Firm Performance Impacts of Digitally Enabled Supply Chain Integration Capabilities

Author(s): Arun Rai, Ravi Patnayakuni and Nainika Seth

Source: MIS Quarterly, Vol. 30, No. 2 (Jun., 2006), pp. 225-246
Published by: Management Information Systems Research Center, University of Minnesota
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Rai et al./Digitally
Enabled SupplyChain Integration
Capabilities

V
-llCLrLvrrl

RESEARCH

Firm Performance
Impacts of Digitally
Supply Chain Integration Capabilities1
By:

NOTE

Enabled

Abstract

Arun Rai
Center for Process

Innovation and
Department of Computer Information

Systems
J. Mack Robinson College
Georgia State University
Atlanta, GA 30303

of Business

U.S.A.
arunrai@gsu.edu

Ravi Patnayakuni
Department of Accounting and
Information Systems
University of Alabama inHuntsville
Huntsville, AL 35899
U.S.A.
r.patnayakuni@uah.edu

Nainika Seth
Department of Accounting and
Information Systems
University of Alabama inHuntsville
Huntsville, AL 35899
U.S.A.

Best practice exemplars suggest thatdigital platforms play a

critical role inmanaging supply chain activities and partner
ships thatgenerate performance gains for firms. However,
there is limited academic investigation on how and why
information

can

technology

create

gains

performance

for

firms ina supply chain management (SCM) context. Grant's

(1996) theoretical notion of higher-order capabilities and a
hierarchy of capabilities has been used in recent information
systems research byBarua et al. (2004), Sambamurthy et al.
(2003), andMithas et al. (2004) to reframe the conversation
from the direct performance impacts of IT resources and
investments to how and why IT shapes higher-order process
capabilities that create performance gains for firms. We
draw on the emerging IT-enabled organizational capabilities
perspective to suggest thatfirms that develop IT infra
structure integrationfor SCM and leverage it to create a
higher-order supply chain integration capability generate
significant and sustainable performance gains. A research
model isdeveloped to investigate thehierarchy oflT-related
capabilities and their impact on firm performance. Data
were collected from 110 supply chain and logistics managers
in manufacturing

and

retail

Our

organizations.

results

sug

gest that integratedIT infrastructuresenablefirms todevelop

the higher-order capability of supply chain process integra
tion. This capability enables firms to unbundle information
flows from physical flows, and toshare informationwith their

patnayn@email.uah.edu

chain

supply

partners

to

create

information-based

ap

proaches for superior demand planning, for the staging and

movement ofphysical products, andfor streamlining volumi
nous

Sambamurthy was the accepting senior editor for this paper. Rob
Fichman was the associate editor. Ted H. Clark and Prabhudev Konana
served as reviewers. The third reviewer chose to remain anonymous.

W.

and

IT-enabled

complex

financial

work

processes.

Furthermore,

supply chain integration capability results in

and
sustainedfirm performance gains, especially
significant
in operational

excellence

and

revenue

growth.

Managerial

MIS QuarterlyVol. 30 No. 2, pp. 226-246/June2006

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225

Rai

et al./Digitally Enabled

Supply

Chain

Integration Capabilities

initiatives should be directed at developing an integrated IT

and

infrastructure

it to create

leveraging

process

capabilities

for the integration of resource flows between a firm and its

chain

supply

partners.

chain

supply

integration, IT infrastructure,

Supply chain

Keywords:

management,

revenue

excellence,

operational

growth, customer relationships

Introduction
Capabilities
customer
ment,

of core interorganizational processes,

management,

relationship

and

contract

supply
are

manufacturing,

chain

such as
to

firm performance (Hagel and Singer 1999; Rayport and

Sviokla 1995; Sambamurthy et al. 2003). Their digitization
across the extended enterprise is being enabled by Web
technologies,

workflow

tools, portals

for customers,

supply chain partners.

Supply chain integration can be hampered by fragmented IT

infrastructuresthat constrain information flows and activity
coordination (Barua et al. 2004; Sambamurthy et al. 2003).
In contrast, integratedIT infrastructuresthatare characterized
by common data standards and integratedapplications enable
flows of information and coordination of activities across
functional units, geographic regions, and value network
partners (Broadbent et al. 1999). As illustratedbelow, such
integrated IT infrastructuresfor SCM are being exploited by
best-practice

manage

as critical

suggested

(Mabert and Venkatraman 1998). In summary, supply chain

integrationencompasses the integrationof informationflows,
physical flows, and financial flows between a firm and its

suppliers,

and employees, and information technology innovations

targeted at supply chains and customer relationships. Firms
are investing in these technologies and related partnerships to
develop their extended enterprise capabilities.

firms for superior

performance.

1. United Parcel Service, one of theworld's largest logistics

service providers, has redefined its services fromphysi
calmovement of packages to solutions for "synchronized
commerce." Their IT architectures enable data integrity
and connectivitywith customers' applications, providing
real-timevisibility of inventorythat is stored or in-transit.
This visibility can be leveraged by customers to improve
inventory

management,

asset

efficiencies,

and market

responsiveness.2

Supply chainmanagement (SCM) is a digitally enabled inter

firm process capability that has been receiving significant
attention. Practitioner forums such as the Supply Chain

Management Council have been established and special issues

ofDecision Sciences and JournalojOperations Management
have been recently published on the topic. However, in spite
of thekey role of IT in theSCM phenomenon, thusfar limited
scholarly investigation has been undertaken by the Infor
mation

Systems

community.

Our

objective

is to present

theoretical viewpoint, supported by empirical evidence, on

how IT enables supply chain integration capability to yield
performance

gains

for firms.

Supply chain strategies focus on improvementand innovation

of end-to-end processes between firms and their customers
and suppliers (Lee 2000; Tyndall et al. 1998). Case studies

document problems caused by supply chain fragmentation

across different industriesand best practice reportsprofile the
potential of IT to address them (Enslow 2000; Rai and
Sambamurthy 2002; Simchi-Levi et al. 2000). These descrip
tions suggest that supply chain integration (1) requires
partners to share information and develop globally optimal
plans (Ho et al. 2002; Simchi-Levi et al. 2000), (2) optimizes
the staging and flow ofmaterials by leveraging thevisibility
of resources (Lee 2000), and (3) streamlines financial
operations such as billing and payments that are inter
dependent on other activities such as ordering and delivery

226

MIS

Quarterly

Vol. 30 No.

2.

Cisco Systems has created a digital platform for thenear

real-time transmissionof informationbetween customers,
contract manufacturers, and logistics providers. This

enables responsive collaborative planning and efficient

coordination of resources across itsglobal supply chain
(Enslow 2000; Sabath and Frentzel 1997).

3.

By

leveraging IT to manage

Computers

has

achieved

dramatic

its supply chain, Dell

results

in performance

supply chain
(Magretta 1998). Dell's Web-enabled
enables it tomaintain only four days of inventoryand to
achieve negative cash conversion cycles with respect to
itsfinancial flows (Fields 2003).3

the critical role of IT in SCM, theoretical and

empirical research pertaining todigitally enabled supply chain
integration phenomenon has been limited and piecemeal
(Sahin and Powell 2002). We draw on concepts from the
interrelated literature streams of organizational and IT

Despite

Personal conversation with Laurie Johnson, Chief Information Officer, UPS

Supply Chain Solutions, Atlanta, Georgia.
3It is important to recognize thatDell has undertaken several non-IT related
initiatives, such as colocation of supplier warehouses, pricing, and incentive
schemes, to shape its supply chain integration capabilities.

2/June 2006

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Rai et al./Digitally
Enabled SupplyChain Integration
Capabilities

enabled capabilities, IT infrastructure,and supply chain

operations to develop key constructs and relationships
associated with IT-enabled supply chain integration. Speci
fically, we focus on the constructs of IT infrastructure
integration for SCM, supply chain integration capability,
sustained firm performance, and the relationships among
them.We testourmodel by developing and validating mea

sures for the constructs and examine the empirical validity of

posited relationships. Specifically, we address the following
questions:
1. What

key properties define supply chain process

integrationcapability between a focal firm and its supply
chain partners?

2.

How does IT infrastructureintegrationfor SCM

supply chain process integrationcapability?

3.

What

are

the performance

consequences

of

impact

IT-enabled

supply chain integration capability for a focal firm?

In the next section,we present the research framework used
for the study. We then specify constructs and relationships
associated with our research model.
Subsequently, we

describe the empirical study, including instrumentdevelop

ment,

data

collection,

measurement

validation,

and

results.

We then interpretour findings and offer some concluding

comments in thefinal section.

The Research

Framework

in the IS literature (Barua et al. 2004; Mithas et al. 2004;

Sambamurthy et al. 2003). According to this perspective, a
firmmust develop capabilities to acquire, integrate, recon
figure, and release resources thatare embedded in theirsocial,
structural,and cultural context. Developing these capabilities
is a long-termprocess that requires firms tomake a series of
linked strategic decisions and moves related to IT resources
so as to blend them with organizational processes and
knowledge resources (Barua et al. 2004).

Viewed from the perspective of organizational capabilities

and resource-based theory,commonly available IT resources
cannot by themselves create sustained performance gains for
a firm (Floyd and Wooldridge
1990; Powell and Dent
Micallef 1997; Zahra and Covin 1993). Accordingly, concep
tual distinctions have been made between IT components
broadly available in themarketplace, integrated IT platforms
that require significant time and expertise for development

(Weill and Broadbent 1998), and IT-enabled processes that

deeply embed capabilities of IT platforms intoorganizational
processes (Bharadwaj 2000).

A well-integrated IT platform ismuch more than individual

physical components. It requires standards for the integration
of data, applications, and processes to be negotiated and
implemented in order for real-time connectivity between
distributed applications tobe achieved (Ross 2003; Weill and
Broadbent 1998). From our perspective, an integrated IT
infrastructureenables consistent and real-time transfer of
informationbetween SCM-related applications and functions
thatare distributed across partners.

Traditionally, SCM issues have been investigated by opera

tions management researchers with a focus on functional
problems, such as facilities location and transportation

(Geoffrion and Powers 1995), inventory

management (Cohen
and Lee 1998; Mabert and Venkatraman 1998), materials
management, purchasing, and distribution (Scott andWest
brook 1991; Turner 1993). Similarly, IT impacts in the
context of SCM have been mostly investigatedwith a focus
on specific technologies and innovations, such as EDI
(Srinivasan and Kekre 1994), cellular manufacturing (Black
1991), and vendor-managed inventory (Ellinger et al. 1999).
Recent recommendations encourage researchers to focus
investigations on the interorganizational capabilities that
integratea firmwith itsnetwork of suppliers and customers
to create value for firms (Ho et al. 2002; Narsimhan
Jayram 1998).

as a source of firmperformance in the strategicmanagement

literature(Grant 1996; Teece et al. 1997) and,more recently,

and

Extending on the resource-based view of the firm (Barney

1991), higher-order organizational capabilities are suggested

Such integrated IT infrastructuresfor SCM can be blended

with interorganizational processes to develop higher-order
capabilities for demand sensing, operations and workflow
coordination, and global optimization of resources. These
capabilities require firms to unbundle the three comple
mentary flows ofmaterials (Stevens 1990), information (Lee
et al. 1997), and finances (Mabert and Venkatraman 1998),
and integrate each of them with supply chain partners.
Accordingly, we consider information,physical, and financial
flows inour framingof a focal firm's supply chain integration
capability.
on our discussion, we present the framework for our
study in Figure 1. IT infrastructure integration for SCM
represents a lower-order capability that can be leveraged to
develop a higher-order process capability (i.e., supply chain

Based

process integration),which is a source of significant and sus

tained performance gains for a firm. Given thatwe are sug

MIS QuarterlyVol. 30 No. 2/June2006

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111

Rai et aL/Digitally
Enabled Supply Chain Integration
Capabilities

IT
Infrastaicture

'

Integration

V_/

SCM

for

c-\

Supply Chain

Process

Integration

Proc!fs
II ITrIntolrS0n
ln^?ration
lll^l
Capability 111^
Imm^^f I|_Capability_r^^^T
1

Figure

1. Research

Firm

IT Integration
Capability

!j

rr-n
! Cross-Functional

Process

Data

Integration
Capability

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j! | !

_; ! ! !

^-^^

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Figure 2. Research

228

N.
Consistency I-1
|

;
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Performance
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Framework

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|
^^JL-^J

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Vlntegration /

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MIS QuartedyVol. 30 No. 2/June2006

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All use subject to JSTOR Terms and Conditions

Operational

Excellence

^s^

ICustomer
I

Relationships
l___j
Revenue

Rai

Table

1. Construct

et al./Digitally Enabled

Supply

Chain

Integration Capabilities

Definitions

Construct*

Definition

IT InfrastructureIntegrationforSCM:
The degree towhich a focal firmhas established informationsystems for the consistent and high-velocity transfer
of supply chain-related informationwithin and across itsboundaries.
Data Consistency

The degree towhich common data definitionsand consistency instored data have been
SCM

Cross-Functional

a focal

established

across

The

of real-time

degree

firm's supply

chain.
of a focal

communication

firm's function-specific

supply

chain

Integration management applications with each other and related ERP and CRM applications.

Application Systems

Supply Chain Process IntegrationCapability:

The degree towhich a focal firmhas integrated itsphysical, financial,and informationflowswith itssupply chain
partners.

The degree towhich a focal firmuses global optimizationwith itssupply chain partners to
manage the stocking and flowofmaterials and finished goods.

Physical Flow Integration

InformationFlow Integration

The extent of operational, tactical,and strategic informationsharing thatoccurs between

a focal

firm and

its supply

chain

partners.

The degree towhich financial flows between a focal firmand itssupply chain partners is

Financial Flow Integration

driven

by workflow

events.

Firm Performance:

The degree towhich a focal firmhas superior performance relative to itscompetition.

The degree towhich a focal firmis better than itscompetitors in its responsiveness and

Operations Excellence

generation

of productivity

improvements.

Customer Relationship

The degree towhich the focal firm'srelationshipwith customers and informationabout

theirpreferences isbetter than itscompetitors.

Revenue Growth

The degree towhich the focal firm's increase inrevenue fromcurrentand new products
ismore

and markets
*Both second-order
constructs.

constructs

and

their sub-constructs

than

are defined

gesting a hierarchy of capabilities for firm performance, a

direct effect between IT infrastructureintegration for SCM
and

is not

firm performance

I^HHH

measurement

items used

for each

con

with

are associated

with second-order

of performance

that we

consider.

Operations

costs

and

service

level

performance

in terms

of

lead times tomeet customer needs (Fisher 1997; Simchi-Levi

et al. 2000).
In addition, firms need to achieve market
focused performance (Malhotra et al. 2005) thatencompasses
customer relationships (Groves and Valsamakis
1998) and
revenue growth (Kalwani and Naravandas 1995; Moorman

1995). Customer relationships focus on thebond and loyalty

between a focal firm and its customers, and the focal firm's

Firm Performance
are concerned

aspects

operations

structare included inAppendix A.

We

italicized definitions

excellence is defined as a focal firm's responsiveness to

customers and improvements in productivity relative to its
competition. It has been noted that firms must balance

Figure 2 schematically represents the research model and

Table 1 summarizes the definitions of latent constructs and
The

The

growth, and customer relationships, recognized as important

dimensions of firmperformance (Slywotzky et al. 2000), are
three

specified.

The Research Model

sub-constructs.

its competitors.
in this table.

a firm's

tive to its competition.

aggregate

Operations

performance

excellence,

rela

revenue

intimate knowledge about customer-related preferences.

Growth in revenues includes sales from existing products and
fromnew products and markets (Zahra and George 2002).

MIS QuarterlyVol. 30 No. 2/June2006

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229

Rai et al./Digitally
Enabled SupplyChain Integration
Capabilities

There is some evidence that supply chain integration impacts

the three dimensions of performance considered here. For
instance, it has been suggested that integration of supply
chains can enhance a firm's time-based competitiveness by

compressing cycle times (Hult et al. 2004). Integrated supply

chains provide operational visibility, coordination of plans,
and streamlined flow of goods thatcompress the time interval
between a customer's request for a product or service and its
delivery (Hult et al. 2004; Tyndall et al. 1998). This capa
bility is also suggested to positively impact top- and bottom
line financial performance (Lee et al. 1997; Simchi-Levi et al.
2000), improve customer relationships, and promote market
1991; Tyndall et al. 1998). We

growth (Goldhar and Lei

examine

whether

by operations

aggregate

excellence,

of a firm, as assessed
performance
revenue
and customer
rela
growth,

tionships, is influenced by supply chain process integration.

schedules can be shared to enhance operational efficiencies

through improved coordination of allocated resources,
activities, and roles across the supply chain (Lee et al. 2000).
Tactical information sharing can encompass performance

metrics associated with execution of tasks and theiroutcomes.

Finally, strategic information sharing occurs when the
information possessed by a firm generates little value by
itself,but creates strategicvalue when shared (Seidmann and

Sundarajan 1997). For instance, sharing of sales information

by buyers with sellers creates value through improved
demand planning, forecasting, and replenishment. Ithas been
shown that lack of sharing of actual sales information sub
stantially distorts the demand signal as it travels upstream
across the supply chain. The phenomenon of upstream
amplification of error in the demand signal is called the
bullwhip effect (Lee et al. 1997) and causes problems such as
excessive or inadequate inventory,poor production and capa
city planning, cash flow utilization, and customer service.

Supply Chain Process Integration Capability

and its Impacts on Firm Performance
The literature identifies important flows across the supply
chain to includematerials (Stevens 1990), information (Lee

et al. 1997), and finances (Mabert and Venkatraman 1998).

Accordingly, supply chain process integration is defined as
the degree towhich a focal firm has integrated the flow of
information,materials, and finances with its supply chain
partners. Although knowledge flows are discussed in the
literature (Carlile 2002), they are sometimes overlapped in
theirdefinition to include information flows, and we do not
consider them as a distinct flow in our investigation.
Accordingly, supply chain process integration is concep
tualized as a formative constructwith three sub-constructs:
information

flow

integration,

financial flow integration.

physical

flow

integration,

and

Information

Integration

Information flow integration is defined as the extent towhich

operational, tactical, and strategic information are shared
between a focal firm and its supply chain partners. Speci
fically, we consider the sharing of demand-related informa
tion, inventory and sales positions, production and delivery
schedules, and performance metrics as indicators of informa
tion flow integration.

Seidmann and Sundarajan (1997) note thatoperational infor

mation sharing can leverage the economies of scale and
expertise

across

organizations.

Inventory

holding

informa

tion,when shared, can reduce total inventory in the supply

chain (Lee et al. 1997). Similarly, production and delivery

230

allows

retailers,

manufacturers,

and

Whang 1998; Simchi-Levi et al. 2000). By substituting infor

mation for inventoryholdings (Milgrom and Roberts 1988),
information flow integration can improve operational per
formance by reducing inventorycosts, enhancing capital and
cash flow utilization, and improving cycle times. By
improving theprecision of demand estimation throughcollab
orative forecasting, and facilitating supply and demand
alignment, information sharing can strengthen bonds with
customers and generate increased revenues from existing
products and new products and markets (Anderson et al.
1994; Mohr and Nevin 1990).

Physical
Information Flow

sharing

suppliers to improve forecasts, synchronize production and

delivery, coordinate inventory-relateddecisions, and develop
a shared understanding of performance bottlenecks (Lee and

Flow

Integration

Physical flow integration is defined as the degree towhich a

focal firm uses global optimization with its supply chain
partners tomanage the stocking and flow of materials and
finished goods. Downstream flows consist of rawmaterials,

subassemblies, and finished goods, while upstream flows

consist of products that are returned or need to be repaired.
Specific initiatives that have been suggested to improve

global optimization of physical flows include just-in-time

delivery (Lowson et al. 1999), automatic replenishment,

Managerial
practices, such as price fluctuations and forward buying, that
(1998). We
promote the bullwhip effect are discussed in Lee and Whang
focus our attention here on information flow integration and its ability to
counter the bullwhip effect.

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Rai et al./Digitally
Enabled Supply Chain Integration
Capabilities

vendor managed inventoryprograms (Daugherty et al. 1999;

Ellinger et al. 1999), and contractingwith logistics providers
for inventorymanagement services (Richardson 1999; Van
In addition, distribution networks can be
Hoek 2000).
to
optimally stage inventoryacross the supply
reconfigured

chain (Arntzen et al. 1995; Vidal and Goetschalckx 2000).

We identify
multi-echelon optimization of costs, just-in-time
deliveries, jointmanagement of inventorywith suppliers and
logistics partners, and distribution network configuration for
optimal staging of inventory as indicators of physical flow
integration.

flow integration can

Physical
reducing

costs

of production,

improve productivity by

transportation,

warehousing,

and logistics (Goldhar and Lei 1991). It can enable firms to

cut lot sizes, increase order frequency, cut buffer inventory
(Kaeli 1990; Lee and Billington 1992), reduce purchasing
costs, improve material handling, and invest in reliable
suppliers (Schneidrjans 1993). Other operational performance
benefits include fewer stock outs,more efficient stocking, less
need for safety stock, and improved selling space productivity
(Ellinger et al. 1999). By increasing responsiveness to cus
tomer demand through strategies such as postponement of
differentiation (Feitzinger and Lee 1997), physical flow
integrationcan improve customer relationships and customer
service (Ellinger et al. 1999; Gustin et al. 1995). Finally, such
integration is expected to improve long-termcompetitiveness
and growth (Goldhar and Lei 1991).

Financial

Flow

Integration

Financial flow integration is defined as the degree towhich

exchange of financial resources between a focal firm and its
supply chain partners isdriven byworkflow events. Financial
processes
were

were

reengineered

among

the earliest

to reduce

delays,

business
improve

processes
productivity,

that
and

eliminate redundant tasks (Hammer 1990). Yet, organizations

often do not have a consistent view of theirfinancial flows
with theirupstream and downstream partners (McCormack
and Johnson 2003).
Important downstream flows to be
managed

include

prices,

invoices,

and

credit

terms,

account

accelerated

payments,

and

collection

of customer

preferences

with billing and invoicing transactions can result in improved

customer relationships. Finally, financial flow integrationcan
impact revenue growth by improving cash flow availability
forproduction ramp-upwhen demand swings upward, or for
exploration of new product lines.

IT Infrastructure Integration forSCM

We define IT infrastructureintegrationas thedegree towhich
a focal firmhas established IT capabilities for the consistent
and high-velocity transferof supply chain-related information
within and across itsboundaries. IT infrastructureintegration
is conceptualized as a formative construct with two sub
constructs: data consistency and cross-functional SCM appli
cation

systems

integration.

Data Consistency
Data consistency is defined as the degree towhich common
data definitions and consistency in stored data have been
established across a focal firm's supply chain. There are

significant data consistency problems in large distributed

database or intermittently
connected distributed systems, such
as mobile computing environments (Pitoura and Bhargava
1999). Even greater problems occur in disparate and frag
mented systems spread across organizational boundaries, such
as supply chains. Data consistency in supply chains will be
enabled by common data definitions forkey entities, such as
customer and product, as well as automated systems for

accurate data capture. This consistency should enable process

integration (Huber 1990; Malone et al. 1987), including the
integrationof information,financial, and physical flows.

Cross-Functional
Systems

SCM Application
Integration

and

essential upstream flows to be coordinated include payments

and

and improve the availability of financial information for

decision-making (Greenfield et al. 2001). Reduced delays,

payables.

Financial flow integration can enable betterworking capital

and cash flowmanagement throughevent-based triggeringof
payables and receivables; for instance, electronic payment can
be triggeredupon delivery of goods. Event-based financial
workflows can reduce costs associated with billing, payment
processing, and dispute handling, and can shorten the
invoicing and receivables cycle time, accelerate payments,

Cross-functional SCM application systems integration is

defined as the degree of real-time communication of a focal
firm's function-specificSCM applications with each other and
related ERP and CRM applications.
Such connectivity
enables

the management

of cross-functional

process

depen

dencies in a supply chain (Rai, Bush, and Tiwana 2002; Rai,

Ruppel, and Lewis 2002). Note that application integration
is concerned with a firm's ability to interface function
specific supply chain applications with each other in real
time, while the information flow integration construct

MIS QuarterlyVol. 30 No. 2/June2006

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231

Rai et al./Digitally
Enabled SupplyChain Integration
Capabilities

described earlier is concerned with the content of operational,

tactical, and strategic information actually shared among
partners.

consider integration of applications for supply chain

planning and execution, and their integrationwith ERP and
CRM systems; together they characterize the applications
infrastructurefor end-to-end management of supply chains
(Kalakota and Robinson 1999). Planning applications are
designed to support planning for critical functions such as

We

Past literaturewas reviewed to specify a set of items that

ensured content and face validity and to achieve minimal
overlap between constructs (Cronbach 1971; Kerlinger 1986).
Items associated with these constructs used a seven-item
Likert type scale where respondents were asked to state their
agreementwith a given statementon a scale thatranged from
"strongly agree" to "strongly disagree" with itsmidpoint
anchored

as "neither

agree

nor

were

Respondents

disagree."

Execution applications are designed to support execution of

to select the organization's primary product(s) or

product line(s) while responding to the questions on these
constructs. Primary product(s) or product line(s) were defined
as those that command a significant proportion of company

order

revenues,

procurement,

production,

management,

transportation,

replenishment,

and warehousing.

production,

and

distri

bution. Integrated planning applications provide a capability

to generate cross-functional information about the supply
chain and develop globally optimal plans (Kalakota and
Robinson 1999). Similarly, integratedexecution applications
provide thecapability togenerate supply chain-wide visibility
of processes and coordinate global execution. Finally, inte
grated supply chain, ERP, and CRM applications should
facilitate the coordination of supplier- and customer-facing
processes

with

internal

firm processes.

asked

Subjective measures were used for operational excellence,

revenue growth, and customer relationships. The approach
has been widely used in organizational research, as senior
managers have reasonable informationand perspective about
organizational performance (Dess 1987; Lawrence and Lorsch
1967; Powell 1992). Subjective measures are also often pre
ferredas differences in accounting conventions and practices
can confound the comparison of financial measures (Powell
and Dent-Micallef
Further, some performance
1997).
not have

Fisher (1997) makes a distinction between functional and

innovative products. While functional products have long
product lifecycles and low forecasting errors, innovative
products have short product lifecycles and high forecasting
errors. In addition, profitmargins for innovative products are
significantlyhigher than those for functional products. Since
firmperformance can be influenced by demand predictability
at the end-consumer

level

based

on

the type of products

in

question, we specify consumer demand predictability as a

control variable. In addition, since larger firmsmay be in a
better position to achieve performance gains due to their
ability to garner scale efficiencies (Hitt et al. 2002), we
specify

firm size

as a control

variable.

as

such

measures,

Control Variables

or greater.

15 to 20 percent,

usually

timeliness

and

customer

accounting-based

equivalent

scale was

do

relationships,
measures.

performance

used for subjective

where
respondentswere asked to
organizational performance
rate the performance of their organization in comparison to
semantic comparison

as "much

their competitors
average,"
average"

as

"same
or "much

better

than average,"

"slightly

competitors-average,"
less

than average."

"better
less

than
than

in order

However,

to

of
the validity of the subjective measures
the
of
common-method
and
risk
guard against
performance
examine

bias,

objective

were

collected

measures
of performance
accounting-based
sources
for a subset of firms in our

from public

sample.5

Firm size and consumer demand predictabilitywere specified

as control variables. Total number of full-time equivalent
employees

was

used

as a measure

of firm

size

and

consumer

demand predictability was measured using a two-item scale

thatassessed lengthof product lifecycle and forecast error for
The

Empirical

Study

^^H___________-____-l

Given that several measures are being developed for thefirst

Instrument Development

time,

Data were collected using a carefully developed self-report

survey instrumentbased on guidelines and exemplars in the
literature,for example, Straub (1989) and Sethi and King
(1991). We systematically developed and validated measures
for the supply chain process integrationand IT infrastructure
integrationconstructs thatare being introduced in this study.

232

products (Fisher 1997).

great

care

was

taken

to assess

content

validity.

The

itemswere first independently evaluated by each researcher

and then in their joint meetings until therewas unanimous

and subsidiaries of public

Our sample included private organizations
organizations forwhich accounting-based measures of performance were
unavailable from public sources.

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Rai et al./Digitally
Enabled Supply Chain Integration
Capabilities

agreement on content validity. Two well-established IS

scholars with experience in survey research and expertise in
the subject domain subsequently evaluated the instrument.
After incorporating suggested changes, the firstphase of the
pilot testwas conducted with nine facultymembers who are
actively researching the strategic use of IT with a focus on
In addition to requesting
interorganizational capabilities.
comments on items and instructions, they were asked to
to

respond

semi-structured

questions

on

each

measure's

was
content validity. Based on theirfeedback, the instrument
modified and then tested using a similar approach with 10

in the greater
supply chain and logistics managers
Philadelphia region. Telephone and e-mail discussions were
conducted with thesemanagers to obtain clarifications and
ensure that adjustments made addressed their expressed
concerns.

Data Collection
A mailing list of supply chain and logistics managers was
compiled from the listof attendees of the annual conference
of the Council of Logistics Management (CLM).
Target
respondents for the surveywere considered to be senior or
middle managers with direct responsibility for SCM or

logistics function in the organization. Published attendee

information included name, title, affiliation, and contact
information;most attendees included an e-mail address in the
contact information. Approximately 1,800 names were

randomly selected from the list.All organizations thatdid not

belong to manufacturing or retail industries (the first two
digits of SIC codes 20 to 39 and 52 to 59) were removed from
our sample. Since some of the conference participants were
from the same organization, we examined listed professional
titles to determine themost suitable target respondent. The
final list consisted of 432 manufacturing and retail
organizations.

The surveywas firstmailed out and then subsequently made

available on a website; the address of thewebsite was made
available only to people on themailing list. After the first
conventional

mailing,

we

sent

e-mail

reminders,

providing

respondents the option of receiving another copy of the

survey by regularmail or completing the survey online. Our
e-mail reminder provided an incentive of a $10.00
Amazon.com giftcertificateforeach completed survey.After
accounting for returnedand undelivered mail and incorrecte
mail addresses, 360 surveyswere effectivelymailed out. We
received a total of 110 combined responses via returnmail,
Web,
percent,

and

e-mail.

which

The

effective

is considered

response

acceptable

rate was

for survey

tested for nonresponse bias using analysis of variance

techniques. Considering the lastgroup of respondents asmost
likely to be similar to nonrespondents, a comparison of the
first and last quartile of respondents provides a test of
response bias in the sample (Armstrong and Overton 1977).
The firstand last 25 percent of respondentswere compared on
key study variables and firm revenue, which was used as a

We

second proxy forfirm size in addition to number of full-time

employees. The tests did not indicate any response bias
across

these variables.

Similar

comparisons

were

made

across

participants who responded by regularmail and those who

completed the survey online. The analysis indicated that the
two groups were statistically similar on all demographic and
study variables.

The median firm size was 4,000 employees and themedian

firm revenue was $1.5 billion. The median firm realized less
than 20 percent of its total revenue from online sales of
products. Of the respondents, 45 percent were from the
logistics function, 17 percent each were from the supply chain

and distribution functions, 12percent had responsibility for IT

pertaining to the supply chain, 6 percent specified that their
direct responsibility focused on e-commerce and digitization
to support the supply chain, and 3 percent belonged to the
purchasing function. Thus, our respondents hold positions
that are well aligned with the subject matter of this investi
gation and are likely tobe well informedof related initiatives

within theirfirms.

Measurement

Validation

Partial least squares (PLS)6 was used for the data analysis.
analytical approach is generally recommended for
predictive research models where the emphasis is on theory
development, whereas LISREL is recommended forconfirma

This

tory

analysis

and

requires

a more

stringent

adherence

to

distributional assumptions (Joreskog andWold 1982). Given

that there have been very few empirical studies in this
research context and littleprior theory,our focus is on theory
development. In addition, the ability of PLS tomodel forma
tive as well as reflective constructsmakes it suitable for our
purposes.

Jarvis et al. (2003) note that thedecision tomodel a construct

as formative or reflective should be based on four major
criteria: (1) direction of causality from construct to indi
cators, (2) interchangeability of indicators, (3) covariation
among indicators, and (4) nomological net of construct indi

30.55

research.

The analysis was done using PLS Graph 3.00.

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233

Rai et al./Digitally
Enabled Supply Chain Integration
Capabilities

Table

2. Measurement

of Constructs
Number of

Latent Construct
IT Infrastructure

Sub-Construct

Type

..

Formatlve

IntegrationforSCM

items

Type

Data Consistency

Cross-functional SCM Application

4
Formatjve

Integration

5
Formative

InformationFlow Integration
_,

Process

,A

Physical Flow Integration

Formative

Financial Flow Integration

Formative

Operations Excellence

Formative

Customer Relationship

Formative

Formative

L.

Integration

Firm Performance

Formative

Revenue
_

Growth_Formative_2_

cators. Constructs should be modeled as formative if the

following decision rules hold: the direction of causality is
from indicators to constructs, the indicators need not be inter
changeable, covariation among indicators is not necessary;
and thenomological net of indicators can differ. They should
be modeled as reflective if theopposite conditions apply. For
the three second-order constructs and each of their sub
constructs inour researchmodel, these decision rules suggest
to us that the constructs should be modeled as formative.
Table 2 summarizes the constructs and sub-constructs and the
number of indicators associated with each sub-construct.
The first stage of data analysis focused on measurement
assessed convergent and
properties of constructs. We
discriminant validity by factor analyzing itemsgrouped under
a second-order

construct

(i.e.,

IT

infrastructure

integration

for

supply chain process integration, and firm perfor

mance). The expected factor structurewas obtained in all
three cases (see Appendix A). We also examined the item
total correlations for these constructs (see Appendix B). The
correlation pattern indicates that an item posited to form a
given sub-construct has a stronger correlation with it than
another construct providing furtherevidence of discriminant
SCM,

and convergent validity.

Another suggested criterion for discriminant validity is that

the variance shared by a constructwith its indicators should
be greater than the variance shared with other constructs in
Fornell and Larcker (1981) note that average
themodel.
variance

extracted

can

be used

to assess

the variance

shared

between the construct and itsmeasurement items. Table 3

provides the results of thisanalysis. A construct is considered
to be distinct from other constructs if the square root of the
average variance extracted for it is greater than itscorrelations

234

Formative

with other latent constructs (Barclay et al. 1995), which

observed to be the case.

is

To further investigate the pattern of association among

formative indicators, internal consistency of sub-constructs
was assessed using Cronbach's
alpha and Fornell and
Larcker's measure of composite reliability. Based on
Nunnally's (1978) guidelines, a score of 0.70 or above is an

acceptable value of internal consistency for exploratory

the constructs meet tests of internal
research. While
and
convergent validity inour empirical context,
consistency
it should be emphasized that these are not necessary
requirements for formative constructs (Jarvis et al. 2003).
The collective evidence suggests that the constructs
demonstrate

good

measurement

properties.

Subsequently, we created linear composites from the items

to measure

used

each

sub-construct

and

used

them

as

formative indicators for the latentconstructs specified in the

model.

Factor

to compute

linear

structural
used

scores

or multivariate

composite

scores.

means
The

can be

multivariate

is based on the summated mean values of items and

offers the advantages of being replicable across samples. It

mean
is

the

recommended

when

approach

new

measures

are

developed and transferability is desired (Hair et al. 1995).

Rozeboom (1979) also notes that linear composite scores
based on differentweighting schemes are highly correlated
when the items are internallyconsistent,which is true in our
case. Thus, while internal consistency is not a requirement
for formative

constructs,

linear

composite

scores,

which

were

computed using different estimation methods for indicator

weights, were found to be highly correlated for each sub
construct. Consequently, the use of these different linear
composite scores did not change the observed pattern of
relationships reported below.

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et al./Digitally Enabled

Rai

Table

3. Assessment

of Discriminant

Supply

Chain

Integration Capabilities

Validity

Mean

Constructs
Data Consistency

DC

(SD)
.40

(DC)

FFI

PFI

IFI

OE

RG

.47

.53

.80

.31

.21

.23

.78

.52

.36

.26

.25

.67

.49

.55

.40

.20

.53

.73

.34

.29

.23

.24

.28

.31

.76

Revenue Growth (RG)

_C16)_
.38

.15

.14

-.04

.31

.29

.25

.83

Customer Relationship (CR)

_C19)_
.31

.17

.13

.14

.33

.16

.40

.31

.44

.30

.14

.03

.14

.09

19.08

-.10

-.02

-.00

-.05

-.06

Systems

Integration (CAI)

Financial

Flow

Integration(FFI)

SZ

(.22)

Integration(PFI)
Information

CD

(.24)

Flow

Physical

CR

.76

_(?f)_

Cross-Functional Application

CAI

(.21)

Flow

Integration(IFI) (.20)
Operational

Consumer

Excellence

(OE)

_C18)_

Demand

-.00

-.03

.84
.07

.80

.05

-.21

Predictability (CD) (.17)

FirmSize

(SZ)*

.00

.11

NA

_(39.80)_
*The shaded

diagonal

values

are

the square

root of the average

variance

Results
Each second-order latentconstruct ismodeled as a formative
construct consisting of itssub-constructs as indicators. As the
interpretationof theweights is similar to thebeta coefficients
in a standard regression model, it is usual to have lower
absolute weights as compared to loadings. The PLS method
does not directly provide significance tests and confidence
interval estimates of path coefficients in the research model.
In order to estimate the significance of path coefficients, a
bootstrapping technique was used. Bootstrap analysis was

subsamples and path coefficients were

reestimated using each of these samples. The vector of

done with

parameter

500

estimates

was

used

to compute

parameter

means,

standard errors, significance of path coefficients, indicator

loadings, and indicatorweights. This approach is consistent
with recommended practices for estimating significance of
path coefficients and indicator loadings (Lohmoeller 1984)
and has been used inprior IS studies (Chin and Gopal 1995;
Compeau and Higgins 1995; Howell and Higgins 1990;
Ravichandran and Rai 2000).

extracted

for each

construct.

Firm size

is in thousands

of employees.

Results of the analysis for the structuralmodel are presented

in Figure 3. No minimum threshold values for indicator
weights have been established. The statistical significance of
weights can be used to determine the relative importance of
indicators in forming a latent construct. We found that all
specified paths between constructs inour researchmodel had
significant path coefficients. In terms of the indicators,
customer relationships and financial flow integrationdid not
have significant formativeweights for the firm performance
and supply chain process integrationconstructs respectively.
Finally, the two specified control variables were not found to
be significantly associated with firm performance.

The results provide support for the research model. One

indicatorof thepredictive power of pathmodels is to examine
the explained variance orR2 values (Barclay et al. 1995; Chin
and Gopal 1995). R2 values are interpreted in the same
manner as those obtained frommultiple regression analysis.

They indicate the amount of variance in the construct that is

explained by thepathmodel (Barclay et al. 1995). The results
indicate that themodel explained 18.6 percent of thevariance

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235

Rai et al./Digitally
Enabled Supply Chain Integration
Capabilities

ControlVariables

j
i

11

IT Integration
Capability

|j
!
\!:

I-1

N.
Consistency

;!|

j8r**

1-1

/
! Cross-Functional
Application
j

;|

!
i

jIR2=
'

^^_??^^

\ -~~^

SCMV
yf

\
\
i

IOperational
I

/ /

^^__t_^/

Vlntegration/
"'

|i

'

j!
|i

;|

!
/
^?i-

js***/

.31**

.12\

; \"

'

!
j

^-

| j

Flow

Flow

Flow

I j
| | Integration
| I Integration
; ; ; I Integration
!
!j!

Excellence

^y

7^?,
V55.
Revenue
^"^""^-s

Growth

IL

*p < 10

**p< .05
< .01
***p

of Path Analysis

in firmperformance. Similarly, 33.6 percent of the variance

in supply chain process integrationwas explained by IT
infrastructure integration. The path coefficient from IT

infrastructureintegration to supply chain process integration

was .58 and from supply chain process integration to firm
performance was .44. The magnitude and significance of
thesepath coefficientsprovides additional evidence in support
of the researchmodel.
Since our model proposes that supply chain process inte
grationmediates the impact of SCM-related IT infrastructure
integration on firm performance, we tested themediation
effect in twoways. First we compared the research model
thatproposes fullmediation against a competing model that

proposed both direct and mediated effects (i.e., a partially

mediated model of SCM-related IT infrastructureintegration
and firmperformance). Since themodels are nested, theycan
be compared statisticallyusing PLS results (Chin et al. 2003;
Subramani 2004). The partiallymediated model has one more
path (from IT infrastructureintegration to firmperformance)
than the fullymediated research model. The R2 for firm
performance in the partially mediated model was .197 as
compared to .186 in the fullymediated researchmodel. The
effect of the extra path in the partially mediated model is
assessed using a procedure similar to the one used to test

236

/
( FirmSize J
!
;
! /
-.09>-^_^^
1
-'
:._./?_/?-??-

I I PhysicalI I Financial
J! i I Information
I\

3. Results

Demand j

! V Predictability
J
: -.04K--^

M*** /
IT^\
.58***
/\
J'
n^\
^N\V .141Customer
Cham
SuPp,y
Firm
I
i / Infrastructure
\_\(
\jj_/
Process
\
Relationships
forY\\
! V Integration
V
|-H Performancej

Integration

Figure

y^ConsumerX !

!!!
|

R2=

;|

n^

j .28** V^

Integration
Capability

!I

Data

Process

I-1

!
j

ii

competingmodels in stepwise linear regression. Accordingly,

the/2 statistic,which is based on thedifference inR2between
the twomodels, was firstcomputed and thenused to compute
the pseudo F statistic.7 Based on the results of the two

competing models forour sample,/2was .0136 and pseudo F

(1,106) statisticwas 1.441, which was insignificant. The
analysis suggests that the additional variance explained by
introducing the direct path from IT infrastructureintegration
to firmperformance does not significantly add to thevariance
explained in the dependent variable.
In addition to comparing partial mediation with full
mediation, we used mediation analysis techniques (Hoyle and
Kenny 1999; Subramani 2004) to assess the significance of
themediation effectof supply chain process integrationon the
relationship between IT infrastructureintegration and firm
performance. The analysis is based on the path coefficients
and the standard errors of the direct paths between IT
infrastructureintegration (independent variable, designated
iv), supply chain process integration (mediating variable,

2
- R2 full
is (R2 partial mediation
7The formula for computing f
The pseudo F statistic is computed
R2 partial mediation).
mediation)/(l*
n is the
using the formula/2 (n-k-1), with 1, (n-k) degrees of freedom where
sample size and k is the number of constructs in themodel (Chin et al. 2003).

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Rai et al./Digitally
Enabled Supply Chain Integration
Capabilities

designated m), and firm performance (dependent variable,

designated dv). The magnitude ofmediation is computed as
theproduct of the standardized path coefficients between IT
infrastructureintegrationand supply chain process integration
(iv -> m) and between supply chain process integration and

firmperformance (m -> dv). The magnitude of mediation

effectbased on thePLS resultswas .259. The standard error
of themediated path is computed based on the standardized
path coefficients and standard deviations of the direct paths
among the independent,mediating, and dependent variable.8
The computations yield a z-statistic of 2.75, which is
< .01. The two tests are considered as com
significant at p
plementary testofmediation (Subramani 2004) as thenested

model analysis assesses the additional explanatory power of

competing models, while the mediation analysis provides
informationon the significance ofmediation effects.

To validate our results obtained with subjective measures of

firmperformance,we replicated theanalysis using applicable
objective firmperformance measures. We collated publicly
available
information about firm performance from
with survey data forfirmswhere respondents
COMPUSTAT
had provided us with requested identification information in
their responses. This collation process resulted in a dataset

with objective measures for 57 firms.We conducted multiple

cross-validations to assess quality of survey data used to
assess

performance

and

test the model.

First,

the revenue

data

provided by survey respondents had a correlation of .92with

publicly reported revenue data, providing evidence of the
accuracy of the respondents' estimates. We then computed a
three-year
also

mean

turns and net trade cycle,

value
of inventory
to as a cash-cash
two
conversion
These
cycle.
assess
to
excellence
and are suggested
operational

referred

measures

be impacted by supply chain integration (Rai, Bush, and

Tiwana 2002; Simchi-Levi et al. 2000; Supply-Chain Council
2003). The mean value and standard deviation for inventory
turnswere 8.05 and 10.36 turns per year, while themean
value and standard deviation for net trade cycle were 82.27
and 62.01 days respectively.
Since

our

survey

assessed

relative

subjective

performance

of

the firm,we computed a difference between the three-year

mean

value

of

inventory

turns

and

net

trade

cycle

for each

firmfrom themean values within the two-digit SIC category.

We again evaluated the researchmodel using PLS with these
computed measures of relative superiority of a firm for
inventory turns and net trade cycle. The indicators were

An approximation for the standard error of themediated path is computed

using the formula sqrt(p12s22+ p22Sj2+ s,2 s22)where pl is the path coefficient
of the path from iv -> m and p2 is the path coefficient from m -> dv and s,,
s2 are the corresponding standard deviations (Hoyle and Kenny 1999).

as reflective since the twomeasures of operational

excellence are expected to covary. The significant paths are
replicated, and the model explains 12.3 percent of the

modeled

variance inoperational excellence assessed by relative perfor

mance superiorityusing objective measures of inventoryturns
and net trade cycle. Triangulation of results using cross
validation analyses with relative objective measures of opera
tional excellence fora firmprovides additional support for the
validity of the subjective performancemeasures collected by
means of the survey and of the observed path relationships
between

constructs.

i^^H

Discussion

The results suggest thatIT infrastructureintegrationfor SCM

enables supply chain process integration,which in turnyields

sustained gains infirmperformance, particularly operational

excellence and revenue growth. These findings have signi
ficant implications for themanagement of IT infrastructure
integration,as itneeds to be focused and leveraged to create

performance gains by using lower-order technology capa

bilities to enable higher-orderprocess integrationcapabilities.

Integrated IT Infrastructure forSCM

Past framings of IT infrastructureidentifyreach and range as
importantbusiness functionalities enabled by IT infrastructure
platforms (Broadbent et al. 1999; Keen 1991). Reach refers
to the connectivity of the IT infrastructure,
while range refers
to thevariety of informationresources thatcan be exchanged
by the IT infrastructure. In the context of SCM, cross
functional applications integration enables near real-time
connectivity across a range of complementary applications
focused

on

planning

and

execution,

and

their

connectivity

with applications for enterprise resource planning and cus

tomer

relationship

management.

Having

common

data

defini

tions and data consistency not only enables connectivity

across the supply chain, but also enables the exchange of
complementary information between a firm and its supply
chain

partners.

Drawing on the resource-based view of the firm,Bharadwaj

(2000) expanded our conceptualization of IT-based resources
to include IT infrastructure,human IT resources, and IT
enabled intangible processes. She notes the limitations to
conceptualizing IT infrastructureas a lower-level tangible
physical resource, which, by definition, ismore likely to be
mimicked by competition. Instead, an integrated IT infra
structurerepresents a capability that isnot easily mimicked as

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237

Rai et al./Digitally
Enabled SupplyChain Integration
Capabilities

it is established througha combination of lower-level tangible

resources and complementary intangible and human IT
resources.

Our resultsprovide evidence thatIT infrastructureintegration

targeted at SCM enables the transformationof fragmented,

functional, silo-oriented supply chain processes to integrated,

cross-functional, interfirmsupply chain processes. The latter
are characterized by synergies derived from integrating
resource flows between a firmand its supply chain partners.
An inspection of theweights associated with the two forma

tive indicators (i.e., data consistency and cross-functional

SCM application integration) suggest that both are critical
elements of IT infrastructure integration in this context.
However, data consistency is relatively more important, in
comparison to cross-functional application integration, sug
gesting the high degree of importance of data quality and
standards as facilitators of process integration.

Supply Chain Process

an IT-Enabled Process

Integration as
Capability

Our results indicate that a firm's IT-based platform capa

bilities have a substantial effecton supply chain process inte
gration. This capability isdeeply embedded into the structure
of interfirm operational

processes,

A good illustrationof thepowerful and sustainable impact of

supply chain process integration isDell's virtual integration
model, which has contributed to the firm's market position
and sustained advantage. Dell's supply chain process inte
gration capability is hard to imitate, as evidenced by the
unsuccessful mimetic behavior of its competition for several
years.

Other

relationship

management

resources

and

capa

bilities, such as trustbetween partners, colocated assets, and

collaborative incentive systems and interaction routines, are
likely required complements of IT infrastructureintegration
capabilities for supply chain process integration. Future
research should investigate these complementarities so that
both IT infrastructureintegration and relationship manage
ment capabilities are effectively leveraged for supply chain
process integration.

Leveraging Synergies among Integrated Flows

forPerformance Gains

such as order management,

inventorymanagement, logistics, and distribution; financial

processes, such as billing and receivables management; and
information processes, such as demand planning and fore
casting. The integration associated with these processes is
achieved through a series of initiatives thatmay include
tradingpartner agreements and supply chain partnerships in
addition to the deep embedding of integrated IT capabilities
as process enablers. The development of process integration
capability that leverages IT infrastructureintegrationrequires
substantial expertise spanning the business process domain,
partnership context, and IT. This capability development
requires significant time,making rapid imitationby compe
titiondifficult.

Our results suggest that supply chain process integration/w//y

mediates the impact of IT infrastructureintegrationon firm
performance. Information flow integration has the largest
effect on the formation of supply chain process integration

capability, followed by physical flow integration,with finan

cial flow integration having an insignificant impact. We
observed that themean value for financial flow integration
was relatively high (3.8 on a scale from 1 to 7) and, more
notably, its variance somewhat low (1.01). Automatic in
voicing and payment systems appear to have been imple
mented and access to these capabilities ismade much easier

238

through themarketplace. As a result,while these capabilities

are increasingly a prerequisite for transacting financially, they
do not contribute to the explanation of variance in firm
performance. More sophisticated measures of financial flow
integrationthatcapture variance in thiscapability across firms
need to be incorporated in future studies.

Our results indicate that operational excellence has a very

strong and significantweight in the formation of the firm
performance construct. The strong effect of supply chain
process integrationon firmperformance, as indicated by the
path coefficient, suggests that supply chain process integra
tion improves operational performance relative to competition
by

squeezing

out

delays,

redundant

tasks,

and

inefficient

flows. The strong effecton revenue growth also suggests that

supply chain process integration enables market penetration
and provides the agility to ensure that sales opportunities
associated with the launch of new products and entry intonew
markets are captured. The insignificantweight of customer
relationships with firm performance suggests that supply
chain process integrationmay not directly lead to superior
customer relationships, but thatsuch gains may occur through
customer

relationship

management

initiatives.

Disaggregated Specification of Firm

Performance in the Capabilities
Performance Nomology
It has been suggested that operational performance impacts
other key aspects of firmperformance (Barua et al. 2001;

MIS QuarterlyVol. 30 No. 2/June2006

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Rai et al./Digitally
Enabled Supply Chain Integration
Capabilities

Mukhopadhyay et al. 1995). Accordingly, we disaggregated

the indicators of firmperformance inourmodel to investigate
the impact of operational excellence on revenue growth and
customer relationships.
The first disaggregated model
examined ifsupply chain process integration improves opera
tional excellence, which, in turn, improves revenue growth
and customer relationships. The second disaggregated model
examined if supply chain process integration improves
relative inventoryturnoverperformance (objective measure),
which, in turn, improves revenue growth and customer rela

tionships. Finally, the thirddisaggregated model examined if

supply chain process integration improves relative net trade
cycle (objective measure), which, in turn, improves revenue

growth and customer relationships. For the second and third

disaggregated models, the reduced subsample of 57 firmswith
objective measures for inventoryturnoverand net trade cycle
was used. In each case, all paths from the IT infrastructure
integrationto supply chain process integrationare significant.

In addition, in each case, supply chain process integrationhad

a significant impact on themeasure of operational perfor
mance considered (subjective measure of operational excel
lence [R2= 12.7%], relative inventory turnover [R2= 8.5%],
and relative net trade cycle [R2= 9%]), which, in turn,signi
ficantly impacted revenue growth and customer relationships.
These results support the suggestion thatsupply chain process
integrationhas a direct impact on operational performance,

which, in turn, leads to improvements inother key aspects of

firm performance,

such as customer

relationships

and revenue

growth.

forSupply

Contingency Considerations
Chain Process Integration

The results indicate that supply chain process integrationhas

a significant impact on firmperformance, specifically opera
tional

excellence

and

revenue

growth.

We

caution

that a

limited focus on optimization of operational costs without

regard to building in buffers for demand and supply uncer
tainty can have detrimental consequences on service levels
and response times (Lee 2002). For example, in the case of
supply chain process integration for the movement of
configure-to-order

products

from

source

of

supply

to con

sumption, it is important to position component-level stocks

strategically so thatproduct configuration and assembly can

be postponed until the order is specified by the customer.

Companies aremodularizing product designs and developing
their information sharing capabilities as part of their transi
tions from a build-to-stock fulfillmentmodel to a configure
to-order fulfillmentmodel

2001). While

(Simchi-Levi and Simchi-Levi

integrated flows are critical to both fulfillment

approaches,

a sole

focus

on

operational

costs without

a well

defined component-level buffer strategy is likely to be

detrimentalwhen final consumer demand is hard to predict.
Differences in supply chain process integration capabilities
needed fordifferent levels of demand and supply uncertainties
are fruitfulareas for future research.

Limitations and Future Research

We hope thatour study triggersa series of related investiga
tionsby the IS research community. There are specific limita
tions to our work. First, the unit of analysis of this study is
not a specific supply chain for a given product linebut a focal
firm.We examine aggregate IT-enabled supply chain capa
bilities across theprimary products for a firm. This results in
aggregation across supply chains for products. On the other
hand, this unit of analysis allows us to focus on broader

organization-wide patterns of IT infrastructureintegration,

supply chain process integration,and firmperformance. This
enables a clear and identifiable linkagewith measures of firm
performance. Second, the study focused on manufacturing
and retail organizations and collected data frommember firms
of theCouncil forLogistics Management. As such, themodel
and relationships should be examined in other industrial
sectors and from a broader representation of firms in the
manufacturing and retail sectors. Third, variables such as
structure of specific supply chains, number of tiers in the
chain, types of supply chain applications, and types of busi
ness processes integrated,which have not been examined,
should help us develop a better understanding of IT-enabled
supply chain capabilities in different contexts. Fourth, our
measure of financial flow integrationfocused on event-based
integration of receivables and payables; more complex pat
ternsof financial flow integration thatcan be supported by IT
should be explored. Fifth, subjective measures of the key
respondent

are used

for firm performance,

albeit

the results

are replicated with importantobjective measures of firmper

formance. Future studies need to include other objective
measures

of firm performance.

Most constructsused in the studyhave been developed for the

first time and the nature of the relationships investigated is
exploratory. Future studies need to investigate the relation
ship between physical, financial, and information flow
integration, the complementarities between them, and their
differential impact on firmperformance inbusiness environ
ments characterized by differentdemand patterns forproducts
and services. In addition, the role of complementary organi
zational capabilities, such interorganizational relational capa
bilities, need tobe explored in termsof their impact on supply
chain process integration and firmperformance.

MIS QuarterlyVol. 30 No. 2/June2006

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All use subject to JSTOR Terms and Conditions

239

Rai

et al./Digitally Enabled

Chain

Supply

Integration Capabilities

To the degree that future research integrates additional con

cepts pertaining to uncertainties in the demand and supply
environment and strategic choices with respect to supplier
relationships, we will start developing theoretical linkages

between importantconcepts in informationsystems, strategy,

and operations as they relate to SCM. As IT infrastructure
capabilities are deployed to architect business networks, the
development of such interdisciplinary theoretical under
standing is critical and represents a huge opportunity for IS
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Ravi

is an associate

Patnayakuni

in the Department

of Alabama

University

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supply

ofManagement

the ACM,
Systems

Nainika

Seth

research

Information

Communications

Omega,
Journal.

He

His

information
His

management.

knowledge
Journal

Information

and

in Huntsville.

partnerships,

received

of information

professor

of Accounting

research

technology
has

at the

been

on

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and

value,

in

published

Communications

Systems,

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his Ph.D.

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of

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Illinois

University atCarbondale in 1997.

is an assistant

Department

of Alabama

University

Illinois University

interests

include

of

chains.

the ACM,

Journal

research

presented

of information
Information
She

and

has been published

and

Information
at

the

the
from

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in

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Resources

International

Her

in the
at

her Ph.D.

in 2002.

IT value,

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Systems

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Southern

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Management
Conference

on

Systems.

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243

et al./Digitally Enabled

Rai

Integration Capabilities

Appendix
Summary

Chain

Supply

of the Measurement

Analysis

Model:

Factor

Structure,3

Composite Reliability,b and Average Variance Extracted0 ^^^^^^^

Measurement

Items

Factor
Data

^^H

Structure & Loadings

Cross-Functional

Consistency
Application
Infrastructure Integration for
(CAI)
_IT
SCM_(DC)_Integration
Automatic data capture systems are used (e.g., bar code)
Dri
78--V^SSi'^
the supply
_across
?|Sfc%'W^i^;M3?^,*'?":i
chain._"_-?,
Definitions of key data elements (e.g., customer, order, part
nC9
fi1 -^#^8ilSlfl'Si:|0fSlt;>
are common across the supply
_number)
chain_"_:|SS|^S;I$I2%i0S&
Same data (e.g., order status) stored indifferentdatabases
~~0
~Q
^M^ffS^&^X:.fSt^y
across the supply chain is
'W^E^i&^Z
t-03
consistent_'_\(>.
The followingapplications communicate in real
time:_
Supply chain planning applications (e.g., demand planning,
PA|1
73
'-P/^tyd^^
._
_transportation planning,manufacturing planning)_'0i^B^0^,%&/!&>'
~AIO
00
Supply chain transaction applications (e.g., order
^Jl^ll^^&|2l^:;ft
and distribution)
_management, procurement,manufacturing
i$PtE^?^^$S^yfZ;:_
~ A lo
oo
]^);ZXZ^0MfMMPA:fZ-Supply chain applications with internalapplications of our
as enterprise resource
rf
(such
_
^ff^f^Wf^P^W^^'U
_organization
planning)_,;
Customer relationship applications with internalapplications
PA|4
81
i^fJIff/J^
our
_of
organization_1%'Mv
^0M^:^'^Zp:^_
Variance

_Average

Extracted_57.8%_63.8%_

Cronbach/s Alpha/Composite Reliability

Chain Process
Integration Capability_(FFI)_(PFI)_(IFI)
_Supply
Account receivables processes are automatically triggered

FF|1

we

_when

to our

ship

.85Z.87
Financial
Flow

Physical
Flow

Information
Flow

Integration

Integration

Integration

84

customers_

Account payable processes are automatically triggeredwhen

PF|p

_we

receive

from our

supplies

71

suppliers_'_

Inventoryholdings are minimized across the supply chain

.83_
Supply chain-wide inventoryis jointlymanaged with suppliers
fifi

PFI1
pF|?

partners

logistics

_and

(e.g.,

UPS,

FedEx)_

Suppliers and logistics partners deliver products and

fiq
materials just in
time_
Distribution networks are configured tominimize total supply

pF|o
pF|4
IC-M
ii~n

IFI2
.p.,.IO
11

_chain-wide
Production
.
,
_supply

IFI5

inventory
and
.

chain_

costs

d_
'_
schedules

delivery

are

across

shared

chain members
.OO
_
_forecasts_
Supply
r

downstream

4^

the

on
.ou

Performance metrics are shared across the supply chain

Our

|F|4

collaborate

partners

(e.g.,

in arriving
distributors,

at demand

wholesalers,

_.68_
~R

ftf

share theiractual sales data with

us_
_retailers)
Inventorydata are visible at all steps across the supply chain_.63_
_Average

Variance

Extracted_61.2%_44.9%_42.7%

Cronbach's Alpha/Composite Reliability

244

.72/.80

NA/.76

MIS QuarterlyVol. 30 No. 2/June2006

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All use subject to JSTOR Terms and Conditions

.817.85
.70/.76

et al./Digitally Enabled

Rai

Measurement

Items

Factor
Operational
Excellence

_FirmPerformance_(OE)_(RG)_(CR)
Product delivery cycle time
__38_
Timeliness of after sales
service__B1_

OE1
OE2

improvements

Productivity

OF'}

_labor

(e.g.,

assets,

new
Finding
, , x

D~0
Ko_,

Chain

Integration Capabilities

Structure & Loadings

Revenue
Customer
Growth
Relationship

--

costs,

costs)_"_.

Increasing sales of existing products_

RG1

operating

Supply

revenue
.00

streams

(e.g.,

new

.83_
products,

new

QO

_markets)_

CR1

Strong and continuous bond with customers_

CR2

Precise

knowledge
_Average

of customer
Variance

buying

_74_

patterns_

-_'_.92_

Extracted_57.1%_69.1%_70.0%

Cronbach's Alpha/Composite Reliability

Consumer

.66/.80

NA/.82
NA/.82

Demand

Predictability (Control Variable)

There isa highmargin of error inproduct
forecasts_.80_
Products have a short lifecycle (less than 1
year)__30_

CD1
CD2

_Average

Variance

Extracted_63.8%_

Cronbach's Alpha/Composite Reliability

NA/.78

Notes:
a.

Rotated factor solution based on principal component analysis with varimax rotation. All cross-loadings below .40 are
suppressed.

b.

Internalconsistency was calculated using Cronbach's alpha and a measure of composite reliabilityproposed by Fornel and
Larcker (1981) for assessing
internal consistency of constructs in structural equation models using the formula
--;?-where

Varfo)

(Zv+ZM^)

two-item

c.

Average
and

d.

= 1-

and A is the item loading and e is the error. Cronbach's alpha is not reported for
Ayj2

constructs.

variance
is the error.

extracted

is calculated

using

the formula ?-?-^-^

ZV

ZV

+IM*J

where

Var(e.)

= 1Avi2and

A is the

item loading

was
The itemhad a loading of .45with informationflow integration.However, after carefullyevaluating the item, it
as part of physical flow integrationdue to content validityconsiderations.

MIS QuarterlyVol. 30 No. 2/June2006

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All use subject to JSTOR Terms and Conditions

retained

245

et al./Digitally Enabled

Rai

Appendix

Supply

Chain

Integration Capabilities

Item-Construct Correlation ^^^^^^^^^HIHII^HBHHaHI^^^I^HBHBHHBi

Items

DC

DCI ^P^

DC2 HHBI

DC3
__

CAii
CAI3
CAI4
FFM
FFI2
PHI

llll^p11
_^
487
453
362
374
263
.257

PFI2
PR3

211
257

PFI4

332

IFM
IFI2

| FFI

| CAI
^
.470

| PFI

381
^304

"

229

-203 " 356

.214
.302
352 .822 296
A22 JB35Tii
280 ,85V T80
208,787 200
.078
358
,784
278
333
,867
.248

301

245

766

~A
????????????

208 437

.095
213

372

IR4

306
347
A70
251
270

iFI5
OE1
oii
OE3

RG1
RG2
CR1
CR2
CD1

225

332
^155 29(5

!l81
394

rT06
T69
~~
.125
.173
^120

^091
203 353
352
326
T03(5

267
233
338
335

~A02

313
437
238
324
373

.254
265
A85

.165
215
354

^46
!l97
!Tl5
271

^156
385

7oi8
312
."""320

,732
,810

____________.Mii.i.I.

!l80254 355
405
T36
A0Q
^149 212
293
205
250
^77
!l81

!l55

| RG

280

462

682

479

441

379

296

| OE

323

-.010

418

__-_??_____? ??????????

IFI

444
363

IFI3

????????????

284 Tl3 743

246!l47
'.667
207294

405

Constructs

.806

!766
366
209
300

7174
381

388

.164
T78
376
379
To2
lu
A22
.241

T94
206

^158
227

!l81
^188

3V\

239

363

251

366

208

397

^162
250

??????????

272

349

??_???_???__ ????????

.140

^185
28(5
233
Tl9
222

.850

^105
420
282

,887
252
295

^058

To_4

| CD
236

320
^169 ' 311

259

!l66

201
'' ,B?@ "'
249
;~\lW
214
,782
268
^':JBQ7 \
244
.736

351

^109
~

| CR

213

.197

^135
206
/161
324
3To
^037
307385

-.234
-.026
-.063
-.014
-.008
-.023

334
325

206
353

-.160
-.067

314!l64

38(5
347

????????????

-366
-.114

??????

316
.100

^138
7031
387
!l63
337
316
369
^066
239
-304
302

426

| SZ

^086

376
326
!t41
318
/?03
J?8
333
;886 1)77
-369
.733

-.092
321
-.030
351

^125

-.137

CD2 I 337 | .185 | .120 | .189I .132| 333 | -340 | .155L^M^mJ-.194

246

MIS QuarterlyVol. 30 No. 2/June2006

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