Supply Chain Management: An International Journal

Supply chain management and suppliers' HRM practice

Rozhan Othman Rohayu Abdul Ghani
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Rozhan Othman Rohayu Abdul Ghani, (2008),"Supply chain management and suppliers' HRM practice", Supply Chain
Management: An International Journal, Vol. 13 Iss 4 pp. 259 - 262
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 Insight from industry

Supply chain management and suppliers’

HRM practice
Rozhan Othman
Graduate School of Management, Universiti Putra Malaysia, Selangor, Malaysia, and
Rohayu Abdul Ghani
Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Selagnor, Malaysia

Abstract
Purpose – The purpose of the paper is to examine the impact of supply chain management (SCM) on the HRM practice of suppliers. The paper argues
that the performance requirement in an SCM system requires that suppliers develop specific HRM practices.
Design/methodology/approach – A structured interview was used to collect the data from seven companies.
Findings – This paper found evidence to suggest that impact of SCM on the HRM practice of local suppliers is related to the extent of linkage the
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customers develop with their suppliers.

Research limitations/implications – This paper relied on an examination of seven companies. This limits the generalizability of its findings.
Practical implications – The findings of this paper suggest that a successful supplier-customer relationship is dependent on the suppliers developing
specific HRM practices that will enable them to fulfill customer’s requirements.
Originality/value – This paper is probably the first attempt to examine how SCM affects the HRM practice of suppliers.

Keywords Human resource management, Supply chain management, Lean production, Malaysia

Paper type Research paper

Introduction .
seek total supply chain coordination;
.
enhance communication to reduce uncertainty and
Supply chain management (SCM) is a technique that is linked inventory levels;
to the adoption of the lean production system (Cox, 1999). .
outsource non-core competencies;
For many organizations, developing the lean production .
implement build-to-order manufacturing;
system is a key element is their SCM practice. This involves . reduce inventory; and
seeking to: .
reduce cost.
.
improve value delivery to customers;
.
rely on just-in-time system; Attaining these capabilities requires employees who are
.
eliminate waste; flexible in their roles, have a broad set of skills, adaptable to
.
get the involvement of all stakeholders in the value reorganization, able to work in boundary-spanning
creation process; responsibilities and are innovative. Companies said to be
.
develop close collaboration; effective in their SCM practice put a lot of emphasis on
.
work closely with suppliers; developing their human resources through training and
.
reduce the number of suppliers; and retraining of their employees (Gowen and Tallon, 2002).
.
develop efficient suppliers (Shadur and Bamber, 1994). This includes developing four specific skills among
employees, i.e. problem-solving skills, leadership skills,
The success of an SCM system is dependent on adopters
team-building skills and job skills.
developing specific capabilities (Chandra and Kumar, 2000).
In addition to these, Shadur and Bamber (1994) point out
These include the ability to:
that effective SCM practice also rely on teamwork and
.
develop a flexible organization;
continuous improvement. Teamwork enables the pooling of
.
develop a trusting relationship with its suppliers;
resources and expertise to enable faster trouble shooting and
support improvement. Basu and Miroshnik (1999) explain
The current issue and full text archive of this journal is available at that such a collaboration also requires high trust among
www.emeraldinsight.com/1359-8546.htm

This study was conducted as part of a project titled: “The Activities of

Supply Chain Management: An International Journal
13/4 (2008) 259– 262
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540810882143]
MNCs in Asia and their impacts on both HRM and HRD”. It was
sponsored by the Japanese Ministry of Education and was led by Professor
Mitsuhide Shiraki of Waseda University. The authors would like to thank
Professor Shiraki for his leadership of the project.

259
 Supply chain management and suppliers’ HRM practice
Rozhan Othman and Rohayu Abdul Ghani
employees and with suppliers. They also argue that the HRM
system needs to emphasize extensive skill development,
worker adaptability and high motivation.
We expect suppliers in a supply chain to also develop similar
HRM practices in order to support the emphasis on
collaboration along the chain. They will also require the
development of specific skills, reliance on teamwork and high
workforce adaptability. These are needed to ensure that,
members in the supply chain, has the needed level of
responsiveness and adaptability. Figure 1 depicts the
relationship between the use of a lean production system,
suppliers’ capabilities and HRM practice.
The preceding review of the literature suggests that
companies adopting SCM are likely to adopt specific HRM
practices. This paper will present a description of the HRM
practice of seven Malaysian suppliers.
The study
Seven companies were studied to examine the relationship
between their HRM practice and SCM. The identity of these
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companies have been disguised here and will be referred to as
Crescent Industrial, Pioneer, Sigma, Galaxy, Crescent
Machining, Glyceride and Subtronics. The first five are
vendors in the automotive industry. Subtronics is a contract
manufacturer of printed circuit boards and supplies to a
number of multi-national companies operating in Malaysia.
Glyceride is a manufacturer of food ingredients. Its output is
sold mainly to a European company. The persons interviewed
in all of these companies were members of the top
management team.
Findings
SCM linkage
We are able to identify three distinct levels of linkages between
suppliers and their customers in the supply chain. At the
lowest level of linkage, the customer performs little or no
Figure 1 Relationship between lean production system, suppliers’ capabilities and HRM
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Supply Chain Management: An International Journal
Volume 13 · Number 4 · 2008 · 259 –262
auditing of the supplier. A moderate level of linkage exists
when the customer assesses the internal capabilities of the
supplier by auditing their processes and the capabilities of
their human resource. A high level of linkage exists when
besides auditing the suppliers, the customer also provide
technical assistance to enhance the capabilities of the supplier.
Sigma Rubber and Glyceride are suppliers with low linkage
with their customers. The former was subjected to minimal
monitoring by its customer. The only evidence of some form
of monitoring found was a plant visit by representatives of one
of its Japanese customer. The representatives had requested
that Sigma adopt the lean production system to reduce its cost
but it declined the request. As for Glyceride, its customers set
specifications on product quality and features and required
the use of certain equipments in its production process.
Otherwise there was no further evidence of closer monitoring
by its customers.
Evidence of moderate levels of linkage was seen in Crescent
Industrial and Pioneer. Customers of these companies
focused on auditing the capabilities of their processes.
However, this did not extend to close collaboration or
technical support in enhancing their capabilities.
Evidence of high levels of linkages could be seen in Galaxy,
Subtronics and Crescent Machining. Their customers audited
their internal processes, and in the case of Galaxy, also
assessed the training and competency level of its workers as
well. These companies also enjoy closer collaboration with
their customers, with their main customers also assisting them
in resolving specific technical problems. Toyota and Perodua,
a joint venture between Daihatsu (also a subsidiary of Toyota)
and a Malaysian company, were described as taking a more
long-term relationship and have provided considerable
support to their Malaysian suppliers. This indicates a high
level of linkage between these companies and their suppliers.
However, not all Japanese companies developed high levels of
linkages with their Malaysian suppliers. The respondent from
Galaxy describes one of its Japanese customers as being very
short-term and opportunistic in its dealing with its suppliers.
 Supply chain management and suppliers’ HRM practice
Rozhan Othman and Rohayu Abdul Ghani
With the exception of Sigma, the companies examined
reported that they are required to supply just-in-time (JIT).
There is, however, some variation in the JIT system used.
Subtronics reports that some of its American customers use
the tap system. In a tap system, the customer requires its
suppliers to maintain a certain inventory level at the
customer’s site, usually a supply for two to three days.
However, the customer will only pay the supplier whence it
uses the inventory.
Besides delivering to Perodua JIT, Galaxy is also required to
participate in a just-in-sequence (JIS) system. The JIS system
involves a logistics service provider taking delivery of the
products from Galaxy and other suppliers. It then arranges
these products in the sequence they will be used on the
factory floor and then deliver them JIT.
Table I shows the HRM practice and quality management
practice adopted by the companies studied. It can be seen that
Sigma and Glyceride who have low levels of linkages to their
customers’ SCM system have HRM practices that are least
similar to the HRM practice developed by the companies with
moderate and high levels of linkages with their customers.
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Companies with high levels of linkage are associated with the
use of teamwork, group based appraisal, job rotation and
extensive training. The training done centered around job
related skills and skills needed to achieve quality certification.
Except for Subtronics, companies with medium and high
levels of linkages use job rotation to create flexibility in their
work force deployment. They also train their employees in
multiple skills to ensure that the job rotation is effective.
It is interesting to note however that, with the exception of
Subtronics, none of the companies studied credit their customer
as having required them to adopt any of the quality management
practices. The diffusion of many of these techniques came from
various sources. The adoption of 5S by Pioneer and Glyceride
was due to the decision to adopt this technique by their parent
companies. Consultants played a major role in helping Crescent
Industrial and Subtronics develop their quality system and
training program. Pioneer relied on their technology partners in
Japan for technical assistance.
Discussion
The evidence from this study shows that the form of HRM
practice suppliers developed is closely linked to the level of
linkage they have in their customers’ SCM system. Suppliers
with moderate and high levels of linkage with their customers
Table I HRM practice adopted by Malaysian suppliers studied
Sigma Glyceride
1. JIT U U
2. Audit by customer
3. Quality certification U U
4. Technical assistance from customer
Extent of linkage L L
5. Multi- skilling U U
6. Teamwork U U
7. Group based reward
8. Job rotation
Note: Extent of linkage: L: low, M: moderate, H: high
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Supply Chain Management: An International Journal
Volume 13 · Number 4 · 2008 · 259 –262
were found to have developed specific HRM practices that
closely resemble the form of HRM practice proposed by
various researchers. The exception is in their training practice.
We had expected to see an emphasis on training on problem
solving and leadership skills but found evidence of such a
practice only in Crescent Industrial and Crescent Machining.
The evidence also shows that companies with low linkages
developed a much simpler form of HRM practice. This is
probably due to the fact that their main customers are
overseas and thus less able to monitor their management
system closely. As such, their customers tend to focus on the
price or quality of the products supplied.
In a way, developing a simple form of HRM practice can help
these companies keep their costs low. This is especially the case
with Sigma, which had consciously decided to not comply with
their customer’s suggestion that they adopt the lean production
system to reduce cost. Sigma believes it has little control over
the price of its product, which is affected by the price of rubber.
However, such a rudimentary form of HRM practice creates a
narrow set of capabilities for these companies and limits its
options for the future. This stance may be detrimental to its
long-term competitive position. Its unwillingness to adapt to its
customer’s requirement and its somewhat rudimentary HRM
practice may create a lock out situation. The lack of flexibility in
its work force will constrain Sigma’s options in responding to
changes its competitive environment.
Current investment in the HRM system confers an
organization with flexibility in dealing with future
opportunities. This flexibility is created through the
development of a HRM system that includes using job
rotation, multi-skilling and extensive training. Such an
investment provides organizations with what is termed as
real options (Adner and Levinthal, 2004). Sigma should
perhaps treat the request from its Japanese customer as a cue
of future expectations from its customers and start developing
the needed capabilities, including its HRM system, to fulfill
these expectations. This is necessary given that the company
admits so facing considerable challenge to its market from
rivals from India and Thailand who have more cost
advantage. Even though the reason given by Sigma for not
adopting the lean production system was that is did not
consider it as useful in reducing cost, one may suspect that
their refusal may well be because their internal capabilities is
not able to support the implement of the system. In other
words, Sigma may well be already is stuck in a locked out
position because of its HRM system.
CISB Pioneer CMSB Galaxy Subtronics
U U U U
U U U U U
U U U U U
U U U
M M H H H
U U U U
U U U U
U U U U
U U U U
 Supply chain management and suppliers’ HRM practice
Rozhan Othman and Rohayu Abdul Ghani
A point noted earlier is the fact that the development of the
HRM practice espoused by theory among suppliers with
moderate and high levels of linkage did not come about as a
result of the insistence of their customers. Instead it was
developed out of their own desire to develop more flexibility
and effectiveness. It seems to suggest that these companies
recognize the importance of these HRM practices in
enhancing their capabilities in order to remain competitive
and viable suppliers to their customers.
Conclusion
This study examined the relationship between SCM and the
HRM practice of supplier organizations. We found some
support for the contention that the adoption of SCM needs to
be supported by specific forms of HRM practice among the
suppliers. Suppliers in this study appear to recognize the need
to develop HRM practices that provide them with adaptability
to enable them to fulfill their role in a supply chain. We also
suspect that suppliers who develop more rudimentary forms
of HRM practice will find themselves in a lock out situation.
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They would be less capable of responding to changing
customer requirements and future competitive pressure.
References
Adner, R. and Levinthal, D.A. (2004), “What is not a real
option: considering boundaries for the application of real
options for business strategy?”, Academy of Management
Review, Vol. 29 No. 1, pp. 74-85.
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Supply Chain Management: An International Journal
Volume 13 · Number 4 · 2008 · 259 –262
Basu, D.R. and Miroshnik, V. (1999), “Strategic human
resource management of Japanese multinationals: a case
study of Japanese multinational companies in the UK”,
Journal of Management Development, Vol. 18 No. 9,
pp. 714-32.
Chandra, C. and Kumar, S. (2000), “Supply chain
management in theory and practice: a passing fad or a
fundamental change?”, Industrial Management & Data
Systems, Vol. 100 No. 3, pp. 100-13.
Cox, A. (1999), “Power, value and supply chain
management”, Supply Chain Management: An International
Journal, Vol. 4 No. 4, pp. 167-75.
Gowen, C.R. and Tallon, W.J. (2002), “Enhancing supply
chain practices through human resource management”,
Journal of Management Development, Vol. 22 No. 1,
pp. 32-44.
Shadur, M.A. and Bamber, G.J. (1994), “Toward lean
management? International transferability of Japanese
management strategies to Australia”, The International
Executive, Vol. 36 No. 3, pp. 343-54.
Further reading
Bagchi, P.K. and Skjoett-Larsen, T. (2005), “Supply chain
integration: a European survey”, The International Journal of
Logistics Management, Vol. 16 No. 2, pp. 275-94.
Corresponding author
Rozhan Othman can be contacted at: dr_rozhan@yahoo.com)