An empirical internal perceptions study of the implementation supply chain management in indonesian manufacturing companies

European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.5, No.16, 2013
139
An Empirical Internal Perceptions Study of the Implementation
Supply Chain Management in Indonesian Manufacturing
Companies As a Mediating Factor of Information Technology
Utilization to Organization Performances
Yusaq Tomo Ardianto1
, Surachman2
, Ubud Salim3
, Djumilah Zain4
1
(Faculty of Economy, Merdeka University Malang, Indonesia)
2,3,4
(Faculty of Economy and Business, Brawijaya University, Indonesia)
ABSTRACT:
Purpose - This study aims to analyze and explain the SCM practices as mediation of information technology on
organizational performance in large-scale manufacturing enterprises. In addition, analyze and explain the direct
influence of information technology on organizational performance.
Methodology - There are 140 large-scale manufacturing companies in East Java - Indonesia as the study sample.
The method used was a survey. Manager SCM / logistics manager in the company as research respondents.
Analysis using multivariate statistical methods SEM (Structural Equation Modeling).
Research Findings - Results showed that SCM practices are fully capable of mediating information technology
to improve organizational performance. SCM is able to practice as a determinant of the success of the use of
information technology to improve organizational performance.
Originality - (1) information technology can help the leadership to run the SCM practices in improving
organizational performance. (2) the company's ability to creating proximity to customers (Customer relationship)
and the closeness of the relationship with the supplier (supplier Close partnership), companies doing long-term
contracts with suppliers and customers is key to success of information technology in order to improve
organizational performance.
Keywords: Information Technology, SCM Practice, Performance Organization
I. INTRODUCTION
Backwardness of information and communication technology in Indonesia, as well as the challenges of
competition in the strict business environment, manufacturing competitiveness ranking Indonesian low, logistics
capabilities in Indonesia is still not satisfactory and the demands of the role of the manufacturing sector to be
more competitive to improve performance, becomes the reason for researchers to investigate the role of
technology information as an effort to improve organizational performance in Indonesian manufacturing
company, specialized in East Java.
Information technology can not only improve the efficiency and effectiveness of operations, but it is
one way to change the business competition (McFarlan, 1984). Furthermore, based on the resource-based view,
technology is a vital resource for a company to gain a competitive advantage. Companies should develop a
resource strategy as a leader who can continue to create a life superior performance (Grant, 1991).
Research Weil, (1992); Barua et al., (1995); Rai et al., (1997), Markus and Soh, (1993); Loveman,
(1994), Hitt and Brynjolfsson, (1996) shows that the empirical results no association of information technology
on business performance. Similarly, previous studies found that there is no clear effect on the ability of
information technology throughout the performance. This means that there has not been enough research on the
investigation of mediating mechanisms linking information technology and performance. The direct effect of
specific information technology skills, such as analytical systems with inter-company collaboration is less
studied (Rai et al., 2006). Similarly, the effective use of technology as a medium for coordination or integration
between the internal organization and the organization has received a lot of attention, but it still causes a lot of
conclusions are less clear (Narasimhan and Kim, 2002).
Different views are revealed from the results of research conducted Sohal and Lionel, (1993) which
examines the influence of the role of information technology in 530 companies in Australia and found the use of
information technology is positively related to organizational performance. The case with research Bender,
(1986); Barua and Lee, (1997) also states that there is a relationship of information technology on business
performance. Motivated from differences in the findings of the above study, the study aims to examine and
explain the use / usage of information technology on organizational performance.
In the SCM literature Chin et al., (2004) and Kuei et al., (2001) by Jayaram et al., (2000) gives a
comprehensive overview concludes that the isue of timeliness is a major concern in the research of SCM. SCM
aims to respond to customers as quickly as possible, at the exact time and location with the lowest possible cost.
Furthermore, some researchers SCM (Chase et al., 2007; Simchi-Levi et al., 2008; Lummus and Vokurka, 1999;

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Lummus et al., 2003) have agreed that SCM emphasizes the flow of materials and information through the
supply chain.
Several studies have shown a positive relationship between supply chain collaboration and performance
(eg, Rodrigues et al., 2004; Sanders and Premus, 2005; Stank et al., 2001) and as well as in case study Bayraktar
et al., (2009) also reported a positive relationship between the use of information systems and technology on
SCM practices and firm performance using a sample of the metal fabrication industry in Turkey. Besides, there
are many studies on the use of information technology systems to support SCM, the results clearly show that the
use of new technologies to improve the efficiency of the supply chain and improve overall company
performance (Lindskog and Wennberg, 2002). Motivated from the above statement and research findings, the
study aims to examine and explain the SCM practices in using information technology to improve organizational
performance.
II. LITERATURE REVIEW
INFORMATION TECHNOLOGY
Information technology provides opportunities for improvement and as a source of competitiveness
supporting its use continues to increase. In fact, the key to controlling the use of information technology which
includes inter-activity in the supply chain, financial opportunity, efficiency, cost savings, increased customer and
market penetration, and increased competition (Sood et al., 1999). Chiu (1995) states that information
technology is an important prerequisite in the integration of logistics management. Integration of information
technology and information systems toward higher product quality, increase productivity and ultimately improve
logistics efficiency and flexibility (Narasimhan and Kim, 2001). Cachon and Fisher (2000) reported the possible
use of technology to share information timely supply and demand, particularly in the food industry, which
substantially reduce the time and cost to process an order, ensuring impressive improvements in the overall
supply chain performance. A study recently conducted by the managers of manufacturing companies in the U.S.
indicate increasing dependence on deliveries by exploiting information technology supply chain, including:
improved supply chain agility, reduce cycle time, improve operating efficiency, and timely delivery of the
product up to end customers (Radjou, 2003). Wu et al., (2006), the findings suggest the ability of supply chain
management enables information technology represent a source of sustainable advantage. Once the importance
of information technology in ensuring the sustainability of the company's business processes, able to motivate
companies to adopt information technology. Some researchers suggest that improving the exchange of
information can have a huge effect on the overall company performance and efficiency (Bowersox and Closs,
1996; Close and Savitskie, 2003; Daugherty et al., 1995; Gustin et al., 1994). Research study defines the role of
information technology in the company's ability to provide the data and process it into information that includes
the completeness and accuracy of hardware, software, database and network in order to produce information
(market, resource companies) are useful for the next user.
SUPPLY CHAIN MANAGEMENT
SCM is understood as a management philosophy (Tan et al., 2002, Chan and Qi, 2003). For example,
Lummus and Vokurka (1999, p. 11) were reviewed Ellram and Cooper (1993) definition, which is "SCM is a
management philosophy that governs the total expenditure of the distribution channel from the supplier to the
ultimate customer." SCM is described in many terms; integration of suppliers; partnerships; major supply
management, supplier alliances, balance supply chain (Tan et al., 2002); lane network; supplier of pipeline
management; management value chain, and value stream management (Croom et al ., 2000; Romano and Vinelli,
2001), and as a demand chain (Kotzab and Otto, 2004 in Vahrenkamp, 1999; Blackwell and Blackwell, 1999).
Supply chain management is a philosophy of an integrated approach to manage the total flow of a
distribution channel from the supplier to the ultimate customer. (Ellram and Cooper, 1990). The management of
upstream and downstream connecting inside and outside the company's operations with suppliers and customers
to deliver value to key customers with a low cost supply chain as a whole (Martin, 1998; Weber, 2002).
Effective supply chain strategy can create competitive advantage, such as the right to include business partners,
precision delivery of goods and services and competitive quality at a reasonable cost (Hewitt, 1994; Hobbs et al.,
1998; Easton, 2002).
Supply chain management is a relatively new concept in the business world with the aim of achieving
efficiency in all operational functions in the provision of supplies from external environmental uncertainty. In
some of the literature of supply chain management involves coordinating various disciplines with simplification
atiran early material and supplier information to the end user. SCM including management information systems,
purchasing, customer service, sourcing, transportation, production schedules, ordering process, inventory
management, warehousing and marketing. SCM is a strategic management tool used to improve the entire
customer satisfaction desirable to improve the company's competitiveness and ability to generate profits
(Lummus et al., 2001). "Time" is an important resource element in the modern business environment in terms of
customer satisfaction (Chan et al., 2003). Therefore, in order to understand the supply chain operations, it is

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necessary to measure the activity of attention earlier this time, which had begun in performance measurement
related to suppliers, delivery performance, customer service, inventory, logistics costs, and satisfaction
customers within a supply chain (Gunasekaran et al., 2001). Consider the description above, the Supply chain
management (SCM) is the company's ability to establish and maintain long-term relationships with suppliers and
customers in an effort to improve the entire customer satisfaction include the company's ability to establish
proximity to customers (Customer relationship), and the company's ability to establish close relationship with
suppliers (Close supplier partnership).
PERFORMANCE ORGANIZATION
Organizational performance is an indicator that measures how well the organization in achieving its
goals (Ho, 2008). Li et al., (2006) defines organizational performance in terms of how well a market-oriented
organization and achieve their financial goals. In regard to financial objectives, organization's profits, return on
investments, and the growth of sales, business performance and organization effectiveness are indicators of
organizational performance (Venkatraman and Ramanujam, 1986). Koh et al., (2007) and Petrovic-Lazarevic et
al., (2007) view organizational performance from the perspective of SCM. Koh et al., (2007) stated that although
organizational measure of financial performance and market criteria, short-term goal of SCM is to improve
productivity and reduce inventory and lead time. The long term goal of SCM is to increase the market share and
the integration of the supply chain (Koh et al., 2007). While Petrovic-Lazarevic et al., (2007) to measure
organizational performance against indicators such as Lead Time, Inventory turnover, product rejection / return,
sales levels, cost reduction and meeting customers' requirements. Based on the theoretical basis, the performance
of the organizations in this study is an assessment evaluation measure performance through consideration of the
implications on the performance capabilities of SCM practices in an effort to meet customer expectations in the
assessment of the company's ability to suppress or reduce defective products and returned (product rejection /
return); suppress or reduce costs (cost reduction), and meet the needs of customers (meeting customers'
requirement).
III. FORMULATION OF HYPOTHESES
Sohal and Lionel (1993) examined the influence of information technology on the role of companies in
Australia and found the use of information technology is positively related to organizational performance. The
case with research Bender (1986); Barua and Lee (1997) also states that there is a relationship overall
information technology on business performance. Previous research has found that the influence of information
technology capabilities to the entire performance, which still remains unclear. This means there is not enough
research on the investigation of mediating mechanisms linking information technology and performance. The
direct effect of specific information technology skills, such as analytical systems with inter-company
collaboration is less studied (Rai et al., 2006). Similarly, the effective use of technology as a medium for inter-
organizational coordination or integration has received much attention, but it still causes a lot of conclusions are
less clear (Narasimhan and Kim, 2002). A number of researchers have also stated that fixing the exchange of
information can have a huge effect on the overall efficiency and performance of the firm (Bowersox and Closs,
1996; Close and Savitskie, 2003; Daugherty et al., 1995; Gustin et al., 1994). The existence of a theoretical basis
that there is a direct influence of information technology on organizational performance, then the formulation of
the first research hypothesis is:
HI. Information technology will be able to contribute directly improve organizational performance.
Several studies have shown a positive relationship between supply chain collaboration and performance
(eg, Rodrigues et al., 2004; Sanders and Premus, 2005; Stank et al., 2001), and as well as in case study Bayraktar
et al., (2009 ) also reported a positive relationship between the use of information systems and technology on
SCM practices and firm performance using a sample of the metal fabrication industry in Turkey. Besides, there
are many studies on the use of information technology systems to support SCM, the results clearly show that the
use of new technologies to improve the efficiency of the supply chain and improve overall company
performance (Lindskog and Wennberg, 2002).
The existence of a theoretical basis that there is a direct influence of information technology on
organizational performance, and SCM practices affect organizational performance, and information technology
influence the practice of SCM, the formulation of the second research hypothesis is:
H2. SCM practices will be able to mediate the role of information technology in improving the
performance of organizations.
IV. METHODOLOGY
RESEARCH DESIGN
The research approach is quantitative (positivist) will be used to answer the research question. Survey
method used in this study. The data were collected through questionnaire. Using a Likert scale of 1-5 as an
approach to facilitate the measurement of perception. Relationships latent variables and indicators are reflective.

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Exogenous variables reflected the information technology with four indicators, namely hardware (hardware),
software (software), database (the database) and Network (network). SCM practices reflected endogenous
variables two indicators, namely proximity to customers (Customer relationship), close relationship with
suppliers (Close supplier partnership) and organizational performance variables is reflected in three indicators
suppress or reduce the products are defective and returned (product rejection / return); suppress or reduce costs
(cost reduction), and meet the needs of customers (meeting customers' requirement). Analysis using multivariate
statistical method (Structural Equation Modeling).
POPULATION
Large-scale manufacturing company that uses information technology, running the SCM practices in
East Java, Indonesia. There are 185 large-scale manufacturing companies listed on the list of company names at
the Department of Trade and Industry in East Java.
SAMPLING
The sampling method used in this study is probability sampling. Sampling technique in this study using
simple random sampling technique by way of a lottery to take a number of samples required with consideration
of each unit of analysis has the same opportunity as others to be selected into the sample. Determination of the
proposed sampling technique used by Hair, Black, Babin, Anderson, and Tatham (2006), which states that in
order to perform multivariate research is needed with a power of 0.8 alpha is assumed to be 5%, then what is
needed in this study is minimal as many as 130 samples (Hair et al., 2006). Sample size of 140, there are 8 pieces
of research questionnaires were not included in the analysis because of incomplete filling so that the number of
questionnaires that can be analyzed as many as 132 samples.
V. RESULT AND DISCUSSION
Instruments testing
In this study, tests were conducted on 30 respondents instrument that shows all items of the statement of
the three studied variables declared invalid evidenced from the correlation coefficient of each item statement is
greater than 0.3. Furthermore, it demonstrates the level of reliability is well proven from Chronbach's Alpha
coefficient values greater than 0.6. Thus, the instrument can be distributed throughout the target sample set in
this study.
The structural equation model testing
In this study also tested the structural equation model (SEM) is required as the assumptions of
normality, outliers and multicollinearity. Result output data normality assisted with AMOS program above
shows that almost all indicators showed a normal distribution proved critical ratio of skewness values are at ±
2.58 unless indicators X12 and X13. X12 indicator values obtained critical ratio is still below the skewness of -
3.609 - 2.58 and X13 indicators obtained critical ratio value of skewness - is still below the 2.977 - 2.58. In
addition, review the results of multivariate value of 18.104 indicates still not able to meet the assumptions of
normality, the numbers proved far between absolute value of ± 2.58. Referring to the opinion Bentler and Chou
(1987) in Wijayanto (2008) says that when the sample size exceeds the number at least 5 times the number of
observed variables in structural equation models or 100-200 cases, it can be found to comply with the normal
distribution. Number of samples studied were 140 more than 5 times the number of observed variables which is
equal to 45 (5X9), and do not exceed the limit of 100 to 200 cases. Thus, based on the opinion Bollen (1989),
Bentler and Chou (1987), the indicators tested normal distribution.
Output results Mahalanobis Distance AMOS program assisted the Mahalanobis Distance indicate the
lowest value of 3.820 and a high of USD 43.756. Output value of the test on the model equations researchers
produce structures built Chi-squares value table (df = 24, p = 0.001) of 36.41. The test results showed that none
of the cases had Mahalanobis Distance value above 36.41. The test results showed no observed data are
multivariate outliers.
Univariate outlier output results using a large sample of the 140 respondents, the univariate outlier
otherwise occur if the value of Z-score ≥ 4.0. Univariate outlier or not happen if the Z-score <4.0. Descriptive
analysis for each indicator standardized research in the form of Z-score has a mean value of zero with a standard
deviation of one indicates that the minimum value of Z-score of - 3.976 (Z-score: CF) and the maximum Z-score
amounted to 1.802 (Z-score: SM). The test results showed that the value of Z-score does not exceed the
minimum and maximum number of 4.0. From these test results it was concluded that the data used are free of
univariate outliers.
Multicollinearity output results of the correlation matrix of the measured variables that showed none of
the correlation values above 0.9. The evaluation results indicate that there is no multicolinearity problem.
Figure 1 shows a summary of the results of SEM analysis using AMOS program. Value of each
variable latent factor loading indicates none below 0.5 with a significance level of less than 0.05, meaning that
each latent variable is capable of forming high unidimensionalitas and met the convergent validity. Structural

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equation model can be used as an analysis tool indicated by the Chi-square value divided by the value of 45.343
degress of freedom (24) of 1.889.
The results of the research value of loading factor indicator (Figure 1) shows the software (software)
and network (network), proximity to customers (Customer relationship) and the closeness of the relationship
with the supplier (supplier Close partnership), and satisfy customer needs (meeting customers' requirement) able
to operationalize the latent variables of information technology, SCM practices and organizational performance.
Figure 1 Model Output Measurement with AMOS approach
Testing a causal relationship between the study variables are shown in Table 1. Statistical results of the
direct influence of information technology on organizational performance in structural equation models showed
no significant effect. SCM practices are able to mediate the full role of information technology on organizational
performance.
Table 1. The causal relationships of the research variables
Note: All coefficients are significant at 0.05 level (when identified by *)
Information technology is able to act directly improve organizational performance.
Confirmation of the first hypothesis showed no significant effect of information technology on
organizational performance (Table 1). The findings of this study provide meaning that information technology
has not been able to directly play a role in improving organizational performance. Thus the first hypothesis (H1)
which suggested that a significant effect of information technology on organizational performance has not been
proven. Not significantly influence the results of the study are the same as Weil, (1992); Barua et al., (1995); Rai
et al., (1997) examined empirically no association of information technology on business performance. Similarly,
the empirical study by Markus and Soh, (1993); Loveman, (1994), Hitt and Brynjolfsson, (1996) who found that
there was no relationship of information technology on business performance.
The results of interviews with several informants researchers explain that the cause of information
technology has not been able to improve the performance of information technology organizations purchased
was due not to think in the long run, so that when a change of operating system (eg Windows A is replaced with
Windows B), the hardware will no longer compatible with the new operating system, as well as software (C) that
have been installed previously also no longer compatible with the new operating system and the hardware.
Substitution operating system is finally pose a bigger problem when the system is integrated between suppliers,
manufacturers, and customers. Replacement of the operating system that occurs in one of the companies will
require adjustments in the company's other partners in order to do a thorough replacement of information
technology. So it is not set up the ability HR (human resources) that have a high ability as a result of advanced
Variables Koef. Standardized’s
influence:
Prob Inf
o
Hypothesis
Indepe
ndent
Mediation Dependent Direc
t
Indirect Total
IT -
Organizational
performance
0.079 - 0.079 0.509 TS H1- rejected
IT
SCM
practices
- 0.564 - 0.564* 0.000 S -
-
SCM
practices
Organizational
performance
0.781 - 0.781* 0.000 S -
IT
SCM
practices
Organizational
performance
-
0.564 X 0.781
= 0.440
- - S H2- accepted
Information: S = significant ; TS = not significant

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information technology capabilities, and when that information technology has been installed, then the other
problem is when the company should take care (maintenance) information technology. Care information
technology is not easy and cheap, because when information technology has been purchased from a vendor, then
the company will depend on the vendor. This is due to the vendor knows is exactly what advantages and
disadvantages of information technology installed at the time of manufacture and information technology
systems, it is this which makes the company to be very dependent on the vendor.
SCM practices will be able to mediate the role of information technology in improving the performance of
organizations
Confirmation of the second hypothesis with the approach path analysis proved that no significant effect
of information technology on organizational performance, but significant effect of information technology on
SCM practices. While SCM practices significantly influence the performance of the organization. This suggests
that the practice of SCM is able to mediate information technology to improve organizational performance. Thus
the proposed second hypothesis (H2) states that SCM practices capable of mediating role of information
technology in improving organizational performance is acceptable (loading factors in Figure 1). The test results
showed SCM practices to improve organizational performance in line with research conducted by Lindskog and
Wennberg, (2002) which proved that the use of information technology systems to support SCM, the results
clearly show that the use of new technologies improve the efficiency of the supply chain and improve the overall
performance of the company. The test results expand the statement Bayraktar et al., (2009) reported a positive
relationship between the use of information technology systems in SCM practices and firm performance.
VI. CONCLUSIONS AND FUTURE RESEARCH
Information technology is used in large-scale manufacturing companies in East Java has not been able
to assist the operational manager job SCM / Logistics in improving organizational performance. Software
(software) and Network (network) integrated internally and externally to be a determinant of the success of
information technology for the use / utilization of information technology in large-scale manufacturing
companies in East Java in improving organizational performance. Creating proximity to customers (Customer
relationship) and the closeness of the relationship with the supplier (supplier Close partnership), companies
doing long-term contracts with suppliers and customers in implementing SCM practices became a critical
success for the use / utilization of information technology in large-scale manufacturing companies in East Java in
improving organizational performance.
Priority on meeting the needs of enterprise customers (meeting customers' requirement) with a low level
of product damage, accuracy quantity, price and time (on time in full) to the customer to be decisive for the
success of SCM practices in improving organizational performance. Proximity to the company's customers
(customer relationship) and the closeness of the relationship with the supplier (supplier Close partnership), the
SCM practices can become the key to success in integrating the role of information technology in order to
improve organizational performance for large-scale manufacturing companies in East Java.
For future research needs to consider the variables of human resources in the occupation or use of
information technology, include ISO 9000 and TQM practices as mediating variables of information technology
on organizational performance, and it is possible to add new indicators on SCM practices and organizational
performance.
VII. LIMITATIONS
The research was carried out on certain large industries, the population in this study and has not fully
incorporate other types of major industries such as the list of names of large-scale enterprises in the Department
of Industry and Trade in East Java. Results of this study can only be generalized to populations of major
industries studied, because of the limitations of research to include other types of major industries as the
population in this study. This study examined the use of information technology as an infrastructure and
manufacturing industries have not measured the ability of human resources towards mastery of information
technology as a key to the company's successful long-term orientation.
Notes on contributor
Yusaq Tomo Ardianto is a Lecturer in Management Department at the Faculty of Economics, University of
Merdeka Malang, Indonesia. His research interests are in Information Technology on Supply Chain and Quality,
Operational Management and Research Methodology.
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