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Diversity in business-to-business information exchange: an empirical analysis of manufacturers and their trading partners.

Article Excerpt
Abstract

This article examines the performance implications of information exchange in industrial supply chains. While existing literature has addressed the critical role of information exchange in supply chain integration, existing studies fail to address the specific characteristics of information exchange that affect performance. Through a transaction cost economics theoretical lens, hypotheses are developed and tested to explore the effects of information volume and information diversity on firm performance. The hypotheses are tested using an original dataset of twenty-three manufacturing firms that exchange information with their trading partners using an electronic intermediary. Results indicate a positive relationship for information volume and a negative relationship for information diversity as related to firm performance.

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The exchange of information between firms within supply chains is of great interest to both researchers and practitioners. Supply chain literature recognizes the value of exchanging information to improve the supply chain performance in key functional areas such as logistics (Daugherty et al. 2002; Lieb and Butner 2007). The exchange of information is noted for its role in interfirm integration, sharing of performance data, and transparency (Cruijssen et al. 2007). Information exchange is also recognized for its positive performance effects when leveraged to dampen the bullwhip effect (Lee et al. 1997; Cachon and Fisher 2000; Machuca and Barajas 2004; Steckel et al. 2004). Strategically, the leveraging of information exchanged between firms is noted for its effects on competition (Sanders and Premus 2002) and specific areas of firm performance (Zsidisin et al. 2007). Complimenting the research on information exchange from a supply chain and logistics perspective is research on the use of information technology (IT) to span organizational boundaries. IT research recognizes that using IT to exchange information within the context of supply chains provides additional benefits to the participants (Bakos and Brynjolfsson 1993; Mukhopadhyay et al. 1995; Mukhopadhyay and Kekre 2002). The benefits to firms include decreased inventory investment (Mukhopadhyay et al. 1995), improved customer service (Allen et al. 1992), and reduced shipment errors (Srinivasan et al. 1994).

While firms may choose to exchange information with their trading partners in order to improve supply chain performance, they must balance the risks associated with providing information that can be used against them. Sharing forecast information with a supplier may allow the supplier to efficiently schedule production or it may alert the supplier to an opportunity to re-negotiate pricing. A supplier that uses information for opportunistic gain may impair the performance of its trading partner. Information exchange then becomes a double-edged sword where it is a source of efficiency in coordinating firm resources across the supply chain but can allow firms to act selfishly.

Prior research on information exchange has been limited to studies using perceived measures of information exchange collected through surveys (Whipple et al. 2002) and modeling studies that have simulated information exchange (Cachon and Fisher 2000; Cachon and Lariviere 2001; Angulo et al. 2004; Gaur et al. 2005b). Even studies using objective measures of information exchange have been limited to the study of a single buyer to its multiple suppliers (Mukhopadhyay et al. 1995). This study takes a unique approach by using archival data of actual electronic information exchanges from multiple firms within an electronic exchange network.

By observing information exchange occurring though an IT-enabled channel, this study utilizes unique measures of information exchange characteristics. This study uses specific IT-based measures to capture information exchange volumes and information exchange diversity.

HYPOTHESES

To be effective in dynamic markets, firms integrate externally with their trading partners (Rozenzweig et al. 2003; Vickery et al. 2003). Foundational to this integration is the exchange of information that will support the coordination of supply chain participants (Porter and Millar 1985; Cooper et al. 1997: Moberg et al. 2002). Existing literature supports the positive effects of integration on firm competitive performance (Daugherty et al. 2002; Whipple et al. 2002). As firms interact with their trading partners, they have the opportunity to minimize the cost of exchanging information by leveraging technology. Electronic data interchange (EDI) is a specific technology that uses standardized formats to electronically exchange business documents within and between organizations. In an EDI-enabled environment, firms may exchange large volumes of information with their trading partners at a minimal cost. Once the initial cost of formatting the information and establishing the communication link is made, the incremental cost of each additional document is minimal. Although the upfront cost of creating an EDI relationship has been noted as a deterrent to EDI implementation (Iacovou et al. 1995; Crum et al. 1998), these costs become sunk costs once the firm implements the technology. Once the electronic channel is established, firms can lower overall transaction costs by increasing the volume of information exchanged through the channel or by including more trading partners in the network (Crum et al. 1998). From an ordering cost perspective, inventory turnover can be improved by placing multiple orders for smaller quantities. Additional information including forecasts, production schedules, point-of-sale demand data, and inventory positions can all be exchanged electronically to improve the coordination of interfirm processes. Thus,

HI: Information exchange volume is positively associated with firm performance.

Information diversity refers to the number of unique types of information exchanged by a firm. Firms can choose how much information they exchange with their trading partners and how they exchange that information. EDI is used by firms to efficiently exchange business-to-business (B2B) information on a timely and cost-effective basis. A base level of information exchange must occur in order to do business in the supply chain. At a minimum, the buyer identifies what they want to purchase and when they require delivery. The supplier then confirms the pricing and availability back to the buyer. When the transfer of the physical product is complete, invoice and payment documents are exchanged. Each of these foundational information exchanges can be made electronically using the standard EDI requisition, purchase order, invoice, and remittance documents. But beyond basic transactions, firms can create unique competitive advantages by exchanging additional information (Dyer and Singh 1998). Empirical research has found that in an EDI-enabled relationship there is a...

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