Dissertation Chapter 2 Sample Literature Review

Research on Haier’s supply chain integration: focus on household appliances products

Chapter 2: Literature review

2.1 Introduction

The aim of this chapter is to critically explore various literatures authored by different researchers in relation to supply chain integration. More specifically, the chapter firstly seeks to define and explore various forms of supply chain integration. Secondly, the chapter explores various literatures on impact of supply chain integration on the overall organisation performance. Thereafter, various literatures on aspects of effective supply chain integration are explores. The chapter concludes by a summary of key findings of various literatures reviewed.

2.2 Supply chain integration

2.2.1 Definition of supply chain integration

According to Prajogo and Olhager (2012), supply chain integration is the coordination and alignment in the in the supply chain achieved through usage of management information system. The process therefore, involves integrating all parties involved in the supply chain including purchasers of raw materials, manufacturing, and warehousing and delivery to the consumer. Christopher (2016) gave a similar definition by stating that supply chain integration is process that allows improvement in the supply chain by integrating both internal and external participants in the chain through sharing of information. In line with Prajogo and Olhager (2012) and Christopher (2016) arguments, Stadtler (2015) defined supply chain integration as the integration of both downstream consumers, upstream suppliers and internal functions in the supply chain with an aim of effectively transferring products, services, capital and information to maximally increase the value to the consumers at shortest time possible. From the definitions, supply chain integration is concerned with improving supply chain management performance as well as adding value to the process thorough integration of internal functions, consumers and suppliers as sharing of information to make informed decisions in the organisation. This is also emphasised by Oliva and Watson (2011) argument that, the basis of supply chain integration is characterised by information sharing, cooperation, partnership and fundamental shift to management of integrated chain of various processes from individual supply chain process.

Notwithstanding the eclectic elucidations developed through a wide range of previous studies, many authors have explicated that there are no agreed conceptualisations or definitions of supply chain integration and collaboration. Consequently, as Huo (2012) puts it, this lack of clarity as well as consensus has to a considerable extent hindered the progress of research and practice in supply chain.  Many positivist schools of thoughts have substantially informed a wide range of conceptual frameworks that have been proposed in literature, and most of the research efforts have predominantly put emphasis on structural integration. Waters and Rinsler (2014) have noted that the supply chain integration is mostly interpreted as the means of achieving this structural integration.  Taking this into consideration, Näslund and Hulthen (2012) have explained that the terms integration and collaboration in supply chain have been used interchangeably since time immemorial.  Moreover, as asserted by Bode et al. (2011), these terms have been interpreted with terminology related to structural as well as information-oriented interfacing of the processes of supply chain.  As such, it has appeared that there have been not widely accepted conceptual or theoretical foundations to inform the efforts of supply chain integration and collaboration. This, as demystified by Cao and Zhang (2011), implies that collaboration and integration in supply chain usually means the same thing. Nonetheless, a recent contribution by Monczka et al. (2015) has emphasised a more encompassing approach of collaboration, incorporating various soft aspects such as incentive alignment, decision synchronisation, as well as goal congruence.  This is in addition to the traditional hard aspects of information sharing and resources. The major issue has however been that the vast majority of past studies have not been able to adequately address the underpinning behavioural aspects of supply chain integration and collaboration independently.  Taking this into consideration, using the terms interchangeably has been widely accepted by various scholars from different schools of thoughts.

2.2.2 The composition of the supply chain integration

As elucidated by Prajogo and Olhager (2012), there are various components of supply chain integration.  Taking this into consideration Tse and Tan (2011) has indicated that the main components of supply chain integration include customer integration, supplier integration, internal integration, and external integration.  Nonetheless, many past studies have focused on customer integration, supplier integration, and the internal integration, and discarded the external integration. For instance, Näslund and Hulthen (2012) have articulated that most of the supply chain processes within an organisation are usually influenced by the buyers, suppliers, as well as the internal processes of an organisation. As such, Zairi (2012) have emphasised that despite the fact that external integration is one of the components of supply chain integration, its impact in the supply chain process is usually insignificant.  Citing example, Waters and Rinsler (2014) have explained that one component of external supply chain integration is inter-firm collaboration supply chain. However, inter firm collaboration is usually not common in most of the organisations. Thus, Cao and Zhang (2011) have explained that it does not affect the supply chain management in most of the organisations. Therefore, as noted by Bode et al. (2011), most previous studies have considered focusing on the three major components of supply chain management; customer integration, supplier integration and internal integration.

2.2.2.1 Customer integration

Wong, Boon-Itt and Wong (2011) defined customer integration as the collaborative involvement of the customers through strategic sharing of information and the demands and product performance in satisfying their needs. The collaboration and involvement of the customers in the supply chain is an important factor that influences overall innovation capacity and competitiveness of the organisation in the market (Danese and Romano, 2011). According to Yu et al. (2013), the ways companies are relating with customers have changed considerably given that most of companies are mostly focusing on strategic and reliable consumers as they seek more opportunities in new markets. This argument is also supported by Wong, Boon-Itt and Wong (2011) who noted that the main drives of customer integration are information revolution, increased global competition and the need to respond emerging new types of inter-organisational relationships in the supply chain. Huo (2012) noted that customer exerts considerable pressure on the company supply chain strategies due to the volatility in their purchasing behaviours, taste and preferences and thus impacting the overall performance of the company.

 

2.2.2.2 Suppliers’ integration

Prajogo and Olhager (2012) defined supplier integration as the coordination between the manufacturers and suppliers in the management of inventory, planning, replenishment and forecasting of the physical resources in the supply chain. The main goal of the collaboration between the two as noted by Monczka et al. (2015) is to effectively transfer the products and share information that is likely to improve the performance of the supply chain. According to Tse and Tan (2011) through supplier integration both supplier and organisation are able to understand and forecast the availability of various resources thus enabling them to be more flexibility in responding to different market conditions including delivery plans and stock levels agility. This is made possible because supplier integration involve collecting important information from suppliers and integrating it with existing information to remove bottlenecks in the supply chain (Gabrielli, Baghi and Codeluppi, 2013). Also according to Tse and Tan (2011), perceptions on the internal value chain, high quality productions requires high quality supplies and therefore through supplier integration an organisation achieves high product quality and reliability in the market.

2.2.2.3 Internal integration

According to Monczka et al. (2015), internal integration refers to cross-functional responsibility and collaboration of various activities including procurement, product design, production, marketing and distribution with an aim of satisfying consumer need at lowest cost possible. Through internal integration the barriers are broken down and sharing of essential capabilities in the organisation is made possible through effective and prompt communications. The integration of various activities allows seamless functioning of various related activities in the supply chain which in turn improves its performance (Wolf, 2011).

2.3 Concept of organisation performance

According to Austin (2013), organisation performance is comprised of actual output measured against the intended output. This as emphasised by Zairi (2012) is evaluated by setting a certain targets and timelines to ensure the desired efficiency and effectiveness are achieved. Mathur et al. (2013) defined it as ability of an organisation to exploit its environment to achieve its objectives using minimum resources. In line with this Monczka et al. (2015) defined organisational performance as multiple activities that establishes the goals to be achieved, monitoring of the progress in the achievement of the desired objectives. The performances are based on the achievement in three specific areas of financial performance, return on shareholders’ investment and performance of product in the market. This is different from previous times when organisation’s performance focused mainly on the people, work and structures.  However in the recent times, the parameters of organisation performance have expanded to include the relationship building, information technology, leadership, customer service and social responsibility (Zairi, 2012).  The broad view of organisation performance as noted by Wolf (2011) has resulted to emphasis on all sector of the organisation that directly and indirectly influences various parameters used to determine organisation performance.

 

 

2.4 The influence of supply chain integration on organisation performance

2.4.1 The influence of customer integration on organisation performance

Various supply chain integration-related studies have clearly shown the impact of customer integration on the organisation overall performance in the market. According to Prajogo and Olhager (2012), customer integration is a concept that majorly aims to improve the performance of supply chain management performance and creation of improved value to the consumers. Cao and Zhang (2011) pointed that SCI improves SCM performance due to the ability of the organisation to optimally integrate the internal functions and external supply chain partners including customers and suppliers and as result improve its competitiveness. This observation is line with Ross (2013) argument that to obtain and sustain competitive advantages in the market organisation must restructure its strategies and collaborates or form mutual alliances with other partners based on mutual benefits. As such, cross-organisational and partnership integration of various supply chain operations should be prioritised to achieve efficient transfer of capital, information and services in decision making process thereby reducing the cost, time and at the same time offer maximum value to both consumers and suppliers in the chain (Prajogo and Olhager, 2012).

According to Christopher (2016), the need for organisations broaden their market reach in various part of the world translates to increased customer involvement in the supply chain by seeking their opinions and considering them in the decision making process. In line with this Ross (2013) observed that if company is performing well in the market it is most likely to be involving the end consumers in the decision making which can only be achieved through effective customer integration strategies. The importance of customer integration is also highlighted by Prajogo and Olhager (2012) who argued that a high degree of consumer involvement allows organisation to effectively respond to their need more flexibly thus reducing the chances of delays in supply and inventory shortage in the market which in turn improves the efficiency of the overall supply chain. In addition, by seeking the opinions of the end product consumers the management will be able to gain more in-depth knowledge and appreciate the consumer views which broaden their views on the improving the supply chain. Näslund and Hulthen (2012) supported this view by arguing that customer integration allows sharing of information that ensure organisation manufactures product that meets the consumer specifications thereby minimising variability while improving product reliability. Through customer integration, organisation gain a market competitive edge through generation of innovative ideas generated from market which in turn results to establishment of long term relationships, achievement of customer satisfaction and their customer loyalty.

However, according to Liu, Kasturiratne and Moizer (2012), although customer integration is vital in the success of the organisation, the frequency and quality of the information shared is what really matters. The quality of the information provides the management with leverage to make an informed decision that responds to the market demands. To achieve this may demand more investment in information sharing channels and assessment of reliability of the information share in the supply chain.

2.4.2 The influence of supplier integration on organisation performance

According to Gimenez, van der Vaart and Pieter (2012), high level of suppliers integration allow manufacturers to be flexible in responding the end consumer demand, reduce the lead-time thereby improving efficiency in the chain. In the study conducted by Sezhiyan, Page and Iskanius (2011) by having a supply integrated supply chain the management are more capable to developing market lead products based on market derived intelligences that allow them to develop products and service that exceed consumers expectations as well understanding the market opportunities to be exploited. Supply chain integrated organisation actively absorbs new innovation ideas from the supply chain partners that guide it developing innovative products and competencies that may not be available from within the enterprise workforce enabling it improve its performances (Yu et al., 2013). Prajogo and Olhager (2012) supported this argument by stating that to achieve a higher performance through competitive advantage, company must acquire unique capabilities from external supply chain partner to complement any lack inefficiency and lack of capacity form its own workforce. Estampe et al. (2013) added that SCI leverages on operational capabilities from the value chain participants and interactions to gain competiveness in the market. Sezhiyan, Page and Iskanius (2011) affirmed this by stating that integration in the supply chain generates economic benefits, promote cooperation and trust as well application and development of knowledge which in turn result to improvement in the organisational performance.

Through the integration process, suppliers consider themselves organisation partners with an increased feeling of shared responsibility, accountability continued success and expansion of the organisation (Tse and Tan, 2011). This feeling directly impact the long term performance of an organisation as a result of affirmed commitment to long term goal, honest communications and trust between the suppliers and organisation. Through effective information sharing, both supplier and the manufacturer are able make informed decision and achieve real time-transmission of necessary information required in supply chain (Hugos, 2011). This as pointed by Bode et al. (2011) allow organisation to achieve a well coordinated and reliable flow of required material from suppliers that helps the organisation build competitiveness from efficiency of supply delivery, flexibility in responding to prevailing market conditions and reduced cost.

However, despite the much benefits of supplier integration Hugos (2011) held a contrary view by stating the process of integrating suppliers in the supply chain may entail controlling the supplier processes which may hinder controls and check measures to ensure quality and reliability of the information in regard to the supply chain. This may in long run impact the overall performance of the organisation due to diverted attention. In addition, taking into consideration of Bode et al. (2011) view supplier integration in the supply chain requires much investment from the organisation in collecting the views and implementations as well performance review to evaluate the impact of the integration on the overall impact on organisation’s performance.

 

2.4.3 The influence of internal integration on organisation performance

In a research by Prahalad and Ramaswamy (2013) found that through internal supply chain integration organisation can leverage on various competitive capabilities of the firm in the supply chain, the management gain an insight on development of competitive products to quickly meet the demand of consumers which is a crucial strategy in gain market competiveness and improve firm performance in the market. This observation is consistent with Oh, Teo and Sambamurthy (2012) argument that customer and supplier integration allows accurate prediction of their demands in advance allowing the firm to respond to them faster thereby improving levels of customer satisfaction, loyalty and relationship which are vital in firm performance. According to Prajogo and Olhager (2012) through SCI firm establishes long term relationship that is beneficial to the long term positive performance. Similarly, Ross (2013) found that collaboration between suppliers and firm have a direct positive impact on firm competitive performances. Nevertheless, to fully achieve the benefits of SCI companies needs to pay attention to the characteristics, uniqueness and differences in the supply chain partners ((Sarkis and Lai, 2013). This will help in evaluating the major strengths and weaknesses to overcome major obstacles in achievement of se performance standards.

Carter and Liane Easton (2011) argued that internal integration culture in the organisation results to more innovative products and higher value to the partners in supply chain due to the ability to gain important intelligence ideas from different internal strengths and effectively harnessing their unique strengths. Fawcett et al. (2012) emphasised this by stating that internal integration instils a sense of interdependence in the company thereby giving the company have different approaches and techniques in solving various challenges in the supply chain due to the ability to complement lack of capacity in various partners in the supply chain. A study by Wisner, Tan and Leong (2014) pointed that internal integration is beneficial to the absorption capacity of external partners as well to the organisation’s internal coordination to enable external supply chain partners. For instance, as stated by Srivastava, Franklin and Martinette (2013) through internal integration companies gain capability to solve the problems arising from procurement process, product development and as such enhance its manufacturing capacity of the organisation. In line with these observations Zhu, Sarkis and Lai (2013) argued that for an enterprise to achieve sustainable competitive advantage in the market, internal integration allows harnessing and transforming internal assets into valuable element that enables creation of competitive products and services for consumers.

However, according to Carter and Liane Easton (2011) to achieve a seamless internal supply chain integration data flow from both the consumers and suppliers is a prerequisite to respond to the market demands while satisfying both suppliers and consumer demands. The increased competition and sophistication of the supply chain have made most of the organisation internal function to increasing become fragmented and mainly focus on their core activities posing a major challenge to internal integration efforts (Sarkis and Lai, 2013). In addition, the success of the integration is underpinned on the effective sharing of information, trust for information and logistical integration which faces a major challenges to large fragment organisations.

 

2.4 Effective conduct of supply chain integration

An effective supply chain integration with incorporating the three aspects to stream line the organisation supply activities by achieving logistic integration, gather important information in regard to supply chain as well establish long-term relationship

Christopher (2016) defined logistic integration as the specific operational and logistic practices that ensures a well coordinated activities of material flows from suppliers in the value chain. According to Prajogo and Olhager (2012), logistical integration entails a coordinated flow of materials and services from suppliers allowing the organisation to effectively run production process. The through logistic integration Stadtler (2015) observed that, a firm enjoys flexibility, reduced cost and quality deliveries reducing various challenges associated with value chain. The coordination between external supply chain parties and firm is expected to achieve seamless connections between them in such a way their differences become blurred.

According to Waters and Rinsler (2014), integrated logistics has a capability to allow firm adopt efficient production systems due to reliability of supplies and inventory reductions from warehouses. Arguments by Katunzi (2011), supported this by arguing that logistic integration allows the firm to enjoy various benefits including improved distribution system and service levels without necessary having physical facilities that are costly to install and operate. To achieve an effective logistic integration, the work of Waters and Rinsler (2014) identified various levels of integration. Firstly, the firm need to achieve internal integration among the cross-functional team within the firm by ensuring all departments and personnel in the value chain work seamlessly. Secondly, the firm needs to establish forward integration with customers in various markets. Establishing backward integration with suppliers is the third step to achieve an effective logistic integration. Finally, the management’s firm need to establish a complete forward and backward integration to achieve a well integrated supplier to customer relationship.

Prajogo and Olhager (2012) defined information integration as sharing of important information in the supply chain enabled by information technology. According to Wong, Lai and Cheng (2011), the main aim of information integration is to achieve a real-time transmission and processing of useful information while making decision concerned with supply chain. The study conducted by Koçoğlu et al. (2012) revealed that reliance and effective transmission and processing of information can result to reduced operational cost thorough maintenance of optimal inventories and eradication of stock shortages. However, to achieve this, the firm needs various logistic systems to ensure short lead time and efficient deliveries to consumers. In addition, according to Cao and Zhang (2011) the willingness to share information in the supply chain is the precedent of any successful information technology. Only organisation that are capable of establishing social aspects and technical aspects of information technology will realise the benefits of information integration in supply chain.

Cao and Zhang (2011) and Prajogo and Olhager (2012) pointed that in the aspect of information integration both information technology and information sharing play an integral role in improving overall performance of any firm. Firstly, IT enables any firm to enhance and expand its capability to handle huge volume and complex information. Secondly, through effective IT systems firms are able to offer real-time processing and transmission of relevant information regarding supply chain including inventory levels, production planning and delivery status. Thirdly, through IT firma are able to schedule and align various operations and thus enabling effective coordination and partnership among value chain parties. Based on this facts … argued that use of IT in supply chain is considerable importance to the improvement of overall performance of the firm. Additionally, Wisner et al. (2014) asserted this by arguing that IT system allows integration between partners in supply chain as well as key processes. On information sharing the quality, frequency and quantity as well the willingness to share the information determine the success or failure of integration process. In support of this Xu (2011) argued that the intensity of information sharing entails cooperation and information flow between the parties.

The relation between manufacturer and suppliers has considerably changed in the recent since most of the manufacturers are increasing focusing on their core activities and competences. This demands the need for a strategic supplier and consumers in the value chain (Ramanathan and Gunasekaran, 2014). According to Daugherty (2011), the firm derives more benefits by establishing long-term relationship with both parties rather than short term contracts. The supplier and consumers need to be considered as integral part of the manufacturer’s operations. This allows the manufacturer to enjoy low cost supplies, high quality supplies and reliability. In addition, through long term relationship more opportunities for collaboration arises including profit and risk sharing avenues (Gassenheimer, Sterling and Robicheaux, 2013).

2.5 Summary

This chapter has reviewed the key literatures in relation to supply chain integration and its impact on organisation overall performance. From literature supply chain integration is broadly classified into internal integration, customer and supplier integration based on the parties involved in the supply chain. On the impact to the organisation performances generation ideas, efficiency in transfer of resources and gathering of market intelligence have been identified as the drivers of positive market performance. In achieving an effective supply chain integration organisation needs to focus on logistic, information integration and establishment of long term relationship between the supply chain parties.

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