Performance of SSCM

Supply chain performance (SCP) has indeed become an important source of sustainable advantage in many industries due to increase in global competition from the supply chain perspectives (Hoole, 2005). In terms of measuring SCP, the supply chain operations reference (SCOR) model was one of the notable key SCP metrics, which was developed by the Supply Chain Council. The SCOR performance metrics are not only achieving supply chain effectiveness but also meeting customer requirements and improving supply chain efficiency by minimizing cost, reducing lead time and improving quality.

In the context of Sustainable Supply Chain Performance, the measurement is more towards how well the supply chain activity or practices undertaken by the organization cut across the three facets of sustainability based on triple bottom line, which are the economic, environmental, and social aspects. As explained in the literature above, the social and

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environmental supply chain activities that lie at the intersection with the economic bottom line are defined as sustainable. By combining the performance from SCOR model in SCP metrics by Gunasekaran (2004) who terms the key metrics as operational outcomes, this study uses four factors of performance for SSCM which consists of operational, economic, environmental, and social which will be shown in Table 1 with some examples for each dimension. Zailani & Jeyaraman (2012) has validated these four constructs by using Varimax rotation to show the dimensionality and appropriateness of the measurement scale.

Table 1 Previous Studies on Dimension of SSCM Performance Measurement Performance

Dimension Dimension

Example References

Operational

aspects Cost savings Brown (1996), Carter & Stevens (2007),

Christmann (2000), Holmes, Power, & Walter (1996), McElroy, Rodriguez, Griffin, Morrow, & Wilson (1993), Mollenkopf, Closs, Twede, Lee, & Burgess (2005), Shrivastava (1995)

Flexibility Grover & Malhotra (2003), Lee & Billington (1993), Nair & Boulton (2008), Salvador, Rungtusanatham &

Forza (2007), Schoenherr (2012), Vickery (1999) Delivery Ferdows & Meyer (1990), Grover & Malhotra (2003),

Nair & Boulton (2008), Jayaram, Das & Nicolae (2010), Schoenherr (2012), Silveira & Arkader (2007)

Economic

aspects Quality Ferdows & Meyer (1990), Flynn, Schroeder &

Sakakibara (1995), Garvin (1987), Nair & Boulton (2008), Pil & Rothenberg (2003), Piotrowicz (2011), Rosenzweig & Roth (2004), Schoenherr (2012)

Efficiency Beamon (1999), Piotrowicz (2011), Searcy, McCartney

& Karapetrovic (2007)

Responsiveness Beamon (1999), Chen & Paulraj (2004), Clemens (2006), Lee & Billington (1993), Piotrowicz (2011) Environmental

aspects

Emissions Hervani & Helms (2005), King & Lenox (2001), Piotrowicz (2011), Rao (2002), Vachon & Mao (2008), Zhu & Sarkis (2004)

Natural resources

utilization Aragon-Correa & Sharma (2003), Carter & Jennings (2002), Piotrowicz (2011)

Waste and

recycling deBrito, Carbone & Blanquart (2008), Dobos & Floriska (2007), O’Brien (1999), Piotrowicz (2011), Vachon &

Klassen (2006)

Social aspects Health and safety Brown (1996), Carter & Rogers (2008), Carter &

Stevens (2007), Piotrowicz (2011)

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Performance

Dimension Dimension

Example References

Employees Gosselin (2005), Marshall, Cordano & Silverman (2005), Pagell & Gobeli (2009), Piotrowicz (2011), Searcy, McCartney & Karapetrovic (2007)

Noise Beamon (2005), Piotrowicz (2011), Quak & Koster (2007), Searcy, McCartney & Karapetrovic (2007)

2.6.1 Operational aspects

Traditionally, performance measurement was focused on internal activities, often limited to core operations. Operational performance has been considered as dependent variable in business research. According to Gunasekaran (2004), operational measures ability in day to day technical representation, adherence to developed schedule, ability to avoid complaints, and achievement of defect free deliveries. Operational performance is typically assessed along the dimensions of cost, flexibility, and delivery.

SSCM could give the benefit on cost savings due to the use of reusable materials while at the same time reducing and minimizing ecological footprint. According to Mollenkopf, Closs, Twede, Lee, & Burgess (2005), past studies found that big firms such as John Deere, IBM, Ford, General Motors, Chrysler, and Toyota have made significant investments in reusable systems and have also reached significant savings. Another study by Christmann (2000) found that there is positive correlation between cost advantage and financial performance. Profitable firms could achieve cost advantage through implementation of environmental strategies.

Flexibility can be regarded as the critical factor which supply chains compete in organizations. Being flexible defined as having the capability to provide products or services that meet the individual demands of customers. There are branches of measurement in flexibility include product development cycle time, machine/tool set up time, flexibility of delivery systems (Gunasekaran & Patel, 2004), number of inventory returns, etc. The development of technologies include flexible manufacturing systems (FMS), group technology (GT), computer-integrated manufacturing (CIM) has made companies to be flexible (Gunasekaran & Patel, 2001). These systems have a high impact on winning customers. For example, Toyota is using FMS and logistics principles to provide a high level

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of responsiveness to customer needs (Bhagwat & Sharma, 2007). Stewart (1995) listed other world-class companies which have employed such systems to improve flexibility. Therefore, by taking flexibility into account, companies can achieve rapid response to meet individual customer requirements.

Whereas, the link in a supply chain that directly impacts customers is delivery. This is the primary determinant of customer satisfaction thus by measuring and improving delivery can increase competitiveness of companies. There are different aspects that would influence the delivery performance in supply chain. According to Stewart (1995), an increase in delivery performance is possible through a reduction in lead-time attributes. Another measure of delivery performance is on time delivery since it reflects whether perfect delivery has taken place or not. These two aspects are important measures because they will express the customer service level of a company. There are various factors that could influence delivery speed such as vehicle speed, driver reliability, frequency of delivery, and location of depots.

Increases in efficiency in those factors could lead to a decrease in inventory levels (Gunasekaran & Patel, 2004).

2.6.2 Economic aspects

Economic performance is one of the most important drivers for enterprises. Within the organization, a company should be profitable in order to be sustainable in the long-term.

However, practices cannot be considered as sustainable over time if they are not profitable in the long term even though they are acknowledged as “green” and “sustainable” organization.

Within economic impact, Piotrowicz (2011) includes quality, efficiency, and responsiveness which are necessary to be profitable in the long term.

The quality of logistics services and customer satisfaction are main issues to generate long-term profits and this can be measured by various metrics. Information (number of complains, delays, returns, damage, spillage, number of mistakes in documents, etc.) and data availability from external sources such as customer surveys within organizations is crucial to determine perceived service quality and feedback from business partners (Piotrowicz, 2011).

Responsiveness is defined as how a company can respond to certain customer needs and a changing environment. By looking at product availability along the supply chain, responsiveness can be measured, for example, when customer demand is changing, how fast

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can the company fulfill new customer needs, how fast is the process from product design to delivery, how long it will take to redesign distribution system, how accurate was demand forecasting, etc. (Piotrowicz, 2011) Same quality level may be acceptable for some customers, but not for others. Thus, company strategy to achieve the performance of SSCM should reflect different customer segments. According to Gunasekaran (2001), quick responsiveness of companies to introduce a new product as well as product deliveries could help to evaluate the level of competitiveness.

The efficiency dimension is another example of economic characteristic. Efficiency is regarded as the creation of more responsive system; this is about cutting costs, increasing resource utilization, and process time reduction. The measurement of efficiency can be reflected by a variety of measures such as return of investment (ROI), inventory, total logistic cost, truck fill rate, delivery cost, and etc. Additionally, efficiency seems to be more important considerations in evaluating production performance (Gunasekaran & Patel, 2004). For example, retailers improve the efficiency of their out of stock and replenishment tasks by replacing a labor intensive bar code system with an automated scanning and data entry process (Lee, Palekar, & Qualls, 2011).

2.6.3 Environmental aspects

Environmental performance has been concerned by managers due to reasons ranging from regulatory fulfillment to public awareness and competitive advantage (Theyel, 2001).

This environmental performance is focusing on the company’s activities in lowering negative impact on the natural environment. The environmental dimension includes emissions, natural resource utilization, waste and recycling.

Recently, environmental aspects have been used by some companies’ measurement of performance to convince customer that their business activities are committed to protect the ecosystem while remaining profitable. However, there are still some companies who ignored the environmental aspects due to the lack of commonly accepted measurement norms and standards. In order to analyze company impact, there is a need to look how company influence the environment which includes CO₂ emission as there are EU and national targets to reduce CO₂ (Piotrowicz, 2011). Even though CO₂ measurement is still at the development

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stage and there are different measurement approaches, no universal agreement on which one is accurate will be commonly accepted in the near future.

Besides CO2 emission, energy use from natural resources, generally including fuel, water, and land use, are quite easy to measure and data are available from the utility providers.

Whereas, there is another category related to the impact on environment such as waste and recycling. This can be reflected by the use of biodegradable materials, and waste reduction into landfill. According to Brito (2008), cleaning the outputs and increasing recycling are examined by the stakeholders as the way to increase environmental performance. The financial performance can also be enhanced by environmental performance in various ways for example, when both hazardous and non-hazardous are minimized as part of environmental management, it simulataneously results in better utilization of natural resources, improved efficiency and reduces operating costs (Rao, 2002).

2.6.4 Social aspects

Generally, social performance is not common to be incorporated directly into the organizational performance measurement systems. Even though this measurement presents, it is often separated from performance aspects. For example, it is included into human resources department or section. However, people’s skills and their impact on society also contribute to the key issues in SSCM. Social sustainability means that organizations (and manufacturing plants) provide equitable opportunities, encourage diversity, promote connectedness within and outside the community, ensure the quality of life and provide democratic process and accountable governance structures (Elkington, 1994). Thus, the social dimension in SSCM performance includes health and safety, impact on employees, noise emission, and enhanced reputation.

Health and safety involves the number and type of work related accidents. There is a legal requirement to collect such data in most countries especially about fatal and major injuries. However, there is a lack of standardization and common definition about health and safety within organization across countries. Besides internal employees, this category also measures all accident which involving sub-contracting and agency workers. This should be recorded to prevent any accidents happening in the future. Additionally, sustainability approach, which is undertaken by companies will also shows their attention to natural

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environment and society. These programs can be used as effective approach to have employee behavior as fewer claims and happier employees (Holmes, Power, & Walter, 1996).

Employment can be considered as overall job creation or reduction and the organizational culture inside the company reflects working conditions and employees morale (Piotrowicz, 2011). This issue could be measured in terms of level of absenteeism, number of new employees, and percentage of key staff turnover (Gosselin, 2005). Furthermore, a company also needs to consider the impact on relationship with business partners especially small and medium enterprises (SME) such as percentage of transactions with SMEs, number of joint initiatives, and training provided for SMEs (Piotrowicz, 2011). Knowledge and training of the employees play important roles. This could be measured by the amount of training expenses (Gosselin, 2005), percentage of staff with certain level of education, etc.

Furthermore, better working conditions in the organization will increase motivation and productivity of employees. For example, wellness programs or health insurance could be provided to the employees in order to create a harmony relationship between the company and the employees (McElroy, Rodriguez, Griffin, Morrow, & Wilson, 1993).

Noise emission is an important issue to the society thus it is also included in social dimension even though it is less significant in industrial areas. However, noise emission is the most disturbing in residential areas so the timing of operational industry is important –time of the day or night. Therefore, manufacturing industry is often located in remote area where they will not disrupt residents.

Indeed, company’s social reputation can be enhanced when a company is engaging in sustainable behavior. A company business that could led consumers to believe that the company was motivated by a desire to help others in the normal conduct of its business rather than a desire to selfishly use will be seen as an excellent attributions that led to higher purchase intent (Ellen, Webb, & Mohr, 2006). The external factors like technology project and the actions in a market could also persuade potential employees to associate in the firm.

Capaldi (2005) claimed that associating the firm in a positive way with some of the other goals is a persuasive way of recruiting and retaining high quality employees. Therefore, activity such as sustainability, which is associated with helping environment, social, and economic, will be appreciated by many groups of people. Additionally, strong environmental management, which is initiated by a firm to improve financial performance, will be measured

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by stock market performance. When made public, many investors or future shareholders or shareholders will acknowledge this performance (Klassen, 1996).

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