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IJOPM
36,2
220
Received 19 March 2014
Revised 4 November 2014
16 January 2015
Accepted 21 February 2015
Adegoke Oke
Jan Olhager
Department of Industrial Management and Logistics,
Lund University, Lund, Sweden
Abstract
Purpose The purpose of this paper is to examine the value chain processes that represent the black
box between supply logistics integration and competitive operational performance in firms. To realize
this objective, the authors develop a research model which comprises a series of linkages from supply
logistics integration to operational outcomes using Porters concept of value chain and the relational
view of resource-based theory as theoretical lenses.
Design/methodology/approach The data set for testing the hypothesized relationships in this
study was drawn from 232 Australian manufacturing firms.
Findings The findings show that there is no significant direct relationship between supply logistics
integration and competitive operational performance; rather, the relationship is fully mediated by
inbound supply performance and internal lean production processes. Further, lean production
processes have a positive effect on inbound supply performance.
Research limitations/implications The study shows the importance of managing both internal
( production processes) and external processes (logistics and supply chain) of firms operations in an
integrated manner in which supply logistics integration act through key internal processes to impact
competitive performance which the end customers actually experience.
Originality/value This is the first study which uncovers what happens in between the incoming
materials and the end outputs delivered by firms into the market. This in between black box is
important in improving our understanding of how inbound supply activities are translated into
outbound competitive performance outcomes.
Keywords Survey, Lean, Operational performance, Supply chain management
Paper type Research paper
1. Introduction
Increasing competition has driven firms to not only improve their internal operations
(including through process control and inventory management), but also focus on
integrating their suppliers into the overall value chain processes. The contribution of
suppliers in building competitive capabilities (quality, delivery, flexibility, and cost),
hence delivering values to customers has been well recognized. Much has been written
The authors wish to thank Dr Brian Cooper of the Department of Management, Monash
University, Australia, for his advice on the statistical methods used in this paper.
on the importance of supply chain management (SCM) on firms performance. SCM can
be conceptualized as comprising the management of the external and internal aspects
of a firms operations including the sourcing, logistics, production, and distribution
processes involved in the offering of goods and services (Chen and Paulraj, 2004b;
Pagell, 2004; Prajogo et al., 2008). While previous operation management research
studies have generally focused on the internal aspects of the value chain, previous
studies on SCM have largely focused on the external aspects of the value chain and
performance implications (Chen and Paulraj, 2004a; Li et al., 2005). For instance, many
studies which examined the effect of SCM practices suggest a direct effect of supplier
integration on (outbound) competitive operational performance (Ellram et al., 2002;
Chen et al., 2004; Tracey et al., 2005; Li et al., 2006; Tan and Tracey, 2007) while ignoring
the internal processes involved in the relationship. In other words, the internal
flows within firms are considered as a black box which has no decisive impact on
the relationship between supply integration and competitive operational performance.
This research aims to address this gap in knowledge by investigating how the
external and internal aspects of the value chain align to impact or contribute to a
firms performance.
As Pagell (2004) pointed out, the conceptual black box between supply chain
integration and superior performance needs to be more fully examined. To examine the
relationships between the external aspects of the supply chain, the internal processes
and performance, we draw from the value chain analysis framework and the relational
view of resource-based theory (RBT) (Chen and Paulraj, 2004a). Value chain analysis
describes the activities within and around an organization, and relates them to an
analysis of the competitive strength of the organization (Porter, 1985). Porter argues
that the ability to perform particular activities and to manage the linkages between
these activities is a source of competitive advantage. According to the relational view of
RBT a firms competitive performance is dependent on the firms internal resources as
well as the external resources within the firms relational networks or supply chain
(Dyer and Singh, 1998; Lavie, 2006; Arya and Lin, 2007).
Porter distinguishes between primary activities and support activities. Primary
activities are directly concerned with the creation or delivery of a product or service.
They can be grouped into five main areas: inbound logistics, operations, outbound
logistics, marketing and sales, and service. Each of these primary activities is linked to
support activities which help to improve their effectiveness or efficiency. There are four
main areas of support activities: procurement, technology development (including R&D),
human resource management, and infrastructure (systems for planning, finance, quality,
information management, etc.). This study seeks to investigate the inter-relationships
between the key primary activities of a firms value chain particularly, the inbound
supply chain processes and internal production processes of firms and their implications
on inbound and competitive performance outcomes.
We define inbound supply chain processes in terms of supply logistics integration
the extent to which inbound inter-organizational processes are seamless and closely
co-ordinated. We define lean production processes in terms of the extent to which internal
operations are in line with lean production processes and principles, specifically just in
time ( JIT) and total quality control (TQC) principles. Schonberger (2007) identified that JIT
and TQC have essentially merged into the concept of lean production. Inbound
performance reflects the performance of the sourcing, procurement, and logistics
operations including total procurement costs, inventory carrying costs, and material costs.
Competitive performance reflects a firms performance relative to competitors, in terms of
Supply chain
processes
221
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222
delivery speed, production cost, volume flexibility, and product variety as they relate to
the end customer or market.
Few studies have examined how the internal and external aspects of an
organizations value chain are interrelated as a pipeline in building values for
customers. For example, Kannan and Tan (2005) considered the parallel effects of total
quality management (TQM), JIT, and supply chains on firms performance. Jayaram
et al. (2008) investigated the link between building lean systems and firm performance.
However, little is known about the links between inbound processes, internal processes,
inbound performance, and competitive performance (see, e.g. Shin et al., 2000; Tracey
et al., 2005). This paper seeks to advance previous studies by integrating inbound,
internal, and outbound activities as a set of value chain activities in creating maximum
values for customers. We first discuss the related literature, and the hypotheses.
We then present the research methodology, and the results. Implications for managers
and researchers are discussed and finally the conclusions are drawn.
2. Theoretical development and research hypotheses
In this section, we draw from relevant theoretical frameworks to establish the
relationships between logistics integration, lean production processes, and inbound and
competitive performance along with the hypotheses concerning their relationships.
2.1 Inbound supply chain processes logistics integration and performance
In this study, we focus on the inbound process of logistics integration which is defined
as the extent to which inbound inter-organizational processes are seamless and closely
co-ordinated for the smooth flow of information and materials. To understand how
logistics integration impacts competitive performance, we draw from the relational
view of RBT. RBT has been widely used to explain differences in firms performances.
It posits that differences exist due to firms heterogeneity. Specifically, it argues that a
firm that possesses resources that are valuable, rare, not substitutable, and difficult-toimitate will achieve sustained competitive performance (Barney, 1991; Peteraf, 1993;
Acedo et al., 2006). The relational view of RBT is an extension of RBT. It integrates the
core tenets of RBT and relational network theory to explain how cooperation and
collaboration between firms can lead to sustainable competitive performance. The main
argument of the relational view of RBT is that firms resources (i.e. resources that are
rare, valuable, not substitutable, and difficult-to-imitate) can span firm boundaries and
be embedded in the firms networks and relationships between firms suggesting that a
firms competitive performance is not only as a result of the firms internal resources
but also as a result of external resources within the firms relational networks or supply
chain as in our study (Dyer and Singh, 1998; Lavie, 2006; Arya and Lin, 2007).
The integration of supplier and buyer firm logistics processes may involve
integration of resources to share information and co-ordinate the activities between the
two entities. It may also involve collaborative activities that facilitate visibility and
information flow between the two entities (Barratt and Oke, 2007). By and large, these
involve trust between the collaborating partners and close relationships which take
time to build. According to the relational view of RBT, with highly integrated logistics
processes, the buyer firms strategic resources are embedded within those of the
supplier to develop processes, capabilities, and relationships that are tacit and
intangible and are typically valuable, hidden from and difficult-to-imitate by
competitors. As such, highly integrated logistics activities with suppliers represent a
source of competitive advantage for the firms.
Supply chain
processes
223
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36,2
logistics integration and inbound supply performance has not been empirically
investigated. Accordingly, we hypothesize as follows:
H2. Supply logistics integration has a positive relationship with inbound supply
performance.
224
Another key component in the value chain of supply operations are the internal
production processes. In particular, we focus on lean production processes which we
define in terms of the extent to which internal operations are in line with lean
production processes and principles. The source of the term lean production can be
traced to the International Motor Vehicle Program, published in the book The Machine
that Changed the World (Womack et al., 1990), while the origins of lean thinking can be
related back to the practices and innovations at Toyota Motor Corporation (Hines et al.,
2004; Bhamu and Sangwan, 2014), using the concept of Toyota Production System
(Sugimori et al., 1977; Ohno, 1988). Womack and Jones (1996) provided five
lean principles: value, the value stream, flow, pull, and perfection. Following these
principles, internal lean practices include set-up reduction, pull production system,
small lot sizes, and streamlining the layout through cellular manufacturing or focused
factory concepts (Shah and Ward, 2003, 2007). More specifically, these are internally
related practices, rather than customer or supplier related.
Adopting the systemic view of the supply chain, lean production processes will act
as intervening factors between logistics processes and outbound competitive
performance. As a process, logistics integration enables companies and their supply
chain partners to act as a single entity by integrating their production processes with
their supply chain processes. Through logistics integration, firms can build quasi
vertical integration without having it in the physical sense (La Londe and Masters,
1994). As we have previously argued, logistics integration is undertaken in order to
improve a firms performance and satisfy its end customers. However, in order to reap
the full benefits of logistics integration, the internal production processes of the firm
must be streamlined so that gains from integrating logistics activities are not
lost within the system. Lean production systems, including elements of JIT and
TQC (Flynn et al., 1995; Schonberger, 2007), enable reliable order cycles and inventory
reduction as well as process control, thus, achieving streamlined internal
processes that help to translate the gains of logistics integration to improved
performance. We use the term TQC instead of TQM to indicate our focus on the
internal production processes with emphasis on process control rather than a wider
scope of quality management at the organizational level covered by TQM.
Specifically, integrated logistics trigger firms to adopt lean production systems in
internal operations.
It has been suggested that one of the key success factors for the implementation of lean
production systems is the selection of a good supplier base and building long-term
relationship (MacDuffie and Helper, 1997; Jayaram et al., 2008; Zikmund, 2010).
Lean production requires firms to process raw materials parts in small lot sizes, frequently,
and deliver the products directly to the point of use with minimal incoming inspection,
warehousing, and inventory. Manufacturers must ensure that incoming materials are
of the quality and quantity expected, and that deliveries are on-time. To achieve these,
firms need to build supply logistics integration with their key suppliers where both
information and materials flow smoothly between the partners (Beal, 1988). In other words,
successful implementation of lean production systems requires highly integrated supply
logistics activities.
Supply chain
processes
225
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226
H4. Lean production processes have a positive relationship with inbound supply
performance.
2.3 Lean production processes and competitive performance
Drawing further from the value chain perspective, we explore the relationship between
lean production processes (internal processes) and competitive (outbound)
performance. As mentioned earlier, the lean production processes studied in this
paper relates to the extent to which internal operations are in line with lean production
processes and principles, specifically JIT and TQC principles. The RBT also helps
to understand the effect of lean production processes on competitive performance.
Lean practices such as JIT and TQC are difficult to implement, hence, difficult to
imitate. This inimitability increases when firms successfully bundle a set of practices
(such as JIT and TQC together) which create complexity and uniqueness in their
organizational routines (Shah and Ward, 2003, 2007). Such a complex organizational
routine resulting from tacit learning will deploy rent-yielding resources and will be
difficult to imitate, thus creating a competitive advantage (Grant, 1991).
Indeed, both JIT and TQC are among the most sustainable management philosophies to
have been adopted for decades and still continue to add value to company performance
(Shah and Ward, 2003). Vokurka et al. (2007) suggested that JIT philosophy that is aimed
at the elimination of waste and continuous improvement is closely associated with TQC,
with the ultimate goal of meeting or exceeding customer requirements. Dean and Snell
(1991) noted that JIT and TQC are implemented in tandem to deliver high level of
performance in operations, while Flynn et al. (1995) demonstrated that JIT and TQC
practices are mutually supportive, and that their synergy contributes positively to
manufacturing performance. Specifically, they pointed out that both JIT and TQC involve a
few relatively simple central concepts and an amorphous array of peripheral associated
practices on manufacturing process so that it operates as expected without breakdowns,
missing materials, fixtures, tools, etc., despite work force variability. TQC emphasizes the
importance of conformance to specification via standardization of processes to minimize
variation of their outputs. Similarly, JIT operations help create efficient equipment layouts
and encourage processing of smaller lot sizes which increase the speed by which a product
is made. Schmenner and Swink (1998) also suggested that with a JIT pull system, smooth
flow is more assured, thus, avoiding the flooding of the operation with work-in-process
inventory. Because work-in-process inventory levels are capped by the number of
containers or spaces permitted, low throughput times are achieved. In sum, both TQC and
JIT provide a solid foundation for lean production processes to yield high level of
competitive operational performance in terms of quality, delivery, flexibility, and cost
(Dowlatshahi and Taham, 2009; Wee and Wu, 2009). Accordingly, our view of supply chain
processes from a value chain and systemic perspective leads us to hypothesize as follows:
H5. Lean production processes have a positive relationship with competitive
performance.
Supply chain
processes
227
IJOPM
36,2
Inbound Supply
Performance
H6
H2
Supply Logistics
Integration
228
Competitive
Performance
H4
H5
H3
Lean Production
Processes
Figure 1.
Research model
H1
For inbound supply performance, we adapted the scale from previous studies, including
those by Paulraj et al. (2008), and Vonderembse and Tracey (1999) and Tracey et al. (2005)
(see Table I). A seven-point Likert scale was used for measuring all items in the above three
scales with the responses ranging from 1 (strongly disagree) to 7 (strongly agree).
The measure for competitive performance captures the four key competitive
dimensions namely quality, speed of delivery, flexibility (in terms of volume and
variety), and costs, following previous studies in operations and SCM topics
(Rosenzweig et al., 2003; Li et al., 2006; Paulraj et al., 2008; White et al., 2010).
The respondents were asked to assess their firms business performance relative to the
best competitor in the market with the scale ranging from 1 (weakest in the industry) to
7 (strongest in the industry).
Scales
Items
Loading
paths
(t-value)
Supply chain
processes
229
Cronbachs
Table I.
Scale validity
and reliability
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36,2
230
5. Result
5.1 Scale validity and reliability
We applied confirmatory factor analysis (CFA) to simultaneously validate the measures
of all variables used in this study using LISREL 8.80 software. The results of the CFA
and the Cronbachs are presented in Table I. The items loaded significantly and
strongly on their respective constructs. The item loadings and the overall model fit
results suggest acceptable unidimensionality and convergent validity for the measures
(Bollen, 1989; Bagozzi et al., 1991). Cronbachs suggest satisfactory reliability of the five
constructs (Nunnally, 1978). We confirm this result by checking the composite reliability
values of the five constructs (Bollen, 1989; Hair et al., 2006), and the values meet the
recommended cut-off point of 0.7, except for competitive performance, although it still
meets the acceptable cut-off point of 0.6. The slightly lower than standard acceptable
value of Cronbachs or composite reliability for competitive performance (o0.7) is
probably due to the fact that it is indeed composed of multiple dimensions. Measures
such as quality, delivery, flexibility, and cost performance contribute to this construct,
suggesting that perhaps some firms may choose to specialize or focus on only a subset of
these performance dimensions (Samson and Terziovski, 1999).
5.2 Common method bias
We used Harmans single-factor test to check for common method variance (Podsakoff
and Organ, 1986). This test was conducted using a measurement model which loaded
all 19 items into one latent factor. The result shows that the one-factor measurement
model produced a poor fit with the data as reflected in the fit indices and the poor path
loadings of the items to the latent variable. These results suggest that common method
variance was not a significant problem in the data set.
5.3 Discriminant validity
Discriminant validity was checked using the method suggested by Venkatraman (1989)
where two CFAs were conducted on each pair of the constructs in this study with the first
CFA allowing the correlation between the two constructs to be freely estimated and the
second CFA fixing the correlation between the two constructs to 1.0. The difference of
the 2-values between the models were calculated, and if the difference was greater than
6.64, the discriminant validity between the two constructs was established (Ahire et al.,
1996). With four constructs incorporated in this study, we conducted six 2-tests. The
values of 2 for all tests confirm the discriminant validity of the constructs and lend
further evidence towards the lack of common method variance.
5.4 Structural relationships model
We present the results of the structural equation model (SEM) in Figure 2. The ratio of
2 (282.54) to degrees of freedom (161) is less than the recommended value of 3.0 for
satisfactory fit of a model to data (Bollen, 1989; Hair et al., 2006). In line with
prescriptions (Mulaik et al., 1989), the fit indices (NFI 0.930; NNFI 0.962;
CFI 0.968) and the root mean square error of approximation of 0.057 is deemed
acceptable. We included organizational size (in terms of number of employees) as
a control variable. Totally, 46 per cent of the sampled firms employed less than
100 people, 35 per cent of them had between 100 and 500 employees, and 19 per cent of
the firms were large manufacturing with over 500 employees. The result shows that
firms size had no significant effect on competitive performance (0.00 at p W 0.05).
0.32**
(4.16)
Supply Logistics
Integration
Inbound Supply
Performance
Organizational
size
0.29*
(1.96)
0.40**
(4.44)
Lean Production
Processes
0.00
(0.04)
Competitive
Performance
0.56**
(4.73)
Supply chain
processes
231
0.47**
(3.06)
0.01
(0.06)
Figure 2.
Results of structural
relationship analysis
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232
may be other factors that affect the relationship between supply logistics integration
and competitive performance, which can be included in future studies. For example, the
links between departments or functions (i.e. procurement, production, and marketing/
distribution) which encompass the whole value chain activities within organizations
may influence these relationships (cf. Pagell, 2004). Third, there are other practices that
can be related to lean production processes which have not been included in this study,
such as total preventive maintenance, 5S, Six sigma, and other wider aspects defined in
the literature (see, e.g. Bhamu and Sangwan, 2014; Hines et al., 2004; Shah and Ward,
2003, 2007). Fourth, the fact that only one party in the supply chain (the buyer or focal
firm) is incorporated in this study as survey respondents could be a limitation.
Although the information provided captured the interfaces between the suppliers, the
focal firm, and the customers, future research can improve on this study by allowing
for data gathering from multiple supply chain partners. Finally, the sample
population of this study is restricted to Australian firms. Although we expect these
results to hold for supply chains in general, we cannot claim that this is the case.
Therefore, future research may extend this study to a broader population of firms,
including other countries, for the generalizability of the results and to detect potential
country effects ( Jasti and Kodali, 2014). Future research may also include outbound
logistics integration to provide a broader picture of integration aspects in a supply
chain network. Nevertheless, we believe that this study contributes to the
understanding of how supply logistics integration, inbound supply performance,
lean production processes are related to competitive outbound performance in a
manufacturing firm.
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Corresponding author
Dr Daniel Prajogo can be contacted at: daniel.prajogo@monash.edu
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