SME Supply Chain Management Practices Impact Performance

Industrial Management & Data Systems
The impact of supply chain management practices on performance of SMEs

S.C. Lenny Koh, Mehmet Demirbag, Erkan Bayraktar, Ekrem Tatoglu, Selim Zaim,
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Impact of SCM
The impact of supply chain practices
management practices on
performance of SMEs
103
S.C. Lenny Koh and Mehmet Demirbag
University of Sheffield, Management School, Sheffield, UK
Erkan Bayraktar
Faculty of Engineering, Bahcesehir University, Besiktas, Istanbul, Turkey

Ekrem Tatoglu
Faculty of Business Administration, Bahcesehir University, Besiktas,
Istanbul, Turkey, and
Selim Zaim
Faculty of Economics and Administrative Sciences, Fatih University,
Buyukcekmece, Istanbul, Turkey
Abstract
Purpose – The purpose of this study is to determine the underlying dimensions of supply chain
management (SCM) practices and to empirically test a framework identifying the relationships among
SCM practices, operational performance and SCM-related organizational performance with special
emphasis on small and medium size enterprises (SMEs) in Turkey.
Design/methodology/approach – Data for the study were collected from a sample of 203
manufacturing SMEs operating in the manufacture of fabricated metal products and general purpose
machinery (NACE codes 28 and 29) within the city of Istanbul in Turkey. The research framework was
tested using partial least squares method, which is a variance-based structural equation modeling approach.
Findings – Based on exploratory factor analysis (EFA), SCM practices were grouped in two factors:
outsourcing and multi-suppliers (OMS), and strategic collaboration and lean practices (SCLP). The
results indicate that both factors of SCLP and OMS have direct positive and significant impact on
operational performance. In contrast, both SCLP and OMS do not have a significant and direct impact
on SCM-related organizational performance. Also, as the direct relationship between the two
performance-constructs was found significant, both factors of SCM practices have an indirect and
significant positive effect on ORG through OPER.
Research limitations/implications – Perhaps, the most serious limitation of this study was its
narrow focus on Turkish manufacturing SMEs, thus precluding the generalization of findings to other
emerging countries as well as other sectors such as service and government sectors that may benefit
from a sound SCM strategy.
Practical implications – By developing and validating a multi-dimensional construct of SCM
practices and by exhibiting its value in improving operational performance of SMEs, it provides SCM
managers with useful tool for evaluating the efficiency of their current SCM practices. Second, the
analysis of the relationship between SCM practices and operational performance indicates that SCM
practices might directly influence operational performance of SMEs.
Originality/value – This paper adds to the body of knowledge by providing new data and empirical Industrial Management & Data
insights into the relationship between SCM practices and performance of SMEs operating in Turkey. Systems
Vol. 107 No. 1, 2007
Keywords Supply chain management, Organizational performance, Small to medium-sized enterprises, pp. 103-124
Turkey q Emerald Group Publishing Limited
0263-5577
Paper type Research paper DOI 10.1108/02635570710719089
IMDS 1. Introduction
107,1 Globalization and intensive world-wide competition along with the technological
advancements create an entirely new business environment for the manufacturing
organizations. Initially, manufacturing companies have accomplished massive
productivity gains through the implementation of lean production in response to this
intensifying competition. The “waste” has eliminated from many different local
104 operations for the sake of better productivity. Currently such type of massive
productivity improvements for many manufacturing organizations is very limited.
Instead, there is a huge improvement potential to reduce the inefficiencies caused by the
poor performance of the suppliers, unpredictable customer demands, and uncertain
business environment. An integrated supply chain has a clear advantage on the

competitiveness of the individual companies. As a result, the chain-chain competition
has started to take over the enterprise-enterprise competition, although many
enterprise-enterprise competitions do exist particularly in the less developed economies
(Koh et al., 2006). The forward-looking enterprises today are dynamic; they collaborate
with suppliers, customers and even with competitors; share information and knowledge
aiming to create a collaborative supply chain that is capable of competing if not leading
the particular industry. Hence, gaining competitive edge under such a cut-throat
environment becomes increasingly difficult, if not impossible.
The supply chain concept is theorized from the formation of a value chain network
consisting of individual functional entities committed to providing resources and
information to achieve the objectives of efficient management of suppliers as well as the
flow of parts (Lau and Lee, 2000). Supply chain management (SCM) includes a set of
approaches and practices to effectively integrate suppliers, manufacturers, distributors
and customers for improving the long-term performance of the individual firms and the
supply chain as a whole in a cohesive and high-performing business model (Chopra and
Meindl, 2001). As defined by the Council of Supply Chain Management Professionals
(CSCMP), SCM encompasses the planning and management of all activities involved in
sourcing and procurement, conversion and all logistics management activities as well as
coordination and collaboration with channel partners.
SCM and related strategies are crucially important to the success of a
manufacturing firm. This is because the cost and quality of goods and services sold
are directly related to the cost and quality of goods and services purchased. Therefore,
supply chain policies such as procurement and supplier selection have an important
role in the SCM (Hartley and Choi, 1996; Degraeve et al., 2000). Lean practices to
improve the internal processes of an organization in line with the principles of just in
time (JIT) supply are other highly recognized practices in SCM (Burgess et al., 2006;
Cigolini et al., 2004). Integration of internal processes of the organization with the
suppliers and customers forms the essence of the whole idea behind SCM. With the
widespread use of internet, web-based systems enable organizations to form strong
customer and supplier integration for inventory management, demand forecasting,
customer and supplier relationship management (Frohlich and Westbrook, 2002).
The importance of better tracking of products logistics, improved efficiency in
information processing, improved security, reduced counterfeit, fast-tracked quotation
and ordering, improved customer relationships, better control of supplies on the SCM
performance has been repeatedly reported by the cases such as Frankfurt Airport in
Germany and Wal-Mart in the USA, even though these cases often are from more
developed countries where appropriate infrastructure is in place. In all of these efforts, Impact of SCM
strategic planning for the manufacturing organizations has an integral role. practices
Regarding the implementation of SCM practices by manufacturing firms in Turkey,
Ulusoy (2002, 2003) provides an excellent overview of the manufacturing firms with
special emphasis on machinery and equipment industry. Predominantly, Turkish
manufacturing industry relies on low cost strategy with respect to supply (Ulusoy,
2003) and uses “low cost” as a main supplier selection criterion in machinery and 105
equipment industry (Ulusoy, 2002). This is not particularly surprising as far as the
share of material costs within the total manufacturing costs are concerned (ranging
from 56 per cent in machinery and equipment to 87 per cent in automotive). Quality
appears to be order qualifier where the price is order-winner from the suppliers’
perspective (Ulusoy, 2003).
The purpose of this study is to determine the underlying dimensions of SCM
practices and to empirically test a framework identifying the relationships among
SCM practices, operational performance and SCM-related organizational performance
with special emphasis on small and medium size enterprises (SMEs) in Turkey.
Although the needs and operating environment of SMEs are very different from those
of large firms, there is a dearth of literature regarding the use of SCM practices and its
effect on performance of SMEs in emerging market economies such as Turkey. SMEs
have significant impacts on supply chain performance, where they may serve the roles
of suppliers, distributors, producers and customers (Hong and Jeong, 2006). In several
emerging countries, SMEs form the largest group of manufacturing firms which
essentially provide specialty manufacturing and support services to large firms
(Huin et al., 2002). SMEs also play a very crucial role to the economies of most
emerging nations from the viewpoint of generating employment and economic growth.
They account for more than half of the employment and added value in most countries
(UNCTAD, 1993). Similar trend is also observed in Turkey where SMEs constitute
99.5 per cent of all business establishments and employ 61.1 per cent of the workforce
(Yilmaz, 2004). In view of the fact that the success of small business has a direct impact
on the national economy, this paper seeks to add to the body of knowledge by
providing new data and empirical insights into the relationship between SCM practices
and performance of SMEs operating in Turkey.
The remainder of this paper is organized as follows. The next section presents the
literature review that helps to underpin the research framework and sets out
the study’s hypotheses. The research methodology is presented in the third
section. Results and discussion are in section four followed by conclusion and implications.
2. Literature review and hypotheses

The SCM framework developed in this study is shown in Figure 1. The framework
proposes that SCM practices implemented in SMEs will influence SCM-related
organizational performance both directly and also indirectly through operational
performance. A detailed description of the SCM practices construct along with
both operational and SCM-related organizational performance constructs is provided
in the following subsections. Based on the extant literature, the proposed relationships
among SCM practices, operational performance and SCM-related organizational
performance of SMEs are discussed and hypotheses related to these variables are
developed.
IMDS
107,1 Operational
performance
h1
H1
106 Supply chain
management H3
practices
x1
H2
SCM-related
organizational
Figure 1. performance
Path model h2
2.1 SCM practices

SCM practices involve a set of activities undertaken in an organization to promote
effective management of its supply chain. The literature is replete on the dimensions of
SCM practices from variety of perspectives. In a more recent study, Li et al. (2005)
attempted to develop and validate a measurement instrument for SCM practices.
Their instrument has six empirically validated and reliable dimensions which include
strategic supplier partnership, customer relationship, information sharing, information
quality, internal lean practices and postponement. Strategic supplier partnership
represents the long-term relationship between the organization and suppliers.
Customer relationship covers the practices on complaint handling, customer
satisfaction, and long-term relationship establishment. Information sharing means
the information communicated between partners where the accuracy, adequacy, and
timeliness refer to the quality of information. Lean practices are represented by the
elimination of waste, low inventory, small lot sizes and JIT delivery. Postponement is
the delayed differentiation of products on the supply chain.
A list of SCM dimensions used in previous literature regarding the SCM practices is
provided in Table I. Relying on the extant literature, this study identifies a set of
12 SCM practices. A detailed description of these practices is provided in Appendix 1.
2.2 Operational performance

A central objective of effective SCM is to create a major source of competitive
advantage for the enterprise to differentiate itself in the eyes of the customers from its
competitors by operating at a lower cost and hence at a greater profit (Christopher,
1992). Recently, Gunasekaran et al. (2004) developed a framework for SCM
performance measures and metrics listed for supply chain process (plan, source,
make and deliver) and level of management (strategic, tactical and operational levels).
The empirical literature provides various dimensions of operational performance
which may also be applicable to SME context. The measures of the operational
performance construct used in this study are flexibility, reduced lead time in
Impact of SCM
Donlon (1996) Tan et al. (1998) Alvarado and Kotzab (2001)
Supplier partnership Purchasing Concentration on core practices
Outsourcing Quality competencies
Cycle time compression Customer relations Use of inter-organizational
Continuous process flow systems (e.g. EDI)
Information technology sharing Elimination of excess inventory
levels 107
Tan et al. (2001) Ulusoy (2003) Chen and Paulraj (2004)
Supply chain integration Logistics Supplier base reduction
Information sharing Supplier relations Long-term relationship
Supply chain characteristics Customer relations Communication
Customer service management Production Cross-functional teams

Geographical proximity Supplier involvement
JIT capability
Min and Mentzer (2004) Li et al. (2005) Burgess et al. (2006)
Agreed vision and goals Strategic supplier partnership Leadership
Information sharing Customer relationship Intra-organizational
Risk and award sharing Information sharing relationships
Cooperation Information quality Inter-organizational
Process integration Internal lean practices relationships
Long term relationship Postponement Logistics
Agreed supply chain leadership Process improvement
orientation Table I.
Information systems Dimensions of SCM
Business results and outcomes practices in the literature
production, forecasting, resource planning, cost saving and reduced inventory level.
These measures are identified in the following paragraphs.
2.2.1 Flexibility. SCM practices may enhance a firm’s flexibility, which could be
defined as the firm’s ability to adapt to the changes in its business environment.
The adaptation of the “many suppliers” practice could increase flexibility generating
alternative sourcing for procurement by reducing supply chain risks. Building
long-term partnership relations with suppliers and customers also helps to improve the
flexibility of the supply chain by creating a mutual understanding among the members
(Chang et al., 2005). Holding safety stock and sub-contracting could dampen down
supply and demand chains uncertainties through delivering from inventory and/or
purchasing sub-contracted resources. Outsourcing and 3PL are two of the frequently
used SCM practices by firms to provide flexibility to internal capacity to ring fence
their resources for the core activities.
2.2.2 Reduced lead time in production. E-procurement, delivery from stock, single
sourcing and JIT delivery practices may help reduce delivery lead time as well as
increase responsiveness, and thus provide competitive advantage to the firm.
2.2.3 Forecasting. Forecasting accuracy is the most important feature in the
performance of supply chains. It is a joint performance of a combination of resources
such as supply of material, manufacturing, production planning and customer demand
prediction. Wickramatillake et al. (2006) applied the baseline forecast to consider the
major milestones of a large-scale project in order to measure the performance of the
supply chain with respect to meeting the delivery targets. Through closer partnerships
IMDS with suppliers and customers, it is anticipated that information could be shared, and
107,1 thus, fed into demand forecasts to improve the accuracy of predictions. This forecast
will in turn enable the firm to deliver the order more confidently.
2.2.4 Resource planning and cost saving. With appropriate strategic planning, it
may be anticipated that the utilization of resources will be optimized leading to cost
savings. For example, reduced cycle time in production could be materialized through
108 reducing set-up time and/or eliminating non value-added activities. With a shortened
cycle time, more orders could be processed, which would then result in improved
efficiency and reduced production cost per unit. In addition, the use of an
e-procurement tool could also shorten order lead time and reduce ordering cost.
2.2.5 Reduced inventory level. JIT supply allows minimum inventory holding
through supplies delivered when they are needed. This SCM practice will not only
reduce inventory level, but will also free up warehouse space and untighten cash flow
(Mistry, 2006). This is particularly important for SMEs which are in constant need for
cash to run the business.
2.3 SCM-related organizational performance

Previous studies have measured organizational performance relying on both financial
and non-financial criteria. Although financial performance is the ultimate aim of any
business organization, other indicators such as innovation performance (Llorens et al.,
2003), market share and other non-financial performance indicators may also be
equally important in evaluating the impact of SCM practices on SME performance
(Demirbag et al., 2006). The short-term objectives of SCM are essentially to enhance
productivity and reduce inventory and lead time, while long-term objectives are to
increase market share and integration of supply chain for all members of the supply
chain (Li et al., 2006; Lyons et al., 2004; Tan et al., 1998). Based on this discussion, the
following items are adopted to measure SCM-related organizational performance in
this study.
2.3.1 Increase in sales. A competitive supply chain in the market might be
characterized by efficient use of chain resources which would lead to lower product
cost, better product quality, faster response and therefore eventually higher market
share. Through practice of supply chain benchmarking, emerging as a leader in the
industry would provide a firm with the opportunity of increased sales. If an industry
leader position is still far reaching, benchmarking the supply chain performance
against the best practice in the industry would provide incentives for further
improvement that will eventually lead to increased sales.
2.3.2 More accurate costing. The use of an e-procurement tool would assist the
company to provide a more accurate costing for the product and service produced.
This can be achieved through real-time evaluation and the updated information in key
accounts of buyers and suppliers. (Rao, 2006). Working with “few suppliers” helps
reduce the number of transactions for procurement. “JIT supply” reduces the holding
cost, which is hard to predict. The cost of goods and services outsourced to
subcontractors and 3PL companies may be calculated more accurately than producing
them in-house.
2.3.3 Increase in coordination between departments. Strategic planning could
increase integration between various departments of an organization through
information retrieval and sharing. This SCM practice helps to reduce the departmental
barriers and generate an organization-wide plan. “JIT supply” and “few suppliers” Impact of SCM
practices are the consequences of JIT philosophy which traditionally relies on tight practices
collaboration in every levels of organization. The benefits of close relationship with
suppliers and customers are only realized in a well coordinated organization.
2.3.4 Increase in coordination with suppliers. The use of few suppliers, forming close
partnerships with suppliers and practice of e-procurement could increase coordination
with suppliers. The practice of using few suppliers helps to build more effective 109
supplier relationships. Through establishing close partnerships with suppliers,
product, process and technology innovations could be better achieved, e.g. joint
development of a new product, joint effort in reducing purchased lead-time, cross
training workforce, etc. This partnership will not only benefit the supplier and the
customer, but will also improve the coordination with the suppliers due to a closer
“control” of the supply chain (Helo and Szekely, 2005). With an e-procurement practice,
the ordering process could be streamlined and automated. Transactions could be
managed more centrally and hence it is clear that the increase in coordination with
suppliers in this context is via information technology (Rahman, 2004).
2.3.5 Increase in coordination with customers. Increase in coordination with
customers could be achieved through forming close partnerships with customers.
For example, potential customer orders could be negotiated and clarified jointly
(Wu et al., 2004). This may help to reduce late design changes and/or order changes,
which subsequently affect the delivery performance of the company.
2.4 Hypotheses
The SCM framework developed in this study proposes that SCM practices have a direct
impact on the operational performance of SMEs. SCM practices are expected to
increase an organization’s operational performance through flexibility, reduced lead
time, cost saving, resource planning, reduced inventory level and forecasting. As noted
earlier, various SCM practices have an impact on various aspects of operational
performance. This leads to the following hypothesis:
H1. SMEs with higher levels of SCM practices will have higher levels of
operational performance.
SCM practices influence not only operational performance, but also SCM-related
organizational performance of SMEs. They are expected to enhance an SME’s sales,
integration between its departments and coordination with its suppliers and
customers. Thus, we expect that:
H2. SMEs with higher levels of SCM practices will have higher levels of
SCM-related organizational performance.
The relationship between financial and non-financial measures of organizational
performance has long been discussed in organization and strategy literature. York and
Miree (2004) argue that non-financial performance such as improved quality,
innovativeness and resource planning should actually reduce costs, and thus have a
positive effect on measures of financial performance. Increased quality helps SMEs to
retain current customers and create greater customer loyalty, which in return may
increase market share and organizational performance (Rust et al., 1994). A number of
prior studies demonstrate positive relationship between operational performance
IMDS dimensions such as product quality, (Larson and Sinha, 1995) innovation and R&D
107,1 (Prajogo and Sohal, 2001; Singh and Smith, 2004) employee performance
(Fuentes-Fuentes et al., 2004). Increase in operational performance may lead to high
levels of organizational performance related to SCM in terms of increased sales,
organization-wide coordination and supply chain integration. Hence, a positive
relationship between operational performance and SCM-related organizational
110 performance can be proposed.
H3. The higher the level of operational performance, the higher the level of
SCM-related organizational performance.
3. Research methodology
3.1 Sample and data collection
A survey instrument was developed to investigate the impact of SCM practices on the
performance of SMEs. The questionnaire was pre-tested several times to ensure that
the wording, format, and sequencing of questions were appropriate. Occasional
missing data on variables was handled by replacing them with the mean value.
The percentage of missing data across all data were calculated to be relatively small.
There is no consensus on the definition of SME, as variations exist between
countries, sectors and even different governmental agencies within the same country
(Yusof and Aspinwall, 2000). In line with small business research, this study adopted
the number of employees as the base for the definition of SME. An SME is identified as
one that employs fewer than 250 staff. The minimum of at least ten employees was also
chosen in order to exclude micro firms that would not be suitable for the purposes of
this study. This range is consistent with the definition of an SME adopted by both the
Turkish State Institute of Statistics (SIS) and Turkish Small Business Administration
and also by a number of European countries such as Norway and Northern Ireland
(Sun and Cheng, 2002; McAdam and McKeown, 1999).
Data for this study was collected using a self-administered questionnaire that was
distributed to 800 SMEs operating in the manufacture of fabricated metal products and
general purpose machinery (NACE codes 28 and 29) within the city of Istanbul in
Turkey. For centuries as being the largest city of Turkey, Istanbul has been
undisputedly the main industrial and trade centre. The city of Istanbul accounts for
nearly 75 per cent of total capital investment generating nearly 23 per cent of Turkish
GNP (Berkoz and Eyuboglu, 2005). The sample was selected randomly from the
database of Turkish Small Business Administration (KOSGEB). The KOSGEB
database includes a total of 12,270 SMEs in Istanbul, which accounts for nearly
28 percent of all SMEs registered throughout Turkey. The sampling frame consists of
1,917 SMEs operating in both industries in Istanbul.
It was requested that the questionnaire be completed by a senior officer/executive in
charge of SCM practices. The responses indicated that a majority of the respondents
completing the questionnaire were in fact members of the top management. Of the
800 questionnaires posted, a total of 229 questionnaires were returned after one
follow-up. A total of 26 questionnaires were eliminated due to largely missing values.
The overall response rate was thus 25.4 percent (203/800), which was considered
satisfactory for subsequent analysis. A comparison of the annual sales volume,
number of employees and sub-industry variation revealed no significant differences
between the responding and non-responding firms ( p . 0.1). Thus, the responses Impact of SCM
adequately represented the total sample group. practices
3.2 Measurement of variables
Based on the literature, a set of twelve SCM practices that are applicable to SME context
were identified. These practices included “close partnership with suppliers” “close
partnership with customers” “just in time supply” “e-procurement” “outsourcing” 111
“subcontracting” “3PL” “strategic planning” “supply chain benchmarking” “few
suppliers” “many suppliers” and “holding safety stock”. Respondents were asked to
what extent the following SCM practices were implemented in their organizations
relying on five-point scales ranging from 1 ¼ “not at all implemented” to 5 ¼ “fully

“implemented”.
It is generally recognized that it is difficult to select a single measure of firm
performance. The literature lists several quantitative objectives that can be set to guide
performance over a period of time, as well as qualitative objectives (Hunger and
Wheelen, 1993; Thompson, 1993). It has been argued that as there are obvious
difficulties in obtaining quantitative measures, there is a strong a priori case that
qualitative measures should be included in assessments of performance
(Chakravarthy, 1986). Therefore, the subjective approach has been used extensively
in empirical studies, based on executives’ perceptions of performance, having been
justified by several writers.
SME performance in this study was measured at two levels. A list of six operational
(OPER) and five SCM-related organizational performance (ORG) measures were
identified. The former group of performance indicators includes “reduced lead time in
production” “cost saving” “forecasting” “resource planning” “reduced inventory level”
and “flexibility” while the latter group includes “increase in sales” “more accurate
costing” “increase in coordination between departments” “increase in coordination
with suppliers” and “increase in coordination with customers”. Respondents were
asked to indicate on a five-point scale, ranging from “definitely better” through
“about the same” to “definitely worse” or “don’t know” how their business had
performed over the last three years relative to their major competitors on each of the
operational and SCM-related organizational performance criteria.
The items used to measure SCM practices, operational and SCM-related
organizational performance of SMEs are reproduced in the Appendix 2.
4. Results and discussion

The frequency distribution of the sample firms with respect to the use of SCM practices
is shown in Table II. The SCM practices with the highest level of usage by the sample
firms included “JIT supply” “many suppliers” and “holding safety stock”. The finding
that both “JIT supply” and “holding safety stock” were the two most cited SCM
practices in terms of the level of usage appears to be somewhat surprising. This might
be explained largely by the market conditions facing SMEs. Especially, financial
difficulties push them to follow principles of JIT supply while unstable economic
conditions and unreliable suppliers as well as dominant suppliers operating in highly
concentrated industries such as steel and aluminum mandate SMEs to hold inventory.
Ironically, the same conditions may also dictate to deal with several suppliers to
respond to the customers properly.
IMDS
SCM practices N Percentages
107,1
JIT supply 103 50.74
Many suppliers 91 44.83
Holding safety stock 87 42.86
Subcontracting 76 37.44
112 Few suppliers 72 35.47
Close partnership with suppliers 66 32.51
Strategic planning 66 32.51
Outsourcing 56 27.59
3PL 55 27.09
Table II. Close partnership with customers 53 26.11

Frequency distribution of E-procurement 45 22.17
SCM practices Supply chain benchmarking 39 19.21
It is however, surprising to note that some popular SCM practices such as

“outsourcing” “3PL” and “e-procurement” in SMEs were relatively less used. In his
survey of e-business strategies in Turkish machinery and equipment industry Ulusoy
(2002) observed a relatively widespread use of electronic business practices. Our
findings, however, did not corroborate this finding within the context of SMEs.
The data analysis testing the proposed relationships shown in Figure 1 was
conducted at three stages: First, an exploratory factor analysis (EFA) with varimax
rotation was employed to produce a parsimonious set of SCM practices from a large set
of SCM practices. Second, the internal consistency of constructs in the path model was
measured. Finally, we evaluated the effect of SCM factors on both operational and
SCM-related organizational performance. These stages are discussed in more detail in
the following subsections.
4.1 Exploratory factor analysis

Exploratory factor analysis with varimax rotation was performed on the SCM
practices in order to extract the dimensions underlying each construct. The EFA of the
12 variables has yielded two factors explaining 44.5 percent of the total variance. A
total of 12 items were loaded on two factors. Based on the item loadings on each factor,
the first factor was labeled as strategic collaboration and lean practices (SCLP), while
the second factor was labeled as outsourcing and multi-suppliers (OMS). Table III
shows the results of EFA.
The Cronbach’s a measures of reliability for SCLP and OMS were 0.80 and 0.63,
respectively. Although an a value of 0.70 and higher is often considered the criterion
for internally consistent established factors (Hair et al., 1998), Nunnally (1978) suggests
that the a value of 0.50 and 0.60 is acceptable in the early stages of research. Since,
Cronbach’s a value for each factor is above 0.50, both factors are accepted as being
reliable for the research.
4.2 Unidimensionality tests

The validity and reliability of path constructs can be assessed by checking
unidimensionality of each construct using three tools: principal component analysis,
Cronbach’s a and Dillon-Goldstein’s r. As shown in Table IV, all of the Cronbach’s a
values met the threshold a value of 0.50 (Hair et al., 1998). According to the principal
Impact of SCM
Factor Percentage of variance Cum. per Cronbach
Factors loads Eigen-value explained cent a practices
Factor 1 4.07 33.94 33.94 0.80
Strategic collaboration and
lean practices
Close partnership with 113
suppliers 0.78
Close partnership with
customers 0.77
JIT supply 0.64
Supply chain benchmarking 0.63

Strategic planning 0.57
Holding safety stock 0.56
Few suppliers 0.47
Factor 2
Outsourcing and
multi-suppliers 1.26 10.53 44.47 0.63
Outsourcing 0.78
E-procurement 0.64
3PL 0.62
Subcontracting 0.53
Many suppliers 0.41
Table III.
Notes: K-M-O Measure of sampling adequacy ¼ 0.836; Bartlett test of sphericity ¼ 582.65; p , 0.000 EFA of the SCM practices
Number
of Cronbach Dillon-Goldstein’s First Second
Constructs indicators a r Eigenvalue Eigenvalue
Strategic collaboration and

lean practices 7 0.80 0.85 3.22 0.83
Outsourcing and multi-suppliers 5 0.63 0.77 2.02 0.99
Operational performance 6 0.77 0.84 2.82 0.91
SCM-related organizational Table IV.
performance 5 0.87 0.90 3.33 0.57 Unidimensionality tests
component analysis, since the first eigenvalue score of the correlation matrix of the
manifest variables of each construct is larger than one, and the second one is smaller
than one, each construct was considered as unidimensional. Similarly, r value in
Dillon-Goldstein’s r analysis is also above 0.70 for each construct. All three tests
support unidimensionality.
4.3 4.3. Path model

4.3.1 Structural equation modeling. In order to avoid the multi-collinearity and
measurement errors, while addressing the cause-effect relationships among the
research constructs, we utilized partial least squares (PLS) method, which is a
variance-based structural equation modeling approach. The PLS procedure, developed
IMDS by Wold (1985), uses two stage estimation algorithms to obtain weights, loadings and
107,1 path estimates. In the first stage, an iterative scheme of simple and/or multiple
regressions contingent on the particular model was performed until a solution
converges on a set of weights used for estimating the latent variables scores. The
second stage involves the non-iterative application of PLS regression for obtaining
loadings, path coefficients, mean scores and location parameters for the latent and
114 manifest variables. For calculating the PLS procedure Spad Decisia V56 statistical data
analysis software was employed (Fornell and Cha, 1994; Tenenhaus et al., 2005).
4.3.2 Outer and inner model estimations. The relationships between the path
constructs as shown in Figure 1 were tested. The estimation results for both outer and
inner models were shown in Table V and Figure 2. Following the parameter estimation,
bootstrapping was also undertaken to confirm the robustness of the findings. To do

this, 1000 Bootstrap samples were built by re-sampling with replacement from the
original sample. The summary results for bootstrapping were provided in the last
column of Table V. The bootstrap estimated coefficients of inner model were very close
to those estimated by PLS.
Outer model, also known as measurement model, links the manifest variables to
their latent variables. The regression weights between the manifest variables and their
Constructs Standardized regression weights Bootstrapping
SCLP1 – SCLP 0.184 * * 0.187

SCLP2 – SCLP 0.191 * * 0.194
SCLP3 – SCLP 0.111 * * 0.114
SCLP4 – SCLP 0.189 * * 0.187
SCLP5 – SCLP 0.166 * * 0.165
SCLP6 – SCLP 0.126 * * 0.133
SCLP7 – SCLP 0.239 * * 0.238
OMS1 – OMS 0.251 * * 0.257
OMS2 – OMS 0.273 * * 0.283
OMS3 – OMS 0.106 * * 0.115
OMS4 – OMS 0.293 * * 0.300
OMS5 – OMS 0.363 * * 0.373
OPER1 – OPER 0.182 * * 0.181
OPER2 – OPER 0.244 * * 0.243
OPER3 – OPER 0.299 * * 0.298
OPER4 – OPER 0.209 * * 0.209
OPER5 – OPER 0.225 * * 0.224
OPER6 – OPER 0.151 * * 0.153
ORG1 – ORG 0.254 * * 0.254
ORG2 – ORG 0.251 * * 0.251
ORG3 – ORG 0.259 * * 0.256
ORG4 – ORG 0.228 * * 0.228
ORG5 – ORG 0.191 * * 0.189
OPER – SCLP 0.156 * * 0.144
OPER – OMS 0.169 * * 0.158
ORG – SCLP 0.041 * 0.041
Table V. ORG – OMS 0.081 * 0.081
Inner and outer ORG – OPER 0.689 * * 0.689
regression weights for the
path model Notes: *p , 0.1; * *p , 0.01
SCLP1
X1
OPER1
Y1
Impact of SCM
SCLP2
X2 OPER2
practices
0.184 0.182 Y2
SCLP3
0.191 0.244
X3 OPER3
0.122 Strategic
SCLP4 0.299 Y3
X4 0.189 collaboration 0.156 Operational
and lean performance 0.209
OPER4
SCLP5
X5
0.166
0.127
practices h1
0.225 Y4 115
x1
0.239 0.151 OPER5
SCLP6
X6 0.041 0.169 Y5
SCLP7 OPER6
X7 Y6
0.689
ORG1
OMS1 Y7
X8
ORG2
OMS2 0.251 0.254 Y8
X9
0.273 Outsourcing SCM-related 0.251
OMS3 0.081 ORG3
0.107 and multi- organizational
X 10 0.259 Y9
suppliers performance
0.293 h2
OMS4 x2 0.228
X 11 ORG4
0.364 0.191 Y10
OMS5 Figure 2.
X 12 ORG5 Results of the path model
Y11
related latent variables were found to be significant at p , 0.01 level, as shown in

Figure 2 and Table V.
Of the individual SCM practices constituting SCLP factor, “holding safety stock”
(b ¼ 0.24; p , 0.001), “close partnership with customers” (b ¼ 0.19; p , 0.001) and
“strategic planning” (b ¼ 0.19; p , 0.001) featured as the most important SCM
practices, while “just in time supply” (b ¼ 0.11; p , 0.01) and “few suppliers”
(b ¼ 0.12; p , 0.01) were relatively less important SCM practices constituting SCLP
factor.
This finding is not particularly surprising in an environment characterized by a
relatively high degree of turbulence and instability. As compared to large size
companies, SMEs are more susceptible to severe economic and financial crises due to
lack of physical and financial resources. While Turkish Government’s decisive
implementation of macroeconomic stabilization program since November 2002 have
contributed to the economic growth and macroeconomic stability, the economic
situation has still been marked by erratic economic growth and serious imbalances.
This situation enforces Turkish SMEs to become more prudent and risk averse which
obviously has an impact on their SCM strategies. Within the machinery and equipment
industry, material and production management is poor (Ulusoy, 2002 p. 43). Safety
stock is unavoidable in order to guarantee the availability of raw materials which have
long lead times and unstable custom regulations for imported materials. There are also
few suppliers for main raw materials such as steel and aluminum is few and they
dictate the market conditions (e.g. prices, minimum order quantity and delivery
conditions). Some of the stock keeping units in the industry are heavily procured
(Ulusoy, 2002, p. 39). This also explains why the individual SCM practice of
“JIT supply” was found to have relatively less weight within the SCLP factor.
Unreliable performance of the suppliers leads to SMEs to deal with a large pool of
IMDS suppliers rather than a few. Without having a clear sense of customers, it is highly
107,1 difficult to survive in the local market for manufacturing SMEs. Therefore, forging
close relationships with customers is a natural consequence of doing business in
seemingly turbulent Turkish market.
As for OMS factor, “many suppliers” (b ¼ 0.36; p , 0.001) appeared to be the
leading SCM practice. Similarly, “3PL” (b ¼ 0.29; p , 0.001) was found to be the
116 second most critical SCM practice comprising the OMS factor, whereas
“subcontracting” (b ¼ 0.10; p , 0.01) was noted as the least important SCM practice
constituting OMS. The finding that the use of “many suppliers” was found to be the
most critical SCM practice is not particularly surprising in that it has been a highly
common classical approach for procurement. If the share of commodity materials

within the materials procured is high as in machinery and equipment industry, it is not
unreasonable to argue why this classical approach has been widely implemented.
This also tends to confirm the finding of Ulusoy (2002) that the most important
criterion for the supplier selection in the machinery and equipment industry is low cost,
thus the SCM practice of using “many suppliers” is a practice to get lower prices.
Given the fact that the nature of the industry makes the SMEs sensitive to their
“know-how” the size of the companies is rather small, and many of them are
subcontractor to the bigger companies, it is also understandable why subcontracting
may not be too important for SMEs in machinery and equipment industry.
The first two most important performance measures comprising operational
performance (OPER) factor were found to be “cost saving” (b ¼ 0.29; p , 0.001) and
“reduced lead time in production” (b ¼ 0.24; p , 0.001), while “reduced inventory
level” (b ¼ 0.15; p , 0.01) had relatively less impact on OPER. On the contrary, there
is much less variation between the SCM-related organizational performance
(ORG) factor and its constituent variables in terms of the impact of each measure on
ORG. Most SMEs in manufacturing industry needs to improve their production and
material management systems (Ulusoy, 2002). In addition, dominant few suppliers of
raw materials and long procurement lead times for imported materials are some other
barriers to keep SMEs away from concentrating on their inventory levels.
Figure 2 shows the results of the inner model. The first equation in the path model
has one endogenous variable (dependent variable), which is operational performance
(OPER) and two exogenous variables (independent variables), which are SCLP and
OMS. This model evaluates the impact of SCLP and OMS on OPER. Both factors of
SCLP and OMS were found to have direct positive and significant impact on
operational performance ( p , 0.01). This result supports H1, which states that SMEs
with higher levels of SCM practices will have higher levels of operational performance.
The second equation in the path model has one endogenous variable, which is
SCM-related organizational performance (ORG) and three exogenous variables, which
include SCLP, OMS and OPER. This model examines the impact of SCLP, OMS and
OPER on ORG. In contrast, to the causal relationship in the first equation, both SCLP
and OMS did not have a significant and direct impact on ORG ( p . 0.1), though the
sign on the coefficient was positive. This finding does not provide support for H2.
This might be explained by the fact that organizational performance could be usually
influenced by several factors and therefore it would be difficult to state directly
whether a single factor, such as SCM practice, will alone influence the SCM-related
organizational performance of SMEs. The direct relationship between the two
performance constructs were found significant ( p , 0.000). This result provides a Impact of SCM
good deal of support for H3 indicating that the higher level of operational performance practices
may lead to improved SCM-related organizational performance. It should also be noted
that both factors of SCM practices have an indirect and significant positive effect
( p , 0.01) on ORG through OPER. This indicates that SCM practices increase
operational performance of SMEs in the first place, and operational performance will in
turn lead to improved organizational performance related to SCM. The findings of this 117
study, then, specify the presence of a mediating impact of operational performance
between SCM practices and SCM-related organizational performance of SMEs.
5. Conclusion and implications

This paper has provided empirical justification for a framework that identifies two
groups of SCM practices and describes the relationship among SCM practices,
operational performance and SCM-related organizational performance within the
context of manufacturing SMEs. It sought answers to three main research questions:
RQ1. Do SMEs with high level of SCM practices have a high level of operational
performance.
RQ2. Do SMEs with high level of SCM practices have high level of SCM-related
organizational performance.
RQ3. Do SMEs with high level of operational performance have a high level of
SCM-related organizational performance?
Data for the study were collected from a sample of 203 manufacturing SMEs in Turkey
and the research framework was tested using partial least squares method, which is a
variance-based structural equation modeling approach. Based on exploratory factor
analysis (EFA), SCM practices were grouped in two factors: OMS, and SCLP. The
results indicate that both factors of SCLP and OMS have direct positive and significant
impact on operational performance. In contrast, both SCLP and OMS do not have a
significant and direct impact on SCM-related organizational performance. Also, as the
direct relationship between the two performance-constructs was found significant,
both factors of SCM practices have an indirect and significant positive effect on ORG
through OPER.
This study offers a number of managerial implications. First, by developing and
validating a multi-dimensional construct of SCM practices and by exhibiting its value in
improving operational performance of SMEs, it provides SCM managers with a useful
tool for evaluating the efficiency of their current SCM practices. Second, the analysis of
the relationship between SCM practices and operational performance indicates that SCM
practices might directly influence operational performance of SMEs. The SCM
managers should also be cognizant of the intermediating effect of operational
performance that SCM-related organizational performance could only be enhanced by
improving operational performance in the first place. Third, the findings of this study
tend to support the view that the implementation of SCM practices has a significant
impact on the operational efficiency of SMEs in an emerging country context.
Researchers can use the findings herein to generate ideas for future studies, and top
managers can glean important knowledge about how effective SCM impacts
organizational performance.
IMDS It should also be acknowledged that the present study is subject to some limitations.
107,1 Perhaps, the most serious limitation of this study was its narrow focus on Turkish
manufacturing SMEs, thus precluding the generalization of findings to other emerging
countries as well as other sectors such as service and government sectors that may
benefit from a sound SCM strategy. The data were collected from single respondents in
an organization which might be a cause for possible response bias. A caution should,
118 therefore, be exercised when interpreting the results. Future research should endeavor
to collect data from organizations across the supply chain. Future studies may also
investigate the proposed relationships by integrating some contextual variables into
the model including the type of industry, supply chain structure, country of origin and
supply chain length.
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Appendix 1
Close partnership with suppliers
Cooperation between buyer and supplier is the starting point to establish a successful SCM and a
necessary, but insufficient condition. The next level requires coordination and collaboration
IMDS between buyer and suppliers. This includes specified work-flow, sharing information through
electronic data interchange (EDI) and the internet, and joint planning and other mechanisms that
107,1 permit to undertake the Just in time (JIT) system and total quality management (TQM) in the
company (Spekman et al., 1998, Mistry, 2006).
Close partnership with customers

122 Downstream SCM can be deemed by demand chain management (Frohlich and Westbrook, 2002,
Hsu, 2005). Building a close partnership with customers is equally important as establishing a
close partnership with suppliers, though the existing literature focuses on the latter rather than
the former. More research is definitely called for to uncover the importance of partnering with
customers. It must be noted that the partnering with customer is slightly different from building
customer relationship in that the latter focuses on relationships management while the former
focuses on either joint venture and/or long-term supply agreement.
Just in time supply

JIT is an integrated set of activities designed to achieve high volume production using minimal
inventories of raw materials, work in process and finished goods. Therefore, JIT purchasing
requires the suppliers to produce and deliver to the manufacturer the right quantity at the right
time with the objective of continuous and consistent conformance to performance specifications
(Canel et al., 2000; Mistry, 2006; Kros et al., 2006).
Strategic planning
Conventionally, strategic planning focuses on the manufacturing process, technical innovation,
financial considerations and market penetration. Firms integrate strategies in each of these areas
to produce and sell high-quality products at a low price. Given the state of technology at present,
a competitor often can match any single firm’s advantage in these areas. Thus, firms have begun
to explore ways to create competencies in the supply chain through more efficient distribution
networks (Lin and Tseng, 2006) improved quality and reduced total cycle time, better post-sale
service and higher responsiveness to customer needs (Carter et al., 1997).
Supply chain benchmarking

Benchmarking of supply chain performance enables comparison between peer’s supply chain
and competitor’s supply chain. This stimulates continuous improvement and hence allowing key
performance indicators such as delivery speed, enhanced service quality and experience to be
re-positioned and re-valued over time subject to market forces and dynamics.
Few suppliers
In contemporary business, many firms prefer a strategy of using few suppliers (Chandra and
Kumar, 2000). The strategy of few suppliers implies that a buyer wants to secure a long-term
relationship and the cooperation of a few dedicated suppliers. Using few suppliers can create
value to the buyer and yield lower transaction and production costs.
Holding safety stock and sub-contracting

Buffering and dampening approaches including safety stock and sub-contracting have been
widely adopted SCM practices to cope with uncertainties in a supply chain (Koh and Tan, 2006).
Although holding safety stock could be considered as a type of SCM practice for dealing with
supply chain uncertainty, not every company has the capacity and resources to produce the
goods and services required. Then, in this case, sub-contracting becomes a typical SCM practice
for dealing with supply chain uncertainties under resource constraints.
E-procurement Impact of SCM
Electronic procurement (e-procurement) as a virtual purchasing application also enhances
visibility of data by leveraging supplier negotiations. It allows a company to control their practices
suppliers, hence reducing purchasing cost (Rahman, 2004). Very often, an e-procurement tool
also interfaces with an ERP to automate many purchasing and payment tasks (Koh et al., 2006).
Outsourcing and 3PL

Many firms in our contemporary business have been revising their priorities and focusing their 123
resources on a limited number of selected activities and processes to gain more competitive
advantages. The outcome of this trend is that firms increasingly outsource some selected
activities and processes (Sink and Langley, 1997). As competition becomes more intense, many
firms are considering the option of logistics outsourcing in order to streamline their value chains
(Franceschini et al., 2003). Boyson et al. (1999) noted that outsourcing relationships historically
are based on routine functions, such as warehousing operations and freight payment, whereas
today they are based on logistics activities that require more strategic knowledge and expertise,
such as information systems, inventory management and customer order fulfillment.
A third-party logistics (3PL) is a type of services of multiple distribution activities provided
by an external party (assuming no ownership of inventory) to accomplish related functions that
are not desired to be rendered and/or managed by the purchasing enterprise (Sink et al., 1996).
The use of a third-party provider for all or part of an enterprise’s logistics operations (Coyle et al.,
1996) is increasingly popular (Lambert et al., 1999). Coyle et al. (1996) identified several key
benefits of logistics outsourcing, namely operating cost reduction, service level improvement,
core competence prioritization, employee based reduction and capital cost reduction.
Many suppliers
Traditionally, vendors are selected from among many suppliers on their ability to meet the
quality requirements, delivery schedule and the price offered. In this approach, suppliers
aggressively compete with each other. The relationship between buyer and seller is usually
adversarial. The main purchasing objective in this approach is to obtain the lowest possible price
by creating strong competition between suppliers, and negotiating with them.
Appendix 2
SCM practices
To what extent the following SCM practices were implemented in your organization? (Five-point
scales ranging from 1 ¼ “not at all implemented” to 5 ¼ “fully implemented”).
Q no. Variables Measurement
SCLP1 Close partnership with suppliers 1 to 5

SCLP2 Close partnership with customers 1 to 5
SCLP3 Just in time supply 1 to 5
SCLP4 Strategic planning 1 to 5
SCLP5 Supply chain benchmarking 1 to 5
SCLP6 Few suppliers 1 to 5
SCLP7 Holding safety stock 1 to 5
OMS1 E-procurement 1 to 5
OMS2 Outsourcing 1 to 5
OMS3 Subcontracting 1 to 5
OMS4 3PL 1 to 5
OMS5 Many suppliers 1 to 5 Table AI.
IMDS Operational performance (OPER)
How did your business perform over the last three years relative to their major competitors on
107,1 each of the operational performance criteria? (Five-point scales ranging from “definitely better”
to “definitely worse”).
SCM-related organizational performance (ORG)

124 How did your business perform over the last three years relative to their major competitors on
each of the SCM-related organizational performance criteria? (Five-point scales ranging from
“definitely better” to “definitely worse”).
. Variables Measurement
OPER1 Flexibility 1 to 5
OPER2 Reduced lead time in production 1 to 5
OPER3 Cost saving 1 to 5
OPER4 Forecasting 1 to 5
OPER5 Resource planning 1 to 5
Table AII. OPER6 Reduced inventory level 1 to 5
Q no. Variables Measurement
ORG1 More accurate costing 1 to 5

ORG2 Increase in coordination between departments 1 to 5
ORG3 Increase in coordination with suppliers 1 to 5
ORG4 Increase in coordination with customers 1 to 5
Table AIII. ORG5 Increase in sales 1 to 5
Corresponding author
S.C. Lenny Koh can be contacted at: S.C.L.Koh@Sheffield.ac.uk
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Industrial Management & Data Systems

The impact of supply chain management practices on performance of SMEs

Vol. 107 Issue: 1, pp.103-124, https://doi.org/10.1108/02635570710719089

*Related content and download information correct at time of download.

Faculty of Engineering, Bahcesehir University, Besiktas, Istanbul, Turkey

business environment. An integrated supply chain has a clear advantage on the

2. Literature review and hypotheses

2.1 SCM practices

2.2 Operational performance

Customer service management Production Cross-functional teams

2.3 SCM-related organizational performance

relying on five-point scales ranging from 1 ¼ “not at all implemented” to 5 ¼ “fully

4. Results and discussion

Table II. Close partnership with customers 53 26.11

It is however, surprising to note that some popular SCM practices such as

4.1 Exploratory factor analysis

4.2 Unidimensionality tests

Supply chain benchmarking 0.63

Strategic collaboration and

4.3 4.3. Path model

bootstrapping was also undertaken to confirm the robustness of the findings. To do

Constructs Standardized regression weights Bootstrapping

SCLP1 – SCLP 0.184 * * 0.187

related latent variables were found to be significant at p , 0.01 level, as shown in

common classical approach for procurement. If the share of commodity materials

5. Conclusion and implications

supply chain length.

structured approach”, Benchmarking: An International Journal, Vol. 10 No. 3, pp. 246-60.

management practices on competitive advantage and organizational performance”,

Close partnership with customers

Just in time supply

Supply chain benchmarking

Holding safety stock and sub-contracting

Outsourcing and 3PL

Q no. Variables Measurement

SCLP1 Close partnership with suppliers 1 to 5

SCM-related organizational performance (ORG)

Q no. Variables Measurement

ORG1 More accurate costing 1 to 5

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