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IJOPM
36,2
220
Received 19 March 2014
Revised 4 November 2014
16 January 2015
Accepted 21 February 2015
International Journal of Operations
& Production Management
Vol. 36 No. 2, 2016
pp. 220-238
© Emerald Group Publishing Limited
0144-3577
DOI 10.1108/IJOPM-03-2014-0129
Supply chain processes
Linking supply logistics integration, supply
performance, lean processes and competitive
performance
Daniel Prajogo
Department of Management, Monash Business School, Monash University,
Caulfield East, Australia
Adegoke Oke
Department of Supply Chain Management, W.P. Carey School of Business,
Arizona State University, Tempe, Arizona, USA, and
Jan Olhager
Department of Industrial Management and Logistics,
Lund University, Lund, Sweden
Abstract
Purpose – The purpose of this paper is to examine the value chain processes that represent the “black
box” between supply logistics integration and competitive operational performance in firms. To realize
this objective, the authors develop a research model which comprises a series of linkages from supply
logistics integration to operational outcomes using Porter’s concept of value chain and the relational
view of resource-based theory as theoretical lenses.
Design/methodology/approach – The data set for testing the hypothesized relationships in this
study was drawn from 232 Australian manufacturing firms.
Findings – The findings show that there is no significant direct relationship between supply logistics
integration and competitive operational performance; rather, the relationship is fully mediated by
inbound supply performance and internal lean production processes. Further, lean production
processes have a positive effect on inbound supply performance.
Research limitations/implications – The study shows the importance of managing both internal
( production processes) and external processes (logistics and supply chain) of firms’ operations in an
integrated manner in which supply logistics integration act through key internal processes to impact
competitive performance which the end customers actually experience.
Originality/value – This is the first study which uncovers what happens “in between” the incoming
materials and the end outputs delivered by firms into the market. This “in between black box” is
important in improving our understanding of how inbound supply activities are translated into
outbound competitive performance outcomes.
Keywords Survey, Lean, Operational performance, Supply chain management
Paper type Research paper
1. Introduction
Increasing competition has driven firms to not only improve their internal operations
(including through process control and inventory management), but also focus on
integrating their suppliers into the overall value chain processes. The contribution of
suppliers in building competitive capabilities (quality, delivery, flexibility, and cost),
hence delivering values to customers has been well recognized. Much has been written
The authors wish to thank Dr Brian Cooper of the Department of Management, Monash
University, Australia, for his advice on the statistical methods used in this paper.
on the importance of supply chain management (SCM) on firm’s performance. SCM can Supply chain
be conceptualized as comprising the management of the external and internal aspects processes
of a firm’s operations including the sourcing, logistics, production, and distribution
processes involved in the offering of goods and services (Chen and Paulraj, 2004b;
Pagell, 2004; Prajogo et al., 2008). While previous operation management research
studies have generally focused on the internal aspects of the value chain, previous
studies on SCM have largely focused on the external aspects of the value chain and 221
performance implications (Chen and Paulraj, 2004a; Li et al., 2005). For instance, many
studies which examined the effect of SCM practices suggest a direct effect of supplier
integration on (outbound) competitive operational performance (Ellram et al., 2002;
Chen et al., 2004; Tracey et al., 2005; Li et al., 2006; Tan and Tracey, 2007) while ignoring
the internal processes involved in the relationship. In other words, the internal
flows within firms are considered as a “black box” which has no decisive impact on
the relationship between supply integration and competitive operational performance.
This research aims to address this gap in knowledge by investigating how the
external and internal aspects of the value chain align to impact or contribute to a
firm’s performance.
As Pagell (2004) pointed out, the conceptual “black box” between supply chain
integration and superior performance needs to be more fully examined. To examine the
relationships between the external aspects of the supply chain, the internal processes
and performance, we draw from the value chain analysis framework and the relational
view of resource-based theory (RBT) (Chen and Paulraj, 2004a). Value chain analysis
describes the activities within and around an organization, and relates them to an
analysis of the competitive strength of the organization (Porter, 1985). Porter argues
that the ability to perform particular activities and to manage the linkages between
these activities is a source of competitive advantage. According to the relational view of
RBT a firm’s competitive performance is dependent on the firm’s internal resources as
well as the external resources within the firm’s relational networks or supply chain
(Dyer and Singh, 1998; Lavie, 2006; Arya and Lin, 2007).
Porter distinguishes between primary activities and support activities. Primary
activities are directly concerned with the creation or delivery of a product or service.
They can be grouped into five main areas: inbound logistics, operations, outbound
logistics, marketing and sales, and service. Each of these primary activities is linked to
support activities which help to improve their effectiveness or efficiency. There are four
main areas of support activities: procurement, technology development (including R&D),
human resource management, and infrastructure (systems for planning, finance, quality,
information management, etc.). This study seeks to investigate the inter-relationships
between the key primary activities of a firm’s value chain – particularly, the inbound
supply chain processes and internal production processes of firms and their implications
on inbound and competitive performance outcomes.
We define inbound supply chain processes in terms of supply logistics integration –
the extent to which inbound inter-organizational processes are seamless and closely
co-ordinated. We define lean production processes in terms of the extent to which internal
operations are in line with lean production processes and principles, specifically just in
time ( JIT) and total quality control (TQC) principles. Schonberger (2007) identified that JIT
and TQC have essentially merged into the concept of lean production. Inbound
performance reflects the performance of the sourcing, procurement, and logistics
operations including total procurement costs, inventory carrying costs, and material costs.
Competitive performance reflects a firm’s performance relative to competitors, in terms of
IJOPM delivery speed, production cost, volume flexibility, and product variety as they relate to
36,2 the end customer or market.
Few studies have examined how the internal and external aspects of an
organization’s value chain are interrelated as a “pipeline” in building values for
customers. For example, Kannan and Tan (2005) considered the parallel effects of total
quality management (TQM), JIT, and supply chains on firms’ performance. Jayaram
222 et al. (2008) investigated the link between building lean systems and firm performance.
However, little is known about the links between inbound processes, internal processes,
inbound performance, and competitive performance (see, e.g. Shin et al., 2000; Tracey
et al., 2005). This paper seeks to advance previous studies by integrating inbound,
internal, and outbound activities as a set of value chain activities in creating maximum
values for customers. We first discuss the related literature, and the hypotheses.
We then present the research methodology, and the results. Implications for managers
and researchers are discussed and finally the conclusions are drawn.

2. Theoretical development and research hypotheses

In this section, we draw from relevant theoretical frameworks to establish the
relationships between logistics integration, lean production processes, and inbound and
competitive performance along with the hypotheses concerning their relationships.

2.1 Inbound supply chain processes – logistics integration and performance

In this study, we focus on the inbound process of logistics integration which is defined
as the extent to which inbound inter-organizational processes are seamless and closely
co-ordinated for the smooth flow of information and materials. To understand how
logistics integration impacts competitive performance, we draw from the relational
view of RBT. RBT has been widely used to explain differences in firms’ performances.
It posits that differences exist due to firm’s heterogeneity. Specifically, it argues that a
firm that possesses resources that are valuable, rare, not substitutable, and difficult-to-
imitate will achieve sustained competitive performance (Barney, 1991; Peteraf, 1993;
Acedo et al., 2006). The relational view of RBT is an extension of RBT. It integrates the
core tenets of RBT and relational network theory to explain how cooperation and
collaboration between firms can lead to sustainable competitive performance. The main
argument of the relational view of RBT is that firms’ resources (i.e. resources that are
rare, valuable, not substitutable, and difficult-to-imitate) can span firm boundaries and
be embedded in the firms’ networks and relationships between firms suggesting that a
firm’s competitive performance is not only as a result of the firm’s internal resources
but also as a result of external resources within the firm’s relational networks or supply
chain as in our study (Dyer and Singh, 1998; Lavie, 2006; Arya and Lin, 2007).
The integration of supplier and buyer firm logistics processes may involve
integration of resources to share information and co-ordinate the activities between the
two entities. It may also involve collaborative activities that facilitate visibility and
information flow between the two entities (Barratt and Oke, 2007). By and large, these
involve trust between the collaborating partners and close relationships which take
time to build. According to the relational view of RBT, with highly integrated logistics
processes, the buyer firm’s strategic resources are embedded within those of the
supplier to develop processes, capabilities, and relationships that are tacit and
intangible and are typically valuable, hidden from and difficult-to-imitate by
competitors. As such, highly integrated logistics activities with suppliers represent a
source of competitive advantage for the firms.
 Supply logistics integration involves a well-coordinated flow of materials from Supply chain
suppliers which allows firms to have a smooth production process (Frohlich and processes
Westbrook, 2001). Such coordination produces a seamless connection between firms
and suppliers in such a way that the boundary of activities between the two parties is
blurred (Stock et al., 1998, 2000). One enabler of logistics integration is vendor
managed inventory principle, which can lead to customer service benefits
(Hvolby et al., 2007; Claassen et al., 2008). Logistics integration brings a number of 223
benefits to the parties involved (i.e. buyers and suppliers), including improving
product quality, reducing response time and cost, and improving operational
efficiencies (Paulraj and Chen, 2007). Indeed, a number of empirical studies have
reported a positive relationship between supply chain integration and performance
(van der Vaart and van Donk, 2008). DeToni and Nassimbeni (1999) found that better
performing plants exhibit a higher level of logistic interactions. Frohlich and
Westbrook (2001) as well as Kannan and Tan (2010) argued that the widest arcs of
integration have the strongest association with performance improvement while
Sheu et al. (2006) argued that higher levels of collaboration result in operational
efficiency in the supply chain system, and Li et al. (2006) noted that supply chain
integration is significantly related to supply chain performance. Therefore, we
hypothesize as follows:
H1. Supply logistics integration has a positive relationship with competitive
performance.
Previously, using the relational view of RBT, we argue that supply logistics integration
will positively impact a firm’s competitive performance. However, if we consider the
value chain perspective (Porter, 1985; Huemer, 2006), there exists several processes
and intervening factors between the inbound logistics activities of a supply chain and
outbound competitive performance. The value chain perspective evaluates the value
that each particular activity adds to the organization’s products or services. This idea
was built upon the premise that an organization is more than a random compilation of
machinery, equipment, people, and money. Only if these things are arranged into
systems and systematic activities will it become possible to produce something for
which customers are willing to pay a price. Based on this system perspective of value
chains, we propose that highly integrated supply logistics activities are connected with
a firm’s inbound and internal processes which are in turn connected with the firm’s
outbound competitive performance.
The inbound supply performance is a key component in the value chain perspective.
It is defined as the performance of the sourcing, procurement, and logistics operations
including inventory carrying costs and material costs. Supply logistics integration
ensures that materials required for production processes arrive with the right quality,
the right quantity, and at the right time, thus, improving inbound supply performance.
Highly integrated supply logistics processes involve the development of unique links
with suppliers that facilitate the flow of quality materials expediently thus, enhancing
supply management’s or inbound operational performance (Eltantawy et al., 2009).
However, only a few studies have examined the link between supply logistics
integration and inbound supply performance. Related works include those of Shin
et al. (2000) who showed that supply management has a strong and positive
effect on supplier performance in terms of quality, cost, and on-time delivery, and
Tan et al. (1998) who found that supplier performance mediates the relationship
between SCM and firm’s (buyer) performance. But the relationship between supply
IJOPM logistics integration and inbound supply performance has not been empirically
36,2 investigated. Accordingly, we hypothesize as follows:
H2. Supply logistics integration has a positive relationship with inbound supply
performance.
Another key component in the value chain of supply operations are the internal
224 production processes. In particular, we focus on lean production processes which we
define in terms of the extent to which internal operations are in line with lean
production processes and principles. The source of the term lean production can be
traced to the International Motor Vehicle Program, published in the book The Machine
that Changed the World (Womack et al., 1990), while the origins of lean thinking can be
related back to the practices and innovations at Toyota Motor Corporation (Hines et al.,
2004; Bhamu and Sangwan, 2014), using the concept of Toyota Production System
(Sugimori et al., 1977; Ohno, 1988). Womack and Jones (1996) provided five
lean principles: value, the value stream, flow, pull, and perfection. Following these
principles, internal lean practices include set-up reduction, pull production system,
small lot sizes, and streamlining the layout through cellular manufacturing or focused
factory concepts (Shah and Ward, 2003, 2007). More specifically, these are internally
related practices, rather than customer or supplier related.
Adopting the systemic view of the supply chain, lean production processes will act
as intervening factors between logistics processes and outbound competitive
performance. As a process, logistics integration enables companies and their supply
chain partners to act as a single entity by integrating their production processes with
their supply chain processes. Through logistics integration, firms can build “quasi”
vertical integration without having it in the physical sense (La Londe and Masters,
1994). As we have previously argued, logistics integration is undertaken in order to
improve a firm’s performance and satisfy its end customers. However, in order to reap
the full benefits of logistics integration, the internal production processes of the firm
must be streamlined so that gains from integrating logistics activities are not
lost within the system. Lean production systems, including elements of JIT and
TQC (Flynn et al., 1995; Schonberger, 2007), enable reliable order cycles and inventory
reduction as well as process control, thus, achieving streamlined internal
processes that help to translate the gains of logistics integration to improved
performance. We use the term TQC instead of TQM to indicate our focus on the
internal production processes with emphasis on process control rather than a wider
scope of quality management at the organizational level covered by TQM.
Specifically, integrated logistics trigger firms to adopt lean production systems in
internal operations.
It has been suggested that one of the key success factors for the implementation of lean
production systems is the selection of a good supplier base and building long-term
relationship (MacDuffie and Helper, 1997; Jayaram et al., 2008; Zikmund, 2010).
Lean production requires firms to process raw materials parts in small lot sizes, frequently,
and deliver the products directly to the point of use with minimal incoming inspection,
warehousing, and inventory. Manufacturers must ensure that incoming materials are
of the quality and quantity expected, and that deliveries are on-time. To achieve these,
firms need to build supply logistics integration with their key suppliers where both
information and materials flow smoothly between the partners (Beal, 1988). In other words,
successful implementation of lean production systems requires highly integrated supply
logistics activities.
 A number of related studies have highlighted the inherent relationships between Supply chain
SCM practices and internal operational practices such as quality management. For processes
example, Kannan and Tan (2005) showed that, while SCM practices and quality
management practices have distinctive elements, they are strongly correlated with each
other to the extent that they can be considered as integrated practices. Kanji and Wong
(1999) investigated the relationship between TQM and SCM and concluded that failure
to consider the impact of SCM practices on TQM programmes helps to explain the 225
inadequacies of existing models of SCM. Theodorakioglou et al. (2006) found that
supplier management practices have a positive relationship with internal quality
management practices. However, the link between logistics integration and internal
production processes has not been empirically investigated in spite of the fact that
effective lean production processes require highly integrated logistics processes which
help to ensure smooth and JIT material flows into the production system (Adamides
et al., 2008). Accordingly, we hypothesize as follows:
H3. Supply logistics integration has a positive relationship with lean production
processes.
2.2 Lean production processes and inbound supply performance
A number of studies have investigated the consequences of lean production processes
on performance. For example, the study by Shah and Ward (2003) on 1,748 US
manufacturing firms indicated that lean bundles contribute substantially to the
operating performance of plants, and explain about 23 per cent of the variation in
operational performance (including quality, cycle time, delivery, cost, and productivity)
controlled for industry effects and contextual factors. Fullerton and Wempe (2009),
using data provided by 121 US manufacturing executives showed that the utilization of
non-financial manufacturing performance measures (e.g. on-time delivery, efficiency,
labour productivity) mediates the relationship between lean manufacturing and
financial performance (in terms of profitability). The study by Chavez et al. (2013) based
on empirical data gathered from 228 manufacturing companies in the Republic of
Ireland showed that the relationships between internal lean practices and quality,
delivery, flexibility and cost were found to be positive and significant.
The relationships, however, are moderated by industry clockspeed, except for cost.
Our concern in this study, however, relates to the effect of lean production processes
on inbound supply performance. Within the value chain perspective of our study, lean
production processes, and inbound supply performance are within the “black box”
(or internal processes) of an integrated supply chain which includes inbound supply
activities, internal activities, and outbound activities. As we have previously noted,
lean production processes require or are characterized by fast and quick deliveries from
the supply base. Because the production process is operated on a JIT basis, materials
must be delivered on-time and at the right quantity and quality (Sakakibara et al., 1993).
In addition, lean production processes require deliveries in small batches from reliable
suppliers. These help to minimize the level of inventories and the associated inventory
holding costs (Demeter and Matyusz, 2011). With reliable and quality deliveries, rejects
are minimized, thus, having positive impact on incoming material costs and supply
performance. Furthermore, lean production processes require buyer-firms to regularly
measure and monitor supplier performance across multiple dimensions and provide
timely information for suppliers about their expectations in terms of efficiency (Talluri
and Sarkis, 2002). These provide motivation to suppliers to strive for a high level of
performance leading to improved inbound supply performance in terms of reduced
IJOPM incidences of wrong deliveries and rejected suppliers. Achieving and maintaining a
36,2 smooth production flow is a key to the effective implementation of lean production
processes. In sum, we argue that the implementation of lean production processes
require reliable supplies, smooth and timely flow of high-quality materials into and
through the production systems. As such a positive impact on inbound supply
performance is attained when lean production processes are implemented internally in
226 an operations system leading to the following hypothesis:
H4. Lean production processes have a positive relationship with inbound supply
performance.
2.3 Lean production processes and competitive performance
Drawing further from the value chain perspective, we explore the relationship between
lean production processes (internal processes) and competitive (outbound)
performance. As mentioned earlier, the lean production processes studied in this
paper relates to the extent to which internal operations are in line with lean production
processes and principles, specifically JIT and TQC principles. The RBT also helps
to understand the effect of lean production processes on competitive performance.
Lean practices such as JIT and TQC are difficult to implement, hence, difficult to
imitate. This inimitability increases when firms successfully bundle a set of practices
(such as JIT and TQC together) which create complexity and uniqueness in their
organizational routines (Shah and Ward, 2003, 2007). Such a complex organizational
routine resulting from tacit learning will deploy rent-yielding resources and will be
difficult to imitate, thus creating a competitive advantage (Grant, 1991).
Indeed, both JIT and TQC are among the most sustainable management philosophies to
have been adopted for decades and still continue to add value to company performance
(Shah and Ward, 2003). Vokurka et al. (2007) suggested that JIT philosophy that is aimed
at the elimination of waste and continuous improvement is closely associated with TQC,
with the ultimate goal of meeting or exceeding customer requirements. Dean and Snell
(1991) noted that JIT and TQC are implemented in tandem to deliver high level of
performance in operations, while Flynn et al. (1995) demonstrated that JIT and TQC
practices are mutually supportive, and that their synergy contributes positively to
manufacturing performance. Specifically, they pointed out that both JIT and TQC involve a
few relatively simple central concepts and an amorphous array of peripheral associated
practices on manufacturing process so that it operates as expected without breakdowns,
missing materials, fixtures, tools, etc., despite work force variability. TQC emphasizes the
importance of conformance to specification via standardization of processes to minimize
variation of their outputs. Similarly, JIT operations help create efficient equipment layouts
and encourage processing of smaller lot sizes which increase the speed by which a product
is made. Schmenner and Swink (1998) also suggested that with a JIT pull system, smooth
flow is more assured, thus, avoiding the flooding of the operation with work-in-process
inventory. Because work-in-process inventory levels are capped by the number of
containers or spaces permitted, low throughput times are achieved. In sum, both TQC and
JIT provide a solid foundation for lean production processes to yield high level of
competitive operational performance in terms of quality, delivery, flexibility, and cost
(Dowlatshahi and Taham, 2009; Wee and Wu, 2009). Accordingly, our view of supply chain
processes from a value chain and systemic perspective leads us to hypothesize as follows:
H5. Lean production processes have a positive relationship with competitive
performance.
2.4 Inbound supply performance and competitive performance Supply chain
To complete the examination of supply chain processes from a value chain and processes
systemic perspective, we explore the link between inbound supply performance and
competitive (outbound) performance. The direct link between inbound performance
and competitive performance has been suggested in previous studies (Sakakibara et al.,
1997; Droge et al., 2004). The slogan “garbage-in garbage-out and quality-in quality-
out” (which was popularized during TQM era) adds credence to the fact that the 227
inbound performance has a direct effect on competitive performance (Dedhia, 1990).
For example, inbound raw materials quality, delivery performance, and costs can affect
the quality, delivery, and cost performance of end products delivered to customers
(Shin et al., 1998). Indeed, a number of empirical studies have provided support for this
notion. For example, Pagell and Sheu (2001) found that on-time delivery from suppliers
will have positive and significant effects on on-time delivery to the end customer in the
value chain. The study by Vonderembse and Tracey (1999) showed that supplier
performance has a positive effect on manufacturing performance. Similarly, the study
by Shin et al. (2000) showed that supplier performance has a positive relationship with
buyer’s performance. In other words, a gain or a loss in performance in the upstream
end of the supply chain can be translated into gains or losses in the downstream end of
the supply chain. This notion is also captured in the well-known “bullwhip effect”
phenomenon in which inventory levels increase in response to demand changes as one
moves further back into the supply chain (Lee et al., 1997). In this study, one could
conceptualize the effect of inbound performance on outbound performance as “reverse
bullwhip effect”. But at the very least, we would expect a relationship between inbound
supply performance and outbound competitive performance. In essence, performance
improvements that result from a buyer-supplier relationship directly influence a
buying firm and, thus, become a critical consideration for a buyer firm (Prahinski and
Benton, 2004). Indeed, the increasing attention on SCM in recent times is due to the
recognition of the importance of the upstream end of the supply chain as a key
determinant of competitive performance (Fabbe-Costes and Jahre, 2008). For example,
the purchasing function is central to the strategic operations of effective SCM; this
centrality is mainly due to the significant impact of material costs on profits (Talluri
and Sarkis, 2002). In other words, with production processes held constant, the inbound
supply performance will have an impact on competitive performance. Accordingly, we
hypothesize as follows:
H6. Inbound supply performance has a positive relationship with competitive
performance.

3. Research model
The research model is shown in Figure 1. In this model, we consider that supply
logistics integration has an impact on inbound supply performance which will affect
the competitive performance. For example, if supply logistics integration can result in
lower total purchasing cost, this should translate into better competitive cost
performance. At the same time, it facilitates the production processes of the firm which
in turn will affect the competitive performance. Overall, this model suggests that the
effect of supply logistics integration on competitive performance is partly mediated by
inbound performance as well as lean production processes.
In this paper we have chosen to use structural equations modelling (SEM). SEM
allows for the testing of an implied sequence since it is a “statistical technique that uses
IJOPM Inbound Supply
36,2 Performance
H6
H2

Supply Logistics Competitive

H4
Integration Performance

228 H3 H5
Lean Production
Processes
Figure 1.
Research model
H1

empirical evidence to estimate the strengths of a priori hypothesized structural

relationships” (Mueller, 1996; Kline, 2011). Furthermore, it allows for “the distinctions
between direct, indirect, and total effects of one variable on another” (Bollen, 1989).
Thus, the issue of whether a relationship is direct vs indirect (or both direct and
indirect) can be tested.

4. Methods
4.1 Sample and procedures
The empirical data for this study was drawn from managers of Australian
manufacturing firms. The list of the respondents was randomly selected and purchased
from a mailing list company. In total, 1,800 surveys were mailed out, and 232 usable
responses were received; hence, the response rate is 13.1 per cent. The data were
checked for bias using correlations of responses between early respondents and late
respondents based on industry sectors and organizational size. The χ2 tests on both
categories did not indicate any significant difference between the two groups of
respondents. The industry sectors of the respondents include electronic/electrical
(16 per cent), machinery (25 per cent), automotive (8 per cent), chemical (11 per cent),
food processing (4 per cent), construction (12 per cent), and “other” sectors, including
medical equipment, wood, printing, and paper, defence (12 per cent).

4.2 Measures
The measurement items for all constructs are based on earlier empirical research
discussed in previous sections. For measuring logistics integration, we adapted the
scale developed by Chen and Paulraj (2004a) which was focused on key practices that
are necessary to achieve seamless integration of logistics activities with key suppliers.
In responding to the items in this scale, the respondents were asked to assess the
integration of their logistics activities with their key suppliers with whom the firms
conduct maximum business in dollar terms.
The items included in the scale for measuring lean production processes reflect a
combination of two major concepts underlying lean processes as applied in the production
area (i.e. JIT and TQC): first, building preventive-oriented and standardized processes
which are continuously controlled using statistical techniques; and second, building
efficient processes by streamlining the layout and efficient set-up times to make a quick
response. In operationalizing these two concepts, we combined selected items from the
scales of lean production process, incorporating elements from JIT and TQC from previous
studies, including Cua et al. (2001), Flynn et al. (1994), and Kannan and Tan (2005).
For inbound supply performance, we adapted the scale from previous studies, including Supply chain
those by Paulraj et al. (2008), and Vonderembse and Tracey (1999) and Tracey et al. (2005) processes
(see Table I). A seven-point Likert scale was used for measuring all items in the above three
scales with the responses ranging from 1 (strongly disagree) to 7 (strongly agree).
The measure for competitive performance captures the four key competitive
dimensions namely quality, speed of delivery, flexibility (in terms of volume and
variety), and costs, following previous studies in operations and SCM topics 229
(Rosenzweig et al., 2003; Li et al., 2006; Paulraj et al., 2008; White et al., 2010).
The respondents were asked to assess their firm’s business performance relative to the
best competitor in the market with the scale ranging from 1 (weakest in the industry) to
7 (strongest in the industry).

Loading
paths
Scales Items (t-value) Cronbach’s α

Supply logistics integration Inter-organizational logistic activities are

closely co-ordinated 0.79 (14.03) 0.93
Our logistics activities are well integrated
with suppliers’ logistics activities 0.92 (17.85) (0.92)a
We have a seamless integration of
logistics activities with our suppliers 0.87 (16.35)
Our logistics integration is characterized
by excellent distribution, transportation,
and/or warehousing facilities 0.84 (15.29)
The inbound and outbound distribution of
goods with our suppliers is well integrated 0.75 (13.00)
Lean production processes Processes in our plant are designed to be
“fool proof” (preventive oriented) 0.79 (7.06) 0.79
We have standardized process
instructions which are given to personnel 0.70 (8.78) (0.79)a
We make extensive use of statistical
techniques to reduce variance in our
processes 0.72 (13.08)
We have laid out the shop floor so that
processes and machines are in close
proximity to each other 0.48 (11.14)
We are aggressively working to lower
set-up times in our plant 0.58 (11.59)
Inbound supply We have reduced our inventory
performance carrying costs 0.57 (8.50) 0.74
We have reduced incoming material costs 0.55 (8.18) (0.75)a
We have reduced supplier rejection rate 0.70 (11.13)
We have reduced the percentage of late or
wrong supplier deliveries 0.79 (12.96)
Competitive performance Performance of our final products 0.45 (6.21) 0.64
Speed of deliveries 0.58 (8.09) (0.65)a
Volume or capacity flexibility 0.67 (9.60)
Degree of product variety 0.48 (6.31)
Production costs 0.42 (5.74) Table I.
Notes: χ2 ¼ 248.89, df ¼ 144, NFI ¼ 0.937, NNFI ¼ 0.965, CFI ¼ 0.971, GFI ¼ 0.897, RMSEA ¼ 0.056, Scale validity
SRMR ¼ 0.057. aComposite reliability and reliability
IJOPM 5. Result
36,2 5.1 Scale validity and reliability
We applied confirmatory factor analysis (CFA) to simultaneously validate the measures
of all variables used in this study using LISREL 8.80 software. The results of the CFA
and the Cronbach’s α are presented in Table I. The items loaded significantly and
strongly on their respective constructs. The item loadings and the overall model fit
230 results suggest acceptable unidimensionality and convergent validity for the measures
(Bollen, 1989; Bagozzi et al., 1991). Cronbach’s α suggest satisfactory reliability of the five
constructs (Nunnally, 1978). We confirm this result by checking the composite reliability
values of the five constructs (Bollen, 1989; Hair et al., 2006), and the values meet the
recommended cut-off point of 0.7, except for competitive performance, although it still
meets the acceptable cut-off point of 0.6. The slightly lower than standard acceptable
value of Cronbach’s α or composite reliability for competitive performance (o0.7) is
probably due to the fact that it is indeed composed of multiple dimensions. Measures
such as quality, delivery, flexibility, and cost performance contribute to this construct,
suggesting that perhaps some firms may choose to specialize or focus on only a subset of
these performance dimensions (Samson and Terziovski, 1999).

5.2 Common method bias

We used Harman’s single-factor test to check for common method variance (Podsakoff
and Organ, 1986). This test was conducted using a measurement model which loaded
all 19 items into one latent factor. The result shows that the one-factor measurement
model produced a poor fit with the data as reflected in the fit indices and the poor path
loadings of the items to the latent variable. These results suggest that common method
variance was not a significant problem in the data set.

5.3 Discriminant validity

Discriminant validity was checked using the method suggested by Venkatraman (1989)
where two CFAs were conducted on each pair of the constructs in this study with the first
CFA allowing the correlation between the two constructs to be freely estimated and the
second CFA fixing the correlation between the two constructs to 1.0. The difference of
the χ2-values between the models were calculated, and if the difference was greater than
6.64, the discriminant validity between the two constructs was established (Ahire et al.,
1996). With four constructs incorporated in this study, we conducted six χ2-tests. The
values of Δχ2 for all tests confirm the discriminant validity of the constructs and lend
further evidence towards the lack of common method variance.

5.4 Structural relationships model

We present the results of the structural equation model (SEM) in Figure 2. The ratio of
χ2 (282.54) to degrees of freedom (161) is less than the recommended value of 3.0 for
satisfactory fit of a model to data (Bollen, 1989; Hair et al., 2006). In line with
prescriptions (Mulaik et al., 1989), the fit indices (NFI ¼ 0.930; NNFI ¼ 0.962;
CFI ¼ 0.968) and the root mean square error of approximation of 0.057 is deemed
acceptable. We included organizational size (in terms of number of employees) as
a control variable. Totally, 46 per cent of the sampled firms employed less than
100 people, 35 per cent of them had between 100 and 500 employees, and 19 per cent of
the firms were large manufacturing with over 500 employees. The result shows that
firms’ size had no significant effect on competitive performance (−0.00 at p W 0.05).
 Organizational
Supply chain
Inbound Supply
size processes
0.32** Performance 0.29*
(4.16) (1.96) –0.00
(–0.04)

Supply Logistics 0.56** Competitive

Integration Performance
(4.73)
231
0.40** 0.47**
(4.44) Lean Production (3.06)
Processes

0.01
(0.06)
Figure 2.
Notes: t-Values are in brackets. 2 = 282.54, df = 161, NFI = 0.930,
Results of structural
NNFI = 0.962, CFI = 0.968, GFI = 0.890, RMSEA = 0.057, SRMR = 0.058. relationship analysis
*t > 1.96 or p < 0.05; **t > 2.51 or p < 0.01

The six hypotheses were examined simultaneously using SEM techniques.

The direct effect of supply logistics integration on competitive performance was not
statistically significant (0.01 at p W 0.05); thus, H1 is not supported. On the other hand,
supply logistics integration has a positive relationship with both inbound supply
performance (0.32 at p o 0.01) and lean production processes (0.40 at p o 0.01);
therefore, both H2 and H3 are supported. Lean production has a positive relationship
with both inbound supply performance (0.56 at po0.01) and competitive performance
(0.47 at po0.01); therefore, H4 and H5 are supported. Finally, inbound performance has
a positive relationship with competitive performance (0.29 at po0.05); supporting H6.
The values of R2 for lean production, inbound performance, and competitive performance
are 0.16, 0.56, and 0.49, respectively.
The direct effect of supply logistics integration is not significantly related to competitive
performance (H1), but the effect is directly related to inbound supply performance and lean
production processes which in turn are both significantly related to competitive
performance. In other words, there is an indirect effect of supply logistics integration on
competitive performance through both inbound supply performance and lean production
processes. We carried out the Sobel test to check for mediation in the model. The result of
the Sobel test showed that the indirect effect of supply logistics integration on competitive
performance via lean production and inbound supply performance was 0.35 (t ¼ 3.94 or
po0.01) confirming the mediating roles of lean production and inbound supply
performance. We checked this result further by testing a competing model where the direct
path between supply logistics integration and competitive performance was deleted.
The result showed a slight change in the χ2-value from the original value of 282.54-282.50
with one less degree of freedom (162). This result confirms that deleting the supply logistics
integration – competitive performance path does not weaken the model’s fit. This
demonstrates that both inbound supply performance and lean production processes fully
mediate the effect of supply logistics integration on competitive performance. Furthermore,
the direct effect of lean production processes on competitive performance and inbound
supply performance, and, the subsequent direct effect of the latter on competitive
performance suggest that inbound supply performance partially mediates the relationship
between lean production processes and competitive performance.
IJOPM 6. Discussion of the findings and their implications
36,2 Our study suggests that supply logistics integration is not a direct predictor of
competitive performance in firms. Such integration needs to be translated into inbound
supply performance including gains in costs of managing inventories and materials to
impact the competitive performance of the firm. Supply logistics integration produces a
streamlined supply chain where material and information flows are highly connected and
232 there is high visibility across the chain which includes both internal and external processes.
Such connectivity improves the inbound supply performance by eliminating or reducing
incidences of late or wrong deliveries, thus, positively impacting competitive performance.
The findings of this study contribute to knowledge in the SCM and logistics fields in
several ways. First, the finding that both inbound supply performance and lean
production processes fully mediate the relationship between supply logistics
integration and competitive performance is a contribution to the SCM field. The
general assumption in the literature is that supply logistics integration directly affects
performance without a full exploration of the underlying mechanisms or processes
between this relationship (Vonderembse and Tracey, 1999; Li et al., 2006; Lawson et al.,
2009). This finding uncovers what happens “in between” the incoming materials and
the end outputs delivered by firms into the market. This “in between black box” is
important in improving our understanding of how inbound supply activities are
translated into outbound competitive performance outcomes.
Second, this study supports the examination of supply chain processes from a value
chain and systemic perspective. In essence our study shows the importance of managing
both internal (production processes) and external processes (logistics and supply chain)
of firms’ operations in an integrated manner in which supply logistics integration acts
through key internal processes to impact competitive performance which the
end customers actually experience. In other words, both intra-organizational and
inter-organizational SCM activities are important, thus, a firm is likely to obtain superior
performance when achieving high levels of internal and external process efficiency.
Third, it is noteworthy that this study is able to extend the relational view of RBT
into the supply chain context. It does so by demonstrating that the inimitability of lean
production processes (which incorporate JIT and TQC), when combined with relational
aspects of a supply chain (i.e. uniquely specific connections with suppliers and
customers) would facilitate the flow of inbound materials and outbound products of
the firm in such a way as to positively affect the firm’s competitive performance
(Rungtusanatham et al., 2003).
In terms of managerial implications, this study re-emphasizes the importance of
building production process capabilities based on the effective principles of lean practices
and supplier management. Managers should understand that integrating these
philosophies is critical for building and improving a firm’s competitive performance.
Managers must understand the importance and implication of having strong integration
of inbound logistics operations with internal production processes and the far reaching
subsequent effect on competitive performance (Moyano-Fuentes et al., 2012). Concerted
efforts must be made to secure integration and coordination of inbound supply activities
with suppliers to achieve highly integrated logistics operations.

7. Limitations and further research

This study has a number of limitations. First, we acknowledge that there are other
practices not identified in this study that can be drivers of lean production processes
and inbound supply performance other than supply logistics integration. Second, there
may be other factors that affect the relationship between supply logistics integration Supply chain
and competitive performance, which can be included in future studies. For example, the processes
links between departments or functions (i.e. procurement, production, and marketing/
distribution) which encompass the whole value chain activities within organizations
may influence these relationships (cf. Pagell, 2004). Third, there are other practices that
can be related to lean production processes which have not been included in this study,
such as total preventive maintenance, 5S, Six sigma, and other wider aspects defined in 233
the literature (see, e.g. Bhamu and Sangwan, 2014; Hines et al., 2004; Shah and Ward,
2003, 2007). Fourth, the fact that only one party in the supply chain (the buyer or focal
firm) is incorporated in this study as survey respondents could be a limitation.
Although the information provided captured the interfaces between the suppliers, the
focal firm, and the customers, future research can improve on this study by allowing
for data gathering from multiple supply chain partners. Finally, the sample
population of this study is restricted to Australian firms. Although we expect these
results to hold for supply chains in general, we cannot claim that this is the case.
Therefore, future research may extend this study to a broader population of firms,
including other countries, for the generalizability of the results and to detect potential
country effects ( Jasti and Kodali, 2014). Future research may also include outbound
logistics integration to provide a broader picture of integration aspects in a supply
chain network. Nevertheless, we believe that this study contributes to the
understanding of how supply logistics integration, inbound supply performance,
lean production processes are related to competitive outbound performance in a
manufacturing firm.

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Further reading
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Policy, Vol. 38 No. 5, pp. 885-893.

Corresponding author
Dr Daniel Prajogo can be contacted at: daniel.prajogo@monash.edu

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