2.

REVIEW OF RELATED LITERATURES

2.1. Theoretical Review of Related Literature
2.1.1. Theory of Constraints (TOC)
Eliyahu Goldratt established the theory of constraints (TOC) as a management philosophy
targeted at recognizing restrictions that prevent a system from performing at its best (Gupta &
Boyd, 2008). Every organization, according to the idea, has at least one constraint (limiting
factor) that prevents the entire system from meeting planned goals (Puche., Ponte, Costas, Pino,
& De la Fuente, 2016). Anything that prevents a company from meeting its objectives is referred
to as a limitation (Antwi, 2019). It is the weakest link in a system since it is the major limiting
factor in achieving the firm's aims (Dodoo, Appiah, & Donkoh, 2020; Prempeh, 2015). The idea
also implies that businesses can only overcome their limits by focusing on them in a clear,
methodical, strategic, and all-encompassing way. According to Flynn et al. (2010) TOC, a
management concept that emphasizes continuous system improvement, any limitations is
addressed through total quality management and effective processing processes.

Manufacturing organizations may be more susceptible to inventory problems, which result in

unnecessarily long lead times, subpar material orders, and a high number of unmet and urgent
orders, low client satisfaction, and poor performance (Qrunfleh & Tarafdar, 2013). As a result,
the theory indicates that businesses can only solve their inventory problems by implementing the
best inventory management strategies to alleviate bottleneck concerns while maintaining
inventory control and production scheduling. Furthermore according to, Puche. et al., (2016) the
concept improves value addition without disrupting the firm's production flow by eliminating
any limitations. The proposed research is therefore supported by : Total Ownership Cost (TOC),
which helps industrial firms comprehend the idea of inventory limitation and how it may be
resolved using practical techniques such as Just In Time (JIT), supply side platform/storage
service provider (SSP), Materials Requirement Planning (MRP), Economic Order Quantity
(EOQ), and Vendor managed inventory (VMI) among others.

2.1.2. Strategic Choice Theory

According to strategic choice theory, decisions made by top management have an impact on
organizational performance as well as how internal and external organizations interact
(Wangrow & Schloemer, 2019). In order to increase organizational performance levels, the idea
underlies the significance of key management decisions, according to Sinaga, Nurfarina,
Iskandar, Mozammel, and Rosita (2019). Strategic choice theory also illustrates various
environmental factors, such as supply, inventory, and purchase management, which have an
impact on a manager's decision-making abilities. The idea states that management with decision-
making authority must choose the appropriate inventory investment and inventory optimality
options to significantly improve performance results. According to strategic choice theory,
management is seen as downstream decision makers who influence choices while modifying
organizational procedures, structures, and systems (Sinaga et al., 2019). To maintain high
performance levels, they must therefore make wise decisions to protect the organization's culture,
resources, and inventory.

Furthermore, Achieng, Paul, and Mbura (2018) also developed a strategic option model that
illustrates how an organization's actions, environment, and performance objectives are all
interconnected. The methodology seeks to ensure high performance requirements to boost
efficiency when resources are constrained or limited. The idea contends that management must
make pertinent and wise judgments regarding inventory management in order to prevent future
inventory issues. Therefore, managers should use inventory management strategies that are
appropriate for their line of work; failing to do so could endanger a company's profitability,
operationalization, general performance, and continued existence. The proposed research is
informed by the strategic choice theory since it shows how top management choices affect
operational performance levels. Each choice made by management regarding logistics inventory
management practices could have a positive or negative effect on the success of their businesses.

2.1.3. Game Theory

According to Brickley, Smith and Zimmermann, (2000) this theory is concerned with general
analysis of strategic interactions. It is concerned with optimal decision making when all
decisions are considered to be rational with each anticipating the likely actions and reactions of
its opponents. This theory is being used in the study of a wide range of interactions in both the
political and competitive strategy. Game theory involves three elements. The first of the three is
players. These are the people who are involved in business. They often include business
managers, companies and individual business owners. The second element is the strategies that
are available for use by the players at specific points during the game. This element also includes
the rules of the game which are created in order to specify the sequences of all possible moves
and actions. The last element is the outcome of each possible strategy and the anticipated payoffs
based on these outcomes.

This theory is a formal study of decision-making where several players have to make choices
that majorly affect the interest of other players. According to Xu, Pan Ballot (2013) it is also
regarded as the official study of conflict and cooperation. This theory applies to situations where
actions of several agents, who may be either individuals, groups, companies or a combination of
all of these, are interdependent. These researchers also state that this theory is divided into two
approaches: the non-cooperative theory and the cooperative theory. The former applies in
situations whereby the players can achieve more benefit by cooperating than staying alone. This
theory is applicable in this situation because transport and customer satisfaction, which are
variables in this study, require a lot of cooperation cutting across all players in the supply chain
globally. Drechsel and Kimms (2010) observe that cooperation is becoming more and more
crucial to improve the global logistics performance. They further observe that a new cooperation
model has proven efficient to reduce global cost and improve service rates in logistics. This
theory is applicable, more so the cooperative approach, because a properly managed transport
system is bound to enhance customer satisfaction through timely delivery of supplies.

2.1.4. Value Chain Theory

This study relies on the Value Chain theoretical frame proposed by Michael Porter in 1985,
which was first utilized in his book – “Competitive Advantage: Creating and Sustaining Superior
Performance”. The value chain theory according to Nweke (2017), explained the activities and
operations of business ventures which are tied to its survival in the competitive business arena.
These activities are bifurcated into primary and secondary activities. The primary activities
according to Lysons and Farrington (2006) are subsumed into the following, marketing and
sales, inbound logistics, and outbound logistics, amongst others. The secondary activities include
the structural systems of the organization, which involves; technological input, human resource
management, information system amongst others (Lysons and Farrington, 2006).

As a core mandate of the business organization, the value chain theory tends to explain profit
making activities and various systems involves in achieving its core purpose. Also, the theory
possesses the capacity in its explanation of identifying and categorizing different operations in
the supply chain structure and how to optimum organizations operational performance by mean
of establishing value relevance to goods and services in the transitional process from suppliers to
customers (Nweke, 2017).

2.1.5. Resource Based View

Wernerfelt (1984) sees resource-based theory in an organization as resource packages that can be
regulated and handled in a way that makes the businesses competitive. The theory holds that
resources vary across firms, and resource rates disparities that continue over time allow firms to
retain competitive advantage (Penrose, 1959, Wernerfelt 1984, Barney 1991; Chae, Olso and
Sheu, 2014). Under the theory, various technical and organizational strategies may be viewed as
tools to achieve sustainable competitive advantage. Organizational expertise, administrative
skills, backend management, equipment, and manufacturing facilities, for example, are regarded
as supplier tools (Dong et al. 2009). Also, various activities and practices related to the SCM
(e.g., supply management practices, environmental management practices) are considered
valuable tools for enhancing organizational efficiency (Narasimhan and Schoenherr 2012, Blome
et al. 2013).

The theory suggests that businesses can access different resources that can provide them with
competitive advantage, and that some of these resources cannot be traded in factor markets and
are difficult to construct or imitate (Barney & Clark 2007). The theory emphasizes the capital of
the company as their main determinant of its success and competitiveness in excellence (Cool,
Almeida Costa and Derrick, 2002). Organizations should use their leverage to improve
productivity by reducing operating bills and increasing the desire of consumers to pay for the
goods and services of the company. If an company passes productivity to its clients, it gains a
competitive advantage relative to those in the same industry (Van Fleet and Cory, 2002) By
inbound logistics companies, it may obtain physical, human expertise, knowledge and strategic
capital and combine them in order to build special and firm specific capacities in the way they
deliver goods to customers (Karia and Wong, 2009).

2.1.6. The Manufacturing Strategy Theory

The manufacturing strategy theory has been seen to be important in the area of SCM studies
from different researchers (Swamidass & Newell, 1987; Simangunsong et al, 2011). The theory
incorporates the contingency theory-based model that conceptualizes the relationship between a
changing environment, managerial decision making and performance of an organization.
Similarly, corporate performance is related positively to the manufacturing manager's role in
strategic decision making. Alignment with the characteristics of the market climate, strategic
goals and the SC structure boost firm efficiency (Simangunsong et al, 2011). Decision-making in
the production plan illustrates how an organization plans to perform on the market by making
internal choices consistent with its competitive cost, efficiency, flexibility, reliability and
delivery speed goals to achieve global success.

A lot of contingency theory postulates that if the world is complex, then differentiating the
organization and using more sophisticated integrative tools are useful (Swamidass & Newell,
1987). According to Simangunsong et al, (2011) surviving in today's highly competitive and
rapidly evolving world also requires companies to build strategies that provide the right sort of
versatility to succeed in their unique environments.

2.1.7. Logistics Management

Logistics is a component of supply chain techniques that manage the efficient and effective
forward and reverse flow and storage of goods, services, and related information between
supplier and manufacturer to meet customers' requirements," according to Wikipedia (Council of
Logistics Management, 2020). Competitive pressure, cost management, information technology,
globalization, and profit maximization were some of the factors that helped shape logistics
science into what it is today (Lambert, Stock & Ellram, 2019). Logistics ensure positioning of
the right product with the right quality at the right time in the right place at the right price to the
ultimate customer (Farahani, Rezapour & Kardar, 2019). Without logistics, no material moves,
no operation can be done, no production can be done, no products are delivered, and no
customers are served. Thus, logistics is heart for business success and customer services (Waters,
2020). Logistics is the process of strategically managing the procurement, movement and storage
of materials, parts and finished inventory through the organization in such a way that current and
future profitability are maximized through the cost-effective fulfillment of order (Chirstopher,
2019).

Logistics management is a subset of supply chain management which is involved in planning,

executing and controlling the seamless and timely flow as well as storage of products, services
and relevant information from source or origin to the place of consumption in order to satisfy the
requirements of customers (Amin & Shahwan, 2020). It is a comprehensive supply-chain
function that is concerned with planning, coordinating and overseeing the flow of input
materials, market information, products and services from where they originate or are produced
to where they are sold and ultimately consumed by customers. In the views of Ristovska,
Kozuharov and Petkovski (2017), logistics management can be seen as an element of supply
chain management useful in the satisfaction of customers’ requirements via the planning,
coordination and execution of the flow and storage of vital information, products and services
from source of production or supply to point of sale or consumption. This supply-chain function
enables business organizations to minimize marketing expenditure while enhancing their ability
to provide customer services. Basically, the task of logistics management starts from the
acquisition of raw materials and other input materials to the last phase, which is the delivery of
finished products and services to the point of consumption (Chala, 2021).

A logistics management plan plays a significant role in the field of asset handling and
organizational cash flows in a competitive and dynamic economy. To put it another way, a
logistics management plan makes it possible to cut costs and provide higher levels of customer
service, which also improves an organization's operational success (Ristovska, Kozuhorov, &
Petkovski, 2017). The impact of logistics management has ranged from increased cost-reduction
and reactive issues to issues with the competitiveness of the organization (Spillin, Mcginnis &
Liu, 2020). There is therefore a growing consensus that businesses must manage logistics
difficulties in addition to cost-effectiveness and trade issues (Tuttle & Heap, 2020).

2.1.8. Logistics Management Practices

Logistics management practices are described as a group of activities carried out by the company
to facilitate auspicious logistics management (Adebayo, 2012). Manufacturing companies are
constantly faced with the challenges of keeping track of inventory and ensuring that their
products are successfully delivered to the customers. This workflow generally involves various
forms of logistics, each of which functions a little differently. Logistics practices can be divided
as key activities and support activities (Ballou, 2007) as cited in (Serdaris et al., 2014). Key
Activities are central to the operation of every firm, involve transportation, inventory
management, customer service, information flows, and order management. Support practices
include warehousing, materials handling, purchasing, packaging, cooperation with
production/operation management, and maintenance of information systems.

The logistics system consists of the following components: Customer service, Inventory
management, Transportation, Storage and materials handling, Packaging, Information
processing, Demand forecasting, Production planning, Purchasing, Facility location and other
activities for a specific organization could include tasks such as after-sales parts and service
support, maintenance functions, return goods handling and recycling operations (Reddy and
Jayam, 2016). Hence, logistics management companies can design and implement approaches
that generate a sustainable competitive advantage if implemented successfully.

Regardless of the scope and perception, a consensus has been found in the literature about the
fundamental logistics activities and managerial practices. In this line, managing activities in
logistics involved fundamental practices and support practices. Customer service, inventory
management, transport, and information flow are fundamental practices whereas the
complementary practices supporting the core practices encompass warehousing, packaging, and
order and information processing (Ballou, 2004; Islam et al., 2013). The primary role of
providing several qualified transport logistic capability modes using long-term and well
established logistics such as the infrastructure is to facilitate any firm in any country. the
movement of goods, products, items, components, semi-finished goods, and raw materials for
both inbound and outbound and outbound logistics through various partners giving them
increased flexibility, and speed, and for global trade, agility is essential (Al-Shboul, 2019).
According to Reddy and Jayam (2016), clearly any one organization is unlikely to require all
these specific tasks to be accomplished.

2.1.9. Operational Performance

Performance measurement is defined as “a metric to quantify the efficiency and effectiveness of
operations” and most organizations tend to measure based on “hard” rather on “soft” data,
ignoring non-financial measures such as quality, market share, customer satisfaction, human
resources, innovation and learning (Suni et al. 2007, 53). Performance Measurement System
(PMS) can be defined as “a balanced and dynamic system that enables support of decision-
making processes by gathering, elaborating and analyzing information” and the SCPMS is also
defined as “the reporting process that gives feedback to employees on the outcome of actions” as
well as “a set of metrics used to quantify the efficiency and effectiveness of action”
(Kazemkhanlou et al., 2014, 274).

Operational performance describes the level of functioning of an organization, as assessed versus

standard efficacy, productivity, and environmental responsibility benchmarks, for example,
eliminating waste and regulatory consent (Omoush, 2020). The supply chain has generally
focused heavily on effective and cost-efficient operations as a determinant for successful
performance (McDonald, 2016; Zhang & Okoroafo, 2015). The logistics practices are among
long series of actions and processes that contribute to the overall company performance and
better serve final consumers and business customers (Cohen & Roussel, 2005; Green et al.,
2008).

Manufacturing organizations must develop operational strategies that help implement their
corporate competitive strategies because the operational function is so important in establishing
and sustaining competitiveness. Manufacturing competitive priorities are the strategies that a
firm may use to choose how to compete in the marketplace and which markets it wants to target
(Mady, M.T. 2008). To be competitive in the market, organizations must mainly focus on their
internal operations. Product quality, process quality, effectiveness, productivity, and operational
performance are often characterized as a set of variables that represent an organization’s internal
operations. These internal operations, productivity, effectiveness, and efficiency are employed to
measure operational performance (Abdallah, B.A.; Obeidat, B.Y.; Aqqad, N.O., 2014).
Manufacturing operational performance, which is defined as cost, time, quality, and delivery
dependability metrics associated with manufacturing operations, is used to analyze the
performance of manufacturing processes (Tan, K.-C.; Kannan, V.R.; Narasimhan, R., 2007).
Prior work labeled the unit cost of production, quality, and speed of new product launch,
inventory turnover, adaptability, and delivery reliability as operational performance (Squire, B.;
Brown, S.; Readman, J.; Bessant, J., 2006). Production cost, flexibility, and quality have been
used to measure operational performance in the proposed study, and they are the most commonly
used operational performance measures in the literature (Di Al-Sa’, F.A.; Abdallah, A.B.;
Dahiyat, S.E., 2017; Abdallah, B.A.; Phan, A.C.; Matsui, Y., 2009).
2.2. Empirical Literature Review
Ristovska, Kozuharov and Petkovski (2017) conducted a study to explore the impact of logistics
management strategies on the performance of manufacturing companies. The study used a
structured questionnaire to elicit primary data from 352 personnel of manufacturing companies
in Macedonia. The hypotheses developed for the study were tested using multiple regression
analysis. Consequently, the study found that inventory management, storage and warehousing
management, transportation management and information management had significant positive
impacts on the performance of Macedonian manufacturing companies.

The study of Nyaberi and Mwangangi (2014) obtained primary data from 80 employees of Rift
Valley Bottlers Limited in Kenya using questionnaires and personal interviews. The data
obtained were analyzed using descriptive statistics. The findings of the study revealed that order
processing management, transportation management, inventory management, and information
systems management contribute substantially to improvement in organizational performance of
Rift Valley Bottlers Limited in Kenya. Another study by Mwangangi (2016) used online surveys
and self-administered questionnaires to obtain data from 320 heads of logistics management in
selected Kenyan manufacturing firms. Descriptive statistics and multiple regressions were
adopted for data analysis in the study. The study found that transport management, inventory
management, order process management and information flow management significantly
influenced the performance of Kenyan manufacturing firms.

Similarly, a Kenyan study by Kirui and Nondi (2017) obtained primary data from personnel of
16 shipping lines in Mombasa County using a structured questionnaire. Descriptive statistics
were used for data analysis while multiple regression analysis was used for hypothesis testing.
The findings revealed that warehousing management, inventory management and transportation
management had significant effects on organizational performance of shipping firms in Kenya.
Another Kenyan study by Wasike and Juma (2020) elicited primary data from 64 personnel of
humanitarian organizations in Kenya using a semi-structured questionnaire. In the study, data
analysis was carried out using descriptive and regression analysis. The study found that
inventory management, transportation management, information flow management and
warehouse management had significant impacts on logistic performance of humanitarian
organizations in Kenya.
In addition, Mukolwe and Wanyoike (2015) carried out a study which obtained primary data
from 92 personnel of Mumias Sugar Company, farmers and officials of the Kenyan Ministry of
Agriculture using a structured questionnaire and personal interviews. The obtained data in the
study were analyzed using descriptive statistics, Pearson’s correlation and regression analysis.
The study found that information flow management, warehouse automation, transportation
management and physical distribution practices had significant positive effects on operational
efficiency of Mumias Sugar Company Limited, Kenya. Another study conducted by Abdul,
Iortimbir, Oladipo and Olota (2019) used a survey questionnaire to obtain primary data from 115
personnel of Dangote Flour Mills in Ilorin. Data analysis was done using Pearson’s Product
Moment Correlation statistics and regression analysis. The study found that transportation
management, information flow management, and inventory management had significant positive
influences on organizational performance of Dangote Flour Mills.

Furthermore, in the study by Gitonga (2017), primary data were obtained from 85 personnel of
fast-moving manufacturing companies in Kenya using a self-administered questionnaire. Data
analysis was carried out using descriptive statistics and multiple regression analysis. The study
found that order process management, inventory management, transportation management,
information flow management, warehouse management and packaging practices had significant
positive influences on operational performance of fast-moving consumer goods manufacturers in
Nairobi. Also, Takwi and Mavis (2020) examined logistics management and organizational
performance by obtaining primary data from 40 personnel of Gas Depot Atem in Yaounde using
a semi-structured questionnaire while data analysis was carried out using simple regression. The
findings of the study revealed that transport management, inventory management, order process
management and information flow management significantly influenced the performance of Gas
Depot Atem in Cameroon.

Eshetu (2020) used a structured questionnaire to collect data from 53 logistics department
personnel of Elmi Olindo Contractors Plc, Addis Ababa. Descriptive statistics and Pearson’s
correlation analysis were the statistical tools adopted for data analysis and hypothesis testing in
the study. The study found that transportation management, customer service management,
inventory management, supply management, and warehouse management had significant
positive relationships with organizational performance of construction firms. Chala (2021)
carried out a study in which a structured questionnaire was used to obtain primary data from 190
factory workers. Data analysis was done using descriptive statistics, Pearson’s correlation and
multiple regression analysis. The study found that transportation management, inventory
management, and warehouse management had significant positive effects on organizational
performance in Ethiopia.

Yohannes Muluneh (2017) conducted on the Impact of Logistics Performance on Organizational

Performance MA Thesis is another important literature in the study area. Effective and efficient
logistics chain management has become a potentially valuable way of securing competitive
advantage through enhancing and improving organizational performances. In this study the
research intended to study the impact of logistics performance on organizational performance in
Lion International Bank S.C. To address the problem the study employed descriptive research
design and also quantitative approaches were used Data obtained through questionnaire has been
analyzed by using frequency; percentile and the relationships proposed in the hypothesis were
tested using Spearman rho correlation by SPSS 20.0 software version. The study finds logistics
inefficiency, late delivery and no well-developed tools to check customer satisfaction.

2.3. Conceptual Framework of the Study

The conceptual framework shown in Figure 2.1 is developed based on the literature review. The
conceptual framework will illustrate the linkage between Logistics management practices and
Operation performance.
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