Effect of Strategic Partner Practice on Supply Chain Performance in Tea Firms in Kenya

Transcription

1 Invention Journal of Research Technology in Engineering & Management (IJRTEM) ISSN: ǁ Volume 1 ǁ Issue 10 ǁ Effect of Strategic Partner Practice on Supply Chain Performance in Tea Firms in Kenya Dr. Joel Chepkwony 1*, Dr. Ezekiel K. Chirchir 2* 1 Department of Marketing & Logistics, School of Business & Economics, Moi University, Box Eldoret, 2 Director of Procurement, Bomet County, Box Bomet Abstract: Strategic partner relationship is a critical issue for any business, especially in supply chain activities. Therefore, it is expected that firms that deliver e-procurement system in the supply chain are likely to strengthen their partner relationship. The purpose of this study was to establish the influence of strategic partnership management practice on supply chain performance in tea firms in Kenya. The study was guided mainly by Resource Based Theory. Explanatory research design was adopted. The target population was 4200 respondents from 12 tea firms. Purposive and proportional sampling was used to select a sample size of 365 respondents comprising of staff, top management and suppliers. Questionnaires and structured interviews were used to collect primary data. Pearson product moment correlation coefficient and linear regressions were used to test strength of the relationship between variables. The strategic partnership practice positively influences the supply chain performance among the tea firms[r=.535, n=231, p<.05]. The regression model indicated that strategic partnership practice account for 28.7% variation on supply chain performance. Hence tea firms enhanced strategic partnership practice purposely to improve supply chain performance by widening supplier relationships among the stakeholders. Tea firms should therefore embrace sound partnership practices to enhance firms supply chain performance which in turn lead to profit maximization. Key Words: Strategic, Partnership, Practice, Supply chain Management, Supply Chain Performance, Tea Firms INTRODUCTION Supply chain performance refers to the evaluation of supply chain management both tangible (e.g. cost) and intangible (e.g. capacity utilization) factors (Croom and Johnson, 2003; Eng, 2004; Presutti, 2003; Tan, Lyman, & Wisner, 2002). Supply chain performance is the extend that supply chain activities are meeting end-customer requirements, including product availability, on-time delivery, and all the necessary inventory and capacity in the supply chain to deliver that performance in a responsive manner. Supply chain performance enables firms to drive rapid change in all aspects of operations. This requires end-to-end visibility into factors that drive performance such as cash-to-cash cycle time, overall supply chain cost or perfect order fulfillment (Oloruntoba and Gray, 2006). To proactively manage the overall performance of supply chains, organizations need to know more than inventory positions, deliveries dates, and fill rates. To maximize competitive advantage, organizations must have comprehensive visibility into supply chain performance (Croom and Johnson 2003). Supply Chain Management has become an essential prerequisite to stay in the competitive global environment for profitability especially for profit government corporations and entities (Thai, 2009). As the world s economy becomes increasingly competitive, sustaining competitiveness and the resulting profitability depend less on the ability to raise prices (Presutti, 2003). Those competitive dimensions cannot be delivered without an effectively managed supply chain. Firms with the most competitive supply chains are and will continue to be the big winners in contemporary business world. Procurement is part of supply chain management activities and has exploded into the business scene as one of corporate management s major concerns over the past decades. According to Presutti, (2003) almost 70% of a firm s sales revenues is, on average, spent on supply chain-related activities from material purchases to the distribution of goods and services of finished products to the end customers. Greunen, Herselman, & Niekerk, (2010) argues that benefits of supply chain management have not yet been realized due to general limited understanding of how supply chain management concept works within government environment. Problems such as poor information sharing between purchasers and suppliers, non-automated supplier appraisal systems, adversarial relationship and non-responsive supply chain integration exist in this electronic age according to Chartered Institute of Purchasing & Supplies (CIPS, 2011).A good e-procurement system helps a firm organize its interactions with its most crucial suppliers. It is evident that although this study focuses on e-procurement, it fails to address the role played by the web based technologies in both partner relationship and supply chain performance. In the current economic environment, a value creation perspective is important for improving supply chain performance (Wiengarten, Fynes, Humphreys, Chavezand, & McKittrick 2010). The functional characteristics of e-procurement systems can enable companies to improve the efficiency of value creation processes in the supply chain. The process through which e-procurement contributes to supply chain performance can only be highlighted through explaining the relationship among such processes as; partner relationships, information sharing, and supply chain integration which are proposed as the processes that connect e- procurement systems with supply chain performance. Partner relationships refers to mutually committed relationships between enterprises and their strategic partners (e.g. suppliers, the same tier manufactures and channel members) in the supply chain (Li, Rao, R a g u n a t h a n, & Ragunathan 2005; Liker & Choi, 2004; Panayides & So, 2005; Skjott-Larsen Kotzab, and Grieger 2003). Volume 1 Issue

2 Therefore, strategic partner relationship is an ongoing relationship between firms that involve a commitment over an extended time period, a mutual sharing of information and the risk and rewards of relationship (Ellram & Krause, 1994). All these characteristics show that partnerships play an important role in procurement aspect. If we consider those companies that use the internet throughout their supply chain, it is noticed that they both exchange information to a high extent and closely integrate their systems with their partners (Cagiano et al., 2003). Also the internet may support and facilitate information sharing, both in collaborative or in market-type relationships, and can be used to support closer integration (system coupling) with the strategic partners (Cagiano et al., 2003). 1.1 Statement of the Problem Procurement function in Kenya has been characterized by massive scandals and indignity which have been attributed to poor handling of procurement information thus leading to excessive corruption (Thai, 2009) and according to Ogot, Nyandemo, Kenduiwo, Mokaya, & Iraki (2009) there is need to have a robust automated procurement system which is interlinked and this will lead to enhanced competitiveness and lowered costs. Once this is implemented and linked to procurement entities, it becomes a tool for the compliance function in the monitoring and evaluation of procurement entities (PPOA, 2010) but despite these efforts. Several workshops and meetings have been held within the procurement function to improve the performance of the supply chain but they have inadequately addressed how e-procurement adoption can enhance supply chain performance through partner relationship within supply chain system (PPOA, 2010) and as such many firms in Kenya and the world continues to register dismal Supply chain performance in terms of partner relationship within supply chain system because of the inefficient and unsustainable procurement procedures as it has been witnessed in the Kenyan Public sector. This paper therefore found it imperative to investigate the influence of strategic partnership practices on supply chain performance in tea firms in Kenya. LITERATURE REVIEW 2.1The concept of Supply Chain Management Practices The supply chain encompasses all activities associated with the flow and transformation of goods from the raw materials stage through to the end user, as well as associated information flow. Supply Chain Management (SCM) is the integration of these activities through improved supply chain relationships to achieve sustainable competitive advantage (Handfield and Nichols, 1999). All the links in the supply chain must be strong and well integrated. Li et al., (2005), stated seven dimensions in SCM practices, including strategic supplier partnership, customer relationship, information sharing, information quality, internal lean practices, supplier appraisals and postponement. In this paper only the effect of partnership practice was considered. 2.2 Partner Relationship Strategic partner relationship is a critical issue for business, especially in supply chain activities. Corporations need to be convinced that in today s scale-driven, technology-intensive global economy, partnerships are the supply chain s lifeblood (Liker & Choi, 2004). There are a lot of synonyms for partner relationship, such as partnership, supply chain relationship, buyer-supplier relationship, strategic relationship, and obligation contractual relations (CIPS, 2010). It also has multiplex statement. Li et al., (2005) defined strategic supplier partnership as the long-term relationship between the organization and its suppliers purposely designed to leverage the strategic and operational capabilities of individual participating organizations to help them achieve significant ongoing benefits. Skjott-Larsen et al., (2003) described a strategic partnership between any two companies, whether it is a buyer supplier or a third-party logistics arrangement, can be considered as a segment of an extended supply chain. Liker & Choi (2004) used the Japan diction keiretsu to represent the deep supplier relationship: close-knit networks of vendors that continuously learn improve and prosper along with their parent companies. According to Skjott-Larsen et al., (2003), it involves two patterns of relationships: Obligation Contractual Relations (OCR) and Arm s length Contractual Relations (ACR). OCR is more embedded in social relations between trading partners and is also characterized by a sense of mutual trust and open exchange of information. ACR focuses on price comparisons between different suppliers as a major basis for comparison. This study focused on OCR, the relationship orientation was viewed as philosophy of doing business successfully and as an organizational culture that puts the buyer-supplier relationship at the center of a firm s strategic and operational thinking (Panayides & So, 2005). The internet in their study meant internet tool like e-procurement that enhances information sharing and support system coupling (supply chain system integrate), which consequently, enhances partner relationship. Internet is an element of e-procurement, and procurement belongs to activities of the supply chain. As a result, the researcher can know that e- procurement has positive relation with partner relationship. Johnson & Klassen (2005) also mention that e-procurement deepens strategic partnerships between networks of firms. Therefore, it was expected that firms that deliver e-procurement system in the supply chain were likely to strengthen partner relationship. 2.3 Partnership Relationship and Supply Chain Performance Relying on ongoing and mutually beneficial partner relationships, an enterprise can launch a successful product/service faster than its competitors (Liker and Choi, 2004). Enterprises that incorporate strategic collaboration partners in their product design Volume 1 Issue

3 process could potentially further reduce the time and cost of developing and introducing new products (Eng, 2004). Evans & Wurster (2001) claimed that the low infrastructure and transaction costs of internet-based systems allow organizations to exploit the increased opportunities for complex information exchange with multiple partners, but also recognized the value to be gained through closer relationships between trading partners. Amit & Zott (2001) proposed the importance of close relationships among trading partners as a key source of advantage to both buyer and seller. Inter-organizational relationships would arguably lead to enhanced supply chain performance and greater potential benefits for all parties in the supply chain (Lee, Padmanabhan, & Whang 1997). Sink & Langley (1997) argued that many companies may not have core competencies in the operational logistics area but profit from their ability to manage relationships with firms that do excel in logistics. Business are increasingly relying on their suppliers relations to reduce costs, improve quality, and develop new process and products faster than their rivals vendors can (Liker & Choi, 2004). For instance, some corporations set up efficient EDI connections with preferred buyers and sellers to sign just-in-time agreements and preferred pricing ( Albrecht Dean, & Hansen 2005). It is possible for organizations to work together with different partners and customers simultaneously to reduce the time and cost of developing and introducing new products (Eng, 2004). Through relationship learning, both parties in customer-supplier relationship identified ways to reduce or remove redundant costs, to improve quality and reliability and to increase speed and flexibility (Selnes & Sallis, 2003). According to Panayides & So (2005), relationship orientation in logistic service provider-client relationships has a positive influence on supply chain effectiveness and indirect positive influence via supply chain effectiveness on supply chain performance. They conceptualized effectiveness as an operational measure of competitive success factors, such as quality, timeliness, customer service and flexibility and defined performance in terms of cost and finance. These provide the evidence that if firms increased their partner relationship in the supply chain, they are likely to improve their supply chain performance and this may happen in tea firms. The influence of partner relationships on supply chain performance is expected to be positive. 2.4 Theoretical Framework The study adopted Resource-Based View (RBV) theory (Zhu & Kraemer, 2005) to explain the effect of partnership practice on supply chain performance in tea firms. RBV theory suggests that firms create value by combining resources, both tangible and intangible along with the term resources. The value of a particular resource may depend on the presence of other, related resources (Mohd Salleh, 2009). RBV theory distinguishes physical capital resources, human capital resources, and organizational capital resources. Information technology can be seen as a physical capital resource. Training, experience, judgment, intelligence, relationships, and insight of individual managers and workers in a firm (all highly relevant to managing innovation and technology) are human capital resources. The structure of a firm is both reflected and supported by its information systems, and the firm s relationships with other firms may involve sharing information in digital form and inter-organizational system integration. Srinivasan, Lilien, & Rangaswamy (2002), in a survey of companies in multiple industries in the US, found that the adoption and use of e-business was influenced by the technological capabilities of the firms. RBV theory has been criticised for being not specific enough in defining various types of resources; Priem and Butler (2001) argued that key definitions varied from study to study, with the resulting inconsistency hindering the accumulation of knowledge. Arguably, RBV theory addresses this context in a rather limited way, as the environment cannot be viewed solely as a resource, but also presents constraints and threats. RBV theory a d d r e s s e d organizational context and are similar in terms of modeling the organizational context, because from the perspective of RBV theory, the aspects of organizational structure can be seen as human capital and intra-organizational capital resources. 2.5 Conceptual Framework The paper presupposes that there is a relationship between strategic partnership practice and supply chain performance as summarized in Figure 1. The independent variable was the partnership practice and the dependent variable was supply chain performance. Strategic Partnership practice Supply Chain Performance Figure 1: Conceptual Framework RESEARCH METHODOLOGY The study adopted explanatory research design which implies that the research in question is intended to explain, rather than simply to describe (Maxwell & Mittapalli 2008). Traditionally, the explanatory research has been quantitative in nature and hypotheses tested by measuring the relationships between variables, while data is analyzed using statistical techniques which attempt to identify causal relationships through the analysis of correlations between variables (Maxwell & Mittapalli 2008). The research design was found Volume 1 Issue

4 suitable because the study was mainly concerned with quantifying a relationship or comparing groups purposely to identify a causeeffect relationship. The study was conducted in tea firms located to the West and East of Rift valley in Kenya because they have adopted e-procurement and therefore potentially viable to provide information required for the study. The study purposively targeted twelve (12) tea firms from which respondents were selected proportionately from the following cadres; personnel in administration, supply chain departments, top management and suppliers. The target population was 4200 respondents from which 360 study samples was obtained. All the tea firms were sampled in the study to yield a saturated sample, because the firms considered were few to necessitate any sampling. Line managers and staff in the procurement, administration departments and suppliers were sampled purposively. Using Yamane s (1967), sample size at 95% confidence level, P = 0.05, the sample size was computed as hereunder: n = = 4200/ (.05) 2 = 365 respondents Where; n = the sample size, N = the population size, e = the acceptance sampling error The research study was based on the primary collected directly from the respondents using questionnaires and structured interviews, while secondary data used was from supply chain performance records where company s annual records and reports were assessed and tabulated. Cronbach s coefficient alpha was used to determine the reliability of the research instrument, where a reliability coefficient of 0.7 and above was assumed to reflect the internal reliability of the instruments (Fraenkel & Wallen, 2000). After data collection, responses from all questionnaires and interview schedule items were cross -checked to facilitate coding and processing for analysis using SPSS (Version 21.0). Pearson product moment correlation (r) and linear regression were used to establish the relationship between independent and dependent variables. RESULTS OF THE STUDY The objective of the study was to establish the influence of strategic partnership practice on supply chain performance in tea firms. The objective was achieved by establishing relationship between strategic partnership practice and supply chain performance using Pearson product moment correlation(r), linear regression and the results presented as hereunder. 4.1 Relationship between Partnership practice and Supply Chain Performance Pearson product moment correlation was used to establish relationship between the two variables. There was a positive relationship between the partnership practice and supply chain performance [r=.535, n=272, p<.05], as shown in Table 1. This indicated a positive correlation existed between partnership practice and supply chain performance in tea firms. Thus the more the tea firms embrace partnership practice the higher supply chain performance. Table 1: Pearson Moment Correlations between Partnership practice and SCP Performance Partnership practice Performance Pearson Correlation ** Sig. (2-tailed).000 Partnership practice Pearson Correlation.535 ** 1 **. Correlation is significant at the 0.01 level (2-tailed). N=272 Sig. (2-tailed) Linear Regression on partnership practice and Supply Chain Performance A linear regression model was used to explore the relationship between dependent variable and independent variable or predictor. It was used to predict supply chain performance in the study. The prediction was carried out basing on the effect of the independent variable strategic partnership practice in tea firms. The R 2 represented the measure of variability in supply chain performance among selected tea firms that had partnership practice is accounted for by the predictor. From the model, (R 2 =.287) shows that the predictor account for 28.7% variation whereas other factors accounted for 71.3% in supply chain performance (Table 2). Hence the need for further research to establish other factors affecting supply chain performance. The predictor used in the model has captured the variation in the supply chain performance. The change statistics were used to test whether the change in adjusted R 2 Volume 1 Issue

5 is significant using the F ratio. The model caused adjusted R 2 to change from zero to.287 and this change gave rise to an F ratio of 92.41, which is significant at a probability of.05. Model R R Square Adjusted R Square 1 a. Predictors: (Constant), Partnership b. Dependent Variable: Performance Table 2: Model Summary on Partnership Practice Std. Error of the Estimate R Square Change Change Statistics F Change df1 df2 Sig. F Change.535 a Analysis of Variance on partnership practice The analysis of variance was used to test whether the model could significantly fit in predicting the outcome than using the mean as shown in (Table 3). The regression model significantly improved the ability to predict the supply chain performance. The F- ratio was and significant (P<.05). Thus the model was significant leading to rejection of the null hypotheses. Table 3: Analysis of Variance on partnership practice Model Sum of Squares df Mean F Sig. Square 1 Regression b Residual Total a. Predictors: (Constant), Partnership b. Dependent Variable: Performance 4.4 Coefficients of partnership practice In addition, the β coefficients for independent variable was generated from the model and subjected to a t-test, in order to test each of the hypotheses under study. The t-test was used as a measure to identify whether the predictor were making a significant contribution to the model. Table 4 shows the estimates of β value and gives contribution of the predictor to the model. The β value for partnership practice had positive coefficient, thus positive relationship with supply chain performance as summarized in the model as: Supply chain performance = 1, partnership practice + ε From the findings the t-test associated with β-values was significant and the partnership practice as the predictor was making a significant contribution to the model. The coefficients results in Table 4 showed that the predicted supply chain performance in relation to the independent factor was significant; β 1 = (p < 0.05) which implies that we reject the null hypothesis stating that there is no significant relationship between partnership practice and supply chain performance in tea firms, indicating that for each unit increase in the partnership practice, there is units increase in supply chain performance. Furthermore, the influence of supply chain performance was stated by the t-test value = 9.61 which implies that the standard error associated with the parameter is over 9.6 times that of the error associated with it. Table 4: Coefficients of partnership practice Model Unstandardized Coefficients Standardized Coefficients t Sig. β Std. Error Beta 1 (Constant) Partnership a. Dependent Variable: Performance The findings agree with Amit & Zott (2001) that the importance of close relationships among trading partners as a key source of advantage to both buyer and seller. Inter-organizational relationships would arguably lead to enhanced supply chain performance and Volume 1 Issue

6 greater potential benefits for all parties in the supply chain (Lee et al., 1997). It further agree with Panayides & So (2005), that relationship orientation in logistic service provider-client relationships has a positive influence on supply chain effectiveness and indirect positive influence via supply chain effectiveness on supply chain performance. Therefore, this implied that partnership practice is pivotal if supply chain performance is to be enhanced. CONCLUSION AND RECOMMENDATION OF THE STUDY The partnership practice positively influences the supply chain performance among the tea firms[r=.535, n=231, p<.05]. The regression model indicated that partnership practice account for 28.7% variation on supply chain performance. Hence tea firms should enhanced partnership practice in order to improve supply chain performance by widening supplier relationships among the stakeholders. Tea firms should henceforth embrace partnership practices to improve tea firms supply chain performance. REFERENCES [1] Albrecht, C.C., Dean, D.L. & Hansen, J.V. (2005). Marketplace and technology standards for B2B e-commerce: Progress, challenges, and the state of the art, Information & Management. Marriott School of Management and Rollins Center for e- business Brigham Young University, USA. [2] Amit, R. and Zott, C. (2001), Value Creation in E-Business, Strategic Management Journal, Vol. 22 Nos 6-7, pp [3] Cagliano, R., Caniato, F. & Spina, G. (2003). E-business strategy: How companies are shaping their supply chain through the Internet, International Journal of Operations & Production Management, 23(10). [4] Chartered Institute of Purchasing and Supplies, (CIPS, 2011). Accessed October 15, 2012 [5] Croom, S. & Johnson, R. (2003). E-service: Enhancing I n t e r n a l Customer Service through E-procurement, International Journal of Service Industry Management, 14(5). [6] Ellram, L.M. & Krause, D.R. (1994). Supplier Partnerships in Manufacturing versus N o n - Manufacturing Firms, The International Journal of Logistics Management, [7] Eng, T.Y. (2004). The R ole of E-marketplaces in Supply Chain Management, Industrial Marketing Management, 33(2). [8] Evans, P. & Wruster, T.S. (2001). Blown to Bits, How the New Economics of Information Transforms Strategy, Harvard Business School Press, Boston. [9] Fraenkel, J. R & Wallen, N. E. (2000). How to Design and Evaluate Research in Education. New York, NY: Mc Grawhill Companies Inc. [10] Greunen, D. V., Herselman, M. E. & Niekerk, J. V. (2010) Implementation of Regulation- Based E-procurement in the Eastern Cape provincial administration. African Journal of Business Management Vol. 4(17), pp [11] Handfield, R. B., Monczka, R. M., Giunipero, L. C. & Patterson, J. L. (2009). Sourcing and Supply Chain Management, Canada: Cengage Learning Academic Resource Centre. [12] Handfield, R.B., & Nichols Jr. E. L. (1999). Introduction to Supply Chain Management, Upper Saddle River, NJ: Prentice- Hall. [13] Johnson, P.F. & Klassen, R.D. (2005). E-procurement, MIT Sloan Management Review 46(2). [14] Lee, H.L., Padmanabhan, V., & Whang, S. (1997). Information D istortion in a Supply Chain: The bullwhip, Management Science, 43(4). [15] Li, S., Rao, S. S., Ragunathan, T. S., & Ragunathan, B. (2005). Development and Validation of a Measurement Instrument for Studying Supply Chain Management Practices, Journal of Operations Management 23(6). [16] Maxwell, J., & Mittapalli, K. (2008). Explanatory Research. In Lisa M. Given (Ed.), The Sage Encyclopedia of Qualitative Research Methods. (pp ). Thousand Oaks, CA: SAGE Publications. [17] Mohd Salleh, N.A. (2009). Firm s capabilities as critical determinants of adoption and utilisation of information systems by small- and medium-sized enterprises. Asia Pacific Management Review, 14(4), [18] Ogot, M., Nyandemo, S., Kenduiwo, J. Mokaya, J., & Iraki, W. (2009). The Long Term Policy Framework for Public Procurement in Kenya, Draft Zero in Public Procurement Oversight Authority, University of Nairobi, Kenya. [19] Oloruntoba, R. Gray, R. (2006). Humanitarian Aid: An Agile Supply Chain? Supply Chain Management-An International Journal, [20] Panayides, P.M. & So, M. (2005). Logistics Service Provider Client Relationships, Transportation Research Part E 41(3). [21] Priem, R.L., & Butler, J.E. (2001). Is the resource-based view a useful perspective for strategic management research? The Academy of Management Review, 26(1), [22] Public Procurement Oversight Authority (2010) Public Procurement and Disposal General Manual, Public Procurement Oversight Authority [23] Selnes, F. & Sallis, J. (2003). Promoting Relationship Learning, Journal of Marketing, 67(3). Volume 1 Issue

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