Graduation Year

2011

Document Type

Dissertation

Degree

Ph.D.

Degree Granting Department

Industrial and Management Systems Engineering

Major Professor

Kingsley A. Reeves

Keywords

Natural resource based view, Natural transaction cost economics, Supplier relationships, Sustainable supply chains, Trend Analysis, Vertical integration

Abstract

The goal of this dissertation was to contribute to our understanding of the relationship between supply chain structure and the pursuit of a sustainability-driven corporate strategy. The literature indicates that in order to pursue a sustainability-focused strategy, an increased level of integration across the supply chain is required. However, there are also industry-level dynamics that impact observed levels of vertical integration. That is, some industries are naturally more integrated than others based on the maturity level of the industry. Thus, some firms may experience opposing forces regarding their sourcing strategies once they choose to pursue a sustainability-focused strategy.

To explore this potential tension, it is first necessary to objectively measure vertical integration. Several methods for measuring vertical integration exist; however, all of these methods rely exclusively on economic data. These measures might overlook other forms of integration that might be enacted, such as the development of stronger social ties. Thus, this research will seek to utilize a novel method that makes use of social network analysis to assess integration among firms in a supply chain along social dimensions.

This dissertation 1) determined the correlation between having a vertically-integrated organizational structure and pursuing a sustainable supply chain strategy by identifying if sustainability-focused companies (SFCs) have a more vertically-integrated organizational structure than their counterparts that are not pursuing such strategies, 2) examined the evolution of supply chain structure as a company becomes more environmentally, economically, and socially sustainable over time, and 3) defined the social ties between SFCs and their first- and second-tier suppliers to understand if they develop stronger social ties as a potential substitute for pure vertical integration.

This dissertation is comprised of four main parts. In the first part of the dissertation, I compared three recently developed vertical integration indices based on consistency and ease of measurement. The three vertical integration indices studied were empirically tested on companies in the U.S. Medical Devices Industry and the limitations of each are discussed. Our analysis suggested adoption of the Fan and Lang's method.

In the second part, I examined the vertical integration level of environmentally sustainable and non-sustainable companies. I empirically examined the vertical integration level of 144 sustainability-focused companies in 9 different industries. The results demonstrate that sustainability-focused companies in the Medical Devices Industry and the Industrials Industry tend to have more vertically integrated organizational structures than their industry competitors that are not pursuing such a strategy since these two industries are production oriented and they have closer relationships with their suppliers.

In the third part, the objective was to understand how the organizational structure of sustainability-focused companies changes over time as the companies become more environmentally, economically, and socially sustainable. I applied trend analysis to the sustainability and vertical integration level of the companies. Our sample consisted of 10 sustainability-focused companies from the industrials industry. I used the content analysis of annual reports to calculate sustainability development scores, and applied the Fan and Lang's method to determine the vertical integration level of the companies. The study results demonstrated an increasing trend in both vertical integration and sustainability development of industrial industry companies over a 15-year of period. Furthermore, the companies became more vertically integrated as their environmental, economical, and social sustainability increased.

Finally, in the fourth part, I developed and empirically tested a theoretical model that examines the supplier relationships of sustainability-focused companies (SFCs) to understand if these relationships are substitute to a vertically integrated organizational structure. Furthermore, I tested if SFCs are more socially connected to their suppliers compared to non-sustainable companies (non-SFCs). An online survey instrument was utilized for data collection. The empirical findings of path analysis demonstrated that SFCs establish long term relationships, collaborate, transfer know-how and experience, and create strong-ties with their first and second-tier suppliers to have an organizational structure that is substitute to a pure vertical integration. Findings further revealed that SFCs are connected to their first and second tier suppliers with stronger social ties compared to non-SFCs. Results support the natural transaction cost economics and natural resource based perspectives. Our study results should be useful to researchers and managers who are interested in corporate sustainability behavior.

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