On Theory in Supply Chain Uncertainty and its Implications for Supply Chain Integration

• Date: 01 July 2016
• Published date: 01 July 2016
• DOI: http://doi.org/10.1111/jscm.12106

ON THEORY IN SUPPLY CHAIN UNCERTAINTY AND ITS

IMPLICATIONS FOR SUPPLY CHAIN INTEGRATION

BARBARA B. FLYNN

Indiana University

XENOPHON KOUFTEROS

Texas A&M University

GUANYI LU

Oregon State University

This article develops a theoretical conceptualization of supply chain

uncertainty, based on the foundation provided by contingency theory,

classical organization theory, and information processing theory. We

develop a theoretical analogy between a supply chain and an organiza-

tion, then highlight key differences, which leads us to hypothesize that

there are three key types of supply chain uncertainty. Micro-level uncer-

tainty is based on the variability of inputs to the technical core of a sup-

ply chain, corresponding to the traditional operationalization of

uncertainty in the supply chain and operations management literature.

Meso-level uncertainty is the lack of information needed by a supply chain

member, corresponding to the information processing theory perspective.

This is often due to the conflicting pressures of differentiation and inter-

dependence in a supply chain, where members may withhold information

that they feel could compromise their interests. Macro-level uncertainty,

based on the equivocality construct, is related to unclear and ambiguous

situations faced by supply chain members in rapidly changing external

environments. We propose that all three types of uncertainty coexist in a

supply chain and may interact with each other. Based on contingency the-

ory’s focus on alignment of process and structure with the environment,

we test the relationship among supply chain integration (process), central-

ization, formalization and flatness (organization structure) and the

dimensions of uncertainty (environment). Hypotheses are tested using

hierarchical regression on data collected from 339 globally distributed

manufacturing plants. It reveals that, as hypothesized, micro-level and

meso-level uncertainty are positively related to SCI and that macro-level

uncertainty is inversely related to it. The organization structure variables

of centralization and formalization had a moderating effect, strengthening

or reducing the main effects of uncertainty. The results are discussed in

terms of their consistency with the theoretical foundation, implications

for decision makers facing supply chain uncertainty and future research

opportunities.

Keywords: uncertainty; supply chain integration; information processing theory;

contingency theory; organization theory; factor analysis; hierarchical regression analysis

July 2016 3

INTRODUCTION

Uncertainty is ubiquitous in supply chains. Some

originates under a supply chain member’s own roof,

due to interfunctional inconsistencies in material qual-

ity levels or delivery dates, and external sources of

uncertainty relate to variability in the quality and tim-

ing of incoming materials or in the quantities cus-

tomers demand. A member of a supply chain also faces

uncertainty when it lacks information that it needs

from its customers and suppliers, because they with-

hold information they feel is not in their best interest

to share. As it enters new markets, faces competitive tur-

bulence, or is surprised by a low probability-high

impact event, such as a natural disaster, a supply chain

member may also find that some uncertainty is so inor-

dinate that its decision makers do not have an appro-

priate behavioral response residing in their repertoire

and struggle with even conceptualizing what the right

questions to ask are. In essence, uncertainty can mani-

fest itself in different forms, including variability, lack

of information and or ambiguity.

Although uncertainty has been widely studied in the

organization theory literature, beginning with the semi-

nal work of Thompson (1967), it has only recently

become a subject of empirical inquiry in the context of

supply chain management (e.g., Bode et al., 2011; Hult

et al., 2010). Though the organizational theory litera-

ture acknowledges that it can assume different forms,

uncertainty has been largely defined as variability, in

the supply chain management literature (Fredendall &

Melnyk, 1995; Germain et al., 2008). Supply chain

uncertainty can exist at multiple levels, including indi-

vidual decision makers, functional departments, orga-

nizations and ultimately, supply chains (Carter et al.,

2015a). Furthermore, supply chain integration is some-

times prescribed as a response to uncertainty, without

accounting for the differing demands engendered by

different forms of uncertainty. Consequently, our

understanding of uncertainty in the domain of supply

chain management is still incomplete and some con-

flicting results remain unexplained. We attempt to shed

light in two ways. First, we view supply chains through

the lens of Thompson’s (1967) conception of organiza-

tions, adding several key ways in which supply chains

depart from it. Second, we synthesize the supply chain

management and organization theory literatures to pro-

pose three different types of supply chain uncertainty,

based on complexity and dynamism. Micro-level uncer-

tainty deals with information that is predictable within

a distribution, such as variability of customer demand.

Meso-level uncertainty focuses on the need for infor-

mation that is unavailable, while macro-level uncer-

tainty exists in ambiguous, ill-structured contexts,

where decision makers cannot even formulate appro-

priate questions to ask.

Building on contingency theory’s contention that an

organization’s processes should align with its environ-

ment, we examine supply chain integration (SCI) as a

response to uncertainty. SCI is characterized by both

interorganizational information flows and rich infor-

mal information sharing mechanisms that help sup-

ply chain members cope with uncertainty. We

specifically examine the association of internal, cus-

tomer and supplier integration with micro-level,

meso-level and macro-level uncertainty. Because sup-

ply chain members simultaneously experience a com-

bination of all three types of uncertainty, we also

examine whether their interaction explains differing

levels of SCI.

However, the effects of uncertainty do not exist in iso-

lation. When a supply chain member faces uncertainty,

its reliance on SCI may be lessened or amplified

depending on its organization structure, consistent

with contingency theory’s focus on the fit between

structure, processes and environment. Centralization,

formalization, and flatness may interact with types of

uncertainty, such that they support or hinder SCI. We

examine the alignment between types of uncertainty

and organization structure with SCI, using survey data

from 339 globally distributed manufacturing plants.

Our findings contribute to the uncertainty literature

by extending it to a supply chain context as three dis-

tinct types, providing a foundation for alignment of

processes with different types of uncertainty. It con-

tributes to the SCI literature via linking it with the orga-

nization theory and organizational communications

literature (Lengel & Daft, 1988). We begin by dis-

cussing the organizational theory literature as it relates

to organizations and uncertainty. We discuss SCI as a

response to some types of uncertainty, subject to orga-

nization structure. Hypotheses are tested using hierar-

chical regression, and the findings are interpreted in

light of theoretical and managerial implications.

LITERATURE REVIEW

Supply Chain as an Organization

We build on classic organization theory concepts

that are suited to describing supply chains, while

highlighting unique features of supply chains that

lead to challenges associated with supply chain uncer-

tainty. A complex organization, which we henceforth

refer to as an “organization,” is a set of interdepen-

dent elements that comprise a whole, which each

contributes something to and receives something

from, in return. The whole is interdependent with its

environment, both contributing to it and receiving

from it. Its elements, such as functional departments,

are dedicated to specialized tasks (Tushman & Nadler,

1978), determined through evolutionary processes.

Volume 52, Number 3

Journal of Supply Chain Management

4