Effects of Supplier and Customer Integration on Product Innovation and Performance: Empirical Evidence in Hong Kong Manufacturers

Abstract

While the beneficial impacts of supplier and customer integration are generally acknowledged, very few empirical research studies have examined how an organization can achieve better product performance through product innovation enhanced by such integration. This paper thus examines the impact of key supplier and customer integration processes (i.e., information sharing and product codevelopment with supplier and customer, respectively) on product innovation as well as their impact on product performance. It contributes to existing literature by asking how such integration activities affect product innovation and performance in both direct and indirect ways. After surveying 251 manufacturers in Hong Kong, this study tested the relationships among information sharing, product codevelopment, product innovativeness, and performance with three control variables (i.e., company size, type of industry, and market certainty). Structural equation modeling with correlation and t-tests was used to test the hypothesized research model. The findings indicate a direct, positive relationship between supplier and customer integration and product performance. In particular, this study verifies that sharing information with suppliers and product codevelopment with customers directly improves product performance. In addition, this study empirically examines the indirect effects of supplier and customer integration processes on product performance, mediated by innovation. This has seldom been attempted in previous research. The empirical findings show that product codevelopment with suppliers improves performance, mediated by innovation. However, the sampled firms cannot improve their product innovation by sharing information with their current customers and suppliers as well as codeveloping new products with the customers. If the adoption of supplier and customer integration is not cost free, the findings of this study may suggest firms work on particular supplier and customer integration processes (i.e., product codevelopment with suppliers) to improve their product innovation. The study also suggests that companies codevelop new products only with new customers and lead users instead of current ones for product innovation. For managers, this study has demonstrated that both information sharing and product codevelopment affect performance directly and indirectly. Managers should put more emphasis on these key processes, especially when linked with product innovation. Managers should consider involving their suppliers and customers in the early stages of design. Information sharing with suppliers is also important in product development. As suggested by this study, extensive effort on supplier and customer integration should be made to directly augment current product performance and product innovation at the same time.

Governance of supplier collaboration in technologically uncertain NPD projects

“…This necessitates collaboration with external organizations such as suppliers (Un, et al 2010). The advantages of collaborating with suppliers have been demonstrated in previous research, where benefits include flexibility (Riege 2003), speed (Brown & Eisenhardt 1995;Langerak & Hultink 2008), improved innovation (Lau, et al 2010), access to market information (Miotti & Sachwald 2003), and access to the supplier's capabilities (Oh & Rhee 2010). On the other hand, in order to achieve these benefits, it is crucial to recognize what the above quote represents; collaboration involves being friends as well as enemies at the same time.…”

The Influence of Knowledge Sharing on Employee Innovation Capabilities

“…Innovation plays a crucial role in fostering the long-term survival of firms, in determining the firm"s success, sustaining its global competitiveness and it is linked with competitive advantage and economic consequences (Porter, 1990;Lau et al, 2010). Various definitions of innovation describes it as the generation of creative ideas, acceptance and implementation of such creative new ideas within the organization into processes, products or services (Anderson et al, 2004;Schulze et al, 2008).…”

Banking Relationships, Managerial Ownership and Operational Performance: A Simultaneous Equations Approach in the Context of SMEs

“…If it is true that arguments are found pointing to a positive effect of this attribute on operational performance, sustained by economies of scale and reduced fixed costs Timotthy, 2000, Orlitzky, 2001) and in diversifying the range of products (services) produced (rendered) (Lau et al, 2010, Yam et al, 2011, the fact remains that arguments can be found pointing in the opposite direction. In small and micro enterprises in particular, an individual or family, characterized by a reduced propensity to risk and very careful analysis of investments, simultaneously perform the role of owner and manager, possibly conditioning performance.…”