IJLM-07-2012-0066

The International Journal of Logistics ManagementLogistics and supply chain process integration as a source of competitive advantage: Anempirical analysisMahour Mellat-Parast John E. Spillan

Article information:To cite this document:Mahour Mellat-Parast John E. Spillan , (2014),"Logistics and supply chain process integration as a source ofcompetitive advantage", The International Journal of Logistics Management, Vol. 25 Iss 2 pp. 289 - 314Permanent link to this document:http://dx.doi.org/10.1108/IJLM-07-2012-0066

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Logistics and supply chainprocess integration as a source

of competitive advantageAn empirical analysis

Mahour Mellat-ParastSchool of Technology, North Carolina A&T State University,

Greensboro, North Carolina, USA, and

John E. SpillanDepartment of Management, Marketing and International Business,

School of Business, University of North Carolina at Pembroke, Pembroke,North Carolina, USA

Abstract

Purpose The purpose of this paper is to investigate the effectiveness of logistics and supply chainintegration on firm competitiveness in manufacturing firms.Design/methodology/approach Utilizing the resource-based view of competitive advantagealong with the transaction cost economics theory, the authors address the critical role of logistics andsupply chain strategy as the driver of logistics and supply chain integration and firm competitiveness.Structural equation modeling is used to determine the effect of two sets of logistics and supplychain integration practices (logistics/supply chain information integration and logistics/supply chainprocess integration) along with logistics outsourcing decision practices (logistics investment decisionsand private warehousing decisions) on firm competitiveness.Findings The results indicate that logistics/supply chain strategy is the main driver of logisticsand supply chain integration and logistics decisions. Furthermore, the findings suggest that logistics/supply chain process integration is the most significant predictor of firms competitive position.Research limitations/implications Further examination and testing of the proposed modelacross multiple contexts is necessary for validity of the findings.Originality/value This is one of the first studies that provide an empirical analysis on theimportance of different sources of integration (information and process) in logistics and supply chainand their impact on firm competitiveness.

Keywords Supply chain management, Competitive advantage, Logistics and supply chain strategy,Logistics and supply information integration, Logistics and supply chain process integration

Paper type Research paper

1. IntroductionLogistics and supply chain management, the process of managing material andinformation flows from the source, through the firm and to the customer, has beenrecognized as an important part of organizational strategy (Heskett, 1977; Ballou, 1999;Stock and Lambert, 2001; Hofer and Knemeyer, 2009; Rutner et al., 2012). Logisticsand supply chain management plays an important role in the ability of the firms toremain competitive in the marketplace (Shankar, 2001; McGinnis et al., 2010). Managersinvolved in the logistics or supply chain process use strategies consistent with deliveringhigh-quality products with competitive price and service levels. These strategies shouldtranslate into functional policies that will bring the goods and services to the customer(Stock and Lambert, 2001; Wisner et al., 2005; Goffnett et al., 2012).

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0957-4093.htm

Received 23 July 2012Revised 12 January 2013

15 June 201331 July 2013

Accepted 11 August 2013

The International Journal of LogisticsManagement

Vol. 25 No. 2, 2014pp. 289-314

r Emerald Group Publishing Limited0957-4093

DOI 10.1108/IJLM-07-2012-0066

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Logistics and supply chain integration is perceived as an important inter-firmpractice, which leads to better performance (Frohlich and Westbrook, 2001; Rosenzweiget al., 2003; Mitra and Singhal, 2008; Jayaram et al., 2010). Nevertheless, logisticsintegration still remains a challenge due to the complexity and involvement of multipleorganizations (Richey et al., 2010; Villena et al., 2011). While previous studies haveaddressed the critical role of integration in enhancing competitive position of the firmthe relative importance of different forms of integration on firm competitivenesshas received little attention. This could be partly attributed to the lack of precisedefinitions and proper operationalization of concepts that are related to different formsof integration in logistics and supply chain. We aim to fill this gap in the literature inlogistics and supply chain management.

The remainder of this paper is organized as follows: first the theoretical support anda review of the literature on logistics and supply chain integration are presented. Basedon the review of the literature we present our hypotheses. The methodology sectionand the target sample follow this. Next, we explain the results and discuss the findingswith respect to the theory and practice. Finally, we present the managerial implicationsand future research.

2. Theoretical perspectiveThe resource-based view (RBV) of competitive advantage can be used to address thedevelopment of logistics/supply chain management practices and their impact on firmcompetitiveness. According to RBV superior firm performance is the result of theability of firms to accumulate resources and capabilities that are rare, valuable, anddifficult to imitate (Rumelt, 1984; Barney, 1991). In this perspective firms are consideredas bundle of distinct and unique resources, which enable them to develop and maintaincompetitive advantage (Wernerfelt, 1984; Day, 1994; Hinterhuber, 2013).

Researchers and scholars in logistics and supply chain management have recognizedthe importance of RBV to strategic logistics research (Olavarrieta and Ellinger, 1997;Ramsay, 2001; Lai et al., 2012; Barney, 2012). The RBV has been adopted to examinelogistics/supply chain capabilities and performance in several studies; these includelogistics service quality performance (Richey et al., 2007), warehouse managementcapability (Autry et al., 2005), and reverse logistics performance (Daugherty et al., 2001).

Firms would be able to achieve a competitive edge through developing uniquelogistics practices and capabilities (Bowersox et al., 2000; Gligor and Holcomb, 2012).Organizations are increasingly relying on their information technology capabilitiesas a source of competitiveness; they develop IT-enabled supply chain capabilitiesthat are firm specific and hard-to-copy across organizations (Wu et al., 2006). The RBVunderlines the significance of heterogeneous purchasing and supply chain managementcapabilities in developing and maintaining competitive advantage (Barney, 2012). Firmssuch as Wal-Mart and Toyota have developed unique logistics and supply chain systemsenabling them to achieve superior performance and competitive edge in the marketplace(Ghemawat, 1986; Iyer et al., 2009; Barney, 2012).

As an extension to RBV, the knowledge-based view (KBV) of competitive advantageclaims that inter-firm linkages may be a source of competitive advantage. This viewsuggests that a firms critical resources may span firm boundaries and may be embeddedin inter-organizational resources and routines (Dyer and Singh, 1998; Doh, 2000).Proponents of KBV argue that strategic resources and knowledge come not only fromwithin the organizations boundaries, but also from the outside (Lai et al., 2012).In the context of logistics and supply chain systems, the KBV posits that three forms of

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integration (internal, customers, and suppliers) can provide the firm with the capabilitiesto achieve a competitive edge. Overall, the RBV and KBV assert that superior firmperformance can be achieved when both internal and external resources are integratedto develop organizational capabilities (Grant, 1996; Teece et al., 1997). A sustainablecompetitive advantage is achieved when firms can develop internal capabilities that canenhance organizational capabilities to absorb and exploit external resources.

2.1 Logistics and supply chain integrationThe importance of supply chain integration in improving supply chain performancehas been addressed by both academic and practitioner literature (Frohlich andWestbrook, 2001; Naslund and Williamson, 2008; Richey et al., 2010; Jayaram et al.,2010; Childerhouse and Towill, 2011; Wong et al., 2011). The literature provides numerousperformance benefits of supply chain integration such as higher return on investment,higher return on assets, lower cost, higher quality of products and/or services, higher levelof customer service, and effective knowledge management mechanisms (Fisher, 1997;McCarthy and Golicic, 2002; Lambert et al., 2005; Tummala et al., 2006; Handfield et al.,2009). Supply chain integration is defined as practices and procedures through whichfirms obtain operational and strategic efficiencies both internally and externally, throughcollaboration among internal functions and with other firms (Stank et al., 2001; Rodrigueset al., 2004; Kim, 2006; Flynn et al., 2010).

Development of an efficient supply chain needs more than attention to informationsystems and proper communication channels. It requires reorganizing and restructuringorganizational and inter-organizational processes (Richey et al., 2010). The literaturein force field theory and organizational learning theory emphasize the importance ofchanges in organizational social habits, norms, and values in order to achieve sustainableprocess improvement (Lewin, 1951; Senge et al., 1999). While the above two perspectivesto change have different roots, they both assert that change in organizational processeshappen when individuals and/or groups are fully engaged, motivated, and incorporatedinto the change process. In the Lewins (1951) terminology, change happens throughunfreezing the current process, moving to a new process, and freezing it at this new levelto create change. Senge et al. (1999) also provide an inter-related (dynamic) perspectiveto change process where change happens as the result of the development of newcapabilities, and through formation of informal networks of individuals and groups,which leads to awareness, engagement, and development of new business processesand practices. As such, logistics and supply chain process integration is much more thansharing information and the development of proper communication channels; it requiressignificant investments in inter-organizational process development, joint decisionmaking, and inter-firm relationship management.

Fawcett and Magnan (2002) provide a three-stage process to supply chainintegration. At the first stage, the integration among members of the supply chain islimited to information integration, where the application of information technologiesfacilitates exchanges and transactions among members. The second stage emphasizesdevelopment of integrative inter-firm processes. The most advanced level of supplychain integration is the development of inter-firm relationships and culture of collaborativedecision making. Beretta (2002) provides a similar perspective to supply chain integration:information integration, cognitive integration, and managerial integration.

In line with the above studies and their conceptualization of logistics and supplychain integration we have defined and developed two constructs that address the firsttwo stages of logistics/supply chain integration: logistics/supply chain information

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integration and logistics/supply chain process integration. According to the suggestionprovided by Fawcett and Magnan (2002) at the simplest form supply chain integrationis viewed as the application of new information technologies to help increase thequality and speed of information exchange among channel members (logisticsinformation integration); the second stage of integration refers to supply chain practicesthat tend to recognize a set of fundamental building blocks which lead to closer channelrelationships. The core building blocks include linked information systems, integrativeinter-organizational processes, aligned goals, consistent measures, shared risks andrewards, and cross-experienced managers (logistics/supply chain process integration).

The discussion above sheds some light on the challenges and complexities ofintegration across organizations. Logistics and supply chain integration is muchmore than implementation of information systems, development of new capabilities,or generation of new knowledge. It requires a new social norm and productiverelationship management with customers and suppliers. It even may require change inorganizational culture and structure in order to facilitate the integration process(Braunscheidel et al., 2010). The process becomes more complex when firms shouldaddress both internal and external integration (Frohlich and Westbrook, 2001; Lambertet al., 2005). Effective integration happens when both integral and external processesare integrated.

2.2 Outsourcing and third part logistics (3PL) decisionsOutsourcing in logistics and supply chain is not a new phenomenon. Outsourcing all orsegments of a logistics and supply chain system is a common practice in the industry(Kenyon and Meixell, 2011). Firms are motivated to outsource their logistics activitiesto achieve certain objectives such as reduce cost ( Jiang et al., 2006; Lau and Zhang,2006; Aimi, 2007), improve product quality (Bardhan et al., 2006), improve flexibility(Lau and Zhang, 2006), and increase market share (Skjoett-Larsen, 2000). Elliott (2006)indicates that for most organizations the objective is to achieve 20 percent costreduction (in direct labor and variable cost). Within the last decade, 3PL hasexperienced significant growth (Knemeyer and Murphy, 2005; Lieb, 2008). Severaloperational and strategic variables motivate firms to use third-party capabilities andcompetencies. Such decisions enable organizations to develop expertise and necessarycapabilities that are critical to their success in the marketplace (Halldorsson andSkjott-Larsen, 2004).

Empirical and theoretical studies on 3PL are very limited. Chen et al. (2009) pointedto the need to conduct more empirical studies on the significance of outscoringpractices in logistics and supply chain and their impact on firm performance.While it is apparent that firms can achieve some cost advantages through utilizingexternal capacities these benefits may not be sustainable as the result of the firmsdissatisfaction with the service. As such, it is important to determine the effect ofoutsourcing activities on firms performance and competitiveness and examine theoverall impact of these decisions along with other logistics and supply chain practiceson firm performance.

3. Variables and measuresIn this study, several measures have been used to assess the effect of logistics/supplychain strategy and logistics/supply chain integration on firm competitiveness. We havedefined and selected the variables with respect to the RBV of the firm and their rolein development of strategic resources for the firm to generate competitive position.

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The following section provides an explanation of the variables; the abbreviations (inparentheses) are used to refer to each construct in the methodology section.

Logistics/supply chain strategy (LS): is defined as an organizations strategypertinent to its logistics and supply chain practices with the objective of reducing cost,increasing customer service, and achieving coordination in inter-organizationaland inter-firm processes. Logistics/supply chain strategy is the main driver of a firmsdecisions on how to develop, maintain, and implement logistics/supply chain-relatedpractices (Miles and Snow, 1978; Galunic and Eisenhardt, 1994).

Logistics/supply chain information integration (LII): is defined as the set of practices(such as electronic data interchange or integrated computer systems) associatedwith design and development of information systems across logistics and supplychain (Gustin et al., 1995; Closs and Savitskie, 2003; Paulraj and Chen, 2007; Prajogoand Olhager, 2012). Information systems play an important role in the development oflogistics and supply chain relationships (Kim and Narasimhan, 2002; Giachetti, 2004;Jayachandran et al., 2005). Implementation of logistics information integration impliesa long-term oriented relationship indicating that the partner firms are dedicated towork beyond organizational boundaries (Wei et al., 2012).

Logistics/supply chain process integration (LPI): refers to the set of continuousrestructuring activities aimed at seamlessly linking relevant business processesand reducing redundant or unnecessary processes within and across firms (Chenet al., 2009; Katunzi, 2011; Narasimhan et al., 2011; Narayanan et al., 2011). Theprocess approach of supply chain has been emphasized by the Supply ChainOperations Reference model, which proposes a process-view of managing business(Stewart, 1997).

Logistics investment decisions (LID) and private warehousing decisions (PWD): referto the operational and strategic decisions and the process by which firms decide to useprivate distribution systems (Min, 2009). Warehousing could be a costly function(Murphy and Poist, 1993); therefore, firms may decide to outsource these activitiesto a third party (3PL). Warehousing is one of the most commonly outsourced activitiesin logistics and supply chain systems (Kenyon and Meixell, 2011). Decisions on theimplementation of private warehousing can be divided in two categories: one categoryis related to the application of tools and techniques (e.g. capital budgeting, discountedcash flow) to determine the effectiveness of private warehousing (LID); this is moretechnical and operational oriented. The other sets of practices refer to the effectiveconsideration of variables (e.g. market or product mix, quality or service levels) inprivate warehousing decisions, which has a strategic orientation (PWD).

Company/division competitiveness (CC): determines the ability of the firm tomaintain its competitive position in the marketplace (Garrido et al., 2007; Mesquitaet al., 2007; Wu, 2008).

4. HypothesesAn important aspect of effective integration in a supply chain system is coordinationand access to information across the supply chain. Some argue that informationintegration in a supply chain system is the first step in external integration (Handfieldand Nichols, 1999; Rosenzweig et al., 2003). The firms strategy is the driving force inthe development and formation of specific organizational and inter-organizationalpractices. Collaboration and integration with supply chain partners are key strategiclevel decisions, which require sharing resources and long-term commitment(Childerhouse and Towill, 2011). Organizations will not be able to benefit from their

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investment in inter-firm information systems if they are not willing to share strategicinformation with their suppliers and customers (Prajogo and Olhager, 2012). As such,the decision regarding information sharing with customers and suppliers is directlylinked to the firms logistics and supply chain strategy. As such, it is hypothesizedthat:

H1a. Logistics/supply chain strategy is positively related to logistics/supply chaininformation integration.

The firms strategy is the major driver of organizational structure and processes(Miles and Snow, 1978; Galunic and Eisenhardt, 1994; Chen et al., 2009). The fit betweena firms strategy, its structure and its processes is the most significant factor in effectiveimplementation of the firms strategy and achieving its objectives (Grinyer et al., 1980;Habib and Victor, 1991). Development of inter-firm processes across the supply chain isdirectly influenced by the firms strategy since firms develop structures and processesthat are consistent with their strategy.

In the literature, two theoretical frameworks have been used to examine the impactof logistics/supply chain strategy on integration. The notion of strategy-structureperformance and its relevance to logistics and supply chain has been widely acknowledgedin the logistics and supply chain literature (Christopher, 2005; Defee and Stank, 2005;Chen et al., 2009). Researchers employing the transaction cost economics (TCE) theoryhave also argued that practices such as logistics process integration enhance thecompetitive position of the firm in the marketplace (Rindfleisch and Heide, 1997). Thissuggests that development of inter-firm processes in a supply chain is directly influencedby the firms logistics and supply chain strategy (Chow et al., 1995; Chen et al., 2009).Therefore, it is hypothesized that:

H1b. Logistics/supply chain strategy is positively related to logistics/supply chainprocess integration.

One of the key decisions in any logistics and supply chain system is outsourcingdecisions. The objective of these decisions is to achieve certain operational and/orstrategic goals such as reducing cost, improving product quality, improving flexibility,and increasing market share (Bardhan et al., 2006; Lau and Zhang, 2006; Aimi, 2007).These operational and/or strategic objectives are directly influenced by a firmslogistics and supply chain strategy. For example, the decision to use 3PL partners fortransportation and warehousing activities is directly influenced by the firms logisticsand supply chain strategy (Halldorsson and Skjott-Larsen, 2004; Lieb, 2008). Therefore,it is hypothesized that:

H1c. Logistics/supply chain strategy is positively related to logistics investmentdecisions.

H1d. Logistics/supply chain strategy is positively related to private warehousingdecisions.

Coordination with suppliers and customers has significant impact on organizationalprocesses and operations. Improvement in organizational processes and routinesrequires access to information and availability of data (Lin et al., 2002; Shah et al., 2002;

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Closs and Savitskie, 2003; Chae et al., 2005). This objective cannot be achieved withoutimplementation of effective information systems and the development of integratedinformation systems across the supply chain (Bagchi and Skjoett-Larsen, 2003). Kleinand Rai (2009) addressed the importance of information integration across organizationsin logistics systems. They found that buyer-supplier information flows positivelyaffect the relationship-specific performance for both parties. The positive impactof information integration with suppliers and customers on firm performance hasbeen addressed in several studies (Frohlich and Westbrook, 2002; Shah et al., 2002;Rosenzweig et al., 2003; Vickery et al., 2003).

Logistics information integration can be viewed as a strategic resource andcapability that can enhance the visibility of supply chain by providing and sharinginformation such as order status, shipment notice, lead time, and other necessaryinformation that can speed up the decisions making process, reduce the transactioncost, and enable quick and effective response to market and environmental uncertainty.Viewed from the lenses of RBV, effective information integration with suppliers andcustomers could be a source of competitive advantage since integrated IT-enabledcapabilities are specific to the firm and the supply chain, are valuable, and cannot beeasily imitated by the competitors. Accordingly, it is proposed that:

H2. Logistics/supply chain information integration is positively related to firmscompetitiveness.

Supply chain coordination aims at improving supply chain performance by aligningthe plans and the objectives of individual enterprises. Collaboration in supplychain emphasizes joint decision making in order to improve the performance of allparticipants (Horvath, 2001). The simplest form of coordination is achieved in logistics,where it is aimed at aligning the material (or product) flow within the supply chain.An important aspect of logistics coordination is the effective integration of supply anddemand, improving performance, and reduction in operational cost across the supplychain (Barratt, 2004).

The integration of processes across the supply chain has been regarded as the keyelement in the supply chain where it enables the partners to make their relationshipsand interactions more effective and efficient (Hammer, 2001; Lambert, 2004). Stock(2002) has pointed out that process integration between firms is critical to the successof the supply chain. The literature on business process management underlines thesignificance of business process integration across firms. For example, Hammer (2001)argues that the real gold can be found in integration of business processes acrossfirms. Other scholars have emphasized the importance of process integration acrossthe firm in making transactions and relationship structure more efficient and effectiveand have argued that process integration in a supply chain is the key to supply chainmanagement success (Stock, 2002; Lambert, 2004). Looking from the lenses of RBV,firm embeddedness in external relationship networks has important implications forfirm performance (Gulati et al., 2000). The relevance of RBV to supply chain processintegration becomes evident because of the engagement of both internal and externalresources (Chen et al., 2009).

Alternatively, from the TCE perspective the development of logistics/supply chainprocess integration can be viewed as an alternate approach to reduce production andoperations cost, and to minimize risk, uncertainty, and opportunistic behavior in thesupply chain. Researchers have argued that external integration reduces cost through

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economies of scale, improves asset utilization, lowers inventory, and reduces lead-time(Maloni and Benton, 2000). Therefore, it is hypothesized that:

H3. Logistics/supply chain process integration is positively related to firmscompetitiveness.

In order to integrate their processes with supply chain partners such as suppliers,distributors, and 3PL providers, firms develop processes to reduce cost and increaseefficiency. The TCE provides an important theoretical perspective to integration withpartners in a supply chain where it provides a framework to analyze and evaluatealternative governance structures (Poppo and Zenger, 1998; Dahlstrom and Nygaard,1999). In this perspective integration with logistics distributors or 3PL providerscan be explained through TCE where firms attempt to minimize their logistics anddistribution costs while maintain the effectiveness of their supply chain. Through long-term relationship with key partners, organizations minimize the likelihood of opportunisticbehavior, thus reducing transaction costs and maintain high level of supply chainefficiency (Anderson and Weitz, 1992; Heide and John, 1990). Therefore, from the TCEperspective practices associated with 3PL can be viewed as an alternative governancemechanism to enhance efficiency and reduce cost, allowing the firm to achieve acompetitive edge through cost advantage.

An important functional area in logistics is warehousing management.Warehousing can be a highly costly and labor-intensive function (Murphy and Poist,1993). Private warehousing is less costly (if utilization is high), may make greater useof human resources, and can provide tax benefits (Stock and Lambert, 2001). Decisionson the implementation of private warehousing can be divided in two categories: onecategory is related to the application of tools and techniques (e.g. capital budgeting,discounted cash flow) to determine the effectiveness of private warehousing (moretechnical and operational oriented). The other sets of practices refer to the effectiveconsideration of variables (e.g. market or product mix, quality or service levels) inprivate warehousing decisions, which has a strategic orientation. Based on the abovediscussion, we hypothesize that:

H4. Logistics investment decisions is positively related to firms competitiveness.

H5. Private warehousing decisions is positively related to firms competitiveness.

5. MethodologyWe used a survey developed by (McGinnis and Kohn, 1993; McGinnis et al., 1990).Articles based on this instrument are found in McGinnis et al. (1990) and McGinnis andKohn (1993). A bilingual associate translated the instrument into Spanish. Backtranslation was completed to check any discrepancy in addition to potential translationerrors. Table I provides detailed information on our sample.

The authors worked through the Guatemalan Ministry of Economics as a means ofcollecting data. One of the authors trained Ministry of Economics staff by explaining tothem the purpose of the survey, what its contents were, how to complete the survey andhow to respond to questions from the respondents. Following the training, the Ministryof Economics staff conducted face-to-face interviews with representatives fromsmall companies located in nine major regional centers in Guatemala. The Ministry

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staff interviewed company representatives in Guatemala City, Escuintla,Villa Nueva, Quetzaltenango, Coban, Salama, Chiquimula, Sacatepequez, andPeten. In total, 180 companies were surveyed. We received 136 responses. We believethat the selection of businesses in this large geographic area is a substantialcross section of the Guatemalan business sector and provides near representativenessof the sample.

5.1 Descriptive statisticsThe mean and standard deviation for each construct have been calculated and theresults are provided in Table II. The data were collected on a 1-5 Likert scale. All variablesappear to come from a normal distribution.

As an alternative test we used the Kolmogorov-Smirnov test of normality.The result showed that all constructs meet the requirement of normality. Overall, weconcluded that the requirement for normality was satisfied.

Education Frequency PercentHigh school 10 7.4Vocational school 17 12.4Associate degree 32 23.5Bachelors degree 28 20.6Masters degree 27 19.9Doctoral degree 2 1.5Other 20 14.7Total 136 100.0Number of employees Number0-5 31 22.86-10 38 27.911-20 33 24.321-50 20 14.751-100 4 3100-200 2 1.5201-300 5 3.7301-400 3 2.1400-500 Total 136 100.0Annual sales NumberUnder $1 million 86 63.2$1 million to $2 million 15 11$2.01 million to $3 million 7 5.1$3.01 million to $4 million 5 3.7$4.01 million to $5 million 3 2.2More than $5 million 20 14.7Total 136 100.0Job categories FrequencyPresident 22 16.2Vice-President 6 4.4General Manager 26 19.1Functional Manager 11 8.1Supervisor 28 20.6Owner 15 11Other 28 20.6Total 136 100

Table I.Sample description

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5.2 Empirical validation of the measuresAccording to Churchill (1979) construct validity measures the correspondencebetween a concept and the set of items used to measure the construct. This processstarts with the assessment of content validity (OLeary-Kelly and Vokurka, 1998).Content validity refers to the extent to which a measure represents all aspects of agiven concept (Nunnally and Bernstein, 1994). One way to ensure content validity isthrough reviewing the literature and using experts opinion (Churchill, 1979; Kerlinger,1986). In terms of the content validity, the instrument meets the requirement sinceit has been developed based on review of the literature on logistics and supply chainmanagement and has incorporated the viewpoint of practitioners. This procedurefor assessing content validity has been used in previous studies (e.g. Dow et al.,1999). Therefore, we concluded that the instrument meets the requirements of contentvalidity.

To establish the unidimensionality of the constructs we examined the validity of themeasurement model for each construct separately using AMOS 20.0. According to Hairet al. (2009) the validity of each construct should be examined before the examinationof the validity of the full-measurement model. Following this recommendation,we examined the validity of each construct separately. Table III shows the result of theconfirmatory factor analysis (CFA).

The goodness-of-fit (GFI) index compares the theory to the reality through assessingthe similarities of the proposed model to the estimated covariance matrix. GFI valuesclose to 0.9 or higher indicate a good model fit. In addition to GFI, the w2 statistic is usedto assess the fit between the proposed model and the estimated model. In using w2 toassess perfect model fit, two conditions should be considered: A small w2 and a p-value

Variable Mean SD Skewness

Logistics strategies (LS) 2.00 0.72 0.77Logistics information integration (LII) 2.08 0.81 1.10Logistics process integration (LPI) 2.15 0.75 0.78Logistics investment decisions (LID) 2.43 0.75 0.41Private warehousing decisions (PWD) 2.32 0.75 0.53Company/division competitiveness (CC) 1.98 0.74 0.83

Table II.Descriptive statistics

Construct Items GFI w2/df CFIAIC-CAIC(default)

AIC-CAIC(saturated)

AIC-CAIC(independent)

Logistics/supply chainstrategies 8 0.92 2.03 0.93 161.46 266.07 512.38Logistics/supply chaininformation integration 4 0.95 7.85 0.94 63.00 59.13 249.07Logistics/supply chain processintegration 4 0.99 0.58 0.99 48.47 59.13 131.91Logistics investment decisions 3 0.99 1.12 0.99 30.68 35.47 74.47Private warehousing decisions 3 0.98 3.16 0.97 32.72 35.47 98.90Company/divisioncompetitiveness 4 0.99 0.34 0.99 47.98 59.13 106.10

Table III.Confirmatory factoranalysis for the constructs

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greater than 0.05. Relatively small w2 supports the proposed model (Hair et al., 2009).The w2 appears to be sensitive to the sample size; therefore alternative GFI measuresare recommended (Hair et al., 2009). The normed w2 (w2/df) ratio has been alsorecommended as another measure of model fit where a ratio less than three is consideredas a good model fit (Carmines and McIver, 1981; Bollen, 1989; Hair et al., 2009).As a final measure of model fit we calculated the Akaike Information Criterion (AIC),which adjusts model w2 to penalize for model complexity taking into account the lack ofparsimony and over parameterization. Thus, AIC reflects the discrepancy betweenmodel-implied and observed covariance matrices. CAIC or consistent AIC penalizesfor sample size as well as model complexity. In a good model fit, CAIC for the defaultmodel should be smaller than that of the saturated model and the independent model.Based on the review of the fit indices on Table III the requirement of validity of eachscale was established.

5.3 CFA for the full modelTo examine the unidimensionality we conducted the CFA with the full model(Hair et al., 2009). Therefore, before testing the structural model we examined themeasurement model for all constructs without constraining the covariance matrix.Through examining the modification indices, standardized residuals and the GFIstatistics the validity of the measurement model was examined[1]. Table IV presentsthe result of the CFA for the full model.

The GFI statistics are used to examine the validity of the measurement model. Hairet al. (2009) recommend the examination of a variety of GFI statistics to determinethe overall fit of the model. An examination of the GFI statistics (Table IV) showsthat most of the fit indices are within the recommended range, an indication of theacceptable measurement model.

An examination of the standardized loadings shows that they are all significantwhich provides an initial evidence of convergent validity. All factor loadings areabove the recommended 0.5 cutoff. Next, we calculated the reliability for the constructs(Table V). A reliability value of 0.7 or higher is an acceptable value for survey research(Nunnally, 1967; Nunnally and Bernstein, 1994; Streiner, 2003). A reliability of 0.6-0.7is considered acceptable when the rest of the constructs have reliability over 0.7(Hair et al., 2009).

In order to assess discriminant validity we first calculated the average varianceextracted (AVE) for the model (Table V). It calculates the mean variance extractedfor the items on a construct and is used as an indicator for convergence. We compared

Goodness-of-fit statistics Measurement model Recommended value

w2/df 1.81 o3Root mean-square residual (RMR) 0.06 o0.1Root mean square error of approximation (RMSEA) 0.078 o0.1Akaikes information criterion (CAIC) 606.06 oSaturated model and

independent modelCAIC for saturated model 1241.66CAIC for independent model 1378.84Parsimony goodness-of-fit index (PGFI) 0.61 40.5Parsimony normed fit index (PNFI) 0.63 40.5Comparative fit index (CFI) 0.88 40.9

Table IV.Goodness-of-fitstatistics of the

measurement model

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the AVE values for any of the two constructs with the square of the correlation estimatebetween the two constructs (Fornell and Larcker, 1981). If the AVE estimates aregreater than the squared correlation between the constructs we can conclude thatdiscriminant validity of the two constructs is supported. The correlation estimates areprovided in Table VI. An examination of AVE values and the correlation estimates ofconstructs suggested the existence of discriminant validity.

5.4 Structural model and testing the hypothesesFigure 1 shows the structural model developed based on the hypotheses in Section 4.

As it is shown in Table VII most of the GFI statistics are within (or very close to) therecommended value. Overall, with the result from Tables IV and VII we can conclude

Scale a Indicators Loadings AVE

Logistics/supply chain strategies 0.73 LS1 0.66 0.51LS2 0.78LS3 0.69

Logistics/supply chain information integration 0.82 LII1 0.75 0.56LII2 0.79LII3 0.78LII4 0.66

Logistics/supply chain process integration 0.70 LPI1 0.70 0.41LPI2 0.62LPI3 0.58LPI4 0.65

Logistics investment decisions 0.62 LID1 0.66 0.38LID2 0.66LID3 0.52

Private warehousing decisions 0.72 PWD1 0.67 0.46PWD2 0.61PWD3 0.74

Company/division competitiveness 0.70 CC1 0.73 0.46CC2 0.70CC3 0.59

Table V.Properties of the model

Constructs LS LII LPI LID PWD CC

LS 1 0.569** 0.514** 0.473** 0.490** 0.583**0.0001 0.0001 0.0001 0.0001 0.0001

LII 1 0.644** 0.489** 0.526** 0.575**0.0001 0.0001 0.0001 0.0001

LPI 1 0.575** 0.585** 0.613**0.0001 0.0001 0.0001

LID 1 0.548** 0.503**0.0001 0.0001

PWD 1 0.528**0.0001

CC 1

Note: **Correlation is significant at 0.01 levelTable VI.Correlations

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that the validity of the measurement model and the structural model has beenestablished.

Table VIII presents the estimate for each path (regression coefficient) and thecorresponding p-value for the structural model (Figure 1). Overall, the results indicatethat logistics/supply chain strategy is the main driver for all logistics and supply chainpractices. The result also suggests the significance of logistics/supply chain processintegration on firm competitiveness.

The result from Table VIII shows that logistics/supply chain strategy is the drivingforce behind all logistics and supply chain practices where it is significantly relatedto both logistics/supply chain information integration (b 0.0838, po0.01) andlogistics/supply chain process integration (b 0.944, po0.01). It also has a significantimpact on logistics investment decisions (b 0.815, po0.01), and private warehousingdecisions (b 0.843, po0.01). Only logistics/supply chain process integration appearsto be a significant predictor of company competitiveness (b 0.709, po0.05). Whileother practices have a positive effect on firm competitiveness, their influence is notstatistically significant. Overall, we conclude that logistics/supply chain processintegration is the most important contributor to firm competitiveness.

H1aH2

H1bH3

H1cH4

H5H1d

LS

PWD

LPI

LII

CC

LID

Figure 1.Structural model

Goodness-of-fit statisticsStructural

model Recommended value

w2/df 1.96 o3Root mean-square residual (RMR) 0.06 o0.1Root mean square error of approximation(RMSEA)

0.08 o0.1

Akaikes information criterion (CAIC) 601.97 oSaturated model and independentmodel

CAIC for saturated model 1241.66CAIC for independent model 1379.07Parsimony goodness-of-fit index (PGFI) 0.64 40.5Parsimony normed fit index (PNFI) 0.64 40.5Comparative fit index (CFI) 0.85 40.9

Table VII.Goodness-of-fit statistics

of the structural model

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6. DiscussionThis study was conducted to determine the effect of logistics/supply chain strategyand logistic/supply chain integration (logistics/supply chain information integration,logistics/supply chain process integration) along with logistics outsourcing decisions(logistics investment decisions and private warehousing decisions) on companycompetitiveness. Our findings suggest that logistics/supply chain strategy is significantlyrelated to all logistics and supply chain practices. In addition, the study providesempirical support on the importance of logistics/supply chain process integration andits significant impact on firm competitiveness.

The study makes several important contributions to the existing body of knowledgein logistics and supply chain management. The importance of logistics/supply chainstrategy as the driving force behind all logistics and supply chain activities shouldbe emphasized. Without a precise and clear understanding of logistics and supplychain strategy, investment on any logistic and supply chain practices may not providemeaningful results. Therefore, attention should be given to develop practices consistentwith firms logistics and supply chain strategy. This could explain why previous studiesin logistics and supply chain integration have provided somewhat mixed and confusingresults on the effectiveness of logistics and supply chain integration (Richey et al., 2010;Villena et al., 2011). Poor alignment between logistics and supply chain strategy andother logistics/supply chain practices may lead to ineffective and somewhat costlyactivities that do not lead to improvement in logistics and supply chain performance.Our study is one of the few empirical studies that provide insight on the significanceof logistics/supply chain strategy on logistics/supply chain integration and firmcompetitiveness. The empirical analysis shows that without proper understanding anddefinition of firms logistics and supply chain strategy integration with suppliers andcustomers may not provide much benefit to the firm.

The significance of logistics/supply chain process integration and its positive effecton the firms competitiveness asserts the importance of external integration in logisticsand supply chain. According to Barratt and Oliveira (2001) integration with partnersand suppliers is achieved when the members of the supply chain are involved inactivities such as joint planning and execution. In that regards, our results provide

Path Estimate p-value Results

Logistics/supply chain strategy-Logistics/supplychain information integration 0.838 0.0001 H1a is supportedLogistics/supply chain strategy-Logistics/supplychain process integration 0.944 0.0001 H1b is supportedLogistics/supply chain strategy-Logistics investmentdecisions 0.815 0.0001 H1c is supportedLogistics/supply chain strategy-Private warehousingdecisions 0.843 0.0001 H1d is supportedLogistics/supply chain information integration-Company/division competitiveness 0.089 0.609 H2 is not supportedLogistics/supply chain process integration-Company/division competitiveness 0.709 0.024 H3 is supportedLogistics investment decisions-Company/divisioncompetitiveness 0.016 0.936 H4 is not supportedPrivate warehousing decisions-Company/divisioncompetitiveness 0.122 0.546 H5 is not supported

Table VIII.Standardized regressionestimates

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empirical evidence on the link between external process integration and firmcompetitive position. This implies that organizations would not be able to significantlyenhance their competitive position through integration in logistics informationsystems, application of decisions tools or emphasis on private warehousing or 3PLservices. While these practices are the necessary building blocks of any logistics andsupply chain system, they could be easily implemented by other organizations. Viewedfrom the lenses of the RBV, these practices could not be a source of sustainablecompetitive advantage since they can be easily imitated by competitors (Rumelt, 1984;Barney, 1991). Sustainable competitive advantage is achieved through process integrationacross logistics and supply chain activities; it is a unique inter-firm capability that couldnot be easily imitated by other organizations. Alternatively, the importance of logistics/supply chain process integration to the firms competitiveness could be explained by theKBVof the firm where it highlights the role of inter-organizational processes and routinesas the source of competitive advantage (Dyer and Singh, 1998; Doh, 2000). Our findingsvalidate the critical role of process integration across logistics and supply chain activitiesas the key factor in enhancing firm competitiveness.

Previous studies have suggested a direct link between logistics/supply chainintegration and firm performance but they have not addressed the link between logistics/supply chain strategy, logistics/supply chain integration, and firm competitiveness.There is also little evidence in the literature regarding the relative importance of differentforms of integration and their effect on firm competitiveness. This could have importantimplications for practitioners since logistics and supply chain managers are looking forthe most effective ways to utilize their limited resources in order to maximize theirinvestments in logistics and supply chain practices. The empirical analysis showedthat not all logistics and supply chain practices are significantly related to firmcompetitiveness. Our findings suggest that logistics/supply chain process integrationis the most significant predictor of firm competitiveness. This implies that sources ofcompetitiveness in logistics and supply chain are developed through integration ininter-firm processes and routines. This perspective has been supported by the KBVof the firm where it argues that inter-firm linkages and processes could be a source ofcompetitive advantage (Dyer and Singh, 1998). In that regards, process integration inlogistics and supply chain activities should be viewed as capabilities that enable firmsto maintain a competitive edge in the marketplace.

While the significance of logistics/supply chain process integration and its impacton firm competitiveness has been empirically established, we did not find a significantlink between other forms of integration (logistics/supply chain information integrationand 3PL practices). There are some explanations for the insignificant findings on therelationship between other forms of integrations and firm competitiveness. One possibleexplanation could be obtained from the correlation matrix (Table VI). According tothe correlation matrix, while all logistics and supply chain practices are significantlyrelated to firm competitiveness, logistics/supply chain process integration has the largestcorrelation with firm competitiveness (r 0.613). When logistics/supply chain processintegration is entered into the model, most of the variability in firm competitiveness isexplained by logistics/supply chain process integration and other logistics practicesdo not significantly add to it. Furthermore, a review of the literature in informationintegration provides another possible explanation. The literature suggests that thevalue of information technology is enhanced when it is embedded and integratedthroughout the supply chain process (Powell and Dent-Micallef, 1997; Wu et al., 2006).The implementation of IT-enabled supply chain systems helps organizations develop

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effective processes that facilitate integration with customers and suppliers (Tippins andSohi, 2003). Some argue that information technology may not be a valuable asset to thefirm if it is considered alone and is not integrated into the inter-firm processes (Wu et al.,2006). This explains why logistics/supply chain information integration did not emergeas a significant variable in the model.

6.1 Implications for managersThe results of this study will be helpful for managers and practitioners to moreeffectively utilize their resources and optimize their logistics and supply chain decisions.First and foremost, managers should realize that practices such as joint decision making,coordinated planning, and scheduling which are regarded as logistics/supply chainprocess integration practices are key to competitiveness. While the availability ofinformation and the application of integrated computer systems can be helpful inmaking better logistics and supply chain decisions, they cannot lead to competitivenessin the long term. If organizations are investing in logistics and supply chain as a sourceof competitiveness, they should pay close attention to process integration in logistics andsupply chain activities.

In terms of process integration, logistics and supply chain managers should focuson cost and customer orientation simultaneously. Previous studies have emphasizedthe role of appropriate strategic priorities in successful implementation of supply chainprocess integration where cost orientation and customer orientation drive adoptionof integration (Chen et al., 2009). In that regard, logistics and supply chain managersshould focus on addressing both cost and customer orientation in their processintegration process since ignoring one of them could lead to a sub-optimal solution.Su et al. (2011) emphasize the importance of logistics process innovation and logisticsrelationship management as important practices. As such, process managementand improvement in logistics and supply chain activities should broaden its scope toencompass practices such as supplier relationship management and supplierdevelopment.

What should logistics and supply chain managers do to improve theircompetitiveness? Based on the findings of this study, logistics/supply chain processintegration has the most significant effect on firm competiveness. This suggests thatinvestment in practices such as joint decision making, scheduling, new productdevelopment, and planning with suppliers and partners enhance the firms competitiveposition. Decision-making tools and techniques by themselves do not necessarilyprovide firms with a competitive advantage. Outsourcing warehousing or any otherlogistics activity may not lead to superior performance if it is designed as an isolatedactivity with no interaction and interconnectedness to other logistics and supply chainactivities. It is only through integration in logistics/supply chain processes that firmscould enhance their competitive edge.

6.2 Limitations and future researchThe study has few limitations that should be addressed. It should be noted that thesurvey instrument acquired respondents perceptions regarding logistics and supplychain strategy, logistics and supply chain practices, and firm competitiveness.Therefore, like other survey research it may introduce bias into the results. In addition,our target population was geared mostly toward small manufacturing firms. Futurestudies should examine the validity of the findings in large firms as well as serviceorganizations.

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We realize that care should be taken in generalizing the findings of this study.The data were collected in Guatemala; therefore, care should be taken to generalize theresult of this study to other regions and across other industries. Future studies shouldvalidate the findings of this study in other regions. In addition, it is recommended thatthe effect of logistics/supply chain strategy and logistics/supply chain integrationon firm performance using some financial metrics be investigated as well.

7. ConclusionsIn this study we examined several hypotheses regarding the effect of logistics/supplychain strategy and logistics/supply chain integration on firm competitiveness.Our findings suggested that logistics/supply chain process integration has significanteffect on firm competitive position. Firms could enhance their competitive edgethrough effective integration in inter-organizational processes across logistics andsupply chain activities.

Logistics and supply chain strategy is the driving force behind firm competivenesssince it positively affects all logistics/supply chain practices. In that regards,manufacturing firms should align their logistics/supply chain practices with theirlogistics/supply chain strategy to ensure that they can maintain their competitive edgeover time. Logistics and supply chain managers are operating in a very challenging,competitive, and dynamic business environment that occasionally requires makingsome tough choices. Among those decisions are types and scope of integration withsuppliers and customers. Based on the findings of our study, we believe investmentin process integration should be the highest priority for firms, which enable them toenhance their competitive position.

Note

1. Some argue that using cutoff values may not be appropriate since fit indices may be affectedby factors such as sample size, estimation methods, and distribution of data (Hu and Bentler,1998, 1999).

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Appendix. Logistics/supply chain management (LSCM) surveyThe purpose of this questionnaire is to study a range of issues in logistics and supply chainmanagement. We hope that this will increase the understanding of logistics management andprovide useful insights to practitioners and scholars alike. There are no right or wronganswers. What is needed is your frank and honest response. You do not need to look upinformation in your companys records. Answers based on your attitudes and recollections are allthat is needed.

Your experience and insight are especially important to this study. Because the sample size issmall, every response is important. Responses will be kept confidential and the results of thisstudy will in no way reveal information specific to you or your firm.

The following include statements with which you may agree or disagree as they apply toyour company or division. Please read each statement carefully and CIRCLE your choice (Key:SA Strongly Agree; AAgree; NNeither Agree nor Disagree; DDisagree; SD StronglyDisagree.)

Section A. Logistics/SCM information integration

I expect increased emphasis on integrated computersystems/electronic data interchange between myfirm and customers, suppliers, and other channelmembers.

SA A N D SD

Much progress has been achieved in my companyregarding integrated computer systems/electronicdata interchange with customers, suppliers, andother channel members.

SA A N D SD

The need for closer coordination with suppliers, vendors,and other channel members has fostered betterworking relationships among departments withinmy company.

SA A N D SD

Computers in the logistics area are increasinglycommunicating with computers in other areas ofmy firm/division.

SA A N D SD

Computers in the logistics area are increasinglycommunicating with suppliers, customers, and otherchannel members.

SA A N D SD

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Section B. Logistics/SCM process integration

In my company logistics planning is well coordinatedwith the overall strategic planning process.

SA A N D SD

In my company/division logistics activities arecoordinated effectively with customers, suppliers,and other channel members.

SA A N D SD

Achieving increased levels of customer service hasresulted in increased emphasis on employeedevelopment and training.

SA A N D SD

The customer service program in my company/divisionis effectively coordinated with other logisticsactivities.

SA A N D SD

The customer service program in my company/divisiongives us a competitive edge relative to our

competition.

SA A N D SD

Section C. Company/division competitiveness

My company/division responds quickly and effectivelyto changing customer or supplier needs comparedto our competitors.

SA A N D SD

My company/division responds quickly and effectivelychanging competitor strategies compared to ourcompetitors.

SA A N D SD

My company/division develops and markets newproducts quickly and effectively compared to ourcompetitors.

SA A N D SD

In most of its markets my company/division is a:Very Strong Competitor Moderately Strong Competitor Weak Competitor1 2 3 4 5

Section D. Logistics/SCM strategies

In my company/division, management emphasizesachieving maximum efficiency from purchasing,manufacturing, and distribution.

SA A N D SD

A primary objective of logistics in my company/divisionis to gain control over activities that result inpurchasing, manufacturing, and distribution costs.

SA A N D SD

In my company/division logistics facilitates theimplementation of cost and inventory reducingconcepts such as Focused Manufacturing andJust-in-Time Materials Procurement.

SA A N D SD

In my company/division, management emphasizesachieving coordinated physical distribution tocustomers served by several business units.

SA A N D SD

A primary objective of logistics in my company/divisionis to reduce the complexity our customers face indoing business with us.

SA A N D SD

In my company/division, logistics facilitates thecoordination several business units in orderto provide competitive customer service.

SA A N D SD

In my company/division, management emphasizescoordination and control of channel members(distributor, wholesalers, dealers, retailers) activities.

SA A N D SD

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Note: The above survey used to collect data for this manuscript was developed by McGinnis et al.(1990) and McGinnis and Kohn (1993).

Corresponding auth

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IJLM-07-2012-0066