Geographical Inhibitors

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The first and most obvious inhibitor to global integration for which we shall examine the role of information and communication technology is the geographical location of the buyer and the supplier. As stated, this inhibitor not only includes the costs of physical distribution, but also the costs of coordinating interorganizational business processes over distance. In terms of the two key elements of global sourcing, the former cost category corresponds to the internationalization aspect, whereas the latter corresponds to the functional integration aspect. IT is unlikely to decrease the direct costs of transportation such as fuel and transportation personnel. However, it may be very helpful in decreasing the costs of transportation related information, through electronic documents, tracking of goods or better inventory planning. This implies that total transportation costs decrease with increased usage of IT although these decreases are often marginal. Total transportation costs have always been one of the key inhibitors to internationalization of the supply base.

Functional integration involves a substantial amount of coordination of business processes, and as IT in general reduces coordination costs (Malone, Yates & Benjamin, 1987), significant changes can be expected. For example, U.S. flower importers frequently buy at the Dutch flower auctions. Upon purchase, the flowers are transported immediately to Schiphol airport and put on a plane. When they arrive in the US (especially the East Coast) they can still be sold on the same business day, thus preserving as much of their freshness as possible. One reason for this being feasible is the availability of EDI-links between the auction and large growers and buyers, thus enabling better coordination of the logistics processes involved. The introduction of the Tele Flower Auction (TFA) in the Dutch flower industry (Van Heck & Ribbers, 1998) described other advantages of IT. The TFA electronic auction system decreased the transaction costs for buyers, because they did not have to physically travel to the auction to inspect the flowers. It also allowed buyers more flexibility in their purchases because of greater market transparency. Consequently, buyers were better able to coordinate their purchasing strategies in dealing with different markets and buyers. Similarly, EDI has greatly facilitated the adoption of continuous replenishment policies (Lee, Clark & Tam, 1999), because the coordination of the logistics processes over distance is much easier. All of this points to an increase in functional integration enabled by IT.

Ikea uses electronic links to manage its supplies that are dispersed throughout the world. IT helps to trace cargo and helps to make projections of delivery times. Because suppliers deliver orders on time, Ikea can keep up its familiar no-frills approach to marketing. Goods come in pre-packed forms according to specification and customers are responsible for their final assembly at home. Since there are no assembly activities there is little need for intermediate storage of goods. In the Ford World Car project, outside suppliers also fulfilled a key role. Participating suppliers were chosen through a global search. Ford used a hierarchy of preferences: one shipping point for Europe and the U.S. was the first option, one firm with multiple shipping points the second best option, and multiple firms the worst option. Consequently a global supply chain emerged that was maintained by the rapid exchange of information on designs and deliveries, which was facilitated by Ford's global information system. This approach helped Ford to "rationalize down to the fewest number of suppliers of best-of-class components on a worldwide scale" (Dick Fite, CDW27 supply director). To achieve good integration between Europe and the U.S., Ford relied more heavily than in the past on IT-like video conferencing. John Oldfield, head of the world car program, said about the transatlantic video link: "Without video conferencing, the amount of travelling involved and the time differences would make a project like CDW27 near impossible." In sum, both Ikea and Ford used IT to decrease the costs of distance and this allowed them to use more international suppliers and to increase the frequency and quality of communications.

Proposition 2: IT alters the geographical inhibitors to global sourcing, by enabling more internationalization as well as improved functional integration.

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