Chapter 3 Research Model and Hypothesis Development
3.2 Research Hypotheses
3.2.3 ERP benefits and the behavioral process of SCM
The term “behavioral process” refers to the behavior that fosters supply chain coordina-tion. It includes relationship integracoordina-tion. Relationship integration is a competency that enables firms to share a mentality with customers and suppliers regarding interdependence and prin-ciples of collaboration. Successful relationships require managers to rethink the way they conduct business with suppliers and customers so that the benefits of integrated and focused supply chain strategies can be achieved. Efforts must focus on providing the best end-customer value regardless of where along the supply chain the necessary competencies exist. Thus, it is clear that consistent success ultimately depends on the ability to visualize and develop cooperative relationships (Closs and Mollenkopf, 2004; Bowersox et al., 1999).
Bendoly and Jacobs (2005) argued that ERP can be used to facilitate inter- and in-tra-organization communication and collaboration needs, laying the foundation for external integration. Stock et al. (2000) asserted that higher levels of external integration are characte-rized by activities in collaboration with those of its suppliers and customers, and by a greater blurring of organizational distinctions between the logistics activities of the firm and those of its suppliers and customers. For years organizations have striven to realize the benefits of ERP and of information technology investments. Adopting ERP systems can mean capturing the benefits derived from facilitating business learning, and may support these goals. Segars et al.
(1998) have developed a set of scales to capture the domain of ERP benefits, and these form the basis of our items and related hypotheses about the benefits of ERP. In our model, the
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SCM competencies in the behavioural process are driven by ERP benefits. Therefore, the fol-lowing research model and hypotheses are given:
Ha3: The operational benefits of ERP positively affect SCM competencies in the behavioral process;
Hb3: The managerial benefits of ERP positively affect SCM competencies in the behavioral process;
Hc3: The strategic benefits of ERP positively affect SCM competencies in the behavioral process;
Hd3: The IT infrastructure benefits of ERP positively affect SCM competencies in the beha-vioral process;
He3: The organizational benefits of ERP positively affect SCM competencies in the behavior-al process.
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CHAPTER 4
RESEARCH INSTRUMENT DEVELOPMENT AND CONTENT VALIDITY
In this chapter, the instruments for this research are developed and tested. The scale de-velopment and refinement is based upon a two-stage approach Churchill’s (1979). In stage one, precise definitions and measurement items for each construct are established, together with tentative indications of reliability and validity. In stage two, the study further refine and validate the measures using survey data collected on the scales developed in stage one.
4.1 Stage 1 Scale Development
This study has adapted Churchill’s (1979) widely used methodology for multi-item in-strument development. The complexity inherent in many business processes cannot be ade-quately measured with a single item. Multi-item scales can reduce measurement error and provide a more robust measure of complex variables by combining several individual items.
In the first stage, the study identifies the constructs of ERP benefits and SCM compe-tencies that are hypothesized to be important antecedents of successfully creating SCM com-petencies. Our point of departure for construct definition and measurement item selection is a literature review encompassing the areas of ERP and SCM in strategic management, opera-tions management, organizational behavior, and information technology.
4.1.1 Construct domain specification
The first step is to specify the domain of the various ERP benefit constructs and SCM
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competency constructs. This was followed by iterations among site visits, interviews, and further literature reviews. In total, this study conducted two site visits to businesses and plants that one is large size company and the other is small size company. Both companies had oper-ational ERP systems, where the study gathered first-hand knowledge about ERP systems and SCM competencies at multiple levels in the organization, including users, IT technicians, en-gineers, production planners, supervisors, managers, and consultants. Visits were supple-mented by structured and unstructured interviews with executives knowledgeable about ERP systems, SCM, and adoption practices. This iterative process resulted in this research frame-work which identified the constructs of ERP benefits and SCM competencies. This is fol-lowed by the generation of a pool of items for each construct. Items were drawn from the li-terature and the researchers own empirical investigations of ERP/SCM firms based upon site visits and extensive interviews with executives and consultants involved with ERP imple-mentation.
4.1.2 Item generation and structured interview
Proper generation of measurement items of a construct determines the validity and re-liability of an empirical research. The very basic requirement for a good measure is content validity, which means the measurement items contained in an instrument should cover the major content of a construct (Churchill, 1979). Content validity is usually achieved through a comprehensive literature review and interviews with practitioners and academicians. A list of initial items for each construct was generated based on a comprehensive review of relevant literature. The general literature bases for items in each construct are briefly discussed below.
The constructs for ERP benefits (operational benefits, managerial benefits, strategic benefits, IT infrastructure benefits, and organizational benefits) were generated based on pre-vious ERP literature (Shang and Seddon, 2000; Stratman and Roth, 2002; Verville and
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lingten, 2003). The items for operational, managerial, organizational and strategic benefits of ERP were generated through ERP literature, manufacturing literature, outsourcing literature, and marketing literature (Shang and Seddon, 2000; Stratman and Roth, 2002; Sampler, 1998;
Segars et al., 1998). The IT infrastructure benefits were generated through ERP literature, in-formation system literature, and enterprise systems literature (Shang and Seddon, 2000).
The constructs for SCM competencies (operational process, planning and control process, and behavioral process) were generated based on previous SCM literature (Closs and Mollenkopf, 2004; Bowersox et al., 1999) (Table 3.1).
Base on the literature, this study develop a questionnaire draft. The questionnaire draft was translated into Chinese using the translation/retranslation method. This method was con-ducted by two translators independently translating the English questionnaire into Chinese versions, and then, the other two translating the Chinese versions back into English. The latter English versions were compared with the original one to make sure that the meanings were consistent with the original concepts (Mullen, 1995). Once item pools were created, items for the various constructs were reviewed by six academicians and re-evaluated through structured interviews with three practitioners. The focus was to check the relevance of each construct’s definition and clarity of wordings of sample questionnaire items. Based on the feedback from the academicians and practitioners, redundant and ambiguous items were either modified or eliminated. New items were added whenever deemed necessary. The result was the following number of items in each pool entering manual factor sorting analysis. There were a total of 8 pools and 61 items (Table 4.1).
ERP Benefits
Operational benefits 6 Managerial benefits 7 Strategic benefits 6 IT infrastructure benefits 6
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Organizational benefits 6 SCM Competencies
Operational process 9 Planning and control process 10 Behavioral process 5
Synthesis 6
Total 61
4.1.3 Measure purification
Once the initial item pool was generated, the items were purified in order to remove the potential for measurement error from the new scales. A manual factor sorting technique (Se-gars et al., 1998) was used to establish tentative scale reliability and validity, as well as to as-sess potential problems with the unidimensionality of the constructs. The manual sorting pro-cedure was conducted iteratively, using independent panels of four to five expert judges in each of four separate sorting administrations. These judges all had recent industry experience with the implementation and use of ERP systems or had experience with supply chain man-agement in a manufacturing environment. Three were senior consulting managers who had many years of experience with multiple ERP implementations.
Each expert judge was given a questionnaire containing short descriptions of each of the proposed benefit and competency constructs, together with a randomized list of all of the items generated from the literature and prior sorting rounds. In each round, the panel of expert judges was asked to assign each item to one of the defined constructs. Items that were not consistently grouped into their target constructs during this process were considered for re-wording or elimination if the item did not adequately fit the construct. In addition, initial judge panels were also asked to suggest additional competencies relevant to effective ERP
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adoption and additional items describing the provided competence constructs. Consequently, the final set of eight constructs encompasses the scope of ERP benefits and SCM competen-cies, and the resultant set of items constituted the domains of each ERP benefit and SCM competency construct.
To assess the pretest scale reliability of the qualitative judgements made during the sorting process, two measures were used as indicators: Perreault & Leigh’s measure (Perreault and Leigh, 1989), and item placement ratios (Moore and Benbasat, 1991). The Perreault and Leigh statistic measures the observed proportion of agreement between judges that is greater than would be expected from chance. Unlike prior measures of inter-judge agreement, such as Cohen’s Kappa (Cohen, 1960), the Perreault and Leigh statistic explicitly includes the number of defined categories in its calculation. This avoids the overly conservative characteristics of earlier measure (Perreault and Leigh, 1989; Rust and Cooil, 1994). A value of 1.0 indicates perfect inter-judge agreement, while a value of zero indicates that the observed agreement is exactly what would be expected by chance. The item placement ratios assess both the validity of the generated items and the reliability of the proposed measurement scales. If there is a high degree of inter-judge agreement, then the percentage of items placed in the target con-struct will also be high. In addition, scales based on concon-structs with a high percentage of cor-rected item placement can be considered to have a high degree of construct validity and also exhibit the potential to be reliable (Moore and Benbasat, 1991).
4.1.4 Results of item purification sorting process
The definitions of various constructs in it are summarized in Table 4.2. Table 4.3 presents the final round of item-placement ratios for the scales using Moore and Benbasat’s (1991) format, which provides additional insight into the performance of the proposed mea-surement scales. Each of the benefit and competency scales is listed on the rows of the table.
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For example, the operational benefits of ERP scale has 6 items, so perfect item placement for this scale would be a score of 30 (6 items x 5 judges). In this case, only 23 judge-items were classified as intended, while 5 were classified under managerial benefits and 2 under strategic benefits. The item-placement ratio for operational benefits thus equals 26/30 or 77%. Accord-ing to Moore and Benbasat (1991), an item placement ratio of 70% or greater is generally considered acceptable. All of the scales met or exceeded this criterion for the final sorting round.
Two pre-tests were conducted. Participants were asked to identify any confusion. Five EMBA students with business experiences performed the first pre-test. After the pre-test, the questionnaire was revised. The second pre-test was conducted on five IT managers from five Taiwanese IT firms. Minor modifications were incorporated into the final questionnaire (Ap-pendix). The pre-tests indicate that the questionnaire is deemed appropriate to examine the relationship between ERP and SCM in Taiwanese IT firms (Churchill, 1997). A seven-point Likert scale anchored at “strongly disagree” (1), “strongly agree” (7), and “neither agree nor disagree” (4) is used to collect most responses, while some questions involved absolute num-bers, percentages or binary variables. The final questionnaire had an embedded triangulation structure to reduce data bias (Jick, 1979) and was divided into:
(1) General data;
(2) Benefits for adopting ERP systems, and
(3) Firm competencies of SCM after adopting ERP systems
The final questionnaire consists of three parts (Appendix). The part of general data in-cludes 8 questions pertaining to industry, number of employees, estimated revenue, the pri-mary reason for adopting ERP system, type of ERP and SCM related software used, which modules of ERP system implementing, and the number of months and years since the ERP system initiatives. The parts of benefits for adopting ERP systems and firm competencies of SCM after adopting ERP systems include total of 47 items for eight constructs pertaining to
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the ERP benefits and firm competencies of SCM, as well as including 6 synthesis questions pertaining to the total impact of ERP adoption on firm competencies of SCM (Appendix).
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Table 4.1 Original and final measurement scales and items: Standardized path loadings from CFA
Construct and items
Standard Path Loading ERP benefits and associated items:
Operational benefits:
My firm has better control of business operating expenses and decreased opera-tions cost after adopting ERP system.
0.761 My firm has reduced production cycle times and increased inventory turns. 0.903 My firm has increased power user involvement by user training for operational
tasks
0.944 My firm has improved quality management and control. 0.964 My firm meets customer needs proactively and more efficiently. 0.845 My firm has less time and fewer errors in order process. 0.848
Managerial benefits:
My firm increased the capability of tailoring products to meet specific needs of
customer, and improving resource management to support customization. 0.893 My firm has more effective decision making by workers. 0.881 My firm’s ERP system has increased delivery flexibility 0.669 My firm’s ERP system has reduced ordering and invoice complexity 0.849 My firm has increased partnership with customer and vendor by information
sharing. 0.754
My firm has improved quality management and quality control. 0.778 My firm’s ERP system has enhanced the capability to reduce the time between
order receipt and customer delivery. dropped
Strategic benefits:
My firm has supported for business growth. 0.906
My firm has supported for business alliance. 0.628
My firm increased the capability of building business innovations and absorb
rad-ical change routinely 0.922
My firm has built cost leadership by reducing inventory-carrying cost and lower
labor cost. 0.826
My firm has generated product differentiation including customization. 0.783 My firm has built external linkages to have better connectivity with customer and
supplier. 0.700
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Organizational benefits:
My firm has changed organizational management processes in breadth and
broad-er horizon. 0.984
My firm has facilitated organizational learning and training for access of
enter-prise information. 0.988
My firm has training for decision making skills and worker empowerment for
taking actions. 0.983
My firm has built common vision. 0.893
My firm has better employee morale and satisfaction. 0.801 My firm has related to support organizational changes. 0.763
IT Infrastructural benefits:
My firm has built business flexibility for current and future changes. 0.867 My firm has reduced in cost of maintaining legacy systems. 0.902 My firm has increased IT infrastructure capability. 0.813 My firm has integrated and has real time to effectively support information. 0.797 My firm has standard procedures across different locations. 0.702 My firm has presented a single interface to customer and has consolidated
mul-tiple different systems of the same type. 0.870
SCM competencies scales and associated items:
Behavioral process competencies:
My firm has increased customer response time and percentage of resolving
cus-tomer’s first call 0.740
My firm has kept maintenance and modification of customer focus to continuous-ly match changing expectations.
0.678 My firm has developed of a common vision of the total value creation process and
planning clarity concerning shared responsibility.
0.639 Our trading partners respect the confidentiality of the information they receive
from us.
0.729 Our trading partners have willingness to exchange key technical, financial,
opera-tional, and strategic information.
0.734
Operational process competencies:
My firm has increased product quality and customer’s product return rate. 0.816 My firm has improved responsiveness to urgent order. 0.807 My firm is being expanded to reflect more enterprise wide integrated processes. 0.761
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My firm has established the cross-functional policies and procedures to facilitate
synchronous operations. 0.797
My firm streamlines ordering, receiving and other paperwork from suppliers. 0.872 My firm is able to handle difficult nonstandard orders. 0.860 My firm is able to produce products characterized by numerous features options,
sizes and colors. dropped
My firm is able to rapidly adjust capacity so as to accelerate or decelerate
produc-tion in response to changes in customer demand. dropped
My firm has extended management to include hierarchical structure of suppliers’
suppliers. dropped
Control and planning process competencies:
My firm is able to facilitate supply chain resource allocation through seamless
transactions across the total order-to-delivery cycle. 0.777 My firm is able to exchange information between our trading partners and us in a
timely, responsive, and usable format. 0.748
My firm collaborates in forecasting and planning with partners. 0.749 My firm collaborates to develop shared visions and mutual commitment to jointly
generated action plans. 0.782
My firm has continuous quality improvement program. 0.807 My firm is able to develop comprehensive functional performance measurement
capability. 0.810
My firm has increased inventory accuracy and better material control. dropped
My firm has increased delivery flexibility dropped
My firm has enhanced purchase order fill rate dropped
My firm has reduced ordering and invoice complexity. dropped
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Table 4.2 SCM competences and ERP benefits definitions Operational process:
SOP1 Relevancy Maintenance and modification of customer focus to con-tinuously match changing expectations.
SOP2 Responsiveness Accommodation of unique and/or unplanned customer requirements.
SOP3 Cross-functional unification
Operations of potentially synergistic activities into ma-nageable operational processes.
SOP4 Standardization Establishment of cross-functional policies and proce-dures to facilitate synchronous operations.
SOP5 Operational fusion Linkage of systems and operational interfaces to reduce duplication, redundancy, and dwell while maintaining operational synchronization.
SOP6 Supplier manage-ment
Extended management to include hierarchical structure of suppliers’ suppliers.
Planning and control process:
SPCP1 Information man-agement
Commitment and capability to facilitate supply chain resource allocation through seamless transactions across the total order-to-delivery cycle.
SPCP2 Internal communi-cation
Capability to exchange information across internal func-tional boundaries in a timely, responsive, and usable format.
SPCP3 Connectivity Capability to exchange information with external supply chain partners in a timely, responsive, and usable for-mat.
SPCP4 Collaborative fo-recasting and plan-ning
Customer collaboration to develop shared visions and mutual commitment to jointly generated action plans.
SPCP5 Functional assess-ment
The development of comprehensive functional perfor-mance measurement capability.
SPCP6 Activity-based and total cost metho-dology
Adoption and commitment to activity-based costing, budgeting, and measurement of comprehensive identifi-cation of cost/revenue contribution of a specific entity such as a product.
Behavioral process:
SBP1 Role specificity Clarity concerning leadership process and establishment of shared versus individual enterprise responsibility.
SBP2 Guidelines Rules, policies, and procedures to facilitate
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ter-enterprise collaboration, leverage, and conflict reso-lution.
SBP3 Information shar-ing
Willingness to exchange key technical , financial, opera-tional, and strategic information.
SBP4 Gain/risk sharing Framework and willingness to apportion fair share re-ward and penalty.
SBP5 Strategic alignment Development of a common vision of the total value cre-ation process and planning clarity concerning shared responsibility.
Operational benefits:
EOP1 Cost reduction For better control of business operating expenses, de-creased operations cost.
EOP2 Cycle time reduc-tion
Complex assortments, shorter cycle times, less invento-ry.
EOP3 Productivity
EOP3 Productivity