1. Introduction
This study was aimed to examine the following: to what extent do Australian
Chen & Paulraj contend that the concept of supply chain has been originated from
many different field including the revolution of quality management, the material and
integrated logistics management, and industrial networks. Therefore the term supply
chain is interchangeable with many terms such as supply network, logistics channel,
demand pipeline , logistics networks , value adding chain , and many others.
Mentzer et al. define supply chain as “ a set of three or more entities (organizations or
identify three type of supply chain based on the degree of complexity: a direct supply
chain, an extended supply chain, and an ultimate supply chain. A direct supply chain
consists only of a focal firm, its supplier and its customer. An extended supply chain
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also involves supplier’s suppliers and customers’ customers. An ultimate supply chain
includes all organizations that are involved in all flows of products, services, finance,
and information from the ultimate suppliers to the ultimate customers. Ayers further
adds that the supply chain also include all activities related to the back flow of product
from customers back up to the chain in the form of product return, reuse, and
recycling.
The above definition suggests that every single company depends on other business to
deliver its products or services to its customers. Mentzer et al. argues that supply
can be a member of more than one supply chain and their position in each supply
chain can also vary. In one supply chain, a company can be a components supplier but
in other supply chain this company can be an assembly manufacturer. Given this
complexity of supply chains that a company can be involved, Lambert et al. suggest
that companies should evaluate which business partners are critical to the company
interest, and give different degree of integration based on the criticality to the
business.
and Nichols define SCM as the integration of all activities that involve in the flow
and transformation of goods from raw material to the end user by improving supply
al. define SCM as “the integration of key business processes from end user through
original suppliers that provide products, service, and information that add value for
customer and other stake holder” . This definition clearly confirms that SCM goes far
beyond logistics management. SCM involves not only logistics activities, but all
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business processes from original supplier to the end customers including customer
The above definitions suggest several points. First SCM views a supply chain as a
and across companies within the supply chain. Second, SCM aims to improve the
performance of individual company as well as that of the whole supply chain. SCM
does not allow company to achieve improvement at the expense of other companies. It
emphasises that companies should compete on the basis of the whole supply chain,
competing against other supply chains. Third, company should build and maintain the
information, mutually sharing of risks and rewards, cooperation, the same goal and
the same focus on serving customers, integration of processes, and building and
organizational performance. Tan et al. empirically found that customer relations and
purchasing practices impact the effectiveness of SCM strategy and lead to financial
and market performance. Stank et al. in their empirical study on food industry found
outcomes: decreased inventory levels, decreased order cycle time, and decreased
order cycle variance. They also found that inter-firms coordination is essential to
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improve companies’ ability in understanding customer needs and increase customer
satisfaction. However, they did not find a significant relationship between inter-firms
Frohlich & Westbrook studied the impact of suppliers and customers integration to
strategies represent the different degree of integration with suppliers and customers.
They found that companies with broader supply chain integration showed the largest
performance improvement.
examine the effect of supply chain integration to customer service and financial
performance. They found that the relationship between supply chain integration with
performance and competitive advantage. The authors found that SCM practices are
internal supply chain. The empirical study showed significant impact of SCM
3. Research Constructs
This section describes the constructs that are used to measure SCM practices. The
extant literature shows many different perspectives of SCM practices. Tan et al. view
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identify the following aspects of SCM: supply chain integration, information sharing,
and JIT capability. Chen and Paulraj measure SCM practices using: supply network
functional teams and supplier involvement, and logistics integration. Li et al. identify
postponement.
activities and processes from upstream and downstream as well as firm’s internal
organizational coordination. This research uses five aspects of SCM practices that
were developed from authors’ previous research and literature. These five SCM
operation, information technology, and training. The rest of this section provides the
SCM suggests that firms need to integrate with their suppliers and customers to
achieve financial and growth objectives . Stank et al. reveal that industry leaders
increasingly build competencies to integrate with suppliers and customers and find
that these competencies lead them to supply chain excellence. Supplier involvement
in product development allows firms to better use supplier capabilities and technology
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planning with suppliers also results in inventory reduction, smoothing production,
improve product quality, and lead time reductions . Lee argues that integration with
suppliers throughout the product life cycle is an effective strategy in reducing supply
uncertainty.
satisfaction of end customers. Customer relevancy will increasingly become the key
service, higher quality, faster delivery and more range of products . Close customer
requirements. The ability to build close customer relationship will bring companies
In addition to upstream and downstream integration, SCM also emphasises the similar
embarking into external integrations. Poor internal operations will only create failure
In this research, internal operation refers to all activities related to production systems
and internal logistic flows. SCM requires a flexibility of production system in order
to respond to market change. This requires manufacturing system that can perform
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improvement and computer-based automation in manufacturing are some of the
Sohal reveal that order automation and factory automation are some key enablers to
supply chain . Cross functional integration and inter organizational integration require
the visibility of information across the supply chain. Poor information sharing
between partners in a supply chain will result in poor coordination that will lead to
many serious problems such as high inventory levels, inaccurate forecast, low
Many studies have also reported that information sharing can bring many benefits
both for suppliers and buyers, such as inventory reduction, and reduced manufacturing
costs . The empirical findings from Narasimhan and Nair reveal that information
sharing can increase the operational synergy amongst supply chain partners.
The type of shared information can vary from strategic to operational information and
shared information, and companies’ capability in using and translating the information
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3.4 Information Technology
customers both upstream and downstream and many functional areas within a
coordination of various value adding activities with their partners as well as between
the Internet technology offers significant opportunities for cost reduction, increasing
The extant literature shows the role of IT as enabler in effective SCM. William et al.
find IT as strong predictor for logistics integration. Other studies warn that the benefit
of IT in SCM does not come from the capabilities of IT itself, instead the significant
benefits come from the combination of its application with corporate strategy and the
advantage when it is well linked with firms’ competitive priorities. Through case
study research, Chae et al. find that the impact of IT in supply chain collaboration
depends on the existing nature of relationship between partners. IT will improve the
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3.5 Training
The major concept of SCM is collaboration and seamless integration between various
value adding activities within individual companies and across different organization
along a supply chain. Bringing this concept into practice requires significant changes
Past behaviour such as functional silo thinking will of course impede the effectiveness
of SCM. Therefore, Gattorna asserts managing supply chain actually involves the
and an ability to use information based tools. Lee and Whang contend that
information visibility through out a supply chain will not bring significant impact if
Therefore, companies need to consider the skills requirements and education when
integrating their value-adding activities with their partners . Effective training and
knowledge based learning is essential in developing and maintaining these new SCM
skills. However, there is no previous study that includes training as a part of SCM
4. Survey Methodology
Set of questions on each practices were derived from literature as well as from
authors’ previous research projects: SCM initiative at the Australian textile, clothing
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and footwear industry and a cereal food supply chain project . In addition, several
demographic questions were also asked in the questionnaire to gain insights of the
respondent’s operations.
The survey instrument was sent out to the 1000 senior executive responsible for SCM
usable responses (response rate of 6.4%). The low response rate was probably caused
by the senior executive level managers receive many requests to participate and have
limited time, as common case in organizational-level survey . In addition, the fact that
the survey instrument covers a broad range of areas contributes to the low response
rate. The low response rate of this study may affect the ability to generalize the
results.
Table 1 provides the respondents’ profile from the survey. In terms of the number of
employee, 66.1% of the companies employed fewer than 100 employees while 16%
(10.9%).
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Table 1 Demographics data for the respondents
5. Results
Table 2 provides the progress of surveyed firms on their supplier and customer
relationship practices. Respondents reported that their major customers are getting
stricter on delivery requirements (mean 4.09) and 71.9% of surveyed firms perceived
that their major customers are on the high level of delivery adherence requirements. In
the light of this finding, the surveyed firms reported that their firm ability to satisfy
strict delivery requirement are quite high. The survey reported that the levels of
compliance with major customers deliver in-full and on-time requirements are 4.02
and 3.95 respectively (on a scale of 1-5). In term of the cooperation with major
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with 71.9% of firms reported high and very high level of cooperativeness. However,
the level of joint product planning with customers is very low (2.89) with only 33.4%
of firms who experience high and very high level of joint product planning with their
major customers.
Variables Mean s. d %
4.09 0.88
The strictness of major customer's delivery adherence requirements3 6 71.9
2
Level of compliance with major customer's delivery in-full requirements 4.02 1.061 71.9
2
Level of compliance with major customer's delivery on time requirements 3.95 1.122 67.7
4
The level of cooperativeness in your relationship with major customer 3.95 0.916 71.9
The level of joint product planning with major customers4 2.83 1.199 33.4
The level of cooperativeness in relationship with major suppliers 3.75 0.879 68.3
The level of joint product planning with major suppliers 2.97 1.164 37.9
2
Occurrence of meeting with customers and suppliers 1.81 1.162 11.1
How would you generally rate?
1
Measured on 5 Likert-Scale from 1=Lower than usual to 5=Higher than usual
2
Measured on 5 Likert-Scale: 1=below 70% 2=70-79% 3=80-89% 4= 90-94% 5=95% and above
3
Measured on 5 Likert-Scale from 1=Not strict at all to 5=Very strict
4
Measured on 5 Likert-Scale from 1=Very low to 5=Very high
% The percentage of respondents with response value 4 and 5
In regard to relationship with suppliers, the surveyed firms perceived that their level
of cooperativeness with their major supplier is still in average level (mean 3.75)
although there are 68.3% of firms reported at high to very high level. In term of
involving major suppliers into product planning, the surveyed firms rated this practice
at low level with only 37.9% of firms who reported to have high or very high level of
The survey result on the internal operations practices is shown in Table 3. More than
half of surveyed firms rated that the up-to-datedness their production system above
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average level. However, in term of automation of production processes, there is only
36.5% of surveyed firm who reported that their production processes were well
automated. Slightly fewer than half of the respondents reported the extensive adoption
perceived that the continuous improvement adoption still needs more attention. The
management support on the supply chain effectiveness was reported quite low level.
there is only 39.1% of surveyed firms who rated their management understanding in
guiding toward supply chain effectiveness to be excellent (mean 3.27). The lowest
level of implementation was reported in the modular production (mean 2.9) with only
depends on the products and market characteristics and may not be suitable for all
situation .
1
Measured on 5 Likert-Scale from 1=Very low to 5=Very high
2
Measured on 5 Likert-Scale 1=None; 3=Some/in progress 5=well establish
3
Measured on 5 Likert-Scale 1=Poor; 3=could be improved 5=excellent
4
Measured on 5 Likert-Scale 1=None; 3=Some 5=Extensive
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5.1.3. Information Sharing
forecast information with suppliers was reported at the mean level of 3.31 with only
46.9% of surveyed firm rated their forecast information sharing with suppliers at high
and very high level. In terms of forecast information from customers, 68.3% of
respondents reported the high satisfaction. However, the surveyed firms rated at the
quite low level of practice (mean 2.92) with only 33.8% of surveyed firm received
related data with suppliers and customers were also reported at quite level. There is
only 38.1% of respondent and 31.2% of respondents who share non forecast
In regard to information technology, the survey reported that the level of information
technology implementation was considerably low (see Table 5). The implementation
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of automated ordering with supplier and customer were reported at the mean of 2.98
and 2.57 respectively. From all of respondents, there are no more than 37.5% of them
ordering. In addition, the survey reported that the surveyed firms that perceived the
supply chain were significantly low with mean level at 2.86 and 2.91 respectively.
operations performance, it is clearly shown from the survey that substantial efforts
and customer is important as it can improve the accuracy and speed of order
processing.
5.1.5 Training
The training practices were assessed two areas: production and supply chain related
training. In term of skill and training of production, the surveyed firms perceived
above average level of implementation. This is shown in Table 6, the perceived skills
of production employee was reported at mean level of 3.59; whilst the adequacy of
production training was reported at mean level of 3.62 and more than 50% of
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surveyed firms perceived the high level of implementation of these two areas.
However, in term of supply chain related training, the survey reported that firms
perceived poor implementation (with mean level of 2.78 on supply chain effectiveness
measure was compared between respondent with high level and low level of SCM
divided according to their level of SCM practices. The cut value of three was chosen
to differentiate between low and high level of SCM practices. Eta squared of each test
was calculated to measure the effect size of each mean different . presents mean
different between high and low level of SCM practices of each performance indicator.
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Table 7 T-test analysis of each performance
Mean Differences
Lead Time Minimisation. shows that there were significant differences in the mean
lead time minimisation performance between low and high level of all SCM practices.
The highest level significant was training, followed by IT, information sharing,
internal practices, and supplier and customer relationship. The training practice
0.01 level. Information sharing and IT explained 8.7% and 6.5% of variance in lead
time minimisation respectively, both significant at p < 0.05. Internal operation and
customer and supplier relation were significant at p < 0.1 and explained only 4.6%
Lead time typically comprises of two components: order lead time (the required time
to produce and ship the product) and information lead time (the required time to
lead time performance. Increasing skills of employee in production and SCM would
Operational efficiency will lead to reduction in order lead time while increased SCM
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planning effectiveness will increase the speed of order processing. Information
sharing helps companies to cut lead time by increasing their forecast accuracy,
efficient flow of information throughout the supply chain and improve the
Information sharing is highly enabled by IT that also influences lead time through
better order processing. Previous research by Cachon & Fisher confirms this finding,
in which they conclude that advance in IT can significantly reduce lead time. Internal
time due to efficient production and internal logistics flow. Supplier and customer
supply chain coordination which in turn leads to reduced variability including lead
time. This findings in line with Frohlich & Westbrook who found that higher degree
of information sharing and close relationship with suppliers and customers can reduce
Inventory Turnover. IT, internal operations, customer and supplier relationship and
analysis reveals that 16% of variance in the level of inventory turnover was explained
by internal operation practice with the significant level of 0.01. IT explained 10.7% of
variance in inventory turnover and significant at p < 0.01. Supplier and customer
turnover while 5.4% is contributed by information sharing at p < 0.1. This result
Previous researches confirm this result in which SCM practices contribute to higher
their internal efficiency through elimination of non value added activities and
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excessive inventories. This can be achieved by effectively implementing IT in all
operations to work closely with their external counterpart both upstream and
performance measure both at p < 0.05. These two practices explained 8.9% and 6.7%
training is an important factor to increase product quality which in turn increases the
avoidance of product reject. Information sharing allows company to better predict the
customers demand so that reduced the level of product return due to mismatch
Level of Sales. The t-test analysis shows that only information sharing and IT
significantly differentiated the level of sales performance both at p < 0.1. These two
practices only explained small variance in the level of sales which are 5.5% and 4.5%
accuracy and increase their responsiveness in meeting customers demand. High level
company to improve their order processing and other operational activities which in
turn influence the level of sales performance. The fact that the low level of influence
of these two practices on the level of sales suggests that level of sales could be
influenced by other aspects which were not captured in the analysis such as marketing
and promotion.
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Cost Reduction. There were significant differences in term of cost reduction
performance between low and high level of all SCM practices except supplier and
differentiate the cost reduction performance at p < 0.01 while training was
significance at p < 0.05. Information sharing showed the highest significant level
and IT explained 14% and 13.2% of variance in cost reduction respectively whilst
training contributed 8.1%. The results confirm previous research in the extant
manufacturing cost, logistics cost and inventory costs . It is also expected that cost
reduction was also correlated with internal operations and IT. Cost reduction requires
and customer relationship explained 9.4% of variance at p < 0.05. Information sharing
products or services requires companies to work closely with their partner both
upstream and downstream along their supply chain. Lee contends that these two
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practices are essential in aligning supply chain strategy with the uncertainty both in
6. Conclusion
The extant literature suggest that the implementation of SCM can significantly
service level and reduced cost . The empirical result of this study confirms the theory
The main contribution of this research is the introduction of training as one of SCM
practices. The statistical analysis shows that training significantly contributed to the
highly attributed to the readiness of human resources who will run all supply chain
activities. SCM put emphasis on cross-functional teams both intra company and inter
7. References:
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