Achieving Competitive Advantage through Managing Supply Chain

Excellence: The Case of Thai Garment Industry

Asst. Prof. Dr. Mohammad Asif Salam

School of Management, Assumption University

Box 640, ABAC, 24 Ramkhamhaeng Road, Bangkok, Thailand.
E-mail:mbamas@yahoo.com.

Abstract. The purpose of this research is to understand the relationship between supply chain enablers
and firm performance within the Thai garment industry, which is mediated by competitive advantage.
The findings reveal that the proposed model has a significant mediating effect of competitive
advantage. In terms of the causal path model, IT capabilities and supply chain integration are the key
enablers contributing to firm performance. On the other hand, they reveal that supply chain integration
is the only key enabler contributing to competitive advantage. The findings also reveal that, the most
critical set of the supply chain enablers contributing to firm performance is a combination of IT
capabilities and integration via competitive advantage. This study demonstrates that, firms need to
incorporate supply chain orientation into their business strategy and supply chain should be an absolute
core of a firm’s business model, in the competitive environment of Thai garment industry.

1. Literature Review provided an explanation of how a firm’s specific asset position

The primary objective of SCM is to increase the value of
products and services to customers in the supply chain vis -à-
vis improved customer service and quality, and lower
inventory carrying costs. The value created by a firm’s SCM
efforts clearly supports organizational strategy. Successful
SCM can result in lower system inventories, a network of firms
that responds more quickly to market changes, and products
that more closely match customer exp ectations. Thus, firms
pursuing differentiation, cost leadership, or quick response
strategies, or combination of these can all find benefits from
the value system or supply chain management (Porter 1985).
The SCM concept and its associated activities continue to
evolve as new communication technologies and cooperative
efforts having emerged to facilitate system-wide process
integration. The seminal work by Porter (1980, 1985) has
formed the basis for the development of supply chain enablers
and their ties to a firm’s competitive advantage and firm
performance. Further, Teece, Pisano, and Shuen (1997)
and uniqueness shape its competitive advantage. The relevant
constructs of this study are defined as follows:
Supply Chain Enablers – These are the drivers that deliver
supply chain outcomes (Marien 2000). For the purpose of this
research, supply chain enablers are defined as, the underlying
factors that influence firm performance.
Firm Performance – The information regarding the processes
and products results which allows the evaluation and
comparison, in relation to goals, patterns, and past results, with
other processes and products. Also, it is important to highlight
that a managerial performance evaluation system needs to be
focused on results, which should be guided by stakeholders’
interests (Silvio and Carlos 2001).
Information Technology Capabilities – The capability to
exchange data in a timely fashion, responsive and usable
format (Bowersox, Closs, and Stank 1999).
Supply Chain Capabilities – Tangible and intangible assets that
are firm specific and created over time through complex
interactions among resources (Chang 1995; Teece, et al.,

Proceedings of the International Conference on Computer and Industrial Management, ICIM, October 29-30, 2005, Bangkok, Thailand

14.1
1990). Grant (1991) defined capability as ‘a team of resources
to perform some tasks or activities.
Supply Chain Integration – It is the capability of entire supply
chain to create manufacturing processes and logistics functions
seamlessly across the supply chain as an effective competitive
weapon that cannot be easily duplicated by competitors
(Anderson and Katz, 1998; Birou, et al., 1998; Lummus, et al.,
1998; Lee and Billington, 1995).
Supply Chain Strategy – Supply chain strategy is defined as,
the pattern of decisions related to suppliers and customers
regarding products sourcing, planning capacity, conversion of
finished product, deployment of finished product, demand
management and communication, and delivery (Lummus and
Vokurka 1999). Also, Supply chain strategy is primarily the art
of positioning a company in the right place on the value chain;
the right business, the right segments, the right products and
market segments, and the right value-adding activities
(Normann and Ramirez 1993).
Competitive Advantage – Described by Porter (1985) as the
value a firm is able to create for buyers that exceeds the firm’s
cost of creating it. Numerous studies (e.g., Grant 1990, March
1991, Prahalad and Hamel 1990, Grant 1991, Porter 1980)
have helped to explain the relationship between firm
performance and competitive advantage in this research. In the
same vein, the significance of firm capabilities as sources of
sustained competitive advantage and firm performance are
related (Amit and Schoemaker 1993, Dierickx and Cool 1989).
Hence, it is seen that the resource-based view (Barney 1991) is
the cornerstone of explaining the relationship between firm
performance and competitive advantage. The central thrust of
resource-based view is that the more firm-specific resources a
firm has, the more valuable it is. Then, these valuable
resources will create a sustainable competitive advantage for a
firm that will later lead to a better performance.
The mediating variable in this study is Competitive Advantage.
A better competitive advantage of a firm should result in
greater performance gains for the firm (Porter 1980). In this
study, Competitive advantage is conceptualized in terms of
Marketing Differentiation, Quality Differentiation, and Low-
Cost Leadership.
In order to understand the concept of supply chain
enablers and their impact on firm performance, a certain
number of factors need to be understood. Based on the
literature, the following conceptual framework has been
Special Issue of the International Journal of the Computer, the Internet and Management, Vol. 13 No.SP2, October, 2005
14.2
derived, where four supply chain enablers have an impact on
competitive advantage, and finally all the enablers along with
the competitive advantage have an impact on firm
performance. This network of relationship among the variables
is presented in Figure 1:
SUPPLY CHAIN
ENABLERS
?IT Capabilities COMPETITIVE FIRM
?Supply Chain Capabilities
ADVANTAGE PERFORMANCE
?Supply Chain Integration
?Supply Chain Strategy
Figure 1: Conceptual Model
The conceptual schema of this study is presented in
Figure 1 indicating the relationships among supply chain
enablers, competitive advantage, and firm performance. The
theoretical framework proposed shows the relationship among
supply chain enablers (as measured by IT Capabilities, Supply
Chain Capabilities, Supply Chain Integration, and Supply
Chain Strategy) as the determinants of firm performance
(Marien 2000), which is mediated through competitive
advantage (Porter 1985, Grant 1991 and Barney 1995). The
framework also posits that; supply chain enablers (as measured
by IT Capabilities, Supply Chain Capabilities, Supply Chain
Integration, and Supply Chain Strategy) are also the
determinants of competitive advantage (Walters, 2002 and
Teece, et. al., 1997). In other words, this study explores the
relationship between supply chain enablers (as measured by IT
Capabilities, Supply Chain Capabilities, Supply Chain
Integration, and Supply Chain Strategy) as the determinants of
competitive advantage and firm performance (Marien, 2000;
McGrath et al., 1995) and competitive advantage is a
determinant of firm performance (Walters, 2002; Porter, 1980
and 1985; Moingeon and Edmondson 1996; Collis, 1994;
Rumelt 1991; Cool and Schendel 1988; Grant, 1991; and
Barney, 1995). These relationships are primarily based on
theoretical considerations; the model is portrayed in the Figure
1.
Research Hypothesis
Ho : Competitive advantage has a mediating effect on the
relationship between supply chain enablers (IT Capabilities,
SC Capabilities, SC Integration, and SC Strategy) and firm
performance.
 2. Research Methodology constructs have satisfactorily met required reliability criteria.
The summary of construct reliability is presented in table 1:
This study applied a quantitative research approach. Primarily,
this study employed a questionnaire survey method to test the Table 1: Construct Reliability
hypothesized relationships between supply chain enablers and SCALE COMPOSITE CRONBACH’S a VARIANCE
NAME RELIABILLITY * EXTRACTED
firm performance. *
Primary data were collected through sample survey with Firm .9190 .8675 .7982
Performance
suppliers, manufacturers and retailers from Thai garment Competitive .8344 .7727 .6560
industry. The target populations were the logistics and supply Advantage
Supply .7160 .7109 .5398
chain managers or the equivalent in Thai garment Chain
Strategy
manufacturing firms listed in the Thai Garments Supply .8526 .8332 .7476
Manufacturers’ Association (2003-2004) and TTIS (Thai Chain
Integration
Textile Institute) Buyer’s Guide (2003). Using a simple Supply .8439 .8335 .6569
Chain
random sampling method a group of samples were generated Capability
based on the list in the Thai Garment Manufacturers’ Information .8907 .8583 .7319
Technology
Association (TGMA) directory (2003-2004) and TTIS Textile Capability
* All the scales are four-point, with “Strongly Disagree” and “Strongly
Buyer’s guide (2002-2003). In-person survey interview was Agree” as the anchors.
conducted with a sample of 390 supply chain managers or the
equivalent. 3.3 Test of Mediating Effect
To test for mediation effect, three conditions proposed by
3. Data Analysis Baron and Kenny (1986) needs to be met:
The first condition is that the predictor variables, including: IT
3.1 Respondents’ Profile Capabilities, Supply Chain Capabilities, Supply Chain
In this study 26.2% of the respondents were ready made Integration, and Supply Chain Strategy, are significantly
garment manufacturers, 22.6% were garment manufacturers for correlated with the hypothesized mediator which is competitive
export, 20.8% were ladies’ garment manufacturers, 6.7% were advantage. The first condition is met as IT Capabilities, Supply
general purpose garment, 3.8% were T-shirt/Shirt producers, Chain Capabilities, Supply Chain Integration, and Supply
and the rest 13% were other types of garment manufacturers. Chain Strategy are significantly correlated with competitive
Of these samples 256 (65.65%) had less than 500 employees advantage as expected (r = 0.45 p<0.01, r = 0.49 p<0.01, r =
and 134 (34.35%) had more than 500 employees. This 0.47 p<0.01, and 0.43 p<0.01 for IT Capabilities, Supply Chain
diversity in the organizational profile allows greater Capabilities, Supply Chain Integration, and Supply Chain
generalizability of results and is therefore seen as an advantage Strategy respectively). The second condition to be met is that
of this study. the mediator variable (as measured by competitive advantage)
is significantly correlated with dependent variable (as
3.2 Reliability Analysis measured by firm performance). The correlation test reveals
Construct reliability was assessed using the results from that this requirement is also met as competitive advantage and
Confirmatory Factor Analysis in LISREL 8.54. In general, all firm performance are significantly correlated (r = 0.58, p<0.01
constructs were found to be reliable since all measurement for firm performance and competitive advantage respectively).
scales ranged between 0.70 and 0.92. Alpha is an index of the The third condition is that the previously insignificant effects
reliability of each variable in which the alpha value more than of IT Capabilities, Supply Chain Capabilities, Supply Chain
0.7 will indicate that its measures are reliable (Nunnally, Integration, and Supply Chain Strategy is either made
1978). In this study, Cronbach’s (1951) alpha of all the significant or significantly increased after the inclusion of
constructs are presented in Table 1; which justifies that the mediating variable competitive advantage into the analysis.
Thus, SEM was conducted to test the effects of IT Capabilities,

Proceedings of the International Conference on Computer and Industrial Management, ICIM, October 29-30, 2005, Bangkok, Thailand

14.3
Supply Chain Capabilities, Supply Chain Integration, Supply links well with the literature. (b) IT Capabilities and Supply
Chain Strategy and Competitive Advantage as a mediating Chain Integration on Firm Performance (t-value=3.16, p<0.01
variable. At this time the direct effects of IT Capabilities,
Supply Chain Capabilities, Supply Chain Integration, and
SUPPLY CHAIN
Supply Chain Strategy on both Competitive Advantage and
Firm Performance have been incorporated into the model. As IT 0.18

well in this mediating model, the indirect effects of IT (0.21

CAP (3.16
-0.07
Capabilities, Supply Chain Capabilities, Supply Chain 0.03
(10.83 SC
Integration, and Supply Chain Strategy on firm performance
CAP 0.06
through competitive advantage have been incorporated. CA 0.58 FP
(0.49
0.18 (5.68

3.4 Analysis of the Structural Model SC 0.23

Table 2 and Figure 2 present the results of the overall model fit INTE 0.07
(- (3.44)
of the proposed structural model. (0.48 GOODNESS-OF-FIT INDICES:

SC 0.10 ?2 (96)= 145.22, p<0.13, GFI = 0.98, AGFI

Table 2: Model Fit for Mediating Effect STRA = 0.94, RMR = 0.013 RMSEA = 0.05, CFI

The results of the path analysis are presented in the table

below: Figure 2: Test for Mediating Effect

MODELS ?2 (df) ?2 S i g ? ?2 GFI AGF RMSE CFI

I A and t-value=3.44, p<0.01; respectively). This finding is quite
Nested 152.05 - - 0.88 0.82 0.061 0.96
Model 1 (102) obvious because IT is a key facilitator for efficient integration,
Mediating 145.22 6.83 P<0.01 0.98 0.94 0.050 0.97 this also links well with the literature: The better the IT
Model (96) (6)
Capabilities of a firm, the greater its integration facilities and
The chi-square test statistic is significant (p<0.01) and thus hence its performance will be. (c) Competitive Advantage on
supports the model proposed. However, the chi-square index is Firm Performance (t-value=5.68, p<0.01), this finding is in line
sensitive to sample size (Bollen and Long 1993) and may lead with the previous studies and has been confirmed once again in
to incorrect interpretation. Multiple criteria are hence used to this study. Finally, (d) the correlations between exogenous
reduce the measuring biases inherent in different measures. In constructs: (1) IT Capabilities and Supply Chain Integration (t-
this case, other indices accept the RMSEA, such as GFI = 0.98, value=10.83, p<0.01), this finding is in line with the above
AGFI = 0.94, RMR = 0.013, NNFI = 0.96 and CFI = 0.97. results which means the better a firms’ IT Capabilities, the
more efficient its supply chain integration will be; and (2)
3.5 Study Findings Supply Chain Capabilities and Supply Chain Strategy (t-value=
Based on the parameter estimates presented in Figure 2, -13.08, p<0.01), this finding suggests that the stronger the
six causal paths specified in the model were found to be supply chain capabilities, the lesser the effort needed for
statistically significant (t-value > ±1.96). These paths reflected supply chain strategy. This is because they complement each
the impact of: (a) Supply Chain Integration on Competitive other. That means the stronger the supply chain capabilities
Advantage (t-value=3.10, p<0.01), which means the extent of (e.g., customer focused capabilities, delivery capability and
integration of the firm within its supply chain will form the distribution flexibility) the lesser the focus on supply chain
strength of its competitive advantage; in other words the strategy needed (customer relationship, supplier relationship,
stronger the integration within the supply chain, the greater the and SCM strategies) in Thai garment industry, because a
competitive advantage over the industry rivals will be. This stronger capability will facilitate a firm to be more responsive
to demand and hence will facilitate its strategy implementation
or an efficient strategy will provide unmatched capability and
1 * vice versa. Hence, the firms do not need to invest their
In this model none of the hypothesized paths were significant.

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14.4
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