Supply Chain Performance and Supply Chain Resilience
What is The Relationship between Supply Chain Performance and Supply Chain Resilience?
Before we jump into all relationship I would like to give brief introduction about what is performance and what is the impact for firm or organization. Then,we can align with dynamic capability and how resilience affect on it. Let's get in touch here.
Firm Performance
Firm performance plays importance role in firm competitive advantage. According to Chen, Li, and Zhang (2021) firm performance is integrated by four segment, inter alia, operational performance, environmental performance, social performance, innovative performance and financial performance. In addition, he mentioned that operational performance is measured in terms of the efficiency and accuracy of a firm's operation, quality of product, process transparency, speed and punctuality of delivery, resource utilization efficiency and customer satisfaction. In the other hand, innovative performance mainly refers to the frequency of launching new products or services.
Majority studies have assessed organizational performance based largely on financial indicators. These indicators are important to assess whether operational changes are improving the financial health of a company, but insufficient to measure supply chain performance (Wu et al., 2014). These indicators do not relate to important organizational strategies and non-financial performances, such as product quality and customer satisfaction. Further, some studies have proposed a classification for supply chain strategies with the nature of different products. Albeit it implies that product-related characteristics are crucial in determining the types of supply chain strategies either more efficient or more responsive, and accordingly, are considered as the potential measures of supply chain performance (Wu et al., 2014).
Supply Chain Performance
Supply chain performance is defined as “the efficient and effective execution of supply chain tasks (Wamba, Queiroz, & Trinchera, 2020).According to them, the literature on business logistics and supply chain management shows that considerable efforts have been put into deeper the understanding of supply chain performance behavior such as the relation that is recognized to exist between knowledge exchange and logistics innovation, and the one between logistics innovation and performance with consideration for the boundary between service providers and customers. Besides, supply chain performance perceived as the relation with partner (Wu, Chuang, & Hsu, 2014). It confirmed with anterior study, the simultaneous integration also need it among customer requirements, internal processes, and upstream supplier performance, which is commonly referred to as supply chain management (SCM) (Tan, Kannan, Handfield, & Ghosh, 1999).
The measurement of supply chain performance is captured both financial and nonfinancial indicator. Vickery, Jayaram, Droge, and Calantone (2003) used dependability, flexibility and quality as non – financial factor, while efficiency as financial factors. Dependability is the ability to meet delivery dates at promised prices. Flexibility refers to the ability to react to market changes, new product developments, and customer requirements. Quality determines how well products/services meet customer needs. Efficiency relates to the improvement of processes, such as lowering inventory levels, reducing manufacturing costs, and increasing production volumes.
In summary of the two performance systems, flexibility is commonly recognized as an independent non-financial measure and efficiency is similar to resource measure and is considered a financial measure (Wu et al., 2014). In addition, supply chain performance was conceptualized as a formative construct with two indicators, financial and non-financial defined as a composite of the two indicators for observing its variance. This part uses financial and non-financial measures. Financial measures were adapted from the instrument developed by (Vickery et al., 2003) and (Li, Ragu-Nathan, Ragu-Nathan, & Rao, 2006), including five items, return on investment and assets, sale revenue, market share, and cost structure. Non-financial measures encompass two major dimensions: flexibility and output. Their measurement items were adapted from the instrument defined by (Beamon, 1999) , including a total of seven items. The questionnaires are listed as a below,
Finance Measures in Supply Chain Performance
(Vickery et al., 2003) | Finance Measures | |
FM1 | Supply chain can help us improve return on investment | |
FM2 | Supply chain can help us improve return on assets. | |
FM3 | Supply chain can help us improve sales growth. | |
FM4 | Supply chain can help us improve market share. | |
FM5 | Supply chain can help us improve production and inventory cost. | |
Non - Finance Measures in Supply Chain Performance
| Non – Finance Measures | |
(Li et al., 2006) | NF1 | Supply chain can help us react to customer requirements. |
NF2 | Supply chain can help us react to market change. | |
NF3 | Supply chain can help us react to new product development | |
NF4 | Supply chain can help us improve product performance. | |
NF5 | Supply chain can help us improve product conformance to design specification. | |
NF6 | Supply chain can help us improve product delivery on time. | |
NF7 | Supply chain can help us improve customer service for product complaints. | |
SCM resilience and Firm Performance
In the uncertainty condition, dynamic capability and resilience notion are required to cope unpredictable condition that bring the changes in organization. Supply chain management as a part entity in business entities play vital role to curb this issue. Regarding SCM resilience, numerous researchers have mentioned the need to take care of firm performance in resilience strategies as table below,
Reference | SCM Resilience and Firm Performance |
(Ates & Bititci, 2011) | It is a firm’s ability to absorb disruptions or enables the supply chain network to return to state conditions faster and thus has a positive impact on firm performance. |
(Priya Datta, Christopher, & Allen, 2007) | Not only the ability to maintain control over performance variability in the face of disturbance, but also a property of being adaptive and capable of sustained response to sudden and significant shifts in the environment in the form of uncertain demands |
(Brandon‐Jones, Squire, Autry, & Petersen, 2014) | The ability of a supply chain to return to normal operating performance, within an acceptable period of time, after being disturbed. |
(Pereira, Christopher, & Da Silva, 2014) | The capability of supply chains to respond quickly to unexpected events so as to restore operations to the previous performance level or even to a new and better one. |
After mentioned notion bring couple perceptions such as, first, to have a resilient organization, the managers should have a complete understanding of the environment and its patterns of change. Second, in the face of unexpected changes in the environment, the firm should have the ability to survive, adapt, and respond to changes (Kamalahmadi & Parast, 2016). This requires the development of certain organizational capabilities to keep stable its performance. Since disruptions are inevitable, firms need to develop capabilities to mitigate the effects of disruptions (Pettit, Croxton, & Fiksel, 2013) and adapt with the new environment to continue its business. The response not only should reposition the firm to its previous status but have the capability as well to strengthen the firm’s position in responding to future disruptions to maintenance firm performance as prematurely. Finally, responses should be based on flexibility and innovation (Kamalahmadi & Parast, 2016).
Notwithstanding that innovation has been regarded as a key element for a firm’s long-term survival and growth, the role of innovation in increasing the resilience of an enterprise has been relatively overlooked (Kamalahmadi & Parast, 2016). (Golgeci & Ponomarov, 2013) stated that resilience may be viewed as a key dimension of a firm’s survival, and innovativeness as one of the key enablers of resilience. The results of their empirical study on the impact of firm innovativeness on effective responses to supply chain disruptions indicated that both firm innovativeness and innovation magnitude are positively associated with supply chain resilience. (Akgün & Keskin, 2014) studied 112 firms to investigate the relationship between organizational resilience capacity, product innovation, and firm performance. Their results showed significant associations between resilience-capacity variables and a firm’s product innovativeness, where product innovativeness mediates the relationship between a firm’s resilience and its performance.
Anterior studies asserted that firm performance is one of the measurement in SCM resilience, for instance (Murino, Romano, & Santillo, 2011) presented a methodological procedure to determine the set of decision variables that affect the resilience of the supply chain. Using system dynamics simulation and design of experiments (DOE), based on three performance measures (stock level, number of suppliers, production time (speed)) and their correlation, a resilience function was developed. However, they found only that the numbers of suppliers, the speed, and their interactions strongly impact resilience variation.
Another, Cabral, Grilo, and Cruz-Machado (2012) developed an analytic network process (ANP) model to measure four capabilities of a supply chain with respect to agility, lean, resilience, and green principles. Their model is based on several practices including capacity surplus, replenishment frequency, integration level, information frequency, inventory level, production lead time, transportation lead time, and three performance indicators including service level, lead time, and costs. Using their model, it is possible to measure agility, leanness, resilience, and greenness of a supply chain, prioritize them, and choose the best practices to increase each capability. Munoz and Dunbar (2015) quantified evaluation of multiple transient response measures across multiple tiers in a supply chain to develop a metric for operational supply chain resilience. Their analysis showed that individual dimensions of resilience can explain the transient response at the single-firm level, while aggregation of multiple resilience dimensions across multiple tiers has greater capacity to explain the performance response to supply chain disruptions.
References
Akgün, A. E., & Keskin, H. (2014). Organisational resilience capacity and firm product innovativeness and performance. International Journal of Production Research, 52(23), 6918-6937.
Ates, A., & Bititci, U. (2011). Change process: a key enabler for building resilient SMEs. International Journal of Production Research, 49(18), 5601-5618.
Beamon, B. M. (1999). Measuring supply chain performance. International journal of operations & production Management.
Brandon‐Jones, E., Squire, B., Autry, C. W., & Petersen, K. J. (2014). A contingent resource‐based perspective of supply chain resilience and robustness. Journal of Supply Chain Management, 50(3), 55-73.
Cabral, I., Grilo, A., & Cruz-Machado, V. (2012). A decision-making model for lean, agile, resilient and green supply chain management. International Journal of Production Research, 50(17), 4830-4845.
Chen, L., Li, T., & Zhang, T. (2021). Supply chain leadership and firm performance: A meta-analysis. International Journal of Production Economics, 235, 108082.
Golgeci, I., & Ponomarov, S. Y. (2013). Does firm innovativeness enable effective responses to supply chain disruptions? An empirical study. Supply Chain Management: an international journal.
Kamalahmadi, M., & Parast, M. M. (2016). A review of the literature on the principles of enterprise and supply chain resilience: Major findings and directions for future research. International Journal of Production Economics, 171, 116-133.
Li, S., Ragu-Nathan, B., Ragu-Nathan, T., & Rao, S. S. (2006). The impact of supply chain management practices on competitive advantage and organizational performance. Omega, 34(2), 107-124.
Munoz, A., & Dunbar, M. (2015). On the quantification of operational supply chain resilience. International Journal of Production Research, 53(22), 6736-6751.
Murino, T., Romano, E., & Santillo, L. C. (2011). Supply chain performance sustainability through resilience function. Paper presented at the Proceedings of the 2011 Winter Simulation Conference (WSC).
Pereira, C. R., Christopher, M., & Da Silva, A. L. (2014). Achieving supply chain resilience: the role of procurement. Supply Chain Management: an international journal.
Pettit, T. J., Croxton, K. L., & Fiksel, J. (2013). Ensuring supply chain resilience: development and implementation of an assessment tool. Journal of business logistics, 34(1), 46-76.
Priya Datta, P., Christopher, M., & Allen, P. (2007). Agent-based modelling of complex production/distribution systems to improve resilience. International Journal of Logistics Research and Applications, 10(3), 187-203.
Tan, K. C., Kannan, V. R., Handfield, R. B., & Ghosh, S. (1999). Supply chain management: an empirical study of its impact on performance. International journal of operations & production Management.
Vickery, S. K., Jayaram, J., Droge, C., & Calantone, R. (2003). The effects of an integrative supply chain strategy on customer service and financial performance: an analysis of direct versus indirect relationships. Journal of operations management, 21(5), 523-539.
Wamba, S. F., Queiroz, M. M., & Trinchera, L. (2020). Dynamics between blockchain adoption determinants and supply chain performance: An empirical investigation. International Journal of Production Economics, 229, 107791.
Wu, L., Chuang, C.-H., & Hsu, C.-H. (2014). Information sharing and collaborative behaviors in enabling supply chain performance: A social exchange perspective. International Journal of Production Economics, 148, 122-132.
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