Strategic Characteristics of Supply Chain Management among ...
Strategic Characteristics of Supply Chain Management
among Thai Manufacturers
Sang M. Lee
Effective supply chain management (SCM) has การบริหารโซอุปทานอยางมีประสิทธิภาพไดกลายเปน
become an emergent strategy for Thai manufacturers กลยุทธที่ผูผลิตชาวไทยเริ่มนํามาใช เพื่อรักษาความไดเปรียบ
to secure competitive advantage and improve organi
zational performance in today’s highly volatile global ในการแข งขั น และปรั บ ปรุ งผลประกอบการขององค ก ร
market. This research identifies eight strategic charac
teristics of SCM (interand intraorganizational com
munication, organizational flexibility, interorgani ผลงานวิจัยฉบับนี้บงชี้ถึงกลยุทธ 8 ประการในการบริหารโซ
zational relationships, supply chain coordination,
outsourcing, inventory management and mass cus
อุปทานของผูผลิตไทย ซึ่งประกอบดวย การสื่อสารระหวาง
tomization manufacturing strategy) among Thai องคกร การสื่อสารภายในองคกร ความยื ดหยุนขององคกร
manufacturers and empirically tests their relation
ships with organizational performance. ความสั มพั นธ ระหว างองค กร การประสานงานภายในโซ
Data for the study were collected from 294 อุ ปทาน การจ า งบุ คคลภายนอก (outsourcing) การบริ หาร
manufacturing organizations in Thailand and the
relationships proposed in the research model were สิ นค าคงคลั ง และการผลิ ตจํ านวนมากตามความต องการ
tested using Person’s correlation analysis. The ของลูกค า (mass customization) รวมทั้ งทํ าการทดสอบหา
results illustrate the significant positive relation
ships between the eight SCM characteristics and ความสั มพันธ ระหวางกลยุ ทธทั้ง 8 ประการดั งกลาวกับผล
organizational performance. This indicates the ประกอบการขององคกร
importance of these SCM strategic characteristics
which firms need to develop and implement การศึกษาวิจัยนี้ ไดทําการเก็บรวบรวมขอมูลจากผูผลิต
effectively in order to maximize organizational per
formance. The findings reveal that organizational
ในประเทศไทยจํานวน 294 ราย และไดใชการวิเคราะหความ
flexibility has the strongest relationship with per สัมพั นธ แบบ Pearson เพื่ อทดสอบหาความสั มพั นธ ที่ นํ า
formance. Therefore, it should be a top priority of
management in SCM implementation. Moreover, เสนอในแบบจํ าลองของงานวิจั ย (research model) ผลการ
firms need to communicate, coordinate, collaborate, ทดสอบชี้ ให เ ห็ น ว า กลยุ ท ธ ก ารบริ หารโซ อุ ปทานทั้ ง 8
and build trusting relationship among members of
the supply chain network, as well as implement มีความสัมพันธเชิงบวกกับผลประกอบการขององคกรอยาง
outsourcing, (justintime) inventory, and mass มีนัยสําคัญ ซึ่งแสดงวากลยุทธการบริหารโซอุปทานดังกลาว
customization strategy in order to improve longterm
performance of the individual organization and the เปนสิ่งจําเปนที่องคกรจะตองพัฒนาขึ้นและนําไปใชอยางมี
supply chain as a whole. The study helps manu ประสิทธิ ภาพ เพื่ อทํ าให องคกรมีผลประกอบการสูงที่ สุ ด
facturers in the development and implementation
of effective SCM which is a key to sustaining ผลงานวิ จั ย นี้ ยั ง ชี้ ใ ห เ ห็ น ว า ความยื ด หยุ น ขององค ก รมี
competitiveness in today’s globalizing economy. ความสั มพั น ธ อ ยา งใกลชิด ที่ สุ ดกั บ ผลประกอบการของ
องคกร ดังนั้น ในการนํากลยุทธโซอุปทานไปใช ผูบริหาร
จึงควรให ความสํ าคั ญสูงสุด กับ ความยื ดหยุนขององคก ร
นอกจากนี้ การติดตอสื่อสาร การประสานงาน การใหความ
Prof. Dr. Sang M. Lee
รวมมือ และการสรางความไววางใจระหวางสมาชิกทังหมด ้
Dissertation Advisor ในเครื อ ข า ยของโซ อุ ป ทานก็ นั บ เป น สิ่ ง จํ า เป น สํ า หรั บ
องคกร อีกทั้งองคกรควรจัดใหมีการจางบุคคลภายนอกเขา tional strategic characteristics of SCM will have an
impact on organizational performance:
มาดําเนินการแทน (outsourcing) รวมทั้งมีการบริหารสินคา
คงคลังโดยใชระบบ just-in-time และดําเนินการผลิตจํานวน Organizational Performance
In line with previous research in the field of
มากตามความตองการของลูกคา (mass customization) เพื่อ SCM, this study measures organizational perfor
mance using the respondent’s perception of perfor
ปรับปรุงผลประกอบการขององคกรในระยะยาว รวมถึงผล mance in relation to competitors. The performance
ประกอบการของโซอุปทานโดยรวม การศึกษานี้มีสวนชวย measures employed in this study, which are treated
as one composite construct (Sanders and Premus,
ผูผลิตในการพัฒนากลยุทธการบริหารโซอุปทานและนํ า 2005), include market share, profit margin on sales,
กลยุทธไปใชอยางมีประสิทธิภาพ ซึ่งเปนปจจัยหนึ่งในการ return on investment (ROI), growth in market share,
growth in sales per employee, and overall competitive
Strategic Characteristics of Supply Chain
Intraand Interorganizational Communication
INTRODUCTION Chu (2006) found that communication is one of
Supply chain management (SCM) is an important the factors that directly and positively affects trust in
issue facing many organizations worldwide. SCM is supply chain partnership. Simatupang, Wright, and
an important area that helps maximize competitiveness Sridharan (2002) found that information technology
and profitability for the company as well as other (IT) such as the Internet, intranet, software applica
supply chain members which integrate and coordi tion packages and decision support system can be
nate across their whole extended network (Lambert applied to facilitate information sharing with cus
and Cooper, 1998). Managing the supply chain has tomers and partners, and optimization of supply
become a way of improving competitiveness by chain performance. They added that information
reducing uncertainty and enhancing customer service. sharing provides necessary visibility of a global
Not all firms are successful in achieving a higher scope to enable better decisions to be made in order
level of performance even if they have implemented to maximize the total profit. SCM is a business
the SCM concepts. In order for firms to succeed, approach grounded in cooperation not only across
survive, and sustain their competitive positions, all functional areas within the firm, but also across
certain characteristics of SCM have to exist. This the organizational boundaries in the supply chain.
research tries to identify the characteristics that bring Thus, based on the above literature, the first set of
or create strategic advantages to Thai manufacturers hypotheses for this study is as follows:
as well as help them sustain their competitive H1. There is a positive relationship between
advantages and maximize performance. In the long maintaining effective communication within an
run, these SCM characteristics add value to the firms, organization and organizational performance.
their stakeholders, and their supply chain partners. H5. There is a positive relationship between
maintaining effective communication channels across
supply chain partner organizations and organizational
LITERATURE REVIEW performance.
The rapidly changing environments, coupled Organizational Flexibility
with the move of competition from “among As diversity and uncertainty in the environment
organizations” to “between supply chains”, have increases, companies are responding by adding flexi
resulted in a great challenge in managing an effective bility as a dimension to their operation strategies
SCM practice in the hope of reducing supply chain (Sanchez and Perez, 2005). In addition, firms need to
costs, securing competitive advantage and improving be able to adapt their supply chain, as a whole, to
organizational performance. Kuei, Madu, and Lin meet emergent customer needs (Schmitz and Platts,
(2001) present an empirical study of the relationship 2004). Matchette and Lewinski (2006) added that an
between supply chain management and operational organization must ensure that it builds sufficient
performance. Li et al. (2006) supported the belief flexibility into its supply chain practices, technologies
that SCM practices have direct impacts on com and organization structures so that it can fully meet
petitive advantage and organizational performance. customer expectations and quickly capitalize on new
Their findings indicated that SCM practices produce revenue opportunities which results in higher organi
competitive advantage to the organization which will, zational performance. It is therefore hypothesized
in turn, lead to improved organizational performance. that:
Drawing from previous literature, this research H2: There is a positive relationship between
proposes that the following intraand interorganiza organizational flexibility and organizational per
Mass Customization Manufacturing Strategy multiorganization environment, focus is given to
According to Li et al. (2006), postponement, collaboration and feasible ways to coordinate the
which is one of the central features of mass network. Strategic partnership, which emphasizes
customization, needs to match the type of products, longterm association and encourages mutual
market demand of a company, and structure or planning and problem solving, promotes significant
constraints within the manufacturing and logistics ongoing benefits and is critical to supply chain
system. The adoption of postponement may be success (Li et al., 2006). Tight integration with cus
appropriate under the following conditions: inno tomers and suppliers including process and informa
vative products; products with high monetary tion integration are found to enable organizations in
density, high specialization and wide range; markets achieving profitable growth and high performance
characterized by long delivery time, low delivery (Matchette and Lewinski, 2006). Therefore, this
frequency and high demand uncertainty; and manu study hypothesizes that:
facturing or logistics systems with small economies H7: There is a positive relationship between
of scales and no need for special knowledge. strategic coordination among supply chain partner
Therefore, this dissertation hypothesizes that organizations and organizational performance.
H3: There is a positive relationship between a
strategy for mass customization and organizational Outsourcing
performance. Wu, Li, Chu and Sculli (2005) contended that
effective use of outsourcing enables an organization
Inventory Management to focus on a limited set of strategically important
SCM can benefit from applying a JIT perspec tasks and will in turn lead to continuous enhance
tive. Claycomb, Germain, and Droge (1999) found ment of its core competencies. Outsourcing of
that totalsystemJIT is positively related to finan a company’s noncore competencies should result
cial results. Many studies also point to the positive in cost reduction and shorter leadtimes. To so
impact of JIT implementation on performance achieve, a company needs to concentrate on its
(Gunasekaran, 1999; Kristensen, Dahlgaard, Kanj, own capabilities and core competencies and use
and Juhl, 1999; White, Pearson, and Wilson, 1999; outsourcing as a means for efficient exploitation of
Nakamura, Sakakibara, and Schroeder, 1998). In line available resources (Dekkers, 2000). The extensive
with previous studies, the following hypothesis is use of outsourcing strategy has enabled companies
tested in this dissertation: to achieve outstanding performance (McIvor, 2003).
H4: There is a positive relationship between Therefore, this study hypothesizes that:
effective JIT inventory management and organiza H8: There is a positive relationship between
tional performance. outsourcing arrangement and organizational perfor
Effective SCM can be achieved through
selecting the right partners and then establishing the RESEARCH METHODOLOGY
right relationship with them. Trust and commitment In developing measures, this study adapted
are essential for longterm cooperation. McAllister existing scales from previous literature. In addition,
(1995) suggested that trust enables members of indepth interviews were conducted with SCM
supply chain network to rely on each other. Doney, academicians and executives of some manufacturers
Cannon, and Mullen (1998) added that trust promotes to gather information on current SCM in Thailand
collaboration, flexibility, risk taking, shared infor and other information helpful in the questionnaire
mation and shared resources. Lack of trust is the design. Multiple items were used for each construct
greatest obstacle to the advancement of supply in an effort to increase construct reliability (Kim,
chain collaboration (Polrier, 1999). Many researchers 2003).
have suggested that effective interorganizational A preliminary survey was conducted in person
relationships help lower transactional costs (Hiede with 20 executives responsible for SCM in their
and John, 1990; Gulati, 1995), thus results in improved organizations. The Cronbach’s Alpha for each con
organizational performance. This study proposes struct was checked to ensure that the reliability
that: values were all greater than 0.70, which is con
H6: There is a positive relationship between sidered to be the acceptable level (Nunnally, 1978).
good relationship management among supply chain The final version of the questionnaire was
partner organizations and organizational perfor distributed by mail to randomly selected 1,119
mance. manufacturers in Thailand.
Supply Chain Coordination
Rudberg and Olhager (2003) indicated that the ASSESSING VALIDITY
network becomes more complex as more organi Before conducting data analyses to test the
zations are involved in the supply chain. In this hypotheses and answer the research questions, a
factor analysis was conducted to investigate the ASSESSING RELIABILITY
validity of each construct. Through a measurement The reliabilities of each SCM characteristic and
purification process, items with factor loadings less organizational performance were assessed with
than 0.5 were omitted from the analyses to increase Cronbach’s Alpha. It appears that the reliability
construct validity (Kim et al., 2005). values for all constructs ranged from 0.88 to 0.93,
which are far above the generally acceptable level of
0.70 (Nunnally, 1978).
RESULTS OF THE HYPOTHESIS TESTING
IntraOrganization Dependent Variables
● Intraorganizational communication Organizational
● Market share
● Organizational flexibility
● Mass customization manufacturing strategy ● Profit margin
H.3 0.234 on sales
● Inventory management
● Interorganizational communication *
H.5 0.387 ● Growth in
● Interorganizational relationships *
H.6 0.480 ● Growth in sales
● Supply chain coordination H.7 0.427
H.8 0.413 position
Figure1: Hypothesis test results
In order to test the research hypotheses, Pearson’s tional performance is supported with a correlation
correlation coefficients were calculated between each coefficient of 0.545 ( p < 0.01).
SCM characteristic and organizational performance. 2) The results reveal that organizational flexi
These coefficients measure the strength of a linear bility is positively related to organizational perfor
relationship between two quantifiable variables (Theo mance as stated in Hypothesis 2. Therefore, Hypo
dorakioglou, Gotzamani, and Tsiolvas, 2006). Cor thesis 2 is strongly supported with a correlation
relation results of Pearson’s coefficient are presented coefficient of 0.573 (p < 0.01).
in Table 4.10. The findings and tests of hypotheses 3) Hypothesis 3 is also supported with a cor
related to these relationships are summarized below: relation coefficient of 0.234 (p < 0.01). This indicates
1) Hypothesis 1 which states that there is a that mass customization manufacturing strategy is
positive relationship between maintaining effective positively correlated with organizational performance.
communication within an organization and organiza 4) Hypothesis 4, which claims that there is a
positive relationship between effective JIT inventory 7) Hypothesis 7 is also supported with a cor
management and organizational performance, is sup relation coefficient of 0.427 (p < 0.01). This indicates
ported; the correlation coefficient is 0.464 (p < 0.01). that strategic coordination among supply chain
5) Hypothesis 5 which postulates that there is a partner organizations is positively correlated with
positive relationship between maintaining effective organizational performance.
communication channels across supply chain partner 8) Hypothesis 8, which claims that there is a
organizations and organizational performance is also positive relationship between outsourcing arrange
supported with a correlation coefficient of 0.387 (p < ment and organizational performance, is supported;
0.01). the correlation coefficient is 0.413 (p < 0.01).
6) Interorganizational relationships which is According to the results, all SCM characteristics
expected to have a positive relationship with organi proved to be substantially and positively correlated
zational performance, according to Hypothesis 6, is with organizational performance.
supported with a correlation coefficient of 0.480 (p <
Table 1: Proposed hypotheses and test results
There is a positive relationship between: Correlation Results
H1: maintaining effective communication within 0.545** Supported
an organization and organizational performance.
H2: organizational flexibility and organizational performance. 0.573** Supported
H3: a strategy for mass customization manufacturing 0.234** Supported
strategy and organizational performance.
H4: effective JIT inventory management and organizational 0.464** Supported
H5: maintaining effective communication channels across 0.387** Supported
supply chain partner organizations and organizational
H6: good relationship management among supply chain 0.480** Supported
partner organizations and organizational performance.
H7: strategic coordination among supply chain partner 0.427** Supported
organizations and organizational performance.
H8: outsourcing and organizational performance. 0.413** Supported
Notes: **Correlation is significant at the 0.01 level (p < .01)
The above results provide empirical support to In order to examine the simultaneous relation
the research hypotheses as they confirm that SCM ships of SCM characteristics on organizational per
characteristics are positively related to organizational formance, a stepwise multiple regression analysis
performance. Organizational flexibility is proved to was performed.
have the most significant correlation with organiza The results of the regression analysis illustrate
tional performance, followed by intraorganizational that organizational flexibility, interorganizational rela
communication. The results also reveal that mass tionships, outsourcing, and intraorganizational com
customization manufacturing strategy has the least munication are positively related to organizational
correlation with organizational performance. performance.
Table 2: The coefficient of the relationship between SCM characteristics and organizational performance.
Model t Sig.
B Std. Beta
Organizational flexibility .257 .070 .288 3.695 .000
Interorganizational relationships .152 .056 .160 2.692 .008
Outsourcing .113 .039 .151 2.857 .005
Intraorganizational communication .148 .075 .156 1.982 .048
Adjusted R Square = 0.381
DISCUSSION communication. Information technology (IT) such
The findings from both Pearson’s correlation as the Internet, intranet, and ERP can be applied to
analysis and multiple regression analysis show that promote both internal and external collaborative
organizational flexibility has the strongest signi relationships by facilitating information sharing
ficant relationship with organizational performance. among members of the supply chain network. Myhr
It is therefore important that firms pay particular and Spekman (2005) contended that firms should
attention to all dimensions of flexibility within their be encouraged to continue investing in electronic
organizations as they have a significant positive solutions to achieve collaborative supplychain
impact on customer satisfaction (Zhang et al., 2002). partnerships, at the same time as they build trust
These flexibility dimensions include product develop based foundations on which partnerships can truly
ment flexibility—the ability to introduce and launch flourish. This research validates the previous
new products and to modify product quickly; findings of the positive impact of supply chain
manufacturing flexibility—the ability of an organi collaboration and intra and interorganizational
zation to manage manufacturing resources and communication on performance (Bagchi and Larsen,
uncertainty to meet various customer demands; 2005; Li et al., 2006; Sanders and Premus, 2005).
logistic flexibility—the ability of the organization to In order to survive in today’s global market; firms
respond quickly to customer needs in delivery, need to establish strategic alliances and partnerships
support and services; and spanning flexibility—the with suppliers and customers. Zailani and Rajagopal
ability of the organization to provide horizontal (2005) suggested that manufacturing strategy is
information and connections across supply chain needed to be aligned across the supply chain net
(Nair, 2005). work, not just inside organizations. Partnering and
The results have shown that interorganizational forming alliances benefit the vertical integration
relationships and intraorganizational communica without even taking over companies. It is therefore
tion are important predictors of organizational per important to emphasize on longterm strategy asso
formance of Thai manufacturers. This indicates that ciated with developing the supplier and customer
collaboration and communication among supply base. In the current globalizing environment,
chain members is required to effectively and materials and components are sourced worldwide.
efficiently satisfy the needs of customers. Firms Interorganizational relationships allow firms to be
must ensure that all members of the supply chain are more responsive to the fast changing needs of
able to cooperate, communicate, and use shared customers. They also help increase speed which
information that enable better decision making, becomes the highest priority in sustaining com
lower operating cost, improved productivity and petitiveness in the marketplace.
customer relationships which result in higher This study also finds that outsourcing has a
performance. Supply chain collaboration and infor significant positive relationship with organizational
mation sharing is a vital contribution to cost performance. It confirms the argument that out
reduction. In order for supply chain partnerships to sourcing enables firms to enhance their performance
become truly collaborative in nature, trust is a through better product quality, lower inventory
necessary characteristic (Spekman, Kamauff and level, lower production cost, elimination of pro
Myhr, 1998). Previous research has suggested duction bottleneck and punctual delivery (Wu, Li,
that constant communication is essential in building Chu, and Sculli, 2005). This suggests that firms
trust among supply chain members (Myhr and must compete as integrated entities across suppliers
Spekman, 2005). Moreover, effective collaboration and customers by taking advantage of lower cost
can now be achieved through the use of digital economies. The use of justintime system with out
sourcing partners has proved to help reduce lead processes will experience deterioration in their
time, improve overall productivity and on time competitive positions relative to those competitors
delivery rate (Zailani and Rajagopal, 2005; Noori, who emphasize supply chain proficiency (Tracey,
2004). Outsourcing allows firms to focus more fully Lim, and Vonderembse, 2005). Therefore, manage
on their core competences which can enhance their ment needs to provide proper training to cultivate
competitive position and overall performance. individuals’ competence and develop proficient
The mass customization manufacturing strategy employees to work within a SCM philosophy.
is found to have the weakest relationship with
organizational performance. This is due to the fact
that it is a relatively new concept to Thai manu LIMITATIONS AND RECOMMENDATIONS
facturers and it does not apply to all industry types. FOR FUTURE RESEARCH
Future research may include other SCM
characteristics that were not covered in this study
MANAGERIAL IMPLICATIONS and should seek to utilize multiple respondents from
The results of this study reveal that SCM should each organization to enhance the research findings.
be a high priority interest for top management of Future research should bring competitive advantage
firms striving for excellence. This study provides into the research model and investigate the impact
guidelines for firms in the adoption and imple of these SCM characteristics on competitive advan
mentation of SCM in their organizations. The tage and organizational performance. In addition, it
results reveal that not every SCM characteristics could be conducted in other countries and cross
is equally related to organizational performance. national comparisons could provide a fruitful field
Some of these characteristics including organiza of research endeavor.
tional flexibility, interorganizational relationships,
intraorganizational communication, and outsourcing
are found to be significant determinants of organi CONCLUSION
zational performance. Thus, firms should emphasize This study demonstrates the importance of
on these characteristics in the implementation of SCM for manufacturing firms. It provides empirical
SCM. justification for a framework that identifies eight
To ensure that flexibility exist in the organi strategic characteristics of SCM and finds their
zations, firms need to identify the required flexi positive relationships with organizational perfor
bility types and implement flexibility strategy within mance. The findings contribute to the knowledge
the supply chain system. Strategic flexibility can be in the field of SCM by providing a comprehensive set
supported through the use of advanced information of supply chain characteristics with a different per
technologies such as the Internet, ERP and EDI. spective compared to previous SCM literatures. A
Effective SCM in the new competition with valid and reliable instrument was used and statistical
ongoing globalization of markets and operations analyses were performed in this study. It was found
suggests establishment of longterm and trusting that the key to a firm’s success is to develop and
relationships among supply chain partners who implement the four strategic characteristics of SCM
work jointly together from the strategic level to the including organizational flexibility, interorganiza
functional level and make their success inter tional relationships, outsourcing, and intraorganiza
dependent (Theodorakioglou et al, 2006). Esta tional communication. The positive relationships
blishing effective communication channels among between these SCM characteristics and organiza
supply chain partners enables the entire supply tional performance are warranted in this study.
chain to have quick response and flexibility to meet
the changing needs of the marketplace. Information
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Dr. Titinan Nakornsri received her Ph.D. in Business Professor Dr. Sang M. Lee is currently the University
Administration (Strategic Management) from Bang Eminent Scholar, Regents Distinguished Professor,
kok University in the collaborative program with Chair of the Management Department, Executive
the University of NebraskaLincoln, U.S.A. in 2006, a Director of the Nebraska Productivity and Entre
M.B.A in Finance from University of San Francisco, preneurship Center, and Director of the Center for
U.S.A. in 1989, and a B.S. in Business Administration Albanian Studies. He received his Ph.D. degree in
from Kasetsart University in 1986. She has been Management from the University of Georgia in 1969.
working as an Executive Director for her family He also served as Professor at Virginia Polytechnic
business including Bangkok Cable Co., Ltd.—the Institute and State University prior to coming to
second largest electric wire and cable producer in the University of Nebraska in 1976. Dr. Lee is an
Thailand, Bangkok Polyester Co., Ltd., and Tawana internationally known expert in the fields of deci
Container Co., Ltd. sion sciences, productivity management, and global
business. He has authored or coauthored 50 books,
mostly in the field of management. He has published
more than 260 journal articles, and 750 original
papers. He helped establish the Ph.D. Program in
Business at Bangkok University, Thailand. He is a
frequent consultant and trainer for a number of
business, nonprofit, and government organizations
in the U.S. and abroad.