Supply Chain Management: An International Journal

The impact of supply chain risk on supply chain integration and company performance: a global investigation
Li Zhao Baofeng Huo Linyan Sun Xiande Zhao
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Li Zhao Baofeng Huo Linyan Sun Xiande Zhao, (2013),"The impact of supply chain risk on supply chain integration and company performance:
a global investigation", Supply Chain Management: An International Journal, Vol. 18 Iss 2 pp. 115 - 131
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 The impact of supply chain risk on supply chain
integration and company performance: a global
investigation
Li Zhao
School of Management and State Key Lab for Manufacturing System Engineering and the Key Lab of the Ministry of Education for
Process Control & Efficiency Engineering, Xi’an Jiaotong University, Xi’an, China
Baofeng Huo
School of Management, Zhejiang University, Hangzhou, China, and State Key Lab for Manufacturing System Engineering and the Key
Lab of the Ministry of Education for Process Control & Efficiency Engineering, Xi’an Jiaotong University, Xi’an, China
Linyan Sun
School of Management and State Key Lab for Manufacturing System Engineering and the Key Lab of the Ministry of Education for
Process Control & Efficiency Engineering, Xi’an Jiaotong University, Xi’an, China, and
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Xiande Zhao
School of Business Administration, South China University of Technology, Guangzhou, China, and Department of Decision Sciences
and Managerial Economics, Faulty of Business Administration, The Chinese University of Hong Kong, Hong Kong

Abstract
Purpose – The purpose of this paper is to empirically explore the relationships among supply chain risks (SCRs), supply chain integration (SCI), and
company performance in a global context.
Design/methodology/approach – This study is based on the High Performance Manufacturing (HPM) project database collected from 317
manufacturing plants in ten countries and three representative industries (machinery, electronics and transportation components), using structural
equation modeling (SEM) methods.
Findings – Results show that SCRs, especially supply delivery risk (SDR), are negatively related to SCI. There is a contingent relationship between SCI
and performance. Different types of SCI play different roles in improving different types of company performance. Supplier, internal, and customer
integration are the most important drivers for schedule attainment, competitive performance, and customer satisfaction, respectively.
Originality/value – This study is one of the first empirical studies to explore how SCRs affect SCI. It also expands current SCI research by linking three
dimensions of SCI with three dimensions of company performance, using the global database collected from HPM companies in ten countries.

Keywords Supply chain risk, Supply chain integration, Company performance, High performance manufacturing, Supply and demand

Paper type Research paper

1. Introduction the key to creating value in supply chain management (SCM)

Business is becoming more risky nowadays because of the
increasing use of outsourcing, globalization of supply chains,
and shorter product life-cycle (Barry, 2004; Waters, 2007;
Christopher et al., 2011). Risk makes supply chains more
complicated and more time sensitive than ever before, and
therefore companies within a supply chain need to
strategically cooperate with their key suppliers and
customers to survive, compete, and prosper (Bowersox et al.,
1999; Frohlich and Westbrook, 2001; Zhao et al., 2008; Flynn
et al., 2010). Supply chain integration (SCI) is advocated as
The current issue and full text archive of this journal is available at
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(Horvath, 2001).
While SCI is considered a powerful weapon to gain
competitive advantages, there are still many unanswered
questions regarding the mechanism of SCI implementation
(Bowersox et al., 1999; Frohlich, 2002; Power, 2005; Flynn
This research was supported by the State Key Lab for Manufacturing
System Engineering and the Key Lab of the Ministry of Education for
Process Control & Efficiency Engineering, the China National Science
and Technology Infrastructure Program (No. 2012BAH08F06), the
Major Program Fund of the National Science Foundation of China
(Project No. 71090403/71090400), Program for New Century Excellent
Talents in University (#NCET-10-0675), and Natural Science
Foundation of Shaanxi (#2010JQ9003), and Center for Supply Chain
Management & Logistics, Li & Fung Institute of Supply Chain
Management and Logistics, The Chinese University of Hong Kong.

Received: 2 January 2012

Supply Chain Management: An International Journal
18/2 (2013) 115– 131 Revised 31 May 2012
q Emerald Group Publishing Limited [ISSN 1359-8546] 1 July 2012
[DOI 10.1108/13598541311318773] Accepted 2 July 2012

115
 The impact of supply chain risk on supply chain integration
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
et al., 2010; Zhao et al., 2011). For example, which factors
influence SCI? And more so, which factors hinder the
implementation of SCI? Few prior studies have addressed this
question. For example, Frohlich (2002) investigated supply,
internal, and demand barriers in web-based SCI
implementation. Richey et al. (2009) considered internal
planning failure and external monitoring failure as barriers to
SCI. However, research in this area is still in its infancy and
further empirical studies are required to reveal the “barriers to
SCI” to supply chain managers. The main barrier discussed in
this study is supply chain risk (SCR). SCRs have become a
serious problem as turbulent environments, uncertain supply
and demand, and unpredictable disruptions are more
common nowadays. It is difficult for most supply chains to
respond to changes and they are vulnerable to SCRs (Tang
and Tomlin, 2008). Therefore, the challenge for companies is
how to conduct SCI under risky environments, and various
risks may play different roles in implementing different types
of SCI. This study attempts to empirically explore the impact
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of two types of SCRs (supply delivery risk (SDR) and demand
variability risk (DVR)) on three types of SCI (internal,
customer, and supplier integration). SDR refers to supply
risks mainly caused by delivery failures, while DVR refers to
demand risks mainly caused by demand instability.
There is an abundance of research on the impact of SCI on
various performance measures, including operational
performance (e.g. Armistead and Mapes, 1993; Frohlich,
2002; Cousins and Menguc, 2006; Swink et al., 2007;
Braunscheidel and Suresh, 2009; Flynn et al., 2010; Danese
and Romano, 2011), customer service (e.g. Vickery et al.,
2003; Swink et al., 2007), logistical performance (e.g. Stank
et al., 2001; Gimenez and Ventura, 2005; Germain and Iyer,
2006), and product innovation (e.g. Ragatz et al., 2002;
Petersen et al., 2005). However, findings on the relationship
between SCI and performance are inconsistent. For example,
while most previous SCI studies found a significantly positive
relationship between SCI dimensions and performance
measures (e.g. Armistead and Mapes, 1993; Vickery et al.,
2003), others identified a non-significant relationship
(e.g. Droge et al., 2004; Flynn et al., 2010), or even a
significantly negative relationship (e.g. Koufteros et al., 2005;
Swink et al., 2007). The major reasons for this inconsistency
may be the different methods of SCI conceptualization and
operationalization, different performance measurements, and
different research contexts (e.g. industries, regions) (Van de
Vaart and Van Donk, 2008). For SCI dimensions, many
empirical studies have considered SCI as one construct
(e.g. O’Leary-Kelly and Flores, 2002; Vickery et al., 2003;
Rosenzweig et al., 2003; Cousins and Menguc, 2006), while
others have focused on internal integration and external
integration (e.g. Stank et al., 2001; Frohlich, 2002; Gimenez
and Ventura, 2005). Only a few recent studies have focused
on three dimensions of SCI – internal, supplier, and customer
integration (e.g. Koufteros et al., 2005; Swink et al., 2007).
This study will adopt these three dimensions of SCI.
Furthermore, some prior SCI studies only focused on
limited performance measures (e.g. Armistead and Mapes,
1993; Gimenez and Ventura, 2005). More work is needed to
further explore how the different dimensions of SCI influence
different aspects of company performance. A balanced
approach is used in this study to measure performance from
multiple perspectives: operational level performance
measured by schedule attainment, and finance or market
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Supply Chain Management: An International Journal
Volume 18 · Number 2 · 2013 · 115 –131
based performance including competitive performance and
customer satisfaction.
In this study, we attempt to answer two important research
questions relating to SCI: Are SCRs related to SCI? How
does SCI influence company performance? This study
contributes to the literature in three aspects. First, this
study is one of the first to empirically investigate the impact of
SCRs (SDR and DVR) on SCI. Second, this study examines
the impacts of three SCI dimensions (internal, supplier, and
customer integration) on a richer amount of performance
measures (schedule attainment, customer satisfaction, and
competitive performance). Third, this study explores the
relationships among SCRs, SCI, and performance in a global
context, using data collected in high performance
manufacturing (HPM) companies in both developing
(e.g. China and Brazil) and developed countries (e.g. USA.,
Australia). Furthermore, the findings of this study provide
managerial implications for manufacturing companies
worldwide.
The remainder of the paper is organized as follows. First,
we review the literature regarding SCRs and SCI, and
propose related research hypotheses. Second, we describe the
research methodology and report the results. Third,
discussion and managerial implications are provided.
Finally, we end the paper by providing our conclusions and
further research directions.
2. Literature review and research hypotheses
In this section, we first describe the major constructs
including SCRs (SDR and DVR) and SCI (supplier,
internal, and customer integration). Then, we develop the
conceptual framework and propose the research hypotheses.
2.1 SCR
Risk in the supply chain context is receiving growing attention
in SCM research (e.g. Zsidisin, 2003; Peck, 2005; Ellis et al.,
2010; Tummala and Schoenherr, 2011). Firms need to
manage SCRs to improve supply chain agility in today’s highly
turbulent and uncertain environments (Braunscheidel and
Suresh, 2009). Various trends, such as increasing outsourcing
activities, global competition, increased demand for on-time
delivery, rapid technological change, and short product life-
cycles, indicate the importance of SCR management (SCRM)
(Zsidisin et al., 2000; Trkman and McCormack, 2009; Olson
and Wu, 2011). SCRM literature has grown significantly
since 2000 (Trkman and McCormack, 2009) and special
issues on SCRM have been included in several journals
including Production and Operations Management (2005),
Journal of Operations Management (2009), and Supply Chain
Management: An International Journal (2011).
Despite the growing recognition among practitioners and
academia, empirical research in SCRM is still in its infancy
(Juttner, 2005). Most previous literature is conceptual or
descriptive (e.g. Zsidisin, 2003; Ellegaard, 2008; Christopher
et al., 2011). Specifically, the definition and classification of
SCRs are the main focus (e.g. Zsidisin, 2003; Spekman and
Davis, 2004; Tang and Tomlin, 2008), while SCRM strategies
and procedures are also conceptually discussed (Spekman and
Davis, 2004; Kleindorfer and Saad, 2005; Juttner, 2005;
Craighead et al., 2007). Extant conceptual and descriptive
SCRM literature provides a solid theoretical background for
further empirical investigation on SCRs. Ellis et al. (2010)
 The impact of supply chain risk on supply chain integration
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
were one of the first attempts to operationalize and validate
SCR measurements and empirically investigate the
relationships among environmental factors, supply
disruption risk, and performance.
Risk is an elusive construct and is defined in many different
ways depending on the field of research (Wagner and Bode,
2008). As this study focuses on risk in management, we follow
March and Shapira’s (1987, p. 1404) definition that risk is “the
variation in the distribution of possible outcomes, their
likelihood, and their subjective values”. As Lefley (1997)
pointed out, risk results from uncertainties and risk can give a
probability for future events, and is usually related to negative
outcomes such as the inability to meet customer requirements,
and even threats to customer safety (Zsidisin, 2003).
There are no consistently accepted dimensions of SCRs and
several different classifications are reported in the literature.
For example, Tang (2006) classified SCRs into two
dimensions: disruption risk and operational risk. Disruption
risks are those caused by events such as bankruptcy, natural
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disasters, and terrorist attacks. Operational risks relate to
supply and demand coordination and uncertainty, such as
uncertain demand and uncertain supply. Disruption risks are
rare but severe and hard to manage, while operational risk can
be reduced through effective SCM. Other SCRs include
supply risk, process risk, demand risk, and technology risk
(e.g. Bogataj and Bogataj, 2007; Tang and Tomlin, 2008).
However, as summarized by Trkman and McCormack
(2009), risks from continuous changes due to turbulent
environments, such as changes in customer demands or
supplier priorities, are relatively ignored. Therefore, in this
study, we focus on two types of operational-level SCRs:
supply risk and demand risk. Supply risk is the “probability of
an incident associated with inbound supply from individual
supplier failures or the supply market, in which its outcomes
result in the inability of the purchasing firm to meet customer
demand or cause threats to customer life and safety”
(Zsidisin, 2003, p. 222). Among various aspects of supply
risks, SDR may be the most important because more and
more companies expect their suppliers to make just-in-time
deliveries. Suppliers who fail to provide on-time delivery will
cause many problems for purchasing firms, for example,
regarding manufacturing, inventory, and sales functions.
Thus, this study only focuses on SDR. Demand risk includes
risks associated with turbulent environments, and unstable
and dynamic customer needs (Chen and Paulraj, 2004).
Unstable demand is usually the biggest challenge for today’s
companies, which leads to high inventory costs, low levels of
customer service, and unreliable deliveries. Therefore, this
study will only focus on DVR.
2.2 SCI
Increasing global competition has led many organizations to
create cooperative and mutually beneficial partnerships with
supply chain partners (Wisner and Tan, 2000). Numerous
studies have stated that companies need to implement SCI to
meet the new challenges of the global competitive
environment (e.g. Bowersox et al., 1999; Frohlich and
Westbrook, 2001; Zhao et al., 2008).
The various concepts of SCI in extant literature are
inconsistent and many studies propose different SCI
definitions (e.g. Bowersox and Morash, 1989; Stevens,
1989; Lee and Whang, 2001; Vickery et al., 2003; Swink
et al., 2007). We adopt the definition used in Zhao et al.
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Supply Chain Management: An International Journal
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(2008), “the degree to which an organization strategically
collaborates with its supply chain partners and manages intra-
and inter-organization processes in order to achieve effective
and efficient flows of products and services, information,
money, and decisions with the objective of providing the
maximum value to the customer at low cost and high speed”
(Zhao et al., 2008, p. 374).
Some studies measure SCI as one dimension (Cousins and
Menguc, 2006), but more studies are now considering SCI as
a multi-dimensional construct (e.g. Morash and Clinton,
1998; Whipple et al., 1999; Stank et al., 2001). Many studies
identify internal integration, customer integration, and
supplier integration as three major types of SCI
(e.g. Narasimhan and Jayaram, 1998; Narasimhan and Kim,
2002; Koufteros et al., 2005; Swink et al., 2007; Flynn et al.,
2010). Supplier and customer integration can be further
collapsed into external integration.
Internal integration refers to “the degree to which a
manufacturer structures its own organizational strategies,
practices and processes into collaborative, synchronized
processes, in order to fulfill its customers’ requirements and
efficiently interact with its suppliers” (Flynn et al., 2010, p. 4).
In contrast, external integration can be defined as “the degree
to which a manufacturer partners with its external partners to
structure inter-organizational strategies, practices and
processes into collaborative, synchronized processes” (Flynn
et al., 2010, p. 4). Customer integration involves core
competencies derived from coordination with critical
customers, whereas supplier integration involves core
competencies related to coordination with critical suppliers
(Flynn et al., 2010).
2.3 Linking SCR with SCI and company performance
Figure 1 illustrates the theoretical model of this study. SCRs
are modeled as barriers to SCI, while SCI dimensions are
considered as enablers of company performance, providing a
comprehensive SCR-SCI-performance model (Figure 1).
2.3.1 Impact of SCR on SCI
SDR usually includes delivery failures, inability to meet
quantity demand, and irregular supply (Zsidisin, 2003).
Under a high level of SDR, manufacturers do not like to share
precise inventory information and instant customer orders
with suppliers as their lead times are long and delivery is
unstable. Furthermore, manufacturers do not like to invest in
joint process improvement and new product development
with suppliers because suppliers can provide uncertain and
unreliable delivery. It is also difficult for manufacturers to
develop a strategic alliance with suppliers because of delivery
failures.
A high level of SDR may also hinder integration among
departments and functions within an organization. If the
delivery of goods and services from suppliers is slow, delayed,
irregular, or even wrong, the coordination between
purchasing and manufacturing becomes difficult and
conflicts between these departments will arise. Because
supply delivery is uncertain and unreliable, internal
functions have trouble working together for product design
and process improvement, which need the involvement of
suppliers. Furthermore, manufacturers may resist changes to
their own internal operations because of suppliers’ failures
(Frohlich, 2002). Thus, SDR will lead to a failure of internal
integration.
 The impact of supply chain risk on supply chain integration
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
Figure 1 Conceptual model
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Trust and cooperation between customers and manufacturers
will be negatively influenced by manufacturers’ supply
disruptions, missed shipments, and sunk costs caused by
SDR. If suppliers are not able to deliver materials to
manufacturers on time, manufacturers cannot deliver
products to customers on time. Suppliers’ long supply lead-
times to manufacturers will result in manufacturers passing on
long supply lead-times to customers; customers will be
unwilling to integrate with manufacturers under high SDR
environments (Frohlich, 2002; Zsidisin, 2003). Therefore, we
propose that:
H1a. Supply delivery risk is negatively related to supplier
integration.
H1b. Supply delivery risk is negatively related to internal
integration.
H1c. Supply delivery risk is negatively related to customer
integration.
DVR is mainly caused by market turbulence, demand
complexity, and demand instability (Boyle et al., 2008). In a
high DVR environment, customers’ needs are unstable and
unpredictable, and their preferences change quickly.
Manufacturers have to frequently modify their products and
response to market changes, which cause inaccurate demand
forecasts (Trkman and McCormack, 2009).
When product DVR is high, information regarding demand
for materials from manufacturers to suppliers changes
quickly. Thus, suppliers have to change their products from
time to time, which brings quantity and quality problems.
Furthermore, manufacturers are unwilling to invest in
improvements in quality and new technology development
with suppliers as the investment is risky in uncertain demand
environments. Inaccurate demand information will cause
mistakes among internal departments. The sales function’s
information about customer demand changes quickly as the
market is turbulent and their communication with other
departments becomes complicated. Thus, coordination
among functions is difficult to achieve. Concurrent
engineering becomes difficult in high DVR environments.
Meanwhile, as customers frequently change demand, it is
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Supply Chain Management: An International Journal
Volume 18 · Number 2 · 2013 · 115 –131
difficult for manufacturers to survey their customers’ needs
and obtain feedback from their customers. As a result, tight
integration with customers becomes difficult (Calantone et al.,
2003). Thus, we propose that:
H2a. Demand variability risk is negatively related to supplier
integration.
H2b. Demand variability risk is negatively related to internal
integration.
H2c. Demand variability risk is negatively related to
customer integration.
2.3.2 Impact of SCI on company performance
Three types of performance are used in this study. One is
operational performance: schedule attainment; the other two
are finance or market based: competitive performance and
customer satisfaction (Bozarth et al., 2009). Competitive
performance includes a mix of several frequently used sub-
dimensions: cost, quality, flexibility, delivery, cycle time, new
product development, and customer service, which are
commonly adopted in SCM studies (e.g. Flynn et al., 1995;
Klassen and Whybark, 1999; Das et al., 2006).
(1) Impact of supplier integration on company performance
Manufacturing firms constantly face the problem of on-time
delivery. As the production capacity of manufacturers is
limited, they need to allocate their limited production
resources to meet the requirements of the varying demand
at a reasonable cost. Regarding production schedule
attainment, firms need to receive the materials and
components on time. Through integration with suppliers,
manufacturing firms share order and inventory information
with suppliers, which helps suppliers prepare high-quality
materials and services on time. Unplanned purchasing from
suppliers leads to excess raw materials and warehousing
expenses (Lee et al., 1997). Furthermore, supplier
integration, including communication, sharing information
regarding inventory data and production scheduling, and
working together with suppliers, can reduce upstream
complexity (e.g. Lee et al., 1997; Devaraj et al., 2001; Das
et al., 2006), which negatively affects schedule attainment
 The impact of supply chain risk on supply chain integration
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
(Bozarth et al., 2009). Meanwhile, firms working together and
sharing information about production plans and demand
forecasts with their suppliers can reduce the well-known
“bullwhip effect” (Lee et al., 1997), which is highly related to
schedule attainment. Thus, we propose that:
H3a. Supplier integration is positively related to schedule
attainment.
Suppliers are becoming increasingly important for
manufacturers in the global competitive environment as they
have a large impact on the manufacturing capabilities
(e.g. cost, quality, technology, speed, and responsiveness) of
manufacturers (Ragatz et al., 2002). Supplier integration,
which positions suppliers as long-term strategic collaborators
of manufacturers, can lead to manufacturers’ operational
performance (Koufteros et al., 2005). Numerous empirical
studies have shown that supplier integration has a positive
impact on operational performance (e.g. Shin et al., 2000;
Frohlich and Westbrook, 2001; Frohlich, 2002; Sanders and
Premus, 2005; Devaraj et al., 2007). For example, Frohlich
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and Westbrook (2001) investigated supplier and customer
integration and identified five different SCI strategies,
characterized as various “arc[s] of integration”, with a high
degree of “arc” representing high levels of both supplier and
customer integration. They found that companies with the
widest degree of arc for supplier and customer integration
achieved the highest level of operational performance. In a
further study, Frohlich (2002) found that manufacturers
relying on high-level integration outperformed those
manufacturers relying on low-level integration in operational
performance, in terms of delivery time, transaction costs, and
inventory turnover.
From transaction cost theory perspective, supplier
integration can reduce transaction costs (Zhao et al., 2008;
Flynn et al., 2010). Opportunistic behaviors are greatly
reduced under shared visions and cooperative goals in
supplier integration (Wong et al., 2005). Furthermore,
supplier integration can reduce transaction costs through
the reduction of uncertainties. For example, environment
uncertainties are greatly reduced by investing in specific assets
such as information systems and dedicated people, which
facilitate information sharing and joint working (e.g. Frizelle
and Efstathiou, 2003; Das et al., 2006). Supplier integration
also plays an important role in reducing production costs. On
one hand, higher-level supplier integration is usually related
with fewer suppliers, which can lead to economies of scale for
suppliers; this in turn reduces material and product costs. On
the other hand, with trust and cooperation with suppliers,
manufacturers are willing to invest in fixed assets and R&D
activities to improve their and the suppliers’ product and
process quality, which reduces production costs.
Furthermore, supplier integration is helpful for
manufacturers to reduce inventory and improve delivery
speed, quality, and customer service via sharing information
and working together with suppliers (Handfield, 1993;
Frohlich, 2002). Thus, we propose that:
H3b. Supplier integration is positively related to competitive
performance.
Empirical studies on the direct relationship between supplier
integration and customer satisfaction are somewhat rare.
However, some studies have indicated indirect effects of
supplier integration on customer satisfaction. For example,
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Supply Chain Management: An International Journal
Volume 18 · Number 2 · 2013 · 115 –131
Swink et al. (2007) found that strategic supplier integration is
positively associated with customer satisfaction, mediated by
manufacturing competitive capabilities. Frohlich and
Westbrook (2001) and Vickery et al. (2003) found that
firms with higher levels of SCI achieve better customer
service. With high-level supplier integration, manufacturers
are more likely to be satisfied with the materials or services
provided by suppliers. Based on previous studies and our
interviews with executives, we expect that supplier integration
leads to customer satisfaction. Thus, we propose that:
H3c. Supplier integration is positively related to customer
satisfaction.
(2) Impact of internal integration on company performance
Internal integration emphasizes the coordination among
internal functions and firm-wide standards and norms
(Germain and Iyer, 2006). Many studies have demonstrated
that internal integration improves process efficiency, demand
management, and materials management (e.g. Stevens,
1989). Internal integration is very helpful in product
scheduling attainment. Through cross-functional
coordination and working together, production planning and
scheduling, customer order management, and demand
planning are facilitated to meet the requirement of
schedules (e.g. Stratman and Roth, 2002; Rosenzweig et al.,
2003). Information, such as customer orders, inventory level,
and purchasing and production schedule information, is
communicated effectively among functions, which helps firms
to allocate the available resources at suitable schedule costs.
Furthermore, good communication among functions can
quickly deliver demand information, thus reducing the
“bullwhip effect” (Lee et al., 1997), and schedule
modifications will be greatly reduced if information and
material flows are streamlined. Thus, we propose that:
H4a. Internal integration is positively related to schedule
attainment.
A large body of empirical research has highlighted the benefits
of internal integration in improving competitive performance
(e.g. Frohlich, 2002; Narasimhan and Kim, 2002; O’Leary-
Kelly and Flores, 2002; Rosenzweig et al. 2003; Gimenez and
Ventura, 2005; Koufteros et al., 2005; Germain and Iyer,
2006; Swink et al., 2007). For example, Rosenzweig et al.
(2003) indicated a positive direct relationship between
internal and external integration intensity and competitive
capabilities. Using data collected from 244 USA
manufacturing firms, Koufteros et al. (2005) found that
internal integration positively influences product innovation
and quality. Swink et al. (2007) found that internal product-
process technology integration improves manufacturing
capabilities in terms of quality, delivery, process, and new
product flexibility.
With the help of internal integration, knowledge can be
created and transferred effectively (e.g. Kogut and Zander,
1992; Rosenzweig et al., 2003). Experts from different
functions work together as a team to meet the requirements of
customers, especially for new product development and
improvements in product quality. In addition, internal
integration usually includes the application of enterprise
software systems, such as SAP, production planning and
scheduling, and other integrated software platforms
(e.g. Stratman and Roth, 2002; Sanders and Premus, 2005;
 The impact of supply chain risk on supply chain integration
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
Germain and Iyer, 2006). Some extant information system
research has demonstrated that enterprise resource planning
or other integrated software platforms adopters have better
operational performance than non-adopters (e.g. Ahmad and
Schroeder, 2001; Hendricks et al., 2007), supporting the
positive effects of internal integration on operational
performance. Furthermore, the cooperation and
coordination of different functions help to solve conflicts,
reduce inventories, improve delivery speed, and enhance
flexibility in response to customers. Thus, we propose that:
H4b. Internal integration is positively related to competitive
performance.
Internal integration can improve customer satisfaction in
many aspects. First, with internal integration, customer
requirements are well understood by the whole company via
information transfer from marketing/sales departments to
other departments. Furthermore, integrated customer order
fulfillment processes, in which all activities, functions, and
departments involved in fulfilling the order are integrated, can
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shorten production time, reduce development costs, and
increase the speed to market, which in turn improves
customer satisfaction. For example, when a firm wants to
introduce a new product, the marketing department must first
state the customers’ needs to determine the product that is to
be introduced, and expertise from the R&D department
interacts with marketing and manufacturing departments to
develop the product design to fulfill the customers’
requirements.
Previous empirical research has also highlighted the benefit
of internal integration on customer satisfaction (Stank et al.,
2001; Vickery et al., 2003; Swink et al., 2007). Using data
from 57 first-tier automotive suppliers to the Big Three
automobile manufacturers in North America, Vickery et al.
(2003) found a direct relationship between SCI (including
cross functional team integration) and customer service.
Swink et al. (2007) also found that internal product-process
technology integration improves manufacturing capabilities,
which in turn improves customer satisfaction. Thus, we
propose that:
H4c. Internal integration is positively related to customer
satisfaction.
(3) Impact of customer integration on company performance
Strategic integration with customers highlights frequent
customer interactions, during which firms discover customer
preference and improve demand forecasts (Swink et al.,
2007). When manufacturers work together with their
customers, their production schedules can be more accurate
and it can reduce frequent schedule modifications. Bullwhip
effects can be also reduced through effective information
sharing and cooperation between manufacturers and
customers. Furthermore, the communication of order
information and capacity makes it easier for manufacturers
to adjust their production scheduling and capacity in advance
(Lee et al., 1997). Thus, we propose that:
H5a. Customer integration is positively related to schedule
attainment.
Previous empirical research has shown that customer
integration can lead to competitive benefits (e.g. Clark and
Hammond, 1997; Frohlich, 2002; Kulp et al., 2004;
Koufteros et al., 2005; Germain and Iyer, 2006; Swink et al.,
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Volume 18 · Number 2 · 2013 · 115 –131
2007). Clark and Hammond (1997) indicated that both
retailers and manufacturers experienced dramatic
performance improvements after they implemented
continuous replenishment processes in the USA grocery
industry. Kulp et al. (2004) revealed that the act of
manufacturers sharing either inventory levels or customer
requirement information with retailers is positively associated
with manufacturers’ performance. In a survey of new product
development in 244 manufacturing firms in USA, Koufteros
et al. (2005) demonstrated that customer integration
influences competitive capabilities in terms of product
innovation and quality performance directly. Germain and
Iyer (2006) found that downstream integration with
customers positively influenced logistical performance.
Swink et al.(2007) also confirmed that strategic customer
integration is positively associated with manufacturing
competitive capabilities.
Close interactions between customers and manufacturers
offer opportunities for them to develop mutual forbearance
and improve information accuracy. More accurate
information about customer demand and customer
preferences, as well as frequent updating of information, can
speed up product design, improve production planning, and
reduce inventory obsolescence. Customer integration also
generates remarkable opportunities to leverage the
intelligence embedded in the collaborative processes,
enabling businesses to reduce costs, create more value for
customers, and quickly detect critical demand changes to
design and execute optimal responses. Thus, we propose that:
H5b. Customer integration is positively related to
competitive performance.
Customer integration helps manufacturers enhance the
understanding of customer preferences (Swink et al., 2007),
which can make manufacturers more responsive to their
customers’ needs. Close customer integration makes it easier
for manufacturers to meet customers’ requirements effectively
and efficiently. By surveying customer needs, involving
customers in product design, and receiving feedback on
product quality and performance, manufacturers provide
high-quality and low-price products to customers with great
responsiveness, which in turn leads to customer satisfaction
(Stank et al., 2001; Koufteros et al., 2005). Empirical studies
also show support for a positive relationship between
customer integration and customer satisfaction (Swink et al.,
2007). Thus, we propose that:
H5c. Customer integration is positively related to customer
satisfaction.
3. Research methodology
3.1 Sampling pool
The data used in this study were a part of the third-round
HPM project dataset, which was conducted in 2005 by a team
of researchers in USA., Asia, Australia, and Europe (Huang
et al., 2008). The data for this study were collected from 317
manufacturing plants in ten countries. Three representative
industries (machinery, electronics, and transportation
components) were selected, as industries in transition and
facing intense global competition (Schroeder and Flynn,
2001). The plants were randomly selected from a list of
manufacturing plants in each country by each national
 The impact of supply chain risk on supply chain integration Supply Chain Management: An International Journal
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao Volume 18 · Number 2 · 2013 · 115 –131

research group. Plants with at least 100 employees were
selected as large firms are more likely to carry out all supply
chain activities and have an independent department
responsible for SCM (Kim, 2009). Table I shows the
country and industry distribution of the respondents and
Table II reports company profiles. Additional details about
the database can be found in other studies using the HPM
project database (e.g. Bozarth et al., 2009).
3.2 Questionnaire design and data collection
The HPM database was collected from 23 respondents in
each plant, including supervisors, managers, and laborers.
Survey items were divided between the questionnaires to
obtain the most comprehensive information from the
informants (Bozarth et al., 2009). Most items have more
than one informant, which helps reduce common method bias
(Venkatraman and Grant, 1986). Items with multiple
responses were averaged, and each item has a single value in
this study.
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accompanied by a cover letter that briefly introduced the
project, ensured confidentiality, and stated that a report
would be provided to the response company.
First, a phone call was made to the potential response
plants, and then a mail survey was sent to the plant manager
of the selected plants. A research coordinator was then
appointed by the plant manager to be responsible for
distributing and collecting the questionnaires (Bozarth et al.,
2009). The questionnaires were sent in a sealed envelope to
the research coordinator at each plant, and the research
coordinator collected the questionnaires once they were
finished. The response rate was approximately 65 percent for
each of the respondent plants in each country.
3.3 Measurement development
A rigorous process was used to develop and validate the
instruments used in this study given its exploratory nature.
Prior to data collection, content validity was supported by
previous literature, executive interviews, and pilot tests. A mix

The questionnaire was written in English, and then
translated into the local language in each country by a local
member of the research team. It was then back-translated into
English by a different local professor and checked against the
original English version for accuracy. Each questionnaire was
Table I Sample demographics
of item types and reversed scales were used to minimize the
possibility of common method variance (Crampton and
Wagner, 1994; Bozarth et al., 2009). After data collection, we
performed a series of analyses to test the reliability and
validity of the constructs. To control for industry and country
effects, the data in this study were standardized by industry
and country (Flynn et al. 1990).

Industry 3.3.1 Content validity

Country Machinery Electronics Transportation Total Most of the measurement items for the eight constructs used
in this study were adapted from well-established instruments
Australia 7 10 4 21 used in previous studies. DVR is a relatively new construct,
China 16 21 14 51 and this study emphasizes demand instability and
Finland 6 14 10 30 unpredictability. SDR measurements mainly focus on
Germany 13 9 19 41 unreliable delivery and long lead-times and stockouts, which
Italy 10 10 7 27 were adapted from Zsidisin (2003). The internal integration
Japan 12 10 13 35 scale, which includes function integration, teamwork, and
South Korea 10 10 11 31 information integration, was mainly adapted from
Spain 9 9 10 28 Narasimhan and Kim (2002). The supplier integration and
Sweden 10 7 7 24 customer integration scales were largely adapted from
USA 11 9 9 29 Narasimhan and Kim (2002) and Frohlich and Westbrook
Total 104 109 104 317 (2001), which emphasize communication and collaboration
with suppliers and customers. The measurements of SCI in

Table II Company profiles: non-standardized mean results by country and industry

Number Number Percent of sales of Annual sales Number of Number of
Number of of of largest product of plant employed hourly employed salaried
customers products suppliers family ($000) personnel personnel
Austria (n 5 21) 359.9 25.3 277.8 42.4 64,475 187.94 122.56
China (n 5 51) 201.9 609.9 164.5 57.6 132,450 424.55 1576.8
Finland (n 5 30) 448.1 925.8 217.3 39.9 47,705 266.13 87.13
Germany (n 5 41) 4,574.5 19.9 480.8 41.9 173,620 433.96 161.8
Italy (n 5 27) 963.7 10.7 230.7 37.8 71,209 97.04 296.04
Japan (n 5 35) 18,9920 154.3 305 47 1,118,500 961.06 474.76
South Korea (n 5 31) 9,597.1 986.3 168.5 39.2 2,267,000 1737.8 2555.8
Spain (n 5 28) 282.4 627.4 192.8 43.3 145,560 89.22 360.44
Sweden (n 5 24) 667.6 836.4 361.4 36.1 584,370 5.77 348.7
USA (n 5 29) 643.2 215.6 155.1 36.8 284,180 326.1 153.81
Machinery (n 5 104) 2694 444.2 254.5 37.1 41,992,000 318.99 582.86
Electronics (n 5 109) 1397.6 701.8 408.4 46.4 5,754,700 410.69 748.38
Transportation (n 5 104) 64372 156.5 168.8 46.3 3,758,300 500.94 344.72

121
 The impact of supply chain risk on supply chain integration
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
this study are also in line with previous studies (e.g. Swink
et al., 2007; Zhao et al., 2008). All the scales for SCR and SCI
employed a seven-point Likert scale (1 ¼ “strongly disagree”
to 7 ¼ “strongly agree”).
For the performance measures, the schedule attainment
scale was measured using multiple items derived from extant
literature (Bozarth et al., 2009). Competitive performance
was measured using 12 key aspects by asking the plant
manager to rate how well the plant performs compared to its
competition in the industry, with “1” being “poor, low end of
the industry” and “5” being “superior”. Furthermore, the
plant manager, process engineer, and plant superintendent
were asked to identify the importance of the 12 aspects of
competitive performance on a five-point Likert scale
(1 ¼ least important to 5 ¼ absolutely crucial). The final
measure of plant-level competitive performance equals the
average individual performance ratings multiplied by their
respective average important scores (Bozarth et al., 2009).
The instruments for customer satisfaction were measured
using five seven-point Likert scales (1 ¼ strongly disagree to
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7 ¼ strongly agree), based on literature such as Zhang et al.
(2003). The Appendix provides further details regarding the
final measurement items for these eight constructs.
3.3.2 Unidimensionality and reliability
A strict process for scale development was employed,
particularly because the scales were used among various
countries with very different national cultures and
environments, and because of the exploratory nature of this
study. We followed the two-step method used by Narasimhan
and Jayaram (1998) to test construct reliability. First, to
ensure unidimensionality of the scales, an exploratory factor
analysis (EFA), with principal components analysis and
varimax rotation with Kaiser normalization, was used to
clarify the factors (Loehlin, 1998). Then Cronbach’s alpha
was used for each construct to test reliability. These steps
were performed iteratively.
The EFA results, including factor loadings, eigenvalues,
and percentages of explained variances for SCRs, SCI, and
performance, are summarized in Tables III and IV. Each item
was loaded on the factor they intend to measure, and all the
items have factor loadings greater than 0.50, except for one
item representing the unit cost of manufacturing for
competitive performance construct. As this item is essential
to the competitive performance construct, and it is
significantly loaded on the competitive performance
measure, we did not delete it. Table V shows that all scales
display good internal consistency with the values of
Cronbach’s alpha exceeding the threshold value of 0.60
recommended by Nunnally (1978) and Flynn et al. (1990).
3.3.3 Construct validity
Construct validity is the extent to which the items in a scale
measure the abstract or theoretical construct (Carmines and
Zeller, 1979), consisting of convergent validity and
discriminant validity (O’Leary-Kelly and Vokurka, 1998).
Convergent validity indicates the similarities among different
measures of a construct and is achieved when the correlation
among variables used to measure the same construct is high.
In contrast, discriminate validity refers to the uniqueness of
the constructs and is present when the correlation between
two constructs designed to measure two distinct concepts is
not high (Churchill, 1979). In this study, both EFA and
confirmatory factor analysis (CFA) methods are used to test
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Supply Chain Management: An International Journal
Volume 18 · Number 2 · 2013 · 115 –131
convergent validity. As Hair et al. (1998) pointed out, a
construct is considered to have convergent validity if its
eigenvalue exceeds 1.0 in EFA, and all the factor loadings
exceed the minimum value of 0.30. Tables III and IV show
that all the factor loadings and their eigenvalues exceed the
minimum criteria. Next, we constructed a CFA model using
the LISREL program to assess convergent validity (O’Leary-
Kelly and Vokurka, 1998). Each item was linked to its
corresponding construct, with the covariances freely
estimated. The model fit indices were Chi 2 square ¼
1999:07 with d:f : ¼ 1052, RMSEA ¼ 0:053, NNFI ¼ 0:95,
CFI ¼ 0:96, and standardized RMR ¼ 0:058, indicating that
the model was acceptable (Hu et al., 1992). Generally, a
construct with either a factor loading of least 0.50, or a
significant t-value (t . 2:0), or both, is considered to have
convergent validity (Chau, 1997). In our model, most of the
factor loadings were greater than or near to 0.50, and all t-
values were greater than 2.0. Only the unit cost of the
manufacturing item for the competitive performance
construct had a factor loading of 0.34. As this item is one
of the most important aspects of competitive performance,
and it meets the EFA requirements for convergent validity, we
did not delete it. This means that our measures for each
construct are similar and converge to the scale of the same
construct. Therefore, convergent validity was achieved.
To assess discriminant validity, we built a constrained CFA
model in which the correlations among each pair of constructs
were fixed to 1. This model was compared with the original
unconstrained model, in which the correlations were freely
estimated. A significant difference in x2 between the
constrained and unconstrained models indicates high
discriminant validity (Fornell and Larcker, 1981). In this
study, 28 pairs of constrained and unconstrained models were
compared. All the differences in x2 were significant at the
0.001 level (Table VI). This means that all constructs are
unique concepts and can be differentiated from each other.
Therefore, discriminant validity was demonstrated.
Table VII shows the correlation matrix, as well as means
and standard deviations for the variables based on the
standardized data. Predictive validity is indicated as all SCRs
and SCI variables are significantly correlated with
performance variables.
4. Analysis and results
Structural equation modeling (SEM) was used to estimate the
relationship among the constructs. The Maximum Likelihood
Estimation (MLE) method was used because it has desirable
asymptotic properties (e.g. minimum variance and
unbiasedness) and is scale-free. Multivariate normality was
verified using univariate Q-Q plots (Raykov and Marcoulides,
2000). The structural model was built on a measurement
model using the MLE method (Anderson and Gerbing, 1988;
Joreskog and Sorbom, 1993). The goodness of fit indices were
Chi 2 square ¼ 2158:57 with d:f: ¼ 1064, RMSEA ¼ 0:057,
NNFI ¼ 0:95, CFI ¼ 0:95, and standardized RMR ¼ 0:070,
which are better than the threshold values suggested by Hu
et al. (1992). Therefore, our model is acceptable. Figure 2
shows the structural equation model and the standardized
coefficients for the paths that are significant at 0.05 level.
The results of the analyses provide mixed support for the
hypotheses (Table VIII). H1a, H1b and H1c are supported by
the results. SDR is negatively related to supplier integration
 The impact of supply chain risk on supply chain integration Supply Chain Management: An International Journal
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao Volume 18 · Number 2 · 2013 · 115 –131

Table III Factor analysis of SCI

Factor loadings
Supplier integration Internal integration Customer integration Supply delivery risk Demand variability risk
SI1 0.684 0.145 0.202 2 0.182 20.086
SI2 0.711 0.055 0.224 2 0.266 20.029
SI3 0.686 0.084 0.284 2 0.170 20.072
SI4 0.665 0.123 0.174 2 0.118 20.005
SI5 0.727 0.127 0.116 2 0.139 20.054
SI6 0.705 0.064 0.126 0.010 20.094
SI7 0.761 0.131 0.220 2 0.183 20.020
CI1 0.215 0.149 0.731 0.068 20.058
CI2 0.223 0.122 0.706 2 0.100 0.055
CI3 0.165 0.038 0.703 0.037 0.004
CI4 0.155 0.126 0.565 2 0.250 20.134
CI5 0.168 0.266 0.631 2 0.080 20.151
CI6 0.318 0.206 0.641 2 0.130 20.073
II1 2 0.072 0.535 0.304 2 0.270 20.106
II2 0.195 0.791 0.170 2 0.161 20.012
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II3 0.097 0.775 0.175 2 0.147 20.015

II4 0.173 0.766 0.110 2 0.013 20.027
II5 0.112 0.800 0.137 2 0.157 20.052
II6 0.187 0.428 0.057 2 0.320 20.265
DR1 0.042 0.023 2 0.092 0.064 0.873
DR2 2 0.105 20.026 2 0.127 0.157 0.854
DR3 2 0.177 20.227 0.010 2 0.144 0.461
SR1 2 0.244 20.171 2 0.025 0.600 0.070
SR2 2 0.235 20.157 0.035 0.591 0.037
SR3 2 0.064 20.146 2 0.126 0.753 0.049
SR4 2 0.183 20.098 2 0.141 0.741 20.066
Eigenvalue 4.095 3.314 3.181 2.424 1.879
Total variance explained 57.285%

(b ¼ 20:68, p , 0:001), internal integration (b ¼ 20:62,
p , 0:001), and customer integration (b ¼ 20:58,
p , 0:001). H2a, in which we postulate a negative
relationship between DVR and supplier integration, is not
supported (b ¼ 20:08, p . 0:10). In addition, H2b (DVR is
negatively related to internal integration) is not supported
(b ¼ 20:04, p . 0:10). H2c is supported, indicating a
negative relationship between DVR and customer
integration (b ¼ 20:14, p , 0:05).
We find support for H3a and H3c, but not for H3b. That is,
supplier integration has a strong and positive impact on
schedule attainment (b ¼ 0:33, p , 0:001) and customer
satisfaction (b ¼ 0:13, p , 0:05), but has no significant
impact on competitive performance (b ¼ 0:10, p . 0:10).
H4a, H4b and H4c are supported. This means that internal
integration can improve a firm’s schedule attainment
(b ¼ 0:20, p , 0:01), competitive performance (b ¼ 0:32,
p , 0:001), and customer satisfaction (b ¼ 0:12, p , 0:05).
H5a, H5b and H5c are all supported, confirming that
customer integration improves schedule attainment
(b ¼ 0:19, p , 0:01), competitive performance (b ¼ 0:24,
p , 0:01), and customer satisfaction (b ¼ 0:66, p , 0:001).
5. Discussion and implications
We found that SCRs are barriers to SCI implementation,
while SCI enables company performance. These results
provide implications for SCRM and SCI theories and
practices.
5.1 SCRs as barriers to SCI implementation
Our results show that SCRs are barriers to SCI
implementation. Literature on the relationship between
SCRs and SCI mainly focuses on the mitigation effects of
SCI on SCRs (e.g. Zsidisin and Ellram, 2003; Zsidisin and
Smith, 2005; Tachizawa and Gimenez, 2010). For example,
Zsidisin and Ellram (2003) considered supplier development
as a behavior-based risk management strategy. Tachizawa and
Gimenez (2010) argued that supply flexibility strategies, such
as SCI, are driven by certain environmental factors. While
SCI is beneficial to companies facing SCRs (e.g. Zsidisin and
Ellram, 2003), it is also clear that implementing SCI is a very
difficult task especially under a high SCR environment
(Power, 2005).
Our findings suggest that SDR has a negative impact on
supplier, internal, and customer integration, indicating that
SDR is a barrier to SCI. In other words, if a firm has low
SDR, then it is easier for it to achieve SCI. These findings are
consistent with those of Frohlich (2002). SDR directly
influences the implementation of supplier integration because
suppliers’ unreliable delivery and long lead-times prevent
manufacturers from effectively cooperating with suppliers.
SDR may also influence cooperation among R&D, inventory,
and manufacturing functions because the materials provided

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Table IV Factor analysis of performance are unpredictable. As Zsidisin (2003) indicated, supply risk
may result in the inability of manufacturers to meet their
Factor loadings customers’ requirements. Delays in materials from suppliers
Competitive Customer Schedule could paralyze production, which in turn prolongs
performance satisfaction attainment manufacturers’ lead-times and delivery times to the
SA1 0.147 0.267 0.794 customers, leading to bad customer integration.
SA2 0.032 0.191 0.684 In contrast, DVR has a negative impact on customer
integration, but it does not have a significant negative impact
SA3 0.174 0.254 0.769
on supplier or internal integration. This shows that DVR is a
SA4 0.068 0.068 0.679
crucial barrier for firms to facilitate customer integration,
SA5 0.052 0.100 0.720
partially because manufacturers cannot precisely predict
CS1 0.135 0.837 0.264
customer demands in a changing market. DVR has no
CS2 0.075 0.798 0.155 impact on internal or supplier integration, possibly because
CS3 0.117 0.814 0.143 manufacturers can still cooperate internally, and externally
CS4 0.128 0.861 0.131 with suppliers for “make to stock” in a highly risky market.
CS5 0.178 0.755 0.180 Our study also indicates that SDR is more important than
Cperf1 0.382 2 0.085 0.232 DVR in influencing SCI. A reason for this could be that firms
Cperf2 0.532 0.182 0.101 do not usually have a buffer for the influences of SDR, which
Cperf3 0.662 0.118 0.173 are directly transferred to internal operations and downstream
Cperf4 0.676 0.028 0.000
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cooperation with customers. For example, many firms are

Cperf5 0.665 0.120 2 0.042 adopting just-in-time purchasing practices and do not usually
Cperf6 0.651 0.067 0.121 have many inventories for materials. When supply delivery is
Cperf7 0.508 2 0.022 0.243 unreliable, it is difficult for internal functions, the firm as a
Cperf8 0.632 2 0.075 0.203 whole, and their downstream customers to work together. In
Cperf9 0.635 0.055 0.059 contrast, firms usually set buffers to reduce the influences of
Cperf10 0.560 0.228 2 0.036 demand variation, such as product inventories based on
Cperf11 0.600 0.188 2 0.009 “make to stock” policies and postponement practices based
Cperf12 0.585 0.210 2 0.054 on “make/assembly to order” policies. In this way, firms can
Eigenvalue 4.412 3.711 3.050 still cooperate internally among functions and externally with
upstream suppliers. These findings extend our knowledge
Total variance about SCRs and SCI. The empirical findings about the
explained 50.790% contingent relationships between SCRs and three types of
SCI contribute to the literature and theories of SCR and SCI.
From the perspective of SCI, this is one of the first studies to
examine SCR barriers to SCI, and from a SCR perspective,
Table V Reliability tests
this is one of the first to investigate SCI outcomes.
Construct Number of items Cronbach’s alpha These findings provide managerial insights to SCI
implementation. Companies need to note that there are
Supply delivery risk 4 0.710
barriers, such as SCRs, that will hinder the achievement of
Demand variability risk 3 0.637 SCI targets. Identifying and understanding SCRs are
Supplier integration 7 0.878 important issues when implementing SCI (Zsidisin, 2003).
Customer integration 6 0.817 As suggested by Frohlich (2002), reducing external barriers is
Internal integration 6 0.839 the initial step for firms to facilitate SCI. For those firms
Schedule attainment 5 0.822 emphasizing supplier and internal integration, reducing SDR
Competitive performance 12 0.842 is the most important step. When companies implement
Customer satisfaction 5 0.902 customer integration, SDR should be controlled, and less
crucially, DVR should be also curbed.

Table VI Assessment of discriminant validity: chi-square differences 5.2 SCI as enablers of performance
between constrained and unconstrained models The findings of this study also support extant SCI literature,
that supplier, internal, and customer integration are beneficial
1 2 3 4 5 6 7 to company performance (e.g. Frohlich, 2002; Power, 2005;
1. Supply delivery risk – Swink et al., 2007; Flynn et al., 2010). However, our study
2. Demand variability risk 48.43 –
highlights the contingent relationship between SCI and
performance, where different types of SCI have different
3. Supplier integration 140.33 113.45 –
roles in improving the various dimensions of performance,
4. Customer integration 132.15 112.69 45.50 –
thus contributing to SCI theories and practices.
5. Internal integration 131.61 105.65 72.60 68.00 –
Supplier integration has a strong and positive impact on
6. Schedule attainment 105.20 115.95 37.83 46.45 58.49 –
schedule attainment and customer satisfaction, but has no
7.Competitive performance 174.73 118.91 74.07 73.71 84.91 65.74 – significant impact on competitive performance. Higher-level
8. Customer satisfaction 122.73 98.95 37.60 27.97 59.56 26.88 68.69 supplier integration is associated with better schedule
Note: All chi-square differences were significant at the 0.001 level (for 1 df) attainment. Normative studies have pointed out that
schedule attainment is associated with supplier integration,

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Table VII Correlation matrix

Mean SD 1 2 3 4 5 6 7
1. Supply delivery risk 0.002 0.696 1
2. Demand variability risk 20.003 0.724 0.143 * 1
3. Supplier integration 0.000 0.724 20.449 * 20.197 * 1
4. Customer integration 0.000 0.689 20.303 * 20.221 * 0.544 * 1
5. Internal integration 0.000 0.709 20.438 * 20.220 * 0.385 * 0.457 * 1
6. Schedule attainment 0.000 0.728 20.536 * 20.285 * 0.431 * 0.315 * 0.370 * 1
7. Competitive performance 0.000 0.575 20.409 * 20.111 * 0.318 * 0.359 * 0.395 * 0.280 * 1
8. Customer satisfaction 0.000 0.807 20.320 * 20.327 * 0.489 * 0.651 * 0.463 * 0.422 * 0.310 *
Note: * p , 0:01 level

Figure 2 Statistically significant paths for SCI model

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but few previous empirical studies have attempted to confirm
this argument. This study contributes to the literature in this
aspect. Supplier integration can also lead to customer
satisfaction, which is consistent with the findings of Vickery
et al. (2003), reinforcing the importance of supplier
integration on customer satisfaction. Our finding that there
is no significant relationship between supplier integration and
competitive performance is inconsistent with some prior
studies (e.g. Frohlich and Westbrook, 2001; Frohlich, 2002;
Devaraj et al., 2007). However, recent research, such as Swink
et al. (2007) and Flynn et al. (2010), found similar results,
that supplier integration did not directly contribute to
operational performance.
Internal integration has positive impacts on schedule
attainment, competitive performance, and customer
satisfaction, indicating the importance of internal integration
in improving company performance. Our results are
consistent with several studies (e.g. Germain and Iyer,
2006; Flynn et al., 2010). As expected, internal integration
plays an important role in achieving schedule attainment and
the fulfillment of production schedule, improving competitive
performance in terms of cost, quality, delivery, flexibility, and
customer service, ultimately enhancing customer satisfaction.
Our results emphasize the importance of implementing
internal integration (Flynn et al., 2010).
Customer integration has significant positive effects on
schedule attainment, competitive performance, and customer
satisfaction. Manufacturers with better customer integration
tend to have better schedule attainment. In other words,
production schedules, which are based on customer needs,
are more likely to be completed on time. Our research used a
global database and supported the argument that customer
integration can lead to better competitive performance, which
is consistent with many extant studies (e.g. Stank et al., 2001;
Germain and Iyer, 2006; Flynn et al., 2010), but inconsistent
with others (e.g. Devaraj et al., 2007; Swink et al., 2007;
Danese and Romano, 2011). The relationship between
customer integration and competitive performance deserves
further investigation. Furthermore, there is a strong linkage
between customer integration and customer satisfaction,
which is strongly supported by recent literature (e.g. Swink
et al., 2007).
5.3 Best approach to company performance through
SCI
To further investigate whether each dimension of SCI has
significantly different effects on performance, this study
conducted a series of chi-square difference tests. Based on the
unconstrained model shown in Figure 2, two pairs of
relationships between SCI and performance (e.g. supplier
integration-schedule attainment and customer integration-
schedule attainment) were constrained to be equal, and the
chi-square difference (with d. f. difference ¼ 1) was tested to
see whether these two models were statistically significant. If

125
 The impact of supply chain risk on supply chain integration Supply Chain Management: An International Journal
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao Volume 18 · Number 2 · 2013 · 115 –131

Table VIII Results of hypothesis tests Our findings on the relationships between the three types of
SCI and the three types of performance significantly
Hypothesis Path coefficients t-value Outcome contribute to SCI theories. As indicated by Flynn et al.
H1. Supply delivery risk is negatively related to: (2010), contingent relationships between SCI and
a. supplier integration 20.68 * * * * 2 7.36 Supported performance require careful examination. While most
b. internal integration 20.62 * * * * 2 6.27 Supported previous studies have only focused on one or two SCI
c. customer integration 20.58 * * * * 2 6.42 Supported dimensions, or one or two dimensions of company
performance, this study considers three types of SCI and
H2. Demand variability risk is negatively related to: three types of performance together, and tests these
a. supplier integration 20.08 2 1.49 Rejected relationships simultaneously. Furthermore, while most
b. internal integration 20.04 2 0.66 Rejected previous studies only adopted an operational performance
c. customer integration 20.14 * * 2 2.35 Supported measure as the direct outcome of SCI, this study extends this
H3. Supplier integration is positively related to: to also include schedule and satisfaction performance.
a. schedule attainment 0.33 * * * * 4.78 Supported
Furthermore, our findings regarding the contingent roles of
the different types of SCI in improving different performance
b. competitive performance 0.10 1.36 Rejected
measures also significantly contribute to SCI practices.
c. customer satisfaction 0.13 * * 2.23 Supported
H4. Internal integration is positively related to:
a. schedule attainment 0.20 * * * 3.01 Supported 6. Conclusion and future research
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b. competitive performance 0.32 * * * * 3.45 Supported
c. customer satisfaction 0.12 * * 2.16 Supported
H5. Customer integration is positively related to:
a. schedule attainment 0.19 * * * 2.76 Supported
b. competitive performance 0.24 * * * 2.91 Supported
c. customer satisfaction 0.66 * * * * 8.94 Supported
Notes: * p , 010, * * p , 0:05, * * * p , 0:01, * * * * p , 0:001
the chi-square difference was significant, the coefficients for
these two relationships were considered to be statistically
different (i.e. the effects of these two types of SCI on
performance were different).
Using statistical comparison, we found that while all three
dimensions of SCI are significantly related to schedule
attainment, supplier integration has a significantly higher
impact than internal and customer integration. Thus, supplier
integration is the most crucial factor in improving schedule
attainment. This provides managerial implications for firms
that need to improve their schedule attainment. Firms should
first invest in supplier integration, then internal integration,
followed by customer integration. This sequence is important
when there are resource constraints for companies in
implementing SCI.
Internal integration has a significantly higher impact on
competitive performance than customer and supplier
integration and should be considered as the most critical
factor in improving competitive performance. Managerially,
firms need to pay greater attention to internal integration if
they want to improve competitive performance; customer
integration should also be improved although this is not as
crucial to improve competitive performance. Supplier
integration does not improve competitive performance
directly.
All three SCI dimensions are significantly related to
customer satisfaction, but customer integration has a
significantly higher impact than internal and supplier
integration. These findings are very informative for firms
who want to improve their customer satisfaction via SCI.
Improving integration with customers is the first step for firms
to improve their customer satisfaction, and internal and
supplier integration are the second steps.
This study contributes to SCR and SCI literature and
practices by empirically investigating the relationships among
SCRs, SCI, and company performance, using a global
database collected from HPM companies in ten countries.
This study reveals that: supply and demand risks are barriers
for firms to implement SCI. SDR has a strong negative
impact on supplier, internal, and customer integration, while
DVR is negatively related to customer integration. SDR is
more important than DVR in influencing SCI; there is a
contingent relationship between SCI and company
performance. This means that different types of SCI have
different impacts on different types of performance. Supplier
integration is the most critical factor to improve schedule
attainment, though internal and customer integration are also
significantly related to schedule attainment. Competitive
performance can be improved by both internal and customer
integration, but internal integration has a significantly higher
impact than customer integration. As to the improvement of
customer satisfaction, customer integration is the most
important factor, supplier and internal integration are not
so important though they are also significantly related to
customer satisfaction. These results provide guidelines for
managers to improve their different types of performance by
selectively implementing different types of SCI.
While this study contributes to both the literature and
practice, there are several limitations that open up avenues for
further research. First, SCR is a multi-dimension concept,
and we only investigated its two important dimensions: SDR
and DVR. There are many other SCRs, such as internal risk,
competitive intensity, and disruption risk. Future research
should investigate the relationships between other dimensions
of SCRs and SCI. Second, as SCR is a relatively new concept,
its measurement is still at an explorative stage. Measurements
used in this study were mainly developed from a perspective
of sources of risk. Future research could develop
measurements for these constructs from other perspectives.
Third, while this study focuses on the interrelationship
between SCRs, SCI, and performance, future research could
look at interaction effects among SCRs, SCI, and
performance. Finally, as this study does not consider the
effects of country and industry, future studies could shed light
on how these factors would affect SCRs, SCI, performance
and the relationships among them.

126
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Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
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 The impact of supply chain risk on supply chain integration Supply Chain Management: An International Journal
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao Volume 18 · Number 2 · 2013 · 115 –131

Appendix. Construct measurement SR4: Our company strives to shorten supplier lead time to
avoid inventory and stockouts. (Reversed)
Supplier integration
Please indicate the extent to which you agree or disagree with Demand variability risk
each of the following statements about this plant and Please indicate the extent to which you agree or disagree with
organization. each of the following statements about this plant and
SI1: We maintain cooperative relationships with our organization:
suppliers. DR1: Manufacturing demands are stable in our firm.
SI2: We help our suppliers to improve their quality. (Reversed)
SI3: We maintain close communication with suppliers DR2: Our total demand, across all products, is relatively
about quality considerations and design changes. stable. (Reversed)
SI4: Our suppliers are actively involved in our new product DR3: The demand for our plant’s products is unstable and
development process. unpredictable.
SI5: Our key suppliers provide input into our product
development projects.
SI6: We strive to establish long-term relationships with Schedule attainment
suppliers. SA1: We usually meet the production schedule each day.
SI7: We actively engage suppliers in our quality SA2: Our daily schedule is reasonable and therefore possible
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improvement efforts. to complete on time.

SA3: We usually complete our daily schedule as planned.
Customer integration SA4: We cannot adhere to our schedule on a daily basis.
Please indicate the extent to which you agree or disagree with (Reversed)
each of the following statements about this plant and SA5: It seems like we are always behind schedule.
organization. (Reversed)
CI1: We are frequently in close contact with our customers.
CI2: Our customers give us feedback on our quality and
delivery performance. Competitive performance
CI3: Our customers are actively involved in our product Cperf1: Unit cost of manufacturing
design process. Cperf2: Conformance to product specifications
CI4: We work as a partner with our customers. Cperf3: On time delivery performance
CI5: We strive to be highly responsive to our customers’ Cperf4: Fast delivery
needs. Cperf5: Flexibility to change product mix
CI6: We regularly survey our customers’ needs. Cperf6: Flexibility to change volume
Cperf7: Inventory turnover
Internal integration Cperf8: Cycle time (from raw materials to delivery)
Please indicate the extent to which you agree or disagree with Cperf9: Product capability and performance
each of the following statements about this plant and Cperf10: On time new product launch
organization. Cperf11: Product innovativeness
Cperf12: Customer support and service
II1: Departments in the plant frequently communicate with
each other.
II2: The functions in our plant work well together.
II3: The functions in our plant cooperate to solve conflicts Customer satisfaction
between them, when they arise. CS1: Our customers are pleased with the products and
II4: Our plant’s functions coordinate their activities. services we provide for them.
II5: Our plant’s functions work interactively with each CS2: Our customers seem happy with our responsiveness to
other. their problems.
II6: We work in teams, with members from a variety of CS3: Customer standards are always met by our plant.
areas (marketing, manufacturing, etc.) to introduce CS4: Our customers have been well satisfied with the quality
new products. of our products over the past three years.
CS5: Our organization satisfies or exceeds the requirements
Supply delivery risk and expectations of our customers.
Please indicate the extent to which you agree or disagree with
each of the following statements about this plant and
organization.
About the authors
SR1: We can depend on on-time delivery from our suppliers.
(Reversed) Li Zhao is a PhD candidate at the School of Management,
SR2: Suppliers frequently deliver materials to us. (Reversed) Xi’an Jiaotong University, China. Her research interests
SR3: We seek short lead times in the design of our supply include empirical research in supply chain risk management,
chains. (Reversed) supply chain integration and vertical integration. She was a

130
 The impact of supply chain risk on supply chain integration
Li Zhao, Baofeng Huo, Linyan Sun and Xiande Zhao
one-year visiting PhD student at The Chinese University of
Hong Kong and Clemson University during 2008 and 2010.
Baofeng Huo is a Professor of Operations Management at
the School of Management, Zhejiang University. He received
his PhD in Operations Management from The Chinese
University of Hong Kong. His research interests are logistics
and supply chain management. His research has been
published in the Journal of Operations Management,
Production and Operations Management, International Journal
of Production Research, International Journal of Operations &
Production Management, International Journal of Production
Economics, Business Horizon, and other journals. Baofeng Huo
is the corresponding author and can be contacted at:
baofenghuo@gmail.com
Linyan Sun is a Professor in the School of Management,
Xi’an Jiaotong University, China. His research interests are in
the areas of advanced manufacturing management, human
factors and supply chain management. He has published over
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To purchase reprints of this article please e-mail: reprints@emeraldinsight.com
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131
Supply Chain Management: An International Journal
Volume 18 · Number 2 · 2013 · 115 –131
300 papers in journals including the International Journal of
Production Economics, European Journal of Operations Research,
International Journal of Manufacturing Technology and
Management and others.
Xiande Zhao is a Professor of Operations Management at
the Department of Decision Sciences and Managerial
Economics and Director of the Center for Supply Chain
Management and Logistics, Li and Fung Institute of Supply
Chain Management and Logistics, The Chinese University of
Hong Kong. He received his MBA and PhD in Business
Administration from the University of Utah. Professor Zhao’s
teaching and research interests are in the areas of supply chain
management and service operations management. He has
published more than 60 articles in refereed journals including
the Journal of Operations Management, the Journal of Consumer
Research, Production and Operations Management, Decision
Sciences, the European Journal of Operations Research, and the
International Journal of Production Research, among others.
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