The Effect of Supply Chain Management Practices on Financial Performance via Analytic Hierarchy Process

Abstract

The effect of supply chain management practices on the operational performance of an organization has been extensively investigated in literature. Comparatively, few studies gave attention to the effect of these practices on the organization’s financial performance. This apparent deficiency in literature and particularly for developing countries motivated the current study which aims at examining the effect of supply chain management practices on financial performance of the manufacturing and service organizations in the Kingdom of Bahrain. The comparison between these alternatives was designed by composing multi-criteria decision making of supply chain management practices in order to improve financial performance of the organization. To deal with the complexity of the intended comparison, the analytic hierarchy process has been implemented. The relevant data were collected from two manufacturing organizations and two service organizations using a self-administered questionnaire that has been specifically developed by the researchers to address study objectives along with a planned interview to gather more detailed information about the selected organizations. The corresponding results showed that accurate forecasting of demand management has the highest priority weight in both alternatives. Moreover, inventory management was found to be the second highest important practice with respect to manufacturing-supply chain while it was the least important practice when service-supply chain is concerned. Furthermore, collaboration seems to be more important than integration in both alternatives. An implication of these results is that manufacturing as well as service organizations can increase their financial performance by using identified supply chain practices.