the role of supply chain processes and information sharing in supply chain management

THE ROLE OF SUPPLY CHAIN PROCESSES AND INFORMATION SHARING IN SUPPLY CHAIN MANAGEMENT DISSERTATION Presented in Partial Fulfillment of the Requirement for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By Honggeng Zhou, B.S., M.S., M.A ***** The Ohio State University 2003 Dissertation Committee: Approved by Professor W.C Benton, Advisor Professor Glenn Milligan Professor David Schilling _ Advisor Graduate Program in Business Administration Copyright by Honggeng Zhou 2003 ABSTRACT Supply chain process and information sharing play critical roles in today’s supply chain management Previous research in supply chain management has studied various supply chain processes and different aspects of information sharing separately Therefore, this dissertation proposes a comprehensive framework to study the relationships among supply chain process, information sharing, supply chain dynamism, and business performance The dissertation starts with mathematical models and simulation models to better understand the relationships among the variables The theorems derived from the mathematical models are tested in more generalized supply chain settings The results from the mathematical models and simulation models provide several managerial insights and help develop the empirical models The empirical part of this dissertation uses a cross-sectional survey method Structural equation modeling is used to explore the relationships among five supply chain processes, four aspects of information sharing, supply chain dynamism, and five dimensions of business performance Responses from 120 executives in manufacturing industries, representing a 18 percent response rate, suggest that both effective supply chain process and effective information sharing are necessary to achieve optimal business performance When supply chain dynamism increases, effective information sharing ii becomes more important Information sharing does not have direct positive impact on business performance, but it has positive impact on business performance through effective supply chain process Effective supply chain process has positive influence on all performance dimensions, but the degrees of positive influence vary for different performance dimensions The analytical methodology tests three of the six research hypotheses proposed in this dissertation, one of which can not be tested by the empirical methodology The empirical methodology tests five of the six research hypotheses, three of which can not be tested by the analytical methodology The analytical and empirical research methodologies corroborate and complement each other The results of this dissertation research show that both effective supply chain process and effective information sharing are necessary for achieving optimal business performance under alternative supply chain dynamism Effective information sharing is important for assimilating supply chain dynamics information and using that information to guide the use of effective supply chain process Effective supply chain process is important for mediating the influence of effective information sharing on business performance Executives must balance the investment in information sharing and supply chain process iii Dedicated to My Grandfather, My Father, My Mother, and My Sister 献给我的外公丁方丈, 我的父亲周强, 我的母亲丁招弟, 和我的妹妹丁添娟 iv ACKNOWLEDGMENTS I am forever grateful to my advisor, Dr W.C Benton, who provided guidance, support, and love throughout the research Dr Benton taught me not only how to conduct scholarly research, but also how to become a better person Without his help, this dissertation as well as my future career would never be possible I would like to thank the committee members, Dr Glenn Milligan and Dr David Schilling, for their critical insights, suggestions, and support throughout my education at the Ohio State University I also would like to thank Drs William Berry, David Collier, Nicholas Hall, Keong Leong, and Dr Peter Ward for their guidance and help during my coursework and in my research Further thanks are extended to my dear colleagues, especially Dr Hojung Shin, Dr Carol Prahinski, and Eric Olsen And for those friends, family, and students who provided me fun in my non-academic life, thank you very much v VITA October, 19, 1974 ………………………… Born - Hangzhou, Zhejiang, P R China 1993-1997 ………………………………… B.S., Computer Science and Engineering Zhejiang University, Hangzhou, P.R China 1997-1999 ………………………………… M.S., Statistics and Computer Science University of Memphis, Memphis, TN 1999-2002 ………………………………… M.A., Business Administration The Ohio State University, Columbus, OH FIELDS OF STUDY Major Field: Business Administration Concentration: Operations Management Minor Field: Management of Information Systems vi TABLE OF CONTENTS Page ASTRACTS………………………………………………………………… ii DEDICATION……………………………………………………………… iv ACKNOWLEDGEMENT…………………………………………………… v VITA………………………………………………………………………… vi LIST OF TABLES………………………………………………………… xi LIST OF FIGURES………………………………………………………… xiii CHAPTER 1: RESEARCH OVERVIEW…………………………………… 1.1 Introduction…………………………………………………………… 1.2 Research Background and Motivation………………………………… 1.3 Research Objectives…………………………………………………… 1.4 Overview of Research Methodology………………………………… 1.5 Contributions and Findings…………………………………………… 1.6 Summary……………………………………………………………… 12 CHAPTER 2: LITERATURE REVIEW…………………………………… 14 2.1 Introduction…………………………………………………………… 14 2.2 Supply Chain Processes……………………………………………… 16 2.2.1 Supply Chain Operations Reference (SCOR) Model………… 16 2.2.2 “Plan” Process………………………………………………… 19 2.2.3 “Source” Process……………………………………………… 23 2.2.4 “Make” Process……………………………………………… 26 2.2.5 “Deliver” Process……………………………………………… 31 vii 2.2.6 “Return” Process……………………………………………… 33 2.2.7 Relationship between Supply Chain Processes and Business 34 Performance…………………………………………………… 2.3 Information Sharing…………………………………………………… 34 2.3.1 Information Sharing Support Technologies…………………… 35 2.3.2 Information Content…………………………………………… 37 2.3.3 Information Quality…………………………………………… 39 2.3.4 Information Sharing and Supply Chain Processes…………… 42 2.3.5 Information Sharing and Business Performance……………… 44 Supply Chain Dynamism……………………………………………… 48 2.4.1 Supply Chain Dynamism……………………………………… 48 2.4.2 Supply Chain Information Sharing System Dynamics……… 50 2.5 Business Performance………………………………………………… 52 2.6 Summary……………………………………………………………… 54 2.4 CHAPTER 3: RESEARCH PROBLEM FORMULATION AND 65 RESEARCH PLAN………………………………………… 3.1 Introduction…………………………………………………………… 65 3.2 Research Problem Formulation……………………………………… 65 3.2.1 General Research Problem Formulation……………………… 66 3.2.2 Analytical Problem Formulation……………………………… 68 3.2.3 Empirical Problem Formulation……………………………… 70 Analytical Research Plan……………………………………………… 73 3.4 Empirical Research Plan……………………………………………… 76 3.3 3.4.1 76 3.4.2 Instrument Design and Development………………………… 85 3.4.3 Data Collection……………………………………………… 3.5 Prior Structural Equation Models……………………………… 94 Summary……………………………………………………………… 97 viii CHAPTER 4: ANALYTICAL MODELS………………………………… 98 4.1 Introduction…………………………………………………………… 98 4.2 Research Motivation and Model Description………………………… 98 4.3 Two Suppliers………………………………………………………… 102 4.4 Three Suppliers………………………………………………………… 112 4.5 Many Suppliers………………………………………………………… 118 4.5.1 Model Description…………………………………………… 119 4.5.2 Experimental Results………………………………………… 124 Summary……………………………………………………………… 130 4.6 CHAPTER 5: MEASUREMENT VALIDATION RESULTS OF THE 134 EMPIRICAL STUDY……………………………………… 5.1 Introduction…………………………………………………………… 134 5.2 Sample Demographics………………………………………………… 134 5.2.1 Characteristics of the Respondents and Their Firms………… 135 5.2.2 Missing Data and Model Assumption Checking……………… 136 5.2.3 Non-response Bias…………………………………………… 138 Measurement Validation and Results………………………………… 147 5.3.1 Measurement Validity………………………………………… 147 5.3.2 Measurement Reliability……………………………………… 148 5.3.3 Item Deletion Process………………………………………… 149 5.3.4 Sampling Adequacy and Correlation Matrix Sphericity Testing 166 5.4 SUMMARY…………………………………………………………… 167 CHAPTER 6: TESTING THE STRUCTURAL EQUATION MODELS 169 5.3 AND HYPOTHESES……………………………………… 6.1 Introduction…………………………………………………………… 169 6.2 Fit Indices……………………………………………………………… 169 6.3 COST Model………………………………………………………… 171 6.4 FLEXIBILITY Model………………………………………………… 177 ix Petersen, K 1999 The effect of information quality on supply chain performance: an inter-organizational information system perspective Unpublished dissertation, Michigan State University, MI Pfeffer, J 1998 Seven practices of successful organizations California Management Review 40(2) 96-124 Piszczalski, M 2002 Lean vs information systems Automotive Design & Production http://www.autofieldguide.com/columns/martin/0800it.html Powell, T 1995 Total quality management as competitive advantage: a review and empirical study Strategic Management 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Sociological Methodology, Jossey-Bass, San Francisco Whybark, C 1994 Marketing’s influences on manufacturing practices International Journal of Production Economics 37(1) 41-50 Witt, C.2001 Staying on track Material Handling Management 56(9) 10-11 240 Womack, J., D Jones, D Roos 1990 The machine that changed the world Rawson Associates, New York Yano, C.A 1987 Setting planned leadtimes in serial production systems with tardiness costs Management Science 33 95–106 241 Appendix A Survey Questionnaire 242 2003 Survey of Supply Chain Practices and Information Technology Management Department of Management Sciences Max M Fisher College of Business The Ohio State University Instructions: This survey addresses critical issues of supply chain practices and information technology management (1) Please evaluate the statements by circling the most appropriate response, checking the most appropriate category, or filling in the blanks (2) If a question does not apply in your situation, please respond by circling N/A for not applicable (3) There are no right or wrong answers All responses are confidential Only aggregate summaries will be reported No information you submit will be identified with you or your firm Your participation will help improve supply chain practices and information technology management Your firm will receive an executive summary report abstracted from the study This survey pertains to the business relationship between your firm and your major customer If you feel that there is an individual in your firm who is better qualified to complete this survey, please feel free to forward the survey to him/her If you have any questions or concerns, please contact: Honggeng (John) Zhou at (614) 688-4630, fax (614) 292-1272, or email zhou.68@osu.edu or Professor W.C Benton at (614) 292-8868 Thank you for your time and cooperation 243 Please refer to your primary product in answering the questions in this survey I The following questions are designed to measure the scope and quality of information sharing between your firm and your major customer A Please assess your firm’s information system capability in the following dimensions: [1 = Not Capable, = Highly Capable, N/A = Not Applicable] Not Highly Capable Capable N/A Information accuracy (VIA1) N/A Information availability (VIA2) N/A Real-time information (VIA3) N/A Internal connectivity (VIA4) N/A External connectivity (VIA5) N/A Updating information frequently (VIA6) N/A Information completeness (VIA7) N/A Information relevance (VIA8) N/A Information accessibility (VIA9) N/A B How often does your major customer ELECTRONICALLY provide your firm with its information in the following dimensions [1 = Never, = Annually, 3=Semi-annually, 4=Quarterly, 5=Monthly, 6=Weekly, 7=Daily, N/A = Not Applicable] Semi Never Annually Annually Quarterly Monthly Weekly Daily N/A Purchase order information N/A (VIB1) Changes in purchase order N/A information (VIB2) Planned order information N/A (VIB3) Inventory level information N/A (VIB4) Historical usage N/A information (VIB5) Product design N/A specifications (VIB6) Performance evaluation N/A information (VIB7) Future demand forecasting N/A information (VIB8) Production planning N/A information (VIB9) 10 Promotional planning N/A information (VIB10) 11 Sales information N/A (VIB11) 244 C How often does your firm ELECTRONICALLY provide your major customer with your firm’s information in the following dimensions [1 = Never, = Annually, 3=Semi-annually, 4=Quarterly, 5=Monthly, 6=Weekly, 7=Daily, N/A = Not Applicable] Semi Never Annually Annually Quarterly Monthly Weekly Daily N/A Finished goods inventory N/A information (VIC1) Production capacity N/A information (VIC2) Order status information N/A (VIC3) Production schedule N/A information (VIC4) Changes in production N/A schedules (VIC5) Delivery schedule information N/A (VIC6) Changes in delivery schedule N/A (VIC7) Lead time information for N/A products (VIC8) D What percentage of the information in the following dimensions does your major customer provide your firm in an ELECTRONICAL format [1 = 0-10% = 10-25%, 3=25-40%, 4=40-60%, 5=60-75%, 6=75-90%, 7=90-100%, N/A = Not Applicable] 0-10% 10-25% 25-40% 40-60% 60-75% 75-90% 90-100% N/A Purchase order information N/A (VID1) Changes in purchase order N/A information (VID2) Planned order information N/A (VID3) Inventory level information N/A (VID4) Historical usage information N/A (VID5) Product design specifications N/A (VID6) Performance evaluation N/A information (VID7) Future demand forecasting N/A information (VID8) Production planning N/A information (VID9) 10 Promotional planning N/A information (VID10) 11 Sales information (VID11) N/A 245 E What percentage of the information in the following dimensions does your firm provide to your major customer in an ELECTRONICAL format [1 = 0-10% = 10-25%, 3=25-40%, 4=40-60%, 5=60-75%, 6=75-90%, 7=90-100%, N/A = Not Applicable] 0-10% 10-25% 25-40% 40-60% 60-75% 75-90% 90-100% N/A Finished goods inventory N/A information (VIE1) Production capacity N/A information (VIE2) Order status information N/A (VIE3) Production schedule N/A information (VIE4) Changes in production N/A schedules (VIE5) Delivery schedule N/A information (VIE6) Changes in delivery N/A schedule (VIE7) Lead time information for N/A products (VIE8) II The following questions are designed to measure the use of information system support technologies including both hardware and software in your company Please indicate the amount of investment your company has in the following activities [1 = No Investment, = Moderate Investment, = Heavy Investment, N/A = Not Applicable] No Investment Automated material handling system (hardware) (VII1) 2 Advanced planning and scheduling software (VII2) Bar coding/automatic identification system (VII3) Computer-Aided Manufacturing (CAM) system (VII4) Computer Integrated Manufacturing (CIM) system (VII5) Computerized Statistical Process Control (SPC) with real-time feedback capability (VII6) Computer-aided design (CAD) system (VII7) Computer aided engineering (CAE) system (VII8) Computer-aided process planning (CAPP) system (VII9) 10 Electronic mail system (VII10) 11 Electronic data interchange (EDI) capability (VII11) 12 Enterprise Resource Planning systems (ERP) system (VII12) 13 E-procurement system (VII13) 14 Forecast/demand-management software (VII14) 15 Flexible Manufacturing Systems (FMS) (VII15) 16 Manufacturing resource planning (MRP II) system (VII16) 17 Material requirement planning (MRP) system (VII17) 18 Manufacturing Execution Systems (MES) (VII18) 19 Transportation/warehouse management software (WMS) (VII19) 246 Moderate Heavy Investment Investment N/A N/A N/A N/A N/A N/A N/A 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 N/A N/A N/A N/A N/A N/A 3 3 4 4 5 5 6 6 7 7 N/A N/A N/A N/A 3 4 5 6 7 N/A N/A N/A III The following questions are designed to measure the use of supply chain practices A To what extent have the following planning practices been implemented in your company [1 = Not Implemented, = Extensively Implemented, N/A = Not Applicable] Not Extensively Implemented Implemented N/A The use of historical data in the development of forecasts N/A (VIIIA1) The balancing of product lines on a daily basis (VIIIA2) N/A “What-if” analysis has been implemented for supply/demand N/A balancing (VIIIA3) A change in the demand information instantaneously N/A “reconfigures” the production and supply plans (VIIIA4) The demand management process is driven by customer N/A information (VIIIA5) Online visibility of supply-chain demand requirements N/A (VIIIA6) The designation of a supply chain planning team (VIIIA7) N/A Both marketing and manufacturing functions are involved in N/A supply chain planning process (VIIIA8) B To what extent have the following sourcing practices been implemented in your company [1 = Not Implemented, = Extensively Implemented, N/A = Not Applicable] Not Extensively Implemented Implemented N/A Designated procurement teams (VIIIB1) N/A Long-term relationships with strategic suppliers N/A (VIIIB2) Reduction in the number of suppliers (VIIIB3) N/A Suppliers’ involvement in product development N/A (VIIIB4) Just-in-time delivery from suppliers (VIIIB5) N/A Frequent measurement of suppliers’ performance N/A (VIIIB6) Frequent performance feedback to suppliers N/A (VIIIB7) 247 C To what extent have the following production practices been implemented in your company [1 = Not Implemented, = Extensively Implemented, N/A = Not Applicable] Not Extensively Implemented Implemented N/A Pull system (VIIIC1) N/A Cellular manufacturing (VIIIC2) N/A Cycle time reduction (VIIIC3) N/A Agile manufacturing strategy (VIIIC4) N/A Bottleneck/constraint removal (VIIIC5) N/A Preventive maintenance (VIIIC6) N/A Maintenance optimization (VIIIC7) N/A Safety improvement programs (VIIIC8) N/A Planning and scheduling strategies (VIIIC9) N/A 10 Total quality management (VIIIC10) N/A 11 Statistical process control (SPC) (VIIIC11) N/A 12 Formal continuous improvement program N/A (VIIIC12) 13 Six sigma techniques (VIIIC13) N/A 14 Self-directed work teams (VIIIC14) N/A 15 We use knowledge, skill, and capabilities as N/A criteria to select employees (VIIIC15) 16 Direct labor technical capabilities are N/A acknowledged (VIIIC16) 17 Employee cross training program (VIIIC17) N/A D To what extent have the following delivery practices been practiced in your company [1 = Not Practiced, = Extensively Practiced, N/A = Not Applicable] Not Extensively Practiced Practiced We deliver products to our major customer on a just-in-time basis (VIIID1) We respond to our major customer’s needs quickly (VIIID2) We have a single point of contact for all order inquiries (VIIID3) We have real time visibilities of order tracking (VIIID4) We consolidate orders by customers, sources, carriers, and etc (VIIID5) We use automatic identification during the delivery process to track order status (VIIID6) We maintain the capacities to respond to unplanned orders (VIIID7) We use cross-docking practice (VIIID8) Our major customer participates in our new-product development (VIIID9) 248 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A E To what extent have the following product return practices been practiced in your company [1 = Not Practiced, = Extensively Practiced, N/A = Not Applicable] Not Extensively Practiced Practiced N/A We have a set of specifications to verify the quality of N/A returned products (VIIIE1) We have a set of established quality test procedures (VIIIE2) N/A We have dedicated personnel, equipment & facilities to N/A process returned products (VIIIE3) We have documentation describing our product return N/A process (VIIIE4) Our product return process is easy for our major customer to N/A follow (VIIIE5) We have accurate forecasts of our product return rate N/A (VIIIE6) We allocate resources for our product returns during the N/A planning stage (VIIIE7) IV Please indicate whether you agree or disagree with the following statements about your business environment [1 = Strongly disagree, = Strongly agree, N/A = Not Applicable] Strongly Strongly Disagree Agree The total duration of the major product life cycle is long (VIV1) Existing products become outdated frequently (VIV2) New products account for a high fraction of total revenue (VIV3) Products and services are innovated frequently (VIV4) Our products are highly customized (VIV5) Our product demand is unpredictable (VIV6) 7 The innovation rate of operating processes is high (VIV7) Capital equipment becomes obsolete at a rapid rate (VIV8) 249 N/A N/A N/A N/A N/A N/A N/A N/A N/A V: The following questions relate to the performance of your firm Compared to your competitors, please indicate your position on the following dimensions [1 = Significantly lower, = Equal, = Significantly higher, N/A = Not Applicable] Significantly Significantly Lower Higher N/A Unit product cost of the primary product (VV1) N/A Unit direct labor cost of the primary product (VV2) N/A Unit material cost of the primary product (VV3) N/A Total manufacturing overhead cost (VV4) N/A Production volume flexibility (VV5) N/A Production labor flexibility (VV6) N/A Production mix flexibility (VV7) N/A Production lead times (VV8) N/A Vendor lead times (VV9) N/A 10 Cash-to-cash cycle times (VV10) N/A 11 Changeover/set-up times (VV11) N/A 12 Delivery to customer lead times (VV12) N/A 13 Product development cycle times (VV13) N/A 14 On-time delivery (VV14) N/A 15 Perfect order fulfillment rate (VV15) N/A 16 Delivery reliability/dependability (VV16) N/A 17 Sales revenue (VV17) N/A 18 Return on asset (ROA) (VV18) N/A 19 Return on sales (ROS) (VV19) N/A 20 Asset turnover rate (VV20) N/A 21 Earning Before Interest and Tax as % of revenue N/A (VV21) VIII General Information: Please provide some general information about yourself and your firm Your responses are confidential Absolutely no information you submit will be identified with you or your firm A What is your primary product? _ B What is your primary SIC code? _ C How is your primary product produced? (please check one ) Make-To-Stock: Standard parts are produced and stocked before a customer order is received Make-To-Order: Standard parts are not produced until a customer order is received Configure-To-Order: Subassemblies are first produced and stored and then assembled based on customer order Engineer-To-Order: Designed and produced based on customer order D What is the approximate number of employees in your company? _ E Is your firm a publicly traded firm? F _ Yes Is your firm a subsidiary of a publicly traded firm? _ No _ Yes _ No G Check the approximate category of the overall value of your sales to all of your customers $5 billion 250 Please print your company, name, title, and your contact information below (or staple your business card to this form) This information will be used for distributing the summary report Company name: Your name: _ Your title: _ Phone: Fax: Email: _ Please return completed survey by either fax or mail to: Honggeng (John) Zhou 600 Fisher Hall 2100 Neil Avenue Columbus, OH 43210 Telephone: (614) 688-4630 Fax: (614) 292-1272 Email: zhou.68@osu.edu If you wish to receive a hard copy of our research report, please check here If you wish to receive an electronic copy of our research report, please check here Thank you again for your time and cooperation in responding 251 ... has yet investigated the role of information sharing and supply chain processes in supply chain management under alternative supply chain dynamism that includes both supply chain business environment... manufacturing firms make investment in information sharing and supply chain processes? Especially, how should firms balance the investment in information sharing and supply chain processes? To date, there... participating in information sharing change? The study shows that the value of information sharing increases as the number of supply chain members participating in information sharing increases This