FACULTY OF BUSINESS AND MANAGEMENT

BACHELOR OF CUSTOMER SERVICE MANAGEMENT (HONS)

(BA234)

INTRODUCTION TO OPERATION MANAGEMENTS

(OPM530)

INDIVIDUAL ASSIGNMENT (ARTICLE REVIEW)

ARTICLE TITLE:

SUPPLY CHAIN MANAGEMENT:

THE INFLUENCE OF SCM ON PRODUCTION PERFORMANCE AND PRODUCT QUALITY

PREPARED FOR:

MADAM RAZMAH BINTI MAHMOD

PREPARED BY:

MARSYA AZALEA BINTI MAZLAN

(2022745493)

BA2342A

SUBMISSION DATE:

23RD DECEMBER 2022

1.0 Introduction

This article emphasises the explanation of the SCM literature review and the conceptual
framework and hypotheses.  Furthermore, it discusses the methodology used and it highlights the findings
of the statistical analyses. This paper investigates the magnitude and direction of SCM measures and
makes some recommendations to manufacturing companies. In order to address this issue, the main
goals of this paper are to empirically discern whether SCM has a significant influence on manufacturing
performance, ascertain whether SCM has an important impact on product quality, whether production
performance has a significant mediating role in the relationship between SCM and product quality and the
significance of each SCM variable on performances.

2.0 Summary of the article

Based on this article, the study aims to examine the importance of incorporating supply chain
management (SCM) in Malaysian manufacturing industry and investigate its impact on production
performance and product quality. A measurement Smart PLS model is developed and refined with
reliability and validity tests. The survey instrument tries to measure senior production or SCM managers'
perceptions of SCM implementations and the level of performances in their companies. Among the SCM
practices, 'new technology and innovation' emerges as the most important factor that enhances
production performance followed by 'strategic supplier partnership, quality information exchange' and 'lean
production'. Manufacturing companies that do not keep up with SCM would lose out to competitors. SCM
has the potential to assist an organization in achieving both cost and a value advantage. Few empirical
studies have been carried out to investigate the magnitude and impact of SCM practices on production
performance and product quality simultaneously in the Malaysian context.
3.0 Highlight of the discussion on the data

This report was part of a bigger research on SCM that included product quality considerations. The
tool employed in this study was a structured survey questionnaire developed to evaluate manufacturing
organisations based on the aspects specified. This study's instrument was made up of two key elements.
The first section included various variables that measured SCM practices, while the second section
included several performance metrics like as production performance and product quality. The
questionnaire employed seven-point interval scales to allow respondents to specify their answers. Several
SCM items that had been extensively referred to were removed. Similarly, the moderating effect and
reliant structures, namely production performance and product quality, employed a seven-point interval
scale to represent a range of agreement on a statement, whether these performances were high relative
to competitors after implementing SCM over the previous three years.

4.0 Importance & Consequences

Supply chain management (SCM) manages the transformation of products and services from
concept to raw materials to completed consumer product. It entails transporting and storing raw materials,
keeping completed items until they sell, and tracking where sold goods move so that it may utilise that
knowledge to promote future sales. SCM encompasses all aspects of corporate operations, including
logistics, buying, and information technology. Materials, finances, suppliers, production facilities,
wholesalers, retailers, and customers are all integrated into a single system.
5.0 Article Critiques

 STRENGTHS OF PRODUCTION PERFORMANCE AND PRODUCT QUALITY

It may save expenses and improve customer service with the aid of a well-organized supply chain.
For instance, you won't experience bottlenecks if the materials arrive on time, it efficiently coordinate the
production labour and schedules, website's shopping cart runs without a hitch, inventory management
system enables to store and retrieve items quickly, and it can quickly and effectively take orders and ship
the goods. Eliminating bottlenecks prevents wasted or additional work, lost sales, and dissatisfied
consumers.

 WEAKNESSES PRODUCTION PERFORMANCE AND PRODUCT QUALITY

It just takes one component of the supply chain to fail for its capacity to deliver goods and
generate revenue to be halted. The entire business could need to shut down to avoid bottlenecks, for
instance, if you can't receive supplies, a machine malfunctions, sales websites go down, it can't find
goods in the warehouse, or delivery vehicle breaks down. If it outsources one aspect of the supply chain,
such as supplies, manufacturing, sales, or shipping, the vendor might accidently interrupt the operations
while it is having trouble, or they could hold you hostage for unpaid invoices or a price rise they seek.

6.0 Recommendations & Conclusion

My recommendations are that since the Covid-19 epidemic is having a significant influence on
global supply chains and how businesses interact with their suppliers, particularly when governments
respond to mounting worries by blocking borders, enforcing quarantines, requiring plant shutdowns, and
other measures. The ramifications of this are soon becoming clear. To attain customer focus, it is vital to
have a clear and global vision of the entire process or value chain, as well as to identify the value of both
internal and external customers. My conclusion is because of their location between upstream and
downstream processes, suppliers are ideally positioned to give a comprehensive perspective of the whole
value chain. Because of the first established needs, both the provider and the client know whether the
output fits the initial requirements.

References

D. S. Levi, Designing and Managing the Supply Chain: Concept, Strategic Case Studies, Boston: Irwin/McGraw-Hill,
2000
P. Kotler, Marketing Management Analysis, Planning, Implementation and Control, Eight edn., Prentice Hall. New
Jersey, 1994.
R. B. Handfield and E. L. Nichols, Introduction to Supply Chain Management, Prentice Hall Inc, 1999
 STUDENT PLEDGE OF ACADEMIC INTEGRITY

As a student of Universiti Teknologi MARA (UiTM), it is my responsibility to act in accordance

with UiTM’s academic assessment and evaluation policy. I hereby pledge to act and uphold
academic integrity and pursue scholarly activities in UiTM with honesty and responsible manner. I
will not engage or tolerate acts of academic dishonesty, academic misconduct, or academic fraud
including but not limited to:

a. Cheating: Using or attempt to use any unauthorized device, assistance, sources, practice
or materials while completing academic assessments. This include but not limited to
copying from another, allowing others to copy, unauthorized collaboration on an
assignment or open book tests, or engaging in any act or conduct that can be construed as
cheating.
b. Plagiarism: Using or attempts to use the work of others (ideas, design, words, art, music,
etc.) without acknowledging the source; using or purchasing materials prepared by another
person or agency or engaging in other behavior that a reasonable person would consider as
plagiarism.
c. Fabrication: Falsifying data, information, or citations in any academic assessment and
evaluation.
d. Deception: Providing false information with intend to deceive an instructor concerning
any academic assessment and evaluation.
e. Furnishing false information: Providing false information or false representation to
any UiTM official, instructor, or office.

With this pledge, I am fully aware that I am obliged to conduct myself with utmost honesty and
integrity. I fully understand that a disciplinary action can be taken against me if I, in any
manner, violate this pledge.

Name: MARSYA AZALEA BINTI MAZLAN

Matric Number: 2022745493
Course Code: BA234
Programme code: OPM530
Faculty / Campus : UITM PUNCAK ALAM
*Students are required to sign one pledge for each course taken.

Bahagian Pentaksiran dan Penilaian Akademik 2021

 Supply Chain Management: The Influence of
SCM on Production Performance and Product
Quality

Arawati Agus, Member, IACSIT

the way they operate to stay competitive. However,

Abstract—The primary purpose of this empirical paper is to among those improvement programs, SCM has
examine the importance of incorporating supply chain become an integral part of corporate strategy and its
management (SCM) in the Malaysian manufacturing industry adoption in manufacturing companies has steadily
and investigate its impact on production performance and
product quality. Further, the study also attempts to investigate accelerated since the 1980s.
the mediating influence of production performance in the Supply chain management (SCM) includes the
relationship between SCM and product quality. A measurement integration
Smart PLS model is developed and refined with reliability and
validity tests. The study employs a quantitative survey method
and data are collected from 250 manufacturing companies. The Manuscript received September 20, 2014; revised November 21, 2014.
survey instrument tries to measure senior production or SCM This work was supported in part by the Graduate School of Business,
Universiti Kebangsaan Malaysia.
managers’ perceptions of SCM implementations and the level of
performances in their manufacturing companies. SCM has a Arawati Agus is with the Graduate School of Business, Universiti
positive and significant effect on production performance. In Kebangsaan Malaysia, 43600 Bangi, Malaysia (tel: +60389213721; fax:
addition, SCM also has a positive and significant effect on
product quality. The result also provides evidence that the +60389213161; e-mail: araa@ukm.edu.my).
production performance construct partially mediates the linkage
between SCM and product quality. Among the SCM practices,
‘new technology and innovation’ emerges as the most important
factor that enhances production performance and product
quality, and it is followed by ‘strategic supplier partnership’,
'quality information exchange’ and ‘lean production’.

Index Terms—Supply chain management, production

performance, product quality, smart PLS.

I. INTRODUCTION
Volatility of the demands and sales of
manufactured products has created intense global
competition. The rapid rate of change in global
markets has coerced many manufacturing
companies to be more responsive to customers
changing needs and requirements for higher
value-added products and services [1]. In the
recent competitive market, producing value-
added, high quality and innovative products have
emerged as the most vital strategy for
manufacturing companies to survive. Many
manufacturing companies in Malaysia have
adopted numerous improvement programs and
developed new operating philosophies to enhance
of vision, culture, process and strategy to explanation of the SCM literature review; third, it
organize an optimal flow of high-quality, value- highlights the conceptual framework and
for-money raw materials, or components from hypotheses. Fourth, it discusses the methodology
reliable and innovative suppliers and ultimately adopted. Fifth, it highlights the result of the
providing customers with high quality products statistical analyses. Finally, the overall results are
they designed and manufactured at competitive then discussed and implications highlighted.
prices [2]. SCM also encompasses „„all the
activities involve to get the right product into the
right consumer‟s hands in the right quantity and II. LITERATURE REVIEW
at the right time” in the supply chain [3], [4]. SCM is seen as a business philosophy that
SCM has gained increasing importance in the strives to
production processes and strategic planning of
global manufacturing companies, and it is
considered as a contemporary topic of
competitiveness [5]. Increasing global
competition and the rising costs of natural
resources today as well as customers‟ demands
for higher product quality, greater product
selection, and better customer service have
created new challenges for manufacturing
companies. Companies today are increasingly
dealing with suppliers and buyers locally and
from all corners of the globe. The new global
business scenario has led many Malaysian
manufacturing companies to adopt SCM in order
to minimize wastage and defects, enhance
business performance and to sustain or improve
overall firm performance. The increased
importance placed on SCM is because it is
considered a powerful driver and a significant
strategic tool for firms striving to achieve
competitive success [6], [7]. Therefore, SCM is
increasingly being viewed by scholars to be
having the ability to contribute to the
enhancement of performances [6], [8], [9].
This paper tries to investigate the magnitude
and direction of SCM measures and attempts to
provide some recommendations to the
manufacturing companies. To address this issue,
the main objectives of this paper are: a) To
empirically discover whether SCM has a
significant impact on production performance; b)
To empirically determine whether SCM has a
significant impact on product quality; c) To
empirically investigate whether production
performance has a significant mediating role in
the linkage between SCM and product quality,
and d) lastly to assess the importance of each
SCM variable on performances. The paper is
structured as follows. First, it presents a brief
introduction. Second, it highlights the
 Journal of Economics, Business and Management, Vol. 3, No. 11, November 2015

integrate the dependent activities, people, and A. The Conceptual Model

resources from the points of origin and ultimate The conceptualization in this paper involves two
destination in supply channels[10]-[12]. Mentzer tasks: (1) preparing a diagram (conceptual model)
et al. [10] define SCM as a systemic, strategic that visually represents the theoretical basis of the
coordination of the business functions, processes relationships in the study and (2) specifying
and transactions within the supply chain, for the hypotheses and directions. The proposed
purposes of improving the long-term performance conceptual model, as depicted in Fig. 1, is based on
of the individual companies and the supply chain three main constructs investigated in this study,
as a whole. Svensson [13] argues that SCM is a namely: (i) supply chain management (SCM); (ii)
business philosophy that simultaneously should production performance (PPERF); and (iii) product
address the overall dependencies of activities, quality (PQUAL). The hypothesized model in the
SCM partners, and resources on an operational, paper demonstrates that SCM is important in
tactical, and strategic level, from the point of enhancing performances and it is the duty of
origin to the point of consumption in and between managers to utilize and make the best use of them.
supply channels. Agus The conceptualization of the model aims at
[9] proposes a conceptual framework which incorporates the understanding the
program theory, as well as empirical findings for enhancing
the understandings of the importance of implementing SCM
and its influence on business performance. SCM seeks to
enhance performance by closely integrating and
coordinating the internal functions within a company and
effectively linking them with the external operations of
suppliers and customers. A firm must achieve a relatively
high degree of integration to implement SCM successful,
which involves integration, coordination and collaboration
across organizations and throughout the supply chain [9].
Today‟s era of global competition has created
increasing challenges for manufacturing
companies. Manufacturing companies that do not
keep up with SCM would lose out to competitors.
Nowadays, manufacturing companies do not only
compete on prices but also on who would first
introduce new technological, creative, innovative
and high quality products to enable them to be
market leaders and ultimately gain higher profits.
SCM has the potential to assist the organization in
achieving both cost and a value advantage [11],
[14]. Several researchers claim that SCM can
result in better performance [14], [15], but maybe
none or few empirical studies have been carried
out to investigate the magnitude and impact of
SCM practices on production performance and
product quality simultaneously in the Malaysian
context.

III. CONCEPTUAL FRAMEWORK

This section explores the conceptual model
which explores the relationships between SCM,
production performance and product quality
within the context of the Malaysian manufacturing
industry. In addition, hypotheses of the study are
also discussed.
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 Journal of Economics, Business and Management, Vol. 3, No. 11, November 2015

significance of SCM in a better way. The the production level of another product. This will happen
framework consists of four manifest variables of when an entity is operating along its production
possibility frontier. Efficient production is achieved
SCM, two variables of production performance when a product is created at its lowest average total cost.
and three indicators of product quality. Production efficiency measures whether the system is
Incorporating ideas, theories and studies from producing as much as possible without wasting precious
the literature, four main SCM variables included
in the study are:
1) Strategic Supplier Partnership (MN1SSP): Strategic
supplier partnership involves developing trust and
collaboration among supply chain partners as well as
customers [16], [17].
2) Lean Production (MNB5LS): Lean production is
associated with the continuous pursuit of improving
the processes, a philosophy of eliminating all non-
value adding activities and reducing waste within an
organization [12], [17], [18].
3) Quality Information Exchange Between Supply Chain
Partners (MNB6QIE): Many industries focus on
improving their efficiency of their supply chains. One
key initiative that is commonly mentioned is quality
information exchange/sharing between partners in a
supply chain [19]. SCM emphasizes the overall and
long-term benefit of all parties in the chain through
cooperation and quality information sharing between
supply chain members [20].
4) New Technology and Innovation (MB7TECH):
Tremendous change in the technological
developments and globalization has formed
significant impact on the nature of work where the
advanced use of technology is a necessity in order to
compete in the global arena [21]. New Technology
and Innovation in this study refers to the application
of the latest scientific or engineering discoveries to
the design of operations and production processes in
SCM [9], [22].
Several studies have identified performance
improvement constructs that are commonly
associated with the SCM program [23]-[26] such
as production performance and product quality.
Production performance in this study is
operationalized by „Production Effectiveness‟
(EFFECT) and „Production Efficiency‟
(EFFICIEN). The descriptions of the two
variables are as follows:
1) Production Effectiveness (EFFECT). A study indicated
that SCM would improve operational efficiency and
the production effectiveness [27]. Production
Effectiveness refers to the overall effectiveness of a
process and is the extent to which the outputs expected
from the process are being obtained, and is therefore a
first measure of the basic adequacy of the process and
its capability to fulfill the logical and reasonable
expectations of the process uses and operators [28].
2) Production Efficiency (EFFICIENT). Production
efficiency is associated with the ability to produce a
product using the fewest resources possible [29].
Production efficiency refers to a production level at
which the manufacturing company can no longer
produce additional amounts of a good without lowering
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 Journal of Economics, Business and Management, Vol. 3, No. 11, November 2015

resources. Because resources are limited, being product quality.

able to make products efficiently allows for H2: SCM is positively related to product quality
higher levels of production [30]. D. The Effect of Production Performance on Product
On the other hand, product quality is a very Quality (H3)
important bottom-line outcome and in this paper Finally, the third research proposition suggests
product quality construct is being operationalized that improving production performance would have
by indicators, namely a positive effect on product quality. Justification for
„Product Conformance‟, „Product Performance‟ and the hypothesis is based on the argument that
„Product Reliability‟[9]. production performance evaluation of SCM
1) Product Conformance (CONFORM). Conformance processes will become closely linked to enhanced
quality is the degree to which a product‟s design and product quality [35].
operating characteristics meet established standards. It
reflects whether the various produced units are H3: Product quality performance is positively
identically made and meet the specifications [31]. related to product quality.
2) Product Performance (PERFORM). Performance quality
is the primary product characteristics. Performance
quality refers to the levels at which the product‟s
primary characteristics operate. Buyers will pay more for
better performance as long as the higher price does not
exceed the higher perceived value [31].
3) Product Reliability (RELIAB). Reliability is a measure of
the probability that a product will not malfunction or will
operate properly within a specified time period or the
consistency of performance over time during which it is
subjected to a given set of environment and/or
mechanical (vibration, shock, abrasion etc.) stress [32].
B. The Effect of SCM on Production Performance (H1)
In investigating the influence of SCM on
production performance and product quality, the
Smart PLS is utilized to evaluate and analyze the
magnitude and direction of the linkages between
these constructs. Firstly, the study attempts to
investigate the main research hypotheses
regarding associations between SCM and
production performance. The goal of SCM
processes is specified as adding value for products
at reduced overall costs [33]. The value added
should first be reflected in production
performance, such as in the form of production
effectiveness and production efficiency. Based on
the theoretical justification and supporting
empirical evidence, the first hypothesis proposes
that SCM has a positive effect on production
performance.
H1: SCM is positively related to production
performance.
C. The Effect of SCM on Product Quality (H2)
Bowersox et al. [34] highlight in their study that
high SCM implementers exhibited significantly
higher scores for the quality performance
outcomes. Agus [9] indicates that SCM has
positive associations with quality related
performance. Therefore, the second hypothesis
suggests that SCM has a positive impact on
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E. The Mediating Effect of Production Performance in past three years these performances were high
the Linkage between SCM and Product Quality (H4) relative to competitors after implementing SCM.
In addition, this study also tries to test (the The sample unit of analysis in this study was
fourth hypothesis) whether production Malaysian manufacturing company (the sampling
performance acts as a mediator in the linkage frame was derived from the Federation of
between SCM and product quality. Malaysian Manufacturers Directory-FMM) and
H4: Production performance mediates the each company was represented (the respondent) by
linkage between SCM and product quality.
either senior production or SCM manager. Two
In investigating the effect of SCM on
hundred and forty five responses were received
performances, it is also pertinent to determine
and analyzed. The primary purpose of the research
the loadings of each SCM dimension, namely
was to measure senior production or SCM
„Strategic supplier partnership‟, „Lean
managers‟ perceptions of SCM processes and to
production‟, „Quality information exchange‟ gain insight into the benefits of implementing
and „New technology and innovation‟ ( H1A , H1B SCM in the Malaysian manufacturing industry.
, H1C and H 1D ).
PRODUCTION EFFECTIVENESS
PRODUCTION(EFFECT)
EFFICIENCY (EFFICIEN)

STRATEGIC SUPPLIER PARTNERSHIP (MB1SSP)

PRODUCTION PERFORMANCE

H1A+ PRODUCT CONFORMANCE (CONFORM)

H1+ H3+
LEAN PRODUCTION (MNB5LP)
H1B+

SUPPLY CHAIN MANAGEMENT

H2+(SCM)
PRODUCT
PRODUCT PERFORMANCE (PERFORM)
QUALITY INFORMATION EXCHANGE
H1C+ (MNB4QIE) QUALITY (PQUAL)

H1D+ PRODUCT RELIABILITY (RELIAB)

TECHNOLOGY & INNOVATION (MB7TECH)

Fig. 1. The conceptual model linking SCM, production performance and

product quality.

IV. RESEARCH METHODOLOGY

This paper formed part of a larger study on
SCM with the inclusion of product quality
aspects. The instrument used in this study was a
structured survey questionnaire, which was
designed to assess the manufacturing companies
in term of the described dimensions. The
instrument developed in this study consisted of
two major parts. The first part comprised several
variables measuring SCM practices, and the
second part comprised several performance
measurements including production performance
and product quality. To enable respondents to
indicate their answers, seven–point interval
scales were used in the questionnaire. Several
items of SCM, which had been widely referred,
were extracted. Similarly, the mediating and the
dependent constructs, namely production
performance and product quality also used a
seven-point interval scale, representing a range
of agreement on a statement, whether over the

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 Journal of Economics, Business and Management, Vol. 3, No. 11, November 2015

The goal was to understand and determine extracted (AVE) must be greater than squared
measures of SCM that can enhance production correlations between constructs (AVE > squared
performance and product quality. Face to face correlations). Alternatively, discriminant validity
interviews with the SCM managers were carried can also be confirmed when the square root of
out to ensure the information accuracy, validating AVE is greater than the correlations between
the outcome of the analysis and developing an constructs (see Table II). [9], [10], [37], [38]
understanding of the practical aspects of SCM
processes, principles and adoption. TABLE II: CORRELATIONS BETWEEN LATENT CONSTRUCTS AND SQUARE
Validity and reliability tests were used to select
ROOT OF AVERAGE VARIANCE EXTRACTED (DIAGONAL)
and assess the final items of the independent
constructs that were used for statistical testing. Latent constructs 1 2 3

Since data for the study were generated using a SCM 0.828
multi-scaled responses, it was necessary to test for Production performance 0.712 0.949
reliability [22], [36]. The internal consistency of Product Quality 0.690 0.712 0.943
each factor
was examined using Cronbach Alpha reliability analysis.
Items that did not significantly contribute to
the reliability
were eliminated for parsimony purpose. The result V. RESULTS
indicated that the Cronbach‟s alpha measures for
Pearson‟s correlation analysis was conducted to
the three main constructs exceeded the threshold
establish associations between SCM practices,
point of 0.70 suggested by Nunnally [37]. Alpha
production performance and product quality. The
coefficients for SCM, production performance and
results (as seen in Table III and Table IV)
product quality ranged between 0.847 and 0.938
indicated that most of the SCM variables
after the alpha maximization process were carried
specifically „Strategic Supplier Partnership‟,
out, indicating internal consistency. As a result,
„Lean Production‟, „Quality Information
nine items for the three constructs were retained
Exchange‟ and
for the analysis phase (See Table I).
„Technology and Innovation‟ had high and
In addition, the face-content validity of the
significant correlations with production
measures was also investigated in this study.
performance and product quality variables. For
Content validity represented the sufficiency with
example, production effectiveness and efficiency
which a specific domain of content (constructs)
had strong & significant correlations with new
was sampled [37], [38]. The critical variables of
technology and innovation (r = 0.510 and r =
SCM and two performance constructs in this
0.535) as well as lean production (r = 0.509 and r
study had content validity because an extensive
= 0.534). Likewise product conformance, product
review of the literature was conducted in selecting
performance and product reliability also had
the measurement items and the critical constructs;
positive and significant correlations with SCM
and all the items and factors had been evaluated
variables. These findings were consistent with
and validated by professionals in the area of
several previous studies that proclaimed better
operation management or SCM. In addition, the
organizational transformations as a result of SCM
draft questionnaire was pre-tested with academics
initiatives [9], [12], [16].
to check its content/face validity and terminology
and was modified TABLE III: CORRELATIONS BETWEEN SCM AND PRODUCTION

PERFORMANCE

accordingly [9]. Statistically, convergent validity SCM Practices Production Production

Effectiveness Efficiency
derived from the findings was also considered
satisfactory (loading values > 0.700, t-statistics >
1.96, square root of AVE > 0.800, composite
reliability > 0.890) [9].

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 Strategic supplier partnership
(MNB1SSP)
Journal of Economics, Business and Management, Vol. 3, No. 11, November 2015 .347** .444**

TABLE I: MODEL RELIABILITY AND VALIDITY Lean production

Quality (MNB5LP)
Information Exchange .509** .534**
** **
Latent SCM Cronbach‟s Square Root of Composite (MNB4QIE) .466 .449
& Alpha Average variance Reliability

Performanc Extracted (CR) New technology & innovation

.510** .535**
e (AVE)
Constructs (MB7TECH)

Supply Chain Notes: *p ≤ 0.05; **p ≤ 0.01 (all t-tests are one-tailed)
Management
0.847 0.828 0.897
(SCM)

TABLE IV: CORRELATIONS BETWEEN SCM AND PRODUCT QUALITY

Production SCM Practices Product Product Product

performance 0.890 0.949 0.948 Conformance Performance Reliability
(PPERF) Strategic supplier
Product quality partnership .530** .506** .489**
performance
(PQUAL) 0.938 0.943 0.960 (MNB1SSP)
Lean production ** ** **
.593 .576 .593

Quality information
In addition, discriminant validity refers to the
extent to (MNB5L

which a certain construct is different from other Exchange .487** .481** .516**
constructs. (MNB4QIE)
The constructs in the study needed to be tested for
New technology &
discriminant validity so that it can verify that the innovation
scales developed to measure constructs, were (MB7TECH) .516** .523** .548**

indeed measuring different constructs [9], [10],

[37], [38]. There are two ways
to test discriminant validity. Firstly, the average Notes: *p ≤ 0.05; **p ≤ 0.01 (all t-tests are one-tailed)
variance

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 Journal of Economics, Business and Management, Vol. 3, No. 11, November 2015

The result of the Smart PLS algorithm indicated

that the path from SCM to production To identify the extent to which production
performance (PPERF) was relatively high with the performance mediated the linkage between SCM
loadings of 0.619 and a significant with a t-value and product quality, an additional model that
of 13.122. Thus, Hypothesis 1 was fully directly linked SCM and product
supported. The path of the Smart PLS algorithm
model also showed that the impact of SCM on
product quality performance was moderately high
with a loading of 0.404 and was also significant
with a t-value of 6.683. Therefore, Hypothesis 2
was accepted. Fig. 2 also illustrated that
production performance had a positive (loading =
0.462) and a significant effect (t-value = 7.603) on
product quality performance. Hence, the result
strongly supported Hypothesis 3.

Fig. 2. The Smart PLS (algorithm) model showing the relationships

between SCM, production performance and product quality.

Fig. 3. The smart PLS (bootstrapping) model showing the relationships

between SCM, production performance and product quality.
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 Journal of Economics, Business and Management, Vol. 3, No. 11, November 2015

Total Effect (.404 + .298)

quality was estimated. The result indicated that mediation]
= 0.702
SCM demonstrated significant effects directly *Significant t-statistics > 1.96 at the 95 % level of confidence.
and indirectly (through production performance)
on product quality. Hence, production
Looking at the contributions of each SCM
performance partially mediated the linkage
variables (Fig. 2 and Table V on the main
between SCM and product quality. To further
construct, the result demonstrated that „new
validate the mediating relationship, the Sobel
technology and innovation‟ (loading value = 0.854)
test [39] was conducted to examine the
had the highest contribution towards SCM
significance of the mediating effect since
implementation.
Mackinnon et al. [40] suggest that the Sobel test
is superior in terms of power and intuitive
appeal. The Sobel test lends additional support
for the mediated relationships hypothesized
through a change in the significance of the direct
effect. The result of the Sobel test (t-value =
5.133, 0.001) provided support for the partial
mediating effect of production performance in
the relationship between SCM and product
quality. Thus, the result strongly supported
Hypothesis 4, suggesting that production
performance mediated the linkage between SCM
and product quality (H4). In addition, it was
essential to reaffirm that SCM can ultimately
improve product quality of manufacturing
companies in Malaysia.
TABLE V: THE STRUCTURAL AND MEASUREMENT RESULTS OF THE SMART PLS

Constructs and indicators Std t-statistic

Loadings Mean Error (bootstrap
ping)
Supply chain
management (SCM):
Strategic supplier
0.844 5.183 .0616 32.432*
partnership (MB1SSP)
Lean production
0.778 4.999 .0884 20.862*
(MNB5LP)
Quality Information
0.835 5.213 .0688 33.070*
Exchange (MNB4QIE)
New Technology and
0.854 4.941 .0799 35.537*
Innovation (MB7TECH)
Production performance:
(PPERF)
Production effectiveness
0.950 5.232 .0730 94.860*
(EFFECT)
Production Efficiency
0.949 5.236 .0729 105.089*
(EFFICIEN)
Product quality
performance: (PQUAL)
Product conformance
0.943 5.488 .0690 89.214*
(CONFORM)
Product performance
0.947 5.564 .0651 98.086*
(PERFORM)
Product Reliability
0.940 5.600 .0673 92.413*
(RELIAB)
Exogenous/endogenous
Path
SCM PPERF [ H1 is
0.619 - 0.061 13.122*
supported]
SCM  PQUAL [ H2 is
0.404 - 0.077 6.683*
supported]
PPERF  PQUAL [ H 3 is
0.462 - 0.081 7.603*
supported]
SCM  PPERF PQUAL Indirect effect (.619x.462)
[ H 4 is supported – partial = 0.298 5.133*

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This was followed by „strategic supplier management are very pertinent for the success of
partnership‟ (loading value = 0.844), „quality SCM [46]. However, considering the complexity of
information exchange‟ (loading value = 0.853) today's supply networks, it is very challenging to
and lastly lean production (loading value = 0.778). successfully execute SCM concepts due to
All of these indicators had significant probability increased communication requirements among the
values (t-values  1.96 as exhibited by Fig. 3), supply chain partners [47]. Despite these
giving statistical evidence that the contributions of challenges, the proper and effective implementation
these variables towards overall SCM construct of SCM with the emphasis on technology &
were significant and positive ( H1A , H1B , H1C and H innovation, quality information exchange, strategic
1D were supported). The findings also suggested supplier partnership as well as elimination of waste
that SCM had high influences on production under a lean production would improve production
performance indicators specifically „production efficiency and effectiveness and ultimately product
efficiency‟ (loading value = 0.950) and quality. For instance, having effective internal
production effectiveness (loading = 0.949). The assessment systems in place that enable companies
Smart PLS result also demonstrated the SCM to choose and evaluate suppliers and allow
variables had significant contributions toward suppliers to actively participate in the supply chain
product quality indicators, namely can have a positive effect on product quality,
„product performance‟ (loading value = 0.947), among other measures of company
„product conformance‟ (loading value = 0.943),
and „product reliability‟ (loading value = 0.940).

VI. DISCUSSION AND IMPLICATIONS

Moving the manufacturing companies toward
genuine SCM requires management commitment
and changes in strategic direction and planning
[41], [42]. An initial step of integrating suppliers
in the process also requires a major adjustment to
internal processes and procedures that must be
accepted throughout the organization before SCM
can be successfully implemented [43], [44].
A good implementation of SCM can produce
positive outcomes such as excellent product
quality, low operating costs, on-time deliveries,
and reduce wastage and inventory [45]. The result
demonstrates a new discovery of how important
(magnitude and direction) is new technology and
innovation as well as quality information
exchange. By adopting new technical and
innovative machineries and tools, production
efficiency and effectiveness can be enhanced. In
addition, quality products can be produced
effectively with maximum utilization of precious
and limited resources. The quality information
exchange and collaboration among supply chain
partners are very crucial in achieving long term
benefits. To achieve high performance in SCM,
manufacturing companies need to integrate their
SCM partners into their operations. Therefore,
participation and the operational commitment of
all supply chain members and interchannel
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performance [48]-[50]. When the supply suppliers become part of the design process. This
management function integrates its decisions and helps cut design and production times,
operations with suppliers, they enable supply improves product quality, and achieves a faster
management to establish close relationships time-to-market. Achievement of these benefits
where appropriate with suppliers to improve the requires changes in the way companies design and
quality and delivery of materials to customers develop products and production processes using
[51]. Adopting early supplier involvement, new technological tools. Using the latest design
operational activities, such as product technology, the manufacturing companies may
development projects, can offer more cost- save huge amounts of time and money in bringing
effective design choices, and select best available newly developed quality products to market faster
components and technologies, resulting in [9], [56].
smoother production, improved product quality This paper is relevant to practitioners, SCM
and reduction in lead time [6]. Through strategic managers and academic researchers because the
supplier partnerships, organizations can work conceptual framework and findings may provide
closely with suppliers who can share significant information, magnitude and direction
responsibility for the success of the products regarding SCM practices that can be used to solve
[52]. Such strategic supplier partnerships should implementation challenges and prioritization in
enable successful SCM. order to improve performances with the maximum
In addition, lean production system makes utilization of limited resources.
worker production responsibility central to the
continuous improvement of productivity and
quality [53] which will improve productivity
through reduced lead times and elimination of
waste [54]. Moreover, by establishing effective
inbound and outbound logistics systems, and
managing lean production successfully across
the supply chain, companies can secure high
quality raw materials from few reliable suppliers
as well as improve product quality by avoiding
production wastage and error; and reduce
unnecessary spoilage and non conformance [49].
As a results company will have a stronger focus
on maximizing productivity as well as
production efficiency and effectiveness [53] that
leads towards ultimate performances [53], [55].
Many of the improvements in SCM would not
have been possible without similar
improvements in the technology and innovation
as well as quality information exchange that are
the backbone of the most well-run supply chains.
New technology and innovations as well as
information systems are changing the way
supply chains perform. Internet, intranet and
other electronic communications can
synchronize a firm‟s supply chain with those of
its supply chain members in producing,
merchandising and transporting products more
efficiently. Production collaboration using new
technological decision support systems manages
design across the lifecycle of a product, from
introduction to service support, by having
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Arawati Agus is a professor of quality and operations management at Graduate School of Business, Universiti
KebangsaanMalaysia (UKM). She received a bachelor degree in finance from Southern Illinois University and master in
management sciences from St. Louis University. She obtained her Ph.D. in National University of Malaysia (UKM). Her
area of research includes quality management, supply chain management, operation management, service quality

and entrepreneurship. Her works have been published in Total Quality Management (UK), International Journal of Management, Singapore
Management Review, International Journal of Production Economic, Security Industry Review (Singapore), Journal of Quality and
Reliability, Malaysian Management Review and Management Journal (UKM).