Academic journal article International Journal of Business and Management Science

The Impact of Supply Chain Operational Capabilities on Business Performance of Small and Medium Enterprises in Malaysia: A Preliminary Analysis

Academic journal article International Journal of Business and Management Science

The Impact of Supply Chain Operational Capabilities on Business Performance of Small and Medium Enterprises in Malaysia: A Preliminary Analysis

Article excerpt

INTRODUCTION

The Malaysian Government appreciates the importance of small and medium-sized enterprises (SMEs) to the development of the Malaysian economy. A number of agencies--for example, the Small and Medium Enterprise Corporation (SME Corp), SME Bank and the Ministry of International Trade and Industry (MITI) have been created as part of the Government's various initiatives, programmes and strategies to promote and foster Malaysian SMEs. The awareness of SMEs is also important to recognise andexploit the capabilities which existed in the industry. However, sometimes SMEs managers donot realise the existence of their organisation's capability or they do not know how to make use of such capabilities. Therefore, this paper attempts to highlight the existence of capabilities in the operations activities of Malaysian SMEs.

The studies of capability have been carried out for many years ago to identify its significance to an organisation (Ogulin, 2003; Ting, 2004). Capability can be defined as internal and external organisation skills, resources and functional competencies which are utilised within firms to meet the requirement of the changing environment (Teece, Pisano and Shuen, 1997). Capabilities are generated by sets of skills and resources to contribute to value-added tasks (Hart, 1995). Fundamentally, capability and asset have a mutual connection with each other. However, capability is slightly different from asset, in terms of its inability to provide monetary value, tangible plants and equipment to a firm, and also it cannot be traded and imitated (Dierickx, Cool and Barney, 1989; Day, 1994). Capability can also be referred as "the exploitation of specific practices to attain performance gains" (Narasimhan, Swink and Kim, 2005:1014). It can be concluded that capability and practice are different in several aspects because various plants are feasible to invest equally in practice, but they do not have the same degree of capability to achieve a good manufacturing performance outcome (Narasimhan et al., 2005).

In terms of supply chain activities, capability is linked to the organisation's ability in the aspects of handling correct orders on time, communicating and providing information with other channel members as accurate as possible, handling and filling orders using web-based system, managing return product, and also establishing global distribution penetration (Cho, Ozment and Sink, 2008). As classic examples, there are three premier companies that recognise the importance of managing capability effectively; Wal-Mart which has an expertise in inventory replenishment and Honda which has skills in managing their dealers shows that organisation could improve its strong business process if it realises and understands its capability (Stalk, Evans and Shulman, 1992). Toyota has also designed the Toyota Production System which is able to assist the company to achieve a good performance indicator (Narasimhan et al., 2005).

Most of the empirical studies have rarely focused on the supply chain issues in Malaysia compared to other developed countries such as US and Japan (Closs, Goldsby and Clinton, 1997; Kim, 2006b). Additionally, most of the related studies show a positive effect with performance (Ellinger, Daugherty and Keller, 2000; Morash, 2001; Corbett and Claridge, 2002; Cho et al., 2008). However, there is still inadequate evidence or result to conclude that such capabilities (structural, logistical and technological) have the same effect between huge and smaller geographical areas such as between US and Malaysia.

Therefore, this paper aims at identifying the weaknesses of operating activities in Malaysian SMEs. To manifest the preceding work, this paper endeavours to analyse "which operational capabilities affects the business performance of SMEs in Malaysia" by presenting some research work that is well grounded in theory and provides evidence through quantitative analysis. …

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