Supply chain practices and organizational performance. An empirical investigation of Indian manufacturing organizations

• DOI: https://doi.org/10.1108/IJLM-06-2015-0090
• Pages: 75-101
• Date: 13 February 2017
• Published date: 13 February 2017
• Author: Shrikant Gorane,Ravi Kant
• Subject Matter: Management science & operations,Logistics

Supply chain practices and

organizational performance

An empirical investigation of Indian

manufacturing organizations

Shrikant Gorane and Ravi Kant

Department of Mechanical Engineering,

S.V. National Institute of Technology, Surat, India

Abstract

Purpose –The purpose of this paper is to empirically test a framework which identifies the relationships

between various supply chain practices (SCPs) and organizational performance (operational performance

(OP), customer satisfaction, and financial performance) in the context of Indian manufacturing organizations.

Design/methodology/approach –From the literature, ten SCPs are selected which finally influences the

organizational performance. In order to understand the interactions between SCPs and organizational

performance, this paper grouped the ten SCPs into four constructs namely: information and communication

technology, supply chain (SC) integration, operational responsiveness, and closed loop green practices. Three

levels of firm performance are also examined, including OP, customer satisfaction, and financial performance.

The paper-based and web-based survey yielded 292 responses from the Indian manufacturing organizations.

The data collected were put through rigorous statistical analysis to test for the content, construct, and

criterion-related validity, as well as reliability analyses. Further a structural equation model was developed to

test the relationships between SCPs and organizational performance.

Findings –The finding suggests that a successful SCPs implementation not only improves the OP, but also

enhances customer satisfaction and financial performance. In addition, higher financial performance is also

attributable to better customer value resulting from the achievement of better customer satisfaction.

Research limitations/implications –SCPs are complex constructs. While this study shows the effect of

broadly accepted SCPs on organizational performance, not all possible practices are covered in this study.

Again the study can be further extended to sector specific so that the results can be further refined.

Practical implications –This is one of the few studies which attempts to investigate whether there is

any relationship exits between SCPs and organizational performance. The finding will help decision makers

in the organization to know the importance of SCPs and how SCPs influence the organizational performance.

Second, this study has developed and validated a multi-dimensional construct of SCPs, which can

assist decision makers of Indian organizations to evaluate the competence of their current status of SCPs

in the organization.

Originality/value –As per the knowledge of the authors, this is the first kind of study which empirically

investigated the relationships between SCPs and organizational performance in the context of Indian

manufacturing organizations.

Keywords India, Supply chain management, Supply chain practices, Structural equation modelling

Paper type Research paper

1. Introduction

Now days, the market is becoming more global, dynamic, and customer driven. Customers

are demanding more varieties, better quality, higher reliability, and faster delivery. Product

life is shortened and product variety is increasing; technological developments are occurring

at a faster pace (Li and Lin, 2006). To be competitive and dynamic, organizations need to

have strong upstream and downstream integration of their elaborate network of business

relationships. Therefore, there is an imminent need for supply chain management (SCM) in

all sectors across each value chain entities. SCM has drawn increasing attention from many

practitioners and scholars in recent years due to its benefits for operational success

(Sundram et al., 2011). It has been regarded as one of the most effective way for

organizations to improve their competitive advantage. In addition, it has been widely

considered to be an effective management tool for the organizations to maintain business

The International Journal of

Logistics Management

Vol. 28 No. 1, 2017

pp. 75-101

© Emerald PublishingLimited

0957-4093

DOI 10.1108/IJLM-06-2015-0090

Received 30 December 2014

Revised 1 June 2015

5 September 2015

30 November 2015

Accepted 27 December 2015

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0957-4093.htm

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Supply chain

practices

stability, growth, and prosperity. SCM includes a set of approaches and practices to

effectively integrate suppliers, manufacturers, distributors, and customers for improving

the long-term performance of the individual organization and the supply chain (SC) as a

whole in a cohesive and high-performing business model (Chopra and Meindl, 2007).

Despite the significant advances in researchandpracticesrelatedtoSCM,tilldate,the

limited research conducted in the area of SCM in the developing countries such as India and

China. The economy of India is the tenth-largest in the world by nominal gross domestic product

(GDP) and the third-largest by purchasing power parity. It constitutes one of the fastest growing

markets in the world and is counted among the richest with regard to cheap skilled labor,

scientific, and technological resources, and entrepreneurial talents. On many fronts India has

joined the select club of nations, namely, the USA, China, France, and Russia. However, to be

entitled to be called a super power, India has to catch up with these developed nations on many

facades. One such desired area is definitely manufacturing, because China in order to become a

real super power improved itself drastically in the area of manufacturing so much so that with

its sustained efforts, it became a global manufacturing hub. Manufacturing in India is still a

mere 16 percent of the country’s GDP while it is 34 percent for China and 40 percent for

Thailand. Till date, India’s manufacturing sector has not performed well compared to some

other large emerging economies. A series of structural distortions were documented, these

distortions exist at multiple levels, and reflect long-standing problems like: reallocation of labor

across sectors, the excessively small scale of firms, low firm turnover, poor market integration,

high concentration and persistent state ownership, scarcity of highly skilled workers, scarcity of

scientists, researchers and skilled engineers, lack of talent-driven innovation and poor

manufacturing physical infrastructure. Combined, these phenomena represent severe restrains

on the level and growth of productivity in manufacturing, suggesting that much remains to be

done to improve the strength and sustainability of India’s development path.

Indian organizations can gain competitiveness by increasing the productivity

of manufacturing operations and fulfilling the changing needs of the customers. Thus,

the manufacturing organizations must not only become increasingly advanced in their

manufacturing process, but also adopt world-class supply chain practices (SCPs).

Literatures have highlighted on the need to understand SCPs, which is becoming an

essential prerequisite to staying in the competitive global race and to grow profitably

(Power et al., 2001). However, in spite of the key role of SCPs, far limited and scant scholarly

investigation has been undertaken in India (Sahay and Mohan, 2003; Sahay et al., 2003;

Srivastava, 2006; Saad and Patel, 2006). Till date, the limited research conducted in the area

of SCPs was largely concerning countries such as New Zealand (Basnet et al., 2003),

Hong Kong (Chin et al., 2004), the USA (Hong and Jeong, 2006), the UK (Holt and Ghobadian,

2009), Turkey (Koh et al., 2007), Taiwan (Ou et al., 2010), Malaysia (Chong et al., 2011;

Sundram et al., 2011) to name a few.

In addition, although some organizations have realized the importance of implementing

SCPs, they often do not know exactly what to implement, due to a lack of understanding of

what constitutes a comprehensive set of SCPs (Li et al., 2006). Thus, it is necessary to

identify the SCPs applicable to Indian manufacturing organizations. This will enable the

organizations to identify and direct their focus on the areas that require improvement. Also,

the organizations will become more aware of the SCPs that will help increase their

performance and competitiveness. This study describes a research effort that addresses

these questions. The theoretical gaps this study addresses are of importance because the

SCPs construct developed in this study incorporates a combination of new dimensions of

SCPs. For instance, due to the lack of understanding of other dimensions of SCPs, Li et al.

(2006) suggest future research to use additional dimensions. This study identified new

dimensions of SCPs which combines SCPs right from supplier, manufacturer, and end

customer including sustainable and technological practices.

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