Measuring Internal Supply Chain Integration

Transcription

1 Measuring Internal Supply Chain Integration Chuda Basnet Department of Management Systems The University of Waikato Private Bag 3105 Hamilton, New Zealand 3216 Abstract Internal supply chain refers to the chain of activities within a company that concludes with providing a product to the customer. This process involves multiple functions within companies sales, production, and distribution. It is obvious that these functions need to be integrated in order to provide good customer service. However, there is no consensus yet on how integration is to be defined and measured. This paper presents research that was conducted with the goal of developing an instrument for the measurement of internal supply chain integration. Scale items were identified from current literature and the resulting survey instrument was sent out to a sample of New Zealand manufacturers. Statistical analysis was conducted to validate the instrument. We also identified three dimensions of integration labelled coordination, communication, and affective relationship. This paper makes a contribution towards developing a consensus in the understanding and measurement of the integration construct.

2 1. Introduction Internal supply chain refers to the chain of activities or functions (see Figure 1) within a company that concludes with providing a product to the customer. Integration of these functions involves holistic performance of activities across departmental boundaries. A wellintegrated internal supply chain should result in excellent customer service and company performance. Production Sales Distribution Figure 1. Internal supply chain integration While there is no dispute about the benefits of a well-integrated internal supply chain, there is little consensus on what constitutes integration and how to measure integration. Some authors have envisaged integration as coordination of functional activities, others view integration as communication. Instruments that researchers have employed to measure integration reflect their own definitions. In the research reported in this paper, we identified scale items to measure internal supply chain integration from existing research and used a survey to purify and validate the scale. We also identified three dimensions within the integration construct communication, coordination, and affective relationship. The contribution of this paper is the development of this scale for the measurement of integration, validating the instrument against a criterion, and the identification of the three dimensions of integration. To the best of our knowledge, this kind of investigation has not been done before in this area.

3 The next section presents a literature review, which is followed by a statement of research objective. Then we describe our research methodology. The statistical analysis of collected data is detailed next. In the final section, we discuss our findings and make some concluding comments. Unless indicated otherwise by the context, the word integration is used to mean internal supply chain integration throughout this paper. 2. Literature review The advent of the concept of supply chain management has put great emphasis on supply chain integration. It is generally accepted that supply chain integration evolves in stages (Stevens, 1989): Functional integration, whose focus is intra-functional, followed by Internal supply chain integration, whose focus is inter-functional, and External supply chain integration whose focus is inter-firm. Giménez (2004) supported this evolution in her exploratory study of supply chain integration. Stank et al., (2001b) also supported the link between internal and external integration. Even though the study of internal supply chain integration is new and not numerous (Giménez, 2004; Gimenez & Ventura, 2003; Pagell, 2004), there have been many earlier studies in the area of inter-functional integration particularly in the context of new product development and production-marketing interface (e.g. Calantone et al., 2002; Kahn, 1996; Kahn & Mentzer, 1996; Mollenkopf et al., 2000; Stank et al., 1999).

4 Most of the studies on internal integration have sought to determine the performance benefits of integration. Chen et al. (2007) found that marketing-logistics collaborative activities lead to firm-wide integration, which leads to performance. Ellinger (2000) investigated marketing logistics collaboration and posited that Evaluation and reward system, Crossfunctional collaboration, Effective inter-departmental relations and Distribution service performance were serially linked. This linkage was supported by a survey and regression analysis. Gimenez & Ventura (2003) tested the effect of internal integration and external integration on performance, using structural equations modelling and a survey. They found that both had positive effect on performance. Kahn & Mentzer (1998) sought to separately identify the benefits of communication and collaboration on performance in the context of marketing s integration with other departments. They found significant benefits for collaboration, but not for communication. O'Leary-Kelly & Flores (2002) studied the effect of mediating variables on the relationship between integration and performance using survey and regression analysis. Swimming against the current, they found that the benefit of production marketing integration is not always worth the cost of such integration. The costs of integration could only be justified by examining the internal and external environment faced by a firm. Another stream of research on internal integration is focused on the antecedents of internal integration.. Calantone et al. (2002) used a survey and structural equations modelling to find that marketing s knowledge of manufacturing and manufacturing s evaluation of marketing communication both had positive relationships with marketing-manufacturing integration. Hausman et al. (2002) proposed a model linking antecedents to manufacturing-marketing integration, and integration to profits. They found through a survey that the strategic importance of both departments positively related to integration, and integration related to

5 profits. This suggested that top management should strive to view both marketing and manufacturing as key contributors to a firm s competitive strategy in order to boost integration (and profits). Pagell (2004) conducted case studies to determine the factors that foster or inhibit internal (supply chain) integration in firms. His focus was on the integration of production, logistics, and purchasing functions. He identified the constructs influencing integration as structure, culture, facility layout, job rotation and cross-functional teams. Mollenkopf et al. (2000) carried out a survey in New Zealand to verify their model that linked antecedents to inter-functional integration. Regression analysis showed that including integration in strategic plans helps in fostering integration. Cross - training helps too, but rewards did not prove significant in this research. As discussed above, significant amount of research has been conducted on the performance benefits of integration, which by and large has shown that integration is beneficial for customer service and a company s bottom line. A complementary theme of research, which is less voluminous, seeks to identify antecedents of integration. This stream of research has the ultimate goal of normatively suggesting top management what it can do to foster integration. Many such suggestions have been made including changing the culture, job rotation, knowledge of each other, numeration schemes, top management attitude, etc. Even as this research on integration continues, there is no clear consensus on the definition of integration and on the measurement of integration. Researchers have posited various dimensions within the construct of integration, such as: communication, interaction, coordination, collaboration, harmony, adherence to the integrated logistics concept, cooperation, interfacing, and consultation.

6 Table 1 is a compilation of definitions of integration found in the literature. There is a wide divergence in how authors see integration. It appears that interaction or exchange of information is seen as a minimum part of integration. Another element is the coordination of activities, which involves the orchestration of inter-departmental activities. A third common element is collaboration, which involves departments working jointly. Table 1. Definitions of integration Reference Context Definition of integration Adler (1995) Production & Design Coordination of design manufacturing relationship. They did not provide a definition, but they considered only coordination. Calantone et al. (2002) Chen et al. (2007) Crittenden (1992) Daugherty et al. (1996) Ellinger et al. (1997) Ellinger et al. (2000) Marketing manufacturing in new product development Firmwide Marketing / manufacturing Logistics/General Logistics/General Marketing/Logistics Cross functional harmony; cooperation and relationship quality. Interaction and collaboration Communication Adherence to the integrated logistics concept Integration = close coordination and central programming Integration = information interchange, consultation, collaboration Giménez (2004) Wider supply chain Coordination, collaboration, and integration Gimenez & Ventura (2003) Gimenez & Ventura (2005) Griffin & Hauser (1996) Hausman et al. (2002) Hsu & Chen (2004) Kahn (1996) Kahn & Mentzer (1996) Internal (purchasing, manufacturing, sales and distribution) / External integration Wider supply chain Marketing/R&D Marketing/Manufacturing Marketing/Manufacturing Marketing/Others (Product development) Logistics function and other functions Interaction Interaction Integration = communication & cooperation Marketing/Manufacturing interface harmony the functions ability to work together Interaction congruence Multi dimensional process that subsumes interaction and collaboration. Interaction = structural, formal, routine coordinated activities like meetings, calls, documents. Collaboration = Unstructured, affective, volitional, shared process of working together. A process of interdepartmental interaction and interdepartmental collaboration that brings departments together into a cohesive organization; interaction = communication, collaboration = work together. Kahn & Marketing/Others Integration = interaction = information interchange; or, Integration =

7 Mentzer (1998) (Product development) collaboration = high degrees of shared values, mutual goals and collaborative behaviours; or integration = composite of both Lunn (1997) General Teamwork Mollenkopf et al. (2000) Murphy & Poist (1992) O'Leary Kelly & Flores (2002) Orsini & Karagozoglu (1988) Pagell (2004) Sawhney & Piper (2002) Stank et al. (1999) Stank et al. (2001a) Swink & Song (2007) Van Hoek & Mitchell (2006) Marketing/Logistics Logistics / Marketing Marketing/Manufacturing Marketing/Service Production/Logistics/Purc hasing Marketing/Manufacturing Marketing/Logistics SCM Marketing/Manufacturing Interdepartmental Integration = dissemination of information and coordination of activities Integration = cooperation, used synonymously with coordination; but cooperation was not defined. the extent to which separate parties work together in a cooperative manner to arrive at mutually acceptable outcomes Integration = coordination = interfacing Integration is a process of interaction and collaboration in which manufacturing, purchasing and logistics work together in a cooperative manner to arrive at mutually acceptable outcomes for their organization. Integration = interface integration = melding together disparate areas, achieved through information sharing or collaboration or both Linking internal activities to best support customer requirements at the total system cost Coordination of timing and substance of functional strategies and development activities. Communication + Cooperation Integration = Agreement on goals and objectives The context of our research is internal supply chain in particular the functions of production, sales, and distribution. A basic requirement for integration would be that these independent functions work together. This has been emphasised by many authors in Table 1. In arriving at a consensus definition of integration, one should also consider that supply chain integration is often justified on the basis that the entities of a supply chain should work holistically, trying to optimise a common outcome rather than each entity optimising its own well-being. Thus unity of purpose is essential for any definition of integration. We adopt a simple minimal definition of integration for our research working together for the benefit of the company. It is inevitable that as the definitions of integration are divergent, the scale items to measure integration are also diverse. Table 2 presents scale items for measuring integration found in

8 the literature. The scale items reflect the concept of integration from the authors perspectives and the context of integration considered by them. The variety of measures in the table clearly makes the case that there is a need to work towards a consensus in the measurement of the integration construct. Table 2. Scale items for the measurement of integration Scale item Included in this Reference research? (Reason for exclusion) Within my firm, employees from different functional areas are Antecedent Chen et al. (2007) encouraged to share resources My firm extensively utilizes cross-functional work teams for Yes Chen et al. (2007) managing day-to-day operations The orientation of my firm has shifted from managing functions to Explanation Chen et al. (2007) managing processes Mutual understanding of technical knowledge about NPD Different context Calantone et al. (2002) Cooperation between MKT and MFG in NPD Different context Calantone et al. (2002) Informally working together Summative Chen et al. (2007); Ellinger (2000); Ellinger et al. (2000); Kahn & Mentzer (1998) Sharing ideas, information, and/or resources Yes Chen et al. (2007); Ellinger (2000); Ellinger et al. (2000); Gimenez & Ventura (2003 and 2005); Kahn & Mentzer (1998) Working together as a team Summative Chen et al. (2007); Ellinger (2000); Ellinger et al. (2000); Kahn & Mentzer (1998) Conducting joint planning to anticipate and resolve operational problems Yes Chen et al. (2007); Ellinger (2000); Ellinger et al. (2000); Gimenez & Ventura (2003 and 2005) Achieving goals collectively Summative Chen et al. (2007); Ellinger (2000); Ellinger et al. (2000); Kahn & Mentzer (1998) Developing a mutual understanding of responsibilities Yes Chen et al. (2007); Ellinger (2000); Ellinger et al. (2000); Gimenez & Ventura (2003 and 2005); Kahn & Mentzer (1998) Making joint decisions about ways to improve overall cost efficiency Yes Chen et al. (2007); Ellinger (2000); Ellinger et al. (2000); Gimenez & Ventura (2003 and 2005) Information Exchange through Exchange of reports Yes Ellinger et al. (2000) Information Exchange through Exchange of memorandums Yes Ellinger et al. (2000) Information Exchange through Exchange of fax materials Yes Ellinger et al. (2000) Consultation through Committees / task forces Yes Ellinger et al. (2000) Consultation through Phone conversations Yes Ellinger et al. (2000) Consultation through Phone mail Yes Ellinger et al. (2000) Consultation through Electronic mail Yes Ellinger et al. (2000) Linkage between functions Explanation Giménez (2004)

9 Consideration of the effect of own actions on other functions Yes Giménez (2004) Organisational structure (presence of a customer service Different context Giménez (2004) department responsible for complete order fulfilment process) How well marketing and manufacturing work together Summative Hausman et al. (2002) Working closely with manufacturing often helps your department Summative Kahn & Mentzer (1994) achieve its goals Working closely with manufacturing often improves the quality of Summative Kahn & Mentzer (1994) decisions made by your department Your department strives to maintain a good working relationship Yes Kahn & Mentzer (1994) with manufacturing Interaction through: I. Meetings: (1) Meetings 2) Committees/Task Yes Kahn & Mentzer (1998) Forces 3) Phone Conversations, 4) Phone Mail 5) Electronic Mail. Interaction through Documented Information Exchange: 1) Yes Kahn & Mentzer (1998) Exchange of forms 2) Exchange of reports 3) Exchange of memorandums 4) Exchange of FAX materials; Share the same vision for the company Yes Kahn & Mentzer (1998) Informal teamwork Yes Gimenez & Ventura (2003 (2005) Established teamwork Yes Gimenez & Ventura (2003 (2005) Joint establishment of objectives Yes Gimenez & Ventura (2003 (2005) Information is communicated between marketing and logistics Yes Mollenkopf et al. (2000) Information regarding customers is given to logistics people Yes Mollenkopf et al. (2000) Information regarding products is given to logistics Yes Mollenkopf et al. (2000) Information regarding warehousing / transportation is given to Yes Mollenkopf et al. (2000) marketing Marketing and logistics people don't discuss with each other the Yes Mollenkopf et al. (2000) issues affecting marketing and logistics Marketing and logistics don't coordinate their activities Yes Mollenkopf et al. (2000) Marketing and logistics don't spend time discussing future customer Yes Mollenkopf et al. (2000) needs Level of cooperation Summative, Murphy & Poist (1992) Explanation Data integration among internal functions through information Antecedent Narasimhan & Kim (2002) network System-wide information system integration among internal Antecedent Narasimhan & Kim (2002) functions Real-time searching of the level of inventory Different context Narasimhan & Kim (2002) Real-time searching of logistics-related operating data Different context Narasimhan & Kim (2002) Data integration in production process Antecedent Narasimhan & Kim (2002) Integrative inventory management Explanation Narasimhan & Kim (2002) The construction of system-wide interaction system between Antecedent Narasimhan & Kim (2002) production and sales The utilization of periodic interdepartmental meetings among Yes Narasimhan & Kim (2002) internal function Extent of integration of decisions in product development Summative O'Leary-Kelly & Flores (2002) Extent of integration of decisions in marketing/sales planning Summative O'Leary-Kelly & Flores (2002) Extent of integration of decisions in process development Summative O'Leary-Kelly & Flores (2002) Extent of integration of decisions in manufacturing planning Summative O'Leary-Kelly & Flores (2002) In this business unit, it is easy to talk virtually with anyone you Yes Parente et al. (2002) need to regardless of rank or position In this business unit, I feel comfortable calling people in the Yes Parente et al. (2002) manufacturing unit when the need arises. Managers here discourage employees from discussing work-related Antecedent Parente et al. (2002)

10 matters with those who are not their immediate superiors or subordinates People in our sales department are quite accessible to those in the Yes Parente et al. (2002) manufacturing units. Managers in manufacturing can easily schedule meetings with sales Yes Parente et al. (2002) personnel. Salespeople can easily schedule meetings with manufacturing Yes Parente et al. (2002) Most departments in this business unit get along well with each Yes Parente et al. (2002) other. When members from sales and the production units get together, Yes Parente et al. (2002) tensions frequently runs high. Employees from sales and the production units feel that the goals in Summative Parente et al. (2002) their respective departments are in harmony with each other. The objectives pursued by the sales department are incompatible Yes Parente et al. (2002) with those of the manufacturing departments. There is little / no sales/ production conflict in this business unit. Summative Parente et al. (2002) Both functions share information. Yes Parente et al. (2002) Both functions integrate strategy. Explanation Parente et al. (2002) Both functions contribute to customer value. Summative, Parente et al. (2002) Explanation Operations consults marketing before making process changes Yes Sawhney & Piper (2002) Marketing consults operations before accepting early delivery requests Marketing consults operations before accepting special feature requests Order entry system provides information on existing orders, their completion time and available capacity Numeric estimate of the time taken by marketing to pass order information to production My firm maintains an integrated database and access method to facilitate information sharing My firm effectively shares operational information between departments My firm has adequate ability to share both standardised and customised information internally My firm provides objective feedback to employees regarding integrated logistics performance My firm's compensation, incentive, and reward systems encourage integration Yes Sawhney & Piper (2002) Yes Sawhney & Piper (2002) Different context Sawhney & Piper (2002) Different context Sawhney & Piper (2002) Antecedent, Different context Yes Yes Antecedent Antecedent Stank et al. (2001b) Stank et al. (2001b) Stank et al. (2001b) Stank et al. (2001b) Stank et al. (2001b) 3. Research objective This research is focused on the measurement of the integration construct, in the context of internal supply chains. Our goal was to identify a parsimonious set of scale items from previous literature that will capture the domain of this concept, as defined succinctly in the above section working together for the benefit of the company. Another goal was to explore

11 the structure of this construct, that is, to see if it makes sense to break this construct into further dimensions. 4. Research methodology The list of scale items in Table 2 was scrutinised with a view to severely reduce the number of items in the scale, the ultimate goal being the development of a parsimonious measurement instrument, at the same time capturing the domain of the construct. Items were excluded for one or more of the following reasons (see Table 2): Summative Summative items were not suitable, since the goal was to capture the domain of the construct Antecedent The item appears to be antecedent to integration Different context The item appears to apply to a different context other than internal supply chain considered in this research Explanation Further explanations would be needed for use in a survey questionnaire Many of the remaining items were similar in meaning. These similar items were reworded to construct a single item. Two academics and two practitioners vetted the items for clarity. This process led to the following 16 items for the measurement of integration. The items asked the respondents to answer each of these questions with the preface: In my company the departments involved in production, sales and distribution of products...

12 Table 3. Scale items included in the instrument Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Share ideas, information, and resources between them. Conduct joint planning to anticipate and resolve supply chain problems. Spend time developing a mutual understanding of responsibilities. Strive to maintain a good working relationship with each other. Interact with each other through meetings or phones or s. Interact with each other through the exchange of forms, reports, or documents. Spend time discussing future customer needs. Are quite accessible to each other. Share the same vision for the company. Establish joint objectives. Get along well with each other. Share information regarding own department with other departments. Consult with each other before making decisions affecting other departments. Work frequently in informal cross-departmental teams. Understand the pressures and concerns of each other. Synchronise their activities with each other. Criterion A criterion question was included in the survey, encompassing the definition of integration adopted in this research. Q17 (In my company the departments involved in production, sales and distribution of products) work together for the benefit of the company. A mail questionnaire and a postage-free return envelope were sent out to 999 manufacturing firms in New Zealand in October These firms were identified through a commercial database of businesses, KOMPASS, which is fairly comprehensive. The selected firms were

13 the largest in New Zealand with respect to number of employees, the rationale being that the larger firms are likely to have distinct departments in their internal supply chain in need of integration. After all, a firm with one employee can be assumed to be highly integrated! The survey was sent out to either the general managers (or equivalent) or to the top executive in production, sales, or distribution in order to ensure that the respondents were knowledgeable about the state of integration in their company. All the items in the survey had a 7-point Likert scale (1 = Strongly disagree, 4 = Neutral, 7 = Strongly agree). The questionnaire was accompanied by a cover letter highlighting the objectives of the research, assuring confidentiality, and promising a summary of the research report. A serial number was included for follow-up. After a month, when the flow of responses had started to dwindle, a reminder was sent with another copy of the questionnaire and a postage-free return envelope. When the responses had stopped, there was a tally of 273 usable responses. This is a response rate of 27%, which is quite high for this kind of survey. The number of employees of the respondents is shown in Table 4. There is a clear preponderance of larger firms within New Zealand, but by international standards, most of our respondents are small to medium sized firms. Table 4. Demographics of the sample Number of employees Frequency Up to More than

14 The usable 273 responses were analysed using commercial SPSS software, as detailed in the next section. 5. Analysis Non-response bias Even though our response rate was high, the question of non-response bias still arises. The possibility exists that the firms who did not respond are different from the respondents, and our sample does not represent the non-responders. Assuming that the late responders are similar to the non-responders, we compared early responders with the late responders. The first 25% of the sample was compared against the last 25% of the sample. The hypothesis could not be rejected that the mean of each of the 17 item-responses was the same for the two groups, using 2-tailed t-test at p = The lowest p was Similarly, a Pearson Chi square test on an organisational characteristic (number of workers) rejected the null hypothesis that there was an association between organisation size and tardiness in response (p = 0.848). These tests give confidence that the non-response bias in our study is minimal. Content validity All the measures in this instrument were obtained from existing literature. In addition, two academics and two practitioners reviewed the measures and suggested changes for clarity. After data collection Pearson correlation coefficients between all the different measures were examined (see Table 5). None of the correlations were found very high (highest = 0.715), suggesting that there was no multi-collinearity. Item to sum-of-items correlations were also high (0.523 to 0.787). This gives confidence that the items measure the same construct. However, the correlation of Q6 with the criterion was particularly low (0.307). For this reason, this item was dropped from further analysis. All the correlations reported in Table 5 were statistically significant at p =

15 Table 5. Coorelation Matrix Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 SUM Q1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q SUM Criterion

16 Factor Analysis Factor analysis was carried out on the data (after removing Q6) using the principal components (PCA) method of extraction. The determinant of the correlation matrix was calculated as , which is more than , indicating that the correlation matrix is suitable for factor analysis. The scree plot is shown in Figure 2, which shows an elbow at component number 2. This justifies a single general factor, which has an eigenvalue of However, this factor explains only 55.39% of the total variance in the data. The scree plot also has a less pronounced elbow at component number 4, which justifies three factors. The third component is associated with an eigenvalue of 0.876, which is higher than 0.7, regarded generally as the lowest acceptable value. The three-factor solution will also explain 67.55% of the total variance. Thus SPSS was directed to find a three-factor solution, and to rotate the vectors using the varimax procedure for interpretability. Figure 2. Scree plot

17 Table 6 displays the rotated component matrix produced by SPSS. Factor loadings less than 0.4 have been suppressed. Q1 Table 6. Rotated component matrix Integration measures Share ideas, information, and resources between them. Component Q2 Conduct joint planning to anticipate and resolve supply chain problems. Q3 Spend time developing a mutual understanding of responsibilities. Q4 Strive to maintain a good working relationship with each other. Q5 Interact with each other through meetings or phones or s. Q7 Spend time discussing future customer needs Q8 Are quite accessible to each other Q9 Share the same vision for the company Q10 Establish joint objectives Q11 Get along well with each other Q12 Q13 Q14 Share information regarding own department with other departments. Consult with each other before making decisions affecting other departments. Work frequently in informal cross-departmental teams Q15 Understand the pressures and concerns of each other Q16 Synchronise their activities with each other

18 Factor 1 loads heavily on Q13 (Consult with each other before making decisions affecting other departments), Q15 (Understand the pressures and concerns of each other), and Q16 (Synchronise their activities with each other). This factor seems to capture the coordination dimension of internal supply chain integration. Factor 2 loads heavily on Q1 (Share ideas, information, and resources between them), Q2 (Conduct joint planning to anticipate and resolve supply chain problems), and Q3 (Spend time developing a mutual understanding of responsibilities). This factor seems to capture the communication dimension of internal supply chain integration. The third factor loads heavily on Q8 (Are quite accessible to each other), Q9 (Share the same vision for the company), and Q11 (Get along well with each other). This factor appears to capture the affective relationship dimension of internal supply chain integration. Reliability Sample size. Sample size is an important factor in the reliability of factor analysis. A ratio of cases per variable is commonly suggested. With 16 items in our questionnaire, the number of cases should be This criterion is comfortably met by our sample size of 273. Another measure of sampling adequacy is the Kaiser-Meyer-Olkin (KMO) statistic, which is calculated by SPSS. The KMO statistics for our data is This confirms that the data is highly suitable for factor analysis. Still other measures for sampling adequacy are the diagonal elements of the anti-image correlation matrix, which should be at least 0.5 for a satisfactory factor analysis. The lowest diagonal element in the SPSS results is 0.922, ensuring sampling adequacy.

19 Correlation matrix Individual item-total and item criterion correlations were checked as mentioned earlier to ensure that the items belonged to the same construct. One item (Q6) was excluded on this account. Another measure to ensure that the items are not independent, is the Barlett s test of sphericity, whose null hypothesis is that the correlation matrix is an identity matrix (no correlation at all). SPSS results show that the set of our remaining variables pass Barlett s test at p < Degree of fit The degree of fit of the hypothesised 3-factor model to the data can be assessed by the reproduced correlations matrix. For a perfect fit, this matrix should be identical to the original correlation matrix of the variables. The ideal value of the diagonal elements (the communalities) is 1. With the exception of variable Q14, which has a communality of 0.449, all of our variables have a communality of more than 0.6, the average communality being This indicates a satisfactory fit. A good fit is also indicated when the residual correlations (difference between the original correlations and the reproduced correlations) are small. A commonly used criterion is to have less than 50% of the residuals less than 0.05 in absolute value. SPSS output shows that for our three-factor solution, 68% of residuals have an absolute value of less than Scale reliability A common measure for testing whether the different items of the scale measure the same construct is the Cronbach s alpha. This measure for our scale of remaining 15 items and for the three factors is given in Table 7 below.

20 Table 7. Cronbach s alpha statistic Scale Cronbach s alpha 15 item scale Communications factor Coordination factor Affective relationship factor All of these statistics are above the acceptable range of , indicating high scale reliability. Test-retest reliability Test retest reliability can only be ultimately tested by carrying out the data collection exercise again. A split sample factor analysis can give an indication of the test-retest reliability of factor analysis. Our survey respondents were asked whether company s production is mainly based on make-to-order or make-to-stock policies. There were 143 responses indicating mainly make-to-order production; 91 respondents indicated mainly make-to-stock production (many respondents wrote both ; some responses were missing). We extracted three-factor models for both of these sub-samples. Table 8 shows the factor loadings obtained, comparing the subsamples against the entire sample. Table 8. Split sample factor analysis Variable Coordination Communication Affective relationship Entire sample Make to order Make to stock Entire sample Make to order Make to stock Entire sample Make to order Make to stock Q Q Q Q

21 Q Q Q Q Q Q Q Q Q Q Q Table 8 shows that the same three factors are obtained, even though factor loadings are a bit different, particularly for those variables that load on more than one factor. The variables in the core of the coordination dimension are Q13, Q15, and Q16. Similarly high loadings for communication are on Q2 and Q3. High loadings for affective relationship are on Q8 and Q11. It should be stated here that although the measures of sampling adequacy mentioned earlier were satisfactory for both the subsamples, the sizes of the split samples are small, particularly for the make to stock group. Predictive validity Even though as discussed above, each of the factors appear to measure a different dimension, and the entire scale measures a common construct, this does not confirm that they measure what one would understand as internal supply chain integration. We had included a criterion question in our survey instrument (Q 17: Work together for the benefit of the company) to test this. This criterion, in our opinion, is a summary measure for the latent variable of internal supply chain integration. The correlation of the criterion with the item totals in the factors and the entire scale is given in Table 9 below.

22 Table 9. Correlations of item totals with the criterion Scale Correlation Coordination dimension Communication dimension Affective relationship dimension Internal supply chain integration All of the correlations are high. The correlations are all significant at the p = 0.01 level (two tailed test). These correlations give us a great deal of confidence that the scales measure dimensions of internal supply chain integration. 6. Discussion and conclusion In this research our goal was to develop a parsimonious instrument for the measurement of internal supply chain integration. Scale items were identified from relevant current research literature. The number of items was greatly reduced through our scale refinement process; the final 15 item instrument appears to capture the essence of integration working together for the benefit of the company. We offer this instrument as a measurement tool for integration it is parsimonious, it appears to capture the domain of the concept and to pass tests of reliability and validity. To the best of our knowledge there has been no instrument so far which was tested for predictive validity, thus assuring the instrument s alignment with the definition of integration. Factor analysis indicates that the integration construct has three dimensions coordination, communication, and affective relationship. Many previous authors have focused on the first two dimensions; in fact communication is the sole construct used by a large number of authors. The communication dimension subsumes the common concept of information

23 exchange, consultation, and interaction as presented by many authors. Similarly the coordination dimension covers the concepts of cooperation and synchronisation, The finding of the affective relationship dimension is a bit of surprise in this research. The core items for this factor are Q8 (Are quite accessible to each other), Q9 (Share the same vision for the company), and Q11 (Get along well with each other), which clearly emphasises the affective aspect of integration. Calantone et al. (2002) have presented a relationship construct, but they see this construct as separate from the integration construct. Ellinger et al. (2000) envisage integration having the components of collaboration, consultation, and information exchange. Relationship is seen as a consequence of integration. Kahn & Mentzer (1998) and others have posited that integration consist of two dimensions (communication or interaction, and collaboration). This collaboration concept has some aspects of affective relationship embedded in it. However, affective relationship as a separate factor of integration concept is something new brought out by this research. It is hard to imagine supply chain functions within a company working together to the highest extent without harmonious relationship within these functions. Thus this dimension of integration is worthy of further studies. We hope we have made a contribution here towards building a consensus among practitioners and researchers in defining and measuring internal supply chain integration. For practitioners, our measurement instrument offers a self-assessment tool for internal supply chain integration. Future work prompted by this research are: a confirmatory research on the instrument presented here and on the dimensions of integration, further exploration of the domain of the affective relationship dimension in integration, and an exploration of how the concept of integration changes with its context.

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