Journal of Modelling in Management

Information technology is an enabling factor affecting supply chain performance

in Indian SMEs: A structural equation modelling approach
Sushanta Tripathy Satyabrata Aich Anurup Chakraborty Gyu M. Lee
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modelling approach ", Journal of Modelling in Management, Vol. 11 Iss 1 pp. 269 - 287
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Information technology is an Supply chain

performance
enabling factor affecting supply in Indian
SMEs
chain performance in
Indian SMEs 269

A structural equation modelling approach Received 9 January 2014

Revised 22 February 2014
15 September 2014
Sushanta Tripathy Accepted 23 September 2014
School of Mechanical Engineering,
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Kalinga Institite of Industrial Technology (KIIT), Bhubaneswar, India

Satyabrata Aich
Industrial Engineering Department, Pusan National University, Busan,
South Korea
Anurup Chakraborty
School of Mechanical Engineering,
Kalinga Institite of Industrial Technology (KIIT), Bhubaneswar, India, and
Gyu M. Lee
Department of Industrial Engineering, Pusan National University,
Busan, South Korea

Abstract
Purpose The purpose of this paper is to identify the success factors for supply chain in Indian small-
and medium-scale enterprises (SMEs) and establish a causal relationship among them. In the present
scenario, the SMEs are under huge pressure to achieve the supply chain competitive advantage and to
improve operation and logistic effectiveness and, at the same time, remain tractable to the demand
uncertainty and volatility in the market. To enhance the performance of supply chain in SMEs, the
managers need to identify the internal as well as the external factors that affect the supply chain
performance of SMEs in India. They need to understand the causal relationship of these factors.
Design/methodology/approach There may be a number of factors that are critical for achieving
acceptable supply chain performance, and these factors have been identified by principal component
analysis (PCA). In all, 29 factors have been identified by using PCA and the dominating 29 factors are
categorized into 6 constructs, and finally, the structural equation modelling (SEM) methodology using
the AMOS 4.0 program has been adopted as the primary methodology for this paper to assess the causal
relationship among six constructs.
Findings In this paper, the authors analyzed the structural relations among information technology
(IT), logistic effectiveness, operational effectiveness, customer relationship, supplier relationship and
SCM competitive advantage. Results indicate that IT holds the key to achieve the SCM competitive
advantage in SCM practices of SMEs in India. Journal of Modelling in
Management
Vol. 11 No. 1, 2016
We are very much thankful to the managers of Indian SMEs those are participated in our survey. pp. 269-287
We are also thankful to Das Ranjit Das of C.E.T, Bhubaneswar for his constant guidance. Finally Emerald Group Publishing Limited
1746-5664
are grateful to our reviewers for their valuable suggestions. DOI 10.1108/JM2-01-2014-0004
 JM2 Research limitations/implications The proposed models for enabling factors are tested in firms
with a limited numbers of factors in highly competitive environment. More factors may be incorporated,
11,1 which will help for a clear understanding and establishing the causal relationship among the various
enabling factors.
Practical implications Although managers of Indian SMEs are aware of various enabling factors,
a systematic approach is required for identifying enabling factors, and as these factors may have
complex interrelation between them for analyzing supply chain performance in SMEs, it is essential that
270 such an approach is in place. The paper presented here will help the SMEs managers in identifying the
areas in which they need to focus their attention to improve SCM practices. A structural equation
modelling is developed to show the complex relationship between the factors that affect the
performance. In addition to that, the proposed structural equation model acts as a good guideline to
improve the performance of the supply chain in India.
Originality/value The paper provides a structural equation model to develop a map of the causal
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relationships and magnitude among identified enabling factors.

Keywords Decision making, Data analysis, Modelling
Paper type Research paper

1. Introduction
In todays world, small- and medium-scale enterprises (SMEs) push the development of
the economy by creating employment opportunities. These opportunities account for
more than 60 per cent of the employment for the Economic Co-operation and
Development (OECD) in a country. In the present scenario, the SMEs are under huge
pressure to achieve the supply chain competitive advantage and to improve the
operation and logistic effectiveness. At the same time, they must also remain tractable to
the demand uncertainty and volatility of the market so as to sustain in this market.
These SMEs need to adopt information technology (IT) to support the supply chain
function as well as increase their efficiency by accomplishing tighter cooperation
relationship all over the supply chain.
The definition of SMEs varies from country to country. In the Indian context under
MSMED Act, the criterion for defining SMEs for manufacturing enterprises is the
investment in plants and machineries. For small scale, it must be from Rs 25 lakhs to
Rs 5 crores, and for the medium scale, it should be between Rs 5 and Rs 10 crores. The
SME sector contributes about 35 per cent to the industrial production and around the
same portion to the total exports of the Indian economy (Singh et al., 2005). There is
immense potential for cost savings in India, if the cost of logistics can be reduced from
the current level of 14 per cent of gross domestic product (GDP) to a level similar to those
in North America, where 8.7 per cent of GDP is the norm. The savings in India would be
around $20 billion, resulting in a potential 4.3 per cent drop in the price of Indian goods
globally, making Indian goods more competitive (Mitra, 2007). The money blocked in
the form of inventory raw materials, work-in-process and finished goods are the
measures of responsiveness for the supply chain to market demand. On an average, an
Indian organization carries a total of 33.41 days of inventory raw materials, 14.25 days
of WIP and 16.09 days of finished goods, which reflect the poor state of logistics
infrastructure within the country (Sahay et al., 2001).
Different authors define supply chain management (SCM) in various ways. SCM
is a band of approach that intends to put together the manufacturers, suppliers,
stores and warehouses under a single idea, so that the product is manufactured at
 the right time and distributed in appropriate quantities to the correct locations to Supply chain
satisfy the service level requirements and simultaneously minimize the system wide performance
costs(Simchi-Levi et al., 2008). For achieving sustained growth and developing
competitiveness, good SCM is very important. The intense competition in the
in Indian
present scenario calls for the enterprises to be more aware of their supply chains, SMEs
especially in the case of SMEs. (Singh, 2011). The long-term sustainability of SMEs
needs to adopt IT to support the supply chain functions effectively and efficiently 271
(Hsin and Papazafeiropoulou, 2008). The commercialization of IT is widespread
throughout the world, so that IT can create new business opportunities. Nowadays,
SMEs are searching the paths to enhance their productivity and make their
competitive place stronger (Premkumar, 2003). IT tools significantly add to the
infrastructural stability, which ensure that the appropriate information is delivered
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at the right time. IT also enhances the competitiveness by integrating the supply
chain partners with the inter-organizational functions. Hence, an increased
consciousness of deriving profit making through IT is seen within the SMEs
(Bhagwat and Sharma, 2007). Previous IT studies have visualized that only a few
SMEs have concentrated on the IT implementation (Grandon and Pearson, 2004). It
has also been discovered that regardless of the proportionate development of IT
within the SMEs, the implementation rate of IT by them is comparatively low
(MacGregor and Vrazalic, 2005), and large enterprises have benefited much more
than SMEs in saving their costs due to their IT-based selling concept (Riquelme,
2002). While answering for the causes behind the differential adoption of IT in
SMEs, some unique characteristics of these businesses can be highlighted. SMEs
suffer globalization constraints due to limited access to market information
(Madrid-Guijarro et al., 2009)
The aim of this study is to attain a clear picture of the supply chain implementation
in SMEs in India by exploring and discovering factors affecting SCM process within
SMEs, both in the context developing and developed countries, existing in the studies
with maximum focus on related issues of some SMEs. The suggested model-based
framework represents the dominating factors of SCM process in SMEs through critical
review of some studies from past based on SCM among SMEs. In this study, prime
importance has been given to the integration of IT to support the supply chain functions.
The study examines and entails the different factors which strengthens and influences
the SMEs to adopt IT solutions. Using the suggested model, the authors classify the
critical factors which directly and positively affect the performance of supply chain in
Indian SMEs.
The framework for affecting SCM practices in Indian SMEs is shown in Figure 1. The
structure of the paper is as follows: Section 2 in a tabular form summarizes the factors
affecting SCM practices of SMEs organizations in global scenario. Section 3 presents a
model of IT, supplier relationship, customer relationship, operational effectiveness,
logistic effectiveness and SCM competitive advantage. Section 4 presents the
questionnaire survey, and then, principal component analysis (PCA) has been used to
analyze the survey questionnaire of the respondents. This results in the different broad
constructs derived from critical success factors. Section 5 entails the application of SEM
to determine the causal relationship among the broad constructs and testing the
hypothesis. Section 6 focuses on the results and discussion of the SEM. Section 7
discusses the conclusions derived from results.
 JM2 Factors affecting SCM practices in SMEs
11,1

Questionnaire survey

272
Performance of SCM practices in
SME using PCA

Identification of key factors affecting

SCM performance
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Supplier Customer Information Operation Logistic SCM Competitive

Relationship Relationship Technology Effectiveness Effectiveness advantage

Development of a set of hypothesis between the factors

Structural equation
Determination of causal relationship between the factors
Modelling

Development of path model

Figure 1. Measurement of hypothesized relationship among the factors

Framework for
affecting SCM SCM Performance feedback
practices in Indian
SMEs Suggestion and Recommendation for improvement of SCM Performance

2. Literature review
The objectives of this research were projected to look into the essence of SCM practices
in terms of supplier relationship, customer relationship, IT, operational effectiveness
and logistic effectiveness, and to determine whether supply chain practices have an
impact on SCM competitive advantage of the firm.
Considerable amount of research in the area of critical success factors of SCM in
SMEs has been reported. The details are shown in Table I.

3. A model of IT, supplier relationship, customer relationship,

operational effectiveness, logistic effectiveness, SCM competitive
advantage
Many researchers have emphasized the impact of IT in the performance of SCM in
SMEs, and have mentioned that SCM competitive advantage can be achieved by
adopting IT. Enterprise resource planning (ERP) system (an IT solution) helps to
achieve the competitive advantage by improving customer service and reducing the
inventory costs (Kale et al., 2010). The progress of IT gives a chance for SMEs to rein
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Author Focus Findings

Ulusoy (2003)
Li et al. (2005)
Tan et al. (1998)
Chen and Paulraj (2004)
Morrissey and pittaway (2004)
Chien-Liang et al. (2005)
Hong and Jeong (2006)
Sharma and Bhagwat (2006)
Battistoni et al. (2013)
Gunasekaran et al. (2004)
Logistics, supplier relations, customer
relations and production
Supplier partnership, information
sharing, customer relationship and
Lean practices
Customer relations, quality and
purchasing
Supplier base reduction, long-term
relationship and supplier involvement
Customer relationship and supplier
relationship
IT
Roles of SMEs
IT
Operation management practices
Operational performance
This paper aimed at evaluating the SCM practices
in the manufacturing industries in terms of
logistics, supplier relations, customer relations
and production
This paper attempts to develop the SCM practices
(supplier partnership, customer relationship,
information sharing, etc.) to assess the
performance of the overall supply chain
This paper concludes that a firms customer
relations and purchasing practices has an impact
on its SCM strategy
This paper discovers and merges various supply
chain initiatives and factors (supplier
involvement, supplier buyer relationship, etc.) to
develop SCM constructs and measuring those
constructs for building a suitable theory of SCM
This paper explores the customer relationship
and supplier relationship on the perspective of
SME
This paper focused on how the small- and
medium-sized enterprises align the SCM in
reception to the information sharing
Explores the roles of SMEs as suppliers,
customers, etc., and their supply chain
relationships
Focused on information-sharing practices going
on SME
Importance of OM practices on SME
Focused on the various dimensions of operational
performance applicable to SME
(continued)

SCM in SMEs
Table I.
273
SMEs
in Indian

Factors affecting
performance
Supply chain
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11,1
JM2

274

Table I
Author Focus Findings

Chinomona (2013)
Sukati et al. (2011)
Jabbour et al. (2011)
Fawcett (1992)
Thatte (2007)
Ghobakhloo et al. (2011)
Gilaninia et al. (2012)
Zulkiffli (2009)
Jharkharia and Shankar (2004)
Logistic integration, IT, strategic Focused on the influence of IT on strategic
purchasing purchasing and logistic integration in the context
of SME
Supplier relationship, customer Focused on the relationship of supply chain
relationship, information sharing and management practices with competitive
competitive advantage advantage
Supplier relationship, customer Focused on the key factors such as supplier
relationship and information sharing relationship, customer relationship and
information sharing toward the adoption of SCM
practices
Logistic responsiveness Focused on the impact of logistic responsiveness
on SCM strategy
Competitive advantage Focused on the relationship between SCM
practices and competitive advantage
IT Focused on the reasons that support SMEs to
adopt IT
IT The use of IT towards the performance of SMEs
Supply chain operation capabilities Explores on the key factors affecting the SCOC of
(SCOC) SMEs
Buyersupplier relationship and Concludes that information sharing has important
information sharing role toward the effectiveness of supply chain
 the benefits from the technologies by reaching to the new customers and suppliers in the Supply chain
competitive market. IT helps to improve the supply chain competencies without performance
changing the business practices and manufacturing operations (Thakkar et al., 2008). in Indian
Information and communication technology (ICT) plays a key role in transforming the
SMEs to achieve the competitive advantage (Kushwaha, 2011). These findings lead to
SMEs
the following hypothesis:
H1. IT positively influences SCM competitive advantage. 275
The adoption of IT helps the SMEs to remain competitive in the global market and
achieve the operational performance. The drivers that support adoption of IT are
customer satisfaction and time- and cost-saving. (Apulu and Latham, 2011). The
advancement of IT in the form of ERP system helps to improve operational performance
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of the SMEs in terms of cost reduction, better utilization of resources and enhanced
business performance (Bharathi and Rakesh, 2012). IT helps the firms to perform better
in operational performances in terms of customer responsiveness and cost efficiency.
(Ye and Wang, 2013). These findings lead to the following hypothesis:
H2. IT positively influences operational effectiveness.
IT helps to share the forward and reverse logistics information with the suppliers (Louw
and Venter, 2006). The integration of IT with logistics helps to achieve the competitive
advantage. The integration helps to get the information in each stage of the supply chain
and accordingly optimize the logistic cost or transportation cost (Reddy, 2012). High
level of logistic integration with suppliers and customers leads to superior business
performances (Chinomona, 2013). These findings lead to the following hypothesis:
H3. IT positively influences logistic effectiveness.
Operational performances of SMEs are measured in terms of reduction in lead time,
reduction of inventory level, forecasting and reduction of cost. These measures help to
gain in supply chain competitive advantage (Gunasekaran et al., 2004). The operational
competence in terms of supply chain integration, supply chain flexibility and supply
chain learning orientation fulfils the criteria of supply chain strategic advantage. (Ngai
et al., 2011). SCM implementation has a positive relationship with the operational
performance of the firm in terms of flexibility, cost, quality and delivery (Miguel and
Brito, 2013). These findings lead to the following hypothesis:
H4. Operational effectiveness positively influences SCM competitive advantage.
Logistic performance of a firm has a high impact on the supply chain performance
because logistic service has to integrate information flow, money flow and business flow
in the supply chain (Lin, 2006). Logistic performance has a positive relationship with
supply chain performance which helps to improve organizational performance (Green
et al., 2008). Logistic effectiveness can provide benefits in terms of customer satisfaction,
reduction in cost, operating profit and growth in sale. These results in competitive
advantage of the organization (Sakchutchawan et al., 2011). Logistic integration of
SMEs with suppliers have a high impact on the business performance (Chinomona,
2013). These findings lead to the following hypothesis:
H5. Logistic effectiveness positively influences SCM competitive advantage.
 JM2 A strategic relationship with supplier can be a key parameter to achieve competitive
11,1 advantage of a firm (Noble, 1997). A good relationship with supplier will increase the
performance of the firm throughout the supply chain (Benton and Maloni, 2005). Sharing
information and technology with the supplier gives supply chain agility to a firm
(El-Tawy and Gallear, 2010). These findings lead to the following hypothesis:
H6. SCM competitive advantage positively influences supplier relationship.
276
SCM practices consider customer relationship management as a key parameter (Noble,
1997; Tan et al., 1998). The success of an organizations supply chain depends on the
relationship with the business partners that include the customers (Moberg et al., 2002;
Thatte, 2007). Customer relationship management has a positive impact on SCM, and its
power helps to improve the quality of the product and satisfy the customers of the
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manufacturing companies (Agus and Hassan, 2012). These findings lead to the
following hypothesis:
H7. SCM competitive advantage positively influences customer relationship.

4. Questionnaire survey
In all, 605 personnel of managers and assistant managers of 200 SMEs from the different
states of India were requested to participate in the survey. Only 123 responses were
received from SMEs that had SCM divisions. Out of 123 responses, 105 questionnaires
were properly filled.
There are two methods to determine sample size in structural equation modelling
(SEM), that is, as a function of the ratio of indicator variables to latent variables and as
a function of minimum effect, power and significance (Westland, 2010, Barclay et al.,
1995; Chin, 1998; Chin and Newsted, 1999; Kahai and Cooper, 2003, Nunnally, 1967;
Boomsma, 1982). Boomsmas simulations suggested that a ratio r of indicators to latent
variables of r 4 would require a sample size of at least 100 for adequate analysis and,
for r 2, would require a sample size of at least 400. Marsh et al. (1988, 1996, 1998) ran
35,000 Monte Carlo simulations on a sample size of at least 200; r 12 would require a
sample size of at least 50. Consolidation and summarization of these results suggest
sample sizes:

n 50r 2 450r 1100 (1)

In the above equation, r is the ratio of indicators to latent variables. There are 29
indicators, and 6 latent variables have been used in this paper:

r 29/6 4.43 5.

Then, using equation (1), n 100

But in our case, n 105, which satisfies the desired level. Hence, it may be reasonably
assumed that the sample size is representative of the population, and the results are
assumed to be valid.
All the firms belonged to the private sector and were mainly from the automobile part
manufacturing sector. The characteristics of the manufacturing firms, which are
represented by the respondents, are summarized in Table II. Tables III-VI give,
 respectively, the work force size, their educational qualifications, industry experience Supply chain
and annual turnover of the manufacturing industries of the respondents. performance
Out of all the firms surveyed, 45.7 per cent had a workforce less than 50, 42.9 per cent
had a workforce in between 50 and 200 and the remaining 11.4 per cent firms had a
in Indian
workforce of more than 200. Referring to the employees who filled up the questionnaire, SMEs
17.1 per cent had a diploma degree, 42.9 per cent held undergraduate degree and 40 per
cent had a postgraduate degree to add to their accolade. As far as their industrial 277
experience is concerned, 11.4 per cent had an experience of below 3 years, 8.6 per cent
had 3-6 years experience, 17.1 per cent had 6-12 years experience, 37.1 per cent had
12-18 years experience, and 25.8 per cent had more than 18 years of industrial
experience to decorate their arsenal. Talking in terms of the turnover of these SMEs, 34.3
per cent earned revenue of less than 5 crore per annum, 51.4 per cent earned in between
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5 and 50 crore and 14.3 per cent of the firms had revenue exceeding 50 crore.
SPSS-14 package has been used for factor analysis based on the responses of the
questionnaires. In all, 29 factors have been extracted from 35 factors mentioned in the
questionnaire, which captured 89 per cent of the total variance of the data set. A varimax
factor rotation has been used in PCA to group the factors and the category of factors
(constructs). Six constructs were formed. Table VII gives the constructs and the factors
associated in each construct. Table VII indicates various statistics (such as mean, factor

Industry type No. (%)

Steel 30 28.6
Machinery and equipment 57 54.3
Chemical and fertilizer 12 11.4 Table II.
Electronic equipments 6 5.7 Respondents based
Total 105 100 on industry type

Workforce size No. (%)

0-20 12 11.4
20-50 36 34.3
50-100 27 25.7
100-150 12 11.4
150-200 6 5.7 Table III.
Above 200 12 11.5 Workforce size of the
Total 105 100 respondents

Educational qualification No. (%)

Non-graduate (diploma) 18 17.1

Graduate (BE) 45 42.9 Table IV.
Postgraduate (M TECH/MBA/MSc) 42 40 Educational
PhD 0 qualification of the
Total 105 100 respondents
 JM2 loading, Cronbachs alpha, standardized regression weight and standard deviation) for
11,1 each factor.
Considering the six constructs, shown in Table VII, hypotheses were developed.

5. SEM approach
SEM is used to test complex relationships between observed (measured) and
278 unobserved (latent) variables and also relationships between two or more latent
variables. It is a combination of multiple regression and factor analysis. SEM is an
useful way to transact with multicollinearity, and is an effective method for considering
the unreliability of survey response data (Tripathy et al., 2011, 2012).
SEM is a useful tool when one dependent variable needs to be treated as an
independent variable in a subsequent analysis (Hafeez et al., 2006). For instance,
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high-level IT-based automated ordering to suppliers and up-to-date IT throughout the

supply chain are initially treated as dependent variables, and are later treated as
independent variables when their influence on the SCM competitive advantage is
considered.

5.1 Testing the hypotheses

The SEM approach has been used to test the hypothesis. The SPSS AMOS 4.0 program
was used for the purpose (Figure 2). Figure 3 is a path diagram showing the
hypothesized relationships among the constructs. AMOS 4.0 software package has been
used for SEM. The weights are significant with p 0.01 each. Following Hair et al.

Experience (yrs) No. (%)

0-3 12 11.4
3-6 9 8.6
6-9 6 5.7
9-12 12 11.4
12-15 24 22.9
Table V. 15-18 15 14.3
Industrial experience Above 18 27 25.7
of the respondents Total 105 100

Annual turnover (cr) No. (%)

0-1 9 8.6
1-2 9 8.6
2-3 6 5.7
3-5 12 11.4
5-10 39 37.1
10-25 6 5.7
Table VI. 25-50 9 8.6
Annual turnover of 50-100 9 8.6
the manufacturing Above 100 6 5.7
firm of respondents Total 105 100
 Standardized
Supply chain
Factor Cronbachs regression performance
Constructs and constituent factors Mean SD loading alpha weight in Indian
Supplier relationship 0.869 SMEs
Actively involvement of suppliers in
NPD 4.3 0.7 0.853 0.821*
Suppliers involvement for planning and
279
goal-setting activities 4.2 0.7 0.849 0.828*
Suppliers involvement for quality
improvement of the product 4.3 0.8 0.869 0.841*
Solution of the problem jointly with our
suppliers 4.3 0.7 0.823 0.863*
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Demand forecasting in collaboration

with our suppliers 4.3 0.7 0.862 0.817*
Prepare the future strategy in
collaboration with our suppliers 4.1 0.8 0.839 0.808*
Logistic effectiveness 0.863
Quickly adjust warehouse capacity to
the changes in demand 4.2 0.8 0.815 0.852*
Rapidly change transportation system
to the changes in demand 4.3 0.7 0.811 0.870*
Collaboration of activities concerning
with replenishment and transportation
and distribution with the other actors
in the chain 4.3 0.8 0.817 0.829*
Effectively delivers urgent shipments 4.3 0.7 0.797 0.842*
Operational effectiveness 0.879
Quickly adjusts production capacity to
the changes in demand 4.4 0.8 0.856 0.865*
Quickly set up equipment to address
sudden demand changes 4.2 0.7 0.857 0.891*
Flexible production system to handle
order pattern 4.5 0.9 0.859 0.843*
High level of production process
automation for main product 4.3 0.7 0.864 0.837*
Information technology 0.890
Keep customer informed about the
issues that affect business 4.1 0.9 0.829 0.889*
Provides the sales forecast data along
supply chain 4.3 0.8 0.824 0.861*
High-level IT-based automated
ordering from customers 4.2 0.7 0.821 0.912*
High-level IT-based automated
ordering to suppliers 4.4 0.7 0.826 0.844*
Up-to-date IT throughout the supply Table VII.
chain 4.2 0.6 0.819 0.877* Principal component
(continued) analysis
 JM2 Standardized
11,1 Factor Cronbachs regression
Constructs and constituent factors Mean SD loading alpha weight

Customer relationship 0.871

Assess the importance of our
280 relationship with our customers 4.5 0.6 0.778 0.859*
Consult with customers for new
product development 4.4 0.8 0.789 0.830*
Often evaluate and measure customer
satisfaction 4.6 0.6 0.783 0.866*
Often determine customers future need 4.5 0.9 0.794 0.845*
Shares the cost information with the
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customer 4.3 0.7 0.765 0.834*

SCM competitive advantage 0.902
Offer good quality products to our
customers 4.3 0.6 0.849 0.887*
Deliver the products more quickly than
our competitor 4.3 0.7 0.841 0.875*
Offer customized products to our
customers 4.2 0.7 0.844 0.917*
Products have high customer
satisfaction than competitors 4.5 0.7 0.838 0.902*
Time-to-market lower than industry
average 4.4 0.8 0.836 0.871*

Table VII. Note: * Significant at p 0.01

(2005), Hung and Lu (2008) and Lattin et al. (2009), goodness of fit index (GFI),
normalized fit index (NFI) and root mean square error approximation (RMSEA),
chi-square statistics and degree of freedom (DF) estimates were computed to validate the
model. Table VIII gives the computed values of various indices. Columns 1, 2 and 3 give
the chi-square (2), DF and their ratio, respectively. Column 4, 5 and 6 give the value of
GFI, NFI and RMSEA of the model. Here, GFI and NFI values are more than 0.9 and
RMSEA value is less than 0.05, which justify the fitness of the model. The parameters
indicate that the model is reliable (Arbuckle, 1997; Hafeez et al., 2006), and we can use
this model to predict the relationships among the constructs.
The path analysis presented in Figure 3 is based on the empirical data collected of
SCM from various SMEs in India. The standardized regression weight indicated on the
branches in the path diagram was used to accept or reject the hypothesis.

6. Results and discussions

The path analysis presented in Figure 3 is based on the empirical data of SCM
practices collected from various SME sectors in India. The standardized regression
weight indicated on the branches in the path diagram was used to accept or reject the
hypothesis. Following Hair et al. (2005), Hung and Lu (2008) and Lattin et al. (2009),
the hypotheses corresponding to standardized regression weight less than 0.1 were
 Downloaded by Universiti Malaysia Terengganu At 17:22 17 January 2017 (PT)

model
Figure 2.
281
SMEs
in Indian

Results of the path

performance
Supply chain
 JM2 Operational 0.648 Information 0.874 Logistic
11,1 Effectiveness Technology Effectiveness

0.913
0. 5 21
13 0.7

282 SCM Competitive

Advantage

0.511
0.519

Figure 3. Supplier Customer

Relationship
Path model Relationship
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Table VIII. 2 DF 2/DF GFI NFI RMSEA

Model fitting
parameters 503.94 173 2.913 0.911 0.903 0.0489

refuted. All the seven hypotheses were supported at the 1 per cent level of
significance (Table IX).
The survey provides valuable insights into the factors affecting SCM practices in
Indian SME sectors. The specific findings of the survey and the interpretation of the
results obtained in the context of objectives as set are summarized below:
Table IX shows that the standardized regression weight takes the highest value
(0.913) for the positive effect of IT on SCM competitive advantage.
From an analysis of the supported hypotheses (Table IX), we conclude that IT helps to
achieve the logistic effectiveness and encourages the SCM competitive advantage.

Standardized
Hypothesis Description regression weight Inference drawn

H1 IT has a positive effect on SCM 0.648 Supported

competitive advantage
H2 IT has a positive effect on operational 0.874 Supported
effectiveness
H3 IT has a positive effect on logistic 0.913 Supported
effectiveness
H4 Operational effectiveness has a positive 0.513 Supported
effect on SCM competitive advantage
H5 Logistic effectiveness has a positive 0.721 Supported
effect on SCM competitive advantage
H6 SCM competitive advantage has a 0.519 Supported
positive effect on supplier relationships

Table IX. H7 SCM competitive advantage has a 0.511 Supported

Results of the positive effect on customer
hypothesis tests relationships
 IT is a key capability for operational effectiveness, which enhances the SCM Supply chain
competitive advantage, which further accelerates better customer relationship and performance
supplier relationship.
in Indian
7. Conclusions SMEs
The rate of change in manufacturing today is faster than ever. In this paper, an attempt
has been made to identify the factors for SCM practices of SMEs organizations in India. 283
An analysis of the responses to the questionnaire, together with the use of factor
analysis and PCA has helped in framing broad constructs of factors. Using these broad
categories of factors, a number of hypotheses have been developed to find the causal
relationships among them using SEM. In this study, we analyzed the structural relations
among IT, logistic effectiveness, operational effectiveness, customer relationship,
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supplier relationship and SCM competitive advantage. These empirical research

outcomes based on the fitted SEM bring interesting results.
The results indicate that IT holds the key to achieve the SCM competitive advantage
in SCM practices of SMEs organizations in India. When we look at the component
analysis (Table VII), we see that the standardized regression weight takes the highest
value for high-level IT-based ordering system for the customers followed by keeping the
customer informed about the issues that affect the business. Up-to-date IT technology
throughout the supply chain comes in the third position and providing the sales forecast
data along the supply chain follows it. High-level IT-based ordering system to suppliers
carries the lowest standardized regression weight among all the factors stated under IT
stated in Table VII. These are the different factors pertaining to IT that should be
strengthened to support the IT strategy. This strategy will benefit the SMEs by
strengthening their logistic effectiveness and by providing them a SCM competitive
advantage that is a major bottleneck for the growth in the SME sector. The study
presented here will help the SME managers in identifying the areas in which they need
to focus their attention to improve SCM practices.
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About the authors

Sushanta Tripathy currently is working as a Professor at the School of Mechanical Engineering in
KIIT University, Bhubaneswar, Orissa, India. He has completed his PhD from the Department of
Industrial Engineering and Management, Indian Institute of Technology, Kharagpur. He has over
23 years of teaching, research and industry experience in India and abroad. He has published a
number of papers in national and international conferences and journals. His major areas of
interest include production operations management, multivariate analysis, service operations
management, supply chain management and quality management. He is a Fellow of Institution of
Engineers, India. Sushanta Tripathy is the corresponding author and can be contacted at:
sushant.tripathy@gmail.com
Satyabrata Aich is working currently as an Assistant Professor at the School of Mechanical
Engineering, KIIT University, Bhubaneswar, Orissa. He has completed his MTech in Manufacturing
and Precision Engineering from the Department of Mechanical Engineering, Indian Institute of
Technology, Madras. He has over four years of teaching, research and industry experience in India and
abroad. Prior to moving KIIT University, he was working with Tata Motors Research Centre, Pune,
and Tata Motor European Technical Center, UK and TDK Corporation, Japan. His Research interests
are supply chain management, operation management and quantitative analysis.
Anurup Chakraborty is a mechanical engineering graduate from KIIT University. He is an
Experienced Public Speaker, and has won many awards in his career. He has presented a good
number of papers in national conferences. His interest fields are industrial engineering, supply
chain management and human psychology.
Gyu M. Lee is an Associate Professor at Department of Industrial Engineering, Pusan National
University. He got the BS and the MS from Seoul National University and the PhD from The
Pennsylvania State University. He had worked for University of Arizona, Northeastern
University, University of Illinois and Oregon State University before he joined Pusan National
University. He is currently the Editor-in-chief of International Journal of Industrial Engineering:
Theory, Applications and Practice. His research includes operations research, computational
intelligence, production systems and supply chain management.

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