Developing Angles of Integration: On the Alignment of Internet-Based Information Technology and Supply Chain Integration1

Introduction

In the past decades, supply chain management has evolved as one major discipline in Operations Management, and today it plays a significant role in the competitiveness of industrial companies (e.g. Flynn et al. in press; Swink et al. 2007; Frohlich & Westbrook 2002). Great potential, including benefits like lower stocks and shorter cycle times, can be realized by implementing supply chain management practices (Fisher 1997; Lee et al. 1997). In the production and operations management literature, IT is often mentioned as a key enabler of successful supply chain management implementation (e.g. Sanders 2007; Frohlich & Westbrook 2002; Devaraj et al. 2007; Bowersox et al. 2005, Cachon & Fisher 2000).

In a dynamic environment, many companies struggle with uncertainty. Often, companies respond with high inventories to buffer themselves against demand volatility. Furthermore, they try to cope with uncertainty by improving the accuracy of their forecasts. The critical point is that inventories raise costs and forecasts are almost always wrong (Suri 1998; Stalk & Hout 1990). Cooperation of companies can be regarded as one reasonable approach in order to cope with the challenges of a dynamic and complex environment acting conjointly on the consequences of intensive competitiveness. One way to realize cooperation is through supply chain integration. With supply chain integration companies strive for improving the competitive performance of the underlying supply chain structure by coordinating mutual processes. Accordingly, supply chain integration can be defined as the process leading to better cross-company collaboration for improving the flow of material and information. This process perspective is also supported by Swink et al. (2007), who state that integration should be seen as a process, rather than an outcome. It can be interpreted as a possible way towards effective supply chain management, since it helps companies to create strategic and sound supply chain relationships. By engaging in supply chain integration, companies will benefit from coordinated processes, due to strategic alignment of the upstream and downstream partners being integrated, i.e. customers or suppliers.

One key aspect of successful supply chain integration is information transfer within a supply chain. Information can be regarded as an effective remedy, for example against the bullwhip effect (Lee et al. 1997), since it makes supply chains more responsive and efficient by getting uncertainty under control. One way to realize supply chain integration is through implementation of mutual IT systems.

IT helps to cope with uncertainty by transferring information quickly through the supply chain improving the availability and accuracy of information for better decision-making. The development of Internet-based applications allows a higher degree of inter-organizational communication, thus improving the flow of information creating a seamless integration of entities in a supply chain (Devaraj et al 2007; Sanders 2007). Internet-based applications foster supply chain integration by enhancing the efficiency of information transfer, the timeliness of information availability, and the openness and transparency of relevant business information (Cagliano et al. 2003). In turn, Handfield and Nichols (1999) point out that, without a foundation of effective supply chain relationships, any efforts to manage the flow of information across the supply chain are likely to be unsuccessful.

Yet, despite the fact that supply chain management and IT are commonly accepted as critical enablers of successful production and operations management, there is still a lack of research concerning the use of IT in supply chains, especially in terms of the adoption of Internet-based applications in a strategic context (Cagliano et al. 2003). It seems that, with the importance of IT to supply chain relationships, the alignment of supply chain strategy and IT strategy is a critical issue for successful supply chain development.