Abstract number: 020-0979

e-Supply chain management performances: an empirical research

Francesca Michelino and Mauro Caputo

University of Salerno

Department of Industrial Engineering

Via Ponte Don Melillo 1

84084 Fisciano (SA) Italy

fmichelino@unisa.it

+39 089 96 4068

POMS 22nd Annual Conference

Reno, Nevada, U.S.A.

April 29 to May 2, 2011

e-Supply chain management performances: an empirical research

Abstract

The paper presents some results of the research “Internet and supply chain management: new

organizational and managerial models” based on a survey on 1458 firms operating in Italy and

having more than 50 million euro turnover. 463 firms have taken part in the research, with a 31,8%

response rate. The main effects of the use of the Internet in supporting supply chain management

processes are analysed, in terms of perceived benefits, performance improvements and customer

value creation.

Keywords: supply chain management, performances, internet, survey

Introduction

Increasing market turbulence, product life-cycle reduction, increased product and services variety

and technology evolution make it more and more necessary for companies to create customer value,

in terms of efficiency, effectiveness and relevancy (Bowersox and Closs, 2000). In a competitive

context where information is the main resource, a critical role is played by technologies enabling its

government: information and communication technologies are considered as one of the main

innovation drivers for coordination and integration (Garcìa-Dastugue and Lambert, 2003).

If the internet is recognized to be a powerful tool to improve business efficiency and effectiveness

(Frohlich and Westbrook, 2002; Sanders and Premus, 2002), even more striking could be its

strategic effects, in terms of value creation capability and customer needs understanding. New

business models, such as demand satisfaction communities, can be enhanced by the internet,

resulting in deep changes in supply chain management (Hewitt, 2000). Even the final customer can

play an active role in supply chain processes, co-creating unique value for him/herself (Poirier and

Bauer, 2001; Prahlad and Venkatram Ramaswamy, 2004) thanks to the non-hierarchical and non-

sequential nature of internet-based technologies.

The paper analyses the effects of the use of the internet in supply chain management, with regard to

logistics efficiency and effectiveness performances, customer value creation and co-creation and

profitability ratios. The paper is based on an extended survey on large manufacturing and service

firms operating in Italy. After a brief literature review, the research framework together with

methodological issues are presented; results will follow and some conclusions will close the paper.

e-Supply chain performances: a literature review

The use of the internet in supply chain management (SCM) processes can lead to improvements in

both information and knowledge sharing (Gimenez and Lourenco, 2008), enabling supply chain

partners not only to share information, but also to jointly make better planning.

The most clear aspect of internet tools adoption in SCM processes is linked to performance

improvements in terms of both effectiveness and efficiency. The better coordination among players

implies - from a network point of view - mistakes and time reductions and contributes to the

increase in delivery reliability and flexibility, the reduction of stock-outs and the increase in stock

rotation (Akkermans et al., 2001). Different studies (Frohlich and Westbrook, 2002; Ronchi, 2003)

point out operational improvements such as transaction cost, stock out and time to market

reductions, quality and innovation improvements, information sharing and processes transparency

(Deeter-Schmeltz and Norman-Kennedy, 2002; Ronchi, 2003).

At the same time it is important to underline strategic effects - such as collaborative data transfer,

partnerships for new product development, customer satisfaction and loyalty increase - due to

internet adoption. Better coordination with customers and suppliers results in an increase in

customer satisfaction and loyalty (Eng, 2004). Information sharing enhances a better

correspondence between offering and customer needs (Gilmore and Pine, 1997) favoring

postponement strategies (Van Hoek, 1998; Johnson and Anderson, 2000). Muffatto and Payaro

(2004) identify benefits in terms of data transfer errors reduction, better understanding of market

trends, higher process visibility and better coordination with suppliers, overstock reduction.
Further, free sharing of information and knowledge in the network, by enhancing process

transparency (Colombo et al., 1997), increases the degree of cooperation and the innovation level in

products and services. The integration capability of IT infrastructures enhances supply chain

processes integration, resulting in operational performances, better customer relationship

management and, thus, revenue growth (Rai et al., 2006).

Besides, new technologies can enhance new ways of creating customer value by eliminating

traditional intermediaries and creating new forms of intermediation, widening products range to

new complementary products and services and increasing customization capability (Amitt and Zott,

2001). Distinction between information and physical flows favors new organizational models

adoption based on short lead times and economies of scale (Clarke 1998; Crowley 1998).

In conclusion the internet - by affecting knowledge coding and coordination among players -

improves information sharing (Ryssel et al., 2004), reciprocal learning, formalization and probably

trust between customers and suppliers.

Research framework and methodology

In order to study the performances rising from the use of internet-based tools to support supply

chain management processes, two sets of data were analyzed: the first one is linked to the opinion

of the firm, in terms of perceived benefits and customer value enhancement; the second one

concerns profitability and efficiency ratios that the firm actually achieved from the moment in

which internet-based tools were used to three years later (Figure 1).

The paper is part of the research “Internet and supply chain management: new organizational and

managerial models” based on a survey on 1458 large Italian firms (Michelino et al., 2008; Caputo

and Michelino, 2009): large firms were selected as the population of the study because we chose to

consider the most conductive firms, being able to influence the governance of the whole supply

chain they operate in.

 e-SCM
performances

perceived efficiency
benefits ratios

value creation profitability

enhancement ratios

Figure 1. e-SCM performances: the research framework

The population was drawn from Mediobanca, the database of the Italian Chamber of Commerce

reporting balance data of companies operating in Italy and having more than 50 million euro

turnover: 1458 manufacturing and service companies were reported.

The questionnaire for the survey contained about 230 variables and was twelve pages in length.

Questions are in a four-point nominal scale - “not at all”, “a little”, “rather” and “to a great extent”:

the even scale was chosen in order to avoid answers crowding the central value. The questionnaire

was designed in five sections investigating 1) supply chain features, in terms of outsourcing trends,

kind and number of suppliers and customers and collaborative relationships within the supply chain;

2) internet-based tools diffusion in supply chain management processes; 3) main effects of internet-

based tools in terms of efficacy, effectiveness and customer value; 4) a selected supply chain

relationship - with respect to governance, mutual dependence, embeddeness, bargaining power,

information sharing; 5) general information about the firm. This paper focuses on the third section

of the questionnaire.

First-level managers from the functional areas of interest - Supply Chain, Logistics, Distribution,

Procurement and/or Information Systems - were taken as firm referents and were sent the

questionnaire by both electronic and ordinary mail.

The response rate was 31,8%, with 463 firms answering.

Context information, such as dimension and industry, were collected as secondary data from

Mediobanca database. The same source was used to collect data regarding performance indicators,

as to both profitability and cycle time.

Results and discussion

The use of internet-based tools in supply chain management is reported in Table 1. Data show that

about 80% of the firms in the sample use such tools, 63% of them using the internet within upward

relationships and 65% downwards.

supply chain upwards downwards

degree of use:
frequency percentage frequency percentage frequency percentage
a lot 79 17,1% 51 11,0% 48 10,4%
rather 154 33,3% 107 23,1% 119 25,7%
a little 118 25,5% 115 24,8% 111 24,0%
not at all 95 20,5% 159 34,3% 146 31,5%
total answers 446 96,3% 432 93,3% 424 91,6%
missing answers 17 3,7% 31 6,7% 39 8,4%
total 463 100,0% 463 100,0% 463 100,0%
Table 1. Use of internet-based tools in SCM

operational benefits, but also to enhance coordination and cooperation within the supply chain.

1st 2nd 3rd 1st + 2nd + 3rd

benefits:
freq. % freq. % freq. % freq. %
cost reduction 98 27,9% 41 11,7% 26 7,4% 165 15,7%
process transparency increase 41 11,7% 37 10,5% 47 13,4% 125 11,9%
time reduction 37 10,5% 54 15,4% 30 8,5% 121 11,5%
inventory reduction 19 5,4% 21 6,0% 18 5,1% 58 5,5%
delivery reliability increase 18 5,1% 26 7,4% 27 7,7% 71 6,7%
delivery speed increase 9 2,6% 16 4,6% 9 2,6% 34 3,2%
customer care increase 9 2,6% 16 4,6% 9 2,6% 34 3,2%
delivery flexibility increase 8 2,3% 10 2,8% 9 2,6% 27 2,6%
innovation enhancement 7 2,0% 12 3,4% 28 8,0% 47 4,5%
stock-outs reduction 6 1,7% 9 2,6% 13 3,7% 28 2,7%
customization capability increase 4 1,1% 12 3,4% 22 6,3% 38 3,6%
delivery frequency increase 1 0,3% 3 0,9% 3 0,9% 7 0,7%
other 4 1,1% 0 0,0% 0 0,0% 4 0,4%
total answers 261 74,4% 257 73,2% 241 68,7% 759 72,1%
missing answers 90 25,6% 94 26,8% 110 31,3% 294 27,9%
total 351 100,0% 351 100,0% 351 100,0% 1.053 100,0%
Table 2. Perceived benefits from the use of the internet

Firms using the internet for SCM were asked to state which were the three main perceived benefits

attained by the use of such tools (Table 2): cost reduction is the most quoted one, as both the first
choice and the sum of the first three. More in general, efficiency performances are more quoted than

effectiveness ones, even though a relevant role is given to the increase of processes transparency,

pointing out that the use of such tools is not only addressed to gain

Above data show that improvements in the understanding of customer needs and customization

capability are quite marginal. These issues were further investigated, explicitly asking firms that

stated they use the internet with their customers to what extent they used different customer care

functionalities, such as tracking and tracing, feedbacks management, customized product

configuration and on-line communities (Table 3). The percentage of firms giving their customers

the opportunity to use such functionalities ranges from about 20% to no more than 40%, pointing

out that the potential of the tool in creating value for the customer is not fully exploited.

total missing
on-line functionalities: a lot rather a little not at all total
answers answers
13 37 28 93 171 107 278
order tracking and tracing
4,7% 13,3% 10,1% 33,5% 61,5% 38,5% 100,0%
19 47 42 66 174 104 278
technical customer care service
6,8% 16,9% 15,1% 23,7% 62,6% 37,4% 100,0%
12 43 55 55 165 113 278
feedback/claims forms
4,3% 15,5% 19,8% 19,8% 59,4% 40,6% 100,0%
suggestions for product/service 4 25 52 79 160 118 278
improvement 1,4% 9,0% 18,7% 28,4% 57,6% 42,4% 100,0%
product/service configuration and 4 12 31 108 155 123 278
customization 1,4% 4,3% 11,2% 38,8% 55,8% 44,2% 100,0%
4 16 30 101 151 127 278
communities, forums and discussion boards
1,4% 5,8% 10,8% 36,3% 54,3% 45,7% 100,0%
Table 3. Customer value creation on-line functionalities

In order to have quantitative measures of the effects of the internet, balance data were analysed with

regard to both efficiency and profitability indexes. Ratios were computed for the whole sample of

responding firms and correlation analysis were performed, in order to point out whether the use of

the internet in SCM results in superior economic and financial performances.

In Figure 2 the trend of the mean cycle time is reported as to: the whole sample of responding firms,

the firms using the internet in their supply chain management processes and the firms using it “a

lot”: on average the cycle time of firms intensely using of the internet is 15 days shorter than the

mean of the whole sample.

 70

65

60
whole sample
55
firms using internet
50
firms using internet "a lot"
45

40
y y+1 y+2 y+3

Figure 2. Mean cycle time trends

Actually, the use of the internet - both in the whole supply chain, and as to upward and downward

relationships - is associated to lower cycle times and raw materials (RMs) stock turnover period,

while there is no significant correlation with finished goods (FGs) stock turnover period and asset

turnover (Table 4).

supply chain upwards downwards

efficiency ratios:
gamma sig. gamma sig. gamma sig.
cycle time (y+3) -0,233 (****) -0,181 (***) -0,203 (***)
cycle time (y+2) -0,219 (****) -0,195 (***) -0,219 (****)
cycle time (y+1) -0,196 (***) -0,167 (**) -0,195 (***)
cycle time (y) -0,154 (*) -0,126 (*) -0,170 (**)
average RMs stock turnover period (y+3) -0,206 (***) -0,181 (**) -0,162 (*)
average RMs stock turnover period (y+2) -0,183 (***) -0,197 (***) -0,170 (**)
average RMs stock turnover period (y+1) -0,152 (*) -0,171 (**) -0,151 (*)
average RMs stock turnover period (y) -0,138 (*) -0,127 (*) -0,101
Table 4. Efficiency ratios vs. use of the internet association1

Not surprisingly, the shorter period of raw materials stock turnover is not only linked to the use of

the internet in upward relationships, but also in downward ones: the faster and more reliable

information sharing process downwards turns into better coordination in the whole supply planning

process. On the contrary, the level of finished goods stocks is not affected by the use of the internet,

as well as the total asset turnover. For the former, we can hypothesise that the level of stocks is

1
Being “supply chain” “upwards” and “downwards” ordinal variables defining the degree of the use of the internet,
gamma index is used for association. (*) p-value < 0,05; (**) p-value < 0,01; (***) p-value < 0,005; (****) p-value <
0,001.
defined by firms according to a number of different issues, including strategic ones, and not only

linked to technical and technological capabilities. As a matter of fact, the average finished goods

stock turnover period is significantly correlated to both the industry and the kind of market

(industry or retail) of the firm (Table 5), while no correlation is found between these two variables

and the turnover period of raw materials. This means that the stocking policies of finished goods

depend on the nature of the firm, while those of raw materials are only linked to firms planning

capability.

industry market
efficiency ratios:
lambda sig. gamma sig.
average FGs stock turnover period (y+3) 0,126 (****) -0,209 (****)
average FGs stock turnover period (y+2) 0,123 (****) -0,176 (****)
average FGs stock turnover period (y+1) 0,112 (****) -0,156 (***)
average FGs stock turnover period (y) 0,131 (****) -0,180 (****)
Table 5. Efficiency ratios vs. industry and market association2

As to the total asset turnover, it is not influenced by the internet because it does not include only the

turnover of stocks, but also that of the fixed components, such as properties, plants and equipments.

As to profitability (Table 6), a certain association with the use of the internet is pointed out, even if

it is neither continuous over the range of time considered, nor extended to all ratios and to the use of

the tools in downward relationships.

supply chain upwards downwards

profitability ratios:
gamma sig. gamma sig. gamma sig.
ROE (y+3) 0,133 (*) 0,109 0,117
ROE (y+2) 0,159 (***) 0,151 (**) 0,105
ROE (y+1) 0,023 0,011 -0,011
ROE (y) 0,017 0,069 -0,019
ROI (y+3) 0,005 0,039 -0,009
ROI (y+2) 0,121 (*) 0,162 (**) 0,082
ROI (y+1) -0,007 0,058 -0,015
ROI (y) 0,110 0,112 0,068
ROS (y+3) 0,004 0,007 -0,015
ROS (y+2) 0,059 0,057 0,065
ROS (y+1) -0,051 0,016 -0,062
ROS (y) 0,040 0,061 0,004
Table 6. Profitability ratios vs. use of the internet association3

2
Being industry a nominal variable, for this variable symmetric lambda index is used instead of gamma. The variable
“market” is defined as the percentage of turnover the firm achieves in industry market. (*) p-value < 0,05; (**) p-value
< 0,01; (***) p-value < 0,005; (****) p-value < 0,001.
3
See note 1.
The lower degree of association to the internet of profitability ratios, if compared with efficiency

ones, may be due to the fact that, if it is true that higher efficiency can lead to higher profitability, it

is not its only driver: firm profitability can derive from a number of different factors that are not

necessarily related to the use of the internet.

Conclusions

Internet adoption to support supply chain management is linked to performance improvements in

terms of both effectiveness and efficiency: processes become more transparent thanks to the

possibility of acquiring and sharing information in an easy and fast way.

The paper analyses the effects of the use of the internet in supply chain management, with regard to

perceived benefits on logistics efficiency and effectiveness, customer value creation and co-creation

and improvements in efficiency and profitability ratios. The paper is based on an survey on 1458

manufacturing and service firms operating in Italy and having more than 50 million euro turnover:

463 companies took part in the research, with a 31,8% response rate.

As to perceived benefits, results show that firms quote efficiency performances more than

effectiveness ones: the reduction of cost is the most relevant benefit sought for when implementing

internet-based tools to support supply chain management. The capability of increasing customer

value by better understanding his/her needs, giving more suitable customer care services and

involving him/her in the process of value creation is not fully exploited by firms, that do not use all

the functionalities that the tool places at disposal. Efficiency ratios are positively associated with the

use of the internet, mainly as regards the level of raw materials stocks and related cycle time.

Finally, results do not fully support the direct association of the use of internet-based tools with

higher firm profitability.

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