Abstract
Supply chain management has been identified as the major constraint on the growth of Bumiputera entrepreneurs in the Malaysian wood products and furniture sector. Therefore, a study to examine the characteristics of supply chain among Bumiputera entrepreneurs in the wood industry registered with the Malaysian Timber Industry Board was conducted. The results revealed that most of the respondents were micro- and small-sized enterprises, with a sales focus on the domestic and contract-market. They were predominantly wooden furniture manufacturers, who had a relatively low level of knowledge about supply chain management. The respondents also indicated that their major challenges include lack of finances, small volume of production, and the lack of government support. The factor analysis and regression analysis conducted revealed that for Bumiputera entrepreneurs to gain better supply chain management they need to improve their frequency of engagement, trust, culture, and maturity with their supply chain actors and partners. The results of this study are unique, as it implies that policymakers should take heed of improving supply chain management, to reverse the flagging fortune of Bumiputera entrepreneurs in the Malaysian wood products and furniture sector.
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Discerning the Supply Chain of Bumiputera Entrepreneurs in the Malaysian Wood Products and Furniture Industry: Status, Challenges, and Remedial Measures
Mohd. Afthar Amir,a Kamaruzaman Othman,a Jegatheswaran Ratnasingam,b,* Hazirah Ab Latib,b,* Natkuncaran Jegatheswaran,c and Choon Liat Lim b
Supply chain management has been identified as the major constraint on the growth of Bumiputera entrepreneurs in the Malaysian wood products and furniture sector. Therefore, a study to examine the characteristics of supply chain among Bumiputera entrepreneurs in the wood industry registered with the Malaysian Timber Industry Board was conducted. The results revealed that most of the respondents were micro- and small-sized enterprises, with a sales focus on the domestic and contract-market. They were predominantly wooden furniture manufacturers, who had a relatively low level of knowledge about supply chain management. The respondents also indicated that their major challenges include lack of finances, small volume of production, and the lack of government support. The factor analysis and regression analysis conducted revealed that for Bumiputera entrepreneurs to gain better supply chain management they need to improve their frequency of engagement, trust, culture, and maturity with their supply chain actors and partners. The results of this study are unique, as it implies that policymakers should take heed of improving supply chain management, to reverse the flagging fortune of Bumiputera entrepreneurs in the Malaysian wood products and furniture sector.
DOI: 10.15376/biores.18.4.7078-7097
Keywords: Supply chain; Entrepreneur; Small and medium enterprises; Material; Supplier
Contact information: a: Malaysian Timber Industry Board (MTIB), Level 13-17, Menara PGRM, Jalan Pudu Ulu, 56100 Kuala Lumpur, Malaysia; b: Universiti Putra Malaysia, Faculty of Forestry, 43400 UPM, Serdang, Selangor, Malaysia; c: School of Business, University of Wollongong, New South Wales 2522, Australia; *Corresponding authors: jegaratnasingam@yahoo.com; hazirahlatib@gmail.com
INTRODUCTION
The term ‘supply chain’ (SC) refers to a network of production and distribution that incorporates all functions from the procurement of the raw materials, processing the raw materials into finished products, and finally distributing it in the market and to customers (Ab Latib et al. 2022). In essence, SC involves many direct and indirect stages not only at the manufacturing end, but also carrying through activities such as warehousing, retailing, and satisfying customers (Benita 1997). In general, SC is part and parcel of the business process, and has two major objectives: (1) establishing a relationship between suppliers and customers as it impacts the efficiency of the overall business process, and (2) achieving effectiveness and efficiency throughout the SC. Therefore, building collaborative relationships are necessary to improve the business efficiency in the SC (Jha et al. 2022).
The subject of SC has received research attention since the mid-1990s, and most studies evaluating SC from different points of view incorporate concepts introduced at that point (Chopra and Meindl 2001). As highlighted by Simatupang and Sridharan (2005a), the success of any SC model depends on the level of collaboration and cooperation between the various partners, through information sharing, joint decision making, and sharing the benefits, with the sole aim of satisfying the customers. This requires the partners to share their resources, capacities, and abilities to fulfil the customers’ need, which must be built on a reciprocal relationship to ensure sustainability.
The relationships in SC are mostly active vertically or horizontally. Vertical relations cover all the relations within the enterprises, between components in different classes. By contrast, horizontal relations are within the same class. A vertical relation completely connects the first provider in many ways to the final customer. These relations occur when central factors increase influence on other factors in many different classes. Vertical alignment is always directed at both the relationship between the manufacturer and the first supplier and between the manufacturers and the final customer (Ganeshan and Harrison 1995; Li et al. 2016; Kumar et al. 2017). In the furniture sector vertical relationships in SC are more common compared to horizontal relationships. This is due to the nature of the business, which is predominated by SMEs. Unlike other manufacturing sectors, such as electrical and electronics, the SC within the wood products and furniture sectors is less complicated, having fewer players. The relationship among players in the SC is often based on trust and cultural factors (Ratnasingam 2018).
The interaction in SC can be typically categorized into three main types, namely transaction, collaboration, and relationship (Caridi et al. 2012). Transaction relates to the exchange or transfer of goods, services, or finance from one partner to the other, often negotiated on the basis of price (Hugos 2018). Collaboration is working together or cooperating with a partner for mutual benefit, while relationship often takes the form of a union of two entities into one entity for overall growth and mutual benefit of both partners (Hugos 2018).
The success of SC in many industrial sectors throughout the world has been extensively studied, and consistently identified many interrelated contributory factors that lead to the SC’s effectiveness and efficiency (Harland 1996; Larsson et al. 2016; Li et al. 2016). The eight factors affecting the SC’s success are:
- Trust (T): A positive belief, attitude, or expectation of one partner concerning the likelihood of action or outcome of the other partner will be satisfactory (Hadaya and Cassivi 2007; Dalalah et al. 2022).
- Power (P): In a SC the cooperating partners must consider each other’s size, impact, and status. If one partner is larger in size, with higher impact, it will yield more power in that relationship, hence, it may lead to the smaller partner to undertake unfavourable activities for the benefit of the more powerful partner (Suong 2012).
- Maturity (M): Matured SC interaction reduces uncertainty of improved business performance and is the best route to follow to achieve competitive advantage (Garcia and Hora 2017).
- Frequency (F): Frequency refers to how often a transaction occurs. More transactions suggest greater engagement with each other, which leads to a closer relationship (Handfield 2004a).
- Distance (D): This refers to the geographical distance, cultural distance, and organizational gap between in the SC (Handfield 2004b).
- Culture (C): Reflects the shared values and belief that help the partners in the SC understand organizational functioning process and provide behavioural norms. Differences in organizational, social level, or value system could create differences in opinion or conflicts of interest (Handfield 2004a; Suong 2012).
- Strategy (S): This factor is important for partners to effectively implement production planning and scheduling of new product development, inventory replenishment, promotions, and advertisement. Without such a strategy, the effectiveness of the SC will be adversely affected (Handfield and Bechtel 2002; Suong 2012).
- Policies (P): Government policies may exert direct influences through formal and informal measures, which will significantly affect the SC (Harland 1996).
Against this background, it is obvious that the success of SC in industrial sectors must be developed, fostered, and managed to be effective and efficient, to ensure the overall competitiveness of the industrial sector. In this context, the recent COVID-19 pandemic has revealed the importance of SCs and disruptions in SCs have caused major problems to economies around the world, especially with regard to price increases and supply constraints (Doustmohammadi and Babazadeh 2020; Ratnasingam et al. 2020; Sachan et al. 2023).
Overview of the Malaysian Furniture Industry in Malaysia
In the Malaysian context, the furniture manufacturing industry is predominated by micro-, small-, and medium-sized enterprises (MSMEs), which are defined as firms with annual sales that do not exceed RM 50 million or have less than 200 full-time employees on staff (SME Corp. 2020). Because furniture manufacturing is traditional and labour-intensive in nature, SMEs are the backbone of the furniture sector. The SMEs provide the needed flexibility in product design and volume production in the fashion sensitive global furniture market. According to Ratnasingam et al. (2021), SMEs represent 85% of all registered furniture manufacturing enterprises in the country and constitute the most important element of industrial development.
Fig. 1. Export performance of Bumiputera furniture entrepreneurs; Source: MARA (2022)
The Malaysian business environment is unique because of the existence of multi-ethnic groups that operate and behave in unique ways that best suit them (Ratnasingam 2015). A previous study by Gomez and Saravanamuttu (2013) has shown that certain ethnic groups have a strong hold on some economic sectors, but the disparity has been somewhat reduced due to government intervention since the formation of the New Economic Policy in the early 1970s. For the furniture manufacturing sector, approximately 94% of the existing furniture SMEs belong to the Chinese ethnic group, whereas the Malay ethnic group owns only 3% of the SMEs in the furniture industry (Ratnasingam 2018). Despite the affirmative government policies to assist Bumiputera (another broad term for the Malay-ethnic group) entrepreneurs in the furniture sector, their performance has not been up to mark (Fig. 1).
The exhaustive study by Ratnasingam (2018) has shown that the Bumiputera entrepreneurs in the furniture sector are faced with a three-prong weakness that retards their growth potential. Firstly, their control and management of the supply chain is weak, which severely affects their competitiveness. Secondly, their micro- and small-sized enterprises have limited capacity, and hence, they cannot tap major markets. Thirdly, their lack of financial and management expertise often leads to poor business judgements and low resilience. Although other factors also adversely affect the performance of Bumiputera entrepreneurs in the furniture sector, the above three factors warrant attention (Kelman 2018).
On this account, Bumiputera entrepreneurs’ participation in the Malaysian wood products and furniture sector is limited and can be considered as insignificant compared to the non-Bumiputera portion (Ratnasingam 2018). Bumiputera entrepreneurs contribute less than 2.5% of the total production volume of wood products and furniture in the country. The lack of Bumiputera entrepreneurs within the support industries also negatively impacts the SC of Bumiputera furniture manufacturers. As a result, the inadequate volume, and limited financial strengths of Bumiputera entrepreneurs limits the opportunities for them to negotiate a better deal for supplies (Ratnasingam 2018), which in turn makes it difficult to map the SC among Bumiputera manufacturers.
Inevitably, Bumiputera manufacturers have limited production capacity and therefore are not able to participate in large production volumes, which restricts their ability to participate in the export market. Despite the many efforts and initiatives by the government to assist Bumiputera entrepreneurs to increase their equity in the wood products and furniture sectors, these initiatives have not resulted in positive outcomes. The main constraints faced by Bumiputera entrepreneurs are their limited production capacity and financial strength, which negatively impacts their SC management (Ratnasingam 2018). Bumiputera entrepreneurs are usually compelled to purchase supplies on cash terms from non-Bumiputera suppliers who have a stronghold on the SC. Consequently, cash flow management is a common issue faced by Bumiputera entrepreneurs, which limits their ability to acquire technology, skilled personnel, and other production inputs. In fact, it has been noted that the level of collaborations between Bumiputera and non-Bumiputera entrepreneurs are limited, which explains the restrictive environment in which Bumiputera entrepreneurs operate. Improvements in SC management are very important for Bumiputera entrepreneurs to grow in the highly competitive wood products and furniture sectors (Ratnasingam 2018).
Although there are plenty of studies on supply chain (SC) (Simatupang and Sridharan 2005a,b; Sanders 2020), those focused on the furniture sector, especially on Bumiputera furniture sector, are grossly limited (Ratnasingam 2015; Larsson et al. 2016; Li et al. 2016). The importance of SC management became obvious, since the onset of the COVID-19 pandemic, when approximately 37% of the total operating SMEs in the country reported a notable reduction in economic activities due to serious supply chain disruptions (Ratnasingam et al. 2020; SME Corp. 2020). In this respect, research on the SC management among Bumiputera entrepreneurs in the furniture sector is indeed pressing, considering their status as the weaker furniture manufacturers in the country.
Supply Chain in the Malaysian Bumiputera Furniture Sector
Generally, the model of SC varies according to the industrial structure. Based on the previous report by Ratnasingam et al. (2021), the Bumiputera furniture supply chain in Malaysia is as shown in Fig. 2.
Fig. 2. General supply chain concept
The three major actors predominant in the Bumiputera furniture SC in Malaysia, include the material suppliers, manufacturers, and distributors. Further, these actors do not have a close connection (both vertical and horizontal) among them, which imparts obvious difficulties in achieving the same level of quality, specifications, and standards throughout the SC (Kumar et al. 2022). This reveals that the actors’ activities in this SC are spontaneous and scattered; they prefer short-term interests, rather than long-term benefits (Paliwal et al. 2022). A closer analysis of the Bumiputera supply chain reveal that the connections between the three predominant actors are not direct, but often through intermediaries (Fig. 3), which affects the overall effectiveness and efficiency of the SC (Li et al. 2016; Paul et al. 2022).
Fig. 3. Bumiputera Furniture Supply Chain in Malaysia
The presence of intermediaries, also known as ‘economic rent seekers’ compromises the value proposition of the SC. This inevitably leads to uncompetitive business practices that has adversely affected the overall performance of Bumiputera entrepreneurs, not only in the furniture sector, but also in other industrial sectors (Ratnasingam et al. 2021). This phenomenon has not been well researched, despite being acknowledged as widely practiced within the industry.
To address the challenges faced by Bumiputera entrepreneurs in SC management in the furniture sector in Malaysia, the question of the effectiveness of the existing SC management must be explored in detail. Therefore, to better understand the role and relations among these actors in the Bumiputera furniture SC, this research focused on evaluating the role of each actor in the SC, and the factors that contribute to the pre-existing conditions in the SC, and the main challenges faced. The results of this study will provide useful insights to policymakers and industry players to take the necessary remedial actions to reverse their fortunes and improve the overall performance of Bumiputera entrepreneurs in the furniture sector.
METHODOLOGY
Research Design
This research was conducted using two methods: (1) Qualitative research, using an online questionnaire survey, aimed at gathering relevant information about the background of the entrepreneurs, their existing supply chain model, level of complexities of the supply chain, and the major challenges faced with regard to their operation. (2) Quantitative research, with a focus to collect, analyse, and test the component scale of the various factors determining the effectiveness and efficiency of the SC among Bumiputera entrepreneurs (Dillman et al. 2014). The factors chosen were: (i) the degree of trust among partners; (ii) the power of partner; (iii) the degree of maturity in the relationship among partners; (iv) the frequency of transactions among partners; (v) the distance among partners; (vi) government policy; (vii) culture; and (viii) strategy of partners. These factors were scaled by 39 observation variables measured using the 5-point Likert scale, in which 1 denotes complete disagreement, while 5 reflects complete agreement. These factors were chosen after discussion with industry experts and academics, as well as consideration of previous studies (Larsson et al. 2016; Ratnasingam et al. 2020, 2022).
Sample Population
The population size for the study was the 485 registered Bumiputera entrepreneurs in the database, of the Bumiputera Development Division, of the Malaysian Timber Industry Board (MTIB). These potential respondents were initially contacted to obtain their consent to participate in the study, and 73 entrepreneurs responded positively. E-mail invitations containing a link to the online survey were sent to these respondents, and after three weeks, a total of two reminders were sent to those who had not responded. Apart from the online survey, 23 face-to-face interviews were also conducted at some of the respondents’ offices.
Questionnaire Design
The survey was implemented using an online questionnaire designed using Google-Forms, which was distributed electronically via emails, and supplemented with a limited face-to-face interview using a printed questionnaire. The survey was conducted at the respondents’ offices. The first part of the questionnaire consisted of a combination of both open- and closed-ended types of questions and sub-divided into seven sections: (1) background of respondent, (2) types of products manufactured, (3) market for the product, (4) encounter problems with the supply chain (rated as yes or no), (5) knowledge of existing supply chain (rated as either poor, average, or good), (6) complexity of supply chain with regard to materials and services, and (7) challenges faced in their operation. In this study, the knowledge on supply chain is focused on assessing the respondents’ understanding of the supply chain concept and its intricacies. The second part of the questionnaire required the respondents to evaluate the 8 factors affecting the effectiveness and efficiency of the SC, based on the 36 observation variables related to the 8 factors, rated using the 5-point Likert scale.
After necessary corrections and amendments were made, a pre-test survey was conducted among 20 randomly selected Bumiputera entrepreneurs to check for the questions’ clarity and the timing of respondents answering the questions. Necessary corrections and amendments based on the outcomes of the pre-test survey were made accordingly before data collection.
Data Analysis
The descriptive data from the first part of the questionnaire were computed for continuous variables and the results presented are presented as graphical charts. To assess the level of knowledge of the supply chain concept among the respondents, the percentage of correct answers were ranked as good (> 75%), average (46% to 74%), and poor (< 45%). This provided an effective way to evaluate the level of knowledge and understanding of SC concepts among the respondents.
The data from the second part of the questionnaire was subjected to the reliability analysis to test the factors prior to the factor analysis (Creswell 2002). Observed variables with a Cronbach’s alpha score of less than 0.5 were discarded, and the overall factor impact towards the success of the SC was determined. The reliability analysis results for the 8 factors were found to be at a good level (Cronbach alpha score of 0.74), which indicated that the data collected through this analysis achieved scale internal reliability for the next in-depth analysis (Dillman et al. 2014).
Then, the remaining factors were subjected to the factor analysis. The factor analysis was used to reduce the total number of observable variables for each factor to a manageable factor. Principal components analysis was used to extract factors that contribute to the success of the SC. These are factors with eigenvalue greater than 1. Varimax rotation is used to facilitate interpretation of the factor matrix, i.e., reflect the loadings of each variable on the factor, by identifying its degree of representation of the factor. Sampling adequacy measurement tests are also examined via the Kaiser-Meyer-Olkin test to validate the use of factor analysis. (Creswell 2002). The data was analysed using the Statistical Package for Social Sciences (SPSS) version 25 software (IBM Corp., Armonk, NY, USA).
RESULTS AND DISCUSSION
The results of this study are presented in two parts.
Part I: Respondent Characteristics
Based on the responses compiled and analysed from the questionnaire survey, most of the respondents were micro-enterprises (with less than 5 workers). Figure 4 reflects the distribution of the respondents based on their number of workers, which also corresponds with an earlier report by Ratnasingam (2018), who showed that the majority of the Bumiputera entrepreneurs in the wood products sector in the country are micro- and small-sized enterprises.
Fig. 4. Distribution of respondents by company size
In terms of the products manufactured, wooden furniture (including kitchen cabinet) was the highest (48%), followed by handicraft (17%), and carvings (6%). As shown in Fig. 5, it is apparent that Bumiputera entrepreneurs, generally, have a tendency to focus on wooden furniture as the preference for such furniture is large in the domestic market, and is generally preferred by the Bumiputera consumers at large (Ratnasingam 2018; Ratnasingam et al. 2021).
Fig. 5. Types of wooden products produced
Most of the wood products manufactured by the respondents were for the domestic market, while a smaller proportion is also supplied through public procurement, for government agencies, etc. Figure 6 shows that the export proportion is the smallest, highlighting that export competitiveness of Bumiputera entrepreneurs in the wood products sector is limited (MTIB 2020).
Fig. 6. Market for wood products from respondents
The results of the survey also highlighted that the majority of the respondents (79%) were faced with SC problems of varying degrees, related to sourcing of raw materials, supplies, and components. The remaining 21% of the respondents indicated that they have limited issues with their SC. This revelation is of particular importance suggesting that assistance to the Bumiputera entrepreneurs in the wood products industry to boost their competitiveness should pay close attention to strengthening their SC (Suong 2012).
This point is further alluded by the fact that only 14% have a good knowledge of SC management, while the majority do not have sufficient knowledge on SC management (Fig. 7). Without sufficient understanding of the importance of SC, effective management of the SC cannot be achieved, which leads to uncompetitive manufacturing environment. As a result, the Bumiputera entrepreneurs appear to be at a disadvantage, due to their inadequacy in managing raw materials and supplies, which explains the below par competitiveness in the wood products sector (Ratnasingam 2018; Ratnasingam et al. 2021). The SC management is crucial for the competitiveness of any business enterprise, as it affects the pricing, delivery, quality, as well as the level of customer satisfaction, which is illustrated by many of the successful wood products retailers, such as IKEA (Suong 2011a,b).
Fig. 7. Knowledge on supply chain
The respondents also indicated that the highest level of complexity in the supply chain is related to wood and wood-based materials supplies, while services are the least complex (Fig. 8). This may be attributed to the predominance of non-Bumiputera entrepreneurs, especially Chinese entrepreneurs, as actors within the supply chain, which inevitably, puts the Bumiputera entrepreneurs at some disadvantage, because of the size of their operations (Togar and Sridharan 2002; Suong 2013).
Fig. 8. Level of complexity in supply chain of materials and services
It is worth mentioning that the respondents highlighted lack of finances, small production volumes, and lack of government assistance as the three most important challenges faced regarding SC management (Fig. 9).
Fig. 9. Challenges faced in supply chain management
The respondents also indicated that they prefer to deal with Bumiputera partners, rather than non-Bumiputera partners, suggesting a level of unequal relationship between business partners of different ethnicities, as suggested by Ratnasingam (2018). These results appear to contravene the concept of free-market practices, as businesses are expected to build competitiveness using their resources to the best of their ability, while the government is tasked with providing a fair playing field for businesses to thrive (Robb et al. 2008).
Therefore, it is obvious that the Bumiputera entrepreneurs in the wood products industry lack the necessary level of competitiveness to thrive in the open market, hence, requiring government assistance to remain viable. In the context of this study, the problems related to SC management faced by the Bumiputera entrepreneurs in the wood products sector must be explored, and an evaluation of the facilitating factors that builds good SC management is warranted.
Part II: Factors Affecting Supply Chain Management among Bumiputera Entrepreneurs
The data obtained from the questionnaire survey was initially subjected to the sampling adequacy measurement completed using the Kaiser-Meyer-Olkin (KMO) method, which in turn validated the use of factor analysis. The factor analysis is a method used to reduce the total number of factors to a manageable number of factors. The factor matrix was interpreted using the Principal Component Analysis, and Varimax Rotation, which extracted the factors with Eigen value > 1. The results, the composition of the factors, with a degree of significance of < 0.05, and KMO = 0.769, the factors converge to 5 factors with total deviation of 67.9%.
Table 1. Factor Analysis of the Supply Chain Construct
