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AN EMPIRICAL INVESTIGATION OF SUPPLY CHAIN MANAGEMENT

BEST PRACTICES IN LARGE PRIVATE MANUFACTURING FIRMS IN


KENYA
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A) Introduction
Large companies today mainly focus on becoming efficient and flexible in their
manufacturing methods in order to handle uncertainty in the business environment,
they need different strategies to manage the flow of goods from the point of
production to the end user. However, they have not been able to formulate the right
strategies required to achieve this noble task in S!. "his call for a strategic fit of
an organi#ation$s core competencies, strategy and core capability, which is an
emerging paradigm in the study of strategic management and specifically in S!.
orporations have increasingly turned to global markets for their supplies. "he
globali#ation of supply chains has forced companies to look for better and more
inter%linked systems between S! competencies, multiple S! strategies and the
implementation processes and S! capabilities to coordinate the flow of materials
into and out of the company as opposed to the fragmented systems, which have
characteri#ed many organi#ations. ompanies and distribution channels today
compete more on the basis of time and quality, having defect%free products to
customers faster and more reliably than the competitor is no longer seen as a
competitive advantage but simply as a market place requirement. ustomers
consistently demand that products are delivered faster, on time, and with no damage.
"his can only be achieved with proper coordination of efforts by linking systems
and processes to create synergy. &ach of these necessitates better coordination with
suppliers and distributors, and constitutes the linkage between S! core
competencies' strategy and S! core capabilities, which are not easy to match.
"his combination creates a competitive edge within the system that cannot be copied
by the competitor in the market place' hence becomes core capability of the firm.
"he global orientation and increased performance%based competition, combined
with rapidly changing technology and economic conditions, all contribute to market
place uncertainty. "his uncertainty requires greater flexibility on the part of the
individual companies and distribution channels, which in turn, demands for more
(
flexibility in channel relationships. )or this to be achieved, a firm must have a fit
between S! competencies, implementation of strategy and S! capability with
its suppliers and distributors. "his will enhance competitive advantage of the
business and improve corporate performance.
B) Literture Re!ie"
*t is, therefore, important to reflect on the views of various strategic management
scholars on the concept of strategic management as it relates to this paper and how it
affects the micro%and macro%economic environment. Strategic management is the
organi#ation$s pre%selected means or approach to achieving its goals or ob+ectives,
while coping with current and future external conditions ,-igman, 1../0. Strategic
management aims at achieving an enterprise$s mission and ob+ectives by reconciling
its resources with opportunities and threats in the business environment ,Smit et al.,
1..10. *t is concerned with policy decisions affecting the entire organi#ation the
overall ob+ective being to position the organi#ation to deal effectively with its
environment. "hese explanations give clarity on the relationships and linkages
between and amongst the variables of the study. However, understanding S!
philosophy is required in order to appreciate the linkage with strategic management.
2revious studies in S! have considered the measurement of competencies,
strategy, capabilities and the effect of each on performance. )or example, aeldries
and van -ierdonck ,1.330 used strategy and performance as key variables in a study
between strategy and performance of large firms in 4elgium' they used survey
methodology. 5ohnson and Scholes ,1...0 did a similar study in 6S7 and used the
same methodology and variables. -ay ,1..80 used core capabilities as independent
variable and performance as the dependent variable, using a baseline survey
methodology. Stanley and 9regory ,(//10 used strategy implementation as the
independent variable and performance as the dependent variable applying a
triangulation methodology consisting of literature review, survey and case studies.
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!anufacturing is an important sector in :enya and it makes a substantial
contribution to the country$s economic development. *t has the potential to generate
foreign exchange earnings through exports and diversify the country$s economy.
"his sector has grown over time both in terms of its contribution to the country$s
gross domestic product and employment. "he average si#e of this sector for tropical
7frica is 3 per cent. -espite the importance and si#e of this sector in :enya, it is
still very small when compared to that of the industriali#ed nations 6nited ;ations
*ndustrial -evelopment <rgani#ation ,,6;*-<0 1.3=0. :enya$s manufacturing
sector is going through a ma+or transition period largely due to the structural reform
process, which the :enya 9overnment has been implementing since the mid%
eighties with a view to improving the economic and social environment of the
country.
:enya 7ssociation of !anufacturers ,(//(0 posits that removal of price controls,
foreign exchange controls and introduction of investment incentives have, however,
not resulted in ma+or changes in the overall economy. *n particular, they have not
improved the manufacturing performance. "herefore, to build a self%sustaining
industrial sector, it is necessary to establish strategic linkages within the domestic
economy. Some efforts have to be made to promote strategic options among supply
chains so as to enhance spread effects of industrial growth and to facilitate transfer
of technology, skills and growth of small and medium scale sub%contractors. "he
linkages of the study variables in S! in :enya are weak and because of this, there
exists little inter%industry integration in the country. "his has resulted in
consistently low manufacturing value added in the sector ,:7! 1.3.0.
9rowth in the sector was, however, impeded by depressed domestic demand,
increased oil prices and transport costs. >ising operating costs mainly as a result of
high power costs coupled with deteriorating road and rail networks further
dampened growth in the sector. "he growth in manufacturing sector was mainly
attributed to rise in output of the agro%processing industries. "hese included sugar,
milk, grain milling, fish, tea, oils and fats processing sub%sectors. <ther key sub%
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sectors of manufacturing that performed well were? manufacture of cigarettes,
cement production, batteries ,both motor vehicles and dry cells0, motor vehicle
assembly and production of galvani#ed sheets.
"he :enya 9overnment has always been committed to developing a mixed
economy where both public and private sector companies are present ,:enya
9overnment, -evelopment 2lan 1.3.%1..10. 4ut the public sector participation in
manufacturing is much smaller than the private sector and is still decreasing due to
government$s change of policy' the emphasis is now being given to privati#ation of
the industrial sector.
"he main ob+ective of the paper was to determine S! best practices used by large
private manufacturing firms in :enya, that is which are the S! best practices used
by these firms@ "he findings of this paper will assist the corporate managers to
make sound and informed strategic management decisions and enable them to focus
on their customers more efficiently. Aith such exposition, managers will
understand how firms can perform better and add value to the shareholders under
S! orientation.
C) Met#odo$o%&
"he target population was all large private manufacturing entities in :enya, who are
members of :7!. "he main reason for this choice was that these firms were likely
to exhibit an elaborate S! philosophy and make use of best practices in S!.
)urthermore, the focus of the research was basically in the manufacturing sector,
other sectors were considered outside the scope of the paper and could not reveal
substantial data for statistical analysis. *n total, there are (,/// companies in the
:7! directory ,(//8B(//C0, from which all public sector firms ,where the
government holds ma+ority shares0 and small companies were eliminated. "his left
C// firms, which constituted the sample frame of the target population.
7 survey of C( large private manufacturing entities was carried out using a stratified
sampling technique. "his was necessary to include supply chains with all the
C
variables of the study for equal chances of selection. 7t least 1/ percent sample of
the population was considered generally acceptable method of selecting samples in
such a study ,Stanley and 9regory (//10. *n this paper, the sample was stratified
into agro%based industrial sector, engineering and construction industrial sector and
chemical and mineral industrial sector based on the value added by each sector to
the manufacturing industry. )or example, agro%based industrial sector added D3
percent, engineering and construction and industrial sector 1( percent, and chemical
and mineral sector (/ percent ,:7! (//80. "he respondents in the study were
located mainly in ;airobi industrial and 4aba -ogo areas respectively, which form
the bulk of manufacturing sector in :enya and this is where most of the supply
chain firms are found. "he sample si#e is denoted by?
nE n
1
F n
(
F n
1
C( firms E 1D F D F 1/
where?
n is the sample si#e
n
1
is agro%based industrial sector
n
(
is engineering and construction industrial sector
n
1
is chemical and mineral industrial sector
"he paper used primary data obtained through questionnaires with selected team of
managers involved in S! within the C( manufacturing entities. "he questionnaire
was piloted on 1/ firms prior to data collection. "his was necessary in order to
identify any ambiguous and unclear questions to the respondents. "he
questionnaires were then submitted to the participating firms after the pilot test in
order to get the data and information required. "he instrument used for this paper
was adapted from a study by Stanley and 9regory ,(//10 but modified to suit the
ob+ectives of this paper. "his instrument has been used in a previous study of
achieving supply chain alignment for the large private manufacturing firms in the
6nited States. 7 Likert%type scale of seven points ,where the lowest value in the
scale was 1 and the highest was =0 was used to collect the data.
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"o measure the consistency of the scores obtained, and how consistent they were for
each individual from one administration of an instrument to another and from one
set of items to another, the paper used ronbach$s alpha ,a measure of the internal
consistency of the questionnaire items0 using data from all the respondents.
Separate reliability tests for each of the variables were computed. "his included
measuring current supply chain best practices, measuring the effect of supply chain
variables, measuring level of independent effects, measuring level of supply chain
core competencies, measuring the degree of supply chain strategies, measuring the
implementation of supply chain strategies and measuring competitiveness relative to
industry rivals. "he key statistic in interpreting the reliability of the scale was the
alpha listed under the reliability co%efficient section at the end of the output. "he
value of coefficient alpha ranges from #ero ,no internal consistency0 to one
,complete internal consistency0. 7s to how large the coefficient should be, a value
of no less than /.=/ as a quick rule was used. 7s shown, all the measurements of the
instrument attained a high degree of reliability since they were above /.=/.
"ogether with correlation analysis, factor analysis was done to establish the
relationships among the study variables. *n particular, factor analysis procedure was
used to measure and establish S! best practices in the study as applied by various
firms. "his method was necessary to reduce a set of several difficult to interpret
correlated variables to few conceptually meaningful relatively independent factors,
which could be easily interpreted. "his technique was applied to summari#e 1.
latent variables or sub%variables representing dominant best practices in S!. "o
make interpretation easier, a linear transformation on the factor solution, varimax
rotation was done, which gave fewer components ,factors0 that are uncorrelated with
one another.
=
Re'erence(
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*mplementation within Large 2rivate !anufacturing ompanies in :enya G
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