Supply Chain Integration and Environment Uncertainty: A Conceptual Fit Model

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1 Supply Chain Integration and Environment Uncertainty: A Conceptual Fit Model Yue-Yang Chen, Ming-Chi Tsai, Hui-Ling Huang, Je-Reui Liang Abstract Rapid changes and turbulence in business operations environment and the advent of cooperation among firms have made supply chain management (SCM) important in determining the sustainable growth for contemporary companies. In this context, in a complex network relationship, which links among firms, lots of uncertain factors could affect the performance of a supply chain. Accordingly, recognized the factors of environment uncertainty are important for firms to plan a supply chain strategy. Thus, a structural fit model is needed to address the relationship between supply chain integration (SCI) and environment uncertainty (EU). This study tends to deepen the knowledge of performance implication of fit between SCI and EU. We contend that this strategic alignment may contribution to supply chain performance. According to this SCI-EU fit model, companies can evaluate the uncertainty in their situations based on the subjects they should to integrate in order to gain the supply chain performance. Keywords Supply chain integration, environment uncertainty, supply chain performance, fit R I. INTRODUCTION EGARDS the complex environment on business world, companies must employ lots of competition weapons to gain competitive advantages. When competing in the complex environment, firms must have effective strategies to survive. Meanwhile, research recommended that organization must have various strategic plans to integrate the whole departments to increase their performance [18]. Due to the business competition situation is unpredictable, especially on supply chain integration (SCI), fit among resources becomes a critical issue for organizations concerned. Organization cooperates with multinational and branch company with material or product to internal organization, hence SCI is become a critical strategy for practice and academics. Then, there developed a contingency theory to assist the strategy working smoothly. So far, some of conceptual idea i.e., fit and suit ideal are come from the contingency theory. Obviously, strategy alignment with uncertainty environment is an outstanding way to gain performance for firms. Davis [8] indicated that nowadays ultra competitive business world of short product life cycle, complex strategic alliance and Yue-Yang Chen, is with the Department of Business Administration, I-Shou University, Taiwan ( [email protected]). Ming-Chi Tsai, is with Department of Business Administration, I-Shou University, Taiwan ( [email protected]). Hui-Ling Huang, is with the Department of Business Administration, Chang Jung Christian University, Taiwan ( [email protected]). Je-Reui Liang is with International Master of Business Administration, I-Shou University, Taiwan ( [email protected]). unpredictable customer requirement. Organization must to understand the complex scope of supply chain management in this situation and response at the first time. Therefore, environmental uncertainty has become one of the critical forces impact on supply chain integration. Davis [8] also presented supplier uncertainty, demand uncertainty and manufacturing uncertainty as three possible environmental uncertainty dimensions for reinforcing strategic of supply chain management. The issue of fit of alternative resources is one of the top concerns of executives and senior managers in general since the mid-1980s [23], [42]. Doty et al. [10] indicated that the increased organizational effectiveness is driven by the internal consistency or fit among the patterns of relevant contextual, structural, and strategic factors. Powell [30] also suggests that the alignment between organizational processes and strategic decisions is contribution to competitive advantage. Meanwhile, the issue of supply chain integration with uncertainty environment in strategic alignment is also acknowledged [32], [38]. Fit has been found not only to make a great contribution to the potential capabilities of a supply chain integration infrastructure; it also exerts a significant direct positive effect on organizational performance [1], [43]. Conversely, misalignment in organizations results in redundancy and inefficiency in supply chain, and in an increase in costs and delays [15]. Thus, strategic alignment between SCI and uncertainty is become a critical actives for organization. More seriously, it can be one of the critical reasons that an organization s performance declines and cause organizational operations insufficient [4], [18]. Therefore, the purpose of this study is to shed light on the strategic alignment between SCI and uncertainty. Many researchers and organizational managers would agree that the fit alignment between uncertainty and SCI within a firm has become critically important. It is essential to apply SCI to the enterprise activities of business. Hence, supply chain scholars spent times to assist enterprise to find out what factors influence performance and how to improve it. For example, supply chain factors such as lead time, inventory, warehousing and shipping that organization need to concern. There are hundreds of research papers are discuss about how to save the cost and increasing performance step by step. Through the supply chain integration, we could assume that integration with uncertainty environment could help the organization performance growth up. Then, this paper is to examine the fit supply chain integration with environment uncertainty on

2 organizational performance. II. LITERATURE REVIEW A. Supply Chain Management (SCM) Nowadays, enterprise s competition environment is turbulence and chaotic. Hence, the firm need survive from this situation through some great systematic processes such as supply chain management (SCM). Researcher defined business SCM as a series value activities of a network, it focus on the planning and control on different manufacturing and distribution sections [7], [9], [40]. Waters and Waters [41] defined SCM as a process orientation to managing business in an integrated way that transcends the boundaries of firms and function, leading to cooperation, through-chain business process synchronization Hence, we defined SCM is connecting with supplier, manufacturing, warehouse and store to develop a way to improve the performance. Therefore, SCM assists firms easier to attain higher performance what they expected. Thus, firms could produce appropriate product quantity to deliver in the right time and in right place. Not only totally reduce the cost for companies but also satisfy customers demand. Although SCM is a good strategy but it also has to face some problems, for instant, uncertainty environment, customer demand etc. Due to competition situation is so complex and unpredictable. Recently, firms try to use hundreds strategies to defend other companies to success from the competition. How to use a good strategy in appropriate timing is key point to success. In other words, how to use SCM is key point to success. SCM involves many dimensions such as logistic, warehousing and customer value. Therefore, if firms could use SCM well, no matter inside organization or external environment, it can help organizational performance get high. SCM advantage is come from efficiently partner corroborations and its function is to satisfy customer demand, from suppliers, manufacturers, distributors to the consumer. Firm need to concern whole aspects and integrate every area. For instant, purchasing, materials management, production, distribution and marketing to consumers will influence performance. Especially, SCM could help firm to share information to other partners in inventory flow and logistic flow. SCM also helps the logistics and inventory costs to a minimum. For example, global supply chain management (GSCM) could assist multinational companies to coordinate logistics management and rationalization not only reduce cost and time but also increase material management and transport delivery with reliability. The main purpose for SCM is to increase customer satisfaction, reduce the company cost and firms process quality to be optimized [16]. B. Supply Chain Integration (SCI) Supply chain integration (SCI) has been studied by a lot of researchers (ex., [14], [35]), and can be define as outcomes of collaborative action of individuals with a firm, between department with a firm, and between firm within supply chain [6]. Nowadays market environment changing rapidly no matter the production life cycle shortage, complex relationship between firms and customer relationship caused organizational operation level getting difficult and complex [8], [13], [37]. Organization must react this situation immediately, then firms can integrate SCI involves with those area such as customer integration, supplier integration and internal- organizational integration. Customer demand is a foci issue of organizational object. Customer integration has been found that it is the most important component on performance [35]. We know that companies must improve performance and apply strategies to obtain customer relationship. Thus, firms need to integrate with customer to reduce customer uncertainty. Customer value is a driving force and also is an organizational goal [33]. By SCM, it can enhance customer integration easily. Today, product is no more an important issue that firms need to concern, now the most important point is the value of customer when they contacted. In the past, firms just concerned supply orientation such as the amount of defectives, the main purpose is to supply the good quality goods for customers. But nowadays organizations focus on customer value. Organization should to understanding why customer would like to buy this product? Why they want to purchase again or what is their preferences and what is their requirement? Internal integration emphasize on suppliers and customers and aligning them with the organizations objectives [28]. Lawrence and Lorsch [21] took an internal perspective and defined integration as the quality of the state of collaboration that exists among departments that are required to achieve unity of effort by the demands of the environment (p.11). Internal integration includes organizational department between various departments coordination likes manufacturing, purchase, stores, marketing, etc... Internal integration focus on the minimize cost [27], [36]. For example, if departments share information or sent the material to other departments through a effective supply chain then the whole process will be more smooth and the cost will be reduced. In addition, organizational department may have problems when they coordinate with other departments if a supply chain strategy can help departments to eliminate these problems then it can enhance organizational performance. Many researches mentioned internal integration of the organization before i.e., the inter-active with departments. As know as internal integration is an active between departments to departments, also it is a focus on the cross-functional integration. Cross-functional integration is foci issue for departmental actives, such as R&D department integrate with marketing department or purchase department integrate with store department. For example, organization can use every department s expert who is having good ability to provide their own experience to achieve the goal. Integration is often used

3 but does not have clearly boundaries; form an internal or external point is needed to figure out of this phenomenon. Also, there are a lot of SCM and logistics research investigated organizational internal-active, emphasizing in the cooperation and interaction with others departments [5], [12], [19]. External integration emphasizes on relationship between organizational and customers (include suppliers), it is more focus on to build a strongly relationship with customers. Supply chain integration always rapidly responds to customer demand and also builds a relationship with them. It involves a stepwise integration process, that is, from organizational integration to external environment integration. In the other hand, external integration is consisting with supply chain. Also, environment integration assists supply chain management actives across the barriers. External integration also refers to collaboration and cooperation with other supply chain members. Firms usually apply strategy with other supply chain members, to establish a good relationship and collaboration with another supply chain member. External integration is plays an important role in the domain of business-to-business or business-to-customer e-commerce that firms could understand the cost and to reduce the cost also increase the performance by an integration system. The integration system encompasses a lot of levels and upstream to downstream like a seamless supply chain. Supply chain is an active from raw material to finish products, just like a supply chain which consist with manufacture processes or bought by customers. For example, mobile phones manufacture need to integration with system which on the supply chain members. Follow this flow, the plastic or an accessory manufacturer is able tie its production levels closely with the mobile phone manufacturer demand. All of the flow is need a good integration within supply chain members that could enhance partnerships and high performance. C. Environment Uncertainty Environment uncertainty used to influence the organizational performance and decide which main components should be organization evaluated and focus which could assist organization to achieve the goal (Fisher, 1997; Paulraj and Chen, 2007). Thus, firms must to apply right successful supply chain strategy to cope with various environmental uncertainties to gain competitive advantage. Environmental uncertainty cannot be avoided. Today, more than ever before, enterprises are facing with complex task and uncertain competitive environments. If organizations want to sustain better performance, firms must understand ideal alignment types such as business SCM strategy, information system strategy and organizational structure. These factors are playing important roles for organizational performance (Bergron et al., 2004; Sabherwal and Chan, 2001; Sanders, 2005; Stock et al., 2000; Venkatraman and Prescott, 1990).The important problem of firms confused is environmental uncertainty that plagues it. In fact, they are affect are consist with organizational seamless supply chain management. Generally, environment uncertainty involves three dimensions of supply chain such as supplier uncertainty, demand uncertainty and manufacturing uncertainty (Davis, 1993). In this research, we will examine the relationship between integration and uncertainty to organizational performance. Supplier uncertainty concern with supplier could not supply product to the customer. Another supplier uncertainty is the product cannot be delivering on time or the quality got problems. Also, the raw material quality must to satisfy for customers. Those factors are organization concerned and emphasized on. Product delivery schedule is a first important issue firms need focus. In the past, researcher thought the product demand uncertainty was form customer required schedule that factor leads raw material demand was changeable and unpredictable. Nevertheless, product delivery schedule uncertainty will change by the supplier lead-time. In other words, the raw material is not in the plan that expected to arrive within the time (Kotha and Nair, 1995). Product quality uncertainty is the second point we emphasis on. Recent year, quality this term is a population topic around companies. Whereas competition situation is complex, the quality is a term that rises from the customers. Especially, customer trend to have good quality product neither than have product within lower price. For example, Toyota s automobile parts got some problems, then the Moody (International Rating Agencies) decrease Toyota s credit rating. Also, it gave Toyota a big impact, no matter in stock and reputation. Demand uncertainty connect with the customer demand, nevertheless, customer demand uncertainty is one of main factor of demand uncertainty. Malone et al. (1987) pointed out that asset specificity and description complexity will affect purchasing uncertainty. Chopra and Meindl (2001) indicated that demand uncertainty should fall into two demand uncertainty such as implied demand uncertainty and demand uncertainty. Implied demand uncertainty is resulting uncertainty for the supply chain given the portion of the demand the supply chain must handle and attributes the customer desires. Demand uncertainty is uncertainty of customer demand for a product. Implied demand uncertainty is also referred to customer needs and product variability. Thus, customers expected demand different than the implied demand uncertainty will be influence. Chopra and Meindl (2001) pointed out that if firms order is emergency and rapidly then firms will face the high level of implied demand uncertainty. In opposite, if firms order lead time is long orientation then company face the implied demand uncertainty is lower than emergency. Furthermore, company integrates with demand uncertainty below those two kinds of uncertainty then it could helps company productivity and competitiveness ampleness. Manufacturing uncertainty regards the manufacturing process is complete or not. Additionally, those factors will delay or cannot shipping t to the final customer, for instance, factory equipment broken, computer system process chaos and

4 poor workflow. Furthermore, organization manufactured the defective products is also a manufacturing uncertainty (Davis, 1993). Complexity is defined a measurement tool; if purchasing flow is complex then it cause the manufacturing uncertainty is higher (Duncan, 1972). Miller and Droge (1986) indicated that organizational manufacture technology change then, the manufacturing process will be affected. Li et al. (1993) indicated manufacturing process got some problems such as emergency order, product quality, over-or underestimate the manufacturing process time, order cancellation etc those factors will interfere manufacturing uncertainty. Calinescu et al. (1998) pointed out that product structure, factory and equipment structure, planning, information flow and environment will lead to manufacturing process uncertainty. III. FIT BETWEEN SCI AND ENVIRONMENT UNCERTAINTY As fit between SCI and environment uncertainty, organization is necessary concern with several dimensions. Generally, SCI strategic alignment with environment uncertainty has those dimensions such as customer integrate with demand uncertainty, supplier integrate with supplier uncertainty and internal integrate with manufacturing uncertainty. Those three dimensions seem helpful in attempting assist organizational performance enhancement. Consequently, the right strategy application to links environmental uncertainty can be positively contribute to the SCM performance. Customer integrate with demand uncertainty is like a bridge, it links with each other to assist customer requirement could be response faster by organizational reaction. More detail, predictability of product demand could integrate through communication with our major customer and level of inventory accumulation can integrate with computerization for our major customer s ordering. Product variety also is an important factor that organization could integrate with customer s feedback or requirement to avoid uncertainty. Furthermore, organizational integrate successfully at this dimension also could help organization to build the customer relationship as well. Supplier integrate with supplier uncertainty, if supplier s complexity of procurement technology for critical material that we could integrate with our major supplier shares their production schedule for us or let supplier on-time delivery could integrate with information exchange our supplier through information networks. Fluctuation in selling price of critical material could integrate with our supplier through communication with each other, no matter on material dimension or logistic dimension. Internal integrate with manufacturing uncertainty regards internal organization cope with manufacturing to reduce the uncertainty to increase the performance. Employee turnover rate has been a critical issue around manufacturing industry we could integrate internal organization to do the training process with employee, to reduce the turnover rate. Process rerun capability after breakdown is another term for company; we can use cross functional teams in process for improve the defective product. Through integration those uncertainty, organizational performance would influent form integration active and may positive increase organizational agility. Consequently, our research aims to investigate the fit effect between SCI and environment uncertainty on supply chain performance. The research model is showing as Figure 1. Fig. 1 The conceptual fit model IV. CONCLUSION Understanding the requirement of a successful fit among strategies is of interest to both practitioners and academics. The overall picture emerging from this study highlights the performance implication of fit among two aspects, namely supply chain integration and environment uncertainty. To our knowledge, this is the one of the few studies offering performance implication of fit among those dimensions. 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