer service, are

intended to empower the customer and improve its competitive standing. As such, customer

integration entails incorporating customers in decisions to improve the coordination of

materials at the focal firm (Frohlich and Westbrook, 2001).

Several studies have analyzed the link between supply chain integration and performance,

and have produced mixed results. Many studies found a positive relationship between
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integration and performance. Frohlich and Westbrook (2001), for example, show that a wide

scope of integration is positively associated with performance improvements. Whereas their

results suggest that significant performance improvement can only be gained when firms

progress towards high degrees of supply chain integration, Flynn et al. (2010) and Schoenherr

and Swink (2012) show that even small-scale supply chain integration efforts can lead to

beneficial efficiencies. Other studies, however, found weak to even negative effects of supply

chain integration on performance (e.g., Vereecke and Muylle, 2006; Swink et al., 2007). A

recent meta-analysis by Leuschner et al. (2013) confirmed the overall positive relationship

between supply chain integration and performance. In addition, this meta-analysis pointed out

important differences among integration tactics: while information exchange was found to be

positively related to performance, the study did not find evidence for a positive relationship

between operational integration and performance. Another meta-analysis by Mackelprang et

al. (2014) also confirmed the positive association between supply chain integration and

performance, but indicated that between 13% and 33% of examined performance outcome

relationships were non-significant. In other words, under the right set of conditions,

integration–performance relationships improve performance. This finding suggests that future

research should aim to understand the factors that make supply chain integration successful.

Consequently, the aim of this study is to further develop the understanding of the relationship

5
 between supply chain integration and performance by taking into account some of these

factors.

2.2. Buyer–supplier IT use

Several research studies report a positive effect of the use of IT on firm performance (e.g.,

Zhang et al., 2016). In contrast, other studies have found no or even a negative relationship

between IT use and firm performance (e .g., Wade and Hulland, 2004). A possible

explanation is that IT resources are neither rare nor difficult to imitate and, as such, are not

likely to be directly associated with high levels of operational performance. Supply chain
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integration is driven by the need to streamline processes (Gunasekaran and Ngai, 2004).

Caniato et al. (2009) show that companies using the internet to streamline these supply chain

processes are benefiting from reduced transaction costs, smoother information flows and

higher responsiveness. So, even if an organization’s IT is not a source of distinctive

advantage, it can still help the company gain a competitive advantage (Picolli and Ives, 2005)

by using it to realize the full competitive potential of other resources, such as the smooth

sharing of information that is valuable, rare, and costly to imitate. In other words, the effect

of IT on performance depends on other resources (Vereecke and Kalchschmidt, 2016). For

example, IT use strengthens the exchange of information in the buyer–supplier relationship

through more efficient processes and consequently can reduce lead time (Drnevich and

Croson, 2013). While e-commerce focuses on supporting downstream supply integration

processes such as sales and distribution, e-procurement assists to smoothen the processes for

order fulfilment and supplier selection. In addition, e-collaboration should help the focal firm

to improve integration processes concerning capacity planning, demand forecasting and

inventory management processes for both suppliers and customers. In summary, the literature

notes that IT used in a supply chain context can create a competitive advantage when

combined with other supply chain integration tactics.

6
 2.3. Operational performance

Several studies have linked supply chain integration to operational and/or business

performance (e.g., Vanpoucke et al., 2014). This link can be explained by the creation of

relational assets (Dyer and Singh, 1998), which makes supply chain integration difficult to

imitate. In addition, supply chain integration helps companies to manage supply chain flows

and reduce the detrimental impacts of the bullwhip effect (Lee and Billington, 1992).

Smoothing and better managing these material and information flows should result in reduced
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costs and lead times, and improved on-time delivery and flexibility (Wiengarten et al., 2014).

3. Theoretical framework and hypotheses

Given that the focus of this research is to increase the understanding of the inter-relationships

among integration tactics, operational integration is the central construct in the research

framework. More specifically, information exchange is modelled as an antecedent for

operational integration, since operational integration builds upon and even goes beyond

information exchange (see below). In addition, supply chain IT use might strengthen the

relationships between information sharing and operational integration, but also among the

operational integration – performance link. As such, the overall research framework for this

paper suggest a moderated mediation effect as shown in Figure 1.

Insert Figure 1 about here

3.1 Supply chain integration

The literature distinguishes between two tactics for supply chain integration: information

exchange and operational integration (e.g., Vereecke and Muylle, 2006; Zhou and Benton,

2007). As suggested by Rai et al. (2006), this distinction is important because information

exchange and operational integration require different capabilities, approaches, and

incentives. More specifically, Rai et al. (2006) focus on two process integration capabilities

7
 to improve supply chain performance, i.e. information flow capabilities to support the

information exchange and physical flow capabilities to support operational integration in the

supply chain. The more basic form of integration involves the exchange of information to the

joint benefit of the buyer and supplier. Information may be exchanged at all relevant levels,

such as in forecasting, planning, and execution or replenishment (Khanjari et al., 2012). For

example, point-of-sale data help suppliers successfully forecast demand, which eventually

improves service levels and delivery schedules towards the buyer (Prajogo and Olhager,

2012). As supply chain management evolved, research increasingly explored the

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collaborative nature of business practices (Dyer and Singh, 1998), which led to the

emergence of various operational integration tactics, defined as the collaborative joint

activity development, work processes, and coordinated decision making between firms in the

supply chain (Leuschner et al., 2013). These tactics range from Efficient Consumer Response

(Hübner et al., 2013), Vendor-Managed Inventory (Nagarajan and Rajagopalan, 2008) and

Continuous Replenishment, to Collaborative Planning, Forecasting, and Replenishment (Yao

et al., 2013). Collaborative structures, such as Kanban and co-location foster even more

supply chain integration (Van den Heuvel et al., 2013). Kanban systems are a powerful way

to link suppliers’ and customers’ planning systems by pulling demand through the supply

chain. Moreover, lean practices in the supply chain have created a need for geographical

proximity of suppliers to customers and create synergies through combining resources such

as transportation, repair, and maintenance facilities, increasing their availability and

accessibility (Van den Heuvel et al., 2013).

3.2. Linking information exchange and operational integration

Empirical research has shown that supply chain relationships in which partners exchange

accurate and relevant information are more successful than relationships that do not exhibit

this trait (e.g., Vanpoucke et al., 2009). When a company receives information about its

8
 suppliers’ or customers’ production plans and forecasts, for example, it can improve its own

planning. This results in lower inventories and fewer stock-outs, leading to lower inventory

costs, lower transportation costs (because of less urgent orders), and improved service

(meeting quantity requirements and delivery dates). Another example is a customer sharing

point-of-sale information with its supplier. This additional information facilitates knowledge

gains about cause-and-effect relationships pertaining to pricing, volume, and competitor

actions (Manthou et al., 2004) and results in faster responses to market changes, with smaller

amounts of working capital committed to inventory. In summary, information exchange

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positively influences a firm’s ability to provide partners with needed products and to reduce

cycle times, while increasing on-time deliveries.

Since most prior research merely examines the direct effects of supply chain integration

tactics on performance, without considering the interrelationships between these integration

tactics, the reported results are often unclear (e.g., Rai et al., 2006; Leuschner et al., 2013;

Mackelprang et al., 2014). Leuschner et al. (2013), for instance, found no significant

relationship between operational integration and performance. Zhou and Benton (2007),

however, showed that information exchange enhances operational integration, and suggest

that both information exchange and operational integration are necessary to achieve

performance improvements. Likewise, Zimmerman and Foerstel (2014) argue that, because

of their complex nature, supply chain integration tactics have a stronger impact on the

partner’s operational performance than traditional information exchange tactics. Through

joint planning and synchronization of business processes, buyer–supplier dyads may go

beyond passive information exchange and engage in proactive collaboration. Cisco, for

example, shares information with its suppliers and customers to enhance operational

integration. Towards that end, Cisco engages in substantial two-way information exchange

with its suppliers, which enhances operational integration through supply chain planning,

9
 just-in-time production, and advanced delivery practices (Zhou and Benton, 2007). In other

words, information exchange is critical for managing the supply chain and fosters effective

operational integration. In addition, Kulp et al. (2004) suggest that information exchange can

increase performance but can no longer create a competitive advantage. They show that these

tactics are consistent with an evolutionary process of supply chain integration: information

exchange has given companies a competitive advantage in the past and can be considered a

prerequisite. Nowadays, information exchange provides initial benefits, but may not be

sufficient to achieve superior performance. To create a competitive advantage, companies

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need to implement operational integration tactics. More specifically, operational integration

enables firms to streamline and automate complex supply chain activities (Liu et al., 2013).

These streamlined movements of inventories across the supply chain shortens lead times and

reduces the bullwhip effect, while increasing cash flows to improve business performance

(Sanders, 2008). Moreover, operational integration with suppliers and customers promotes

the sharing of resources, knowledge, and risk across the supply chain, which positively

affects operational performance for the focal firm (Liu et al., 2013). More specifically, the

following is hypothesized:

H1. Operational integration of the focal firm with upstream and downstream partners

mediates the relationship between information exchange and (a) cost-efficiency, (b) delivery

performance, and (c) process flexibility.

3.3. The moderating role of IT use

Basu and Muylle (2007) and Muylle and Basu (2008) describe how companies can support

business processes through the use of IT in inter-organizational relationships. These

processes include trade, decision support, and data and application integration. First, IT use

can facilitate online support for trade processes such as scouting and requests for quotations,

ranging from the trading entities’ buying or selling intentions to product delivery. In addition,

10
 electronic mechanisms for decision support enable inter-organizational partners to use

analytical models that enhance their ability to make effective business decisions. Finally,

electronic data and application integration helps partners to integrate their information,

computing and communication systems by automating business tasks, such as electronic

tracking systems and work-flow systems, across the boundaries of the firm.

The resource-based view (Barney, 2001) suggests that IT can influence the ability of firm

processes to generate competitive advantages. First, if a firm possesses valuable, rare, and
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costly to imitate IT resources, the use of these resources can generate process-level

competitive advantages. As such, the use of IT can create a distinct advantage and thus

explain variation in performance. Second, even if a firm’s IT resources are not a source of

distinctive advantage, they can be used to realize the full competitive potential of non-IT

resources that are valuable, rare, and costly to imitate. In this situation, IT enables a firm to

gain a competitive advantage. This is consistent with Amit and Schoemaker’s (1993) notion

of complementary relationships, which specifies that the impact of IT use depends on its

synergistic relationship to other non-IT resources (Jeffers et al., 2008). This complementary

nature also finds support in the business process engineering literature that advocates that

adopting a process view of the business is a useful way to understand the relationship

between IT and the way business is conducted (Muylle and Basu, 2008). Thus, to better

understand the interrelationships between IT and supply chain processes, companies need to

account for the fundamental processes it supports. Consistent with this perspective, Vickery

et al. (2010) analyze an interactive relationship of IT and supply chain management. Thus, in

this study, an interactive relationship between the effect of information exchange, operational

integration, and the use of IT, is assumed. This implies that the effect of one resource (i.e.,

the impact of information exchange on operational integration) depends on the levels of other

resources (i.e., the use of IT). Moreover, the interactive relationships between IT use and

11
 information exchange can be synergistic, such that one resource magnifies the impact of

another, multiplying the common effect. Assuming these synergistic effects represents a more

appropriate way of linking supply chain integration to operational performance because it

takes the interrelationships among supply chain integration tactics into account and allows for

the considerations of the role of IT use for specific relationship tactics (i.e., information

exchange and operational integration). With this reasoning, a moderated mediation effect, as

defined by Edwards et al. (2007), is hypothesized:

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H2. IT use of the focal firm with upstream and downstream partners positively moderates the

mediated relationship of operational integration between information exchange and (a) cost-

efficiency, (b) delivery performance, and (c) process flexibility in the first- and the second

stage.

4. Research method

4.1. Sample

To test the hypotheses, data from the fifth edition of the International Manufacturing Strategy

Survey was used. These data were collected by a global network of researchers. The data

collection project, originally launched in 1992 by the London Business School and Chalmers

University of Technology, evaluates manufacturing and supply chain strategies within the

assembly industry (ISIC 28–35) by simultaneously administering a detailed questionnaire in

many countries through local research groups. The basic structure of the questionnaire has

remained similar over time, so that the latest editions contain robust core constructs. The

questionnaire is partially redesigned for each edition by an international team to ensure its

alignment with the most recent research goals. This update is carried out by a design team

comprising a pool of international researchers and thus avoids researcher country biases. For

more information, see www.manufacturingstrategy.net or Golini et al. (2014).

12
 The target respondent is a plant, production, or operations manager. Every research group

performed pilot tests of the survey with managers and ran statistical tests for late and non-

respondents to ensure the validity of the questionnaire and eliminate sample bias. In gathering

data, partners followed the same procedure. Finally, responses are gathered in a single global

database, with a response rate of 16.3%. From the original sample, cases that did not provide

descriptive information and those with too many missing variables were dropped, resulting in

a sample set of 563 companies. We performed Little’s missing completely at random test

(1988) and failed to reject the hypothesis that the absent data are missing at random. To
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continue, we replaced the missing variables with estimates, by using the expectation-

maximization (EM) technique. We also performed a bias analysis between the selected and

the excluded companies and found no significant differences. Table 1 shows the distribution

of the sample in terms of country, industry, and size.

Insert Table 1 about here

4.2. Measures

4.2.1. Variables for hypothesis testing

Information exchange and operational integration of the focal firm with both key suppliers

and key customers were measured. Two similar sets of questions on integration tactics were

developed to ask respondents about the extent to which the focal firm is involved in these

supply chain integration tactics, with key suppliers and key customers respectively, on 5-

point Likert scales, which can be treated as quasi-ratio scales. These scales were adapted

from previous scales from Frohlich and Westbrook (2001) and Vereecke and Muylle (2006).

IT use measures the extent to which companies employ IT to support supply chain

relationships with key suppliers and key customers according to the processes described by

Muylle and Basu (2008), i.e., trade (e.g. Request for Information, Proposal or Quotation, e-

13
 scouting), decision support (e.g., e-data analysis) and data and application integration (e.g.,

order management, tracking and contract management),

The dependent variables measure three dimensions of operational performance, i.e. cost-

efficiency, process flexibility, and delivery performance (Wiengarten et al., 2014).

Respondents were asked to address multiple items for each dimension indicating performance

improvement during the last three years on a 5-point Likert scale. All items appear in Table 2.

Insert Table 2 about here

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4.2.2. Control variables

To control for potentially confounding effects, several other variables were included in the

regression analyses. First, plant size, measured by the total number of plant employees (Ettlie

et al., 1984), was added to control for organizational size. To correct for the skewness of the

data, the natural log of the total number of employees was used. Second, industry effects

were controlled for, as managers might have different expectations of the benefits of

collaborative structures across industries. Towards that end, dummy variables for the

different ISIC industry codes were included.

4.2.3. Reliability and validity

CFA in EQS 6.1 was used to assess the quality of the measures and constructs. A CFA was

performed on the entire model for both the supplier and customer side, including all the

multi-item constructs. The fit indices indicate that the data fit the model: χ² = 440.031 with

155 df, CFI = 0.931, and RMSEA = 0.057 (90% confidence interval [.051, .063]) for the

supplier side, and χ² = 443.981 with 155 df, CFI = 0.931, and RMSEA = 0.058 (90%

confidence interval [.051, .064]) for the customer side. As these measures exceed the

recommended threshold values (Bollen, 1989), the measurement model is deemed acceptable.

Coefficient alpha (α) values for each construct exceed the recommended threshold value of

14
 0.70 (Nunnally, 1978), confirming the reliability of the constructs. Factor loadings were

significant at the 0.001 level. Overall, the evidence supports the convergent validity of the

measurement model.

The average variance extracted (AVE) (Fornell and Larcker, 1981) was used to assess the

discriminant validity of the constructs. All AVEs were higher than 0.4 (Hair et al., 2006).

Because the AVE was greater than the square of correlation between the construct and the

other constructs, the measurement model has adequate discriminant validity. Table 2 shows
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the measurement items, reliability, and factor loading results. Table 3 provides the construct-

level inter-correlation matrix. In addition, a CFA was conducted using a constrained model

with every possible pair of latent constructs and the correlations between the paired

constructs set to 1.0. These results were compared with the original model, and the chi-square

differences indicate discriminant validity (Flynn et al., 2010).

To limit common method bias, the independent and dependent variables appeared in different

sections of the questionnaire. To further evaluate the extent to which common method bias

influences the empirical results, the single method factor approach that Podsakoff et al.

(2003) advocate was used. This model showed low fit with the data (CFI = 0.362 for the

supplier data; CFI = 0.414 for the customer data). In addition, most of the method factor

loadings were not significant. In summary, these results indicate that common method bias is

not a major concern in this study.

Insert Table 3 about here

5. Analyses

To analyze the conceptual model, an analytical framework that combines moderation and

mediation was used, as Edwards and Lambert (2007) suggest. This framework overcomes

some of the problems with other frameworks (e.g., Baron and Kenny, 1986) or a sub-group

15
 analysis (for a discussion, see Malhotra et al., 2014; Rungtusanatham et al., 2014). These

problems might include not being able to reveal which paths related to the constructs vary as

a function of Z, failing to reach significance when paths comprise significant countervailing

effects, not directly testing the mediated effect, yielding biased parameter estimates, reducing

statistical power, and not being able to rule out the possibility that the moderator exerts

moderating effects of opposite sign on the direct and indirect effects relating X to Y. Edwards

and Lambert’s (2007) framework, which relies on reduced-form equations (Johnson, 1984)

and bootstrapping, integrates moderated regression analysis and path analysis and expresses
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mediation in terms of direct, indirect, and total effects. Moreover, this moderated mediation

framework as presented in Fig. 1 overcomes problems with the approaches of combining

mediation and moderation as described previously.

Following Edwards and Lambert’s (2007) suggestions, the total effect moderation model was

analyzed by estimating Eqs. 1, 2 and 3. Eqs. 3 is the reduced form of the final total effect

moderation model, obtained by substituting Eqs. 1 into Eqs. 2 and by rewriting it in terms of

simple paths:

(1) M = a0 + ax X + az Z + axz XZ + em.

(2) Y = b0 + bsS + ∑ biiIi + bx X + bm M + bz Z + bxz XZ + bmz MZ + ey,

(3) Y = [b0 + bsS + ∑ biiIi + bz Z + (a0+ az Z)(bm + bmz Z)] + [(bx+bxz Z) + (ax + axz Z)

(bm + bmz Z)] X + ey + bm em + bmz Z em.

where X = information exchange; Y = operational performance, with Ya = cost-efficiency, Yb

= delivery, and Yc = process flexibility; Z = IT use; M = operational integration; S =

log(size); and Ii = industry (with i = ISIC 28 to 35).

The regression module and the constrained non-linear regression (CNLR) module of SPSS 22

was used to estimate coefficients of the full and 1,000 bootstrap samples, respectively, for

both the customer and supplier sides. Individual coefficients from Eqs. 1 and 2 were tested

16
 using the standard errors reported by the regression module. In addition, the default loss

function of the CNLR module was used to produce ordinary least squares coefficient

estimates while minimizing the sum of the squared residuals. This CNLR module contains an

algorithm that draws bootstrap samples, estimates regression coefficients for each sample,

and writes the coefficients to an output file. Using these bootstrap coefficient estimates

generated by the CNLR module, bias-corrected confidence intervals for the indirect and total

effects were tested. These confidence intervals were constructed by opening the SPSS output

files and resaving them as Excel files. On the basis of Eq. 3, simple paths, indirect effects,
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and total effects at different levels of the moderator variable (i.e., one standard deviation

above and below the mean of IT use) were computed. These formulas were applied to

coefficient estimates from each bootstrap sample. In addition, for these 1,000 estimates

differences between each path and effect across levels of the moderator variable were

computed. From these estimates, the 2.5 and 97.5 percentiles of the paths were located to

establish the bounds of the 95% confidence interval. To obtain bias-corrected confidence

intervals, the bounds were adjusted with Stine’s (1989, p. 277) formulas. These confidence

intervals were used to test indirect effects, total effects, and differences in these effects across

levels of the moderator variables. The regression results are reported in Tables 4 and 5, and

the simple effects shown in Tables 6 and 7 for the supplier and customer sides, respectively.

Insert Tables 4, 5, 6 and 7 about here

6. Results

For the supplier side, coefficient estimates in Table 4 show that IT use moderated the path

from information exchange to operational integration (axz = 0.08, p < 0.01) and the paths from

operational integration to operational performance in terms of cost-efficiency (bmza = 0.09, p

< 0.01) and delivery (bmzb = 0.12, p < 0.01), but not process flexibility (bmzc = 0.02, n.s.). The

direct paths from information exchange to operational performance (bxza = –0.06, n.s.; bxzb =

17
 0.03, n.s.; bxzc = 0.01, n.s.) were not significant. Also the control variables were not

significant, with the exception of one dummy variable for industry on flexibility being

significant at the 0.05 level. The coefficients in Table 4 were used to compute simple effects,

which are reported in Table 6. For low IT use (i.e., one standard deviation below the mean), Z

= -0.947, such that the first stage of the indirect effect (ax + axzZ) equaled 0.47 (p < 0.01), and

the second stage of the indirect effects (bm + bmzZ) equaled 0.18 (p < 0.01) for cost-efficiency,

0.04 (n.s.) for delivery, and 0.13 (p < 0.05) for process flexibility. Finally, the direct effects

(bx + bxzZ) were not significant. The indirect effect for low IT use equaled the product of the
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first and second stages, or 0.09 (p < 0.01) for cost-efficiency, 0.02 (n.s.) for delivery, and

0.06 (n.s.) for process flexibility, and the total effect equaled the sum of the direct and

indirect effects and were all non-significant. For high IT use (i.e., one standard deviation

above the mean), Z = 0.947, such that the first stage of the indirect effect equaled 0.62 (p <

0.01), and the second stage equaled 0.35 (p < 0.01) for cost-efficiency, 0.26 (p < 0.01) for

delivery, and 0.17 (p < 0.01) for process flexibility. The direct effects were all non-

significant, while the indirect effects and the total effects were all significant (see Table 6). In

summary, H1a, H1b, and H1c are supported for the supplier side. In addition, the differences

in the effects for low and high IT use indicated that the first stage of the indirect effect is

stronger for high IT use (0.62 – 0.47 = 0.15, p < .01), but this difference was only partially

supported for second stage effects. More specifically, H2a and H2b are supported for the

supplier side, but H2c is not supported. In order words, the use of IT does moderate the

relationship between operational integration and cost-efficiency and delivery performance,

but not process flexibility.

Coefficient estimates in Table 5 show similar estimates for the customer side. The analyses

showed that IT use moderated the path from information exchange to operational integration

(axz = 0.14, p < 0.01) and the paths from operational integration to operational performance in

18
 terms of delivery (bmzb = 0.13, p < 0.05) and process flexibility (bmzc = 0.09, p < 0.05), but not

cost-efficiency (bmza = –0.01, n.s.). The paths from information exchange to operational

performance in terms of cost-efficiency (bxa = 0.08, n.s.), delivery (bxb = 0.02, n.s.) and

process flexibility (bxc = –0.05, n.s.) were not significant. The path coefficient for company

size was not significant. Most of the dummy variables for industry were not significant.

Again, the coefficients in Table 5 were used to compute simple effects, which are reported in

Table 7. For low IT use, Z = -0.862, such that the first stage of the indirect effect equaled

0.42 (p < 0.01), and the second stage of the indirect effects equaled 0.22 (p < 0.01) for cost-
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efficiency, –0.02 (n.s.) for delivery, and 0.03 (n.s.) for process flexibility. While the direct

effect is only significant for cost-efficiency (-0.18, p < 0.01) and not for delivery and process

flexibility; the indirect effect for low IT use equaled 0.09 (p < 0.01) for cost-efficiency, is

smaller than -0.01 (n.s.) for delivery, and 0.01 (n.s.) for process flexibility; and the total effect

were not significant. For high IT use, the first stage of the indirect effect equaled 0.66 (p <

0.01), and the second stage equaled 0.19 (p < 0.01), 0.20 (p < 0.01), and 0.17 (p < 0.01) for

cost-efficiency, delivery, and process flexibility, respectively. The direct effects were all not

significant, while both the indirect and total effects on cost-efficiency, delivery and process

flexibility, were significant. In conclusion, all these statistics provide support for the

mediating role of operational integration (i.e., H1a, H1b, and H1c) for customer-side

integration. While the difference between high and low IT use is significant for the first stage

of the indirect effect (0.66 – 0.42 = 0.25, p < 0.01) and for the second stage of the indirect

effect of operational integration on delivery performance (0.22, p < 0.01), it is not

significantly different for process flexibility (0.14, n.s.) and cost-efficiency (–0.03, n.s.),

indicating that IT use only moderates the effect on delivery.

Overall, support for the moderated mediation model is found. The results provide support for

H1a, H1b, and H1c; that is, operational integration mediates the relationship between

19
 information exchange and operational performance for both customer and supplier

integration. However, differences in the moderating effect of IT use on the relationship

between operational integration and operational performance for the supplier and customer

side are found, supporting H2b, partly H2a, but not H2c. While the use of IT in supplier

integration strengthens the effect of operational integration on cost efficiency and delivery

performance, it does not help to improve flexibility. For customer integration, IT use only

strengthens the impact of operational integration on delivery performance.

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7. Discussion

This study extends prior research on supply chain integration. Although the importance of

supply chain integration is largely unquestioned, prior research does not take into account the

interrelationships and complexities among supply chain integration tactics (Van der Vaart

and Van Donk, 2008) to understand their impact on operational performance. Nor does

previous research differentiate between integration benefits for the upstream versus

downstream partners in the relationship. As such, this research adds rigor and relevance to the

study of supply chain integration by using an analytical framework to test for moderated

mediation, which allows for an evaluation of the role of IT use in these complex

interrelationships, and the differentiation between supplier and customer benefits.

From a review of the literature, operational integration was hypothesized to mediate the

relationship between information exchange and operational performance in terms of cost-

efficiency, delivery, and flexibility. The results of the analyses lend support to these

hypotheses, for both supplier and customer integration. In particular, this study shows that

information exchange is not enough to create operational benefits and that information

exchange and operational integration build on each other to create operational benefits. This

finding is in line with Vereecke and Muylle (2006), who argue that many supply chains are

un-orchestrated and lack coordination in their supply chain integration initiatives. To improve

20
 this supply chain orchestration, they suggest that firms should go beyond mere information

exchange and embark on operational integration. In addition, Kulp et al. (2004) suggest that

information exchange is necessary to obtain above-average profit margins but cannot be an

order winner. To gain a competitive advantage, this study suggest that companies can benefit

from engaging in integration tactics such as operational integration, which leverages the

exchanged information for pursuing supply chain management initiatives. In summary, this

study suggests that operational integration plays an important role in governing the

relationship between information exchange and operational performance. This complies with
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Holweg and Pil (2008, p. 404) and Kembro et al. (2014) who state that “information and

capabilities provided by multiple tiers in the supply chain must be used in an integral fashion

as otherwise system-wide performance does not follow”. This offers a potential explanation

for why prior studies (e.g., Leuschner et al., 2013) did not find support for the positive impact

of some integration tactics such as operational integration on performance.

Frohlich and Westbrook (2001) and Schoenherr and Swink (2012) developed a ‘theory of

integration’ that confirms that firms significantly benefit from interconnecting with supply

chain partners. While their studies showed that integration of the focal firm with supply chain

partners creates operational benefits, this study adds that the benefits for the focal firm are

stronger for integration initiatives with upstream partners than with downstream partners.

This is in line with Kembro and Näslund (2014) who state that the effect of information

exchange on performance depends on the position of the company in the supply chain. More

specifically, this study found that the use of IT for integration with suppliers has a stronger

impact on operational performance than for integration with customers. While IT use for

operational supplier integration impacts the cost-efficiency and delivery performance for the

buyer, operational customer integration positively impacts the delivery performance, but does

not help to reduce the costs for the focal company. Although this proposition was tested in

21
 the context of a focal firm implementing integration tactics with suppliers and customers,

similar indications are available in research that examines dyadic buyer–supplier interactions.

For example, Cheung et al. (2011) find that buyers benefit more from information exchange

than suppliers. A possible explanation for these larger benefits is that it is far more difficult

for the focal firm to convince customers to comply with the use of its information

technologies and systems than suppliers, which have a vested interest because they want to

keep the business. Consequently, supply chain executives at the focal firm might receive less

support from senior management to invest in customer integration than in supplier

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integration. The evolution of buyers requesting suppliers to comply with IT systems can be

observed in the overall evolution of IT adoption in the extended supply chain. While

purchasing departments of large retailers first requested key suppliers to invest in and comply

with their IT systems to improve operational performance, many of these suppliers in turn

requested their suppliers to comply with their IT systems. Wal-Mart, for example, requested

its top-100 suppliers to link to its IT systems, creating operational performance improvements

for Wal-Mart (Traub, 2012). Once the benefits for Wal-Mart became obvious, these suppliers

posted similar requests to their upstream partners in the supply chain. Procter & Gamble, for

example, a top supplier of Wal-Mart, in turn requested its key suppliers to link to its inter-

organizational IT systems.

While Schoenherr and Swink (2012) showed that external supply chain integration

significantly improves delivery and flexibility, but not quality and costs, this study offers

refinements by clearly distinguishing between up- and downstream integration tactics. The

study results indicate that operational integration with suppliers reduces costs and improves

delivery performance, while operational integration with customers does not improve cost

efficiency, but only delivery performance. As explained before, downstream partners often

take the initiative for integration activities and request their upstream partners to invest in

22
 assets or to take over certain tasks in the supply chain, which creates larger investment costs

for the upstream partners. Although in the long run these costs can be compensated by the

buyer’s willingness to purchase larger volumes, to set up new additional contracts, and/or to

pay extra for the services delivered, the benefits for the buyer seem to be larger in the short

and medium term. Conversely, the study results show that delivery performance improves

both for supplier and customer integration. Because information exchange that is supported

by solid procedures to share and analyze the data throughout the supply chain reduces the

bullwhip effect in the supply chain (Lee and Billington, 1992), these initiatives result in
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optimized planning and eventually improve delivery performance throughout the supply

chain. While this study also supports the notion that integration initiatives positively impact

process flexibility, the use of IT for supply chain integration does not strengthen this impact

of operational integration on process flexibility. As such, the results of this study seem to

suggest that the use of IT in inter-organizational tactics increases speed and accuracy in the

supply chain, but not necessarily the agility of the supply chain processes.

8. Managerial implications

Although recent literature on cloud computing describes solutions for integration in the

extended supply chain (e.g., Wu et al., 2013), many companies still seem to be struggling to

understand the benefits of integration activities with key suppliers or customers. This study

assists managers in setting expectations for the organization's supply chain integration

initiatives and reveals the benefits that can be expected from investing time and resources in

specific combinations of integration tactics. A key managerial insight from this study is that

investing in supplier integration will potentially bring more operational performance benefits

than investing in customer integration.

Another important managerial implication of this research is that it can assist managers in

setting priorities. Depending on the focal area of improvement (i.e., costs, flexibility or

23
 quality), this study can guide managers in their choice of appropriate integration tactics.

When the focus is on cost improvements, based on this research, managers will benefit more

from pursuing upstream, rather than downstream, operational integration tactics. When the

focus is on delivery performance, however, managers will benefit from investing in both

supplier and customer integration.

Another managerial implication from this study is that it can help managers understand the

sequence of investment in integration. By revealing that without information exchange no

positive payoff is to be expected from operational integration, this research strongly suggests
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that organizations should first invest in information exchange before turning to operational

integration and that they can expect the strongest operational performance when they have

invested in both information exchange and operational integration tactics.

Finally, this study also offers important managerial insight on the role of IT use, i.e., as an

enabler for operational integration activities, in supply chain integration. Without IT systems,

it is more difficult to create an information platform that enables the coordination of supply

chain decisions among partners (Gunasekaran and Ngai, 2004). The study results show that

IT-supported supply chain integration, upstream and downstream, increases performance. If

this integration cascades through the chain, it can result, in the long run, in higher profit

margins for the partners in the chain. Collectively, these findings create additional insights

for managers and can serve as a starting point for discussing the distribution of supply chain

gains between supply chain partners.

9. Limitations and future research

The limitations of this study should be considered along with the results. As noted previously,

this study focuses on operational integration processes at the company level, instead of more

strategic activities enacted at the business-unit level, such as product development initiatives.

These differences should be considered when the results are compared with prior research.

24
 This study addresses a limited set of operational performance measures. However, there are

other reasons, beyond smoothing the product flow, for embarking on integration activities.

Collaborative product design, for example, might provoke the entire supply chain to be more

responsive to market changes (Kahn et al., 2006). Future studies might examine a broader set

of operational benefits (e.g., customer service or product innovation) and even go beyond

operational performance improvements (e.g., market and financial effectiveness, see

Mackelprang et al., 2014). While future studies might incorporate these other operational

performance measures, this study keeps with Rosenzweig et al. (2003) who showed that
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performance implications for supply chain integration must first be translated into operational

performance benefits.

Another avenue for future research might be to distinguish among different types of IT use

(e.g., da Silveira and Cagliano, 2006): While exchanging information among supply chain

partners requires data platforms, operational integration tactics will benefit from tools and

common procedures to analyze this data.

This study compared operational benefits for integration tactics upstream and downstream the

supply chain. Towards this end, data was obtained from one key respondent (i.e., the

operations director) about the focal firm’s activities. While the operations manager might not

be directly involved in these integration initiatives with partners, this research setup creates a

situation in which the respondent has a single reference point, which enables him or her to

compare integration upstream and downstream in the supply chain. Although this improved

the understanding of how integration with suppliers and customers differs, further research

designs might also involve other managers who are engaged in supply chain integration

tactics with suppliers and customers, and potentially consider buyer–supplier dyads, or the

position of the company in the supply chain, which will enable researchers to understand

25
 whether companies positioned more upstream in the supply chain benefit more from supply

chain integration.

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 FIGURES

IT use axz bmz IT use

Operational
integration
ax bm

Information bx Performance
exchange
bxz
IT use
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ax = coefficient estimate for information exchange on operational integration

bm = coefficient estimate for operational integration on operational performance
bx = coefficient estimate for information exchange on operational performance
axz = coeffient estimate for the interaction of information exchange and IT use on operational integration
bmz = coefficient estimate for the interaction of operational integration and IT use on operational performance
bxz = coefficient estimate for the interaction of information exchange and IT use on operational performance

Fig. 1. Total effect moderation model.

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 TABLES

Table 1
Descriptive statistics in terms of country, size, and industry.
Country N % Size N %
Belgium 20 3.6 Small 278 49.4
Brazil 30 5.3 Medium 112 19.9
Canada 12 2.1 Large 173 30.7
China 38 6.7 Total 563 100.0
Denmark 15 2.7
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Estonia 23 4.1 Industry (ISIC code)

Germany 32 5.7
Hungary 59 10.5 28 176 31.3
Ireland 4 0.7 29 170 30.2
Italy 47 8.3 30 12 2.1
Japan 18 3.2 31 73 13
Korea 38 6.7 32 33 5.9
Mexico 12 2.1 33 35 6.2
Netherlands 39 6.7 34 37 6.6
Portugal 8 1.4 35 27 4.8
Spain 33 5.9 Total 563 100.0
Switzerland 27 4.8
Taiwan 29 5.2
UK 16 2.8
USA 63 11.2
Total 563 100.0
Size: Small: fewer than 250 employees; Medium: between 251 and 500 employees;
Large: more than 500 employees.
ISIC code: 28: Manufacturer of fabricated metal products, except machinery
and equipment;
29: Manufacturer of machinery and equipment not classified elsewhere;
30: Manufacturer of office, accounting, and computing machinery;
31: Manufacturer of electrical machinery and apparatus not classified elsewhere;
32: Manufacturer of radio, television, and communication equipment and apparatus;
33: Manufacturer of medical, precision, and optical instruments, watches and clocks;
34: Manufacturer of motor vehicles, trailers, and semi-trailers;
35: Manufacturer of other transport equipment.

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 Table 2
CFA.
Factor loading Factor loading Alpha AVE
Supplier-side [S] Customer-side [C]
Information exchange (IS)
How do you coordinate planning decisions and flow of goods with your key/strategic suppliers and customers? (1=None; 5=High)
Share inventory level information 0.78 0.77 S = 0.74 S = 0.49
Share production planning and demand forecast information 0.74 0.81 C = 0.79 C = 0.56
Agreements on delivery frequency 0.56 0.66
Operational integration (OI)
How do you coordinate planning decisions and flow of goods with your key/strategic suppliers and customers? (1=None; 5=High)
VMI or consignment stock 0.71 0.73 S = 0.78 S = 0.47
CPFR 0.77 0.75 C = 0.81 C = 0.49
JIT replenishment (e.g., Kanban) 0.68 0.73
Physical integration with the same plant 0.56 0.60
Information technology (IT)
Indicate to what extent you use electronic tools with your key/strategic suppliers and customers for the following? (1=None; 5=High)
scouting/pre-qualify 0.50 0.50 S = 0.81 S = 0.42
RFx (request for quotation, proposal, information) 0.73 0.68 C = 0.76 C = 0.40
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Data analysis (audit and reporting) 0.80 0.61

order management and tracking 0.67 0.75
contract and document management 0.66 0.56
Operational performance
How has your operational performance changed over the last three years? (1= deteriorated more than 10%; 5= improved more than 50%)
Flexibility performance 0.79 0.56
Product customization ability 0.61 0.61
Volume flexibility 0.78 0.78
Mix flexibility 0.84 0.84
Delivery performance 0.79 0.67
Delivery speed 0.84 0.84
Delivery reliability 0.79 0.79
Cost performance 0.78 0.55
Unit manufacturing cost 0.78 0.78
Procurement cost 0.77 0.77
Manufacturing overhead cost 0.67 0.67

Table 3
Correlation matrix.
F1 F2 F3 F4 F5 F6
Information exchange (F1) 1 0.57** 0.33** 0.12** 0.14** 0.10*
Operational integration (F2) 0.63** 1 0.29** 0.30** 0.21** 0.18**
IT use (F3) 0.30** 0.32** 1 0.09* 0.13** 0.07
Cost-efficiency (F4) 0.07 0.14** 0.17** 1 0.51** 0.51**
Delivery performance (F5) 0.22** 0.18** 0.18** 0.51** 1 0.59**
Flexibility performance (F6) 0.13** 0.22** 0.13** 0.51** 0.59** 1
Above the diagonal, the correlations of the constructs for the supplier side are show n. Below the diagonal, the
correlations of the customer side are show n. (* p < .05 and ** p < .01)

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Table 4
Coefficient estimates for equation (1) and (2) for the supplier-side.
Operational integration (M)Cost performance (Ya)Delivery performance (Yb)
Flexibility performance (Yc)
log (size) (s) (<0.01) (0.09) (0.02)
industry ISIC code 29 (0.03) (0.01) 0.15
industry ISIC code 30 0.07 (0.16) 0.11
industry ISIC code 31 0.01 (0.32) (0.12)
industry ISIC code 32 0.19 (0.12) 0.14
industry ISIC code 33 0.19 (0.01) 0.41*
industry ISIC code 34 0.03 0.02 0.11
industry ISIC code 35 (0.04) (0.01) 0.12
information exchange (x) 0.54** (0.06) 0.03 0.01
operational integration (m) 0.26** 0.15** 0.15**
IT use (z) 0.12** 0.02 0.08** 0.02
information exchange x IT use (xz) 0.08** 0.02 0.04 0.09*
operational integration x IT use (mz) 0.09** 0.12** 0.02
R² 0.35** 0.12** 0.08** 0.04**
The first column shows the unstandardized coefficient estimates from equation 1, while column 2 to 4 shows the unstandardized coefficient
estimates from equation 2, for cost, delivery and flexibility performance respectively.
*p < .05, ** p < .01.

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Table 5
Coefficient estimates for equation (1) and (2) for the customer-side.
Operational integration (M) Cost performance (Ya) Delivery performance (Yb) Flexibility performance (Yc)
log (size) (s) <0.01 (0.08) (0.02)
industry ISIC code 29 0.14* (0.12) (0.02)
industry ISIC code 30 <0.01 (0.32) (0.27)
industry ISIC code 31 0.26** (0.06) 0.03
industry ISIC code 32 0.26* 0.02 0.29*
industry ISIC code 33 0.12 0.06 (0.01)
industry ISIC code 34 0.06 0.07 0.03
industry ISIC code 35 0.09 0.03 (0.15)
information exchange (x) 0.54** 0.08 0.02 (0.05)
operational integration (m) 0.20** 0.09 0.10*
IT use (z) 0.17** 0.08* 0.17** 0.13**
information exchange x IT use (xz) 0.14** 0.10* 0.09 0.07
operational integration x IT use (mz) (0.01) 0.13* 0.09*
R² 0.44** 0.09** 0.10** 0.07**
The first column shows the unstandardized coefficient estimates from equation 1, while column 2 to 4 shows the unstandardized coefficient
estimates from equation 2, for cost, delivery and flexibility performance respectively.
*p < .05, ** p < .01.

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 Table 6
Analysis of simple effects fo
Stag
First
Dependent variable = Cost
Moderator = IT use
Low 0.47**
High 0.62**
Difference 0.15**
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Dependent variable = Deliv

Moderator = IT use
Low 0.47**
High 0.62**
Difference 0.15**
Table 7
Analysis of simple effects for the customer-side. Dependent variable = Flexi
Stage Effect Moderator = IT use
First Second Direct Indirect Total Low 0.47**
Dependent variable = Cost (a) High 0.62**
Moderator = IT use Difference 0.15**
Low 0.42** 0.22** (0.18)** 0.09** (0.09) For rows labeled low and hi
High 0.66** 0.19** <0.01 0.12** 0.13* from equation 3 using coeff
Difference 0.25** (0.03) 0.18 0.03 0.22** the control variables in this
and Z= 0.947 for high IT use
Dependent variable = Delivery (b) below the mean of the IT us
Moderator = IT use The difference in simple eff
Low 0.42** (0.02) (0.06) (<0.01) (0.08) effects for high IT use from
High 0.66** 0.20** 0.11 0.13** 0.24** for the first stage, second st
Difference 0.25** 0.22** 0.17** 0.14** 0.18** axz, bmz, and bxz, respectively
the indirect and total effect
Dependent variable = Flexibility (c) derived from bootstrap esti
Moderator = IT use
Low 0.42** 0.03 (0.11) 0.01 (0.10)
High 0.66** 0.17** 0.02 0.11** 0.13*
Difference 0.25** 0.14 0.13 0.10* 0.23**
For rows labeled low and high, table entries are simple effects computed
from equation 3 using coefficient estimates from Table 1. (we did not include
the control variables in this table). Z=-0.862 for low IT use with customers
and Z= 0.862 for high IT use with customers (i.e. one standard deviation above
below the mean of the IT use variable).
The difference in simple effects were computed by substracting the
effects for high IT use from the effects for low IT use. Test of differences
for the first stage, second stage, and direct effect are equivalent to tests of 40
axz, bmz, and bxz, respectively, as reported in Table 1. Test of differences from
the indirect and total effect were based on bias-corrected confidence intervals
derived from bootstrap estimates. *p < .05 **p < .01.
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