Assessment of the mediating effects of external integration on manufactury firms operational performance

Dzogbewu, Thywill Cephas; Fianko, Samuel Korateng; Jnr, Sampson Afrifa; Amoah, Nathaniel Article Assessment of the mediating effects of external integration on manufactury firms operational performance Journal of Industrial Engineering and Management (JIEM) Provided in Cooperation with: The School of Industrial, Aerospace and Audiovisual Engineering of Terrassa (ESEIAAT), Universitat Politècnica de Catalunya (UPC) Suggested Citation: Dzogbewu, Thywill Cephas; Fianko, Samuel Korateng; Jnr, Sampson Afrifa; Amoah, Nathaniel (2021) : Assessment of the mediating effects of external integration on manufactury firms operational performance, Journal of Industrial Engineering and Management (JIEM), ISSN 2013-0953, OmniaScience, Barcelona, Vol. 14, Iss. 4, pp. 718-732, https://doi.org/10.3926/jiem.3500 This Version is available at: https://hdl.handle.net/10419/261776 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/4.0/ Journal of Industrial Engineering and Management JIEM, 2021 – 14(4): 718-732 – Online ISSN: 2013-0953 – Print ISSN: 2013-8423 https://doi.org/10.3926/jiem.3500 Assessment of the Mediating Effects of External Integration on Manufactury Firms Operational Performance Thywill Cephas Dzogbewu1, Samuel Korateng Fianko2, Sampson Afrifa Jnr2, Nathaniel Amoah3 1Department of Mechanical and Mechatronics Engineering, Central University of Technology, Free State (South Africa) 2Department of Business Support Studies, Central University of Technology, Free State (South Africa) 3Department of Business & Law, Universita degli Studi di Brescia (Italy) [email protected], [email protected], [email protected], [email protected] Received: February 2021 Accepted: July 2021 Abstract: Purpose: The purpose of this study was to assess both the direct effect of supply chain integration on firm’s operational performance and the mediating effect of external integration (customer integration and supplier integration) on the relationship between internal integration and operational performance among manufacturing firms. Design/methodology/approach: Quantitative survey research design was adopted. A total of thirty (30) manufacturing firms were sampled using cluster sampling. The data was collected using questionnaires from 317 employees in the procurement, account and administration units of the 30 manufacturing firms. Structural Equation Modeling was used to analyze the direct and mediation relationships. Findings: The results showed that the relationship between internal integration and operational performance was significantly mediated by external integration. It was established that operational performance could only be achieved when manufacturing firms’ managers pay critical attention to internal and external integration. A Significant positive relationship also exists between supplier integration and operational performance as well as customer integration and operational performance. Originality/value: The unique contribution of the current study is the assessment of the mediating effect of external integration constructs (customer integration and supplier integration) as the mediating variable on internal integration and operational performance. Keywords: supply chain integration, operational performance, manufacturing industry, external integration, internal integration To cite this article: Dzogbewu, T.C., Korateng Fianko, S., Afrifa Jnr, S., & Amoah, N. (2021). Assessment of the mediating effects of external integration on manufactury firms operational performance. Journal of Industrial Engineering and Management, 14(4), 718-732. https://doi.org/10.3926/jiem.3500 -718- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 1. Introduction Today’s global market and business environment is characterized by a high degree of uncertainties and complexities which cannot be managed effectively by relying only on the internal capabilities and competencies of organizations (Tavana, Shabani & Singh, 2019; Fianko, Afrifa Jnr & Dzogbewu, 2020). In an effort to address this challenge, several manufacturing companies have attempted to improve upon their operations through different manufacturing techniques such as lean technology, business process reengineering, total quality management and others (Georgise, Thobend & Seifert, 2014). In addition to these strategies, manufacturing firms have realized that there is a need to foster mutual relationships by collaborating with supply chain partners through supply chain integration for better performance while meeting the demands of the customers (Dzogbewu, 2010; Jacobs, Yu & Chavez, 2016; Ataseven & Nair 2017). Supply chain integration describes the practice of aligning business functions within an organisation and that of partners within its supply chain with the aim of reducing cost, achieving customer value and overall performance of all members of the supply chain (Tarifa-Fernandez & De Burgos-Jimenez 2017). Supply chain integration according to Flynn, Huo and Zhao (2010) is classified into two main groups which are internal and external integration. External integration which is a measure of the degree to which organisations engage and collaborate with their external partners in their operations is made up of customer and supplier integration (Flynn et al. 2010). Internal integration on the other hand describes how organisations structure their internal operations and strategies so as efficiently interact with suppliers to meets the requirements of customers (Kahn & Mentzer, 1996; Flynn et al., 2010). The adoption of supply chain integration provides several benefits to organisations including an increase in productivity, reduction in cost and lead time, improvement in practical efficiency, quality, satisfaction of the requirements of businesses’ and customers’ orders in addition to enhancement in competitive advantage and longterm performance (Soliman, 2015; Zhao, Huo, Sun & Zhao, 2013; Huo, 2012). It implies that supply chain integration could improve on the manufacturing company’s operational performance. Extant literature therefore reveals that there exists a significant relationship between supply chain integration and operational performance. However, this relationship is mixed as some studies confirm a significant positive relationship (Yuen & Thai, 2017; Perdana, Ciptono & Setawan, 2018; Flynn et al., 2010; Zhao et al., 2013) and other negative significant relationship (Njagi & Muli, 2020; Perdana et al., 2018; Han, Lu, Trienekens & Omta 2013). In spite of the inconsistencies in results on supply chain integration and operational performance, few studies have assessed the mediation effects of supply chain integration constructs and its impact on operational performance (Errassafi, Abbar & Bennabou, 2019; Somjai, Girdwichai & Jermsittiparsert, 2019). A review of the literature uncovered that studies on mediation effects have focused on using internal integration to explain/mediate the relationship between external integration and operational performance (Errassafi et al., 2019; Somjai et al., 2019). In the study by Errassafi et al., it was found that internal integration significantly mediates the relationship between customer integration and operational performance, but does not mediate the relationship between supplier integration and operational performance. The current study therefore seeks to examine the mediating effect of external integration constructs such as customer integration and supplier integration on the relationship between internal integration and operational performance. This is because, previous mediation studies on supply chain integration and operational performance have used internal integration as the mediating variable (Errassafi et al., 2019; Somjai et al., 2019). In such a challenging business environment, this study seeks to assess whether external integration (customer and supplier integration) mediate the relationship between internal integration and operational performance or not. 2. Literature Review 2.1. Supply Chain Integration (SCI) SCI has over the years become one of the extensively explored concepts in the area of supply chain management. Despite this, there are several definitions of the concept of SCI by different scholars and there seems to be little agreement on the definition of the concept. For instance, according to Leuschner, Rogers and Charvet (2013), SCI is a process where different companies or entities work together through collaboration and cooperation to achieve acceptable outcomes. In another study, SCI was referred to as the strategic collaboration among partners of the -719- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 supply chain to ensure efficacy in processes that create value (Njagi & Ogutu, 2014). Ebrahimi (2015), referred to SCI as a collaboration which encompasses all players in the supply chain such as customers, suppliers and the focal organizations in which they independently and dependently work together to create customer value through efficiency and cost reduction. Krajewski, Ritzman and Malhotra (2013) defined SCI as an organization of supply chain process in a way that fosters a continuous stream of information along the supply chain. This study defines supply chain integration as the strategic collaboration among organization’s internal operations and that of its suppliers and customers to be able to work together independently and dependently to create customer value through efficiency and cost reduction. Supply chain integration for the purpose of this study is grouped under internal integration, supplier integration and customer integration (Flynn et al., 2010). 2.1.1. Internal Integration Internal integration refers to the interactions, communication, and collaboration among the different functional units of an organization for the purpose of achieving cohesion to deliver excellent service to the customer (Zhao, Huo, Selen & Yeung, 2011). This involves the linkage and integration of information among all departments of an organization including production, marketing, procurement through computerized planning systems (Lee, Kwon & Severance, 2007). Thus, the exchange of information regularly in supply chain among partners helps them to work as a single unit in positively meeting the needs of the customers and effectively responding to market needs (Zhao et al. 2011). For instance, Lee et al. (2007) argue that information sharing among departments in an organization provides easy access to information on inventory which can be accessed easily on an integrated database which is linked to the production process, marketing activities and other departments in an organization using a computerized system. Further, partners in the supply chain who collaborate and work as a single unit through effective exchange of information have a better capacity to adapt to market changes and preferences far better than others. Huo (2012) therefore argue that firms that have low levels of integration strategies are most likely to have low levels of integration with its external partners such as suppliers and customers and vice versa. 2.1.2. Customer Integration Customer integration according to Tan, Kannan and Handfield (1998) refers to the management of demand through the management of customer complaints, satisfaction improvement and lasting customer relations. Essentially, the central focus of the customer relationship management is exploring the needs, preferences and requirement of the customers in order to better satisfy them (Yousief, 2018). Customer integrations comprise of several activities including establishing problem solving initiatives, direct contacting of customers, addressing complaints of customers, raise the level of customer satisfaction and achieving lasting customer relationships (Sousa, 2003; Tan et al., 1998). According to Flynn et al. (2010) in manufacturing companies, customer integration which among other things include the sharing of demand which enables organizations to have an appreciable comprehension of customer needs as well as a more accurate forecast of the customer and the collaboration of customers in the design of products and service in order to better meet customer needs. This includes providing and sharing relevant and adequate information on products such as orders, status of orders with customers at the stage where products are delivered. There are several benefits of the customer integration such as market share increase, improved product and service differentiation on the market, improved customer loyalty as well as appreciable depth of the needs of the customer and better response to these needs (Wasti & Jeffrey, 1999). 2.1.3. Supplier Integration As the only source of inputs or raw materials for the carrying out of an organization’s operational activities, suppliers play a vital role in the manufacturing of products and service that satisfies customer expectations. In today’s business environments, the extent to which firms are able to reduce the cycle and delivery time in addition to managing fluctuation demands depends largely on the extent to which stronger partnership or bond are formed between suppliers and the focal firm. Presently, many manufacturing companies involve suppliers right at the design stage to ensure that the products bring the highest level of satisfaction to customers. Also referred to as backward integration, Zhao et al. (2011) described supplier integration as the collaboration and interaction that exist between organizations and their suppliers for the purpose of achieving effectiveness in supply flows. There are several supplier activities, and these include the involvement of suppliers at the design stage to aid in the design of -720- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 products, setting up of a very robust supplier order processing system which is very responsive, a reliable supplier network that supports a continuous flow of information among suppliers and the planning and management of inventory. Li, Fan, Lee and Cheng, (2015) assert that supplier integration leverages on the capabilities of individual participating organizations (suppliers) to gain significant ongoing benefits. According to Echtelt, Wynstra, Weele & Duysters (2008) because SCI is characterized by different features such as sharing of information, trust, shared technologies, process integration, capacity building for suppliers, risk and reward sharing, it produced immense benefit such as improved decision making and increased performance. 2.2. Operational Performance Operational performance refers to the measurable aspects of the outcomes of an organization’s processes, such as reliability, production cycle time, and inventory turns (Azim, Ahmed & Khan, 2015). Within the context of supply chains, operational performance is referred to as metrics that quantifies the effectiveness and efficiency of the supply chain process (Maestrini, Luzzini, Maccarrone & Caniato, 2017). Operational performance have been measured by different scholars from different viewpoints. For instance, in the case of Wang, Chang & Wang (2009) efficiency was the indicator for the measurement of operational performance. In another study different indicators including speed of delivery and cost of transportation was determined for the operational performance measurement. Other operational performance measures include flexibility, quality, product flow and reduction order variance (Vanichchinchai, 2014; Frohlich & Westbrook, 2001). In this study, operational performance is measured using flexibility, speed, cost and quality because they are widely used in the measurement of operational performance in previous studies (Vanichchinchai, 2014; Maestrini et al., 2017). Flexibility is referred to the degree to which organisations are able to respond fast to the market changes such as volumes, schedules and product mix (Rosenzweig, Roth & Dean Jr, 2002). Speed performance is referred to the time it takes for product or service to be delivered to the consumer (Gimenez, Vaart & Donk, 2011). The lesser the time the better the performance. Quality performance refers to the degree to which a product or services conforms to standards and customer requirements. Cost refers to the total amount of the money it takes to get a specific activity completed within the supply chain (Bowersox, Closs & Cooper, 2007). Cost performance in supply chain refers to the reduction in inventories, resource maximization and elimination of the non-added-value activities with the goal of reducing the overall cost of operations. 2.3. Supply Chain Internal Integration and Operational Performance The relationship between supply chain integration and the performance of manufacturing firms in Kenya was assessed by Njagi and Muli, (2020). The study used a mixed method approach and the selected sample size was 85 employees. A stratified sampling technique was used to determine the specific sample size of each stratum of the study. Data were obtained through a questionnaire. The data was analyzed using regression analysis. The findings of the study revealed that technology integration, internal operations integration, and customer integration significantly influence the performance of manufacturing firms in Kenya. This gives the indication that increases in internal integration, technology integration and customer integration lead to increases in the performance of manufacturing firms in Kenya and vice versa. However, the results revealed that supplier integration had a negative influence on performance, giving the implication that supplier integration is not able to positively influence performance of manufacturing firms. In another study Som, Cobblah and Anyigba (2019) investigated the effect of the SCI on the performance of supply chains in Ghana’s manufacturing companies. The dimensions of SCI examined in this study included operational, relational and informational integration. The research approach used was quantitative and 1500 employees were used as the sample size for the study. The findings of the study revealed that whiles both informational and operational integration produced a positive impact on the performance of the supply chain that of relational integration was negative. The results therefore implies that increases in informational and operational integration brings about increases in the supply chain performance of manufacturing firms. That notwithstanding, relational integration is not positively linked to supply chain performance of manufacturing firms. -721- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 In a similar study, the extent to which the operational performance of hospitals in Kenya was impacted by SCI was examined by Annea and Julianab (2019) using a quantitative research approach. A sample size of 164 employees was used. The results of the study revealed that internal integration, customer integration and supplier integration all had a significant positive effect on the operational performance of the hospitals. This gives the indication that, increases in internal, supplier and customer integration leads to increases in operational performance of the hospitals and vice versa. In a study, Osei and Kagniciogu (2018) assessed the extent to which business and operational performance are impacted by SCI in Turkey’s food industry. The study adopted a quantitative research approach, and 216 firms were determined as the sample size. Specifically, the study assessed the effect of internal, customer and supplier integration on the operation and business performance. The findings of the study revealed that all three dimensions of SCI had a significant positive effect on operational and business performance. The implication is that, increases in the three dimensions of supply chain integration (supplier, customer, internal) brings about improvements in the operational and business performance of Turkey’s food industry. Uwamahoro (2018) also examined the impact of the SCI on the performance of the manufacturing firms in Rwanda. A sample size of 258 employees was used for the study. The findings revealed that internal integration, supplier integration and customer integration all impacted on operational and firm performance although internal integration and customer integration predicted the strongest relationship with performance. The findings is an indication that, improvements in internal, supplier and customer integration has positive implications on the operational performance of manufacturing firms in Rwanda. In another study, Ni (2015) explored the moderating effect of IT competence (IT human resource and IT strategy) on the relationship that exists between SCI and operational performance. The study selected 191 manufacturers from 10 countries and the data were analyzed using hierarchical linear regression. The findings of the study revealed that SCI practices, including internal integration, process integration and product integration were influenced by IT competence. The study further established that the operational performance of IT strategy was influenced by the internal integration, process integration and product integration. The findings of the study further revealed that IT competence moderated the relationship between SCI and operational performance. Atnafu and Hussen (2015) assessed 35 Ethiopian chemical manufacturing firms and the influence of SCI on their operational performance. The study used a quantitative research approach for the study and the findings of the study revealed that internal integration, supplier integration and customer integration demonstrated a significant positive relationship with operational performance. This finding therefore indicates that improvements in supplier, internal and customer integrations brings about improvement sin operational performance among chemical manufacturing firms in Ethiopia. El-Tamimi (2015) in a related study investigated the influence of SCI on the operational performance of Jordanian Pharmaceutical companies. Using a sample size of 235 the study indicated a positive significant relationship between SCI and operational performance. The findings therefore implies that increases in SCI leads to increases in operational performance among Jordanian Pharmaceutical firms. Huo, Qi, Wang and Zhao (2014) examined the extent to which the relation between SCI and operation performance in Chinese manufacturing companies is moderated by competitive strategy. Using a quantitative research approach, the study determined a sample size of 604 manufacturing companies. Using hierarchical linear regression, the findings of the study revealed that the SCI practices that comprise of internal process and product integration were influenced by competitive strategies. The study further confirmed that the relationship between SCI and operational performance was not moderated by competitive strategies. -722- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 Based on the literature review, the following are hypothesized: H1: A significant positive relationship exist between internal integration and operational performance. H2: A significant positive relationship exist between internal integration and supplier integration. H3: There is a significant positive relationship between internal integration and customer integration. H4: There is a significant positive relationship between supplier integration and operational performance. H5: There is a significant positive relationship between customer integration and operational performance. H6: Supplier integration mediates the relationship between internal integration and operational performance. H7: Customer integration mediates the relationship between internal integration and operational performance. 3. Methodology A quantitative survey research design was adopted. According to Saunders, Lewis and Thornhill (2016), the quantitative survey research design requires the collection of data from a large number of units that will be analyzed statistically to make inferences from the population. As a result of the quantitative survey research design, a total of thirty (30) manufacturing firms in the Greater Accra Region of Ghana were sampled for the study using the cluster sampling technique. The use of the cluster sampling was justified on the premise that the manufacturing firms sampled were clustered within the Tema Enclave, which is a geographical location noted for both local and foreign manufacturing firm operations in Ghana. The study targeted the procurement, accounts and administration officers of these manufacturing firms. The total population of employees from the procurement, accounts and administration officers in the thirty (30) manufacturing firms was one thousand, eight hundred (1,800). Using the Kregcie and Morgan (1970) table for sample size determination, the appropriate sample size of three hundred and seventeen (317) was chosen for the study. Employees selected to participate in the study were chosen using the convenience sampling technique as their availability and willingness to participate in the study formed the basis for their inclusion in the study. The convenience sampling technique was also appropriate since it strengthened adherence to the ethical standard of informed consent during the data collection process. Questionnaires served as the data collection instrument. Supplier and internal integration were measured using a five-point likert scale with the following options: 1=strongly Disagree, 2=Disagree, 3=Neutral, 4=Agree and 5=Strongly Agree. The supplier and internal integration questionnaire was developed by Flynn et al. (2010). Customer integration was measured using a five-point scale adopted from Li et al. (2015). Operational performance was measured using a five-point scale adopted from Wiengarten, Pagell, Ahmed and Gimenez (2014). Validity and reliability tests were conducted to questionnaire using IBM AMOS 4. Results Results from Table 1 indicate that most of the respondents (69.7%) were males while females constituted 30.7%. Regarding age distribution of respondents, 39.1% were between the ages of 25-35 years; 30.9% were between the ages of 36-45 years; 19.6% were less than 25 years while 10.4% were more than 45 years. The results showed that most employees have worked in manufacturing firms for 5-10 years (60.6%); 27.8% have worked in manufacturing firms for less than 5 years while 11.6% have worked in manufacturing firms for more than 10 years. In terms of educational level, it was revealed that most employees have attained their first degree (65%), 23.9% have attained their diploma/HND and 11.1% have attained their masters/postgraduate. -723- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 Gender Frequency Percentage (%) Male Female Total 221 96 317 69.7 30.3 100 Age Frequency Percentage (%) Less than 25 years 25-35 years 36-45 years More than 45 years Total 62 124 98 33 317 19.6 39.1 30.9 10.4 100 Tenure Frequency Percentage (%) Less than 5 years 5-10 years 10 years and above Total 88 192 37 317 27.8 60.6 11.6 100 Educational Level Frequency Percentage (%) Diploma/HND First Degree Masters/Postgraduate Total 76 206 35 317 23.9 65.0 11.1 100 Table 1. Demographic data of respondents 4.1. Validity/Reliability Statistics A number of preliminary analyses were conducted. Cronbach’s alpha was assessed to check the internal consistency of the scale. The Cronbach’s alpha of the scales is presented in Table 2. Each of the scales recorded high reliability of above 0.700 (Pallant, 2020). Due to few contextually and theoretically relevant alterations were made to some of the scale items, it was necessary to conduct an exploratory factor analysis (EFA). The EFA demonstrated a Kaiser-Meyer-Olkin (KMO) value of 0.793 and the Bartlett’s Test of Sphericity showed a p-value of <.0001. A confirmatory factor analysis (CFA) was done to confirm and examine how the items held together on the various variables and dimensions. The data were analysed in IBM SPSS Statistic version 26 and IBM AMOS version 23. Variable Sub Variable Measurement Index Scale Item Factor Loading Cronbach’s Alpha Internal Integration 0.918 IN1 Our organisation engages all departments when strategic plans are being prepared 0.824 IN2 Our organisation uses of material requirement planning to manage and control production 0.826 IN3 Information sharing within the organisation is effective 0.587 IN4 There is regular training of employees to enhance their competencies 0.478 IN5 Our organisation organizes regular meeting departmental heads so as to effectively coordinate Works 0.829 IN6 Our organisation regularly includes employees in regular meetings 0.847 IN7 Our organisation gives room for employees be part of solving of problems and resolving of conflicts 0.731 IN8 The production process of our organisation involves all departments of the organisation 0.761 IN9 Our organisation has a number of teams which work together 0.812 -724- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 Variable Sub Variable Measurement Index Scale Item Factor Loading Cronbach’s Alpha External Integration 0.917 Supplier Integration 0.884 SI1 There is electronic information sharing with suppliers from my organisation 0.748 SI3 Our contracts with suppliers clearly spell out specification, quantities, cost and delivery time for all supplies 0.715 SI5 Our organisation accepts input of suppliers in the design of products 0.650 SI7 Our organisation together with our suppliers undertake training together 0.695 SI8 Our organisation controls inventory by connecting electronically with our suppliers 0.818 SI9 There is an ongoing deliberation on how the relationship between our organisation and suppliers can be strengthened 0.761 SI10 Our organisation and suppliers regularly have awareness programs so as to develop the business 0.682 Customer Integration 0.850 CI1 The main goal of our organisation to satisfy the customer 0.531 CI3 Our organisation a customer service department attends to customer needs 0.702 CI4 Our organisation has mechanism that ensures orders from our customer are received in real time 0.554 CI5 Our organisation has a customer relationship management system in place 0.641 CI8 Our organisation ensures that all customer complaints and speedily and appropriately dealt with 0.831 CI9 Our organisation involves customer in the development of marketing programs 0.536 CI10 Our customers are engaged during the design of the organisation products and services 0.743 Operational Performance 0.865 Time 0.815 OPT1 Our organisation is committed to provide fast service to its customers 0.540 OPT2 Our organisation ensures product and service are delivered on time to customer 0.784 OPT3 Our supplier delivers supplies on time 0.706 OPT4 The company reserves the minimum limit of stock which could continue of work in the case of raw material delay 0.632 OPT5 The company bears the differences in transportation costs in order to meet the deadlines of supplying orders to customers 0.795 -725- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.3500 Tan, K.C., Kannan, V.R., & Handfield, R.B. 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Journal of Operations Management, 29(1-2), 17-32. https://doi.org/10.1016/j.jom.2010.04.004 Journal of Industrial Engineering and Management, 2021 (www.jiem.org) Article’s contents are provided on an Attribution-Non Commercial 4.0 Creative commons International License. Readers are allowed to copy, distribute and communicate article’s contents, provided the author’s and Journal of Industrial Engineering and Management’s names are included. It must not be used for commercial purposes. To see the complete license contents, please visit https://creativecommons.org/licenses/by-nc/4.0/. -732-