MMRCDISCUSSION PAPER SERIES
No. 290

Organizational Capability in use of IT and Supply Chain
Management
Youngwon Park
Manufacturing Management Research Center
Faculty of Economics, the University of Tokyo
February 2010

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
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http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

Organizational Capability in use of IT and Supply Chain Management

Youngwon Park

Abstract (100 words)
Many firms in today’s business environment utilize diverse information systems to sustain theircompetitive advantages. However, too often the return of investment on information technologies is not
as obvious as expected. This is particularly true with many small and medium enterprises. This paper
presents a research model and examines how mobile display manufacturers implement their information
systems for the enhancement of supply chain performance. For the purpose of this research we involve
two firms and consider critical success factors of their information integration practices. One successful
firm which has organizational capability in IT use links its existing database to new information systems
and aligns its information system for the larger requirements of supply chains. Another firm possesses
different organizational capabilities and accordingly shows the poor outcomes. Based on extensive
interviews with the IT executives, supply chain professionals and IT vendors within the supply chain
network of these two firms, we present our findings. Lessons and implications are discussed.

Keywords (five words)
Organizational Capability, Database Integration Capability, Supply Chain Management, Information
System, Mobile display manufacturers

Organizational Capability in use of IT and
Supply Chain Management

Youngwon Park
Manufacturing Management Research Center
Faculty of Economics, the University of Tokyo

Many firms in today’s business environment utilize diverse information systems tosustain their competitive advantages. However, too often the return of investment on
information technologies is not as obvious as expected. This is particularly true withmany small and medium enterprises. This paper presents a research model andexamines how mobile display manufacturers implement their information systems forthe enhancement of supply chain performance. For the purpose of this research we
involve two firms and consider critical success factors of their information integration
practices. One successful firm which has organizational capability in IT use links its
existing database to new information systems and aligns its information system for thelarger requirements of supply chains. Another firm possesses different organizational
capabilities and accordingly shows the poor outcomes. Based on extensive interviews
with the IT executives, supply chain professionals and IT vendors within the supply
chain network of these two firms, we present our findings. Lessons and implications are
discussed.

Keywords (five words) Organizational Capability, Database Integration Capability,
Supply Chain Management, Information System, Mobile display manufacturers

11. Introduction
Modern manufacturing firms operate in very challenging circumstances. Sustainable
competitive advantages require more than applying efficient mass production methods or
securing adequate market share. The global competitive landscape continues to dictate firms todevise faster responses to the changing market demands. In this context, increasingly firms
adopt product lifecycle management (PLM) and supply chain management (SCM). With theapplication of PLM firms try to meet comprehensive customer requirements with complex
product features by flexible innovative capabilities (Garwood, 2006). By PLM firms aim toachieve business successes from the standpoint of the entire product life cycle (i.e., birth,
growth, maturity and termination). On the other hand, by SCM firms deal with continuous
value flows (i.e., information, product and cash) from the perspective of supply chain value
network. In this sense, supply chain management (SCM) shares a real similarity with PLM in
terms of goals, processes and outcomes. For both PLM and SCM it is critical to maintain an
integrative database with those of component parts suppliers, production facilities, distribution,and customers.
An example of complex manufacturing database is bill of materials (BOM). BOM isessential for manufacturing management. BOM is information chain pathways for assemblingcomponents of certain product, which define the fine details of fulfilling customer orders anddesign specifications that involve the functions of sourcing, manufacturing and maintenances.
Deploying right products that meet changing customer needs is a key for the firm’s
competitiveness. Thus, it is critical for firms to manage demand chain through the use of welldesigned product database that facilitate effective information flows about customer changing
needs (de Treville, 2004; Walters, 2008). A successful fulfillment of complex customer
requirements at the right time requires the design and use of integrative database. The real
challenge is how to integrate manufacturing-related BOM with management-oriented database.
In fact, many firms fail to meet the changing customer requirements because of theinadequate integration between manufacturing database and other functional database. Productdemand management (PDM) may involve a huge investment and yet its effect is too often
disappointing. One global firm successfully implemented PDM by integrating the diverse IT
systems including marketing information (product development information), concept2information (functional information), design information (technology information) andproduction information (supplier production network information). Such complex information
system integration allows the firm to achieve faster product development and sustains global
competitiveness (Park et al., 2007). In response to global SCM requirements, firms build
global ERP (Enterprise Resource Planning) along with diverse SCM systems. As a way of
meeting changing customer requirements firms choose APS (Advanced Planning and
Scheduling System) which is more advanced than the past MRP system. Such innovative IT
system will work only if an effective integration with other functional system database occurs.
In fact, massive IT investment does not necessarily generate tangible business results. In viewof these findings the key assumptions of this paper are: (1) effective IT system integration is
critical for desirable business outcomes; (2) IT integration effectiveness indicates the firm’sorganizational capabilities. For the examination of the above assumptions this study presents acomparative analysis of mobile display manufacturers in respect to their IT organizational
utilization capabilities.

2. Literature Review
2.1 SCM and Database integration Capability
Integrating the efforts of diverse players across the supply chain is an important research
focus of supply chain management (Zhang, 2006). Suppliers and customers work as partners
for the common objective of enhancing competitiveness and profitability for the whole supply
chain network (Patterson et al., 2003). Since value creation in supply chain depends on
effective information flows, key success factors for a supply chain require strategically aligned
inter-organizational IS that achieves accurate demand forecasting and cost effective inventory
management, transactional activities and procurement processes (Whipple and Frankel, 2000;
Gunasekaran and Ngai, 2004). Successful participation in e-marketplaces assumes firms tointegrate their internal and external supply chain activities through strategic and operational
information sharing. Therefore, construction of appropriate IT system is indispensable indesign and implementation of a SCM strategy (Park et al., 2007). In particular, integrating
database is a prerequisite to the successful adoption of new IT system. Without integration of
all existing database, a huge investment of the new IT system would be in vain. For example,
mere adoption of 3D CAD system without corresponding organizational innovation may notachieve the desirable outcomes (Robertson and Allen, 1993; Tan and Vonderembse, 2006). The
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widening gap between the intended goals of the 3D CAD system investment and actual
outcomes of its use is quite real in many organizations (Beatty, 1992; Park et al., 2007). The
underutilization or ineffective use of CAD is suggested as the primary reasons for such
undesirable performance gap (Buxey, 1990; Liker et al., 1995; Park et al., 2007; Robertson
and Allen, 1993; Twigg et al., 1992).
3D CAD-CAE also promises reduction in development time through front loading andsmaller design changes with appropriate organizational capabilities (Fujimoto and Nobeoka,
2006; Fujimoto, 2004; Thomke and Fujimoto, 2000). Yet, differences of organizational
capabilities account for the huge outcome variations of IT system utilization. With theimplementation of the same types of IT systems the average product development time ofJapanese auto-manufacturers is no more than 18 months while USA firms report the time foraverage new product development projects for more than 30 months (Fujimoto, 2006). In
another study, the US (Chrysler as an example) and European firms adopted 3D CAD three
years earlier than Japan and the actual results show that Japanese firms are ahead in virtual
digital mockup (Fujimoto and Nobeoka, 2006). In the late 1990s, most of USA Firms adopted
3D CAD for the full design draft (100%) of component parts while Japanese counterparts did
only 49% of that of component parts. Japanese firms were lagging behind USA Firms in termsof IT technology adoption, yet their better operational performance suggests that it is criticalfor functional specialists to master organizational routines for innovative problem solutions(Park et al., 2007). These findings indicate that the organizational capabilities matter indetermining the outcomes of IT system implementation (e.g., CAD, ERP).
In the firm level we now consider BOM database which covers all the business processes(i.e., design, manufacturing, purchasing and after services). The foundational database for
product BOM consists of master BOM, design BOM (E-BOM), manufacturing BOM (MBOM), purchasing BOM and service BOM. Master BOM controls other functional BOM (i.e.,
E-BOM, M-BOM, purchasing BOM, service BOM). However, these BOM and other related
data may be stored in the form of local files. Therefore, they may not be standardized. In thiscase, even the most outstanding new IT system might not produce any desirable systemoutcomes. On the other hand, any firm that has built integrative database may secure a better
competitive position. For example, in Bentley, the scientific experiment tool maker, almost all
production design was done by the cutting-edge technology veteran during 1960-1970.
However, in the process of introducing new products the firm processes more than 1,000 types
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of engineering change orders (ECOs) each year. Once it experienced the loss of all the datawith a fire accident. Afterward, Bentley adopted ERP system. For the implementation of an
integrative system all the key stakeholders within the firm gathered in a meeting room. Their
implementation planning covers all business processes with the use of a unified BOM
database. As the result, it achieved the rapid rate of business growth with the support ofintegrative and unified database that are linked to marketing, sales, cataloguing, technologicaldocuments, design pattern files, product database (Garwood, 2006). A case like this suggests
the strategic importance of integrative database. This paper explores the value of having
integrative database among diverse IT systems. Case studies illustrate that IT integrative
effectiveness depends on organizational capabilities as well.

2.2 Research Model
For the purpose of this paper we adopt the perspective of supply chain management. Figure
1 shows database integration capability. It descries inter-relationships that involve existing
systems (ERP, MES and other systems), Meta Database, and Advanced Planning and
Scheduling (APS). A new IT system (e.g., APS) utilizes the existing ERP, MES and otherdatabase systems and therefore enhances the total integrative data capabilities which in turnexpand the firm’s organizational capabilities. In this paper, we assume that the level ofintegration with the existing database (e.g., ERP, MES) may impact the outcomes of the newly
adopted IT system.

Database Integration Capability

ERP

Feedback

META

MES

integration

DB

Other system

OutputAPSInput

BOM update

Figure 1. Research Model
53. Case Studies
This paper examines the cases of the adoption of Advanced Planning and Scheduling (APS)
system by Mobile Display Manufacturers. We compare the experiences of two organizations(Firm A and B) in terms of database integration capabilities.

3.1 Case A
Firm A had the following management goals in the environment of fluctuating market
demand, intense display production and price competition: (1) immediate response tocustomer orders, (2) strength of automation of production planning (3) optimization of
production schedules (4) efficient utilization of resources, (5) reduction in lead-time (6) cycle
time reduction (7) improvement of delivery reliability (8) inventory reduction. For theaccomplishment of the above goals it was important to link MES system and production
scheduling. By adopting these systems the management anticipated the systemization of
production planning, productive utilization of limited resources, flexible responses to changes,
and cost minimization.
Table 1 shows two kinds of factories: domestic and overseas. It also shows the different
types of shops (array, cell and module), # of production lines, production processes work units,
and comments. Specifically, the firm planned to adopt APS system in its Array Process 3 Line
(AP3L), Cell Process 3 Line(CP3L), Module Process 6 Line(MP6L) of domestic plants.

Table 1. Adoption Plant
Factory
Shop

Domestic
Factory-Array-Cell-ModuleOverseas
Factory-Module-Array,Cell->building
plan

#
of
#
of
# of work
Comments
Product
Productiongroups(ERP
Lines
Processes(MES based) based)-3line-Around-25
Sacrificeof-3line100-10processthat-6line-10
becomes basis ofproduction

In this section we first introduce Mobile Display Production Process which is a criticalcomponent of successful IT adoption of Firm A. The basic production processes include Array
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Process, Cell Process, and Module Process. Array Process includes transistor board and CF
board. In Cell process, panels are made by the combination of transistor board and CF board.
In module process, other supportive component parts are added. The below Figure 2,3 and 4
show the details of all these processes.

Figure 2. Array Process

Figure 2 is the array process. It is the process of depositing transistor on glass substrate. It
includes deposition process, photolithography process and etching process. Through these
serial processes transistors are arrayed in the right sequence on glass substrate. It is unique anddifferent from semi-conductor processes in that instead of wafer glass is being used.
Figure 3 shows the cell process. Transistor is placed in the bottom layer and color filter is on
the upper layer. As these two are attached in order, spacer is used and then these particular
LCD processes are completed with seal printing that requires liquid injection through the finetunnels in between the two layers.

7Figure 3. Cell Processes

Figure 4. Module Process8Figure 4 is the module process which determines the quality of products that are delivered
to the customers. It is the process of attaching polarizer to the panel which passed cell process,then including Driver-IC, assembling Printed Circuit Board (PCB) and completing module
process with adding backlight unit.
The time frame of this IT introduction project is six months. The first step is to makeproduction plans on product line/shop level/daily basis. It makes an automated pilot systemthat generates the production plans for two months within a few minutes. Then, it provides thesystem proof-of-concept according to daily and process level in-out planning requirements.
In this way, realistic plans for LCD production are prepared that reflect diverse facility andparts constraints.

Due Date Quote

Demand Planning
1year

Strategic Master Planning
6monthDemand Fulfillment
CTP(Capable-ToPromise)

Mid-term Master Planning
Daily
production

Factory PlanningLine Scheduling

OutputLine Scheduling & Dispatch

Figure 5. Building project according to SCM processes

However, the newly introduced APS system produced scheduling by using Meta databasefrom existing enterprise system. In the course of the system introduction the master database
failed to integrate the core of all system within the planned time frame of six months
according to the vendor’s requirement. The existing database (e.g., SAP, MES) was assumed
to be reliable. In reality the database was not integrated. The new system failed to generate thecredible production schedules with the use of inaccurate old data outputs.
Later, it is discovered that the heart of these problems is the failure of the manufacturing
director. With continuous inter-functional conflicts and political pressures the manufacturing
director was unable to involve other functional directors to integrate other specialized database9(e.g., product design information, purchasing, marketing, accounting and finance information).
Thus, this wonderful project did not produce the intended desirable results in spite of vendors’
serious launching efforts.

Database Source

Interface

Planning

Confirm
markeing
plans
Inventory Information
Parts
delivery
information
MES① EN plans
PM plans
EDB
Parts Loss rate
Yield, Cycle Time,
Capacity
WIS
Vacation Information
Off
Production
Information
Enterprise systemInbound Information

⑥

APS

SAP

⑤
③

④

I
A
E

META DBPDB②

APS system

Figure 6. Integration Issues with ERP Database

3.2 Case B
Firm B is also mobile display manufacturer. It implemented the assembly of display
products in its overseas plant in China. Just like Firm A, Firm B also experienced frequentchanges in production plans because of the fluid market environment.
To overcome these problems, Firm B adopted APS system for six months starting fromFebruary 2008. However, it successfully completed the project two months earlier thanplanned. Firm B built flexible production methods by implementing daily deadline check,daily production order, efficient production schedule and reducing the numbers of changes inplanning and its ratio. The outcomes of this system introduction showed the drastic
improvement in production planning.

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APS
Order Management System

ERP

APS management

S/O input

MRP RunWeeklyProduction Plan

Sales
Order changeManagement

Pur.O
Procurement

Pur.O
WMS
Delivery
instructions

10day plan
Moduleplan

Order Confirm

Confirm
Dailydecision
S/O
production
APS schedule

Materialuse
possibility

COG
plan

Panel halffinished plan

C/S
plan

Panel
plan

Domestic
PPS
Daily
production
plan

D/O
Prod.O
Supply cooperation
Material warehousing
plan information
Suppliers

Warehousing system

ERP

Group Production
schedule
Prod.O

Inner/Outside

Prod.O발행warehousing
processing

Production plan

MES
Lot

KITTING
SystemMaterial
KITTING

Material
injection

production

outputresultFigure 7. Basic database system and newly adapted APS system

Figure 8 indicates a vast improvement in terms of fixed plan ratio. In regard to 80% targetof fixed plan ratio (FPL), the actual performance outcomes are average 68.8% just after the
introduction of the above mentioned project. Plan adjust ratio (PAR) now achieves
19.2 %( average) compared to target ratio of 10%. In view of the past planning ratio changes(more than up to 80% of planning adjustment) it certainly is the outstanding success.

FixedPlanR
atio =

Σ model, lineMIN(BeforeD− 2 dayplan, Ddayplan)Σ model, lineMAX(BeforeD− 2 dayplan, Ddayplan)

PlanAdjust Ratio (Count) =Figure 8. Outcome of IT system introduction11

Σ ABS ( Plan − Adjust )Σ ( Plan Count)4. Discussion
The above comparative analysis of two mobile display firms suggests how the existing
database is integrated with the new IT system. Firms can achieve the greater IT utilization
outcomes through integrating diverse system database. Then, why is it so challenging formany firms to integrate their database systems? Our case studies show that many firms fail to
integrate their database for a few obvious reasons.
First, successful database integration requires the corresponding level of IT investment. The
cases discussed in this paper report the integration effects of the old IT systems on new APS
system introduction. Our recommendation to Firm A (in view of its failures to produce
desirable results) is, “Complete the efforts of integrating the existing database systems”. Thisrequires additional IT investment for the construction of unified database system. Such a highlevel of investment requires the substantial resources of the firm. For example, the successful
data integration of Samsung Electronics, a Korean global firm, is possible with its hugeinvestment capabilities.
Second, organizational capabilities are essential for effective database integration. In
addition to an appropriate level of IT investment the management leadership needs to exercise
a strong decision-making influence. For example, Korean and Japanese organizational
structure and management leadership shows noticeable differences. Compared to Korean firms,
many Japanese firms lack in strong management leadership. Besides, the walls between
diverse business units are too high to achieve cross-functional integration. Korean firms
accomplish database integration of IT system through effective top-down decision-making. On
the other hand, Japanese firms that focus on the efficiency of users do not accomplish the
integration across organizational units. It is possible to attain IT system and databaseintegration if firms are willing to exercise serious disciplined leadership to achieve theeffectiveness of the entire organization. This organizational leadership challenge is what
Japanese firms need to accomplish the desirable IT utilization outcomes and global
competitive advantages.

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