ISSN 2465-6399

Process Optimization, Innovation and Operation Flexibility Focused Capability Impact

on Supply Chain Risks in Courier Companies in Sri Lanka

Kendangamuwa, K. P. J. K.12, Senanayake, S. M. T. V. P.1, Botheju, W. I. U.1, Jayasundara, I.

H.1, Madhavika, W. D. N.1 and Weerarathna, R.1

Risks in supply chain covers up the inconveniences that could happen in a supply chain of a certain
organization. Process Optimization Focused Capability (POFC), Innovation Focused Capability (IFC)
and Operation Flexibility Focused Capability (OFFC) are considered as the developments in the logistics
sector which is connected to the logistic innovations. The Supply Chain Risk (SCR) is considered as a
major issue in the courier industry based on the impact on these three logistic developments. This
research paper aims to provide an empirical study about the impact of these three variables on SCR
regarding Sri Lankan courier industry. A questionnaire survey was conducted with the managerial level,
executives and other staff connected to Sri Lankan courier industry in a quantitative approach to collect
the data required by considering a population of 58 courier industries. Simple random sampling was used
to identify the sample size of 52 while 48 courier companies responded to the questionnaire. Multiple
Linear Regression (MLR) was aided to analyze the results with the use of Statistical Package for Social
Sciences (SPSS) as the statistical software. The results revealed that POFC, IFC and OFFC have a
negative impact on SCR while the study concluded that effective management of logistic innovation in
a cost optimization method will result to have no impact on SCR. Further recommendations
recommended, that efficient use of logistic innovations will support the courier companies in mitigating
the SCR.
Keywords: Logistic Innovations, Supply Chain Risk Mitigation, SCR, Courier Companies

Cite this paper as;

Kendangamuwa, K. P. J. K., Senanayake, S. M. T. V. P., Botheju, W. I. U., Jayasundara, I. H.,
Madhavika, W. D. N. & Weerarathna, R. (2022). Process Optimization, Innovation and Operation
Flexibility Focused Capability Impact on Supply Chain Risks in Courier Companies in Sri Lanka.
13th International Conference on Business & Information ICBI, University of Kelaniya, Sri Lanka.
ISSN 2465-6399 (pp. 357-368)

1
Sri Lanka Institute of Information Technology, Malabe
2
bm19533438@my.sliit.lk
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Introduction
POFC, IFC and OFFC are the advancements in the logistics sector. SCR refer to all the challenges or
other inconveniences that may emerge in the supply chain operations related to a specific company. In
other words, these can be categorized as the limitations and other challenges that may arise in the logistic
sector in any organization. This study discusses about the impact of POFC, IFC and OFFC on SCR in
consideration of Sri Lankan courier firms.
An extensive literature review was conducted using past research papers and it has been identified that
there are sub factors that affect both the dependent and the independent variables (Haider & Siddiqui,
2018), (Wang, 2020), (Wang et al., 2019), (Wang et al., 2015). It was also revealed that the availability
of SCR will be problematic to the courier operations while it will set up barriers in carrying out logistic
operations smoothly. However, if there are improvements in the supply chain or new logistics
innovations, the competitive advantages along with the performance will be increased in courier
companies. Furthermore, this would help and enable companies to conduct and have smooth operations
even when there are various disruptions and other inconveniences which would help courier firms to gain
more customer trust while increasing their competitive advantages and firm’s performance.
Statement of Problem
In considering the main research problem of the study, the performance gap and the empirical gap has
been identified separately. Based on the statistics received from the export and performance indicators
in 2020, a contribution of $2,288 million is occupied for logistics as a component of the total of service
exports including construction and financial services which is a considerably a high proportion. In
regarding to the foreign exchange earnings in 2020, a contribution of $1,174 million was showcased
from the transport and logistic sector to the total merchandiser exports (Department of Census and
Statistics, 2010). With the high impact of logistic innovation on SCR, a difference was noticed in
comparing the expected performance versus the actual performance in the logistic sector. This deviation
of the contribution regarding to logistic sector highlighted the performance gap to be considered in
conducting this research.
Further, during the deep dive of past literature, it was noticed that rather than the theories learnt in respect
to this field of study, there was a limited number of researchers that was carried out regarding this field
in regard to Sri Lankan courier sector. It was revealed that the transportation, storage, postal and courier
activities contributed to the national Gross Domestic Product (GDP) in 2020 by Rs. 1,054,318 million
(Department of Census and Statistics, 2010), which is a significant and considerable amount that should
be examined on their impacts that they do face due to various obstacles. Throughout the research, with
the limited number of researchers found in regard to this field of study, specially in Sri Lankan context;
it is clear that more attention should be given to the impact caused to SCR due to POFC, IFC and OFFC
in regard to Sri Lankan courier industry which was identified as the empirical gap.
Today people live in an age where there is a large supply chain and in an environment that is constantly
changing. In order to face the business challenges in the everchanging business environments,
innovations should be maintained at a competitive level. With the improvements in logistic operations
due to logistic innovations, that will create competitive advantage with a better logistic capability that
will improve the organization performance and gain more profit and advantages in the market. It is the
sole ability and the responsibility of the organization to understand the extent the organization can
manage the challenges and opportunities created through logistic innovations. This study will examine
about the impact caused on SCR due to the mentioned logistic innovations.
Research Question
To fill the recognized gaps, the below research questions were addressed through the research.
Q1 - What is the impact of OFFC on SCR?
Q2 - What is the impact of IFC on SCR?
Q3 - What is the impact of POFC on SCR?
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Research Objectives
General Objective
The general objective of the research is to examine whether supply chain risks will be impacted due to
the implementations and developments on POFC, IFC and OFFC in regard to Sri Lankan courier
industry.
Specific Objectives
O1- To identify the impact of OFFC on SCR.
O2- To identify the impact of IFC on SCR.
O3- To identify the impact of POFC on SCR.
Significance of the Study
In examining about courier industry, it was revealed that the logistic sector contributes to the Sri Lankan
GDP by 2.5% which is comparatively a higher percentage when compared to the other developing sectors
(Department of Census and Statistics, 2010). Further, it was revealed that a limited number of research
has been published related to the Sri Lankan courier industry. The most significantly important criteria
considered in doing this research was that each and every organization ends with supplying the end
product to the consumer which always results to use a courier service. Therefore, examining about the
impacts on courier sector due to organizational functions is important.
Process Optimization Focused Capability, Innovation Focused Capability and Operation
Flexibility Focused Capability
There are several methods for measuring success in logistics firms in operation. The current study focuses
on logistics performance measurements in the transportation and freight business, specifically on the
nature of being a courier, who is conveying express small packages/parcels from point of origin to point
of destination (door-to-door service). On-time delivery is the most important logistics performance
variable. Cost, productivity, customer service, and logistical quality are also essential logistics
performance criteria. Four logistics performance variables were identified from the hierarchy framework
for measuring logistics performance (on-time delivery, frequency of damaged freight, frequency of
operation disruption, and flexibility) (Wang et al., 2014).
Innovation Focused Capability
Among above IFC can be either internal in which innovations improve organizational performance or
external in which innovations improve better serve customers (Flint et al., 2005). It includes innovation
in service, innovation solution, advanced packaging technology, process improvement, web-based order
handling and etc. An increasingly competitive business landscape necessitates that companies innovate
in order to maintain a competitive edge (Wang, 2016).
Various authors recommended innovation capability was one of the important factors in logistics
capabilities (Aziz et al., 2020). Innovation means that firm’s ability to continuously transform knowledge
and ideas into new products, processes, and systems for firm’s benefit (Lawson & Samson, 2001). Some
researchers have also found that innovation may be used for SCR management and have emphasized the
necessity of creating an innovative culture, creative processes, and an inventive competence in order to
effectively manage and mitigate SCR. The logistics service has a positive correlation with innovation.
(Wagner & Sutter, 2012).
Process Optimization Focused Capability
POFC was a key logistics capability. It includes many attributes. There is integrated information system,
advanced problem notification, advanced shipment notification, advanced technology, tracking and
tracing. Moreover, it includes responsiveness, so increase responsiveness was one of the mitigation
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factors for SCR management. Further, customer service is one of important business functions in logistics
companies to deliver better and faster responsiveness (Michael et al., 2018). Moreover, it is an important
logistics capability found that customer response was significantly related to performance. Customer
response capability represents the customer service and responsiveness capability (Lu & Yang, 2010).
Organization should become more customer-oriented by identifying and gaining the customer emphasis
capability.
Furthermore, information technology is an important factor in process optimization. It explains any form
of computer-based information system including mainframe as well as microcomputer applications. IT
capability is an ability to mobilize and deploy Information Technology (IT)-based resources in
combination with other resources and capabilities (Wang, 2020). IT capability has significant impact on
the overall competence of logistics service providers. Today, IT capability has become an important part
of logistics and transport to enable that logistics is carried out effectively and efficiently, such as online
tracking system, advanced notification, and enterprise system. Karagoz and Akgun (2015) prove that IT
capability is a critical factor to gain competitive advantages in firms, and it is a competence of critical
importance to logistics performance.
Operation Flexibility Focused Capability
According to past literature many flexibility attributes can be identified. Such as operation flexibility,
flexible physical supply, purchase, delivery time, volume, location, and reverse logistics timing;
extensive distribution coverage; worldwide distribution coverage (Wang, 2020). In here OFFC differs
from dynamic capabilities, as operational capabilities involve ongoing functions of an organization while
dynamic capabilities indicate the available capacity that can be used to generate, modify, and update, or
extend the resource base. Flexibility is the capacity of an organization to successfully adjust to new
circumstances (Michael et al., 2018). Because of the potential for such reactions in the supply chain, it
is important to incorporate adaptability into logistics management. Further, flexibility is a capability that
emphasizes adaptability to unexpected circumstances. It is very important concept in logistics and
transport sector. Further, logistics and transport industry need a high level of OFFC to carry out the
delivery and meet their customer’s needs (Wang, 2016). A courier industry highly relies on the operation
capability to deliver a parcel from a shipper to a final customer. The operational flexibility plays a crucial
part in how well logistics work. A lack of reliable delivery services, for instance, could lead to
complications and setbacks (Wang, 2020). Because of this, the logistics innovation capability assessment
must take the delivery capabilities into account.
Supply Chain Risk
Risks can be defined in many ways, as everybody has their own perspectives to understand and estimate
the type of risk. According to Flint et al. (2005) identified that risk or uncertainty is anything that has
the probability of losing of the situation that might be known or unknown. Despite the uncertainty, people
use various methods by analyzing the best possible options to identify the possible events in the future
though some outcomes that are unpredictable. Akram and Siddiqui (2018) , SCR is considered that it
consists of any risks regarding information, product, and material flow from original supplier to the
delivery of the end product to the final customer (March & Shapira, 1987). Due to the nature of risk,
people are unable to predict or expect it beforehand. Most of the business have considered uncertainty in
making decisions but there is no final decision to conclude a formal solution to deal with uncertainty
(Wang et al., 2018).
Based on Supply Chain Risk Management (SCRM) literature, supply chain risk is uncertain and
unreliable resources which creates supply chain interruptions where uncertainty matches the risk between
the demand and supply chain processes (Tang & Musa, 2011). Out of the types of risks, this study mainly
highlights the supply chain risks in transport and logistic operations (Flynn et al., 2016).
Logistic capability has been generally discussed in logistic and transport sector, as logistic capability
decreases the risk of damaging goods in transport sector (Wang et al., 2015). The risk and the uncertainty
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of supply chains is identified as an interchangeable factor since it is a burning issue within the
organization (Akram & Siddiqui, 2018). The risk faced by the personalities differs based on the position
they lead. In respect to managers, risk is a barrier that showcase of something happening to restrict the
activities as planned. Risk is uncertain as nobody have no idea of what will happen in the future. Though
various forecast is done to estimate and analyze the future happenings, each scenario has a percentage of
uncertainty (Flynn et al., 2016).
SCR is becoming prominent in the logistic and supply chain sector. Uncertainties increase the risks
within the supply chains and the risk is considered as a result of both the internal and external
uncertainties that affects the whole supply chains (Wang et al., 2015). Supply chain is a complicated
system of production while managing the integrated activities in the supply chain which is important.
SCR occur in this situation when logistic innovations are taken into use to level up the process of supply
chain (Olson and Wu, 2010). In this research, main focus is how logistic innovation capabilities have a
significant impact on SCR in Sri Lankan courier industry. A courier company is considered as a
prominent (Third Party Logistics) 3PL carrier while 3PL carriers are differentiated into several types
including courier companies, freight forwarders and other companies that generate and offer transport
and logistic related services (Wang et al., 2015).
One of the most essential subjects under supply chain and logistics is maintaining customer relationships.
It stands to reason that customers and courier services have a strong relationship, and as a result, client
satisfaction significantly impacts logistical performance (Wang et al., 2015).
In this study, the main focus is how logistic innovation capabilities significantly affect SCR and
uncertainty in the Sri Lankan courier business. A major 3PL carrier is a courier service, and in addition
to courier services and freight forwarders, there are other businesses that manufacture and provide
logistics and transportation-related services. The majority of the previous research says that SCR often
have a negative impact on logistic performance through causing delays, damages, and losses (Wang et
al., 2015). Therefore, according to Thonemann and Merschmann (2010), there is not always a strong
correlation between performance and uncertainty.
Delays, storage difficulties, communication concerns, carrier strengths issues, and freight transport
operation issues can all contribute to supply chain uncertainties and risks. They frequently cause
problems with the operations and outcomes that will directly or indirectly impact logistical operations.
It is clear that SCR influences supply chain disruption, which may result in injury or loss (Wagner &
Bode, 2006).
Today's courier industry differs from that of the past, which relied on conventional rail, road, sea, or air
transit; in fact, it occasionally engages clients directly or indirectly to provide door-to-door courier
service in a timely way. When compared to more conventional delivery means like sea, air, or road,
courier services occasionally must deal with uncertainty and danger. Due to the world's quick expansion
and the prevalence of e-commerce, courier service has taken over as the primary method of delivery. The
above examined literature supports to the criteria and theory that will be investigated through this
research, in order to study the impact of logistic innovation on SCR.
Process Optimization Focused Capability, Innovation Focused Capability and Operation
Flexibility Focused Capability and Supply Chain Risk
When it comes to enterprises, supply chain, POFC, IFC & OFFC is critical, as it allows or enables them
to compete in a more effective, efficient, and intense manner Wang et al. (2022) mentioned that
organizations are continually looking for methods to get more advantages and benefits by improving
POFC, IFC & OFFC and reducing supply chain hazards. Companies confronted many forms of risks by
adopting newer goods, techniques, and processes, such as changing conditions within their internal or
external environment, competition, and technological breakthroughs (Aziz et al., 2016). The introduction
of innovative ways for distributing duties and decision-making among employees for the division of
labor constitutes logistical innovation capabilities in the workplace. As a result, executives in logistic
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service provider organizations should have a deeper understanding of the company's idea Wang et al.
(2019). FedEx has recognized as an overnight delivery service that began in business-to-business and
business-to-customer transactions. It will allow firms to use just-in-time procedures, which will reduce
warehouse space and lower total expenses. The implementation of efficient and effective customer
response mechanisms leads to more efficient shipping volumes, which reduces risks even further. This
research paper insists to explain how the factors of logistic innovation capability; OFFC, IFC, and POFC
negatively impact on SCR. Hence, below mentioned hypothesis was constructed to test the objectives
of the research.
Hypothesis 01
H0 - OFFC has no impact SCR.
H1 - OFFC has an impact to SCR.
Hypothesis 02
H0 - IFC has no impact SCR.
H2 - IFC has an impact to SCR.
Hypothesis 03
H0 - POFC has no impact SCR.
H3 - POFC has an impact to SCR.
Conceptual Framework

Independent Variable Dependent Variable

Logistic Innovation
Capability

1.Operation Flexibility Focused H1

Capability

2.Innovation Focused Capability Supply Chain Risks

H2

3.Process Optimization Focused H3

Capability

Figure 1: Conceptual Framework

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Operation Flexibility Focused Capability

In discussing about the conceptual framework of the study, OFFC, IFC and POFC are identified as the
independent variables while supply chain risk is identified the dependent variable. The above listed three
hypothesis is graphically demonstrated through the conceptual framework showcasing the impact of
logistic innovation capability on supply chain risk.
Research Method
Method of Data Collection
This research includes primary data collection while a questionnaire survey was used to get quantitative
primary data from a substantial number of participants based on the sample size chosen (Wang, 2016).
A questionnaire was used in the study to ensure the validity of the content and in order to determine the
dimensions, values, attitudes, and perceptions of the study using a 17-measurement scale. The
questionnaire was created and based on prior literature while it consisted of closed-ended questions with
a limited number of options for respondents as Likert scale questions and the replies did not request to
express their own words. The survey questionnaire was divided into four sections: first section to OFFC,
second for IFC, third for POFC and the last section for SCR. In this study, the number '1' represents
'strongly disagree,' '2' represents 'disagree,' '3' represents 'neutral,' '4' represents 'agree,' and '5' represents
'strongly agree.' Despite the fact that the measurements were borrowed from prior research, they are
being applied for the first time in Sri Lankan courier businesses. As a result, the item measurements were
evaluated to provide credible and up-to-date data that includes valid aspects for courier firms in Sri
Lanka.
Measures & sampling
The questionnaire was distributed to 52 Sri Lankan courier businesses, and replies from 48 courier
companies were obtained, yielding a 92.307 percent response rate. The Sri Lankan courier firms were
sorted out based on the department of registrar of companies, aggregating a total of 58 courier companies
as the sample population, and based on Morgan's table 52 courier companies were designated as the
sample size, with simple random sampling utilized for sampling. Almost all courier firms were willingly
requested to participate in the questionnaire, and participants were notified that the information acquired
would be used solely only for research purpose. The bulk of the participants who filled out the
questionnaire by executives (64%), followed by managers (19%), staff members (9%), and the rest being
other specified personnel, were from Sri Lankan enterprises (8%). The majority of employees who
completed the questionnaire had been with their employer for more than 1-3 years, with only 2% having
been with the company for 5-6 years.
Based on the collected data the reliability and the validity were tested respectively using SPSS while
then the data was analyzed using MLR. The below regression equation was used to perform the
regression analysis of the study.
Y =β0+β1OFFC+β2IFC+ β3POFC +ϵ
Y = Supply Chain Risk (Dependent Variable)
IFC = Innovation Focused Capability
OFFC = Operation Flexibility Focused Capability
POFC = Process Optimization Focused Capability
ϵ = Random of error

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Reliability Analysis
The reliability was tested to check whether the questions had overlapped throughout the questionnaire's
construction using the replies of 48 participants while the Cronbach's Alpha value was used to test the
reliability of the sample. The results revealed that the study has a higher reliability as the reliability met
the established level of 0.7 for Cronbach's alpha.
The reliability and validity are assessed, respectively.
Table 1: Reliability Analysis
Factor Number of Items Cronbach’s alpha
OFFC 4 0.711
IFC 3 0.759
POFC 4 0.9798
SCR 15 0.984

As explained previously MLR was used to analyze the results received to predict the impact of logistic
innovations on SCR. Factors influencing the supply chain in Sri Lankan courier industry.

Figure 2: Model Summary

The above table showcases the regression model of the present study. The multiple correlation coefficient
or R-value of 0.099 is statistically insignificant of 0.145, as it is greater than 0.05. The R square value of
the present study is -0.058 which is a low value. Moreover, there are many other factors that influence
SCR such as supply chain length, efficiency risks, insurance issues and other cost benefits. Hence, a low
R squared value was anticipated by the researchers. Nevertheless, the adjusted R squared value of 0.257
is statistically insignificant and indicates that -0.58% of the variance of SCR is explained by the variance
of OFFC, IFC & POFC

Figure 3 : ANOVA Table

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According to Table 3, the independent variables statistically and insignificantly predict the dependent
variable, F (3,44) =0.145. The P-value of the model is 0.932, which is higher than the significance level
of 0.05. In conclusion, the overall regression model was statistically insignificant.
F (3,44) =0.145, P>0.001, R2=0.326

Figure 4: Coefficient Table

The above table shows that all the above independent variables is insignificant on SCR. Therefore, it
explains that OFFC, IFC and POFC has no impact on SCR as all the p values are greater than 0.05. This
can be due to the context change of the responses and the sample size being small.
Table 5: Summary of Tested Hypothesis
Hypothesis Results of the Summary of the impact on
hypothesis dependent variable.
H1: There is a significant impact of Rejected OFFC has no significant impact on
OFFC on SCR supply chain risks
H2: There is a significant impact IFC on Rejected IFC has no significant impact on
SCR SCR
H3: There is a significant impact of Rejected POFC has no significant impact on
POFC on SCR SCR

Above table shows a summary on the impact status of the independent variables to the dependent
variable. Based on the results, it was revealed that there is no significant impact on SCR by the three
logistic innovation variables in which the alternative hypothesis is rejected and the null hypothesis is
accepted based on past literature (Haider & Siddiqui, 2018).
Conclusion
The main purpose of this research is to identify the impact of LIC on SCR in regard to the Sri Lankan
courier firms in industry 4.0 era through a brief learning about the concept through the PLS SEM model.
The research aims to exemplify the impact of LIC: OFFC, IFC and POFC to the SCR. In the hypothetical
model, the research proposes to examine whether there is a significant impact between the variables.
Based on 48 courier companies in Sri Lanka, the research gap was able to build to exemplify that impact
of logistic innovations on SCR as there was a limited number of research papers on Sri Lankan courier
firms. Through this study, the research can come into a clear point that improving logistic innovations
will not create SCR while effective management of innovations in the best cost optimization method will
create a zero chance to create an impact.
Limitations
In considering about the limitations, only quantitative research techniques were used in the current study.
The short time period was another significant restriction. Therefore, data collection was limited to Sri

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Lankan registered courier businesses. Furthermore, there are no much research of supply chain risk and
logistical innovation capability that were done in the local context. Therefore, the present study is mainly
based on western literature. Another limitation was that only 48 courier companies were sampled out of
Sri Lanka's nearly registered companies sampled from the official database of Sri Lanka Department of
Registrar of Companies (Department of the registrar of company, 2022). As the study was conducted
during the nationwide lockdown, the researchers used an online survey questionnaire as the data
collecting tool. However, the response rate obtained through online questionnaires was low. These were
some of the limitations that were encountered in doing the research.
Future Research Directions
A number of recommendations for further studies can be made in light of the constraints mentioned
above. To archive the study’s objectives, the researchers of the present study mainly focus on quantitative
method techniques. Therefore, in order to expand knowledge, future researchers might focus on
quantitative approach or a mix of quantitative and qualitative research. As this research is solely focused
on the SCR individually, future researchers can conduct research on the sub factors of SCR. Further,
researches can be done by comparing the other regions which will help to derive an output in a practical
way considering the dependent and independent variables. For future implications, courier firms can
consider this conceptual framework in building up their innovations so that no chance of SCR can occur
due to logistic innovation capabilities.
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Wang, M., Kim, N., & Chan, R. Y. K. (2022). Impacts of environmental uncertainty on firm's innovation
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of Innovation Management. https://doi.org/http://dx.doi.org/10.1142/S1363919622500086

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