Organizational Structures and The Performance of Supply Chain Management

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Int. J. Production Economics 106 (2007) 323–345

www.elsevier.com/locate/ijpe
Organizational structures and the performance of

supply chain management
Soo Wook Kim
College of Business Administration, Seoul National University, San 56-1, Sillim-dong, Kwanak-gu, Seoul, Republic of Korea
Accepted 12 July 2006
Available online 26 September 2006
Abstract
The objective of this paper is to suggest a set of best organization structures for efficient supply chain management. For
this, this paper derives organization types for supply chain management according to the formalization and centralization
level of an independent department responsible for supply chain management (SCM) activities, and hierarchical
relationship in organizational position and operational responsibility between the SCM department and existing other
functional departments. And then, this paper identifies organizational characteristics, which have significant influences on
SCM performance by investigating the difference in performance across the proposed organization types.
From the results of empirical test, this paper finds that even though too excessive formalization and centralization of the
SCM department within a firm may interrupt complete SC integration and performance improvement, a certain range of
control by the SCM department is inevitable to build the fundamentals of integrated supply chain management, and thus
the temporary pursuit of intensive control focused organization type such as integrated line organization may be
considered depending on firm characteristics and environmental change. However, the empirical results further indicate
that in the long run, intermediate organization types such as Functional and Process Staff organization that the SCM
department maintains an adequate level of balance and harmony with other functional departments while it controls,
adjusts, and integrates various SCM activities effectively might be advisable. Yet, the study findings reveal that a more
dynamic and extensive approach in reaching the best organization type for SCM performance is necessary.
r 2006 Elsevier B.V. All rights reserved.
Keywords: Supply chain management; Organization type; Integrated line organization; Functional organization; Process staff
organization
1. Introduction hancement, efficient machine operations, and pro-

duction space reduction (Kaeli, 1990). In addition,
Integrated supply chain management enables firms can have a stronger market position and
firms to identify the efficient inventory level while greater customer satisfaction from better respon-
increasing inventory turnover by utilizing logistics siveness to customers (Gross, 1984; Kaltwasser,
database. Also, it increases logistics efficiency and 1990; Goldhar and Lei, 1991), and economies of
flexibility through quality and productivity en- scale from the best and stable relationship through
long-term strategic alliances and networks with
Tel.: +82 2 880 9081. suppliers (Goldhar and Lei, 1991). Vaart and Donk
E-mail address: kimsoo2@snu.ac.kr. (2004) address that the importance of shared
0925-5273/$ - see front matter r 2006 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2006.07.010
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324 S.W. Kim / Int. J. Production Economics 106 (2007) 323–345
resources is related to the stage of integration in a sibility between SCM department and existing
supply chain or network, thus supporting the above functional departments. And then, this paper
argument. Therefore, by establishing supply chain identifies organizational characteristics which have
integration, firms obtain sustainable competitive significant influences on SCM performance by
advantage (Kaeli, 1990; Kaltwasser, 1990; LaLonde investigating the difference in performance among
and Masters, 1990). the proposed organizational types.
Bowersox et al. (1992) argue the inevitable change
of organizational structure in their discussion on the 2. Literature review
integration of supply chain. They insist that firms
need to adopt new systems that cannot be observed 2.1. The determinants of SCM organization type
in the traditional organization structure where
independent functional areas such as production Chow et al. (1995) suggests three basic principles
and marketing prevail, in order to shift to integrated in developing definitions for the properties of
supply chain management. This means that an organizational structure. First, it is advisable that
independent department can be required to control the label for structural properties in SCM research
and adjust more effectively supply chain activities. is the same as the label used in traditional
In other words, organization type which considers organizational literatures. Second, each property
the role and status of independent department of SCM organizational structure should be de-
responsible for supply chain management (SCM) scribed clearly and concisely in such a way that it
activities, should be clearly established. In this can be easily distinguished from the other proper-
respect, it is very advisable that many firms ties. Third, if it is essential to establish a new
recognizing the importance of supply chain manage- concept in SCM for which there is no reasonable
ment have begun adopting new organizational equivalent in the organizational literature, it should
structure. However, it is not an easy task to present be exhibited persuasively. This paper has tried to
a single type of organization that is best suitable for minimize the distinction from the above principles.
supply chain management. This is because even if a The problem on the status of exclusive SCM
firm decides the establishment of a new department department mentioned in the preceding section
for supply chain management, another decision on raises the following two research questions in terms
whether the new department is located in an of the performance of supply chain management.
independent place or incorporated into an appro- The first question is on how the existence and status
priate existing department must be made. Also, in of an exclusive department in charge of strategic
case of creating a new independent department, the SCM activities within the organization affects the
determination on operational role and hierarchical improvement of SCM performance. This is related
relationship within organization between new SCM to the discussion on the necessity of exclusive SCM
department and existing departments should be department in terms of SCM performance. The
followed. And various industrial and environmental second question is on whether or not the SCM
characteristics of each firm should be recognized. department must take all responsibilities for the
This difficulty makes the position of SCM depart- implementation of SCM activities, and what rela-
ment within an organization extremely precarious, tionship it has with the existing functional depart-
which is a rarely seen phenomenon in production or ments. This can also be regarded as an important
sales departments because the independent and research subject in that the effective utilization of
solid status of these departments does not change SCM activities may be determined by the clarity of
regardless of how a firm may be restructured. authority and responsibility on various SCM
The objective of this paper is to test empirically activities and organizational relationships between
the necessity and status of independent SCM SCM department and other departments. The
department for efficient supply chain management. above two questions suggest that the key determi-
For this, first, this paper derives several organiza- nants of SCM organization structure can be
tion types for supply chain management according organized into the degree of formalization which
to the formalization and centralization level of can be explained by the existence of independent
independent department responsible for supply department responsible for supply chain manage-
chain management, and hierarchical relationship ment and the strategic positioning of the depart-
in organizational position and operational respon- ment and the degree of centralization which reflects
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S.W. Kim / Int. J. Production Economics 106 (2007) 323–345 325
the scope of responsibilities and the power of SCM Centralization tells us where in the organization
department within the organization. Moreno-Luzon decisions are made. Who has the authority, power
and Peris (1998) addressed level of decision-making and position to make decisions? Maximum centra-
centralization and level of formalization-standardi- lization implies decisions taken at the highest level
zation as the basic organizational design variables possible (Andersen, 2002). A hierarchical structure
of the contingency model relating to quality of internal organization is primarily built upon
management. centralization of authority relations where coordi-
The concept of formalization refers to ‘‘the extent nation is achieved through vertically imposed
that the rules governing behavior are precisely and bureaucratic processes (Tsai, 2002). This means
explicitly formulated and the extent that roles and that the degree of centralization above mentioned is
role relations are prescribed independently of the determined partly by hierarchical relationship be-
personal attributes of individuals occupying posi- tween SCM department and other functional areas
tions in the structure’’. In other words, formaliza- over the control and responsibilities for SCM
tion describes the degree to which work and tasks activities (Leenders et al., 2002). Such hierarchical
performed in the organization are standardized relationship can be analyzed by the extent to which
(Dewsnap and Jobber, 2000; Mollenkopf et al., SCM manager is positioned at relatively high or low
2000; Andersen, 2002; Iyer et al., 2004; Manolis levels in the organization than other functional
et al., 2004). Bowersox and Daugherty (1995) and managers (Andersen, 2002). Masters and LaLonde
Daugherty et al. (1992) suggest that the concept of (1993) and Bowersox et al. (1992) pay considerable
formalization in SCM perspective can be consistent attentions to the proximity of SCM department to
with it in organizational perspective. They define the top management, because they recognize that
formalization as the degree to which decisions and reporting to top-level executives is indicative of
working relationships for SCM activities are gov- greater visibility and recognition. This means that
erned by formal rules and standard policies and hierarchical distance between SCM decision-makers
procedures. and other senior functional executives who make
Previous SCM literatures frequently employ the more global decisions on an organization-wide
concept of centralization addressing the concentra- basis can decide the feature of the hierarchical
tion of decision-making. That is, centralization has relationship.
defined as the extent to which the power to make The classification into these three properties
SCM decisions is concentrated in an organization fulfills the three basic principles Chow et al. (1995)
(Mollenkopf et al., 2000; Iyer et al., 2004; Manolis mentioned. That is, formalization and centralization
et al., 2004). Higher degrees of centralization are typical organizational properties used in tradi-
correspond with concentration of decision making tional organizational literatures, thus meeting the
authority at more senior levels (Dewsnap and first principle. Also, hierarchical relationship be-
Jobber, 2000), and this allows for situations in tween SCM and other departments satisfies the
which decision-making is concentrated, even at a third principle because it is a new concept to
low level of the organization within a firm. Droge describe the specific circumstance about the status
et al. (1989) define centralization as consolidating of SCM department within an organization.
SCM activities in a separate SCM functional area or Further, the above three properties are properly
department. They treat the grouping of SCM distinguished from one another, thus reflecting the
activities as scope, a separate dimension of the second principle. Bowersox and Daugherty (1995)
organization structure. This treatment has the and Tsai (2002) support the validity of the above
potential to create a good deal of conceptual properties by claiming that three structural compo-
confusion on the traditional ‘‘span of control’’. nents-formalization (the degree to which decisions
The treatment of ‘‘span of control’’ in SCM has and working relationships are governed by formal
typically emphasized responsibilities (Bowersox rules, and standard policies and procedures),
et al., 1992). Consequently, in SCM perspective, centralization (the locus of decision making author-
span of control can be defined as the number of sub- ity and control within an organizational entity), and
functions or persons who report to a single SCM specialization (the department of tasks and activities
department or department manager, in other words, across positions within the organizational entity)
the degree to which SCM activities are grouped are commonly considered to be important influences
together in the same organization. on organization performance. Also, Leenders et al.
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(2002) and Monczka et al. (2002) suggest the status The second organization type the literature
of SCM department and chief SCM officer, the discusses can be characterized by high centraliza-
scope to which SCM reports are applied within a tion, moderate level of formalization, and balanced
firm, and hierarchical relationship with other areas power over other functional departments. Firms in
of the firm as key aspects for SCM organizational this group usually have an SCM department that
design. Accordingly, various types of SCM organiza- has an equal hierarchical position with existing
tion can be suggested according to the combination of functional departments, and takes the considerable
the three organizational characteristics: formaliza- part of responsibilities for the planning and utiliza-
tion, centralization, and hierarchical relationship. tion of major SCM activities (Bowersox et al.,
2002). This type of organizations is similar to
2.2. Theoretical derivation of SCM organization ‘logistics as a function’ Lambert and Stock (1993)
type suggest in that the SCM department has its roles as
a functional line which has an isolated authority on
As mentioned in the preceding section, various the SCM-related activities. Also, this type has
types of SCM organization can be suggested similar characteristics with socio-technical ideology
according to the combination of the three organiza- proposed by Johannessen and Solem (2002) in
tional properties; formalization, centralization, and which the management principle is to be in control
hierarchical relationship. First, we can portray an by an independent department, but this control is
organization type characterized as low centraliza- executed within a limited scope through limited
tion, low formalization, and the position of SCM delegation of power. We named this type of SCM
department below other departments in hierarchy organization as Functional organization.
(Bowersox et al., 2002; Monczka et al., 2002; Head, The third organization type portrayed in the
2005). In this organization type, there does not exist literature has an SCM department usually with a
an SCM department, or SCM department only moderate level of centralization and formalization,
exists as a sub-department of other functional and a balanced control with other functional
departments such as production and marketing. departments over SCM activities. Unlike the pre-
All SCM related activities are performed under the vious two groups of firms, this group has relatively
supervision and control of other functional depart- less clear characteristics. However, it seems to have
ments. In other words, SCM function is not a similar organization type as Information-oriented
recognized as an established important function or organization addressed by Bowersox and Daugh-
an independent identity in this organization type. erty (1995) or Matrix organization by Lambert and
That is, this organization type is not oriented to Stock (1993) and Bowersox et al. (2002). In
SCM function. Bowersox and Daugherty (1995) Information-oriented organization, a wide spectrum
refer this type of firm organization to market- of traditional logistics activities coupled with an
oriented organization. According to them, in array of other activities is usually managed as a
market-oriented organization, a limited number of channel system, focusing particularly on the co-
traditional logistics activities are managed across ordination and control of an extensive network with
two or more business units, with emphasis on dealers and distributors. As a hybrid approach
achieving synergy from coordinated physical dis- between the two extremes presented by the func-
tribution. Traditional organization structure Lam- tional and program approaches, the matrix manage-
bert and Stock (1993) suggest has the same context ment approach emphasizes coordination of
with Bowersox and Daugherty’s description of activities across unit lines within the organization.
market-oriented organization. In traditional orga- Therefore, firms employing this organization type
nization structure, the various SCM functions were have an SCM department at the same hierarchical
scattered throughout the entire firm, with no single position as other functional departments. However,
executive, department, or department responsible it is more likely that the SCM department focuses
for managing the entire SCM process. Also, this on coordination and connection with other depart-
type is somewhat associated with organic structure ments and/or other external channel members for
where formalization is low, and communication efficient utilization of SCM activities rather than the
channels are open in every direction (Jabnoun and direct control of SCM activities. This organizational
Sahraoui, 2004). Following the literature, this study approach needs a series of considerations on the
names this type as non SCM-oriented organization. balance between control effectiveness and process
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decentralization (Pritsker, 1997; Huang and Lin, ment emphasizes achieving maximum efficiency
2002; Monczka et al., 2002), and this type strength- from consolidated SCM activities. This has the
ens the communication links necessary to build new same context with mechanistic structure (Jabnoun
large systems (Johnson, 1997). Network ideology and Sahraoui, 2004) or machine ideology (Johan-
suggested by Johannessen and Solem (2002) is nessen and Solem, 2002) based on scientific manage-
somewhat similar to this type. The management ment that promotes efficiency. This type of SCM
principle of the network ideology is only limited department usually finds other functional depart-
control by a department responsible for operational ments placed lower in hierarchy while controlling
decisions, and is focused on adjusting and coordi- and managing other functional departments and
nating internal and external channels with the logistics activities as a value-added chain with
demands of the network. We name this type of proprietary responsibilities and authorities. Com-
organization as Matrix Channel organization. munication is extremely restrained due to the work
The fourth organization type has an SCM routines being individualized, the information flow
department with low centralization, high formaliza- being controlled, and the strong physical, social and
tion, and higher hierarchical position of SCM mental barriers between and within the layers in the
department than other functional departments. In hierarchy. Therefore, this type is an organizational
this organization type, although SCM department structure that integrates the activities of SCM under
typically is positioned higher than other functional a single, high-level SCM department. We name this
departments in hierarchy, it plays less functional but type as Integrated Line organization. The differ-
more coordinating and intervening roles across ences in organizational characteristics of the five
functional departments or channel members. There- types are summarized in Table 1 and Fig. 1.
fore, while the SCM department plans, supports, As Bowersox and Daugherty (1995) mentioned,
and arranges logistics activities, actual activities are the classification of SCM organization type can be
carried out under the supervision and control of different depending on sample constituents being
other appropriate functional departments (Benita analyzed and criteria adopted. However, the five
et al., 1992; Monczka et al., 2002). This type of types of SCM organization this study derived are
SCM department is similar to the process-oriented theoretically interpreted as the most prevailing
organization suggested by Bowersox and Daugherty types. Among the five types, functional and
(1995). Also, it can be viewed as the staff organiza- integrated line organizations can be defined as
tion or as a program by Lambert and Stock (1993) directive management style, while process staff and
in the sense that the SCM department plays a matrix channel organizations are close to supportive
coordinating role as a staff or program. Therefore, management style (Prasad, 2001). Although more
we name it as Process Staff organization. The types of SCM organization may be added, it could
existence of the above process staff organization is result in weak cut-off lines between types causing
also identified theoretically by the research of difficulty in suggesting ideal type of organization.
Johannessen and Solem (2002) which suggests Therefore, this study will adopt the five types of
process ideology type. The management principle SCM organization discussed above in identifying a
in the process ideology holds that control is needed best organization type for efficient SCM.
in the empowered cross-functional department,
although power to make operational decisions must 2.3. The relationship between SCM organization
be delegated. The empowered cross-functional team type and performance
coordinates all the relevant process decisions, and
information flows vertically and horizontally in this Ein-Dor and Segev (1978) and Raymond (1985)
type even though the communication process is assert that a formalized logistics department leads
somewhat restrained. general logistics activities and institutes regulations
We further consider the SCM department with and procedures which facilitate daily decision-
high level of centralization and formalization, and making. They also contend that more formalized
with higher position than other functional depart- corporations have more sophisticated information
ments in hierarchy (Monczka et al., 2002; Head, systems and corporations with more advanced
2005). This type of SCM department tends to information systems achieve performance improve-
manage a broad group of traditional logistics ment more effectively. Bowersox and Daugherty
functions as a value added system, where manage- (1987) also emphasize that more formalized and
328
Table 1
The characteristics of five SCM organization types
Organization type The strategic position of SCM The business control area of SCM Theoretical background Representative firms
department department
Non SCM-oriented organization Exclusive SCM department does SCM department executes a limited Lambert and Stock (1993) Rohm & Haas Company, US Steel
not exist or lies under the existing group of traditional SCM activities Corp., TRW Inc., Dana
departments including IS which are managed across business Bowersox and Daugherty (1995) Corporation, SPX Corp., Denso
department units. The primary SCM activities Bowersox et al. (2002) Manufacturing Inc., Continental
are operated independently by each Monczka et al. (2002) General Tire, Inc.
function with no single executive Head (2005)
and organization. The planning Jabnoun and Sahraoui (2004)
S.W. Kim / Int. J. Production Economics 106 (2007) 323–345

and utilization of SCMIS is
executed under the responsibility
and authority of the existing IS
department
Functional Organization Exclusive SCM department lies as a SCM department controls the Lambert and Stock (1993) LG, Cisco, Benetton, Eli Lilly,
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functional area equal to the existing existing traditional SCM activities Corning Glass, Honeywell
functional areas including IS and SCM related activities executed Bowersox and Daugherty (1995);
department by each function. SCM department Johannessen and Solem (2002)
and IS department have jointly the
responsibility and authority of
SCMIS planning and utilization
Matrix channel organization Even though SCM department has SCM department focuses on Pritsker (1997) Texas Instrument, Shell Oil
a equal position with the existing activities for coordination and Daewoo Matsushita, SONY
functional departments, it plays a connection with other departments Johnson (1997); Huang and Lin Hewlett-Packard General Motors
role not as a function but as a or with other channel members on (2002) ABB
program and coordinator a channel basis. This type places a Monczka et al. (2002)
high priority on the adjustment of Johannessen and Solem (2002)
primary SCM activities within an Bowersox et al. (2002)
organization including SCMIS and
the linking with external SCM
activities
Process Staff Organization Even though SCM department has Even though SCM department Benita et al. (1992) Toyota Nike, BMW, Motorola,
a higher position than the existing assists and coordinates overall Benetton, Dell Computer General
functional departments including SCM activities within and outside Lambert and Stock (1993) Motors General Electronics
IS department, it plays a role not as of a corporation, the practical Bowersox and Daugherty (1995)
a function but as a staff or overall operation on each SCM activity is Johannessen and Solem (2002)
coordinator of the functional areas executed under line functions Monczka et al. (2002)
including IS department
Integrated line organization The existing functional areas SCM department integrates and Monczka et al. (2002) Samsung Eletronics Whirlpool
including IS department are manages overall SCM functions Corp.Hooker Chemicals & Plastics
subordinate to SCM department, within and outside of a corporation Johannessen and Solem (2002) Corp.Johnson & Johnson
and SCM department controls including IS department as a value Jabnoun and Sahraoui (2004)
overall functional areas and SCM added chain Head (2005)
activities with practical
responsibility and authority
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Fig. 1. SCM organization type.
centralized SCM organization is required to inte- increase the possibility of accepting and seeking
grate the total logistics process combining physical innovation in logistics information technology.
distribution and materials management. Droge David et al. (2002) identified empirically that only
et al. (1989) discovered that centralization might firms pursuing cost efficiency with a centralized
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design are more likely to achieve a higher level of order to achieve maximum cost control. Such
purchasing efficiency. Johnson et al. (1997) indi- centralization facilitates common direction and
cated that greater purchasing centralization drives helps coordinate efforts of cross-functions within a
better prices, better service, better research and firm. Also, the establishment of formal rules and
planning, greater efficiency in developing policies, procedures serve to routinize activities thus mini-
and better control and evaluation systems. Johnson mizing both risk and cost. But such cost-oriented
and Leenders (2001) suggest that centralization emphasis lessens the need for relying on special
presents the challenge of finding new supply talent. technologies or infrastructures. Meanwhile, firms
Lambert and Stock (1993) emphasize that great pursuing value-added maximization and control/
SCM performance improvement is derived from the adaptability enhancement focus on special technol-
modification of the firm’s organizational structure ogies or infrastructures for particular products or
into formalized and centralized control by a single customers more than central control for cost
organizational unit. minimization, and the facilitation of rapid response
On the other hand, Fredrickson (1986) argues to changing markets and new customer requests by
that even though a high degree of formalization such special technologies or infrastructures is
may eliminate the ambiguity of roles, it restricts the emphasized. Galunic and Eisenhardt (1994) agree
organization members’ discretionary rights in deci- to such an intermediate perspective. That is, they
sion-making and disturbs the pursuit of new asset that defensive, cost efficiency-seeking strate-
opportunities and innovation. Mollenkopf et al. gies generally require more formal, bureaucratic and
(2000) contend that formalization is negatively centralized structures and controls, while more
associated with integration. Ahadi (2004) also innovative product-market strategies were related
insists that formalization of procedures and cen- to less centralized, more flexible ‘‘organic’’ organi-
tralization of decision-making are negatively asso- zations.
ciated with successful implementation of business From the arguments of Bowersox and Daugherty
process reengineering. Russell and Russell (1992) (1995) and Galunic and Eisenhardt (1994), we can
address a positive link between higher levels of infer that high centralized and formalized organiza-
innovation and organic structures characterized by tional structure can contribute to the consistent
decentralization, lack of formalization, and high administration and efficient coordination of cross-
levels of complexity (Jabnoun and Mohammed, functions within a firm, while less formalized or
2003). Moreno-Luzon and Peris (1998) point out decentralized organizational structure might be
that IT has proven to be a powerful alternative for appropriate for the establishment of advanced
control and coordination to the traditional hier- technological skills. Thus, we can suggest the
archy, so a decentralized operation does not lead following hypotheses.
necessarily to a loss of control, thus supporting the
above arguments (Jabnoun and Sahraoui, 2004). H1. The performance of high formalized and
Yen and Sheu (2004) also insist that in order to centralized organizational structure will be higher
respond quickly to customer specified changes in administrative performance relative to in techno-
through ERP system, organizational control should logical performance.
be decentralized and supported with an entrepre- H2. The performance of less formalized or decen-
neurial style. Tsai (2002) notes that the level of tralized organizational structure will be higher in
centralization and formal hierarchical structure technological performance relative to in adminis-
represented by centralization are negatively asso- trative performance.
ciated with the level of intra-organizational knowl-
edge sharing. Stevens (1990), in the suggestion of four devel-
As discussed above, scholars report mixed results opmental stages of the SC integration, asserts that
for the effects of the formalization and centraliza- as integration stage moves from functional integra-
tion of SCM department on performance improve- tion to internal and external integration, the focus
ment. Bowersox and Daugherty (1995) suggest a of competitive capability would shift from cost
meaningful inference for the resolution of such based capability to non-cost based capability, thus
conflict. According to them, firms emphasizing cost suggesting the association between SC integration
minimization typically focus on a centralized and competitive capability. Bowersox et al. (1989)
structure with concentrated decision making in actualizes the above argument. He shows that the
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emphasis on the utilization of supply chain cap- different management styles coexist. Thus, we can
ability can be different according to the develop- expect that in the process of applying such various
mental stage of SC integration. That is, the process styles to supply chain management, there might be a
of SC integration would progress from the integra- little bigger variation in SC integration level or
tion of internal logistics processes to external SCM performance among firms relative to other
integration with suppliers and customers, and sampling frames. Accordingly, a variety of analysis
internal integration is associated with cost mini- on organizational structure for efficient supply
mization by the centralization of internal structure chain management might be implemented from
with concentrated decision making, while external Korean and Japanese sample data covering such
integration can influence high quality, flexibility, wide spectrum of management style and organiza-
on-time delivery, customer service, and innovation tional structure. In order to select large firms which
by information sharing and close coordination may carry out all the value chain activities in a
through advanced technologies. supply chain and have independent department
When combining the above shift of competitive responsible for supply chain management, single-
capability with the arguments of Bowersox and stage cluster sampling was used as sampling
Daugherty (1995) and Galunic and Eisenhardt method. That is, among the sampling frames, large
(1994) mentioned previously, we can infer that firms with at least $50 million annual sales or 200
organizational structure would shift from high employees were selected, and survey was implemen-
formalized and centralized type to less formalized ted on all of the selected firms. The data were
or decentralized type according to the developmen- collected through questionnaires sent to top level
tal stage of SC integration. This leads to the supply chain managers in 590 large manufacturing
following hypothesis. corporations among Korea’s listed and registered
corporations and 900 Japan’s major national
H3. According to the development of SC integra- logistics professional association members.
tion stage, the frequency of high formalized and The questionnaires were transmitted by indivi-
centralized organization will decrease, while that of dual visit, fax, and mail to Korean firms, and by fax
less formalized or decentralized organization will and mail using the countrywide mailing list of the
increase. association for Japanese firms. The respondents
were supply chain managers; response was re-
3. Methodology quested from a top-level executive of SCM depart-
ment who was responsible for supply chain policies
3.1. Sampling and corporate strategies of the firm. In order to
raise the reliability of measurement, respondents
The survey instrument was pre-tested by 25 were requested to consult with other functional
supply and materials management professionals to executives in SCM department as appropriate when
ensure content validity. The actual pretest was done answering questions. Among 1490 questionnaires, a
in two phases. First, 10 practicing managers read, total of 668 completed responses (Korea-265 (142
checked and made recommendations on changes on from first mailing, 77 from second mailing, and 46
the survey in a group meeting. According to the from third mailing), Japan-403 (251 from first
recommendations, some questions were re-worded mailing, 102 from second mailing, and 50 from
to improve validity and clarity, and sent to another third mailing)) were returned, and of these 668
15 practicing managers. Very few changes were responses, 45 incomplete responses (Korea-21,
suggested during the second stage of the pre-test, Japan-24) were discarded. Accordingly, the analysis
and the 15 practicing managers were satisfied that that follows and all reported statistics were based on
the survey instrument was reasonably accurate and a sample of 623 manufacturing organizations
easily understood by managers. (Korea-244, Japan-379). Table 2 summarizes the
In this study, we selected Korea’s listed and sample characteristics for each country according to
registered corporations and Japan’s major national industry type and size. As can be seen in Table 2, the
logistics professional association members as sam- sample firms in this study encompass a diversity of
pling frames. In Korea and Japan, firms taking industry types and sizes. The diversity of the sample
oriental management style, firms pursuing western should strengthen the external validity of this study
management style, and firms combining the two results.
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Table 2
Sample characteristics
Type of industry
Consumer products Basic industrial Electronic and Total

industrya material industryb machinery industryc
Korea
No. of firms 99 ( 40.7% ) 81 (33.1% ) 64 (26.2%) 244
Mean sales 342 million $ 560 744 520
Mean asset 428 million $ 775 963 684
Japan
No. of firms 137 (36.1%) 73 (19.3%) 169 (44.6%) 379
Mean sales 958 million $ 1290 1522 1273
Mean asset 1198 million $ 1609 2137 1696
a
Consumer product industry: food processing, sweetmeats, pharmaceuticals, footwear, clothes, wood, furniture.
b
Basic industrial material industry : textile, organic chemical, inorganic chemical, petrochemical, cement, paper, tire, fertilizer, fabric,
pulp, metal.
c
Electronics and machinery industry : computer, home appliances, communication equipment, electronic parts, automobile, automobile
parts, machinery.
The results of difference test between Korean Staff Organization, and Integrated Line Organiza-
firms and Japanese firms show that there is a tion. In case that there does not exist appropriate
significant difference between two countries for type among the five types, respondents were asked
size measured as sales (t ¼ 3.54, po0.05) and as to indicate directly their firms’ organization types.
assets (t ¼ 2.93, po0.05). Further analysis revealed Also, in order to identify the reliability of the
no substantial differences between respondents above responses on organization type, the levels of
and non-respondents regarding geographic location the determinants of SCM organization also ad-
(p ¼ 0.535), size (p ¼ 0.491) or industry (p ¼ 0.577). dressed in literature review section were measured
As a test for other response biases, responses of additionally. Among the determinants of SCM
early and late waves of returned surveys were organization mentioned earlier, the formalization
compared. This commonly used method is based of SCM department refers to the degree to which
on the assumption that the opinions of late decisions and working relationships are governed by
responders are representative of non-respondents formal rules and standard policies and procedures
(Armstrong and Overton, 1977). Approximately (Daugherty et al., 1992), and in this study, it was
50% of the surveys were randomly selected from measured by three items such as the degree to which
each of the first and last waves of surveys received, goals, rules, policies and procedures for logistics
and difference tests were performed on the scores activities are precisely and explicitly formulated
across groups. The tests indicated no significant (Bowersox et al., 1992), the extent that roles and
differences across the groups for any of the variables role relations are prescribed independently of the
used in this study. personal attributes of individuals occupying positions
in the structure (Scott, 1981), and the participation
3.2. Measurement level of SCM managers in strategic planning process.
These three items were measured on seven-point
3.2.1. SCM organization type Likert scales.
In order to measure SCM organization type, The centralization of SCM function involves the
respondents were requested to select organization locus of authority to make decisions on SCM
type representing precisely or approximately the related activities (Dalton et al., 1980) and spans of
firm’s organizational structure among the five control within an organizational entity (Bowersox
organization types discussed in literature review et al., 1989, 1992). This study measured the
part: Non SCM-oriented Organization, Functional centralization degree with three items: the extent to
Organization, Matrix Channel Organization, Process which the power to make logistics decisions is
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concentrated in the organization, the number of Previous studies (Bititci et al., 2001; Yen and Sheu,
subordinates who report to a single superior, and 2004) on the technological performance of SCM have
the degree to which logistics activities are grouped different measurement factors and classification
together in the same organization or organizational criteria according to the characteristics of evaluation
sub-unit (Chow et al., 1995). These three items were systems, such as the variables and items measured,
also measured with seven-point Likert scales. methodology, and range. The four perspectives that
The hierarchical position of SCM department are frequently addressed among these diversified
was measured by three items; the extent to which measurement factors for technical performance are
decisions are made at relatively high levels in the cost leadership, customer service, innovative market-
organization, hierarchical distance between logistics ing technology, and differentiation. In this study, a
decision-makers and senior executives who make total of 15 seven-point Likert scales were deployed
more global decisions on an organization-wide basis based on previous researches (Handfield and Withers,
(Chow et al. 1995), and organizational position of 1993; McGinnis and Kohn, 1993; Rao et al., 1994;
the top SCM manager. The position of the top Dawe, 1994; Gunasekaran et al., 2004) to measure the
manager was measured in seven categories such as degrees of these four perspectives (Table 4).
plain clerk, deputy manager, section chief, deputy The administrative performance of SCM is closely
director, director, vice president, and above pre- related to the following three organizational pro-
sident. The rest two items were measured on seven- blems that appear when SCM system is executed:
point Likert scales. employee resistance to change, change in the power
structure between departments within the organiza-
tion that result in organizational discord, and
3.2.2. SCM performance difficulty in harmonious cooperation and commu-
It is meaningless to measure SCM performance nication between system users and developers due to
based on few large-scope abstract scales, as the cognitive differences and semantic gaps. Hence, the
scope of SCM has widened due to the trend of degree of management and implementation on these
integrated SCM, and thus, the systematic develop- organizational problems has been regarded as yard-
ment of more concrete and specific measurement sticks that measure the administrative performance
items is vital for more efficient measurement of of SCM. Most frequently addressed six terms for
SCM performance. Particularly, because this pa- administrative performance can be summarized as
per’s focus is to derive organization type suitable for follows: the degree of management’s awareness on
efficient SCM, it is advisable to select performance SCM, the systematization level of an SCM plan, the
variables which can be influenced more directly by procurement and training of SCM experts and
the feature of SCM organization. Viewed in this specialists, the ability of performance measurement
perspective, several discussion processes with total and control over SCM, the participation level of
35 practicing managers and researchers on proper field managers and trading companies for SCM
performance measures for this study were imple- system development, and the investment capability
mented. As a result, this paper selects a total of 30 and experience in developing SCM system (Lambert
measurement items reflecting the integration level of and Stock, 1993). In order to measure these six
SCM system, and technical and administrative terms, a total of 14 measurement variables were
performances of SCM. adopted and measured on seven-point Likert scales.
In order to measure the integration level of SCM
system, a seven-point scale was created as follows by 4. Results and discussion
revising Stevens’ (1989) suggestion on the develop-
mental stage of supply chain integration based on 4.1. Descriptives
the recent studies of Frohlich and Westbrook
(2001), Kim and Narasimhan (2002), Rosenzweig The responses of 623 sample firms on the
et al. (2003), and Droge et al. (2004). selection of appropriate type among the five SCM
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organization types mentioned previously indicated unconstrained model, which makes fij free, w2
that 210 firms are in non SCM-oriented organiza- difference test between the two models was im-
tion, 203 firms in functional organization, 87 firms plemented (Bagozzi and Phillips, 1982; Anderson
in matrix channel organization, 51 firms in process and Gerbing, 1988; Steenkamp and van Trijp,
staff organization, and 72 firms in integrated line 1991). If w2 difference between the two models
organization. No respondent suggested other orga- indicates to be statistically significant (above 3.84 at
nization type except the above five types. In order to a ¼ 0.05, above 6.63 at a ¼ 0.01), we can recognize
identify the reliability and validity of the above that discriminant validity between two latent vari-
responses on SCM organization type, this paper ables exists. As shown in the appendix, all chi-
conducted cluster analysis using measurements on square differences between the two models are
three SCM organization determinants-formaliza- statistically significant at 99% significance level,
tion, centralization, hierarchical position. thus verifying discriminant validity.
Before implementing cluster analysis, in order to For clustering by three SCM organization deter-
examine precisely unidimensionality, and conver- minants, the number of groups comprising the most
gent and discriminant validity of measurement homogeneous sample observations should be deter-
items for the three SCM organization determinants, mined. In order to determine the most appropriate
confirmatory factor analysis using LISREL was number of clusters, the dendogram for the cluster
conducted. Appendix A indicates the result. As can analysis was inspected for relatively dense
be seen in the appendix, the overall goodness of fit ‘‘branches’’ to confirm the number of major groups
indices was judged to be satisfactory (Byrne, 1994; that had been formed (Alderderfer and Blashfield,
Hair et al., 1998). Also, all the standardized 1984), and then the incremental changes in the
estimates of the observed variables exceeded 500 agglomeration coefficient were examined. Our
and all the corresponding t-values were statistically samples indicated that relatively large changes in
significant at the 5% significance level. Together the agglomeration coefficient are found between
these indicate convergent validity of measurement four and five clusters. This implied that five clusters
variables designed in this paper. For identifying would be the most appropriate choice (Ketchen and
more precisely convergent validity, composite Shook, 1996) for the cluster analysis. The result of
reliability index and average variance extracted nonhierarchical clustering via discriminant analysis
were computed by using completely standa- showed that 98.9% of the cases were correctly
rdized solutions derived from CFA (Fornell and classified into the above five clusters. Therefore, the
Larcker, 1981). As can be seen in the appendix, all five-cluster solution was deemed appropriate ac-
composite reliability indices and average variance cording to these results and high interpretability
extracted are over 0.7 and 0.5, respectively, thus (See Appendix B).
verifying convergent validity (Bagozzi and Yi, To explore the characteristics of five groups
1988). All modification indices (Bentler, 1995) also extracted from the cluster analysis, Duncan
provided from LISREL revealed no parameters multiple range tests were carried out using the
that could be released to significantly improve mean scores of items for each of three organi-
model fit. This reflects high discriminant validity. zation determinant factors of which high construct
For evaluating more precisely discriminant validity, validity was demonstrated in CFA results.
this paper implemented two additional tests. As shown in Table 3, the results indicate the
First, average variance extracted (AVE) computed five groups are clearly different in terms of those
above was compared with the squared correlation factors. Furthermore, the result of MANOVA’s
between the constructs. To fully satisfy the require- Pillias test conducted on all factors and types
ments for discriminat validity, the average variance of SCM organization structure also shows
extracted should be greater than the squared significant differences across groups. Therefore, all
correlation (Fornell and Larcker, 1981). The appli- of the above results suggest that the five types of
cation of the abovementioned method to all SCM organization identified by clustering have
measures in this paper confirmed discriminant distinctive characteristics and properties while the
validity of the measures. Second, after setting classification method is relatively clear and valid
constrained model, which fixes correlation para- (Table 4).
meter (fij) between measurement variables con- Surprisingly, the number of sample firms grouped
structing each of two latent variables at 1, and into each of the five groups from cluster analysis
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Table 3
ANOVA and duncan multiple range test results
Group factor Group A Group (N ¼ 87) Group C Group D Group E ANOVA (F value)
(N ¼ 51) (N ¼ 203) (N ¼ 72) (N ¼ 210)
SCM organization
Centralization 1.50 (L) 2.21 (M) 3.15 (H) 3.48 (H) 1.38 (L) 20.111 (p ¼ 0.000)
Formalization 5.08 (H) 4.17 (M) 3.70 (M) 5.28 (H) 2.78 (L) 22.851 (p ¼ 0.000)
Hierarchy 4.31 (H) 2.71 (M) 3.00 (M) 4.33 (H) 1.00 (L) 111.481 (p ¼ 0.000)
Process staff Matrix channel Functional Integrated line Non SCM Pillias ¼ 1.430
oriented (p ¼ 0.000)
*( ) is the result of Duncan test (H: High, M: Middle, L: Low).
exactly accords with the result of response on the opment of SC integration stage (Kilty, 2000;
selection among the five SCM organization types Bowersox et al., 2002). Thus, Hypothesis 3 is
mentioned previously. That is, of the five groups, supported. The above result also confirms empiri-
Group A (n ¼ 51) with low centralization, high cally the validity of Monczka et al. (2002)’s
formalization, higher hierarchical position is re- argument. They argue that the trend of today’s
garded as Process Staff organization. Similarly, organizational structure is to move away from a
Group B (n ¼ 87), C (n ¼ 203), D (n ¼ 72), and E vertical focus, where work and information are
(n ¼ 210) are matched with Matrix Channel, Func- managed up and down through layers of the
tional, Integrated Line, and Non SCM-oriented organization, toward a horizontal focus, where
organizations, respectively. The above result pro- work and information are managed across groups
vides clearly the practical validity of the five SCM and between organizations.
organization types this study derives.
4.3. SCM organization type and technical/
4.2. SCM organization type and SC integration administrative SCM performance
stage
The results of ANOVA on the difference in
The result of Crosstabs between the integration technical and administrative SCM performance
stage of SCM and SCM organization types is across SCM organization types are presented in
presented in Table 5. Table 6 and 7. The performance variables identified
The result further reveals that all firms in as significantly high or low from Duncan multiple
planning stage take Non SCM-oriented organiza- range test are organized by SCM organization type
tion type and 79 firms (60.8%) even in introduction in Table 8.
stage employ Non SCM-oriented organization type. As shown in Table 6, firms with functional
However, in expansion and functional integration organization type outperform other types signifi-
stage, the frequency of firms adopting Non SCM- cantly in 11 of 15 technical performance variables.
oriented organization type decreases rapidly while Also, even though there is no statistically significant
Functional organization type has the highest difference, firms with functional organization type
frequency. Meanwhile, in internal integration stage, have the highest performance even in three of
as the frequency of Functional organization type remaining four variables.
decreases, the importance of Integrated Line orga- In administrative performance in Table 7, firms
nization emerges, and in external integration stage, with functional organization type outperforms
no firm employed Integrated Line organization other types in 10 of 14 performance variables
type, while 34 firms (52.3%) adopt Process Staff although four of them are statistically insignificant.
organization type. Firms with Integrated Line organization, which
This result means the process of transforming showed relatively low technical performance, per-
from functional organization focusing on forma- formed better than those with other types in four
lized and centralized vertical control to process administrative performance variables. Also, firms
organization emphasizing decentralized horizontal with Process Staff organization outperformed in
coordination and support according to the devel- three and underperformed in four administrative
336
Table 4
Descriptives of SCM performance
Planning stage Initiali-zation stage Extension stage Functional Internal integration External integration Total
integration stage stage stage
No. of firms 51 130 138 123 116 65 623
Mean Rank
Integration level of SCM system

Technical performance of SCM
The capability to procure raw-material consistently (RM) 4.57 3
S.W. Kim / Int. J. Production Economics 106 (2007) 323–345

The capability to forecast market growth and demand (MG) 4.84 1
The capability to reduce production cost (PC) 4.56 4
Innovation of manufacturing process (IM) 4.40 7
On-time delivery capability (OD) 4.21 12
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The capability to supply high-quality product (HQ) 4.81 2
Volume flexibility capability (VF) 4.15 14
After-sale service capability (AS) 4.23 10
The capability to distribute the product broadly (DP) 4.23 10
The capability to advertise and promote the product (AP) 4.17 13
The capability to develop distinctive brand (DB) 4.28 9
The capability to control sales/distribution network (CN) 4.38 8
The capability to develop new product (NP) 4.45 6
The capability to deliver a broad product line (PL) 4.53 5
Design flexibility depending on customer demand (DF) 3.28 15
Administrative performance of SCM
The Acknowledgement of top management on SCM (TA) 4.91 2
The Acknowledgement of logistics executives on SCM (LA) 5.37 1
The Acknowledgement of other areas’ executives on SCM (OA) 4.65 3
The documentation and clearness of SCM strategy and policy (CL) 4.14 4
Concurrence between business strategy and SCM strategy (CO) 3.88 6
The systematic implementation of education and training on SCM (ET) 3.57 12
The procurement of SCM expert (EP) 3.60 10
The accuracy of measurement and evaluation of SCM performance (ME) 3.57 12
Continuous control and monitoring on SCM implementation (CC) 3.79 7
The participation of front line managers in SCM system development (FP) 4.05 5
The participation of trading companies in SCM system development process (TP) 3.33 14
Continuous budgeting for SCM system development and implementation (CB) 3.70 8
The diversification of financial support for system development/operation (DI) 3.64 9
The accumulation of experience for SCM (EA) 3.58 11
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Table 5
Crosstabs result
Organization size Non SCM-oriented Functional Matrix channel Process staff Integrated line Row total
Planning stage 51 0 0 0 0 51
100% 0% 0% 0% 0% 8.20%
24.30% 0% 0% 0% 0%
8.20% 0% 0% 0% 0%
Initialization stage 79 43 8 0 0 130
60.80% 33.10% 6.20% 0% 0% 20.90%
37.60% 21.20% 9.20% 0% 0%
12.70% 6.90% 1.30% 0% 0%
Extension stage 44 72 15 0 7 138
31.90% 52.20% 10.90% 0% 5.10% 22.20%
21.00% 35.50% 17.20% 0% 9.70%
7.10% 11.60% 2.40% 0% 1.10%
Functional integration stage 21 51 20 2 29 123

17.10% 41.50% 16.30% 1.60% 23.60% 19.70%
10.00% 25.10% 23.00% 3.90% 40.30%
3.40% 8.20% 3.20% 0.30% 4.70%
Internal integration stage 15 28 22 15 36 116
12.90% 24.10% 19.00% 12.90% 31.00% 18.60%
7.10% 13.80% 25.30% 29.40% 50.00%
2.40% 4.50% 3.50% 2.40% 5.80%
External integration stage 0 9 22 34 0 65
0% 13.80% 33.80% 52.30% 0% 10.40%
0% 4.40% 25.30% 66.70% 0%
0% 1.40% 3.50% 5.50% 0%
Column 210 203 87 51 72 623
Total 33.70% 32.60% 14.00% 8.10% 11.60% 100%
Table 6
ANOVA results on SCM technical performance
Organ variables Non SCM oriented Functional Matrix channel Process staff Integrated line F Sig.
Technical performance
RM 4.03 4.96 4.75 4.86 4.60 4.269 0.003
MG 4.41 5.21 5.25 4.86 4.50 3.323 0.012
PC 4.48 5.25 4.00 4.29 3.70 9.388 0.000
IM 4.07 5.11 4.08 4.14 3.90 6.053 0.000
OD 3.97 4.75 3.75 4.14 4.00 3.426 0.010
HQ 4.48 5.21 4.67 5.00 4.70 2.299 0.061
VF 4.10 4.36 3.75 4.71 3.80 2.557 0.041
AS 3.83 4.89 3.92 4.29 3.90 4.006 0.004
DP 4.31 4.50 3.92 3.86 3.90 1.970 0.101
AP 4.14 4.46 3.75 4.43 3.80 2.623 0.037
DB 4.07 4.46 4.25 4.43 4.30 0.861 0.488
CN 3.97 4.86 4.00 4.43 4.70 5.076 0.001
NP 4.07 5.00 4.33 4.29 4.30 4.191 0.003
PL 4.31 5.21 4.00 4.14 4.20 5.449 0.000
DF 3.00 3.86 2.92 3.43 2.80 3.176 0.015
Bold: significantly higher than other types; Italic: significantly lower than other types.
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Table 7
ANOVA results on SCM administrative performance
Organ variables Non SCM oriented Functional Matrix channel Process staff Integrated line F Sig.
Administrative performance
TA 4.69 5.43 4.67 4.14 4.90 2.911 0.023
LA 4.93 5.93 5.58 5.14 5.00 4.898 0.001
OA 4.41 5.21 4.25 4.29 4.50 3.841 0.005
CL 3.76 4.75 3.75 3.86 4.20 4.903 0.001
CO 3.72 4.18 3.33 3.71 4.30 2.197 0.071
ET 3.31 3.82 2.92 4.00 4.10 2.905 0.023
EP 3.34 4.00 3.08 4.00 3.60 2.279 0.063
ME 3.41 3.82 3.17 3.71 3.70 1.052 0.382
CC 3.52 4.18 3.33 4.00 3.90 2.150 0.077
FP 3.69 4.50 3.17 4.57 4.50 5.546 0.000
TP 3.07 3.57 2.92 3.57 3.70 1.749 0.142
CB 3.41 4.04 3.42 3.86 3.80 1.476 0.212
DI 3.52 3.75 3.42 4.00 3.70 0.533 0.712
EA 3.24 3.82 2.92 4.43 4.10 3.663 0.007
Bold: significantly higher than other types; Italic: significantly lower than other types.
Table 8
Summary of Duncan multiple range test results
Significantly high Significantly low
Non SCM-oriented
Technical performance RM, MG, IM, AS, CN, NP, PL
Administrative performance LA, OA, CL, FP, EA
Functional
Technical performance RM, MG, PC, IM, OD, AS, AP, CN, NP, PL, DF
Administrative Performance TA, LA, OA, CL, ET, FP
Matrix channel
Technical performance MG IM, OD, VF, AS, AP, CN, PL
Administrative performance OA, CL, CO, ET, FP, EA
Process staff
Technical performance RM, VF IM, PL
Administrative performance ET, FP, EA TA, LA, OA, CL
Integrated line
Technical performance CN MG, PC, IM, VF, AS, PL, DF
Administrative performance CO, ET, FP, EA LA
variables compared to those with other types. These technical performance variables. All of the above
results represent that the formalization of SCM results confirm the validity of hypotheses 1 and 2.
department has a heavier influence on administra- Functional organization seems to be the most
tive performance than on technical performance, ideal type even in minimizing the risks of failure
and the authority of SCM department is relatively from the combination of SCM department with an
more strongly required compared to the case of inappropriate organizational type. As can be seen in
technical performance, when considering that ad- Table 8, Functional organization type does not have
ministrative performance variables are more vulner- any technical or administrative performance vari-
able to political influence within a firm than able that significantly underperforms compared to
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other types. Process Staff would be next ideal new innovative opportunities and the decentraliza-
organization type that could minimize the risk of tion of decision making for the flexible adoption of
failure in the sense that it has less number of low- new innovative opportunities. Russell and Hoag
performance variables than Integrated Line, Matrix (2004) and Manolis et al. (2004) address that formal
Channel, and Non SCM-oriented organizations, communication is positively related to innovation
and little variation between the results of technical adoption, while centralization is negatively related
and administrative performance. Meanwhile, in case to adoption of IT innovations. Iyer et al. (2004)
of adopting Integrated Line organization, firms have the same context with the above two researches
should consider cautiously firm characteristics by testing that the greater the formal control and
and changes in market and industry environment decentralization the greater the B2B e-commerce
because of the relatively big variation between implementation. Dewsnap and Jobber (2000) also
the results of technical and administrative perfor- assert that the higher the perceived level of
mance. The relatively radical change in the fre- formalization and de-centralized decision making
quency of Integrated Line organization type in an organization, the greater the perceived
according to SC integration stage in Table 5 degree of achieved integration between sales and
supports this argument. marketing. The finding that the frequency of
Process Staff type is the highest in external
4.4. Discussion integration stage provides the validity of the above
argument.
The crosstab analysis of SCM organization type Conclusively, the above arguments suggest that
and SC integration stage indicates that functional although excessive formalization and centralization
type has the highest frequency in introduction and of SCM department may interrupt full SC integra-
expansion stage, Integrated Line organization type tion with external suppliers and customers, provid-
in functional integration stage and internal integra- ing a certain level of control to SCM department is
tion stage, and Process Staff organization type in indispensable at least until internal integration
external integration stage. process reaches at an adequate level. Thus, depend-
First finding from the above investigation is that ing on firm characteristics or environmental
firms tend to adopt an organization type with high changes, temporary transition to intensive control-
level of formalization for internal SC integration. oriented organization such as Integrated Line may
This shows that coordination and control through be considered. However, although control and
formalization and enhanced position of SCM coordination by formalized and centralized
department are imperative for effective internal SC SCM department are crucial for efficient internal
integration. Palmer and Dunford (2002) suggest SC integration, extreme organization type such
that higher levels of formalization are associated as Integrated Line with the highest level of
with greater use of new organizational practices, formalization and centralization of SCM depart-
thus confirming the indeed importance of forma- ment could be detrimental for external SC integra-
lized procedures and rules where new organizational tion. Accordingly, intermediate organization type
practices are used. Other previous researches such as Process Staff that controls, coordinates,
(Ein-Dor and Segev, 1978; Raymond, 1985; Bower- and interconnects with adequate balance and
sox and Daugherty, 1987; Droge et al., 1989; harmony across various SCM functions would be
Lambert and Stock, 1993) emphasizing the positive advisable for the effective integration of external
effect of formalization and centralization also supply chain.
provide a theoretical background for the finding Of the 623 companies this study analyzed, 210
of this paper. firms adopted Non SCM-oriented organization
Secondly, there is no firm in external integration type. This result discloses that many firms are more
stage that adopts Integrated Line organization type. concerned with the possibility of conflicts between
This implies that excessive formalization and SCM department and other functional departments
centralization of SCM department may hinder stemmed from ambiguous authority and responsi-
efficient external integration once a certain level of bility of the SCM department rather than recogniz-
internal integration is achieved. This stresses the ing the benefits from effective control and
importance of proper balance between formal coordination by the SCM department. However,
consistent management for proactive adoption of in this paper, Non SCM-oriented organization type
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indicates the lowest technical and administrative context with process staff organization in this
performance among those SCM organization types paper, and this type is incorporated in newer
this paper suggested. concepts like the supply chain network or the
On the other hand, Functional organization, the net-chain, thus supporting the above argument.
second largest group of organization type with Huang and Lin (2002) also suggest that staff
203 firms, does not have any variable that under- organization is commonly more efficient than line
performs while in 17 of 29 performance variables, organization.
it outperforms other organization types. Particu- Conclusively, intermediate organization types
larly, Functional organization dominates other such as Functional and Process Staff organization
organization types in terms of the technical perfor- that maintains an adequate level of balance and
mance of SCM. This suggests that Functional harmony with other functional areas while it
organization may be the most appropriate SCM controls, adjusts, and integrates various SCM
organization type for improving performance activities effectively might be advisable. This means
while helping minimize conflicts between SCM that extreme organization types such as Integrated
department and other functional areas and elim- Line with very high formalization and centralization
inate technical discrepancies between functional and Non SCM-oriented organization with very low
areas efficiently. This also implies that even though formalization and centralization should be avoided
the authority of SCM department is necessary for to increase SCM performance. Supporting this
SCM performance improvement, its balanced hier- argument, Bowersox et al. (1986) claim that more
archical relationships with other functional areas than one organization (hybrid) types need to be
would be more critical factor in selecting proper considered in reaching a best SCM organization
organization type because too much exclusive type.
power of SCM department for the direct imple-
mentation of SCM activities may induce consider- 5. Conclusion
able conflicts with other functional areas. This is
supported by the result that firms with Process Staff The purpose of this study is to draw organiza-
organization type have only two performance tional characteristics and suggest a set of best
variables better than those with other types, organization types for the effective operations
but merely two performance variables lower than of SCM and efficient SC integration. For this,
other types. this paper investigated the differences in the level
Process Staff type indicates relatively less of SC integration and technical/administrative
number of low performance variables and low SCM performance across several SCM organization
variations between the results of technical and types.
administrative performance. Meanwhile, Integrated This study adopted SCM organization types for
Line organization is more vulnerable to large classification from the literatures in a proactive
performance variation across variables than inter- manner. We conducted factor analysis, cluster
mediate organization types such as Functional or analysis, and subsequently ANOVA to identify the
Process Staff, and thus requires more caution for reliability of the extracted SCM organization types.
adoption. Through such systematic process, we confirmed the
It is interesting to note that there are only 254 feasibility of each SCM organization type suggested
firms (40.8%) that adopted either Functional or in the literature. Therefore, SCM organization types
Process Staff organization, when considering that adopted in this study have enhanced validity,
those 623 firms analyzed are all leading Korean and providing a ground for further research. Also, this
Japanese manufacturers in SCM. From this finding, study provided empirical evidence of dynamic
it seems crucial and necessary to suggest that adoption of different organization types according
Korean and Japanese firms need to consider to the level of SC integration, thus making valuable
adopting a new organization type according to contributions.
the development of new business system emphasized Traditionally, most Korean and Japanese firms
by Bowersox et al. (1986). Lazzarini and de Mello have pursued a form of centralized organizational
(2001) and Johannessen and Solem (2002) have structure with hierarchical power-based leadership.
seen that the most ‘‘modern’’ organizational struc- Also, past organization type in most Korean and
tures is process organization which has the same Japanese firms was not oriented to SCM function.
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That is, a limited number of traditional logistics analyses for Korean firms and Japanese firms are
activities were managed individually across the two needed to disclose the effect of such size difference
or more business units including marketing and and cultural difference between Korean firms and
production without single independent SCM de- Japanese firms on supply chain management and
partment, or executed within a limited scope by organizational structure. This also deserves further
SCM department with limited delegation of power. research.
However, currently, firms with highly formalized Another interesting extension may involve the
SCM department which autocratically makes deci- effect of the causal linkages among the aforemen-
sions for delivery time, quality, price, risk sharing, tioned constructs on firm-level performance. This
and rewards like Toyota, Samsung Eletronics Co., paper did not use firm-level performance measures
and Hyundai Motor Co. have increased continu- such as financial and market performances in the
ously. Thus, the sample data on various firms perspective that it is advisable to select performance
employing a wide spectrum of organizational variables which can be influenced more directly by
structure from non SCM-oriented organization to the feature of SCM organization. It will be very
integrated line organization this paper suggested interesting to analyze the feature of causal relation-
might be gathered relatively easily. Accordingly, ships among more various SCM-related constructs
more extensive and meaningful results on organiza- and other environmental variables with firm per-
tional structure advisable for SC integration or formance and SCM performance. This will be very
performance improvement can be derived from helpful in identifying the direct or indirect effect of
Korean and Japanese sample data covering such various SCM activities and resources on firm
wide spectrum of organizational structure. In such a performance.
reason, the results of this paper using Korean and Additionally, this study has the following limita-
Japanese data may be somewhat suggestive to tions. First, this study did not consider the influence
practitioners or academicians. of time aspect on the relationship between SCM
However, research setting with just Korean and organization types and SCM performance. That is,
Japanese firms is definitely insufficient to generalize the duration of organization type a firm employs or
the findings of this paper. Originally, in the process transition from one to another organization type
of preparing this study, there was an idea of was not considered. As a result, it lacks empirical
analyzing the difference in the style of supply chain evidence for the influence of dynamic adoption of
management between oriental countries and western different organization types on SCM performance
countries. This can be a very interesting issue, or the antecedents of new organization adoption.
because traditionally and generally it has been Second, there could be more types of SCM
recognized that there might be a considerable organization that may be identified by subdividing
differences in the management style and organiza- factors that determine SCM organization types.
tional structure between oriental countries and Future studies need to address this.
western countries, and thus analyzing how such Further, for the generalization of the model
difference can be reflected to the style of SCM is suggested in this research paper, the cross-valida-
very helpful in suggesting a set of advisable global tion process applying the model to new data
SCM strategies. Accordingly, comparative study and evaluating its goodness of fit has to be
with the western management styles of US and performed. For this, as mentioned previously,
European firms would be helpful. replication of the study described in this paper with
Also, the necessity of the analysis on the a sample of US and European firms will be
differences between Korean firms and Japanese addressed in the future.
firms cannot be ignored. As mentioned in the
sampling section, there is a significant difference
between two countries for company size measured Appendix A. Confirmatory factor analysis
as sales and as assets. Even though this paper
skipped due to the limited paper size, separate See Table A.1.
ARTICLE IN PRESS
Table A.1
w2 value df GFIa AGFIb RMSRc NNFId NFIe
Goodness of fit summary

34.05 (p ¼ 0.552) 35 0.955 0.937 0.033 0.98 0.94
Measurement items St. estimate
Measurement equations with standard errors and test statistics

Centralization factor
The extent to which the power to make logistics decisions is concentrated in the organization 0.75**
The number of subordinates who report to a single superior 0.88**
The degree to which logistics activities are grouped together in the same organization or organizational sub-unit 0.91**
Formalization factor
The degree to which goals, rules, policies and procedures for logistics activities are precisely and explicitly formulated 0.75**
The extent that roles and role relations are prescribed independently of the personal attributes of individuals occupying 0.87**
positions in the structure
Participation of logistics managers in strategic planning 0.92**
Hierarchy factor
The extent to which decisions are made at relatively high levels in the organization 0.84**
Hierarchical distance between logistics decision-makers and senior executives who make more global decisions on an 0.79**
organization-wide basis
Position of the top logistics manager 0.80**
Variable Composite Average variance

reliability extracted
Composite reliability and average variance extracted

Centralization factor (CF) 0.855 0.722
Formalization factor (FF) 0.903 0.722
Hierarchy factor (HF) 0.862 0.657
Constrained model (Corr. ¼ 1) Unconstrained model Discriminant validity

(Corr. ¼ free)
w2 df w2 Df Dw2 Ddf Sig.
Discriminant validity
CF–FF 37.23 9 23.59 8 13.64 1 **
CF–HF 32.64 9 20.98 8 11.66 1 **
FF–HF 22.58 9 11.75 8 10.83 1 **
Appendix B. Cluster analysis
See Table B.1.
Table B.1
Number of clusters Agglomeration coefficient Percentage change in coefficient to next level
Hierarchical cluster analysis

10 75.483 7.1
9 80.878 5.2
8 85.112 10.4
7 93.954 9.0
6 102.398 6.6
ARTICLE IN PRESS
Table B.1 (continued )
Number of clusters Agglomeration coefficient Percentage change in coefficient to next level
5 109.203 21.6
4 132.845 11.2
3 147.722 10.7
2 163.468 12.3
1 183.525 —
Ward method Predicted group membership Total
1 2 3 4 5
Non-hierarchical cluster analysis by discriminant analysis

Original Count
1 51 0 0 0 0 51
2 2 85 0 0 0 87
3 0 0 200 3 0 203
4 0 0 0 72 0 72
5 0 2 0 0 208 210
%
1 100.0 0.0 .0 .0 .0 100.0
2 2.3 97.7 .0 .0 0 100.0
3 0.0 0.0 98.5 1.5 .0 100.0
4 0.0 0.0 0.0 100.0 .0 100.0
5 0.0 1.0 0.0 0.0 99.0 100.0
98.9% of original grouped cases correctly classified.
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ARTICLE IN PRESS

Int. J. Production Economics 106 (2007) 323–345

Organizational structures and the performance of

1. Introduction hancement, efﬁcient machine operations, and pro-

S.W. Kim / Int. J. Production Economics 106 (2007) 323–345

Fig. 1. SCM organization type.

Consumer products Basic industrial Electronic and Total

*( ) is the result of Duncan test (H: High, M: Middle, L: Low).

Integration level of SCM system

S.W. Kim / Int. J. Production Economics 106 (2007) 323–345

Functional integration stage 21 51 20 2 29 123

Signiﬁcantly high Signiﬁcantly low

w2 value df GFIa AGFIb RMSRc NNFId NFIe

Goodness of fit summary

Measurement items St. estimate

Measurement equations with standard errors and test statistics

Variable Composite Average variance

Composite reliability and average variance extracted

Constrained model (Corr. ¼ 1) Unconstrained model Discriminant validity

w2 df w2 Df Dw2 Ddf Sig.

Appendix B. Cluster analysis

See Table B.1.

Number of clusters Agglomeration coefﬁcient Percentage change in coefﬁcient to next level

Hierarchical cluster analysis

Table B.1 (continued )

Number of clusters Agglomeration coefﬁcient Percentage change in coefﬁcient to next level

Ward method Predicted group membership Total

Non-hierarchical cluster analysis by discriminant analysis

98.9% of original grouped cases correctly classiﬁed.

References surement systems. International Journal of Production

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