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International Journal of Innovation, Creativity and Change. www.ijicc.net
Volume 5, Issue 2, Special Edition, 2019
228
Total Quality Management and
Logistic Performance: Moderating
Role of Reserve Supply Chain in
Pharmaceutical Industry of
Indonesia
Thanaporn Sriyakula, Rofiqul Umamb, *Kittisak Jermsittiparsertc,d, aFaculty of
Business Administration, Mahanakorn University of Technology, Bangkok, Thailand,
bSchool of Science and Technology, Kwansei Gakuin University, Hyōgo, Japan, cDepartment
for Management of Science and Technology Development, Ton Duc Thang University, Ho
Chi Minh City, Vietnam dFaculty of Social Sciences and Humanities, Ton Duc Thang
University, Ho Chi Minh City, Vietnam
Corresponding author email: kittisak.jermsittiparsert@tdtu.edu.vn
Currently, the pharmaceutical industry is making various logistics
developments; such as a reduction in logistics costs. In order to reduce
logistics cost. Currently, the pharmaceutical industry is focusing on
outsourcing their logistics activities and centralizing their warehouse
operation for various countries. Secondly, from wholesale supplies to
‘end customer’ deliveries. Especially in smaller sales markets, the
pharmaceutical industry sends their products to wholesalers rather than
directly to customers (hospitals, pharmacies, retailers), this strategy is
fit for the low sales of the pharmaceutical industry. The prime
objective of this study is to investigate the relationship between total
quality management reserve supply chain and logistic performance of
firms operating in the pharmaceutical industry in Indonesia. In
addition to that, the indirect relationship between total quality
management reserve supply chain and logistic performance, of firms
operating in the pharmaceutical industry, is examined. Employing the
survey-based methodology, the multiple regression technique is used
to test the hypothesized. SPSS- multiple regression is used as a
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229
statistical tool to answer the research questions raised in this study and
the research objectives envisaged in this study. The findings of the
study have provided support to the theoretical foundation and
proposed hypothesis of the study. The current study will be helpful for
policymakers and practitioners in understanding the issues related to
supply chain risk, supply chain integration and supply chain agility.
Key words: Total Quality Management, Logistic Performance, Reserve Supply
Chain, Pharmaceutical Industry.
Introduction
Historically, concept of TQM evolution has four stages: quality inspection, quality control,
quality assurance until to total quality management. According to Aquilani et al (2017), from
the 1910s, Ford Motors created mass the production line. With the mass production line
development, formal inspection became necessary. At that time there was a lack of labour
skill which caused raw material and time waste; the production could not meet customer
satisfaction levels. For this reason, Ford Motor decided to implement quality inspection for
the first time; academically link with quality control in 1922, with the publication of
G.S.Radford’s (Matthews and Marzec, 2017) ‘The Control of Quality in Manufacturing’.
Since organizations have started to apply quality inspection, it has been found that many
problems cannot be solved by quality inspection.
The second stage of TQM is statistical quality control. According to Aquilani et al (2017), the
philosophy of quality control comes from W. A. Shewhart who working at Bell Telephone
Laboratories. Firstly, quality control was developed from process control, based on the
organizations requirement to increase the usage of raw material, increase the level of skilled
labour and equipment efficiency. Shewhart’s developed a simple statistical technique for
determining limits (Fernandes, et al., 2017). Even now, a large number of organizations still
use the process control chart. The process control chart was massively used during the
Second World War; it improved military operational speed (Khan & Mingyi 2018). After
Second World War finished, the process control chart was used by many business
organizations to improve customer satisfaction (Prajogo, et al., 2016). However, it cannot
fulfil all business organization requirements; then next stage of TQM is quality assurance.
During the quality assurance era, the concept of quality went from narrow to wide; not only
limited to manufacturing organizations, but also expanded into business organization
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management. Problem prevention became the primary objective of quality assurance
(Mwanzia, et al., 2016).
“Logistic” is derived from the French ‘logistique’. In the beginning, logistics was used in
military activity, starting from military logistics used during World War Ⅱ. At that time the
function of logistics was to transfer soldiers and munitions to the battlefield. After World
War Ⅱ, America used the logistics advantage to develop their international business.
American Malcolm P. McLean, who invented the modern sea container, is also known as the
business logistics founder (Jakhar, 2015). With the economy booming in the 21th century, at
present market value, global logistics is worth around＄3.7 trillion. In 2009, the percentage
of logistics market value almost 9.3% of global GDP (Bastas and Liyanage, 2018). The data
shows that logistics plays an important role in global economy development.
At present, there is a lack of research on pharmaceutical logistics in China. Most of the
research is still at an academic stage. Soares et al (2017) conducted empirical research on
pharmaceutical logistics activities and capabilities. This study, to investigate Pharmaceutical
logistics, was influenced by logistics activities and capabilities. The sample consisted of 500
pharmacies locate in Chang-Zhu-Tan region in China. This study indicated that, in current
competitive environment, logistics capacities become a key factor to obtain a competitive
advantage in the pharmaceutical industry. The result of this research shows that logistics
activities have a positive relationship with cost & service and the capacity of delivery. In a
related study, Prajogo et al (2016) indentified the significance of the integrated logistics
model on the pharmaceutical industry in China. The study stated that pharmaceutical logistics
was key for the transfer of pharmaceutical product from pharmaceutical manufacturers to
customers. At present, pharmaceutical logistics in china is inefficient, causing a large amount
of waste. In order to increase operation efficiency and to reduce the waste, there needs to be
enhanced collaboration between company and company. Meanwhile, the pharmaceutical
industry needs to improve the communication between supplier and customer (Lin, et al.,
2005). Finally, this study showed that the integrated logistics approach could change the
current situation of pharmaceutical industry logistics.
According to Fynes et al (2005), compared with the pioneering sectors of retail and
electronics, the pharmaceutical industry is behind when it comes to logistics developments,
distribution network optimization and sales planning. Currently, the pharmaceutical industry
is making various logistical developments, such as reducing logistics costs. In order to reduce
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logistics costs, the pharmaceutical industry is focusing on outsourcing their logistics activities
and centralizing their warehouse operations in various countries. Especially in smaller sales
markets, the pharmaceutical industry sends their product to wholesalers rather than directly to
customers (hospitals, pharmacies, retailers). This strategy is fit for the low sales of the
pharmaceutical industry (Vanichchinchai and Igel, 2011). The Industry is also looking to
reduce the inventory of finished products. However, this is not an easy task in the
pharmaceutical industry. The high stock levels are caused primarily by the labour-intensive
administrative procedures related to production batch registration and release. The last point
is a power struggle over who manages logistics in the pharma supply chain. Currently, in
order to protect their own market position, the pharmaceutical industry is looking for ways to
reduce the power of wholesalers’ through logistics. Meanwhile, the pharmaceutical industry
is also afraid of damaging the relationship with wholesalers by cancelling the logistics
contracts. Schurman et al (2010) conducted a study about reverse logistics in the
pharmaceutical industry. The study looks into the problems of reverse logistics in
pharmaceutical industry. As the study shows, the reverse logistics in the pharmaceutical
industry is different from other industries because products returned to other industries can be
repaired or resold. However, for pharmaceutical industry generally has to destroy the product.
During the product reverse process, there are many considerations to be taken into account
such as: cold chain requirements, proper storage and disposal, etc. Finally, the study suggests
that the pharmaceutical industry should focus on reverse logistics effectively to reduce the
costs logistics (Zhang, et al., 2015).
Literature Review
Total Quality Management Practices
Beerens et al (2012) and Serafimovska and Ristova (2011) stated that “total quality
management is a strategic, integrated management system that is focused on customer
satisfaction and involves everyone in the organization using quantitative measurement tools
to continuously improve the organization’s services and products”. Furthermore, the principle
of TQM is customer focus. According to Zhang et al (2015), the major Japanese
manufacturing companies have practiced TQM for the last 40 years. This is because total
quality management can make companies continue to improve their quality to capture both
local and global market share. Currently, organizations face fierce competition, TQM is one
of the most useful tools applied by organization to gain a competitive advantage. Beerens et
al (2012) states that total quality management is customer focus system; continuously
improved quality to achieve customer satisfaction. This study stated that the base elements of
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total quality management are: (1) Leadership, (2) Employee involvement, (3) Continuous
improvement, (4). Customer focus.
Serafimovska and Ristova (2011) stated that quality management is a kind of strategic
management and starts from top management. Therefore, top management leadership is the
basis on which to build a suitable organizational culture. The organizational culture will
directly influence the organizations performance. The famous leadership model to
correspondent with total quality management is PDCA leadership, which includes Plan, Do,
Check and act. Sadikoglu and Zehir (2010) stated that top management of organizations, as
quality council, means that lots of organizations have a small group people to control the
quality of the organization. Similarly, (Androniceanu, 2017) also had the idea about a quality
improvement team. The total quality management principle stated that organization can use a
TQM program to improve all levels of employees, to continuously achieve project objectives.
However, top management requires the set up of a rational organizational culture to support
total quality management (Ristova, et al., 2011). Without good top management, a total
quality management program cannot run smoothly. Organization leader ability and behaviour
can directly influence organizational successful or failure.
According to Anissimov (2011), total quality leadership means that top management has a
duty to apply a TQM to meet customer requirements. In order to achieve organizational
objectives, top management needs to create an organization mission and vision. Moreover, an
organization needs to ensure that their employees understand and follow the organizational
culture to increase productivity. This study also states that the organization sector
development has a direct relationship with top management. Thus, top management, as the
brain of organization, has a responsibility to take care of their employees and customers.
Lakshman (2006) conducted a study about leadership theory using total quality management.
As the researcher stated, the quality of every individual product is not the responsibility of a
top manager. This responsibility, to test product quality, belongs to a product quality
manager. The role of top management is to manage the total quality of an organizations
operation. This study chooses 15 criteria to evaluate a leader’s ability in total quality
management; communication, participation, self-managing teams and so on. The results
stated that all 15 factors have an influence on the implementation of total quality
management. Many researchers consider the main factor for successful quality management
is quality top management. As Siva et al (2016) stated, the core principle of total quality
management is customer focus, employee participation and continuous improvement. This
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study suggested that top management should be set up to improve customer satisfaction and
to encouraging all levels of employees to have the same goal to achieve the company
mission. The results of this study stated that the top management leader has a positive and
significant relationship with total quality management.
The quality of a pharmaceutical product will directly influence people’s health at an
assurance level. For this reason, in the pharmaceutical industry, every employee has a
responsibility for product quality. Chen et al (2018) further outlined the role of leadership in
the total quality management of a company. This study indicated that senior management has
a responsibility for the product quality; senior management should not only working in an
office but also needs to get out of the office and give attention to their staff, suppliers, and so
on. This process ensures that the leader of a company can get accurate information. On the
other hand, this process allows staff to get to know the manager level, it can mobilize all the
positive factors of employees to produce a high-quality product. This study believes that
leadership is the main factor in total quality management. Mustafa and Bon (2012) conducted
a study to review the role and impact of leadership on total quality management in service
organizations in Malaysia. In this study, the conceptual framework comes from 15 related
studies, which were done by other researchers. From the preceding review, it can conclude
that the ability of top management can directly affect organizational development.
Meanwhile, this study indicated that it is difficult to find out how important leadership is in
organizations and how it is linked to other TQM factors.
An employee, who works in an organization, needs to participate in the organization
activities to achieve organizational goals. There has been a lot of research on the effect of
employee involvement. As stated by Sadikoglu and Zehir (2010), all employee involvement
will quickly help an organization to solve problems and accomplish comprehensive decision-
making; if all employees take responsibility to solve a problem, even a huge problem can be
solved. Mustafa and Bon (2012) conducted a study to investigate the effect of employee
involvement on total quality management. Data was collected from six companies in Hong
Kong. The study showed that employee involvement has a relationship with total quality
management. Nevertheless, this study still found problems with employee involvement in
Chinese organizations; total quality management is not fully applied by the Chinese and the
attitude of employees is the biggest problem for employee involvement. A related study was
done by Al-Khalili and Subari (2014) to identify the relationship between employees’
involvement and quality improvement, in the manufacturing industry. This study stated that
employees’ involvement at all the level is important to gain competitive advantage and to
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achieve the objective of total quality management. Similarly, one previous study examined
the influence of employee involvement on total quality management, especially for employee
attitude. The sample consisted of 280 employees who came from six organizations in the US.
A questionnaire and formal interview survey method was used. This study aimed to assess
the strengths and weakness in TQM; based on data to provide systematic information on total
quality management, and to find the factors that are needed to successfully implement TQM
practices. The results of this study showed that employee quality awareness can influence
organization performance. More than ¾ of respondents considered quality of product, for
their organization, as vital. Employee involvement has a positive relationship with problem
solving, 2/3 of respondents felt that when employees participate in organization decision-
making it will increase organization-working efficiency. Employee training can increase
organization productivity, 3/4 of respondents stated that they have had at least one-week of
training in the previous years. Moreover, 72% of respondents considered that communication
is still a weakness when implementing total quality management. Therefore, managers need
to increase the frequency of their communication with their employees. Face-to-face
communication was accepted by most of employees. Finally, the study stated that if all
organizational employees share responsibility and give rational suggestions to the
organization, the quality of the organization can be perfect.
The means of continuous improvement can be described as improved organizational process
in order to provide products/services that meet customer expectations. In other words,
innovation may be part of continues improvement. In order to fulfil customer satisfaction,
organizations need to continue to innovate new products and services. Continuous
improvement and innovation should be the foundation of organization, they can directly
influence organization total quality management. Androniceanu (2017) described continuous
improvement (Kaizen in Japanese) to continue to provide quality products and services in
order to improve customer satisfaction. This is the foundation to practice total quality
management. Further, this study stated that organizational culture is the most significant
element in continuous quality improvement. Meanwhile, the Plan-Do-Study-Act (PDSA)
cycle provides the basic process for organizations to continuously improve.
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TQM and Logistics
Total quality management may improve the logistics performance. Therefore, total quality
management on improving logistics performance has economic significance. This study aims
to clarify the relationship between total quality management and logistics performance in the
pharmaceutical industry. Karia and Asaari (2016) conducted a study to investigate the status
of quality management practices on logistics; to compare the extent of quality practice
between logistics companies and manufacturing companies in Australia. The sample
consisted of 500 companies listed as members of Logistics Association Australia. The study
show that the most significant factor to indentify the quality of logistics is “on time delivery”.
The main limitations for companies implement quality management is “changing corporate
culture” and “training and education of employee”. Finally, the study indicates that to
implement quality management in manufacturing companies is more extensive than in
logistics firms.
Androniceanu (2017) conducted a study about quality management in the logistics industry.
This study investigated the factors that encouraged Hong Kong’s logistics industry to
implement quality management. There were three factors used to evaluate; awareness of
quality, rising customer expectation and the improvement mechanism. In this study, the
sample consisted of 184 permanent staff who were the employees of Oriental Logistics
Company. In order to implement the quality management, the company developed a ten steps
process, which starts from management commitment, quality improvement team, quality
measurement, quality awareness, manager & supervisor training, goal setting, effort cause
removal, corrective actions and recognition- award, continuous improvement. The study
indicated that since Oriental Logistics started using a quality management system to set up
the standard and procedures, it integrated the different departments at the same standard, this
made it is easy for employee management. Meanwhile, quality management system makes
sure that every aspect of the work process conforms to customer requirement and meets the
expectation of the customer. Yu et al (2017) conducted a study to investigate the importance
of quality management used to increase logistics performance. The target population selected
800 companies, which were listed on the Kuala Lumpur Stock Exchange (KLSE) .The
sample consisted of 113 Malaysian companies that had significant logistics requirements. In
this study, the measurement was selected from four areas: process for performance measures,
customer expectations issues, tools for measuring customer expectations, satisfaction with
current results. The results showed that many Malaysian companies have implemented
quality programs in their logistics functions. It is around 70% of the total sample. The other
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30% of companies also had planned in the next three years to implement total quality
management. Meanwhile, most of the companies considered quality management as long
term planning, because the availability of funds was the greatest obstacle faced by managers.
Finally, this study indicated the sample size as an apparent limitation.
Zhao et al (2006) stated that research on business issues in china are becoming increasingly
important to the global economy. The objective of this study was to investigate the current
status, opportunities and proposition in supply chain management, logistics, and quality
management in china. The study showed current China logistics barriers and challenges. The
main barrier is undeveloped logistics infrastructure. Meanwhile, the study showed that the
quality management, implement in china companies, was introduced from western countries.
But there is a vast difference between China and western countries. Therefore, the researcher
suggests that Chinese companies need to consider the company status, to implement total
quality management to improve their logistics performance and supply chain performance. In
recent years, numerous approaches have been proposed to improve operational performance.
There are three methods: just in time, supply chain management and quality management. A
study by Kannan and Tan (2005) show how just in time, supply chain management and
quality management correlate and how they influences business performance. The sample
consisted of 556 employees from senior operations and materials managers in North America
and Europe. The results showed that all correlations with Just in time, SCM and TQM were
significant.
Reserve Supply Chain
This definition of SCM was extended to integrate all physical, information and financial flow
among key supply chain partners to balance between supply and demand of inventories while
keeping up with the goals of competitive advantage. The SCM concept is an integration of
various business functions including sourcing and procurement, production operations,
distribution strategy, logistics management, and others (Li and Liu, 2008). The concept of
supply chain management has undergone at least a decade of redefinitions. Due to rising
concerns in regards to pollution contributed by electronic waste (e-waste) mismanagement,
the upstream product flow attributed to extended producer responsibility has facilitated the
emergence of closed-loop supply chain management. Closed-loop supply chain (CLSC) is an
integration of forward and reverse supply chain (FSC and RSC) that addresses product
movement in the downstream and upstream directions, where various categories of returns
are gathered from collection points and centralized at returns processing plants, evaluated and
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undergo appropriate disposition options, re-enter secondary markets and the process repeats
itself for the next reincarnation cycle until no significant value can be recovered from the
product.
Supply chain management that embrace recoverable manufacturing systems is slightly
different from fundamental aspects of conventional operation management. Most of the
authors have described reverse supply chain (RSC) as a continuation of forward supply chain
(FSC), where assimilation of both closes the supply chain loop and fulfils the objective of
pollution prevention (Sasikumar and Kannan, 2008). Environmentally-conscious corporations
can integrate sustainability across supply chains by dealing with three major issues in regard
to returns management. They are supply, processing and distributions of recovered goods.
Reverse supply chain is a major constituent of closed-loop supply chain. In earlier literatures,
reverse supply chain is also known as product recovery management (PRM). PRM relates to
the management of products that moves in an upstream direction, and Genovese et al (2017)
described the objectives of PRM as; “To recover as much of the economic (and ecological)
value as reasonably as possible, thereby reducing the quantities of waste”.
Thierry et al. was among the pioneer authors who highlighted the need to minimise the
amount of waste generated by used products, and proposed five different product recovery
alternatives for reprocessing products and materials. Lakshman (2006) described reverse
logistics (RL) as the operational support to manage physical product and information for the
purpose of recovering added-value constituents. (Chen, et al., 2018) suggested that both RL
and CLSC are interchangeable terms as they were synonymous. Ristova et al (2011)
supported that RL is a key component of CLSC and both activities have garnered a reputation
in sustainable development. A number of previous researchers have applied reverse logistics
as a term that describes a managerial approach towards asset recovery. This study was driven
by previous studies that presented mixed evidence on the viability of reverse logistics
business activity in different settings such as country location, type of industry and others.
Furthermore, the definitions of reverse logistics were broadly interpreted and may include
management of returns, reprocessing works and sale of unused assets or scrap materials.
According to Genovese et al (2017) there are five sequential processes in RSC and the
objective associated with each process is described as follow; (1) product acquisition is the
gatekeeping activity to receive and collect used products from downstream customers, (2)
reverse logistics is the mechanism for recapturing product value including transportation and
centralised
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returns centre, (3) inspection and disposition is the assessment of returned products and
selecting the most appropriate disposition option, (4) remanufacturing (or reconditioning) is
the actual work for recovering material and energy to reclaim reusable parts or restore whole
product, and (5) distribution and sales creates demand for recovered products in current or
secondary market. There are substantial challenges in managing reverse supply chain as these
activities are often an afterthought issue during product development and quite often operates
independently from forward flow functions.
According to Zhao et al (2006) case study research on third-party logistics providers revealed
that most of their clients seek RL services to focus on core business while providing liberal
returns policies to maintain customer satisfaction. However, these service providers function
according to the tasks assigned by parent companies and the recoverability of a product may
be impeded to a pre-determined yield target, thus diminishing the effort of maximising value
in returns. If the residual value of a products is high, firms should expedite the recovery
process to capture value from time-sensitive products by being responsive at the expense of
cost (Atasu, et al., 2008).
Reverse logistics is a contemporary manufacturing approach for maximising recoverable
value in returned products and Section 2.2 has discussed the overlapping definition shared by
RL and CLSC. Other than CLSC, the integration of environmental management into supply
chain management has developed the concept of green supply chain management (GSCM).
GSCM is comprised of green purchasing, green manufacturing, green distribution and reverse
logistics. The goals of reverse logistics from the perspectives of CLSC and GSCM are
similar, that is to reduce or eliminate waste emissions by reducing, reusing, remanufacturing
and recycling ‘waste’ into new material and/or products. According to Schurman, et al (2010)
the estimated value of backward flowing products is $100 billion per year, equivalent to 6
percent of total sales. Based on the International Association of Electronics Recyclers of the
United States, it is estimated that forty million units of computing equipment accounting for
some 1.5 billion pounds of electronic equipments was being sent for recycling in the year of
2010. In the case of Malaysia, Theng (2008) disclosed that consumers can deliver used
equipments to original manufacturera provided that the company supports recycling programs
and employ policies dedicated to product take back.
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Figure 1. Conceptual framework
Based on Malaysian Communications and Multimedia Commission, there are 31.4 million
mobile phone subscribers in the country. Within an estimate of one to eight years, at least
thirty million mobile phones will lose its functional value and become disposable e-
Waste. These are valuable due to the rising price of precious metals such as gold, silver,
copper, steel and aluminium. There are two strategic approaches for recovering end-of-use
products.
Basing on the literature reviewed the study has proposed the following hypothesis :
H1: Total quality management (TQM) has significant impact on the logistic performance
(LGP)
H2: Reserve supply chain (RSC) has significant impact on the logistic performance (LGP)
H3: Reserve supply chain (RSC) moderates the relationship between Total quality
management (TQM) and logistic performance (LGP).
Methodology
To achieve the objective of the current study, the author has employed the survey-based
methodology and the data is gathered through a self-administered questionnaire. The email
and a personal courier are used to collect data from the respondents, who are the operation
managers of manufacturing firms. Data is analyzed via SPSS 20.0, which is among one of the
robust and advance research software for the data analysis in the social sciences. The data has
undergone these analyses, namely a) the descriptive analysis, b) the reliability, and the
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validity analysis, and d) the regression analysis. Meanwhile, testing of the hypothesis is done
using multiple regression analysis and Pearson correlation. The results from these tests help
to indicate the direction and strength of the association between the independent and
dependent variables, as well as to identify the most influential variable in the model. Many
authors have suggested that the value of the Pearson coefficient explains the degree of the
strength of association among variables. Its value lies between -1 and 1. A value of 0 shows
no association, -1 shows perfectly negative association, while 1 shows perfectly positive
association.
Results
This study adopts the Structural Equation Modelling (SEM) for analysis for several reasons.
SEM is considered to have equal ability with multiple and linear regression analysis which
assumes that variables are evaluated with no errors. Even though SEM involves multiple
regression and factor analyses, it is a more effective way of estimating instruments for a
number of separate multiple regression equations, which it evaluates concurrently (Hair et al.,
1998). For the sample collection, the cluster sampling technique was employed. The Five-
technique approach, that was presented by Gay and Diehl (1992), was used to calculate the
sample size for this study. The first step is to estimate the total population, followed by the
estimation of population sample size, using the table presented by Krejcie & Morgan (1970).
The population size turned out to be 310. In the social sciences, SEM is considered as a
powerful and commonly used tool since it can test a number of relationships at once (Hair et
al., 2016). Although, previously many researchers have emphasized upon AMOS, a co-
variance-based approach. However, PLS-SEM is a good alternative to the CB-SEM
approach.
Table 1: Reliability
CR
AVE
Cronbach
Alpha
TQM
0.975
0.872
0.885
LGP
0.702
0.737
0.924
RSC
0.96
0.871
0.893
The SEM is one of the most appropriate methodologies for a number of reasons. SEM is the
best among existing techniques. It is quite advanced and provides a more robust solution of
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researcher problems which simply cannot be attained from multiple regression. According to
Hair et al. (2016) the PLS approach is useful especially when the sole purpose of using
structural modelling is to obtain explanation and prediction about the constructs. For the
current study, the PLS-SEM technique is employed, because it is assuming it to be more
flexible, demands less in terms of sample size, and has the ability to handle multiple
structural modelling. Moreover, the model is constituted of reflective and formative
constructs. The study aims to reflect prediction between the constructs. Hair et al. (2016) also
supported the reasoning for employing the Partial Least Square method. The SEM-PLS
approach involves two models i.e. structural model and measurement model.
The measurement model shows the relationship among the observed and the latent variables.
In estimating the measurement model, changes occur in all items of the model. Therefore, a
strong correlation is expected to exist between variables and are combined to form a
construct. In order to confirm the validation of the measurement model i.e. how well the
observed variables represent the constructs, Confirmatory Factor Analysis is done. Under
CFA, first and second order constructs are estimated. During estimation of the measurement
model, all elements are separately analysed using reflective, formative, and structural
modelling.
Table 2: Discriminant Validity
R2
LGP
48.70%
The Fornell-Larcker criterion of discriminant validity is a powerful measure and has been
widely used by researchers. Discriminant validity measures the association between reflective
variables and their constructs. Generally, it operationalizes the variables that are involved in
the model. Thus, the current study incorporated this as a threshold for assessing discriminant
validity. Value for reliability index is expected to be 0.70 or above. Thus, the value for outer-
loadings and cross-loadings turned out to be the same. Since cross loadings analyse the
presence of correlation among the constructs, therefore, this study has examined the
discriminant validity between the variables and constructs, as shown in table 2.
The next step after checking the validity and reliability of instruments, is the estimation of the
structured relationship between the variables. Unlike other techniques, the SEM-PLS method
observes the simultaneous examination of all the constructed variables. Therefore, in the case
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of the structural model, it analyses the direct and indirect effects of variables. The structural
model is also shown below.
Table 3: Direct Effect
(β)
SD
T-
value
P-
Values
H1
0.342
0.165
3.234
0.000
H2
0.451
0.221
3.345
0.000
The Moderation is shown in the table 4
Table 4: Indirect Effect
(β)
SD
T-
value
P-
Values
H3
0.211
0.135
3.211
0
Table 5: Expected Variance
R2
LGP
48.70%
In structural modelling, coefficient of determination or R2 explains the predictive power of
endogenous variables. Closer to 0 value for path coefficients indicate insignificance of
coefficients. Value for R2 also lies between 0-1, value closer to 1 indicate greater predictive
accuracy and vice versa. The value of 0.75 indicates substantial predictive power, 0.50
indicates moderate predictive power, while 0.25 indicates weak predictive power. The value
for R2 came out to be 0.487, which shows that ethic and culture explains 48.7 percent
variation in SCM.
Conclusion
The current empirical research is on pharmaceutical logistics in Indonesia. Most of the
researchers are still in the academic stage. Consequently, the author has conducted empirical
research on pharmaceutical logistics activities and capabilities. This study, to investigate
Pharmaceutical logistics, was influenced by logistics activities and capabilities. The sample
consists of 500 pharmacies locate in the Chang-Zhu-Tan region in China. This study
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Volume 5, Issue 2, Special Edition, 2019
243
indicated that in the current competitive environment, logistics capacities become a key
factor to obtain a competitive advantage in the pharmaceutical industry. The result of this
research shows that logistics activities have a positive relationship with cost & service and
capacity of delivery. In a related study, Prajogo et al (2016) identified the significance of the
integrated logistics model in the pharmaceutical industry in China. The study stated that
pharmaceutical logistics is used to transfer pharmaceutical products from the pharmaceutical
manufacturers to customers.
At present, pharmaceutical logistics in china is at the primary stage, inefficiency logistics
cause waste. In order to increase operation efficiency and to reduce the waste, there needs to
be enhanced collaboration between company and company. Meanwhile, the pharmaceutical
industry needs to improve the communication between supplier and customer. Finally, this
study showed that the integrated logistics approach could change the situation of the current
pharmaceutical industry logistics. Currently, the pharmaceutical industry is making various
logistics developments. In order to reduce logistics cost, the pharmaceutical industry is
focusing on outsourcing their logistics activities and centralizing their warehouse operations
in various countries. Second, from wholesale supplies to ‘end customer’ deliveries.
Especially, in smaller sales markets, the pharmaceutical industry sends their product to
wholesalers rather than directly to customers (hospitals, pharmacies, retailers), this strategy is
fit for the low sales of the pharmaceutical industry.
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