A Study of Supply Chain Integration Initiatives Impact on the Relationship between Supply Chain Complexity and Firm Performance

Abstract

Companies have become increasingly complex as industries have advanced. In turn, supply chains have also become more complex, with businesses responding to environmental changes by forming strategic alliances or outsourcing to enter new markets and launch new products. Therefore, supply chain complexity has received much scholarly attention. Previous studies, however, have several limitations. First, earlier studies have not reached a consensus on the components involved in measuring supply chain complexity. Second, most studies have focused on elucidating the negative effects of supply chain complexity on firm performance while overlooking that a certain level of supply chain complexity is intrinsic. Third, research on how companies should manage supply chain complexity is lacking. Although several studies have proposed supply chain integration as a way to manage complexity, its impact has not yet been empirically tested. Therefore, this study aims to identify the criteria for measuring supply chain complexity, and to expand on prior studies by examining not only the negative impacts of complexity on firm performance but also any positive impacts. In addition, this study aims to explicate how companies can effectively manage supply chain complexity. This study uses a 3×3 matrix to classify and measure complexity based on its origin and form. Origin is divided into upstream, internal, and downstream. Form is divided into organization, product, and process. Furthermore, supply chain integration has been presented to moderate the relationship between supply chain complexity and firm performance. The components of supply chain integration are categorized in detail and investigated. After systematically classifying and analyzing supply chain complexity and supply chain integration, this study proposes supply chain integration strategies that can be utilized by companies encountering specific problems related to supply chain complexity. This study reviews previous literature on supply chain complexity, firm performance, and supply chain integration to inform the research model and develop hypotheses. A questionnaire was constructed based on previous studies to analyze the research model, and a professional research firm gathered questionnaire data for empirical analyses. This study collected data from 172 respondents, representing domestic manufacturers of various sizes and from a wide range of industries. Upon survey completion, Amos 18.0 and SPSS 18.0 were used to perform statistical analyses, including chi-square test, confirmatory factor analysis, and hierarchical regression analysis. The results of this study show that supply chain complexity have an inverted U-shaped relationship with firm performance, with the exception of cost and delivery. The maximum value found in the inverted U-shaped relationships indicates the specific point at which firm performance no longer increases, but begins decreasing, with an increase in supply chain complexity. A comparison of the maximum values by supply chain complexity type places internal complexity (5.110), downstream complexity (4.725), and upstream complexity (3.904) in that order. Next, this study analyses the moderating effect of supply chain integration on the relationship between supply chain complexity and firm performance. In the relationship between supply chain complexity and cost, the integration in physical flows, information exchange, and collaborative activities are found to have statistically significant moderating effects. In the relationship between supply chain complexity and delivery, information exchange, collaborative activities, and long-term relationship building are found to have statistically significant moderating effects. In the relationship between supply chain complexity and quality, communication methods, and information exchange are found to have statistically significant moderating effects. In the relationship between supply chain complexity and flexibility, the integration in physical flows, communication methods, and information exchange are found to have statistically significant moderating effects. This study offers the following theoretical implications. First, it conducts a detailed examination of the individual variables used to measure supply chain complexity. These have not been uniformly agreed on in prior studies. The present study also suggests which variables require focused attention by the firm. Second, a new perspective is presented for investigating the effect of supply chain complexity on firm performance. Although some components of supply chain complexity are found to have a negative effect on firm performance, thereby confirming prior studies, other components are found to have a positive effect on firm performance up to a certain point

beyond that point, a negative effect is observed. Third, this study proposes a supply chain integration strategy for managing the effect of supply chain complexity on firm performance. Moreover, it addresses existing claims that supply chain integration will weaken the negative relationship between supply chain complexity and firm performance. Taking a more nuanced approach, this study makes a significant contribution by identifying the appropriate combined relations among each supply chain complexity and supply chain integration component. Practical implications of the research are as follows. First, this study proposes specific points that corporate bodies should be aware of as they manage supply chain complexities. This study identified that although firm performance increases as supply chain complexity increases up to a certain point, once crossing that threshold, increasing supply chain complexity results in decreased firm performance, thus revealing an inverted U-shaped relationship. Second, the relational mechanisms between supply chain complexity and supply chain integration are proposed. The elucidation of these mechanisms enables companies to analyze their own supply chain complexities. Moreover, they provide a foundation for pursuing appropriate supply chain integration strategies in accordance with future organizational goals. In other words, this study presents useful strategic guidelines for introducing supply chain integration into supply chain complexity management.