A major assertion in the supply chain management literature is that there is an economic rationale for integration across the boundaries of firms. The purpose of the paper is to evaluate this fundamental assumption.

Based on review of the relevant literature and the plethora of empirical evidence, two dominant models of supply chain organization have been found. Research findings from the literature for each of the collaboration models (viz. at arms length or tighter coupling) are presented. When such conceptual models are mapped to the real world and tested, it is found that what exists is an in-between state of loose coupling between the vendor and customer. We have endeavoured to determine why and conclude that it is the result of a natural equilibrium. Attempts by interested parties to push this to either end (viz. at arms length or tighter coupling) do not result in benefits at acceptable levels for both parties, and hence are unlikely to succeed.

We advocate that the business context, market forces and behavioural aspects of organizations be well understood before designing an appropriate collaboration framework.