The Role of Process Alignment, Information Precision and Information Reliability in Supply Chains

This paper examines whether two common actions between supply chain partners - aligning internal processes (“process alignment”) and exchanging precise and reliable consumer demand and inventory information (“information precision” and “information reliability”, respectively) - are nonfinancial indicators of future supply chain financial performance, and whether information contained in these nonfinancial measures is used to select and evaluate supply chain partners.  Using six years of performance measurement data from a leading manufacturer regarding their contractual arrangements with 156 independent distributors, I find that process alignment and information precision are positively associated with the future productivity, sales growth and profitability of individual supply chain partnerships.

However, I find no evidence that information reliability is directly associated with supply chain financial performance in my research setting.  After controlling for financial performance, bargaining power and prior period performance evaluations, I find that process alignment, information precision and information reliability are positively associated with the manufacturer’s contract renewal decision and important distributor performance evaluations.  Additional analysis examines the moderating role of relationship-specific investments in the association between nonfinancial measures and performance evaluations.

Collectively, the results provide evidence regarding the relative value of process alignment-based and accounting information-based nonfinancial performance measures in monitoring, selecting and evaluating supply chain partners.