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A comprehensive model for Supply chain

integration
supply chain integration
Cunlu Zhang
Department of Management Science, School of Management, 1141
Xiamen University, Xiamen, China
Angappa Gunasekaran Received 26 May 2013
Department of Decision and Information Sciences, Revised 17 August 2013
Accepted 17 August 2013
Charlton College of Business, University of Massachusetts – Dartmouth,
North Dartmouth, Massachusetts, USA, and
William Yu Chung Wang
Department of Business Information Systems,
Faculty of Business and Law, Auckland University of Technology,
Auckland, New Zealand

Abstract
Purpose – Extant research on supply chain integration defines integration in different ways, and
mainly discusses a limited number of integration elements. The purpose of this paper is to develop
a conceptual integration model which consists of comprehensive elements that are important to
academic research and industrial practices.
Design/methodology/approach – Key literature survey with drawing threads of existing practices
together for developing a systematic referential model and then verify the model with a real case.
Findings – Developed a model consisting of integration elements residing at the strategic, managerial,
operational, and fundamental levels (bottom line). Based on the benefit alignment, the total integration
requires supply chain partners to integrate resource flows (material, information, knowledge, and
finance), processes and organization, planning and control activities and strategy.
Research limitations/implications – The research is based on secondary data and a case study
illustration. Further empirical research is required.
Practical implications – The normative model can guide managers to integrate resources and
activities in their efforts for an effective supply chain management. It supplements the Supply Chain
Operations Reference Model developed by the Supply Chain Council with an interface description,
which may guide the development of information systems for supply chain integration.
Originality/value – The comprehensive model provides a more inclusive and integrated perspective
of supply chain integration. It is expected that the consensus of supply chain integration could be
achievable based on this model. The conceptual framework will assist the researchers to determine
integration variables of supply chain.
Keywords Logistics, Supply chain management
Paper type Conceptual paper

1. Introduction
The purpose of supply chain management is to integrate the activities of partnering firms
and to create seamless supply chain (Towill, 1997), where territorial boundaries between
partners are eliminated and all entities of the value chain become integral parts of an
organization, in order to provide quality products and services and satisfy the demands of Benchmarking: An International
customers effectively and leverage competitive advantages together. Supply chain Journal
Vol. 22 No. 6, 2015
pp. 1141-1157
This research was supported by the National Natural Science Foundation of China under © Emerald Group Publishing Limited
1463-5771
Grant 71072054. DOI 10.1108/BIJ-05-2013-0060
BIJ management is different from the management of a single enterprise, it is about exploiting
22,6 business partners’ core competencies and advanced resources to achieve organizational
objectives and integrating independent enterprises into one group to maximize the
benefits, reduce costs, and be adaptive to the changing business environment.
The integration of supply chain management systems has been the subject of
significant debate and discussion during the last 20 years (Leuschner et al., 2013;
1142 Power, 2005). The concept of supply chain management is primarily based on the
integration of the activities of partnering firms. From a manufacturer’s perspective, Flynn
et al. (2010, p. 59) define supply chain integration as “the degree to which a manufacturer
strategically collaborates with its supply chain partners and collaboratively manages
intra- and inter-organization processes”. This definition emphasizes strategic collaboration
and process integration (Flynn et al., 2010). Whereas Lee (2000) stresses the flows of
material, information, and finance in the network consisting of customers, suppliers,
manufacturers, and distributors. Lee (2000) presents a three-dimension framework of
integration: information, coordination, and organizational linkage. Leuschner et al. (2013)
term supply chain integration as the scope and strength of linkages in supply chain
processes across firms. These general conceptual discussions lack a clear hierarchical
structure and corresponding implementation functional areas or departments. There is
still a scarcity of well-grounded theoretical frameworks canvassing a complete set of
elements that illustrate the reality of supply chain integration (Chen et al., 2009).
Van der Vaart and Van Donk (2008) and Fabbe-Costes and Jahre (2007) have
reviewed the literature on supply chain integration research and found that almost
every author has his/her own understanding about supply chain integration. But there
is little consistency in the basic definitions and contents of the constructs used in extant
research as many of them have hardly built on previous work, and thus leading to little
consensus on how to capture the essence of supply chain integration. A large list of
seemingly different constructs and measurements could be drawn up from extant
survey-based research (Leuschner et al., 2013), nevertheless individual authors usually
include only a limited number of items and components of supply chain integration
(Van der Vaart and Van Donk, 2008). Academic research needs an extensively
applicable framework which encompasses all basic factors of supply chain integration,
so that it will benefit both researchers and practitioners.
Leading companies, such as Toyota, Honda, and Li and Fung, contribute many
valuable cases (e.g. Lee, 2000; Liker and Choi, 2004; Magretta, 1998; Narayanan and
Raman, 2004) which supplementarily provide the issues that are addressed in
industries, although different companies place their emphases on different aspects and
elements of integration. A top priority for researchers and practitioners should be to
develop a normative model that can guide managers in their efforts to develop and
manage their supply chains rather than following, testing and verifying business
practices that have been in place for a decade (Lambert and Cooper, 2000). Nonetheless,
such models and related studies are still rare in the literature. The well-known model
that serves such purpose is the Supply Chain Operations Reference (SCOR) Model by
the Supply Chain Council, which focuses on operational processes and performance
evaluation. Till now SCOR Model has not modelled the interfaces between trading
partners, so that its adoption and application is at best limited (Power, 2005).
In summary, there is still a limited understanding about the essence of supply chain
integration and a lack of comprehensive framework for it. Therefore, this research aims
to address this gap by developing a normative model with a suitable structure and
comprehensive elements identified from supply chain integration literature and practices.
 In order to develop the conceptual model of supply chain integration, we will draw the Supply chain
threads of existing research together to formulate a larger or more integrated perspective integration
(Meredith et al., 1989). The extant literature contains scattered elements that have been
considered to fit into developing a model in this paper. The main objective of our paper is
to identify the relevant issues of supply chain integration and incorporate them into a
comprehensive and inclusive conceptual model in a systematic way.
This paper is organized as follows: Section 2 proposes supply chain integration 1143
model with detailed description of its elements. Data collected by the literature
review and analysis has been used to develop the model. For making the description
succinct and clear, each element is addressed separately with subheadings, though
they are closely interrelated. In Section 3, issues regarding how to implement the
supply chain integration model are briefly discussed. This is followed by an illustrative
case (Section 4) to discuss the application of the model. Finally in Section 5,
a discussion on the implications of the model and recommendations for further
research are presented.

2. A comprehensive model for supply chain integration

Stevens (1989) suggests that companies should integrate internally first
(internal integration), and then extend the integration to their supply chain partners
(external integration). In this paper, we particularly focus on the external integration,
which refers to the integration of a firm’s activities with those of their customers and
suppliers (Leuschner et al., 2013; Stock et al., 1998) to discuss the interconnectivity among
those supply chain entities and required elements. However, it does not hinder the
importance of internal integration as we consider it to be essential readiness for extending
to external integration. The comprehensive model is actually a generic interface
explanation beteen supplier and its customer, we will not distinguish the difference
between upstream integration and downstream integration as Wang and Chan (2010).
The links between supply chain partners are analogous to computer network, which is
defined as a collection of independent computers and devices that are connected by
communication channels in order to share resources. Considered the urgency of the need
for standards to allow formation of heterogeneous computer networks, in 1979, the
International Standards Organization created a layered model called the Open Systems
Interconnection (OSI) model to describe the defined layers in a network operating system
(Zimmermann, 1980). It applies seven layers to describe the necessary integration
processes in transmitting information among computers in a network environment. Since
then, the OSI model has laid the foundation for software and hardware developments of
computer networks and information communications. With a similar approach, this paper
attempts to set up a reference model for supply chain integration.
By similar effort, Stevens (1989) has provided a three-level perspective for developing
an integrated supply chain: strategic, tactical, and operational. The three-level structure
is corresponding with enterprise hierarchy, so it is more feasible to be implemented.
But the framework which has only explained concepts of the three levels briefly is too
simple and generic, without details about the strategic, tactical, and operational integration.
While subsequent literature places emphasis on the operational integration of processes
and flows of material, information, and cash (Flynn et al., 2010).
We propose a comprehensive model of supply chain integration as shown in
Figure 1, which comprises strategic, managerial, operational, and fundamental levels.
Each level consists of one or several integration elements. Each element that constitutes
the framework is now described.
BIJ Layers Elements of Integration
22,6
Strategic
Strategy

Planning
Integration and Control Integration
1144 Managerial

Supplier

Customer
Organization

Process

Operational

Material, Information, knowledge, and Finance

Figure 1.
A comprehensive
model for supply Fundamental Benefit Alignment
chain integration

2.1 Benefit alignment

Benefit alignment is the foundation that could trigger all the related activities in
integration and maintaining the sustainability of a pre-configured supply chain. Benefit
alignment is also called incentive alignment (Simatupang and Sridharan, 2008). Since the
main objective of an enterprise is to maximize the profit, a systematic integration of
supply chain partners can only be achieved based on the win-win cooperative
relationship. Supply chain cooperation is usually among members which either have
different reward systems or are legally separate (Wang and Chan, 2010), members need to
align their incentives and mode of benefit sharing (Ballou et al., 2000). A formal agreement
is the first step of benefit alignment, which defines the obligations and responsibilities of
each entity, and establishes the mechanism of sharing interest and risks. A supply chain
works well if all entities’ incentives are well aligned that is, if the risks, costs, and rewards
of doing business are distributed fairly across the network (Lee, 2000; Narayanan and
Raman, 2004). Serious commitments, which include affective commitment, normative
commitment, and continuance commitment, play a significant role in maintaining long-
term and stable relationships of supply chain partners (Salam, 2011).

2.2 Material integration

Traditionally, Supply chain management involves with the control of material, information,
and finance flows in a set of networked organizations consisting of customers, suppliers,
manufacturers, and distributors. Addressing the integration of material flow is still
commonly seen as the focus of a supply chain integration project. Material flows include
both physical product flows from suppliers to customers through the chain and reverse
flows via product returns, servicing, recycling, and disposal (Lee, 2000). Material
integration, or material flow integration, will lead to the outcomes of reduced inventory,
lower cost, shorter lead times, less product damage, and better service to customers.
The material integration is recognized with four levels: material handling, handling
management, delivery decision support, and logistics alliance level (Wu, 2006), from
bottom to top as shown in Figure 2. Material handling is an essential level that refers to Supply chain
the collaborative activities in material handling and uniform standards of logistic facilities, integration
such as sharing pallets and packaging, standardized logistics handling equipments,
combination of loading and unloading activities, merging of delivery activities and
warehouse input/output activities, and joint transportation. Handling management level
refers to the cooperation of daily operational scheduling and controlling of material flow,
such as joint inventory level control, joint delivery schedule, logistics activity control, and 1145
information feedback. Delivery decision support level refers to joint activities in logistics
system analysis and operational decision making, like logistics cost analysis, delivery area
planning, vehicle dispatching scheduling, etc. Logistics alliance level integrates long-term
logistics cooperation arrangements, including mutual usage of logistics facilities, joint
management team, and joint logistics improving planning.

2.3 Information integration

Bowersox and Calantone (1998) state the notion of an integrated supply chain has only
become feasible when companies have access to information that is accurate, timely,
and affordable. Advanced supply chain is established based on interconnected modern
information systems. Information sharing could serve as an enabler that integrates all
elements of group efforts into a whole (Simatupang and Sridharan, 2008). Similar to
material integration, information integration is also an indispensable element of a
supply chain integration project. Information systems improve the quality of
forecasting, decision, planning and control, mitigate the uncertainty caused by the
external market environment and internal factors of the supply chain, and
consequently improve the efficiency and effectiveness of supply chain operations.
There is a lot literature discussing the information integration in supply chain, and
almost all the survey-based research use information sharing as an integration
measurement (Flynn et al., 2010; Gimenez, 2006; Ho et al., 2002; Van der Vaart and Van
Donk, 2008). In practice, managers face issues such as the platform or technological
tools, information format and contents, the mechanism of information utilization, and
confidentiality in integration of supply chain activities.

2.4 Knowledge integration

The next level of integration is the exchange of knowledge among supply chain
partners or collective learning (Simatupang et al., 2002). This is clearly a deeper
relationship than just information integration, it demands a greater degree of trust
among partners than does the simple sharing of data (Lee, 2000).
In general, knowledge involved in supply chain operations encompasses knowledge
about products, facilities, manufacturing, management, market and customers, economical
environment, and the like. Usually, the focal or leading firm of a supply chain has the
Material Flow

Material Flow

Logistics Alliance
Customer’s
Supplier’s

Activities

Activities

Delivery Decision Support

Handling Management
Material Handling
Figure 2.
Integration of
material flow
BIJ responsibility of coordinating the knowledge sharing activities among participating
22,6 members or partnering firms. An upstream supplier would provide knowledge to its
customers about how to use, maintain, reprocess, and return its products, especially
when the products are complex, vulnerable, or highly technological. In contrast,
downstream retailer and wholesaler provide knowledge related to the markets and
customers, and the required product specifications/design which satisfy their demands.
1146 Many articles provide the evidence for the knowledge sharing along the supply
chain. The company, Li and Fung has its managers working in the suppliers’ factory, to
set up production plan, balance the supply and demand, and inspect production
processes with shared knowledge (Magretta, 1998). Likewise, Toyota brings about
all-around improvements in its suppliers and teaches suppliers its famed Toyota
production system (Liker and Choi, 2004). The company has set up learning teams, as a
way to help the subcontractors and the suppliers to learn things together in order to
improve the interconnected operations. Top and middle management staffs who work
for Toyota and its suppliers meet under the guideline of a Toyota Sensei and go from
one plant to another for improving suppliers’ business processes. Suppliers also take
part in the new product development as it is the well-liked practice of knowledge
integration (Liker and Choi, 2004). New product introduction time can be dramatically
reduced through the involvement of suppliers in the innovation process (Christopher,
2000; Lambert and Cooper, 2000). The efficient product introduction in efficient consumer
response (ECR) of the grocery supply chain (Kurnia and Johnston, 2003) is another
example of knowledge integration of manufacturer-retailer partnership. Similar
knowledge sharing case of Wal-Mart and Pfizer is described by Lee (2000, p. 33):
Knowledge exchange is the basis for Wal-Mart’s collaboration with Warner-Lambert
(now part of Pfizer) on the forecasting and replenishment of pharmaceuticals and healthcare
products. Retailers such as Wal-Mart usually have the best knowledge of local consumer
preferences through their interactions with customers and their possession of point of sale
(POS) data. Pharmaceutical companies know about the properties of the drugs they produce
and can make use of external data, such as weather forecasts, to help project demand patterns.
Both parties contribute their respective knowledge and collaborate closely to determine the
right replenishment plan.
In the competitive landscape of global supply chains, knowledge sharing between
supply chain partners has never been more critical (Myers and Cheung, 2008), so
managers should place more emphasis on the knowledge integration. Knowledge
sharing is at least as significant as information sharing.

2.5 Finance integration

The purpose of finance integration is to maintain orderly financial flow. Financial flows
include credit terms, payment or repayment schedules, and consignment and title
ownership arrangements (Lee, 2000). Financial flows are accompanied by material
flows and information flows in a harmonious way. The commitment of sharing rewards
and risks will be implemented through financial integration processes. Finance
integration also includes the financial help for long-term relationship partners, price
negotiation mechanism, and implementation of strategic investment.

2.6 Process integration

Process is a set of activities designed to produce a specific output for a particular
customer or market (Davenport, 1993). One of the major initiatives of supply chain
management is to link business activities to those of critical partners, to form trans- Supply chain
organizational business process and focus on end users’ demands. Lambert and Cooper integration
(2000) indicate eight key processes in the supply chain, including customer relationship
management, customer service management, demand management, order fulfilment,
manufacturing flow management, procurement, product development, and
commercialization and returns. Superficially, the goal of process integration is to
realize seamless connection of supply chain activities with consistent performance 1147
standards. More substantially, it aims to enable supply chain to perform effectively and
flexibly with such connection. Undoubtedly, successful process integration is a major
challenge for supply chain managers. To achieve integrated supply chain processes,
managers should follow three stages from internal integration, to supplier integration
and customer integration. Internal integration forms the foundation of supplier and
customer integration (Flynn et al., 2010; Stevens, 1989), supplier integration acts as a
prerequisite for the successful implementation of customer integration (Danese and
Romano, 2011). Hammer (2007) provides a Process and Enterprise Maturity Model
(PEMM), which centres on five characteristics that ensure processes to perform as
expected on a sustainable basis and on four enterprise capabilities that allow processes
to take root in organizations. The PEMM model can be used to evaluate the maturity of
trans-organizational process and to find opportunity of improvement.

2.7 Organization integration

High efficiency operation of supply chain requires multiple collaborative working
relationships across the organizations at all levels (Christopher, 2000). Process
integration requires trans-organizational working teams and regular communication
between partners. Organization integration enables trans-organizational business
processes functioning collaboratively. Literature shows that trading partners have
modified their organizational structures to adapt for supply chain integration, Neuman
and Samuels (1996, pp. 9-10) provide an example:
It has worked because of open communication, not necessarily at the buying/selling level.
That has helped tremendously. We have made a concerted effort to open up the organization
so that our distribution people are talking with their distribution folks. Our procurement
people are talking with their order departments, so that really, where activity is occurring,
aligning the organizations along those lines and, without having a buyer go, or a category
manager go, through a sales rep who goes through a third party (Figure 3).

CEO CEO
Marketing and Sales Sourcing
Production Production
R&D R&D
Supplier Customer
Logistics Logistics
Customer Service Customer Service
Finance and Accounting Finance and Accounting Figure 3.
IT, etc. IT, etc. Organization
integration through
multiple
organizational
linkages
Source: Adapted from Christopher (2000, p. 43)
BIJ To establish the settings of organization integration and make the arrangement work
22,6 well, culture, and attitude are very important consideration, that they cannot be
underestimated (Lambert and Cooper, 2000; Lambert and Knemeyer, 2004).
Compatibility of corporate culture across channel members is necessary. Otherwise
there could be potential conflicts leading to inefficient operations. As the root of
Confucian culture lies in Asia, and Asia is an integral part of global supply chains,
1148 Salam (2011) suggests that an understanding of Confucian dynamics will enable
practitioners to manage supply chain integration efficiently. Toyota and Honda intend
to understand how their suppliers’ work, they believe the beneficial partnerships occur
only if they know as much about their vendors as the vendors know about themselves.
They do not cut corners while figuring out the operations and cultures of the firms they
do business with (Liker and Choi, 2004).

2.8 Planning and control integration

Planning and control integration is posited at a higher level of the supply chain
integration model, consisting of managerial activities such as collaborative forecasting,
planning, controlling, performance evaluation, and risk management. The objective of
planning and control integration is to balance the supply and demand within a supply
chain. Integrated planning and control activities are based on the allocation of decision
right amongst the chain members (Lee, 2000; Simatupang and Sridharan, 2008).
Collaborative Planning Forecasting and Replenishment is the example of planning and
control integration (Szozda and Swierczek, 2013). Liker and Choi (2004) describe that
Toyota and Honda supervise their suppliers through sending monthly report cards to
suppliers, providing immediate and constant feedback, and getting senior managers
involved in solving problems.
Reasonable performance evaluation to overall supply chain and benchmarking are
the essential joint tasks of integrated operations control. Performance measures can be
used to provide an accurate diagnosis of the state of the supply chain by addressing
both its forward and its reverse components, to identify the level of existing integration
between parties (Mondragon et al., 2011). Neuman and Samuels (1996) point out that
manufacturers and retailers must bridge the gaps residing originally in their
perceptions of the others by creating relevant criteria for appraising supply chain
performance, negotiating performance parameters with counter parties, giving and
accepting rigorous, and continuous measurements along such parameters.
Planning and control integration should bring risk management into the picture and it
has been given much attention as the vulnerability of supply chain increases (Tang and
Musa, 2011). In reality, modern supply chain is liable to be affected by the unfavourable
factors both from the outside environment and from the entities within the chain due to its
characteristics of multi-entity, cross-region, and complex structure. Risk management
processes, which include risk identification, risk assessment and evaluation, risk planning,
risk control, and monitoring, call for joint efforts of all supply chain partners (Zhang and
Huang, 2007). Ericsson has implemented a proactive supply chain risk management
approach after a serious sub-supplier accident, by working closely with suppliers and also
by placing formal requirements on them (Norrman and Jansson, 2004).

2.9 Strategy integration

Strategy integration refers to the activities of communication of long-term strategic
goals and strategic intents, collaborative strategic investment plans, capacity and
facilities planning, and interrelated implementation programs. Long-term and reliable
cooperation necessitates strategic integration. If supply chain is excluded from the horizon Supply chain
of strategic debate, there is imbalance, exploitable opportunities are missed and the impact integration
of the competitive threat increased (Stevens, 1989). Liker and Choi (2004, p. 112) describe
a case of strategy integration in Honda’s supply chain:
Honda uses only one top management meeting, or Jikon, to share plans with each supplier.
The meetings involve a Honda team – usually two vice presidents of supplier management and
several assistant vice presidents – and a supplier team. The jikon happen within three months of 1149
the end of the fiscal year, which is when most suppliers make investment decisions and other
strategic plans. Only core suppliers participate in the meetings, which take place at the regional
and global levels. Honda invites one supplier from each region to the global jikon in Tokyo every
year; it held one-on-one meetings with 35 North American suppliers in 2003. The discussions
don’t extend to operational matters but instead cover only top-level strategic issues. Honda tells
the suppliers what kinds of products it intends to introduce and what types of markets it plans to
cultivate in the coming years. The company then discusses the supplier’s strategic direction in
terms of technology, globalization, major investments (such as capital goods and plant
expansion), and ideas about new products. The meetings also cover improvements that will be
necessary in the quality, cost, and delivery of the vendor’s products.
The integration elements identified from extant literature have been reviewed and
analysed. Total integration requires supply chain partners to comprehensively
integrate resources (material, information, knowledge, finance, organization, etc.),
activities and processes (operational and managerial), and strategy.

2.10 Interplay of integrating elements

Figure 4 shows the elements of supply chain integration and their linkages to each other.
Benefit integration is the essential foundation of all other integrations and upon which the
partners share rewards and risks. Strategy integration guides all other integration

Strategy

Planning and Control

Organization

Customer
Satisfaction
Process

Information, Knowledge,
Material and Finance Flow
Figure 4.
The interplay of
Benefit integrating elements
BIJ activities at the managerial and operational levels (as shown in Figure 1), in turn,
22,6 successful managerial and operational integration would enhance strategy integration.
Setting up material, information, knowledge, and finance integration ensures the
allocation of proper resources to integrate inter-organizational business processes; the
output of integrating process are customer satisfaction, and value-added products,
information feedback, knowledge accumulation, and financial revenues. Organization
1150 integration relies on the integrated processes and is the premise for supply chain planning
and control. Planning and control are parts of the managerial activities and functions of
integrated organization. Integrating planning and control activities are responsible for
effective and efficient processes and flows of material, information, knowledge, and
finance. Saeed et al. (2011) find that as enterprises move from lower end to the upper end of
the supply chain integration spectrum, greater attention is paid to features associated with
systems integration, planning, and forecasting.

3. Implementation issues of the model

As integration has been the core of supply chain management (Fabbe-Costes and Jahre,
2007), a good understanding of the integration process is a key aspect (Gimenez, 2006).
But it does not mean all relationships need strong integration. Integrating and managing
all business process links throughout the entire supply chain are likely not appropriate.
Since the drivers and costs even risks for integration are situational and different from
process link to process link, the levels of integration should vary from link to link, and
over time. Some links are more critical than others (Lambert and Cooper, 2000). Lambert
and Cooper (2000) identify four fundamentally different types of business process links
between members of a supply chain: first, managed business process links, second,
monitored business process links, third, not-managed business process links, and fourth,
not-member business process links, also categorize the members of supply chain into
primary members and supporting members. Gimenez et al. (2012) show that supply
chain integration is only effective if supply complexity is high. So managers must
select the vital business linkages to allocate scarce resources and make their efforts.
Factors such as business condition, company’s power in supply chain, industry and
market characteristics, and supply chain strategic perspective influence and determine
both the optimum level of integration as well as the type of integrative activities
employed (Van der Vaart and Van Donk, 2008). Van der Vaart and Van Donk (2008)
disagree with the well-liked assumption that greater integration is always better.
Overdoing integration may not improve supply chain performance (Gimenez et al., 2012).
Before trying to test whether tighter integration leads to better firm performance as lot of
researchers have done (Leuschner et al., 2013), whether it is the “right” integration status
between supply chain partners should be identified.
About the implementation process of integration, Stevens (1989) advises that
companies integrate internally first, and then, extend integration to other supply chain
members. Stevens believe that its successful achievement is likely to be bottom up,
evolving through four stages. Lambert and Knemeyer (2004) provide a model to
elucidate the drivers behind each company’s desire for partnership, allows managers
to examine the conditions that facilitate or hamper cooperation, and specifies which
activities managers must perform to implement the integrated relationship.

4. An illustrative case study

For illustrating the integration model and its implementation, a case study of
Haier Group and Suning Appliance was conducted. Haier Group, headquartered in
Qingdao, China, is ranked worldwide as the third appliance company by unit volume Supply chain
(http://blog.euromonitor.com/2010/12/major-appliances-millionaires-club-new-2010- integration
company-rankings.html); Suning Appliance, headquartered in Nanjing, China, is the
largest Chinese chain retailers of home appliances. The successful case of Haier Group
and Suning Appliance supply chain integration has attracted wide attention in China.
The data were collected through the home page of Haier (www.haier.com) and Suning
(www.suning.com) in last decade. The consistency of secondary sources was verified 1151
by interviews with managers of Suning Appliance.

4.1 Benefit and incentive alignment

Due to the surplus of production capacity in Chinese market, household appliances
manufacturers face fierce market competition. The competition forces the manufacturers
and suppliers to work closely in order to respond to the market demand more efficiently, and
thus to reduce unnecessary operational costs and to increase the percentage of market share
and the exposure of brand image.
Haier’s concern is how to boost the utilization of the sales channels of Suning to
increase sales, and Suning has a strong interest in the Haier’s electrical products with a
very strong brand. The annual sales volume of Haier products sold via the distribution
channel of Suning is about RMB10 billion (approx. $1.53 billion). Huge volume of
business leaves much room for both to improve services and enhance profitability by
supply chain integration. In addition, the compatibility of the service concept and
enterprise culture of two sides is also the basis for successful cooperation.

4.2 Information, finance and material integration

In 1993, Haier Group and Suning Appliance commenced the effort of cooperating at the
strategic level by introducing the concept of strategic partnership. The preliminary
works had been converted into more substantial action in 2005 when the enterprise
information systems of two companies were successfully connected to each other,
leading to the real-time information sharing on a unified technological platform.
The integrated information systems have enabled the finance integration for both
companies. Following contract terms negotiated and determined by both sides, the
transactions in the payment procedures are automatically settled. Moreover, with
sharing information on sales, finance, inventory, and order processing, the integration
of logistics systems enables the two companies to share available inventory, trucks,
and logistics staffs. Thus, Haier closed the transit warehouses in 42 cities nationwide in
the second half of 2008 and dropped the inventory turnover days from 30 to seven.

4.3 Organization integration

The landmark of total supply chain integration was the cooperative agreement that
focused on ECR. The agreement was signed in 2007 which states the shared business
goals, resource input, responsibility, benefit, and risks sharing of both sides. Haier and
Suning also discussed the details of the implementation procedures following the
agreement. The incentive was to work together towards making the supply chain
as a whole more responsive to consumer demand and to promote the removal of
unnecessary costs through efficient product replenishment, joint product development
and introduction, store assortment, and promotion management.
The first step of implementing the ECR was the restructuring of the associated
organizational units. Haier set up a new department, Suning operation team. Likewise
Suning also formed a special team to deal with the business related to Haier, and later
BIJ the team was named Haier division. The teams in two companies consisted of the
22,6 professional staff originally from the departments of marketing and sale, logistics,
customer service, and product development, respectively. These changes actually implied
the depth and width of supply chain management and in turn the organization integration.

4.4 Process integration

1152 Process integration is the key to supply chain integration. Xiwen Zou, the manager of
Process Innovation Department in Haier Group, advocated that business processes and
information systems could not be confined within internal enterprise, they should
orient towards the whole entire supply chain, and the supply chain must be responsive.
Quick response is the common objective of Haier and Suning. Based on successful
information integration and guided by the synchronous collaboration and concurrent
engineering concepts, the processes of order and sourcing management, promotion,
customer service and return products, new product development and launch, etc. were
integrated and optimized. On the basis of mutual trust and commitments, operational
processes were significantly simplified (from 30 to 35 days response time), and supply
chain efficiency were improved substantially.

4.5 Planning and control integration

For Haier, the core of ECR operation was described as “Customer – Order, Order –
Product, Product – Cash” a three-step approach. Relying on the integrated digital
channel, customer demands were transmitted directly from Suning to Haier. Based on the
demand information, Haier immediately developed, designed, and produced the new
products based on customer demands, then supplied to Suning to maximise customer
satisfaction. Haier achieved the transformation from make-to-stock to make-to-order, and
in turn improved the order fulfilment rate. Two sides planned the business operation
according to negotiated planning procedures, monitored and controlled the
implementation. The issues on which the joint management teams spent most of their
efforts were to deal with risk events and problems they encountered in their operational
processes. The Supply Chain Management Council of Haier evaluated the key
performance index regularly, tried to find hidden problems and their causes, and
promoted continuous improvement. By 2006, the time that Haier domestic appliance
spent from new product development to large scale distribution was about three months.
After the implementation of ECR, Haier shortened the time to one month. Meanwhile
Suning got more and more opportunities to release Haier’s new products.

4.6 Knowledge integration

Knowledge management and database marketing were the highlight of the integration.
Haier provided training service to Suning staff who were responsible for sales
and customer service. The training courses involved the knowledge of product
specification, function, principle, and use/maintenance. At the same time Suning offered
to Hailer the first hand knowledge about customer demands and market trends. By
mining the data warehouse that Suning possessed, two sides strive to understand more
about consumer needs, develop marketable products and improve product acceptance.
They changed the previous situation in which the manufacturer made a product
decision by itself, retailer sold the products passively. Suning has got the right to sell
more than 50 per cent of all product models produced by Haier as the exclusive
distributer or retailer, greatly enhanced its competitiveness by differentiating itself
from other distributors.
4.7 Strategy integration Supply chain
Every year, there would be one or two news about mutual high-level visits between integration
senior managers of Haier and Suning on China’s public media. Generally, Vice
President Yunjie Zhou represented Haier Group, Vice President Ming Jin represented
Suning Appliance. Regular high-level contacts became the key enablers of strategic
cooperation activities. Two sides decided the targets of further co-operation, identified,
and evaluated the challenges they would face, negotiated tactics to deal with existing 1153
problems, modified the principles of cooperation and developed the implementation
stages of strategic plan.
The supply chain integration was described as “dismantle the wall between
each other” by the Chinese media. The integration is a major success. The practice
of Haier and Suning supply chain integration has embraced all the integration
elements described above. In 2011, the supply chain sales volume was up to reach
RMB15 billion ($2.3 Billion). Yunjie Zhou and Ming Jin were full of confidence
about further cooperation and shared success. They thought that home appliance
supply chain integration was the only way to revitalize the whole industry in
China.

5. Discussion and conclusions

The supply chain integration model that we put forward can be summarized in Table I.
Efficient supply chain integration places all essential resources of all cooperative
partners together and connects all functional processes in order to effectively use
resources. The goal is to operate the whole supply chain as a corporate entity, to
achieve effective and efficient flows of products and services, information and
knowledge, finance and decisions, to provide maximum value to the customers at low
cost and high speed (Flynn et al., 2010). This study develops a comprehensive
conceptual model for supply chain integration based on identified elements scattered in
extant literature.
Even though supply chain integration has been a highly researched topic during the
last 20 years, it has often been operationalized and measured differently (Leuschner
et al., 2013). There is still little consensus on how to capture the essence of supply chain
integration (Van der Vaart and Van Donk, 2008). Extant studies define integration in
different ways and base their questions in their surveys on a limited number of
indicators and operational measures (Fabbe-Costes and Jahre, 2007). Leuschner et al.
(2013) suggest authors, referees, and editors to agree to a consistent standard of
reporting for empirical survey-based research. In this connection, this paper has
attempted to form a consensus based on the proposed comprehensive model shown as
in Figure 1 and Table I. It contributes to the knowledge by presenting a comprehensive
model from the perspective of supply chain integration based on the evidence extracted
from secondary data and analysis. The model provides direction for future research to
determine integration variables of supply chain and their interconnectivity. Because
the nature of supply chain management is about integrating the operations and
bridging among participating members, the model can be also used to categorize the
knowledge required for supply chain management.
The comprehensive model described above embrace the details of integration
elements with reasonable structure. It is a normative model that can guide managers
to integrate resources and activities in supply chain management by helping them to
recognize the contents of supply chain integration. The comprehensive framework is
also an interface model like the OSI model in computer network. The interface model
BIJ Level Elements of integration Contents of integration
22,6
Strategic level Strategic integration Communication of strategic goals and strategic
policy
Collaborative strategic investment plan
Capacity and facility planning
Interrelated implementation programme
1154 Managerial level Planning and control Collaborative forecasting, planning and control
integration Collaborative performance evaluation
Risk management
Organization integration Multiple inter-organizational linkages
Regular communication
trans-organizational working team
Compatible organization culture
Operational level Process integration Customer relationship management
Customer service management
Demand management
Order fulfilment
Manufacturing flow management
Procurement
Product development and commercialization
Returns
Finance integration Credit terms
Payment or repayment schedules
Consignment and title ownership arrangements
Financial help to each other
Knowledge integration Product knowledge
Producing knowledge
Facility knowledge
Management knowledge
Market and customer knowledge
Environment knowledge
Information integration Platform or technological tools
Information format and contents shared
Mechanism of information use and confidentiality
Material integration Logistics alliance
Delivery decision support
handling management
Table I. Material handling
Summary of supply Fundamental level Benefit alignment Mechanism of sharing rewards, costs and risks
chain integration Long term commitment

supplements the SCOR model with the function of describing the interfaces between
supply chain partners. The framework may be helpful for IT engineers and managers
striving to develop supply chain integration software systems.
One of the limitations of the study is the use of secondary sources for data
collection and an interview based illustrative case to demonstrate the application
of the model. We only provide enough or least evidence, not complete evidence.
The conceptual model needs further empirical research. We focus our discussion on the
total supply chain integration model, rather than the specific details of integration
elements. Each element of supply chain integration still has many unresolved
theoretical and practical issues. These offer avenues for further research on supply
chain integration.
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Corresponding author
Dr Cunlu Zhang can be contacted at: [email protected]

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