Assessing Supply Chain Partnership Performance in Services Organization: Conceptual Model.

AFRICA DEVELOPMENT AND RESOURCES RESEARCH INSTITUTE (ADRRI) JOURNAL pissn: 2343-6662 ISSN-L: 2343-6662 VOL. 7, No.7(2), pp 1-18, April, 2014 Assessing Supply Chain Partnership Performance in Services Organization: Conceptual Model. Salah Alhyari 1, Abdulsattar Mohammad Al-Ali 2 and Mohammed Nuseir 3 1,2 School of Business and Finance, The World Islamic Sciences & Education University, Jordan 3 School of Management, New York Institute of Technology, Jordan. Correspondence: Salah_Alhyari@yahoo.com Received: 24 th February, 2014 Revised: 19 th April, 2014 Published Online: 30 th April, 2014 URL: http://www.journals.adrri.org/ [Cite as: Salah, A., Abdulsattar, M. A. and Mohammed, N. (2014).Assessing Supply Chain Partnership Performance in Services Organization: Conceptual Model. Africa Development and Resources Research Institute Journal, Ghana: Vol. 7, No. 7(2), Pp. 1-18.] Abstract: This study aims to develop a conceptual model based on available literature, directly assessing partnership performance and taking into account the difference between manufacturing firms and services firms. The conceptual model has two main components-independent and dependent variables. The independent variable include 11 dimensions for assessing supply chain partnership performance while the dependent variable has two dimensions namely strategic (enhancing competitive positions in the organization) and operational (contribution to operational efficiency in order to measure the origination performance). Keywords: supply chain management, supply chain performance, supply chain partnership 1

INTRODUCTION With the introduction of the new business environment, the fundamental organizational responsibilities have expanded from internal to external level; the organization's activities have extended to suppliers, distributors, manufacturers, transporters, retailers, warehouses as well as customers within the supply chain (SC). Supply chain management (SCM), a growing number of firms that are struggling to build a strong supply chain partnership (SCP) with their trading partners, hence, it is no longer focusing on the company's performance the only factor in the success of the organization, but supply chain network performance is one of its partners must be taken into account. No longer for firms focusing on the improving their performance with exclusion suppliers 'and customers' operations. Supply Chain Performance Measures as an indicator of how well the system works SC. And it could be measured performance of the SC to facilitate a greater understanding of the SC and to improve the overall performance (Charan, Shankar and Baisya, 2008). Supply Chain Management Partnership (SCP) is the starting point to maintain a strong supply chain and achieve mutual benefit by utilizing the unique expertise and know-how of partners (Lemke et al., 2003; Lambert et al., 1996; Ontario, Niagara, Falls, 2009). Supplier partnerships and alliances refer to cooperative relationships more exclusive than between organizations and their suppliers upstream and downstream customers. Many firms bold steps to break down the barriers between companies both internal and to external such alliances, in order to reduce uncertainty and strengthen the control of supply and distribution channels, and increase the operational and financial performance of each member of the channel through reductions in overall inventory costs and increasing the exchange of information (Maloni and Benton, 1997). Supply chain management needs a performance measurement system in order to identify success, to determine the amount of meeting customers` needs, to help organizations in order to understand processes, to discover knowledge that these organizations are not aware of it and finally to realize planning improvements (Kim & Kumar, 2010). Then for creating an efficient and effective supply chain, a need for assessing performance is felt. Performance evaluation has a determining role in the development and progress of supply chain, so that it can direct the design and management of supply chain towards the desired performance. Performance evaluation and its indices play a major role in classification of goals and determining the future policies (Roth & Jackson, 1995). Assessing partnership performance (buyers or suppliers) is simply not enough relationships must be evaluated. The parameters that need to be considered in assessing of partnerships performance are the ones that promote and strengthen them. For 2

example, the level of assistance in mutual problem solving is indicative of the strength of supplier partnerships. Partnership evaluation based on such criteria will result in win win partnerships leading to more efficient and more thoroughly integrated supply chains (Gunasekaran, Patel, &McGaughey, 2004). The purpose of this study is to understand how to assess supplier partnership performance, and to determine the underlying dimensions of partnership performance in SC with special emphasis on service firms. Due to the importance of the service industry, since this sector deal with all groups and individuals in the community and it can be considered as one of the most important sectors which highly contribute to the level of exporting and contribution to the Gross National Product (GNP) in general, also it contains high skilled labor. The objective of this paper is to develop a framework for assessing the comprehensive performance of SCP. The framework is based on principles and dimension that have been adopted in literature review, and the study investigates to determine the underlying dimensions of SCP. Also develop operational definitions for the study variables based on reviewing the literature, related work, and field results of this study. Firms need to understand how to assess SCP performance. Furthermore, there is an expectation that service firms will use leading edge technology and invest heavily in supply chain management. This study expects the following contributions: Provide a reference for researchers who interested in SCM. The study investigates in the issues that are mostly critical in SCM for improving performance. Formulate an extended concept of SCP performance in a theoretical framework and apply it on industry sectors, service industry as an example. Clarify the advantages in applying SCP performance in the supply chain scope. Theoretical Part Supply Chain Management: Supply chain management refers to integrating several activities through improving chain relationship in order to access stable competitive advantage (Gilaninia, Sh., Chirani, E., Ramezani, E., 2011). Supply chain consists a network of partners and various channels operating throughout the organization which effect on the utility of supply chain headquarters. The main purpose of supply chain management activities related to satisfy customers demand. 3

(Amid et al, 2007). Supply chain management as a management philosophy takes a system approach to viewing the supply chain as a single entity. This means that the partnership concept is extended into a multi firm effort to manage the flow of goods from suppliers to the ultimate customer. Each firm in the supply chain directly or indirectly affects the performance of other supply chain members, as well as the overall performance of the supply chain (Cooper, et al, 1997) cited in (Annan, Alexander & Daniel, 2013). Supply Chain in service industry Just as the focus on building world-class supply chains (SCs) and collaborations in manufacturing began in the latter part of the 20th century, the attention needs to turn now on the supply chains within the service sector(drzymalski, 2012). Many questions need to be answered to determine whether or not existing models of frameworks, performance measures, network design and implementation are applicable to the service sector. Building a foundation for the supply chain in these service-type industries is crucial to the execution the activities within this sector (Ping &Jia, 2010). Most visibly, the main defining characteristic between a manufacturing and service firm is that human labor is the primary component of the latter, while a physical product is that of the former. The characteristics that define each of these then, also differ. Many authors argue the definition of these characteristics (Drzymalski, Julie, 2012). Drzymalski argue the disparity between a manufacturing and services supply chain as following: Table 1. The disparity between a manufacturing and services supply chain (Drzymalski, Julie, 2012) Area Production System Manufacturing systems supply chain Push (sell from inventory) Service industry supply chain Pull (initiated by customer demand) Logistics System Uniform, mass approach Customized to customer need Finished Goods Inventory Suppliers Tightly controlled Responsiveness not critical Kept at low level Must be responsive Customer relations Often at a low level Critical to overall success 4

Supply chain performance It is important to measure the performance of the complete SC and the individual processes. The performance measurement system should be based on the strategy, value drivers and important goals of the companies and the whole SC (Chan 2003). Performance measurement provides information for management and decision makers; enable identifying the success and potential of management strategies and facilitating the understanding of the situation. In addition performance measurement assists in directing management attention, revising company goals, and re-engineering business processes. SC performance measurement is helpful in the continuous improvement of SCM (Chan 2003). Many methods and techniques have been suggested by researchers over the years for SC performance evaluation. Traditional methods were focusing on well-known financial measures, such as the return on investment (ROI), net present value (NPV), the internal rate of return (IRR), the payback period and other financial measurements. Thus, these methods are best suited to measure the value of simple SCM applications. While, evaluation methods that rely on financial measures are not well suited for the new generation of SCM applications. These complex supply chains typically seek to provide a wide range of benefits, including many that are intangible in nature. Accordingly, Gunasekaran, A., Patel, C., &Tirtiroglu, E. (2001) develop framework provide a cohesive picture to address what needs to be measured, and how it can be dealt with. The framework balanced approach and should be classified at strategic, tactical, and operational levels, and be financial and non-financial measures, as following: Table (3): The framework balanced approach, (Gunasekaran, Patel, &Tirtiroglu, 2001) Level Performance metrics Financial Non-financial Strategic Total supply chain cycle time + Total cash flow time + + Customer query time + Level of customer perceived value of product + + Net profit vs. productivity ratio Rate of return on investment + + Range of products and services + Variations against budget + 5

Order lead time Flexibility of service systems to meet particular customer needs + + Buyer supplier partnership level + Supplier lead time against industry norms + Level of supplier s defect free deliveries + Delivery lead time + + Delivery performance + Tactical Accuracy of forecasting techniques + Product development cycle time + Order entry methods + Effectiveness of delivery invoice methods + Purchase order cycle time + Planned process cycle time + Effectiveness of master production schedule + Supplier assistance in solving technical + problems Supplier ability to respond to quality problems + + Supplier cost saving initiatives + Supplier s booking in procedures + Delivery reliability + Responsiveness to urgent deliveries Effectiveness of distribution planning schedule + Operational Cost per operation hour + + Information carrying cost + Capacity utilization + Total inventory cost as: + Incoming stock level Work-in-progress Scrap value Finished goods in transit + + Supplier rejection rate Quality of delivery documentation + Efficiency of purchase order cycle time + Frequency of delivery + 6

Driver reliability for performance + Quality of delivered goods + Achievement of defect free deliveries + Also, some researchers suggested using balanced scorecard which was developed by Norten and Kaplen (1992) to evaluate performance of the supply chain. We can consider balance scorecard a good choice for performance evaluation of SC especially it measures financial and non-financial performance into four perspectives namely, financial perspective, and customer perspective, internal process perspective, and innovative and learning perceptive. Each perspective has several metrics and sub dimensions such ROI for financial perspective, the cost per hour for process perspective, and the other perspectives so on. Supply chain partnership and assessing performance SCP is defined as strategic coalition of two or more firms in a supply chain to facilitate joint effort and collaboration in one or more core value creating activities such as research, product development, manufacturing, marketing, sales, and distribution (Agusa, & Hassan, 2008). The objective of SCP is increasing benefits to all partners by reducing total cost of acquisition, possession, and disposal of goods and services (Agusa, & Hassan, 2008; Maheshwari et al., 2006; Li et al., 2006). SCP is designed to influence the strategic and operational capabilities of individual participating organizations to help them achieve significant ongoing benefits. SCP in the supply chain management is one of the most popular hybrid organizational forms. It has been increasingly adopted by firms to manage inter-organizational collaboration in the supply chain. SCP provide both large and small firms with numerous opportunities to improve their conduct of business such as wider diffusion of products without costly physical presence in the markets, risk and reward sharing, resource pooling, reduction in coordination and transaction costs, ability to concentrate on core competency, and rapid response to market needs (Spekman, Kamauff and Myhr, 1998) cited in (Agusa, & Hassan, 2008). Li et al. (2006) emphasize that the departments and functions in partnering companies need to work with each other in evaluating inventories, systems, processes, training, work methodologies, equipment utilization, and a host of other opportunities to reduce the cost of operations and explore opportunities for the partnerships. SCP contributes to enhancing the Company s competitive position and the operational measures pertaining to enhancing the company s operational efficiency (Sodhi and Son, 2009). 7

Supply chain Partnership assessment dimensions AFRICA DEVELOPMENT AND RESOURCES RESEARCH INSTITUTE (ADRRI) JOURNAL Supply chain Partnership assessment dimensions: (Gunasekaran, Patel, &Tirtiroglu, 2001) Partnership evaluation criteria Level and degree of information sharing Buyer vendor cost saving initiatives Extent of mutual co-operation leading to improved quality The entity and stage at which supplier is involved. Extent of mutual assistance in problem solving efforts. Sodhi and Son (2009) have been developed a model to assess the performance of the SCP, their model is based on strategic and operational dimension of performance of supplier retailer partnerships in terms of five factors (1) information exchange; (2) trust; (3) joint partnership management; (4) relationship specific assets, and (5) partner asymmetry. Other researchers such Omai, Kevin, Moindi, (2013) suggest Information Sharing, Supply Chain Integration, Partner Relationship to assess supply chain partnership performance. And they consider these dimensions enough to get effective SCP performance. Description: In the review and perusal of the theoretical literature and previous studies, effective supply chain partnership performance dimensions showing in Figure (1): Table 2. Supply chain Partnership assessment dimension in the literature review Main dimensions Sub dimensions Partnership evaluation criteria Level and degree of information sharing Buyer vendor cost saving initiatives Extent of mutual co-operation leading to improved quality The entity and stage at which supplier is involved. Extent of mutual assistance in problem solving efforts. References Gunasekaran, et al, 2001 Li et al.2006 8

information exchange; trust; Joint partnership management; Relationship specific assets Partner asymmetry. Information Sharing Supply Chain Integration Partner Relationship Sodhi, and Son, 2009 Omai, Kevin, Moindi, 2013 Li et al. (2005) identified information exchange and information quality as important dimensions of effective inter-organizational supply chain management (SCM) practice. Efficient IT can reduce transaction costs and risk to enable firms to engage in more collaborative activities. A number of empirical studies in the supply chain setting have explored information exchange, as a key determinant of the performance of a SCP (e.g.: Gunasekaran, et al, 2001; Li et al., 2006). Also Trust is among the most frequently studied dimensions of SCP in the literature (Sodhi, & Son, 2009).Trust enhances the performance of any collaborative inter-firm arrangement (1) by lowering uncertainty regarding the partner s response to future events and thus increasing the level of collaborative activities between suppliers and buyers (2) by lowering the perceived likelihood that either company s vulnerability will be exploited by its partner especially in managing risks associated with investment and other financial decisions ; and (3) by enhancing the controlling, managing collaborative inter-firm arrangements and lower the governance cost(sodhi & Son, 2009). Joint partnership management: A joint controlling mechanism can enhance the partnership s performance because an organization with hybrid-integrative governance can avoid the typical problems of bounded rationality and opportunism by employing such a controlling mechanism (Sodhi & Son, 2009). Relationship-specific assets: Customers can make investments in equipment and organizational procedures tailored to their partnership and manufacturers can invest in training their staff to use the particular equipment (Houston and Johnson, 2000). 9

Partner asymmetry: This is the dissimilarity between partners in such partner characteristics as culture, asset size and venture-experience level. Differences in partnership characteristics can negatively affect the partnership s performance (Sodhi & Son, 2009). Felid Study: Conceptual model for assessing SCP performance in the service organization: To achieve the purpose of this study, the researchers have developed conceptual model based on literature review and adopted all dimensions that have been developed by researchers as it is illustrated below: 10

Independent Variable Conceptual model for assessing SCP performance SCP performance Level and degree of information sharing Buyer vendor cost saving initiatives Leading to improved quality Supplier s involvement Problem solving efforts Trust Relationship specific assets Dependent Variable Organization Performance Strategic: Enhancement Of Company s Competitive Positions Operational: Contribution to Operational Efficiency Joint partnership management Partner asymmetry Partner Relationship Figure (2): Conceptual model for assessing SCP performance in service industry 11

Independent Variables Level and degree of information sharing: the main questions pertained to IT capacity for sharing information with partners; capacity of exchanging standardized and customized information; willingness to share strategies, polices and operational information with partners, and type of information exchanged and quality of evaluation. Buyer vendor cost saving initiatives: the main question should the firm ask do partner help in reducing costs? Thus benefit from cost reduction to achieve competitive advantage. Extent of mutual co-operation leading to improved quality services provided. The entity and stage at which supplier is involved, the main question should the firm ask what is the degree of involvement of partner? How they work to achieve organizational goals? Extent of mutual assistance in problem solving efforts. Trust, how much trust exists in their business relationship and whether the partnership s relationship governance structure is governed by the retailers power instead of trust in order to reflect the unique buyer power situation in the supply chain (Sodhi,& Son, 2009). Joint partnership-management: measure the degree of existence of formalized guidelines for supply chain partnership management; the degree of existence of well-defined roles and responsibility for engaging partnerships; the degree of opportunity for suppliers to participate in the decision-making processes of their retailers; the degree of existence of regular communication routes; and the degree of existence of benefit and risk sharing systems. Relationship-specific assets: measure the degree of IT relationships specific assets and the degree of non-it relationships specific assets. Partner asymmetry: This is the dissimilarity between partners in such partnership characteristics as culture, asset size and venture-experience level. Differences in partner characteristics can negatively affect the partnership s performance (Sodhi & Son, 2009). Dependent Variables Partnership performance evidenced by using measures pertaining to enhancing the company s competitive position (e.g.: Profit level, Cost control, Technology development, New product development, Knowledge transfer, Manufacturing and quality control, Marketing activities) and the operational measures pertaining to enhancing the company s operational efficiency 12

(e.g.: Forecasting accuracy, Inventory level, Lead time, Supply chain responsiveness, Supply chain management cost reduction). METHODOLOGY Nature and Type of Study To achieve the purposes of this study, the researcher has been adopted descriptive approach to identify SCP performance, and in line with the nature and objectives for present study, methods and generally accepted in qualitative analysis have been used. Data collection method This study is based on both primary and secondary data. Primary data sources used is unstructured observation, while secondary data sources are various journals and research papers, books of the renowned authors and internet. This is a descriptive research study which tries to open up the various aspects of the evolution philosophy in current scenario. CONCLUSION Assessing the SC partnership performance gain much attention by researchers focused on joint ventures and strategic alliances that are well structured and, in many cases, involve equity relationships, and they have been used several measurements and techniques for this purpose such as balance scorecard and partner scorecards, in addition to adopt several parameters to measure partnership performance in SC. In this study the researchers have been developing a conceptual model based on the literature review going directly to assess partnership performance taken into account the defer between manufacturing firms and services firms. The conceptual model has two main components (independent and dependent variables), where independent variables have 11 components to assess SCP performance, while dependent variables have two dimensions namely; Strategic: Enhancement Of Company s Competitive Positions, Operational: Contribution to Operational Efficiency in order to measure the origination performance. 13

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