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
I. INTRODUCTION
R
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
EGARDS
Yue-Yang Chen, is with the Department of Business Administration, I-Shou
University, Taiwan (e-mail: ray@isu.edu.tw).
Ming-Chi Tsai, is with Department of Business Administration, I-Shou
University, Taiwan (e-mail: mct@isu.edu.tw).
Hui-Ling Huang, is with the Department of Business Administration, Chang
Jung Christian University, Taiwan (e-mail: ling@mail.cjcu.edu.tw).
Je-Reui Liang is with International Master of Business Administration, I-Shou
University, Taiwan (e-mail: copyyus@hotmail.com).
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
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
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
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.
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.
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
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. Yet
further empirical study is required to exemplify the correctness
of this model and by conducting alternative perspective of fit
with statistic analysis, it is possible to find a more proper fit that
has more significant effect on performance implications.
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