SUPPLY CHAIN INTEGRATION AND PERFORMANCE: THE

IMPACT OF BUSINESS CONDITIONS

Taco van der Vaart1, Cristina Giménez2 and Dirk Pieter van Donk1

1
University of Groningen, Faculty of Management and Organisation, Groningen, The Netherlands,
j.t.van.der.vaart@rug.nl, d.p.van.donk@rug.nl
2
ESADE Business School - Universitat Ramon Llull, Barcelona, Spain, cristina.gimenez@esade.edu

ABSTRACT
Over the past decade, one of the main themes in the Supply Chain Management literature has been the
impact of integration on performance. Many authors agree that integrative practices have a positive
impact on corporate and supply chain performance. However, very few researchers have considered the
different underlying constructs of supply chain integration and different business conditions. The main
objectives of this paper are: to analyze the different dimensions under the integration construct and to
analyze integration under different business conditions (high and low demand and technology
uncertainty). We present the results of a survey conducted among Dutch and Spanish companies. The
results show that there are different dimensions under the integration construct (practices, patterns and
attitudes) and that these are correlated. The results also show that under environments characterized by
high demand and technology uncertainty higher levels of integration lead to improvements in
performance, while under low uncertainty environments very few integration practices lead to
performance improvements. Thus, the main conclusion is that supply chain integration needs a more
tailored approach in order to be successful.

Keywords: survey, supply chain integration, supplier, business conditions

INTRODUCTION
Over the past decade, one of the main themes in the supply chain management literature has been
integration as a key factor in achieving improvements (e.g. Tan et al., 1999; Romano, 2003). Many
authors agree that integrative practices and a high level of integration have a positive impact on corporate
and supply chain performance. Recent empirical work (Frohlich & Westbrook, 2001; Vickery et al.,
2003; Childerhouse & Towill, 2003; Gimenez & Ventura, 2005) shows convincing empirical evidence for
the relationship between integration and performance. Whereas the empirical evidence seems to be
overwhelming, a part of the literature doubts the results and approach taken in supply chain integration
research. Firstly, starting form the well-known and often cited article of Fisher (1997) an increasing
number of researchers have realized that supply chain integration might need a more tailored approach in
order to be successful. One possible way to further explore that is to include context (Ho et al., 2002) or
business conditions (Van Donk & Van der Vaart, 2004,2005; Van der Vaart & Van Donk, 2006). A first
example is the research of Ramdas & Spekman (2000).
Secondly, others emphasize the need for sound constructs and methodologies to better understand the
relationship between supply chain integration and performance. Tan (2001) and Croom et al. (2001)
review the literature and state that the variety of supply chain management and integration definitions is
large. The same can be concluded with respect to the constructs and measurement scales that are used in
survey research in supply chain management (Chen & Paulraj, 2004). All in all, the consistency of
measures and constructs is still limited, according to Ho et al. (2002). One point of concern is that
different aspects of integration are measured, without explicitly addressing such choices. E.g. the papers
of Johnston et al. (2004) and Frohlich & Westbrook (2001) both address integration, but the first one
measures patterns of behaviour, while to second one focuses on operational practices. The number of
items used to measure a specific aspect of integration seems to be small, in some research.
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 And, thirdly, a last point of concern relates to the level of analysis. Some studies measure integration
as an organisational variable and only a few (Johnston et al, 2004; Gimenez and Ventura, 2005) consider
single links and relationships. Related to this point is what a measurement of performance actually means
from a conceptual or theoretical perspective, e.g. the relationship between the level of integration with
one single supplier and the buying firm’s financial performance is hard to understand.
Based upon the above considerations and remarks this paper seeks to serve two different but related
goals. The first aim of the paper is to develop a framework for measuring the relationship between
integration and performance, that incorporates different aspects of integration and explicitly takes into
account the influence of business conditions. This part of the paper builds on a recent paper by Van Donk
& Van der Vaart (2005) that reviews survey-based research in this area. The second aim of the paper is to
empirically investigate the above relationship by conducting a survey among suppliers. Based upon the
previous part, we develop a questionnaire that uses to a large extent items and questions derived from
earlier work. Here, we analyze integration under different business conditions: Our basic assumption is
that a high level of integration is only needed in case of complex business conditions (e.g. high level of
uncertainty in demand, complex operations, high variety, small batches) and only under these
circumstances integration results in better supply chain performance. On the other hand, we expect that in
simple business conditions (e.g. low variety, low uncertainty, large batches) a low level of integrative
practices will be sufficient and profitable.
The paper is structured as follows. The next section will present the main findings from the review of
the literature and will develop the main theoretical constructs and their relationships. Then, we will
explain the methodological approach and the development of the questionnaire. The third section will
present the provisional findings from our ongoing research. The subsequent section will discuss these
findings and relate them to our theoretical background. The last section will present the main conclusions
along with suggestions for further research.

LITERATURE REVIEW
The introduction presented a number of questions and remarks related to the survey-based research. In
this section we present the findings of a review of 33 papers from high-level Operations Management and
Logistics journals published from 2000 onwards. Further details of the review can be found in Van Donk
& Van der Vaart (2005) and in an extended working paper by the same authors. There are three main
conclusions that are elaborated below. Recent survey based research can be criticized for: (1) measuring
integration in a limited way without distinguishing different dimensions or differences between practices,
attitudes and patterns; (2) measuring integration across all links as a variable at the organizational level
and not at the level of a specific link or dyad; (3) ignoring business conditions (such as uncertainty in
demand, variety, market structure, and product and process characteristics) and power.

SCM factors
A first idea in analyzing the measurement of supply chain integration in the above papers, is that factors
or variables used to measure integration can be compared or grouped into recognizable groups. This
sensible idea has not resulted in anything as it turns out that different items and constructs are used to
measure the same or closely related SCM factors. As an example we consider the factors SC integration
(Vickery et al, 2003) and external integration (Giménez & Ventura, 2005). Vickery et al operationalize
SC integration with aggregated items like supplier partnering, closer customer relationships, and cross-
functional teams. Giménez & Ventura use concrete items like informal teamwork, shared information,
and joint development of logistics processes. Another issue here is that SCM factors are measured using a
non homogeneous set of items. E.g. Carr & Pearson (1999) measure buyer-supplier relationships with
items varying from loyalty and frequent face-to-face communication to direct computer links with
suppliers.
Based upon the above findings an alternative way of analyzing and categorizing the papers is
considering the items used to measure integration, labelling these items as attitudes, patterns or practices.
SC practices are concrete activities or technologies that play an important role in the collaboration of a
focal firm with its suppliers and/or customers. Examples are the use of EDI, integrated production
planning, packaging congruence, Vendor Managed Inventories (VMI), and deliveries synchronization
(see for instance De Toni & Nassimbeni, 1999; Frohlich & Westbrook, 2001; Kulp et al, 2004). Related
to these practices are the SC patterns or interaction patterns between the focal firm and its suppliers

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and/or customers. Examples are regularly visits to the supplier’s facility, frequent face-to-face
communication, high corporate level communication on important issues with key suppliers, and formal,
periodic written evaluation of suppliers (see for instance Bagchi & Skjoett-Larsen, 2005; Carr & Pearson,
1999; Chen et al, 2004; Duffy & Fearne, 2004; Stanley & Wisner, 2001).
The last category includes items that measure the attitude of buyers and/or suppliers towards each
other or towards supply chain management in general. Examples used in the questionnaires are “we
expect our relationship with key suppliers to last a long time”, “we view our suppliers as an extension of
our company”, “problems that arise in the course of this relationship are treated as joint rather than
individual responsibilities”, and “the responsibility for making sure that the relationship works for both
the other party and us is shared jointly” (see for instance Chen et al, 2004; Johnston et al, 2004).

Performance measurement
The review of the literature confirms that many surveys measure output performance of the focal firm on
an aggregate level, as was indicated in the introduction. We doubt the value of such an approach,
specifically if only measures as market share or ROI are used. If we assume that integration means
investing in a buyer-supplier relationship, it would make sense to measure performance in terms of the
aims of these efforts with respect to this particular relationship. Possible aims are to reduce reaction times
and/or stocks, but also to increase the visibility in the chain or to attain a more effective and efficient way
of communication. Measuring on the level of relationship directly as some papers do (e.g. Benton &
Maloni, 2005; Duffy & Fearne, 2004; Humphreys et al, 2004; Johnston at al, 2004; Giménez & Ventura,
2003, 2005), can also help in dealing with another measurement issue. A large amount of the current
papers uses subjective measurements of performance relative to the past or relative to competitors, that
are hard to validate. Directly measuring the performance of the relationship could be relatively easy: e.g.
reduction in inventory turns, improved service, and shorter lead time.

Business conditions
Although the paper of Fisher (1997) is widely cited, it has taken some time to influence the survey based
research, with a clear exception of Ramdas & Spekman (2000) and Maloni & Benton (2000). Only
recently, some more studies (Benton & Maloni, 2005; Fynes et al., 2005; Kaufmann & Carter, to appear)
have considered the role of business conditions further. Earlier case-study based work (Van Donk & Van
der Vaart, 2004; Van der Vaart & Van Donk, 2006) clearly shows that the assumption that higher levels
of integration improve supply chain performance needs revision. One of the main determining factors for
the type and level of integrative practices is uncertainty related to demand (volume, mix, specification)
that has been considered by others as well (e.g. Childerhouse & Towill, 2002). So far, the survey based
research has not addressed all relevant issues and findings are not all clear, yet. In fact, the statement of
Frohlich & Westbrook (2001, p.185): “Our knowledge is relatively weak concerning which forms of
integration manufacturers use to link up with suppliers and customers” still seems to hold.

RESEARCH FRAMEWORK
Based on the concerns discussed above we propose the research model as depicted in Figure 1. Future
research should focus more on measuring explicitly attitudes, patterns and practices instead of mixing
these three into one factor, as is often done in current research. Next, we aim at understanding the
possible interactions between attitudes, patterns and practices. On the one hand it seems that (positive)
attitudes are a first step in developing a relationship and improving integration. On the other hand,
intensive daily contact and the development of SC patterns might influence attitudes. Another interesting
subject is the interaction between patterns and practices. The framework also stresses the importance of
the moderating role of business conditions in the relationship between integration (patterns and practices)
and performance. In general, we assume that the type and level of integrative practices and patterns
should “fit” with the type of business conditions.

475
 SC patterns

Performance
SC attitudes buyer-supplier
relationship
Business
SC practices conditions

Figure 1 – Research framework

Business conditions relate to the type of uncertainty in demand (volume, mix, specification), de
variety of demand and the main order-winners and the competitiveness in general. Other business
conditions relate to the type of process technology (e.g. batch size) and complexity of the product and
process (e.g. number of different operations). We assume that a high level of integration is only needed in
case of complex business conditions (e.g. high level of uncertainty in demand, mix or specification of
demand, complex operations, high variety, small batches) and only under these circumstances integration
will result in better supply chain performance. More specifically, we expect that certain patterns and
practices will not be standardized to accommodate intense cooperation and communication on relatively
ambiguous information. Of course, it might be expected that also high-level ICT solutions will be used
for the standard communication in those cases. On the other hand, we expect that in simple business
conditions (e.g. low variety, low uncertainty, large batches) a low level of integrative practices will be
sufficient. Here, the focus will be on standardization and formalization of the integrative practices as little
uncertainty is present in the relationship. A last remark relates to the measurement of performance. We
aim at measuring the performance in the buyer-supplier relationship such as lead time, customer service,
etc.

METHODOLOGY
Two main issues are dealt within this section. Firstly, how we elaborated the content of the questionnaire
and, secondly, how data was gathered.

Constructing the questionnaire

The paper uses a questionnaire that was developed from various sources. Based upon the above
considerations from our literature review, we did not use factors from previous surveys, but we did use
many of their items. The measurement of business conditions is based on Van Donk & Van der Vaart
(2004) and Van der Vaart & Van Donk (2006). Integration is measured using items of practices, patterns
and attitudes. In the measurement of practices, we distinguish between three main types of practices:
practices of integration in the physical flow, practices related to the type of information exchanged and
practices related to the areas in which companies are working together with buyers. Frohlich &
Westbrook (2000) and DeToni & Nassimbeni (1999) are used for the items on physical integration. And,
Gimenez & Ventura (2005) provide items related to the type of information exchanged and areas in which
companies are working together. Additional items of coordination (areas on which companies work
together) are adopted from Chen & Paulraj (2004) and Carr & Pearson (1999). The measurement of
patterns is mainly based upon the work of Carr & Pearson (1999). And, Chen et al. (2004) and Johnston
et al. (2004) provide the majority of questions/items for measuring attitudes. Finally, regarding
performance measurement we use items developed by Gimenez & Ventura (2005).
Questions were changed to make them appropriate for suppliers in their relationship and integrative
efforts with their key-buyer. The questionnaire was pre-tested in several ways. After a large number of
revisions by the authors, colleagues were asked to assess the questions and the way questions were asked.
Next, a pre-test was conducted with professionals attending an Operations course of one of the authors to
check clarity and to assure the time needed for completing the questionnaire.
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Data gathering
Our starting population is the companies in NACE Rev 1.1 business codes 24, 25 and 27 -35 in Spain and
The Netherlands. In contrast to earlier work we seek to investigate the relationship between a supplier and
its main customer/buyer (in a business to business relation) from the supplier’s perspective. As a result,
our target population is not fully known as we do not know which companies are the suppliers
beforehand. Internet is used to assess if the company is a supplier to another manufacturer or not or a
phone call is made to have this information. Next step is to contact the appropriate person in the
supplying company and ask for cooperation. Depending upon the size of the company this can be the
general manager, production manager or logistics manager. If a person of the company is willing to
participate, an e-mail is sent that has a link to an Internet page that enables automatic filling out the
questionnaire. In case of slow response, another e-mail contact and/or phone call is sought to improve
response to the survey. Once the questionnaire is completed, it can be automatically uploaded to a data-
base. Companies are randomly taken from the NACE list. Equal sizes of respondents are sought in Spain
and The Netherlands.
Data collection is from January to June 2006. By the time this paper is written (beginning of April
2006) we have sent 128 questionnaires in the Netherlands and 221 in Spain. We have received 22 valid
responses in The Netherlands and 32 in Spain, which represents a response rate of 17.2% in the
Netherlands and 14.5% in Spain.

DATA ANALYSIS

Factor analysis
Factor analysis was carried out to reduce the business conditions, integration practices and patterns, and
attitudes to a smaller number of underlying factors. Principal components analysis with varimax rotation
was used. In the interest of convergent and discriminant validity, we only considered items that had high a
factor loading and did not have important cross-loads (items with a loading in excess of 0.3 on a second
factor were omitted for further analysis).
The business conditions scale yielded two factors, demand uncertainty and technology uncertainty
(see Table 1). These factors explained 81.25% of total variance. Four factors were obtained in the
integration and patterns scale: Physical integration, Planning information, Joint improvement and
Communication patterns (see Table 2). The four factors explained 68.9 % of total variance. Ten items had
a loading in excess of 0.3 on a second factor and thus were omitted. Two attitude factors were obtained:
Cooperative behaviour and Long term relationship (see Table 3). The two factors explained 75.6%. Five
items had a loading in excess of 0.3 on a second factor and thus were omitted. In addition, the reliability
of each scale was satisfactory: Cronbach α values of at least 0,7 were achieved in all scales, except for
Demand uncertainty, which was 0.63. For further analysis, additive scales were calculated for each factor.

Table 1 Factor analysis: Supply chain uncertainty

Factor Scale items Factor loading
Demand uncertainty The uncertainty of the demand of the key buyer with respect .877
to mix/specification.
The uncertainty in the demand of the key buyer with respect .791
to volume.

Technology The changes in the technology used to manufacture the .951

uncertainty products delivered to the key buyer.
The changes in the technology of the products delivered to .897
the key buyer.

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 Table 2 Factor analysis: Integration practices and patterns
Factor Scale items Factor loading
Physical integration We deliver to our key buyer on a short notice. .900
We deliver to our key buyer frequently. .874
The products delivered to the key buyer can be automatically
identified (e.g. bar coding). .742
Containers and packaging instruments of outgoing materials
are adapted to the precise requirements of the key buyer. .676
We manage the stocks of our key buyer (e.g. VMI). .489

Planning We receive information about the production plans. .911

information We receive information about changes in the production
plans of our key buyer at once. .858

Joint improvement We work together with key buyer to improve operations and
logistics processes. .872
We work together with our key buyer in order to reduce
costs. .767
We schedule deliveries together with our key buyer. .764

Communication We communicate with our key buyer by phone,

patterns videoconference and/or chat. .842
We have face-to-face communication with our key buyer. .809
We communicate with our key buyer by e-mail. .736
We have high corporate level communication on important .708
issues with our key buyer.

Table 3 Factor analysis: Attitudes

Factor Scale items Factor loading
Long term We see our relationship as a long term alliance. .932
relationship We value a long-term relationship with our key buyer. .924

Cooperative When some unexpected situation arises the parties would

behaviour rather work out a new deal than to hold each other to the
original terms. .879
It is expected that the parties will be open to modifying their
agreement if unexpected events occur. .873
We are willing to work with our key buyer to improve our
processes in the long run. .841
We believe that the key buyer is willing to work with us to
improve our processes in the long run. .795
We view our key buyer as an extension of our firm. .767

Correlation analysis
Bivariate correlation analysis was carried out to identify which integration constructs (Physical
integration, Planning information, Joint improvement and Communication patterns) and factor attitudes
(Long term relationships and Cooperative behaviour) correlate with each other (see Table 4) and which
integration factors correlate with measures of cost and service performance. In order to take the business
conditions into consideration, correlations between integration factors and performance measures were
measured under four different environments: low demand uncertainty, low technology uncertainty, high
demand uncertainty and high technology uncertainty (see Table 5).
The 54 valid responses were considered to perform the correlation between integration and attitudes
factors; while for the correlation between integration factors and performance the sample was divided into
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two sub-samples: high and low uncertainty. As the sample size was not big enough to consider the
combination of both business conditions simultaneously, the sample was divided taking into account
demand and technology uncertainty independently. First, the sample was divided taking into account
demand uncertainty (low and high) and correlations were calculated for each sub-sample. Then, the 54
responses were again divided into two sub-samples, but now taking into account the level of technology
uncertainty. The cut points for classifying the companies under the low and high uncertainty
environments were calculated with the aim of obtaining two equivalent sub-samples in terms of size. The
cut point for demand uncertainty was 4.5. This means that companies with a level of demand uncertainty
lower than 4,5 were classified under the low demand uncertainty group and companies with a level of
demand uncertainty equal to or higher than 4.5 were classified into the group of high demand uncertainty.
The cut point for technology uncertainty was 3.5.

Table 4 Correlation analysis: Integration and attitudes

Physical Planning Joint Communication Long term Cooperative
integration information improvement patterns relationship behaviour
Physical .346* .248 .136 -.188 .360**
integration

Planning .320* .325* .117 .269*

information

Joint .347* .187 .560**

improvement

Communication .134 .294*

patterns

Long term .280*

relationship

Cooperative
behaviour
* Denotes significant at α = 0.05; ** Denotes significant at α = 0.01

Table 5 Correlation analysis: Integration and performance under different business conditions
Low uncertainty High uncertainty
Demand Technology Demand Technology

Physical Product mix (.562**) Product mix (.662**)

Integration Special req. (.439*) Special req. (.594**)
Quant. ord. (.551**) Quant. ord. (.482*)

Planning Special req. (.409*)

Information

Joint Product mix (.445*) Product mix (.422*) Transp. Costs (-.422*) Stock outs (-.459*)
Improvement Early
Notifications (.435*)

Communication Prod. Costs (-.525**) Adm. Costs (-.512*) Prod. Costs (-.413*)
patterns Adm. Costs (-.422*)
Stock outs (-.465*)
Early
Notifications (.435**)
* Denotes significant at α = 0.05; ** Denotes significant at α = 0.01

479
DISCUSSION
Based upon a literature study, we proposed to separate attitudes, patterns and practices as distinct
elements in supply chain integration. The empirical evidence clearly shows that each of these elements
can be detected. Table 2 and Table 3 show that within each category factors can be measured. In our
research model we did not distinguish between different types of attitudes. Factor analysis finds two
aspects that can be easily labelled and understood. We will shortly discuss the relationships between the
different attitudes, patterns and practices. Interestingly, the attitudes Long-term relationship and
Cooperative behaviour are correlated, but only the second one is related to patterns and practices. The
correlation can be understood as a mutual reinforcement process in which striving for a long-term
relationship can lead to a positive attitude for cooperative behaviour, while it is also well understandable
that a more positive attitude in cooperative behaviour will positively influence the attitude towards the
long-term relationship. The absence of a relationship between Long-term relationship and practices and
patterns can be interpreted as an indication that a positive attitude towards the long-term is a prerequisite
for a cooperative behaviour, but that the attitude Cooperative behaviour is directly related to the
development of integrative patterns and practices.
As said above, the factor analysis over all items related to patterns and practices finds four distinct
factors, that can be identified and labelled as Joint Improvement, Planning Information and Physical
Integration as practices and Communication Patterns. The three practices are close to the four areas or
dimension as distinguished in Van Donk & Van der Vaart (2004): Physical Integration, Planning &
Control, Information, and Organisation/Relation. Based on our sample, it seems that the dimensions
Planning & Control and Information can be measured in one practice: Planning Information, as it is
labelled here. The other two practices (Physical integration and Joint improvement) can easily be
associated with the remaining two dimensions.
Another interesting remark is that Physical Integration is measured using the items from the IMSS
database as used in Frohlich & Westbrook (2001) to measure integration. Our findings provide support
for our belief that supply chain integration is a broader concept than just being related to operational and
physical aspects, as used in that article.

communication
pattern

long-term cooperative
relationship behavior

joint planning physical

improvement information integration

Figure 2 – Adapted research framework

A closer look at the correlations between practices and patterns shows that that Planning Information,
Joint Improvement and Communication Practices are all related to each other. This is not surprising if we
consider the underlying items like working together, sharing information and communication. Physical
Integration is only related to Planning Information. Explanation for this relationship can also be found in
the underlying items. It is conceivable that items like delivery on short notice, frequent deliveries and
VMI on the hand and information about (changes) in the production planning on the other hand go hand
in hand. Based upon these ideas our research model can be slightly adapted to reflect the empirical
findings (see figure 2, leaving out performance for sake of clarity).
With respect to the role of business conditions, the results presented in the previous section support
our initial ideas. Table 5 shows sufficient evidence that integrative practices specifically help in achieving
a better performance in the supplier-buyer relationship if the uncertainty in demand or technology is high,
while for the companies that face low uncertainty we hardly found a relationship with integration. We do
not only find a relationship with costs, but our results also show that integrative practices and patterns
relate to improvements in logistical performance measures as stock outs, product mix and early

480
notifications (about late deliveries or stock-outs). Based on the results, we submit that business conditions
have a moderating effect on the relationship between integration and performance.

CONCLUSION
The aim of this paper was to explore different aspects of supply chain integration (attitudes, patterns and
practices) and their relationship with performance under different business conditions. Although the
current paper is based upon a limited sample, a number of interesting findings can be detected. The results
show clearly that communication between partners and integrative practices are important factors to
achieve improvement in the performance of supply chains. More importantly, the results support the idea
that the relationship between integration and supply chain is moderated by uncertainty in demand and/or
technology. The conclusion is that integration clearly has more impact on the performance improvement
in supply relations characterized by high levels of uncertainty compared with the relations characterized
by low levels of uncertainty.
Another contribution of this paper is that we found support for the idea that it is useful to distinguish
between attitudes, patterns and practices in supply chain integration research. The results show that there
are different dimensions under the integration construct (practices, patterns and attitudes) and that these
are partly correlated. Further research should focus on the interaction between the different constructs.
There are a number of limitations associated with this study. First, the data collection is not completed
yet and the results are based on the first 54 responses. More principal are the limitations associated with
the use of single respondents and the reliance on supplier perceptions of SC relationship. Multiple
respondents and objective measures have important advantages, but also complicate research design and
influence response. A good alternative is to combine survey research with thorough case studies.
After the data collection has completed, more advanced techniques will be used to analyze the data. A
larger number of responses provides opportunities to analyze structural models and to get more support
for the moderating effect of business conditions. In further analysis we will also look at other business
conditions like market complexity, order winners, volume-variety characteristics, and the position of the
order decoupling point.

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