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SUPPLY CHAIN TECHNOLOGY: AN EMPIRICAL STUDY IN THE

CONTEXT OF MALAYSIA

Suhaiza Zailani1, Noornina Dahalan, Yusof Hamdani & Yudi Fernando


School of Management, Universiti Sains Malaysia
11800 Penang, Malaysia
Tel: (604) 6532751
Fax: (604) 6577448
Email: shmz@usm.my

Abstract. Supply chain technology is being important for the company to manage the flow of
information between suppliers, and end customers. The use of information technology (IT) is
considered a prerequisite for the effective control of today’s complex supply chains. And it is
further justified with the trend of globalization as business spans beyond borders and the need to
manage it centrally. In spite of researchers explaining the importance of supply chain, the
investigation on the use of IT in the supply chain context is yet to be researched to prove it’s
significant, particularly in the Malaysian context. Based on empirical data from 200 companies,
this paper presents the determinants for companies to use IT in SCM. According to the findings
of this research, the use of IT for SCM purposes can be categories into four classifications which
are: - material forecast, transaction processing, supply chain planning and collaboration, and
order tracking and delivery coordination. The findings further suggest that the level of IT
adoption in these classifications is differing. It is expected that through this study, such
classifications could be researched as capabilities of supply chain technology that affect supply
chain performance the most.

Key Words: Supply chain management, Information technology, Malaysia

1. Introduction that they must rely on effective supply


Information technology (IT) in supply chain chains systems to successfully compete in
management (SCM) has gained its the global market and networked economy.
importance recently due to its ability to
reduce costs and increasing responsiveness With regards to SCM, many researchers
in the supply chain (Mc Laren et al, 2004; have given a lot of definitions on SCM.
Chopra & Meindl, 2001; Dagenais & Among the popular one would be by
Gaustchi, 2002; Lee, 2000; Ndubisi & Lambert et al (1998) in Global Supply Chain
Jantan, 2003). A more evident fact is based Forum mentioned that SCM is the
on financial excerpts of Proctor and Gamble, integration of key business processes from
in which, the company gained USD325 end user through original suppliers to add
million savings annually through the usage value and services to customer and
of SCM technology (P&G, 2001). During stakeholders. The other definition that could
the past decades, information technology has be also stated here would be by Hanfield and
enabled many organizations such as Dell Nicholas (1999) that SCM is the integration
and Hewlett Packard, to successfully operate of activities, through improved supply chain
solid collaborative supply networks (Scott, relationship to achieve sustainable
1993). Thus, organizations increasingly find advantage. It is widely accepted in the

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literature that SCM is important for material followed by the presentation of the findings
and information flows relating to the of the study. Finally, in the last two sections,
transformation of the materials into value the main findings are summarized and
added products, and the delivery of the discussed and the concluding remarks are
finished products through appropriate drawn.
channels to customers and markets so as to
maximize customer value and satisfaction. 2. Information Technology in Supply
Chain.
Many researchers have recognized IT in
supply chain as a new organization form, Increasingly competition is forcing
using terms such as Electronic Data organizations to be creative in their strategic
Interchange (EDI), Electronic Marketplace efforts as businesses are learning to improve
or Enterprise Resource Planning (ERP) and the way customers are served. Many
Materials Requirement Planning (MRP). A organizations, therefore, seek competitive
variety of technologies has been designed capabilities that would enable firms to
and implemented for different supply chain exceed customers’ perceptions, so that they
activities and strategic purposes. Some of can enhance market and financial
the most commonly implemented performance (Hayes & Pisaro, 1994).
technologies are used to support the Effective IT in supply chain allows rich
operations of planning, scheduling and information exchange, quick and reliable
distributing the materials. Regardless of data availability, and easy access to business
their intended function, it is generally partners (Mukhopadhyay et al, 1995).
believed that these technologies aid However, realizing the potential benefits of
significantly in decision making related to systems requires the capabilities by
the planning, assessment, and control of organizations (da Silveira et al, 2006).
supply chain activities (Bowersox et al, Choudary (1997) also emphasizes that
1989). In general, such technologies can be although IT in supply chain provide the
defined as "a group of enterprise or inter- communication benefits, they may differ in
organizational systems, each with their their capabilities to provide superior
capabilities, which collaborate in ever- integration and brokerage ability.
changing constellations to serve one or more
partners in order to achieve some business 3. Determinants of Supply Chain
goal specific to that collaboration" Technology
(Akkermans, 2001).
Below are the discussions on the four
Although the importance of IT for efficient application areas identified from the
SCM is widely acknowledged, empirical literature review for the adoption of IT in
research assessing the actual uses of IT in SCM.
SCM as well as the reasons for using IT in a
specific way still remain unclear. Due to Material Forecast
these identified limitations in the previous The first is on demand forecasts within a
literature we address the following research SCM is based on a constrained supply chain
problem: “What purposes do companies use model, in light of material and resource
IT in SCM?” The paper is structured as constraints (Mukhopadhyay et al., 1995).
follows. First, the previous literature For example, a computer implemented
discussing the use of IT in SCM is reviewed. method according to one embodiment of the
Second, the research design is presented, invention comprises: calculating a demand

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forecast identifying anticipated demand for a tracking is needed especially in situations
product over a specified time period; with in-transit consolidation, and in project-
identifying current sales orders for the oriented businesses. These tracking studies,
product with delivery dates scheduled however, are not empirically founded and
during the specified time period; generating thus, do not reveal how tracking systems and
an open forecast for the product based on the tracking information is actually utilized by
current sales orders and the anticipated companies. Based on the above discussions,
demand; and sourcing different percentages the following hypotheses are drawn:
of the open forecast from different plants,
the percentages selected based on supply H1: Adoption of IT in supply chain is
chain material and/or resource constraints. important for material forecast
H2: Adoption of IT in supply chain is
Transaction Processing important for transaction processing
The second type of IT use, transaction H3: Adoption of IT in supply chain is
processing that stands for the use of IT for important for supply chain planning and
increasing the efficiency of repetitive collaboration
information exchanges between supply H4: Adoption of IT in supply chain is
chain partners. In this type of IT use the important for order tracking and delivery
exchanged information is typically related to coordination
such tasks as order processing, billing, H5: Level of resource sharing moderates
delivery verification, generating and sending the relationships between the determinants
dispatch advices, and producing order and adoption of IT is supply chain.
quotes.
4. Methodology
Supply Chain Planning and Collaboration The population of this study comprises of all
The third type of IT use, supply chain the manufacturing companies in Northern
planning and collaboration, represents the Malaysia. Sekaran (2003) suggested that the
use of IT for sharing planning-related analysis samples should be at least 10 times
information such as demand forecasts and the number of variables in a study. Thus, 50
other demand information, inventory respondents are targeted in this study, as
information, and production capacity there are a total of 5 variables. Data
information, with the intention of increasing collection was conducted based on
the effectiveness of the supply chain. personally administered questionnaire. The
respondents for this study were targeted to
Order Tracking and Delivery Coordination be the people as they would have the
Finally, the forth type of IT use in SCM, knowledge towards the technology in supply
order tracking and delivery coordination, chain.
refers to the monitoring of individual orders
or shipments, which may consist of In order to obtain sufficient samples for
components or final products, with the aim analysis, 200 sets of the questionnaires were
of coordinating their delivery or conveying distributed. Questionnaire was developed in
timely information of their location. The consideration of the examples from previous
tracking systems and their importance for literatures (Antony et. al., 2002) and
the efficient coordination of logistics flows consultation from related field expert as well
have also been widely studied (Karkkainen as lectures. For independent variables in this
et al., 2003). In conjunction with this, study, a 5-points Likert scale, which is

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ranging from strongly disagree to strongly values above 0.5. Sufficient unique loadings
agree, was used to measure the application and ability for each item to account for a
areas of IT in supply chain. The minimum of 50 percent of its variation were
measurements are adapted from Auramo et conditions set in retaining the items. The
al (2003) such as reduction of costs, items that represent each individual factor
speeding up information transfer, volume of were subjected to reliability analysis.
transactions, elimination of human errors, Determination of Cronbach’s alpha
unpredictable and logistically, demanding coefficient of internal consistency is to
environment, project-orientation of the ensure that the items comprising factors
business and in-transit delivery produced a reliable scale. A higher score
consolidation. And for the dependent will indicate a higher reliability, with a
variable, the level of perception of the range from 0 to 1. The generally agreed
respondent towards the IT in supply chain is upon lower limit of Cronbach’s alpha is 0.7
asked. as mentioned by Nunnally and Bernstein
(1994). However, the lowest registering a
5. Results and Analysis reliability value of .7168 (transaction
Table 1 shows the profile of the processing) and the highest .9584 (supply
organizations surveyed. Out of the 129 chain planning and collaboration). The rest
manufacturing companies responded, 55 of the variables material forecast (0.8444)
percent are involved in electrical products and order tracking and delivery coordination
while the rest deal with electronics products. (0.9281) has satisfactory alpha value. Table
Foreign owned companies make up the 2 shows reliability, mean and standard
majority of 55.8 percent, with Malaysian deviation of independent variables.
owned companies constituting the remainder
57 companies. Firm size as reflected by the One-tailed Pearson correlation test were
number of employees, indicated that a employed to assess predictive validity of the
significant majority lie within the range of posited variables. All independent were
above 250 to 5,000 employees, i.e., 67.5 found to be significantly correlated with the
percent. Approximately equal number of dependent variable. Both transaction
MNCs and non-MNCs were surveyed; the processing and supply chain planning and
former accounted for 51.2 percent of 129 collaboration have similar and high
firms, while the latter took up 63 firms. correlation values (r = .68, p<.01) as
Majority (86) have taken up some form of independent variables with IT in supply
IT strategy in supply chain. In addition, chain. This is followed by material
cross tabulation revealed that out of this forecast(r = .52, p<.01) and order tracking
figure, about half of the firms are MNCs and and delivery coordination (r = .48, p<.01). It
the other half non-MNCs. is also important to note that all the
independent variables were not highly
The validity and reliability measurement in correlated, as this is a necessary condition to
data analysis, this paper utilized factor and ensure that strong multicollinearity effects
reliability analysis. The factor analyses were are not present in this study. Table 3
diagnosed and found to have met the presents the results of this test.
necessary statistical assumptions as
indicated by their high Kaiser-Meyer-Olkin
measure in conjunction with the diagonals of
the anti-image correlation matrix possessing

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A 3-step hierarchical regression was applied adoption in SC with Supply chain planning
to study the differences with respect to the and collaboration and Order tracking and
main effects, moderating direct effects and delivery coordination, respectively.
interaction effects. Sets of variables were
entered consecutively, where variables on 6. Discussions
the first step consisted of all the independent The results of this study indicate that the
variables (IVs). At this step, it was operational use of all but one (material
discovered that all the independent variables forecast) of the independent variables has a
but material forecast did not exhibit an positive influence on IT adoption in SC. In
influence on IT is supply chain. Transaction particular, Transaction pr Transaction
processing and supply chain planning and processing and supply chain planning and
collaboration exhibited the same level of collaboration exhibited the same level of
importance in impacting the adoption of IT importance in impacting IT adoption in SC.
in supply chain, given their identical Similarly, increasing level of resource
estimated values (β=.29, p <.01). All the sharing would increase the adoption of IT in
three statistically significant predictors SC. The adoption of IT in supply chain
(Transaction processing, supply chain implies a lateral working relationship both
planning and collaboration and order across functional areas and in the extended
tracking and delivery coordination) supply chain. A move away from the
accounted for approximately 66 percent of traditional hierarchical organizations with
the variation in adoption of IT in SC. strong functional areas (silo) is necessary.
Still, as the adoption of IT in supply chain
In the second step of the analysis, level of becomes increasingly prevalent, managers
resource sharing (Moderating variable) was have little guidance how to best achieve
introduced into the regression equation, with such effectiveness. The study empirically
an additional increase of 3 percent in the tested the viability of resource sharing as a
explained variance of IT adoption in supply moderator to advance the adoption of IT in
chain. The third step of the hierarchical supply chain.
regression analysis introduced the
interaction effects between the moderator The findings derived are not only of
and independent variables on IT adoption in theoretical interest, but can also be of great
SC as the dependent variable. After practical significance. For the practicing
discounting the main effects and moderating manager, the challenge is mainly of balance
variable’s direct effect, only 2 out of the 4 and knowing where to invest scarce time
interaction effects explained an additional and efforts. In the preceding discussion, the
variance of 4 percent in IT adoption in SC. study consistently stressed the role of the
They are Supply chain planning and determinant in SCP as an enabler for
collaboration x resource sharing (β=.-.33, p boosting its effectiveness. The three
<.01) and Order tracking and delivery dimensions focused on have been
coordination x resource sharing (β=.15, p transaction processing, supply chain
<.05). The results are as shown in Table 4. planning and collaboration, material forecast
and order tracking and delivery
At this juncture, it can be observed that coordination. How to implement the IT in a
resource sharing exhibited joint effects on IT supply chain system is beyond the scope of
this paper; however, some issues tend to be
critical for the success of all firms in the

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Table 1
Profile of Firms
Variables Description Frequency Percentage
Type of Industry Electronics 58 45.0
Electrical 71 55.0
Ownership Malaysian Owned 57 44.2
Foreign Owned 72 55.8
Firm Size < 250 employees 34 26.4
251-500 employees 29 22.5
501-1000 employees 29 22.5
1001-5000 employees 29 22.5
> 5000 employees 8 6.2
Type of Organization MNC 66 51.2
Non-MNC 63 48.8

Table 2
Reliability, mean and standard deviation of independent variables
Label of variable Cronbach’s alpha Mean Std. Deviation
Transaction processing .7168 3.62 .58
Supply chain planning and collaboration .9584 3.14 1.05
Material forecast .8444 3.58 .81
Order tracking and delivery coordination .9281 3.45 .89

Table 3
Correlation between Variables
Variables 1 2 3 4 5 6
Transaction processing .90
Supply chain planning and collaboration .72** .95
Order tracking and delivery coordination .56** .39** .89
Material forecast .42** .45** .39** .81
Resources sharing .60** .54** .52** .43** .78
IT in SCM .68** .68** .48** .52** .63** .91
** Correlation is significant at the 0.01 level (1-tailed).

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Table 4
Hierarchical Regression Analyses
Dependent Variables IT in Supply Chain
Step 1 Step 2 Step 3
Main Effects
Transaction processing .29**
Supply chain planning and collaboration .29**
Order tracking and delivery coordination .16**
Material forecast .08
Moderator (Direct Effect)
Resources sharing .23**
Interaction Effects
Transaction processing x resource sharing .21
Supply chain planning and collaboration x -.33**
resource sharing
Order tracking and delivery coordination x .15*
resource sharing
Material forecast x resource sharing .09
R2change .66 .03 .04
F change 56.80** 9.98** 3.77**
Durbin-Watson Statistic 1.88

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