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JSIT
12,3
Supply chain integration: an
empirical study on manufacturing
industry in Malaysia
210 Ali Hussein Zolait and Abdul Razak Ibrahim
University Malaya, Kuala Lumpur, Malaysia
V.G.R. Chandran
Universiti Technologi Mara, Selangor, Malaysia, and
Veera Pandiyan Kaliani Sundram
University Malaya, Kuala Lumpur, Malaysia
Abstract
Purpose – The purpose of this paper is to attempt to identify the relationship between supply chain
process integration and firm performance.
Design/methodology/approach – The dimension classification and measurement instrument of
the framework adapted from the previous research focus on firm performance impacts of digitally
enabled supply chain integration (SCI) capabilities. The study employed the quantitative method
where convenience sampling and self-administered survey questionnaires were sent to 98 conference
participants in Malaysia. The research framework was pre-tested using multivariate analysis.
Findings – The findings reveal that all three dimensions of supply chain process integration were
statistically significant to firm performance. Furthermore, information flow integration shows a
greater influence than physical and financial flow integration.
Research limitations/implications – This study focused on the manufacturing sector with
respondents who were participants of a conference.
Practical implications – The results offer insights to supply chain management practitioners and
policy makers on the importance of SCI and information technology (IT) infrastructure to improve
the competitiveness of manufacturing industry in terms of operational excellence, revenue growth
and customer relationship.
Originality/value – This study adds to the body of knowledge by providing new data and empirical
insight on the relationship between SCI and firm performance specifically for the manufacturing
industry in Malaysia. In addition, the findings may invite opportunities for comparative studies
mainly with other industries as well as other developing and developed economies.
Keywords Supply chain management, Manufacturing industries, Technology led strategy,
Malaysia
Paper type Research paper

Journal of Systems and Information
Technology
Vol. 12 No. 3, 2010
pp. 210-221
# Emerald Group Publishing Limited
1328-7265
DOI 10.1108/13287261011070830
1. Introduction
Supply chain management (SCM) has captured the interest of many practitioners
and scholars in recent years (Bechtel and Jayaram, 1997; Burgess et al., 2006). This
popularity has been due to the fact that SCM is a vital element for operational success
(Croom et al., 2000). SCM is an integration of various business processes such as
demand planning and forecasting, procurement, manufacturing and assembly,
distribution, management of resources and customer-focused process management
(Lummus and Vokurka, 1999; Mentzer et al., 2001; New, 1997). However, in spite of the
key role of supply chain integration (SCI) in the SCM phenomenon, limited scholarly
investigation has been undertaken to present a theoretical viewpoint, supported by
empirical evidence (Sahin and Powell, 2002) on how to enable SCI capability to yield
performance gains for firms.
2. Purpose of study Supply chain
Although there is a wide range of literature on SCI, the area needs further research
due to the lack of empirical evidence on the linkages between supply chain process
integration
integration and firm performance. To address the research gap we investigate ‘‘how
information flow, financial flow and physical flow affects the capabilities of
manufacturing firms in a developing country such as Malaysia.’’ This study attempts
to empirically examine the link. Additionally, this empirical exercise also is intended to
contribute to deepening the understanding of the conceptual framework established in 211
previous studies (Rai et al., 2006; Appendix). This study has suggested the direct
positive link between supply chain process integration and firm performance. In
addition, this current study highlights that supply chain process integration is the
restructuring activities that target the realigning of resources within and across firms,
with the resource-based view (RBV) (Barney, 1991) as an underpinning theory.

3. Literature review
The literature defines SCI as the degree of integration of core processes across
organizational boundaries through improved communication, partnerships, alliances
and cooperation (Power, 2005). It also includes the application of new technologies to
improve information flows (Donk et al., 2008; Kim and Narasimhan, 2002), financial
flow (Mabert and Venkataramanan, 1998) and coordinate the flow of physical goods
(Childhouse and Towill, 2003; Donk et al., 2008) between supply chain partners. The
concept of SCI has propelled continuous development in manufacturing (Cousins and
Menguc, 2006; Donk et al., 2008). Firms are venturing on to integration activities, linking
of suppliers, manufacturers and customers in order to obtain significant improvements
in terms of cost efficiency and lead time (Exon-Taylor, 1996; Power, 2005).
In relation to the types of performance measures, some authors measure
performance of the entire supply chain (Lee et al., 2007; Li et al., 2009) or only deal with
measuring the individual firm’s performance (Rai et al., 2006; Tracey and Tan, 2001).
Some authors prefer using a mix of logistics or supply chain operational criteria as
measurement indicators (Frohlich and Westbrook, 2001; Kim, 2006) and others are
more inclined towards utilizing pure financial criteria as measurement indicators
(Narasimhan and Kim, 2002; Rosenzweig et al., 2003; Vickery et al., 2003). As a
consequence, there is no consensus regarding how performance is to be measured
(Fabbe-Costes and Jahre, 2007). Further, to date, there have been few research studies
on performance of others in the supply chain in addition to the focal firm.
Performance studies in relation to SCI can be classified into three groups (Gimenez
and Ventura, 2005). These are the relation between internal SCI and performance,
between external SCI and performance or both types of SCI with regards to
performance. Many research articles have clearly argued and have provided evidence
concerning the positive impact of SCI on performance either through explicit (Frohlich
and Westbrook, 2001; Rosenzweig et al., 2003) or implicit (Kim, 2006; Narasimhan and
Kim, 2002) consideration. The next section describes how different types of SCI namely
information, physical and financial flow relate to performance.

4. Research framework and hypotheses

Attempts to frame the analytical investigation require a strong theoretical
consideration and supportive review of literature to support the relationship between
the variables under consideration. The research framework of this study is extensively
based on previous research (Rai et al., 2006), primarily on the dimension classification
JSIT and measurement instrument. The underpinning theory of this research framework
was based on the RBV of the firm (Barney, 1991). The resource-based theory of the
12,3 firm emphasizes the management of internal resources to establish hard to imitate
advantages (Barratt and Oke, 2007; Fawcett et al., 2007). In this respect, the supply chain
organization needs to focus on the organizational skills and processes enhancement in
delivering distinctive products and services. As such this enables the firms in the supply
chain to develop competitive advantage and possess core competencies.
212 This section provides the theoretical arguments for the conceptual framework
established in this study. We relied mainly on the resource-based theory to link SCI and
firm performance. The resource-based theory of the firm explicates the role firms’ internal
resources impact on performance. The resource-based theory focuses on the unique
bundle of resource that a firm possesses (Barney and Ouchi, 1986; Barney, 1991; Conner,
1991) which varies among firms (Penrose, 1959) (Wernerfelt, 1984, 1995). Because the
nature of resources possessed by firms is heterogeneous, the differences in performance
can be attributed to the different resources owned by the firms. The frequently noted
firm resources are the intangibles. This includes the knowledge, experience and skills
of employees, technological resources, capabilities that include management and
organizational capability (Praest, 1998). Indeed, due to the changing nature of the
environment, scholars (Teece et al., 1997) turned their attention to the role of the dynamic
capabilities or resources. Prahalad and Hamel (1990), among others, emphasize a firm’s
basic competence, which includes coordination of different types of production knowledge,
and the competence of integrating multiple technological flows. This has lead scholars
(Barney and Ouchi, 1986; Barney, 1991; Conner, 1991; Penrose, 1959; Teece et al., 1997) to
look for the uniqueness that an organization has that contributes to performance. Hence,
issues like environment (market competition), internal factors, firm strategy, structure,
system and people, competence and capabilities and assets size and financial capabilities
have become the explanatory factors in explaining performance.
Overall, the resources owned by firms that include the tangibles and intangibles are
seen as the source of performance gains. Among the resources, the SCM capability of
firms is vital (Maheshwari et al., 2006; Sanchez-Rodrıguez et al., 2005; Sari, 2008;
Trkman et al., 2007). Hence, integrating the different views of scholars within the RBV
may provide a better understanding on the issues of SCI and performance.
Based on the study’s objectives and approaches, the following conceptual model can
be drawn (Figure 1). As for Figure 1, schematically represents the research model. The

Figure 1.
Research framework
firm performance was dependent on the variables of supply chain process integration Supply chain
such as information flow integration, physical flow integration and financial flow
integration. Whereas, the dependent variable, firm performance was operationalized
integration
by operational excellence, customer relationships and revenue growth.
This study examines the relationship between a firm performance and supply chain
process integration which includes flow integration, physical flow integration and
financial flow integration. From the above model, the following hypotheses will be tested:
213
H1. The financial flow integration has a positive relationship with firm
performances.
According to Rai et al. (2006), financial flow integration is defined as the extent to
which exchange of financial resources between a focal firm and its supply chain
partners is driven by workflow events. This includes all activities required to
facilitate the flow of funds across the supply chain, including invoicing
customers, paying suppliers and internal transfers (Johnson and Mena, 2008).
This implies that effective flow of funds across the supply chain improves
cash conversion cycle or cash-to-cash cycle through reduced days-in-inventory,
shortened days-in-receivables and prolonged days-in-payables (Tsai, 2008).
Eventually, the financial flow optimization (Comellia et al., 2008) will make
possible shareholders satisfaction and the supply chain working improvement.
As such, effective and efficient management of financial flow integration is
essential to improve the supply chain performance (Wong et al., 2009).
H2. The physical flow integration has a positive relationship with firm
performances.
Rai et al. (2006) defines physical flow integration as the extent to which a focal
firm uses global optimization with its supply chain partners to manage the flow
of materials and finished goods from the point of origin (ultimate supplier), to
the point of destination (ultimate customer). This implies that suppliers can be
integrated with the internal processes of their customers in an effort to improve
quality and reduce costs (Koufteros, 2005). Physical flow integration improves
the productivity of manufactures (focal firm) through reduction in production
cost, effective just-in-time inventory management and improved supplier
management (Levy et al., 1995). In the long run this enables firms to gain order
winning capabilities and better customer services (Quesada et al., 2008). As
such physical flow integration makes a significant contribution to the firms
performance (Ganeshan et al., 2001; Zailani and Rajagopal, 2005) and finally to
the total supply chain members (Zelbst et al., 2009).
H3. The information flow integration has a positive relationship with firm
performances.
Information flow integration is defined as the extent to which information is
shared between a focal firm and its supply chain partners (Rai et al., 2006).
According to (Lee et al., 2007), information sharing within business units, across
supply chain partners such as suppliers and other strategic alliances is essential
to perform three major linkages: supplier linkage, internal linkage and customer
linkage. In particular, this integration through effective and efficient information
flow will eventually lead the firm and total supply chain to better performance
(Narasimhan and Kim, 2002; Palsson and Johansson, 2009). Past studies (Du,
2007; Gunasekaran and Ngai, 2004; Kim and Narasimhan, 2002) reported
JSIT positive relationships between the level of information flow integration and
performance. As such increasing the level of integration and information sharing
12,3 (Sezen, 2008; Trkman et al., 2007) among the members of a supply chain has
become a necessity for improving the effectiveness of the supply chain.

5. Methodology – survey instrument development

A survey instrument was designed based on the two main constructs: SCI and firm
214 performance. The measurement and scale for each construct is obtained from previous
literature (Rai et al., 2006) (Appendix). Respondents are asked to indicate the performance
of their firm in terms operational excellence, customer relationship and revenue growth as
compared to their competitors. As such a semantic comparison scale was used, indicating
‘‘much better than average,’’ ‘‘better than average,’’ ‘‘same as competitors-average,’’ ‘‘slightly
less than average’’ or ‘‘much less than average.’’ Whereas items associated to SCI construct
used a seven-item Likert-type scale. Respondents were asked to state their agreement with
a given statement on a scale that ranged from ‘‘strongly agree’’ to ‘‘strongly disagree’’ with
its midpoint anchored as ‘‘neither agree nor disagree.’’

6. Data collection of sample

The unit of analysis employed in this study is organization or firm, which primarily
refers to the focal firm of the supply chain. Therefore, multiple responses from each
firm are not allowed in this study. The sampling frame of supply chain and logistics
managers was compiled from the list of attendees of the annual conference of the
Chartered Institute of Logistics and Transport, Malaysia. Target respondents for the
survey were the senior or middle managers with direct responsibility for SCM or
logistics function in the organization, as these individuals were knowledgeable enough
to effectively respond to all of the scale items. Questionnaires were distributed to all the
98 participants of the conference. Later, 48 questionnaires were found not valid due to
the fact of multiple responses from some firms, some respondents that did not belong
to manufacturing industries were removed and incomplete questionnaires were
eliminated. As a result, total valid and usable questionnaires were only from 50
manufacturing firms’ respondents (adjusted sample size). The research framework was
pre-tested using respondents from manufacturing organizations and to avoid response
biases responses from the pilot test were not included in the final multivariate analysis.

7. Measurement of variables
Based on the main purpose of study, there are two main variables, SCI and firm
performance. The collective evidence from past literatures suggested that the constructs
demonstrate good measurement properties. Table I summarizes the variables and
measurement items and the number of indicators associated with each sub-construct.

Variable Dimensions Items

Supply chain integration Financial flow integration 2

Physical flow integration 4
Information flow integration 5
Table I. Firm performance Operations excellence 3
Measurement of Customer relationship 2
variable Revenue growth 2
8. Data analysis and findings Supply chain
Demographic data showed in Table II depict that the majority of the firms’ respondents
are from industrial electrical and electronics producers as they represent 53 percent of firm
integration
types. Geographically, the majority of the firms’ respondents are from northern and
southern region of Malaysia. The typical number of employees is between 101 and 500.
Almost all the selected firms for this study are between five and 20 years of operational
experience.
Table III shows descriptive statistics for each dimension. The result indicates that 215
information flow integration is important (with the highest mean score, i.e. M ¼ 3.92,
SD ¼ 0.56) and is the most dominant factor to influence the firm performance and
evident to a considerable extent, followed by physical flow integration (M ¼ 3.73,
SD ¼ 0.61) and financial flow integration (M ¼ 3.69, SD ¼ 0.60). Furthermore, the
degree of SCI on the firms’ performance was largely positive. The standard deviation was
quite high, indicating the dispersion in a widely spread distribution. This means that the
effect of SCI on firms’ performance is an approximation to a normal distribution. This
also indicates that responding firms had high levels of performance. As such the above
findings concurred and corresponded well with previous studies (Gunasekaran and Ngai,
2004; Kim and Narasimhan, 2002; Sezen, 2008) which implicate the profound importance
of information flow integration in determining the firm’s performance in various business
sectors, primarily in the manufacturing industry. Consequently (Du, 2007; Fabbe-Costes
and Jahre, 2007; Sezen, 2008; Stonebraker and Liao, 2006), this is due to the process of
global campaigning that connects technology and speed, supply chain process
integration is the new model for enterprises to practice. Under this new model, the
enterprises should think deeply about how the global marketplace integrates production,
purchasing, logistics supporting, product designing and marketing well enough to
respond to the customer’s immediate demands. This would create the biggest synergy,

Business description (%) Number of employees (%)

Electrical 26.3 Fewer than 50 –

Electronic 26.3 50-100 13.2
Wood 13.2 101-250 18.4
Chemical 21.0 251-500 39.5
Food 13.2 501 or greater 28.9
Annual sales Operating experience
Less than 1 million – Less 1 year –
1-5 million 18.4 1-5 years 5.3
5-10 million 23.7 6-10 years 13.2
10-50 million 34.2 10-15 years 39.5 Table II.
50-100 million 15.8 15-20 years 34.2 Description of the
More than 100 million 7.9 More than 20 years 7.8 respondent firms

Dimension Mean Standard deviation

Financial flow integration 3.69 0.60

Physical flow integration 3.73 0.61 Table III.
Information flow integration 3.92 0.56 Descriptive statistic
Firm performance 3.76 0.59 analysis
JSIT achieving better performance by lowering operating costs, inventory pressure and risk.
12,3 For this reason, many firms have established strong relationships with their supply chain
members in the global marketplaces to archive better integration.
Research hypotheses were tested using a multiple regression analysis. It is a useful
technique that can be used to analyze the relationship between a single dependent
(criterion) variable and several independent variables (predictor or explanatory) at one
216 time. In this analysis, a set of independent variables is weighted to form the regression
variate (regression equation or model) and that may be used to explain its relative
contribution toward one dependent variable (Hair et al., 1995). This analysis was
undertaken to better understand the relationship between SCI and firms’ performance.
The summary of the result analysis is depicted in Table III.
As noted in Table IV, H1 measures supply chain process integration and its association
with firms’ performance. This hypothesis states that firms exposed to high levels of supply
chain process integration will experience high levels of firm performance. The F-statistics
produced (F ¼ 32.29) which was significance at 1 percent level (Sig. F ¼ 0.000), thus
confirming the fitness for the model. The coefficient of determination R2 was 41.9 percent.
This expresses that supply chain process integration can significantly account for 41.9
percent of firm performance. Thus, H1 was partially supported.
The results also indicated that there were three dimensions of SCI; namely, financial
flow, physical flow and information flow which are positively associated with firm
performance. It can be argued that these three dimensions of SCI focus on: financial
flow integration (p < 0.05), physical flow integration (i < 0.05) and information flow
integration (p < 0.01), and are all directly involved in the improvements of firm
performance. Moreover, the findings also indicate that the most important SCI
practices that explain the variance in firm performance was information flow and was
significant at the 1 percent level (p < 0.01).
The result suggested that supply chain process integration yields sustained gains
in firm performance, particularly operational excellence and revenue growth. These
findings have significant implications for the management of supply chain process
integration, as it needs to be focused and leveraged to create performance gains by
using lower-order technology capabilities to enable higher-order process integration
capabilities in firm performance. The greater degree of SCI is strongly associated with
higher levels of performance, which has been a prevalent assumption behind much of
the supply chain literature (Briscoe and Dainty, 2005; Childhouse and Towill, 2003;
Neuman and Samuels, 1996; Quesada et al., 2008; Samaranayake, 2005; Stonebraker
and Liao, 2006). However, most previous studies have focused on using information
technology to improve the effectiveness of SCM (Gunasekaran and Ngai, 2004; Kim and
Narasimhan, 2002; Sezen, 2008).

Variables Beta t-value Sig. coefficient Result

Constant 2.390 0.02

Financial flow integration 0.161 2.372 0.02 Accept
Physical flow integration 0.164 1.984 0.04 Accept
Table IV. Information flow integration 0.339 5.145 0.00 Accept
Multiple regression
analysis Notes: Overall model F ¼ 32.29; R2 ¼ 0.419; adjusted R2 ¼ 0.406
9. Conclusion Supply chain
These findings have some important implications for theory and managerial practice. In integration
terms of theory, organizations should consider more options for vertical integration,
either backward or forward integration as part of their business operational strategy
along the supply chain. This study highlighted the achievement of supply chain strategy
through upstream and downstream integration as part of the manufacturing strategy. In
addition, several significant contributions in terms of managerial implications are also
purported. First, managers in manufacturing firms whom are not to totally involved in
217
the initiative of supply chain process integration should start aggressively managing
supply chain process integration. Second, manufacturers who are already following this
approach but at a slow pace of execution should move rapidly to enhance information
flow integration followed by physical flow and financial flow integration across supply
chain. Eventually, this improvement in firm performance will give the overall
manufacturing industry in Malaysia a leading edge of competitiveness and indirectly
will provide more attraction in relation to foreign direct investment.
In Malaysia, governments should aggressively facilitate developments of
information, communication and technology (ICT). More promising ICT policy should
be developed to facilitate the information technology infrastructures adoption by
manufacturing firms. This is essential to enhance the usage of the Internet and web-
based applications to facilitate the collaboration and integration across the parents of
the supply chain. Hence, manufacturers as the focal firm in the supply chain can have
an effective on efficient flow of information, physical flow and financial flow.
This study draws on data from the manufacturing industry, mainly electrical,
electronic, wood, and chemical and food. Therefore these specific industries have specific
characteristics of supply chains which do not apply to other sectors. Sector-specific studies
of supply chain process integration and their relation to firm performance improvement
will potentially yield different insights. Since this study primarily focused on
manufacturing, future research might also include data for the purpose of comparative
study mainly with other industries as well as other developing and developed economies.
Finally, this study had a narrow focus on the manufacturing industry with a small
sample size of respondents who were participants of a conference, and this might lead
to response bias. Moreover, to increase the scientific validity of the research, a sample
of respondents should be taken along supply chain members of one particular product
line, rather the just a focal firm in a supply chain. This reflects more holistic
methodological approaches in identifying the true relationship between the supply
chain process integration and firm performance.

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Appendix
Construct Definition
Financial flow The degree to which financial flows
integration between a focal firm and its supply
chain partners is driven by workflow
events
Physical flow The degree to which a focal firm
integration uses global optimization with its
supply chain partners to manage the
stocking and flow of materials and
finished goods
Information flow The extent of operational, tactical
integration and strategic information sharing
that occurs between a focal firm and
its supply chain partners
Operations The degree to which a focal firm is
excellence better than its competitors in its
responsiveness and generation of
productivity improvements.
Customer The degree to which the focal firm’s
relationship relationship with customers and
information about their preferences is
better than its competitors
Revenue growth The degree to which the focal firm’s
increase in revenue from current and
new products and markets is more
than its competitors
Source: Rai et al. (2006)
Corresponding author
Ali Hussein Zolait can be contacted at: alizolait@gmail.com
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Supply chain
integration
Items
Account receivables processes are
automatically triggered when we ship to
our customers
Account payable processes are
221
automatically triggered when we receive
supplies from our suppliers
Inventory holdings are minimized across
the supply chain
Supply chain-wide inventory is jointly
managed with suppliers and logistics
partners (e.g. UPS, FedEx)
Suppliers and logistics partners deliver
products and materials just in time
Distribution networks are configured
to minimize total supply chain-wide
inventory costs
Production and delivery schedules are
shared across the supply chain
Performance metrics are shared across
the supply chain
Supply chain members collaborate in
arriving at demand forecasts
Our downstream partners (e.g.
distributors, wholesalers, retailers) share
their actual sales data with us
Inventory data are visible at all steps
across the supply chain
Product delivery cycle time
Timeliness of after sales service
Productivity improvements (e.g., assets,
operating costs, labor costs)
Strong and continuous bond with
customers
Precise knowledge of customer buying
patterns
Increasing sales of existing products
Finding new revenue streams (e.g. new
products, new markets)
Table AI.
Construct measurements