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The role of transportation capabilities in international supply chain management.

The increasing ability to source commodities and finished goods from anywhere in the world expands the domain of transportation to include international comparisons of supply chain structures and global integrative practices. As firms strategically compete on the basis of cost, service, or time, transportation can play a key integrative role in supply chain structures. More expansively, transportation may be in an ideal position to integrate and coordinate flows throughout the supply chain.

Although definitions vary, supply chain structure is often considered to represent the organizational efforts by three or more firms to manage and integrate material and related information flows in order to get closer to customers.(1) This supply chain structure attempts to coordinate cross-functional activities into holistic business processes both within and across firms in the supply chain. As such, attention must be given to both the "internal" and "external" customers of the firm.(2)

To minimize total costs and maximize customer value, transportation integration is essential within the supply chain. In general, integrative transportation involves getting the right assortments to the right place in perfect condition at the right time throughout the supply chain. Specifically, the supply chain structure defines and drives the transportation capabilities of time compression, reliability, standardization, just-in-time delivery, information systems support, flexibility, and customization.

In the next sections, each of these operational transportation capabilities is briefly discussed along with internal and external structural integration. This will be followed by a description of the methodology used in this study to compare the supply chain structures and capabilities of approximately 2,000 firms from four industrialized nations: Australia, Japan, Korea, and the United States. After presenting the study results, conclusions and implications for transportation's role in global competition and supply chain integration will be set forth.


Time Compression

Structural integration of the supply chain, such as operational coordination and information sharing, can reduce transportation time and thus total supply chain costs. For example, faster transit time minimizes pipeline inventories and may allow customers to lower safety stocks held in reserve. If time compression results in more frequent deliveries, then cycle stocks also can be lower. Furthermore, time saved in delivery frees up time in other areas of the supply chain, which may further reduce total costs. Similarly, if there is a delay in another area of the supply chain, then transportation may be called upon to speed up its performance so that cycle times remain constant. Yet, speed is not necessarily of value to the customer if the old military shibboleth of "hurry up and wait" is operating. For this reason, just-in-time (JIT) delivery is important, as discussed in a subsequent section.

Maximizing inventory velocity and reducing dwell-times are other time compression strategies that involve transportation. Velocity refers to how many times inventory turns per year, or the average number of days of inventory on hand.(3) For example, carrier-run flow-through warehouses or cross-docking operations similar to less-than-truckload (LTL) motor carrier terminals - rather than storage facilities or user distribution centers - should increase inventory velocity and therefore lower total inventory costs. Actions and policies that increase transportation container velocity will also reduce inventory costs.(4)

Dwell-time ratios are the average number of days inventory sits idle in the pipeline compared to the average number of days it is moving. The logistics literature reports that a ratio of 20:1 is common in industry.(5) This means that for every day inventory is being transported, it sits idle for twenty days somewhere in the pipeline. Whereas increasing inventory velocity involves accelerating warehouse throughput, reducing dwell-time requires bypassing or even eliminating warehouses to provide direct delivery.

All of the above time-compression concepts reflect attempts to achieve operational efficiency using transportation's temporal capabilities. As such, operational planning and reengineering may allow for transportation and information to serve as substitutes for warehousing and inventory costs. In particular, time compression strategies of expedited transportation, increased inventory velocity, and minimum dwell-times can reduce pipeline inventory, safety stocks, and cycle stocks. As a result, total supply chain costs may be minimized.


Structural integration, such as technical operational planning and instrumental information sharing, also can foster transportation reliability, which can be defined as reduced variability of shipment times around the mean transit time.(6) It is often more important that delivery times be reliable and consistent rather than solely fast.(7) To achieve integration, supply chain members depend on reliable deliveries for their own production and sales efforts. Inconsistent supply performance can raise production costs (for example, by shutting down a production line) or engender lost sales through stockouts. "What is the value of on-time delivery if being late can shut down an entire JIT production line?"(8) Of course, in the present competitive environment, both speed and reliability are demanded of transportation.

Another dimension of transportation reliability is the absence of shipment loss and damage, which also is important to supply chain performance. Although the direct costs to supply chain members of replacing lost or damaged materials can be high, the indirect costs can be even higher.(9) Among these indirect costs are lost sales, decreased customer loyalty, market share loss, production down-time, and reordering costs. The reliability of transportation is therefore critical for supply chain integration. Unreliable service that delivers partially filled orders and/or damaged articles can significantly increase supply chain costs.


Standardization of transportation and logistics processes, practices, and policies is an important integrative capability. Standardization makes supply chain flows and activities more predictable and less susceptible to an exceptions basis. Individual processes, organizational entities, and personnel can act more efficiently in terms of less risk, time, labor costs, equipment, or other supply chain resources.

Just-in-Time Delivery and Information Systems Support

Structural integration, such as operational planning for process improvement, allows transportation to be synchronized with other supply chain activities and flows.(10) Information systems support is also critical to facilitate such integrative performance. For example, consider transportation at a Saturn automotive plant where one third-party carrier handles 2,000 dock stops per day at five-minute intervals to exact points of demand on the production line. This eliminates warehousing and double-handling, substitutes "moving warehouses," and enables Saturn to turn inventory more than 200 times per year.(11)

In contrast, unsynchronized transportation can create congestion, confusion, and poor production sequencing at a customer's receiving docks. The results can be loss and damage, inefficient production and sales force efforts, and overtime or extra labor to handle the irregularities. For these reasons, early shipments may be even worse than late deliveries. Thus, structural integration through operational planning, coordination, and information sharing can be vital to achieving responsive JIT delivery and information systems support.


Such structural aspects as strategic alliances or regular meetings with customers to share information and determine their needs can build in transportation flexibility for supply chain integration and total cost reduction. For example, motor carriers and automobile manufacturers have jointly developed side-loading trailers to provide flexibility in terms of delivery sequence and to specific points on the line. Furthermore, nearby carrier-operated JIT flow-through warehouses make use of kitting operations and postponed sorting and assembly to fulfill last-minute customer demands and to ensure flexibility in shipment scheduling.

For special nonrecurring, nonstandard, or emergency situations, supply chain members may require altered shipment plans or rush shipments. These may be needed to fulfill a commitment to a key client, for special promotions, for stockouts and replacement items, or simply to keep production running. In general, lack of transportation flexibility can raise inventory carrying costs, ordering costs, the cost of lost sales, and production costs. In total, all of these transportation capabilities represent flexibility in terms of time, items, quantity, location, or delivery sequencing.


A final transportation capability involves customization of transportation offerings. Customizing transportation attributes for specific market segments or different supply chain members can further increase integration of supply chains.(12) For example, storedoor-delivery systems or carrier-managed inventory reordering, labeling, and displays are innovations developed in response to specific market segments. In turn, direct delivery or cross-docking operations are innovations tailored to other market segments.


Both internal cross-functional integration and external structural integration are necessary to achieve the transportation capabilities described above. Internal integration involves the internal customers of the firm. Too often, a firm's various departments are "functional silos of me-ism" rather than integrated value-adding processes. Yet, material and information flows cut across functional departments as well as organizational boundaries.(13) Thus, a firm's success partially depends on internal departments, including transportation, serving one another, and the value-adding processes for final consumers.(14)

Internal integration requires that transportation, procurement, manufacturing, and sales are coordinated and integrated to achieve customer value and satisfaction. Interdepartmental cooperation and information sharing are critical to such success.(15) To the final customer, these material and logistical processes must appear seamless. For example, if customers have questions about their freight, they should be able to make a single phone call rather than consult with several departments in the carrier's organization.


Transportation capabilities also are influenced by external supply chain integration, which involves a firm's links with material suppliers, carrier partners, and customers. Major external structural aspects include operational planning for JIT demand-pull, transportation information sharing, and information technology links among supply chain members. It recently has been asserted that the advanced communications and transportation capabilities now available potentially allow firms to source anywhere in the world and to eliminate geography as a major barrier.(16)

Transportation information sharing may involve exchange not only of operational data (such as transportation EDI, document transmission, Quick Response, bar coding, scanners, and satellite transmissions) but also of tactical and strategic information among supply chain partners. As such, a key concept is end-to-end "pipeline visibility"(17) at the operational, tactical, and strategic levels.

At the operational level, Ace Hardware, for example, is able to assign orders to specific retailers while the goods are still in European warehouses. Ace can track each item of an order at every step in the international pipeline. U.S. retail destinations can be planned and scheduled while the goods are in transit to coincide with special marketing promotions and to optimize intermodal coordination for JIT delivery. Furthermore, this computerized Quick Response system can identify which container has the hammers, and send that truck to the head of the line.(18)

Examples of tactical information sharing include regular visits by transportation executives to key customers or carrier personnel permanently stationed at shipper, supplier, and/or consignee premises for seamless service and pipeline visibility. Some carriers are even meeting jointly with shippers and their customers. This triad ensures that everyone in the value chain knows his or her proper role and is being innovative in creating a smooth and improving flow of goods and information. In fact, since transportation is often the major link between several supply chain members, and has crucial information about their changing last-minute requirements, a strong argument can be made that transportation should take the lead structural role in integrating and managing the supply chain.(19)

At the strategic level, an example of supply chain integration through information sharing is strategic alliances among supply chain members, such as shippers, carriers, and consignees.(20) Again, shared information appears to be of paramount importance. For example, if shippers have the right information, their control and customization of the carrier's service to enhance value to the customer potentially will increase. Furthermore, information can erode the boundaries between internal and external customers and carrier partners.(21) The resulting structural integration of the supply chain can link a customer's needs with the carrier's capabilities and offerings.


The supply chain structure defines and drives such transportation capabilities as reliability and just-in-time delivery, which in turn can reduce total costs and increase value to customers. Supply chain structure involves both internal and external process integration. If transportation is not included in that organizational integration, then the full benefits of its capabilities will not be realized. Furthermore, supply chain processes and flows will not be coordinated.

In a deregulated and global environment, the role of transportation has broadened and expanded to international supply chain integration. To understand the relationships between international sourcing and transportation, country-specific supply chain structures and capabilities need to be investigated and compared.


This research compares the supply chain organizational structures and integrative capabilities of four major industrialized nations: Australia, Japan, Korea, and the United States. Although the geographical scope is limited to these four countries, each represents a model or type of supply chain structure. The study is part of the larger and continuing global best practices research being conducted at Michigan State University.(22) In this portion of the research, both mail questionnaires and subsequent field case interviews were employed in the U.S. and the Pacific Basin region.

To investigate whether there are differences in the way firms from different countries structure and integrate the supply chain, the Michigan State research team developed a survey questionnaire. To ensure a valid and reliable questionnaire instrument, the team reviewed all relevant transportation, logistics, and global trade literature for concept definitions, prior survey scales, and existing models. Expert panels also were used to validate construct measures. The initial survey instrument was then pretested for reliability and content validity with executives from numerous participating firms, including foreign firms, and modifications were made based on these interviews. The team's sixteen-member Global Advisory Board also made recommendations for questionnaire improvement.

In the United States, the questionnaires were mailed to all Council of Logistics Management (CLM) members except universities, publishers, and consultants. The CLM is broad in terms of both industry representation and national coverage. In Australia, Japan, and Korea, every effort was made to use associations comparable to CLM and comprising similar industries. The national membership roster of each association was checked for comparability to CLM. Virtually all the association members have a major presence in their country and represent the most significant firms in their respective industries. These were not perfectly matched samples, however, because each country has its own industry competitive advantages.

Questionnaire translations were conducted using Douglas and Craig's recommended international research methodology.(23) Native speakers performed an initial survey translation and a different set of interpreters backtranslated the survey instrument. Any dissimilarities between the original instrument and the backtranslated instrument were then reviewed and revised as necessary.

The questionnaire was sent to 9,634 firms in the four countries. In the foreign countries, the professional associations mailed the translated survey with their own letter of support. A total of 1,951 usable questionnaires were returned, for an overall response rate of 20.1 percent in the Asia Pacific region and 20.4 percent in the United States. The sample size for each country is shown in the tables. Statistical analyses did not indicate any nonresponse bias or systematic country response patterns. The survey measurement scales are shown at the bottom of each table, are of the five-point Likert type, and are typically anchored in their wording compared to five years earlier (e.g., see Table 1).

To test for the possibility of covariates other than country sources of variation, on an aggregate questionnaire and a regional basis, ANOVA was used to group firms by size, region, industry, location of headquarters, and channel position. No significant between-group differences were found other than those attributable to country.


As a second phase of the research, data were also collected on transportation and logistics capabilities by conducting field interviews with eighty firms in the United States and Pacific Basin region. These in-depth interviews included completion of detailed workbooks on company practices and capabilities. By collecting data on capabilities separately from data on supply chain structures, statistical independence of observations should be ensured.


Internal Supply Chain Integration

Table 1 compares internal supply chain integration practices in Australia, Japan, Korea, and the United States. Korean firms have the greatest tendency among the four countries to presently stress internal integration as evidenced by their significantly lower mean scores on all of the five relevant items. Specifically, Korean firms report that internal coordination of logistics decision making should be centralized and has substantially increased among the organizational areas of (1) transportation, (2) logistics, (3) marketing, (4) procurement, and (5) manufacturing over the past five years. Korean respondents also view their firms as having the significantly greatest increase in local operating presence of transportation and logistics over the past five years. Transportation and logistics job functions within the Korean firms also have become more specialized and Korean firms report the greatest recent tendency to improvements in computer systems primarily for internal cost reduction purposes.

As indicated in Table 1, these differences for Korean firms are all significant at the p [less than or equal to] .05 level and reflect increased internal supply chain integration over the past five years. Apparently, the strategic emphasis of Korean firms has been to integrate the internal supply chain primarily to reduce costs, perhaps as a substitute for past labor cost advantages.

External Supply Chain Integration: Operational Planning Focus

Table 2 compares external structural integration tendencies of firms in Australia, Japan, Korea, and the United States. The emphasis is on operational integration of physical process [TABULAR DATA FOR TABLE 2 OMITTED] flows between a company and its suppliers and customers. Channel power and organizational loyalty are also compared.

Operational Planning and Physical Process Improvement

The first four measures presented in Table 2 reflect structural integration with external members of the supply chain through operational planning and physical process improvement. For all four country means, Japanese firms show a significantly greater tendency toward this type of integration. First, the Japanese firms rate operational planning for inter-organizational process improvement as significantly more important than do firms from the other four countries. Further, it should also be noted that this process improvement variable most strongly differentiates among all four countries in Table 2, since all means are statistically different. Thus, Japan is followed in order by Korea, the U.S., and Australia in emphasizing physical process improvement. Second, operational planning for JIT demand-pull is rated as significantly more important by Japanese respondents than by U.S., Korean, or Australian executives. In addition, Japanese firms attach significantly greater importance to operational planning for return movements such as product returns and recycling. Similarly, they place significantly greater emphasis on supply chain operational planning for problem recovery. In total, Japanese firms stress operational planning and physical process improvement as an external integration approach.

It is also interesting to note that, compared to firms in the other three countries, Japanese firms attach greater operational importance to transportation-oriented flow-through warehousing solutions and to the relatively new Quick Response (QR) systems. QR systems electronically link customers' point-of-sales information with upstream channel suppliers in order, for example, to plan operations and to replenish channel inventory. These differences are significant only at the p [less than or equal to] .10 level, however, so they are not reported in Table 2.

Traditional Channel Power

The middle portion of Table 2 shows that the traditional use of channel power is most favored by Japanese firms. Specifically, Japanese respondents are most likely to view strategic alliances as typically being dominated by the partner with the greatest power. Japanese respondents also are most likely to characterize effective transportation and logistics alliances as requiring the support of a written contract or agreement. In essence, Japanese firms appear to place significantly greater emphasis on the use of traditional channel power than do firms in the other three countries. In light of the earlier finding that Japanese firms attach greater importance to external integration through operational planning and process control, it is possible to suggest that channel power lowers the risk that channel members will not perform according to operational plans. This point will be discussed in the Conclusions section in relationship to the Japanese Keiretsu system.

Organizational Loyalty

The bottom portion of Table 2 shows that Japanese respondents report the greatest tendency toward increased organizational loyalty. In terms of employee loyalty to the company, the Japanese mean differs significantly from the U.S. and Korean figures but not the Australian mean. Korean executives report the lowest employee loyalty to the company, which may reflect changing cultural and economic patterns; i.e., labor conflict has become more common in Korea and the conglomerate paternalism of the chaebols is more open to question. With regard to firms being loyal to employees, the Japanese score is again highest and differs significantly from the U.S. and Australian means but not the Korean figure. This latter result is interesting in that Korean respondents see the decline in organizational loyalty as one-sided, that is, increased company loyalty to employees is not being reciprocated.

In sum, Japanese firms have a possible competitive advantage over companies in the other three countries in terms of both greater loyalty to the company and to employees. Labor issues appear to be a problem for Korean firms. The U.S. scores on both measures are very low and disconcerting. It also should be noted that the mean U.S. responses are lower than the midpoint by almost a full point, which may suggest a particular competitive disadvantage in this loyalty area. It is likely that developments in the United States over the last decade - such as increased mergers and acquisitions, leveraged buyouts, corporate downsizing, employee buyouts, temporary employment, and early retirements - have taken their toll on organizational loyalty.

External Supply Chain Integration: Interactive Relationships

Table 3 compares the Australia, Japanese, Korean, and U.S. firms with respect to interactive relationships for external supply chain integration; that is, how a company uses external relationships to coordinate with its customers, carriers, and suppliers. All the U.S. and Australian means in Table 3 differ significantly from the Japanese and Korean results at the p [less than or equal to] .05 level.

Customer Interactive Relationships

Table 3 shows that the U.S. and Australian firms have the greatest tendency toward interactive relationship integration with customers. They have a significantly greater incidence of transportation and logistics managers contacting customers than do firms in Japan and Korea. In response to a possibly telling question, the U.S. and Australian firms report a significantly greater likelihood that senior transportation and [TABULAR DATA FOR TABLE 3 OMITTED] logistics executives will actually visit key customers.

Supplier Interactive Relationships

Table 3 also shows that the U.S. and Australian firms have the greatest tendency toward interactive relationship integration with suppliers. Specifically, U.S. and Australian companies are significantly more likely than Japanese and Korean firms to measure the performance of carriers and suppliers. Furthermore, based on response to another particularly telling question, they more often share these performance results with carriers and suppliers. This item most strongly differentiates the four countries in Table 3, since all four means significantly differ from one another at the p [less than or equal to] .05 level. In particular, the U.S. firms are most likely to share this information. In total, U.S. and Australian firms are more likely than Japanese and Korean counterparts to pursue interactive relationship integration with carriers, suppliers, and customers.

Strategic Alliances

Table 3 also compares the Australian, Japanese, Korean, and U.S. firms regarding the use of strategic alliances to integrate the supply chain. Firms in the United States and Australia are much more likely to form such alliances, and they are significantly more likely than Japanese or Korean companies to view information sharing as the key to these alliances. It is interesting to note that respondents from all four countries rank information sharing at the highest level of all items in Table 3, possibly suggesting its particular importance. Finally, U.S. firms are followed closely by Australian companies in attaching greater overall importance to strategic alliances for achieving supply chain integration.

Importance of Transportation and Logistics Capabilities

Table 4 compares Japanese firms with United States firms in terms of the relative importance of specific transportation and logistics capabilities for supply chain integration. This portion of the data is from 80 in-depth field company interviews in the United States and Japan, so that capability observations should be statistically independent from the earlier structural observations. The transportation and logistics capabilities are as defined in the Introduction.

Table 4 shows that Japanese firms are more likely to stress transportation and logistics capabilities of time compression, standardization of operational processes and practices, just-in-time delivery, information systems support, and low logistics costs. The common denominator to all of these capabilities is operational efficiency. In turn, U.S. firms are statistically most likely to stress flexibility for customers and customization of transportation and logistics service offerings. The common denominator to these capabilities is differentiation.

The U.S. and Japanese firms do not significantly differ on the importance of reliability and customer service capabilities. However, these two capabilities are rated by both countries as the most important capabilities in all of Table 4. This observation may imply the paramount criticality of reliability and customer service for supply chain integration regardless of structural type.


The present research investigates and compares supply chain organizational structures and integrative capabilities(24) of approximately two thousand firms from the United States, Japan, Korea, and Australia. Country differences in both supply chain structures and transportation capabilities are identified which have substantial implications for transportation's role in supply chain design and integration.

In a global and deregulated environment, transportation's contribution to international supply chain structure takes on new and increased importance. Without transportation's active participation in structural supply chain design, transportation capabilities such as reliability, time compression, and just-in-time delivery cannot be successfully implemented for total cost minimization and customer value enhancement. Transportation capabilities must therefore be integrated with their enabling supply chain structures. For example, United States firms are shown in this study to especially stress capabilities of flexibility and customization of service offerings. The common denominator appears to be differentiation. In contrast, Japanese firms more strongly stress time compression, JIT delivery, information systems support, standardization of physical processes, and low logistics costs. The common denominator to these capabilities is operational efficiency. Both countries equally emphasize the especially important capabilities of reliability and customer service, which most likely implies that all supply chain structures must be able to "deliver" them.
Table 4. Relative Importance of Transportation and Logistics
Capabilities for Supply Chain Integration

Capabilities US Japan
 Mean Mean

1. Time Compression 2.33 2.00(1)

2. Standardization of 2.31 1.84(1)
 Transportation and Logistics
 Processes and Practices

3. Just-In-Time Delivery 2.53 1.64(1)

4. Information Systems Support 1.57 1.24(1)

5. Low Logistics Costs 2.04 1.23(1)

6. Flexibility for Customers 1.85(2) 2.54

7. Customization of Transportation 1.48(2) 2.70
 and Logistics Service Offerings

8. Reliability of Transportation 1.19 1.12

9. Customer Service 1.11 1.15

Scale: 1 = very important; 5 = not important at all. Source: 80
in-depth field case studies conducted in the United States and

1 Japan differs significantly from the United States at p [less than
or equal to] .05.

2 United States differs significantly from Japan at p [less than or
equal to] .05.

In terms of structural arrangements, Korean firms show the greatest tendency to internal structural integration, which stresses the internal customers of the firm such as efficient internal relationships between transportation, logistics, sales, procurement, and manufacturing. Since Korea is a newly industrialized nation,(25) this finding of internal structural focus supports logistical theory, which predicts that firms will typically first address internal functional integration prior to external supply chain integration.(26)

In turn, Japan shows the greatest tendency to external supply chain integration, which stresses the external customers and external carriers and supply partners of the firm. Specifically, the external structural integration approach used by Japan involves operational planning of physical process flows (e.g., JIT), the greater use of traditional channel power (e.g., domination of channel members and contractual obligations), and increased organizational loyalty. It is interesting to note that for Japan, traditional channel power is consistent with greater organizational loyalty and that both appear to support an operational planning and physical process focus. Each of these structural aspects for Japan will be discussed next, first in the context of geographical barriers and secondly, in terms of the Keiretsu form of inter-firm organization. Parallels with Korea and contrasts with Australia and the U.S. will also be covered.

The first explanation for Japan's strong emphasis on operational planning of physical process flows can be partially attributed to geographical and density barriers.(27) Japan is geographically a small country approximately the size of California but with much higher population density. Particularly in urban areas, there is a shortage of space with concomitant congestion.(28) Because of these space and time limitations, operational planning approaches such as JIT systems and process improvement can have particular utility. For example, space and time barriers can be partially overcome by efficiency capabilities of faster transportation (e.g., bullet trains, "smart" transportation systems, etc.); increased inventory throughput and velocity (e.g., JIT delivery, cross-docking, direct delivery, etc.); standardization of physical processes; and separation of channel flows (i.e., specialization). These transportation efficiency capabilities are common solutions in Japan and to an increasing degree in Korea. Since Korea faces similar geographical and density barriers, it is not surprising that Korea is found to be second in this study in terms of stressing operational efficiency. Both countries also suffer from transportation infrastructure limitations.(29) In contrast, the United States and Australia do not face such stringent density and infrastructure barriers to the same degree. Essentially, geographical barriers of space and time can be partially overcome by operational efficiency. Furthermore, the greater these barriers, the more important is operational planning to achieve this efficiency.

Japanese firms' strong structural use of channel power and organizational loyalty also supports operational planning of physical process flows. To understand this second explanation, attention must be directed to the Keiretsu form of organized business relationships in Japan. Keiretsu are a form of supply chain structure with interlocking firms that are typically controlled by a central manufacturer (e.g., Toyota).(30) These interconnected firms are jointly owned and operated through overlapping equity interests, interlocking boards of directors, inter-firm strategic discussions, and co-location of employees. Once a firm decides to become a member of a Keiretsu, it generally loses its freedom and becomes dependent on the Keiretsu. Organizational loyalty and long-term relationships are expected. Member firms typically will not be allowed to do business with other firms outside the Keiretsu, and sole suppliers and single customers are quite common. The terms of delivery time, quality, and price are usually dictated by the central manufacturer or first-tier suppliers in the Keiretsu.(31) The sharing of risks and rewards are also determined rather autocratically by these central firms.(32) In total, the Keiretsu structure represents power-based leadership(33) with hierarchal relationships and interlocking firm ownership, operation, and control of firms. It also represents a good fit with Japanese culture, history, geography, and business values.

A major advantage of the Keiretsu structure is that it strongly supports an operational planning and physical process focus (e.g., JIT) with resulting efficiency capabilities. Because of channel power, long-term and interlocking firm relationships, and organizational loyalty, risk can be reduced and the business environment made more certain. Specifically, demand can be better predicted, supply and demand more easily matched, product flows smoothed, and interfirm coordination improved.(34) This creates a good environment for operational planning of physical process flows. As a consequence, efficiency capabilities of time compression, JIT delivery, standardization, information systems support, and low logistics costs can be developed.

A major disadvantage of the Keiretsu system by Western standards is that it involves elements of monopolistic market power.(35) For example, the previous Keiretsu descriptions reveal market characteristics of limiting firms' entry and exit, tying arrangements, reducing substitute products and sources, and pricing power. This suggests possible limitations on Japanese firms' supply chain capabilities for flexibility, customization, innovation, alternative sources of organizational learning, and market adaptation including distorted market signals.

It is interesting to note that Korea uses a somewhat similar structural form called chaebols, which are a limited number of government sanctioned conglomerates of mostly unrelated businesses that are typically run by extended family members. Three examples include Samsung, Hyundai, and Daewoo. Similar advantages and disadvantages exist as to the Japanese Keiretsu structure.

The present study's results show that both the U.S. and Australian firms are similar in using an external relationship integration approach which also emphasizes external customers and external partners. However, the primary organizational emphasis is on interactive relationships with supply chain members. These interactive relationship aspects may include a company's frequent customer and carrier personal contacts by the firm's transportation and logistics personnel; partnership interactions and strategic alliances; and the sharing with them of both transportation information and performance results. In a similar vein, both U.S. and Australian firms view strategic alliances as more important for supply chain structural integration than do Japanese or Korean firms. In total, the study results may imply that interactive relationship structures best engender differentiation capabilities such as flexibility and customization of offerings for customers.

In explaining U.S. firms' emphasis on interactive supply chain structures, comparisons can be made to the previously discussed Japanese Keiretsu structures. Unlike the Keiretsu relationships, U.S. business relationships and strategic alliances are more often voluntary and equal, and roles are mutually agreed upon. Firms must be persuaded to join, and the sharing of risks and rewards is negotiated. All of these practices require interactive relationships among carriers, suppliers, partners, and customers. Given American cultural and business values of autonomy, individualism, and independence, there is much less willingness by firms to put their fates in the hands of central control.(36) Essentially, the American interactive approach to supply chain structure is a partial substitute for the Keiretsu that best fits U.S. antitrust laws and cultural business values. In total, supply chain structures must be adaptive to their business, geographic, and cultural environment.

In conclusion, the study results confirm that different countries employ different prevailing transportation and logistics structural approaches to achieve supply chain integration. The role and relative importance of individual transportation capabilities varies by supply chain structure. Desired capabilities must therefore be targeted to their enabling supply chain structures. Although supply chain structures are partial substitutes for each other, they must also fit with their respective environments. This means that supply chain structural approaches such as JIT systems or process improvement cannot be blindly imitated, but must be understood in their present environmental context and adapted to their new environment.

These conclusions also imply that more broad-based research beyond specific techniques and topics is required for the future. Figure 1 provides a broad schema of suggested elements that should be considered in future international and supply chain research. As the direction of transportation and logistics research and practice continues to evolve toward global supply chain management, different operating environments must be recognized. Figure 1 also shows examples from the present study which illustrate these increasingly important considerations as global research and supply chain management become more prevalent.

This study's results do not imply that countries cannot learn from each other. Rather, different countries employ unique "mental programs"(37) which ensure that new supply chain solutions can be created and then viewed by others who would otherwise be blind. Furthermore, international trade, sourcing, and global transportation pipelines require knowledge of individual countries' supply chain structures in order to create seamless and efficient transportation and logistics performance. In fact, transportation may be ideally situated to take a lead role in integrating and coordinating supply chain flows.


1 Global Logistics Research Team at Michigan State University, World Class Logistics: The Challenge of Managing Continuous Change, (Oak Brook, IL): Council of Logistics Management, 1995; Donald J. Bowersox and Edward A. Morash, "The Integration of Marketing Flows in Channels of Distribution," European Journal of Marketing, Vol. 23, No. 2 (1989), pp. 58-67; Mercer Management Consulting, "Integrated Supply Chain Management," American Shipper: International Logistics, Vol. 37, No. 5 (May 1995), pp. 68-70.

2 Edward A. Morash, Cornelia Droge, and Shawnee Vickery, "Boundary Spanning Interfaces Between Logistics, Production, Marketing, and New Product Development," International Journal of Physical Distribution and Logistics Management, Vol. 26, No. 8 (1996), pp. 43-62.

3 Global Logistics Research Team at Michigan State University (1995), pp. 98-99.

4 Philip Damas, "The On-Time Imperative," Containerization International, Vol. 28, No. 5 (May 1995), pp. 50-55.

5 Global Logistics Research Team at Michigan State University (1995), p. 98.

6 Edward A. Morash, "On the Use of Transportation Strategies to Promote Demand," The Logistics and Transportation Review, Vol. 26, No. 1 (March 1990), pp. 53-75.

7 Damas, pp. 50-55; Ronald P. Stephenson and Ronald P. Willett, "Consistency: the Carrier's Ace in the Hole," Transportation Journal (Spring 1969), pp. 28-33.

8 Global Logistics Research Team at Michigan State University (1995), p. 47.

9 John E. Piercy, "Lost, Damaged and Astray Freight Shipments: Some Explanatory Factors," Transportation Journal, Vol. 19, No. 4 (Summer 1980), pp. 33-37.

10 Morash, Droge, and Vickery, pp. 43-62; Mary Lou Fox, "The Role of Transportation Planning in Supply Chain Integration," APICS - The Performance Advantage, (December 1992), pp. 1-4.

11 Ann Saccomano, "Demand-Chain Management Turns Traditional Supply Chain Inside Out," Traffic World, (Special Report on Contract Logistics), (March 13, 1995), p. 49.

12 Joseph B. Fuller, James O'Conor, and Richard Rawlinson, "Tailored Logistics: The Next Advantage," Harvard Business Review, Vol. 71, No. 3 (May-June 1993), pp. 87-98; Joseph B. Pine, II, Bart Victor, and Andrew C. Boynton, "Making Mass Customization Work," Harvard Business Review, Vol. 71, No. 5 (September-October 1993), pp. 108-119.

13 Bowersox and Morash, pp. 58-59; Alfred J. Battaglia, "Beyond Logistics: Supply Chain Management," Chief Executive, (November-December 1994), pp. 48-49.

14 Morash, Droge, and Vickery, pp. 43-62; William Wagner, "Achieving Buyer-Seller Satisfaction Carrier Service," International Journal of Physical Distribution and Materials Management, Vol. 17, No. 3 (1987), pp. 17-27.

15 Peter M. Lynagh and Richard F. Poist, "Managing Physical Distribution/Marketing Interface Activities: Cooperation or Conflict?" Transportation Journal, Vol. 23, No. 3 (Spring 1984), pp. 36-43.

16 Gregory L. Miles, "Virtual Logistics: Marrying Advanced Communications and Transportation," International Business (November 1994), pp. 36-40.

17 David Bovet, "Global Practices: Enhancing Transportation Effectiveness," Logistics: Candid Insights for Supply Chain Leaders, Mercer Management (Spring 1996), pp. 11-14; Joseph Bonney, "Global Transportation Network," American Shipper: International Logistics, Vol. 37, No. 10 (October 1995), pp. 84-87; Global Logistics Research Team at Michigan State University (1995), p. 45.

18 Miles, pp. 36-40.

19 Edward A. Morash, "Regulatory Policy and Industry Structure: The Case of Interstate Household Goods Carriers," Land Economics, Vol. 57, No. 4 (November 1981), pp. 544-557.

20 Donald J. Bowersox, "The Strategic Benefits of Logistics Alliances," Harvard Business Review, Vol. 68, No. 4 (July-August 1990), pp. 36-45; Kenichi Ohmae, "The Global Logic of Strategic Alliances," Harvard Business Review, Vol. 67, No. 2 (March-April 1989), pp. 143-154.

21 Morash, Droge, and Vickery, pp. 43-62.

22 Global Logistics Research Team at Michigan State University, "Global Logistics Best Practice: An Intermediate Research Perspective," Council of Logistics Management Annual Conference Proceedings, (October 1994), pp. 27-42; Global Logistics Research Team at Michigan State University (1995).

23 Susan P. Douglas and Samuel C. Craig, International Marketing Research, (Englewood Cliffs, NJ: Prentice-Hall, 1983).

24 George Stalk, Philip Evans, and Lawrence E. Shulman, "Competing on Capabilities: The New Rules of Corporate Strategy," Harvard Business Review, No. 2 (March-April 1992), pp. 57-69; C.K. Prahalad and Gary Hamel, "The Core Competence of the Corporation," Harvard Business Review, No. 3 (May-June 1990), pp. 79-91.

25 Laxmi Nakarmi and Patrick Oster, "The Korean Tiger is Out for Blood," Business Week (May 31, 1993), p. 54.

26 See, for example: Donald J. Bowersox and David J. Closs, Logistical Management, fourth edition, (Hightstown, NJ: McGraw-Hill Publishing Company, 1996).

27 Lance Heiko, "Some Relationships Between Japanese Culture and Just-In-Time," The Academy of Management Executive, Vol. 3, No. 4 (1989), pp. 319-321.

28 Ibid.

29 Tsuneo Akaha, ed., International Handbook of Transportation Policy, (Westport, CT: Greenwood Press, 1990).

30 For a detailed description of the Keiretsu structure, see: Lisa M. Ellram and Martha C. Cooper, "The Relationship Between Supply Chain Management and Keiretsu," The International Journal of Logistics Management, Vol. 4, No. 1 (1993), pp. 1-11.

31 Takeshi Kikuchi, ed., Japanese Distribution Channels, (New York: The Haworth Press, Inc. 1944), pp. 78-79.

32 Ellram and Cooper, p. 5.

33 Jean L. Johnson, Tomoaki Sakano, Joseph A. Cote, and Naoto Onzo, "The Exercise of Interfirm Power and Its Repercussions in U.S.-Japanese Channel Relationships," Journal of Marketing, Vol. 57 (April 1993), pp. 1-10.

34 Ernest H. Hall, Jr., "Just-in-Time Management: A Critical Assessment," The Academy of Management Executive, Vol. 3, No. 4 (1989), pp. 315-318.

35 Ibid, p. 316.

36 Ellram and Cooper, p. 6.

37 Geert Hofstede, Culture's Consequences, (London Sage Publications, 1980), pp. 14 and 373-374.

Mr. Morash, CTL, is associate professor of marketing and supply chain management, Eli Broad Graduate School of Management, Michigan State University, East Lansing, Michigan 48824-1122; Mr. Clinton is assistant professor of marketing, University of New Orleans, New Orleans, Louisiana 70148.

This study is part of the larger and continuing Global Logistics Best Practices Research being conducted at Michigan State University and partly funded by the UPS Foundation.
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Author:Morash, Edward A.; Clinton, Steven R.
Publication:Transportation Journal
Date:Mar 22, 1997
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