International Journal of Electronic Business Management, Vol. 4, No. 5, pp. 419-427 (2006)
419
THE IMPACT OF E-SUPPLY CHAIN CAPABILITY
ON COMPETITIVE ADVANTAGE
AND ORGANIZATIONAL PERFORMANCE
Che-Yao Chen1*, Jun-Der Leu1 and Chyou-Huey Chiou2
1
Department of Business Administration
National Central University
Chungli (320), Taiwan
2
Industrial Development Bureau
Ministry of Economic Affairs
Taipei (100), Taiwan
ABSTRACT
Supply chain management (SCM) has become a potentially valuable way of securing
competitive advantage and improving organizational performance. This research develops
three constructs of e - Supply chain capability (procurement, make and delivery) and tests
the relationships between e-Supply chain capability, competitive advantage, and
organizational performance. Data for the study were collected from 130 organizations and
the relationships proposed in the framework were tested using structural equation modeling
(SEM). The results indicate that higher levels of e-Supply chain capability and competitive
advantage can lead to improved organizational performance. Also, competitive advantage
can have a direct, positive impact on organizational performance.
Keywords: E-Supply Chain Capability,
Performance, Structural Equation Modeling
Competitive
1. INTRODUCTION
information exchange among the enterprises. The
operational process would be more successful and
enterprises would further reduce the stocks and
increase the inventory turnover rate and
organizational performance. Sander and Premus [16]
had empirical study on American manufacturing
industry and found out that IT operation on supply
chain management can enhance competitive
advantages and improve organizational performance.
Thus, the e-supply chain capability becomes one of
the ways for the enterprises to enhance their
competitiveness.
There were rare studies with respect to the
influence of e-Supply chain capability on firm
performance and most of the studies subjectively
evaluated the influence degree of IT on the activities
of supply chain [6] and they lacked of objective
evaluations.
The purpose of this study is therefore to
empirically test a framework identifying the
relationships among e-Supply chain capability,
competitive
advantage
and
organizational
performance. The e-Supply chain capability is
defined as the set of activities undertaken by an
organization to promote effective management of its
supply chain. The e-Supply chain capability is
proposed to be a multi-dimensional concept,
*
When facing the gradually competitive industry
environment, the enterprises must properly integrate
the department resources such as the internal
procurement, production and sales. Besides, they
should also closely cooperate with the suppliers and
customers in order to control the competitive factors
such as quality, delivery and cost and improve their
competitive advantages. It also explains the reason
why supply chain management (SCM) becomes more
and more important.
SCM refers to the planning and negotiation of
product service process and information process
among the material suppliers, manufacturing and
customers [18]. SCM has been defined to explicitly
recognize the strategic nature of coordination
between trading partners and to explain the purposes
of SCM: to improve the performance of an individual
organization, and to improve the performance of the
whole supply chain. Turban et al. [20] indicated that
the powerful IT calculation capacity, Internet
connection and communication functions operated by
the enterprises could result in more efficient
*
Corresponding author: [email protected]
Advantage,
Organizational
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International Journal of Electronic Business Management, Vol. 4, No. 5 (2006)
including the downstream and upstream sides of the
supply chain. Operational measures for the constructs
are developed and tested empirically, using data
collected from respondents to a survey questionnaire.
Structural equation modeling is used to test the
hypothesized relationships. Further, by offering a
validated instrument to measure e-Supply chain
capability, and by providing empirical evidence of the
impact of e-Supply chain capability on an firm’s
competitive advantage and its performance, it is
expected that this research will offer useful guidance
for measuring and implementing e-Supply chain
capability in an organization and facilitate further
research in this area.
The remainder of this paper is organized as
follows. Section 2 presents the research framework,
provides the definitions and theory underlying each
dimension of e-Supply chain capability, discusses the
concepts of competitive advantage and organizational
performance, and develops the hypothesized
relationships. The research methodology and analysis
of results are then presented, followed by the
implications of the study.
2. RESEARCH FRAMEWORK
The research framework proposed in this article
is shown in Figure 1. According to research purposes,
there were three hypotheses proposed: e-supply chain
capability will have direct impact on competitive
advantages
and
organizational
performance,
competitive advantages will also influence
organizational performance. The dimensions of
e-supply chain capability included e-procurement
process, e-make process and e-delivery process. The
detail definitions and of competitive advantages and
organizational performance and research hypotheses
are described in the following sections.
2.1 E-Supply Chain Capability
A company’s supply chain divides an
organization into a sequence of primary activities,
inbound logistics, operations, outbound logistics,
marketing and sales, and service, along with support
activities [14]. Supply chain management involves
the integration of these business processes, and
provides products, services, and information that add
value for customers. The management of the supply
chain is revealed in this holistic approach. The goal is
to reduce uncertainties, such as demand, delivery
times, quality, and competition in the supply chain.
E-supply chain means using network and IT to
transform the corporate core business and process;
through internet, it manages negotiation, sharing and
cooperation of business process for employees at
internal aspect and deals with transaction and
cooperation with supply chain partners at external
aspect [4].
Banker et al. [3] pointed out that the better way
to evaluate the effect of IT was the analysis of
Process Oriented Approach. As to the allocation on
supply chain process, we followed the study of
Swafford et al. [19] and there were three major
dimensions (procurement, make and delivery). As to
the evaluation on e-supply chain capability, this
research focused on the extent to which a firm
accomplishes business process electronically
including transactions and information exchange
facing suppliers (e.g., procurement), internal
production (e.g., make) and customers (e.g., delivery).
The definition of three major dimensions and their
business process are below:
1. Procurement: it mainly refers to the enterprises and
the suppliers’ development of a set of business
process on demand planning, order delivery, delivery
and financial management.
2. Make: it means the related business process faced
during production process in the enterprises,
including production scheduling, product R&D,
on-site execution and quality control.
3. Delivery: it means the sale and delivery for the
customers or agents, including having customer
demand estimation planning, order receiving, product
delivery and financial collection.
2.2 Competitive Advantage
Competitive advantage is the extent to which an
organization is able to create a defensible position
over its competitors. The said position allows them to
gain more profits than the competitors [11].
Bhatnagar and Sohal [5] identified the manufacturing
industry of Asian as the research targets and proposed
supply chain performance measurement indicators on
plant location factor, supply chain uncertainty and
manufacturing practices to measure supply chain
competitive advantages. The indicators are lead time,
inventory, time to market, quality, delivery, flexibility,
etc. This research followed the study of Li et al. [9]
and Bhatnagar and Sohal [5] used inventory, quality
and delivery rate as the measurement questions on
competitive advantage.
2.3 Organizational Performance
The definition of organizational performance
depends on the scholars’ different views. Vickery et
al. [21] considers that the organizational performance
refers to how well an organization achieves its
market-oriented goals as well as its financial goals..
Thus, they set up the measurement performance items
as return on assets, market share and growth rate.
This study followed the indicators adopted by Barua
et al. [4] and Li et al. [9] as the base for designing the
questionnaire evaluating organizational performance,
including market share, sale growth and profit margin
on sales.
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C. Y. Chen et al.: The Impact of E-Supply Chain Capability
2.4 Research Hypotheses
The study of Rosenzweig et al. [15] on 238
consuming product manufacturers in the US found
out that when the supply chain integration intensity
between internal aspect of enterprises, external
suppliers and customers was higher, corporate
performance was more likely to be upgraded. Supply
chain IT capacity had direct influence on internal and
external collaboration and information sharing of
manufacturing
industry
and
organizational
performance could be significantly improved [17].
Based on the above it is hypothesized that:
Hypothesis 1: Firms with high levels of e-Supply
chain capability will have high levels of
organizational performance.
Delivery, quality and the increase of costs are
the problems faced by the manufacturing industry.
The reason is in the lack of immediate negotiation on
internal and external supply chain integration [15]. IT
application can enhance the information dealing
efficiency in supply chain. Through the integration of
supply chain management and information system,
the manufacturing industry can strengthen the
flexibility of supply chain, reduce cycle time,
upgrade efficiency, increase inventory turnover rate
and immediate delivery and improve supply chain
competitiveness [8,12,13]. The above arguments lead
to:
Hypothesis 2: Firms with high levels of e-supply
chain capability will have high levels of competitive
advantage.
Yamin et al. [22] managed the empirical study
on the relationships among operational strategies,
competitive
advantages
and
organizational
performance of Australian manufacturing industry.
Their research findings described that the enterprises
with
competitive
advantages
had
better
organizational performance. The above related study
findings revealed that corporate competitive
advantages could lead to higher economic effects,
customer satisfaction and loyalty and further promote
sale and profit-gaining capacities. Therefore, a
positive relationship between competitive advantage
and organizational performance can be proposed.
Hypothesis 3: The higher the level of competitive
advantage, the higher the level of organizational
performance.
The above three hypotheses, taken together,
support the e-Supply chain framework presented in
Figure. 1.
3. RESEARCH METHODOLOGY
This research explored the relationships between
e-supply chain capability, competitive advantages and
organizational performance. These three concepts are
latent constructs which allow SEM to explore the
cause-and-effect relation among variables and
validate the theories [11]. The data analytical tool is
based on 8.54 version of Linear Structural
Relationship (LISREL) to test the propriety of the
whole model.
H3
Organizational
performance
H1
Competitive
advantage
H2
e - Supply chain
capability
Figure 1: Research framework
In analyzing the collected data, our study
followed the two-step procedure recommended by
Anderson and Gerbing [1]. We estimated and
re-specified the measurement model prior to
incorporating the structural restrictions. Convergent
and discriminant validity of the remaining items and
scales were tested with confirmatory factory analysis
(CFA) using the LISREL program. Each item was
modeled as a reflective indicator of its hypothesized
latent construct. The three constructs were allowed to
covary in the CFA model. The measurement models
were evaluated using maximum likelihood estimation.
Therefore, our study first managed CFA on e-Supply
chain capability and dealt with structural relation
analysis and validation on the whole research model
of e-Supply chain capability, competitive advantage
and organizational performance”.
3.1 Measurement Scale of each Dimensional
Factor
3.1.1 E-Supply Chain Capability
The definitions of e-Supply chain capability in
the model are the extent to which a firm
accomplishes business process electronically
including transactions and information exchange.
The digitization levels of 11 business processes are
measured based on a five-point Likert scale ranging
from 1 to 5 as follows:
1. Non-computerization: Using traditional way to
communicate, such as by telephone, fax or post.
2. Computerization but non-structural data format:
Communicating thru e-mail and keep record by
excel or word file.
3. E-system implementation and structural data
format: Communicating thru e-mail.
4. E-system implementation, structural data format,
and web-based or turnkey information
transaction.
5. E-system implementation, structural data format,
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and web-based information transaction by
auto-conventional standard between systems, in
other words, server-to-server, such as
ERP-to-ERP.
3.1.2 Competitive Advantage
Based on the above, the indicators of the
competitive advantage constructs used in this study
are inventory, quality and delivery rate. The
measurement questions were based on Likert
five-point scale for evaluating the managers’
perception on each competitive advantage. The
research managed the perception evaluation and
judgment on the related competitive capacity
questions on the companies (comparing with their
competitors in the market). The item scales are
five-point Likert type scales with 1 = strongly
disagree, 2 = disagree, 3 = neutral, 4 = agree, 5 =
strongly agree.
3.1.3 Organizational Performance
The items of organizational performance
measurement was based on the related executives’
evaluation and judgment with regard to the market
share , sale growth and profit margin on sales of the
company (comparing with the last year). The item
scales are five-point Likert scales with 1 = significant
decrease, 2 = decrease, 3=same as before, 4=increase,
5=significant increase.
3.2 Samples
This research treated the manufacturing
enterprises adopting a B2B information system
(B2BIS) promoted by the Industrial Development
Bureau (IDB) of Ministry of Economic Affairs
(MOEA) as the research targets and used expert
interview method for on-site evaluation and data
collection. From August 2005 to January 2006, there
were totally 169 return questionnaires. After
deducting 39 companies which did not answer
because they did not have the related business
process, there were 130 valid samples. The ratio of
numbers of employees in the valid samples was
shown in Table 1 and ratio of industry category was
in Table 2.
4. RESULTS
4.1 Examination on Reliability and Validity
The questionnaire questions of this research all
followed the literatures overseas and from November
2004 to December 2004, the researcher invite the
companies adopting B2BIS promoted by the IDB for
evaluation. During the pre-test, there was evaluation
data from 32 enterprises. Thus, this scale had
considerable degree of content validity.
Table 1: Ratio of numbers of employees
Employee
Number
Percentage
<50
50-100
101-500
38
15
36
29.3
11.5
27.7
>500
41
31.5
Table 2: Ratio of industry category
Industry
Number
Percentage
61
46. 9
ICT
41
31.6
Mechanical
13
10
Chemical
9
6.9
Consumer goods
6
4.6
Other
4.2 Confirmatory Factor Analysis on E-Supply
Chain Capability
The Confirmatory Factor Analysis result of
measurement model was shown in Figure 2. As to the
propriety of model, GFI value reached 0.91, AGFI
was 0.86, CFI was 0.99 and RMSEA was 0.069.
Therefore, generally speaking, the measurement
model of this e-Supply chain capability had fine
propriety.
The reliability values of latent variables in
measurement model were all over 0.91 which
revealed that the internal consistency of research
model was fine [7]. Average Variance Extracted of
each latent variable was more than 0.7 which showed
that latent variables had reliability and convergence
validity. The data of Average Variance Extracted
(AVE) of Squared Multiple Correlation (SMC),
Construct Reliability (CR) and latent variables are
presented in Table 3.
4.3 Test on the Structural Relationships between
E-Supply
Chain
Capability,
Competitive
Advantage and Organizational Performance
The above overall propriety test of measurement
model and reliability and validity analytical results
showed that 11 questions of e-Supply chain capability
in this research could actually efficiently measure the
constructs of procurement, make and delivery. Thus,
we could manage the analysis of structural format at
the second stage. In the test of this structural relation
model, as to three constructs of e-Supply chain
capability, the researcher dealt with the average of the
questions in each dimension; in addition, competitive
advantage was based on inventory, quality and
delivery
rate
as
measurement
variables;
organizational performance was based on market
share, sale growth and profit margin on sales as
measurement variables mentioned above.
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C. Y. Chen et al.: The Impact of E-Supply Chain Capability
0. 91
0. 88
0. 87
e-Procurement
process
0. 82
P1
e-Make
process
0. 92 0. 84 0. 86
P2
P3
0. 89
0. 84
0. 91
e-Delivery
process
0. 80
0. 93
0. 94
P4
M2
M3
D2
M1
D1
Figure 2: Results of confirmatory factor analysis
0. 73
D3
D4
Table 3: Reliability and validity analytical results of measurement model
Latent Variable
E-Procurement Process
E-Make Process
E-Delivery Process
Item
Completely Standardized
Factor Loading
SMC
P1
0.817
0.67
P2
0.920
0.85
P3
0.841
0.71
P4
0.861
0.74
M1
0.893
0.80
M2
0.838
0.70
M3
0.915
0.84
D1
0.797
0.64
D2
0.931
0.87
D3
0.944
0.89
D4
0.729
0.53
The analytical result of overall model was
shown in Table 4. All of the indicators reached the
standard suggested by the scholars and p-value = 0.06.
It showed that the propriety of this theoretical model
and samples was excellent. Thus, we could manage
the analysis according to this model result. For the
preciseness of overall model analysis, this research
followed Zhu’s [23] analytical method and dealt with
reliability and validity analysis of observation
variables on overall model. The result was shown in
Table 5. The structural model was mainly to test if
the hypotheses proposed were supported by actual
data. The path relation of structural format model was
mainly showed by complete standardization factor.
The larger the factor was, the higher the importance
degree in cause-and-effect relation was. Among three
hypotheses of the research model, there were only
two hypotheses (H1, H3) reaching significant
standard which supported the hypotheses as Figure 3
and Table 6.
5. CONCLUSIONS AND
SUGGESTIONS
Composite
Reliability
AVE
0.919
0.740
0.913
0.778
0.914
0.731
5.1 Conclusions
This paper provides empirical justification for a
framework that identifies three key dimensions of
e-Supply chain capability and describes the
relationship among e-Supply chain capability,
competitive
advantage,
and
organizational
performance. It examines three research questions: (1)
do organizations with high levels of e-Supply chain
capability have high levels of competitive advantage;
(2) do organizations with high levels of e-Supply
chain capability have high levels of organizational
performance;(3) do organizations with high level of
competitive advantage have a high level of
organizational performance? For the purpose of
investigating these issues a comprehensive, valid, and
reliable instrument for assessing e-Supply chain
capability was developed. The instrument was tested
using rigorous statistical tests including convergent
validity, discriminant validity, reliability, and the
validation of second-order constructs. This study
provides empirical evidence to support conceptual
and prescriptive statements in the literature regarding
the impact of e-Supply chain capability.
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Table 4: Fit indices of structure model
Items
Types
Propriety Indicators
Ideal Figures [2]
Research Findings
χ2 (Chi-square)
N/A
35.19, p-value=0.06
χ /d.f
1.0 - 3.0
1.46
GFI
>0.90
0.94
AGFI
>0.90
0.89
SRMR
0.05
NFI
≤ 0.05
≤ 0.08
≥ 0.90
≥ 0.90
CFI
≥ 0.90
0.98
2
Absolute Propriety
Indicators
RMSEA
NNFI
Relative Propriety
Indicators
0.06
0.97
0.94
Table 5: Reliability and validity analytical results of the whole model
Factor Loading of
Measurement
Reliability
Latent Variables
Complete
Variables
Constructed
Standardization
E-Procurement
0.92
process
E-Supply Chain
0.93
Capability
E-Make process
0.89
E-Delivery process
0.92
Inventory
0.55
0.77
Competitive Advantages
Quality
0.80
Delivery rate
0.83
Market share
0.68
Organizational
0.83
Return on investment
0.91
Performance
Sale growth
0.72
Market
share
0. 68
Sale growth
0. 91
Profit margin
on sales
Inventory
0. 72
0. 55
0.46 ***
Organizational
performance
0.22 *
Quality
0. 80
AVE
0.83
0.54
0.62
Delivery
rate
0. 83
Competitive
advantage
-0.08
e-Supply chain
capability
0. 92
e-Procurement
process
0. 89
e-make
process
0. 92
e-Delivery
process
Figure 3: Analytical result of structural relation in overall model (Dotted line means not supporting)
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C. Y. Chen et al.: The Impact of E-Supply Chain Capability
Table 6: Results for proposed structural equation model
Estimation value
Hypothesis
(t-value)
Firms with high levels of e-Supply chain capability will
0.22* (2.33)
H1
have high levels of organizational performance.
Firms with high levels of e-Supply chain capability will
-0.08 (-0.79)
H2
have high levels of competitive advantage.
The higher the level of competitive advantage, the
0.46*** (3.6)
H3
higher the level of organizational performance.
*** means t >3.29, p-value<0.001
** means t >2.58, p-value<0.01
* means t >1.96, p-value<0.05
The research findings showed that the
enterprises’ reinforcement of e-Supply chain
capability could improve organizational performance;
when the competitive advantages were increased,
there would be better organizational performance.
Generally speaking, the e-Supply chain capability
evaluation framework constructed by this research
was proper after examination. The results support
Hypothesis 1, which states that firms with high levels
of e-supply chain capability will have high levels of
organizational performance and Hypothesis 3, which
indicates that the higher the level of competitive
advantage, the higher the level of organizational
performance. It showed that IDB/MOEA promoted
an “Industry e-Business (EB) Promotion Program”
since 1999, the resource investment from the
government triggered companies with funding of
implementing a B2BIS, which has shown significant
results in terms of organizational performance.
However, the analytical result did not support
Hypothesis 2, which states that firms with high levels
of e-Supply chain capability will have high levels of
competitive advantage. The explanatory capacity of
“inventory” in competitive advantages was weaker.
The reason might be in that corporate supply chain
strategies would be influenced by contextual factors,
such as the type of industry, firm size, a firm’s
position in the supply chain, supply chain length, and
the type of a supply chain (divergent or convergence
networks). For example, the length of a supply chain
may influence the level of information quality
negatively. Information suffers from delay and
distortion as it travels along the supply chain, the
shorter the supply chain, the less chance it will get
distorted. Therefore, when establishing the
information system, the enterprises would first
consider their core business process. Since the
enterprises were in different environment and the
competitive advantage indicators developed were not
the same. Thus, Hypothesis 2 was not supported.
In addition, competitive advantages included the
related capacities separated the enterprises and their
competitors and it was the result through the planning
of managerial decision-making; the questions of
Result
Supported
Not Supported
Supported
questionnaire upon procurement, make and delivery
dimensions for evaluating e-supply chain capability
only observed the information delivery and sharing
among enterprises and did not investigate the
decision-making process of operational planning in
the enterprises. Thus, we infer that it was also the
reason why the influence of e-supply chain capability
on competitive advantages did not support.
5.2 Research Implications
Using IT to construct competitive advantages
and improve organizational performance has become
a trend for the enterprises. The present study
validates the e-Supply chain capability construct that
has generally been poorly defined and about whose
meaning there has been a high degree of variability in
people’s understanding. Although some organizations
have realized the importance of implementing SCM
information system, they often do not know exactly
what to implement, due to a lack of understanding of
what constitutes a comprehensive set of e-Supply
chain capability. By proposing, developing, and
validating a multi-dimensional, operational measure
of the construct of e-Supply chain capability, and by
demonstrating
its
efficacy
in
enhancing
organizational
performance
and
competitive
advantage, the present study provides SCM managers
with a useful tool for evaluating the
comprehensiveness of their current SCM information
construct. We have shown that e-Supply chain
capability forms a second-order construct composed
of the first-order constructs of procurement, make
and delivery-the three major dimensions of e-Supply
chain capability. Through the analysis of the
relationship of e-Supply chain capability construct
with competitive advantage (Hypothesis 3), it was
demonstrated that e-Supply chain capability may
directly impact organizational performance.
5.3 Research Imitations
Because of the limited number of observations
(130), the revalidation of constructs was not carried
out in this research. Lack of systematic confirmatory
research impedes general agreement on the use of
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International Journal of Electronic Business Management, Vol. 4, No. 5 (2006)
instrument. Future research should revalidate
measurement scales developed through this research.
As the concept of SCM is complex and involves a
network of companies in the effort of producing and
delivering a final product, its entire domain cannot be
covered in just one study. Future research can expand
the domain of e-Supply chain capability by
considering additional dimensions such as such as
planning and return process. Future studies can also
examine the proposed relationships by bringing some
contextual variables into the model, such as
organizational size and supply chain structure. For
example, it will be intriguing to investigate how
e-Supply chain capability differs across organization
size. It will also be interesting to examine the impact
of supply chain structure (supply chain length,
organization’s position in the supply chain, channel
structure, and so on) on e-Supply chain capability and
competitive advantage.
9.
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ABOUT THE AUTHORS
Che-Yao Chen is a Ph.D graduate student of
business administration, National Central University,
Taiwan. His current research interests are in
e-Business and supply chain management.
427
Jun-Der Leu received the Ph.D degree in Economics
and Management from Technical University Berlin,
Germany, in 1999 and then joined the SIEMENS
Infineon Technologies AG, Germany and the
Germany Fraunhofer Institute. In it, he was
responsible for global logistics, investment planning
as well as IT-solutions for the clean room
manufacturing business. Since September 2002 Dr.
Leu was an assistant professor of business
administration, National Central University, Taiwan.
His research focuses on global logistics and
IT-solutions for high-tech industries.
Chyou-Huey Chiou received his Ph. D. degree from
Department of Mechanical Engineering, National
Taiwan University, Taiwan. He is a deputy director of
Industrial Development Bureau, Ministry of
Economic Affairs, Taiwan. His current research
interests are in e-Business and knowledge
management.
(Received August 2006, revised November 2006,
accepted December 2006)