Supply Chain Flexibility: Structural Equation Modeling Approach

C o p y r i g h t 2 0 1 1 S c i R e s .
J S S M
Supply Chain Flexibility: Structural Equation
Modeling Approach
Otieno Robert Kennedy; Ksenia K A Novikova

Transportation Management College, Dalian Maritime University, Dalian, P R China
robertko78@gmail.com, shenia3253@163.com
ABSTRACT
Increase in uncertainty and constant change in global business environment requires supply chains to be
flexible in order to be responsive to customer needs. Given that supply chain is so crucial for business suc-
cess and survival, research in this area is important in responding to the need to keep abreast with changes
in competitive environment. This study develops valid and reliable instruments to measure supply chain
flexibility and to test relationship among variables using structural equation modeling. The results show
strong, positive and direct relationship between the factors studied and the components of supply chain
flexibility. Implications of the findings of this research can help managers identify important elements in
achieving of supply chain flexibility. The research did not include effects of cost factors and therefore fur-
ther research is recommended to shed more light in this area.
Keywords: Supply chain flexibility, Logistics, Supply chain, Structural equation modeling

1. Introduction

Mike Peters, First Vice President, ProLogis Solutions
Group argues [1] that presently, there are few compa-
nies that are not touched by global issues. Business
environment is today more dynamic and the level of
uncertainty has increased [2]. Moreover, global operation
brings, on one hand chance and opportunity; on the
other hand is risk and uncertaintycomplexities, such as
substantial geographical distances, added forecasting
difficulties and inaccuracy, exchange rates, terrorism,
wars, political upheaval occurrence, government regula-
tions, local infrastructure competence, and so on [3,
pp.41].
Recent trends compel firms to look for flexible ways
of meeting customer demand [4]. Jack Gross, Vice Pres-
ident & General Manager International, Schneider Lo-
gistics, suggests that flexibility is critical to the success
of cross-border supply chains [1]. Flexibility to meet
customer requirements in international market is re-
garded as a vital performance metric. It has been
shown that partners in international supply chains should
be both agile and flexible so as to thrive in this conti-
nuously changing, uncertain business environment [5].
This research seeks to examine the dimensions and
characteristics of supply chain flexibility and goes fur-
ther to build a structural equation model of the same.
Since the practical importance and evidence of characte-
ristics of flexible supply chains that contribute to busi-
ness success is difficult to estimate, panel interview of
experts was chosen as a feasible technique for mining
data. Because of the qualitative nature of judgment of
flexibility and the need to acquire expert opinion on the
subject matter; it is difficult to gather experimental evi-
dence of supply chain flexibility [6]. Judgment of supply
chain flexibility being subjective, Linstone and Turoff
[6, pp.4] note that subjective judgment does not lend
itself to precise analytical techniques but can benefit
from subjective judgments on collective basis.
The paper will be comprised of five main sections.
Following the introductory section, which outlines the
nature of the study, the paper will present reviews on
related literature on supply chain flexibility. The section
will be devoted to defining it and outlining its theoretical
precepts. Next section will present and defend the se-
lected research methodology followed by presentation of
results of the research as well as their analyses and re-
lated discussions. The paper will further present implica-
tions of research findings and discussions of limitations
of the current study as well as recommendations for fur-
ther research. Finally, this paper will be concluded with
the presentation of summary and conclusions.
2. Literature Review
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C o p y r i g h t 2 0 1 1 S c i R e s .
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Flexibility is defined as a hedge against diversity of the
business environment. Supply chain flexibility is also
understood as ability of the supply chain to possess a
ready capability to adapt to new different or changing
requirements which should be achieved without exces-
sive cost, time, organizational disruption, or perfor-
mance losses [7]. Flexible supply chain is supported by
a market-inclined strategy where all parties work to-
gether to come up with an efficient, fast (referring to
time), and reliable supply chain [8]. In cross-border
context, supply chain flexibility is regarded as the ability
of activities within the supply chain to respond effec-
tively to changing circumstances across borders. These
definitions highlight the aspects of cost-effectiveness
and efficiency of activities within supply chain, the issue
of change, the need for quick and efficient response to
customer needs, uncertainty and global business dy-
namism.
Duclos, et al., [9] note that definition of supply
chain flexibility should include all dimensions required
by all supply chain partners. They argue that for a ful-
ly flexible supply chain, all the six components of its
flexibility should be present. The components are opera-
tions flexibility, market flexibility, logistics flexibility,
supply flexibility, organizational flexibility and infor-
mation systems flexibility. Lummus, et al., [10] devel-
oped a conceptual model of supply chain flexibility and
reduced the components to five by dropping market
flexibility and relating them to customer satisfaction,
which is as a result of flexible supply chain. Zhang, et
al., [11] used competence and capability theory to study
components of logistics flexibility and regard supply
flexibility as a component of logistics flexibility. Their
study, which used LISREL software to build structural
equation model of logistics flexibility, therefore further
compact the components of supply chain flexibility to
four.
Operations flexibility is defined as ability to react to
customer trends by configuring assets and operations at
each node of the supply chain [10]. It encompasses both
service and manufacturing, including mix and volume
flexibilities [12]. Volverda [13] argues that operations
flexibility depends on ability of supply chain partner
organization to have flexible strategic attitude, manufac-
turing system, organizational design and human resource
practices. Manufacturing systems flexibility refers to the
ability of the system to respond to instability resulting
from the environment [14]. Koste and Malhotra [15]
include operations flexibility within organizational flex-
ibility and give five levels of the same. The levels are:
functional level having manufacturing flexibility; plant
level entailing volume, mix, expansion, modification and
new product flexibilities; shop floor level which includes
both routing and operation flexibilities and individual
resource level encompassing labor, machine and material
handling flexibilities. It is therefore seen that operations
flexibility is a component of organizational flexibility.
Therefore, supply chain flexibility components can
be broadly categorized as logistics flexibility, informa-
tion systems flexibility and organizational flexibility.
Supply chain flexibility can be achieved through ensur-
ing organizational commitment and proper information
system capability [8].
Few researchers have attempted to model supply
chain flexibility. A number of studies ([7], [8], [11])
developed models of supply chain flexibility or its com-
ponents. Lummus, et al., [8] proposed a conceptual mod-
el that defined supply chain flexibility based on the
cross-functional, cross business nature of the supply
chain. Zhang et al., [11] used competence and capability
theory to study logistics flexibility as a component of
supply chain by testing the relationship between struc-
tural equation model constructs (competences and capa-
bilities) of flexible logistics. Their work did not focus on
information systems and did not treat organizational
flexibility effects in good depth. More work is needed
especially in this area to fill this area to shed light to
areas that require greater attention by the government of
any regional economic union, country, business practi-
tioners and the academia in order to further businesses
and knowledge in supply chain management.
2.1. Logistics Flexibility
Logistics flexibility is defined as the ability to
cost-effectively receive and deliver products as sources
of supply and customers change [8]. According to lite-
rature logistics flexibility has four components grouped
into two namely competences (internal logistics
strengths) and capabilities (customer-desired visible
logistics strengths) [11]. Physical supply flexibility and
purchasing flexibility are classified as competences
while physical distribution flexibility and demand man-
agement flexibility are grouped as capabilities [16].
Demand management is regarded as an informa-
tion-intensive and market-sensing activity that must meet
demands quickly by creating and managing close cus-
tomer relationships ( [11], [16 ]).
2.2. Organizational Flexibility
Organizational flexibility is the ability of a firm to antic-
ipate, react and adapt to environmental changes [17]. It is
classified into five levels, including workforce and oper-
ations flexibilities. With reference to human resource,
organizational flexibility is defined as the ability to align
labor force skills to flexibility requirements [18]. A re-
sponse to environmental change through flexible
supply chain may require various changes in alignment
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C o p y r i g h t 2 0 1 1 S c i R e s .
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of labor force. The organization management should
develop the capability of workforce to respond to mod-
ern requirements for flexibility. These capabilities in-
clude ability of workers to perform cross-functional ac-
tivities [18]. The workforce should also be linked to
supply chain to efficiently contribute to firm organiza-
tional flexibility and overall supply chain flexibility
([19], [20]).
2.3. Supply chain Information Systems Flex-
ibility
Keith Goldsmith, Senior Vice President, Business De-
velopment and Technology, TNT Logistics [1] notes:
The movement of goods is not really the challenge,
information is. Information system is key to performing
adaptations that result in supply chain flexibility. Infor-
mation systems flexibility is defined as the ability to
align information system architectures and systems with
the changing information needs of the organization as it
responds to changing business conditions, variations in
customer demand and prevailing uncertainties [8]. Ac-
cording to Kotler, [21, pp. 87] Supply chain information
system flexibility is defined as flexibility of an inte-
racting structure of people, equipment, and procedures
that together make relevant information available to the
supply chain manager for the purposes of planning, im-
plementation and control.
3. Research Methodology
The researchers followed these procedural rules in this
research by identifying the research tools and strategies
that will be employed, and relating their application to
specified research objectives [22] as in the subsequent
sections of this paper.
3.1. Research Hypotheses
The hypotheses for the study, for each item identified in
the study related to each of the four attributes of supply
chain flexibility described above, were, Null Hypothe-
sis H
0
: The supply chain flexibility characteristic iden-
tified has no significant contribution to supply chain
flexibility, otherwise; Hypothesis H
1
: The supply chain
flexibility characteristic identified has significant contri-
bution to supply chain flexibility.
3.2. Research Design
The study began by assuming that each of the listed cha-
racteristics has no significant contribution to supply
chain flexibility, until there was statistical proof to justi-
fy rejection of this null hypothesis. The acceptable con-
fidence interval for this study was 95% confidence lim-
it. Research questions were,

Q1: Which characteristics have significant con-
tribution to flexible supply chain?
Q2: What is the appropriate model of supply
chain flexibility?

The objectives of this study were to get expert panel's
consensus on the factors or characteristics that should be
varied or put in place to achieve supply chain flexibility;
to identify which of the factors are critical to realization
of flexible supply chain especially across national boun-
daries and to develop a model of supply chain flexibility.
In order to get clear background about the topic
of survey, the researchers reviewed an extensive amount
of literature concerning the subject matter, flexibility in
international supply chains, some available work on
modeling supply chain flexibility and research methods.
3.3. Selection of respondents
A set of priorities were considered in selecting a sample
of expert respondents for the panel interview. Purposive
criterion-based selection bases the selection of the study
settings and participants upon features and characteristics
that enable the researchers to gather deeper information
in the areas of research interest [23]. Therefore, the kind
of sampling used in this research was purposeful and
strategic [24], taking into consideration convenience and
ease of access to study situations and participants were
given only secondary importance.
There has never been a consensus on the optim-
al number of respondents in panel interviews. It is indi-
cated that the approximate size of expert interview is
generally under 50, but a bigger number of respondents
have been employed [25]. Between 10 and 15 respon-
dents could be sufficient if the background of the subject
matter is homogeneous [25]. To sum up, the size of
respondents is variable [26].
Theoretically, sample size, N, is calculated us-
ing Equation (1).
N =
pq
__
s
zo
2
_
_
2
_
(1)

where, N sample size or number of respondents; p
confidence limit, 0.95; q= Probability of rejecting the
null hypothesis, 0.05; Z
u2
cumulative distribu-
tion function, CDF, score of normal distribution at sig-
nificance level of 0.05 (Z
u2
=1.96); e sampling error,
e =0.085, the value was selected slightly above the
value used in entrepreneurship research, which is e
=0.075 [27].

Supply Chain Flexibility: Structural Equation Modeling Approach

C o p y r i g h t 2 0 1 1 S c i R e s .
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Substituting these values in the above equation gives
N=25.256, leading to theoretical minimum sample size
of N= 25 expert respondents for the above stated condi-
tions.
Within the current study, members of the panel
were selected and a set of 60 experts, in the field of lo-
gistics and supply chain management in P. R. China,
USA, India, Myanmar and Kenya, to form a group of
potential panelists representing broad professional de-
mographic. Of the selected 60 expert respondents 27
participated throughout all the three rounds of the survey
which is an acceptable number since it is above the
theoretical, N =25. Table 1 shows sample of expert res-
pondents.

The interview was done in three phases or rounds. Ques-
tionnaire for the first iteration or Round 1 was open
ended, unstructured, easy to comprehend and with brief
questions or statements within acceptable, practical peak
limits of 20 to 25 words per statement to increase
chances of accuracy of responses [28]. The questionnaire
for Round 2 contained 45 factors, identified in the first
stage and from literature, that were viewed to contribute
to supply chain flexibility. It was ensured that question-
naire was free from ambiguous statements or compound
events as much as possible [29].

Table 1. Sample of Expert Respondents
Firm /institution
size (no. of em-
ployees)
Employees/people
Represented by experts
% of employees
represented
Respondents
expected (
c
)
Respondents
who partici-
pated (
o
)
100-249 1,505 43 32 12
250-499 770 22 11 5
500-999 525 15 7 4
1,000+ 700 20 10 6
_
2
test (_
2
=7.683, df =3, p= 0.053)
Job title
CEO/president 805 23 11 6
Vice president 525 15 8 5
Manager 1,890 54 37 13
Director 280 8 4 3
_
2
test (_
2
=10.183, df =3, p=0.0171)
Total 3,500 100 60 27
_
2
is obtained using the formula:
(]c-]c)
2
]c



The question in the questionnaires for the subsequent
iterations (i.e. Rounds 2 and 3) was,
Which of the following do you think have
significant contribution to supply chain flexibility?
The respondents were required to respond to the question
by giving weighted responses for each of the 45 charac-
teristics and also for any added factor. The weights were
as per the importance of the factor to realizing supply
chain flexibility (1=strongly disagree, 2=moderately
disagree, 3=agree, 4=strongly agree, 5= very strongly
agree; and 0= dont know).
Dissemination of survey questionnaires to the res-
pondents was carried out using email because of con-
venience and time economy. After deadline of the first
round of survey (after a duration of 3 weeks), responses
were analyzed and aggregated.

3.4. Methods of Data Analysis
Responses were analyzed by calculating the median and
inter-quartile range of data for each of the 45 characteris-
tics in Rounds 2 and 3 of the interview process. The
median can also be used to arrange the 45 characteristics
in order of the average weight or importance. In-
ter-quartile range shows how experts responses varied,
and was regarded as a measure of consensus.
4. Results and Analysis
4.1. Round 1
Introductory emails were sent to about 60 potential par-
ticipants with a closing date three weeks later. The sur-
vey included a welcome and introduction, a short expla-
Supply Chain Flexibility: Structural Equation Modeling Approach

C o p y r i g h t 2 0 1 1 S c i R e s .
J S S M
nation of the interview technique (Delphi process) and an
open ended questionnaire on supply chain flexibility.
The specific question posed was,
Which firms characteristics or capabilities do you
think have SIGNIFICANT contribution to supply
chain flexibility?
By the end of the third week, 27 participants had re-
sponded. Also, it was felt that a significant number of
ideas was already generated and that the respondents
possessed sufficient heterogeneity to raise the quality of
the survey output and to avoid bandwagon effect [ 6].
4.2. Round 2
The median and the inter-quartile range of responses are
shown in Table 2. The top-rated 16 characteristics had
median scores of 5 which is maximum in the Likert scale
used. Three of them were logistics flexibility (LOF)
characteristics, another three were information systems
flexibility (ISF) factors, while ten were for organization-
al flexibility (ORG). Total consensus in rating (in-
ter-quartile range of 0.00) was seen for the item ability to
ensure data accuracy and timeliness. The highest in-
ter-quartile range of 2.00 was in the rating of LOF3,
LOF6 and LOF8 showing low consensus for the items.
4.3. Round 3
The results (see Table 2) show that 17 characteristics had
a median of 5.00, two items had median of 4.50 and 17
items had a median of 4.00 showing that the experts
either strongly agreed or very strongly agreed to
their significance to supply chain flexibility. Generally,
there was low inter-quartile range in this round; eight
items had lower inter-quartile range in Round 3 than in
the second one. In this round, the item Have compliant
planning system (ORG13) had inter-quartile range of
0.00 indicating total consensus, while Ensure data ac-
curacy and timeliness which had inter-quartile range of
0.00 in Round 2 showed drop to the value of 1.00.
A test using z-statistics showed that 31 (68.89%) of
45 characteristics fell within 95% confidence limit. Of
the 31, ten items had median of 3.00 showing that though
respondents agreed to their significance, they possibly
have greater significance to supply chain flexibility than
the respondents thought.
4.4. Model
Model of supply chain flexibility can be built from each
group of characteristics from the results and previous
analysis. A total of 31 items with statistical significance
based on p0.05 in Round 3 were used in building the
model. A number of characteristics were dropped during
modeling because of their low factor of loading (less
than 0.7), or because of lack of fit tested by model fit
indices or both. In cases where characteristics were
dropped, the remaining ones covered their aspects re-
sulting into no loss of objectivity and retaining the con-
tent validity domain.
4.4.1. Test for Model Fit
Based on clarifications given in literature [30], the test-
ing needed for development of a model of supply chain
flexibility was done using Bentler-Bonett Normed Fit
Index (NFI), Bollens Incremental Fit index (IFI), Tuck-
ler-Lewis Index (TLI), Standardized Root Mean Resi-
dual (SRMR) and Root-Mean-Square Error Approxima-
tion (RMSEA). The IFI was selected because it is rela-
tively unaffected by sample size our sample size N= 27,
was small) [31]. If NFI, IFI and TLI >0.9, the model is
accepted, if it is closer to 1 the model is good. SRMR
and RMSEA=0 indicates perfect fit [32] and IFI and TLI
>0.95 are attractive. TLI was used to check on the sim-
plicity of the model that is to adjust for parsimony [33].
4.4.2. Correlations of Attributes of Supply
Chain Flexibility
The three attributes of supply chain flexibility
represented by models in previous sections can be
tested using correlation coefficients. The test is to
show that a change in one attribute can be related
to a change in the other attribute. Pearsons corre-
lation coefficient, p
,]
, between two attributes of
supply chain flexibility, i and j is given by Equa-
tion (2).

p
,]
=
cuu(X
|
,X
j
)
o
|
o
j
(2)

where, co:(X

, X
]
) is the covariance of the
attributes X
i
in the first sub-model and X
j
in
the second sub-model; o

the standard
deviation of the sample of characteristics
within the first sub-model; and o
]
the
standard deviation of the of characteristics
within the second sub-model. Correlation
coefficient is in the range of -1p
,]
+1 [34].
As p
,]
tends to 1, there is strong correla-
tion.



Table 2. Rounds 2 and 3 Median and Inter-quartile Range
Supply chain Flexibility Characteristic
Ability to:
Label
Round 2 Round 3
Me- In- Me- In- One
Supply Chain Flexibility: Structural Equation Modeling Approach

C o p y r i g h t 2 0 1 1 S c i R e s .
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dian ter-quarti
le Range
dian ter-quart
ile
Range
Sample
z-stat
Have variety of transportation choices LOF1 5.00 1.00 5.00 1.00 4.290
Use demand to synchronize delivery LOF2 5.00 1.00 5.00 1.00 2.881
Effectively implement quick response LOF3 5.00 2.00 5.00 1.00 1.964
Effect quick and effective delivery LOF4 4.50 1.00 5.00 1.00 2.038
Vary transport vehicles LOF5 4.00 1.00 4.00 1.00 -2.100
Reduce intermediaries in the supply chain LOF6 4.00 2.00 4.00 1.75 -1.256
Have collaborative forecasting of customer
requirements with partners
LOF7 4.00 1.00 4.00 1.00 -1.480
Reduce lead time LOF8 4.00 2.00 4.00 2.00 -0.357
Achieve demand visibility LOF9 4.00 1.00 4.00 1.00 0.520
Ensure Inventory visibility LOF10 4.00 1.00 4.00 1.00 1.476
Adjust storage capacity LOF11 3.00 1.00 3.00 1.00 -6.689
Initiate product postponement LOF12 3.00 1.00 3.00 0.75 -6.074
Aggregate shipment from many places LOF13 3.00 1.00 3.00 1.00 -5.822
Effectively us third-party logistics LOF14 3.00 1.00 3.00 1.00 -4.945
Ensure availability of inventory regionally
and use data inventory
LOF15 3.00 1.00 3.50 1.00 -3.459
Avail inventory in centralized locations LOF16 3.00 1.00 3.00 1.00 -3.678
Align and control information systems with
partners
ISF1 5.00 1.00 4.50 1.00 1.594
Better the quality of information ISF2 5.00 1.00 5.00 1.00 4.382
Ensure data accuracy and timeliness ISF3 5.00 0.00 5.00 1.00 3.972
Share information with partners ISF4 4.00 1.00 4.00 1.00 -2.826
Improve human resource capabilities ORG1 5.00 1.75 5.00 1.00 1.222
Create workforce liaison in the supply chain ORG2 5.00 1.00 5.00 1.75
0.839

Have clear supply chain strategy ORG3 5.00 1.00 4.00 1.00 2.290
Have flexibility initiatives supported by top
management
ORG4 5.00 1.00 5.00 0.75 5.165
Improve internal communications ORG5 5.00 1.00 5.00 0.75 3.607
Be equipped with excellent communication
skills and tools and counteract language and
cultural barriers
ORG6 5.00 1.00 5.00 1.00 4.701
Focus on organizational transformation ORG7 5.00 1.00 5.00 1.00 1.480
Ensure employees are conversant with
company strategies
ORG8 5.00 1.00 5.00 1.00 3.501
Have positive cooperation among em-
ployees
ORG9 5.00 1.00 5.00 1.00 5.247
Boost strategic relationship with key cus-
tomers
ORG10 5.00 0.75 5.00 0.75 2.912
Comply with global requirements and bor-
der-crossing procedures
ORG11 4.50 1.00 4.00 1.00 1.717
Respond quickly to customers' emergency ORG12 4.50 1.00 5.00 1.00 3.037
Supply Chain Flexibility: Structural Equation Modeling Approach

C o p y r i g h t 2 0 1 1 S c i R e s .
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needs and micro-economic uncertainties
Have compliant planning system ORG13 4.00 1.00 4.00 0.00 -0.472
Apply comprehensive performance meas-
ures
ORG14 4.00 1.00 4.00 1.00 -2.267
Have competitive knowledge ORG15 4.00 1.00 4.00 1.75 0.463
Have support of related government minis-
try
ORG16 4.00 1.00 4.00 1.00 1.496
Effectively implement company's supply
chain strategy
ORG17 4.00 1.00 4.50 1.00 3.450
Effect win-win logistics strategies with
supply chain partners
ORG18 4.00 2.00 4.00 1.00 0.245
Effectively motivate employees ORG19 4.00 1.00 5.00 1.00 5.639
Adjust workforce related practices ORG20 3.00 1.75 3.00 2.00 -2.481
Change organizational culture ORG21 3.00 1.00 3.00 1.00 -6.044
Provide proper workforce training ORG22 3.00 1.00 4.00 1.00 -2.375
Encourage organizational learning ORG23 3.00 1.00 3.00 1.00 -4.397
Endow workforce with empowerment ORG24 3.00 1.75 3.00 1.00 -5.509
Start cost-saving initiatives with supply
chain partners
ORG25 3.00 1.75 3.00 1.00 -4.821


4.4.2.1. Logistics Flexibility and Information
Systems Flexibility
Logistics flexibility and information systems flex-
ibility are correlated as shown in Figure 1. Variance
o

2
for logistics flexibility is 0.17 and that for in-
formation systems flexibility, o
]
2
is 0.36. Cova-
riance is 0.23 (see AMOS

graphic diagram in Fig-

ure 1). Pearsons correlation coefficient, p
,]
, is
0.9297 , showing that logistics flexibility and infor-
mation systems flexibility have very strong positive
correlation.
Model fit: NFI=0.898; IFI= 0.989; TLI= 1.000;
RMSEA= 0.000, SRMR= 0.0627 and
2
{N=32,
df=13, p= 0.04} = 23.14.











Figure 1. Logistics Flexibility and Information
Systems Flexibility


4.4.2.2. Logistics Flexibility and Organiza-
tional Flexibility
Variance o

2
for logistics flexibility is 0.17 and
that for organizational flexibility, o
]
2
is 0.12.
Covariance is 0.11 (see Figure 2). Pearsons corre-
lation coefficient, p
|,j
, is 0.77015 , showing that
logistics flexibility and organizational flexibility
have strong positive correlation. Model fit: NFI=0.
855; IFI= 0.878; TLI= 0.908; RMSEA= 0.084,
SRMR= 0.0742 and _
2
{N=32, df=64, p=
0.000561}= 107.362.










Figure 2. Logistics Flexibility and Organiza-
tional Flexibility
.23
.17
Logistics
Flexibility
LOF1
.07
e1
1.35
1
LOF2
.50
e2
.86
LOF3
.36
e3
1.62 1
LOF4
.43
e4
.36
Information
Systems
Flexibility
ISF1
.42
e5
1
ISF2
.24
e6
.45
1
ISF3
.33
e7
1
1.00
.67
1.00
1
1
.17
Logistics
Flexibility
LOF1
.10
e1
1
LOF2
.48
e2
1
LOF3
.33
e3
1
LOF4
.43
e4
1 1.00
1.68
.93
1.29
.12
Organizational
Flexibility
ORG3
.27
e5
ORG4
.27
e6
1
ORG5
.39
e7
1
ORG8
.15
e8
1
ORG9
.18
e9
1
ORG10
.42
e10
1
ORG11
.40
e11
1
ORG12
.18
e12
1
ORG17
.28
e13
1
1
.91
2.30
1.08
1.00
1.25
1.54
1.55
1.10
1.31
.11
J. Service Science & Management, 201
doi:****/jssm.2011.***** Published Online
Copyright 2011 SciRes.
4.4.2.3. Organizational Flexibility and Inform
Systems Flexibility
Variance o

2
for organizational flexibility is 0.11 and
that for information systems flexibility,
Covariance is 0.21 (See AMOS

graphic diagram in Fi
ure 3). Pearsons correlation coefficient,
showing that organizational flexibility and information
systems flexibility have very strong positive
Model fit: NFI=0. 834; IFI= 0.906; TLI= 0.918;
RMSEA= 0.078, SRMR= 0.0727 and
df=53, p= 0.000001} = 117.704.






















Figure

model generally covered those which were dropped. Model fit:
NFI=0.901; IFI= 0.911; TLI= 0.905; RMSEA= 0.068, SRMR=
0.0517 and _
2
{N=32, df=252, p= 0.000}= 509.277.
4.5. Reliability of Model Estimates
Reliability is estimated by determining Cronbachs [35] , as in
Equation (3).
o =
K
K-1
(1 -
c
K
i=1 Y
i
2
c
X
2
)

where, K is number of items in the model;
SUPPLY
CHAIN
FLEXIBILITY
.11
Organizational
Flexibility
ORG3
ORG4
ORG5
ORG8
ORG9
2.44
ORG10
ORG11
ORG12
ORG17
1.15
.88
1.55
1.08
1.29
1.00
1.27
1.57
.44
Information
Systems
Flexibility
ISF1
1.00
ISF2
.39
ISF3
.56
.21
11, *, **
Published Online ** 2011 (http://www.scirp.org/journal/jssm)

Organizational Flexibility and Information
for organizational flexibility is 0.11 and
that for information systems flexibility, o
]
2
is 0.44.
graphic diagram in Fig-
ficient,p
|,j
, is 0.954545
tional flexibility and information
strong positive correlation.
.906; TLI= 0.918;
SRMR= 0.0727 and _
2
{N=32,

Figure 3. Organizational Flexibility and I
Systems Flexibility
4.4.2.4. Overall Model of Supply Chain
Figure 4 shows the model of supply chain
ing AMOS

graphic. Model fit indices NFI, IFI, TLI,

RMSEA, SRMR and
2
indicate good model for
chain flexibility. The model shows an overall variance
of supply chain flexibility characteristics as 0.01. R
gression weights are 1.00 for lo
for organizational flexibility and
systems flexibility; in order of their increasing impo
tance to the contribution to supply chain
of the characteristics given by respondents were not i
cluded in building this final model in Figure
their low regression weights and low loading factors (of
less than 0.7). However, there was no loss of objectivity
since the items in the

igure 4. Model of Supply Chain Flexibility
model generally covered those which were dropped. Model fit:
NFI=0.901; IFI= 0.911; TLI= 0.905; RMSEA= 0.068, SRMR=
= 0.000}= 509.277.

Reliability is estimated by determining Cronbachs [35] , as in
(3)
is number of items in the model; o

i
2
va-
riance component i for the current sample of charact
ristics; and o
X
2
variance of ob
scores.
Reliability occurs when Cronbachs alpha is above 0.7 [36]
. A value of 0.70.8 is good, and a value above 0.8 is very good
( [15], [36]). Cronbachs alpha for, l
mation systems flexibility and organizati
0.7407, 0.708 and 0.8592 respectively. Since all the Cronbachs
alpha are greater than 0.7, the reliability of all model constructs
is confirmed.
4.6. Validity of Model Estimates
.18
Organizational
Flexibility
ORG3
.30
e8
ORG4
.30
e9
ORG5
.42
e10
ORG8
.14
e11
ORG9
.28
e12
ORG10
.39
e13
ORG11
.34
e14
ORG12 e15
1
1
1
1
1
1
1
1
1.76
ORG17
.32
e16
1
1.00
.91
1.23
.81
1.00
1.07
1.00
Logistics
Flexibility
LOF1
.15
.47
.41
e3
.50
e1
1
LOF2 e2
1
LOF3
1
LOF4 e4
1
1.92
1.20
1.47
1.00
.37
ISF1 e5
ISF2
.22
e6
ISF3
.34
e7
1
1
1 .61
.48
1.00
Information
Systems
Flexibility
.01
SUPPLY
CHAIN
FLEXIBILITY
1.00
1.93
1.21
1.19
.29
e1
1
.28
e2
1
.40
e3
1
.16
e4
1
.13
e5
1
.41
e6
1
.40
e7
1
.19
e8
.28
e9
1
1
.34
e10
1
.25
e11
1
.36
e12
1
JSSM
Organizational Flexibility and Information
lexibility
Supply Chain Flexibility
supply chain flexibility us-
graphic. Model fit indices NFI, IFI, TLI,
indicate good model for supply
flexibility. The model shows an overall variance
flexibility characteristics as 0.01. Re-
gression weights are 1.00 for logistics flexibility; 1.21
for organizational flexibility and 1.93 for information
systems flexibility; in order of their increasing impor-
supply chain flexibility. Most
of the characteristics given by respondents were not in-
s final model in Figure 4 because
sion weights and low loading factors (of
less than 0.7). However, there was no loss of objectivity


for the current sample of characte-
variance of observed total test
Reliability occurs when Cronbachs alpha is above 0.7 [36]
0.8 is good, and a value above 0.8 is very good
( [15], [36]). Cronbachs alpha for, logistics flexibility, infor-
mation systems flexibility and organizational flexibility are
0.7407, 0.708 and 0.8592 respectively. Since all the Cronbachs
alpha are greater than 0.7, the reliability of all model constructs
Validity of Model Estimates






Supply Chain Flexibility: Structural Equation Modeling Approach

Copyright 2011 SciRes. JSSM
Convergent validity is measured by Average Variance Ex-
tracted, AVE [37]. The Average Variance Extracted (AVE) for
X [38] with indicators or characteristics x
1
, x
2
, ..., x
n
is given by
Equation (4).
AIE =
|x
i
2
]vu(X)
|x
i
2
]vu(X)+|vu(s
i
)]
(4)

where,
i
the loading of x
i
on X, obtained from principal
component and factor analysis using SPSS soft-
ware; |Ior(e

)] sum of error variances; Ior(X)

variance of rating weights for each characteristic; x
i
characteristic within each attribute of supply chain flex-
ibility, as observed or measured variable; X attribute
of supply chain flexibility e.g. logistics flexibility, as a
latent variable.
The values of AVE for logistics flexibility, information sys-
tems flexibility and organizational flexibility are 0.51217,
0.5091 and 0.5139 respectively, which are acceptable values,
above 0.5, according to literature [15]. Factors of loading were
higher than 0.7 except for ORG17 and LOF2 whose factors of
loading were 0.697 and 0.646, respectively. This could be be-
cause of their relatively low fit to data, and thus comparatively
less contribution to model fit.
5. Implications of Research Findings
The findings of this research have various implications to
business practitioners, theory and further research. Improving
supply chain flexibility can help firms to respond to ever in-
creasing uncertainty and dynamism in global business envi-
ronment through addressing the vital characteristics identified
in this research (see Table 2) and making necessary adapta-
tions. Supply chain should be organized in a responsive and
competitive fashion.
The results of the survey provided a set of characteristics
(see Tables 2), important to theory and to practitioners, aimed
at improving supply chain flexibility. It is noted with respect to
information characteristics, as affirmed by both this research
and literature, that accuracy and timeliness of data is crucial to
supply chain flexibility [5]. Literature also supports the charac-
teristics identified as, ability to: achieve demand visibility
[5], align and control information systems with partners [38]
and share information with partners [39]. The participants
identified the importance of improving information flow as a
significant factor that can bolster supply chain flexibility.
Model results shed light into the correlation between vari-
ous attributes of, logistics flexibility, information system flex-
ibility and organizational flexibility. All pairs of attributes
showed strong positive correlation indicating that an improve-
ment in the core factors like information systems and organiza-
tional aspects goes along with improvement in supply chain
flexibility.
6. Limitations and Further Research
Precautions were taken to avoid obvious limitations, but it is
impossible to avoid all concerns [11, pp. 88]. In this study, the
assumption is that senior managers and academic experts in the
field of supply chain management and logistics have know-
ledge of variables studied in this research. A repeat of the same
study with marketing executives could be a point of interest. In
the process of measurement model analysis, some characteris-
tics were dropped, which could impact content validity of the
research. Further research should evaluate supply chain flex-
ibility measures developed in this research and also test struc-
tural model results to provide further evidence on validity and
reliability of the instruments used in this research. Data collec-
tion in this study was based on 27 expert respondents which,
though supported by literature on Delphi technique, could re-
sult into less reliable results. Another limitation is that the re-
search did not consider implications of costs on supply chain
flexibility. Future research, perhaps with larger sample sizes
and in more specific region or country, can shed more light in
this area and provide further confirmation of results in this
research.
7. Summary and Conclusions
The paper describes supply chain flexibility and its attributes
namely: logistics flexibility, information systems flexibility and
organizational flexibility. Research model that relates the
attributes to each other and to various characteristics examined
is developed. The study constructs a network of supply chain
flexibility constructs and conducts analysis across a large
number of firms. The study is one of the initial investigations
into supply flexibility using structural equation modeling.
Sub-dimensions of supply chain flexibility were measured
using carefully designed, valid and reliable instruments shown
in Table 2. Great care was taken during item generation and
evaluation to capture the content domain of the constructs;
moreover, factor structure is simple and has good loading
above 0.7 except for the two ORG17 and LOF2 whose factors
of loading were 0.697 and 0.646, respectively but with high
regression weights of 1.19 and 1.20 in the final model in Figure
4. The research instruments proposed in this study mark a good
progress towards establishing standard supply chain flexibility
measures and can be applied in evaluating the flexibility of
supply chain or in comparing flexibility across a number of
supply chains, or between firms, countries or regions.
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