A Structural Equation Model of Supply Chain Information Integration Susan Horne with assistance from Dr. Troutt & Dr. Harvey

Objective of a Supply Chain “...maximize the overall value generated, which is the difference between what the final product is worth to the customer and the effort the SC expends in filling the customer request.”* *Chopra & Meindl, SC Management: Strategy, Planning and Operation, 2001

Research Genesis

Coordination Better SC coordination Increased efficiency Competitive advantage Supply chain coordination occurs when all stages take action together, taking into account the effects of actions on the other stages. Lack of trust between partners results in opportunism, duplication of effort, and lack of information sharing and ultimately defeats the goal of maximizing overall chain value.

Lack of Coordination Performance Effects Increases Manufacturing cost Inventory cost Replenishment lead time Transportation cost Labor cost for shipping and receiving Decreases Level of product availability Quality of partner relationships Profitability

Importance of Information Information is potentially the biggest driver of SC performance as it directly affects each of the other drivers by providing management with opportunities to improve SC responsiveness and efficiency. Chopra & Meindl

Information Requirements by Distribution Network Design Distribution Network DesignInformation Requirements Manufacturer Storage w/Direct Shipping HighInfo infrastructure between retailers & mfr, w/visibility to customer, is key & expensive. Manufacturer Storage w/Direct Shipping and In-Transit Merge HighestSomewhat higher than drop-shipping. Increased coordination of retailer, mfrs, & carrier due to merge. Distributor Storage w/Carrier Delivery LowSimpler infrastructure than mfr storage; dist is buffer, decreasing coord needs; real time visibility: cust-warehouse, other visibility: cheaper warehouse-mfr. Distributor Storage w/Last Mile Delivery LowSimilar to dist storage w/pkg carrier deliv. Manufacturer or Distributor Storage w/ Consumer Pickup HighSignif investment in infrastructure to enable visibility pre-pickup; coord among retailer, storage location, & pickup location. Retail Storage w/Consumer Pickup MediumSome investment in infrastructure required for online and phone orders.

The Model IT Integration Information Flow Integration Partner Integration SC Information Integration

Data

The Questionnaire Part 1: IT Integration Integration of IT infrastructure 1. Automatic data capture systems are used (e.g. bar code) across SC. 2. Definitions of key data elements (e.g. customer, order, part number) are common across SC. 3. Same data (e.g. order status) stored in different databases across SC is consistent. 4. Same data needs to be reentered in the computer at each step in SC. 5. The following applications communicate in real-time:  SC planning applications (e.g. Demand planning, transportation planning, manufacturing planning).  SC transaction applications (Order management, procurement, manufacturing and distribution).  SC applications with internal applications of our organization (such as enterprise resource planning).  Customer relationship applications with internal applications of our organization.

The Questionnaire Part 2: Information Flow Integration Integration of Information Flows 1. Production and delivery schedules are shared across SC. 2. Performance metrics are shared across SC 3. SC members collaborate in arriving at demand forecasts. 4. Actual sales data is shared by our downstream partners (e.g. distributors, wholesalers, retailers). 5. Inventory data are visible at all steps across SC. 6. Order fulfillment and shipment status are tracked at each step across SC. 7. Information about the product moves faster than the product in our SC.

The Questionnaire Part 3: SC Partner Integration Relationships with SC Partners 1. With our key partners, procedures and cost structures are transparent to each other. 2. We have created formal and informal arrangements for information exchange with our partners. 3. Partners are involved in quality and improvement initiatives. 4. We share best practices with our partners. 5. We learn about new technologies and markets from our partners.

Data Analysis

Bivariate Correlations iti1iti2iti3iti4Riti5Iti6iti7iti8lto5rir2rir3rir4rir5sci1sci2sci3sci4sci5sci6sci7 iti11 iti2.472**1 iti3.304**.626**1 iti4r *.264**1 iti5.332**.509**.405** iti6.267**.457**.443**.232*.654**1 iti7.256**.399**.418** **.652**1 iti8.191*.337**.329** **.573**.599**1 lto * rir *.211* ** *1 rir **.330** *.221*.243*.212*.625**1 rir **.369**.216* **.358**.290**.363**.630**.745**1 rir **.308**.288**.209* * **.537**.679**.693**1 sci1.199*.368**.407** ** *.287**.230*.253**.319**.342**.388**1 sci **.448**.230*.285** *.318**.208*.351**.376**.461**.640**1 sci3.243*.457**.382** ** *.195*.284**.388**.358**.401**.455**.666**1 sci4.242*.203*.272** * *.210*.244* **.280**.284**.294**.397**.535**1 sci5.299**.538**.464** **.450**.514**.509**.326**.292**.381**.383**.455**.436**.421**.392**1 sci6.263**.453**.462**.316**.381**.407**.405**.411**.282**.261**.369**.350**.287**.420**.418**.401**.419**.606**1 sci *.265** **.223*.204* **.249**.213*.199*.409**.484**1 ** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

SC Info Integration iti1 iti2 iti3 iti4 iti5 iti6 iti7 iti8 sci1 sci2 sci3 sci4 sci7 IT Integration Information Flow Integration Partner Integration rir2 rir3 rir4 rir5 lto5 sci5 sci All loadings level Cronbach’s  are NNFI =.95 CFI =.958 RMSEA =.045 The Model – Current State