MITIGATING DEMAND UNCERTINITY THROUGH SUPPLY CHAIN PRACTICES; THE CASE OF SMEs FOOD INDUSTRY IN HAJJ SEASON
Abstract
Small and medium enterprise (SMEs) in the food industry is an important sector, where the competitive edges of the supply chain through managerial strategies to achieve high performance and competitive advantage. However, SMEs facing severe obstacles threatening their continuity, and the industry succumbs to crisis of demand uncertainty during the short period of the peak season of Hajj in Saudi Arabia every year, due to the constant increase in the number of pilgrims and continious changes in their needs, preferences and tastes. Problems of SMEs’ demand uncertainty is a fatal, leads to increasing in production’s cost, and deterioration of long lead time, service level, and quality provision particularly problems with food obsolescence. There is no endeavor in an existing literature to settle on a comprehensive understanding of aligning sources of uncertainty with supply chain strategies in order to improve supply chain performance. Moreover, there was a lacking in the literature regarding to the impact of supply chain integration (SCI) on manufacturing strategies, such as postponement practice (PP) which has in turn an impact on mass customization capability (MCC) to mitigate demand uncertainty (DUM). This study investigates two fundamental issues: 1) how to apply effective supply chain; internal integration, external integration, and how the interaction among them mutually manipulates the improvement of PP, and MCC, 2) how such cooperation lead to mitigate demand uncertainty to maintain the survival of SMEs, and to sustian thier performance. Based on the extant literature, a number of hypotheses were defined, demonstrating the correlation between SCI, PP, MCC, and DUM. Thus, the conceptual framework developed to verify the relationship among the constructs. A number of academics from Umm Al-Qura University tested the content and face validity. After the instrument was prepared in English and then translated into an Arabic language, it was checked for accuracy by the back translation process. To have valuable insights provision for development and pre-testing the adequacy of study instruments, a pilot study has carried out using 50 responses; 10 subcontractors, 15 Hajj campaigns, and 5 pilgrimages’ Institutions representing their customers from different part of the Islamic world, in addition to 20 managers of food suppliers. Mixed methodologies have been employed; qualitatively, using 12 data set of CEOs of SMEs in the sector to validate the conceptual framework. Subsequently, an online survey tool has been designed and administrated among SMEs to test the hypotheses, using responses of 239 SMEs in food cector in KSA. Partial least square (PLS) was used for analysis. Based upon the extended resource-based view (ERBV) of the firm and contingency theory, the initial and final results of the pilot test and survey, were steady with the ERBV, viewing that SCI not only has a significant direct and indirect effect on the PP and MCC, but also plays a critical role throughout the employment of PP as an important strategy, empowering MCC to mitigate demand uncertainty. Likewise, both results also were consistent with contingency theory that is a firm should coordinate their SCI activities, PP and MCC to their business environment, particularly with high competitive intensity to enhance DUM. However, in spite of the fact that, II has a positive direct and indirect effect on the PP and MCC through both SI and CI, customer integration is found to improve PP and MCC directly. Supplier integration has significant impact on PP, although it seems to have no significant impact on MCC. Moreover, PP has a positive direct and indirect effect to mitigate demand uncertainty through MCC. And finally, MCC enhances DUM positively. These direct and indirect effects of all constructs are increased when there is intense competition.
Keywords; Supply Chain integration (SCI), postponement practice (PP), mass customization capability (MCC), demand uncertainty mitigation (DUM), competitive intensity, extended resource-based view (ERBV), contingency theory. Small and medium interprise (SMEs), Hajj.
Measurement Items:
Customer Integration
CI1: We are in frequent, close contact with our customers.
CI2: Our customers are actively involved in our product design process.
CI3: The customers involve us in their quality improvement efforts.
Internal Integration
II1: The functions in our plant are well integrated.
II2: Our plant’s functions coordinate their activities.
II3: Our top management emphasizes the importance of good inter-functional relationships.
Supplier Integration
SI1: We maintain cooperative relationships with food suppliers.
SI2: We maintain close communications with food suppliers about quality considerations and design changes.
SI3: Our firm key food suppliers provide input into our product development projects.
Postponement Practice
PP1: Our firm postpones final product assembly activities until receives customer orders
PP2: Our firm postpones final product labeling activities until receives customer orders.
PP3: Our firm postpones final packaging activities until receives customer orders.
Mass Customization Capability
MCC1: We can are highly capable of large-scale product customization.
MCC2: We can easily add significant food product variety without increasing costs.
MCC3: We can easily add product variety without sacrificing quality.
Demand Uncertainty Mitigation
DUM1: We mitigate demand uncertainty by providing products to our customer consistent with their nominated product specification.
DUM2: We mitigate demand uncertainty when our customers place orders consistent with their nominated delivery lead time.
DUM3: We mitigate demand uncertainty when our customers provide us reliable forecasts on their demands.
Competitive Intensity
CPI1: We are in a highly competitive industry.
CPI2: Our competitive pressures are extremely high.
CPI3: We do not pay much attention to our competitors.
