Perceived Barriers of Supply Chain Management Practices: Empirical

Study on Malaysian Tourism Firms

Gengeswari Krishnapillai, Abu Bakar Abdul Hamid, & Siti Zaleha Abdul Rashid

ABSTRACT
Tourism sector is known for its sophistication and interdependency where performance of one player would
greatly influence the business operations of others in the sector. Hence, practices of supply chain
management (SCM) have become a must for firms within this service sector to coordinate their business
operations. SCM practices are imperative for tourism firms to enhance their efficiency and profitability as
well as to ensure sustainability in todays competitive environment. Despite the growing importance of
SCM practices within tourism sector, much of existing SCM studies focus greatly on manufacturing sector
and moderately on other services sectors. However, only few researches have been done in the area of
tourism supply chains (TSC). The existing TSC studies consist of more conceptual rather than empirical
works where most of these studies mainly concentrated in developed nations e.g. Europe and America and
very less in developing nations particularly in Asia region, only exception can be given to those studies
focused in China and Thailand. This implies that there is no one TSC identical study in the region of South
East Asia and Malaysia, in particular. As such, this study is intended to fill this gap. This study explores the
integration level of TSC practices well as perceived barriers in practicing TSC. 644 questionnaires were
mailed to tour operators and hotel operators located in Malaysia where the response rate was about 28%.
Findings indicate that both tour and hotel operators integrate their supply chain practices mostly at Level 1
(within their company). Besides, the most significant benefits for these firms are relating to security
concerns and conflicting organizational structures. It is also found that firms integrating supply chains at
higher level tend to face barriers more than firms that integrate at lower level.

KEY WORDS: Supply chain management, tourism supply chains, services supply chains distribution and
tourism sector.

1.0 INTRODUCTION
Over the decades, tourism sector has experienced continued growth and deepened
diversification to become one of the fastest growing economic sectors in the world.
Today, the Gross Domestic Product (GDP) of tourism sector equals or even exceeds the
GDP of other key economic sectors such as oil exports, food products or automobiles as
well as it has also produced employment opportunities in many related sectors such as in
construction,

agriculture,

telecommunication

and

others

(Walker,

2009;

EUROMONITOR, 2009). As such, it is claimed to be the worlds most important

industrial sectors with two times growth for the last 30 years (Walker, 2009).
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This is in line with the statement of Mr Francesco Frangialli, the Secretary-General of

World Tourism Organization (WTO), who claims that tourism at the turn of the century
is growing faster than our most optimistic predictions and is forecasted to be double in
next 20 years (WTO, 2010). Despite the increasing security concerns due to terrorism
attacks and slow economy recovery, it is claimed that the long term prospects for tourism
appear to be good (Walker, 2009). WTOs Tourism 2020 Vision forecasts that
international arrivals are expected to reach more than 1.56 billion by the year 2020 where
the top three receiving regions will be Europe (717 million tourists), East Asia and
Pacific (397 million) and the Americas (282 million), followed by Africa, the Middle
East and South Asia (Walker, 2009; WTO, 2010).

Tourism is not a single unified sector but selectively cuts across and impacts many
traditional and emerging sectors. It consists of numerous suppliers who provide services
and goods namely accommodation, foods and beverages, inbound and outbound
transportation as well as excursions (Tapper and Font, 2004). In addition to this, this
sector involves number of intermediaries whom play a significant part in the marketing
and distribution of tourism goods and services to the final customers or in this case
tourist. The complex nature of tourism business, motivates tourism firms to emphasize
on the both vertical and horizontal integration of their goods and services with and among
the channel members i.e. suppliers and intermediaries (Yamaguchi, 2004; Mitchell and
Phuc, 2007). The complexity of tourism sector is said to be greater with respect to
international tourism activities due to the involvement of different cultures and industry
systems. In such a closely interlinked supply system, any behavior of any party can
evoke chain reactions that will directly influence the performance of individual
organization (Murphy and Smith, 2009). Hence, the adoption of effective supply chain
management (SCM) has become vital for tourism firms to enhance their competitiveness
(Chen, 2009; Zhang and Murphy, 2009).

Until very recently, there are limited researches, both empirical and conceptual, which
examine the concept of SCM within tourism sector (e.g. Muchina and Popovici, 2008;
Kozak et al. 2008; Zhang et al. 2009; Simon and Roy, 2009; Pibbonrungroj and Disney,
204

2009; Rusko et al. 2009). Due to the scarce of tourism SCM researches, Pibbonrungroj
and Disney (2009) have done a systematic literature search and it was found that there
were only 44 TSCM studies and most of TSCM literatures (about 66%) have been
published in 2008 and 2009. It was also discovered that there are two stages of TSCM
researches.

The first stage is the era before 2007 where there is only conceptual-

framework papers meanwhile in second stage of TSCM research, more empirical studies
are published than conceptual framework papers. Pibbonrungroj and Disney (2009)
found that half of empirical studies were found in Europe whereas only about one-third of
empirical studies were found in Asia specifically in China which is known as worldrenowned tourist destinations (Pibbonrungroj and Disney, 2009). It implies that there are
little similar studies in Asia and none in South East Asia.

In realty, only few firms have fully integrated entire supply chain activities despite the
enormous potential benefits that could be resulted from higher integration level (Mentzer
et al. 2001; Sohal et al. 2003; Sahay and Ramneesh, 2003). Accordingly, Fawcett and
Magnan (2002) discovered that about 47% of the surveyed companies are working
towards integration of business processes within the company meanwhile about 34% of
them are integrating with first-tier suppliers and 11% of them are integrating with key
customers. Surprisingly, only 8% of them are systematically integrating supply chain
activities among key customers and suppliers where there are practically no companies
which fully integrate supply chain activities either with their suppliers suppliers or with
customers customers.

There are numerous factors that inhibit the implementation and integration of supply
chain activities within both services and non-services (Fawcett and Magnan, 2002;
Harland, 2007). It is perceived that barriers faced by SCM practitioners in non-services
sectors are somewhat different than in services sector (Chandra and Kumar, 2000;
Lafferty and Fossen, 2001; Harland, 2007). In fact, the effects and types of these barriers
are more intense in services sector considering their unique yet complex nature (Rosena
et al. 2008; Tate, 2008; Ruteri and Xu, 2009). Ultimately, these barriers are significantly
believed to obstruct the integration SCM practices (Chandra and Kumar, 2000; Lafferty
and Fossen, 2001; Harland, 2007).
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In overall, this study is intended to examine the tourism supply chain (TSC) practices by
considering the barriers faced by tourisms firms in integrating their supply chain (SC)
practices. This study is conducted among tour operators (act as intermediaries) and hotel
operators (act as suppliers) within Malaysia.

2.0 CONSTRUCTION OF RESEARCH VARIABLES

2.1 Integration Level of Tourism Supply Chain Practices

Typically, there are three levels in implementation of supply chain practices namely
direct supply chain, extended supply chain and an ultimate supply chain (Mentzer et al.
2001). A direct supply chain consists of a company, a supplier and a customer involved
in both upstream and/or downstream of products, services, finances and/ or information.
Nevertheless, an actual supply chain process is broader consisting of companys suppliers
(first tier) and their suppliers (second tier) as well as companys customers and their
customers. This is known as an extended supply chain which has more chain members
compared to the direct supply chain. Beside these, an ultimate supply chain includes all
the organizations involved in all the upstream and downstream flows of products,
services, finances and information from the ultimate supplier to the ultimate customer. In
this level, there are also third parties whom further facilitate the supply chain operations
through their services or assistances in logistic, marketing, financial and so on. At this
level, all chain members including third parties should be well integrated in order to
improve the overall effectiveness of supply chain.

In addition to the three implementation levels of SCM proposed by Mentzer et al. (2001),
Sohal et al. (2002) discovered that there are also three integration levels of supply chain
namely reactive, tactical and strategic. Reactive is the lowest level of implementation
which merely acts to satisfy a trading partners request. Typical application at this level
includes

some

simple

electronic

data

interchange

(EDI)

transactions.

Such

implementation merely incurs additional operational costs. Next is tactical level where
the supply chain activities are integrated to a specific business process, such as
purchasing and production, in improving its efficiency. At this level, adequate planning
206

is done and hence, substantial cost savings are possible to achieve. The ultimate is
strategic level where it seeks to integrate various business processes across the supply
chain in a planned and staged manner. Such integration is expected to yield incredible
costs savings in addition to other business advantages.

Kotzab et al. (2005) have associated the integration practices in SCM with partnership
among or across the trading partners. Partnership can be divided into three stages, which
are starting from cooperation, to coordination and lastly is collaboration (Kotzab et al.
2005). In cooperation stage, firms exchange the information and engage some suppliers
into a long-term contract. Next, in coordination stage, the trading partners exchange the
specified materials and information to create the seamless connection among them.
Finally, during collaboration stage, all the supply chain trading partners become
integrated into their suppliers or customers processes. The integration flow here
requires a high level of trust and information sharing among the trading partners. This
study utilizes the typology of Mentzer et al. (2001) in measuring the supply chain
integration practices of tourism firms.

2.2 Barriers of Tourism Supply Chain Practices

There are many inhibiting factors that exist at multiple levels of organization mostly at
intra-organizational and inter-organizational levels (Fawcett et al. 2008). Example of
inter-organizational barrier is difficulties experienced by other chain members in
automating their transactions due to inability of one member to afford using required
technologies. On the other hand, example of intra-organizational barrier is poor planning
of capacity management by newly recruited employee whom has inadequate training.
Glitches that exist at any levels of organization would ultimately affect the companys
endeavor in meeting the final customers demand.

On the other hand, Storey et al. (2006) and Halldorsson et al. (2008) perceived that
barriers resulted from nature of organizations exist in the form of two aspects namely
inter-firm rivalry and managerial complexity. Inter-firm rivalry is a coalition of chain
members with contradicting supply chain motives and behaviors. Some barriers under
this category include internal and external territory protection, poor collaboration among
207

chain partners and lack of partner trust. Generally, inter-firm rivalry has the tendency to
lead to competition instead of cooperation among the chain members. This is
fundamentally against the main concept of supply chain which is integration within and
across chain members. Meanwhile, managerial complexity arises when the chain
members face difficulties in allying their processes, structures and culture (Storey et al.
2006; Halldorsson et al. 2008). Some barriers resulted from managerial complexity
include technological incompatibility, inadequate measurement systems and conflicting
organizational structures and culture.

Research conducted by Tate et al. (2008) discovered that about 69% of the supply chain
management professionals perceived managing services supply chain is more difficult
than managing supply chains for goods. They examined the factors that inhibit the
relationship between services buyers and suppliers. The first barrier is services buyers
have lack of information technology support where they often use suppliers systems to
perform supply chain activities such as making purchases, tracking suppliers
performance and others. Due to reliance on supplier-specific assets e.g. information
technologies, buyers have become overly depending on the suppliers and hence, buyers
power over the suppliers would greatly decrease over the time. Besides that, nature of
services has also become ground for difficult understanding of services structure and cost
drivers.

According to Walker et al. (2008), barriers experienced by supply chain practitioners can
be categorized into two namely internal and external. Internal barriers include cost and
lack of top management support whereas external barriers include regulation, poor
supplier commitment and industry specific barriers. On the other hand, Wu and Yang
(2010) claimed that the unique characteristics of services also always hinder the
management of services supply chain. Particularly, the intangibility nature of services
makes difficult and costs more for suppliers to clearly identify individual needs. As such,
chain members have to invest more to transfer the information among them and to
customers. Besides that, due to the demand instability, services cannot be stored and
transferred compared to non-services sectors which have more stable and constant
demand. Moreover, the simultaneous process of production and consumption makes it
208

easy for customers to revert the feedbacks but it always leaves more uncertainty for
managing services supply chain which ultimately influences the extent of operational
risks.

Ideas and findings of Storey et al. (2006), Walker et al. (2008), Halldorsson et al. (2008),
Tate et al. (2008) and Wu & Yang (2010) have been greatly used to recognize barriers
faced by tourism firms in practicing supply chains. Accordingly, this study adopts 10
major barriers namely lack of trust among chain members, inflexibility resulted from
coordination, consumer preferences to deal directly with suppliers, small volume of TSC
transactions, lack of top management support, nature of tourism products, security
concerns in exchanging the documents, lack of employees knowledge, conflicting
organizational structures and unwillingness of chain members to integrate. In this study,
barriers were measured using 5-point likert scale (1=strongly disagree and 5=strongly
agree).

RESEARCH METHODOLOGY
This study employs quantitative method with cross-sectional design which involves one
time collection of information from the respondents. Target population of this study
consists of hotel operators (amounting to 1652 hotels) as well as tour operators and travel
agencies (amounting to 2358 operators). Information about respondents was obtained
from the directory of Malaysian Association of Tour Operators and Travel Agents
(MATTA) and Malaysian Association of Hotel (MAH). Simple random sampling
technique was used to select the respondents where Table Isaac used to determine the
sample size. According to Isaac et al. (1981), population size (n) that contains 2358 tour
operators and travel agencies (approximate to 2400), needs 331 companies as a sample
size (s) meanwhile population contains 1652 hotels (approximate to 1700), needs 313
companies as a sample size in order to acquire 95% level of confidence. This study
administers questionnaire to the chosen respondents via electronic mails (e-mail). After
three rounds of follow-up, only 82 hotels and 98 tour operators & travel agents has
returned the completed questionnaire.

209

Reliability and validity tests were performed for the data collected. Construct reliability
was assessed by computing Cronbachs alpha where the analysis showed that measures
used in this study has an adequate level of reliability with their alphas amounting to
0.7812. Besides, convergent analysis test was performed using the principal component
factor analysis on items that measured TSC barriers. Of 10 barriers, 2 barriers i.e.
consumers prefer to deal directly with suppliers and lack of top management support
were abandoned from further analysis as they had factor loading value lower than 0.6.
Subsequently, four components were generated which explain 71.73% of overall
variance. Table 1 summarizes the output of factor analysis for TSC barriers. The four
components were renamed as chain members, company, employee and products,
respectively.

Table 1: Factor Analysis Barriers of Tourism Supply Chains

Barriers
Chain Members
lack of trust among chain members
inflexibility resulted from coordination
unwillingness of chain members to
integrate
Company
small volume of SC transactions
security
concerns
in
exchanging
information
conflicting organizational structures
Employee
lack of employees knowledge
Product
nature of tourism products
Eigen Values
% of Variance

Chain
Members

Company

Employees

Product

0.9322
0.8698
0.7707
0.8733
0.6905
0.6123
0.8645

2.43
27.34

1.84
20.45

0.7787
1.09
10.75

1.31
13.19

ANALYSIS AND DISCUSSIONS

Table 2 lists the barriers faced by tourism firms in implementing their supply chains. The
most significant barriers relating to security concerns and conflicting organizational
structures of firms as well as problems related to nature of tourism products. Meanwhile,
the least significant barriers were related to lack of employees knowledge and
210

inflexibility resulted from coordination. It should be also noted that all these barriers are
having mean value within the range of 2.9 3.1 which indicates that, in average all
respondents are agreeing with these barriers could influence their supply chain
integration practices regardless the extent of their supply chains integration.

Table 2: Descriptive Statistics of TSC Barriers

Barriers
security concerns in exchanging information
conflicting organizational structures
nature of tourism products
unwillingness of chain members to integrate
lack of trust among chain members
small volume of SC transactions
lack of employees knowledge
inflexibility resulted from coordination

Mean
3.0889
3.0667
3.0222
3.0000
3.0000
3.0000
2.9556
2.8889

STD
0.6626
0.6818
0.7166
0.5979
0.7012
0.5979
0.5576
0.6062

As shown in Table 3, most of respondents (51%) integrate their supply chain practices
with their company, 14.4% of them have integrated with their first tiers suppliers and
customers and only 4% of them have integrated their second tiers suppliers and
customers. This shows the current supply chain integration level among these tourism
firms is still at immature stage. This is consistent with findings of Fawcett and Magnan
(2002) which discovered about 47% of surveyed companies have integrated their supply
chains within company whereas only about 8% of surveyed companies have integrated
their supply chains with their first tiers suppliers and customers.

Table 3: TSC Integration Level

Level of Integration
Level 1 Internal
Level 2 Supplier or Customer
Level 3 Supplier and Customer (1st
tier)
Level 4 Supplier and Customer (2nd
tier)
Total

Frequency %
92
51.11
54
30
26
8
180

14.44
4.44
100.00

211

In order to examine the influences of barriers (measured on nominal scale) on supply

chain integration level (measured on interval scale), discriminant analysis was employed.
Table 4.1, 4.2 and 4.3 summarizes the outcomes of discriminant analysis. As shown in
Figure 4.1, function 1 has highest discriminating ability due to its higher Eigen value and
canonical correlation. In addition to this, function 1 has relatively smallest Wilks lambda
value which indicates that group means appear to highly differ meanwhile the high chisquare and low significant value indicates that such difference is significant. The square
of this difference/ relationship (0.7831)2 = 0.6132, indicates that 61.32% of the variance
in supply chain integration level is explained by supply chain barriers under function 1.

Table 4.1: Discriminant Analysis TSC Barriers vs. Integration Level

Function

Eigenval
ue

%
of Canonical Wilks'
Varianc Correlatio Lambd
e
n
a

1
2
3

0.3044
0.2134
0.0028

58.4770
40.9888
0.5341

0.7831
0.5293
0.0827

0.2766
0.7151
0.9932

Chisquare
80.838
7
8.3319
0.4859

Df

Sig.

12
6
2

0.002
0.044
0.784

Referring to standardized discriminant canonical coefficient value and canonical loading

(Table 4.2), company is the most important predictor which is highly correlated under
function 1, followed by, chain members in function 2 and employees in function 3. As
shown in Figure 4.1, function 2 tend to separate integration level 3 (highest value) and
level 1 (lowest value). This function is primarily associated with barriers resulted from
chain members. Give the positive correlations of these variables with function 2 in
structure matrix (canonical loadings), it is concluded that firms integrating supply chain
practices at Level 3 tend to face barriers related to chain members more than firms at
integration Level 1. On the other hand, function 1 tends to separate integration Level 2
(highest value) and Level 1(lowest value). As the function 1 primarily relates barriers
resulted from company, it can be said that firms integrating supply chain practices at
Level 2 tend to encounter barriers from company more than firms at integration Level 1.
In conclusion, it clearly indicates that firms that integrate supply chain at higher level (2
and 3) tend to face barriers more than firms that merely integrate supply chains within
their company (Level 1).
212

Table 4.2: Standardized Discriminant

Canonical Coefficient (STD D.C.C) &
Structure Matrix (Canonical Loading)
Function Function Function
1
2
3

Canonical Discriminant Functions

-0.3768

0.1920

-0.1702

0.4490

0.9397

Level 3l

-0.2476

level of integration
0

0.8446

Level 1
Level 4

0.0329

Level 2

Group Centroids

-1

-0.3768
0.3465

0.8002
0.8449

-0.3768

0.5072

-0.0700

0.4846

Ungrouped Cases
Level 4

-2

F u n c tio n 2

Company
STD
D.C.C.
0.7896
Canonical
Loading
0.6919
Chain Members
STD
D.C.C.
0.4125
Canonical
Loading
0.5096
Employees
STD
D.C.C.
-0.5702
Canonical
Loading
-0.2623
Product
STD
D.C.C.
0.2346
Canonical
Loading
0.4007

Figure 4.1: Canonical Discriminant

Functions

Level 3l
-3

Level 2

-4

Level 1
-3

-2

-1

Function 1

CONCLUSIONS AND RECOMMENDATION

It is learnt that barriers that faced by tourism firms in practicing their supply chains are
differ by level of their integration where those firms with higher integration level are
found to encounter barriers more than those firms with lower integration level. It should
be also noted that most of surveyed tourism firms integrate their supply chain practices
within their companies. As such, these firms would be not able to achieve the enormous
benefits would result from higher integration level of supply chain practices (Mentzer et
al. 2001; Sohal et al. 2003; Sahay and Ramneesh, 2003).

As this study merely examines the supplier of accommodation (hotel operators) and
intermediaries, the findings of this study should be carefully extended to the entire
tourism sector. This is because an examination on only one group of suppliers does not
resemble the entire sector. As such, it is recommended to examine all primary suppliers
213

of tourism products together with the intermediaries in order to explore a comprehensive

supply chain practices among tourism firms. Besides, lower response rate (180/644) of
27.9% has also aroused concern on the generalization of findings from this study. It is
also recommended to conduct a study examining relationship between potential benefits
of supply chain practices and integration level in order to highlight that firms would be
able enjoy enormous benefits only when they integrate their supply chains at higher level.

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