SUPPLY CHAIN TECHNOLOGY: AN EMPIRICAL STUDY IN THE

CONTEXT OF MALAYSIA

Suhaiza Zailani1, Noornina Dahalan, Yusof Hamdani & Yudi Fernando

School of Management, Universiti Sains Malaysia
11800 Penang, Malaysia
Tel: (604) 6532751
Fax: (604) 6577448
Email: shmz@usm.my

Abstract. Supply chain technology is being important for the company to manage the flow of
information between suppliers, and end customers. The use of information technology (IT) is
considered a prerequisite for the effective control of today’s complex supply chains. And it is
further justified with the trend of globalization as business spans beyond borders and the need to
manage it centrally. In spite of researchers explaining the importance of supply chain, the
investigation on the use of IT in the supply chain context is yet to be researched to prove it’s
significant, particularly in the Malaysian context. Based on empirical data from 200 companies,
this paper presents the determinants for companies to use IT in SCM. According to the findings
of this research, the use of IT for SCM purposes can be categories into four classifications which
are: - material forecast, transaction processing, supply chain planning and collaboration, and
order tracking and delivery coordination. The findings further suggest that the level of IT
adoption in these classifications is differing. It is expected that through this study, such
classifications could be researched as capabilities of supply chain technology that affect supply
chain performance the most.

Key Words: Supply chain management, Information technology, Malaysia

1. Introduction that they must rely on effective supply

Information technology (IT) in supply chain
management (SCM) has gained its
importance recently due to its ability to
reduce costs and increasing responsiveness
in the supply chain (Mc Laren et al, 2004;
Chopra & Meindl, 2001; Dagenais &
Gaustchi, 2002; Lee, 2000; Ndubisi &
Jantan, 2003). A more evident fact is based
on financial excerpts of Proctor and Gamble,
in which, the company gained USD325
million savings annually through the usage
of SCM technology (P&G, 2001). During
the past decades, information technology has
enabled many organizations such as Dell
and Hewlett Packard, to successfully operate
solid collaborative supply networks (Scott,
1993). Thus, organizations increasingly find
chains systems to successfully compete in
the global market and networked economy.
With regards to SCM, many researchers
have given a lot of definitions on SCM.
Among the popular one would be by
Lambert et al (1998) in Global Supply Chain
Forum mentioned that SCM is the
integration of key business processes from
end user through original suppliers to add
value and services to customer and
stakeholders. The other definition that could
be also stated here would be by Hanfield and
Nicholas (1999) that SCM is the integration
of activities, through improved supply chain
relationship to achieve sustainable
advantage. It is widely accepted in the

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literature that SCM is important for material
and information flows relating to the
transformation of the materials into value
added products, and the delivery of the
finished products through appropriate
channels to customers and markets so as to
maximize customer value and satisfaction.
Many researchers have recognized IT in
supply chain as a new organization form,
using terms such as Electronic Data
Interchange (EDI), Electronic Marketplace
or Enterprise Resource Planning (ERP) and
Materials Requirement Planning (MRP). A
variety of technologies has been designed
and implemented for different supply chain
activities and strategic purposes. Some of
the most commonly implemented
technologies are used to support the
operations of planning, scheduling and
distributing the materials. Regardless of
their intended function, it is generally
believed that these technologies aid
significantly in decision making related to
the planning, assessment, and control of
supply chain activities (Bowersox et al,
1989). In general, such technologies can be
defined as "a group of enterprise or inter-
organizational systems, each with their
capabilities, which collaborate in ever-
changing constellations to serve one or more
partners in order to achieve some business
goal specific to that collaboration"
(Akkermans, 2001).
Although the importance of IT for efficient
SCM is widely acknowledged, empirical
research assessing the actual uses of IT in
SCM as well as the reasons for using IT in a
specific way still remain unclear. Due to
these identified limitations in the previous
literature we address the following research
problem: “What purposes do companies use
IT in SCM?” The paper is structured as
follows. First, the previous literature
discussing the use of IT in SCM is reviewed.
Second, the research design is presented,
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followed by the presentation of the findings
of the study. Finally, in the last two sections,
the main findings are summarized and
discussed and the concluding remarks are
drawn.
2. Information Technology in Supply
Chain.
Increasingly competition is forcing
organizations to be creative in their strategic
efforts as businesses are learning to improve
the way customers are served. Many
organizations, therefore, seek competitive
capabilities that would enable firms to
exceed customers’ perceptions, so that they
can enhance market and financial
performance (Hayes & Pisaro, 1994).
Effective IT in supply chain allows rich
information exchange, quick and reliable
data availability, and easy access to business
partners (Mukhopadhyay et al, 1995).
However, realizing the potential benefits of
systems requires the capabilities by
organizations (da Silveira et al, 2006).
Choudary (1997) also emphasizes that
although IT in supply chain provide the
communication benefits, they may differ in
their capabilities to provide superior
integration and brokerage ability.
3. Determinants of Supply Chain
Technology
Below are the discussions on the four
application areas identified from the
literature review for the adoption of IT in
SCM.
Material Forecast
The first is on demand forecasts within a
SCM is based on a constrained supply chain
model, in light of material and resource
constraints (Mukhopadhyay et al., 1995).
For example, a computer implemented
method according to one embodiment of the
invention comprises: calculating a demand
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forecast identifying anticipated demand for a
product over a specified time period;
identifying current sales orders for the
product with delivery dates scheduled
during the specified time period; generating
an open forecast for the product based on the
current sales orders and the anticipated
demand; and sourcing different percentages
of the open forecast from different plants,
the percentages selected based on supply
chain material and/or resource constraints.
Transaction Processing
The second type of IT use, transaction
processing that stands for the use of IT for
increasing the efficiency of repetitive
information exchanges between supply
chain partners. In this type of IT use the
exchanged information is typically related to
such tasks as order processing, billing,
delivery verification, generating and sending
dispatch advices, and producing order
quotes.
Supply Chain Planning and Collaboration
The third type of IT use, supply chain
planning and collaboration, represents the
use of IT for sharing planning-related
information such as demand forecasts and
other demand information, inventory
information, and production capacity
information, with the intention of increasing
the effectiveness of the supply chain.
Order Tracking and Delivery Coordination
Finally, the forth type of IT use in SCM,
order tracking and delivery coordination,
refers to the monitoring of individual orders
or shipments, which may consist of
components or final products, with the aim
of coordinating their delivery or conveying
timely information of their location. The
tracking systems and their importance for
the efficient coordination of logistics flows
have also been widely studied (Karkkainen
et al., 2003). In conjunction with this,
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tracking is needed especially in situations
with in-transit consolidation, and in project-
oriented businesses. These tracking studies,
however, are not empirically founded and
thus, do not reveal how tracking systems and
tracking information is actually utilized by
companies. Based on the above discussions,
the following hypotheses are drawn:
H1: Adoption of IT in supply chain is
important for material forecast
H2: Adoption of IT in supply chain is
important for transaction processing
H3: Adoption of IT in supply chain is
important for supply chain planning and
collaboration
H4: Adoption of IT in supply chain is
important for order tracking and delivery
coordination
H5: Level of resource sharing moderates
the relationships between the determinants
and adoption of IT is supply chain.
4. Methodology
The population of this study comprises of all
the manufacturing companies in Northern
Malaysia. Sekaran (2003) suggested that the
analysis samples should be at least 10 times
the number of variables in a study. Thus, 50
respondents are targeted in this study, as
there are a total of 5 variables. Data
collection was conducted based on
personally administered questionnaire. The
respondents for this study were targeted to
be the people as they would have the
knowledge towards the technology in supply
chain.
In order to obtain sufficient samples for
analysis, 200 sets of the questionnaires were
distributed. Questionnaire was developed in
consideration of the examples from previous
literatures (Antony et. al., 2002) and
consultation from related field expert as well
as lectures. For independent variables in this
study, a 5-points Likert scale, which is
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ranging from strongly disagree to strongly
agree, was used to measure the application
areas of IT in supply chain. The
measurements are adapted from Auramo et
al (2003) such as reduction of costs,
speeding up information transfer, volume of
transactions, elimination of human errors,
unpredictable and logistically, demanding
environment, project-orientation of the
business and in-transit delivery
consolidation. And for the dependent
variable, the level of perception of the
respondent towards the IT in supply chain is
asked.
5. Results and Analysis
Table 1 shows the profile of the
organizations surveyed. Out of the 129
manufacturing companies responded, 55
percent are involved in electrical products
while the rest deal with electronics products.
Foreign owned companies make up the
majority of 55.8 percent, with Malaysian
owned companies constituting the remainder
57 companies. Firm size as reflected by the
number of employees, indicated that a
significant majority lie within the range of
above 250 to 5,000 employees, i.e., 67.5
percent. Approximately equal number of
MNCs and non-MNCs were surveyed; the
former accounted for 51.2 percent of 129
firms, while the latter took up 63 firms.
Majority (86) have taken up some form of
IT strategy in supply chain. In addition,
cross tabulation revealed that out of this
figure, about half of the firms are MNCs and
the other half non-MNCs.
The validity and reliability measurement in
data analysis, this paper utilized factor and
reliability analysis. The factor analyses were
diagnosed and found to have met the
necessary statistical assumptions as
indicated by their high Kaiser-Meyer-Olkin
measure in conjunction with the diagonals of
the anti-image correlation matrix possessing
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values above 0.5. Sufficient unique loadings
and ability for each item to account for a
minimum of 50 percent of its variation were
conditions set in retaining the items. The
items that represent each individual factor
were subjected to reliability analysis.
Determination of Cronbach’s alpha
coefficient of internal consistency is to
ensure that the items comprising factors
produced a reliable scale. A higher score
will indicate a higher reliability, with a
range from 0 to 1. The generally agreed
upon lower limit of Cronbach’s alpha is 0.7
as mentioned by Nunnally and Bernstein
(1994). However, the lowest registering a
reliability value of .7168 (transaction
processing) and the highest .9584 (supply
chain planning and collaboration). The rest
of the variables material forecast (0.8444)
and order tracking and delivery coordination
(0.9281) has satisfactory alpha value. Table
2 shows reliability, mean and standard
deviation of independent variables.
One-tailed Pearson correlation test were
employed to assess predictive validity of the
posited variables. All independent were
found to be significantly correlated with the
dependent variable. Both transaction
processing and supply chain planning and
collaboration have similar and high
correlation values (r = .68, p<.01) as
independent variables with IT in supply
chain. This is followed by material
forecast(r = .52, p<.01) and order tracking
and delivery coordination (r = .48, p<.01). It
is also important to note that all the
independent variables were not highly
correlated, as this is a necessary condition to
ensure that strong multicollinearity effects
are not present in this study. Table 3
presents the results of this test.
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A 3-step hierarchical regression was applied
to study the differences with respect to the
main effects, moderating direct effects and
interaction effects. Sets of variables were
entered consecutively, where variables on
the first step consisted of all the independent
variables (IVs). At this step, it was
discovered that all the independent variables
but material forecast did not exhibit an
influence on IT is supply chain. Transaction
processing and supply chain planning and
collaboration exhibited the same level of
importance in impacting the adoption of IT
in supply chain, given their identical
estimated values (β=.29, p <.01). All the
three statistically significant predictors
(Transaction processing, supply chain
planning and collaboration and order
tracking and delivery coordination)
accounted for approximately 66 percent of
the variation in adoption of IT in SC.
In the second step of the analysis, level of
resource sharing (Moderating variable) was
introduced into the regression equation, with
an additional increase of 3 percent in the
explained variance of IT adoption in supply
chain. The third step of the hierarchical
regression analysis introduced the
interaction effects between the moderator
and independent variables on IT adoption in
SC as the dependent variable. After
discounting the main effects and moderating
variable’s direct effect, only 2 out of the 4
interaction effects explained an additional
variance of 4 percent in IT adoption in SC.
They are Supply chain planning and
collaboration x resource sharing (β=.-.33, p
<.01) and Order tracking and delivery
coordination x resource sharing (β=.15, p
<.05). The results are as shown in Table 4.
At this juncture, it can be observed that
resource sharing exhibited joint effects on IT
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adoption in SC with Supply chain planning
and collaboration and Order tracking and
delivery coordination, respectively.
6. Discussions
The results of this study indicate that the
operational use of all but one (material
forecast) of the independent variables has a
positive influence on IT adoption in SC. In
particular, Transaction pr Transaction
processing and supply chain planning and
collaboration exhibited the same level of
importance in impacting IT adoption in SC.
Similarly, increasing level of resource
sharing would increase the adoption of IT in
SC. The adoption of IT in supply chain
implies a lateral working relationship both
across functional areas and in the extended
supply chain. A move away from the
traditional hierarchical organizations with
strong functional areas (silo) is necessary.
Still, as the adoption of IT in supply chain
becomes increasingly prevalent, managers
have little guidance how to best achieve
such effectiveness. The study empirically
tested the viability of resource sharing as a
moderator to advance the adoption of IT in
supply chain.
The findings derived are not only of
theoretical interest, but can also be of great
practical significance. For the practicing
manager, the challenge is mainly of balance
and knowing where to invest scarce time
and efforts. In the preceding discussion, the
study consistently stressed the role of the
determinant in SCP as an enabler for
boosting its effectiveness. The three
dimensions focused on have been
transaction processing, supply chain
planning and collaboration, material forecast
and order tracking and delivery
coordination. How to implement the IT in a
supply chain system is beyond the scope of
this paper; however, some issues tend to be
critical for the success of all firms in the
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electrical and electronics industry. These are
outlined below and should be taken into
account when implementing SCP systems.
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Table 1
Profile of Firms
Variables Description Frequency Percentage
Type of Industry Electronics 58 45.0
Electrical 71 55.0
Ownership Malaysian Owned 57 44.2
Foreign Owned 72 55.8
Firm Size < 250 employees 34 26.4
251-500 employees 29 22.5
501-1000 employees 29 22.5
1001-5000 employees 29 22.5
> 5000 employees 8 6.2
Type of Organization MNC 66 51.2
Non-MNC 63 48.8

Table 2
Reliability, mean and standard deviation of independent variables
Label of variable Cronbach’s alpha Mean Std. Deviation
Transaction processing .7168 3.62 .58
Supply chain planning and collaboration .9584 3.14 1.05
Material forecast .8444 3.58 .81
Order tracking and delivery coordination .9281 3.45 .89

Table 3
Correlation between Variables
Variables 1 2 3 4 5 6
Transaction processing .90
Supply chain planning and collaboration .72** .95
Order tracking and delivery coordination .56** .39** .89
Material forecast .42** .45** .39** .81
Resources sharing .60** .54** .52** .43** .78
IT in SCM .68** .68** .48** .52** .63** .91
** Correlation is significant at the 0.01 level (1-tailed).

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Table 4
Hierarchical Regression Analyses
Dependent Variables IT in Supply Chain
Step 1 Step 2 Step 3
Main Effects
Transaction processing .29**
Supply chain planning and collaboration .29**
Order tracking and delivery coordination .16**
Material forecast .08
Moderator (Direct Effect)
Resources sharing .23**
Interaction Effects
Transaction processing x resource sharing .21
Supply chain planning and collaboration x -.33**
resource sharing
Order tracking and delivery coordination x .15*
resource sharing
Material forecast x resource sharing .09
R2change .66 .03 .04
F change 56.80** 9.98** 3.77**
Durbin-Watson Statistic 1.88

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