Elsevier

Technovation

Volume 25, Issue 5, May 2005, Pages 443-456
Technovation

Supply chain competitiveness: measuring the impact of location factors, uncertainty and manufacturing practices

https://doi.org/10.1016/j.technovation.2003.09.012Get rights and content

Abstract

Supply chain performance is impacted by several factors beginning with the plant location decision. Existing literature has tended to predominantly emphasize quantitative factors such as transport costs, exchange rates, labour rates and taxes. While there are existing models that capture qualitative variables, there is limited research linking these variables with measures of the firm’s operational competitiveness. In this paper, we propose a framework that includes qualitative factors concerning plant location decisions, supply chain uncertainty, and manufacturing practices. We argue that a joint consideration of such factors helps explain supply chain competitiveness. Data from a large sample study is used to test the model. Our results largely support the assertion that there is a significant relationship between qualitative plant location factors such as labour, infrastructure, business environment, political stability, proximity to markets, proximity to suppliers, key competitors’ location, supply chain uncertainty and broad manufacturing practices and the operational competitiveness of supply chains as measured by quality, flexibility, inventory turnover and responsiveness.

Introduction

One of the most important and far reaching decisions faced by operations managers is deciding where to locate new manufacturing facilities. This is a strategic decision involving irreversible allocation of the firm’s capital, and often has a crucial impact on key measures of the firm’s supply chain performance such as lead time, inventory, responsiveness to demand variability, flexibility, and quality. With the emergence of efficient supply chain management as an important frontier of competition, the facility location decision becomes even more significant.

An imperative for an effective location decision is for managers to assess each potential location in terms of its impact on key operational performance measures like lead time, inventory, responsiveness etc., and not be swayed by cost savings alone. For instance, a firm that wants to implement total quality management programs in a new location must evaluate the competence of the local workforce and its impact on the quality of its products and services. Similarly, a firm setting up a manufacturing plant in a third world country to take advantage of lower labour costs, must assess if the poor infrastructure or the non-availability of skilled personnel may erode its capability to compete on time. Past research (MacCormack et al., 1994) suggests that the location decision framework used by managers predominantly emphasizes quantitative analyses that trade-off transport costs, scale economies, and other cost based variables. Such a focus, while yielding short term cost benefits maybe poor in terms of other measures of competitiveness like lead time, inventory, and responsiveness. In this paper, we address the question of how effective past location decisions are enhancing the competitiveness of global supply chains. This question is of consequence to both practitioners and academics.

The rest of this paper is organized as follows. In the next section, we review segments of literature focusing on the role of qualitative factors in plant location. The next two sections discuss the research framework and the methodology. Analysis and findings are then presented and finally discussion of the results and conclusions are presented.

Section snippets

Literature review

The plant location problem has been studied extensively in the operations research literature from the viewpoint of cost aspects of the decision i.e., minimizing various combinations of the time discounted costs of construction, shortages, congestion, idle capacity, maintenance and inventory. Such a focus neglects key qualitative factors that are often central to creating or supporting a competitive advantage. We will not address these cost based optimization models in this paper but interested

Research framework and operationalization of measures

Our review of the literature in the previous section indicates that supply chain competitiveness is impacted significantly by three important factors—location factors, supply chain uncertainty, and manufacturing practices. The main assertions of this research are:

  • A1:

    Plant location factors like cost, infrastructure, business services, labour, government, customer/market, proximity to suppliers and key competitor locations have a significant effect on the competitiveness of the supply chain.

  • A2:

    Supply

Sampling procedures

Companies with manufacturing operations in the Asian countries, Singapore, Malaysia, Brunei, Indonesia, Philippines, and Thailand were the basis of analysis in this research. These countries reflect the variation in level of economic development i.e., Singapore is a highly developed country and Malaysia, Brunei, Thailand, Philippines, and Indonesia come successively lower on the development scale. In order to make a meaningful comparison of post-location effects, only those companies that had

Analysis and findings

In the first part of the data analysis, we focus on characteristics of responding companies and the perceived importance of the experimental factors—location variables, supply chain uncertainty, manufacturing practices, and supply chain performance measures—as reported by the respondents in this study.

Acknowledgements

The authors gratefully acknowledge the assistance of Ms. Phua Yue Cheng in data collection for the research.

Rohit Bhatnagar obtained his undergraduate degree in engineering from IT-BHU, India, MBA from IIM, Bangalore, India, and Ph.D from McGill University, Canada. He worked as a Distribution Manager for a multinational company in India before taking up a faculty position at the Nanyang Business School, NTU, Singapore. Prof. Bhatnagar's research encompasses location and coordination issues in global supply chains, multi-plant coordination, logistics alliances, and shop floor coordination. His papers

References (26)

  • A. Khurana et al.

    The internationalization process model through the lens of the global color picture tube industry

    Journal of Operations Management

    (1998)
  • S.H. Owen et al.

    Strategic facility location: a review

    European Journal of Operational Research

    (1998)
  • R. Anupindi et al.

    Managing Business Process Flows

    (1999)
  • R.H. Ballou

    Business Logistics Management: Planning, Organizing, and Controlling the Supply Chain

    (1999)
  • D.J. Bowersox et al.

    Logistical Management The Integrated Supply Chain Process

    (1996)
  • M.L. Brandeau et al.

    An overview of representative problems in location research

    Management Science

    (1989)
  • R.B. Chase et al.

    Production and Operations Management Manufacturing and Services

    (1998)
  • M. Christopher

    Logistics and Supply Chain Management

    (1992)
  • M.A. Cohen et al.

    Out of touch with customer needs? Spare parts and after sales service

    Sloan Management Review

    (1990)
  • T. Davis

    Effective supply chain management

    Sloan Management Review

    (1993)
  • K. Ferdows

    Making the most of foreign factories

    Harvard Business Review

    (1997)
  • J. Gordon et al.

    Assessing manufacturing plant competitiveness: an empirical field study

    International Journal of Operations and Production Management

    (2001)
  • A. Gunasekaran et al.

    Performance measures and metrics in a supply chain environment

    International Journal of Operations and Production Management

    (2001)
  • Cited by (190)

    • Manufacturing planning and control driven supply chain risk management: A dynamic capability perspective

      2022, Transportation Research Part E: Logistics and Transportation Review
    View all citing articles on Scopus

    Rohit Bhatnagar obtained his undergraduate degree in engineering from IT-BHU, India, MBA from IIM, Bangalore, India, and Ph.D from McGill University, Canada. He worked as a Distribution Manager for a multinational company in India before taking up a faculty position at the Nanyang Business School, NTU, Singapore. Prof. Bhatnagar's research encompasses location and coordination issues in global supply chains, multi-plant coordination, logistics alliances, and shop floor coordination. His papers have appeared in several international journals including IIE Transactions, European Journal of Operational Research, Journal of Business Logistics, and International Journal of Physical Distribution and Logistics Management. He has consulted for several MNCs based in Singapore and Canada.

    Amrik S. Sohal is a Professor in the Department of Management and Associate Dean (Research Degrees) in the Faculty of Business and Economics at Monash University, Melbourne, Australia. He is also Co-director of the Australian Consortium for Effective Organizations (ACEO). From 1991 to 2000, Professor Sohal was Director of the Quality Management Research Unit and from 1993 to 1997 served as an Associate Dean (Research Development) and Associate Dean (Graduate Teaching) for the Faculty of Business and Economics at Monash University. He holds a PhD in Manufacturing/Operations Management from the University of Bradford Management Centre in the UK, as well as a BE (Hons) and an MBA, also from the University of Bradford.

    Professor Sohal is Associate Editor for the journal Technovation and Asia Pacific Editor of the International Journal of Quality and Reliability Management. He is a member of the Editorial Board of a number of journals in the area of quality management, technology management and operations management. Professor Sohal has authored or co-authored over 100 papers published in refereed journals, as well as three books and a number of chapters contributed to books. His current research interests are in manufacturing/operations strategy, technology/information management, quality management, supply chain management, lean/agile production systems and electronic business. He has received research grants from the State and Federal Governments, the Australian Research Council and Monash University. In 2001, Professor Sohal received the Vice-Chancellors’s Award for Postgraduate Supervision.

    View full text