1 Southern African Business Review Volume 21

1 DHET accredited 2017

1 ISSN: 1998-8125

Predictive analytics for supply chain collaboration, risk

management and financial performance in small to
medium enterprises

C. Mafini & A. Muposhi

14 ABSTRACT
Small to medium enterprises in emerging markets such as South Africa
14

are continuously embracing supply chain management practices. This

has been prompted by the ever-increasing importance of supply chain
management as a tool for increasing business competitiveness and
success. The purpose of this study was to investigate the connection
between supply chain collaboration, supply chain risk management and
financial performance in SMEs. Using a quantitative research approach,
a survey questionnaire was administered to 243 managers and owners
of SMEs in Gauteng Province, South Africa. Application of the Structural
Equation Modelling approach to test hypotheses revealed two streams
of observations: (1) two supply chain collaboration dimensions, namely
supplier trust and supplier communication, predicted supply chain risk
management, and (2) supply chain risk management predicted financial
performance. These results demonstrate the importance of supply chain
collaboration as a tool for improving both risk management practices
and financial performance in SME supply chains. The theoretical and
practical implications of the results are discussed.

Key words: Supply chain collaboration, supply chain risk management, financial performance,
small to medium enterprises, supply chain management

Introduction
Research on small and medium enterprises (SMEs) continues to grow substantially
1

and is mainly attributed to their economic contributions (Thun & Hoenig 2011; El-

Dr Chengedzai Mafini is the Head of the Department of Logistics in the Faculty of Management Sciences. Dr Asphat Mu-
poshi is a senior lecturer in the Department of Marketing in the Faculty of Management Sciences at Vaal University
of Technology. E-mail: [email protected].

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C. Mafini & A. Muposhi

Gohary, Eid & Huang 2013). It is widely accepted throughout the world that SMEs
play a significant role in promoting economic growth and employment creation
(Van Scheers 2011; Cant & Wiid 2013). In South Africa, statistics indicate that by
January 2016, there were an estimated 2.25 million SMEs contributing an estimated
42 percent to the gross domestic product in the country (Statistics South Africa 2016).
In terms of representation of SMEs, Gauteng Province accounts for approximately
46 percent of the total number of formal SMEs in South Africa (Statistics South
Africa 2016). With respect to the distribution of SMEs per economic sector, a
report by the Bureau for Economic Research (2016) indicates that the trade and
accommodation sector has the highest number (944 467), followed by community
services (305 624), construction (299 242), finance and business services (271 712)
with manufacturing (201 459) being placed last. Given that these statistics represent
documented SMEs, there are obvious possibilities that the actual numbers could be
higher, if the contribution of undocumented enterprises is considered. It is logical
then to presuppose that the contribution of SMEs to the South African economy
eclipses that of any other category of business enterprises.
To demonstrate its commitment to support SMEs, the South African government
2

formulated and implemented a number of initiatives, legislations and policies. These

include, inter alia, the 1995 White Paper on SME Development, formation of the
Small Enterprise Development Agency, the promulgation of the National Small
Business Amendment Act of 2004, creation of the Small Enterprise Finance Agency,
Technology and Innovation Agency and the formation of the Department of Small
Business Development in 2014 (Bureau for Economic Research 2016). In addition,
the Integrated Small Business Development Strategy was developed with a particular
focus on providing financial and non-financial support to SMEs (Department
of Trade and Industry 2013). However, despite these efforts, a constellation of
challenges continue to threaten the survival of SMEs in South Africa (Mafimidiwo
& Iyagba 2015). As of 2011, the failure rate of SMEs in South Africa was estimated
at 75 percent, with 40 percent folding operations in the first year of operating and
90 percent not surviving beyond a period of ten years (Van Scheers 2011). Statistics
further indicate that the SME mortality rate is greater in the manufacturing
sector when compared to other sectors (Bureau for Economic Research 2016). For
instance, the total number of SMEs in the manufacturing industry dropped from
267 817 in 2008 to 201 459 in 2015, representing an alarming decline of 24 percent
(Bureau for Economic Research 2016). In addition, Herrington, Kew, Simrie and
Turton (2011) noted the low competitiveness of South African SMEs as reflected by
the total entrepreneurial activity (TEA) which fluctuates between 5.9 percent and
10.6 percent. These developments tend to paralyse the efforts by the South African

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government to support SMEs and to water down the view that significant resources
have been committed toward supporting such enterprises.
The challenges confronting SMEs in South Africa are both internal and external
3

in addition to being multifaceted, since they encompass financial, operational and

market-related facets (Fatoki 2014; Van Scheers 2011). In terms of internal factors, it
may be argued that SME business failure in South Africa could be attributed to, in
part, their inability to embrace and adopt recent/emergent best practices in business
such as supply chain management (SCM), business process reengineering, knowledge
management and innovation, amongst others. As argued by Salman, von Friedrichs
and Shukur (2011) reliance on ineffective business models, demonstrated through
functional fixedness, or simply the tendency to rely on traditional methods even
when it is clear that change is necessary, is rife in SMEs. As a result, many SMEs are
languishing in obsolete business models that could best be discarded if failure is to
be averted (Ropega 2011). The adoption of either emerging or disruptive business best
practices such as SCM could be a viable panacea to the challenges facing SMEs. As
suggested by a number of scholars (Paik 2011; Chin, Abu Bakar, Amran & Rohaizat
2012; Hong & Jeong 2006), the use of SCM yields numerous returns such as lower
overhead costs, delivery of ever-increasing customer value, flexibility with superior
service, better efficiency, reduced product time to market and increased productivity,
amongst others. Open-minded leaders of SME enterprises have since realised that
in today’s markets, competition occurs between supply chain networks rather than
between individual firms (Koh, Demirbag, Bayraktar, Tatoglu & Zaim 2007; Chow,
Madu, Kuei, Lu, Lin & Tseng 2008). Therefore, the adoption of SCM practices could
form part of the solution to the challenges facing SMEs in South Africa.
The purpose of this study was to investigate the connection between supply
4

chain collaboration (SCC), supply chain risk management (SCRM) and financial
performance in SMEs. The study projected the perspective that the linkage between
these constructs could unlock the potential to address operational challenges plaguing
SMEs in South Africa. This view finds support in the results of a study conducted by
Seeletse (2012) which found that SCC significantly improves operational efficiencies
and reduces exposure to risk within supply chains, with obvious positive implications
on firm financial performance. Besides, there is limited evidence of empirical studies
that have sought to examine the interconnection between SCC, SCRM and financial
performance within SMEs in South Africa. In fact, SCM research in the context of
South African SMEs is still limited, generally, which creates the need for continued
research efforts in this area. Thus, this study sought to develop and empirically test a
conceptual model that attempts to address these existing research gaps.

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The remainder of this article is organised as follows: The next section provides a
5

theoretical overview of the research constructs, namely SCC, SCRM and financial
performance. This is succeeded by an outline of the conceptual framework and
hypotheses. Thereafter, the article delineates the research methodology employed
in the study. The results, limitations and conclusions of the study as well as the
managerial implications are presented in the final sections of the article.

Literature review
This section provides a brief theoretical overview of the constructs under
1

consideration in this paper.

Supply chain collaboration

Collaboration is fast emerging as a strategic option in today’s highly globalised
1

and competitive supply chains (Cao & Zhang 2011; Hudnurkar, Jakhar & Rathod
2014; Hingley, Lindgreen & Grant 2015). This view has support from SCM scholars
(Ramanathan & Gunasekaran 2014; Hingley et al. 2015) who observed a paradigm
shift from a transactional to a collaborative operational mode. The main value
proposition that drives the trend towards SCC is the synergistic benefit derived
from networks between supply chain partners (Bolstorff & Rosenbaum 2012). From
an operational standpoint, effective collaboration amongst supply chain partners
results in shorter lead times in procurement, production efficiency and joint asset
utilisation, which ultimately translates into improved financial performance (Nyaga,
Whipple & Lynch 2010; Hudnurkar et al. 2014).
In its application, SCC is a broad concept encompassing joint planning, information
2

sharing, communication, risk management and asset sharing (Fawcett, Jones &
Fawcett 2012). It is, however, worth noting that not all collaborative relationships
translate into long-term competitive advantage (Fawcett et al. 2012; Ramanathan &
Gunasekaran 2014). In order to create sustainable competitive advantage and reduce
risk exposure, relationship longevity, trust and communication are considered as
critical success factors (Miocevic & Crnjak-Karanovic 2012; Kumar & Nath 2014;
Hingley et al. 2015). Thus, as a point of departure, this study directs emphases on
how SCC factors assist in risk management and whether they are related to financial
performance, which will be discussed in the next section.

Supplier communication
In an era of intensive competition typified by time-based competition, the strategic
1

role of communication in SCC collaboration is widely acknowledged (Wang, Ye &

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Predictive analytic for supply chain collaboration, risk- and financial management

Tan 2014; Han & Dong 2015). Communication within the supply chain encompasses
transparent information sharing on procurement, inventory management, demand
and sales forecasting, order processing and technical expertise (Lotfi, Mukhtar,
Sahran & Zadeh 2013). In addition, communication reduces uncertainty and
opportunistic behaviour, shortens new product development lead times and enables
supply chain partners to be more responsive to market needs than competitors (Han
& Dong, 2015; Wang et al. 2014). It is, however, important to note that competitive
advantage may only be achieved if communication between supply chain partners
is genuine, frequent and based on accurate up-to-date information (Miocevic &
Crnjak-Karanovic 2012; Teller, Kotzab & Grant 2012). To achieve this, Prajogo
and Olhager (2012) emphasised the need for an information-sharing policy and an
accurate demand forecasting method. This therefore makes it imperative to ensure
that effective information-sharing mechanisms are built into collaboration efforts
between supply chain partners.

Supplier trust
Trust is regarded as one of the crucial relational factors that enhances the formation
1

of long-term collaborative cooperation amongst supply chain partners (Yeung,

Selen, Zhang & Huo 2009; Kumar & Nath 2014). Collaborative relationships
that are embedded in trust engender honesty in information sharing, reduce
opportunistic behaviour, exposure to risk and promote innovation amongst supply
chain partners (Chen, Daugherty & Landry 2009). In addition, trustworthiness
promotes collaborative planning in the supply chain which results in informed
demand forecasting, reduction of uncertainty and management of conflicts of
interest (Chowdhury 2012). According to Fawcett et al. (2012) trust is affirmed when
collaborative relationships go beyond contractual obligations to include knowledge
sharing, enhancing skills of supply chain partners and joint strategy formulation.
These components must then be embedded in supply chain relationships to ensure
that long term trust is developed.

Relationship longevity
Supply chain relationship longevity is a measure of the lifespan of the mutual
1

association between buyers and suppliers (Liu, Luo & Liu 2008). In most markets,
sustainable competitive advantages can be achieved by investing in long-term
relationships with supply chain partners (Dyer & Singh 1998). In particular,
long-term relationships allow supply chain partners to benefit from relationship
outcomes such as knowledge and asset sharing (Cao & Zhang 2011). In addition,

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a long-term relationship enables supply chain partners to test the robustness and
resilience of the collaborative network, reduce operational costs, improve the quality
of products and services and superior business as well as supply chain performance
(Nyaga et al. 2010). Hence, the benefits of cultivating mutually beneficial long-term
relationships with supply chain partners outstrip the risks by wide margins, making
it a worthwhile business practice.

Supply chain risk management

In order to survive in a turbulent business environment, supply chain risk
1

management is imperative (Kern, Moser, Hartmann & Moder 2012). Supply chain
risk is defined as any factor that inhibits or constrains the free flow of information,
raw materials or finished products among supply chain partners (Sodhi, Son & Tang
2012). The sources of supply chain risks are many and multifaceted, and include
strategy misalignment, regulatory requirements, changes in consumer preferences
and impairment of key assets (Lavastre, Gunasekaran & Spalanzani 2012). Other
risks include skills shortages, unreliable suppliers, as well as economic, technological
and social factors, as well as information security among others (Blome, Schoenherr
& Eckstein 2014). Therefore, the essence of SCRM is that efforts should be directed
towards managing each of these risks by minimising their impact on business
success (Grose & Richardson 2014).

Financial performance
Financial performance is usually measured using numerous objective indicators
1

such as Return on Investment (ROI), liquidity ratios, profitability ratios and gearing
ratios, amongst others (Olawale, Lombard & Herbst 2010). However, subjective
views on these indicators can be provided which give a prima facie perspective on the
financial performance of any entity (Lasher 2010). In the present study, a subjective
scale was used to measure financial performance (refer to Appendix A). SCC is
linked to financial performance owing to the substantial amount of resources
required to build effective long-term relationships (Ertimur & Venkatesh 2010; Huo
2012; Zhao, Feng & Wang 2015). The effect of SCC is two-fold. First, if successfully
implemented, SCC will result in supply chain risk reduction, leading to improved
financial performance (Huo 2012; Zhao et al. 2015). Conversely, if the collaboration
is characterised by opportunistic behaviour, it leads to the increased exposure to
risk and uncertainty, which is detrimental to financial performance (Ertimur &
Venkatesh 2010). To avoid jeopardising the financial position of the organisation,
effective risk management systems should be put in place, to avoid the expectation

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Predictive analytic for supply chain collaboration, risk- and financial management

that supply chain partners will respond favourably to each other as they collaborate
(Zhao et al. 2015).

Hypotheses formulation and conceptual framework

This section discusses the conceptual framework directing this article and the
1

formulation of hypotheses. The conceptual framework and the hypotheses are both
based on the literature review. The conceptual framework is presented in Figure 1.
1

Figure 1: Conceptual Framework for the connection between Supply Chain Collaboration, Supply
Chain Risk Management and Financial Performance

Figure 1 suggests that when supply chain partners collaborate in long-term

1

relationships, with long lasting relationships that are characterised by trust and
communication as building blocks, exposure to supply chain risk is minimised
which ultimately translates into improved financial performance.

Supplier trust
Trust among supply chain partners is a critical component of SCRM (Bala & Kumar
1

2011; Bianchi & Saleh, 2010). Although the benefits of trust in SCC are evident,

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Colquitt and Rodell (2011) note that nurturing and sustaining collaborative trust
remains a challenge. This view is supported by Fawcett et al. (2012) who note that
relatively few companies have built adequate trust with supply chain members. In a
supply chain characterised by the deficit of trust, it is difficult to nurture and sustain
collaborative relationships (Richey, Roath, Whipple & Fawcett 2010; Wallenburg,
Cahill, Knemeyer & Goldsby 2011). In the absence of trust, partners often take
deliberate efforts to block the efficient distribution of information (Miocevic 2016).
In addition, Tam and Tan (2015) conclude that in a supply chain devoid of trust,
predatory behaviour is rife which results in power asymmetries and exploitation
of weak partners by their powerful counterparts. However, despite the challenges
associated with establishing trust, the role of trust in reducing risk in the supply
chain is widely acknowledged (Liu 2012). Based on the foregoing discussion, it is
hypothesised that:
Ho1: There is no relationship between supplier trust and SCRM.
Ha1: There is a positive relationship between supplier trust and SCRM.

Supplier communication
Although communication offers a number of advantages to supply chain partners,
1

information is not easily shared within the supply chain (Müller & Gaudig 2011). For
instance, a report by Cai, Jun and Yang (2010) suggests that supply chain partners
are reluctant to share pertinent information due to the possibility of information
abuse. Similarly, Yang and Maxwell (2011) note that information may constitute
a significant constraint if partners cannot monitor how such information is used.
According to Bala and Kumar (2011), the extent of collaborative trust determines
the extent of information sharing. However, Wieland and Wallenburg (2013) opine
that if communication is managed effectively, it has the potential to enhance supply
chain agility, resilience and reduction in operating risks. Conversely, Hung, Ho, Jou
and Tai (2011) argue that the distortion of information exposes supply chain partners
to significant risks. The foregoing discussion points to the need for a counter balance
between communication and risk management. Thus, it is hypothesised that:
Ho2: There is no relationship between supplier communication and SCRM.
Ha2: There is a positive relationship between supplier communication and SCRM.

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Relationship longevity
There is consensus among researchers and supply chain practitioners that long-
1

term collaborative relationships have the potential to enhance the efficiency of

the supply chain (Hingley et al. 2015; Pauraj, Chen & Lado 2012). However, in
order to derive relational competencies, collaborative relationships should be
nurtured and must be sustainable (Nyaga et al. 2010). Commitment and trust are
more likely to be embedded when supply chain partners commit to work together
in the long-term (Dyer & Singh 1998; Mehrjerdi 2009). Additionally, Blackhurst,
Dunn and Craighead (2011) underscore that long-term collaborative relationships
reduce uncertainty and risks within the supply chain. This leads to the following
hypotheses:
Ho3: There is no relationship between relationship longevity and SCRM.
Ha3: There is a positive relationship between relationship longevity and SCRM.

Supply chain risk management and financial performance

Poor management of supply chain risks has serious implications for organisational
1

performance. For instance, Lavastre et al. (2012) highlight that poor management of
supply chain risks results in uncertainty, cost pressures and unpredictable demand.
The following hypotheses are therefore put forward;
Ho4: There is no relationship between SCRM and financial performance.
Ha4: There is a positive relationship between SCRM and financial performance.

Research methodology and design

The study commenced with an extensive literature review on the research constructs.
1

Thereafter, a quantitative approach which involves the use of statistical, mathematical,

and/or computational techniques to investigate observable phenomena (Mann
2003), was adopted to conduct the investigation. The quantitative approach was
appropriate for this research since the study intended to test relationships between
different constructs. A cross sectional survey design, in which information is
captured to make inferences about a population of interest at a specific point in time
(Sedgwick 2014) was selected in the collection of primary data. This type of design
was suitable for this study because of its low cost implications and its ability to either
prove or disprove hypotheses.

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Research sample
Respondents consisted of either owners or managers of SMEs based in the southern
1

part of the Gauteng Province of South Africa. The geographic scope of the study
included Heidelberg, Meyerton, Sasolburg, Vanderbjilpark, Vereeniging and
surrounding areas. This region was preferred because of its easy accessibility to
the researchers and the availability of many SMEs, which are the majority types of
business enterprises in the area. To ensure that only those people that are relevant
to the study were selected, a non-probability purposive sampling technique was
used. Despite its non-probability nature, purposive sampling is also applicable to
quantitative research (Teddlie & Yu 2007). To be selected as part of this study, one had
to meet a predetermined criterion, which was to be either an owner or manager of an
established SME which had been operating for more than five years. To determine
the sample size, the approach suggested by Comrey and Lee (1992) which stipulates
that 100 = fair, 200 = good, 500 = very good, and >1000 = excellent, was followed.
After administration of the survey, questionnaires from 243 SMEs were used in
2

the final data analysis. Approximately 37 percent of the participating SMEs employed
between 51 and 100 people. An estimated 43 percent of these SMEs operated in the
retail sector while almost 22 percent were in the manufacturing sector. The majority
of the SMEs (52%) had been in existence for periods ranging between six and ten
years. Furthermore, most of the SME owner/managers (53%) were aged between 36
and 55 years. Approximately 81 percent of the SME owner/managers were male and
at least 42 percent had a tertiary educational qualification.

Data collection procedures and measurement scales

A self-response survey using a structured questionnaire was conducted for the
1

collection of primary data. The surveys were conducted between March and April
2015. Three students studying for a Bachelor of Technology degree in Logistics at a
University of Technology based in Southern Gauteng were recruited and trained as
research assistants for the collection of data.
Measurement scales were operationalised using previous studies. The measures
2

for relationship longevity were adapted from the work of Aziz and Noor (2013).
Measures for supplier trust were adapted from Ketkar, Kock, Parente and Verville
(2012). Supplier communication measures were adapted from the work of Vickery,
Droge, Stank, Goldsby and Markland (2004) and Hoegl and Wagner (2005).
Measures for SCRM were adapted from Tang (2006). Financial performance was
measured subjectively using questions adapted from Narver and Slater (1990),
Avlonitis and Gounaris (1997), as well as Santos and Brito (2012). Response options

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Predictive analytic for supply chain collaboration, risk- and financial management

were configured on five-point Likert scales which ranged from strongly disagree to
strongly agree for the relationship longevity, supplier trust, supplier communication
and SCRM scales. However, the Likert scale for the financial performance scale was
anchored by 1= much worse than industry average and 5= much better than industry
average. A list of measurement scales used in this study is included in Appendix A.

Data analysis
Demographic details of respondents were analysed using the Statistical Packages for
1

the Social Sciences (SPSS version 23.0). Hypotheses were tested using a structural
equation modelling (SEM) approach using the Analysis of Moment Structures
(AMOS 23) statistical software.

Reliability and validity

Structural Equation Modeling (SEM) was adopted for both measure validation
1

as well as testing the structural model. The first part of the procedure included
conducting a confirmatory factor analysis (CFA) to ascertain the psychometric
properties of the measurement scales. Reliability was measured using three indicators,
namely the Cronbach alpha coefficient, Composite Reliability and Average Variance
Extracted (AVE). A minimum value of 0.7 is expected to endorse the reliability of
any scale for the Cronbach alpha as well as the composite reliability (Eisinga, Te
Grotenhuis & Pelzer 2013). For the AVE, a minimum value of 0.5 is acceptable for
confirmation of reliability (Bagozzi & Yi 2012). In addition, measurement scales
were tested for four types of validity, namely face validity, content validity, convergent
validity and discriminant validity. Face validity was ascertained by requesting three
experts in supply chain management to review the questionnaire. Content validity
was ascertained through pre-testing the questionnaire with a convenience sample
of 30 respondents, as prescribed by Grim (2010). Convergent validity was measured
by checking if the factor loadings were above 0.5 (Gefen, Straub & Boudreau 2000).
Discriminant validity was determined by checking whether the Average Shared
Variance (ASV) was lower than the AVE for all constructs under consideration
in the study (Hair, Black, Babin & Anderson 2010). The results of these tests are
provided in Table 1.

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C. Mafini & A. Muposhi

Table 1: Accuracy analysis statistics

mmdcccxiv Research constructs Descriptive
mmdcccxvi Reliability tests
mmdcccxvii CR
mmdcccxviii AVE
mmdcccxix Item mmdcccxx mmdcccxxii Highest
mmdcccxv

statistics mmdcccxxi loadings SV

mmdcccxxiii Mean SD mmdcccxxiv mmdcccxxv Itemtotal α mmdcccxxvi

Value
Relation-
mmdcccxxvii

mmdcccxxviii

RL-1
mmdcccxxix mmdcccxxxi mmdcccxxxiii 0.566 mmdcccxxxiv mmdcccxxxvi mmdcccxxxviii

mmdcccxl 0.616C mmdcccxli

ship Longevity mmdcccxxx 3.62 mmdcccxxxii 1.67 0.612 mmdcccxxxv 0.732 mmdcccxxxvii 0.757 mmdcccxxxix 0.534 0.724 C mmdcccxlii 0.174
RL-2
(RL)
mmdcccxliv

mmdcccxliii mmdcccxlv

mmdcccxlvi

RL-3
mmdcccxlvii 0.615 mmdcccxlviii 0.820 C
mmdcccxlix

RL-4
mmdcccl 0.519 mmdcccli 0.855 C
Supplier Trust
mmdccclii mmdcccliii

ST-1
mmdcccliv mmdccclvi mmdccclviii 0.547 mmdccclix mmdccclxi mmdccclxiii mmdccclxv 0.635 C mmdccclxvi

(ST) 3.74 1.53 0.535 0.777 0.845 0.576 0.575 C 0.450

ST-2
mmdccclv mmdccclvii mmdccclx mmdccclxii mmdccclxiv mmdccclxvii

mmdccclxviii mmdccclxix mmdccclxx

mmdccclxxi

ST-3
mmdccclxxii 0.544 mmdccclxxiii0.831 C
mmdccclxxiv

ST-4
mmdccclxxv 0.681 mmdccclxxvi 0.712 C
mmdccclxxvii

ST-5
0.616
mmdccclxxviii mmdccclxxix 0.773 C
Supplier
mmdccclxxx mmdccclxxxi

SC-1
mmdccclxxxii mmdccclxxxiv 0.545
mmdccclxxxvi mmdccclxxxvii mmdccclxxxix mmdcccxci mmdcccxciii 0.893 C mmdcccxciv

Communica- 3.51 1.29 0.672 0.802 0.710 0.512 0.588C 0.387

SC-2
mmdccclxxxiii mmdccclxxxv mmdccclxxxviii mmdcccxc mmdcccxcii mmdcccxcv

mmdcccxcvi mmdcccxcvii mmdcccxcviii

tion(SC) 0.534 0.754 C

SC-3
mmcm

mmdcccxcix mmcmi

mmcmii

SC-4
0.654 mmcmiii mmcmiv 0.513 C
SC-5
mmcmv 0.517 mmcmvi mmcmvii 0.501 C
Supply Chain
mmcmviii

SCRM-1
mmcmix 0.552 mmcmx mmcmxii mmcmxiv mmcmxv mmcmxvii mmcmxix mmcmxxi 0.655 C mmcmxxii

Risk 4.03 1.44 0.737 0.824 0.734 0.502 0.566 C 0.419

SCRM-2
mmcmxi mmcmxiii mmcmxvi mmcmxviii mmcmxx mmcmxxiii

mmcmxxiv mmcmxxv mmcmxxvi

Management 0.651 0.672 C

SCRM-3
(SCRM)
mmcmxxvii mmcmxxviii mmcmxxix

SCRM-4
mmcmxxx 0.513 mmcmxxxi 0.816 C
mmcmxxxii

SCRM-5
mmcmxxxiii 0.624 mmcmxxxiv mmcmxxxv0.619 C
mmcmxxxvi

FP -1
mmcmxxxviii 0.568 mmcmxxxix mmcmxli mmcmxliii mmcmxliv mmcmxlvi mmcmxlviii mmcml 0.813 C mmcmli

Financial 3.26 1.31 0.545 0.861 0.755 0.523 0.847 C 0.233

FP-2
mmcmxxxvii mmcmxl mmcmxlii mmcmxlv mmcmxlvii mmcmxlix mmcmlii

mmcmliii mmcmliv mmcmlv

Performance 0.561 0.833 C

FP-3
mmcmlvi mmcmlvii mmcmlviii

FP-4
mmcmlix 0.742 mmcmlx mmcmlxi 0.715 C
FP-5
mmcmlxii 0.592 mmcmlxiii mmcmlxiv0.883 C
FP-6
mmcmlxv 0.634 mmcmlxvi 0.864 C
mmcmlxvii

* Scale: 1 – Strongly Disagree; 4 – Neutral; 5– Strongly Agree

mmcmlxviii

C.R: Composite Reliability; AVE: Average Variance Extracted; S.V.: Shared Variance
mmcmlxix

a
significance level p<0.05; b significance level p<0.01; c significance level p<0.001
mmcmlxx

As reported in Table 1, measurement scales satisfied all recommended thresholds.

1

In terms of reliability, Cronbach alpha and composite reliability values were beyond
the recommended 0.7 value while AVE values were higher than the minimum
threshold of 0.5. This confirms that all measurement scales as used in this study were
reliable. With respect to face validity, the reviewers made some recommendations
for improving the questions used and technical issues. Feedback from the pretest
was used to eradicate inconsistencies in such areas as interpretation of questions,
ambiguity of some words, sensitivity of questions as well as other concerns
associated with the administration of the questionnaires. All factor loadings were

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Predictive analytic for supply chain collaboration, risk- and financial management

above the recommended minimum threshold of 0.5, which confirms the adequacy
of convergent validity in this study. Furthermore, the HSV was lower than the AVE
for all constructs, which attests to the sufficiency of discriminant validity in this
study. Therefore, all measurement scales as used in this study were deemed to be
both reliable and valid.

Model fit analysis

As prescribed by Fornel and Larcker (1981) it is necessary to conduct a model fit
1

analysis for both the CFA model as well as for the structural model. The resulting
model fit indices are used to establish whether the model is acceptable. The model
fit indices used in this study are recommended by a number of authoritative scholars
(Browne & Cudeck 1989; Byrne 1994; Hu & Bentler 1995; Kline, 1998; Ullman
2001; Schumacker & Lomax 2004) in the use of SEM. The results of the model fit
analysis for both CFA and SEM are provided in Table 2.
Table 2: Model fit analysis
mmcmlxxi FIT INDEX Thresholds
mmcmlxxii Results for
mmcmlxxiii mmcmlxxiv Results for
CFA SEM

mmcmlxxv Chi-Square/ d. f. ≤3
mmcmlxxvi mmcmlxxvii 2.245 mmcmlxxviii 2.313

mmcmlxxix CFI (Comparative Fit Index) mmcmlxxx ≥ 0.9 mmcmlxxxi 0.910 mmcmlxxxii 0.927

RMSEA (Root Mean Square Error of

mmcmlxxxiii ≤0.08
mmcmlxxxiv mmcmlxxxv 0.032 mmcmlxxxvi 0.025
Approximation)

mmcmlxxxvii NFI (Normed Fit Index) ≥ 0.9

mmcmlxxxviii mmcmlxxxix 0.956 mmcmxc 0.916

mmcmxci TLI (Tucker Lewis Index) mmcmxcii≥ 0.9 0.983

mmcmxciii mmcmxciv 0.922

mmcmxcv IFI (Incremental Fit index) ≥0.9

mmcmxcvi mmcmxcvii 0.951 mmcmxcviii 0.934

mmcmxcix GFI (Goodness of Fit) mmm ≥0.9 mmmi 0.919 mmmii 0.920

mmmiiiAGFI (Adjusted Goodness of Fit) mmmiv≥0.9 mmmv 0.936 mmmvi 0.965

Table 2 confirms that for the CFA model, a ratio of chi-square value to degree-of-
1

freedom of 2.245, as well as CFI, RMSEA, NFI, TLI, IFI, GFI and AGFI of 0.910,
0.032, 0.956, 0.983, 0.951, 0.919 and 0.936 were achieved. All of these data fulfilled
the approved parameters, which demonstrates the existence of an acceptable
fit between the CFA model and the sample data. Prior to testing the proposed
hypotheses there was a need to conduct model fit analysis for the structural model.
The resulting figures indicated that the ratio of chi-square over degree-of-freedom
was 2.313. This value is less than the specified upper boundary of less than 3.0 and,

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C. Mafini & A. Muposhi

so confirms the model fit. Moreover, CFI, RMSEA, NFI, TLI, IFI, GFI and AGFI
values were 0.927, 0.025, 0.916, 0.922, 0.934, 0.920 and 0.965, which satisfies the
approved limits. Thus, the proposed conceptual model converged meaningfully and
credibly portrays the structure of the empirical data collected from the sample of
SMEs in Gauteng Province, South Africa.

Results of hypotheses tests

Hypotheses were tested using the SEM procedure, to test whether specific paths are
1

significant. The results are provided in Table 3.

Table 3: Results of structural equation model analysis
Proposed
mmmvii Null
mmmviii mmmx Alternative Path mmmxii mmmxiii Significance Decision
mmmxiv

Relationships Hypothesis
mmmix mmmxi Hypothesis Coefficient P
mmmxv RL→SCRM mmmxvi Ho1 mmmxvii Ha1 mmmxviii 0.021 mmmxix0.453 mmmxx Accept null hypothesis
mmmxxi ST → SCRM mmmxxii Ho2 mmmxxiii Ha2 mmmxxiv 0.542 mmmxxv 0.007 mmmxxvi Reject null hypothesis
mmmxxvii SC → SCRM mmmxxviii Ho3 mmmxxix Ha3 mmmxxx 0.473 mmmxxxi 0.034 mmmxxxii Reject null hypothesis
SCRM →
mmmxxxiii mmmxxxiv Ho4 mmmxxxv Ha4 mmmxxxvi 0.640 mmmxxxvii 0.002 mmmxxxviii Reject null hypothesis
Financial
Performance
mmmxxxixNote: RL=Relationship longevity; ST= Supplier trust; SC= Supplier communication; SCRM=Supply chain risk
management; FP=financial performance
mmmxl p < 0.05.

Statistical evidence provided in Table 3 shows that three out of four null hypotheses
1

were rejected, implying that the proposed associations between the involved
constructs were valid. These individual results for each set of hypotheses tests are
discussed in greater detail in the next section.

Discussion of results
The aim of this study was to investigate the connection between SCC, SCRM and
1

financial performance within SMEs. To achieve this aim, the study considered the
influence of three SCC elements, namely relationship longevity, supplier trust and
supplier communication on SCRM, and the influence of the latter on financial
performance. In the ensuing discourse, the association between each set of constructs
is discussed in terms of the results of the null hypothesis.
The first null hypothesis (Ho1) was accepted since relationship longevity had
2

an almost negligible and statistically insignificant impact (r=.021; p=.453) on

SCRM. By implication, within SMEs, an increase in relationship longevity exerts a

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Predictive analytic for supply chain collaboration, risk- and financial management

minimum impact on SCRM or does not predict it. Likewise, the existence of a long
lasting relationship between an SME and its suppliers does not necessarily point to
the entrenchment of more robust risk management activities within the supply chain
by that SME. The current study contradicts previous results (Zomorrodi & Fayezi
2010; Loader 2011; Ntayi 2011) that concluded that better lasting relationships lead to
enhanced risk management within supply chains. Furthermore, as stated previously,
the standpoint in literature on SCM lists improved risk management as one of the
paybacks of relationship longevity between supply chain partners (Dwyer, Schurr &
Oh 1987; Bensaou 1999; Hoyt & Huq 2000; Duffy 2008).
3The results of the present study are surprising, since they deviate from traditionally
established patterns. Conceivably, it could be that with South Africa being an emerging
market, the dominance of arms lengths (transactional) relationships between
trading partners remains an enduring practice. This perspective finds support from
Avittathur and Jayaram (2016) who suggest that the tendency to be conservative and
to rely on transactional relationships is higher where markets have not yet developed,
as businesses seek to hedge themselves from the possibility of business failure. More
so, considering that the organisational life span for most SMEs in South Africa is
less than five years (Bureau for Economic Research 2016), it is natural to expect
buyer-supplier relationships to last for even shorter periods. Relationship longevity
is therefore almost an imaginary concept for SMEs in such contexts, given the ever-
threatening possibility of business failure in the market.
4The second null hypothesis (Ho2) was rejected since there was a strong positive
and statistically significant association (r=.542; p=.007) between supplier trust
and SCRM. This result demonstrates that risk management is likely to improve as
buyer supplier trust increases within SME supply chains. Likewise, it is logical to
presuppose that SMEs that have established trust with their suppliers also exercise
meaningful SCRM practices. In other words, supplier trust amongst SMEs predicts
SCRM. Consistent with these results, a number of studies (Ismail & Alina 2010;
McDowell, Harris & Gibson 2010; Ismail, Omar & Wei 2015; Mafini, Pooe & Loury-
Okoumba 2016) concluded that SME buyer supplier trust has a stimulus effect on
risk management activities amongst SMEs operating in various supply chains. Ha,
Park and Cho (2011) further stress that buyer-supplier trust has a significant impact
on collaboration in information sharing and the sharing of both benefits and risk,
which leads to higher supply chain performance. Such sharing of supply chain risk
is important to SMEs in South Africa as it shields them from a plethora of threats
such as the volatility of the South African rand, an unpredictable socio-political
environment, global competitive forces and an unstable industrial relations climate,
which relentlessly dominate the South African economic landscape. Thus, the view

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C. Mafini & A. Muposhi

that the cultivation of trust between buyers and suppliers may be part of the solution
to shield SMEs from these risks is valid.
5The third null hypothesis (Ho3) was rejected on the basis that there existed a
moderately positive and statistically significant (r=.473; p=.034) association between
supplier communication and SCRM. This result validates that risk management by
SMEs in any particular supply chain is bound to improve whenever communications
between these SMEs and their suppliers intensify. The result also makes it rational to
assume the existence of effective SCRM initiatives and systems wherever considerable
communications exist between SMEs and their supply chain partners. Stated
in other words, supplier communication predicts SCRM in SMEs. For supplier
communication to be convincing in improving SCRM, there is a need for both the
buying and supplying entities to be allowed to articulate their positions without
being judged, interrupted or disrespected (Cai et al. 2010). In view of this, supply
chain partners have to communicate in order to coordinate the follow of products
from suppliers to buyers without interruption. Issues such as contractual obligations
and prices, technological adaptations, delivery schedules, market dynamics and other
strategic issues have to be discussed until buying and supplying partners develop a
common understanding (Oosterhuis 2009). Without this common understanding,
no mutual cooperation is likely to occur between the partners, leading to conflict
between them.
6The fourth null hypothesis (Ho4) was rejected, based on the existence of a strong
positive and statistically significant (r=.640; p=.002) association between SCRM
and financial performance. This result illustrates that the financial performance of
SMEs is likely to increase when they strengthen their risk management activities
within the supply chain. Based on the results of this study, the perspective that SMEs
which have effective risk management systems in place within their supply chains
also have superior financial performance is deemed rational. Stated in other words,
SCRM predicts financial performance in SMEs. Risk management systems may
include forecasting, optimisation, stick management, multi-sourcing arrangements
and risk assessments and audits, amongst others (Wieland & Wallenburg 2013).
However, since each supply chain is very complex, most of these systems may not
be adequate in dealing with supply chain risks, and should be combined with other
approaches. An important approach that is usually combined with SCRM is supply
chain resilience, which is meant to ensure that a supply chain is able to recover from
a risk in the event that the systems in place could not deal with that risk (Durach,
Wieland & Machuca 2015). SMEs could therefore benefit immensely by applying
the correct risk management systems to their complex scenarios in order to counter
effectively the threats presented by each supply chain risk.

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A notable result in this study is that supplier trust (r=.542) emerged as the strongest
7

predictor of SCRM as compared to relationship longevity (r=.021) and supplier

communications(r=.473). It may be that amongst the three predictor constructs, it
is trust that fosters the greatest benefits for SMEs, hence it emerged as the most
important predictor of SCRM. For instance, it is only when trust exists between
supply chain partners that their relationship can last (Vieira et al. 2013), which places
relationship longevity as a possible outcome of supplier trust. Similarly, effective
supplier trust can result in increased environmental communications between all
stakeholders, including communication with suppliers (Chopra & Meindl 2010).
This likewise places supplier communication as a possible outcome of supplier trust.
However, the fact that these constructs were placed at the same predictive position
in this study only sustains the supremacy of the value that supplier trust adds to risk
management activities within SME supply chains. This value comes through various
benefits, all which in different ways, facilitate better risk management within supply
chains. Examples of these benefits include improved supplier performance, reduced
costs, greater transparency in the supply chain and increased sales (Laeequddin et al.
2012; Oh & Rhee 2010). Other benefits include improved efficiency, extra stability in
demand, mitigation of pricing volatilities and continuous improvement (Li, Zhao &
Qu 2012). Thus, in the context of this study, the greatest impact on SCRM in SMEs
originates from supplier trust rather than from relationship longevity and supplier
communication.

Limitations and future research possibilities

Several limitations of the current study are hereby acknowledged. The first limitation
1

relates to the rather modest sample size of 243 SMEs that were based in one province
(Gauteng) of South Africa. Due to this limitation, not all the research results and
implications of this study are universally applicable. In view of this, similar studies
could be conducted using enlarged samples drawn from other regions of the country
to generate more encompassing results. The second limitation is the dependence
on self-report measures of the constructs under consideration. This enhanced the
study’s susceptibility to self-reporting bias, which is the tendency to under-report
behaviours deemed inappropriate by researchers, and the tendency to over-report
behaviors viewed as appropriate (Donaldson & Grant-Vallone 2002). The study is
also limited in that only three SCC elements were used. Future studies could be
conducted using other SCC sub-elements such as inter alia, integration, supplier
development and technology adoption. Future research could also be conducted
using specific industries in order to narrow the results to specific SME segments.

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C. Mafini & A. Muposhi

Conclusions, theoretical and managerial implications

The study makes it clear that to remain competitive, SMEs have to prioritise SCC
1

activities to manage and strengthen their risk management activities and improve
financial performance. With respect to this study, these activities include two
dimensions, namely supplier trust and supplier communication, both of which
predict SCRM. However, one dimension, relationship longevity, does not seem
to contribute in any meaningful way to risk management within SME supply
chains. At the same time, improvements in risk management within SMEs predict
their financial performance. The study therefore concludes that SCC positively
contributes to SCRM, which in turn, contributes positively to the financial
performance of SMEs.
Despite the acknowledged limitations, the study still contributes important
2

theoretical and managerial implications. Theoretically, the study provides current

insights on the interplay between SCC, SCRM and financial performance from
the context of an emerging market located in Africa, south of the Sahara. This
contribution is important, given that SCM in this region is still developing. In
doing so, future research endeavours have been provided with yet another additional
source of reference, especially where the constructs used in this study are concerned.
Overall, the study provides SMEs with information to use in achieving improved
risk management and superior financial performance through collaborative activities
with suppliers.
Several recommendations are put forward to improve SCC, SCRM and financial
3

performance in SMEs. Partnering with suppliers in analysing costs, managing

quality, adopting new technologies and improving business processes could improve
trust and relationship longevity (Eckerd & Hill 2012). Supply chain relationships
could also be improved by making early payments as a way of demonstrating that
suppliers are a priority (Wilding, Wagner, Ashby, Leat & Hudson-Smith 2012).
Supplier training should be provided to suppliers to enable them to understand the
specific needs of the buying SMEs (Mettler & Rohner 2009). It is further important
for SMEs to become more transparent by ensuring that their quarterly and
annual reports are available to strategic suppliers (Carr & Kaynak 2007). Monthly
supplier newsletters can be created, which contain information that suppliers can
use to improve their supply efforts (Marshall 2015). The selection of appropriate
communication media is also important, as it determines the overall effectiveness of
buyer-supplier interactions (Li, Ye & Sheu 2014). If special attention is paid to these
areas, it is likely that collaboration and risk management efforts will lead to better
financial performance in SME supply chains.

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Predictive analytic for supply chain collaboration, risk- and financial management

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Appendix 1

Measurement Scales Used in the Study

Relationship Longevity
1

Our business expects its relationship with key suppliers to last a long time.
1

Suppliers see our relationship as a long-term alliance.

1

We view our suppliers as an extension of our business.

1

We work with key suppliers to improve their performance in the long run.
1

Likert Scale: 1= strongly disagree; 2=disagree; 3=neutral; 4=agree; 5=strongly

1

agree
1

Supplier Trust
When making important decisions, our suppliers are concerned about our welfare.
1

Our suppliers have often provided us with information that has later proven to be
1

true.
Though situations change, we believe that our partners will be ready and willing to
1

offer us assistance and support.

Our major suppliers are good at keeping their promises.
1

Whenever our suppliers give us advice on our business operations, we know that
1

they are sharing their best judgement.

Likert Scale: 1= strongly disagree; 2=disagree; 3=neutral; 4=agree; 5=strongly
1

agree
1

Supplier Communication
There is intense communication between our business and its suppliers.
1

There is frequent communication between our business and its suppliers.

1

A variety of media is used in the communication between our business and its
1

partners.
Information shared between our business and its suppliers is reliable.
1

Likert Scale: 1= strongly disagree; 2=disagree; 3=neutral; 4=agree; 5=strongly

1

agree
1

Supply Chain Risk Management

1 Our business uses inventory optimisation to manage risk.

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C. Mafini & A. Muposhi

Our business uses alternative sourcing arrangements to manage risk.

1

Insurance arrangements are in place as a contingency measure for risk.

1

Risk assessments and audits are regularly conducted to manage risk.

1

Regular awareness campaigns and training programs are used to manage risk.
1

Likert Scale: 1= strongly disagree; 2=disagree; 3=neutral; 4=agree; 5=strongly

1

agree
1

Financial Performance
Value of annual profits
1

Ability to meet financial obligations

1

Capacity to make regular financial investments

1

The value of assets versus the value of liabilities

1

Ability to make more profit than other similar business (relative profit)
1

Company savings
1

Likert Scale: 1= much worse than industry average; 2= worse than industry
1

average; 3=neutral; 4=better than industry average; 5=much better than industry
average
1

338