The Effect of Supply Chain Management Practices on Performance of SMEs in Sekondi-Takoradi...

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pISSN: 2343-6891 ISSN-L: 2343-6891 VOL. 8, No.8(1), November, 2014

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pISSN: 2343-6891ISSN-L: 2343-6891VOL. 8, No.8(1), November, 2014

The Effect of Supply Chain Management Practices on Performance of SMEs in Sekondi-

Takoradi Metropolis of Ghana.

Angmor Peter Lawer1, Fiifi Okyere Amaning2, Charles Asare3 and Innocent S. K Acquah4

1School of IT Business, Ghana Technology University College, PMB 100, Accra-North, Ghana.

Email: [email protected], Tel: +233202625768





4Department of Management Studies, University of Cape Coast, PMB Uni. Post Office


1Correspondence: [email protected], Tel: +233202625768

Received: 19th September, 2014 Revised: 28th November, 2014 Published Online: 30th November, 2014

URL: http://www.journals.adrri.org/

[Cite as: Lawer, A. P., Amaning, F. O., Asare, C. and Acquah, I. S. K. (2014). The Effect of Supply Chain

Management Practices on Performance of SMEs in Sekondi-Takoradi Metropolis of Ghana .ADRRI Journal of Arts

and Social Sciences, Ghana: Vol. 8, No. 8(1), Pp. 19-28, ISSN: 2343-6891, 30th November, 2014.]

Abstract The paper examines the effect of Supply Chain Management Practices (SCMPs) on Performance of Small

and Medium Enterprises (SMEs) within the Sekondi-Takoradi Metropolis in Ghana. Registered SMESs

with National Board for Small Scale Industries who have operated for at least three years were used. The

study adopted a model used by Li et al (2005). The data was analyzed using the Pearson correlation

matrix. Self-administered questionnaires were used to collect data for the study. The questionnaires were

distributed to the managers and or owners of the businesses depending upon their structure. Operational

mailto:[email protected]








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performance (OPP), market performance (MKP) and financial performance (FNP) were used as the

dependent variable whiles independent variables were strategic supplier partnership (SSP), customer

relationship (CR), level of information sharing (LIS), level of information quality (LIQ) and postponement

(PPM). The correlation results show that all the independent variables were positively correlated with

performance. However, LIQ and PPM were significantly positively related to market performance, LIQ

was significantly positively related to financial performance with SSP, CR, LIS and LIQ significantly

positively correlated to operational performance. There is therefore the need for SMEs managers to

consider quality as a key for selecting suppliers.

Keywords: financial performance, operational performance, market performance, supply chain

management practices, small and medium scale enterprises

INTRODUCTION

Globalisation coupled with the advancement in information technology has created a high level

of uncertainty among businesses all over the world. Companies and corporations all over the

world irrespective of the industry have no choice but to improve their product and service

provision if they are to survive in these turbulent times. In the field of manufacturing cost

leadership strategy has always been seen as the best way to survive and this has been achieved

through lean operation mechanisms. Many manufacturing firms have been able to achieve

substantial increases in productivity by means of applying lean methods of production with the

intention of reacting appropriately to this growing competition. The applications of lean

production method enabled companies eliminate “waste” from many different parts of their

operations so as to enhance their productivity. However, in this current business dispensation,

this type of colossal improvements in productivity for the majority of these manufacturing

organizations is very limited. There is therefore the need to look for alternative and more

efficient ways to be effective in order to survive in these recent times.

One way that these organizations can address these challenges, is to gain massive

improvements in their operations and thereby trim down the inefficiencies which is caused by

the poor supplier performance, erratic customer demands, as well as uncertainty in the business

environment to implement supply chain management (SCM. This could be effectively achieved

if there is effective collaboration with upstream suppliers. This assertion holds true not only in

big corporations and organization’s but also Small and Medium Scale Enterprises (SMEs). This

study therefore focuses on SMEs, with specific emphasis on supply chain management practices

and performance (market, financial and operational) of SMEs in Sekondi-Takoradi area in the

Western Region of Ghana. According to Arawati (2011) there is the need for businesses to focus

on supply chain management practices since it enhances SCM activities and ultimately

performances. From the perspective of Muhammad (2004), one way of achieving a competitive

edge is through the implementation of SCM practices. It is therefore essential that a research is

carried to have empirical evidence on how SCMPs affect the SMEs in Ghana.




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LITERATURE REVIEW

Supply Chain Management Practices

According to Li et al., (2005) and Koh et al., (2007) supply chain management practices refers to

the set of activities undertaken by an organisation to promote effective management of its

supply chain. Wong et al., (2005) also sees it as the approaches applied in integrating, managing

and coordination of supply and demand relationships in order to satisfy clients in an effective

way. In another vein, Chow et al., 2008 defined supply chain management practices as the

approach to involve a firm's supplies in decision making, encouraging information sharing and

looking for new ways to integrate upstream activities.

There have been several attempts at identifying and validating supply chain management

practices. The literature is replete on the dimensions of SCM practices from variety of

perspectives (Bayraktar et al., 2009). Using a five-point Likert scale in measuring the importance

of supply chain management practices, Tan (2002) identified 24 SCM practices from previous

studies and came out with six constructs for SCM practices which are: supply chain integration,

information sharing, supply chain characteristics, customer service management, and

geographical proximity and just in time capability. Li et al., (2005) also used a five point Likert

scale and proposed six distinct constructs of SCM practices, namely, strategic supplier

partnership, customer relationship, information sharing, information quality, internal lean

practices and postponement.

Consequently, Zhou and Benton (2007) used a seven point Likert scale and produced three

constructs of SCM practices as supply chain planning, JIT production and delivery practice.

Relying on extant literature, the studies of Koh et al., (2007) and Bayraktar et al., (2009) came out

with 12 SCM practices: outsourcing, subcontracting, close partnership with suppliers, many

suppliers, close partnership with customers, holding safety, JIT supply, strategic planning, 3PL,

supply chain benchmarking, stock, e-procurement, and few suppliers. Customer and supplier

management, information sharing, supply chain features, and communication and speed were

the constructs proposed by Chow et al., (2008) using a five point interval rating scale where five

represents the highest degree.

In their research, Robb et al., (2008) using a seven-point Likert scale, came out with four

constructs for measuring SCM practices.

This study will be adopting the construct proposed by Li et al., (2005) for measuring supply

chain management practices. This is because it was developed based on different industries and

hence suitable for the current research. These elements are strategic supplier partnership,

customer relationship, level of information sharing, level of information quality and

postponement.

Effect of SCMPs on organizational performance

Koh et al. (2007) studying the fundamental dimensions of supply chain management practices

identified and tested the relationships among SCM practices, operational performance as well




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as supply chain management-associated organisational performance within small and medium

scale enterprises (SMEs) in Turkey. They established that supply chain management practices

have a direct impact on the performance of small and medium scale enterprises with specific

reference to practices such as inventory levels flexibility, lead time, forecasting, cost savings, as

well as resource planning.

Koh et al. (2007) categorized SCM practices into two factors: outsourcing, having a diverse

supplier base and strategic partnerships in addition to lean practices (SCLP). Their findings

signify that whilst the two factors correlated positively and substantially with operational

performance, they have a negative insignificant impact on SCM-related organizational

performance. Valmohammadi, 2011 also found a significant relationship between SCM practices

and organizational performance within the Iranian business context which was consistent with

the findings of Miguel & Ledur-Brito (2011) where they established a positive relationship

between SCM practices and operational performance of Brazilian firms. Additionally, Studying

Malaysian firms, Chong et al. (2011) postulate that supply chain management practice that takes

place downstream or upstream has substantially positive effects on how well an organisation

performs.

METHODOLOGY

The aim of the study was to establish the effect of SCMPs on the performance (market,

operational and financial) of SMEs within the Sekondi-Takoradi Metropolis. Registered SMEs

with the National Board for Small Scale Industries (NBSSI) and who have operated for at least

three years were used for the research. The study adopted a model used by Li et al (2005). The

data were analyzed using the Pearson correlation matrix. Self-administered questionnaires were

used to collect data for the study. The questionnaires were distributed to the managers and or

owners of the businesses depending upon the structure.

The questionnaires were grouped into three main sections. Section A was on the background

data of the businesses. Section B collected data on SCMPs (strategic supplier partnership,

customer relationship, level of information sharing, level of information quality and

postponement) and Section C collected data on organizational performance (operational

performance, market performance and financial performance). The 23- item scale on SCMPs

and 16-item scale on organizational performance were anchored on a 5-point Likert response

format ranging from strongly agree (5) to strongly disagree (1). The Likert-scale is an approach

to measuring people’s attitude by putting together their score on a variety of items into a single

index. According to Likert (1932) scaling could be achieved by making sure that high-scoring

and low-scoring individuals are at variance in their responses on each of the items selected for

inclusion in the index, and the distance is believed to be the same between categories. Tittle &

Hill, (1967) posited that the Likert scale is the largely and widely used method of scaling in the

social sciences.




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RESULTS AND DISCUSSIONS

Correlation Result Analysis

Table 1: Correlations of SCM practices and market performance, financial performance and operational

performance

MKP FNP OPP

SCM

Practices SSP .182 .210 .378**

CR .680 .084 .420**

LIS .137 .144 .282*

LIQ .499** .414** .290**

PPM .352* .067 .195

**Correlation is significant at the 0.01 level (2-tailed)

*Correlation is significant at the 0.05 level (2-tailed)

Source: Authors’ Computation (2014)

Table 1 above shows the correlation results used to establish the relationships between SCMPs

(SSP, CR, LIS, LIQ and PPM) on market, financial and operational performances.

Market Performance

The result of the correlation analysis shows a positive relationship of 0.182 with p-value of 0.196

between SSP and market performance. This shows no significance. The result between CR and

market performance depicts a positive relationship of 0.068 and p-value of 0.663. This shows

absolute no significance. Again, LIS has a positive relationship of 0.137 and p-value of 0.334.

This also shows no relationship. However, LIQ has a significant positive relationship of 0.499

and a p-value of 0.000. This shows a high significance at α = 0.01 and implies that LIQ is a major

contributor to market performance of the SMEs. Furthermore, the result between PPM and

market performance shows a significant positive relationship of 0.352 and a p-value of 0.01. This

shows a significance level at α = 0.05 and means LIQ is also a factor to significantly affect

performance. An analysis of the above results show that all the SCMPs used in this study have a

positive relationships with market performance but SSP, CR and LIS have an insignificant

relationships and implies that these variables are not a major contributor to market performance

and any change in them will not have any major impact on the market performance of the SMEs

but LIQ and PPM will greatly influence market performance and as such the managers should

do well to excel in them.

Financial Performance

SSP has positive insignificant relationship with financial performance. The correlation analysis

shows a positive coefficient of 0.210 with p-value of 0.136. CR also has an insignificant positive

relationship. The result depicts a positive coefficient of 0.084 and p-value of 0.556. Furthermore,

the result between LIS and financial performance depicts a positive relationship of 0.144 and a

p-value of 0.309. This shows no significance. Again, PPM has an insignificant positive




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relationship. The correlation analysis shows a positive coefficient of 0.067 with a p-value of

0.0635. However, LIQ has s significant positive relationship. The correlation analysis shows a

positive coefficient of 0.414 with a p-value of 0.002. This shows a high significance at α = 0.01

and implies that LIQ is a major influence to financial performance of the SMEs. It is obvious

from the above analysis that all the five independent variables have a positive relationship with

financial performance but four of them (SSP, CR, LIS and PPM) have insignificant relationship

with LIQ having a significant relationship. This means that SSP, CR, LIS and PPM will not have

any major influence on financial performance of the SMEs but LIQ will greatly affect financial

performance of these businesses and managers should attach all seriousness to its management.

Operational Performance

SSP has a significant positive relationship of 0.378 and a p-value of 0.006. This shows a high

significance at α = 0.01 and implies that SSP has major influence on operational performance of

the SMEs. Again, the result of the correlation result shows a positive relationship of 0.420 and a

p-value of 0.002 between CR and operational performance. This shows a high significance level

at α = 0.01 and implies that CR influences operational performance greatly. The result between

LIS and operational performance also depicts a positive relationship of 0.282 with a p-value of

0.043. This shows a significance level at α = 0.05 and implies that LIS also affects operational

performance significantly. Furthermore, LIQ also have a significant positive relationship. The

result depicts a positive coefficient of 0.290 and a p-value of 0.037. This shows a significance

level at α = 0.05 and portrays that LIQ also have a major influence on operational performance.

However, PPM has an insignificant relationship with operational performance. The result

shows a positive coefficient of 0.195 and a p-value of 0.166. This shows no significance. This

analysis shows that four independent variables (SSP, CR, LIS and LIQ) have a significant

relationships with operational performance and as such requires much attention from both

management and employees since a change in them will have greater effect on operational

performance, however, PPM has an insignificant positive relationship and as a result though

will positively or negatively affect operational performance if it changes, it is not a major

consideration.

Discussion of Results

Table 2: Relationships between SCM practices and SMEs performance

OPP MKP FNP

SCMPs Pearson Correlation

Sig.

.475**

.000

.419**

.002

.321*

.020

N 52

**Correlation is significant at the 0.01 level (2-tailed)

*Correlation is significant at the 0.05 level (2-tailed)

Source: Authors’ Computation (2014)

Table 2 reports the correlation results of the variables used in the study. The first objective was

to determine the effect of SCMPs on operational performance of SMEs within the Sekondi-

Takoradi Metropolis. SCMPs has a significant positive relationship with operational




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performance (β = 0.475, p<0.01). This implies that any increase in SCMPs would lead to an

increase in operational performance of SMEs within the Sekondi-Takoradi Metropolis and vice

versa. Hence SMEs with high SCMPs would do well in operational terms. This finding is

consistent with Valmohammadi (2011) who found that SCM practices have a significant effect

on organizational performance within the Iranian business and Miguel & Ledur-Brito (2011)

who found same with Brazilian firms.

The second objective was formulated to find out the relationship between SCMPs and market

performance. SCMPs have a positive significant effect on market performance (β = 0. 419,

p<0.01). This means that any increase or decrease in SCMPs would result in an improvement or

reduction in market performance of SMEs respectively. As such, any SME with good SCMPs

would improve its market growth. The findings supports Chong et al.( 2011), Petrovic-

Lazarevic et al. (2007), Li et al.( 2006) and Miguel & LedurBrito (2011) who posited a positive as

well as significant correlation between SCMPs and corporate performance but inconsistent with

the findings of Koh et al., (2007) who found negative and insignificant relationship.

The third objective was to establish the relationship between SCMPs and financial performance.

The result shows a positive and significant relationship between SCMPs and financial

performance (β = 0. 321, p<0.05). This suggests that any increase in SCMPs would result in

profitability growth of the SMEs. Consequently an SME with high SCMPs would have a good

return on investment. The finding confirms to that of Chong et al (2011) who also found a

significant positive relationship between SCMPs and profitability. In summary, managers of

SMEs in the Sekondi-Takoradi Metropolis should institute prudent SCMPs to enhance overall

performance of their businesses. Also, managers can improve upon the value of their

shareholders if optimal SCMPs are maintained.

CONCLUSIONS AND RECOMMENDATIONS

From the discussions it is evident that SMEs would perform well if supply chain management

activities are improved and practiced properly. This however can be accomplished, if the SMEs

engage in strategic partnerships, customer relationship, high level of information sharing,

information quality, as well as postponement. Furthermore, if customers’ information is shared

between management and employees regularly in the firm, there is the chance of improving on

performance. A positive relationship between strategic supplier partnership and firm

performance is an indication that SMEs are in the position to achieve superior performance if

they consider quality as the number one criteria in selecting suppliers, solve problems jointly

with their suppliers, help suppliers to improve quality, engaging in continuous improvement

programmes that include their key suppliers, as well as involving their key suppliers in new

product development processes.

Also, a positive relationship between customer relationship and firm performance is also an eye

opener to the managers of the SMEs that customer relationship can be improved if they

frequently interact with their suppliers, measure customer satisfaction, determine future




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customer expectations as well as evaluate the importance of their relationship with their

customers.

A positive relationship between the level of information sharing and firm performance is also

an indication that SMEs will be able to enhance their performances if they share propriety

information with their trading partners, inform trading partners in advance of changing needs,

as well as their trading partners also sharing business knowledge of core business processes

with them.

With regards to the positive relationship that exists between the level of information quality

construct and firm performance stresses the point that when there is a timely, accurate,

complete, adequate as well as reliable exchange of information between SMEs and their trading

partners, the SMEs would have improved operational, market as well as financial performance.

Finally, when SMEs develop their products for modular assembly and hold-up final product

assembly actions until the last probable point in the supply chain they would be boosting their

performance because there is a positive relationship between postponement and firm

performance. The results of this study does not only have implications for the SMES but also for

academics and policy makers regarding the importance of supply chain management practices

within the Sekondi-Takoradi Metropolis as well as other metropolises in Ghana.

The following recommendations were made:

SMEs should consider quality as the number one criteria in selecting suppliers, solve problems

jointly with their suppliers, help suppliers to improve quality, engage in continuous

improvement programmes that include their key suppliers, as well as involving their key

suppliers in new product development processes.

Also, policy makers and authorities should help educate business owners in Ghana about the

need for adding value through supply chain management practices and how the

implementation of these practices would result in business survival and increased firm

performance.

REFERENCE

Arawati, A. (2011). Supply chain management, product quality and business performance.

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Bayraktar, E., M. Demirbag, et al. (2009). "A causal analysis of the impact of information

systems and supply chain management practices on operational performance: evidence

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133-149.

Chong, A. Y., F. T. Chan, et al. (2011). "Can Malaysian firms improve organizational/innovation

performance via SCM" Industrial Management & Data Systems 111(3): 410-431.

Chow, W. S., C. N. Madu, et al. (2008). "Supply chain management in the US and Taiwan: an

empirical study." Omega 36(5): 665-679.




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