SUPPLY CHAIN COLLABORATION AMONG

MALAYSIAN SME MANUFACTURERS

MOHAMED ISMAIL BIN KP HJ PAKIR

MOHAMED

This thesis is submitted in

fulfillment of for requirement for the award of the

Degree of Master of Science in Technology

Management.

Faculty of Technoloy Management and Business

Universiti Tun Hussein Onn Malaysia

OCTOBER, 2012

v

ABSTRACT

Malaysian 3rd Industrial Master Plan was developed to improve the country global

competitiveness by positioning Malaysia as a major manufacturing hub and service

provider in the global supply chain. To achieve this, it is suggested that Malaysian

manufacturers especially SME should be involved in supply chain collaboration in

their business operations. However, it is discovered that there are very few reported

research on the supply chain collaboration activities among Malaysian SME

manufacturers. The objective of this research is to uncover the supply chain

collaboration activities among Malaysian SME manufacturers with their trading

partners. This is to be done by determining the level of supply chain collaboration of

Malaysian SME manufacturer and investigating the reason Malaysian SME

manufacturers supply chain collaborations is at that level. In order to achieve the

above objective, a mixed method of quantitative approach using survey method is

employed to determine the level of supply chain collaboration and qualitative

approach using personal interview method is employed to find out the reason for

why Malaysian SME manufacturers’ supply chain collaboration is at that level. This

research discovered that the supply chain collaboration of Malaysian SME

manufactures with their trading partners is at minimal level. This is due to their

current business relationship that they have with their trading partners do not

required them to collaborate at higher level. On the other hand, Malaysian SME

manufacturer are willing to have a high level of supply chain collaboration if long

term business relationship could be established. Therefore, it is concluded that the

type of business relationship or cooperation with trading partners can determine

level of supply chain collaboration.

vi

ABSTRAK

Pelan Induk Perindustrian Malaysian ke 3 telah dibangunkan untuk meningkatkan

daya saing negara di peringkat global dengan menjadikan Malaysia sebagai hub

pengeluaran dan pembekal perkhidmatan yang utama dalam rantaian bekalan global.

Untuk mencapai matlamat ini, adalah dicadangkan bahawa pengilang Malaysia

terutama Industri Kecil dan Serdeharna (IKS) perlu melibatkan diri dalam kolaborasi

rantaian bekalan operasi perniagaan mereka. Walau bagaimanapun, di dapati kurang

penyelidikan dilaporkan mengenai aktiviti kolaborasi rataian bekalan di kalangan

pengilang IKS di Malaysia. Objektif kajian ini adalah untuk mengkaji aktiviti

kolaborasi rantaian bekalan pengilang IKS dengan rakan dagangan mereka. Ini di

dapati dengan mengkaji tahap kolaborasi rantaian bekalan pengilang IKS Malaysia

dan sebab tahap kolaborasi rantaian bekalan di tahap tersebut. Untuk mencapai

matlamat di atas, metodologi yang dipilih adalah gabungan pendekatan kuantitatif

dan kualititatif. Pendekatan kuantitatif menggunakan kaedah kaji selidik untuk

menentukan tahap kolaborasi rantaian bekalan. Manakala pendekatan kualitatif

menggunakan kaedah temu bual untuk mencari sebab mengapa tahap kolaborasi

rantaian bekalan pengilang IKS Malaysia berada ditahap sedemikian. Hasil kajian

mendapati bahawa kolaborasi rantaian bekalan pengilang IKS Malaysia dengan

rakan dagangan mereka adalah pada tahap yang minima. Ini adalah disebabkan

hubungan perniagaan yang mereka miliki dengan rakan dagangan tidak memerlukan

mereka untuk bekerjasama di peringkat yang lebih tinggi. Walau bagaimanapun

pengilang IKS Malaysia bersedia untuk mencapai tahap kolaborasi rantaian bekalan

yang lebih tinggi jika hubungan perniagaan jangka panjang boleh dibentuk. Oleh itu,

adalah disimpulkan bahawa jenis hubungan perniagaan atau kerjasama dengan rakan

dagangan boleh menentukan tahap kolaborasi.

.

vii

CONTENT

TITLE i

DECLARATION ii

DEDICATION iii

ACKNOWLEDGMENT iv

ABSTRACT v

ABSTRAK vi

CONTENTS vii

LIST OF TABLES xii

LIST OF FIGURES xv

LIST OF APPENDICES xvi

CHAPTER 1 INTRODUCTION

1.1 Background 1

1.2 Context of the study 2

1.3 Problem statement and research questions 4

1.4 Objective of the research 7

1.5 Scope of the research 7

1.6 Significance of the research 8

1.7 Operational definitions 8

1.8 Structure of the Thesis 9

1.9 Summary 10

CHAPTER 2 LITERATURE REVIEW

2.1 Introduction 12

2.2 Supply Chain Management definitions 13

2.3 Supply Chain Management models 13

viii

2.3.1 Supply Chain Operations model 14

2.3.1.1 Plan 14

2.3.1.2 Source 15

2.3.1.3 Make 17

2.3.1.4 Deliver 17

2.3.2 SCOR model 19

2.3.3 Linear and Non-linear Supply Chain Process

Model 21

2.3.4 Supply Chain Collaboration Level Model 23

2.3.5 Discussions 23

2.4 Agenda in collaboration and Supply Chain 25

2.5 Supply Chain Collaboration Attributes 27

2.6 Studies on the performance of Supply Chain

Collaboration 32

2.7 Impact of collaboration on organization

performance 33

2.8 Discussions 35

2.9 Conclusion 38

CHAPTER 3 RESEARCH METHODOLOGY

3.1 Introduction 42

3.2 Type of Research 44

3.2.1 Research categorized by purpose 44

3.2.2 Research category based on research

approach 46

3.2.2.1 Quantitative research approach 46

3.2.2.2 Qualitative research approach 47

3.3 Justification on Research Design 48

3.3.1 Phase 1:Quantitative research approach 49

3.3.2 Phase 2:Qualitative research approach 50

3.4 Research Process 51

ix

3.4.1 Phase 1: Quantitative research process 51

3.4.1.1 Survey instrument 51

3.4.1.2 Pilot study 53

3.4.1.2.1 Validity Test 53

3.4.1.2.2 Reliability Test 54

3.4.1.3 Research population and sample 55

3.4.1.4 Data Analysis 55

3.4.2 Phase 2 Qualitative research process 56

3.4.2.1 Determination of samples 56

3.4.2.2 Interview procedure 57

3.4.2.3 Interview instrument 58

3.4.2.4 Data Analysis 59

3.5 Conclusion 60

CHAPTER 4 DATA ANALYSIS I AND DISCUSSION

4.1 Introduction 61

4.2 Data Screening 62

4.3 Validity and Reliability test 64

4.4 Demographics of the respondents 65

4.5 Number of supply chain operations collaboration

per respondent 67

4.6 Level of Supply Chain Collaboration 68

4.6.1 Supply Chain Planning Component 68

4.6.2 Supply Chain Sourcing Component 70

4.6.3 Supply Chain Making Component 72

4.6.4 Supply Chain Delivery Component 73

4.7 Discussions 75

4.8 Collaboration attributes and business process 83

4.8.1 Collaboration attributes ranking 83

4.8.2 Effect of collaboration on business process 84

4.9 Conclusion 88

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CHAPTER 5 DATA ANALYSIS II AND DISCUSSION

5.1 Introduction 90

5.2 SME background 91

5.2.1 SME A 91

5.2.2 SME B 91

5.2.3 SME C 92

5.2.4 SME D 92

5.3 Findings 93

5.3.1 Type of collaboration 93

5.3.1.1 SME A 94

5.3.1.2 SME B 95

5.3.1.3 SME C 95

5.3.1.4 SME D 96

5.3.2 Level of collaboration 96

5.3.2.1 SME A 96

5.3.2.2 SME B 96

5.3.2.3 SME C 97

5.3.2.4 SME D 97

5.3.3 Collaboration attributes 97

5.3.3.1 SME A 97

5.3.3.2 SME B 98

5.3.3.3 SME C 98

5.3.3.4 SME D 98

5.3.4 Flow of information 98

5.3.4.1 SME A 98

5.3.4.2 SME B 99

5.3.4.3 SME C 99

5.3.4.4 SME D 100

5.3.5 Reason for collaboration 100

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5.3.5.1 SME A 100

5.3.5.2 SME B 101

5.3.5.3 SME C 101

5.3.5.4 SME D 101

5.3.6 Future plan on information integration 102

5.3.6.1 SME A 102

5.3.6.2 SME B 102

5.3.6.3 SME C 103

5.3.6.4 SME D 103

5.4 Discussion 104

5.5 Conclusion 108

CHAPTER 6 CONCLUSION

6.1 Introduction 110

6.2 Research Overview 110

6.3 Research Objective 1 111

6.4 Research Objective 2 113

6.5 Overall Conclusion 114

6.6 Recommendation for future research 116

REFERENCES 117

xii

LIST OF TABLES

TABLES

Table 1.1 Definition of SME by size. 2

Table 1.2 Summary of inquiries which lead to development of

problem statement. 6

Table 2.1 Summary of Supply Chain Model 24

Table 2.2 Business relationship intimacy in collaboration. 26

Table 2.3 Summary of literatures that identified and examined

collaboration attributes. 31

Table 2.4 Summary of literatures that measures collaboration

against performances. 33

Table 2.5 Summary of literatures on the impact of collaboration

on organization performance. 34

Table 2.6 Summary of attributes for collaboration based on literature

review 35

Table 3.1: Comparison of the purpose of research for the exploratory,

descriptive, and explanatory 45

Table 3.2: Likert scale 52

Table 3.3: Validity test (pilot study) 54

Table 3.4: Reliability test (pilot study) 55

Table 4.1: Summary of main data analysis activity. 61

Table 4.2: Validity test 64

Table 4.3: Reliability test 65

Table 4.4 Nature of business of the respondent 65

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Table 4.5: Respondents annual sale turnover and number of

staff employed. 66

Table 4.6 Respondents collaboration activity according to supply

chain operations 67

Table 4.7: Demand forecasting operations 68

Table 4.8: Product pricing operations 69

Table 4.9: Procurement information operations 70

Table 4.10: Credit and collection operations. 71

Table 4.11: Product design operations 72

Table 4.12 Production schedule operations 73

Table 4.13 Order Processing Operations 74

Table 4.14 Delivery Schedule Operations 75

Table 4.15 Percentage of Non-Collaborators 76

Table 4.16 Level of collaboration at Supply Chain Category 78

Table 4.17 Ranking of Supply Chain Activities at Collaboration

Level 1 79

Table 4.18 Ranking of Supply Chain Activities at Collaboration

Level 2 80

Table 4.19 Ranking of Supply Chain Activities at Collaboration

Level 3 81

Table 4.20 Ranking of Supply Chain Activities at Collaboration

Level 4 82

Table 4.21 Collaboration attributes ranking result (in percentage) 84

Table 4.22 Likert scale 85

Table 4.23 Mean of Planning variables 86

Table 4.24 Mean of Sourcing variables.. 86

Table 4.25 Mean of Making variables 87

Table 4.26 Mean of Delivery variables. 87

Table 4.27 Summary of the means 88

Table 5.1 Summary of the interview 104

xiv

Table 5.2: Preferred Supply Chain activities for Collaboration and

Collaboration Level 106

xv

LIST OF FIGURES

FIGURE

Figure 2.1 Supply Chain Operation Model 14

Figure 2.2 SCOR Framework Level Model 20

Figure 2.3 Supply Chain Process Model 21

Figure 2.4 Research Conceptual Model 40

Figure 3.1 Research Process Flow 43

xvi

LIST OF APPENDICES

APPENDIX

APPENDIX A Survey Questionnaire 124

APPENDIX B Interview Guide 134

APPENDIX C Interview Transcript 137

CHAPTER 1

INTRODUCTION

1.1 Background

“No man is an island, collaboration is the new way”. This is the statement by

Malaysian Prime Minister, Datuk Seri Najib Tun Razak, at the Commonwealth

Business Forum during Commonwealth Heads of Government (CHOGM)

conference held in Port of Spain emphasizing on collaboration as solutions to address

global challenges (Lee, 2009). The Malaysian government encourages Malaysian

companies to be involved in supply chain collaboration in their business operations.

This has been spelled out in the Malaysian 3rd Industrial Master Plan (MITI, 2006)

where one of the main objectives is to improve the country’s global competitiveness.

The plan intended to assist and facilitate Malaysian small and medium enterprises

(SMEs) toward economic integration regionally and globally. This shows that how

important collaboration is to Malaysian government.

Concurrently, Oxford English Dictionary (1999) define collaborate as “to

work jointly or to cooperate willingly”. Specifically, collaboration is about

integration within and outside the boundaries of individual firms (Min et al., 2005).

Collaboration is also about identifying, communicating and achieving a common

shared objective (Newing, 2007). Parung (2005) stated that collaboration means

working together where individuals or organizations work together towards some

common aim.

Previous research in supply chain management and collaboration, emphasized

mostly on examining collaboration attributes. Others attempted to measure the

2

collaboration process and the performance gained from such ventures. However,

most of these studies are focusing on collaboration in foreign countries. Extensive

literature review (Chapter 2) revealed lack of existence of reported research on the

supply chain collaboration among Malaysian manufacturers especially on Malaysian

small and medium enterprise (SME).

Therefore this chapter presents context of the study, problem statement,

objective of this research, significance of this research, operational definition,

structure of the thesis and finally summary of the chapter.

1.2 Context of the study

Malaysian Small and Medium Industries Development Corporation (SMIDEC)

define SME as follows:

“Malaysia adopted a common definition of SMEs to facilitate identification

of SMEs in the various sectors and sub-sectors. This has facilitated the

Government to formulate effective development policies, support programs

as well as provision of technical and financial assistance. An enterprise is

considered an SME in each of the respective sectors based on the Annual

Sales Turnover or Number of Full-Time Employees as shown in the table

below (SMIDEC, 2008).”

Table 1.1 : Definition of SME by size (Source; SMIDEC, 2008)

Micro-enterprise Small enterprise Medium enterpriseManufacturing,Manufacturing-Related Services andAgro-basedindustries

Sales turnover of less thanRM250,000 OR full timeemployees less than 5

Sales turnoverbetweenRM250,000 and lessthan RM10 millionOR full timeemployees between5 and 50

Sales turnover betweenRM10 million and RM25million OR full timeemployees between 51and 15

Services, PrimaryAgriculture andInformation &CommunicationTechnology (ICT)

Sales turnover of lessthan RM200,000 ORfull time employees lessthan 5

Sales turnover betweenRM200,000 and less thanRM1 million OR fulltime employees between5 and 19

Sales turnover betweenRM1 million and RM5million OR full timeemployees between 20and 50

3

SMIDEC defines Malaysian SME into 3 sizes which are micro enterprise, small

enterprise and medium enterprise. Table 1.1 explains the definition of the sizes of

Malaysian SME.

The SME sector has been and shall remain one of the key drivers of the

nation’s economic growth accounting for 99.2% of the total business establishment

in Malaysia (Ghani, 2007). Datuk Seri Najib Tun Razak (DPM, 2005) during his

tenure as Deputy Prime Minister stated during his speech at the ceremony to

formalize a strategic alliance between SME BANK & CIMB-BCB on 10th of

November, 2005, he clearly stated that

Small to medium businesses or SMEs are the foundations of any

successful economy.

SME community plays an important part in revitalizing local

economies, during times of economic stress

SMEs also help to accelerate the growth of larger firms whose market

competitiveness depends on the products and services of homegrown

SMEs.

Regional supply and distribution chains often bring together networks

of SMEs that span across national borders.

He however believed that Malaysian SMEs have not clearly reached their full

potential. SMEs collectively employ one third of the total labor force, and yet

accounts for a mere 6 percent of our GDP, compared to between 30 and 40 percent in

developed economies such as Australia, Japan and Germany.

He highlighted that, although there are a large number of smaller SMEs, very

few have graduated to the critical medium-sized strata with real capabilities to

support greater diversification and linkages with other SMEs. Fewer still have

developed the skills, scale and financial resources to become efficient partners to

larger conglomerates and MNC. Malaysian SME cannot afford to be held back by

the lack of technological skills, knowledge or funding inadequacies. Due to the

importance of SME to the nation, under the Ninth Malaysia Plan, the government has

allocated RM623 million for SMEs in the manufacturing sector (Damodaran, 2009).

Malaysian 3rd Industrial Master Plan (3IMP) issued by Ministry of

International Trade and Industries (MITI, 2006) launched by the 5th Malaysian Prime

Minister Datuk Seri Abdullah Badawi on the 18th of August, 2006, aim is to improve

the country global competitiveness from the year 2006 to 2020. The plan intended to

4

facilitate Malaysian industries to take advantage of opportunities, rising from the

growing trend, toward economic integration at regional and global level. The focus

will be on transforming industrial businesses and complementary services, especially

Malaysian SME, into strong knowledge-intensive and value-creating entities.

To achieve the above plan, various strategies were developed to facilitate

collaborations between Malaysian firm including the SME with government link

companies and multi-national companies in operating in Malaysia and overseas. The

plan also outlined the strategy to encourage industrial growth and raising the level of

competitiveness and productivity of the manufacturing and service sectors. This is to

position Malaysia as a major manufacturing hub and service provider in the global

supply chain. As mentioned earlier the Malaysian 3rd Industrial Master Plan

intended to improve the country’s global competitiveness by assisting and facilitating

Malaysian small and medium enterprises (SME) toward economic integration at

regional and global level. This is to be achieved by encourages Malaysian companies

to be involved in supply chain collaboration in their business operations.

Malaysian SME today is facing high level of international competition. This

includes competition from Asian Free Trade Agreement (AFTA) member countries

and competition from MNC or new competition from India and China. Therefore

Malaysian SME needs to enhance it competitiveness. It is suggested that one option

Malaysian SME should consider is networking and forming strategic alliance such as

collaboration (Saleh and Ndubisi, 2006).

1.3 Problem Statement and Research Questions.

Malaysian government in 3rd Industrial Master Plan (MITI, 2006) encourages

Malaysian companies to collaborate and adopt greater application of e-business in its

operations. Asian Productivity Organization (APO) symposium in December 2001,

recommended that for SMEs that wish to realize higher productivity should embrace

supply chain collaboration (Asian Productivity Organization, 2001). For example,

one if the mechanism is joining a non government body, the Exporters Club of

Malaysia, where one of the main objectives is to provide a platform for networking

5

and make profitable working collaboration among SME (Exporters Club of

Malaysia, 2009).

SME can embrace supply chain collaboration by adopting e-business (e-

commerce or c-commerce). Chong et al (2009) conducted a study on SMEs’

adoption of e-business. The result of the study revealed that communication,

collaboration and information sharing all significantly affect the adoption of e-

business in the supply chain. It also revealed that organizations that view the

importance of collaboration are more likely to adopt e-business in the supply chain.

It is discovered that the more SME willing to share vital supply chain information,

the more SME likely to adopt e-business.

Despite the above, Malaysian Small and Medium Industries Development

Corporation (SMIDEC) reported in 2002 only 16.6% of Malaysian SME adopted e-

business solution into their business operations (NST, 2002). In fact findings from a

research conducted by Koh and Le (2003) revealed that e-commerce in Malaysia

especially in manufacturing firms lack behind and find themselves the least

developed in e-business initiatives. The study discovered that business to business

(B2B) e-commerce or c-commerce in Malaysia manufacturing sector is still in its

infancy stage.

This could be due to the IT knowledge and e-commerce technology

knowledge amongst Malaysian SME owners are generally low and Malaysian SME

owners expect to see beneficial results of using e-commerce by other SMEs before

they commit themselves to this innovation (Hussin and Noor, 2005). Sayuti (2007)

stated that supply chain integration has been recognized by many established

organization worldwide, are yet to be exploited by Malaysian SMEs.

With the hype surrounding the implementation of e-commerce and c-

commerce in supply chain collaboration, there is one main issue that we need to look

into before deciding to venture into such activities. The collaboration via e-

commerce and c-commerce supply chain model in need to be reviewed closely and

elements of enabler and barrier need to be identified in order to ensure such

collaboration process to be a success ventures. There exists little reported research on

the supply chain collaboration activities among Malaysian manufactures. Previous

research by Jutla et al. (2002), Sondoh and Tanakinjal (2002) and Lee and Runge

(2001) only focused on understanding the readiness of Malaysian SME towards e-

6

commerce adoption in supply chain. These researches focused more on looking at

technology infrastructure which translates to readiness to adopt e-commerce only.

A research paper argued that the current research agenda regarding supply

chain management is driven by efficiency alone (New, 1997). A wider scope of

research which account for the social function and political and economic

implications of supply chain developments is recommended.

The above discussion revealed that there is a gap on the issue of supply chain

collaboration among Malaysian SME. Table 1.2 summarized the discussion which

leads towards the development of tentative problem statement.

Table 1.2: Summary of inquiries which lead to development of problemstatement

Inquiry Explanation ReferencesWhy the study on SME? SME are the foundations of any

successful economy. Thereforeit is national interest to studyMalaysian SME especiallymanufacturing sector.

DPM (2005), Ghani (2007),Damodaran, (2009), MITI(2006)

Why the studies on SME supplychain?

One of the 3rd Industrial MasterPlan strategy is to positionMalaysia as a majormanufacturing hub and serviceprovider in the global supplychain

MITI (2006), DPM (2005),

Why the studies on SME supplychain collaboration?

Malaysian SME faces a highlevel of internationalcompetition. Therefore toenhance competitiveness, it issuggested that Malaysian SMEshould consider networking andcollaboration..

Saleh and Ndubisi (2006),Asian ProductivityOrganization (2001), ExportersClub of Malaysia (2009),

What is the situation on theMalaysian SME supply chaincollaboration?

No report and literatureavailable, except a statement bySayuti (2007) stating MalaysianSME have yet to exploit supplychain integration.

Sayuti (2007)

However before exploring on wider scope on the supply chain collaboration,

there is need to understand the existing situation on the supply chain collaboration

itself. In this case, viewing the above literature is discovered that the Malaysian SME

manufacturers’ supply chain collaboration activities are still unknown. Therefore a

study should be conducted to look into this situation among Malaysian

7

manufacturers. View to the above a problem statement is developed as the following

statement.

“The level of supply chain collaboration of Malaysian SME manufacturers

with their trading partners is still unknown.”

In order to solve the above problem two research questions are generated:

Question 1: What is the level of supply chain collaboration of Malaysian SME

manufacturers with their trading partners?

Question 2: Why Malaysian SME manufacturers’ level of supply chain

collaborations is at that level?

1.4 Objective of the research

The main objective of this research is to uncover the supply chain collaboration

among SME manufacturers in Malaysia. Specifically the research is trying to answer

the following objectives

1. To determine the level of supply chain collaboration of Malaysian SME

manufacturers with their trading partner.

2. To investigate the reason why Malaysian SME manufacturers’ level of supply

chain collaborations is at that level.

1.5 Scope of the research

The scope of the research focuses on the collaboration in supply chain activities

among Malaysian SME manufacturers only. The supply chain activities are only

confined to the Plan, Source, Make and Deliver category within the framework of

this research. It also focuses on the information integration only which will indicates

the level of supply chain collaboration.

8

1.6 Significance of the research

This research relates the collaboration issues within Malaysian context. It provides

clearer picture on supply chain collaboration among SME manufacturers in

Malaysia. It provides knowledge on why Malaysian SME supply chain collaboration

activities are at minimal level.

This research also gives indications on which activities in supply chain,

Malaysian SME manufacturers prefer to collaborate. Therefore Malaysian SME can

select the preferred activities and avoid the least preferred activities when they want

to practice supply chain collaboration with their trading partners.

Furthermore the finding could assist the authority to develop more proper

policy to promote supply chain collaboration among Malaysian SME. A proper

program or incentive could be develop to promote supply chain collaboration among

Malaysian SME which could raise the level of supply chain collaboration and assist

Malaysian SME to be competitive globally.

1.7 Operational definitions

Malaysian SME: Malaysian company with sales turnover of less than

RM250,000 or full time employees less than 5 (micro-

enterprise); or sales turnover between RM250,000 and

less than RM10 million or full time employees

between 5 and 50 (small enterprise); or sales turnover

between RM10 million and RM25 million or full time

employees between 51 and 15 (medium

enterprise)(SMIDEC, 2008).

Supply Chain Management: Management of integrated activities that procure

materials and services, transforming them into

intermediate goods and final products, and delivering

the products through a distribution system (Haizer and

Render, 2006).

Collaboration: Collaboration involves change in operational activities

within the collaborating organization where the

9

processes are redesigned, redundancies eliminated and

activities are moved to appropriate partner.

(NerveWire, 2002)

E-commerce: Practiced in Supply Chain Model which transmit data

manually (mail, e-mail, phone or fax) or through

Electronic data interchange (EDI) and data usually

being transmitted “one-to-one” (Gartner, 1999).

C-commerce: C-commerce is also known as collaborative commerce.

It involves working parties to collaborate with each

other. C-commerce is when information is being

shared through secured internet line to collaborate on

decision making, synchronize activities, optimize

events, solve problem together, and manage business

process across enterprises (Russel and Taylor, 2006).

1.8 Structure of the thesis

This thesis is divided into 6 chapters follow by references section and appendixes

section.

Chapter 1, which is this chapter, highlights the background of the research,

the context of the study, problem statement and research questions significance of the

research, structure of the thesis and chapter’s summary.

Chapter 2 defines and explains the supply chain management concept,

explains the link of supply chain management with e-commerce and c-commerce,

reviews previous researched and papers published regarding collaboration and

collaboration culture, discusses the reviewed researched and papers and concludes

the discussion with the aims to identify critical issues, regarding collaboration, in

supply chain management.

10

Chapter 3 justifies the mixed methods which are used in this research. It

discusses the research philosophy, type of research, the research framework,

selection of strategy and finally the research process itself in relation to the problem

statement mentioned above.

Chapter 4 presents the analysis of the data gathered from the survey

questionnaires conducted for this research. This chapter discusses the recoding of the

items, the validity and reliability of the data, respondents information integration

with trading partners and level of supply chain collaboration of Malaysian SME

manufactures. The finding from this chapter should be able to answer the research

question 1 which is to identify the level of supply chain collaboration of Malaysian

SME manufacturers with their trading partners.

Chapter 5 presents the analysis of the data gathered from the field interviews

with four Malaysian SME manufactures from various nature of business. This

chapter discusses the summary of the interview and the analysis of the interview

transcripts. Miles and Huberman (1994) data analysis method is used and the

findings are translated into relevant and meaningful conclusion. The findings from

this chapter should be able to answer the research question 2 which explain why

Malaysian SME manufacturers’ level of supply chain collaboration is at the level

mentioned in Chapter 4.

Chapter 6 concludes the findings of this research and reveals the position of

Malaysian SME in regards of supply chain collaboration. It also states the

recommendation for future research based on the supply chain collaboration.

1.9 Summary

Malaysian 3rd Industrial Master Plan was developed to improve the country global

competitiveness by positioning Malaysia as a major manufacturing hub and service

provider in the global supply chain. To achieve this, it is suggested that Malaysian

manufacturers especially SME should be involved in supply chain collaboration in

their business operations,. This research provides the insight of Malaysian SME

manufacturers supply chain activities. Next chapter will reviews and discusses issues

11

regarding supply chain collaboration, the Malaysian scenario on supply chain

collaboration, if any, and identify critical issues, regarding collaboration, in supply

chain management.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

The new economy today is driven by demand for higher quality products, faster

productions and distribution, and lower price (Allen, 2003). The dilemma facing

business enterprise is how to fulfill the demand, and remain competitive and relevant

to the current economy. Business decisions are dominated by the globalization of

markets and increased competition among enterprises (Meca and Timmer, 2007).

One area usually an enterprise focused upon to gain competitive advantage by

configure and manage their supply chain operations to meet their business

requirement (Chase at el., 2006). Collaboration between two or more organizations

has been identified as one way of achieving competitive advantages in supply chain

management (Parker, 2000).

NerveWire (2002) stated collaboration involves change in operational

activities within the collaborating organization where the processes are redesigned,

redundancies eliminated and activities are moved to appropriate partner. Such

improvement of supply chain management can reduced operational cost, gain higher

customer retention, improved in planning, and respond efficiently in production

towards market changes (Lan and Unhelkar, 2006). In addition it can also increased

sales, reduced logistics costs, dramatic improvement in product availability and lead

times are among the benefits of collaboration in supply chain (Walker, 1994). This

research is based on the foundation of Supply Chain Management (SCM), and

collaboration which are the background of the supply chain collaboration.

13

This chapter defines and explains supply chain management, the link of

supply chain management with e-commerce and c-commerce, and collaboration.

This chapter also reviews and discusses issues regarding collaboration, the Malaysian

scenario on supply chain collaboration and concludes the discussion with the aims to

identify critical issues, regarding collaboration, in supply chain management.

2.2 Supply Chain Management definitions.

Supply Chain Management is management of integrated activities that procure

materials and services, transforming them into intermediate goods and final products,

and delivering the products through a distribution system (Haizer and Render, 2006).

It encompasses a wide set of interdependent, cross-industry business strategies that

can reduce costs, expand revenue and increase market share through improve

efficiency and effectiveness (Gartner, 1999). Russell and Taylor (2006) stated that

Supply Chain Management requires managing flow of information through the

supply chain in order to attain the level of synchronization that will make it more

responsive to customer needs while lowering cost.

2.3 Supply Chain Management models.

There are various supply chain management models available and used in the

industries. These include; Supply Chain Operations model, SCOR model, Linear and

Non-linear Supply Chain Process model, and Supply Chain Collaboration Level

model.

14

2.3.1 Supply Chain Operations model

Hugos (2006) provide detail of Supply Chain Management by describing supply

chain operations model. The model consists of four components which are Planning,

Sourcing, Making, and Delivering. The model as in figure 2.1 highlighted the

functions and activities in each category.

Figure 2.1. Supply chain operations model. Source: Hugos (2006)

2.3.1.1 Plan

Hugos (2006) stated that Plan component consist four main components which are

Demand Forecasting, Product Pricing, and Inventory Management,

Demand Forecasting is the foundation for any enterprise to plan their internal

operations and cooperation activities among supply chain players to meet market

requirement. Four major variables that determine market condition that need to be

considered in Demand Forecasting are Supply Conditions that determine number

DELIVER Order

Management Delivery

Scheduling Return

Processing

PLAN Demand

Forecasting Product Pricing Inventory

Management

SOURCE Procurement Credit &

Collection

MAKE Product Design Production

Scheduling Facility

Management

15

product and producer available and the lead time of the product that can be produced,

Demand Conditions that describe the direction of the demand for the product

whether it is declining or growing, Product Characteristics that look into product

features that influence the demand for the product, and finally Competitive

Environment that describe that action of the enterprise and its rival to capture market

share (Chopra & Meindl, 2010). Besides competitive environment, general business

and economic conditions, market trend, and enterprise’s own plan for advertising,

promotion, pricing and product changes are other factors also need to be considered

when forecasting (Arnold et. al, 2008). The methodology used in forecasting are

Qualitative Methods which depend on subjective view of the market, Casual

Methods that relate demand to market factors, Time Series Methods that based on

historical demand as indicator for future demand, and Simulation Methods that

combine Casual and Time Series Methods to simulate consumer behavior under

different circumstances (Chase, 2006).

Product Pricing Planning is basically company strategic planning to influence

demand using price where it can be use to maximize either revenue or gross profit

(Hugos, 2006). Pricing flexibility is depending on the enterprise’s cost structure

Workforce size and productive capacity has bearing on cost structure. Flexibility to

vary workforce size and productive capacity could influence pricing structure which

will influence demand. Inventory carrying cost also could influence pricing structure

(Arnold et. al, 2008).

Inventory Management (IM) objective is minimizing inventory cost while

meeting the required service level towards customers. With Demand Forecast and

Product Pricing inputs, IM is a continuous process of balancing product inventory

level to meet demand and taking advantage of economic of scale to get the best

product price (Arnold et. al 2008; Hugos, 2006).

2.3.1.2. Source

Hugos (2006) elaborated that the Source component involves Procurement and

Credit and Collections operation. Procurement operations main objective is to source

and buy product or materials at lowest price as possible. Procurement functions

16

consist of five main activities. They are Purchasing, Consumption Management,

Vendor Selection, Contract Negotiation, and Contract Management.

Purchasing activities involve buying direct or strategic materials that are

required to produce end products for customers or maintenance, repair, and

operations (MRO) products that usually utilize as part of daily operations (Fawcett

et. al.., 2007). Consumptions Management is an activity to manage the enterprise

products consumption and monitoring the expected level consumptions against actual

consumptions. When consumption is notably above and below expectation,

appropriate parties should be notified so that possible cause can be determined and

corrective action can be taken (Hugos, 2006) Vendor Selection activities are where

number of suppliers are narrowed down to acceptable number so that an enterprise

can leverage it purchasing power with few reliable suppliers and get better price in

return for purchasing higher volume product (Haizer & Render, 2006). Contract

Negotiation is where contracts are negotiated based on specific items, prices, and

service levels with preferred with each vendor in the vendor list. Finally, once

contract are officially agreed and signed upon, vendors performance are monitored

and measured against their individual contract. This is where Contract Management

activities are necessary. All these contracts need to be managed and monitored and

vendors are notified on any shortcomings and corrective actions required (Hugos,

2006).

Another operation in Sourcing is Credit and Collections. The Credit and

Collections functions can be divided into three main categories. Firstly, Credit Policy

needs to be established. Establishing Credit Policy is where an enterprise financial

unit set risk acceptance criteria to respond to the state of its receivables. These

criteria are usually adjusted according to economic and market conditions. Once the

Credit Policy is set, Credit and Collection Practice, based on the Credit Policy need

to be implemented. This involves putting in standard operating procedure to carry out

and enforce the Credit Policy. The procedures will give the sales team guideline to

give customer credits and also collection of payment forms. Finally, managing Credit

Risk, where the enterprise takes intelligent risks that support its business plan. It

main objective is to find ways to lower credit risk of selling to customers (Hugos,

2006).

17

2.3.1.3. Make

Hugos (2006) further explained that Make component involves Product Design,

Production Scheduling and Facility Management. Product Design based on supply

chain perspective is designing products with fewer parts, simple design, and modular

construction from generic sub-assemblies. Technology availability and product

performance requirements are factors need to be considered in product designing

(specifications) and components selection. Product Design defines the shape of the

supply chain and this has great impact on the cost and availability of the product.

Product Scheduling allocates available capacity such as equipment, labor, and

facilities, to the work that need to be done with a goal of efficient and profitable

utilization of these capacities. Right balance need among several competing

objectives need to be done. These competing objectives are High Utilization Rates

(long production runs and centralized manufacturing and distribution centers), Low

Inventory Levels (short production runs with just-in-time delivery of raw materials)

and High Level of Customers Service (high level of inventory or short production

runs). Economic lot size (production quantities) will then be calculated where it will

balances production set up costs against inventory carrying costs. Finally productions

are schedule with the shortest run out times are made first (production sequence)

(Haizer & Render, 2006 ; Hugos, 2006).

The third operations activity in Making is Facility Management. All Facility

Management decision happened with the constraints set by decisions about facility

locations. Therefore ongoing facility management takes location as given and

focuses on how best to use the capacity available. This involves making decision on

the role each facility will play, on how the capacity is allocated in each facility, and

on the allocation of suppliers and markets to each facility (Hugos, 2006)

2.3.1.4. Deliver

Finally Hugos (2006) stated that the Deliver components consist of three operations

where two main operations activities is considered as core link between trading

18

partners in supply chain. There are Order Management which involves receiving

customer orders and Delivery Schedule which involves delivering product to

customers.

Order Management involves passing information about order from customers

to trading partners along the supply chain. These also involve order processing,

forwarding order delivery dates, product substitutions and back orders forward

through the supply chain to customers. Order processing involves purchase order

processing, invoicing and delivery documentation preparation (Arnold et. al., 2008).

Delivery Schedule which usually constrained by the decisions made

concerning transportation modes, practice two methods of deliveries which are ,

Direct Deliveries and Milk Run Deliveries. Delivery made from one originating

location to one receiving location is called Direct Deliveries. The main concern when

scheduling with this method is to obtain the shortest path between two locations.

Deliveries that are routed to either bring product from a single originating location to

multiple receiving locations or vise versa is known as Milk Run Deliveries. More

complex than Direct Deliveries, Milk Run Deliveries scheduling method need to

consider about delivery quantities of different products, frequency of delivery,

routing, and sequencing of pickups and deliveries. Delivery scheduling need to

consider delivery dates, mode of delivery and cost involved in determining the

delivery mode (Chopra & Meindl, 2010).

The third operation is return Processing which activity occurs when

customers need to return a product for whatever reason. Also known as ”reverse

logistics ”, which is the result of supply chain inefficiencies that created the need to

return products. Most common reasons of product being returned are wrong products

being delivered, products damaged during transit, delivery of defect product and

more product delivered than what was required by customer. Therefore product

retuning process need to be efficient and most decision making in return delivery is

almost similar to delivery activities (Hugos, 2006).

19

2.3.2 SCOR model

There is also other category of Supply Chain Management Model. For instance there

is Supply Chain Council’s SCOR model The above Supply Chain Operations model

is slightly different from Supply Chain Council’s SCOR model at level 1. The

difference is, Hugo’s model incorporated the Return Processing operations activities

in Delivery category of operations, while in SCOR model the Return Processing

operations are dedicated as separate operations category due the high additional cost

incurs for the activities. SCOR model combines element of business, process

engineering, metrics, benchmarking, and leading practices in a single framework

(Bolstorff and Rosenbaum, 2007).

Supply-Chain Council (2008) website describe SCOR model as below

“The Supply-Chain Operations Reference-model (SCOR) is a process

reference model that has been developed and endorsed by the Supply-Chain

Council as the cross-industry standard diagnostic tool for supply-chain

management. SCOR enables users to address, improve and communicate

supply-chain management practices within and between all interested parties.

SCOR is a management tool. It is a process reference model for supply-chain

management, spanning from the supplier's supplier to the customer's

customer. The SCOR-model has been developed to describe the business

activities associated with all phases of satisfying a customer's demand. By

describing supply chains using process building blocks, the Model can be

used to describe supply chains that are very simple or very complex using a

common set of definitions. As a result, disparate industries can be linked to

describe the depth and breadth of virtually any supply chain. The Model has

been able to successfully describe and provide a basis for supply chain

improvement for global projects as well as site-specific projects.

SCOR model has three-levels of process detail. Level 1 assists a company in defining

scope, level 2 shows type of supply chain and level 3 shows process element details,

including performance attributes (Bolstorff and Rosenbaum, 2007). This is illustrates

in the figure 2.2.

20

LEVEL 1-Sets Scope, and Context Geographies, Segments,And Products

Supply Chain

---------------------------------------------------------------------------------------------------------------------------LEVEL 2- Identifies major Configurations within Geographies, Segments, and Products

---------------------------------------------------------------------------------------------------------------------------

LEVEL 3- Identifies Key Business activities within a configuration

Figure 2.2: SCOR Framework Level Model (Source: Supply Chain Council,2008; Bolstorff and Rosenbaum, 2007).

The strength of the SCOR model is that it provides a standard format to

facilitate communication and it is a useful tool for the upper management to design

and reconfigure its supply chain to achieve desired performance (Huan et al., 2004).

M2.05Stage Product

M2.02Issue Product

M2.03Produce & Test

M2.04Package

M2.06Release Product to

Deliver

M2.01Schedule Production

Activities

M1Make Build to Stock

M2Make Build to Order

M3Make Engineer to Order

PLAN

SOURCEMAKE

DELIVER

RETURN

21

2.3.3 Linear and Non-linear Supply Chain Process model

Besides SCOR model and Supply Chain Operations Model, there are other Supply

chain process models which map out the supply chain relations among trading

partners in the supply chain. There are two distinct supply process models. The

models are Linear Supply Chain Process and Non-linear Supply Chain Process

model. Figure 2.3 illustrates the differences between Linear Supply Chain Process

and Non-linear Supply Chain Process model. Linear Supply Chain Process is the

common conventional supply chain practice in supply chain management, where

information is passed top down from manufacturer down along the bottom off the

supply chain. For example, as illustrated in Figure 2.3, information flow for

Component Supplier is only to Manufacturer and vise versa. Other party along the

supply chain which is Distributor, Retailer and End User know nothing on any

information transmitted between these two parties. This process model is commonly

used together with e-commerce applications (Gartner, 1999). Russel and Taylor

(2006) define e-commerce as “trade that occurs over the internet or any computer

network”. Haizer and Render (2006) define e-commerce beyond trading.

Linear Supply Chain Process Model Non-Linear Supply Chain ProcessModel

Figure 2.3: Supply Chain Process Model (Source: Gartner 1999).

Infrastructure

ComponentSupplier

Manufacturer

Distributor

Retailer

End User

End user

User

End user

User

Infrastructure

Original EquipmentManufacturer (OEM)

ComponentSupplier

Contractmanufacturer

Distributor Reseller

22

It also involved information exchange. Krajewski et al. (2007) summarized e-

commerce as the application of information and communication technology

anywhere along value chain of business process. E-commerce practiced in Supply

Chain Model usually transmit data manually (mail, e-mail, phone or fax) or through

Electronic data interchange (EDI) and data usually being transmitted “one-to-one”

(Gartner, 1999).

Non-linear Supply Chain Process is where the information regarding the

supply activities being share non-linearly among all suppliers and manufacturer. For

example, Figure 2.3 also illustrated that information flow between Reseller and

Contract Manufacturer also flows to other trading partners which are Distributors,

Component Supplier, and Original Equipment Manufacturer (OEM). Information

among these trading partners flow freely and these trading partners collaborate to

achieve win-win supply chain operations. This complex information transmission

process is commonly used in collaborative commerce applications (Gartner, 1999).

Collaborative commerce is also known as C-commerce. It involves working parties

to collaborate with each other. C-commerce is when information is being shared

through secured internet line to collaborate on decision making, synchronize

activities, optimize events, solve problem together, and manage business process

across enterprises (Russel and Taylor, 2006). It requires all parties to very closely

share information that allow them to understand and deduce each other party needs.

NerveWire (2002) refer c-commerce as inter-enterprise integration.

C-commerce optimize supply and distribution channel to make an

organization more competitive and more profitable. It helps company collaborate up

and down the supply chain (Ulrich, 2001). C-commerce expends the traditional roles

in the trading partner community to bring all participants together, both internal and

external parties. Instead of each working independently, c-commerce brings these

parties into a beneficial network of interdependent collaboration. In other word, c-

commerce practitioner benefited from near real time data, rich information, data

being transmitted from “many-to-many”, and workflow system or automation of

business process (Gartner, 1999).

23

2.3.4 Supply Chain Collaboration Level model.

NerveWire (2002) stated collaboration can be measured by looking at level of supply

chain information integration among trading partners. Information transmitted via

such system reveal the level of information integration of an enterprise. .

NerveWire (2002) level of collaboration model defined Level 1 and 2 of

information integration best described the characteristic of a company that practicing

e-commerce or linear supply chain process. While Level 3 and 4 best described a c-

commerce practicing company.

Level 1 shows that information being exchanged via meeting, phone, fax,

mail and e-mail which is considered as minimal information integration. Level 2

shows that information being exchange via online viewing of information in database

and electronic exchange with limited abilities to change each other database and this

level is described as moderate information integration. Level 3 shows that

information being integrated via automated transaction between each other database

and computer application and this level is considered as high information integration.

Finally Level 4 shows information being tightly integrated via shared database and

application. Further to information integration, the processes are redesigned and

redundancies eliminated and activities are moved to appropriate partner. This level is

considered as very high information integration with trading partners.

2.3.5 Discussion.

From the above reviews, it can be concluded that Hugos’s (2006) Supply Chain

Operations Model and Supply Chain Council’s (2008) SCOR model managed

operational issues at micro level which is at each supply chain operations. Hugo’s

model is more basic comparing to SCOR model which is more detailed especially in

24

the making mode and supply chain relations with organizational business activities.

Gartner (1999) focused its model on information flow of supply chain operations and

NerveWire (2002) look at level of information integration as indication to determine

the level of supply chain collaboration Table 2.1 summarized each individual Supply

Chain Model as per mentioned above

Table 2.1: Summary of Supply Chain Model. Source: (Hugos, 2006), (SupplyChain Council, 2008), (Gartner, 1999)

Model Model Model ModelModel Supply Chain

Operation Model(Hugos, 2006)

Supply ChainCouncil’s (2008)SCOR Model

Supply ChainProcess Model(Gartner, 1999)

Supply ChainCollaborationLevel Model(NerveWire,2002)

Descriptions Supply ChainManagementaccording tooperational category

Divided Supply ChainManagement into 3levels where eachlevel has it ownoperational activities

Illustrateinformation flowin Supply ChainProcess

Takes level ofinformationintegration asindication tosupply chaincollaborationlevel

Functions Categories SupplyChain operationsinto the followingoperationalcategories:

Plan, Source, Make Deliver

Level 1 (Scope thatcategories SupplyChain operations intoPlan, Source, MakeDeliver and ReturnProcessingLevel 2 (Configuremaking mode)Level 3 (Identify keybusiness activities)

-Linear SupplyChain Process(e-commerce)-Non-linearSupply ChainProcess (c-commerce)

Level 4-Veryhigh informationintegration-Level 3- HighinformationintegrationLevel 2-Moderateinformationintegration.Level 1-Minimalinformationintegration.

The next section will explain the importance of developing collaboration

culture on practicing supply chain collaboration in an organization.

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