International Journal of Physical Distribution & Logistics ManagementThe impact of supply chain security practices on security operational performance among logisticsservice providers in an emerging economy: security culture as moderatorSuhaiza Hanim Zailani Karthigesu Seva Subaramaniam Mohamad Iransmanesh Mohd Rizaimy Shaharudin

Article information:To cite this document:Suhaiza Hanim Zailani Karthigesu Seva Subaramaniam Mohamad Iransmanesh Mohd Rizaimy Shaharudin , (2015),"Theimpact of supply chain security practices on security operational performance among logistics service providers in anemerging economy: security culture as moderator", International Journal of Physical Distribution & Logistics Management,Vol. 45 Iss 7 pp. -Permanent link to this document:http://dx.doi.org/10.1108/IJPDLM-12-2013-0286

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The Impact of Supply Chain Security Practices on Security Operational

Performance among Logistics Service Providers in an Emerging Economy:

Security Culture as Moderator

Introduction

Supply chain security management is vital to support the organization in safely achieving its business

goals and objectives (Sarathy, 2006). Closs and McGarrell (2004, p.8) defined supply chain security

management as “the application of policies, procedures, and technologies to protect supply chain

assets (products, facilities, equipment, information, and personnel) from theft, damage, or terrorism,

and to prevent the introduction of unauthorized contraband, people, or weapons of mass destruction

into the supply chain”. According to Martin et al. (2011), supply chain security management is

currently perceived to be an important area in managing business risk. Organizations are giving

greater attention to security by spending more money, time, and resources to ensure that security

exists in their supply chain as unexpected incidents may cause tangible and intangible damage in

terms of property, products, infrastructure, people, reputation, market position, goodwill and brand

(Securitex, 2008; Deloitte, 2005). Although many companies are devoting increased resources and

attention to security efforts, little guidance is available to firms seeking to minimize their exposure to

unexpected and potentially damaging or disruptive occurrences affecting their supply chains.

It may well be the case that cargo thefts are a great challenge for multinational companies as

their products are flowing globally. Malaysia is one of the countries in Asia that has recorded the

most frequent incidents of in-transit cargo theft with violence and threat used in cargo hijackings

(FreightWatch International, 2013). This has threatened the country image and reputation as an

industrial country is under threat among potential investors. As companies face many drawbacks due

to fragile supply chain security (Securitex, 2008), supply chain security is essential for organizations

to ensure the continuity of business (Sarathy, 2006). MIT (2006) claimed that by investing and

improving supply chain security, firms could greatly benefit and secure their supply chain effectively

by achieving a 48% reduction in inspection, 50% improvement in asset visibility, 31% shorter

problem resolution time, and 38% reduction in theft, loss and pilferage. Supply chain security is a

concern for all business organizations including those in Malaysia.

The conventional supply chain simply involved limited perspectives for protection of goods

and factories such as risk management, natural disasters, equipment and facilities failure, issues

relating to employees, loss prevention, geopolitical events, and personnel strikes (Williams, 2008; Li

and Ye, 2008). In contrast, the modern supply chain includes broader protection for supply chain

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service providers and partners, supply chain facilities, freight carriers, people and information. The

success of modern supply chain security depends on a number of critical success factors including

organizational security culture across the upper and also lower streams of the supply chains. The

security culture is not only important as a part of government initiatives, but also its significant

effects on the firm’s strategic, operational and tactical objectives (Williams et al., 2009). This is

because security culture is important in the sense that it provides appropriate alertness and protection

from attacks against the supply chain management (Sheffi, 2002; Rice and Caniato, 2003;

Christopher and Peck, 2004; Sheffi, 2005b, c; Peleg-Gillai et al., 2006).

Most of the literature on supply chain security practices has been written from the perspective

and experience of developed countries (USA, Europe and Japan), and few studies have studied

supply chain security practices in the context of emerging countries like Malaysia. With the

exception of the study of Yang and Wei (2013), no other study has been found that empirically

investigates the effect of supply chain security on security performance in the South East Asian

region generally. That is, the proposed or suggested practices for managing supply chain security

have not been validated in emerging countries. Furthermore, despite its importance, little or no

research exists concerning how security culture in countries, such as Malaysia, may affect the

relationship between supply chain security practices and security performance. As a result, little is

known about how security culture influences the scope and deployment of supply chain security

activities and thereby differentiates firm security performance. It is important to bear in mind that the

organizational culture for companies in Asia (including Malaysia) is totally different from companies

in other countries (Cullen et al., 2004; Morris et al., 1998). Because of the continuing increase in

global competition, regardless of whether manufacturing firms act proactively or reactively, an

investigation of the role of security culture offers substantial value to practitioners. In addition, an

investigation of the role of security culture may refine our conceptual understanding of the linkages

between supply chain security practices and performance, especially in the context of developing

countries.

To summarize, in an attempt to partially address the lack of empirical research, this study

aims to investigate the effect of supply chain security practices on security operational performance

by considering security culture as a moderator. This study hopes to provide primary guidelines for

government agencies that are developing policies and strategies to ensure Malaysia is a secure

location for exporting cargo and give assurance to the local and international investors to continue

their investment. This study contributes to the literature using a theoretical foundation from the

resource-based view (RBV) of the firm to test empirically the propositions developed from past

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studies on supply chain security. The scope of this study focuses on the human and organization

capital aspects of RBV and the perceptions of managers concerning the security operational

performance of firms. The following sections discuss the theoretical foundation and supply chain

security literature from which the research propositions are derived. Next, the survey research

methodology for data collection and the econometric model used to test the propositions are

discussed. Finally, the research findings and study implications are presented.

Literature review

Supply Chain Security Practices

The supply chain management literature provides little help in understanding supply chain security

(Closs and McGarrell, 2004; Hale and Moberg, 2005; Williams et al., 2008) and there is a gap in

academic research to address security related issues in supply chain management. Although a few

authors, such as Sheffi (2001); Gutierrez et al. (2007); Sheu et al. (2006); Closs et al. (2008); and

Hintsa et al. (2009), have discussed the importance of security initiatives in the supply chain, these

initiatives have only been discussed conceptually and have not been tested empirically. Van

Oosterhout et al. (2007) presented a case study about the Port of Rotterdam on visibility platforms

for enhancing supply chain security, in which they mentioned that a secured supply chain refers to a

supply chain in which various measures have been taken to guarantee a certain level of security

while operating.

Van Oosterhout et al. (2007) commented that there are two main categories for supply chain

security measures. The two categories are preventive measures and corrective measures. The

preventive measures consist of physical security and non-physical security, such as facilities security,

cargo security, information security and human resource management security, the preventive

measures focus on preventing the occurrence of security related risks in the supply chain, while

corrective measures focus on limiting the impact caused by security related risks. Hence, another

way for supply chain owners to protect their supply chain would be by undertaking proper corrective

action when an unpredicted crisis occurs in the supply chain. Whenever a supply chain faces a crisis,

corrective action will help firms to return to a normal state quickly. Resilience management and

business network management is an example of the corrective measures approach (Sheffi, 2005a;

Van Oosterhout et al., 2007).

Security Culture

The development of a formal or informal culture in organization can convey the norms and

behaviour, form of communication design, information practise and distribution, anticipated

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performance and outcomes and customs (Anderson and Ackerman, 2001). As such, the

organizational culture imposes the expectation over the employee’s performance (McAfee et al.,

2002) and can be leveraged by managers as a strong tool for them to manage the employees to meet

the organization’s objectives (Tichy, 1982).

In the most general sense, the term security culture refers to the employee’s awareness,

combined with the real things that are done (Frederick, 1995). Thus, the involvement of humans in

security is highly essential; Including their participation in the development of policies and business

design that will lead to an appropriate security culture in the organization (Ekwall and Rolandsson,

2012). The spread of security culture among employees can assist the management in designing

appropriate security policies through the interaction and involvement of employees in order to

minimize the overall risk attributed by security problems. According to (Ekwall and Rolandsson,

2012), most company security programs stress on the need for high awareness among employees in

pursuance of enhancing the overall security level. Good awareness pertaining to the issue of cargo

theft must be a part of the implicit rules governing the employees conduct or in different terms, can

be known as the security culture without the direct written procedure or regulation. However,

security culture is contingent on the complexity of each company and it is imperative to have

employees that can manage security issues independently in global and complex organizations

(Ekwall and Rolandsson, 2012).

Supply Chain Security Operational Performance

Security performance can generally be assessed by hard (objective) measures and soft (perceptual or

responsive) measures (Dalton et al., 1980; Shang and Lu, 2009). Because actual incident data are

difficult to obtain and perceptual measures are valid indicators of security performance (Fawcett et

al., 1997; Shang and Lu, 2009; Voss et al., 2009), this study used perceptual-based measures to

assess the security performance of logistics services providers. Security performance is defined as

the measurement and comparison of actual levels of achievement with regard to security. It is related

to the prevention of any malicious threat, damage, and disturbance to an organization. Many studies

have identified performance indicators of security performance. Although the implementation of

security initiatives can result in additional cost, supply chain security management has several

benefits, including a reduction in theft, cybercrime, terrorism, smuggling, counterfeit goods, and

damage to goods (Gutierrez and Hintsa, 2006; Martens et al., 2011).

According to a report published by the European Commission (2007), enhancing supply

chain security can reduce theft and losses, reduce the number of delayed shipments, improve

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planning, increase customer loyalty and employee commitment, reduce the number of safety

incidents, lower inspection costs of suppliers and increase cooperation with them, reduce crime and

vandalism, and improve security and communication between supply chain partners. Furthermore,

security management facilitates international trade by reducing transit time (Organization for

Economic Cooperation and Development, 2003; Banomyong, 2005), improving customs clearance

efficiency (Sheu et al., 2006; Peleg-Gillai et al., 2006; Diop et al., 2007), and increasing port

operational efficiency (Bichou, 2011; Yang, 2011). It also helps businesses predict the movement of

goods and lead-time, decrease the number of customs inspections, reduce the time taken to release

cargo by customs and waiting times at borders, and increase supply chain visibility (Diop et al.,

2007). To summarize, an efficient and secure supply chain can lead to higher visibility and an

increase in supply chain efficiency and customer satisfaction, reduction in lead-time and overall cost

reduction. This study used a composite measure of performance covering these dimensions to

evaluate the supply chain security operational performance, which is considered as preventing the

security performance of logistics service providers in Malaysia.

In conjunction with this, the second-order construct is used to model a level of abstraction

higher than those from first-order constructs alone. The model also captures the multidimensional

nature of security performance which security performance well because each dimension represents

some portion or aspect of the overall latent construct (security performance). Using a

multidimensional construct provides the ability to increase granularity and detail on different aspects

of a construct (Petter et al., 2007).

Theoretical background

Although SCM scholars have dedicated considerable effort to understand the relationship between

supply chain security and security performance (Voss et al., 2009; Yang, 2011; Yang and Wei, 2013)

the existing literature offers conflicting empirical findings about the performance implications of

supply chain security. Overall, the mixed results pertaining to this link suggest the need for a

contingency perspective to explain the relationship. Two important questions must be addressed to

resolve this inconclusiveness. First, practitioners need to know whether the supply chain security

practice, as a firm-specific resource, is itself a source to enhance security performance. Second,

existing research examining the supply chain security practices-performance linkage has overlooked

potential moderating variables. To answer the first question, we test the supply chain security

practices-security performance relationship in our model by considering supply chain security

practices as an antecedent mechanism that aids in the translation of security resources into

performance. More specifically, we posit that a supply chain wide emphasis on security has a

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positive impact on firm security performance. In response to the second query, this study investigates

security culture as a moderator in supply chain security practices-security performance research to

help derive guidelines for firms seeking to improve their performance through supply chain security.

This research is explicitly grounded on the theoretical foundation of the RBV. The RBV

theory is useful to investigate the relationship between the internal organizational capabilities and the

service provider’s performance (Barney et al., 2001). In the RBV theory, resources are all the

tangible and intangible assets that firms use to conceive and implement their strategies (Wernerfelt,

1984; Rumelt, 1984; Barney et al., 2001). The RBV theory has three important constructs –

resources, capability, and competencies (Yang et al., 2009). The RBV of the firms suggests that

combining resources, including cargo, facilities, information, and humans can generate unique and

hard-to-imitate capabilities that contribute to supply chain security performance. The firms that can

manage their resources and capabilities in a supply chain more efficiently are likely to gain

competitive performance (Dangayach and Deshmukh, 2001). The supply chain security practices are

the capabilities which are distributed heterogeneously across firms and cannot be transferred from a

firm to another without cost. Therefore, successful supply chain security requires adaptation of the

RBV because the resources and capabilities are two valuable factors for supply chain security”

(Martens et al., 2011).

Security measures will help to protect firms from any unexpected supply chain incidents and

work as a detection system for supply chain players in the case of any disaster. Typically, companies

pursue security initiatives to protect their supply chain. Hintsa et al. (2009) grouped security

measures into four categories, namely, cargo management, facility management, human resource

management, and information management, which are used in the current study as independent

variables. The independent variables of the current study (Figure 1) are mainly related to resources

and are fully supported by the RBV theory. The cargo and facilities are the physical and tangible

assets of a service provider in the logistics industry (Javidan, 1998; Carmeli, 2004; Kaleka, 2002;

Hafeez et al., 2002) while place constitutes the resource part of the RBV theory. Information is a

firm’s source of competence (Yang et al., 2009; Hafeez et al., 2002) and human resource is a source

of knowledge, which falls in the capability part of the RBV theory.

------------------------------------------------------------

INSERT FIGURE 1 HERE

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Conceptual framework and hypotheses development

Sarathy (2006) posited that security measures impose high cost on firms during implementation, but

that they give long-term benefit for firms by improving the overall performance of the supply chain.

Bearing (2003), a consultation firm, undertook a study of the financial impact between shippers and

customers from Thailand and the United States by implementing a secure supply chain management

system. The report studied the benefits to the service providers, for which the results show that there

is a relationship between security initiatives and financial performance. The security efforts led to

certain financial benefits: (i) better visibility on cargo arrival timeline and cargo monitoring, (ii)

avoidance of cost on US Customs’ trade security measures, (iii) reduction in size of inventory, (iv)

increase in sales, and (v) reduction in theft and pilferage. Peleg-Gillai et al. (2006) also studied the

security measures that lead to organizational performance if security implementation is undertaken in

a proactive rather than reactive manner.

To guide the development of our conceptual framework, we depict the key constructs in

Figure 1. On the basis of our literature review, we propose that supply chain security practices and

security culture play different roles in contributing to firm security operational performance. We

propose that supply chain security practices encompassing cargo management, facility management,

human resource management, and information management relate to firm security operational

performance, such as higher visibility increase in supply chain efficiency and customer satisfaction,

reduction in lead-time and overall cost reduction. We further propose, that security culture influences

the relationship between supply chain security and security operational performance. The following

sections provide a brief review of the literature pertaining to each practice. In addition, research

propositions suggested by the literature are offered.

Cargo Management and Security Operational Performance

Cargo management refers to protecting the cargo during all the steps of the manufacturing, shipping

and transport processes (Hintsa et al., 2009). Organizations implement security measures to protect

the supply chain against potential risk (Closs et al., 2008). Cargo is one of the major sources of

security concerns in the supply chain (Sarathy, 2006). The common security issues while handling

cargo are theft, which causes a great disturbance in the supply chain (Chapman et al., 2002; Ekwall,

2009). The trend for cargo theft in Asia is increasing rapidly, and Malaysia and the Philippines have

the highest cargo theft cases among all the countries in Asia (FreightWatch International Global

Assessment, 2011). In order to protect cargo throughout the logistic activities, cargo management is

needed as a security practice by the service provider in the logistics industry (Gutierrez and Hintsa,

2006). Cargo related incidents could impact firm performance and cause tangible and intangible

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damage to an organization (Securitex, 2008). Bearing (2003) stated that among the security efforts

firms can obtain through physical security initiatives are better visibility of the cargo arrival timeline

and cargo monitoring. Since security is a new topic, firms may have a lack of exposure to understand

how security initiatives will have a positive effect on security performance (Voss et al., 2009).

Hence, the following hypothesis is formed:

H1: Cargo Management positively affects supply chain security operational performance.

Facility Management and Security Operational Performance

Facility management refers to the integrated management of the workspace to enhance the

performance of the organization (Tay and Ooi, 2001) by guaranteeing the security of the facilities

where the cargo is stored and handled (Hintsa et al., 2009). Optimal warehouse/terminal layout

designing (e.g. entry/exit controllability; clearly marked control areas; sufficient lighting conditions)

and efficient facility monitoring (e.g. 24-hour camera system, security guards, filming activities of

loading containers, and picking) are the most common facility management practices (Hintsa et al.,

2009). Protection of the facility is needed as many valuable resources, products, cargo and important

information are stored in a firm’s facility and any security related disaster may affect the

performance and operating environment of the firm. Hence, the following hypothesis is drawn:

H2: Facility Management positively affects supply chain security operational performance.

Human Resource Management and Security Operational Performance

Employee screening and hiring practices are one of the important aspects in supply chain security

(Rice and Caniato, 2003). Employees with low loyalty to the firm may undertake intentional acts of

sabotage and impair the performance of the firm (Lensing, 2003). By practicing proper screening and

hiring (e.g. background checks; interviews for leaving or employees who have been fired), firms can

prevent hiring employees who have the potential for being an enemy to their own supply chain

(Hintsa et al., 2009). Human resource management guarantees trustworthiness and security

awareness of all personnel in direct and indirect contact with cargo and other company assets (Hintsa

et al., 2009). Therefore, the current study hypothesizes that:

H3: Human Resource Management positively affects supply chain security operational performance.

Information Management and Security Operational Performance

Information serves as the basis for decision-making and generates value for organizations. Improper

management of information may lead to irreparable damage to organizations (Michelberger and

Labodi, 2009). Information pertaining to a firm’s business activities and transactions are usually

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shared with supply chain partners and protecting this information from outside intruders or

competitors is critical for the success of firms in the competitive market (Kolluru and Meredith,

2001). Hence, service providers in the logistics industry must have proper security measures to

protect the information. Hintsa et al. (2009) defined information management from the supply chain

security management perspective as protecting critical business data and exploiting information as a

tool for detecting illegal activities and preventing security breaches. Having complete information

about supply chain activities, both downstream and upstream, also helps to avoid security breaches

and protects all the other members in the supply chain. Thus, we set the following hypothesis:

H4: Information Management positively affects supply chain security operational performance.

Moderating Effect of Security Culture

Supply chain researchers rely on the importance of understanding organizational culture. Tan et al.

(1998) suggested that organizational culture is one of the most critical elements for supply chain

members to grasp as they seek to optimize the performance of their overall system and their

individual firm acting within it. On the other hand, according to Williams et al. (2009), the

implementation of security is the culture of the organization in respect of the way that security

interacts with the organization’s employees in terms of sustainable norms and expectations.

Although supply chain security research is still in its infancy stage, researchers in the area of

security of supply chains have begun to incorporate the effects of organizational culture (Closs and

McGarrell, 2004; Hale and Moberg, 2005; William et al., 2009). Sheffi (2005c) claimed that the

most important element of security in the supply chain is culture: the building of a security culture is

a cooperative initiative between the employees and management. In conjunction with this, Autry and

Bobbitt (2008) investigated the behaviour of employees towards security practices as they performed

their daily tasks and found that firms with security-oriented employees may enjoy several

organizational performance advantages. This supports the argument of other researchers that supply

chain security practices are related to the importance of human attitude, HR practices, and other

employee-level effects on organizational performance (Christopher and Peck, 2004; Closs et al.,

2008; Rice and Spayd, 2005; Sheffi, 2002; 2005b). By establishing a security culture among the

workers at the base level through the delegation of authority, the protection of supply chains will be

at its highest level and able to handle and solve any security issue in the supply chain (Autry and

Bobbitt, 2008). It suggests that, security culture creates an opportunity for firms to safeguard their

supply chain operations and will help firms to implement security initiatives more effectively, thus it

is expected that the existence of a higher security culture enhances the positive effect of security

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initiatives practices on supply chain security operational performance. Hence, the following

hypotheses are developed:

H5: Security culture moderates positively the effects of (a) cargo management, (b) facility

management, (c) human resource management, and (d) information management on supply chain

security operational performance.

Research Methodology

Sample and Data Collection

The unit of analysis for this study is service provider firms in the logistics industry that operate in

Malaysia. In Malaysia, the service providers in the logistics industry are divided into two categories

– Transport Service Provider and Service provider. In this study, the unit analysis will cover both

types of service provider in the logistics industry. Questionnaires were mailed to 800 target

respondents who hold executive positions or higher in the service provider firms. The firms were

selected from the Malaysia logistics directory 2011/2012. Out of 226 responses received, five of the

responses were partially completed, fifteen were discarded in data cleaning, resulting in an effective

response rate of 25.75% (206/800). Considering the length of the survey, this response rate is quite

satisfactory and compares favourably with other empirical studies in supply-chain management

(Stanley & Wisner, 2001; Chen et al., 2004). The final sample consisted of 20 (9.7%)

owners/CEOs/directors, 138 (67.0%) senior managers/managers, and 48 (23.3%) executives. The

distribution mainly focused on Freight Forwarders (31.9%), 3rd Party Logistics Companies (20.9%),

Container Shipping Companies (14.5%), and Container Shipping Agencies (10.9%). In terms of the

number of employees in the firm, the data indicated that 57.3% of the firms have less than 50

employees.

Measures of Constructs

This study employed a quantitative survey with a structured questionnaire. To develop measurement

items, processes recommended by several authors in the literature was followed (Bienstock et al.,

1997; Churchill, 1979; Gerbing and Anderson, 1988): (1) item generation through literature review;

(2) academic expert review; (3) debriefing with industry experts; and (4) item purification in the

empirical study.

First, we adapt measurement items relevant to the construct, based on prior literature. Table 1

summarizes the measurement items for each of the practices of supply chain security. The survey

used a five-point Likert scale (1 = “strongly disagree,” 5 = “strongly agree”) for supply chain

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security practices whereas for questions relating to the moderator and dependent variable, we used (1

= “very low extent,” 5 = “very high extent”). Items for Cargo Management, Facility Management,

Inventory Management and Human Resource Management were mainly adopted from Hintsa et al.

(2009), Knight (2003), Gutierrez et al. (2007) and Urciuoli (2010). Whereas for items for security

culture were adopted from Voss et al. (2009), Williams et al. (2009) and Rinehart et al. (2004).

Items for supply chain security operational performance were adopted from Peleg-Gillai et al. (2006),

which comprised cargo safety, supply chain visibility, supply chain efficiency, and supply chain

resilience.

Six experienced researchers were asked to review the questionnaire for ambiguity, clarity,

and appropriateness of the items used to operationalize each construct (DeVellis, 1991). These

researchers were also asked to assess the extent to which the indicators sufficiently addressed the

subject area (Dillman, 1978). Based on the feedback received from these researchers, the instrument

was modified to enhance the clarity and appropriateness of the measures purporting to tap the

constructs. Then, the survey instrument was mailed to seven supply chain security managers. These

managers were asked to review the questionnaire for structure, readability, ambiguity, and

completeness. The final survey instrument incorporated feedback received from these managers,

which enhanced the clarity of the instrument. Finally, the scale purification was iterative through the

empirical test. This process yielded a survey instrument that was judged to exhibit high content

validity.

Analysis

This study applies Partial Least squares (PLS) using SmartPLS 2.0 (Beta) M3 (Ringle et al., 2005).

We then applied nonparametric bootstrapping (Efron and Tibshirani, 1993; Wetzels et al., 2009) with

5000 replications as suggested by Hair et al. (2013). This technique has been used due to its

appropriateness to the exploratory nature of this study where the moderating effect of security culture

have not been previously tested.

The two-step approach was utilized in data analysis, as suggested by Hair et al. (2013). The

first step involves the analysis of the measurement model, while the second step tests the structural

relationships among the latent constructs. The two-step approach aims at establishing the reliability

and validity of the measures before assessing the structural relationship of the model.

Results

Common methods variance

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According to Podsakoff and Organ (1986), common method bias is problematic when a single latent

variable accounts for the majority of the explained variance. The results of un-rotated factor analysis

indicate that the first normalized linear combination only explains 39.54% of the total 79.22%

variance, indicating that common method bias was not a serious problem in the study.

Measurement Model Results

The PLS test of the measurement model has three primary aspects: (a) individual item reliability, (b)

internal consistency of the entire scale, and (c) discriminant validity. Individual item reliability was

assessed by examining the factor loadings of each measure on its corresponding construct. Hair et al.

(2010) suggested accepting items with loadings of at least 0.6. Since the loadings associated with

each of the scales were all greater than 0.6 (Table 1), individual item reliability is acceptable.

The construct internal consistency was assessed using composite internal scale reliability,

which is similar to Cronbach’s alpha. All nine latent variables satisfy the Hair et al. (2010)

guidelines of at least 0.7 for internal consistency (Table 1). Internal consistency can also be

evaluated using the average variance extracted (AVE), which is a measure of variance accounted for

by the underlying variable. The present study has an AVE of above 0.5 for all variables, satisfying

the criterion of Fornell and Larcker (1981) and providing further support of the internal consistency

(Table 1).

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INSERT TABLE 1 APPROXIMATELY HERE

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We used two approaches to assess the discriminant validity of the constructs. First, we examined the

cross-loading of the indicators, which revealed that no indicator loads higher on an opposing

construct (Hair et al., 2012). Second, we applied the criterion of Fornell and Larcker (1981) and

tested whether each construct’s AVE is greater than its squared correlation with the remaining

constructs (Table 2). Both analyses confirm the discriminant validity of all constructs.

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INSERT TABLE 2 APPROXIMATELY HERE

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We applied the repeated indicators approach for second-order constructs on security operational

performance. As suggested by Hair et al. (2013), the same measurement model evaluation criteria

(with the exception of discriminant validity between second-order constructs and their particular

first-order constructs) were applied to the high-order component, and the internal consistency

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reliability and convergent validity was established, as shown in Table 3. All the lower-order

constructs (LOCs) significantly (p<0.001) affect security operational performance. The CR and the

AVE of the second-order construct met the criteria for reliability and convergent validity.

Assessment of the structural model

With the satisfactory results in the measurement model, this study subsequently evaluated the

structural model to confirm the relationships among constructs via the PLS (partial least squares)

method. The explanatory power of the research model was examined in terms of the total explainable

variation of the model. The results suggest that the model is capable of explaining 69.9% of the

explainable variation on security operational performance. The effect size of f2 was computed using

the following formula: f2 = (R2included – R2excluded) / (1- R

2included). The f

2 analysis complements R2 in

that the effect size of the impact of specific latent variables on the dependent latent variables can be

examined (Chin, 2010). Among the security initiative practices, cargo management has the highest

effect size (f2 = 0.146) on security operational performance, whereas facility management has the

lowest (f2 = 0.047). Besides estimating the magnitude of R

2, researchers have recently included the

predictive relevance developed by Stone (1974) and Geisser (1975), as an additional assessment of

model fit. This technique represents the model adequacy to predict the manifest indicators of each

latent construct. The Stone-Geisser Q2 (cross-validated redundancy) was computed to examine the

predictive relevance using the blindfolding procedure in PLS.

Following the guidelines suggested by Chin (2010), a Q2 value of greater than zero implies

that the model has predictive relevance, and, in the present study, a value of 0.384 was obtained,

which is greater than zero. We applied nonparametric bootstrapping (Efron and Tibshirani, 1993;

Wetzels et al., 2009) with 5,000 resamples to test the structural model. The significance and relative

strength of direct effects specified by the research model were evaluated (Table 3, Figure 2). The

results reveal that all paths are positively significant; and, therefore, H1-H4 are supported. Our

findings suggest that cargo management, facility management, human resource management, and

information management collectively measured a higher order of supply chain security practices.

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INSERT TABLE 3 APPROXIMATELY HERE

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INSERT FIGURE 2 APPROXIMATELY HERE

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The product indicator approach (mean-centred) was employed to create the interaction construct

(Hair et al., 2013). The CR and the AVE of the interaction constructs met the criteria for reliability

and convergent validity. The results indicate that only the interaction of facility management and

security culture (β=0.088, p<0.05) has a positive significant effect on security operational

performance. As such, H5b is supported, whereas H5a, H5c, and H5d are not supported.

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INSERT TABLE 4 APPROXIMATELY HERE

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Figure 3 illustrates that security culture strengthens the effect of facility management on security

operational performance. With low security culture, high and low facility management practices have

no different effect on security performance. This indicates that facility management practices are

effective when the security culture is high.

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INSERT FIGURE 3 APPROXIMATELY HERE

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Discussion and implications

The purpose of the present study is to identify the relationship between supply chain security

practices and the security operational performance of service provider firms in the logistics industry

in Malaysia and the effect of security culture on the relationships between security practices and the

security operational performance. Our findings suggest that cargo management, facility management,

human resource management, and information management have a positive and significant effect on

supply chain security operational performance. Moreover, the moderating impact of security culture

was only confirmed by the relationship between facility management practices and supply chain

security performance.

The significant relationship between cargo management and supply chain security operational

performance is in line with the studies conducted by Securitex (2008) who claimed that cargo related

incidents could negatively impact on firm performance. This result balances well with what has

occurred in Malaysia over the past two decades. According to FreightWatch International Global

Assessment (2011), Asia is rated with a moderate level of cargo theft risk; however, the same report

mentions that the trend of cargo theft in Asia has shown a marked increase. Among all the countries

in Asia, Malaysia and the Philippines are reported as having a higher number of cargo theft cases

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(FreightWatch International, 2013). Another source, the US Daily (2011), quoted that goods worth

US$22.7 million (RM68.9 million) were stolen from Malaysian ports, airports, warehouses, and

trucks between 2007 and 2010. Malaysia is recognised as a location for multinational companies

operating their manufacturing plants for high technology products, while, at the same time, Malaysia

is one of the riskiest countries in Asia with a high rate of cargo theft (FreightWatch International,

2011; 2013). Cargo theft in Malaysia occurs while the cargo is in transit and while it is stored in the

warehouse. Therefore, it is not surprising that, among supply chain security practices, cargo

management has the highest impact on supply chain security operation among logistics service

providers in Malaysia.

Facility management is also significantly related to the supply chain security operation. This

indicates that the storage areas of the cargo and products, and premises with security guards, CCTV

monitoring, physical obstacles to avoid theft, proper identification of entry and exit areas, periodic

inspection to ensure integrity of security measures, will improve the operational security of the

logistics service providers. In addition, this study highlighted the role of the human resource

management concerning supply chain operational security of logistics service providers. This result

is consistent with Rice and Caniato (2003) who found that employee screening and hiring practices

are important aspects of the supply chain security operation. This proves the importance of human

intervention for improving the operational security of service providers in the logistics industry. All

security related practices are carried out by the firms’ employees. Employees are the people who

enforce the security practices in a firm. During the hiring process, firms’ security policies and

practices will be exposed to employees during the initial stage of their employment. In order, to

achieve higher operational security, firms need to hire employees who are sensitive to security issues

and will not take advantage at any point of time. Employees working in the logistics firms must be

trustworthy and responsible (Mayhew, 2001; Ekwall, 2009) and new employees entering the firms

must go through a proper reference check by the management team (Mayhew, 2001; Ekwall, 2009)

because these employees will handle cargo worth millions of dollars for which safety becomes the

main priority.

Moreover, the results also showed that information management has a significant impact on

supply chain operational security. This result is consistent with Michelberger and Labodi (2009),

who also found a significant relation between information management and the operational security

of an organization. Critical information needs to be protected and safeguarded during disruption so

that firms can quickly recover to continue operation; hence, firms must have a backup system to keep

information about the customer, supplier, process, procedures and intellectual property safely. Rice

and Caniato (2003) suggested having an IT system to protect data loss, setting up and operating a

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parallel IT system, using a range of communication tools and having a business continuity plan as

preparation to respond and restore operations whenever an unexpected event takes place in the

supply chain.

As mentioned by Voss et al. (2009), to ensure complete coverage of supply chain security,

firms must employ both internal and external strategies. Therefore, a security culture is essential for

the implementation of security initiatives and for better supply chain security operational

performance. Thus, the study predicted that the existence of a security culture as a moderator would

enhance the positive effects of security initiatives on the operational performance of supply chain

security. The results show that security culture just moderate the relationship between facility

management and the supply chain security operational performance. This result implies that, by

having a stronger security culture among the employees, the effect of facility management on

security operational performance will be higher. Hence, it is crucial for managers of service provider

firms in the logistics industry to do the necessary work to enhance the employees vigilance toward

supply chain security, to create a supply chain security-focused workplace, and make supply chain

security a norm for all employees.

The reason why most of the hypotheses are not supported when the moderator is present

could be because security culture is in the initial stage of implementation among supply chain service

providers in Malaysia and many firms only practice internal strategies. This reason is similar to the

reason that is highlighted by Rice & Caniato (2003) who stated whereby many firms attempt to

practice internal strategies but only limited companies practice both of internal and external

strategies. They suggest that before practicing any supply chain security initiatives, the

organizational culture needs to be enhanced. The difference between the levels of security culture

among logistics service providers in Malaysia is low and its moderating role cannot be captured.

Therefore, for future study, the moderating role of security culture needs to be investigated in

developed countries.

This study illustrates many implications for the supply chain managers and policymakers,

which, if adopted, will enable supply chain firms to manage and deliver their respective customer’s

products to the final destination without any disruption. The significance of cargo management,

facility management, human resource management, and information management suggests that

policymakers in Malaysia should set appropriate policies and incentives to encourage businesses to

adopt supply chain security practices. When properly designed, these measures can encourage firms

to innovate and create new solutions to become safer and directly affect the security operational

performance. In addition, the findings of this study assist supply chain managers and logisticians to

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re-examine their existing supply chain security model by considering the selected supply chain

security practices, which have a significant impact on supply chain security operational performance.

Managers should take security issues into account in planning organizational strategies and provide

strong and consistent support to the overall security program (Ruighaver et al., 2007) in order to

create a supply chain security-focused workforce. In conclusion, individual firms need to strategize

their business model with the inclusion of security aspects, which will surely create a competitive

advantage over other players in the logistics industry.

This study uses RBV as a theoretical lens, to investigate supply chain security operational

performance based on RBV. The study provides an empirical test of the theory in the supply chain

security context. From an academic perspective, our research specially developed the concept of

supply chain security operational performance by recognizing the role of resources and capabilities

in security operational performance.This study has extended previous research conducted in

developed countries and provides great potential by advancing the understanding between the supply

chain security practices and security operational performance amongst Malaysia’s service providers

in the logistic industry. This research has also contributed to the literature by examining the

moderating effects of the security culture on the relationship between supply chain security practices

and operational performance. To the best of our knowledge, our research is the first study to conduct

such a theoretical and empirical examination.

Conclusions, limitations, and further research

As supply chains become increasingly global, firms will be forced to adopt strategies for the secure

flow of goods from raw material to end consumer. Furthermore, security-related issues are frequently

uppermost in the minds of many end consumers, and will require all supply chain members to take a

fresh look at the security measures. In response to the importance of security issues in supply chain

and the far limited discussion regarding its operational performance in developing countries, the

study developed a research model and evaluated its empirical validity and explanatory usefulness by

using a survey study that involved Malaysia’s service providers in the logistic industry. The study’s

overall data analysis results support the research model, which showed reasonable statistical

significance and classification accuracy. Moreover, findings of the study suggest that cargo

management, facility management, human resource management, and information management have

a significant impact on supply chain security operational performance. The results also confirmed the

moderating role of security culture on the relationship between facility management practices and

supply chain security performance.

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There are certain limitations that need to be taken into account for generalizing the results of

this study. One limitation is that, the study tested and verified the hypotheses with a questionnaire

survey and only provided a cross-section of the study in nature. Therefore, it limits the ability to

imply causality in the relationships among the variables. Thus, the result of the survey will be

affected by the fact that this study cannot observe the dynamic change of security operational

performance in the process of the development of supply chain security practices. As such, a

longitudinal study should be attempted, that examines the relationships for an extended period of

time to be able to provide more precise results. Furthermore, this study used a survey sample limited

to the Malaysia’s service providers in the logistics industry. However, the effect of the security

practices on operational performance and security culture might be different between countries. In

addition, small firms make up a large portion of the sample that may not have formal, or the

wherewithal to have formal human resource management, information management, and facility

management. Thus, future research could test the research model of this study in different countries

and collect data from big firms. Another limitation of this study would be the respondent firm’s

customer base, which will be different for each firm. Different customer bases, such as electronic and

electrical, plastic and packaging, chemical, metal, and others will present their own security concerns

for their products. Therefore, different respondents serving different customer bases will have

different opinions about the questionnaires forwarded to them. This study does not cover the security

initiatives implemented by the government; hence, presenting a limitation and the need for a more

structured study among the service providers in the logistics industry. In addition, security culture

may also be an antecedent to the supply chain security practices; therefore, future studies could test

the security culture as an antecedent.

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FIGURE 1: Proposed Theoretical Model

FIGURE 2: Path Analysis

FIGURE 3: Interaction Effect Of Facility Management And Security Culture On Security

Operational Performance

1

1.5

2

2.5

3

3.5

4

4.5

5

Low Facility Management High Facility Management

Security Operational Perform

ance

Low SecurityCulture

High SecurityCulture

Cargo Management

(CM)

Facility Management

(FM)

Human Resource

Management (HRM)

Information

Management (IM)

Supply Chain Security

Operational Performance

(SCSOP)

-Cargo Safety (CS)

-Supply Chain Visibility (SCV)

-Supply Chain Efficiency (SCE)

-Supply Chain Resilience (SCR)

Security Culture

(SC)

H1

H5

H2

H3

H4

Cargo Management

Facility Management

Human Resource

Management

Information

Management

R2=0.70

Supply Chain Security

Operational Performance

Cargo Safety

Supply Chain

Resilience

0.83***

0.80***

Supply Chain

Visibility

0.79***

0.84***

Supply Chain

Efficiency

0.29***

0.18*

0.27***

0.27***

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TABLE 1: Measurement Model Evaluation Proposed Theoretical Model

Constructs Items Factor

Loadings

CR AVE

We have …….

Cargo

Management

(CR)

regular inspection during movement of cargo 0.849 0.934 0.704

adequate detection of shipping process anomalies 0.856

adequate supervision to avoid deviations in vehicles travel time 0.816

restricted access to documents related to cargo 0.781

appropriate identification for cargo 0.890

alternate plans for movement of cargo during emergency 0.839

Facility

Management

(FM)

fire protection system 0.889 0.962 0.720

sufficient lighting conditions 0.843

security guard to respond during emergency situation 0.861

clear identification of restricted areas 0.856

periodic inspection to assure integrity of security measures 0.863

restricted access to facility to only authorized personnel. 0.894

camera based systems that allow monitoring 0.865

monitor entry activities at facilities to avoid intrusion of unauthorized individuals 0.781

monitor exit activities at facilities to avoid intrusion of unauthorized individuals 0.815

physical obstacles to discourage theft in entering 0.811

Human

Resource

Management

(HRM)

rigorous screening process before hiring our employees 0.778 0.882 0.714

security training programmes for every employee 0.876

employee identification procedures 0.876

Information

Management

(IM)

processes to backup computer system data 0.773 0.866 0.684

recordkeeping of information for potential security audits 0.903

data exchange between supply chain partners 0.800

Security

Culture (SC)

senior manager views supply chain security as a competitive advantage 0.928 0.947 0.856

make sure that supply chain security is the first thing on the mind of all employees 0.922

make supply chain security the norm for all employees 0.925

dedicated efforts to create a supply chain security-focused workforce 0.874

make sure that all employees are vigilant towards supply chain security 0.895

Our company improves…….

Cargo Safety

(CS)

product safety by reducing cargo theft 0.909 0.970 0.890

product safety by reducing cargo loss 0.954

product safety by reducing cargo pilferage 0.961

product safety by reducing cargo tampering 0.949

Supply Chain

Visibility

(SCV)

inventory management by reduction of excess inventory 0.937 0.956 0.813

inventory management by increasing on time delivery 0.948

supply chain visibility by accessing to supply chain data 0.918

supply chain visibility with timeliness of shipping documents 0.835

product handling with automated handling of goods 0.863

Supply Chain

Efficiency

(SCE)

cargo delay during custom clearance 0.915 0.947 0.856

cargo inspection during custom clearance 0.934

cargo examination during custom clearance 0.925

Supply Chain

Resilience

(SCR)

cargo delivery time window 0.874 0.948 0.785

cargo problem identification time 0.895

cargo response time to problem 0.911

cargo problem resolution time 0.924

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reduction of customer attrition 0.823

Note: CR= Composite Reliability; AVE= Average Variance Extracted

TABLE 2: Discriminant Validity Coefficients

CM CS FM HRM IM SCE SCR SC SCV

CM 0.839

CS 0.700 0.943

FM 0.635 0.631 0.849

HRM 0.547 0.539 0.596 0.845

IM 0.537 0.628 0.608 0.652 0.827

SCE 0.580 0.525 0.508 0.521 0.522 0.925

SCR 0.509 0.550 0.486 0.600 0.590 0.658 0.886

SC 0.604 0.625 0.701 0.650 0.555 0.624 0.549 0.925

SCV 0.473 0.577 0.618 0.650 0.552 0.529 0.524 0.632 0.901

TABLE 3: Path Coefficients And Hypothesis Testing

Hypothesis Relationship Path coefficient Effect Size Decision

H1 CM -> SCSOP 0.288*** 0.146 Supported

H2 FM -> SCSOP 0.175* 0.047 Supported

H3 HRM->SCSOP 0.269*** 0.113 Supported

H4 IM -> SCSOP 0.271*** 0.116 Supported

*p<0.05, **p<0.01, ***p<0.001 (one tailed)

TABLE 4: Moderating Effect Of Security Culture

Hypothesis Relationship Path Coefficient R2 Difference Decision

H5a CM -> SCSOP 0.225** 0.001 Not Supported

FM -> SCSOP 0.075

HRM -> SCSOP 0.180*

IM -> SCSOP 0.261**

SC -> SCSOP 0.280**

CM*SC ->SCSOP -0.036

H5b CM -> SCSOP 0.214** 0.016 Supported

FM -> SCSOP 0.158*

HRM -> SCSOP 0.1538

IM -> SCSOP 0.238**

SC -> SCSOP 0.272**

FM*SC->SCSOP 0.140*

H5c CM -> SCSOP 0.229** 0.001 Not Supported

FM -> SCSOP 0.074

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HRM -> SCSOP 0.179*

IM -> SCSOP 0.264**

SC -> SCSOP 0.280**

HRM*SC->SCSOP -0.037

H5d CM -> SCSOP 0.234** 0.006 Not Supported

FM -> SCSOP 0.069

HRM -> SCSOP 0.185*

IM -> SCSOP 0.250**

SC -> SCSOP 0.277**

IM*SC->SCSOP 0.077

*p<0.05, **p<0.01, ***p<0.001 (one tailed)

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