A Structure–Conduct–Performance Perspective of How Strategic Supply Chain Integration Affects Firm Performance

• Published date: 01 April 2015
• DOI: http://doi.org/10.1111/jscm.12064
• Author: David E. Cantor,Peter M. Ralston,Michael R. Crum,Jennifer Blackhurst
• Date: 01 April 2015

A STRUCTURE–CONDUCT–PERFORMANCE PERSPECTIVE

OF HOW STRATEGIC SUPPLY CHAIN INTEGRATION

AFFECTS FIRM PERFORMANCE

PETER M. RALSTON

University of West Florida

JENNIFER BLACKHURST, DAVID E. CANTOR, AND MICHAEL R. CRUM

Iowa State University

There are several factors that affect a firm’s ability to successfully integrate

internally and externally for organizational improvement. This study seeks

to understand the relationship between a firm’s strategy, its supply chain

integration efforts, and firm performance. Leveraging the theoretical lens

of structure–conduct–performance from the industrial organization eco-

nomics literature, and utilizing both archival and survey data, we describe

how firms may align their internal and external supply chain integration

strategies with customers and suppliers. In doing so, these internal and

external integration strategies affect the firm’s ability to respond to cus-

tomer demand, which then impacts operational and financial perfor-

mance. Our work provides theoretical and empirical evidence of these

relationships and thus extends prior strategic supply chain integration lit-

erature.

Keywords: strategic integration; capabilities; performance; buyer/supplier relation-

ships; structural equation modeling; survey; archival data

INTRODUCTION

Linking supply chain processes across enterprises is

a means to create efficiencies, generate customer value,

and gain a competitive edge (Devaraj, Krajewski &

Wei, 2007). One way to create supply chain efficien-

cies is to integrate processes both internally across

departments or functions and externally across firms

(Narasimhan, Swink & Viswanathan, 2010; Paulraj &

Chen, 2007). Stated differently, supply chain integra-

tion enables a firm to meet customer demand by

bringing departments or partnering firms closer

together. In this study, integration is defined as the

management of various sets of activities that aims at

seamlessly linking relevant business processes both

within and across firms, as well as eliminating dupli-

cate or unnecessary parts of the processes for the pur-

pose of building a better functioning supply chain

(Chen, Daugherty & Roath, 2009).

Managing relationships in a supply chain requires

cross-functional and cross-firm business processes

with appropriate levels of information sharing, close

partnerships, and the coordination of operational

activities (Leuschner, Rogers & Charvet, 2013). Build-

ing upon that foundation, supply chain integration is

viewed as a process by which a firm acquires, shares,

and consolidates strategic knowledge and information

internally throughout the firm and externally with

supply chain partners (Swink, Narasimhan & Wang,

2007). Effective integration can reach beyond func-

tional silos and firm boundaries to develop a unified

value creation process that generates and delivers

value for the customer.

However, integration among firms, and even

within, is not without challenges. Integration is a dif-

ficult undertaking that involves careful management

of resources (Koufteros, Edwin Cheng & Lai, 2007).

For example, Fawcett and Magnan (2002) note that

some firms have trouble forging relationships with

external partners because they are busy coordinating

internal activities. Richey, Roath, Whipple and Fawc-

ett (2010) discuss certain barriers to integration

including a unidirectional flow of information,

incongruent goals, and losing sight of the customer

which could impact external or internal firm relation-

April 2015 47

ships. Additionally, integration efforts implemented

without a clear focus can lead to less than desired

performance results (Fawcett & Magnan, 2002;

Springinklee & Wallenburg, 2012). This suggests that

firms may need to rethink why they integrate as well

as how integration, both internally and externally,

can impact firm performance.

Integration is not a standard solution to every

business problem. Rather, integration may be better

utilized as a tool for firms to employ as a response

in certain market and environmental conditions

(Porter, 1980). Having a reason to integrate may

provide the impetus for more successful relation-

ships. In this regard, firms can integrate due to com-

mon issues and share a singular goal to maintain

individual firm performance while providing cus-

tomer value. The current research investigates this

broad research question by analyzing the extent to

which strategic integration affects firm performance

from a supply chain perspective. Specifically, we

leverage the structure–conduct–performance (SCP)

framework from industrial organizational economics

to develop and empirically test theory about how a

firm’s supply chain integration activities act as a

structural response to basic market conditions to

impact firm performance (Caves, 1964; Caves & Por-

ter, 1977; Chatain, 2011).

One contribution within this work is that the inte-

gration constructs contain process-oriented, strategi-

cally focused elements that suggest a higher level of

integration than solely at the operational level. A firm

integrates with its supply chain partners as a way to

deliver and provide customer value (Flynn, Huo &

Zhao, 2010). Strategic integration of supply chain ele-

ments internally and externally help to further this

endeavor (Mackelprang, Robinson, Bernardes &

Webb, 2014). This is because integration allows busi-

ness units or groups of firms to act as a single unit

potentially enhancing efficiencies and performance for

all parties (Frohlich & Westbrook, 2001; Schoenherr

& Swink, 2012; Tan, Kannan & Handfield, 1998). The

current research specifically investigates corporate stra-

tegic integration (internal integration) as well as stra-

tegic customer integration and strategic supplier

integration (external integration). Another contribu-

tion of the work is the use of the SCP framework to

explain the conduct of firms. Finding ways to distin-

guish firms from one another is a hallmark of compe-

tition (Porter, 1980). One such method in supply

chain management is to be responsive to customer

demand. Demand response is the ability to anticipate

or handle changes in marketplace demand (Braunsc-

heidel & Suresh, 2009). This ability allows firms to

meet customer expectations while also mitigating sup-

ply challenges that may be associated with stochasti-

cally demanded goods (Fisher, 1997). Following the

SCP framework, we investigate the relationship

between demand response and both operational and

financial performance because managers must balance

both metrics in competitive supply chain settings.

Thus, the specific research questions are as follows:

RQ1: Is corporate strategic (internal) integration

related to strategic customer and supplier (external)

integration?

RQ2: Does strategic customer and supplier integra-

tion impact firm conduct, specifically demand

response?

RQ3: What is the relationship between demand

response and firm performance?

In the next section of this study, we discuss the liter-

ature and theoretical framework supporting the

research. Next, we introduce the study’s conceptual

model and hypotheses. Afterward, we describe the

study’s methodology and sample population and pres-

ent our findings. We conclude by discussing the theo-

retical and managerial implications of the study’s

findings.

LITERATURE REVIEW

Supply Chain Integration

Firms realize that in order to remain competitive

they have to offer goods or services to customers that

are of higher quality and/or priced lower than com-

petitors (Cousins & Menguc, 2006). In other words,

firms have to deliver value to customers while remain-

ing profitable. This proves problematic in a time when

firms are less vertically integrated and firms may have

to rely on other parties to aid in providing customers

value (Saeed, Malhotra & Grover, 2005). One method

for a firm to address this challenge is to integrate sup-

ply chains internally and externally. Supply chain inte-

gration links intrafirm departments, buyers, suppliers,

and other chain members to improve the efficiency

and effectiveness of supply chains and their deliveries

to end users (Morash & Clinton, 1998).

A rich literature base exists on the topic of integra-

tion. Skinner (1969) espouses the benefits of internal

integration to make sure departments are unified

along a single company goal. Bowersox, Closs and

Stank (2000) concur by discussing how focusing on

functional or departmental excellence can sometimes

come at the expense of firm goals. Rather, the authors

note that internally integrating can improve firm per-

formance and prevent internal departments from cre-

ating pockets of power that harm other corporate

functions. Additionally, internal integration can create

value by eliminating redundancies, creating efficien-

cies, and reducing costs (Mollenkopf, Frankel &

Volume 51, Number 2

Journal of Supply Chain Management

48