Proceedings of the 2012 International Conference on Industrial Engineering and Operations Management Istanbul, Turkey, July 3 6, 2012

The Importance of E-Integration in Supply Chain of Pakistani Firms and its Effect on Performance
Mari Sonia, Marri Hussain Bux and Memon M. Saad Department of Industrial Engineering and Management Mehran University of Engineering and Technology, Jamshoro, 76062, Sindh, Pakistan Abstract
The aim of this research is to recognize the underlying factors of supply chain integration in manufacturing industries, specially emphasize on the importance of information sharing and role of information technology. In order to find out the status of supply chain integration in manufacturing enterprises, a questionnaire has been design on the basis of theoretical framework and survey is carried out in manufacturing firms. Using statistical analysis, it is tried to recognize the most important desirable areas of collaboration with key members of supply chain and also the importance of information technology in achieving such integration. Then, the effect of such integration and the impact of information technology on supply chain are examined.

Keywords
Supply Chain Management, Supply Chain Integration, Manufacturing industries, Information Technology

1. Background
The importance of supply chain management (SCM) and information technology are increased day by day. Industries tend to become more integrated as information technology evolves Therefore, it is important for improving performance of supply chain that there should be effective information sharing in supply chain (Yu Zh.et al. 2001). According to Hakansson and Persson (2004), we can identify at least three different trends in growths of logistics solutions within industry during past years. First, increased integration of supply chain activities across boundaries of the firm aimed at reducing costs which discovered the need for closer cooperation and coordination with suppliers and customers. Another trend characterizing emerging supply structure is the improved specialization of individual companies. Outsourcing of traditional activities including logistics activities is an example of such trend. Finally, the third trend concerns change and innovation. Importance of response to market changing demands has forced companies to be more agile, responsive, and intelligent. For increasing organizational effectiveness and also for satisfying the key customers, firms are now restructured and re-engineered. Firms managers are now required to look beyond their organizational limitations in order to achieve the maximum outcome from the resources of suppliers and customers (Fawcett S.E. and Magnan G.M. 2002). 1.1 Supply Chain Management (SCM) It is a series of different activities which starts from procurement of raw materials from suppliers, and then it is transported to industry for manufacturing finished product, and then transportation of these products to customers (Trkman P. et al. 2007).

2. Literature Review
This Section will give a general idea of past research which is related to the research problem of Information Integration in supply chain. 2.1 Supply Chain Integration As defined by Kahn and Mentzer (1998) Integration is a procedure of bringing together the key activities of all departments of the organization. According to Bagchi et al. (2005) supply chain integration is complete cooperation between partners of supply chain network at all levels of organizational decision-making. Cagliano et al. (2006) proposed that supply chain integration is concerned with the mechanism of coordination and implies that organizational processes should be simplified and interrelated within and outside the boundaries of organization.

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Figure 1: A model of supply chain (Zhou H. et al.2007) 2.2 Information Technology and Integration Recent studies show that information sharing within the supply chain is very important (Tarokh M.J. and Soroor J. 2006). It is also seen from studies that information technology can reduce costs, the development of a business model and utilization of information is also crucial (Stank T.P. et al.1999). Lack of knowledge sharing between members of the supply chain has been shown to significantly affect overall performance. One of the main benefits of sharing information is the reduced need for inventory. As a result, the supply chain achieves better performance in terms of financial returns, service level and time (Mukaddes et al. 2010). Mentzer et al. (2000) have seen information sharing as one of the enablers of partnering implementation and state that for effective and competitive advantage of supply chain it is necessary to collect, design, manage, and communication of information are critical. Simatupang and Sridharan (2002) discuss that this flow of data improves visibility from internal functions as well as from organizations. It is said that variety of data is usually shared between members like resource availability (e.g., capacity, inventory, etc.), status of processes (e.g., forecasting, delivery, procurement), status of performance (e.g., time, expenses, quality), and the contract status. They believe that information sharing can benefit members at both strategic and tactical levels where mutual understanding of competitive advantage, decreases the uncertainty in demand, and joint decision-making are at the heart of collaboration. According to Yu et al. (2007) uncertainties rise when perfect information cannot be secured; therefore, by augmenting shared data between all participating members of supply chain which leads to whole system improvement, uncertainty and consequently negative impacts of bullwhip effect can be reduced or eliminated. Vendor-managed inventory (VMI) and Collaborative planning, forecasting, and replenishment (CPFR) are the mutual programs that are used to share the information between retailers and manufacturers to improve the performance of supply chain. VMI, also called as supplier-managed inventory, it extensively discuss the partnering ideas for improving the collaboration plus information sharing among trading collaborators where the levels of suitable inventories for each of the products and suitable policies for maintaining such levels are decided by vendors. However, retail-level information is one of VMI systems dominant limitations. Reason is the fact that retailers have more appropriate knowledge and information about consumers and this is because of their nearness to the marketplace, but they are not usually involved in demand forecast process in typical VMI programs. CPFR, on the other hand, could be seen as the solution for the difficulties that may encountered while adapting VMI, as it involves all the SC partners to develop combine inventory replenishments, production and purchasing plans and demand forecasts (Simatupang T.M. and Sridharan R. 2008). The role of information sharing from CPFR perspective is discussed in many other studies (Swafford P.M et al. 2008) 2.3 Enterprise Resource Planning (ERP) Systems and Supply Chain Management ERP is defined as a System for outlining, arranging and standardizing the processes of business essential for planning and controlling an organization efficiently so that an organization can gain external advantage by using its internal knowledge (Jacobs F.R. and Weston Jr. F.C.T. 2007). Another definition is given by Beheshti (2006): ERP is a set of different business modules of an enterprise like HR, Manufacturing, and Finance & Accounting into a single system tightly integrated with a same platform for information flow across the whole business. 455

Whilst many benefits of ERP implementation like eliminating redundancies usually occur in separate legacy systems, transferring from functionally oriented organizations to process oriented ones, standardisation of business applications, and more agile supply chain are cited in different studies (Akkermans H.A. et al. 2003, Sari K. 2008), failure cases should also been concerned. Ke and Wei (2008) have investigated the role of leadership and organizational culture in implementation of ERP system. They state that ERP adoption enforce a big challenge on taking up an organization to foster a culture which is conductive for its growth. It is also said that top management actions (e.g. correct strategic foresight of ERP adoption, creating learning formation, providing contingent rewards, etc.) can manipulate organizational culture. Impact of ERP on SCM was investigated by Akkermans et al. (2003) and result shows there are: (1) SCM opportunities for ERP: mass customization, evenness, and universal IT usage; (2) SCM shortcomings of current ERP systems: lack of extended enterprise functionality, shortage of elasticity in adapting changes for supply chain needs, lack of progressive decision support competence, also the lack of transparent, modular system architecture. Another research about ERP implementation was also conducted in Swedish firms by Olhager and Selldin (2003). Results show that there is a high adoption of ERP systems within Swedish manufacturing firms; in addition, core production management modules drawn in the customer order process and financial accounting and control have recognized to be the most implemented modules as well. In an attempt to find impact of ERP on corporate performance, Hendricks et al. (2007) discovered that early adopters of ERP systems has stronger increase in profitability but not in stock returns. 2.3 Adoptions of EDI / XML Technologies in Supply Chain The use of Electronic Data Interchange (EDI) is increasing rapidly due to time saving in transforming data from one place to another and reduction in total cost gain company a competitive advantage. Indeed, efficient systems of coordination between enterprises like just-in-time (JIT) or Efficient Consumer Response (ECR) totally depend on electronic interaction between the partners who take part in transaction (Olhager J. and Selldin E. 2003). In SCM perspective, integration refers that how closely, specially at a level of interfaces, partners in supply chain work together as a unit; so, EDI plays an important role in this regard because it provides automatic facility to transfer data that required close integration and cooperation within the supply chain (Hill C.A. and Scudder G.D. (2002). Newly-born XML has also attracted many firms to integrate their business processes with its capabilities namely high flexibility for defining standards between parties. Nurmilaakso (2008) suggests that in supply chain integration firm size, employee skills, and electronic-business functions has positive impact on changing the EDI-based system to XML-based system of e-business. EDI greatly contributed in reducing the daily time required to contact clients and to input data into the information systems. Effectiveness performance could be linked to better quality and consistency of the data obtained via the implementation of data gathering technologies (Pietro E. et al. 2012).

3. Research Methodology
This study is set to find out and identify the impact of different factors of supply chain integration in manufacturing industries. This research work is an exploratory study to find out the impact of information integration in supply chain on performance. Since this research is carried out to explore the extent to which supply chains in Pakistan are integrated and collaborate with each other, the literature about this area is reviewed and designed strategies to collect data regarding different involved items and analyze it to find out the reality; thus, inductive approach is used. Moreover, tools which is used for data gathering varies in different stages of the research, that is, interviews with some experts in pilot phase to revise and localize the questionnaire and then distribute it among target industries. As a result, both qualitative and quantitative methods are applied. Self-administrated questionnaire is distributed. This method has advantages such as lower costs, sample accessibility, and careful consideration (respondents can take more time to collect facts). The questionnaire contains: Company Profile, IT Integration, and Performance. The first part captures the demographic information about the company, and the respondents responsibility in the organization. Second part is concerned with the use of ERP systems, Supply Chain planning, and EDI/XML connections. The last section concerned with the effect on performance as a result of information technology and supply chain integration. Research questions are measured by requesting respondents to signify, mostly on a fivepoint Liker-type scales, anchored on 1 = to a very little extent through 5 = to a very great extent, their opinions on mentioned issues. Questions in second section have the nature of Yes/No type.

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4. Empirical Data Analysis

4.1 Descriptive statistics As implied above, the first section of the research questionnaire captures data about company profile. It includes respondent companys information and his job responsibility in company. Pie chart in figure 2 shows the proportion of company type which respondents belong to. Most of the respondents were managers from the manufacturing plant that is 72%. Second place belongs to strategic business unit/HQ by 16%. The rest are from Parent Corporation, division/business unit/group, and Functional Org. /Department 4% each of the total participants.

Figure 2: Type/scope of company or organization Figure 3 illustrates companies annual turnover in three given categories. Almost 24 percent of our sampling frame has annual turnover bigger than 50 Billion Pak Rupees. Maximum proportion of target firms has it between one and 50 Billion Rupees (56%) and just 20% has annual turnover less than one Billion Rupees.

Figure 3: Annual turnover 4.2 Information Technology Integration Following IT technologies have been considered in this research: 4.2.1. ERP and other automated system implementation and access Our study reveals that firms are becoming more aware of IT integration and its benefits for their organisation. In this regard, implementation of ERP and other related systems are becoming a trend especially when companies start expanding their business and turn into larger firms. The analysis shows that 76 percent of the respondents (19 firms) 457

have implemented some modules of ERP system (see table 1). Among these firms, about 53% (10 firms) have chosen Other option which means that they have designed and developed their own ERP system upon the whole system or new modules are requested. From well-known producers, SAP leads with 31% (6 firms) followed by Oracle (16%), (see table 2). Table 1: ERP Implementation in Manufacturing Industries ERP Not-Implemented in ERP implemented in Industries Industries 06 19

Industry Manufacturing

ERP Implementation Percentage 76%

Table 2: Producers of Implemented ERP systems Name of Implemented ERP producers SAP Oracle Other

Percentage 31% 16% 53%

The most important module is accounting, because all of those firms who have implemented ERP, have also implemented this module. Next is procurement by almost 89.47%. Other famous modules which are used in respondents industries are: logistics, SCM, manufacturing, human resource, forecasting, distribution, and customer service (see table 3). The data is also collected that whether manufacturing industries provide any online access to their suppliers or customers but findings show that none of the respondents provide online access to their supply chain partners. Table 3: ERP Module Implementation Module Implementation Procurement Accounting Distribution SCM Human Resources Forecasting Manufacturing Logistics Customer Service Frequency Percent Frequency Percent Frequency Percent Frequency Percent Frequency Percent Frequency Percent Frequency Percent Frequency Percent Frequency Percent YES 17 89.47% 19 100.00% 11 57.89% 15 78.95% 15 78.95% 12 63.16% 15 78.95% 16 84.21% 10 52.63% NO 2 10.53% 0 0.00% 8 42.11% 4 21.05% 4 21.05% 7 36.84% 4 21.05% 3 15.79% 9 47.37% TOTAL 19 100% 19 100% 19 100% 19 100% 19 100% 19 100% 19 100% 19 100% 19 100%

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4.2.2. Online Information System and Possible Transactions The research findings shows that the manufacturing companies of Pakistan implemented the ERP system which integrate the manufacturer and suppliers, but on the other hand they still not implemented the online information system (i.e. online purchasing and selling of raw material or finished goods) and therefore IT linkage to suppliers is still limited. 4.3 Performance Improvement In order to understand the output of such integration in supply chain, the last part of questionnaire contain the performance improvement section to rate their enhancement in eight selected indices after IT- and organisational integration on a likert-scale of five point. In general, as shown in table 4, all firms who have implemented IT integration (76% of total firms) have more or less achieved improvements in all areas. Inventories Days of Supply / Inventory turnover has got the most improvement (mean = 4.68) followed by order fill rate (mean = 4.36), on- time delivery (mean = 4.36), Order Fulfillment Lead Time (mean = 4.04), production flexibility (mean = 3.72), return processing costs (mean = 3.72), total logistics cost (mean = 3.68), rate of returns (mean = 3.64). This is an important result, because the achievements especially in those metrics whose score are above four in five-point scale may attract other manufacturing industries to make such integration in supply chain. Table 4: Performance improvement in Manufacturing Industries Performance Improvement in Mean St. Deviation

Order Fulfillment Lead Time 4.04 0.84 Order Fill Rate 4.36 0.49 Production Flexibility 3.72 0.98 Total Logistics Cost 3.68 0.48 Return Processing Cost 3.72 0.98 Inventories Days of Supply / Inventory turnover 4.68 0.48 on Time Delivery 4.36 0.95 Rate of Return 3.64 0.49 Note: Performance improvement scale range from 1 = deteriorated, 3 = neutral or no change, and 5 = improved

5. Conclusion
The main contribution of the paper is to analyze the impact of Information technology and ERP system on manufacturing firms of Pakistan. The results disclosed that manufacturing firms have started paying attention to the need for IT integration in supply chains. Over seventy five percent (19) of respondents replied that they have implemented various modules of Enterprise Resource Planning (ERP) system in their company. The fact may confirm that companies are looking for ways to facilitate flow of information initially within their boundaries. Top priorities for module implementation were accounting, procurement, and logistics, SCM. However, manufacturing firms are still not much interested to provide online access to suppliers and customer. During data collection it is realised that the top-level managers are so much sensitive about information sharing in strategic areas with their supply chain partners, especially those who are not owned by the focal firm. They believe that the information is their proprietary asset and they will lose core competency by letting other participants in supply chain know and use them. It is also thought to be true that cooperation level is based on enterprises needs; in other words, firms will not be interested in information sharing unless they find value in it. This can be obviously seen in providing access to members like banks/brokers and transportation companies in our study. It was also interesting that larger scale industries (LSI) have given more access to their supply chain members. Perhaps they have more knowledge about SCM concepts or maybe they are not afraid of issues like high cost of IT implementation or lack of preparedness. More or less, respondents discerned improvements in all predefined measures of performance after doing IT and organisational integration. Inventory days of supply, Order fill rate and on time delivery got the most enhancement followed by order fulfillment lead time and production flexibility. That is, from very beginning, most of the firms will benefit IT integration in order fulfillment from time and rate point of view.

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Acknowledgement
Authors are thankful to the companies for providing valuable data, without their support it was not possible to complete this research work. Also, the authors are thankful to Department of Industrial Engineering and Management, Mehran University of Engineering and Technology, Jamshoro, Sindh, Pakistan for providing facilitative environment for research work.

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