Review of "Effect of Supply Chain Integration on the Ppuri Industry"

Abstract

This is a review of “The Effect of Supply Chain Integration on Supply Chain Risk Management Capability and Firm Performance in the Ppuri Industry” (Jung et al, 2022). The background concepts as well as the relevant concepts from supply chain management necessary to explain this research are defined. The research model they study is described, a research model they are unable to verify. Some of the reasons the authors give for this failure are listed. The managerial applications (or lack thereof) are described. We conclude with comments about the follow-up research they expect to conduct.

Authors’ Purpose

The ppuri industry is a niche industry in South Korea (Dongki, 2021) involved in creating or finishing metal parts used in the making of automobiles, industrial machinery, household appliances, etc. The ppuri industry is also in trouble: ppuri companies have not expanded in any significant manner in recent times, and in fact many of the companies investigated by the authors in this paper went out of business during their research. The authors attempt to explain this by looking at the operation of the supply chain of ppuri companies. They examine the relationship between supply chain integration, supply chain risk management capability, and firm performance. The expected relationships do not hold, and the authors interpret why this happens.

Summary of the Article and its Context

This paper is a study of the ppuri industry in South Korea, an industry that produces or finishes metal parts for large manufacturers. The industry has been struggling in recent years, and the authors attempt to understand the cause of this in terms of supply chain operation. In their study, they find that the relation between supply chain integration and firm performance is not what the authors expected.

They admit that their study suffered from some problems (it used a small sample size and was conducted during COVID-19) but are unable to explain this counterintuitive situation. They make some observations about the conditions in the ppuri industry that may explain this, the most striking one involves the significant difference in size between ppuri companies and the manufacturers they supply. They leave this investigation for future research.

Background of the Issue

The ppuri industry, also called the "root industry," in South Korea is the industry of making metal parts using casting, molding, plastic working, and welding, or finishing those parts using heat or surface treatment (Jung et al, 2022, p. 32-33). These parts are then assembled by manufacturers into automobiles, appliances, industrial or restaurant equipment, etc. (Dongki, 2021). It is called "root" because those parts are of fundamental importance to the manufacturers, and that the parts find their way into many industrial and consumer products.

The ppuri industry has been struggling as illustrated by the facts that ppuri companies are small companies that remain small, that companies have difficulties in finding employees, and that the companies are unable to be competitive due to lack of R&D activities. A South Korea-Japan trade dispute in July 2019 only intensified these problems (Yung et al, 2022, p. 33).

Attempts have been made to strengthen the competitiveness of this industry using strategies that involve increasing supply chain integration. It is expected that tightening SC integration would improve the performance of ppuri companies. But does it?

The authors attempt to investigate the relationship between supply chain integration, the capacity to manage supply chain risk, and overall firm performance. They do this by surveying managers working in ppuri companies and arrive at some counterintuitive observations.

Application of Relevant Supply Chain Management Theory

Modern supply chain management (SCM) has long recognized the fundamental importance of supply chains in company operation, and SC managers understand how well-run supply chains can add value to the products that customers purchase. Because of this, risks to the supply chain must be well understood.

A supply chain risk (Son, 2018, p. 2296-2297) is any event that diminishes the operation of the supply chain. These risks can include buyer-related risks (distortion of demand information or demand volatility), supplier-related risks (poor raw material quality or supplier bankruptcy). Finally, there are internal-process risks such as change in production costs. Supply chain risk management (SCRM) (Son, 2018, p. 2297-2300) are the steps needed to reduce risks or vulnerabilities to the supply chain.

Supply chain integration, one of the holy grails of contemporary supply chain management (Quigg, 2022, p. 24-52), is the degree of cooperation within and between participating organizations. The authors classify integration as being internal or external, and external integration is further broken down into supplier integration and buyer integration.

Supplier integration is an organization’s ability to develop, maintain, and manage long-term relationships with suppliers (Jung, 2022, p. 35). Buyer integration is the practice of managing customer relationships and improving overall customer satisfaction.

External integration allows for cost reduction, productivity and agility improvements, and ease of obtaining resources (Quigg, 2022, p. 373). It also improves operational performance measured by quality, cost, delivery, and flexibility. This improved operational performance should eventually lead to increased company performance (Jung, 2022, p. 35).

In contrast, internal integration are organizational practices that encourage various departments to share knowledge (Jung, 2022, p. 35-36). This knowledge supports external integration and allows the company to achieve company goals. It also allows sharing and cooperation among departments thereby reducing conflict and promoting corporate stability.

Managerial Implications of Article Findings

Based off all this, the authors propose the following hypotheses about the relationships between the above types of integration and overall company performance:

H1a: Supplier integration improves firm performance.
H1b: Buyer integration improves firm performance.
H1c: Internal integration improves firm performance.

Internal integration also makes the supply chain more agile, enabling faster and more effective responses to environmental changes. Further, it also improves the company’s ability to identify internal risks in the supply chain. Integration is thus expected to improve SCRM capability, and the following hypotheses are posited by the authors:

H2a: Supplier integration improves SCRM capability.
H2b: Buyer integration improves SCRM capability.
H2c: Internal integration improves SCRM capability.

Finally, improvement of SCRM capability should have a positive impact on corporate performance, so the authors propose one final hypothesis:

H3: SCRM capability improves firm performance.

Combining these hypotheses together generates a research model where each of the three types of integration (supplier, buyer, and internal) positively bolster firm performance and SCRM capability, and that SCRM capability improves firm performance.

Research Model from (Jung et al, 2022)

The authors are unable to verify this research model, however common-sensical it may seem. In particular, supply chain integration does not improve firm performance, at least when it comes to supplier and buyer integration. Supplier and internal supply chain integration were shown to have a positive impact on SCRM capability, but buyer integration was not. Finally, SCRM capability was shown to positively impact firm performance.

The authors were thus unable to verify three of the seven hypotheses stipulated above. In summary:

H1a: Supplier integration → firm performance – not supported.
H1b: Buyer integration → firm performance – not supported.
H1c: Internal integration → firm performance – supported.
H2a: Supplier integration → SCRM capability – supported.
H2b: Buyer integration → SCRM capability – not supported.
H2c: Internal integration → SCRM capability – supported.
H3: SCRM capability → firm performance – supported.

How can this be explained? The authors specifically note that their study may suffer from a small sample size: surveys were sent to 928 ppuri companies, seventy-five responded, but one was rejected because it was incomplete. The authors used the remaining seventy-four responses as the base of this study. They also state that many of the unreturned responses were caused by the ppuri companies going out of business.

Another flaw in their study noted by the authors is that it was conducted during the COVID-19 plague. They did not investigate how the plague specifically hampered their investigation.

The authors do propose an explanation for the unexpected relationships between supply chain integration, firm performance, and SCRM capability:

Firms in the Ppuri industry play a role as suppliers of large companies in the supply chain, and most of them perform simple manufacturing and processing tasks at the request of buying companies. Therefore, even if the level of buyer integration increases, firms in the Ppuri industry might not fully achieve the advantages of buyer integration, including cost reduction, productivity improvement, and ease of securing resources, due to the power imbalance between supply chain partners. (Jung et al, 2022, p. 43)

In other words, the great difference in size between ppuri companies and the manufacturers they supply somehow explains the lack of expected relationships. They do not investigate this explanation, either statistically or through deductive logic. If they do investigate it in a future paper, they should check to see if a similar phenomenon occurs in other situations where this “power imbalance” is in effect.

The authors recommend that ppuri companies do take steps needed to integrate suppliers and buyers into their supply chain, and they expect that this will improve SCRM capability and firm performance. These recommendations are not borne out in this paper, and verifying their recommendations would require A/B testing.

Because of the quality of the research and the very niche nature of the ppuri industry, implementing their unproven recommendations in another industry is justified only because having an integrated supply chain makes sense.

Conclusion

The authors have established that supply chain integration doesn’t necessarily improve supply chain risk management capabilities nor firm performance. Because of the counterintuitive nature of that statement – as well as problems executing this study – further research is certainly needed.

References

Bax, J. & Ruel, S. (2021). “Can supply chain risk management practices mitigate the disruption impacts on supply chains’ resilience and robustness? Evidence from an empirical survey in a COVID-19 outbreak era.” International journal of production economics, 233, 107972. https://doi.org/10.1016/j.ijpe.2020.107972

Dongki, L. (2021). “What is PPURI industry?” Korea National PPURI Industry Center. Retrieved 8 October 2021 from https://www.techconnect.kr/html/?pmode=UserAddon&smode=ajax&fn=ViewFile&fileSeq=6724

Jung, J., Shin, J., & Yang, H. (2022). “The effect of supply chain integration on supply chain risk management capability and firm performance in the ppuri industry.” Seoul Journal of Business, 28 (2), 31-48. https://doi.org/10.35152/snusjb.2022.28.2.002

Quigg, B. (2022). Supply Chain Management (1st ed). McGraw-Hill Create. https://bookshelf.vitalsource.com/books/9781307866025

Son, C. (2018). “Supply chain risk management: A review of thirteen years of research.” American Journal of Industrial and Business Management, 8 (12), 2294-2320. https://10.4236/ajibm.2018.812154

Review of “The Role of Supply Chain Resilience”

Abstract

This is a review of “The role of supply chain resilience to relationships supply chain risk management culture and firm performance during disruption” by Akbar and Isfianadewi, which examines the relationship between supply chain risk management culture, three approaches to recovering from disruptive events, and the impact of all this on corporate performance. The research by Akbar and Isfianadewi takes the form of a statistical analysis of survey responses by owners or managers of Indonesian apparel manufacturers. It takes place in the context of the COVID-19 plague.

We begin with definitions of needed concepts, then explain the dependencies between those concepts as statistically demonstrated in the paper. We show how supply chain management theory applies, then conclude with managerial implications of the findings in that paper.

 

Authors’ Purpose

Akbar and Isfianadewi seek to examine the relationships between supply chain risk management culture, the various ways a company can successfully respond to adverse events, and overall company performance. After defining the relevant terms and explaining three ways a company can adapt to and overcome extremely unfavorable events, they inquire about the dependencies between supply chain risk management culture and those three ways of recovering from adverse events. To analyze the dependencies, they develop a conceptual model and propose 10 hypotheses that can (partially) test this model. To confirm or reject the hypotheses, the authors surveyed several managers and owners working in a particular segment of the Indonesian apparel industry during the time of COVID-19. The survey responses are analyzed, and the results indeed confirm the conceptual model.

Background Concepts

The authors define supply chain resilience as “the ability of the supply chain to return to its original or more desirable state following a disruption and to avoid failure.” An expanded definition of this term is as follows: supply chain resilience is the ability of a company to prepare for and respond to various types of disruptions and to quickly recover to pre-disruption levels. Methods for doing this include maintaining a buffer inventory, use multiple product suppliers and multiple logistics providers, trace dependencies among relevant suppliers, and so on. (Abeysekara et al, 2019).

Supply chain risk management (SCRM) is the process of identifying, assessing, and mitigating threats to the smooth operation of a supply chain. The immediate goal of SCRM is to improve supply chain resilience, resulting in continuity of operations in the face of disruptions as well as protecting the company’s financial well-being and reputation.

Supply chain risk management culture (SCRMC) is the values and practices a company employs to manage risks to its supply chain, thereby minimizing operational interruptions. A company with a strong SCRMC is not only able to anticipate and face disruptions but also to learn from those disruptions.

Four main activities and processes are necessary for rapid recovery of a company following a disruption: re-engineering, agility, collaboration, and the above-defined SCRMC. (Kumar & Anbanandam, 2019)

Re-engineering a supply chain requires a base understanding of the existing supply chain, supplier risk awareness, and an assessment of the trade-offs between efficiency and redundancy. (Christopher & Peck, 2004). The result of this re-engineering is a more resilient supply chain.

In the context of supply chain resilience, agility is the ability to respond to disruptions promptly, quickly, and efficiently. In the same context, collaboration is the ability to overcome barriers between supply chain partners, including informational barriers.

Application of Supply Chain Management Theory to the Paper

The most fundamental fact of supply chain management theory is that a company’s operation is initiated and continued because of a functioning supply chain. This fact is demonstrated in the paper by the importance of making a supply chain resilient as well as fallback procedures for when the supply chain fails.

The theory outlined in the paper is applicable to both anticipatory (push) and responsive (pull) business models. By allowing for collaboration among suppliers of goods and services that are part of the supply chain, the theory applies to a generalized supply chain model with extension into the enterprise where there is the very real possibility of competing suppliers of materiel and logistics services, and that these suppliers and services may be outsourced. In fact, this redundancy is part of what makes a supply chain resilient.

The concepts SCRMC and recovery procedures are applicable to each of the four parts of the supply chain value proposition (Quigg, 2022) – effectiveness, efficiency, relevancy, and sustainability. The paper is most concerned with effectiveness and sustainability, and efficiency is tangentially addressed through maintaining competing suppliers of materiel and logistics services. Even relevancy is addressed, for there is nothing more irrelevant to a customer than a product or service that isn’t consistently delivered.

The paper applies to all forms of industry disruptions, not only changes to consumer requirements and technology adoptions, but also disruptions brought about by social and economic factors as well as (more or less) unexpected events such as pandemics.

Summary of the Article

The paper examines the relationship between SCRMC, re-engineering, agility, collaboration, and firm performance. The authors’ research confirms that these five qualities are dependent on each other as shown in the following diagram taken from the paper:

These relations are confirmed by evaluating ten hypotheses, which can be grouped as follows:

H1 – H4: SCRMC has a positive effect on each of firm performance, re-engineering, agility, and collaboration.

H5 – H7: Re-engineering, agility, and collaboration each have a positive impact on firm performance.

H8 – H10: Re-engineering, agility, and collaboration each mediates SCRMC’s impact on firm performance.

These ten hypotheses are not deductively proven but are instead statistically verified by surveying 87 owners and managers in the batik clothing business in the Wedi subdistrict of Klaten, Yogyakarta, Indonesia.

Conclusion - Managerial Implications

Operational disruptions can come from sources internal or external to a company, and can not only include economic, political, and social events, but also “black swan” events such as COVID-19. To face such adversarial events, a flexible and adaptable supply chain must be established. The authors statistically demonstrate that a robust supply chain risk management culture is crucial for maintaining a resilient supply chain. Companies that are resilient in the face of disruptions are a result of resilient supply chains.

Of course, disruptive events will occur, and companies recover from them by being agile in their response, by building new relationships between their partners (even if that entails some redundancy), and re-engineering their supply chains. The authors demonstrate that agility, collaboration, and the ability to re-engineer supply chains each positively contribute to the company’s performance. Further, they show that a strong supply chain risk management culture is fundamental to a company’s agility, collaboration, and re-engineering abilities.

The most important implication for managers is that a resilient supply chain must be established, and to ensure that the supply chain remains resilient, the company must possess and encourage a strong supply chain risk management culture. Part of this culture requires that managers must learn from disruptions – how and when they occur, and to address any problems the disruptions reveal in our plans for a resilient supply chain.

Other important implications for managers are the ways they must respond to supply chain failures: they must be agile (respond quickly and aggressively), they must shore-up any collaborations between outside companies that are part of the supply chain, and they must be willing to re-engineer their supply chain to restore services. This paper shows that each of these restorative approaches lead to resuming the company’s operations, and that a culture of supply chain risk management is fundamental to this.

Agility, collaboration, willingness to re-engineer the supply chain, and a culture of risk management when it comes to the supply chain together mitigate the impact of calamities upon business continuity. 

References

Abeysekara, N., Wang, H., & Kuruppuarachchi, D. (2019). Effect of supply-chain resilience on firm performance and competitive advantage: A study of the Sri Lankan apparel industry. Business Process Management Journal, 25(7), 1673–1695. http://dx.doi.org/10.1108/bpmj-09-2018-0241

Akbar, H.M. & Isfianadewi, D. (2023). The role of supply chain resilience to relationships supply chain risk management culture and firm performance during disruption. International Journal of Research in Business and Social Science, 12(2), 643-652. Retrieved 26 August 2024 from https://www.proquest.com/docview/2800278031/fulltextPDF/9FB3E428B04B48BCPQ/2

Christopher, M., & Peck, H. (2004). Building the Resilient Supply Chain. The International Journal of Logistics Management, 15(2), 1–14. http://dx.doi.org/10.1108/09574090410700275

Kumar, S., & Anbanandam, R. (2019). Impact of risk management culture on supply chain resilience: An empirical study from Indian manufacturing industry. Proceedings of the Institution of Mechanical Engineers, Part O: Journal of Risk and Reliability, 234(2), 1-14. https://doi.org/10.1177/1748006X19886718

Quigg, B. (2022). Supply Chain Management (1st ed). McGraw-Hill Create. https://bookshelf.vitalsource.com/books/9781307866025