StrategicCharacteristicsofSupplyChainManagement amongThaiManufacturers

TitinanNakornsri * SangM.Lee

ABSTRACT Effectivesupplychainmanagement(SCM)has becomeanemergentstrategyforThaimanufacturers tosecurecompetitiveadvantageandimproveorgani zationalperformanceintodayshighlyvolatileglobal market.Thisresearchidentifieseightstrategic charac teristics ofSCM (interand intraorganizational com munication, organizational flexibility, interorgani zational relationships, supply chain coordination, outsourcing, inventory management and mass cus tomization manufacturing strategy) among Thai manufacturers and empirically tests their relation shipswithorganizationalperformance. Data for the study were collected from 294 manufacturing organizations in Thailand and the relationships proposed in the research model were tested using Persons correlation analysis. The results illustrate the significant positive relation ships between the eight SCM characteristics and organizational performance. This indicates the importance of these SCM strategic characteristics which firms need to develop and implement effectivelyinordertomaximizeorganizationalper formance. The findings reveal that organizational flexibility has the strongest relationship with per formance. Therefore, itshould be atop priority of management in SCM implementation. Moreover, firmsneedtocommunicate,coordinate,collaborate, and build trusting relationship among members of the supply chain network, as well as implement outsourcing, (justintime) inventory, and mass customization strategyinordertoimprovelongterm performanceofthe individualorganizationand the supply chain as a whole. The study helps manu facturers in the development and implementation of effective SCM which is a key to sustaining competitivenessintodaysglobalizingeconomy.

8 (outsourcing) (mass customization) 8 294 Pearson (research model) 8

Prof.Dr.SangM.Lee DissertationAdvisor

 (outsourcing) just-in-time (masscustomization)

INTRODUCTION Supplychainmanagement(SCM)isanimportant issue facing many organizations worldwide. SCM is animportantareathathelpsmaximizecompetitiveness and profitability for the company as well as other supply chain members which integrate and coordi nate across their whole extended network (Lambert and Cooper, 1998). Managing the supply chain has become a way of improving competitiveness by reducinguncertaintyandenhancingcustomerservice. Notallfirmsaresuccessfulinachievingahigher level of performance even if they have implemented the SCM concepts. In order for firms to succeed, survive, and sustain their competitive positions, certain characteristics of SCM have to exist. This research tries to identify the characteristics that bring or create strategic advantages to Thai manufacturers as well as help them sustain their competitive advantages and maximize performance. In the long run,theseSCMcharacteristicsaddvaluetothefirms, theirstakeholders,andtheirsupplychainpartners.

tionalstrategiccharacteristicsofSCMwillhavean impactonorganizationalperformance: OrganizationalPerformance In line with previous research in the field of SCM, this study measures organizational perfor manceusing therespondents perceptionof perfor manceinrelationtocompetitors. Theperformance measuresemployedinthisstudy,whicharetreated as one composite construct (Sanders and Premus, 2005),includemarketshare,profitmarginonsales, returnoninvestment(ROI),growthinmarketshare, growthinsalesperemployee,andoverallcompetitive position. Strategic Characteristics of Supply Chain Management IntraandInterorganizationalCommunication Chu(2006)foundthatcommunicationisoneof thefactorsthatdirectlyandpositively affectstrustin supplychainpartnership.Simatupang,Wright,and Sridharan(2002)foundthatinformationtechnology (IT)suchastheInternet,intranet,softwareapplica tion packages and decision support system can be applied to facilitate information sharing with cus tomers and partners, and optimization of supply chain performance. They added that information sharing provides necessary visibility of a global scopetoenablebetterdecisionstobemadeinorder to maximize the total profit. SCM is a business approach grounded in cooperation not only across allfunctionalareaswithinthefirm,butalsoacross the organizational boundaries in the supply chain. Thus, based on the above literature, the first set of hypothesesforthisstudyisasfollows: H1.There is a positive relationship between maintaining effective communication within an organization andorganizationalperformance. H5.There is a positive relationship between maintainingeffectivecommunicationchannelsacross supplychainpartner organizationsandorganizational performance. OrganizationalFlexibility Asdiversityanduncertaintyintheenvironment increases,companiesarerespondingbyaddingflexi bility as a dimension to their operation strategies (SanchezandPerez,2005). Inaddition,firmsneedto be able to adapt their supply chain, as a whole, to meetemergentcustomerneeds(SchmitzandPlatts, 2004). MatchetteandLewinski(2006)addedthatan organization must ensure that it builds sufficient flexibilityintoitssupplychainpractices,technologies andorganizationstructuressothatitcanfullymeet customerexpectationsandquicklycapitalizeonnew revenueopportunitieswhichresultsinhigherorgani zational performance. It is therefore hypothesized that: H2:There is a positive relationship between organizational flexibility and organizational per formance.

LITERATUREREVIEW The rapidly changing environments, coupled with the move of competition from among organizations to between supply chains, have resultedinagreatchallengeinmanaginganeffective SCMpracticeinthehopeofreducingsupplychain costs,securingcompetitiveadvantageandimproving organizational performance. Kuei, Madu, and Lin (2001)presentanempiricalstudyoftherelationship betweensupply chainmanagement and operational performance. Li et al. (2006) supported the belief that SCM practices have direct impacts on com petitiveadvantageandorganizational performance. Theirfindingsindicatedthat SCMpracticesproduce competitiveadvantagetotheorganizationwhichwill, inturn,leadtoimprovedorganizationalperformance. Drawingfrompreviousliterature,thisresearch proposesthatthefollowingintraandinterorganiza

MassCustomizationManufacturingStrategy According to Li et al. (2006), postponement, which is one of the central features of mass customization,needstomatchthetypeofproducts, market demand of a company, and structure or constraints within the manufacturing and logistics system. The adoption of postponement may be appropriate under the following conditions: inno vative products products with high monetary density,highspecializationandwiderangemarkets characterized by long delivery time, low delivery frequencyandhighdemanduncertaintyandmanu facturingorlogisticssystemswithsmalleconomies ofscalesandnoneedforspecialknowledge. Therefore,thisdissertationhypothesizesthat H3:There is a positive relationship between a strategy for mass customization and organizational performance. InventoryManagement SCMcanbenefitfromapplyingaJIT perspec tive. Claycomb, Germain, and Droge (1999) found that totalsystemJIT is positively related to finan cialresults. Many studies alsopoint to the positive impact of JIT implementation on performance (Gunasekaran, 1999 Kristensen, Dahlgaard, Kanj, andJuhl,1999White,Pearson,andWilson,1999 Nakamura,Sakakibara,andSchroeder,1998).Inline with previous studies, the following hypothesis is testedinthisdissertation: H4:There is a positive relationship between effective JIT inventory management and organiza tionalperformance. InterorganizationalRelationships Effective SCM can be achieved through selectingtherightpartnersandthenestablishingthe rightrelationshipwiththem. Trustandcommitment areessentialforlongtermcooperation. McAllister (1995) suggested that trust enables members of supplychainnetworktorelyoneachother. Doney, Cannon,andMullen (1998)addedthattrustpromotes collaboration, flexibility, risk taking, shared infor mation and shared resources. Lack of trust is the greatest obstacle to the advancement of supply chaincollaboration(Polrier,1999). Manyresearchers have suggested that effective interorganizational relationships help lower transactional costs (Hiede andJohn,1990Gulati,1995),thusresultsinimproved organizational performance. This study proposes that: H6:There is a positive relationship between goodrelationshipmanagementamongsupplychain partner organizations and organizational perfor mance. SupplyChainCoordination RudbergandOlhager(2003)indicatedthatthe network becomes more complex as more organi zations are involved in the supply chain. In this

multiorganization environment, focus is given to collaboration and feasible ways to coordinate the network. Strategic partnership, which emphasizes longterm association and encourages mutual planningandproblemsolving,promotessignificant ongoing benefits and is critical to supply chain success(Lietal.,2006).Tightintegrationwithcus tomersandsuppliersincludingprocessandinforma tionintegrationarefoundtoenableorganizationsin achieving profitable growth and high performance (Matchette and Lewinski, 2006). Therefore, this studyhypothesizesthat: H7:There is a positive relationship between strategic coordination among supply chain partner organizationsandorganizationalperformance. Outsourcing Wu, Li, Chu and Sculli (2005) contended that effectiveuseofoutsourcingenablesanorganization to focus on a limited set of strategically important tasks and will in turn lead to continuous enhance ment of its core competencies. Outsourcing of a companys noncore competencies should result in cost reduction and shorter leadtimes. To so achieve, a company needs to concentrate on its own capabilities and core competencies and use outsourcingas ameans forefficient exploitation of availableresources(Dekkers,2000). Theextensive use of outsourcing strategy has enabled companies toachieveoutstandingperformance(McIvor,2003). Therefore,thisstudyhypothesizesthat: H8:There is a positive relationship between outsourcingarrangementandorganizationalperfor mance. RESEARCHMETHODOLOGY In developing measures, this study adapted existingscalesfrompreviousliterature.Inaddition, indepth interviews were conducted with SCM academiciansandexecutivesofsomemanufacturers to gather information on current SCM in Thailand and other information helpful in the questionnaire design. Multipleitemswereusedforeachconstruct in an effort to increase construct reliability (Kim, 2003). Apreliminary survey wasconducted in person with 20 executives responsible for SCM in their organizations.TheCronbachsAlphaforeachcon struct was checked to ensure that the reliability values were all greater than 0.70, which is con sideredtobetheacceptablelevel(Nunnally,1978). The final version of the questionnaire was distributed by mail to randomly selected 1,119 manufacturersinThailand. ASSESSINGVALIDITY Before conducting data analyses to test the hypotheses and answer the research questions, a

factor analysis was conducted to investigate the validityofeachconstruct. Throughameasurement purificationprocess,itemswithfactorloadingsless than0.5wereomittedfromtheanalysestoincrease constructvalidity(Kimetal.,2005).

ASSESSINGRELIABILITY ThereliabilitiesofeachSCMcharacteristicand organizational performance were assessed with Cronbachs Alpha. It appears that the reliability values for all constructs ranged from 0.88 to 0.93, whicharefarabove thegenerallyacceptablelevelof 0.70(Nunnally,1978).

RESULTSOFTHEHYPOTHESISTESTING

IndependentVariables IntraOrganization
Intraorganizationalcommunication
* H.10.545

DependentVariables
Organizational Performance
Marketshare
* H.20.573

Organizationalflexibility

Masscustomizationmanufacturingstrategy Inventorymanagement

Profitmargin
* H.30.234

onsales

* H.40.464

ROI

InterOrganization
Interorganizationalcommunication
* H.50.387

Growthin

marketshare
* H.60.480

Interorganizationalrelationships Supplychaincoordination Outsourcing

Growthinsales

peremployee
* H.70.427

Overall

* H.80.413

competitive position

Figure1:Hypothesistestresults Inordertotesttheresearchhypotheses,Pearsons correlationcoefficientswerecalculatedbetweeneach SCMcharacteristicandorganizationalperformance. These coefficients measure the strength of a linear relationshipbetweentwoquantifiablevariables(Theo dorakioglou,Gotzamani, andTsiolvas, 2006). Cor relationresultsofPearsonscoefficientarepresented inTable4.10. Thefindingsandtestsofhypotheses relatedtotheserelationshipsaresummarizedbelow: 1)Hypothesis 1 which states that there is a positive relationship between maintaining effective communicationwithinanorganizationandorganiza tional performance is supported with a correlation coefficientof0.545(p<0.01). 2)The results reveal that organizational flexi bility is positively related to organizational perfor mance as stated in Hypothesis 2. Therefore, Hypo thesis 2 is strongly supported with a correlation coefficientof0.573(p<0.01). 3)Hypothesis 3 is also supported with a cor relationcoefficientof0.234 (p<0.01). Thisindicates that mass customization manufacturing strategy is positivelycorrelatedwithorganizationalperformance. 4)Hypothesis 4, which claims that there is a

positiverelationshipbetweeneffectiveJITinventory managementandorganizationalperformance,issup portedthecorrelationcoefficientis0.464(p<0.01). 5)Hypothesis5whichpostulates thatthereis a positive relationship between maintaining effective communicationchannelsacrosssupplychainpartner organizationsandorganizationalperformanceisalso supportedwithacorrelationcoefficientof0.387(p< 0.01). 6)Interorganizational relationships which is expectedtohaveapositiverelationshipwithorgani zational performance, according to Hypothesis 6, is supportedwithacorrelationcoefficientof0.480(p< 0.01). Table1:Proposedhypothesesandtestresults Hypothesis Thereisapositiverelationshipbetween:

7)Hypothesis 7 is also supported with a cor relationcoefficientof0.427 (p<0.01). Thisindicates that strategic coordination among supply chain partner organizations is positively correlated with organizationalperformance. 8)Hypothesis 8, which claims that there is a positive relationship between outsourcing arrange ment and organizational performance, is supported thecorrelationcoefficientis0.413(p<0.01). Accordingtotheresults,allSCMcharacteristics proved to be substantially and positively correlated withorganizationalperformance.

Pearson Correlation Coefficient 0.545** 0.573** 0.234** 0.464** 0.387**

Results Supported Supported Supported Supported Supported

H1:maintainingeffectivecommunicationwithin anorganizationandorganizationalperformance. H2:organizationalflexibilityandorganizationalperformance. H3:astrategyformasscustomizationmanufacturing strategyandorganizationalperformance. H4:effectiveJITinventorymanagementandorganizational performance. H5:maintainingeffectivecommunicationchannels across supplychainpartnerorganizations andorganizational performance. H6:goodrelationshipmanagementamongsupplychain partnerorganizationsandorganizationalperformance. H7:strategiccoordinationamongsupplychainpartner organizationsandorganizationalperformance. H8:outsourcingandorganizationalperformance. Notes:**Correlationissignificantatthe0.01level(p<.01) The above results provide empirical support to the research hypotheses as they confirm that SCM characteristicsarepositivelyrelatedtoorganizational performance. Organizationalflexibilityisprovedto havethe mostsignificant correlationwith organiza tionalperformance,followedbyintraorganizational communication. The results also reveal that mass customization manufacturing strategy has the least correlationwithorganizationalperformance.

0.480** 0.427** 0.413**

Supported Supported Supported

In order to examine the simultaneous relation ships of SCM characteristics on organizational per formance, a stepwise multiple regression analysis wasperformed. The results of the regression analysis illustrate thatorganizationalflexibility,interorganizationalrela tionships,outsourcing,andintraorganizationalcom munication are positively related to organizational performance.

Table2: ThecoefficientoftherelationshipbetweenSCMcharacteristicsandorganizationalperformance.
a Coefficients

Model

Unstandardized Coefficients B Std. Error .070 .056 .039 .075

Standardized Coefficients Beta .288 .160 .151 .156

Sig.

Organizationalflexibility Interorganizationalrelationships Outsourcing Intraorganizationalcommunication

.257 .152 .113 .148

3.695 2.692 2.857 1.982

.000 .008 .005 .048

AdjustedR Square=0.381 DISCUSSION The findings from both Pearsons correlation analysisandmultipleregressionanalysisshow that organizational flexibility has the strongest signi ficantrelationshipwithorganizationalperformance. It is therefore important that firms pay particular attentiontoalldimensionsofflexibilitywithintheir organizations as they have a significant positive impact oncustomersatisfaction(Zhangetal.,2002). Theseflexibilitydimensionsincludeproductdevelop mentflexibilitytheabilitytointroduceandlaunch new products and to modify product quickly manufacturing flexibilitythe ability of an organi zation to manage manufacturing resources and uncertainty to meet various customer demands logisticflexibilitytheabilityoftheorganizationto respond quickly to customer needs in delivery, support and services and spanning flexibilitythe ability of the organization to provide horizontal information and connections across supply chain (Nair,2005). Theresultshaveshownthatinterorganizational relationships and intraorganizational communica tionareimportant predictorsoforganizational per formanceofThaimanufacturers. Thisindicatesthat collaboration and communication among supply chain members is required to effectively and efficiently satisfy the needs of customers. Firms mustensurethatallmembersofthesupplychainare able to cooperate, communicate, and use shared information that enable better decision making, lower operating cost, improved productivity and customer relationships which result in higher performance.Supplychaincollaborationand infor mation sharing is a vital contribution to cost reduction. Inorderforsupplychainpartnershipsto become truly collaborative in nature, trust is a necessary characteristic (Spekman, Kamauff and Myhr, 1998). Previous research has suggested thatconstantcommunicationisessentialinbuilding trust among supply chain members (Myhr and Spekman,2005). Moreover,effectivecollaboration can now be achieved through the use of digital communication. Information technology (IT) such astheInternet,intranet,andERPcanbeappliedto promote both internal and external collaborative relationships by facilitating information sharing amongmembersofthesupplychainnetwork.Myhr and Spekman (2005) contended that firms should be encouraged to continue investing in electronic solutions to achieve collaborative supplychain partnerships, at the same time as they build trust based foundations on which partnerships can truly flourish. This research validates the previous findings of the positive impact of supply chain collaboration and intra and interorganizational communicationonperformance(BagchiandLarsen, 2005 Li et al., 2006 Sanders and Premus, 2005). In order to survive in todays global market firms needtoestablishstrategicalliancesandpartnerships withsuppliersandcustomers. ZailaniandRajagopal (2005) suggested that manufacturing strategy is needed to be aligned across the supply chain net work,notjustinsideorganizations. Partneringand forming alliances benefit the vertical integration withouteventakingovercompanies. Itistherefore importanttoemphasizeonlongtermstrategyasso ciated with developing the supplier and customer base. In the current globalizing environment, materials and components are sourced worldwide. Interorganizational relationships allow firms to be more responsive to the fast changing needs of customers. They also help increase speed which becomes the highest priority in sustaining com petitivenessinthemarketplace. This study also finds that outsourcing has a significantpositiverelationshipwithorganizational performance. It confirms the argument that out sourcingenablesfirmstoenhancetheirperformance through better product quality, lower inventory level, lower production cost, elimination of pro duction bottleneck and punctual delivery (Wu, Li, Chu, and Sculli, 2005). This suggests that firms mustcompeteasintegratedentitiesacrosssuppliers and customers by taking advantage of lower cost economies. Theuseofjustintimesystemwithout

sourcing partners has proved to help reduce lead time, improve overall productivity and on time delivery rate (Zailani and Rajagopal, 2005 Noori, 2004).Outsourcingallowsfirmstofocusmorefully ontheircorecompetenceswhichcanenhancetheir competitivepositionandoverallperformance. Themasscustomizationmanufacturingstrategy is found to have the weakest relationship with organizationalperformance. Thisisduetothefact that it is a relatively new concept to Thai manu facturersanditdoesnotapplytoallindustrytypes. MANAGERIALIMPLICATIONS TheresultsofthisstudyrevealthatSCMshould be a high priority interest for top management of firms striving for excellence. This study provides guidelines for firms in the adoption and imple mentation of SCM in their organizations. The results reveal that not every SCM characteristics is equally related to organizational performance. Some of these characteristics including organiza tional flexibility, interorganizational relationships, intraorganizationalcommunication,andoutsourcing are found to be significant determinants of organi zationalperformance. Thus,firmsshouldemphasize on these characteristics in the implementation of SCM. To ensure that flexibility exist in the organi zations, firms need to identify the required flexi bilitytypesandimplementflexibilitystrategywithin thesupplychainsystem.Strategicflexibilitycanbe supportedthrough theuse ofadvanced information technologiessuchastheInternet,ERPandEDI. Effective SCM in the new competition with ongoing globalization of markets and operations suggests establishment of longterm and trusting relationships among supply chain partners who workjointlytogetherfromthestrategicleveltothe functional level and make their success inter dependent (Theodorakioglou et al, 2006). Esta blishing effective communication channels among supply chain partners enables the entire supply chaintohavequickresponseandflexibilitytomeet thechangingneedsofthemarketplace.Information technologies (IT) can facilitate accurate, frequent, realtimeandseamlessexchangeofinformation,both intra and interorganizationally. Therefore, firms should consider investing in IT that promotes col laborationbothinternallyandacrossenterprises. Effective use of outsourcing allows firms to focus on their core competencies while taking advantageofthelowercosteconomieswhichleadsto higherperformance. However,managementshould make outsourcing decision carefully by taking into consideration the risks of disclosing core techno logiesorcompetenciestooutsourcingsuppliers. It is apparent that SCM capabilities should be regardedasaproprietaryresourcethataidsthefirm inobtainingcompetitiveadvantageandhigherper formance.Firmsthatdonotimplementsupplychain

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Dr.Titinan Nakornsri receivedherPh.D.inBusiness Administration (Strategic Management) from Bang kok University in the collaborative program with theUniversityofNebraskaLincoln,U.S.A.in2006,a M.B.A in Finance from University of San Francisco, U.S.A.in1989,andaB.S.inBusinessAdministration from Kasetsart University in 1986. She has been working as an Executive Director for her family business including Bangkok Cable Co., Ltd.the second largest electric wire and cable producer in Thailand, Bangkok Polyester Co., Ltd., and Tawana ContainerCo.,Ltd.

ProfessorDr.SangM.LeeiscurrentlytheUniversity Eminent Scholar, Regents Distinguished Professor, Chair of the Management Department, Executive Director of the Nebraska Productivity and Entre preneurship Center, and Director of the Center for Albanian Studies. He received his Ph.D. degree in ManagementfromtheUniversityofGeorgiain1969. Healsoservedas ProfessoratVirginia Polytechnic Institute and State University prior to coming to the University of Nebraska in 1976. Dr. Lee is an internationally known expert in the fields of deci sion sciences, productivity management, and global business. He has authored or coauthored 50 books, mostlyinthefieldofmanagement.Hehaspublished more than 260 journal articles, and 750 original papers. He helped establish the Ph.D. Program in Business at Bangkok University, Thailand. He is a frequent consultant and trainer for a number of business, nonprofit, and government organizations intheU.S.andabroad.