A case study of Indonesian SMEs: an empirical evidence of SCM practices and their impact on firm performance

Abstract

This present research seeks to explore SCM practices by Indonesian SMEs and to empirically examine the impact of the SCM practices on firm financial performance. Empirical data was collected in 2013 through a survey using structured face-to-face interviews. Thirty-nine SMEs producing food, handicraft, clothing and leather in Yogyakarta, Indonesia, are taken as studied cases. Structural equation modelling was applied to test the causation relationship between the SCM practices and the financial performance. Findings generally confirm that the SMEs put high importance on operational efficiency particularly high on downstream but with less attention on the supplier side, which is consistent with previous studies. The findings also demonstrate the significant positive causal relationship between the SCM practices and the financial performance, implying that higher implementation levels of the SCM practices lead to better financial performance. Customer relationship management, supplier relationship, and information system, are found to be the three most practices which contribute significantly to the firm performance. Potential improvement areas and their associated strategies (e.g., horizontal collaboration and vertical partnership) are also discussed.