An integrated supply chain management model for value creation: Case evidence

Abstract

This study examines the value creating supply chain management (SCM) practices of two selected manufacturing case firms in Malaysia. Drawing from the literature, an integrated SCM model is put forward in this paper to discuss the case findings. Our findings indicate that both case firms have engaged in an integrated SCM practice, involving logistics, information technology, supply chain integration and networking and relationship management. Consistent with the literature, the findings also indicate a marked movement from traditional SCM practices towards best value SCM practices. This paradigm shift has helped firms enhance their performance, thus sustaining value creation. In this paper, we also assert that effective communication, appropriate culture and cross-functional team formation are vital pre-requisites for firms to promote value creation within the supply chain framework.

Full text

Int. J. Business Performance and Supply Chain Modelling, Vol. 4, Nos. 3/4, 2012 379
Copyright © 2012 Inderscience Enterprises Ltd.
An integrated supply chain management model for
value creation: case evidence
Eley Suzana Kasim*
Faculty of Accountancy and Accounting Research Institute,
Universiti Teknologi MARA Melaka,
78000 Alor Gajah, Melaka, Malaysia
Fax: +603-55444921
E-mail: eleykasim@gmail.com
E-mail: ekasim@bdrmelaka.uitm.edu.my
*Corresponding author
Indra Devi Rajamanoharan and
Normah Hj. Omar
Faculty of Accountancy and Accounting Research Institute,
Universiti Teknologi MARA,
14th Floor, Menara SAAS,
40450, Shah Alam, Selangor, Malaysia
Fax: 603-55444921
E-mail: indra.raj@hotmail.com
E-mail: normah645@salam.uitm.edu.my
Abstract: This study examines the value creating supply chain management
(SCM) practices of two selected manufacturing case firms in Malaysia.
Drawing from the literature, an integrated SCM model is put forward in this
paper to discuss the case findings. Our findings indicate that both case firms
have engaged in an integrated SCM practice, involving logistics, information
technology, supply chain integration and networking and relationship
management. Consistent with the literature, the findings also indicate a marked
movement from traditional SCM practices towards best value SCM practices.
This paradigm shift has helped firms enhance their performance, thus
sustaining value creation. In this paper, we also assert that effective
communication, appropriate culture and cross-functional team formation are
vital pre-requisites for firms to promote value creation within the supply chain
framework.
Keywords: integrated supply chain management; SCM; value creation; critical
success factors; performance.
Reference to this paper should be made as follows: Kasim, E.S.,
Rajamanoharan, I.D. and Omar, N.H. (2012) ‘An integrated supply chain
management model for value creation: case evidence’, Int. J. Business
Performance and Supply Chain Modelling, Vol. 4, Nos. 3/4, pp.379–401.
Biographical notes: Eley Suzana Kasim is a Senior Lecturer at the Faculty of
Accountancy, Universiti Teknologi MARA Melaka. Currently, she is a PhD
candidate at the Universiti Teknologi MARA Shah Alam. Her research interest
is mainly on management accounting and supply chain management. She has

380 E.S. Kasim et al.
presented several papers on management accounting and supply chain
management at local and international conferences. She is also a committee
member of the National Award for Management Accounting (NAfMA), which
is co-organised by the Chartered Institute of Management Accountants (CIMA)
Malaysia and the Malaysian Institute of Accountants (MIA).
Indra Devi Rajamanoharan is an Associate Professor of Management
Accounting at the Universiti Teknologi MARA, (UiTM), Malaysia. Her
research interest and publications are in the fields of quality management, Six
Sigma, supply chain management performance measurement systems,
management accounting, corporate sustainability, and accounting education.
Normah Hj. Omar is a Professor in Management Accounting and Corporate
Governance at Universiti Teknologi MARA, Malaysia. Currently, she is the
Director of the Accounting Research Institute (ARI), a Centre of Excellence
recognised and funded by the Ministry of Higher Education, Malaysia. Her
research interest and publications are in the areas of management accounting,
forensic accounting and financial criminology. She is also an Editor of several
international refereed journals and the Vice President and founding committee
member of the Asia-Pacific Management Accounting Association (APMAA).
She is one of the founder members of the National Award for Management
Accounting (NAfMA) which is co-organised by the Chartered Institute of
Management Accountants (CIMA) Malaysia and the Malaysian Institute of
Accountants (MIA).
1 Introduction
Recent business developments together with global competition have underscored the
need for organisations to restructure their traditional management approaches. It has been
widely accepted that the move forward for businesses is to compete not among each other
but rather among supply chains (Ketchen and Hult, 2007). Conceptually, a supply chain
reflects a linked set of resources and processes associated with moving goods from the
sourcing of raw material stage through to the end-user (Singh et al., 2010; Brewer and
Speh, 2000). Along this line of discussion, proponents of supply chain management
(SCM) recognise that SCM practices act as a basis for enhancing organisational
performance (Hassini, 2008; Mentzer, 2004; Paulraj and Chen, 2007). Extant literature
also suggests that SCM practices besides enhancing firm performance also support value
creation (Beck, 2004; Hammervoll, 2009; Horvath, 2001; Ketchen et al., 2008; Li et al.,
2006; Ou et al., 2010; Paulraj and Chen, 2007). Through value creation firms are able to
gain competitive advantage (Li et al., 2006; Ou et al., 2010; Paulraj and Chen, 2007).
In order to evaluate SCM performance, firms need to develop or identify appropriate
measures. It is generally difficult to quantify SCM benefits (Fawcett et al., 2008),
however, researchers tend to agree that effective SCM can be evaluated in terms of
production, delivery and distribution cost savings, improved synergies, increased
competitiveness, higher productivity and profitability (Hsu, 2005; Langfield-Smith and
Smith, 2006). Similarly, Chin et al. (2004) identified reduced costs of operation,
improved inventory, lead times and customer satisfaction to be the most important
objectives to implement SCM practices. Many researchers attribute these beneficial

An integrated supply chain management model for value creation 381
results to specific SCM practices (Chow et al., 2008; Li et al., 2006; Narasimhan et al.,
2008).
The SCM practices construct can be defined as a set of activities undertaken in an
organisation to promote effective management of its supply chain (Koh et al., 2007;
Stock et al., 2010). Specific practices such as strategic supplier partnership, customer
relationship, level of information sharing, quality of information sharing and
postponement have been known to affect organisational performance (Li et al., 2006).
Despite these contentions, researchers argue that SCM practices are context-specific and
tend to differ across firms (Cook et al., 2011), industries and also among countries
(Schoenherr, 2009). Therefore, the issue of how these SCM practices are applied within
the Malaysian environment needs to be addressed.
Even though there have been attempts to examine SCM practices in Malaysia
(e.g., Sukati et al., 2011; Omar et al., 2006), most of the studies tend to be narrowly
focused on certain isolated aspects of SCM such as supplier development
(Abdullah et al., 2008), integration (Zailani and Rajagopal, 2005), inventory management
(Mustaffa and Potter, 2009) and outsourcing (Raja et al., 2006). A review of the
literature suggests that studies that examine SCM practices as a collection of activities to
enhance supply chain performance of firms in Malaysia are still sparse. Thus, it
remains unclear whether the same set of SCM practices found in the West
delivers similar benefits in the local context. This study therefore aims to contribute
towards bridging the current gap in the literature through examining the following
research issues:
1 to provide an insight into the nature of value-creating SCM practices within selected
case firms in Malaysia
2 to identify critical success factors of value-adding SCM practices within selected
case firms in Malaysia.
2 Literature review
2.1 SCM practices
The literature on SCM practices mostly support the value-creating ability of certain SCM
practices applied by firms seeking to achieve the competitive edge. For example, Tan
(2002) concluded that SC integration, information sharing and JIT capability, positively
impact performance. A seminal work by Min and Mentzer (2004) views SCM practices
as the sum total of all the overt management actions undertaken in realising the supply
chain philosophy across firms. These include agreed vision and goals, information
sharing, risk and reward sharing, cooperation, process integration, long term relationship
and finally, agreed supply chain leadership.
From a strategic perspective, Lee (2002) also commented that firms should consider
developing SC strategies which provided a fit between SCM practices and product
characteristics, viz functional versus innovative products. Based on the products
characteristics, he identified four different types of strategies:

382 E.S. Kasim et al.
1 efficient SC strategy to achieve highest cost efficiencies
2 responsive SC strategy which aims at being responsive and flexible to changing
customer needs
3 risk-hedging SC strategy which focuses on pooling and sharing resources in SC
4 agile SC strategy that seeks for being responsive and flexible to customer needs
while hedging through pooling of inventory or other resources.
Monczka et al. (2011) added that the chosen business strategies should focus on value
creation. Hence, they developed a technique called value focused supply (VFS). The aim
of a VFS is “to increase the competitiveness of the company’s end products and services,
thereby increasing value for both customers and the company by linking supply to
competitive business strategies” [Monczka et al., (2011), p.48].
Min and Mentzer’s (2004) however noted that the strategic measurement of SCM
does not provide a detailed activity list for day-to-day SCM processes. Thus, in view of
the ongoing concern on the development of operational constructs of SCM practices,
Narasimhan et al. (2008) distinguish between corporate and functional level SCM
initiatives. They proposed three major components of functional SCM initiatives which
cover functional-related issues such as supply/materials management, internal operations
and customer/distribution management On the other hand, the corporate level SCM
practices consist of SC integration, information sharing, corporate JIT capability, supplier
relationship, customer relationship and geographic proximity. Chen and Paulraj (2004a)
were more concerned with the operational aspects of partnering practices between buyers
and sellers. Among the constructs developed include the practice of having a limited
number of qualified suppliers, fostering close long term relationship between buyer and
supplier, two-way inter-organisational communication, formation of cross-functional
teams and the integration of suppliers in the new product development.
Zhou and Benton (2007) considered SCM practices from the planning, JIT and
delivery practice perspective. Their study aimed to examine the effect of information
sharing, supply chain dynamism and SCM practices on performance. Based on a survey
of US manufacturing firms, it was revealed that effective SCM practices are critical in
enhancing supply chain performance. However, more recently, Cook et al. (2011)
highlighted planning systems and the internet as components of SCM practices along
with previously identified practices (information sharing, long term relationships, supply
and distribution network structure). Along this line of discussion, Mahama (2006) claims
that information sharing is one of three dimensions of cooperation needed between the
buyer and the seller. Hence, information sharing play a crucial intermediate role in the
SCM practices.
Despite these findings, studies on SCM practices within the Malaysian context are
limited, particularly from a value creation perspective. From a broader perspective,
Mustaffa and Porter (2009) studied SCM practices of Malaysian companies from a
healthcare supply chain point of view. Their study focused on inventory management of
medicines from a wholesaler to a chain of clinics. Through a case study, Mustaffa and
Porter suggested that a system of vendor-managed inventory should be employed as an
improvement strategy. On the other hand, Sukati et al. (2011) focused solely on the SCM
practices as applied by consumer goods firms in Johor Bahru, Malaysia. They highlighted
that SCM practices in terms of strategic supplier partnership, customer relationship and
information sharing are related to supply chain responsiveness and competitive

An integrated supply chain management model for value creation 383
advantage. From the above literature it can be concluded that various dimensions have
been employed in order to describe SCM practices. Drawing from the current literature, a
conceptual framework for an integrated SCM for value creation is put forward in
Figure 1.
3 Conceptual framework: integrated SCM model for value creation
Previous studies have identified several SCM practices for value creation. The most
common SCM practices for value creation consist of logistics (Daniel et al., 2009; Inman
et al., 2011; Ketchen et al., 2008); information technology (IT) (Ding et al., 2011; Hong
et al., 2010; Ketchen et al., 2008); SC integration (Gemser and Leenders, 2011; Johnsen,
2009; Kim, 2009) and finally, networking and relationship management practices
(Govindan et al., 2010; Ketchen et al., 2008; Li et al., 2006). With the exception of
Ketchen et al. (2008), most of these SCM commentators focus on the above practices in
isolation. In this study however, a multi-faceted approach is used to examine the SCM
practices for value creation. From a value creation point of view, Ketchen et al. (2008)
added that best value supply chains are designed to deliver superior total value to the
customer in terms of speed, cost, quality and flexibility. However, in this study, value
creation is measured using only cost issues.
Drawing from the current literature, an integrated SCM framework (Figure 1) is
advanced in this study to discuss the research questions identified in the introduction
section. As presented in Figure 1, the proposed framework puts forward an integrated
SCM practices consisting of logistics, IT, supply chain integration and networking and
relationship management practices required for value creation. Each of these components
is explained in the following sections.
Figure 1 An integrated SCM model for value creation (see online version for colours)
Integrated
Chain
Management
Supply
Communicat ion
Culture
Crit ical
success
factors –
3Cs Cross-functional
Networking
and
relationship
management
Logistics
Supply chain
integration
Informat ion
technology
Value
creation

384 E.S. Kasim et al.
3.1 Logistics
In Figure 1, logistics practice is indicated as one of four key components of integrated
SCM. The main principle of logistics in SCM is the aim of ensuring a seamless flow of
physical supply and information from suppliers through to the end customers (Quayle,
2003). A JIT system supports an effective logistic management practice that creates
value. Giunipero et al. (2005) noted that JIT is increasingly recognised as part of SCM
today although in the past it was commonly viewed as a waste elimination and inventory
reduction programme. Inman et al. (2011, p.344) define JIT as “a comprehensive strategy
that combines the primary tactical elements of JIT-production and JIT-purchasing, to
eliminate waste and optimally utilize resources throughout the supply chain”. The advent
of just in time (JIT) philosophy, among others, has provided the appropriate technique for
ensuring that materials or supplies are purchased and issued for production just at the
right time when it is needed, while simultaneously reducing wastes. The use of JIT tools
particularly the kanban system enables resources to be utilised more efficiently and thus
enhance delivery performance (Kannan and Tan, 2005).
3.2 SC information technology
As shown in Figure 1, IT forms another key variable for integrated SCM. Information
technology consist of “a set of tools, processes, and methodologies (such as
coding/programming, data communications, data conversion, storage and retrieval,
systems analysis and design, systems control) and the associated equipment employed to
collect, process, and present information” (Businessdictionary.com). The role played by
information technology in SCM is highlighted especially in controlling the complex
supply chains (Zailani et al., 2008). IT such as electronic data interchange (EDI),
enterprise resource planning (ERP) and materials requirement planning (MRP), enable
better coordination of actions among SC members by facilitating efficient and effective
information exchange between them (Fiala, 2005). Although IT appears to be a necessary
condition for successful SCM practices, it may not be sufficient on its own. For example,
Omar et al. (2006) found that IT is not a significant contributor of SCM success among
Malaysian manufacturers as indicated by manufacturing performance measures. They
proposed, however, that this could be due to lack of firms’ readiness to utilise IT as well
as insufficient level of IT maturity.
3.3 SC integration
The proposed framework in Figure 1 also suggests that value creation could be achieved
through SC integration practices. SCM scholars mainly view supply chain integration as
a process-based integration involving internal and external supply chain stakeholders
(e.g., Lee et al., 2007; Loke et al., 2009). Flynn et al. (2010) broadly defined SC
integration as the extent to which a manufacturer strategically collaborates with its supply
chain partners and collaboratively manages intra- and inter-organisational processes. The
aim of such integration is to achieve effective and efficient flows of products and
services, information, money and decisions, to provide maximum value to the customer.
It has been increasingly accepted that supply chain integration creates strategic
advantages (Lee et al., 2007; Sanders and Premus, 2005; Liao, 2008). Furthermore, SC

An integrated supply chain management model for value creation 385
integration, considered as one of the main SC strategies (Narasimhan et al., 2008) has
been identified as an important prerequisite to pursue sustainable performance growth
(Liao, 2008; Zailani and Rajagopal, 2005).
3.4 Networking and relationship management
Firms have realised that it is difficult to compete effectively and profitably in the
absence of collaborative relationships and mutually beneficial partnerships between
firms and its supply chain partners (Stock et al., 2010). As such, networking
and relationship management practices are indicated in Figure 1 as an important
component for value creation. According to Chen and Paulraj (2004b) networking and
relationship management practices involves strategic, proactive and long term oriented
buyer-supplier relationship. Several features of this practices include the recognition of
purchasing function at the strategic level (Paulraj and Chen, 2007; Chen et al., 2004;
Paulraj et al., 2006), having fewer numbers of suppliers (Ogden, 2006) as well as
implementing supplier development activities (Krause et al., 1998). Common activities
that firms undertake to help improve their suppliers relationship management
include goal setting, plant visits, supplier audits, supplier training, performance
measurement, supplier certification, supplier recognition and efforts to instil a philosophy
of continuous improvement in the supplier (Krause et al., 1998). Previous studies
support the positive impact that supplier development has on performance (e.g.,
Wen-li et al., 2003; Humphreys et al., 2004). Furthermore, Abdullah and Maharjan
(2003) contend that effective two-way communication, long-term commitment, ongoing
assistance and a collaborative posture are critical to the success of the supplier
development effort.
3.5 Best value SCM – value creation
Prior research efforts which have examined value creation along the supply chain
have reported widely dispersed and disjointed results. For instance, Hammervoll
(2009) approached value creation from inter-organisational relationships perspectives.
Similarly, Horvath (2001) examined value creation as it applies to collaborations in
supply chains which lead to efficiencies and cost savings across a wide range of
business processes. Others focused on value generated in terms of IT usage in SC
settings (e.g., Wiengarten et al., 2011; Beck, 2004), and logistics efficiency (e.g., Ha et
al., 2011). On the other hand, Huemer (2006) emphasised on value creation in SCM via
strategic supplier networks such as knowledge sharing, learning and innovation
perspectives.
More recently, commentators have suggested that SCM practices need to possess
certain value adding characteristics for it to deliver value (Ketchen et al., 2008).
According to Ketchen et al. (2008), best value supply chains differ from traditional
supply chains in terms of focus. Rather than focusing primarily on speed or cost, as
with typical traditional supply chains, best value supply chains are designed to deliver
superior total value to the customer in terms of speed, cost, quality, and flexibility. Figure
2 summarises the key differences in how SCM practices are being viewed, highlighting
the significant changes from the traditional perspective to best value supply chain
practices.

386 E.S. Kasim et al.
Figure 2 Traditional SCM versus best value SCM (see online version for colours)
Source: Adapted from Ketchen et al. (2008) and Kim (2009)
Drawing on the work of Ketchen et al. (2008) and Kim (2009), in this study, best value
supply chains are viewed as supply chains with value creating practices. As indicated in
Figure 1, these practices consist of a set of integrated practices involving logistics, IT,
supply chain integration and networking and relationship management. Our contention is
that firms that shifted from traditional SCM to develop value creating SCM practices
within the four integrated practices stated in Figure 2 will enhance their performance.
4 Critical success factors of value-creating integrated SCM practices
A review of the literature suggests that communication (Paulraj et al., 2008), culture
(McAfee et al., 2002; Mello and Stank, 2005) and cross-functional orientation (Paulraj
and Chen, 2007; Chin et al., 2004) are key factors associated with the development of an
integrated SCM. It is also widely noted that the difference between traditional supply
chains and value adding supply chains lies in the way a firm leverage these three factors
(Paulraj et al., 2008; McAfee et al., 2002; Mello and Stank, 2005; Paulraj and Chen,
2007; Chin et al., 2004). On the basis of this literature, in the proposed conceptual
framework (Figure 1) communication, culture and cross-functional orientation are
identified as critical success factors of an integrated SCM practice. These factors are
discussed in the subsequent sections.
4.1 Communication
Communication can be viewed as the sharing of information that allows for the transfer
of necessary information between two or more parties (Park et al., 2011). Butler (2010)
highlights two types of communication prevalent in strategic alliances activities which
are applicable in supply chain environment. These include the internal (within firm) and

An integrated supply chain management model for value creation 387
the lateral (between firms) forms of communication. Several studies have examined the
role of inter and intra-firm communication in enhancing the collaboration in a
buyer-supplier relationship (e.g., Neuman et al., 2000; Paulraj et al., 2008). Neuman et al.
(2000) suggests that supply chain optimisation requires effective communication across
the entire chain. Paulraj et al. (2008) added that inter-organisational communication
between buyers and suppliers could be recognised as a relational competency that has the
potential to yield strategic advantages for supply chain partners. Similarly, Park et al.
(2011) found that internal communication between operations and marketing departments
directly impact performance in terms of new service development.
The type of media used in communicating supply chain issues and problems is vital
towards ensuring that effective communication occurs within supply chains. This is
because the choice of media affects the meaning of the message being transmitted
(Lengel and Daft, 1988). According to Lengel and Daft (1988), communication medium
can take different forms ranging from face to face, interactive, personal ‘memoing’ to
general bulletins. The richer and more personal communication means are generally more
effective for communication of ambiguous issues compared to leaner, less rich media.
Ineffective communication tends to occur when either richer media are used for routine
tasks or on the other hand, leaner media are utilised for complex tasks. The frequency of
communication also plays a role in ensuring effective communication. For instance,
Butler (2010) found that more frequent meetings between all levels of management and
staff improve communication quality. Better communication resulted in terms of clarity,
accuracy, translation and interpretation of the messages conveyed.
4.2 Culture
Culture is colloquially viewed as the “way people do things around here” (Deal and
Kennedy, 1982) based on rules and procedures embedded in an organisation. Pettigrew
(1979) introduced the anthropological concept of organisational culture by referring to
‘symbolisms’, ‘myths’ and ‘rituals’ as possible unit of analysis within organisational
boundaries. However, a more formally cited definition is by Schein (2004, p.17) where it
is defined as “...a pattern of shared basic assumptions that was learned by a group as it
solved its problems of external adaptation and internal integration, that has worked well
enough to be considered valid and, therefore, to be taught to new members as the correct
way to perceive, think, and feel in relation to those problems...”
There has been a growing interest in the issue of whether organisational culture plays
a role in determining the success of supply chains. McAfee et al. (2002) claimed that
cultural consistency in terms of both internal corporate culture and external supply chain
culture need to be consistent in order for organisations to succeed in long-term
relationship-based strategies. Similarly, Mello and Stank (2005) recognised the
importance of supply chain oriented culture. Among others, they proposed that the
stronger the supply chain oriented culture of the internal organisation and of the supply
chain partner firms, the more effective would be the ability to cooperate between firms,
share information, risks and rewards, establish long term relationships and common
customer service goals, as well as integrating across functional areas and key processes.
More recently, Sambasivan and Ching (2010, p.456) noted that “identifying the link
between the culture and strategic alliances in a supply chain can help decision makers
choose the right kind of alliance partners and decide appropriate strategies that need to be
adopted to form and maintain alliances”.

388 E.S. Kasim et al.
4.3 Cross-functional orientation
A supply chain entails decisions made by individuals interacting with each other across
functions within an organisation. Communication between these individuals could be
facilitated by having cross-functional teamwork orientation. Numerous studies have
found that when cross-functional teams exists, they are more likely to
1 effectively support integration of various processes in the supply chain (Chin et al.,
2004)
2 foster relationship-based employee empowerment (Kane-Urrabazo, 2006; Saad and
Patel, 2006)
3 contribute to the success of efforts in product design, cost reductions, quality
initiatives and knowledge creation (Paulraj and Chen, 2007).
For instance, in SCM activities related to supplier selection, supplier auditing and
negotiation tasks, the formation of cross-functional teams enable tasks to be carried out
conjointly with personnel from other departments as well as across the organisational
boundaries of buyer and supplier firms (Andersen and Rask, 2003).
5 Research methodology
A multiple case study approach is used in this study to examine the SCM practices of two
selected case firms in the manufacturing industry. According to Yin (2003, p.9), a case
study approach is appropriate when “a ‘how’ or ‘why’ question is being asked about a
contemporary set of events, over which the investigator has little or no control”. Thus,
given that the nature of value creating SCM practices among Malaysian manufacturers
are largely unexplored, the case study method is perceived to be the most appropriate
research strategy to be adopted. The selection of the case firms for this case study was
based on the criteria that the firms represents major players in their respective industry
and each firm has extensive inter-industry linkages connecting various suppliers and
distributors/customers. Therefore, the selected case firms provided a good illustration of
the key issues that may reflect the implementation of SCPMS within the automotive
industry.
All issues were addressed mainly through the use of semi-structured interviews with
the key personnel of the company who is actively involved the implementation of SCM
of this company. Before conducting the interviews, respondents were promised
confidentiality to facilitate candid responses. A semi-structured interview protocol was
used as a guideline during the interviews. However, respondents were allowed to develop
their own explanations, and cues were taken from these for subsequent discussions and
probes. The interviews lasted on average of one hour per session. The data was recorded
and subsequently transcribed. Other sources of evidence were examined including public
documentation such as documents from internet-enabled company website and annual
reports. The qualitative data analysis used pattern matching and coding of constructs to
analyse the interview transcriptions and archival data for consistent patterns and themes
relevant to the study. Despite the limitations in terms of statistical generalisation, the case
study offers opportunities for in-depth observation and analysis of the SCM processes.

An integrated supply chain management model for value creation 389
6 Findings
6.1 Profile of case firms
6.1.1 Firm A
Firm A started as a manufacturer and supplier of quality generic medicines serving
mainly the Malaysian Ministry of Health. However, since the privatisation of the
company in 1994, it has expanded its business internationally to countries such as
Indonesia and Vietnam. Apart from assisting the government in managing drug
expenditure, it also acts as a holder of national emergency stocks of drugs. This company
deals with generic drugs with relatively stable demand and a long product life cycle. As
such their products can be categorised as functional products (Lee, 2002).
Firm A, which employs over 400 people, is a wholly-owned subsidiary of a large
healthcare company, which specialises in manufacturing of generic pharmaceuticals,
logistics and distribution, sales and marketing, supply of medical products and services
and hospital equipping. The firm which serves two segments of market – public and
private consumers, is a concession holder for the Malaysian Government for the supply
of generic drugs. For the government consumers, the company serves the Malaysia public
hospitals and clinics whereas its private market involves the supply of generic drugs to
the private hospitals, private pharmacies and clinics.
6.1.2 Firm B
Firm B is a subsidiary of an established European semiconductor manufacturer. The
parent company started its business as a manufacturer of carbon-filament lamps which
then evolved to become a strong brand name in the semiconductor industry. It specialises
in the manufacture and supply of discrete components such as semiconductors, transistors
and integrated circuits as well as a broad range of electrical products. Following a
massive buyout by a private equity consortium recently, the group company moved
forward under a different name, signifying a crucial change in leadership and
management of the company. The parent company which is based in Holland has several
subsidiaries operating globally. Customers, both domestic and international, range from
electronic goods manufacturers to makers of automotives and communication devices.
Firm B has invested heavily on research and development capabilities. This has enabled
the firm to innovate and develop new technologies to gain competitive advantage. Due to
its innovative nature, the products of this firm are categorised as innovative products
(Lee, 2002). Despite their strong R&D capabilities, the company faces intensified
competition from other major competitors.
6.2 Integrated SCM practices
Consistent with the literature on the characteristics of value-creating practices, evidence
indicated that both case firms have an integrated SCM practices put in place. The type of
integrated SCM practices for value creation found in both case firms are discussed in the
following sections.

390 E.S. Kasim et al.
6.2.1 Logistics
Firm A uses the service of a third party logistics provider, which is also its sister
company. By outsourcing the logistics to the third party logistics company, the case firm
is able to leverage on the third party’s competency in managing inter-firm flow of goods
more efficiently. This is consistent with the literature which suggests that utilising the
service of a third party logistics provider (logistic services providers) creates value
primarily by connecting clients or customers who wish to be interdependent (Huemer,
2006). In addition, this particular practice benefits Firm A particularly in terms of cost
reduction and the resultant improved productivity profits and service quality. This is
consistent with Rajesh et al. (2010) findings.
Firm B, on the other hand, utilises its regional distribution hub for product
distributions across the USA and Europe in order to improve logistics efficiency. Apart
from that, the use of regional hub maximises delivery speed due to geographical
proximity (i.e., the distribution centre is located near customers). Thus, the case firm
achieved greater efficiency and cost savings through the use of local transportation
systems if compared to direct distribution to customers from the case firm. A certain level
of inventory is maintained at the hub and replenished as and when needed. This practice
ensures ‘out of stock’ problems are kept at the minimum which in turn enhances
flexibility in logistics operations.
Despite operating in different industrial sectors, both case firms confirm the
ongoing argument that for value creation there is a need to shift from logistics practices
which are used primarily for transport mechanisms towards a more integrated
inventory-focused mechanism (Ketchen et al., 2008). This fundamental shift from
traditional practices to integrated logistics has supported a wider emphasis which
includes issues such as high customer impact, consistent performance, and optimal
inventory management.
6.2.2 Information technology
The evidence indicated that Firm A relies on its IT capabilities to provide for information
processing and sharing. Similarly, IT has enabled Firm B to gain worldwide access to
information on the site in real time basis which is critical for the firm to conduct business
globally. In essence, both case firms gain in terms of cost savings and delivery speed by
using IT. As commented by a Senior Manager in Firm A:
“Mostly for the government order we use WMS (Warehouse management
system). WMS means they will raise picking list, they will pack and confirm
with the delivery order. Only then they deliver. So after delivered, once
confirmed received, then will print the invoice and submit to the customer and
we collect payment…which in turn benefit us in cost savings and delivery
speed.”
In both case firms IT is therefore seen as an enabler for value creation in their supply
chains. This is consistent with the literature which asserts that appropriate usage of IT can
create value in supply chain operational and management business processes (Beck,
2004). More importantly, as suggested by Prasad et al. (2010), the IT used in both firms
plays a vital role in facilitating standardisation and integration of internal business
processes which is crucial for supply chain integration.

An integrated supply chain management model for value creation 391
6.2.3 Integration
Lee et al. (2007) suggest that access to the inventory information creates the most
favourable environment in internal integration. Consistent with the literature, Firm A
implements a high level of internal integration (inter functional department) in order to
share information seamlessly within its supply chain. In the past, the supply chain
processes in the case firm were generally undertaken by five separate sections comprising
of procurement, production planning and inventory control, warehousing, shipping and
dispensing. However, in recognition of the need to have effective collaboration,
interactions and information flow, the integration between all these five departments was
considered very crucial. As a result, all these five sections were integrated under one
department and designated as the SCM Department. In support of this, a senior manager
in Firm A commented:
“…when you look at SC in one entity, (that is) if you look at from the day you
receive the order from the customer till the day you collect the money from the
customer is actually a collaboration of various functions and departments
within the group. So it’s good to have that kind of function integrated under
one for a better control…. and the way I look at it is more of a seamless
information flow because it is easy for you to have one absolute control. ….
and you look at information that flows seamlessly rather than have separate
entities where information can get distorted. So when information gets
distorted, things will not move as how it is supposed to be.”
Furthermore, to improve supply chain flow coordination, Firm A jointly coordinates
inventory levels with its suppliers so as to match stock requirement from customers while
keeping sufficient buffer stocks to meet sudden surges in demand. Consistent with
Mahama (2006), this information sharing effort provides a win-win situation for its
supply chain partners. In an interview, a senior manager illustrated how integration with
suppliers works in the firm:
“Let us say for this month in our list, the government requires certain products
(that) they construct as essentials. Essentials mean you have to keep 3 months,
i.e., minimum 3 months of (stock) usage. Like face mask is a critical item. So,
let say 1 month (demand is) 10,000, (for) 3 months means 30,000 (units are
required). The firm’s supply chain executives will run through a report so that
they can determine the requirement. In fact they can have a forecast and look at
the trend. If say you need 30,000 one month…then the supplier will need to top
up another 1 month as a rolling forecast. As such, at any one time we do not
use up our buffer. …At times we need to tell them (suppliers) we need stocks
now or we have enough stock, can you hold on.”
Similarly, external integration was also evident in Firm B. However, unlike Firm A
which produces generic products, Firm B manufactures specialised products according to
customer requirements. Hence, supplier involvement in new product development was
crucial in ensuring quality products. For Firm B, this practice was undertaken with a view
of achieving a win-win formula that improves overall performance. Due to confidential
nature of information, the senior manager at Firm B was reluctant to provide further
information on the integration processes involved.
Overall, the findings revealed that integration practices within both case firms support
value creation, as suggested by the literature (Loke et al., 2009). Both firms recognised
that by integrating internally as well as externally, performance in terms of speed and
flexibility was particularly enhanced.

392 E.S. Kasim et al.
6.2.4 Networking and relationship management
Firm A which deals with the manufacture of generic drugs, needs to focus on cost
leadership strategy. As a result, Firm A selects highly reliable and quality suppliers who
can supply materials according to specification. A contractual agreement is made
between Firm A and its suppliers to ensure cost, speed, quality and flexibility. By having
a close working relationship with its suppliers, Firm A is able to maintain the quality of
the manufactured products.
The supplier selection and monitoring process at Firm A is achieved through a
supplier rating system supported by regular audits. Furthermore, in order to foster good
relationship with its suppliers, Firm A rewards its high performing suppliers by
organising a Vendor Excellence Awards as a means of motivating its suppliers to strive
for high performance. As explained by a senior manager at Firm A:
“One of the schemes implemented is the Vendor Excellence Award. In the
Vendor Excellence Award, each vendor will be rated regularly on their
performance. Then we let them know regularly what their status is based on 10
criteria. Points are awarded for each criteria. One of these criteria is to inform
them that they have not met the company’s expected delivery time. For each
vendor we add up all the points and provide the feedback. Based on these
points, we will reward them.”
By working closely with suppliers, Firm A is able to deal with imminent supply chain
problems such as stock-out incidents. A senior manager in Firm A commented:
“So long (as) we have the stocks, fine. If you do not have stock, then you have
to find out why. The reasons in most cases we cannot actually pin-point. Of
course, it can be due to supplier faults. They also have their own challenges. So
we have to look at the holistic picture on why it happens. So we need to
balance it so that it does not grow bigger than the manageable level. So that we
would not lose and also supplier will also not lose. In that manner we keep it
(the problem) to the minimum.”
The manufacturing process in Firm B requires highly customised raw material. As such
Firm B has formed a strategic partnership with specially selected suppliers. The benefits
of forming the strategic partnership (contractual agreement) with its suppliers include
cost savings, delivery speed, quality and flexibility for Firm B. Furthermore, to avoid
time consuming and costly new supplier selection process, Firm B emphasises on a firm
long term relationship with suppliers. As such, specific supplier management initiatives
such as cost improvement activities were undertaken with the aim of adding value to the
buyer-supplier relationship. These views are supported in a statement made by the
purchasing executive of Firm B:
“Within supplier management, we have supplier rating system. Then we have
cost improvement activities followed by yearly audits or once in every two
years…we assess the suppliers when we go for audit, and we do cost reduction
programs with them. We benefit on our side, they benefit on their side.”
Firm B also undertakes careful selection of suppliers (i.e., the process can take from 6
months to one year) so as to find suppliers who can meet the lowest cost objectives
without compromising on speed, quality and flexibility. In addition, as part of the firm’s
supply chain risk management, the firm needed to engage in multi-sourcing for its
materials and components. In cases of suppliers unable to meet the required volume of
materials, there would be a next best alternative supplier that the firm can rely on.

An integrated supply chain management model for value creation 393
Although the case firms exhibit different approaches to maintaining close working
relationship with its suppliers, a common objective was to recognise the contribution of
their critical suppliers in creating value along the supply chains. This is consistent
with extant literature which advocates value creation through effective relationship/
cooperation between firms and its suppliers (Sheth and Sharma, 1997; Mahama, 2006).
Table 1 summarises the integrated SCM practices applied in both case firms.
Table 1 Summary of findings on SCM practices
Practices Firm A Firm B
Logistics Use of a third party logistics provider
to provide necessary logistics
competencies
Effective use of regional hub for
distribution to customers across the
USA and Europe
IT Use of IT for information processing
capabilities and information exchange
The use of IT enables worldwide
access to information on the site in
real time basis
Integration Integrates various internal departments
in order to provide higher SCM
visibility within the firm and thus
improves information sharing
The firm engages in early supplier
involvement activities in new
product development
Relationship A Vendor Excellence Award provides
suppliers with motivation to strive for
high performance
Strategic partnership with suppliers
was undertaken
From Table 1, it can be seen that Firm A which produces functional-type products adopt
various SCM practices that are in line with efficient SC strategies, as suggested by Lee
(2002). For instance, the use of third party logistics services, IT applications, extensive
internal information sharing and selection of highly reliable and quality suppliers ensures
that the firm achieve its cost leadership strategies. In contrast, the chosen SC strategies by
Firm B facilitate the pursuance of an agile strategy, which is considered appropriate for
innovative products, such as semiconductors (Lee, 2002). The use of regional hub for
distribution and IT for instant access to information by Firm B, for example, increases the
flexibility of the firm in meeting customer requirements and provides risk-hedging, as
needed of an agile supply chain.
6.3 Critical success factors of value-creating integrated SCM practices
Proponents of SCM have identified several critical success factors for the development of
an integrated SCM practices (Paulraj et al., 2008; McAfee et al., 2002; Mello and Stank,
2005; Paulraj and Chen, 2007; Chin et al., 2004). Consistent with these findings, three
critical success factors namely communication, culture and cross-functional orientation
have been identified within the case firms. The subsequent sections will discuss these
factors.
6.3.1 Communication
Firm A, a healthcare company is constantly faced with demand uncertainties. For
example, a sudden surge of demand due to outbreaks leads the firm to be out of stock and
results in back orders. Due to the uncertainties, an effective communication system is
vital for Firm A. Firm A relies on both internal and lateral communication for its supply

394 E.S. Kasim et al.
chain operations. Prior to setting up a SCM department, Firm A had poor coordination
and control between departments/activities. However, the setting up of a separate SCM
department has helped Firm A to improve its internal communications, thus providing
better control. As stated by a senior manager:
“So if there is a situation where there is a sudden surge in terms of a certain
product or certain drug demand then you should be able to react almost
instantly. Come back and share the information with all the respective
departments. That’s why I said in terms of control when you put supply chain
under one department, under one absolute control, then it’s very easy for you to
move.”
Firm B also relies on both internal and lateral communication for its supply chain
operations. However, due to its specialised nature of products, Firm B needs to constantly
keep close relationship with its suppliers. Hence, Firm B’s emphasis on its lateral
communication system needs to be stronger. The lateral communication between the
supply chain staff at Firm B and the suppliers is done through regular face-to-face
communication. The process involves monthly meetings between suppliers and Firm B’s
staff to discuss on issues particularly related to cost and quality. The monthly meetings
provide an opportunity for both parties to improve coordination and performance.
Like Firm A, Firm B also communicates evaluation of suppliers based on the
suppliers’ rating system. The suppliers’ rating system serves as a measure on which the
suppliers are evaluated. Four criteria are used for evaluating the suppliers. These consist
of technology, quality, delivery and cost. Apart from that communication with suppliers
also occurs at the development phase of new products. The aim was to achieve a win-win
situation where the company is able to leverage on the suppliers’ expertise into their
product design. The suppliers, on the other hand, benefit in terms of long term contracts
for the material purchases.
6.3.2 Culture
Consistent with the literature, in both firms culture plays an important role in the
development of an integrated SCM practice. In Firm A, it was found that shared practice
among the staff facilitated problem solving within SCM processes. Senior management at
Firm A, profoundly referred to this shared practice as a culture of ‘engaging’ with people.
As explained by the senior manager:
“I would say that the more you interact with your customer the better it is for
you to be able to react to any changes. You can actually anticipate some
changes to suit a certain situation and it is also company initiative to get all of
us engaged on constant basis because communication becomes very crucial
when you are in manufacturing. I think this has got to be more like a culture
where you engage your customer on a regular basis. It doesn’t matter if it’s
going to be on daily basis, weekly basis, monthly basis but regular interaction,
regular engagement goes a long way in bridging all those gaps.”
Similar comments were made by the finance manager at Firm A:
“Engaging means you need to understand first. When you engage, you create a
connection. Communicate, probably if you only communicate, you don’t have
the connection. First in order to engage, you need to connect first, you need to
listen, to understand and get some of the relationship, then only the
communication can go through…Then when the trust is there, it’s much easier
to work.”

An integrated supply chain management model for value creation 395
On the other hand, Firm B experienced a change in organisational culture due to the
change in ownership of the business unit from the former European parent company to a
private equity owner. The changes in ownership structure also led to a new leadership
culture. Under the new leadership, significant changes were incorporated in the
firm’s purchasing strategies and costing systems. With this change the focus shifted from
firm-wide cost cutting activities towards managing and improving supply chain
operations. A procurement executive commented:
“Now we are bought by private equity…the purchasing function is totally
different than previously. Previously, purchasing is about sourcing, it is about
saving, it is also about have a range of suppliers …more in terms of secure of
supply but with the new owner, purchasing is more of a cost
management…How we see things and how we work with (previous owner) is
totally different because the culture is different.”
6.3.3 Cross functional orientation
Firm A recognises the importance of working in a cross-functional manner. The
case firm’s supply chain department serves as a facilitator in ensuring the benefits of
cross-functional exercises. A senior manager in Firm A commented:
“...(the SCM department) acts as a conduit between customer, the internal
customer, the internal departments, the various departments within the internal
group as well as suppliers and …with other government bodies.”
Cross-functional teams are also vital in facilitating SCM practices in Firm B. For
example, a purchasing manager frequently needs to work together with personnel from
other departments such as engineering, quality and manufacturing. A Procurement
Officer commented: “It is not like before, functional based. Now we work ‘cross
boundary”.
7 Conclusions
The paper proposed two research issues. The conclusions drawn on each are as follows:
7.1 Nature of value-creating SCM practices
Based on the findings from two case studies conducted in manufacturing firms operating
in Malaysia, the results have shown that both case firms engage in integrated SCM
practices which support value creation. The value-creating integrated SCM practices
include logistics, IT, supply chain integration and networking and relationship
management. These practices were widely applied by both case firms for value creation
in terms of cost savings, speed, quality and flexibility strategies, which is consistent with
Monczka et al. (2011). Despite using these practices, the findings showed that firm A
which focuses on functional products pursued an efficient SC strategy whilst Firm B with
innovative product characteristics focused on an agile strategy as suggested by Lee
(2002).

396 E.S. Kasim et al.
More specifically, the use of integrated logistics practices with emphasis on wider
inventory mechanism rather than narrow focus on transportation has led to reduced costs,
faster delivery, quality and flexibility (Kannan and Tan, 2005; Ketchen et al., 2008).
Similarly, extensive use of IT which not only facilitates information processing but also
information sharing has resulted in efficient flow of goods, information and cash (Zailani
et al., 2008). Furthermore, supply chain integration has also been found to benefit firms
by improving inter-departmental coordination as well as promoting the collaborative
effort with suppliers for mutual benefit (Lee et al., 2007; Loke et al., 2009). Apart from
that, close working relationship between the firms and their strategic partners has led to
costs savings, on-time delivery, quality commitment on the part of the suppliers (Omar
et al., 2006) as well as flexible supply chain (Ketchen et al., 2008).
Therefore, the results of this study provide evidence which reinforces the contention
that there has been a marked movement from traditional SCM practices towards best
value SCM practices (Ketchen, et al., 2008).
7.2 Critical success factors of value-creating SCM practices within selected
case firms in Malaysia
It was also observed that firms need to take into consideration several key factors in
ensuring the success of integrated SCM practices. In this paper, we submit that effective
communication, appropriate culture and cross-functional team formation are vital
prerequisites for firms to promote value creation. Effective communication in solving
SCM-related problems may be facilitated by having a process owner for SCM such as a
separate department to oversee the whole process. This is consistent with the suggestion
in the literature whereby firms need to have proper supply chain governance structure in
order to achieve the highest level of supply chain success (Fawcett et al., 2006). Apart
from that, firms that exhibit a culture which is conducive for SCM success tend to
support value creation. Thus, this case study supports the view that recognises the
importance of supply chain oriented culture (Mello and Stank, 2005). Moreover, inherent
problems in SCM which often require responsive actions from related departments could
be overcome by having a cross-functional oriented team approach, as suggested by the
literature (Chin et al., 2004; Andersen and Rask, 2003).
Although the use of case studies method in SCM research is increasingly promoted
(Seuring, 2008), the study inevitably suffers from the limitations inherent in case study
research. Thus, the limitation of this study should be acknowledged in interpreting the
results. As with other case studies, the use of three case firms limits the capacity to
generalise the findings to a larger population of manufacturing companies. Therefore,
these findings should be treated with caution, and more robust empirical means than
those employed here are still needed to provide further empirical evidence in generalising
these findings in a population. While this study has made several contributions to the
already extensive and rapidly growing literature on SCM practices, many challenges and
opportunities for further research need to be explored. However, in view of the lack of
similar study in the present literature, the contribution of this paper arises from providing
a value creation perspective of SCM practices, particularly from a developing world
context.

An integrated supply chain management model for value creation 397
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