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Effect of Supply Chain Integration and Challenges on Operational

Performance in Manufacturing Industries

Dissertation Work For the degree of


Master of Engineering
in
Industrial Engineering And management

Guide: Submitted by:


Dr. A.Dalpati Abhay Kumar Vaishnav
Professor, IPE Deptt M.E. ( IEM )
0801IE16ME02
CONTENTS
1. INTRODUCTION
2. LITERATURE REVIEW
3. PROBLEM FORMULATION & OBJECTIVES
4. RESEARCH METHODOLOGY
5. DATA COLLECTION AND ANALYSIS
6. CONCLUSION
7. REFERENCES
INTRODUCTION
• “The management of upstream and
downstream relationships with suppliers and
customers to deliver superior customer value
at less cost to the supply chain as a whole”.
(Christopher. 1998)
• “All activities associated with the flow and
transformation of goods from the raw material
stage to the end user, as well as the associated
information flows”. (Handfield and Nichols, 1999)
KEY ELEMENTS IN SCM(Supply Chain
Management)

• Service level management


• Order and demand management
• Production management
• Supply management
• Distribution management
• Integrated SCM planning and execution
(Cappello et al., 2006)
HIERARCHICAL LEVELS IN SCM

• Strategic level
• Tactical level
• Operational level

Figure 1 – SCM Level


Supply Chain Integration
• Supplier Integration
Suppliers are considering the main and the only source for inputs that are
needed by the organizational operations, so they have an essential role in the
continuation of manufacturing products and /or services in order to meet
customer requirements
• Internal Integration (Within the company)
Internal integration (Within the company) is the center of gravity for suppliers
and also customers. it's considered number one that manage the constancy and
continuity for all supply chain parties, so the company could make neither
supplier nor customer integration without internal integration
• Customer Integration
Customers are considering the source of life for organizations whatever
they provide either product or service and it's considered the fresh air that is
needed by the organization to grow and being able to survive in the
presence of the strong and tough competitions
Challenges of Supply Chain Integration
• According to Chopra and Meindhl (2001), several elements
can disrupt integration of the supply chain, distorted
information , longer cycle times, stock-outs, and bullwhip
effect, resulting in higher overall cost and reduced capability
of customer service
• Gregory, and Mathew (2005) shows the supply chain
challenges may be classified by the challenge of system
relationships (Stanley et al., 2005). The supply chain system
has two kinds of relationships, the relation between sub-
systems, and SCM system and the business strategies.
• Awad and Nassar (2010) found that the challenges have three
perspectives: technical perspective, managerial perspective,
and relationships perspective.
Overview of Information and Communication
Technology (ICT)
• The fast introduction of new products with a shorter life cycle, increasing
customer satisfaction and today's development of information and
communication technologies (ICT) and transportation system have forced
an industry to invest and direct attention to their integrated supply chains.
• Due to ICT, it is possible to maintain the relationship between supply chain
members for better performance (Jharkharia & Shankar, 2005). some of the
important ICT applications in firms are:
 EDI (Electronic Data Interchange),
 Internet and Enterprise Systems such as ERP (Enterprise Resource
Planning)
 RFID (Radio Frequency Identification)
 Transportation/warehouse management software
 E-procurement system
 Advanced planning and scheduling software
LITERATURE REVIEW

• Supply Chain Management is a network of facilities that


produce raw materials, transform them into intermediate
goods and then final products, and deliver the products to
customers through a distribution system. It spans
procurement, manufacturing and distribution (Lee &
Billington 1995) the basic objective of supply chain
management is to “optimize performance of the chain to
add as much value as possible for the least cost possible”.
• In other words, it aims to link all the supply chain agents to
jointly cooperate within the firm as a way to maximize
productivity in the supply chain and deliver the most
benefits to all related parties (Finch 2006).
• Gunasekaran and McGaughey (2003) extended the scope of SCM
beyond material management, partnership, information technology
to the Total Quality Management areas like management
commitment, organizational structure, training and behavioural
issues.

• As firms' survival lies on integration, a good understanding of the


integration process is a key aspect in SCM. Mouritsen et al. (2003)
discussed that basic hypothesis “the more integration (wider the
scope) – the better the management of the chain" is not always true
and proved that it depends very much on the “environment" of the
supply chain and the power relations between the participants in the
supply chain. Authors proposed a set of management techniques and
tools to analyze successful SCM strategies.
Key analysis of SCM
Author Article /Book Title Key Idea
Gyawu et. al(2015) Assessing The effects Of There is a positive relationship
Information Technology (ICT) between the use of ICT tools
On The Performance Of and the performance of
Warehouse And Inventory inventory and warehouse
Operations (The Case Of operations at Unilever Ghana
Unilever Ghana Limited) Limited. It is also observed that
cost of training staff, the time
required to learn the use of the
software and the frequent power
outages in the country are the
major challenges faced by staff
Fasika Bete Georgise (2014) Integrating developing country It was clearly observed that a
manufacturing industries into lower level of ICT
global supply chain implementation in the
companies. However,
respondent companies did not
consider it as big challenges for
supply chain integration. The
gap was found that how
efficiently firms integrated
within the organization and with
their suppliers and customers.
Zhang and Huo et al. (2013) The impact of dependence and Both supplier and customer
trust on supply chain integration improves financial
integration. performance. Trust and
dependence combined together
influence supply chain
integration
Gimenez et al. (2012) Logistics-production, logistics- Supply chain integration
marketing and external increases performance only if
integration: their impact on supply complexity is high
performance
Wong et al. (2011) The contingency effects of Under the environmental
environmental uncertainty on uncertainty the relationships
the relationship between supply between supplier/customer
chain integration and integration, and delivery and
operational performance flexibility performance.
Flynn et al. (2010) The impact of supply chain Customer integration and
integration on performance: A internal integration supported
contingency performance. However,
and configuration approach supplier integration did not
support performance
Cousins and Menguc (2006) The implications of Supply chain integration
socialization and integration in improved supplier’s
supply chain management communication. However, it
did not support supplier’s
performance
Nilay shah(2005) Process industry supply Supply chain performance is
chains: Advances and critically affected by the
challenges flexibility and responsiveness
of the production process.
Pagell (2004) Understanding the factors that Internal integration is a
enable and inhibit the complex phenomenon driven
integration of by a number of factors
including the internal structure
operations, purchasing and
and culture, reward systems
logistics and the amount of formal and
informal communication
across the functions
Critiques’ View
• Rosenzweig, et. al. (2002) study titled: "The influence of an integration
strategy on competitive capabilities and business performance: An
exploratory study of consumer products manufacturers", aimed at
examining the intensity of supply chain integration on business
performance.
• Kim (2006) study title: "The effect of supply chain integration on the
alignment between corporate competitive capability and supply chain
operational capability", designed to identify the shape of interactive
relationship between supply chain operational capability and corporate
competitive capability, and identify the role of supply chain integration on
these interactive capabilities
• Zelbst, et. al. (2009) study titled: "Impact of supply chain linkages on
operational performance", aimed at examining the impact of supply
chain linkages on operational performance.
PROBLEM FORMULATION
SCM is one of the major issues in the process industry, which deals
with large and complex supply chain networks –
 Shah (2005) classified the supply chain problems in the process
industry into three categories: supply chain network design, supply
chain simulation and policy analysis and supply chain planning.
 Grossmann (2005) gave an overview and highlighted some major
challenges in a new emerging area of enterprise-wide optimization,
which is considered to significantly overlap with the SCM in the
manufacturing industry.
 Papageorgiou (2009) presented a review of the mathematical
programming models for the supply chain optimization problems for
the manufacturing industry, and divided the key issues in the SCM
into three categories, including supply chain design, supply chain
planning and scheduling and supply control.
Study of Previous Models
• Xu, et. al. (2014) Model: Were exploring the mediating effect of supply chain
integration (Supplier and customer) on business performance .
• Zhang and Huo (2012) Model: Studied the impact of dependence and
trust on supply chain integration (customer and supplier integration) as
shown in model (2) below:
• Huo (2012) Model: Examined the impact of supply chain integration
(internal, customer, and supplier integration) on company performance
(customer-oriented, supplier oriented, and financial performance) as shown
in model (3) below:
OBJECTIVES OF THE THESIS
• To study and Identify the importance of integration with
supplier, integration with customer and internal integration.
• To study of supply chain management challenges and ICT
challenges.
• To understand the dimension of operational performance in
manufacturing industries
• To Increase flexibility by suppliers and in production.
• To Increase reliability between partners in the supply chain,
to increase trust.
• To investigate the impact of level of integration, SCM &
ICT challenges on operational performance in
manufacturing industries.
Accomplishing of Objectives
• The literature survey on supply chain integration,
SCM challenges, ICT challenges and supply chain
performance which support for the objectives of I
and II
• In order to accomplish other objectives several
hypothesis are developed, and further
investigations takes place. For this study it is
hypothesized that, the Supply Chain Integration
and Challenges shows positive effect on
operational performance of manufacturing
industries.
Hypothetical Model
Internal
Integration

Supply Supplier
Chain Integration
Integration

Customer
Integration
Operational
SCM
Performance
Challenges

ICT
Challenges
RESEARCH METHODOLOGY
• The first method used is review of the relevant literature
and theoretical findings on supply chain management and
supply chain management implementation .
• This is followed by a review of supply chain
implementation practices . The review focuses mainly on
documentation made during the supply chain management
projects and industry.
• The next method used in thesis is an evaluation of the
supply chain performance on the basis of existing key
performance indicators compared to initial targets and
benchmarking of some key performance indicators against
best in class companies.
• To be able to identify reason for such
development as seen by owners of different
supply chain process, the method of surveys are
used.
• Based on the analysis of the theoretical and
statistical finding on supply chain management
and on the case of SCM challenges and its
performance, a synthesis of result is drawn up
• To evaluate the improvement potential of the
various improvement initiatives, the theoretical
evaluations are applied and concluded.
DATA COLLECTION AND ANALYSIS
• The constructs incorporated into this theoretical model are defined and
described with a focus on manufacturing firms. Considering this data was
collected through two ways, Primary and secondary data:
Secondary Data: Data was collected from different sources such as journals,
working papers, researches, thesis, articles and worldwide Web and
Manufacturing organizations.
Primary Data: Data was collected by extensive survey by questionnaire
Surveys were conducted via Google forms and direct filling up the
hardcopies of the questionnaire in the duration between February 2018 to
May 2018 from 92 qualified samples of various manufacturing firm.

• The statistical measures used to analyze the data are Reliability Testing,
Validity testing, Factor analysis, Correlation analysis, Descriptive analysis
and ANOVA analysis. All these measures are performed with the help of
IBM-SPSS 25 Software Package, which is statistical tool for measuring.
Summary of Respondents
• The data was collected from 92 qualified samples
of various manufacturing firms. Eligibility for
participation in the questionnaire survey was
based on an employee being a technical
professional and working as a manager in the
supply chain and production activities.
• A total of 300 questionnaire were distributed; 102
responses were received, in which 92 responses
were usable after deleting and sorting the missing
values and reliability. This is given 30% response
rate.
ANALYSIS
I. Descriptive Statistics
 Firstly, a descriptive statistical analysis is performed which shows the maximum,
minimum, mean, standard deviation, and variances of the responses. table 4.1
shows the descriptive statistics of the questionnaire.

Factor No. of Responses Mean Median Mode

92 3.6913 3.8000 3.80


Level of Integration
with supplier
Level of Integration 92 3.7473 3.7500 3.75a
within the Company
92 3.7283 3.6000 3.40
Level of Integration
with Customer
92 3.2780 3.4286 3.43
ICT Challenges
92 3.4203 3.5000 3.50
SCM Challenges
92 3.7314 3.7857 3.57
Operational
Performance
II. Reliability Test
In the second step, before testing the hypothesis, the Cronbach’s alpha coefficient is
used to measure the reliability of scale. Reliability refers to consistency throughout
a series of measurement. According to Hair (2012), the standard acceptability value
of Cronbach’s alpha is ranges from 0 to 1, standardize value ranges from 0.6 to 0.7.

Number of Variables Number of Cases Cronbach’s Apha


34 92 0.883

S. No. Factor
No. of variables Cronbach’s Alpha No. of Cases

1 Level of Integration with Supplier 5 .757 92

2 Level of Integration within Company 4 .825 92

3 Level of Integration with Customer 5 .800 92

4 SCM Challenges 7 .849 92

5 ICT Challenges 6 .922 92

6 Operational Performance 7 .876 92


III. Factor Analysis
 Factor analysis is a method for investigating whether a number of variables to the
point are linearly related to the given number of unobservable factors. The factor
Analysis (FACTOR) feature in the IBM-SPSS provides principle components
analysis and common factor analysis.
 When the first factor solution does not reveal the hypothesized structure of the
loadings, it is customary to apply rotation. The varimax rotation seeks to maximize
the variance of the squared loadings for each factor, the goal is to make some of
this loadings as large as possible.
 The factor analysis reveals that the component factor loading of individual variable
of the questionnaire is greater than 0.39 apart from only one variable which is
number of shipments to the facility which has value 0.141. All the variables have
positive factor loadings, which show the questionnaire in respect of factor analysis
test.
S. Variables Factor Factor Chronbac
No
Loading h Alpha
1 Electronic data interchange (EDI) capability .861

2 Enterprise Resource Planning systems (ERP) system .826

3 Advanced planning and scheduling software .756 ICT .922


4 Bar coding/automatic identification system (RFID) .699
Challenges
5 Transportation/warehouse management software .644

6 E-procurement system .568

7 Stocks out situation .560

8 Order accuracy/ order fill rate .793

9 Delivery schedule in our company .763

10 Total sales revenue .671 Operational .876


11 Compliance .600 Performance
12 On time delivery .572

13 Measures damages product .501

14 Quality of skilled and cost effective workforce in our company .824

15 Our Non systematic approach to measuring customer requirements .798 SCM .849
16 Lack of willingness to share needed information in our company .778 Challenges
17 Management practices and organizational working culture .776
SCM .849
18 Lack of employee loyalty/motivation/empowerment in our company .718
Challenges
19 Difficult to establish relationships based on shared risks & rewards .690

20 Difficulty to implement the models & handle for practical .649


operations
21 We Follow up with customers for feedback .869

22 We provide After sales service support .718


Customer .800
23 Our Online order taking .641
Integration
24 Our Speed of order processing .564

25 We access Integrated demand forecasting .488

26 Stable procurement through network (e.g. electronic data interchange .725


(EDI)
27 Participation level of suppliers in the process of procurement .668
Supplier .757
28 Our Information exchange with suppliers through internet technologies .644
Integration
29 Establishment of quick ordering system .643

30 Level of strategic partnership with suppliers .448

31 Data integration among internal functions through network .830

32 We have Online integrations between production and sales functions .507


Internal .825
33 Real time access to logistics-related information .506
Integration
IV. Correlation Analysis
In the fourth step, the correlation analysis is performed, the Pearson Correlation
coefficient is a degree of the strength of a direct relationship between two
variable and represented by “r”. it’s value ranges from -1 to +1, Where positive
values shows the direct relationship between the variables.
**. Correlation is significant at the 0.01 level (2-tailed)
Correlations of Each Factor
Level of Level of Level of SCM ICT Operational
Integration with Integration Integration with Performance
Factors Supplier within Company Customer Challenges Challenges
Level of Pearson 1
Integration with Correlation
Supplier
Level of Pearson .776** 1
Integration within Correlation
Company
Level of Pearson .679** .636** 1
Integration with Correlation
Customer
SCM Challenges Pearson .529** .403** .330** 1
Correlation

ICT Challenges Pearson .625** .631** .548** .350** 1


Correlation

Operational Pearson .670** .620** .562** .423** .734** 1


Performance Correlation
V. Regression Analysis
In the fifth step, the verification of scale is completed by regression analysis along with
ANOVA analysis. Least square regression estimates and tests simple and multiple
linear regression models. ANOVA test performs all the interactions in the model
and test them automatically. The ANOVA module provides pair wise comparisons
based on the structure of data and the error rate to be controlled.
• Correlation Coefficient (R): It indicates the strength of relationship between two
variables. The positive or negative sign indicates the direct and indirect relationship
respectively. The value of ‘R’ ranges from -1 to 1. (Hair et. al. 2010)
• Coefficient of Determination (R2): it measures the proportion of the variable of
the dependent variable and explain by the independent or predictor variable. If the
regression model is properly applied and estimated, this coefficient convey between
0 to 1. (Hair et. al. 2010)
• Adjusted R2: The value of R square lies in the interval 0 to 1. This statistics is
fairly useful for comparison between equation with different numbers of
independent variables, different sample size with types of data. (Hair et. al. 2010)
• Durbin- Watson D- Statistics: This option produces Durbin Watson test static,
which tests for correlation between errors. This option is important for testing
whether the assumptions of independent errors are valid. The test static can vary
between 0 and 4 with a value of 2 meaning that the residuals are uncorrelated. A
value greater than 2 indicates a negative correlation between adjacent residuals
where as a value below 2 indicates a positive correlation. (Hair et. al. 2010)
Regression analysis H (a) : “ Level of Integration With Supplier and Operational
Performance”

Level of
Integration Operational
With Performance
Customer

Adjusted R Std. Error of the


Model R R Square Square Estimate Durbin-Watson
1 .562a .316 .308 .65124 1.520

• The value of R is 0.562, which lies between the ranges of -1 to +1. Though it has
the positive value it indicates the positive and direct relationship between both the
variables.
• The value of squared multiple R is 0.316, which lies between 0 to 1. Thus it
predicts the better relationship between the variables.
• The value of adjusted squared multiple R is 0.308,which must lie between the
ranges of 0 to 1.
• Durbin – Watson D-statistics value is 1.520, which is substantially less than 2, thus
there is evidence of positive serial correlation between variables.
Regression analysis H (b) : “ Supply Chain Integration, SCM Challenges,
ICT Challenges Shows Positive Relationship with Operational Performance”

Adjusted R Std. Error of the


Model R R Square Square Estimate Durbin-Watson
1 .786a .617 .604 .49249 2.195

Supply
Chain
Integration
Operational
SCM
Challenges
Performance
ICT
Challenges

• The value of R is 0.786, which lies between the ranges of -1 to +1. Though it has the
positive value it indicates the positive and direct relationship between both the variables.
• The value of squared multiple R is 0.617, which lies between 0 to 1. Thus it predicts the
better relationship between the variables.
• The value of adjusted squared multiple R is 0.604,which must lie between the ranges of
0 to 1.
• Durbin – Watson D-statistics value is 2.195, which is NOT substantially less than 2, thus
there is a negative relationship between variables.
Summary of Hypothesis
S. No. Hypo. no. R R Square Std. Error Durbin Result of
Watson Hypo
1. H(a) .670 .450 .58416 2.028 Rejected

2. H(b) .620 .385 .61745 1.808 Accepted

3. H(c) .562 .316 .65124 1.520 Accepted

4. H(d) .698 .487 .57027 1.921 Accepted

5. H(e) .734 .538 .53496 2.306 Rejected

6. H(f) .423 .179 .71353 1.715 Accepted

7. H(g) .755 .570 .51928 2.269 Rejected

8. H(h) .780 .608 .49541 2.200 Rejected

9. H(i) .699 .489 .56616 1.844 Accepted

10. H(j) .786 .617 .49249 2.195 Rejected


CONCLUSION
Results and Discussion
• The researcher refers this result to the awareness of the
managers, supervisors, and other employees who work in
manufacturing industries about the importance of supply
chain integration and its effect on the overall operational
performance. All independent variables have high degree of
integration (supplier, internal, and customers).
• The researcher believe that the first and highest level of
integration is related to the customer integration which is
actually the most important variable among supply chain
integration because customer satisfaction is the ultimate
goal that all organizations seek to achieve.
Conclusion
• The study reveals that the level of integration with
supplier are the most important indicators, followed by
internal integration (within the company), and finally
level of integration with customer.
• The study also showed that there are strong relationship
between SCM challenges, but there is also a weak
relationship between ICT challenges and operational
performance. ICT infrastructure challenges show a
weak relationship in manufacturing industry, as there
are weak performances by them.
• There are various technologies and software are used by
manufacturing industries, like forecast/demand management
software, transport/warehouse software and e-procurement; bar
coding/automatic identification system (RFID) were at poor
performance level.
• It concluded that half of the companies did not have such types of
software/enablers at all. on the other hand, most of the companies
were interested to adopt such types of software/enablers in the
future. The companies already started a program in using and
implementing the local software
• The supply chain integration practices challenges and barriers are
analyzed based on the experiences of the respondent companies. The
three main barriers in the manufacturing companies are- operating
environment, Quality of skilled workforce, and Lack of ICT
infrastructure.
• The findings show the manufacturing companies
have also additional challenges related to low
level of awareness and knowledge, expertise and
professional support and lack of physical and ICT
infrastructure on the firms for their both internal
and external integration with suppliers and
customers within the firms investigated.
• Therefore, the firms need to enhance the
information sharing capability and upgrade the
existing ones.
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