Factors affecting the innovation in logistics information systems for logistics service providers in Taiwan

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1 Factors affecting the innovation in logistics information systems for logistics service providers in Taiwan Chieh-Yu Lin Department of International Business Chang Jung Christian University 396, Sec. 1, Chang Jung Rd., Kway Jen Tainan 71101, Taiwan R.O.C. Abstract It is essential that logistics service providers invest in information systems to help them coordinate the supply chain networks. This paper studies the factors affecting the innovation in logistics information systems for logistics service providers in Taiwan form the perspective of internal and external context. A questionnaire is developed to survey the innovation in logistics information systems for logistics service providers in Taiwan. The method of factor analysis is used to find some major configurations for each influential factor and the multiple regression method is employed to analyze of the influences of the configurations on he innovation in logistics information systems. It can be found that both internal and external factors have significant influences on the innovation in logistics information systems for logistics service providers in Taiwan. Keywords : Information system, logistics service providers, determinants of innovation. 1. Introduction Innovation is one of the important tools for enterprises to keep their competitive advantage [9, 21]. The survival of an enterprise depends on how to improve their innovation capability. Moreover, given the rapid development in information and communication technologies, business environment are changing dramatically in this digital age. The rapidly changing and uncertain environments make enterprises face the biggest [email protected] Journal of Information & Optimization Sciences Vol. 27 (2006), No. 3, pp c Taru Publications /06 $

2 630 C. Y. LIN challenge that how to capture their competitive advantage in the age of knowledge-based economy through acquiring innovative information systems. A body of evidence addresses that firms that invest in and develop their information systems may improve their competencies and performance efficiencies [12, 32]. Growth in information technologies also lead to a dramatic rise in global markets and global supply chain. The globalization of supply chain has prompted many firms to develop logistics as a part of their corporate strategy [26]. One key to effective supply chain is to make the logistics function more efficiently [5]. In order to deliver product quickly to customers, many companies seek to outsource their logistics activities to logistics service providers. This reflects the trend of using logistics service providers to satisfy increasing need for logistics services [24]. Logistics has become an important source of competitive advantage. To fully satisfy the diversifying requirements of customers, many logistics service providers improve their service efficiency by continuous adoption of information or automation technologies [25, 34]. Many researchers have provided evidence that information systems can enhance logistics competitiveness [8, 16, 23, 29]. Toward a greater use of information systems across all the logistics functions has become a current trend in supply chain management [29]. Most operations in the logistics service processes require a large number of service workers and thus logistics industry belongs to a laborintensive industry. Nowadays, how the logistics service providers can be transformed from labor-intensiveness into knowledge-intensiveness and how they can make full use of the market intelligence to create knowledge and further take advantage of the knowledge to innovate products, services as well as strategies in order to promote the competence of organizations, are the topics worth taking into deep consideration in the age of knowledge-based economy. Innovation in information technologies provides a solution for above questions [6]. Chapman, Soosay and Kandampully [6] suggested that logistics service providers should pay more attention to innovation in logistics service and the innovation in logistics can be implemented through technology, knowledge and relationship network. Technological effort is the key variable and means of differentiation between logistics service providers [34]. Continuous technological advancement can assist industries to revolutionize the

3 LOGISTICS INFORMATION SYSTEMS 631 way they operate and conduct their business and adopting new technologies might enable logistics service providers to enhance their service abilities. Slater and Narver [38] stated that innovation in services is essentially a value creating activity that drives market orientation and performance. Nixon [27] also suggested that logistics service providers should employ new information technologies to raise their service capability in the e-commerce age. As a result, we can conclude that innovation in logistics information systems can enable logistics service providers to improve their effectiveness and efficiency and to enhance their logistics services. This paper will study the topic about innovation in information systems for the logistics industry. When logistics service providers draw up strategies for new information technologies, they should know what factors will affect the innovation in logistics information systems. However, there is little direct evidence to demonstrate the factors affecting the innovation in information systems for the logistics industry [22]. The empirical evidence proposed by Lai, Ngai and Cheng [22] only revealed descriptive results about perceived benefits and barriers to the implementation of information technologies for Hong Kong s logistics industry. They also suggested that it is useful to explain the adoption of information logistics technologies for the logistics industry using some related theories and conducting hypothesis testing. Although an amount of researchers have investigated factors affecting the adoption of information technologies, most of them did not focus on logistics service providers [14, 20, 35, 42]. Therefore, the research question of this study is: What are the factors significantly affecting the innovation in logistics information systems for logistics service providers? The main purpose of this paper is to explore the factors affecting innovation in information systems for the logistics service providers in Taiwan. The study is conducted in Taiwan. This region is interesting because Taiwan is one of the important sources of electronic hardware products in the world and logistics is one of the key success factors of Taiwan [36]. Moreover, due to the trend of globalization, Taiwan s government delivered several policies to make Taiwan become a global logistics center. Many logistics companies in Taiwan begin to adopt new technologies because of global logistics policies. The next section presents a summary of logistics information systems commonly used in the logistics industry and section three introduces

4 632 C. Y. LIN the theoretical foundations of the determinants of innovation. Section four gives a description of the research methodology, while section five focuses on the analysis of the results and the discussion of the findings. The final section gives conclusions and research s implications. 2. Logistics information systems Due to the emergence of the concept of supply chain management, logistics management has attracted more and more attention. The term supply chain as currently used typically includes the construction of information system and the preservation of partner relationships to reinforce the supply, storage and movement of materials, information, personnel, equipment and finished goods within he organization and between it and its environment. One of the keys to effective supply chain management is to make the logistics function more efficiently in the supply chain and consequently logistics service providers play an important role in the supply chain [5]. Logistics management has become a strategic factor that provides a unique competitive advantage. The purpose of logistics is the supply of service or product to the demander or demanding unit at the right time, with the right quantity, in the right quantity, with the right cost and at the right place. Logistics management is a kind of programming, implementing and controlling process dealing with the flow from the primitive occurring point to the final consumption point and the storage efficiency as well as the cost benefit of raw material, half-finished product, finished product and related information, for the purpose of satisfying the customer s requirement. Many logistics service providers began to improve their operation efficiency by continuous implementation of information or automation technologies according to their business characteristics [25, 34]. The operation processes in logistics service providers, such as distribution centers, have their own features and know-how knowledge. It is important for logistics service providers, in this age of knowledge-based economy, to accumulate and use their skills and knowledge efficiently and consistently. In order to keep the competitive advantage, logistics companies must make use of knowledge more efficiently to make them become innovation-based logistics service providers [6].

5 LOGISTICS INFORMATION SYSTEMS 633 Information systems are most often considered as a resource of the firm, i.e., a source of competitive advantage. Information systems may increase organizational productivity, flexibility and competitiveness as well as stimulate the development of inter-organizational networks [11, 31]. Because one of the primary functions of the logistics service providers is to provide a communication network that links the customers and the manufacturers, the nature of logistics service today demands that firms can interact with their customers and manufacturers instantaneously. The common problems that face logistics service providers are how to improve their efficiency and effectiveness in managing the information flow in the supply chain. Accordingly to the logistics activities, logistics information systems include the application of data collection systems, decision support systems and the application of the Internet. Logistics service providers usually deal with a large amount of goods and data. Data collection and exchange are critical for logistics information management and control. Good quality in data collection can help logistics service providers deliver customers goods more accurately and efficiently. The bar code system and Radio Frequency Identification System (RFID) are data collection technologies that can facilitate logistics data collection and exchange. The Internet is the infrastructure to make communications of business information among several organizations more efficiently and can enable customers to engage in a higher degree of self-service [19]. Decision support systems are a specific class of information system that supports business and organizational decision-making activities. A properly designed decision support system can help decision makers compile useful information from raw data, documents, personal knowledge and/or business models to identify and solve problems and make decisions. Decision support systems commonly used in the logistics industry include Enterprise Resources Planning (ERP), Warehousing Management System (WMS), Transportation Management System (TMS), and Knowledge Management System (KMS). The warehousing management system can offer a quick and efficient way to search for storages in sa warehouse and increase the accuracy and efficiency of picking orders in a warehouse environment. The transportation management system including geographical information system can help logistics managers

6 634 C. Y. LIN planning, managing and controlling transportation issues. Knowledge management system includes knowledge acquisition and collection, knowledge storage and categorization and knowledge diffusion and use. The acquisition and collection of knowledge can be reached by the methods of documents arrangement and the technologies of virtual communities. The storage and categorization of knowledge can be reached by the technologies of data mining and data warehousing. The diffusion and application of knowledge can be reached by the technologies of enterprise information portal and e-learning. Many logistics managers see the Internet as a major source of improved productivity and competitiveness. Logistics service providers can use the Internet to interact with their customers and business partners and provide service instantaneously. The application of the Internet commonly used in logistics industry includes Electronic Data Interchange (EDI), World Wide Web (WWW), , Value Added Network (VAN), Electronic Ordering System (EOS), Computer Telephony Integration (CTI) and Enterprise Information Portals (EIP). Electronic data interchange is identified as inter-company computer-to computer exchange of business documents in standard formats. Recently, Extensible Markup Language (XML) provides a more efficient way for data exchange. 3. Research model 3.1 Definition of innovation Porter [30] said that companies achieve competitive advantage through acts of innovation. They approach innovation in its broadest sense, including both new technologies and new ways of doing things. What is innovation? Drucker [15] defined innovation as the specific tool of entrepreneurs, the means by which they exploit change as an opportunity fora different business of service. It is capable of being presented as a discipline, capable of being learned, capable of being practiced. Betz [4] assumed that innovation is to introduce a new o improved product, process or service into the marketplace. Tidd, Bessant and Pavitt [41] defined innovation as a process of turning opportunity into new ideas and putting these into widely used practice. Afuah [1] proposed that innovation is the use of new technical and administrative knowledge to offer a new product or service to customers. The product or service is new in that its cost is lower, its attributes are improved, it now has

7 LOGISTICS INFORMATION SYSTEMS 635 attributes it never had before or it never existed in that market before. Therefore, we can conclude that innovation is any practices that are new to organizations, including equipments, products, services, processes, policies and projects [10, 21]. Past research has argued that distinguishing types of innovation is necessary to understand organizations adoption behavior and identifying the determinants of innovation in them. Among numerous typologies of innovation advances in the relevant literature, the pair of types of innovation: administrative and technological (or technical) innovations [10]. Technological innovations pertain to products, services and production process technology; they are related to basic activities and can concern either product or process [9]. Administrative innovations involve organizational structure and administrative processes; they are indirectly related to the basic work activities of an organization and are more directly related to its management [9, 21]. This paper will focus on the technological innovation for logistics service providers. 3.2 Determinants of innovation The are many researchers studying the determinants or influential factors on innovation [3, 10, 21, 41, 43]. Based on the related literature, a number of factors influencing the innovation in technologies can be found, including individual [3, 21], technological [7, 39], organizational [3, 21, 42] and environmental [10, 42] context. Although the individual and technological factors might affect the technological innovation for logistics service providers, this paper will not investigate individual and technological influences on the company s innovation in logistics information systems. In this paper, we will only study the technological innovation from the macro perspective. The factors will be classified into two internal factors and external factors respect to a firm. The research framework of this paper is shown in Figure Internal factors Many researchers have argued that certain features of organizations themselves, including structures, climates and cultures of organizations, will influence the adoption of innovation [14, 17, 21, 33, 40]. Ambile [3] found that the management skills, organizational encouragement for innovation and support of innovation resources would help the improvement of innovation. Tornatzky and Fleischer [42] suggested that

8 636 C. Y. LIN Figure 1 Research framework informal linkages and communication among the employees, the quality of human resources, top management s leadership behavior and the amount of internal slack resources would significantly influence the adoption of technological innovation. A firm with higher quality of human resources such as better education or training will have higher ability in technological innovation. This paper, therefore, suggests that the innovation in logistics information systems for logistics service providers will be influenced by the internal factors including organizational encouragement and quality of human resources. The following hypothesis is consequently proposed: H 1 : The more the organizational encouragement, the more likely that the logistics service provider will adopt innovation in logistics information systems. H 1 : The higher the quality of human resources, the more likely that the logistics service provider will adopt innovation in logistics information systems External factors Scupola [35] suggested that external environment including pressure from competitors and role of government would affect the adoption of Internet commerce by small and medium size enterprises. Damanpour [10] found that environments with high uncertainties would have positive influence on the relationship between organizational structures and organizational innovation. The environment complexity and uncertainty would influence the organizational innovation. Governmental support is another important environmental characteristic for technological innovation. Government through regulation can both encourage and

9 LOGISTICS INFORMATION SYSTEMS 637 discourage the adoption of innovation [22, 42]. This paper, therefore, suggests that the innovation in logistics information systems for logistics service providers will be influenced by the external factors including environmental uncertainty and governmental support. The following hypothesis is consequently proposed: H 3 : The more the environmental uncertainty, the more likely that the logistics service provider will adopt innovation in information technologies. H 4 : The more the governmental support, the more likely that the logistics service provider will adopt innovation in information technologies. 4. Research methodology 4.1 Measures Data were collected in Taiwan by means of a questionnaire mailed to logistics service providers. The questionnaire contains four parts: questions about internal factor and external factor, the adoption of innovation in logistics information systems and company s basic information. There are 38 questions in that questionnaire. Besides the company s basic information, the other items were measured using the 5-point Likert scales anchored by strongly disagree and strongly agree. The willingness to innovate or acquire new logistics information systems was used as measurements of adoption of technological innovation. Based on the theory of planned behavior [2] or the technology acceptance model [13], the intention of acquiring information systems may have positive influence on the actual behavior in acquiring information systems. This paper assumes that logistics service providers will tend to innovate or acquire new logistics information systems when they have strong willingness. In addition, the utilization of new logistics information systems was also asked in the questionnaire to investigate the application of logistics information systems for the logistics industry in Taiwan. Organizational encouragement was measured according to the degrees that companies resource supports and leaders attitudes. Quality of human resources was measured according to employees information skills and innovation capabilities. Customers requirements, competitors innovative abilities and development of logistics technologies were used

10 638 C. Y. LIN to measure the environmental uncertainty. Governmental support was measured from the perspective of finance, technology, law and human resources. 4.2 Data collection The sample frame was drawn from members of the Logistics Council in Taiwan as well as the Internet which was used to search companies whose business models conforming to the logistics services. Six hundred questionnaires were mailed to the sampled companies in In total, 158 completed questionnaires were returned. Of these respondents, seven uncompleted or unconfident questionnaires were excluded. The overall response rate is 25.2%. The basic information of the sample companies is shown in Table 1. Table 1 Basic information of the sample Category Number Percentage(%) Company history (years) Above Below Number of employee Above Below Capital (Million, NT Dollars) Above R&D department Yes None It can be found that most of logistics service providers do not establish the R&D department. Only about 28.5 percent of the sampling companies have R&D department. This may be due to the fact that most logistics service providers in Taiwan belong to small and medium size enterprises. Although only 28.5% of companies establish R&D department, most logistics service providers in Taiwan still take

11 LOGISTICS INFORMATION SYSTEMS 639 innovation activities. This implies that technological innovation is an important topic for the logistics industry in Taiwan. This paper asked the logistics service providers what kinds of innovative logistics information systems they acquired during the past five years. A summary of the innovation in logistics information systems for logistics service providers in Taiwan is shown in Table 2. It can be found that almost all respondents acquired innovative logistics information systems during the past five years. Only 7.3 percent of the logistics companies in Taiwan do not adopt new logistics information systems. Bar code, WWW and technologies are employed by most logistics service providers. This might be caused by the rapid growth in information and communication technologies over the past decade and by the urgent needs for logistics companies to deal with a great amount data. Table 2 A summary of the utilization of logistics information systems Information systems Number (N = 151) Percentage (%) Data collection Bar code systems RFID ERP Decision support WMS systems TMS KMS EDI WWW Application of VAN the Internet EOS CTI EIP XML None Results and discussions 5.1 Factor analysis The measured scales were submitted to exploratory factor analysis. Varimax rotation was used because it is the most commonly used and can minimize the number of variables that have high loadings on each factor and simplify the interpretations of the factors. Factors with eigenvalues

12 640 C. Y. LIN greater than 1.0 are summarized in Table 3 and Table 4. The internal factor can be classified into organizational encouragement and quality of human resource and the external factor can be classified into environmental uncertainty and governmental support. Items Table 3 Result of factor analysis for internal factors Factor loading (Standardized) Factor 1 Factor 2 Organizational encouragement (Factor 1) Companies provide supports for employees to learn new information Companies leaders can help employees when they face new problems Companies leaders encourage employees to learn new information Companies provide rewards for innovative employees Companies have precise innovation strategies Quality of human resources (Factor 2) Employees possess abilities to use computer to solve problems Employees can learn new technologies easily Employees can share knowledge with each others Employees usually provide new ideas for companies Eigenvalue Variance explained % % Accumulated variance explained % % Cronbach s α for each dimension Cronbach s α Based on the results of factor analysis, we can confirm the construct validity of this study. The reliability analysis was also conducted.it can be found from Table 3 and Table 4 that the smallest value of Cronbach s alpha for this study is The overall reliability is This implies that the sampling results are reliable [28].

13 LOGISTICS INFORMATION SYSTEMS 641 Table 5 shows the correlations among these factors and the innovation in Logistics Information Systems (LIS). The correlation matrix gives us initial evidences of our hypotheses: internal factor and external factor are positively associated with the innovation in logistics information systems. Moreover, the internal and external factors are not highly correlated. Items Table 4 Results of factor analysis for external factors Factor loading (Standardized) Factor 1 Factor 2 Governmental support (Factor 1) Government encourages companies to propose projects of logistics technologies Government provides financial support for the development of logistics technologies Government help training manpower with logistics skill Government relieves the regulation for the logistics industry Environmental uncertainty (Factor 2) Customers requirements vary quickly Competitors usually provide new logistics services The advance in new logistics technologies is quickly Customers requirements are diversified Eigenvalue Variance explained % % Accumulated variance explained % % Cronbach s α for each dimension Cronbach s α Table 5 Results of correlation analysis Variable Organizational encouragement Quality of human resources Environmental uncertainty Governmental support Innovation in LIS : p < 0.05 : p < 0.01

14 642 C. Y. LIN 5.2 Multiple regression analysis In order to find the influence of internal and external factors on the innovation in logistics information systems, the method of multiple regression analysis was used in this study. Based on the above results obtained by the method of factor analysis, the internal factor is classified into organizational encouragement and quality of human resource; the external factor is classified into environmental uncertainty and governmental support. This paper took these four factors as independent variables and the adoption of innovative logistics information systems as the dependent variable and consequently, employed the multiple method of regression analysis to determine their relationship. Moreover, company history, number of employee, capital size and establishment of R&D department are taken as the control variables in the multiple regression analysis. Innovation in logistics information system = β 1 log (Company history) + β 2 log (Number of employee) +β 3 log (Capital) + β 4 R&D department +β 5 Organizational encouragement + β 6 Quality of human resources +β 7 Environmental uncertainty + β 8 Governmental support Before applying the regression model, we examined whether the regression assumptions of homoescedasticity, linearity, normality, independence of residuals and the absence of multicollinearity are satisfied. Based on a plot of residuals versus predicted values, we found that the assumptions of homoescedasticity and independence of residuals are met. To examine the assumption of linearity, scatterplots for all independent variables against the dependent variable in a pairwise manner were inspected. The assumption of linearity seems to be satisfied. The Anderson-Darling test was used to examine the normality of residuals. Because the obtained test statistic A 2 is (p-value> 0.1), the assumption of normality holds [37]. Multicollinearity was examined by checking the values of Variance Inflation Factor (VIF) in this study and it was found that the VIF values are all less than 10 and therefore we can confirm that there is no extreme multicollinearity in the regression

15 LOGISTICS INFORMATION SYSTEMS 643 model [18]. Moreover, we could also confirm that autocorrelation does not present in the residuals of the regression equation because the Durbin- Watson value is which lies within the range of critical values [18]. The results of regression analysis are shown in Table 6. Table 6 Standardized regression results Dependent variables: Innovation in logistics information systems Model 1 Model 2 Predictors Coefficient β t Coefficient β t Control variables Company history Number of employee Capital R & D department Internal factors Organizational encouragement Quality of Human resources External factors Environmental uncertainty Governmental support R adj R F Durbin-Watson value : p < 0.1 : p < 0.05 : p < 0.01 Based on the standardized results of the multiple regression analysis shown in Table 6, it can be found that both internal and external factors have positive influences on the innovation in logistics information systems. Except the establishment of R&D department, other control variables do not have significant influences on the adoption of new logistics information systems. The establishment of R&D department has significant influences on the innovation in logistics information systems (p-value < 0.1). This means that logistics service providers who establish R&D departments should have stronger willingness to adopt new logistics information systems. The overall regression equation for model 2 is significant. In addition, organizational encouragement, quality of human resource and governmental support exhibit significant influence on the innovation in

16 644 C. Y. LIN logistics information systems. This means that the hypotheses, H 1, H 2 and H 4 are not rejected, but the hypothesis H 3 is rejected. Most logistics service providers in Taiwan are small and medium size. Providing flexible logistics service to satisfy customers varying requirements is their major competence. Environmental uncertainty is common to these logistics service providers. Therefore the environmental uncertainty does not have significant influences on the innovation in logistics information systems for logistics service providers in Taiwan. It can be concluded that the innovation in information technologies will be reinforced for logistics companies if they have higher quality of human resources and can provide better support to encourage organizational innovation. The governmental support will also improve innovation in information technologies for logistics service providers. 6. Conclusion This paper utilized the multiple regression analysis to study the influences of internal and external factors on the innovation in logistics information systems for logistics service providers in Taiwan. Based on the research results, it can be found that most logistics service providers in Taiwan think that innovation in logistics information systems is very important and try to reinforce their ability of innovation. In Taiwan, almost all logistics service providers place emphases on the innovation in logistics information systems. The factors influencing innovation in logistics information systems are divided into internal and external; the internal factor includes organizational encouragement and quality of human resources and the external factor includes the environmental uncertainty and governmental support. These factors have positive influences on the innovation in logistics information systems for logistics service providers. Moreover, organizational encouragement, quality of human resource and governmental support exhibit significant influences on the innovation in logistics information systems for the logistics industry in Taiwan. Based on our research about innovation in information systems for logistics service providers, logistics companies can plan better strategies to construct their technological innovation systems and o make them become innovation-based logistics service providers. Logistics service providers can improve their innovative ability in information systems by raining and

17 LOGISTICS INFORMATION SYSTEMS 645 educating their employee to become high quality of human resources. The logistics companies and their leaders should also provide better support and resources to encourage technological innovation. The government should give strong support for logistics industry in adopting information systems. The innovation will be reinforced for logistics companies if the government can provide various supports of innovation resources and continuous encouragement policies. The government can provide financial incentives, pilot projects and tax breaks to stimulate innovation in logistics information systems for logistics industry. There are some limitations to our research. Because we used a mail survey, it is possible that the results of this study might suffer from respondent bias. This study focused on the influences of internal and external factors on the innovation in logistics information systems. Other factors such as individual and technological context might have influences on the innovation in information systems. Future research can take these factors into account. References [1] A. Afuah (1998), Innovation Management: Strategies, Implementation and Profits, Oxford University Press, New York. [2] I. Ajzen (1985), From intentions to actions: a theory of planned behavior, Action-Control: From Cognition to Behavior, in J. Kuhl and J. Beckman (eds.), Springer, Heidelberg, pp [3] T. M. Amabile (1988), A model of creativity and innovation in organization, in Research in Organizational Behavior, B. M. Staw and L. L. Cummings (eds.), Aldine Publishing Company, Chicago, Vol. 10, pp [4] F. Betz (1997), Managing Technological Innovation: Competitive Advantage from Change, John Wiley & Sons, Inc., New York. [5] D. J. Bowersox, D. J. Closs and M. B. Cooper (2002), Supply Chain Logistical Management, Mc-Graw-Hill, New York. [6] R. L. Chapman, C. Soosay and J. Kandampully (2003), Innovation in logistic services and the new business model: a conceptual framework, International Journal of Physical Distribution & Logistics Management, Vol. 33 (7), pp [7] P. Y. K. Chau and K. Y. Tam (1997), Factors affecting the adoption of open systems: an exploratory study, MIS Quarterly, Vol. 21 (1), pp

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