DRIVERS OF SUPPLY CHAIN INTEGRATION: EMPIRICAL EVIDENCE FROM INDONESIA

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1 DRIVERS OF SUPPLY CHAIN INTEGRATION: EMPIRICAL EVIDENCE FROM INDONESIA Erlinda Yunus FORUM KAJIAN PENGEMBANGAN 22 Januari 2013

2 OUTLINE INTRODUCTION Research gaps and research questions THEORY DEVELOPMENT Research model and hypotheses METHODOLOGY RESULTS DISCUSSION Implications for research Implications for practice Limitations and suggestions Contributions

3 INTRODUCTION The importance of supply chain management practices in today s business (Lee, ; A n d e r s o n & N a r u s, ; C h r i s t o p h e r, ; S i m c h i - L e v i e t a l ). Figure 1. Total Number of SCM Articles (13 Journals) Adapted from Jain et al. (2010)

4 INTRODUCTION Research Gaps Improved performance (e.g., Droge et al., 2004; Flynn et al., 2010) Mixed findings (Fabbe-Costes & Jahre, 2008): need a clear definition, valid measures, and other contextual factors Drivers of Supply Chain Integration (SCI): Increasing global competition (Lummus & Vokurka, 1999; Handfield & Nichols, 1999) Demand changes, supply uncertainties, technological changes (Mentzer et al., 2000; Afuah, 2001; Chen & Paulraj, 2004) Opportunity of new markets (Frohlich & Westbrook, 2002) Internal motivation? Supply chain management practices in developing countries?

5 INTRODUCTION Research Questions RQ1: To what extent do manufacturing firms integrate with their supply chain members? RQ2: To what extent firms integration with supply chain members improve their performance? RQ3: To what extent do firms external drivers trigger the integration with supply chain members? RQ4: To what extent do firms internal drivers trigger the integration with supply chain members?

6 THEORY DEVELOPMENT SUPPLY CHAIN INTEGRATION Definition of Supply Chain Integration (SCI) The interrelationship among the departments, functions, or business units within the firm that source, make, and deliver products and the external relationships with entities outside the enterprise, including the network of direct suppliers and their suppliers and direct customers and their customers (Rosenzweig, 2003) Scope of SCI (Narasimh a n & K i m, ; C a m p b e l l & S a n k a r a n, ; F l y n n e t a l., ; Z h a o e t a l., ) : Internal Integration Supplier Integration Customer Integration A focal firm as an appropriate unit of analysis ( F r a n k e l e t a l., ) SCI: measures the degree of integration that a focal firm pursues with its supply chain partners.

7 THEORY DEVELOPMENT RESEARCH FRAMEWORK External Drivers Supply Uncertainty Demand Uncertainty Technology Uncertainty Internal Drivers H2a + H2b + H2c + H3a + Supply Chain Integration Internal Integration Customer Integration Supplier Integration H1a,1b + Firm Performance Operational Performance Business Performance Anticipation of Benefits H3b + Customer Orientation

8 METHODOLOGY SAMPLE - INSTRUMENT Sample Indonesian-based manufacturing firms (2010 Kompas Directory & PPM Database) Two informants from each firm Senior managers in Supply Chain/Logistics > Internal drivers and SCI Senior managers in Marketing/Finance > External drivers, Firm performance N=223 out of 813 firms (160 invalid contact info) 34.15% response rate Profile 20.6% owner or top management (e.g., CEO) and 48.7% senior managers 34.8% 1-5 years with the company; 26.2% 5-10 years, 30.7% more than 10 years Instrument Translated into B. Indonesia and back translated into English

9

10 METHODOLOGY INSTRUMENT DEVELOPMENT External Drivers 5-pt Likert scale (1= strongly disagree and 5= strongly agree ) Supply Uncertainty (SU) Demand Uncertainty (DU) Technology Uncertainty (TU) 4 items 5 items 4 items Chen and Paulraj (2004) Internal Drivers (new measure) 5-pt Likert scale (1= strongly disagree and 5= strongly agree ) Anticipation of Benefits (AB) Customer Orientation (CO) 5 items 3 items Lummus & Vokurka, 1999; Frohlich & Westbrook, 2002 Chen & Paulraj, 2004; Kaynak & Hartley, 2008; Lockström et al., 2010 Supply Chain Integration 5-pt Likert scale (1= not at all and 5= extensive ) Customer Integration (CI) Supplier Integration (SI) Internal Integration (II) 6 items 6 items 8 items Flynn et al. (2010) Firm Performance 5-pt Likert scale (1= strongly disagree and 5= strongly agree ) Operational Performance (OP) Business Performance (BP) 6 items 4 items Flynn et al. (2010)

11 Literature review & interview with 2 VPs of SCM Pilot-test using 61 practitioners DATA COLLECTIO N & ANALYSIS PROCEDURE Initial Instrument for Internal Drivers Pre-test with academicians and SCM practitioners Establishing content validity Establishing content validity Refinement Data collection with full questionnaire Testing for reliability & construct validity Test for internal consistency using Cronbach s alpha Test for unidimensionality & validity using CFA Testing for criterion-related validity

12 METHODOLOGY EXPLORATORY FACTOR ANALYSIS EFA for the new scale: Internal drivers

13 RESULTS MEASUREMENT RELATED

14 RESULTS MEASUREMENT RELATED Test for normality and multicollinearity Test for normality using skewness-kurtosis statistics and Histogram Test for multicollinearity using Tolerance (>.20) and VIF (<4.0) All VIF values were below 4.0 except for SCI14 (VIF = 5.196) and SCI15 (VIF = 4.735) Test for non-response bias Split data: Oct-Dec 2011 (n 1 =89) and Jan-Feb 2012 (n 2 =134) Using simple t-test for all constructs > all values were insignificant, except for Technology Uncertainty and Firm Age constructs Test for common method variances Harman s single factor test using EFA (Podsakoff et al., 2003): 11 factors explaining 70.85% of the variance (first factor = 23.89%) CFA (Byrne, 1998; Hu & Bentler, 1999) showed a poor fit (χ 2 (1034) = , CFI =.77, GFI =.43, normed fit index or NFI =.73, NNFI =.76, and RMSEA =.160)

15 RESULTS MEASUREMENT RELATED Unidimensionality: Goodness-of-fit indices

16 Firm performance Internal drivers External drivers RELIABILITY AND CONVERGENT VALIDITY

17 Supply chain integration RELIABILITY AND CONVERGENT VALIDITY (contd.)

18 Discriminant validity analysis RESULTS MEASUREMENT RELATED

19 RESULTS MEASUREMENT RELATED Second-order construct analysis for supply chain integration (SCI) Supply Chain Integration Customer Integration Supplier Integration Internal Integration

20 RESULTS RESEARCH-QUESTION RELATED

21 RQ1 - The Extent of SCI and a Comparison Indonesia Mfg Firms ( ) Thailand Mfg Firms (Wong et al., 2011) 3.00 The Extent of SCI Customer Integration Supplier Integration Internal Integration Indonesia Mfg Firms ( ) Thailand Mfg Firms (Wong et al., 2011) China Mfg firms (Flynn et al.,2010; Zhao et al., 2011) 57 US Automotive-Parts Firms (Vickery et al., 2003) Korean Mfg Firms (Narasimhan & Kim, 2002) 379 Japan Mfg Firms (Narasimhan & Kim, 2002) 1.00 Customer Integration Supplier Integration Internal Integration

22 RESULTS HYPOTHESES TESTING RQ2-4 Model fit: χ 2 (487) = , χ 2 /df = 1.39, CFI =.97, NFI =.90, GFI =.85, NNFI =.96, RMSEA =.042 Control Variables Supply uncertainty Firm size Firm age Demand uncertainty Technology uncertainty Anticipation of benefits ** 2.14*.90 Supply chain integration 2.24* 2.83** Operational performance Business performance Customer orientation

23 SUMMARY OF RESULTS External Drivers Supply Uncertainty Demand Uncertainty Technology Uncertainty Internal Drivers Anticipation of Benefits H2a H2b H2c H3a H3b Supply Chain Integration Internal Integration Customer Integration Supplier Integration H1a,1b Firm Performance Operational Performance Business Performance Customer Orientation

24 RESULTS FOLLOW-UP ANALYSIS Hierarchical regression results for dimensions of SCI SU SU SU DU CI DU CI DU CI TU SI TU SI TU SI AB II AB II AB II CO CO CO

25 DISCUSSION

26 DISCUSSION The findings supported previous studies related to the positive relationship between supply chain integration and firm performance ( e. g., D r o g e e t a l., ; F l y n n e t a l., ; G e r m a i n e t a l., ; W o n g e t a l., ) It investigated SCI in a developing country. Insignificant external influences on SCI Indonesia as a moderate-economy growth 2008: Indonesia=28% manufacturing share of GDP; China=34% (WB, 2010) : Indonesia s manufacturing sector grew 4.9% annually; China s grew 11.6% annually (WB, 2010) (est.): Indonesia=3.50% annual industrial production growth; China=13.90% (The World Factbook, 2011). Liu et al. (2010): coercive power significantly influenced e-scm adoption. Type of industry

27 DISCUSSION Follow-up analysis Demand uncertainty and technology uncertainty induce internal integration Implications for practice Through SCI firms could improve their operational and business performances. Close collaboration to perform logistics synchronization, information sharing, incentive alignment, and collective learning. Internal integration: remove silo mentality, close coordination among units.

28 DISCUSSION Limitations and suggestions for future research Cross-sectional study: SCI practices and performance were measured at the same time. Future research: incorporate time lag or use longitudinal study. Perceptual measure for firm performance: using multiple items and two informants. Future research: triangulates results with objective data and different methods. The context of the study: manufacturing firms in Indonesia. Future research: compares and contrasts findings from different countries and different types of industry.

29 CONTRIBUTIONS This study brings a different perspective of supply chain integration as it provides evidence from a developing country. This study extends the examination of integration antecedents by investigating firm s external and internal drivers. This study contributes to the OM literature by providing a new measure, that is, internal drivers, which was tested and validated using a rigorous process ( C h u r c h i l l, ; M a l h o t r a & G r o v e r, ; L i e t a l., ).

30 THANK YOU Your feedback is greatly appreciated

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