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Supply Chain Strategy And Organizational Performance: Role Of Core

Operational Functions

Article  in  International Journal of Services and Operations Management · January 2014

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TITLE

SUPPLY CHAIN STRATEGY AND PERFORMANCE: ROLE OF CORE OPERATIONAL

FUNCTIONS

ABSTRACT

Purpose

The paper seeks to establish and validate a theoretical model linking the supply chain strategy,

core operational functions and organizational performance.

Design/methodology/approach

The paper tests the theoretical model on empirical data from 191 companies using structural

equation modeling.

Findings

The data validates the theoretical basis of the constructs and shows supply chain strategy has an

overall positive impact on multiple performance dimensions through strategically aligned core

operational functions.

Research limitations/implications

The future research may compare and contrast results with other economies and contexts. The

future research may take advantage of qualitative data as it can provide in depth understanding

on the linkage of supply chain strategy with operational and other management functions.
Practical implications

The paper seeks to reduce managerial ambiguity on the composition of supply chain strategy and

explains its relationship with operational capabilities in an organization. The study finds

alignment in supply chain strategy and internal operational functions can lead to better

performance.

Originality/value

The research framework model addresses the gap in literature by studying the impact of supply

chain strategy on core operational functions, which in turn impact organizational performance.

KEYWORDS

Supply chain strategy, core organization, performance, empirical research, and structural

equation modeling.

INTRODUCTION

The importance of strategy and core organization in developing a long term competitive

position in the market place is well known. Various factors influence competitive strategy

including vision, mission, customer expectations, competition, regulatory infrastructure and

corporate social responsibility. The strategy, in turn, affects core organization and partners, who

are responsible for the performance on multiple dimensions.

Supply chain strategy is one of the important components of an organizational strategy.

An alignment of supply chain strategy with organizational strategy, core organization and supply

chain partners provide a lasting competitive advantage. A comprehensive supply chain strategy
impacts many competitive dimensions including quality, cost, reliability, responsiveness and

innovation (Ketchen Jr. and Hult, 2007). Strategy achieves these objectives through various core

functions.

Moreover, the administration of an organization has many dimensions including top

management support, customer focus, product development, process management, information

technology and technology management. Smooth functioning of an organization for an enduring

competitive advantage and better organizational performance entails close alignment of customer

needs, strategy, and core organization.

The current study attempts to investigate the impact of supply chain strategy on core

operational functions. The paper makes a case for a positive impact of supply chain strategy on

key operational functions of an organization. Further, the study makes an argument for a positive

impact of the operational functions on performance. The following section reviews the

background literature. The next two sections present the framework of the proposed model,

define constructs, and develop hypotheses. After discussing the research methodology, the paper

presents analysis and findings of research. The paper ends with conclusion and direction for

future research.

RESEARCH GAP

The supply chain management (SCM) has received considerable attention in recent

management research (Burgess et al., 2006). Organizations carefully devise and update their

supply chain practices in order to sustain competitiveness in meeting customer needs and wants

in a timely fashion (Fisher, 1997). It is a common saying that the competition is no more
between individual organizations: it is between supply chains. Managers widely see serious long

term effect of SCM on organizational objectives (Yeung, 2008).

The SCM practices seem to have positive impact on diverse performance measures.

Kaynak and Hartley (2008) find core operational functions of customer relationship, quality and

level of information sharing, process, and product design among the key supply chain practices.

They find these practices are linked with competitive advantage in the areas of quality, cost,

innovation, delivery reliability and time to market.

The supply chain strategy literature diverges into two fundamental taxonomies: supply

chain strategy for physical efficiency and responsiveness (Qi et al., 2011). Supply chain strategy

for physical efficiency, referred to as lean supply chain strategy, focuses at reducing wastes in

the supply chain. Quality and cost are the two main drivers of lean supply chain strategy (Kristal

et al., 2010). Responsiveness or agile strategy, on the other hand, stresses on increasing

flexibility and delivery reliability of organization and supply chain. The research on various

aspects of supply chain strategy shows evidence of the positive outcomes of supply chain

practices.

In spite of considerable research on SCM, the literature suggests space for theoretical

frameworks and rigorous empirical research linking supply chain strategies with performance.

Akyuz and Erkan (2010) find space for developing theoretical models and frameworks and

recommend a more balanced approach in performance measurement. Cheng and Grimm (2006)

find many strategy research papers in the area of SCM using either secondary or outdated (10 or

more years old) data. Power (2005) sees a need for stronger empirical evidence in SCM to find

causal relationships between supply chain related activities and performance.

RESEARCH FRAMEWORK

Figure 1 presents a network of organizational relationship between supply chain strategy,

core functions and outcomes. The supply chain strategy, heaved from the business strategy, and

developed with people, process and product in mind, lies at the core of the pyramid. The

stakeholders and capabilities form the foundation of the pyramid and provide main impetus for

the organization to serve the needs of the customers. The supply chain partners share the weight

of responsibilities, while markets and regulations define and limit the working space or sphere of

influence. The organization builds core functions around people, processes and products and

develops capabilities to meet customer needs and provide shareholder value. Perhaps, the

interplay of these business dimensions defines the success or failure of an organization.

FIGURE 1

Network of organizational relationship between strategy, core functions and outcomes

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The research framework postulates the role of an organization to meet the expectations of

the stakeholders and serve target customers by developing and nurturing capabilities. The

organization chooses appropriate supply chain partners to operate in specific markets controlled

by regulatory infrastructure. The capabilities of latest technology, product development process,

and innovativeness enable organization to meet customer expectations. The customer focus,

product responsiveness, and quality processes are means of achieving customer satisfaction.

Strong core capabilities and competitive customer service lead to better company reputation and

financial performance. Financial results, enhanced reputation, valued brand, better work

environment and a positive culture are some means through which stakeholders derive value
from the organization. Top management devises the company strategy in accordance with these

linkages and strives to develop the products, processes and people to materialize the strategy.

Supply chain strategy is an important part of organizational strategy. Supply chain

strategy affects two main groups of operational functions: the core operational functions; and the

supply chain partner functions. This paper limits its scope to the study of the impact of supply

chain strategy on the selected core operational functions and subsequently organizational

performance (Figure 2).

FIGURE 2

Scope of the current research

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The following sections define the constructs of the study.

Supply Chain Strategy

The supply chain literature highlights two main aspects of strategy - lean management

and agility. Lean supply chain strategy focuses on functional objectives of enhancing quality and

reducing cost along the length and breadth of a supply chain. Whereas, agile strategy stresses

responsiveness in meeting end consumer needs.

Recently, there is a realization of supply chain strategy to develop a combination of lean

and agility focus. Lee (2004) report Lucent and a joint venture of Cannon and HP paid the price

of imbalance in the two aspects of supply chain strategy in terms of loss of market share and

profitability. Strategic organizations develop a balanced supply chain strategy including lean as
well as responsiveness focus (Ketchen Jr. et al., 2008). These organizations differ from

traditional organizations and tend not to choose between speed and cost.

Finally, commitment of top management is an important part of supply chain strategy.

Top management support is deemed mandatory for strategic actions to be effective and

successful (O'Reilly et al., 2010).

Hence the current study considers lean focus, responsiveness focus and top management

support as three important components of supply chain strategy.

Customer Focus

Management of relationship with customers is a key SCM practice (Li et al., 2006).

Customer focus increases awareness of customer needs and wants inside organization and among

supply chain partners. Customer focused organizations develop and maintain a formal

management process for determining, collecting and using customer feedback.

Product Development

Brah et al. (2000) report a thorough review of product before launch, taking appropriate

quality, manufacturability, serviceability and cost related decisions, and involvement of internal

and external stakeholders as key features of the product development process. Moreover, early

participation of key supply chain partners in the process increases chance of on-time availability

of product delivery capacity.

Process Management

Hopp et al. (2010) describe sharing of changes in process information with stakeholders,

deploying multi-skilled employees, encouraging elimination of waste and non-value adding

activities, clear mechanism of communicating work instructions, use of statistical techniques for

process control and improvement, and focus on reduction of lead time as the main traits of a

nicely managed process. Moreover, the use of statistical techniques including control charts and

six-sigma is common in improving process management (Zu et al., 2008).

Production Technology

Production technologies offer firm level flexibility, which plays a significant role in

obtaining supply chain level elasticity (Sánchez and Pérez, 2005). Capability to deliver a variety

of products at lower price is another feature of the modern production technologies. Production

technology enables organizations to enhance quality with flexibility, reduced cost, and increase

product and process reliability (Kotha and Swamidass, 2000).

Information technology

Organizations use information technology (IT) for various supply chain functions.

Usually, they setup IT based information sharing systems and encourage employees to use them

for internal and external communication. These systems share real time information regarding

product inventory level, raw material and finished product shipment status, just to name a few

(Chen and Paulraj, 2004). In addition, the phenomenon of virtual teams is becoming common

with the help of IT.

Organizational Performance

The current study presents a comprehensive performance construct to include financial as

well as non-financial indicators of organizational performance: operational performance; quality

and market performance; and financial performance. Earlier studies report the concepts of

operational, quality, market, and financial performance in empirical research (Flynn, 2005, Li et

al., 2011).

HYPOTHESES

This section develops the hypothesized model linking supply chain strategy with core

operational functions with a potential impact on organizational performance.

Customer Focus

Supply chain focused firms setup a range of practices for customer relationship

management including customer information gathering, appropriate use of customer information,

complaint handling and resolution, development of long-term trust and improving customer

satisfaction. Customer focus increases awareness of customer needs and wants in organization

and among supply chain partners. It is related with various interlinked aspects of supply chain

management. Customer focus enhances customer perspective in product development process.

Lado et al. (2011) find a positive link between customer focus, supply-chain relational capability

and customer service. Nair (2006) find the involvement of customer perspective in the process

increases product quality. Cai (2009) observes a positive correlation between customer focus,

customer satisfaction and retention, and business performance. Hence the hypotheses:

Hypothesis 1a: Supply chain strategy positively impacts customer focus.

 Hypothesis 1b: Customer focus positively impacts organizational performance.

Product Development

Supply chain focused organizations create extensive product development process.

Participation of key functional departments and supply chain partners increases the chances of

timely resolution of quality and cost related issues along the supply chain. The process helps

organizations anticipate, well before actual production, about product delivery capacity of all

supply chain members. The data shows effective product development process has a positive

correlation with cost and quality related performance indicators (Zu et al., 2008). Moreover,

thorough review of product quality, cost, manufacturability and serviceability before launching

increases the customer acceptance and reduces the odds of quality rejections, rework, and scrap.

Hence the following hypotheses:

Hypothesis 2a: Supply chain strategy positively impacts product development.

Hypothesis 2b: Product development positively impacts organizational performance.

Process Management

Management of process is a key to deliver lean and responsive products. Quality, cost

and responsiveness focused supply chain firms build strong process management systems (Hopp

et al., 2010). Supply chain focused firms develop low lead time processes in order to enable them

to meet abrupt changes. These firms maintain high quality and reasonable level of

standardization (Kaynak and Hartley, 2008). In addition, quality and cost focused supply chain

companies use statistical process control tools as it has a positive impact on product quality, cost

reduction and bottom line (Koufteros et al., 2005). Statistical techniques including control charts

and six-sigma, decrease cost of production and increase product quality (Zu et al., 2008).
Moreover, value focus encourages spotting out time wastage and non-value adding activities

thereby reducing labor and energy cost. Finally, process management aspect of multi-skilled

workers and clarity of work instructions reduces operational cost.

Hypothesis 3a: Supply chain strategy positively impacts process management.

Hypothesis 3b: Process management positively impacts organizational performance.

Production Technology

Development of modern production technology is a key step towards quality oriented,

cost effective, flexible, and responsive supply chain (Kotha and Swamidass, 2000). The firm

level flexibility of partner organizations takes them to supply chain level flexibility and a

positive impact on performance (Sánchez and Pérez, 2005). Flexible manufacturing supply

chain companies can offer variety of products with a short lead time. Also, the advanced

manufacturing technologies have a positive impact on organizational competitive advantage in

terms of cost, product variety and delivery reliability (Tracey et al., 1999). Moreover, the

capability to deliver a variety of products at low price increases target customers, while reliable

delivery of quality products increases customer satisfaction and retention.

Hypothesis 4a: Supply chain strategy positively impacts production technology.

Hypothesis 4b: Production technology positively impacts organizational performance.

Information Technology

Information technology plays a vital role in current supply chain management practices.

Organizations setup IT based management system in order to integrate supply chain partners and

achieve strategic supply chain objectives of cost, quality and timeliness (Xu, 2010, Zhou and
Benton Jr., 2007). Quick flow of information on purchasing orders from selling points to

manufacturing facility plays an important role in reducing manufacturing lead time. Whereas

lack of real time accurate information sharing leads to bullwhip effect, a significant contributor

to inventory cost (Wu and Katok, 2006). Enterprise resource planning systems, a commonly used

IT based management system, help organizations improve their profitability by reducing

operational costs and increasing sales (Hendricks et al., 2007). Moreover, virtual new product

development teams communicating over IT based communication channels reduce time to

market. Inter and intra organization communication using e-business technologies is another

mean to improve operational and quality related performance indicators (Sanders, 2007).

Hypothesis 5a: Supply chain strategy positively impacts IT.

Hypothesis 5b: IT positively impacts organizational performance.

RESEARCH METHOD

Questionnaire Design

The questionnaire consists of four sections, each gathering a specific type of information.

Section one collects general demographic information about the company and respondent. The

other three sections estimate direct and indirect measures of the constructs using a five point

Likert scale. Performance items are measured with respect to competition using a Likert scale.

This format is likely to remove the perception related drawbacks of inter industry differences.

Items Generation

Earlier work provides insights on items of the first-order strategy constructs: Qi et al.

(2009), Ketchen Jr. and Hult (2007) and Kristal et al. (2010) for lean focus; Kim and Lee (2010),
Inman et al. (2011) and Wagner et al. (2012) for responsiveness focus; and Lee et al. (2003),

Chen and Paulraj (2004), and O'Reilly et al. (2010) for top management support.

The work of Brah et al. (2002), Padma et al. (2008), Palvia et al. (2010) provides insights

on customer focus. Koufteros et al. (2005), Fynes et al. (2005) and Kaynak and Hartley (2008)

lend understandings for the construct of product development. Swink et al. (2005), Zu et al.

(2008) and Kristal et al. (2010) are valuable for developing items of process management. Das

and Narasimhan (2001), Malhotra et al. (2001), and Cagliano et al. (2003) provide understanding

of the construct of production technology. The work of Ward and Zhou (2006), Sanders (2007)

andHeim and Peng (2010) provide leads to develop items of information technology construct.

The general insight on performance items comes from operations management literature:

Nair and Prajogo (2009) and Liu et al. (2011) for operational performance; Olhager and Selldin

(2007), Li et al. (2011), Li (2005) and Schniederjans and Cao (2009) for quality and market

performance; and Sale and Inman (2003) and Talluri et al. (2003) for financial performance.

Pretest Study

The pretest sample of 30 respondents consists of middle to senior managers familiar with

operations management functions of their companies. One of the authors visited the participants

and followed protocol method, in which respondents are encouraged to think aloud. The pretest

study covers both individual questions and overall questionnaire.

Data Collection

The target respondents consist of middle to top managers in the relevant functional

departments of organizations mostly following industrial segments of Pakistan. The study

follows total design methodology of Dillman (2007). The questionnaire and a cover letter were

sent to the respondents through four rounds of emails. The sampling frame consists of 850

potential participants from the list of companies registered with three large stock exchanges of

Pakistan. The response consists of a total of 191 workable responses giving response rate of

22.47%. The early and late respondents do not differ significantly over the available

demographic characteristics such as number of employees and annual revenue. In addition,

insignificant t-tests results of responses of early 25 respondents on 15 randomly selected items

provide satisfactory negative evidence of non-response bias (Armstrong and Overton, 1977).

Table 1 shows demographic profile of the responses.

TABLE 1

Data characteristics

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Limitations

One limitation of the study is the sample size of 191; hence interpret structural modeling

results carefully. Thus, be cautious in generalizing the findings on the associated hypotheses

tests. Hence, a larger number of usable surveys are likely to enhance the quality of the data and

generalization of the results. Also, it is important to note that the significant correlation between

the constructs in the results shows an association only and might not imply causation.

RESULTS
Measurement Model Results

A comprehensive review of relevant literature provides content validity of the constructs.

Moreover, feedback from relevant faculty and managers enhance content validity. The final

model retains only the items with more than 0.70 factor loadings for improving convergent and

discriminant validities. The constructs take shape of three sets in the measurement model and

confirmatory factor analysis: set A (supply chain strategy constructs); set B (core operational

functions constructs); and set C (performance constructs). Table 2 shows results of CFA on each

set.

TABLE 2

Goodness of fit indices for measurement models

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All constructs in the three sets satisfy the discriminant validity test measuring the chi-

square difference between any pair constrained and unconstrained constructs in the above sets

(Segars and Grover, 1993). On fixing the correlation between a pair to 1, the value of chi-square

increases significantly among all other pairs. These values are significant at p=0.01 level with

change in one degree of freedom.

Correlation table along with the CFI, Cronbach’s alpha, and AVE values of all the first-

order constructs can be seen in Appendix A. Also, the results indicate all constructs have CFI

value of higher than 0.90 in a single factor CFA model of each construct thus satisfying

unidimensionality requirements. All constructs have more than 0.7 alpha values; where

coefficient alpha is a common measure of construct reliability (Nunnally and Bernstein, 1994).

Similarly AVE values of all constructs are 0.50, which provide satisfactory convergent validity.
 Moreover, Table 2 estimates the parameters for measurement models of the second-order

constructs of supply chain strategy and organizational performance. Both constructs satisfy

recommended values of model fit.

Organizational performance and supply chain strategy are specified as type-1 and type-2

second-order constructs respectively (Jarvis et al., 2003). The study tests organizational

performance as a second-order type-1 factor using guidelines of Marsh and Hocevar (1985). The

value of chi-square of one first-order factor model (307.952 at d.f. = 54) is significantly (p-

level=0.01) greater than the value of chi-square of three first-order correlated factors model

(97.764 at df=51). Also, value of the target coefficient (T) statistics, which is the ratio of chi-

square value of the first-order factor model with the chi-square value of the second-order factor

model, is used for finding the appropriateness of the second order organizational performance

construct. The value of T statistics is found to be 1.00, which means that second-order

organizational performance construct is a better specification than three firs-order constructs.

Finally, CFA shows factor loadings of first level factors are significantly loading over both

second-order constructs (Table 3), which provides further confidence that a second-order

construction specification is acceptable for supply chain strategy and organizational performance

(Venkatraman, 1990).

TABLE 3

Factor loadings of second order factors

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The study attempts to avoid common method bias as well as tests the data using

Harmon’s single factor test (Podsakoff et al., 2003). For example, the cover letter ensures
anonymity, and the questionnaire separates predictor and criterion variables. The results of CFA

show the single component factor of all the items explains less than 50% of the total variance.

This test indicates the data does not have significant common method bias. In addition, the

significant difference of chi-square values of a single-factor model and a model where the

questionnaire items are loaded onto their respective latent factors indicate the negative sign of

common method bias.

Structural model results

Figure 3 shows the results of the hypotheses tests using AMOS structure modeling

software. Full structural model test includes four control variables as well: company age; annual

revenue; number of employees; and production process (process based = 0 and non-process

based = 1) as well. The directions of arrows represent the direction of relationship. The model

shows an overall satisfactory fit (χ2 = 1802; df = 1320; χ2/df = 1.365; CFI = 0.938; IFI = 0.938;

TLI = 0.932; RMSR = 0.069, and RMSEA = 0.044) (Segars and Grover, 1993).

FIGURE 3

Structural model and path estimates

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Results of Hypotheses Testing

There are two main areas of interest in this study. First, the paper seeks to establish a

relationship between supply chain strategy and core internal operational functions. The study

finds a strong positive association between the two, thus lending strength to the assessment.

Hence, it makes good strategic sense to strengthen core functions for achieving supply chain
objectives. The long term alignment of supply chain goals and investment in core functions helps

build the required capabilities. Second, the paper looks at the five core functions stemming from

supply chain strategy and examines their relationship with organizational performance. The

proposed structural model provides strong overall support for the positive impact of the core

functions on organizational performance with the exception of information technology.

In addition, the results indicate a significant reflection of supply chain strategy and

organizational performance in their lower level latent variables (Table 2 and Table 3). Table 4

shows result of hypotheses testing.

TABLE 4

Results of hypotheses testing

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DISCUSSION AND CONCLUSION

As presented in Figure 2, the paper focuses on the network of organizational relationship

between supply chain strategy, core operational functions and performance outcomes. The

broader view of the framework indicates that the supply chain strategy stipulates the core

operations related internal capabilities for achieving goals of the organizational stakeholders. The

main arguments of the paper focus on the positive impact of the supply chain strategy on the core

operations functions. This, in turn has a positive effect on organizational performance reflected

through better operational, quality and market, and financial performance.

Support for the Proposed Framework

The literature recognizes the importance of the supply chain strategy constructs and its

three constituents. The supply chain strategy construct developed here presents a concept

balanced approach adapted from earlier studies championing order winner and order qualifier

philosophy. Many studies argue for cost and quality as order qualifier and responsiveness as an

order winner. Moreover, a large number of empirical studies find top management support as a

critical factor for the success of a strategic plan. Clearly, the data in the current study supports

the three constructs and indicates they form supply chain strategy at the firm level.

The paper develops supply chain strategy construct with the help of three first-order

constructs: responsiveness focus; lean focus; and top management support. An adequate model

fit and significant factor loadings suggest the supply chain strategy construct forms with the first-

order constructs of responsiveness focus, lean focus, and top management support. Moreover, as

Figure 3 indicates, the full structural model shows supply chain strategy has significant positive

impact on the core operational functions.

The study finds supply chain strategy has a positive impact on customer focus, product

development, information technology, process management, and production technology. This

implies supply chain focused firms seem to develop core operational capabilities to achieve

supply chain goals. These findings are congruent with a common understanding that strategically

focused firms are better at developing their core capabilities to achieve long term competitive

advantage.

Moreover, the paper finds a positive impact of core operational capabilities, with the

exception of information technology, on multiple attribute organizational performance. The

findings strengthen the earlier studies bidding to link core capabilities with a single performance

dimension. In addition, the study finds positive impact of investment in core operational

capabilities on various aspects of organizational performance.

Finally, the paper develops and uses a multi-factor organizational performance construct.

It uses both financial and non-financial measures to gauge overall performance in three areas:

operational efficiency, quality and market, and finance. The diverse indicators present a

comprehensive dashboard view of the things important to the organizational stakeholders and

managers both in the long and short run. The measurement and structural model shows an

adequate model fit and significant factor loadings of organizational performance on the three

first-order performance constructs. Overall, the study finds a strong support for the positive

impact of supply chain strategy on organizational performance via operational capabilities.

Possible Explanation of the Unsupported Hypothesis

There are mixed results of success and failure of IT in the emerging economies (Heeks,

2002), which is consistent with the results of the current study. The lack of significant support

(p-level=0.05) for a positive association between the use of IT and organizational performance is

less surprising for emerging economies. A number of constraints including lack of professional

expertise and shortage of quality IT systems hinders effective utilization of IT (Hassan, 1994).

Furthermore, other factors may moderate the effect of IT on performance. For example,

managerial skills, which enable organizations to adopt favorable supply chain practices, play the

strongest role among other management functions in IT value creation (Dong et al., 2009). The

conventional understanding comes from developed economies with advanced IT infrastructure,

which serve as a pre-requisite for in-house capability incubation. Perhaps, the IT infrastructure in
emerging economies is not strong enough to provide the background support. Moreover, slow

knowledge sharing systems, cultural misfits and limited industry and academic interaction in

emerging economies may be contributing towards a less conducive environment for IT

(Rajapakse and Seddon, 2005).

Managerial Implications

The findings of the study bear implications for supply chain managers. It provides clear

support of positive implications of a multifaceted supply chain strategy. In the earlier examples,

Lucent was responsive but less cost effective, while the joint venture of HP and Cannon for

LaserJet III printers was cost effective but less responsive. The result in both cases bore negative

consequences for the organizations. Therefore, following the findings, supply chain

organizations need to develop competencies in multiple dimensions - perhaps in line with the

concept of order winners and order qualifiers.

Alignment of supply chain strategy with core operations is vital as they account for a

significant impact on organizational performance in most companies. This study’s data from

managers finds an indirect positive impact of a comprehensive supply chain strategy on

organizational performance through the core operational capabilities.

Perhaps looking at Dell for a specific example to understand how core functions are

source of competitive advantage in achieving supply chain strategy is useful. In line with its

supply chain strategy, Dell has appropriate production technology for make-to-order and

improved internal operations, carefully crafted online ordering and compatible manufacturing

system, and strong customer focus. These core functions help Dell achieve the excellence in

supply chain management (Robinson and Malhotra, 2005). Hence the findings encourage supply
chain managers to develop core operational functions for achieving supply chain objectives and

increased organizational performance.

Conclusion and Future Research

The study suggests supply chain focused firms develop their internal capabilities to

achieve strategic supply chain objectives. The structural model indicates supply chain strategy

has direct positive impact on the core operational functions: customer focus; product

development; process management; information technology; and production technology. Also,

the structural model finds the operational capabilities have positive influence on organizational

performance, measured in terms of operational, quality and market, and financial performance.

However, the data lacks support for the positive impact of information technology on

performance. The results indicate supply chain strategy and organizational performance are

significantly reflected in their first-order latent variables.

The paper attempts to reduce managerial ambiguity on the composition of supply chain

strategy and explains its relationship with operational capabilities in an organization. The study

finds alignment in supply chain strategy and internal operational functions can lead to better

performance.

The research provides a platform for future research on few fronts. Future research can

replicate the model in a different economy or a particular industrial sector. The new research can

compare and contrast results with other economies and contexts and arrive at some general

propositions. The future research may take advantage of more qualitative data as it can provide

in depth understanding on the linkage of supply chain strategy with operational and other

management functions. Also, in depth analysis of how organizations develop the related
competencies to attain outstanding performance. Lastly, future research can seek to understand

the impact of supply chain strategy on the development of capabilities of supply chain partners,

which in turn might impact organizational performance.

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APPENDIX A: Correlation Table, Cronbach's Alpha, CFI, and AVE Values
Cronbach's
Process Revenue Age Employee RF TMS LF FP QMP OP PD CF PM IT PT
Alpha/CFI

Process n.a. n.a.

Revenue n.a. -0.191 n.a.

Age n.a. -0.055 0.37 n.a.

Employee n.a. -0.063 0.61 0.361 n.a.

RF 0.920/1.000 0.01 0.104 0.194 0.076 0.742

TMS 0.910/0.998 0.024 0.164 0.072 0.205 0.219 0.671

LF 0.895/0.995 -0.017 0.095 0.127 0.075 0.184 0.116 0.682

FP 0.863/1.000 0.052 0.295 0.271 0.327 0.369 0.295 0.428 0.678

QMP 0.827/0.958 0.079 0.304 0.279 0.27 0.474 0.426 0.286 0.811 0.614

OP 0.851/1.000 0.073 0.203 0.103 0.252 0.333 0.273 0.264 0.609 0.62 0.657

PD 0.937/0.997 0.113 0.184 0.189 0.205 0.218 0.191 0.178 0.499 0.545 0.465 0.747

CF 0.922/0.990 0.001 0.152 0.147 0.135 0.229 0.144 0.195 0.403 0.457 0.347 0.172 0.748

PM 0.930/0.972 0.05 0.138 -0.034 0.105 0.134 0.294 0.267 0.398 0.458 0.321 0.097 0.09 0.689

IT 0.942/0.953 -0.026 -0.058 0.019 -0.173 0.147 0.027 0.087 0.025 -0.118 -0.059 -0.11 -0.202 -0.09 0.765

PT 0.895/0.985 0.032 -0.013 0.1 -0.008 0.231 0.32 0.242 0.307 0.296 0.219 0.131 0.097 0.045 0.004 0.681

Diagonal values: Average variance extracted (AVE); n.a.: Not applicable; CFI: Comparative fit index
 TABLES

Table 1: Data characteristics

Respondents
Managerial level Frequency
Top Managers 42
Senior Managers 126
Middle Managers 9
Others 14
Total 191

Company employees Company sector

Number Frequency Sector Frequency
<50 2 Automobile 17
51-100 15 Pharma/chemical 31
101-200 24 Engg. Manufacturing 49
201-500 66 FMCG 35
501-1500 33 Textile 35
>1500 51 Others + Not mentioned 24
Total 191 Total 191

Table 2: Goodness of fit indices for measurement models

Goodness of fit measures Criteria Set A Set B Set C SCS Org Per
Absolute fit measures
Distinct parameters - 29 60 30 36 27
Chi-square of estimated model - 66 446 58 92 98
Degree of freedom (d.f.) - 62 265 48 84 57
Probability of Chi-square ≥ 0.05 0.262 0.000 0.152 0.258 0.000
Chi-square/d.f. ≤ 3.0 1.11 1.68 1.21 1.095 1.917
Goodness of fit index (GFI) ≥ 0.90 0.949 0.844 0.954 0.943 0.918
Root mean square residual (RMSR) ≤ 0.10 0.038 0.057 0.020 0.038 0.027
Root mean square error approx. (RMSEA) ≤ 0.07 0.024 0.060 0.033 0.022 0.069
Comparative fit measures
Normed fit index (NFI) ≥ 0.90 0.960 0.894 0.962 0.950 0.936
Non-normed fit index (NNFI) or TLI ≥ 0.90 0.995 0.948 0.991 0.994 0.959
Comparative fit index (CFI) ≥ 0.90 0.996 0.954 0.993 0.995 0.968
SCS: Supply Chain Strategy, Org Per: Organizational performance
Table 3 Factor loadings of second-order factors
Factor p- Significant at
Second Order Factor First-order Factor
Loadings Value p-level = 0.05
Top Management Support 0.333 0.017 Yes
Supply Chain Strategy Lean Focus 0.270 0.020 Yes
Responsiveness Focus 0.360 0.012 Yes
Operational Performance 0.680 *** Yes
Organizational Quality and Market
0.910 *** Yes
Performance Performance
Financial Performance 0.890 *** Yes
*** represent p-value less than 0.001

Table 4: Results of hypotheses testing

Support at
No Statement of hypothesis p-value p-level (Y/N)
0.01 0.05
1a Supply chain strategy positively impacts customer focus 0.003 Y Y
2a Supply chain strategy positively impacts product development 0.007 Y Y
3a Supply chain strategy positively impacts process management *** Y Y
4a Supply chain strategy positively impacts production technology *** Y Y
5a Supply chain strategy positively impacts information technology 0.005 Y Y
1b Customer focus positively impacts organizational performance *** Y Y
2b Product development positively impacts organizational performance *** Y Y
3b Process management positively impacts organizational performance *** Y Y
4b Production technology positively impacts organizational performance *** Y Y
5b Information technology positively impacts organizational performance 0.076 N N
*** represent p-value less than 0.001
 FIGURES

Figure 1: Network of organizational relationship between strategy, core functions and outcomes

Internal Operational Organizational

Supply Chain Strategy
Functions Performance

Figure 2: Scope of the current research

 CF

* 0 .3
5 0* PD 51
..1 ***
0
0.44
2* * 3 ***
0.13
Org
SCS 0.139** IT 0.092
Perf.
O .2
25** 3 ***
* 0.40
0.. **
24 PM 9*
5* 22
** 0.

PT

***p<0.001; **p<0.01; *p<0.05

Figure 3: Structural model and path estimates

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