Mitigating demand uncertainty through supply chain strategies: the case of food SMEs in the Hajj phenomenon

Abstract

Hajj is very important to all Muslims across the globe. Because of its religious significance, the Hajj pilgrimage experiences a massive number of visitors each year, most of whom are foreign and require consumer goods during the six-day pilgrimage. The large number of pilgrims often results in a sharp increase in demand for consumer goods. Suppliers must ensure that they have adequate amounts of these products so that they can meet the needs of the pilgrims as well as their different tastes for these goods. It is however usually difficult to determine exactly how much is required. This complexity creates demand uncertainty that the firms in the industry must be able to cope with for them to succeed. Small- and medium-sized enterprises (commonly referred to as SMEs) play an important role in the food chain throughout the Hajj season in the Kingdom of Saudi Arabia (KSA). However, SMEs are recognised to experience severe obstacles that have the potential to threaten their continuity, and the industry succumbs to the crisis of demand uncertainty throughout the short period of the peak season of Hajj each year. This problem is complex due to the constant increase in the number of pilgrims and the continuous changes in their needs and preferences. Demand uncertainty can ultimately result in an increase in production costs, long lead times, substandard service levels, and quality problems, especially in terms of food obsolescence. There is a gap in the literature regarding aligning sources of uncertainty with supply chain strategies in an effort to improve supply chain performance. More specifically, the impact of supply chain integration strategies (SCI) on manufacturing strategies, such as postponement practice (PP) and mass customisation capability (MCC) to mitigate demand uncertainty (DUM), has not been fully explored. This study investigates three fundamental issues: 1 - how effective supply chain integration (internal integration and external integration) can be applied in Saudi’s SMEs food industry, and how the interaction between them mutually manipulates the improvement of postponement practice and mass customisation capability in food productions in Hajj; 2 - how the volume of cooperation leads to the mitigation of demand uncertainty in maintaining the survival of small and medium enterprises that operate in food production in Hajj; and 3 - how the environmental condition (i.e. competitive intensity) moderates the influence of supply chain integration (SCI) on this interaction in Saudi’s food SMEs that operate in Hajj. iii Based on the extended resource-based view (ERBV) of the firm, the strategic resources and knowledge come not only from within the organisation’s boundaries, but also from outside. Thus, a firm’s overall strategic capability may be embedded in a wider network of inter-firm exchange relationship. Contingency theory furthermore argues that an organisation should align their practices, processes and strategies with their business environment. In consideration to the extant literature, a number of hypotheses were defined, demonstrating the correlation between supply chain integration, postponement practice, mass customisation capability and demand uncertainty mitigation. Subsequently, a conceptual framework was developed with the objective to verify the relationship amongst the constructs. Mixed methodologies were employed; qualitatively, with 12 CEOs working in different SMEs in the food industry across KSA were initially interviewed to validate the conceptual framework. Content and face validity was accomplished with a group of academics and experts. A pilot study was carried out on a sample of 50 subcontractors, Hajj campaigns, pilgrimage institutions and food suppliers. Consequently, an online survey was conducted amongst SMEs to test the hypotheses. As a result, 239 responses were received from the SMEs in the food sector in the KSA. Partial Least Square (PLS) was used for the analysis. The interviewees were identified through snowball sampling (Detailed in the next sections). Quantitative data were collected using the convenience sampling technique, given the non-availability of the sampling frame. Based upon the extended resource-based view (ERBV) of the firm, alongside contingency theory, the initial and final results of the pilot test and survey were seen to be steady with these theories, where supply chain integration was viewed not only as having a significant direct and indirect effect on the postponement practice and mass customisation capability by SMEs of food during Hajj, but also as playing a critical role throughout the employment of postponement practice as an important strategy, empowering mass customisation capability to mitigate demand uncertainty. Likewise, both results were seen to be consistent with contingency theory; that is, a firm should coordinate their supply chain integration activities, postponement practice and mass customisation capability to their business environment, particularly with high competitive intensity to enhance demand uncertainty mitigation. In order to achieve competitive intensity, organisations are mainly focused on emerging markets and expanding their product lines. In the event that organisations begin targeting similar set opportunities, they risk bringing upcompetitive intensity for themselves, which increases the cost of growth. The cost of business will be noticeable when considering marketing speed, media inflation, the rate of innovation and trade spend in marketing, all of which are indicators of completion intensity. Improvements in supply chain efficiency, optimising strategies in marketing and extracting the best of return on investments from promotions by organisations also indicates competition intensity. Costs, competition and the ability to differentiate are some of the main determining factors of competition. Importantly, these are all tied up within uncertainty mitigation. However, despite the fact that internal integration has a positive direct and indirect effect on the postponement practice, mass customisation capability is created by SMEs of food industry, in addition to its direct effect upon both supplier integration and customer integration. Customer integration has also been found to improve postponement practice as well as mass customisation capability in a direct fashion. Supplier integration has a significant impact on postponement practice; however, it seems not significantly associated positively with mass customisation capability. Moreover, postponement practice also has an effect in mitigating demand uncertainty, both directly and indirectly, through mass customisation capability. Finally, mass customisation capability similarly has been found to enhance demand uncertainty mitigation. Research indicates that the direct and indirect effects of all constructs increase when there is intense competition in Hajj.