Information systems for collaborating versus transacting: Impact on manufacturing plant performance in the presence of demand volatility

Research at the nexus of operations management and information systems suggests that manufacturing plants may benefit from the utilization of information systems for collaborating and transacting with suppliers and customers. The objective of this study is to examine the extent to which value generated by information systems for collaborating versus transacting is contingent upon demand volatility. We analyze a unique dataset assembled from non-public U.S. Census Bureau data of manufacturing plants. Our findings suggest that when faced with volatile demand, plants employing information systems for collaborating with suppliers and customers experience positive and significant benefits to performance, in terms of both labor productivity and inventory turnover. In contrast, results suggest that plants employing information systems for transacting in volatile environments do not experience such benefits. Further exploratory analysis suggests that in the context of demand volatility, these two distinct dimensions of IT-based integration have differing performance implications at different stages of the production process in terms of raw-materials inventory and finished-goods inventory, but not in terms of work-in-process inventory. Taken together, our study contributes to theoretical and managerial understanding of the contingent value of information systems in volatile demand conditions in the supply chain context.