The Strategy Seminar: Applied Strategy- Process Integration and Information Sharing in Supply Chains

This is an article studying whether hold-ups, or the potential for hold-ups, within a supply chain affect process integration and information sharing between firms.  The article defines process integration as an investment with the goal being to enhance process integration and/or information sharing between firms.   Manufacturers are concerned valuable, proprietary information given to the distributors will be leaked; while distributors concerns center on manufacturers using internal sales teams to do distributors jobs once a sales area is developed.  The US is a transaction cost economy, an economy which once dependence is established between firms the value from these dependences can be shared between partners.  The relevance of this study with the current global financial crisis, firms are seeking an advantage to stay competitive, to remain solvent, and, if feasible, increase profitability. 

This study tested six different hypotheses.  The study uses performance scorecards and financial performance data (i.e. Sales Growth, Sales Productivity, Profitability, Contract Renewal) collected from major petroleum manufacturers and their relationships with independent petroleum distributors.  The first hypothesis is “as asymmetry (or unevenness) of interdependence increase, the extent of process integration and information sharing in manufacturer-distributor partnerships decreases” (Schloetzer 1011).  The second hypothesis is “as the magnitude of interdependence increases, the extent of process integration and information sharing in manufacturer-distributor partnerships increases” (Schloetzer 1011).  The third hypothesis is “the extent of process integration in manufacturer-distributor partnerships enhances partnership financial performance” (Schloetzer 1011).  The fourth hypothesis is “the extent of information sharing in manufacturer-distributor partnerships enhances partnership financial performance” (Schloetzer 1012).  The last two hypotheses are “the extent of process integration and information sharing in manufacturer-distributor partnerships are directly (5^th) or indirectly (6^th) related to distributor contract renewal via financial performance” (Schloetzer 1012).  

The results for the first two hypotheses support the main idea; when there is a larger interdependence, both partners then depend on each other more and when there is larger unevenness between firms the reverse is true.  Results for hypotheses three and four, show, in practice, larger supply chain integration allows firms to grow larger together rather than seeing a larger benefit going to one partner in the relationship.  Hypotheses five and six both predict positive relationships between supply chain integration and contract renewal.  The results of the study also show that as process integration and information sharing grow between firms so does sales growth & productivity and profitability. 

The implication of this article is with the current global financial difficulties and with firms increasingly looking for better financial performance.  A way to do this is to increase process integration and information sharing between supply chain partners.  Rather than increasingly benefiting only one firm in the relationship, this mixing process will increase financial performance of both firms through sales growth & productivity and overall profitability.

Schloetzer, Jason D. “Process Integration and Information Sharing in Supply Chains”, The Accounting Review (2012): Vol. 87, 1005-1032. Web. 16 Sep. 2012.