ConclusionAs predicted, the relatio

Conclusion
As predicted, the relationship between internal process improvement investment and
applied channel logistics knowledge was stronger for MTO firms than for MTS firms
(H2). However, the predicted positive relationship between internal process
improvement investment and applied channel logistics knowledge for both MTO and
MTS firms (H1) was not supported. The relationship held for MTO firms, but not for
MTS firms. This disconnect for MTS firms has potentially serious implications.
Specifically, we can reasonably assume that no organization makes investments of
scarce financial resources to improve its internal processes without the expectation that
those investments will have positive effects on the organization’s financial performance.
These results throw some doubt on the validity of that critical assumption and therefore
demand further investigation. One explanation for these findings may be found by
examining the level of process integration that occurs in MTO versus MTS firms. That
is, MTO firms generally practice higher degrees of process integration than MTS firms
(Federgruen and Katalan, 1999), and process integration generally creates greater
efficiencies and value across the supply chain (Frohlich and Westbrook, 2001).
Another explanation for thisMTSdisconnect may reside in the “theory of constraints”
(Goldratt and Cox, 1992). This theory states that at any given point in time there is at least
one constraint limiting a system’s performance. In all systems, processes operate at
different rates and with different variances and thus the total system throughput is
constrained by whatever process is out of sync and/or operating at the slowest rate at any
point in time. In this case, internal process improvement spending and applied channel
logistics knowledge are just two of many separate processes contained within a larger
complex integrated system called a supply chain or network. As with any other
integrated system, the total throughput or effectiveness of a supply chain is dependent on
the integration and coordination of the various processes of which it is composed. From
this perspective, it may be argued that MTS firms are less effective, and/or MTO firms
more effective, at integrating and coordinating their internal process improvement
investment with their external logistics processes (applied channel logistics knowledge).
This same argument applies to the MTS disconnect between internal process
improvement investment and financial performance. Specifically, firms practicing
higher levels of integration and coordination of their internal and external processes will
more effectively increase total throughput and profitability (Stank et al., 2001).
Logistics impact
on financial
performance
829
From a practical perspective, the disconnect for MTS firms between internal
process improvement investment and applied channel logistics knowledge, and internal
process improvement investment and financial performance may also be explained by
organizational structures and/or practices that create silos of responsibility related
to internal process improvement investment and applied channel logistics knowledge
activities. For example, compared to MTO firms, it may be more likely that those
responsible for these processes within MTS firms (e.g. operations managers,
logistics managers, marketing managers, purchasing managers, etc.) act more
independently and with less coordination between processes both within and without
the firm. If so, this “silo-ing” of functions and activities would result in less integration
and coordination between internal processes, as represented by internal process
improvement investment, and external processes, as represented by applied channel
logistics knowledge. According to the theory of constraints, this would occur even if the
individual processes were being independently optimized. Such a condition would
help explain the observed results. Unless there is alignment and coordination of
process improvements within a supply chain system, the theoretical and practical
arguments suggest there can be no consistent relationship between those process
improvements and an overall increase in productivity.
The observed relationship between higher applied channel logistics knowledge and
better financial performance for both MTO and MTS firms is as predicted (H3) and the
implication for managers is clear. That is, for all firms, increased applied channel
logistics knowledge is related to improved financial performance. This holds while
controlling for size and uncertainty. It is evident that maintaining and improving
applied channel logistics knowledge should be a priority for all manufacturing
organizations. The results also show that the relationship between applied channel
logistics knowledge and financial performance is stronger for MTO firms than for MTS
firms (H4). This is consistent with previous arguments that greater coordination and
integration of processes within a system leads to greater throughput and profitability.
It is interesting to note that MTO firms were found among all SIC groups (Table II).
Thus, it appears that MTO and MTS strategies are not necessarily dictated by
membership within any particular industry, but may be more a matter of strategic
choice. Although a discussion of the relative merits of MTO versus MTS strategy is
outside the scope of this study, this observation may be of interest to managers looking
for differentiation strategies, and researchers wishing to expand upon these results