Supply Chain Management:

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Master in Operations and Supply Chain Management Final Thesis

July 2004

Supply Chain Management:

The evaluation of contextual factors, the integrative practices

and the level of performance,

a critical review of constructs and variables

Written by: Sophie Kerhoz-Routhiau Corrected by: Taco van der Vaart

Dirk Peter van Donk

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Table of index

INTRODUCTION 3

I. Articles concerning the evaluation of context 6

1.1. Construct analysis 6

1.2. The evaluation of measures and scales 8

II. The evaluation of performance level in a supply chain 9

2.1.1. Quality performance 11

2.1.2. Financial performance 12

2.1.3. Delivery performance 12

2.1.4. Flexibility performance 14

2.1.5. Customer service performance 14

2.2.1. Firm’s financial performance evaluation 17

2.2.2. Customer service performance evaluation 17

2.2.3. Quality performance evaluation 18

2.2.4. General framework of performance evaluation 19

III. Integration in the supply chain 20

3.1.1. Integrative practices: a strategic perspective 21 3.1.2. Integrative practices: an operational perspective 23

3.1.3. Internal practices 25

3.2.1. Physical flow 26

3.2.2. Planning and control 27

3.2.3. Information 28

3.2.4. Relationships 30

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CONCLUSION 32

BIBLIOGRAPHY 33

APPENDIX 35

Appendix 1: matrix 1 – models 35

Appendix 2: matrix 2 – context 40

Appendix 3: matrix 3 – performances 41

Appendix 4: matrix 4 – integrative practices 46

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INTRODUCTION

The supply chain management is a complex term which is receiving a growing interest from the different actors on the market. The supply chain is the conduit for getting products from source to ultimate customer. As a result, it is affected by almost every function within the organisations that it comprises. If managed effectively, the supply chain provides one of the greatest opportunities for improving customer satisfaction, and a major source of competitive advantage. The supply chain management is defined by Slack et al. as: “supply chain

management is the interconnection of organisations which relates to each other through upstream and downstream linkages between the different processes that produce value in the form of the products and services to the ultimate customer.” The term of supply chain management has become a hot issue in the contemporary operations management literature.

The complexity of managing supply chains is obvious for both practitioners (Siegele (2002)) as to academics (Handfield (2002)). However, the multiplication of use of the term supply chain management does not mean there is a consensus on precise definition.

We base our research study on the paper of Ho et al. (2002) who are pointing out the fact that supply chain management is complex and very difficult to define. They explain that some authors are focusing on the perspective of purchasing and supply chain functions, other are making their researches from the perspective of logistics and transportations functions. But it is increasingly difficult to integrate as well as to map out the overall pattern of theoretical and empirical research in this area.

Area of interactions

between buyers and suppliers

Customer requirement identification Purchase / sales order processing Product development

Demand forecast Quality assurance Product delivery…

Dimensions of operating environment

Technological Cultural Social

Political components Principle and practices

of operating environment

Supportive attitude Non-supportive attitude

Fig. 1 - SCM complexity for definition (Ho et al. 2002)

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The definition of SCM includes a broad group of elements. First, buyers and suppliers interact in many areas such as customers requirement identification, purchase/sales order processing, product development, demand forecast, inventory control, quality assurance, product delivery, and others. Second, an operating environment has many dimensions such as technological, cultural, social, and political components. As such, many management principles and practices, which altogether constitute a management philosophy, can be identified for establishing a supportive operating environment that facilitates buyer-supplier interactions.

The complexity of supply chains has increased significantly in recent years. At the same time technology has created a change in the ways in which companies can plan, synchronise and execute their supply chain plans. However, many companies have not adapted their

performance measurement regimes to align them on supply chain performance. Traditional performance measurements within the organisation have a number of significant deficiencies.

They are often function focused, tracking individual activities: this can promote the optimisation of the function rather than of the complete supply chain system.

A survey of supply chain measures by the management consultants Arthur D. Little¹ found that 64% of companies were focused on procurement measures, 27% on order fulfilment measures, and only 9% on systems that spanned the complete breadth of the supply chain.

There is a clear need for cross-supply chain measures.

More specifically, the firm performance through the supply chain management has received a broad interest from the researchers since couple years. In their article Ho et al. (2002) are basing their study on an SCM model that links the context–practices–performance, which tends to make the link between SCM practices and their impacts on performance, but also to understand the effect of contextual factors on SCM practices.

A context-practices-performance framework of SCM (based on Ho and Duffy 2000)

But the authors are stating two limits. At first, they explain that the literature has a narrow focus on practices related to better performances but most of the time the practices are not

1 A. Harrison and R. van Hoek (2002), ‘logistics management and strategy”, Financial Times, Prentice Hall Contextual

factors

SCM

practices Performance

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compared between each other. Second, the literature pays little attention to context under which SCM practices are implemented. So, the dominant SCM models focus mainly on the practices-performance relationship, overlooking the context-practices relationship.

The aim of this study is to elaborate a literature review that will explore the different types of relationships existing between SCM practices and performance. This literature review contains three distinct parts. We will first introduce the models which are studying the

relationship between contextual factors of a company and the internal practices, as well as the relationship between those internal practices and the level of performance of a company. The second part will include the articles which are developing empirical studies concerning the impact of SCM practices on firm performance. In this part we will classify the list of articles found on the subject, by the type of performance area they are studying. For the firm’s performance study, we distinguish five criteria which are the level of quality, financial, delivery, flexibility performance and customer service. This part will expose the conclusions of the literature about the possible strategies to adopt and, the operational practices to implement to enable a company to obtain better performance level.

In a third part. We will concentrate on the level of integration between partners of the supply chain. Concerning the evaluation of integration among partners, we differentiate different types of relationship between variables of the models presented. At first we will study the relationship between integrative practices and performances on a strategic level, and on an operational level. Secondly, we will focus on the relationship between internal practices and performance. For each of the three parts, we will also evaluate the variables and scales of measure related to the contextual factors of a company, the evaluation of performance and the integration among partners in a supply chain, and conclude on the objectivity or subjectivity of the results presented

Research questions

Our research is originally based on the article from Ho et al. (2002) who are developing a model studying on the one hand the relationship between contextual factors and their impact on SCM practices, and on the other hand the relationship between those SCM practices and the level of performance for a company. To proceed to our selection we review their list of references and select eight articles. Afterwards, from these eight articles we extract seven other that were related to our subject. You can refer to the matrix presenting the fifteen

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models selected². However, our selection of articles only contains two articles which are developing the original model proposes by Ho et al. (2002). As we state in the introduction, the literature pays little attention to context under which SCM practices are implemented.

That is why we also integrate articles related to the study of the relationship between integrative practices and performance level. Effectively this research could be a base for future research on the context of the supply chain, given the fact that this study will explore the literature as well as assess the variables and criteria selected by the authors to conduce their studies.

Our research will tend to understand what are the different constructs developed in the

literature that are exploring one or two of the relationships existing between contextual factors and SCM practices, and between SCM practices and performance level. We will review the different levels utilize by the authors to evaluate the three distinct factor of our study, the context, the integrative practices and the performance. Another objective of this study is to assess the variables, constructs and scales used by the authors to obtain results on their model of research. We will review what are the type of criteria selected, what kind of question do the authors ask to their sample. This will lead us to conclusions on the objectivity or subjectivity of the questionnaire proposed.

I. The evaluation of context

1.1. Construct analysis

As we already stated in our introduction, the researches about the relationship between context-SCM practices-performance are not well developed yet. We introduce the article of Ho et al. (2002) as the reference model for our own study. In our selection, we identified two articles establishing a relationship between some contextual factors and integrative practices, and between integrative practices and performance level.

At first, Hill and Scudder (2002) are exploring the link between the type of EDI transactions and the degree of supply chain coordination (integrative practices). So, they examine the use of EDI with respect to interfirm coordination activities involving suppliers and customers.

This study is clearly orientated on restricted factors and narrows the research to the

correlation of EDI use and coordination variables. An interesting point is that the authors also consider in their research the evaluation of the context of a supply chain by assessing the

2 See matrix 1: Models

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demographics of EDI users. More precisely, this category of factor is exploring the company size demographics and the company market demographics. Their results show that while most firms used EDI for frequent and routine transactions, invoices and purchasing orders, they were not using EDI as often for the transactions that are more coordinating, such as

transferring current schedules, production and sales activities. This suggests that firms may see EDI as a tool for improving efficiencies rather than a tool for developing supply chain management. They also demonstrate the impact of contextual factors. The results indicate that the likelihood of a firm using EDI is correlated to firm size, but nor with the type of market where the firms are placed. It is not unexpected that the larger firms are more likely to adopt new technologies as they gain more efficiency from automating supply chain activities.

Ramdas and Spekman (2000) developed a more complete model, studying the relationship between contextual factors and integrative practices, and between integrative practices and performance level. To assess the contextual factors, they distinguish different categories of firms. On the one hand, they differentiate the high performers from the low performers. On the other hand, they distinct the functional products producers from the innovative producers who are characterized by a limited availability of substitutes, rapid changes in market conditions, rapid change in technology, low market maturity, and short product life cycles.

These contextual factors are related to integrative practices defined by the sharing of information and partnership with proactive suppliers. At the end those integrative practices are linked with some general performance criteria. They sustain that the correct recipe for effective supply-chain management partly depends on product types. Their results show that functional-product and innovative-product supply chains differ significantly in practices used and thinking. These differences were heightened when they compared high performers in the two categories (functional and innovative). Practices that enhance revenues are used to a greater extent by high performers among innovative-product supply chains than by high performers among functional-product supply chains. As well, they deduce that practices and reasons for engaging in supply-chain management that distinguish high-performers from low- performers are different for functional- and innovative-product supply chains. But, they quote that further research is needed to establish the causal relationships.

Those two article are exploring partly the importance of context in a supply chain and the possible consequences on integrative practices and indirectly on performance level. However, researches on integrative practices and their impact on performance has been much more developed over the past years. In the next part, we assess the variables and scales used by the authors to obtain their results.

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1.2. The evaluation of measures and scales

The evaluation of variables and scale for the supply chain context enables to understand the initial factors driving the supply chain efficiency. We are going to review the variables for the articles from Ramdas and Spekman (2000) and Hill and Scudder (2002).

At first, Ramdas and Spekman (2000)³ evaluate the context of the supply chain by distinguishing four variables that define a company context. They are: functional or

innovative firms, and high or low performing firms. For those four variables they evaluate the level of six performance criteria: inventory, time, order fulfilment, quality, customer focus and, customer satisfaction. This enables the authors to understand in what type of context firms have high performance, but also, by a cross analysis they can conclude what type of context lead to what type of performance. They analysis is focusing on the evaluation of operating activities. This evaluation is concrete in a sense that the evaluation of operating activities is a practical way to analyze the supply chain integration. However, they authors precise that utilize a 1-7 Likert-scale, which gives subjective results.

The second article which is assessing the context of a supply chain, is the one from Hill and Scudder (2002)⁴. Effectively, the last part of their questionnaire concerns the evaluation of the company’s demographics. They are using three types of questions. The first one concerns the company’s business category. The respondent can choose between several option proposed.

The second type of question concerns the annual sales volume and the number of employees of the company. The respondents can choose between graduate scales, and give a global idea of its organisation figures. The last type of question, identifies the type of product and the market in which the company competes. The respondents answer on 1-7 Likert-scale, and define how much seasonal and perishable is the product, how much competitive is the market, and how many competitors is the company competing with. The combination of different scales to evaluate the factor of context for a supply chain provides accurate results.

II. The evaluation of performance level in a supply chain

Performance measurement and metrics have an important role to play in setting objectives, evaluating performance, and determining future courses of actions. Certain performance indicators can serve practically as an impetus for continual improvement. Logistics analysis in

3 See Matrix 2: context

4 See Matrix 2: context

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a supply chain is therefore based in the main upon appropriate performance indicators. In this first part, we will develop a critical literature review on the evaluation of performance level in a supply chain. Gunasekaran et al. (2004)⁵ explain that to bring about performance in a supply chain and move closer to attainment of the goal of supply chain optimization, performance measurement and improvement studies must be done throughout the supply chain and enhanced competitiveness. They develop a framework to promote a better understanding of the importance of supply chain management performance measurement and metrics. Their framework categorises four performance measures (cost, quality, flexibility and delivery) at strategic, tactical, and operational levels of management. We adopt this framework criteria to conduct our literature review, but we add another criteria, the customer service performance level. The customer service performance criteria is related to the four other criteria cited above, as it is the first in logistics system design. Customer service component represents the output of the logistics system and the place of component of the firm’s marketing mix. It is a measure of the effectiveness of the logistics system in creating time and place utility for a product⁶. Effectively, customer service performance measures had received a broad attention from the researchers, this dimension plays an important role in the overall level of

performances within a company. In the next two coming part we are going to discuss first, the performance measures develop in the literature, and explain their link with integrative

practices briefly. In a second part, we will discuss the variables and samples that compose the analysis of those performance factors.

2.1. Construct analysis

2.1.1. Quality performance

The positive impact of the supply chain management on a firm’s performance has been reported from many industries. Concerning the evaluation of quality performance, from a buyer perspective, Shin et al. (2000)⁷ studied the impact of a Supply Management Orientation on the performance of both supplier and buyer. They explain that the Supply Management Orientation is based on four major characteristics of supply management: a long-term relationship with suppliers, the supplier involvement in the product development process, a reduced number of suppliers and a quality focus. Their general research outcome is that an improvement in SMO improves both suppliers’ and buyers’ performances. Especially when the buyer emphasizes quality and delivery as its competitive priorities. They insist that the

5 See Matrix 3: Performance – general framework

6 J.R. Stock & D.M. Lambert (2001), “Strategic logistics and management”, fourth edition, McGraw-Hill Irwin

7 See Matrix 1: Models

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improved supplier performance has a direct and positive impact on the buyer companies’

quality related performance. Moreover, Stanley and Wisner (2001)⁸ support the hypothesis that the implementation of cooperative purchasing/supplier relationships have a significant association with purchasing ability to deliver service quality to internal customers. So, an organisation ability to deliver service quality to external customers is related to purchasing internal service quality performance. This study provides a strong support for strengthening relationship between purchasing, the firm’s external suppliers, and purchasing internal suppliers and customers.

From a different perspective, the supplier one’s, Forker (1997)⁹ realised a survey among manufacturers in the aerospace industry to provide new insights into factors that affect supplier quality performance. For the author, quality is a cornerstone of competitive

advantage for a company. The article points to process improvement practices that can help firm’s boost short-term efficiency and, together with process optimization, improve

conformance quality. Specifically, training, product design, and employee relations are the crucial Total Quality Management (TQM) practices for quality effectiveness. Kaynak (2002)¹⁰, also carry the idea that TQM practices have positive effects on firm’s performance, and specifically on quality performance. Effectively, the author expose the four major

components of TQM, which are: the top management commitment, the effectiveness of TQM, the employee participation and the supplier quality management. Some of his results concern the significant direct effect of product/service design on process management. Product/service design positively contributes to quality performance directly as well as indirectly through process management. Some others results indicate a direct relation between inventory

management performance and quality performance. Reduced inventories lead to improvement in quality.

Finally, Tan et al. (1998)¹¹ insist on one specific aspect which participates to quality performance, the designing quality into the product. Effectively, the complexity of today’s products makes design a challenging task. High quality can be achieved in complex products by starting at the initial phase of the production cycle (the design stage). Effective product design is crucial in the sense that it affects the subsequent costs associated with

manufacturing, number of engineering design changes, and external failure costs. Thus,

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effective new product design can help ensure that new products have fewer parts, a greater number of standard parts, and that current capabilities are leveraged

Quality performance is related to several implications for a company. But it is not the only variable to measure for a company. In the next part, we develop another performance criteria for a company to evaluate, the financial performance or costs performance.

2.1.2. Financial performance

Working on the continuous improvement of the dimension of financial performance

participates to a good management of the overall supply chain performance. Effectively, each of the various performance objectives we describe before, has several internal effects, but all of them affect cost performance. High quality operations do not waste time or effort having to re-do things, nor are their internal customers inconvenienced by flawed service. Fast

deliveries reduce the level of in-process inventory between operations, as well as reducing administrative overheads. And finally, flexible operations adapt to changing circumstances quickly and without disrupting the rest of the operation. Flexible operations can also change over between tasks quickly without wasting time and capacity.

In a first article, Carr and Pearson (1999)¹² explore the buyer-supplier relationships and their outcome on firm’s financial performance. It was determined that strategic purchasing had a positive impact on all three factors in their model: suppliers evaluation systems had a positive impact on buyer-supplier relationship, and buyer-supplier relation had a positive impact on firm’s financial performance. However, in their conclusion, they state that purchasing-

supplier involvement represents only a small percent of the variance associated with the factor financial performance. So, management should recognize that involving purchasing and suppliers in strategic sourcing decisions and having a strategic purchasing function are not the only purchasing related factors that impact the firm’s financial performance. In a second paper, Carr and Pearson (2002), develop a model of the impact of purchasing/supplier involvement on strategic purchasing and its impact on firm’s financial performance. This model is not considering the supplier evaluation system anymore. But, the conclusions indicate that strategic purchasing has an impact on firm’s financial performance, and can help to achieve the firm’s goals.

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In their article Vickery et al. (2003)¹³ investigate another criteria which is influencing the firm’s financial performance. Their results show a positive direct relationship from customer service to firm’s financial performance. They also establish links between integrated

information technologies and supply chain integration, and between supply chain integration and customer service. But at the end, there is no direct link between all four factors. It appears that customer service fully mediated the relationships of both integrated information

technologies and supply chain integration to firm’s financial performance. The authors insist that these results demonstrate that it is possible for a construct (customer service) to be very important in the chain of events and yet have a little or no detectable direct impact on overall firm financial performance.

Finally, in his research on the effects of total quality management on firm’s performance, one of the three levels of performance examine by Kaynak (2002) is the financial performance. It is interesting to note that the author finds out a positive effect of total quality management practices on financial performance which is mediated through operating performance. We already describe earlier the two dimension of operating performance in this article, the inventory management and the quality performance. Both indirect effect of inventory management and the direct effect of quality performance on financial performance validate the notion that the improvements in operating performance result in increased sales and market share, thereby providing a competitive edge to companies.

In conclusion, in their framework, Gunasekaran et al. (2004) insist that financial measures are important in strategic planning and control. Financial stability is essential to organizational success.

2.1.3. Delivery performance

After the orders are planned and goods sourced, produced and assembled, the remaining task is to deliver them to customer. The importance of delivery performance is highlighted by Gunasekaran et al. (2004) who classify it, base on their results, in the top three ranking strategic planning measure, with quality of delivered goods and flexibility of systems to meet the customer needs. The authors highlight the importance of delivery performance in supplier metrics. This criteria clearly sets apart from the others metrics by its percentage importance rating, before supplier lead time against industry norm, supplier pricing against market and efficiency of purchase order cycle time. The most notable about supplier metrics is that firms

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regard the supplier’s capability to reliably deliver goods in a timely fashion as more important than price. Price has increasing become an order qualifier rather than an order winner. Other aspects of supplier performance such as adherence to agreed upon schedules and terms of the order as well as prompt delivery of goods have become order winners.

Ramdas and Spekman (2000)¹⁴ develop a study on supply chain performance in which they distinguish the type of companies in two categories, high and low performers, but also their type of product, either functional- or innovative-product. On a general level, they find that innovative high performers place significantly greater emphasis on many reasons for supply chain management. Most of these reasons suggest a strong market-facing orientation.

Examples include the ability to better forecast their customers’ requirements and to improve delivery schedules. High-performing innovative-product firms require their partners to be more customer focus in general. So, they emphasize to a greater extent metrics that enhance end-customer satisfaction. Concerns for geographic proximity, lead time, and cycle time are all more crucial to innovative high performers than to functional high performers. Effectively, these firms compete by providing new products in many varieties to end users in a timely fashion.

Finally, from a buyer – supplier point of view, Shin et al. (2000) develop a research based on three research hypotheses associated with supply management orientation, supplier

performance and buyer performance. Their results show that the influence of supply management orientation on delivery and quality-related performance is more statistically significant than on cost or flexibility performance. As the authors state, the mission of supply management is to improve the overall performance of channel participants by coordinating processes that are responsive to customers’ needs. The ultimate goal is customer satisfaction, and quality is one of the most imperative competitive priorities toward achieving this goal.

Moreover, their quality model supports the supply chain management theory that supply management orientation improves not only the supplier performance but also the buyer’s competitive priorities.

Delivery performance is not always support as one of the most important criteria in this evaluation of supply chain performance, but it is always stated that it participates to either supplier or buyer performance. The principle focus for delivery is the customer satisfaction which is also the primary goal of the overall supply chain. In the next part we develop the literature research found about the flexibility performance criteria.

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2.1.4. Flexibility performance

Of the factors by which supply chains compete, flexibility can be rightly regarded as a critical one. Being flexible means having the capability to provide products or services that meet the individual demands of customers.

For Gunasekaran et al. (2004) flexibility can appear into two performance categories, the flexibility of delivery and the production flexibility to enhance customer satisfaction.

Concerning the flexibility of delivery systems to meet particular customer needs, it refers to flexibility in meeting a particular customer delivery requirement at an agreed place, agreed mode of delivery and with agreed upon customised packaging. This type of flexibility can influence the decision of customers to place orders, and thus can be regarded as important in enchanting and retaining customers.

However, in their study on the effect of supply management orientation on performance, Shin et al. (2000) do not support the hypothesis that buyers’ flexibility performance would increase with the subsequent improvement in supplier performance after the implementation of SMO.

There are some possible explanations as to why this result happened. Volume and process flexibility has an internal focus and most likely is a function of the buyer’s internal capacity management and forecasting capabilities. These internal capabilities where not studied by the authors. In their study, the authors find a weak association between SMO and buyer

performance flexibility. They conclude that the buyer’s objective of enhancing manufacturing flexibility cannot be accomplished without strong internal managerial efforts that

complement a supply management orientation. In conclusion, when volume and process flexibility are top competitive priorities, a supply management orientation may not be an effective way to achieve the desired flexibility.

The evaluation of flexibility performance is rarely place as the most important factor for partners of a supply chain. Finally, we develop the last performance criteria to evaluate, the customer satisfaction.

2.1.5. Customer service performance

Because supply chain management includes all stages in the total flow of materials and information it must include the consideration of the final customer. Even if all the operations in the chain have the immediate objective of satisfying their own immediate customer, the purpose of supply chain management is to make sure that they have a full appreciation of

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how, together, they can satisfy the end customer. The key decision for all operations is therefore to define what level of quality, financial, delivery and flexibility performance is required in order to satisfy the end customer.

In their study on integrative supply chain strategy, Vickery et al. (2003) find a positive direct relationship from customer service to firm performance. They put in evidence that both integrated information technologies and supply chain integration are linked to the firm performance through customer service. Concerning the integrated technologies, the more a firm has invested in IT infrastructure the more likely it is that the firm will achieve integration both internally across functional areas, and externally with suppliers and customers. It is supply chain integration that directly delivers enhanced customer service performance.

However this supply chain integration is facilitated by integrated information technologies. So customer service is presented as an indispensable link between information technologies, supply chain integration to firm’s performance.

Ramdas and Spekman (2000) utilize the notion of customer satisfaction, which captures the extent to which a supply chain partner influences end-use customer satisfaction and account penetration. They compare the performance levels of high performers into two product categories: functional and innovative. They find that high innovative performers show a significantly higher level of performance on the customer satisfaction variable. In fact, innovative high performers tend to use system wide performance metrics and measures of end-use customer satisfaction

Finally, Gunasekaran et al. (2004) integrate the measure of customer service and satisfaction in their framework for supply chain performance measurement. They insist that to a world class organisation, a happy and satisfied customer is of the utmost importance. In a modern supply chain customers can reside next door or across the globe, and in either case they must be well served. Without a content customer, the supply chain strategy cannot be deemed effective. Some authors, like Lee and Billington (1992) or van Hoek et al. (2001) emphasised that to assess supply chain performance, supply chain metrics must centre on customer satisfaction. Their survey results show that the level of customer perceived value of product is of the utmost importance. They explain that it was deemed highly important which clearly reflects the perception of practitioners that customer satisfaction is paramount in importance in increasing competitiveness.

To bring about improved performance in a supply chain and move closer to attainment of the illusive goal of supply chain optimization, performance measurement and improvement

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studies must be done throughout the supply chain. All participants in the supply chain should be involved and committed to common goals, such as customer satisfaction throughout the supply chain and enhanced competitiveness.

The potential benefits of supply chain management make it attractive, but improved

performance is not automatic. As with other organisational undertaking, it must be done well to yield positive results. This is why it is important to assess performance in supply chain management. A performance measurement program for a supply chain should be complete and they must be tailored to varying needs of participants. A good supply chain management program will bring about improved cross-functional and intra-organisational process planning and control and more complete supply chain integration. The management of a firm must analyze supply chain structure to determine whether the corporate strategy has been successfully implemented. Measures of structure efficiency include member turnover,

competitive strengths, and related issues. When management evaluates supply chain structure, it must compare the firm’s ability to perform the activities internally with another member’s ability to perform these activities. Some potential quantitative measures of supply chain performance include logistics cost per unit, cash-to-cash cycle, and total days of inventory in the supply chain. Qualitative measures that managers may use when reevaluating the supply chain and specific members include degree of coordination, degree of conflict, and

availability of information as needed.

But, measuring the supply chain performance outcome is a complex task. This due to the fact that some aspects of supply chain performance are difficult to quantify, making it difficult to establish a common performance standard. Moreover, the differences between supply chains make it difficult to establish standards for comparison.

2.2. The evaluation of measures and scales

The evaluation of measures and scales enable us to understand the construct of the researches we selected for this study. Either, a questionnaire can be based on objective measures which are giving actual data of the company, or it can be supported by subjective measures which could be the impression of the manager on the business conditions. We are going to briefly review the scales and measures articles concerning the evaluation of performance in a company.

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2.2.1. Firm’s financial performance evaluation

The evaluation of firm’s financial performance is relatively the same for the articles selected.

Four articles are reviewing the firm’s financial performance level, Kaynak (2003), Vickery et al. (2003), and Carr and Pearson (1999; 2002))¹⁵. The major criteria utilized by the authors in our selection are: the return on investment, the sales growth, the profit growth, the market share and the market share growth. In their research, Carr and Pearson (1999; 2002) also include the firm’s net income before taxes and the present value of the firm. It seems that Carr and Pearson evaluation of firm’s financial performance is a bit more objective, because they analyse the results over the past three years in their article from (2002) or over the past five years (1999). This enables them to have a better view of the impact of integrative practices over the time. We can conclude that the authors evaluate financial performance level objectively by using empirical measures.

2.2.2. Customer service performance evaluation

The evaluation of customer service performance has been developed by two authors in our selection of articles. At first, Tan et al. (1998) are expending a all part to the evaluation of customer service and satisfaction performance. They are asking 24 questions on a Likert-scale from 1 to 5, in which the level 1 expresses a “low satisfaction” and 5 expresses a “high satisfaction” of the firm ability to respond to its customers. Their questions are only asked to manufacturing firms. For example, concerning the evaluation of customer they ask: “How important is it for the company to participate in the marketing effort of his supplier” or “How important is the issue for a company of locating close to his customer”. This can be related to the questions of Vickery et al. (2003)¹⁶ about customer service. But they are only asking 5 questions, on the product support, the pre-sale customer service, the responsiveness to

customers, the delivery speed and the delivery dependability/reliability. Scales with endpoints

“poor” (=1) and “excellent” (=7) were used. We can conclude that both articles are using a subjective way to measure the level of customer service in a company, by using graduation scales.

2.2.3. Quality performance evaluation

The current level of service and quality provided by a firm to its external customers has been studied by Stanley and Wisner (2001). Their questionnaire devotes a part to the evaluation of

15 See matrix 3: Performances – Firm’s financial performance

16 See matrix 3: Performances – Customer service performance

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nine criteria¹⁷, in which the respondent choose an option on a scale from “poor” (=1) to

“excellent” (=7). They asses the current level of service provided by purchasing department to its internal customers. For example, they ask for the evaluation of the ability of the purchasing department to meet customer expectations on a scale from 1 to 7. But, this is a not a reliable way to measure objectively the level of service and quality provided by an organisation. As well, Kaynak (2003) is assessing the level of quality performance. The author quotes that all items in the scale were developed based on a literature review. His scale of question is composed by five items¹⁸, on a range from “worse than competition” (=0) to “better than competition” (=100). As Stanley and Wisner (2001), Kaynak (2003) is measuring the quality of delivery lead-time or the quality of product and service. However, the article from Kaynak (2003) is more limited in his evaluation of quality. He does not consider the quality of flexibility (to meet customer changes) or the level of resolution of product delivery/quality problems as do Stanley and Wisner (2001).

We identified three others articles which are evaluating the level of quality performance, but from a specific point of view. Prahinski and Benton (2004), as well as Shin et al. (2000)¹⁹ are assessing the supplier level of performance. But, in both questionnaires, the authors are utilizing a Likert-scale, the first one from “significant decrease” to “significant increase`”, the second one from “strongly agree” to “strongly disagree”. Except from the fact that we do not have detailed questionnaire of those two researches, the utilization of impressions to answer the questions and not empirical data can be seen has a subjective way to evaluate the quality criteria. In fact there is no precise data on the operations, but just the evaluation of managers impressions. We can observe the same conclusions about the evaluation of buyer

performance, concerning the article of Shin et al. (2000). Finally, Forker (1997)²⁰ is analysing the level of quality performance, in his research on total quality management and its impact on performance. Questions on supplier quality management are fro example: “Evaluate the extend to which you select your suppliers based on quality rather than price or schedule” or

“Thoroughness of your supplier rating system”. The author underlines that the data on quality performance are the actual data measures used by the customer firm to evaluate its supplier’s quality performance. This gives credit to the rightness of the results obtain after all.

17 See matrix 3: Performances – Quality performance

18 See matrix 3: Performances – General framework

19 See matrix 3: Performances – Buyer-Supplier performance evaluation

20 See Matrix 3: Performances – Buyer-Supplier performance evaluation

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2.2.4. General framework of performance evaluation

In this last part concerning the review of scales and measures for performance evaluation, we classify the three remain articles from Gunasekaran et al. (2004), Frohlich and Westbrook (2001), and Ramdas and Spekman (2000)²¹. In those three articles, we obtained during our researches the complete questionnaire related to the study of Gunasekaran et al. (2004). We observe that the questionnaire is composed by several type of questions. Some questions are asking for a rate from 1 to 10, as for example the rate of performance criteria, like: the net profit v/s productivity ratio, the total cash flow time or order lead time. Some other questions are open questions, like “what suggestions would you think would increase the role of planning performance in supply chain”. Those question are interesting in a sense that they give the respondent the opportunity to express its convictions on the business situation.

Finally, they use yes or no questions, like “is the rate of return of investment increased to expected level after implanting supply chain”. We can find the three types of question in each category of evaluation (strategic and planning level of performance measurement, production performance measurement, supplier performance measures, and delivery performance measurement). But the respondents are never asked for existing data concerning the business activity. They can only give their impressions on the fluctuations. Thus we can conclude that the study from Gunasekaran et al. (2004) is incomplete and the results are subjective.

Concerning the two general following framework they both utilize a 1-5 Likert-scale. For the article from Frohlich and Westbrook (2001)²², the questionnaire is not included, there is a brief summary at the end. But, the questionnaire of Ramdas and Spekman (2000) is accessible, and it appears to be very complete. Effectively, the authors elaborate a

questionnaire that evaluates the practices of high or low performers crossed with the fact that companies are producing functional or innovative products. In their questionnaire they are stating five categories for performance evaluation: inventory, time, order fulfilment, quality, customer focus, and customer satisfaction. After all, they develop specific question orientated for the four category of respondents: high/low performance functional respondents and high/low performance innovative respondents. Their questions concern the operational evaluation of performance criteria. If we consider their first table of evaluation, the present their result concerning the difference in information practices for high performer among functional and innovative respondents. For example, they assess the information practices for order fulfilment activities. On the one hand they evaluate the information practices for the

21 See matrix 3: Performances – General framework

22 See Matrix 3: Performance – General framework

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suppliers evaluation to high-performance functional respondents. On the other hand, they assess the level of information practices in supplier planning, production and shipment initiation or the finished goods visibility for high-performance innovative respondents. Thus there are assessing all operational aspect of a relationship in a supply chain management. But, the utilisation of a Likert-scale only is not sufficient to give accurate results. They analysis is rather subjective.

The elaboration of an accurate questionnaire is very important in the research development.

The evaluation of performance can be precise, as it concerns operational practices. Thus, companies can provide the actual data, instead of only giving broadly their impression on the level of operations during the year, for example. We observe that most of the questionnaires were not accurate, because, as far as we know, the authors are not using actual data to

elaborate their study. Most of them, as we describe above, are utilizing a Likert-scale for their analysis, which only gives an approximate impression of the business conditions.

III. Integration in the supply chain

In the face of a competitive global market, organisations have downsized, focused on core competencies, and attempted to achieve competitive advantage through supply base and supply chain management. To better manage their supply bases, many firms have dropped redundant suppliers and consolidated volumes with their most competent and trustworthy suppliers, as stated by Tully (1995). Thus, buying firms are moving beyond traditional adversarial relationships to cooperative, mutually-beneficial relationships, which view suppliers as virtual extensions of their firm. Many businesses have found that they can strengthen worldwide competitiveness by operationalizing the supplier-manufacturer partnership philosophy that blurs companies’ boundaries and creates an environment that fosters cooperation and innovation.

3.1. Relationships between practices

We notice that the approach of a large number of article in our initial selection concentrates on the evaluation of integrative practices and their impact on performance level. But, they do not adopt the same perspective to explore the factors composing the integrative practices.

Some elaborate a strategic perspective, some others develop an operational perspective. We

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are going to explore these two approaches in a first part. Also, some authors assess the type of internal practices and consider their impact on performance level. In a second part, we will treat the remnant articles, which are adopting this perspective.

3.1.1. Integrative practices: a strategic perspective

We identified seven articles that adapt a strategic level of study to develop the relationship between integrative practices and performance.

First, on a global level, two articles are basing their analysis on what they call the supply management orientation or supply base management practices. In fact, Shin et al. (2000)²³ introduce the notion of supply management orientation, to demonstrate the impact of these practices on supplier and buyer performance. Four variables are presented in order to define the supply management orientation. Except from the long-term supplier-buyer relationships, we can compare the others variables of this article to the one used by Tan et al. (1998).

Effectively, Tan et al. (1998)²⁴ are also measuring the supplier’s involvement in new product development introduced by Shin et al. (2000) with the notification of new product design.

They are also evaluating the quality focus in selecting suppliers with the supplier certified criteria and finally the reduced supply base with the evaluation of number of suppliers and the single source items. However, those two studies do not aim at the same conclusion concerning their relationship to performance. Shin et al. (2000) tend to demonstrate how positively supply management orientation impact on supplier and buyer operational performance criteria, as cost, quality, delivery reliability, lead time, on-time delivery for the supplier performances and product performance for the buyer performance evaluation. From the same analysis basis on supply base management, Tan et al. (1998) show the impact on the level of customer firm performance, considering some firm’s financial performances, but also product quality, customer service level or competitive position. Vickery et al. (2003)²⁵ are also treated the supply chain management orientation. They precisely study the integrated supply chain strategy, which includes the utilization of integrated information technology and the supply chain integration. The supply chain integration consists of the supplier partnering, some close customer’s relationship and the implantation of cross functional teams. But their study differ from the two previous, because it examines the impact of an integrated supply chain strategy on customer service and firm’s financial performance.

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On a more specific strategic level, Carr and Pearson (1999; 2002)²⁶ are examining the relationship between strategic purchasing and performance in a company. They define strategic purchasing as long-range plan, reviewed and adjusted on regular basis between buyer and supplier, the development of comprehensive purchasing strategies, the communication between purchasing and top management on future supply needs and constraints and finally and the establishment of a formal business planning process. In their first article, Carr and Pearson (1999) explain that the implementation of a strategic purchasing policy combined with elaborate relationships between buyer and supplier lead to improve the level of firm’s financial performance. The buyer-supplier relationships represent the existing interconnections between the two partners. These connections can be a special agreement with supplier who have improved performance, the loyalty of buyer to key supplier, an high

corporate level of communication, frequent face-to-face planning with key suppliers or a direct computer to computer link with key suppliers. The authors demonstrate that if a company strategically managed buyer-supplier relationships, it can improve its financial performances. In a more recent article, Carr and Pearson (2002) study again the interaction of strategic purchasing on performance, but they specify the buyer-supplier relationships into purchasing-supplier involvement. They adopt a slightly different perspective as they concentrate on the relations between the purchasing department itself and the supplier. The evaluation criteria are also different. They concentrate on the key suppliers involvement in the design process of the buyer product, the implementation by purchasing department of

innovative strategies to support new product development and their participation to new product development, and the participation of purchasing department on cross-functional teams. Finally, they consider the involvement of key suppliers in the buyer’s strategic planning process. This study tends to explore more deeply the implication of a strategic purchasing policy on the relationships between the purchasing department and the supplier.

These two studies utilized a one-dimensional buyer-supplier relationship construct and consider only the buying firm’s perspective. They found out that the buyer-supplier

relationship influence performance. However the relationship between buyer and supplier has also been studied by Prahinski et al. (2004) and Stanley et al. (2000)²⁷. Those two articles insist on the fact that the complexity of the buyer-supplier relationship should not be ignored, and that the buying firm’s perspective could be distinctly different from the supplier

perspective.

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On a strategic level, Prahinski et al. (2004) explore the buying firm’s commitment, the cooperation between buyer and supplier and the operational linkages that exist between the two partners. The author insist that previously to an effective relationship between buyer and supplier the firm should use a collaborative communication for the supplier development programs. A collaborative communication combined with a good relationship between buyer and supplier lead to improve the supplier performances, in product quality, delivery

performance, price, responsiveness to requests for changes and the overall performance area.

On a more specific level, Stanley et al. (2000) concentrate their study on the outcome of the implementation of cooperative purchasing/supplier relationships and their impact on quality performance delivered to the end customer. Their results indicate that evidence of cooperative purchasing/supplier relationships was critical to purchasing’s overall service quality

performance. Moreover, they demonstrate that the performance level of internal suppliers plays an important direct role in purchasing’s ability to provide service quality to the end customer.

Thus, the existing links between integrative practices and the level of performance on a strategic level in a company have been broadly studied. We identify two major axes of analysis in the articles selected. The first concerns the impact of supply based management practices on firm’s performances. The second, examine more specifically the relationships that could exist between the buyer and the supplier.

From another perspective, some authors studied the link between integrative practices and performance level on an operational level.

3.1.2. Integrative practices: an operational perspective

The literature concerning the operational perspective approach is well developed already. We chose three articles reviewing this specific point of view of the way integrative practices impact on performance.

The article from Frohlich and Westbrook (2001)²⁸ treats about the relationship between the level of integration among partners and its impact on the level of performance,. In their research they examine the level of integration between suppliers, manufacturers and

customers combined with its impact on performance level for the all supply chain members.

They define integrative activities by eight criteria: access to planning, sharing production plans, joint EDI access/networks, knowledge of inventory mix/levels, packaging