Management Decision

Emerald Article: Strategic sourcing for supply chain agility and firms' performance: A study of Indian manufacturing sector Arif Khan K, Rajesh K. Pillania

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To cite this document: Arif Khan K, Rajesh K. Pillania, (2008),"Strategic sourcing for supply chain agility and firms' performance: A study of Indian manufacturing sector", Management Decision, Vol. 46 Iss: 10 pp. 1508 - 1530 Permanent link to this document: http://dx.doi.org/10.1108/00251740810920010 Downloaded on: 24-10-2012 References: This document contains references to 71 other documents Citations: This document has been cited by 4 other documents To copy this document: permissions@emeraldinsight.com

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Strategic sourcing for supply chain agility and rms performance

A study of Indian manufacturing sector
Arif Khan K
Operations Management Area, Management Development Institute, Sukhrali, Gurgaon, India, and

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Rajesh K. Pillania
Management Development Institute, Sukhrali, Gurgaon, India and Northumbria University, Newcastle upon Tyne, UK
Abstract
Purpose The purpose of this paper is to explore the dimensions of strategic sourcing and determines its relationship with organisational supply chain agility and performance. It classies manufacturing rms based on their level of supply chain agility and test the diffrences in rms performnace across the clusters so obtained. Design/methodology/approach This research employes survey method and data is collected from 128 manufacturing companies in India. Valid and reliable measures of strategic sourcing, supply chain agility and organizational performance are developed. Factor structure and initial validity is determined and K-Means cluster analysis is applied for clustering rms based on their level of supply agility. Multiple regression and ANOVA is used for hypotheses testing. Findings Strategic suplier partnership, sourcing exibility, supplier evaluation and trust in supply chain members are the key dimensions of strategic sourcing. Result shows the signicant effect of strategic sourcing and its diemnsions on supply chain agility and rms performance. Research limitations/implications Data is collected from single node/respondent of supply chain and further research can be carried out by using mutiple node data of each supply chain to make the research more meaningful and generalisable. Practical implications Findings are useful to develop and measure the competitive capabilities of strategic sourcing and guide the organisations to enhance supply chain responsiveness and organisational performance. Originality/value The paper provides strategic diemnsions of sourcing and their measurement scales. Provide evidence regarding the impact of strategic sourcing on agility of supply chains and performnace. Keywords Supply chain mangement, Sourcing, Trust, Supplier evaluation, Manufacturing industry, India Paper type Research paper

Management Decision Vol. 46 No. 10, 2008 pp. 1508-1530 q Emerald Group Publishing Limited 0025-1747 DOI 10.1108/00251740810920010

1. Introduction The current global business arena has become highly competitive and competitiveness has become a major focus area of rms and companies across the globe (Porter, 1990; IMD, 2006; WEF, 2007; Pillania, 2007; Pillania, 2008). Business organizations across the world are under increasing pressure than ever to stay dynamic and responsive in all their competitive frontiers. Indian manufacturing companies have realized the need for

elevating traditional procurement function to modern strategic sourcing for value addition across the supply chain. Sourcing costs represent 40 to 80 percent of the cost of goods sold, and 30 to 50 percent of revenues a ratio that has remained constant in most industries for many years. Companies excelling in strategic sourcing save almost 10 to 20 times as much as it costs to operate their sourcing operations. The effort required to reduce 10 percent of the sourcing cost is much less than gaining similar amount of revenue (Chopra and Meindl, 2003). Strategic sourcing includes a wide range of activities namely creating an overall strategy for sourcing, evaluating and selecting suppliers, procuring materials/services and managing supplier relationships (Anderson and Katz, 1998). Strategic sourcing is increasingly seen to be a business capability of rms. Sourcing if properly structured can effectively combine the core competencies of a given rm with the skills and capabilities of its suppliers. Sourcing decisions are vital for any organizations that want to leverage on its core competencies and outsource other activities in order to gain and retain competitiveness. Supply chain management (SCM) is the integrated planning, co-ordination and control of all business processes and activities in the supply chain to deliver superior consumer value at minimum cost to the end-consumer while satisfying requirements of other stakeholders (Van der Vorst and Beulens, 2002). SCM is constantly evolving and changing in response to strategic changes in the rm, changes in technology, competitive actions, suppliers and customer demands. Supply chains are becoming more strategic, dynamic and customer-driven (Melnyk et al., 2007). Strategic supply chain management enhances the ability of a rm to develop and maintain competitive advantages in a competitive market. Strategic supply chain planning, sourcing, make and deliver are four broader areas that make the supply chain management a complex extended enterprise wise interactive business philosophy. This paper consists of ve sections including this introduction section. Section two provides theoretical background and builds hypotheses. Section three describes the research methodology whereas section four provides analysis and discussion. The last section consists of conclusion and contribution, limitations and possible directions for future research. 2. Review of literature 2.1 Strategic sourcing Sourcing activities includes analyzing expenses, identifying potential suppliers, requesting quotations, negotiating contracts, monitoring and improving suppliers (Kumar et al., 2003). Strategic sourcing aims at streamlining sourcing and purchasing activities to support the total supply chain vision to service the ultimate customer. It aligns the sourcing operations to support overall organizations strategy and service level (Kocabasoglu, 2002; Ellram and Carr, 1994; Pearson and Gritzmacher, 1990). Strategic sourcing aims at identifying and selecting suppliers for long-term partnerships, engages in early involvement of suppliers and supplier development by effectively allocating resources to enhance supplier performance. It provides benchmarks and continuous feedback to suppliers and in some cases engages in supplier pruning activities (Tomas and Hult, 1998; Talluri and Narasimhan, 2004). Strategic sourcing architecture upholds the competitive prole of the company and develops, interconnect and manage the rings constituting the chain (De Toni et al., 1994).

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2.2 Supply chain sourcing capabilities Balancing cooperation and competitive pricing in buyer-seller relationships is a demanding task. The capabilities that facilitate the balanced sourcing are modeling total supply chain costs, crafting effective sourcing strategies, building sustainable relationships, integrating the supply web, leveraging supplier integration, and evolving a global supply base (McGinnis, 1999). These capabilities develop the supply base in any organization and leverage it for competitive advantage. Supply chain sourcing sets in rational and pragmatic steps to upgrade purchasing, setting aggressive goals, launching pilot efforts, and investing in selected information technology (Yusuf et al., 2003). The availability of efcient communications network supported by a global informative pattern has helped in cutting costs, lowering inventories, ensuring quality and reducing waste among the suppliers who are an ocean away (Fawcett and Birou, 1992). Supplier relationship management applications use internet technology to create nearly seamless links between trading partners, allowing the exchange of a broad range of information, including product design specications, current inventory levels, production and delivery schedules, purchase orders and invoices in real time. 2.3 Supply chain sourcing risk and supplier evaluation Supply chain nodes are prone to disruptions, bankruptcies, breakdowns, macroeconomic and political changes, and disasters leading to higher risks. Supply chain risk management is the identication and evaluation of risks and consequent losses in the chain, and implementation of appropriate strategies through a coordinated approach among supply chain members (Manuj and Mentzer, 2008; Norrman and Jansson, 2004; Juttner et al., 2003). Strategic sourcing risk under uncertainty demands empowering the suppliers to increase their output when one or more suppliers fail to deliver. It proactively prepares the rm to respond to the probability of supplier failure, the cost of supplier failure, and to the output constraints of the suppliers (De Toni et al., 1994; Carter and Narasimhan, 1996; Chen et al., 2004). Fluctuations in the currency rates, high variation of time spent in transit including transportation time and port clearance, forecasting error, quality differences across multiple sites, products causing safety hazards are being identifying as the sources of sourcing risk (Manuj and Mentzer, 2008; Christy et al., 1997; Ellram and Carr, 1994). Rationalization of supplier evaluations and strategic supplier partnerships are important trend in supply chain sourcing aimed at weeding out suppliers that do not meet a companys needs (Christy et al., 1997). Based on the vendor review mechanism, organizations are generally moving towards reducing the top tier or key suppliers and rolling out the reduction process down the lower tiers. Closer buyer-supplier relationship is important to work with and provide better service. In the volatile demand context close to market sourcing play a vital role in reduction of order response cycles time and the overall performance of the members of the chain (Sislian and Satir, 2000; Christopher et al., 2004). 2.4 Flexibility in sourcing Strategic exibilities deal with the speed and cost effectiveness at which the rm can design and introduce new products into the system, adding long term capacity to the

system, and rms ability to respond to changes in market. Sourcing exibility is the ready capability of rms supply chain architecture to cope up to change; to realign/re-invent the chain in response to market uncertainty and change; to rapidly send and receive products cost effectively; and to congure information systems with existing supply chain entities to meet changing information needs (Nelson and Ghods, 1998; Stevenson and Spring, 2007). Flexibility in sourcing facilitates the rms adoption to new, different, or changing business requirements, and allow them to respond to new market conditions and provides the basis for future integration (Brancheau et al., 1996; Byrd and Turner, 2000; Duncan, 1995). The benets of supply chain exibility are reected in terms of postponed order processing, reacting to variations in demand distribution across supply chain nodes, rapid responding to forecasting error, increased efciency in order lling, tracking and managing supplies (Saraf et al., 2007; Christopher et al., 2006; Khan K et al., 2006b). 2.5 Trust in supply chain Transparency and trust in inter-organizational business relationship offsets uncertainty and risks associated with the behaviors underlying cultural competitiveness. Identifying an authority, generating a common supply chain identity, utilizing boundary spanning ties, and providing procedural and interactive justice are the key strategies rms adopts to balance a climate of trust and power in a strategic supply chain (Duane and Webb, 2006). Transaction cost economists view trust as a substitute for costly control and coordination mechanisms (McDermott et al., 2004). From a social capital theory perspective, trust is a relational lubricant, allowing greater benets of knowledge transfer, joint learning, and the sharing of risks and costs associated with exploring and exploiting opportunities (Inkpen, 2001; Nahapiet and Ghoshal, 1998). Trust is the cognitive and emotional decision to rely on a partner with the expectation that the partner will act according to a common agreement. In supply chain context trust sets an arrangement in which rms contribute the minimum amount of resources and time to an inter-organizational relationship to achieve efciency and the expected benets of trust based transaction exceed the expected costs (McCarter and Northcraft, 2007). 2.6 Supply chain agility Supply chain agility represents the ability of an organizations internal supply chain functions to provide a strategic advantage by responding to marketplace uncertainty. Just as rms achieve competitive advantages using different strategies, supply chain agility can be achieved in different ways. Agility is related to nimbleness, quickness, and dexterity; while exibility is related to adaptability and versatility (Kidd, 2000). While agility is a measure of the reaction time to change, exibility is a measure of the reaction capabilities for change. Agility is typically associated with overall organizational abilities (Goldman et al., 1994), while exibility is related to operational abilities such as those found in manufacturing processes (Gupta and Somers, 1992; DSouza and Williams, 2000). Supply chain agility is considered as a key element of an organizations competitive strategy (Nayyar and Bantel, 1994; Goldman et al., 1994; Teece et al., 1997). It is systematically developed by acquiring capabilities

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that can make the supply chain act rapidly and diversely to environmental and competitive changes (Yusuf et al., 2003). Based on the above extensive literature review on the strategic sourcing and supply chain agility, this research expects a positive association between strategic sourcing and supply chain agility and claims that: H1. Strategic sourcing signicantly enhances the supply chain agility of the rms.

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2.7 Organizational performance measures Effective planning and control of business processes and receiving necessary feedback helps to diagnose problems and to measure and enhance performance. There is a dearth of research on impact of strategic sourcing on performance of organization (Beamon, 1999; Gunasekaran et al., 2001). Supply chain sourcing impacts organizational performance when aligned with strategy, and designed as integerated system where supply chain must be viewed as one whole entity, and measured widely across the whole and thus discourage local optimization (Lau et al., 2003). From the protability viewpoint, measures of competitive business performance are return on assets, operating income, cost per sales, and sales per number of employees (Venkatraman, 1990). In addition, the literature also advocates the use of market share and sales volume measures to reect a business units effectiveness to compete for sales within the industry, while prot margins reect the overall effectiveness of an organization (Marr and Schiuma, 2003). Review of literature on competitive business performance delineate measures such as return on assets; market share; sales volume; prot margins; operating income; total cost/total sales and total sales/total number of employees (Chan et al., 2003). 2.8 Supply chain driven performance measures Supply chain driven organizational performance falls into three categories: resources, output, and exibility (Gunasekaran et al., 2001). Resource performance reects value addition in the form of achieving efciency. Output performance reects value addition as the rms ability to provide high levels of customer service, while exibility performance reects value addition as the rms ability to respond (Yusuf et al., 2003). The hierarchy of these value addition measures consists of the levels of operational, tactical, and strategic dimensions. For example, one aspect of value chain performance concerns the customer service dimension, which is impacted by product availability and delivery performance (Beamon, 1999). Review of literature on supply chain performance metrics provided the performance measures namely on-time delivery of customer orders, backorder level, percentage stock-outs, delivery lead time upon receipt of customer order, manufacturing cycle time, supply chain cycle time, capacity utilization, time to market (Van Hoek, 1998; Kocabasoglu, 2002; Khan K et al., 2006a, b; Schmitz and Platts, 2003). The rst four measures capture how effectively the value chain delivers products to meet customer requests and the rest reects the capability to respond timely to market. Overall delivery time for existing products is inuenced by manufacturing cycle time and delivery lead-time, while delivery time for new products is also a function of the time required to develop a product from an initial concept to fruition.

Based on the above literature review on strategic sourcing, supply chain agility, organizational performance, this research expects a positive association between strategic sourcing and organizational performance and claims that: H2. H3. Greater strategic sourcing leads to greater organizational performance. There is a signicant difference, in the mean/variance of values of strategic sourcing and organizational performance, among the supply chains of differing agility.

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3. Research methodology 3.1 Survey instrument This study was based on the design and administration of a survey to address the research hypotheses. Scale items of supply chain agility and strategic supply chain sourcing were developed by following the Churchill (1979) methodology of scale development. This approach includes specifying the domain of the constructs: supply chain agility, strategic sourcing and organizational performance. Generating a sample of items which capture the construct domain as specied, purifying the measures through coefcient alpha and factor analysis, assessing reliability with new data, assessing the construct validity, and developing norms. Each item of the scale was selected for its appropriateness, uniqueness, and ability to convey to informants different shades of meaning. Scale items were developed that would measure the extent to which an organization has adopted or embraced a particular set of policies, practices and procedures pertaining to its strategic supply chain sourcing and agility that appear to inuence performance of organizations. To measure the construct strategic supply chain sourcing initially 50 items were derived from the extant literature, in-depth interviews with experts from academicians and practitioners. The scale development process yielded a strategic supply chain sourcing scale of 21 items, which include 17 items from the sourcing scale of Lockamy et al. (2004). To measure supply chain agility, initially 26 items were developed through a series of in-depth interviews with experts from strategy and operations management and through literature review (Shari and Zhang, 1999; Van Hoek, 1998). The nal agility scale had 14 items after pilot survey analysis and scale purication. Organizational Performance construct was measured by using eight items scale developed through experts opinion and literature review (Kannabiran Bhaumik, 2005; Khan K et al., 2006a). To generate good response rate and sound instrument, a single questionnaire is used to measure multiple theoretical constructs of the study. A ve-point Likert scale is used for all the items in order to ensure higher statistical variability among the survey responses (Saraph et al., 1989). Reliability increases as the number of scale points increases to ve and continues to increase at a much smaller rate for additional points above ve (Lissitz and Green, 1975). The questions have been placed in a logical order so that the completion of the questionnaire is easy for the respondents (Flynn et al., 1994). Figure 1 depicts the survey instrument used for the survey. The pilot survey analysis was carried on the data of 40 companies. The data was subjected to validity and reliability tests and scale purication was done. Following this, the survey instrument was nalized for detailed descriptive cross sectional survey research.

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Figure 1. Measures of organisational performance

3.2 Unit of analysis In this study, respondents were expected to have the best knowledge about the, strategic planning, supply chain structure, design, process, partners, competencies and strategic operations of their respective organizations and have actively involved in strategic planning and execution of supply chain processes, projects and issues. Based on the literature and recommendations from practitioners and academicians, it was decided to choose senior executives from procurement/logistics/supply chain wings of the organizations. 3.3 Sampling process Based on the Indian SCM literature and recommendations from the practitioners and academicians, the sample manufacturing organizations were selected from the online database of Center for Monitoring Indian Economy-Prowess. These manufacturing companies were the representatives of supply chain practitioners in their respective industry. Respondent organizations were drawn from automobiles, textiles, pharmaceuticals, rubber and tube industries, paints, metals, chemicals, engineering, papers and leathers, food and dairy products sectors. The sampling frame was developed which consisted of 475 manufacturing organizations from different industries of which 128 rms responded to the survey. Table I, shows the sector wise composition of these rms. 3.4 Data collection Data collection was carried out through personal administration of survey instruments at organizations and through email, telephone and mail survey. Through personal administration of survey instrument 63 survey responses were collected by meeting the executives at their organizations after obtaining prior permission. For mail survey the survey methodology of Dillman (1978) was followed and 370 survey instruments were mailed/posted. The recipients were asked to complete the survey within one month and mail/post back the same. This was followed by reminder postcards after two weeks, follow-up phone calls or second survey mailings, as was necessary. Incase

Industry description Automobiles Textiles Pharmaceuticals Rubber and tube industries Paints Metals Chemicals Engineering Papers and Leathers Food and Dairy Products Total

Number of responses 30 18 14 08 05 14 09 12 10 08 128

Percentage of responses 23.44 14.06 10.94 06.25 03.91 10.94 07.03 09.38 07.81 06.25 100.00

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Table I. Showing sector wise composition of the sample

of postal mode of data collection, to ensure reasonable response rate the survey instrument was sent with self addresses envelops and a covering letter indicating the purpose and signicance of the study. Through the email and postal mode 69 responses were obtained of which four had missing data and were judged unusable, thus yielding 65 usable responses with a response rate of 17.57 percent. This is less than the recommended rule-of-thumb baseline minimum of 20 percent for empirical studies (Malhotra and Grover, 1998), although several other studies subscribe to the philosophy that there is no generally accepted minimum response rate (Fowler, 1993). The response rate of about 10 percent is widely acceptable in case of research in supply chain. One of the possible reasons for the low response rate was the length of the survey. Through the personal administration mode of survey 63 completed responses were obtained making the total to 128 usable responses. The entire process of data collection took 11 months and both approaches of data collection met the minimum number of sample size (50) needed for factor analysis (Hair et al., 1992). 4. Data analysis Prior to data analysis Cronbachs alpha test was carried out to measure the internal consistency of the scale items and alpha value was found to be 0.840. This satises the minimum acceptable criterion of coefcient alpha is 0.7 as suggested in the literature (Churchill, 1979). Exploratory principle component analysis using maximum-likelihood extraction and varimax rotation with kaiser normalization was performed on the data to examine the dimensions underlying the research constructs. This was done to examine whether the number of dimensions conceptualized could be veried empirically. Items with loadings lesser than 0.40 and items with serious cross-loadings that is an item loaded very close to 0.40 on more than one factor were removed. Initial unidimensionality and discriminant validity was checked by exploratory factor analysis (McDonald, 1981; Hattie, 1985). The results of this analysis appear in Table II and evaluation of the correlation matrix through the KMO and Bartletts test resulted in high KMO statistics (ranging from 0.79 to 0.936) and a signicant probability level (p , 0:001) for the Bartletts test of all constructs. Factor scores of the resultant factors were also generated to test the hypotheses. Cluster analysis was carried out to categories the organizations into homogeneous groups based on their levels of agility. ANOVA was used to validate the clusters

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obtained and to test the hypotheses that there is signicant difference in the performance of clusters of varying supply chain agility. 4.1 Determining factor structure of strategic sourcing Factor analysis of strategic sourcing, yielded four factors namely: (1) strategic supplier partnership; (2) supply exibility; (3) supplier evaluation; and (4) trust in supply chain members. Coefcient alpha was generated for all these factors yielded a value of 0.874, 0.922, and 0.654 respectively. These four factors together explained a cumulative variance of 67.932 percent of the total variance and shown in Table III. Table IV shows the item loadings on each of the factors. The rst factor, strategic supplier partnership was derived from the eight items and their individual loading on factor 1 has been shown in Table IV. This factor alone explained a variance of 24.214. Observations on the underlying dimensions of rst factor reveal the manifestation of strategic supplier partnership attributes in it. The latent variables that constitute the rst factor were communicating future strategic needs to suppliers, early involvement of key suppliers in planning and goal setting process, involving suppliers in continuous improvement programme, developing electronic ordering capabilities with suppliers, enhancing suppliers product quality, involving suppliers in problem solving, increase just in time capabilities of suppliers, suppliers delivery at point of usage. The second factor, sourcing exibility was derived from the seven scale items and their individual loading on factor 2 has been shown in the Table IV. It explained a variance of 22.675 percent of the total variance. The items loaded on this factor were: (1) capacity response to change in demand; (2) inuencing suppliers to change scheduled delivery; (3) inuencing suppliers to implement engineering change; (4) inuencing suppliers to locate closer; (5) changing volume allocation of suppliers; (6) inuencing suppliers short term capacity; and (7) ability to change suppliers on a large scale. The third factor, supplier evaluation was derived from the three scale items and their individual loading on factor 3 has been shown in the Table IV. This factor explained a variance of 14.881 percent of the total variance. The items loaded on this factor were:
Strategic sourcing SCM agility 0.859 0.000 0.936 Performance 0.790 0.000 0.894

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Table II. Showing KMO, Bartletts test and Cronbachs alpha test result

KMO statistics Bartletts test statistics signicance Cronbachs alpha

0.813 0.001 0.916

Component 47.887 8.999 5.999 5.048 4.568 47.887 56.886 62.884 67.932 72.500 10.056 1.890 1.260 1.060 47.887 8.999 5.999 5.048 47.887 56.886 62.884 67.932 5.085 4.762 3.125 1.294

Total

Initial Eigen values % of variance Cumulative %

Extraction sums of squared loadings Total % of Variance Cumulative %

Rotation sums of squared loadings Total % of Variance Cumulative % 24.214 22.675 14.881 6.162 24.214 46.889 61.770 67.932

1 2 3 4 5

10.056 1.890 1.260 1.060 0.959

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Table III. Total variance explained by strategic sourcing factors

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S1 S2 S3 S4 S5 S6 S7 S8 S9 S10 S11 S12 S13 S14 S15 S16 S17 S18 S19 S20 S21

Strategic supplier partnership 1 0.884 0.619 0.377 0.411 0.485 0.090 0.794 0.115 0.105 0.236 0.094 0.912 0.340 0.621 0.541 0.217 0.217 0.607 0.306 0.533 0.456

Sourcing exibility 2 0.241 0.340 0.214 0.446 0.452 0.133 0.131 0.099 0.224 0.592 0.007 0.202 0.391 0.487 0.378 0.885 0.885 0.303 0.689 0.369 0.588

Component Supplier evaluation 3 0.073 0.433 0.337 0.641 0.221 0.307 0.278 0.123 0.806 0.369 0.821 0.081 0.584 0.121 0.263 0.232 0.232 0.188 0.124 0.256 0.237

Trust in members of supply chain 4 0.148 0.013 0.549 0.293 0.321 0.554 0.006 0.801 0.109 0.287 0.040 0.126 0.026 0.222 0.308 0.116 0.116 0.026 0.091 0.141 0.121

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Table IV. Strategic sourcing rotated component matrix

(1) cooperation of suppliers in new product development; (2) response of suppliers to unexpected demand; and (3) correct and timely delivery. The fourth factor, trust in supply chain members got a fair loading of three items: (1) supply chain members adhering to promises; (2) consistent behavior of suppliers;, and (3) information condentiality. This factor explained a variance of 6.162 percent of the total variance explained. 4.2 Determining factor structure of supply chain agility Application of factor analysis generated two factors of supply chain agility: (1) agility in demand management and distribution; and (2) agility in manufacturing and customization. These two factors together explained a cumulative variance of 78.94. Table V shows the extent of variance explained by each factor and their cumulative variance. Table VI shows rotated component matrix supply chain agility. The rst factor, agility in demand management and distribution was derived from the ve items:

Component 63.323 15.622 63.323 78.945 8.232 2.031 63.323 15.622 63.323 78.945 5.138 5.124

Total

Initial Eigenvalues % of variance Cumulative %

Extraction sums of squared loadings Total % of Variance Cumulative %

Rotation sums of squared loadings Total % of Variance Cumulative % 39.527 39.418 39.527 78.945

1 2

8.232 2.031

Table V. Total variance explained by supply chain agility factors

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Supply chain agility

Component Agility in Agility in demand manufacturing and management and customization distribution Factor 1 Factor 2 0.941 0.880 0.928 0.831 0.301 0.386 0.194 0.492 0.928 0.247 0.194 0.174 0.243 0.223 0.236 0.317 0.218 0.682 0.677 0.915 0.634 0.317 0.711 0.915 0.807 0.782

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Table VI. Rotated component matrix for supply chain agility

Ability of supply chains to rapidly exchange information Ability of supply chains to rapidly forecast changes Ability of supply chain to adjust to suppliers delivery schedules Ability of the supply chain to rapidly reduce the inventory Ability of supply chain to rapidly reduce setup cost Ability of the supply chain to rapidly reduce setup time Ability to rapidly reduce product development cycle time Ability to rapidly reduce manufacturing lead time Ability to rapidly reduce order-to-delivery cycle time Ability to rapidly improve manufacturing process capability Ability to rapidly adjust to the customization Ability to rapidly adjust workforce capability Ability to rapid new product introduction

(1) ability of supply chains to rapidly exchange information; (2) ability of supply chains to rapidly forecast changes; (3) ability of supply chain getting adjusted to suppliers delivery schedules; (4) ability of the supply chain to rapidly reduce the inventory; and (5) ability to rapidly reduce order-to-delivery cycle time. The second factor agility in manufacturing and customization was derived from the eight items: (1) ability of supply chain to rapidly reduce setup cost; (2) ability of the supply chain to rapidly reduce setup time; (3) ability to rapidly reduce product development cycle time; (4) ability to rapidly reduce manufacturing lead time; (5) ability to rapidly improve manufacturing process capability; and (6) ability to rapidly adjust to the customization. 4.3 Factor analysis of organizational performance The variables related to the organizational performance were rst subjected to reliability test a Cronbachs alpha of 0.906 was found. Factor analysis of organizational performance resulted into convergence of most of the performance variables into a

single factor, which explained a variance of 62.094 percent. The items used to measure performance are shown in Figure 1. 4.4. Multiple regression models of strategic sourcing and supply chain agility in demand management and distribution and manufacturing and customization Multiple regression model was run to test the H1 and related additional hypotheses set after factor analysis using factors of strategic sourcing: strategic supplier partnership, sourcing exibility, supplier evaluation and trust in suppliers. Strategic sourcing factors were separately regressed on supply chain agility in demand management and distribution and supply chain agility in manufacturing and customization. The result is shown in Table VI. Models R 2 values and signicant F and t statistics supports the hypotheses that: H1. H1a. H1b. H1c. H1d. Strategic supply chain sourcing enhances the supply chain agility of the rms. Effective strategic supplier partnership enhances supply chain agility of the rms. Greater sourcing exibility leads to greater supply chain agility of the rms. Effective supplier evaluation practices enhance supply chain agility of the rms. Higher level of trust in supply chain members enhances supply chain agility of the rms.

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4.5 Multiple regression model of strategic sourcing and organizational performance Multiple regression model was run to test the H2 and related additional hypotheses set after factor analysis using factors of strategic sourcing. Strategic sourcing factors scores were regressed on organizational performance. Observation in the Table VII shows the R 2 value equal to 0.880 revealing the fact that the four strategic sourcing factors explained a variance of about 88 percent of the total variation of the organizational performance. This is a fair value for the statistical test of goodness of t of the model. The F-statistics value is 225.164 and was found to be signicant at a level of signicance of 0.05. It can be seen from the Table VIII that standardized coefcients bi (betas) of the multiple regression model are positive and non zero. The t statistics are signicant at 0.05 level of signicance. All these supports the hypotheses: H2. H2a. H2b. H2c. H2d. Greater the strategic sourcing greater will be the organizational performance. Effective strategic supplier partnership enhances organizational performance. Greater sourcing exibility leads to greater organizational performance. Effective supplier evaluation practices enhance organizational performance. Higher level of trust in supply chain enhances organizational performance.

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Regression of strategic sourcing on supply chain agility Regression on supply chain agility in demand management and distribution Regression on supply chain agility in manufacturing and customization Model (R 2 0:819) F 137.923 at Standardized Model (R 2 0:866) F 196:277 at Standardized 0.05 signicance coefcients beta t Sig. 0.05 signicance coefcients t Sig. 0.000 0.000 0.000 0.000 Strategic supplier partnership (F1) 0.141 4.254 Sourcing exibility (F2) 0.875 26.338 Supplier evaluation (F3) 0.227 6.849 Trust in supply chain (F4) 0.157 4.721 Dependent variable: supply chain agility in manufacturing and customization 0.000 0.000 0.000 0.000

Strategic supplier partnership (F1) 0.605 15.692 Sourcing exibility (F2) 0.544 14.124 Supplier evaluation (F3) 0.341 8.856 Trust in supply chain (F4) 0.166 4.303 Dependent variable: supply chain agility in demand management and distribution

Table VII. Model summary: regression of strategic sourcing on supply chain agility

4.6 Cluster analysis using supply chain agility variables To identify relatively homogeneous groups of manufacturing organizations based on their supply chain agility, K means Cluster analysis was applied by the method of updating the cluster centers by iteration. This analysis provided four homogenous clusters similar within and dissimilar between in terms of their supply chain agility. The clusters so obtained were validated using analysis of variance to test the hypothesis that there is a signicant difference between the mean values of supply chains sourcing practices across the four derived clusters. And to test the hypothesis that there is a signicant difference between the mean values of performances across these four derived clusters. Table IX shows the sector wise classication of rms in four clusters. Cluster 4 with 28 organizations (about 22 percent) was found superior, with high to very highly agile supply chains. These member organizations were also found with high or very high level of customer service which was followed by cluster 2. Cluster 2 was found the second best and composed of 49 (about 39 percent) manufacturing organizations. The analysis of Cluster 4 and Cluster 2 together reveal that, about 60 percent of the Indian manufacturing organizations are having highly/very highly agile supply chains and delivering high/very high level of customer service. Cluster 3, has 20 homogeneous groups of organizations (about 16 percent), which are moderate in terms of their supply chain agility and customer service. In cluster 1, there are 30

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Model R 2 0.880 F statistics 225.164 at 0.05 signicance

Standardized coefcients Beta 0.664 0.557 0.328 0.147

t 21.244 17.812 10.482 4.714

Sig. 0.000 0.000 0.000 0.000 Table VIII. Regression coefcients: Strategic sourcing and organizational performance

Strategic supplier partnership (F1) Sourcing exibility (F2) Supplier evaluation (F3) Trust in supply chain (F4) Dependent variable: organizational performance

Clusture 1 Less agile AUTOMOBI CHEMICAL ENGINEER FOODDAIR METAL PAINTS PAPERLEA PHARMA Paints RUBBERTU TEXTILES Total 4 2 1 3 9 3 4 1 3 30

Clusture 2 Highly agile 14 3 6 1 3 1 2 10 1 8 49

Cluster number of case Clusture 3 Clusture 4 Medium agile Very high agile 5 1 2 2 1 2 1 2 2 2 20 8 2 3 2 1 3 1 4 4 28

Total 31 8 12 8 14 1 10 16 2 8 17 127

Table IX. Showing sector wise classication of organizations in clusters

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organizations (24 percent) where in strategic sourcing scores found to be below average and they are found to be less agile in their supply chain and service levels. 4.7 Validation of clusters by ANOVA Table X shows the result of one-way analysis of variance of the mean values of strategic sourcing factors across the four clusters and their p-value supports the hypothesis that greater strategic sourcing practices are associated with very high/highly agile supply chains. Table XI shows the result of ANOVA for hypothesis testing that greater agile supply chains are associated with greater performing organization. The result shows that the p-value is signicant at 5 percent level of signicance. Findings support the H3, that agile supply chains are signicantly associated with organizational performance. 5. Conclusion, research implications and direction for future research This research work provides empirical justication for a framework that identies the criticality of strategic sourcing and supply chain agility and its positive association/impact on the organizational performance in the context of manufacturing companies. It provides measurement scales for strategic sourcing, supply chain agility, strategic supplier partnership, exibility in sourcing, supplier evaluation, trust in supply chain and organizational performance. This research has identied factors that constitute strategic sourcing and determined their impact on performance. Strategic supplier partnership is the strongest area of strategic sourcing to consider when organizations plan to make their demand management and distribution effective. This has very high impact on supply chain responsiveness in demand management and distribution (regression coefficient 0:605). This is followed by exible sourcing, supplier evaluation and trust in supply chain in that order. Sourcing exibility is the strongest area of strategic sourcing to consider when organizations plan to develop capabilities to make their manufacturing and customization processes effective and agile (regression coefficient 0:605). This is followed by supplier evaluation, trust in

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Sum of squares Strategic supplier partnership (F1) Between groups Within groups Total Sourcing exibility (F2) Between groups Within groups Total Supplier evaluation (F3) Between groups Within groups Total Trust in supply chain (F4) Between groups Within groups Total 107.475 17.297 124.772 51.267 73.046 124.314 79.927 47.015 126.943 8.322 118.331 126.653

df 3 123 126 3 123 126 3 123 126 3 123 126

Mean square 35.825 0.141 17.089 0.594 26.642 0.382 2.774 0.962

Sig.

254.757 0.000 28.776 .000

69.701 0.000 2.883 0.039

Table X. Test of association of strategic sourcing and supply chain agility

Sum of squares Reduced return Ontime delivery Customer service Time to market Return on assets Market share Reduced make time Overall competitive Between groups Within groups Total Between groups Within groups Total Between groups Within groups Total Between groups Within groups Total Between groups Within Groups Total Between groups Within groups Total Between groups Within groups Total Between groups Within groups Total 115.625 24.595 140.220 39.979 39.249 79.228 92.993 62.314 155.307 47.583 43.126 90.709 26.222 52.235 78.457 25.894 22.090 47.984 20.943 35.923 56.866 60.804 62.125 122.929

Df 3 123 126 3 123 126 3 123 126 3 123 126 3 123 126 3 123 126 3 123 126 3 123 126

Mean square 38.542 0.200 13.326 0.319 30.998 0.507 15.861 0.351 8.741 0.425 8.631 0.180 6.981 0.292 20.268 0.505

F 192.746 41.762 61.186 45.237 20.582 48.060 23.902 40.129

Sig. 0.000 0.000

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0.000 0.000 0.000 0.000 0.000 0.000 Table XI. Cluster validation and test of association of supply chain agility and organizational performance

supply chain and strategic supplier partnership in that order. Using cluster analysis and ANOVA this research has found that highly agile organizations supply chain sourcing practices are impacting positively more than the less agile supply chains.

5.1 Research implications This research work offers vital managerial implications. It provides valid strategic sourcing and agility scales and empirically exhibits its value for improving organizational performance. It provides key strategic sourcing dimensions to develop supply chain capability of rms and help supply chain managers to measure supply chain responsiveness. Traditional disintegrated and unsystematic procurement function can at best add diminished incremental benets to rms. This research guides the organizations to practice sourcing from a strategic perspective. Souring capability can be enhanced by having skilled employees who are change enablers and relationship builders rather than mere number crunchers. This research helps the organization to evaluate their suppliers and guides them to develop strategic partnership with selected suppliers. It provides empirical evidence that exibility in supply chain processes and trust in members of supply chain are indispensable part of strategic sourcing and organizations must focus on harboring dynamic capabilities and a culture of trust to strengthen the nodes of supply chain for sustainable developments.

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5.2 Directions for future research As part of the limitation the data were collected from single respondents in an organization, which might be a cause for possible response bias. A caution should, therefore, be exercised when interpreting the results. Future research should endeavor to collect data from multiple members across the supply chain. Future studies can also investigate the proposed relationships by integrating some challenging variables into the model including the enterprise resource planning, process and design, sourcing policies, competency development and supply chain sourcing and strategic positioning of organizations.
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Further reading Christopher, M. and Juttner, U. (2000), Developing strategic partnership in the supply chain: a practitioner perspective, European Journal of Purchasing and Supply Management, Vol. 6 No. 2, pp. 117-27. Gunasekaran, A. (1999), Agile manufacturing: a framework for research and development, International Journal Of Production Economics, Vol. 62 Nos 1-2, pp. 87-105. Kidd, J., Richter, F.J. and Li, X. (2003), Learning and trust in supply chain management, Management Decision, Vol. 41 No. 7, pp. 603-12.

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About the authors Arif Khan K is Doctoral Candidate in Operations Management area at Management Development Institute Gurgaon. He has 12 years of experience in teaching, research, consultancy and industry. Arif Khan K is the corresponding author and can be contacted at: arifkkhan@ gmail.com or fom04arif_k@mdi.ac.in Rajesh K. Pillania is a prolic researcher with more than 70 papers in international journals and conferences. His areas of expertise are international business & emerging markets, strategy & competitiveness, innovations & knowledge management. He is an advisory/editorial board member of more than 40 international research journals, 30 international conferences and professional bodies consisting of leading international academicians/industry leaders/policy makers. He is a sought after guest editor for special issues by a number of international journals. Professor Pillanias academic experience includes the Business School, Panjab University (Chandigarh, India), R.H. Smith School of Business, University of Maryland (Maryland, USA) and most recently Northumbria University (Newcastle UK) as a Visiting Fellow until 2009. Currently he is a faculty at the Management Development Institute, Gurgaon, India. He holds a PhD and MBA.

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