EJAS-17004 Camera Ready.pdf

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European Journal of Applied Sciences – Vol. 12, No. 3

Publication Date: June 25, 2024

DOI:10.14738/aivp.123.17004

Antora, N. J., & Raihan, Z. (2024). The Impact of Supply Chain Integration on Financial Performance of the Firm. European

Journal of Applied Sciences, Vol - 12(3). 118-126.

Services for Science and Education – United Kingdom

The Impact of Supply Chain Integration on Financial Performance

of the Firm

Nusrat Jahan Antora

Department of Economics, IUBAT - International University of

Business Agriculture and Technology, Dhaka, Bangladesh

Md. Zohir Raihan

Department of Business Administration,

Kaiserslautern University of Applied Sciences, Germany

ABSTRACT

Supply Chain Integration (SCI) is widely acknowledged as a strategic process that

significantly contributes to positioning organizations favorably for improved firm

performance. This study delves into the relationship between financial

performance and supply chain integration, focusing on the impact of various

integration strategies, including internal control, supplier integration, customer

integration, and internal integration, on a business's financial performance.

Through Regression, Reliability, and Correlation analyses conducted on an 80-

respondent survey, correlations between the variables were examined. The

findings reveal a substantial and positive influence of SCI on a company's financial

success. Further analysis of individual dimensions indicates that customer

integration yields the most significant positive effect on financial success.

Moreover, notable correlations were observed between supplier integration and

financial performance, internal control and financial performance, and internal

integration and financial performance. While each variable demonstrates a

statistically significant impact, customer integration emerges as the most

influential factor. This study underscores the relationship between information

flows and financial performance, underscoring the benefits of integration

resulting from knowledge development. Supply chain experts can leverage these

research findings to enhance their business's bottom line.

Keywords: Supply Chain Integration, Financial Performance, Internal integration,

Customer Integration, Supplier Integration, Internal control.

INTRODUCTION

The impact of supply chain integration on an organization's operational effectiveness and

financial health cannot be overstated. In today's intricate global marketplaces, understanding

the complexities of supply chain processes and their implications on financial outcomes is

paramount. The author delves into the repercussions of supply chain integration on a firm's

financial performance.

The positive effects of supply chain integration on company performance are well

documented. From enhanced forecast accuracy to shorter fulfillment cycle times, lower costs,

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Antora, N. J., & Raihan, Z. (2024). The Impact of Supply Chain Integration on Financial Performance of the Firm. European Journal of Applied

Sciences, Vol - 12(3). 118-126.

URL: http://dx.doi.org/10.14738/aivp.123.17004

and heightened overall productivity, the advantages are manifold. The study will focus on the

four primary dimensions of SCI: internal integration, customer integration, supplier

integration, and internal control. Employing a contingency approach, the authors aim to

explore the interplay between these dimensions and financial performance.

The research objective extends beyond merely establishing a correlation between integration

and improved financial outcomes; it strives to pinpoint the specific factors within integration

that contribute to enhanced financial performance.

This research represents a significant endeavor aimed at aiding supply chain practitioners in

devising strategies to fortify buyer-supplier relationships, with a focus on critical factors that

influence integration to enhance organizational financial performance. Additionally, the study

aims to serve as a benchmark for future research endeavors. The theoretical framework and

hypotheses are elaborated upon extensively in the subsequent section, followed by a detailed

explanation of the research methodology and analytical findings. Finally, the author

synthesizes the key findings, contributions, and limitations of the study, offering

recommendations for future research directions.

LITERATURE REVIEW

A supply chain is commonly understood as a network comprising individuals, organizations,

procedures, information (or material), and resources necessary for ensuring smooth product

movement from suppliers to consumers. In the 1980s, the concept of supply chain

management (SCM) emerged, aiding businesses in better integrating their processes from

suppliers to end-users. Over the last four decades, SCM has garnered considerable attention

from scholars and practitioners alike. The primary objective remains the improvement of

long-term business performance and overall supply chain effectiveness (Mentzer, Dewitt,

Keebler, & Min, 2001).

Supply chain integration (SCI) has evolved into a pivotal component of SCM, attracting

significant research interest and scholarly discussion (Das, Narasimhan, & Talluri, 2006;

Droge, Jayaram, & Vickery, 2004; Flynn, Huo, & Zhao, 2010; Swink, Narasimhan, & Wang,

2007; Vickery, Jayaram, Droge, & Roger, 2003; Zhao, Huo, Sun, & Zhao, 2013). SCI is

recognized as a highly significant strategy enabling the development of cross-firm procedures

for problem-solving, cooperative planning, and value creation (Cao & Zhang, 2011; Wong,

Boon-itt, & Wong, 2011; Wu, Choi, & Rungtusanatham, 2010). Scholars have emphasized the

strategic importance of close integrative partnerships among supply chain participants

(Harland, Caldwell, Powell, & Zheng, 2007; Childerhouse & Towill, 2011; Fawcett & Magnan,

2002; Bernon, Upperton, Bastl, & Cullen, 2013).

SCI has been shown to enhance a business's performance significantly. Studies have indicated

that businesses fostering strongly integrated networks between suppliers and customers

have the potential to become highly competitive and prestigious organizations within their

sectors (Frohlich & Westbrook, 2002). While most studies provide empirical evidence

supporting the theory that SCI improves performance, some have not consistently reported

such relationships (Chen, Mattioda, & Daugherty, 2007; Cousins & Menguc, 2006; Sezen,

2008). Certain studies have even suggested a negative correlation between SCI and

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European Journal of Applied Sciences (EJAS) Vol. 12, Issue 3, June-2024

performance (Vickery, Jayaram, Droge, & Roger, 2003; Rosenzweig, Roth, & Dean, 2003),

underscoring the importance of understanding the relationship between SCI and

performance. The three main facets of supply chain integration are internal integration,

supplier integration, and customer integration, with internal control also emerging as a

significant variable affecting firm financial performance.

However, a considerable portion of available empirical data tends to focus more on supplier

and customer integration, overlooking the importance of internal integration or internal

control. Scholars argue that inconsistent results regarding the influence of SCI dimensions on

company performance stem from a lack of clear definitions and comprehension of these

dimensions (Das, Narasimhan, & Talluri, 2006; Devaraj, Krajewski, & Wei, 2007; Fabbe-Costes

& Jahre, 2008; Germain & Iyer, 2006; Pagell, 2004).

Supply chain integration is still a relatively new concept in development, with varying

viewpoints regarding its implications (Bernon, Upperton, Bastl, & Cullen, 2013; Terjesen,

Patel, & Sanders, 2012; Vaart & Donk, 2008). It is recognized as a multifaceted concept (Flynn,

Huo, & Zhao, 2010), mainly comprising internal integration and external integration (Swink,

Narasimhan, & Wang, 2007). External integration encompasses both supplier and customer

integration (Droge, Jayaram, & Vickery, 2004), while internal integration focuses on the

collaboration and integration of different functional sectors within a company (Stock, Greis, &

Kasarda, 1998). Internal control, influencing a company's financial performance, plays a

crucial role, ensuring operational efficacy, adherence to regulations, and improved financial

reporting (Lutz, 2015).

Financial performance indicators such as revenue growth, market position (market share),

and return on investment (ROI) are used to evaluate a company's financial success.

Operational performance, on the other hand, involves enhancing organizational activities

related to the supply chain, such as reducing costs and improving inventory turnover.

Operational performance directly impacts financial performance, highlighting the importance

of integrated internal and external strategies in enhancing overall company performance (Gu

et al., 2017).

In summary, supply chain integration, aimed at achieving collective objectives and fostering a

common perspective, is instrumental in enhancing company performance (Yu & Huo, 2018).

Purpose of the Study

Derived from the aforementioned aim, the primary objectives of this research are as follows:

1. To examine the impact of internal integration on company’s financial performance.

2. To identify the impact of customer integration on company's financial performance.

3. To analyze the impact of supplier integration on company's financial performance.

4. To identify the impact of Internal control on company's financial performance.

CONCEPTUAL FRAMEWORK

Up to this point in the research, it has been confirmed that Supply Chain Integration (SCI)

directly influences the financial performance of a company. Nevertheless, variations in the

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Antora, N. J., & Raihan, Z. (2024). The Impact of Supply Chain Integration on Financial Performance of the Firm. European Journal of Applied

Sciences, Vol - 12(3). 118-126.

URL: http://dx.doi.org/10.14738/aivp.123.17004

conceptualization of these concepts and the influence of the study context have led to diverse

outcomes.

Thus, the main goal is to look into how SCI influences financial performance in a mediating

way.

Figure 1: Illustrates the theoretical framework

HYPOTHESES FOR RESEARCH

➢ H1 - The financial performance and internal integration is positively correlated.

➢ H2 - Financial performance and supplier integration is positively correlated.

➢ H3 - The financial performance is positively correlated with customer integration.

➢ H4 - The financial performance is positively correlated with internal control.

METHODOLOGY

This research investigates the influence of Supply Chain Integration (SCI) on a firm's financial

performance. A questionnaire adapted from Flynn (2010) was employed, comprising 19 items

across five dimensions: Internal Integration, Customer Integration, Supplier Integration, and

Internal Control. A survey involving 80 respondents, all of whom are top-level management

professionals in the supply chain industry, was conducted. Reliability, correlation, and

regression analyses were performed to assess the impact of SCI on financial performance.

Data analysis was conducted using SPSS software (version-22).

Multiple Linear Regression Model:

➢ Financial Performance = a + b1 Internal Integration + b2 Supplier Integration + b3

Customer Integration + b4 Internal Control + u where:

➢ Y (Financial Performance) = Dependent Variable a = The y intercept b= beta coefficient

u=The regression residual or error term

➢ And the Internal Integration (II), Suppler Integration (SI), Customer Integration (CI)

and Internal Control (IC) are the independent variables.

“Internal Integration”

“Supplier Integration”

“Financial Performance”

“Customer Integration”

“Internal Control”

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European Journal of Applied Sciences (EJAS) Vol. 12, Issue 3, June-2024

DATA ANALYSIS

Table -1: Case processing summary

Case Processing Summary

N %

Cases Valid 80 100.0

Excludeda 0 .0

Total 80 100.0

a. Listwise deletion based on all variables in the procedure.

The research is grounded in responses obtained from 80 participants comprising diverse

supply chain professionals and senior executives, with a sample size denoted as n=80.

Reliability Test

To establish internal consistency and ensure validity, Taber (2018) recommended the use of

Cronbach's alpha. A value of 0.60 is typically deemed acceptable for exploratory purposes,

while 0.70 is considered adequate for confirmatory purposes, and 0.80 is considered good for

confirmatory purposes. The overall reliability coefficient obtained in this study is 0.907,

indicating a high level of internal consistency.

Table 2: Reliability Statistics

Reliability Statistics

“Cronbach's Alpha” N of Items

.907 19

Variables:

In this study, the researcher used both independent and dependent variables. Supplier

integration, Internal integration, Customer integration and internal control are the

independent variables. On the other hand, the firm's financial performance is the dependent

variable.

Table 3: Variables

Variables Entered/Removed

Model Variables Entered Variables Removed Method

1 I_C

S_I

C_I

I_Ib

. Enter

Dependent Variable: F_P

All requested variables entered

Regression Analysis

To test the hypotheses for this study, linear regression analysis was used. First, as

hypothesised by H1, H2, H3, and H4 the direct effects of Supply Chain Integration (SCI)

dimensions on Financial Performance were investigated. With a score of .793, the multiple

correlation coefficient, or R, suggests a moderate relationship between financial performance

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Antora, N. J., & Raihan, Z. (2024). The Impact of Supply Chain Integration on Financial Performance of the Firm. European Journal of Applied

Sciences, Vol - 12(3). 118-126.

URL: http://dx.doi.org/10.14738/aivp.123.17004

and supply chain integration. One can see that independent variables account for about

sixteen percent of the variability in financial performance, based on the adjusted R Square

value of 0.609.

Table 4: Model Summary

Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .793a

.628 .609 .35393

a. Predictors: (constant), I_C, S_I, C_I, I_I

Table 5: ANOVA

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1 Regression 15.888 4 3.972 31.709 <.001b

Residual 9.395 75 .125

Total 25.283 79

a. Dependent Variable: F_P

b. Predictors: (Constant), I_C, S_I, C_I, I_I

Table 6: Coefficients

Coefficientsa

Model Unstandardized Coefficients Standardized Coefficients t Sig.

B Std. Error Beta

1 (Constant) .518 .174 2.981 .004

I_I .172 .110 .184 1.571 .120

S_I .085 .090 .110 .944 .348

C_I .309 .106 .337 2.899 .005

I_C .392 .134 .283 2.920 .005

a. Dependent Variable: F_P

➢ FP = Internal Integration * (0.172) + 0.518

➢ FP = Supplier Integration * (0.085) + 0.518

➢ FP = Customer Integration * (0.309) + 0.518

➢ FP = Internal Control * (0.392) + 0.518

It's important to note that while all of the constructs—internal control, supplier integration,

customer integration, and internal integration—show a favourable impact on financial

performance, their associations are not statistically significant.

Correlations

The response data sample (n = 80) revealed a Pearson correlation of +0.689 (p <.01), which

refuted hypothesis 1. Additionally, the findings demonstrate a positive relationship between

the financial performance of the firm and internal integration, with statistical significance.

This supports Hypothesis 2, as indicated by a Pearson correlation of +0.659 (p <.01). The

results suggest a beneficial association between the financial performance of the firm and

supplier integration, with statistical significance. Furthermore, Hypothesis 3 is supported by a

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Pearson correlation of +0.715 (p <.01), indicating a strong positive correlation between the

financial performance of the company and customer integration. This correlation is the

highest observed and statistically significant, indicating a significant impact on the financial

performance of a firm. Moreover, Hypothesis 4 is supported by a Pearson correlation of

+0.665 (p <.01), demonstrating a positive correlation between internal control and the

financial performance of the company.

Table 7: Correlation

Correlations

I_I S_I C_I I_C F_I

I_I Pearson Correlation 1 .715** .709** .663** .689**