FACTORS THAT AFFECT SUPPLY CHAIN PERFORMANCE

MUHAMMAD DANIAL HAIKAL BIN FAYZAL

Labuan International campus, Universiti Malaysia Sabah, Labuan, Malaysia
muhammad_danial_bg21@iluv.ums.edu.my

Abstract: The purpose of this study is to shed light on the elements that impact the
performance of the supply chain (SC). The performance of the SC is the sum total of the
performances of all of the companies that are involved in the chain. The overall performance
of the SC is significantly impacted by the relationships that exist between the many
enterprises that make up the SC. There are a variety of elements that might have direct
effects on the success of a firm, but they can have indirect effects that impact the whole
chain. Some of these characteristics include the length of time that two parties have been in
a relationship, the decrease in the number of suppliers, the engagement of those suppliers,
the exchange of information, the establishment of cross-functional teams, trust, and
dedication. In addition, this study finds a number of additional elements that impact the
success of the SC, including environmental unpredictability, support from senior
management, a focus on customers, information technology, strategic buying, logistic
integration, and supply network structure. Insight into these factors allows for the creation of
solutions to issues, takes advantage of opportunities, and informs the creation of SC models
that prioritize SC efficiency.
Keywords: Supply Chain, Performance

1. Introduction
The success of a supply chain (SC) is the sum of the successes of each individual enterprise
inside it. The whole supply chain might be slowed down if just one firm has difficulties. As a
result, it will have a domino effect on all the other businesses. Lambert and Cooper (2000)
argue that the overall SC performance is the result of cooperation between the many
enterprises involved in supply chain management (SCM). According to Aramyan (2007), the
efficiency of the supply chain as a whole is measured by the efficiency of its individual
phases. An organization's success may be affected directly by a number of variables, and
these factors would have knock-on effects across the whole supply chain. Many other
elements are involved, not only those associated with any one organisation in the network.
Therefore, it is crucial to be aware of and cognizant of the elements that influence SC
efficiency. It is on the basis of these elements that SC performance-focused models can be
developed, and it is on the basis of these aspects that strategies can be established to
address various difficulties.
The Supply Chain networks are made up of interdependent relationships that have been
cultivated with the intention of attaining mutual advantages (Chen and Paulraj, 2004). The
philosophy of strategic management, which emphasizes the "collaborative advantage"
(Kanter, 1994) as opposed to the "competition advantage," serves as the foundation for
these interactions. When it comes to the efficient administration of the SC, the relationship
element is of the utmost importance. As a consequence of this, the connection between the
businesses that make up the SC plays an important part in the overall functioning of the SC.
Both the idea of SCM and the way the members of the SC related to one another were
characterised by a greater degree of competition than cooperation. As a direct consequence
of this, the manufacturing prices were high, the product development cycle was lengthy, the
time it took to fulfil orders was lengthy, the transportation costs were lengthy, and so on. The
level of performance of the manufacturers grew as they became aware of the advantages of
the cooperative connection. As a consequence of this, the overall performance of the SC
received a greater boost than would have been the case if one were to just add up the
individual members' improved levels of performance. Lambert and Cooper (2000) state that
the overall success of the SC may be attributed to the synergy of the integrated enterprises
participating in the SCM process.
2. Literature Review
2.1 Performance implications, trust and commitment, and Cross-functional teams
Because of this, supply chain management involves a very broad range of tasks; knowledge
is needed from a variety of different departments (Chen and Paulraj, 2004). Cross-functional
teams, as described by Ellram and Pearson (1993), are beneficial to the reduction of costs,
selection of suppliers, improvement of communication, product design, and overall quality
efforts. As a consequence of this, the performance of SC ought to improve as the number of
cross-functional teams used grows. The level of trust and dedication held by members of the
SC does not have an immediate impact on their performance. On the other hand, trust and
commitment are the immediate antecedents of cooperative partnerships (Morgan and Hunt
1994). Without these two essential components, the interaction between members of the SC
would, at best, be ineffective, and at worst, it will simply cease to exist. When there is a lack
of trust and commitment in a relationship, both sides will have opportunities to behave in a
way that is opportunistic if the situation persists (Williamson, 1975 and 1979). As a direct
consequence of this, the performance of the SC should worsen.
2.2 Environmental uncertainty
Three types of environmental uncertainty are taken into account by Chen and Paulraj
(2004b) demand uncertainty, supply uncertainty, and technology uncertainty, all of which
plague supply networks. Uncertainty in demand is a result of demand swings. Indicators of
supply unpredictability include delivery times, product quality, etc. The rate of change in
technology is quantified by the degree of technical uncertainty. The demand uncertainty is
related to the bullwhip effect, as we have shown above. The greater the degree of
uncertainty around future demand, the more extreme the swings should be. Consequently,
the bullwhip effect ought to be more pronounced. Inferring a negative relationship between
environmental unpredictability and SC performance from this straightforward justification. As
it rises, the efficiency of the SC should drop.
2.3 Relationship duration and performance consequences
Buyer-supplier relationships are becoming more strategic, and contracts are becoming
longer. Therefore, the SC as a whole is doing better than before. That may be explained, in
part, by drawing on the transaction cost idea (Williamson, 1979). Assuming opportunistic
behaviour and limited reason give rise to the transaction cost, argues that certain economic
actors, although rational in their intentions, are yet flawed in ways that affect their choices. A
number of economic actors may resort to dishonest methods such as theft, fraud, deception,
distortion, and misrepresentation, because of these limitations. The provider is more likely to
engage in opportunistic behaviour when the connection is short-term and the rewards are
immediate. According to Burt and Collins (2006), both the supplier and the customer have to
invest in a long-term partnership or a strategic alliance for it to be successful. As a result, the
net present value of the advantages created by the long-term partnership outweighs the
short-term rewards of any opportunistic behaviour, therefore neither side in the relationship
has any reason to pursue such behaviour. This boosts SC's overall efficiency, productivity,
cost-effectiveness, and other metrics. There are a number of other advantages to
maintaining a long-term connection with an SC, all of which contribute to its performance.
2.4 Top-management support
When talking about "top-level managers' support," it means things like the contribution to
strategic purchasing, adoption of cutting-edge IT, logistical integration, supplier relationship
development, etc., that these individuals make to help bring the SCM philosophy into the
company. Top-level management has a major effect on business outcomes, according to
research by Day and Lord (1988). The author explains that the SC performance is the sum
of the efforts of all participants in the supply chain. The effectiveness of any organisation is
contingent upon the leadership qualities of its senior executives individually. Connecting the
dots between this remark with the research of Day and Lord (1988), we may infer that
approval from higher-ups has a beneficial effect on SC output. If the support of upper
management for SC improves, then SC output should also improve.
2.5 Strategic Purchasing
It is necessary to first study the development of strategic buying through time in order to
comprehend its function within the framework of SC performance. In his work, Mentezer
(2001) makes an argument on the shifting role that buying plays in the SC management of
companies. He outlines a framework for the many developmental phases of the buying
process. According to Mentezer (2001), the process of acquiring goods and services has
progressed through a total of four stages: the traditional, the partnership/relational, the
operation approach (materials logistic management), and the strategic approach/strategic
purchasing stage (Integrated value Added). It is not the purpose of this literature review to
investigate the development of the function of buying, but by looking at these aspects, one
may have a better understanding of the way strategic purchasing influences the performance
of SC. The connection between the buyer and the supplier in traditional buying was primarily
one of transacting on a short-term basis and placing orders with the vendor who could give
the best deal (Giunipero and Brand, 1996). On the other side, Giunipero and Brand (1996)
suggest that strategic buying should prioritise collaborative product innovation for the
purpose of gaining a competitive edge in satisfying the demand of consumers, as well as
decreasing system cycle time and cost via joint process design. As a consequence of this,
there is a favourable correlation between SC performance and strategic buying. The level of
strategic buying attention given by the firms in the supply chain should directly correlate to
the level of success achieved by the SC. One more thing that should be noted in the context
of the evolution of purchasing is that the relationship longevity buyer-supplier has shifted
from short-term relations (traditional) to long-term relations. This is a shift that should be
taken into consideration when discussing the evolution of purchasing (Strategic).
2.6 Customer focus
It is common knowledge that a company's level of success is directly proportional to its
ability to fulfil the requirements of its clientele. Researching a company's existing clientele is
essential for any enterprise that wishes to comprehend the requirements of its clientele.
When a firm places a greater emphasis on its clientele, the benefits that it derives from doing
business in the SC will increase proportionately (Carson et al 1998). The same idea may
also be used for the SC if we think of it as a large entity that is made up of several
enterprises that are positioned at various tiers of the chain. If every link in the chain is
focused on the client, it will have a better understanding of the requirements specified by the
customer. This will ultimately result in increased levels of satisfied customers (Mentzer,
2001). In terms of performance, one indicator that can be used to measure SC performance
is the level of satisfaction experienced by customers. Therefore, an increase in customer
attention should result in an increase in customer satisfaction, and as a consequence, an
improvement in SC performance.
2.7 Sharing Information and performance implications
The management of the SC is altered as a result of the exchange of information, and these
management shifts may, among other things, result in decreased inventories (Simchi-Levi et
al, 2003). According to Simchi-Levi and colleagues (2003), making appropriate use of the
information that is already there in the SC enables one to significantly improve the
effectiveness and efficiency of the SC's design and operation. The so-called "bullwhip effect"
may be mitigated when members of the SC share information with one another, which is one
of the advantages of doing so. First, it is necessary to describe the bullwhip effect, and then
it is necessary to comprehend the part that information exchange plays in mitigating the
impact. The bullwhip effect is the increasing unpredictability in order placements that occurs
as we go higher up in the SC. This indicates that even if the demand from consumers for a
particular product does not change considerably over time, the amounts of inventory and
back orders will nonetheless change dramatically throughout the SC.
2.8 Information Technology (IT)
The appropriate flow of information is essential to the operation of any SC. The incorporation
of information technology (IT) systems into the management of the SC has had an effect not
only on the development of the SCM but also on the performance of the SC. The availability
of real-time information on inventory levels, production requirements, product availability,
and shipping status is made possible because of advancements in information technology,
which in turn boosts SC's performance (Salcedo and Grackin, 2000).
3.0 Constructing a Conceptual Model
The conceptual model suggested in this paper is shown in Figure 1 below, and its
development was informed by a survey of the existing literature on the topic of what
variables influence supply chain performance.
 Performance implications, trust and
commitment, and Cross-functional teams

Environmental uncertainty

Relationship duration and

Factor that affect SC performance consequences
Top-management support

Strategic Purchasing

Customer focus

Sharing Information and performance

implications
Information Technology (IT)

Figure 1: Conceptual Framework

4.0 Coclusion
In this research, the elements that impact SC performance and the method in which they
affect it were examined and discussed. Longevity of the relationship, Supply base
Reduction, Supplier involvement, Information sharing, Cross-functional teams, Trust and
Commitment, Environmental uncertainty, Top-management support, Customer focus,
Information Technology (IT), Strategic Purchasing, Logistic integration, and Supply network
structure were some of the factors that were brought up. It is important to keep in mind that
some of these elements are connected to one another in some way. It is possible to say that
the performance of SC is a function of the elements that have been discussed so far. In this
model, the SCM serves as the dependent variable, while the many elements that have an
effect on it serve as the independent variables. Quantifying, using a regression model, the
connection between the characteristics outlined here and SC performance is one of the
prospective directions that might be pursued by researchers in the future.
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