According to Anderson and Sullivan (1993), customer satisfaction is a customers overall or global judgment regarding the extent to which

product or service performance match expectations. Moreover, Reichheld and Sasser (1990) suggest that customer satisfaction should be reflected in a firms economic returns and profitability. Stank and Goldsby (1999) show that the effects of operational performance and relational performance on satisfaction and loyalty. Gunasekaran et al. (2002) suggest that in the development of metrics, an effort should be made to align and relate them to customer satisfaction. One of the main challenges of todays manufacturing is to be both efficient and contribute to high effectiveness, i.e. customer satisfaction. A number of researchers suggest that better performance can be achieved by consolidating customer and supplier bases, removing unnecessary steps in the chain, speeding up information and material flows, and creating long-term partnerships with major customers and suppliers to leverage the capabilities of several companies in the chain. Previous management theory in the area of SCM can be broadly divided into two main categories. The first category is studies of primarily the chain structure (e.g. Forrester, 1958, 1961; Burbidge, 1961; Sharman, 1984; Sterman, 1989; Towill et al., 1992; Lee and Billington, 1992; Lee et al., 1997a,b; Holmstrm, 1994, 1995; Fisher, 1997) Some scholars suggest using the term demand chain management instead of SCM (Vollmann et al., 1995, 1997, 2000; Vollmann and Cordon, 1998). This puts emphasis on the needs of the marketplace and designing the chain to satisfy these needs, instead of starting with the supplier/manufacturer and working forward. Time-based management and the relationship between speed of operations and efficiency has been one of the key issues in operations management literature during the 1980s and 1990s (e.g. Stalk, 1988; Stalk and Holt, 1990; Womack et al., 1991; The Toyota Production System, 1995). Stalk (1988) describes how time has become one of the most important sources of competitive advantage in manufacturing industries. He describes the background for Japans secret weapon (Womack et al., 1991) or lean thinking (Womack and Jones, 1996) by illustrating how the competitive advantage of Japanese manufacturing industry evolved from low labor coststhrough scale-based strategy, focused factory and flexible manufacturingto time-based competitive advantage. According to Fisher (1997), the first step in devising an effective supply chain is to consider the nature of the demand for the products. If products are classified on the basis of their demand patterns, they fall into one of two categories: primarily functional

or primarily innovative. Each category requires a distinctly different kind of supply chain. Fisher argues that with their high profit margins and volatile demand, innovative products require a fundamentally different supply chain than stable, low-margin functional products. Two distinct types of functions performed by a supply chain should be recognized: a physical function and a market mediation function. A supply chains physical function is readily apparent and includes converting raw materials into parts, components, and eventually finished goods, and transporting all of them from one point in the supply chain to the next. Less visible but equally important is market mediation (demand knowledge), the purpose of which is to ensure that the variety of products reaching the marketplace matches what consumers need. The first step in designing a responsive supply chain is to accept that uncertainty is inherent in innovative products. Uncertainty can be avoided by cutting lead-times and increasing the supply chains flexibility so that it can produce to order or at least assemble the product at a time closer to when demand materializes and can be accurately forecast. The company can Hedge against the remaining uncertainty with buffer of inventory or excess capacity (Fisher, 1997). Texts on supply chain structure typically suggest that great benefits could be achieved by co-operation between the customer and the supplier and giving the supplier access to the customers real demand data. However, as Lee et al. (1997b) state, a different problem is under what conditions the customer would be willing to co-operate with the supplier, to give access to real demand data and to co-ordinate its ordering policies for the benefit of the supplier. the supply chains are characterized by inter-firm specialization such that individual firms engage in a narrow range of activities that are embedded in a complex chain of inputoutput relations with other firms. Productivity gains in the supply chains are possible when firms are willing to make transaction or relation-specific investments (Williamson, 1985; Perry, 1989). Recent empirical work confirms that investments in relation-specific assets are often correlated with better performance compared to more arms-length relationships (Parkhe, 1993; Dyer, 1996a). Recent SCM and relationship marketing research has attempted to increase understanding of the conditions for winwin partnerships, i.e. customersupplier relationships in which close long-term co-operation simultaneously increases the value produced by the demand chain and decreases the overall cost of the chain. Several researchers have come to the conclusion that companies need to divide their customersupplier relationships into classes along the continuum from arms-length relationships to true partnerships

(Moody, 1993; Vollmann et al., 1995; Lambert et al., 1996; Cooper et al., 1997; Friis Olsen and Ellram, 1997; Bensaou, 1999). While true strategic partnerships create new value, they are costly to develop, nurture and maintain. Also, they are risky given the specialized investments they require (Cooper et al., 1997; Bensaou, 1999). The number of real partnerships a company can build and maintain is limited. Therefore, partnership type of relationships cannot be expected to be built with a large number of customers or suppliers, and focusing the resources on building the right relationships requires careful planning and decision-making.

|Companies have relentlessly restructured and redesigned to increase organizational effectiveness and satisfy customers (Magnan et al, 2002) The terminology supply chain management is used frequently in todays material management environment. SCM is generally associated with advance information technologies, rapid and responsive logistic service, effective supplier management, and increasingly with customer relationship management.
A product is delivered to the end customer via a supply chain of firms, which consists of suppliers, manufacturers, and distributors. Supply chain management involves the strategic process of coordination of firms within the supply chain to competitively deliver a product or service to the ultimate customer.
SCM is based on the concept that integration across business operations is essential to customer satisfaction, value creation, exceptional returns, and long-run competitive advantage. The term SCM is deficient in that it overlooks the base concept (Bechtel and Jayaram, 1997); supply chain seems to indicate that supply activities initiate and propel the process. The marketing concept should be at the core of SCM because customer satisfaction should be the supply chains ultimate priority and organizing mechanism (Bovet and Sheffi, 1998). Current paradigms regarding SCM depict it as a set of processes that are administered collectively with the goal of achieving the best overall system for adding value. These new approaches place the customer as the starting point and the endpoint, providing the target for system creation (Bechtel and Jayaram, 1997). In other words, the key processes internal to and between firms must be managed as a whole with the customer as the focal point. Leading edge SCM firms such as Xerox have incorporated customer satisfaction elements into their measurement of all interfunctional and inter-company processes (Hewitt, 1994). Precise, real time information concerning material inventories is essential to manufacturing firms if they are to meet customer demand at a low cost. Usually an inventory control section verifies the quantity, identification, and quality of the items received, data entry, location assignments in the warehouse, picking activity, and on-hand amounts.

Inventory control must coordinate well with purchasing, warehousing, manufacturing, finance, and other areas to maintain the integrity of the inventory while minimizing overall expense. This coordination is necessary to insure sensible decisions concerning purchase lot sizes, delivery timings, and stock levels, which in turn will promote on-time production, efficient shipping of finished goods, and customer satisfaction. Spanning capabilities enable the outside-in and inside-out processes to provide superior value to customers by providing the resources and information required; in this way they indirectly support higher levels of customer satisfaction and organizational performance. SC also directly enhances customer satisfaction and organizational performance by furnishing critical coordination of activities across the supply chain. (Tracy et al, 2005).

To a world class organisation, a happy and satisfied customer is of the utmost importance. In a modern supply chain customers can reside next door or across the globe, and in either case they must be well served. Without a contented customer, the supply chain strategy cannot be deemed effective. Lee and Billington (1992) and van Hoek et al. (2001) emphasised that to assess supply chain performance, supply chain metrics must centre on customer satisfaction. To bring about improved performance in a supply chain and move closer to attainment of the illusive goal of supply chain optimization, performance measurement and improvement studies must be done throughout the supply chain. All participants in the supply chain should be involved and committed to common goals, such as customer satisfaction throughout the supply chain and enhanced competitiveness. (patel et al, 2003). Customer satisfaction reflects not only delivered quality but also intangibles such as value and customer expectations and is operationalised as frequency of customer complaints, the systems for tracking them and the priority given to solving them (Choi and Eboch, 1998).

Customer relationship: Comprises the entire arrayof practices that are employed for the purpose of managing customer complaints, building long-term relationships with customers, and improving customer satisfaction [42,16]. Noble [45] and Tan et al. [16] consider customer relationship management as an important component of SCM practices. As pointed out byDay [43], committed relationships are the most sustainable advantage because of their inherent barriers to competition. The growth of mass customization and personalized service is leading to an era in which relationship management with customers is becoming crucial for corporate survival [46]. Good relationships with supplychain members, including customers, are needed for successful implementation of SCM programs. Close customer relationship allows an organization to differentiate its product from competitors, sustain customer

loyalty, and dramatically extend the value it provides to its customers [44]. (1) Determination of future customer expectations. (2) Determination of key factors for building and maintaining customer relationships. (3) Enhancement of customers' ability to seek assistance. (4) Evaluation of formal and informal complaints. (5) Follow-up with customers for quality/service feedback. (6) Interaction with customers to set reliability, responsiveness, and other standards. (7) Measurement and evaluation of customer satisfaction factors (Tan et al, 1999)

With respect to the relationship between customer service and financial performance, there is a growing stream of research that has attempted to link service quality, a service system construct similar in nature to customer service, with financial performance. Superior service quality should help to generate greater revenue and yield greater profitability (see e.g., Rust et al., 1995). Although several studies have positively linked service quality with customer satisfaction (Crosby et al., 1990; Innis and La Londe, 1994, Leuthesser and Kohli, 1995) and satisfaction with financial performance (Fornell, 1992; Anderson et al., 1994; Fornell et al., 1996; Ittner and Larcker, 1996), few studies have demonstrated that customer service directly affects financial performance. One notable exception is Chang and Chen (1998) who found a relationship between service quality and a subjective measure of profitability. (vikery et al, 2003) Frolich and Westbrook (2001) found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability, but this was not the case for ROI, a key measure of financial performance. There is also mixed support in the literature for a direct relationship between certain items that are similar or identical to items comprising our integration construct and business performance. For example, Powell (1995) found that closeness to suppliers (an item similar to supplier partnering in our integration construct), but not closeness to customers (an item identical to closer customer relationships in our integration construct) was positively related to business performance. In contrast, Tan et al. (1998) found that taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships were both highly correlated with firm performance. In addition, Carr and Pearson (1999) showed that cooperative buyersupplier relationships positively impact financial performance. Finally, Johnson (1999) demonstrated that strategic (upstream) integration resulted in enhanced firm performance (in terms of sales, market share, and growth). In the studies cited above, support exists for a direct link from supply chain integration and/or certain upstream or downstream elements of an integrated supply chain strategy to firm performance. However, most of these studies employed simple correlation-type analyses, and of those that tested more holistic models of integration and overall firm performance using structural equations modeling (SEM) (e.g., Johnson,

1999), none incorporated an analysis of both direct and indirect effects. Thus, the issue of whether the relationship is a direct one versus indirect (or both direct and indirect) has not been considered. From a theoretical standpoint, the structures and practices comprising our supply chain integration construct are visible to customers, directly affect them, and/or significantly shape the service a firm provides to its customers. Thus, we contend that supply chain integration affects financial performance through customer service, with no direct effect of supply chain integration on financial performance (i.e., supply chain integration only indirectly affects financial performance). We believe that the literature lacks a holistic theoretical framework that explicitly incorporates direct and indirect effects: direct versus indirect effects were neither proposed nor tested. Thus, we will address this important issue of direct versus indirect effects straightforwardly by also hypothesizing and then testing for a direct positive link between supply chain integration and financial performance: Holmstrm (1994, 1995) has empirically studied the efficiency potential of speed in operations. His main results are empirical indications of a strong positive correlation between speed and efficiency in manufacturing and that a focus on speed of operations helps expose and remove self-induced sources of uncertainty. He claims that the main contributor to uncertainty in slow operations is distorted communication in the activity system. Based on his findings of
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a speed threshold he suggests that inventory commitment needs to be reduced to a point where demand distortion is diminished and a synchronization of production with demand is possible in order to improve performance by speeding up operations (Heikkila, 2002) The concept of supply chain management (SCM), according to Thomas and Griffin (1996) represents the most advanced state in the evolutionary development of purchasing, procurement and other supply chain activities. At the operational level, this brings together functions that are as old as commerce itselfseeking goods, buying them, storing them and distributing them. At the strategic level, SCM is a relatively new and rapidly expanding discipline that is transforming the way that manufacturing and non-manufacturing operations meet the needs of their customers. (Patel et al, 2004) To meet objectives, the output of the processes enabled by the supply chain must be measured and compared with a set of standards. In order to be controlled, the process parameter values need to be kept within a set limit and remain relatively constant. This will allow comparison of planned and actualparame ter values, and once done, the parameter values can be influenced through certain reactive measures in order to improve the

performance or re-align the monitored value to the defined value. For example, an analysis of the layout of facilities could reveal the cause of long distribution time, high transportation and movement costs and inventory accumulation. Using suitable approaches like re-engineering facilities, problems can be tackled and close monitoring and subsequent improvements can be possible from analysis of the new design. Thus, control of processes in a supply chain is crucial in improving performance and can be achieved, at least in part, through measurement. Well-defined and controlled processes are essential to better SCM. Patel et al, 20014)

Many firms look to continuous improvement as a toolto enhance their core competitiveness using SCM. Many companies have not succeeded in maximizing their supply chains potential because they have often failed to develop the performance measures and metrics needed to fully integrate their supply chain to maximize effectiveness and efficiency. Lee and Billington (1992) observed that the discrete sites in a supply chain do not maximize efficiency if each pursues goals independently. They point to incomplete performance measures existing among industries for assessment of the entire supply chain. Measurements should be understandable by all supply chain members and should offer minimum opportunity for manipulation (Schroeder et al., 1986). Performance studies and models should be created so that organisational goals and achievement of those goals can be measured, thus allowing the effectiveness of the strategy or techniques employed to be accessed. Most companies realise the importance of financialand non-financialperfor mance measures, however they have failed to represent them in a balanced framework. According to Kaplan and Norton (1992), while some companies and researchers have concentrated on financialperformance measures, others have concentrated on operationalmeasures. Such an inequality does not lead to metrics that can present a clear picture of organisationalperfor mance. For a balanced approach, Maskell (1991) suggests that companies should understand that, while financial performance measurements are important for strategic decisions and externalreport ing, day to day controlof manufacturing and distribution operations is often handled better with non-financial measures. (patel et al, 2004)
Organizations seek competitive capabilities that enable them to exceed customers expectations and enhance market and financial performance (Hayes and Pisano, 1994; Lado et al., 1992). Despite the importance of certain supply chain activities (e.g. transportation and warehousing) in cost containment, supply chain management (SCM) was long overlooked as a potential area for achieving sustainable competitive advantage (Coyle, 1990; Fawcett and Clinton,

1997; Ploos van Amstel and Starreveld, 1993). Recently, however, SCM has seen its role shift from an emphasis on passive cost control, to a proactive role in shaping competitiveness and profitability (Holcomb, 1994). Top managers have recognized that building effective supply chains offers opportunities to create sustainable competitive advantage (Cooper et al., 1997; Higginson and Alam, 1997). The advantages are significant because they impact key competitive dimensions such as product availability, order to delivery cycle time, costs, and customer service. The advantages are sustainable because success requires the merging of diverse and sometimes conflicting groups within the organization and between organizations to achieve common goals. (Tracey et al, 29005)

Strategic supplier partnership: Is defined as the longterm relationship between the organization and its suppliers. It is designed to leverage the strategic and operational capabilities of individual participating organizations to help them achieve significant ongoing benefits [26,38,40,41,45]. A strategic partnership emphasize direct, long-term association and encourage mutual planning and problem solving efforts [39]. Such strategic partnerships are entered into to promote shared benefits among the parties and ongoing participation in one or more keystrate gic areas such as technology, products, and markets [70]. Strategic partnerships with suppliers enable organizations to work more effectivelywith a few important suppliers who are willing to share responsibilityfor the success of the products. Suppliers participating earlyin the product-design process can offer more costeffective design choices, help select the best components and technologies, and help in design assessment [4]. Strategicallyaligned organizations can work closelytogether and eliminate wasteful time and effort [38]. An effective supplier partnership can be a critical component of a leading edge supplychain [45]. Rao et al (2006)
Level of information sharing: Information sharing has two aspects: quantityand quality. Both aspects are important for the practices of SCM and have been treated as independent constructs in the past SCM studies [2,40]. Level (quantityaspect) of information sharing refers to the extent to which critical and proprietaryinformation is communicated to ones supplychain partner [40]. Shared information can varyfrom strategic to tactical in nature and from information about logistics activities to general market and customer information [48]. Manyresearchers have suggested that the keyto the seamless supplychain is making available undistorted and up-to-date marketing data at everynode within the supplychain [1,38,51,71]. Bytaking the data available

and sharing it with other parties within the supplychain, information can be used as a source of competitive advantage [9,49]. Lalonde [47] considers sharing of information as one of five building blocks that characterize a solid supplychain relationship. According to Stein and Sweat [50], supplychain partners who exchange information regularly are able to work as a single entity. Together, they can understand the needs of the end customer better and hence can respond to market change quicker. Moreover, Tompkins and Ang [72] consider the effective use of relevant and timely information byall functional elements within the supply chain as a keycompetiti ve and distinguishing factor. The empirical findings of Childhouse and Towill [1] reveal that simplified material flow, including streamlining and making highlyvisible all information flow throughout the chain, is the keyto an integrated and effective supplychain. Quality of information sharing includes such aspects as the accuracy, timeliness, adequacy, and credibility of information exchanged [2,40]. While information sharing is important, the significance of its impact on SCM depends on what information is shared, when and how it is shared, and with whom [53,54]. Literature is replete with example of the dysfunctional effects of inaccurate/delayed information, as information moves along the supplychain [5659]. Divergent interests and opportunistic behavior of supplychain partners, and informational asymmetries across supply chain affect the qualityof information [6]. It has been suggested that organizations will deliberatelydistort information that can potentiallyreach not onlytheir competitors, but also their own suppliers and customers [57]. It appears that there is a builtin reluctance within organizations to give awaymore than minimal information [52] since information disclosure is perceived as a loss of power. Given these predispositions, ensuring the qualityof the shared information becomes a critical aspect of effective SCM [6]. Organizations need to view their information as a strategic asset and ensure that it flows with minimum delayand distortion.
Prior studies have indicated that the various components of SCM practices (such as strategic supplier partnership) have an impact on various aspects of competitive advantage (such as price/cost). For example, strategic supplier partnership can improve supplier performance, reduce time to market [94], and increase the level of customer responsiveness and satisfaction [3]. Information sharing leads to high levels of supplychain integration [55] by enabling organizations to make dependable deliveryand introduce products to the market quickly. Information sharing and information qualitycontrib ute positivelyto customer satisfaction [95] and partnership quality [96,97].

A firms ability to successfully form, nurture, and manage supply chain partnerships thus becomes a key factor that influences the gap between

outstanding and mediocre performance (Spekman et al., 1998). Kumar 2006 Consequently, partnerships between organizations in the supply chain has been strongly recommended by many academics and practitioners alike. Supply chain partnerships are living systems which evolve progressively in their possibilities (Kanter, 1994; Chelsom, 1998). Typically, a company forming a partnership with its suppliers and/or customers forces a change in relationships, expectations, and job descriptions. Partnership is only a means of organizing for inter-firm collaboration; it does not assure that the performance objectives for building partnerships, such as operational excellence, can be automatically realized. The departments and functions in partnering companies need to work with each other in evaluating inventories, systems, processes, new technologies, training, work methodologies, equipment utilization, and a host of other opportunities to reduce the cost of operations and explore opportunities for the partnership.

Partner organizations, after having come to know each other well enough and having established partnership assets, can considerably amplify the gains by using the partnering infrastructure to exploit innovative ideas not in the scope of the initial partnership agenda. The collaborative ties between the manufacturers and other upstream and downstream members of the supply chain became a means of attaining competitive advantage. Supply chain partnerships are resource-intensive investments, which involve both financial and strategic risks. Commitment in these relationships tends to be higher; the partners tend to develop joint activities in many functions; operations often overlap; and the relationship causes substantial changes in each partners organization. We define supply chain partnerships as a strategic coalition of two or more firms in a supply chain to facilitate joint effort and collaboration in one or more core value creating activities such as research, product development, manufacturing, marketing, sales, and distribution, with the objective of increasing benefits to all partners by reducing total cost of acquisition, possession, and disposal of goods and services. Forming and managing supply chain partnerships is an example of complex

organizational innovation and change management. Partnering firms not only adopt newer and innovative ways of working, but also embrace the various changes in organizational norms, skill-sets, infrastructure and strategy to make those new ways work. a partnership that gives competitive advantage today may not do so tomorrow when competitors catch up, and maintaining the formerly successful partnership may become an added cost of doing business. Second, success is often judged relative to the organizations unique goals for the partnership. Two organizations with identical improvements in inventory carrying costs can be judged successful in different ways if the first organizations goals were to improve only its inventory carrying costs (more successful than expected), and the second organizations were to achieve an increase in market share (less successful than expected). Determination of partnership feasibility is based upon factors such as the level of trust that can exist between partners (whichdetermines whether the partnership would be feasible;, e.g. reputation, mutual goals, two way information sharing, social bonds, and interdependence). A fit in political, cultural, organizational and human aspects of the partnering organizations make a partnership feasible and drive its potential economic gains. Characteristics of partnering firms such as adaptability to change and innovativeness are important for the success of the partnership, given that a number of changes are associated with partnering feasibility. Alignment of strategic goals and expectations of the individual partners from the partnership is another key factor which could determine the feasibility of the partnership (Cullen et al., 2000). Many companies struggle when implementing

partnerships because they do not pay enough attention to change management and people issues (Christopher and Juttner, 2000). Providing leadership. Leadership commitment to the supply chain partnership process is essential for orchestrate the changes introduced by partnerships. Strong leadership can influence the mindset of employees towards a partnership, and thus play a key role in orchestrating change. A strong leader has the ability to close the gaps in partnerships despite internal skeptics and external difficulties. If leadership is lacking, even a good partnership will fail on important issues such as contract management and scheduling. The result is that the firm would not realize the full potential of the benefits of partnership. Managing asymmetry. Asymmetries often occur in partnerships during formation and/or during the lifecycle due to differences in partner benefits, risks, power, information, and culture. Asymmetries, if not managed properly, can aggravate the dissatisfaction of partners and the demise of trust in the relationship. Subramani and Venkatraman (2003) recommend safeguarding against asymmetries, especially in vertically oriented supply chain partnerships where buying or supplying firms are vulnerable to exercise of power by the more powerful partner. Building partnering skills. As opposed to the traditional purchasing skill-set of product knowledge, tactical negotiation, and brinkmanship, which were key to success for the traditional arms-length contractual arrangement model for buyer supplier relationships, much wider skills may be required for managing partnerships in supply chains. Training employees in order to hone some of the key partnering skills is an important way for orchestrating change. Firms could enhance the partnership performance by training people for effective teamwork, better use of information, enhancing social skills, interdependent planning, and problem solving.

Managing conflicts. Managing conflicts is an uphill task, given that partnerships do not have traditional means to rely on, such as hierarchies in vertical relationships and exit options in markets. Conflicts yield a test of the strength of mutual benevolence and the dedication to work things out mutually in partnerships. Mutual adjustment and organizational justice are the most applicable means by which partnerships can develop conflict management procedures. Fairness in relationships or organizational justice theory can also be useful for guiding conflict management. Managing performance. Partnerships lead to greater interdependence between partners and this, in turn, extends the requirements for monitoring and managing performance for mutual benefits. However, developing and implementing a performance management system is a significant challenge given the constitution of a partnership, which represents two or more independent organizations. It is hard to formulate measures that would be sufficient for all the concerns of partnering organizations. Complexity is also due to the need for metrics to address different dimensions (financial, technical, human) and different points of time in the partnership lifecycle (i.e. implementation, early operation, etc.). Partnering organizations can use a multiple criterion method such as the balanced scorecard which allows the managers to create a balance of strategic measures oriented towards partnership objectives. Continued relevance. Inkpen and Ross (2001) point out that excessive persistence with poorly performing partnerships often proves costly for all the partners. Given the complexity in partnership management, managers are often not able to monitor the continued relevance of the partnership. High termination costs and the emotional involvement of top executives may serve as exit barriers. On the other hand, firms may

realize high returns by extending the use of relationship assets by advancing partnership goals and objectives beyond their initial goals and objectives. It is therefore important that the relevance and value proposition of partnerships is continuously monitored and improved. Building on partnership experience. The task of managing partnerships is difficult and there are added complexities when it is done on a global basis. However, managers can incorporate learning from the partnership experience to improve its performance. Once partnerships have been established and normal operations are achieved, partners can use the experience gathered in working together to continuously improve the compatibility of their objectives and cultures. This calls for the leadership of all the partners to initiate strategic action and program changes that lead to increased synergies in partnering objectives. Cultural compatibility increases as communication and interaction between partnering organizations improves through leadership action towards increasing synergies. Promoting joint programs such as training that allows partner employees to interact and learn in non-work settings can also systematically induce a cultural fit. The partnership experience can also be used to improve the integration and effectiveness of processes. Researchers have long articulated the need for a close, integrated relationship between manufacturers and their supply chain partners (e.g., Lambert et al., 1978; Armistead and Mapes, 1993). However, only recently has there been a call for a systematic approach to supply chain integration (SCI), as increasingly global competition has caused organizations to rethink the need for cooperative, mutually beneficial supply chain partnerships (Lambert and Cooper, 2000; Wisner and Tan, 2000) and the joint improvement of inter-organizational processes has become a high priority (Zhao et al., 2008). we highlight the importance of strategic collaboration, which is an ongoing partnership to achieve mutually beneficial strategic goals.

It engenders mutual trust, increases contract duration and encourages efficient conflict resolution and sharing of information, rewards and risks (Ellram, 1990; Heide and John, 1990; Poirier and Reiter, 1996). While operational coordination can only lead to operational benefits, strategic coordination provides both operational and strategic benefits (Sanders, 2008). This definition also emphasizes intra- and inter-organization processes, since SCI is comprehensive and encompasses a variety of activities, including many that are focused on materials, transportation and administrative tasks (Bowersox and Morash, 1989; Hillebrand and Biemans, 2003). Finally, we emphasize the customer-facing nature of SCI, stating that its primary objective is to provide maximum value for the customer (Zhao et al 2009) While some authors investigated SCI as a unidimensional construct (Armistead and Mapes, 1993; Marquez et al., 2004; Rosenzweig et al., 2003), others have broken SCI into internal and external integration (Campbell and Sankaranl, 2005; Morash and Clinton, 1998; OLeary-Kelly and Flores, 2002; Pagell, 2004; Petersen et al., 2005; Ragatz et al., 2002; Stank et al., 2001b; Stanley and Wisner, 2001; Zailani and Rajagopal, 2005), and some have taken an even broader perspective, including multiple dimensions (Droge et al., 2004; Gimenez and Ventura, 2005; Koufteros et al., 2005; Narasimhan and Kim, 2002; Stank et al., 2001a; Vickery et al., 2003). While each of these dimensions represents an important aspect of SCI, there is a great deal of overlap between them,making it difficult to untangle their relationships. We argue that the diverse dimensions of SCI can ultimately be collapsed into three dimensions: customer, supplier and internal integration. Customer and supplier integration are commonly referred to as external integration, which is the degree to which a manufacturer partners with its external partners to structure inter-organizational strategies, practices and processes into collaborative, synchronized processes (Stank et al., 2001b). Customer integration involves core competencies derived from coordination with critical customers, whereas supplier integration involves core competencies related to coordination with critical suppliers (Bowersox et al., 1999). In contrast, internal integration focuses on activities within a manufacturer. It is 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 (Cespedes, 1996;

Kahn and Mentzer, 1996; Kingman-Brundage et al., 1995) and efficiently interact with its suppliers. Internal integration and external integration play different roles in the context of SCI. While internal integration recognizes that the departments and functions within a manufacturer should function as part of an integrated process, external integration recognizes the importance of establishing close, interactive relationships with customers and suppliers. Both perspectives are important in allowing supply chain members to act in a concerted way, to maximize the value of the supply chain A close relationship between customers and the manufacturer offers opportunities for improving the accuracy of demand information, which reduces the manufacturers product design and production planning time and inventory obsolescence, allowing it to be more responsive to customer needs. Because customer integration generates opportunities for leveraging the intelligence embedded in collaborative processes, it enables manufacturers to reduce costs, create greater value and detect demand changes more quickly. Customer integration has been found to be related to customer satisfaction, both directly (Homburg and Stock, 2004) and indirectly, through its relationship to product development and innovation (Koufteros et al., 2005; Song and Di Benedetto, 2008). In an integrated supply chain, development of a strong strategic partnership with suppliers will facilitate their understanding and anticipation of the manufacturers needs, in order to better meet its changing requirements. This mutual exchange of information about products, processes, schedules and capabilities helps manufacturers develop their production plans and produce goods on time, improving delivery performance. By developing a good understanding of the manufacturers operations, suppliers achieve a high level of customer service, which, in turn, helps the manufacturers improve their customer service. Supplier integration has been found to be related to product development performance (Petersen et al., 2005; Koufteros et al., 2007; Ragatz et al., 2002) and supplier communications performance (Cousins and Menguc, 2006). Others, however, have found no relationship between supplier integration and operational performance (Stank et al., 2001b) or a negative relationship (Koufteros et al., 2005; Stank et al., 2001a; Swink et al., 2007).

By developing a good understanding of the manufacturers operations, suppliers achieve a high level of customer service, which, in turn, helps the manufacturers improve their customer service. Supplier integration has been found to be related to product development performance (Petersen et al., 2005; Koufteros et al., 2007; Ragatz et al., 2002) and supplier communications performance (Cousins and Menguc, 2006). Others, however, have found no relationship between supplier integration and operational performance (Stank et al., 2001b) or a negative relationship (Koufteros et al., 2005; Stank et al., 2001a; Swink et al., 2007). internal integration was directly related to both business and operational performance and that customer integration was directly related to operational performance. Although supplier integration was not directly related to either type of performance, the interaction of supplier and customer integration was related to operational performance. When we compare our results with those from previous research on SCI, our finding that internal integration was significantly related to operational and business performance is consistent with several studies (Droge et al., 2004; Stank et al., 2001a,b; Germain and Iyer, 2006). Thus, our research reinforces the importance of internal integration in improving performance. Our finding that supplier integration is not directly related to operational performance is supported by Stank et al. (2001a). In general, the literature on the relationship of supplier integration with performance has very mixed findings. While some studies (Koufteros et al., 2005; Swink et al., 2007) found that supplier integration was negatively related to certain aspects of operational performance, Devaraj et al. (2007) found a positive relationship between supplier integration and operational performance.
Outsourcing involves the procurement of physical and/or service inputs from outside organizations either through cessation of an activity that was previously performed internally or abstention from an activity that is well within the capability of the firm (Barrar and Gervais, 2006). Outsourcing continues to be a significant management concern and topic of academic research (Baker and Hubbard, 2002; Benn and Pearcy, 2002; Chan and Chan, 2004; Chow et al., 1995; Fisher et al., 2008; Howells et al., 2008; McIvor, 2005; Mol, 2007; Rieple and Helm, 2008; Stank and Daugherty, 1997). It affects manufacturing

and service technologies alike. Management practices such as sub-contracting, as well as the outsourcing of business processes such as human resources and customer call centers, have been employed for decades (Davis and Spekman, 2004). Presently, the politically charged topic of offshoring is evidence that outsourcing is increasingly extending across international borders and is as relevant today as in the past. Moreover, the flow of capital that results from such offshoring can affect not only the economies of nations worldwide, but can affect the political environment of these nations as well. Thus, understanding what drives outsourcing decisions is an important and worthwhile undertaking. OZCAN et al, 2010 The automotive industry focus is unique because of the high volume of parts transported and the variation in the size of these parts. The automotive industry supply chain handles not only mundane small parts like screws and fasteners; but it must also handle large and valuable cockpit modules, door assemblies, and transmissions that must arrive in a prescribed production sequence. The automotive industry is also a leading practitioner of the lean principles pioneered by Toyota (Liker, 2004; Womack and Jones, 1996; Womack et al., 1990), including just-in-time shipments, small batch sizes, and low inventories. Firms face intense competitive pressures due to factors like technological change and globalisation. In response to these concerns, companies, both large and small, are increasingly outsourcing their activities by shifting what they traditionally handled in-house to external suppliers. KOTABI AND MOL, 2009 In recent years, resource-based arguments have been added to the explanation of outsourcing (Barney, 1999; Leiblein et al., 2002; Marshall et al., 2007) as have real options (Leiblein, 2003), agency (Holmstrom and Roberts, 1998) and industrial organisation arguments (Shy and Stenbacka, 2005). Thus a fairly good understanding has emerged as to what drives the decision to outsource, or integrate, a specific activity. Yet in the empirical reality we observe that firms outsource some but not all of their activities. Any value chain needed to produce products for a customer can be seen as a bundle of activities governed by a nexus of treaties and these activities are performed either internally or externally (Aoki et al., 1990; Williamson, 1995). So for every individual activity a governance choice must be made (make or buy) and the sum of all governance choices determines a firms overall level of outsourcing, which will differ for every individual firm. Because there are substantial differences among the various activities that form part of a value chain, most analyses of make- or-buy decisions have concentrated on a limited set of activities, for instance, manufacturing (Leiblein et al., 2002), services (Murray and Kotabe, 1999), information technology (Poppo and Zenger, 1998) or retail activities (Kaipia and

Tanskanen, 2003). Extant literature has provided much insight into what determines whether firms integrate (make) or outsource (buy) a particular activity. The outsourcing literature has started to integrate RBV, knowledge and competence considerations in outsourcing deci- sions (Barney, 1999; Leiblein et al., 2002; Poppo and Zenger, 1998) in addition to transaction cost reasoning. From an industry structure and positioning perspective (Porter, 1985), outsourcing is an approach particularly suitable for cost minimisation strategies given its ability to reduce production and procurement costs. The link from outsourcing to performance is less well developed empirically (Gilley and Rasheed, 2000; Masten, 1993). Recent normative literature (Domberger, 1998; Quinn, 1999) and managerial practice, where outsourcing has been one of the buzzwords (Porter, 1997), suggest that outsourcing is one of the key sources for increasing a firms performance. Various arguments have been provided for such a positive relationship. Because outsourcing makes a firm more nimble, it allows firms to increasingly focus on its core activities (Domber- ger, 1998; Quinn, 1999). Outsourcing also lowers production costs because specialised suppliers are used (Hendry, 1995; Kotabe, 1998) and it increases a firms strategic flexibility to deal with technological or volume fluctuations (Balakrishnan and Werner- felt, 1986; Semlinger, 1993). Outsourcing helps to avoid the costs associated with bureaucracy typically associated with production inside the firm (DAveni and Ravenscraft, 1994; Jensen and Meckling, 1976). Finally, outsourcing opens up the possibility of obtaining rent from relations with suppliers (Dyer and Singh, 1998; Linder, 2004). Outsourcing can lead to hollowing out and an accompanying loss of competitive distinc- tion (Bettis et al., 1992; Chesbrough and Teece, 1996), a danger especially eminent in industries where little value is added by integration and assembly (Brusoni et al., 2001). Outsourcing increases transaction costs (Williamson, 1975) in subtle, not so visible ways (Masten, 1993), due to the difficulty of monitoring behaviour of external suppliers and the related threat of opportunism. Related, outsourcing raises co-ordination costs because all these external supplier relations will have to be managed and it can make learning and innovation more difficult because of the difficulties of appropriating innovative rents from suppliers (Hendry, 1995; Nooteboom, 1999). Earlier we noted that activities vary in the extent towhich they are suitable candidates for outsourcing. We will apply the term outsourceability, to capturethedegreetowhichitmakessensefor a firmtooutsourceagivenactivitytoimproveperformance.In otherwords,anactivitysoutsourceabilityreflectstherelative merits, inperformanceterms,ofoutsourcingversusintegrating that activitygiventhecharacteristicsoftheactivity(transaction), the firm,itsindustryanditsinstitutionalenvironment.Ifan activityscoreshighonoutsourceability,thatactivityisbest outsourcedfromaperformanceperspective.Onthecontrary,ifit scoreslow,itisbestintegratedintothefirm.Intuitively,few wouldarguethattheoutsourceabilityofaCEOishigh,whichis whywedonotseeCEOsbeingoutsourced.Likewise,the construction

ofofficespacebyanorganisation(thatisnotitself a constructioncompany)willscorehighonoutsourceabilityand IBM indeeddoesnotbuilditsownoffices. Strategicmanagementresearchconsidersmarketuncertainty to beanimportantfactoraffectingmajorstrategicdecisions,such as thedecisiontoverticallyintegrate(Porter,1980; Williamson, 1975). Theroleofuncertaintyinoutsourcing,especiallyinTECis contestedterrain(Williamson, 1995), withsomearguingfora positiveeffect,othersforanegativeeffectoronlyamoderated effect. Forinstance,usingperceptiondata Gilley andRasheed (2000) found thatfirmsinlessdynamicenvironmentscould increaseperformancethroughoutsourcing.And Leiblein etal. (2002) find thatuncertaintyarisingfromchangesinmarket demand ispositivelyrelatedtobuy(outsourcing)levels. The necessity to maintain competitiveness has led to many firms outsourcing manufacturing abroad to take advantage of lower labor costs, proximity to raw materials, and new markets (Phusavat and Kanchana, 2008). McLEAN et al 2010

Outsourcing is generally conceived of as a decision by the firm to make a service/product internally or to purchase them externally. In so doing, however, it is often taken as a starting point that the function to be outsourced or not is not yet being conducted or, at the very least, is not being performed using an existing resource base including physical assets and human capital whose expenditures (in investment or development) have already been sunk.3 While considering outsourcing as if no key resources already exist allows one to highlight many of the advantages and disadvantages of outsourcing, it also may disguise other important strategic issues. In particular, firms must consider the value of existing resources that may be part of the bundle of property rights to be outsourced. Fontaney and Gans, 2007 managers need to consider some important trade-offs when deciding how to outsource. The key trade-off we identify is as follows: If firms outsource to an independent entity, they create additional competition for the supply of inputs to them. However, the value of the productive assets to an independent firm is simply what they earn in competition. In contrast, when outsourcing to an established firm, additional competition is not created but there is implicit consolidation as more assets are controlled by a single firm. That consolidation is valuable to the established firm akin to the difference between monopoly and competitive profits and so will increase amount paid for the assets in the resulting acquisition.7 However, it also represents a longer-term issue for the outsourcing firm who will likely pay more to procure inputs. Many academics and consultancy firms seem to support the view of outsourcing as one of the key drivers of superior performance. Outsourcing strategy is part and parcel of the value chain of corporate activities. Outsourcing strategy not only affects but is also affected by the other aspects of the firm's supply chain. Levy (2005) has asserted that the core driver of the latest formof global

outsourcing is the increasing organizational and technological capacity of firms in decoupling and coordinating a network of remotely located external suppliers performing an intricate set of activities. MURRAY et al, 2008 Outsourcing can further be broken down into two types: on an arm's length or strategic partnership basis. Similarly, from a locational point of view, multinational companies can procure components and products either: (1) domestically (i.e., onshoring), or (2) from abroad (i.e., offshoring). Indeed, Gottfredson, Puryear, and Phillips (2005) found that about 50% of firms in their sample reported that their outsourcing programs fell short of expectations. Only 10% were highly satisfied with the cost savings, and 6% were highly satisfied with their offshore outsourcing overall. Similarly, Booz Allen Hamilton recently found that the success rate of outsourcing deals from the customer's perspective was only 12% (Fortune, April 3, 2006). Likewise, some researchers have even suggested that outsourcing may not be directly related to performance (Leiblein et al., 2002). The outsourcing strategy literature offers arguments both for and against outsourcing strategy. In essence, those who argue in favor of outsourcing strategy base their argument on the benefit of reduced coordination costs as a result of increased autonomous operations by firms in a network. This argument is based primarily on short-term benefits. On the other hand, those who argue against outsourcing strategy derive their view primarily from increased coordination costs as a result of the network firms' increased attempt to accomplish an optimal network performance. Their argument is based more on long-term benefits. The case for outsourcing Various arguments have been supplied to make the case for outsourcing. We briefly outline these arguments to explain why firms would want to outsource: 3.1.1. Strategic focus/reduction of assets Through outsourcing activities, a firm can reduce its level of asset investment in manufacturing and related areas. Therefore, stock markets usually react favorably to outsourcing since more or less similar absolute profit levels can be obtained with lower fixed investments (Domberger, 1998). Furthermore, outsourcing can help the management of a firm redirect its attention to its core competencies, instead of having to possess and keep updated a wide range of competencies. 3.1.2. Complementary capabilities/lower production costs External suppliers are often highly specialized in the production of components or products, allowing them to produce at lower costs than the outsourcing firm could due to

scale economies. Therefore, a firm can improve production cost levels by outsourcing non-core activities (Hendry, 1995; Quinn, 1999). Firms are increasingly relying on third-party specialists to help with administrative matters, thus avoiding the high cost of new technology, and allowing their own human resources professionals to focus on transforming their human capital into a real strategic advantage (Corbett, 2006). Indeed, Everest Research Institute's recent study found that human resources outsourcing arrangements increased by more than 40% in 2005 alone (Corbett, 2006). 3.1.3. Strategic flexibility Global outsourcing may increase the firm's strategic flexibility. By using outside sources, it is much easier to switch from one supplier to another (Harris, Giunipero, & Hult, 1998). If an external shock occurs, firms are better able to deal with it by simply increasing or decreasing the volumes obtained from an external supplier. If the same item were produced in-house (i.e., insourcing), there would not only be high restructuring costs, but also a much longer response time to external events. 3.1.4. Avoiding bureaucratic costs Rising production costs are associated with internal production (D'Aveni & Ravenscraft, 1994). More generally, there is a lack of a price mechanism and economic incentives inside a firm (Domberger, 1998). To the extent that such incentives are missing, firm efficiency will suffer as a consequence. 3.1.5. Relational rent In recent years, many researchers have argued that certain relationships with external suppliers can deliver competitive advantage (e.g., Dyer & Singh, 1998). By outsourcing items and then building idiosyncratic and valuable relationships with suppliers, firms may be able to innovate, learn, and reduce transaction costs. 3.2. The case against outsourcing Extant literature on outsourcing strategy has also highlighted the disadvantages of outsourcing strategy. 3.2.1. Interfaces/economies of scope Firms may benefit from internalizing production through scope economies (D'Aveni & Ravenscraft, 1994). Kotabe (1998) has suggested that manufacturing firms, in their outsourcing decisions, ought to reflect on the interfaces among R&D, manufacturing, and marketing. If there are important interfaces between activities, decoupling them into separate activities performed by separate suppliers will generate less than optimal results and potential integration problems. 3.2.2. Hollowing out Firms that excessively outsource activities are hollow out their competitive base (Kotabe, 1998). Once activities have been outsourced, it tends to become difficult to differentiate a firm's products on the basis of these activities. Furthermore, a

firm could lose bargaining power vis--vis its suppliers because the capabilities of the suppliers increase relative to those of the firm. 3.2.3. Opportunistic behavior External suppliers may behave opportunistically (Williamson, 1985) as their incentive structure varies widely from that of the outsourcing firms. Opportunistic behavior allows a supplier to extract more rents from the relationship than it would normally do, for example by supplying a lower than agreed-on product quality or withholding information on changes in production costs. 3.2.4. Rising transaction and coordination costs Hendry (1995) has emphasized the issue of the high coordination costs incurred due to excessive outsourcing. Firms are limited in their capacity to work with external suppliers as partners, and therefore have to prioritize external partners. If they simultaneously invest time in and pay attention to all external suppliers, this would induce very high coordination costs indeed. Rottman and Lacity (2006) recently concluded that U.S. customers micromanage their offshore suppliers to a much greater degree than they manage their domestic suppliers. They found that transaction costs for offshore projects neared 50% of contract value, compared to 5% to 10% for domestically outsourced projects. 3.2.5. Limited learning and innovation A form of learning that is deemed especially important for attaining tacit knowledge is learning-by-doing. External suppliers will acquire tacit knowledge by performing the activity, but in this case the outsourcing firm cannot appropriate all benefits. Appropriation of innovations and rents is always a problem in buyersupplier relationships (Nooteboom, 1999) because both parties will try to obtain as many private benefits as possible. Furthermore, it may become more difficult to innovate, given differing incentives and the subsequent lack of interfaces between firms. 3.2.6. Higher procurement costs due to fluctuating currency exchange rates During the Asian financial crisis, many foreign firms operating in Asian countries learned an invaluable lesson on the negative impact of fluctuating currency exchange rates on their procurement costs and profitability. MNCs operating in Asian countries tend to procure certain crucial components and equipment from the parent companies and other suppliers using global outsourcing. When Asian currencies depreciated precipitously, these MNCs' subsidiaries were faced with imported components and equipment whose prices had increased enormously in local (i.e., Asian) currencies. In other words, the more dispersed these MNCs' assets, capabilities, and activities are due to global outsourcing, the more difficult it is for them to manage wild currency exchange rate fluctuations,

and the higher the probability that they will suffer from increased procurement costs and lower profits (Kotabe, 2002). Proponents of outsourcing argue that firms which procure almost all of their activities internally will be so far removed from the market that their efficiency tends to suffer. In other words, if almost no outsourcing is undertaken, there will be no benchmark available that would permit a firm to judge how efficient its own activities are relative to the market. If outsourcing is undertaken, such a beacon exists. The less outsourcing, the more inefficient firms tend to be. Opponents of outsourcing particularly warn of the long-term detrimental effects of excessive outsourcing. Firms that become hollow or virtual lack a solid basis for competing, and can neither innovate enough nor learn much. The disadvantages of outsourcing are at their worst when firms outsource (almost) everything. Simply stated, too little outsourcing tends to result in internal bureaucratic and other non-market inefficiency, while too much outsourcing tends to result in external relational inefficiency and technological dependence. The current highly competitive environment can also be referred to as an outsourcing economy, which is characterized by an increased focus on core organizational activities and simultaneous leveraging of external resources, skill, knowledge, capabilities and competences. The increased competition in the outsourcing markets has caused a shift towards buyers' markets, enabling companies of all sizes in nearly all industries to capitalize on external sources of knowledge and capabilities. HATONEN and ERIKSSON, 2009