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Proceedings of the International Conference on Computer and Industrial Management, ICIM, October 29-30, 2005, Bangkok, Thailand

14.1

Achieving Competitive Advantage through Managing Supply Chain Excellence: The Case of Thai Garment Industry

Asst. Prof. Dr. Mohammad Asif Salam

School of Management, Assumption University

Box 640, ABAC, 24 Ramkhamhaeng Road, Bangkok, Thailand.

E-mail:mbamas@yahoo.com.

Abstract. The purpose of this research is to understand the relationship between supply chain enablers

and firm performance within the Thai garment industry, which is mediated by competitive advantage.

The findings reveal that the proposed model has a significant mediating effect of competitive

advantage. In terms of the causal path model, IT capabilities and supply chain integration are the key

enablers contributing to firm performance. On the other hand, they reveal that supply chain integration

is the only key enabler contributing to competitive advantage. The findings also reveal that, the most

critical set of the supply chain enablers contributing to firm performance is a combination of IT

capabilities and integration via competitive advantage. This study demonstrates that, firms need to

incorporate supply chain orientation into their business strategy and supply chain should be an absolute

core of a firm’s business model, in the competitive environment of Thai garment industry.

1. Literature Review

The primary objective of SCM is to increase the value of

products and services to customers in the supply chain vis -à-

vis improved customer service and quality, and lower

inventory carrying costs. The value created by a firm’s SCM

efforts clearly supports organizational strategy. Successful

SCM can result in lower system inventories, a network of firms

that responds more quickly to market changes, and products

that more closely match customer exp ectations. Thus, firms

pursuing differentiation, cost leadership, or quick response

strategies, or combination of these can all find benefits from

the value system or supply chain management (Porter 1985).

The SCM concept and its associated activities continue to

evolve as new communication technologies and cooperative

efforts having emerged to facilitate system-wide process

integration. The seminal work by Porter (1980, 1985) has

formed the basis for the development of supply chain enablers

and their ties to a firm’s competitive advantage and firm

performance. Further, Teece, Pisano, and Shuen (1997)

provided an explanation of how a firm’s specific asset position

and uniqueness shape its competitive advantage. The relevant

constructs of this study are defined as follows:

Supply Chain Enablers – These are the drivers that deliver

supply chain outcomes (Marien 2000). For the purpose of this

research, supply chain enablers are defined as, the underlying

factors that influence firm performance.

Firm Performance – The information regarding the processes

and products results which allows the evaluation and

comparison, in relation to goals, patterns, and past results, with

other processes and products. Also, it is important to highlight

that a managerial performance evaluation system needs to be

focused on results, which should be guided by stakeholders’

interests (Silvio and Carlos 2001).

Information Technology Capabilities – The capability to

exchange data in a timely fashion, responsive and usable

format (Bowersox, Closs, and Stank 1999).

Supply Chain Capabilities – Tangible and intangible assets that

are firm specific and created over time through complex

interactions among resources (Chang 1995; Teece, et al.,

Special Issue of the International Journal of the Computer, the Internet and Management, Vol. 13 No.SP2, October, 2005

14.2

1990). Grant (1991) defined capability as ‘a team of resources

to perform some tasks or activities.

Supply Chain Integration – It is the capability of entire supply

chain to create manufacturing processes and logistics functions

seamlessly across the supply chain as an effective competitive

weapon that cannot be easily duplicated by competitors

(Anderson and Katz, 1998; Birou, et al., 1998; Lummus, et al.,

1998; Lee and Billington, 1995).

Supply Chain Strategy – Supply chain strategy is defined as,

the pattern of decisions related to suppliers and customers

regarding products sourcing, planning capacity, conversion of

finished product, deployment of finished product, demand

management and communication, and delivery (Lummus and

Vokurka 1999). Also, Supply chain strategy is primarily the art

of positioning a company in the right place on the value chain;

the right business, the right segments, the right products and

market segments, and the right value-adding activities

(Normann and Ramirez 1993).

Competitive Advantage – Described by Porter (1985) as the

value a firm is able to create for buyers that exceeds the firm’s

cost of creating it. Numerous studies (e.g., Grant 1990, March

1991, Prahalad and Hamel 1990, Grant 1991, Porter 1980)

have helped to explain the relationship between firm

performance and competitive advantage in this research. In the

same vein, the significance of firm capabilities as sources of

sustained competitive advantage and firm performance are

related (Amit and Schoemaker 1993, Dierickx and Cool 1989).

Hence, it is seen that the resource-based view (Barney 1991) is

the cornerstone of explaining the relationship between firm

performance and competitive advantage. The central thrust of

resource-based view is that the more firm-specific resources a

firm has, the more valuable it is. Then, these valuable

resources will create a sustainable competitive advantage for a

firm that will later lead to a better performance.

The mediating variable in this study is Competitive Advantage.

A better competitive advantage of a firm should result in

greater performance gains for the firm (Porter 1980). In this

study, Competitive advantage is conceptualized in terms of

Marketing Differentiation, Quality Differentiation, and Low-

Cost Leadership.

In order to understand the concept of supply chain

enablers and their impact on firm performance, a certain

number of factors need to be understood. Based on the

literature, the following conceptual framework has been

derived, where four supply chain enablers have an impact on

competitive advantage, and finally all the enablers along with

the competitive advantage have an impact on firm

performance. This network of relationship among the variables

is presented in Figure 1:

Figure 1: Conceptual Model

The conceptual schema of this study is presented in

Figure 1 indicating the relationships among supply chain

enablers, competitive advantage, and firm performance. The

theoretical framework proposed shows the relationship among

supply chain enablers (as measured by IT Capabilities, Supply

Chain Capabilities, Supply Chain Integration, and Supply

Chain Strategy) as the determinants of firm performance

(Marien 2000), which is mediated through competitive

advantage (Porter 1985, Grant 1991 and Barney 1995). The

framework also posits that; supply chain enablers (as measured

by IT Capabilities, Supply Chain Capabilities, Supply Chain

Integration, and Supply Chain Strategy) are also the

determinants of competitive advantage (Walters, 2002 and

Teece, et. al., 1997). In other words, this study explores the

relationship between supply chain enablers (as measured by IT

Capabilities, Supply Chain Capabilities, Supply Chain

Integration, and Supply Chain Strategy) as the determinants of

competitive advantage and firm performance (Marien, 2000;

McGrath et al., 1995) and competitive advantage is a

determinant of firm performance (Walters, 2002; Porter, 1980

and 1985; Moingeon and Edmondson 1996; Collis, 1994;

Rumelt 1991; Cool and Schendel 1988; Grant, 1991; and

Barney, 1995). These relationships are primarily based on

theoretical considerations; the model is portrayed in the Figure

1.

Research Hypothesis

Ho: Competitive advantage has a mediating effect on the

relationship between supply chain enablers (IT Capabilities,

SC Capabilities, SC Integration, and SC Strategy) and firm

performance.

SUPPLY CHAIN

ENABLERS

?IT Capabilities

?Supply Chain Capabilities

?Supply Chain Integration

?Supply Chain Strategy

COMPETITIVE

ADVANTAGE

FIRM

PERFORMANCE

Proceedings of the International Conference on Computer and Industrial Management, ICIM, October 29-30, 2005, Bangkok, Thailand

14.3

2. Research Methodology

This study applied a quantitative research approach. Primarily,

this study employed a questionnaire survey method to test the

hypothesized relationships between supply chain enablers and

firm performance.

Primary data were collected through sample survey with

suppliers, manufacturers and retailers from Thai garment

industry. The target populations were the logistics and supply

chain managers or the equivalent in Thai garment

manufacturing firms listed in the Thai Garments

Manufacturers’ Association (2003-2004) and TTIS (Thai

Textile Institute) Buyer’s Guide (2003). Using a simple

random sampling method a group of samples were generated

based on the list in the Thai Garment Manufacturers’

Association (TGMA) directory (2003-2004) and TTIS Textile

Buyer’s guide (2002-2003). In-person survey interview was

conducted with a sample of 390 supply chain managers or the

equivalent.

3. Data Analysis

3.1 Respondents’ Profile

In this study 26.2% of the respondents were ready made

garment manufacturers, 22.6% were garment manufacturers for

export, 20.8% were ladies’ garment manufacturers, 6.7% were

general purpose garment, 3.8% were T-shirt/Shirt producers,

and the rest 13% were other types of garment manufacturers.

Of these samples 256 (65.65%) had less than 500 employees

and 134 (34.35%) had more than 500 employees. This

diversity in the organizational profile allows greater

generalizability of results and is therefore seen as an advantage

of this study.

3.2 Reliability Analysis

Construct reliability was assessed using the results from

Confirmatory Factor Analysis in LISREL 8.54. In general, all

constructs were found to be reliable since all measurement

scales ranged between 0.70 and 0.92. Alpha is an index of the

reliability of each variable in which the alpha value more than

0.7 will indicate that its measures are reliable (Nunnally,

1978). In this study, Cronbach’s (1951) alpha of all the

constructs are presented in Table 1; which justifies that the

constructs have satisfactorily met required reliability criteria.

The summary of construct reliability is presented in table 1:

Table 1: Construct Reliability

3.3 Test of Mediating Effect

To test for mediation effect, three conditions proposed by

Baron and Kenny (1986) needs to be met:

The first condition is that the predictor variables, including: IT

Capabilities, Supply Chain Capabilities, Supply Chain

Integration, and Supply Chain Strategy, are significantly

correlated with the hypothesized mediator which is competitive

advantage. The first condition is met as IT Capabilities, Supply

Chain Capabilities, Supply Chain Integration, and Supply

Chain Strategy are significantly correlated with competitive

advantage as expected (r = 0.45 p<0.01, r = 0.49 p<0.01, r =

0.47 p<0.01, and 0.43 p<0.01 for IT Capabilities, Supply Chain

Capabilities, Supply Chain Integration, and Supply Chain

Strategy respectively). The second condition to be met is that

the mediator variable (as measured by competitive advantage)

is significantly correlated with dependent variable (as

measured by firm performance). The correlation test reveals

that this requirement is also met as competitive advantage and

firm performance are significantly correlated (r = 0.58, p<0.01

for firm performance and competitive advantage respectively).

The third condition is that the previously insignificant effects

of IT Capabilities, Supply Chain Capabilities, Supply Chain

Integration, and Supply Chain Strategy is either made

significant or significantly increased after the inclusion of

mediating variable competitive advantage into the analysis.

Thus, SEM was conducted to test the effects of IT Capabilities,

SCALE NAME

COMPOSITE RELIABILLITY *

CRONBACH’S a VARIANCE EXTRACTED*

Firm Performance

.9190 .8675 .7982

Competitive Advantage

.8344 .7727 .6560

Supply Chain Strategy

.7160 .7109 .5398

Supply Chain Integration

.8526 .8332 .7476

Supply Chain Capability

.8439 .8335 .6569

Information Technology Capability

.8907 .8583 .7319

* All the scales are four-point, with “Strongly Disagree” and “Strongly Agree” as the anchors.

Special Issue of the International Journal of the Computer, the Internet and Management, Vol. 13 No.SP2, October, 2005

14.4

Supply Chain Capabilities, Supply Chain Integration, Supply

Chain Strategy and Competitive Advantage as a mediating

variable. At this time the direct effects of IT Capabilities,

Supply Chain Capabilities, Supply Chain Integration, and

Supply Chain Strategy on both Competitive Advantage and

Firm Performance have been incorporated into the model. As

well in this mediating model, the indirect effects of IT

Capabilities, Supply Chain Capabilities, Supply Chain

Integration, and Supply Chain Strategy on firm performance

through competitive advantage have been incorporated.

3.4 Analysis of the Structural Model

Table 2 and Figure 2 present the results of the overall model fit

of the proposed structural model.

Table 2: Model Fit for Mediating Effect

The results of the path analysis are presented in the table

below:

The chi-square test statistic is significant (p<0.01) and thus

supports the model proposed. However, the chi-square index is

sensitive to sample size (Bollen and Long 1993) and may lead

to incorrect interpretation. Multiple criteria are hence used to

reduce the measuring biases inherent in different measures. In

this case, other indices accept the RMSEA, such as GFI = 0.98,

AGFI = 0.94, RMR = 0.013, NNFI = 0.96 and CFI = 0.97.

3.5 Study Findings

Based on the parameter estimates presented in Figure 2,

six causal paths specified in the model were found to be

statistically significant (t-value > ±1.96). These paths reflected

the impact of: (a) Supply Chain Integration on Competitive

Advantage (t-value=3.10, p<0.01), which means the extent of

integration of the firm within its supply chain will form the

strength of its competitive advantage; in other words the

stronger the integration within the supply chain, the greater the

competitive advantage over the industry rivals will be. This

1 *In this model none of the hypothesized paths were significant.

links well with the literature. (b) IT Capabilities and Supply

Chain Integration on Firm Performance (t-value=3.16, p<0.01

Figure 2: Test for Mediating Effect

and t-value=3.44, p<0.01; respectively). This finding is quite

obvious because IT is a key facilitator for efficient integration,

this also links well with the literature: The better the IT

Capabilities of a firm, the greater its integration facilities and

hence its performance will be. (c) Competitive Advantage on

Firm Performance (t-value=5.68, p<0.01), this finding is in line

with the previous studies and has been confirmed once again in

this study. Finally, (d) the correlations between exogenous

constructs: (1) IT Capabilities and Supply Chain Integration (t-

value=10.83, p<0.01), this finding is in line with the above

results which means the better a firms’ IT Capabilities, the

more efficient its supply chain integration will be; and (2)

Supply Chain Capabilities and Supply Chain Strategy (t-value=

-13.08, p<0.01), this finding suggests that the stronger the

supply chain capabilities, the lesser the effort needed for

supply chain strategy. This is because they complement each

other. That means the stronger the supply chain capabilities

(e.g., customer focused capabilities, delivery capability and

distribution flexibility) the lesser the focus on supply chain

strategy needed (customer relationship, supplier relationship,

and SCM strategies) in Thai garment industry, because a

stronger capability will facilitate a firm to be more responsive

to demand and hence will facilitate its strategy implementation

or an efficient strategy will provide unmatched capability and

vice versa. Hence, the firms do not need to invest their

MODELS ?2 (df) ?2 S ig ??2 GFI AGFI

RMSEA

CFI

Nested Model1

152.05 (102)

- - 0.88 0.82 0.061 0.96

Mediating Model

145.22 (96)

6.83 (6)

P<0.01 0.98 0.94 0.050 0.97

FP CA

SC

CAP

SC

INTE

SC

STRA

IT

CAP

0.10

0.23

(3.44)

0.03

0.18

(3.16

(10.83

(-

(0.49

(0.21-0.07

0.06

0.18

0.07

0.58

(5.68

GOODNESS-OF-FIT INDICES:

?2 (96)= 145.22, p<0.13, GFI = 0.98, AGFI

= 0.94, RMR = 0.013 RMSEA = 0.05, CFI

(0.48

SUPPLY CHAIN

Proceedings of the International Conference on Computer and Industrial Management, ICIM, October 29-30, 2005, Bangkok, Thailand

14.5

valuable resources unnecessarily in (both capability and

strategy development) crafting different strategies if they have

efficient capabilities or if they possess a successful strategy in

place, they don’t need to invest in building new capabilities;

doing so will redundant as the firms operate with limited

resources. An additional insight for supply chain strategy not

being substantiated is, based on qualitative findings it has been

found that Thai garment managers still don’t realize the

importance of supply chain strategy.

4. Research Implications

The Thai garment industry should enhance production

efficiency and create value-added garment products.

Anecdotal evidence based on interviews with industry

practitioners suggests that, competitiveness of the Thai

garment supply chain largely depends on the ability of the

firms to create value for the customers and the supply chain

partners. Hence, supply chain strategy must be driven by value

to create and fulfill customer needs. The central objective of

this value creation process will be attaining customer

satisfaction, which should be transmitted throughout the firm

as well as the supply chain. Hence, to remain competitive in

the face of global competition, it is important to strengthen and

build flexibility into the links in the supply chain. This means

crafting formal and informal relationships between trading

partners that can evolve overtime and adapt to market changes.

5. Conclusion

The mediating effect of competitive advantage suggested that

the sources of competitive advantage are critical to firm

performance. This finding is in line with the extant literature

stating in competitive industries, greater the resources a firm

has will result in a superior performance. The more a firm is

integrated with its upstream and downstream supply chain

partners, the more they can be responsive to the demand and

hence will gain a superior competitive advantage over the rival

firms.

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