EFFECT OF SUPPLY CHAIN MANAGEMENT PRACTICE ON
ORGANIZATION PERFORMANCE IN CASE OF ARBAMINCH TEXTILE
FACTORY
ARBA MINCH UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT
RESEARCH PROPOSAL SUBMITED TO DEPARTMENT OF
MANAGEMENT FOR PARTIAL FULFILMENT AND REQUIREMENT OF BA
DEGREE IN MANAGEMENT
BY: EYERUS ANBES
ADVISOR: TEREFE MEGISO.
MAY, 2023
ARBA MINCH, ETHIOPIA
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Contents
CHAPTER ONE.........................................................................................................................3
INTRODUCTION.......................................................................................................................3
1.1Background of the study.....................................................................................................................3
1.2 Statement of the problem...................................................................................................................4
1.3 Research Questions............................................................................................................................6
1.4 Objectives of the study......................................................................................................................6
1.4.1General Objective of the Study....................................................................................................6
1.4.2. Specific Objectives of the study.................................................................................................6
1.5. Significance of the Study..................................................................................................................7
1.6 Scope of the Study.............................................................................................................................7
CHAPTER TWO........................................................................................................................9
LITERATURE REVIEW...........................................................................................................9
2.1 Historical Development of Supply Chain Management.....................................................................9
2.2 Supply Chain Management for Operational Excellence....................................................................9
2.3 Supply Chain Management for Competitive Advantage...............................................................9
2.4 Supply Chain Management of Factory.........................................................................................10
2.5 Purpose of supply chain performance management....................................................................11
2.6 Factors Affecting Supply Chain Management............................................................................11
2.6.1 Environmental uncertainty....................................................................................................11
2.6.2 Information technology..........................................................................................................12
2.6.3 Supply chain relationships.....................................................................................................13
2.6.4 Value-added manufacturing process.....................................................................................13
2.7 Supply Chain performance...........................................................................................................14
2.8 Drivers of Supply Chain Development and main initiatives......................................................16
2.9 Key Components of Supply Chain Management.........................................................................17
2.10. Partnership in Supply Chain....................................................................................................18
2.11.1 Supplier and Customer Relationship...................................................................................20
2.11.2 Inventory Management........................................................................................................21
2.11.3 Internal Operation................................................................................................................21
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2.11.4 Information Sharing.............................................................................................................22
2.11.5 Information Technology.......................................................................................................23
2.3 Empirical literature..........................................................................................................................23
2.3 Conceptual frame work....................................................................................................................24
CHA PTER THREE.................................................................................................................26
RESEARCH METHODOLOGY............................................................................................26
3.1 Description of the study Area..........................................................................................................26
3.2 Research Design..............................................................................................................................26
3.3 Research Approach..........................................................................................................................26
3.4. Target population............................................................................................................................27
3.5 Sampling techniques and sample size..............................................................................................27
3.6 Data Gathering Technique and Instruments.....................................................................................27
3.7. Model Specification........................................................................................................................28
3.8. Reliability and Validity Analysis....................................................................................................28
3.8.1. Validity....................................................................................................................................28
3.8.2. Reliability................................................................................................................................28
3.9 ethical consideration........................................................................................................................28
3.10 time and budget schedule...............................................................................................................28
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CHAPTER ONE
INTRODUCTION
1.1Background of the study
In this emerging competitive environment, the challenges associated with getting a product and
service to the right place at the right time at the lowest cost are the determinant factors. Emily
(2017) defines that the management of material, money, human resource, and information within
and across the supply chain to maximize customer satisfaction and to enhance competitive
advantage. The challenge associated with getting a product and service to the right time at the
lowest cost should be resolved with in supply chain management practice.
The understanding and practicing Effective Supply Chain Management has become the most
important way to gain competitive advantage and improve organizational performance as
competition is no longer within organizations, but within supply chains (Niknia, 2007). In the
current global race and for enhancing profitability and the goal of supply chain management the
integration of both material and information flows seamlessly throughout the supply chain as an
effective competitive weapon (li et al., 2006).
Business organizations need to capitalize on Supply Chain capabilities and resources to bring
products and services to the market faster, at the lowest possible cost, with the appropriate
product and service features and the best overall value (Linet, 2015). Performance measures are
important to the effectiveness of Supply chain. Companies can no longer focus on optimizing
their own operations to the exclusion of their suppliers and customers' operations. Supply Chain
Performance Measures serve as an indicator of how well the Supply Chain system is functioning.
Measuring Supply Chain performance can facilitate a greater understanding of the Supply Chain
and improve its overall performance. There is an emerging requirement to focus on the
performance measurement of the SC in which company is a partner (Peter, 1998). Interest on
performance measurement has notably increased in the last 20 years. Companies have
understood that for competing in continuously changing environment, it is necessary to monitor
and understand firm performances (Linet,2015). Organizational performance is difficult to
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measure and there is no universally accepted definition (wijetunge, 2016). However,
Organizational performance refers to how well an organization achieves its market-oriented
goals as well as its financial goals (YaminS, 1999). A number of prior studies have measured
organizational performance using both financial and market criteria, including return on
investment, market share, profit margin on sales, the growth of ROI, the growth of sales, the
growth of market share, and overall competitive position(Vickery et al., 1999; Stock et al., 2000;
and Zhang., 2001).Performance of organization can be measured by operational performance and
financial performance. These dimensions are divided into the following components: market
share, return on investment (ROI), increase market share, sales growth, return on investment
growth, sales margins and the overall situation of competition (Li et al ,2006).
Effective Supply Chain Management has become a potentially valuable way of securing
competitive advantage through the improving of organizational performance and most
companies have been increasingly implementing Supply Chain Management practices (Bratić,
2011).Hence, this study seeks to examine the effect of supply chain practices on the
organizational performance of Arba Minch textile factory.
1.2 Statement of the problem
Due to the number of rival companies expanding both locally and globally, companies not only
have to reestablish themselves to produce higher-quality products and services, decrease waste
and able to respond to the market but also to handle their supply chain management efficiently.
Organizations are facing different kinds of challenges in their effort of competing in today‘s
dynamic global markets. To remain competitive, organizations must recognize the importance of
supply chain practices that improve not only their own organizational performance, but also
coordinate with their supply chain partners to improve their joint performance. Yet, despite the
significant advances in research and practices, many organizations continue to struggle to
understand the complex issues associated with the coordinated planning and supply activities
amongst the members of their supply networks (Makena, 2014)
The recent business environment is growing to be more challenging, and so, companies have to
increase their business operations to stay competitive. According to this idea, one of the most
important factors for improving business operations is implementing of supply chain
management practices that will translate into improved organizational performance. Although
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Supply Chain Management is currently no longer a new strategy, there are still some serious
practical problems that have yet to be addressed. Like lack of basic knowledge of Supply Chain
Management amongst the business practitioners and even though some of the practitioners have
realized the importance of SCM, they lack an understanding of what constitutes a comprehensive
set of SCM practices (Makina, 2014).
Furthermore, if a manufacturer‘s operation is frequently affected by competitors‘ actions, it may
face greater needs to coordinate with supply chain partners. For example, a manufacturer that
needs to modify the design of its product, because of market entry or new products launched by
competitors, also needs to modify the design of upstream components that constitute the product;
it may also need to rearrange downstream channels for new product distribution. These may
induce considerable coordination. These and other issues now made it clear that management of
supply chain is essential for business success (Linet, 2015). Supply Chain Management practice
in Ethiopia is still in the infancy stages, there are small numbers of manufacturing companies
integrating it to their organizational system. In addition, there are some challenges in the industry
which resulted in reducing the quality and demand of products manufactured domestically. One
of the problems is poor SCM practice of organizations in the industry (Hailemichael, 2011).
Manufacturing industries specifically textile industries will face the same problem, as they are
part of manufacturing industries in Ethiopia.
However, most of the researches related to the supply chain managements were carried out in
developed countries which have different economic, political, technology, social, legal and
cultural status. As a result, it may be difficult to directly apply and generalize that the same
practices and collaboration as well as problems of SCM exists in Ethiopia. This is because of
Ethiopia has different Economic, political, social, legal and cultural status than other countries.
In Ethiopia the practice of integration, collaboration, and having willingness and the trend of
managing the SC from supplier to the customer is traditional i.e., not more than just buy–sale/
transactional relationship. Even if there is SC by default it is not well managed, and implemented
for getting the benefits resulted from effective SCM. So that, each partners with in the SC are
using their own individual efforts to improve their own competitiveness (like, quality, cost,
delivery lead time, etc.) but it is not as such effective (Assefa, 2011).
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As far as the knowledge of the researcher is concerned, there is no empirical study that is
conducted on the effect of Supply Chain Management practices on organizational performance in
the textile industry in Arba Minch (i.e. from perspectives of strategic supplier partnership,
customer relationship and level and quality of information sharing) which incorporate upper and
down streams sides of a supply chain, information flow across a supply chain and internal supply
chain process on textile factory in Ethiopia particularly on Arba Minch textile factory.
Therefore, since the effort to achieve generalization of the causal relationship between SCM
practices and performance calls for empirical confirmation in diverse environments, especially
emerging economies like Ethiopia, this paper is to contribute to the debate by testing the
relationship between SCM practices and organizational performance in the subject company.
This study therefore sought to fill this gap and by establishing the effect of supply chain practices
on organizational performance of Arba Minch textile factory.
1.3 Research Questions
1. What is the effect of strategic supplier partnership on organizational performance at Arba Minch
textile factory?
2. What is the effect customer relationship affect organizational performance at Arba Minch
textile factory?
3. What is the effect of information sharing on organizational performance at Arba Minch textile
factory?
4. What is the effect Quality of Information Sharing affect organizational performance at Arba
Minch textile factory?
1.4 Objectives of the study
1.4.1General Objective of the Study
The general objective of the study is to investigate the effect of Supply Chain Management
practices on organizational performance at Arba Minch textile factory.
1.4.2. Specific Objectives of the study
1. To examine the effects of strategic supplier partnership on organizational performance of
Arba Minch textile factory
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2. To examine the effects of customer relationship on organizational performance of Arba
Minch textile factory
3. To examine the effects of information sharing on organizational performance of Arba Minch
textile factory
4. To examine the effects of Quality of Information Sharing on organizational performance of
Arba Minch textile factory
1.5. Significance of the Study
The researcher will assess the effect supply chain performance management practice because
SCPM practice is an issue in many industries as companies recognize the significance of
creating an incorporated relationship with their suppliers and customers. Managing supply
chain is the way of improving competitiveness by reducing uncertainty and improving
service. In addition, SCM aids in the development and management of a coordinated flow of
goods and services from the raw material stage to the final customer. Supply chain management
will play a key role in managing demand, reducing cost of operation, and improving the quality
of products, the existing poor practice in managing the SC particularly in the textile industry
led the researcher to undertake this study. Addition of this, assessing the effect of practices
of supply chain performance management very important for companies or/and business
organizations for successful accomplishment, competitive advantages. Finally, Addressing
customer requirements and creating satisfactions in this complex and dynamic business world.
Therefore, this study is supposed to add much for the case companies by enlightening how
supply chain performance management affecting the company performance and proposing
recommendations which are compatible with textile industries in order to improve the
company’s performance. Since Supply Chain Management is critical issue for not only for
manufacturing firms but also for other firms. So textile factory is one of manufacturing firms
that give little consideration by researchers.
1.6 Scope of the Study
Supply chain management (SCM) enables to see the members of the supply chain (SC) as an
integrated whole and elicit synergy impact. In short, an effective and efficient SCM has the
importance of cost minimization, reducing lead time, defect prevention, operational
flexibility, system integration, resource utilization and ultimately customer satisfaction.
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SCM encompasses vast areas of managerial practices. However, it is difficult and
unmanageable to conduct the study in all areas that summarizes SCM in terms of time, finance,
and research manageability. Therefore, the scope of this study is delimited on case company
only to specific context that is customer and supplier relationship practice, inventory
management practice, internal operation practice, information sharing and information
technology practice and supply chain and employees performance practices of SCPM in the
case of Arba Minch Textile Factory and area of the study is also limited to the case company
i.e., Arba Minch Textile Factory.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Historical Development of Supply Chain Management
Before the term supply chain was coined, the term used for administration and movement of
manufactured goods and services was logistics. The development of logistics was originally
undertaken by the military in ancient times (Britannica, 1999). Therefore Supply Chain
Management is driven from Logistics concept. The term supply chain management was
coined in, 1982 by Keith Oliver, a management consultant at Booz Allen Hamilton (Cortada,
2001). Oliver used the term to develop a vision for tearing down functional silos that
separated production, marketing, and distribution.
2.2 Supply Chain Management for Operational Excellence
According to John et al. (2003) a competitive advantage will exist only if several key
attributes exist in a supply chain. Five guiding principles are necessary for effective supply
chain managements. Each guiding principle is most important element for operational elements
by creating competitive advantage and addressing customer satisfaction. Thos five elements are
know the customer, adopt lean organizational philosophies, create a supply chain
information infrastructure, integrate business processes and unite decision support systems.
2.3 Supply Chain Management for Competitive Advantage
The research shows that competitive advantage comes primarily from process or skills that
are difficult to replica, manufactured goods or service differentiation, or lower costs. In fact,
supply chain management and integration may provide one of the last sources of such a
competitive advantage as product standardization and commoditization gravitate competition
toward price, and sources of differentiation become more difficult to establish (Power, 2004).
The proponents of the supply chain approach have famous specific activities, backed by
detailed processes, which can improve a company’s competitive advantage and success. In
addition, the proponents quote that, “best in class companies enjoy an advantage in (lower)
total supply chain management costs of 3 - 6% of revenues” (Boyson, et. al, 1999). The
savings come from better management of a company’s activities and assets, resulting in
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lower costs, better products and service, and four competitive advantage. This is shows the
advantages of supply chain management for the company. Therefore, effective management of
supply chain management is creating competitive advantage for the organization.
There are several other factors driving and shaping the move into better supply chain
management to achieve competitive advantage. Some of the factors are competition,
globalization, and consumer demand (Bovet and Sheffi, 1998). Consumer demand includes the
customer’s need for a high level of service, customization, and product availability all at the
same time
2.4 Supply Chain Management of Factory
Supply chain management (SCM) is an approach that has evolved out of the integration of
these considerations. SCM is defined as the integration of key business processes from end
user through original suppliers that provide products, services, and information and hence
add value for customers and other stakeholders (Lambert et al., 2000). The concepts of
supply chain design and management have become a popular business paradigm in these
days. This has intensified with the development of information and communication
technologies that include electronic data interchange (EDI), the Internet and World Wide
Web (WWW) to overcome the ever-increasing complexity of the systems driving buyer-
supplier relationships. The complexity of SCM has also forced companies to improve online
network communication systems.
Supply chain management emphasizes the overall and long-term benefit of all parties on the
chain through co-operation and information sharing. This signifies the importance of
communication and the application of IT in SCM. Information sharing between members of a
supply chain using EDI technology should be increased to reduce uncertainty and
enhance shipment performance of suppliers and greatly improve the performance of the supply
chain system (Srinivasan et al., 1994).
The supply chain of the textile industry consists of the distribution structure which includes
manufacturer, wholesaler, retailer, and consumer of raw silk, yarn, fabrics, dyeing, and
apparel. The textile industry has a very complex value chain structure and requires a complex
processes to supply products to consumers. It was found that the textile companies are not
actively utilizing the information sharing and therefore management of the
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generation,Storage and distribution of information, is not systematically done. Furthermore,
due to the short life cycle of the textile products, it is very difficult to standardize the products
except some categories such as raw materials, yarn, gray fabrics, and the level of innovation is
also extremely low. (Motwani et al., 2000)
2.5 Purpose of supply chain performance management
The objectives of supply chain performance management are to improve the competence and
success of a supply chain (Beamon 1999; Gunasekaran et al. 2001). In addition, Keeber
(2000) also stated that the reason of performance measurement is to reduce operating costs and
customer service in logistics activities, improve company’s revenue growth, and increase sales
volume of the company and increase shareholder value.
2.6 Factors Affecting Supply Chain Management
Supply chain management is applied by companies across the world according to its
demonstrated results such as delivery time reduction, enhanced financial performance, better
customer satisfaction, building trust between suppliers, and others. The identification of these
factors has been based on previous work by Li (2002); the following sections show generic
supply chain management factors and sub-factors that might affect supply chain management
activities.
2.6.1 Environmental uncertainty
Environmental uncertainty refers to the environmental issues in the product chain Dwivedi and
Butcher, (2009). Ettlie and Reza (1992) described this as the unexpected changes of customer,
supplier, competitor, and technology. It was said by Yusuf (1995) that government support
plays an important role for business success. Paulraj and Chen (2007a) mentioned that
environmental uncertainty is an important factor in the realization of strategic supply
management plans. The increase of outsourcing activities in the industry had augmented the
awareness of the importance of strategic supply management, which leads to better relationship
among organizations.
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[Link]. Company environment
This sub-factor is related to the company’s relationship with suppliers and their level of trust
and commitment. Company environment is also related to the company’s expectations of
quality, on time delivery, competition in the sector, and the level of rivalry among firms. In
order to respond effectively to demand, companies realize that imports are a good option for
obtaining flexibility in response, even though working with countries from overseas implies
working with uncertainty (Wu, 2006).
[Link]. Government support
The stage of support that the company receives from the government when importing raw
materials or products from overseas or using domestic materials. It includes the use of
norms, regulations, policies, and advice for the sector. The research conducted by Elzarka et al.,
(2011) describes how government can make a series of reforms to encourage exporters by
increasing manufacturing sector’s competitiveness in the international market through logistics
competency.
[Link]. Uncertainty aspects from overseas
When requiring the outsourcing of raw materials or products, it is important to recognize the
existence of environmental factors such as political uncertainties in other countries that can
increase risk for suppliers, provoke decisions of no investment, change business strategies, and
in general influence business decisions. Social uncertainties such as religion,
environment, language, cultural issues and limitations of communication (Bhattacharyya et
al., 2010).
2.6.2 Information technology
Telecommunications and computer technology allow all the actors in the supply chain to
communicate with each other. The use of information technology allows suppliers,
manufacturers, distributors, retailers, and customers to reduce lead time, paperwork, and
other unnecessary activities. It is also mentioned that managers will experience considerable
advantages with its use such as the flow of information in a coordinated manner, access to
information and data interchange, improved customer and supplier relationships, and inventory
management not only at the national level but also internationally (Handfield and Nichols,
1999)
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2.6.3 Supply chain relationships
Supply chain relationships play an important role in achieving and addressing the company’s
ultimate goals. The coordination and integration of activities with suppliers and
understanding of customer’s needs results in greater benefits for companies. According to Fraza
(2000), supply chain management is directly related to relationship management, which
includes suppliers and customers. Strategic supplier partnerships and customer relationships are
main components in the supply chain management practice.
[Link] Relationships with suppliers
Companies are tending to work with different suppliers in different ways. It is very important
that the relationship with suppliers satisfies their company needs. Hines (2004) mentioned
that in commodity products, it is common to find an adversarial relationship mainly based on
price between buyer and supplier. This type of relationship with suppliers does not allow for
cost reduction in the supply chain. It may be beneficial to network the supplier, to develop
partnerships and alliances that will benefit both partners. This could be based on production,
personal, and or symbolic networking, that will turn on strategic alliances (Hines, 2004),
allowing the information sharing, risk sharing, obtaining mutual benefits and coordinating
plans, permitting the improvement of the supply chain.
[Link] Relationships with customers
The worldwide markets offer a variety of products of different quality and cost. As a result,
companies are always competing and trying to reduce production costs and improve product
quality. Customers look for supplementary choices, better service, higher quality, and faster
delivery. The relationship with customers has turned a strategic issue for today’s companies.
2.6.4 Value-added manufacturing process
Value-added products can be product processes or products that already exist; you only have to
use smart modifications and apply them. According to Bishop (1990), value-added is defined as
“adding those manufacturing or service steps to a commodity product, which the customer
perceives as increasing its value”. Customers always want to pay the cost that they think is
correct, and if they get something additional to the product, they got value-added.
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[Link]. Flexibility
The complex markets, fierce competition and fast changes in demand require that companies be
ready to react promptly to customers’ needs. Flexibility can be understood as the ability to react
and adapt quickly to changes in the market due to an increase or decrease of customers’
requirements, accelerating or decelerating the manufacturing processes when it is requested.
Bowersox, et al., (2007) mention that a logistical competency of a firm can be measured by how
well it is able to adapt to unpredictable situations.
[Link]. Quality
Quality is not a bonus for the customer; it is expected. Quality is also important for the
acceptance of a product. High costs, low productivity, and loss of market share are directly
related to poor quality. Quality is meeting or exceeding the expectations of your customer
(Bishop, 1990). Achieving better efficiency, quality and productivity, and acquiring the
highest value of a product at lower cost will improve the business performance of a company.
[Link]. Production systems
Production systems on textile products in Ethiopia are produced from natural and synthetic
fibers. These fibers are produced from raw materials such as cotton, wool, animal
fibers, and chemicals. These raw materials are spun into yarn which is used in the production
of woven or knitted fabric. The fabrics are then finished, dyed and printed as required and used
to produce different clothes.
2.7 Supply Chain performance
According to Hausman (2005) Supply Chain Performance refers to the extent to which a
supply chain meets end-customer requirements, and contains operational efficiencies which
can deliver that performance. This definition implies that supply chain performance measures
effectiveness and efficiency by how well these two goals are met. Different studies
conducted under SCM, measured supply chain performance by four dimensions: (1) time-
based performance indicates the extent to which a supply chain is improving in speed and
responsiveness, (2) reliability defines the extent to which a supply chain is performing
promised activities and services dependably and accurately, (3) supplier performance
measures the overall suppliers’ tangible and intangible outcomes including product quality,
reliable services and dependable relationship and (4) cost performance refers to the
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Effectiveness in managing costs associated with operating the supply chain. Each of these
four aspects captures the effectiveness and efficiency of a supply chain and reflects the inter-
organizational characteristics of supply chain performance measurement.
Tan et al., (2002) recommended that, to improve overall company’s competitive position, the
company should focus on determining customers’ future needs, reducing response time, on-
time deliveries, aiding suppliers to increase their Just In-Time (JIT) capability, participating
in the sourcing decisions of suppliers, and other practices that showed a significant
relationship. He further reinforced that, while information sharing enhances a company’s
performance, the lack of information capability adversely affected the overall the company’s
competitive position. Once again, this is consistent with the overall product quality model.
Advanced Information Technology is needed to support an efficient SCM network for proper
information exchange and provide useful data required for integrated performance of
procurement operations, logistics, and manufacturing support
Tracey et al. (2005) also measure performance through four separate dimensions including
perceived value, customer loyalty, market performance and financial performance. High
profit-generated companies” gives high emphasis on customer relations practices, technology
and innovation, lean system, followed by quality information exchange, postponement concept,
strategic supplier partnership and lastly information sharing (Sivabrovornvatan2006).
According to Sohal et al. (2007) also supported other studies conducted under SCM and
performance. Furthermore, they presented the relationship between SCM practice and
performance as follows:
Lead Time Minimization- there is significant differences in the mean lead time
minimization performance between low and high level of SCM practice. The higher
significant level to affect lead time was IT followed by information sharing, internal
operation practice and supplier and customer relation. Information Sharing helps companies
to cut lead-time by increasing their forecast accuracy, efficient flow of information
throughout the supply chain and improve the effectiveness of the management of inventory
and production planning process Supplier and customer relation- which is facilitated by IT
and information sharing enable better supply chain coordination which in turn leads to
reduced variability including lead- time.
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Inventory Turnover- IT, Internal Operations, Customer and Supplier Relationship and
Information Sharing significantly influenced inventory turnover performance. According to
Sohal et al, to achieve higher inventory turnover companies need to improve their internal
efficiency through elimination of non-value added activities and excessive inventories. This
can be achieved by effectively implementing IT in all operational activities.
Avoidance of Product Reject/Return- In terms of avoidance of product reject/return, the
information sharing significantly influenced the mean of this performance measure. The
finding made by Sohal et al., shows that training is an important factor to increase product
quality and to increase the avoidance of product reject. Information sharing allows the
company to better predict their customer demand.
Cost Reduction- information sharing results in cost reduction through reduced
manufacturing cost, logistics cost and inventory costs. It is also expected that cost reduction
was correlated with internal operation and IT. Cost reduction requires improvement of
internal operations and other various activities along the supply chain.
Effectiveness in Meeting Customers’ Requirements- the analysis made by Sohal et al.
reveals that companies’ effectiveness in meeting customers’ requirements was significantly
differentiated by the level of information sharing and supplier and customer relationship.
Understanding customers’ demand enables companies to segment their customers to be able
to deliver highly customized products or services. According to Sohal et al. translating
customers’ requirements in to production and services requires companies to work closely
with their partners both upstream and downstream along their supply chain.
2.8 Drivers of Supply Chain Development and main initiatives
In today’s global economy, companies face increasing pressure to reduce costs while
maintaining production and quality levels to deliver results to the customers. Handfield,
(2002) summarized the basic drivers for SC development as: Ever-increasing customer
demand in terms of product and service cost, quality, delivery, technology, and cycle
time brought by global competition
Companies all over the world are pursuing supply chain as the latest methodology to reduce
costs, increase customer satisfaction, better utilize assets, and build new revenues. In order to
achieve these goals, companies must successfully overcome a numbers of challenges/
problems (Makweba & Xu, 2009).
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The consequence of this development is that companies are putting more and more efforts
into developing new ways to increase competitiveness on the worldwide market in terms of
more efficient and effective supply chain management.
2.9 Key Components of Supply Chain Management
Johnson and Pyke, (2000) to help discussion they identified twelve areas of SCM, from their
own experience of teaching and researching supply chain management, from analysis of
syllabus and research papers on supply chain, and from their discussions with managers.
These twelve categories they identified and defined are: location, transportation and logistics,
inventory and forecasting, marketing and channel restructuring, sourcing and supplier
management, information and electronic mediated environments, product design and new
product introduction, service and after sales support, reverse logistics and green issues,
outsourcing and strategic alliances, metrics and incentives, and global issues. So that when
anyone think about SCM should have to consider these issues. Location: This includes models
of facility location, geographic information systems, country differences, taxes and duties,
transportation costs associated with certain locations, and government incentives
The transportation and logistics: issues related to the flow of goods through the supply
chain, including transportation, warehousing, and material handling.
Inventory and forecasting: includes traditional inventory and forecasting models. Inventory
costs are some of the easiest to identify and reduce when attacking supply chain problems.
Marketing and channel restructuring: includes fundamental thinking on supply chain
structure and covers the interface with marketing that emerges from having to deal with
downstream customers. While the inventory category addresses the quantitative side of these
relationships, this category covers relationship management, negotiations, and even the legal
dimension. Most importantly, it examines the role of channel management and supply chain
structure.
Sourcing and supplier management: it looks upstream to suppliers while marketing
focuses downstream in the supply chain.
The information and electronic: mediated environments category addresses long-standing
applications of information technology to reduce inventory and the rapidly expanding area of
electronic commerce.
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Product design and new product: introduction deals with design issues for mass
customization, delayed differentiation, modularity and other issues for new product
introduction. With the increasing supply chain demands of product variety and
customization, there is an increasing body of research available. One of the most exciting
applications of "supply chain thinking" is the increased use of postponed product
differentiation.
The service and after sales: support category addresses the critical, but often overlooked,
problem of providing service and service parts.
Reverse logistics and green issues: are emerging dimensions of supply chain management this
area examines both environmental issues and the reverse logistics issues of product returns.
Outsourcing and strategic alliances: examines the supply chain impact of outsourcing logistics
services. With the rapid growth in third party logistics providers, there is a large and expanding
group of technologies and services to be examined. These include fascinating initiatives such as
supplier hubs managed by third parties.
Metrics and incentives: examines measurement and other organizational and economic issues.
This category includes both measurement within the supply chain and industry bench mark in
Global issues: examines how all of the above categories are affected when companies
operate in multiple countries. This category goes beyond country specific issues, to encompass
issues related to cross boarder distribution and sourcing. For example, currency exchange rates,
duties & taxes, freight forwarding, customs issues, government regulation, and country
comparisons are all included.
2.10. Partnership in Supply Chain
The best supply-chain performers are deeply involved in relationships that call for tight links
between partners. As companies move around toward more extended supply chains,
collaboration is becoming their most strategic activity. partnership is the means by which
companies within their supply chain work together toward mutual objectives through the
sharing of ideas, information, knowledge, risk and rewards. Practically, coordination and
collaboration of up-stream and down-stream of a supply chain is difficult because of
uncertainty in demand and supply and the lack of communication between members of a
19
supply chain which is amplified through successive linkages (Lee 2000). As (Sunil, et al.,
2004) In fact a very immediate and available opportunity when two or more companies
involve in a chain is, the situation where partners would be able to recognize each other’s
competencies and combine them in order to satisfy the customer requirements. Some other
features which may participant anticipate when entering in a partnership are joint planning,
management and measurement; and sharing goals, objectives, benefits, resources, information,
and risks with partner. Ultimately partnership in supply chain management is about getting the
right product, at the right time, in the right quantity to the right customer (Higgins, 2010).2.11
Supply Chain Performance Management Practice. SCPM practices are defined as a set of
activities undertaken in an organization to Promote effective management of its supply chain.
Many manufacturers and distributors are waking up to the potential for the production cost
reduction and service improvements offered by implementing best practices in their supply
chain.
A number of literatures show many different perspectives of SCPM practices (Tan et al.,
2002; Chen and Paul raj 2004; and Li, 2002). These different writers perspectives recommended
a multi-dimensionality of SCM that covers set of activities and processes from upstream,
firm’s internal operations to downstream of the supply chain Upstream Supply Chain: With
the textile industry as the focus of the supply chain, upstream activity includes suppliers of
raw materials, which are materials not processed. For example, cotton is raw materials.
Activities upstream could include Seed cotton & Farm input supplier these materials to fulfill
orders. Suppose the materials are on order but not on hand. The focus of activity would likely be
to mine the requested materials as quickly and efficiently as possible. Transporting or shipping
to the plant is another example of upstream activity.
Internal Operation: In this study, internal operations include all activities related to production,
purchasing and logistic flows. Supply chain management requires flexibility in all internal
operations such as dynamic teaming, logistics, purchasing, finance, research and development
and production in order to be responsive for the market demand in volume and variety to textile
products.
Downstream Supply Chain: Downstream from the textile industry are distributors, shipping
partners, and point-of-sale stops along the way, such as wholesalers and retailers. One important
20
downstream activity is inventory management. Distributors, wholesalers and retailers all strive to
carry inventory in quantities needed to fulfill customer orders without overstocking. When
operations are running smoothly, the distributors ship orders on time. When an order cannot be
filled in a timely manner, this is called a "stock-out" and activity stagnates. A second example of
downstream activity is customer service in the retail store, when the product finally reaches the
consumer.
With regard to the relationship between SCM strategies and operational performance, Tan et
al., (2002) observed that the following SCM-related strategies were significantly related to
overall product quality and overall customer service: namely determination of
customer’s needs, reduction in response time and supplier delivery time, improvement
of integration activities, trust among supply chain members, communication of future
needs, use of information sharing, and assistance of suppliers in JIT (just in time) capability.
There are five basic dimensions/perspectives of supply chain management performance and
practices. These are namely; supplier and customer relationship, information sharing, internal
operation, information technology and training (Lazarovic et al., 2007).
2.11.1 Supplier and Customer Relationship
According to Arawati Agus and Za’faran Hassan (2012), research finding indicates that
effective supply chain management leads to increased supplier and customer satisfaction and
improved organizational performance. Having a competitive advantage generally implies that
an organization can have lower prices, higher quality, higher dependability and shorter
delivery time when compared to its competitors. By SCM practices, competitive advantage
and organizational performance bring into being that higher levels of SCM practice it can
also lead to enhanced competitive advantage and improved organizational performance.
Supplier and customer relationship is defined as a set of firms’ activities in managing its
relationships with customers and suppliers to improve customer satisfaction and synchronize
supply chain activities with suppliers, leverage suppliers’ capacity to deliver superior
products to customers. This is due to the ultimate objective of SCM is to deliver products to
the satisfaction of end customers (Tan, 2001).
Close customer relationship allows a company to be more responsive in fulfilling customers’
demand and differentiate its product from competitors, sustain customer loyalty, &
21
dramatically extend the value it provides to its customer through improving customer
satisfaction by proactively seeking customers’ needs and requirements. The ability to build a
close relationship with customers will bring companies in to a long-lasting competitive edge
(Bowersox et. al, 2007).
2.11.2 Inventory Management
Inventory refers to the value or quantity of raw materials, supplies, work in progress (WIP)
and finished stock that are kept or stored for use as need arises (Lyons and Gillingham,
1981). Raw materials are commodities such as steel and lumber that go into the final
product. Supplies i n c l u d e items s u c h a s M a i n t e n a n c e , Repair and Operating
(MRO inventory that do not go into the final product. Work in progress is materials that have
been partly fabricated but are not yet completed. Finished goods are completed items ready for
shipment (Kothari, 1992).
Inventory management is the art and science of maintaining stock levels of a given group of
items incurring the least cost consistent with other relevant targets and objectives set by
management. It is important that managers organizations that deals with inventor y, to have
in mind, the objective of satisfying customer needs and keeping inventory costs at a
minimum level. Asserts that inventory costs are include holding costs, ordering costs and
shortage costs. Holding costs relate to costs of having physical items in stock. These include
insurance, obsolescence and opportunity costs associated with having funds which could be
elsewhere but are tied up in inventory Drury (2004).
2.11.3 Internal Operation
In addition to the upstream and downstream integration, SCM also emphasize on the
importance of both effectiveness and efficiency of firm’s internal operations on its
performance. This is due to a significant element of SCM practice is an internal operations
and they are the basis for developing a competitive advantage before embarking into external
integrations. Poor internal operations can lead to failure in coordinating with external
partners (Handfield and Nichols, 1999).
Internal operation summarizes all activities related to production system and internal,
logistics flow (Handfield and Nichols, 1999). To judge the SCM practice as an effective and
value adding the internal operation should be flexible in responding to changing
market needs, which is expressed on the basis of agility principles. This means that, a
22
production system must be able to perform rapid change over in both order patterns
and mass customization (Lambert and Cooper 2000).
Thus, the effectiveness of SCM can be examined by the ultimate effect it would
have on customer satisfaction through responsiveness and lower price resulting from
lean internal operations. Automated orders and automated productions are the key enablers
to realize the quick response program (Perry and Sohal, 2000)
2.11.4 Information Sharing
Information sharing is an important aspect in achieving perfect integration in a supply chain.
Cross functional integration and inter organizational integration requires the visibility of
information across the supply chain. Poor information sharing between partners in a supply
chain will result in poor coordination that will lead to many serious problems such as high
inventory levels, inaccurate forecasts, low resource utilization, and high production costs.
Indeed, information sharing is highly considered as the way to reduce demand uncertainty
(Lee and Whang, 2000; Lee, 2002). Many studies have reported that information sharing
can bring many benefits to both suppliers and buyers, such as inventory reduction, and
reduced manufacturing costs (Raghunatahan, 2003). The way companies share information
whatever the confidential level or not; determines the success of the collaboration. The nature
of information to be across the supply chain differs based on the degree of
integration, institutional trust and availability of infrastructure that facilitate the
practice (Lazarovic, et al., 2007). Therefore, an informatics perspective is vital in the supply
chain since information flow is an integral part of SCM and material flow is closely
dependent on information flow.
2.11.5 Information Technology
According to Li, (2002), usage of IT tools is used to facilitate SCM practices and to facilitate
inter-organization activities. Nowadays, since IT is involved in every step of operation in
each company, therefore it is not surprising that organizations’ Supply Chain Management
supported by adopting IT. (Talluri, 2000) makes the comment that the advances in IT
systems have given opportunities for organizations’ to transform the way they manage
their business.
23
In SCM, IT is highly regarded as a major enabler in achieving effective SCM. As a supply
chain spans many organizations in developing products to customers both up-stream,
downstream and many functional areas within a company, the implementation of IT allows the
companies to increase communication and coordination of various value adding activities with
their partners and between functions within their own operation (Simchi-levi et al,
2000). In addition, to advance development of the internet technology offers significant
Opportunities for cost reduction, increasing flexibility, increasing response time, and improving
customer services (Lee and Whang, 2001). The benefits of IT in SCM do not come from
the capabilities of IT itself; instead the significant benefits come from the combination of its
application with corporate strategy and the nature of relationship between companies. IT will
improve collaboration and coordination between supply chain members in the environment
where trust and long–term commitment between partners exist (Chae, 2005) reviled that, the
objectives of IT in SCM are; to provide the information availability and visibility to supply
chain partners, to enable the collaboration with organizations in the supply chain and to allow
the decision making based on the total supply chain information.
2.3 Empirical literature
Supply chain management practices have a significant statistical relationship with supply chain
performance, according to research by IndaSukati et al. (2012) entitled The Study of Supply
Chain Management Strategy and Practices on Supply Chain Performance in Malaysia's
Manufacturing Industry. The effectiveness of the supply chain is also examined in this study in
relation to information sharing, customer relationships, and strategic supplier partnerships.
This study also demonstrated that strategic supplier partnerships, customer relationships, and
information sharing are excellent predictors of supply chain performance.
Mwale (2014) conducted research on the organizational performance and supply chain
management practices of large manufacturing companies in Nairobi, Kenya. According to the
study, there is a strong correlation between supply chain management practices and
organizational performance, which can be attributed to seven independent variables: strategic
supplier partnerships, customer relationships, information sharing levels and quality,
outsourcing levels, lean practices, and postponement. The study also demonstrated that all
seven independent variables have a positive effect on an organization's performance, with
strategic supplier management and customer relationships having the biggest effects. It was
24
made clear through the analysis of the connection between supply chain management practices
and organizational performance that the practices could have a direct impact on performance.
Impact of Supply Chain Management Practices on Organizational Performance: A Case Study
of Haco Industries Limited was studied by Makena (2014). (Kenya). Strategic supplier
partnerships, customer relationships, information sharing, and training practices were used as
independent variables to study the relationship between supply chain management practices
and organizational performance, while market/business and operational performance variables
were used to measure organizational performance. The study's key conclusions showed that
SCM practices were effectively implemented at a high level within Haco Industries Ltd. and
that these practices all improved the efficiency of the company. In other words, they enhanced
the organization's performance in terms of lowering operational costs, reducing lead times,
providing high levels of customer service, and improving product quality.
Birhanemeskel(2018) concluded that the four constructs of supply chain management practices
customer relationship, level and quality of information sharing, and internal lean practices have
a positive and significant impact on organizational performance. While the impact of strategic
supplier partnerships on organizational performance is not statistically significant.
Consequently, by improving organizational performance, it will be possible to achieve long-
term improvements in marketing and financial performance.
2.3 Conceptual frame work
Considering the various dimensions of supply chain management practices and measurement
of organizational performance proposed by several researchers specially the work of Li et al.
(2006), Mustefa (2014) and Mwale (2014), the researcher adapted a research framework that
encompassed the following five dimensions of supply chain management practices: strategic
supplier partnership, customer relationship, quality and information sharing, information
quality and postponement.
Independent variable
Strategic supplier partnership Dependent variable
Customer relationship
Organizational Performance
Level of Information sharing
Quality Information Sharing
25
Figure 2.1: Conceptual framework of the research
Source: Li et al (2006), Birhanemeskel (2018) and Mustefa (2014).
Conceptual framework showing the relationship between supply chain management practices
and organizational performance. In this case; strategic supplier partnership, customer
relationship, Level of information sharing, Quality of Information sharing and Internal Lean
Practices acts as the independent variables while organizational performance of Arba Minch
textile factory is the dependent variable respectively where each of them can either positively
or negatively affect.
26
CHA PTER THREE
RESEARCH METHODOLOGY
3.1 Description of the study Area
The Arba Minch textile factory is located in Ethiopia and is found in south regional state, in
Arba Minch town southern part of Ethiopia which is 505 Km from the capital city of
Ethiopia(Addis Ababa).
3.2 Research Design
Designing a study helps the researcher to plan and implement the study in a way that will help
the researcher to obtain intended results, thus increasing the chances of obtaining information
that could be associated with the real situation (Burns & Grove 2001). Causal research also
called explanatory research is the investigation of cause-and-effect relationships in order to
determine causality; to observe variation in the variable that is assumed to cause the change in
the other variable and then measure the changes in the other variable using statistical methods.
It enables us to understand the very nature of what we are actually looking at it (Binyam,
2016).The study will be intended to analyze the casual relations between the dependent
variable (Organizational Performance) and the independent variables (SCMP) using correlation
and regression, which makes the research explanatory. Therefore this study will be relied on
explanatory type of research design.
3.3 Research Approach
Quantitative approach is one in which the investigator primarily uses post positivist claims for
developing knowledge (i.e. cause and effect thinking, reduction to specific variables and
hypotheses and questions, use of measurement and observation, and the test of theories),
employs strategies of inquiry such as experiments and surveys, and collect data on
predetermined instruments that yield statistical data. Qualitative approach is one in which the
instruments that yield statistics data. Qualitative approach is one in which the inquirer often
makes knowledge claims based primarily on constructivist perspective (i.e. the multiple
meanings of individual experiences meanings socially and historically constructed, with an
intent of developing a theory or patter) or advocacy/ participatory perspectives (i.e. political,
issue-oriented, collaborative, or change oriented) or both (Creswell, 2003). According to
27
Creswell (2005), quantitative research is a type of educational research in which the researcher
decides what to study, asks specific, narrow questions, collects numeric (numbered) data from
participants, analyzes these numbers using statistics, and conducts the inquiry in an unbiased,
objective manner. Quantitative method is a study involving analysis of data and information
that are descriptive in nature and qualified (Sekaran, 2003). Quantitative approach is one in
which the investigator primarily uses postpositive claims for developing knowledge (Creswell,
2009). Therefore, the researcher will be used both quantitative and qualitative research
approach in order to measure the effect of independent variables (SCM practices) on the
dependent variable (Organizational Performance)by collecting both quantitative the data that
are numerical in nature and qualitative the data other than numerical .
3.4. Target population
In order to get the information, the target population of this study will be the employees of the
Arba Minch textile factory.
3.5 Sampling techniques and sample size
Among the whole three groups the researcher will be selected 119 total populations out of
them 25 are female and 94 are male which will be selected by random sampling techniques.
So, in this study there are 3 groups in the total population. Then those each group is sub
divided in to five sub-groups based on their similarities
3.6 Data Gathering Technique and Instruments
In this study primary data will be used that will be collected using questionnaires that will be
given out to company employees. There are three parts of the questionnaire. Part one will
created to collect broad information about the respondents' backgrounds, roles, and
experiences within the department and organization. Section three is dedicated to
Organizational Performance, while Part 2 is prepared to ask respondents to complete the
SCMP. This section, which consists of 35 questions, gauges how the SCMP has affected the
organization's performance, which is broken down into five categories. Strategic Supplier
Partnership, Customer Relationship, Information Sharing Level and Quality, and Internal Lean
Practices were modified slightly from Li et al. (2006).
28
3.7. Model Specification
The regression model that will be used for the analysis presented as follows;
Y = B0+B1X1+B2X2+B3X3+B4X4+ε
Adopted from; Bluman(2009) Where, Y=organizational Performance of Arba Minch textile
factory /dependent variable/ B0= Constant (value of Y when X1, X2, X3 and X4= 0) B1, B2,
B3 and B4 are coefficients of the regression for Strategic supplier partnership, Customer
relationship, Level of Information sharing and Quality Information Sharing. X1= Strategic
supplier partnership X2= Customer relationship X3= Level of information sharing and X4=
Quality Information Sharing
3.8. Reliability and Validity Analysis
3.8.1. Validity
A measurement device's validity decides whether or not it is measuring what it is designed to
measure. The essential issue of measurement validity is whether or not measurements of ideas
truly measure the notion. Material validity, convergent validity concurrent, predictive validity,
construct validity, and convergent validity are all approaches to produce validity.
3.8.2. Reliability
Nunnaly (1978) defined dependability as the consistency of a test, survey, observation, or other
measuring instrument. As a result, Cronbach's alpha statistics will be used to assess the
questionnaire's reliability. The instrument's degree of reliability reflects the accuracy of the
variables. Cronbach's alpha is a metric of efficiency associated with the variance accounted for
in the true score of the underlying construct, and it can only be calculated for variables with
several calculation questions.
3.9 ethical consideration
3.10 time and budget schedule
3.10.1. Time Schedule
The table below specifies the time period that will be covered until the compellation of the study.
N o . Activity Time April May June July August
1 . Background of Study ✔ .
29
2 . Statement of the problem ✔
3 . Questionnaires ✔
4 . Significance of the study ✔
5 . Objectives of the study ✔
6 . Literature review ✔
7 . Data collection ✔
8 . Data analysis ✔
9 . Data analysis and presentation ✔
1 0 Submission of research and defense ✔
Table 3.1 Time schedules
3.10.2 Budget Plan
The research activities in 2023. The main activities and their corresponding calendar are
presented in these tables.
No Materials Quantity in Unit Unit cost Total cost in birr
1 Papers 2 packages 150 300
2 Pens 3 25 75
3 Pencils 1 3 3
4 Print 50 papers 3 150
5 Flash 1 400 400
6 Telephone 1 200 200
7 Internet 420 minutes 0.50 210
8 Ruler 1 10 10
9 Transportation cost 5 15 75
Total cost 1423
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