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Impact of Strategic Sourcing, E-Procurement and Integration on Supply Chain Risk Mitigation and Performance

By

Minkyun Kim

April 23 rd , 2010

A Dissertation submitted to the Faculty of the Graduate School of The State University of New York at Buffalo In partial fulfillment of the requirements for the degree of

Doctor of Philosophy

Department of Operations Management & Strategy School of Management

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This dissertation is dedicated to my loving wife who has always believed in me and supported me with unconditional love and devotion. Without her, this dissertation could not be completed.

ii

Table of Contents

TABLE OF CONTENTS LIST OF TABLES

III

V

.................................................................................................

........................................................................................................... LIST OF FIGURES

.........................................................................................................

VI

ACKNOWLEDGMENT

ABSTRACT

VII

.................................................................................................. VIII

.................................................................................................................

  • 1. INTRODUCTION

......................................................................................................

1

  • 1.1. THE PROBLEM ......................................................................................................

1

STATEMENT OF

  • 1.2. PURPOSE......................................................................................

2

  • 1.3. MOTIVATIONS FOR RESEARCH

...............................................................................

4

OBJECTIVES

  • 1.4. .........................................................................................................

6

  • 1.5. CONTRIBUTIONS OF THE RESEARCH

.......................................................................

6

  • 1.6. ORGANIZATION OF THE

DISSERTATION....................................................................

7

  • 2. LITERATURE REVIEW

..........................................................................................

10

  • 2.1. THEORETICAL BACKGROUND

...............................................................................

10

  • 2.1.1. Dynamic capabilities

..................................................................................

  • 2.2. SUPPLY CHAIN RISK

...........................................................................................

10

13

  • 2.3. SUPPLY CHAIN RISK MANAGEMENT

......................................................................

17

  • 2.4. STRATEGIC SOURCING

........................................................................................

20

  • 2.5. E-BUSINESS TECHNOLOGIES IN SUPPLY CHAIN

.....................................................

28

  • 2.6. SUPPLY CHAIN INTEGRATION

...............................................................................

33

  • 2.7. ORGANIZATIONAL CULTURE .................................................................................

37

  • 2.8. BUSINESS ENVIRONMENT AND CHARACTERISTICS

.................................................

40

  • 3. MODEL DEVELOPMENT

......................................................................................

43

3.1.

THE CONCEPTUAL MODEL

...................................................................................

43

  • 3.2. THE RESEARCH MODEL

......................................................................................

54

  • 4. RESEARCH METHODOLOGY

..............................................................................

67

  • 4.1. THE SURVEY METHODOLOGY

..............................................................................

67

  • 4.2. INSTRUMENT DEVELOPMENT AND MEASUREMENTS

...............................................

69

  • 4.3. THE PILOT STUDY

...............................................................................................

84

  • 4.4. THE FULL SCALE STUDY AND SAMPLE

..................................................................

86

  • 4.5. PARTIAL LEAST

SQUARES METHODOLOGY ............................................................

86

  • 5. DATA ANALYSIS AND FINDINGS

........................................................................

89

  • 5.1. PROFILE OF RESPONDENTS

.................................................................................

89

  • 5.2. EVALUATION OF MEASUREMENT MODELS

.............................................................

92

  • 5.3. EVALUATION OF STRUCTURAL MODELS

................................................................

97

  • 5.3.1. Full Effects .................................................................................................

97

  • 5.3.2. Moderating Effects

...................................................................................

  • 5.3.3. Analysis of Subgroup Effects

...................................................................

101

106

iii

6.

DISCUSSION OF RESULTS ................................................................................

113

6.1.

THE EFFECT OF STRATEGIC SOURCING ON SUPPLY CHAIN RISK

113

6.2.

THE EFFECT OF E-BUSINESS TECHNOLOGIES ON SUPPLY CHAIN

115

6.3.

THE EFFECT OF SUPPLY CHAIN INTEGRATION ON SUPPLY CHAIN RISK

117

6.4.

THE EFFECT OF ORGANIZATIONAL CULTURE ON SUPPLY CHAIN RISK

119

6.5.

THE DIRECT AND MODERATING EFFECT OF BUSINESS ENVIRONMENTS ON STRATEGIC

SOURCING

121

6.6.

THE DIRECT AND MODERATING EFFECT OF BUSINESS ENVIRONMENTS ON E-BUSINESS

TECHNOLOGIES

123

6.7.

THE DIRECT AND MODERATING EFFECT OF BUSINESS ENVIRONMENTS ON SUPPLY

CHAIN INTEGRATION

124

6.8.

THE DIRECT AND MODERATING EFFECT OF BUSINESS ENVIRONMENTS ON

ORGANIZATIONAL CULTURE

126

6.9.

THE DIRECT EFFECT OF BUSINESS ENVIRONMENTS ON SUPPLY CHAIN RISK

126

  • 6.10. THE MODERATING EFFECT OF BUSINESS CHARACTERISTICS ON THE RELATIONSHIP

BETWEEN SUPPLY CHAIN PRACTICES AND SUPPLY CHAIN RISK

128

  • 6.11. THE EFFECT OF SUPPLY CHAIN RISKS ON PERFORMANCE

132

7.

SIGNIFICANCE & IMPACT OF RESEARCH

136

  • 7.1. CONTRIBUTIONS OF RESEARCH

136

 
  • 7.2. LIMITATIONS

142

  • 7.3. FUTURE RESEARCH

143

APPENDIX. SURVEY MEASUREMENTS

145

155

iv

List of Tables

TABLE 1. COMPARISON OF RBV AND DYNAMIC CAPABILITIES ADAPTED FROM (EISENHARDT ET

AL. 2000, P.1111)

 

12

TABLE 2. SUMMARY OF LITERATURE REVIEWS ON STRATEGIC SOURCING

25

TABLE 3. SUMMARY OF LITERATURE REVIEW ON E-BUSINESS TECHNOLOGIES IN A SUPPLY CHAIN

 

32

TABLE 4. SUMMARY OF HYPOTHESES ON FULL EFFECTS

63

TABLE 5. SUMMARY OF HYPOTHESES ON MODERATING EFFECTS

64

TABLE 6. MEASUREMENTS FOR STRATEGIC SOURCING

70

TABLE 7. MEASUREMENTS FOR EXTENSIVE USE OF E-BUSINESS TECHNOLOGIES

71

TABLE 8. MEASUREMENT FOR INTENSITY OF E-BUSINESS TECHNOLOGIES

72

TABLE 9. MEASUREMENTS FOR E-BUSINESS TECHNOLOGY ADOPTION IN THE SUPPLY CHAIN

74

TABLE 10. MEASUREMENTS FOR INTERNAL INTEGRATION

75

TABLE 11. MEASUREMENTS FOR INTEGRATION WITH CUSTOMERS

76

TABLE 12. MEASUREMENTS FOR INTEGRATION WITH SUPPLIERS

77

TABLE 13. MEASUREMENTS FOR ORGANIZATIONAL CULTURE

78

TABLE 14. MEASUREMENTS FOR SUPPLY CHAIN RISK

79

TABLE

15. MEASUREMENTS

FOR

FINANCIAL PERFORMANCE

80

TABLE 16. MEASUREMENTS FOR OPERATIONAL PERFORMANCE

81

TABLE 17. MEASUREMENTS FOR SUPPLY CHAIN PERFORMANCE

82

TABLE 18. MEASUREMENTS FOR DYNAMIC BUSINESS ENVIRONMENT

83

TABLE 19. MEASUREMENTS FOR COMPETITIVE BUSINESS ENVIRONMENTS

84

TABLE 20. DELETED SURVEY ITEMS IN THE PILOT STUDY

85

TABLE 21. INDUSTRY CODE FOR RESPONDENTS’ FIRMS

90

TABLE 22. BUSINESS CHARACTERISTICS OF RESPONDENT FIRMS

91

TABLE 23. RELIABILITY AND CONVERGENT VALIDITY

93

TABLE 24. FACTOR ANALYSIS BY PLS

95

TABLE 25. DISCRIMINANT VALIDITY

97

TABLE 26. STATISTICAL COMPARISON OF PATHS IN MANUFACTURING APPROACH

107

TABLE 27. STATISTICAL COMPARISON OF PATHS IN SUPPLIERS’ LOCATION

109

TABLE 28. STATISTICAL COMPARISON OF PATHS IN MARKET LOCATION

110

TABLE 29. SUMMARY OF RESULTS ON FULL EFFECTS RESEARCH HYPOTHESES

111

TABLE 30. SUMMARY OF RESULTS ON MODERATING EFFECTS RESEARCH HYPOTHESES

112

TABLE 31. CROSS LOADINGS FOR MEASUREMENT INDICATORS OF STRATEGIC SOURCING

115

TABLE 32. CROSS LOADINGS FOR MEASUREMENT INDICATORS OF E-BUSINESS TECHNOLOGIES

 

117

TABLE 33. CROSS LOADINGS FOR MEASUREMENT INDICATORS OF SUPPLY CHAIN INTEGRATION

 

119

TABLE 34. CROSS LOADINGS FOR MEASUREMENT INDICATORS OF ORGANIZATIONAL CULTURE

121

TABLE 35. CROSS LOADINGS FOR MEASUREMENT INDICATORS OF BUSINESS ENVIRONMENTS 127

TABLE 36. CROSS LOADINGS FOR MEASUREMENT INDICATORS OF SUPPLY CHAIN RISK

132

TABLE 37. CROSS LOADINGS FOR MEASUREMENT INDICATORS OF PERFORMANCE

135

v

List of Figures

FIGURE 1. SOURCES IN RISK IN THE SUPPLY CHAIN ADAPTED FROM (CHRISTOPHER & PECK

2004, P.10)

..............................................................................................................

15

FIGURE 2. A FRAMEWORK FOR SUPPLY CHAIN RISK MANAGEMENT FIGURE 3. FOUR DIMENSIONS OF STRATEGIC SOURCING (KOCABASOGLU AND SURESH 2006)

.....................................

20

................................................................................................................................

21

FIGURE 4. E-BUSINESS TECHNOLOGIES IN A SUPPLY CHAIN ADAPTED FROM (VAKHARIA 2002,

P.498)

......................................................................................................................

28

FIGURE 5. INTEGRATION IN THE SUPPLY CHAIN ADAPTED FROM (FROHLICH AND WESTBROOK

2001, P.186)

............................................................................................................

34

FIGURE 6. ARCS OF THE INTEGRATION ADAPTED FROM (FROHLICH AND WESTBROOK 2001,

P.187)

......................................................................................................................

35

FIGURE 7. THE COMPETING VALUES FRAMEWORK OF ORGANIZATIONAL CULTURE ADAPTED FROM (DENISON AND SPREITZER 1991, P.12) FIGURE 8. A FRAMEWORK OF BUSINESS ENVIRONMENT AND CHARACTERISTICS FIGURE 9. CREATING RISK MITIGATING STRATEGIES IN A SUPPLY CHAIN ADAPTED FROM (CHRSITOPER AND PECK 2004, P.24) FIGURE 10. SUPPLY CHAIN RISK MANAGEMENT FRAMEWORK ADAPTED FROM (RITCHIE AND

.............................................................

...................

.........................................................................

BRINDLEY 2007A, P 1401)

.........................................................................................

39

42

46

50

FIGURE 11. THE CONCEPTUAL MODEL FIGURE 12. THE FULL CONCEPTUAL MODEL FIGURE 13. IMPACT OF BUSINESS ENVIRONMENTS ADAPTED FROM (WARD ET, AL. 1995, P101)

..............................................................................

51

......................................................................

53

................................................................................................................................

58

FIGURE 14. BUSINESS CONDITIONS IN A SUPPLY CHAIN ADAPTED FROM (VAN DER VAART AND

VAN DONK 2006, P. 11)

............................................................................................

60

FIGURE 15. A RESEARCH MODEL WITH FULL EFFECTS FIGURE 16. A RESEARCH MODEL WITH MODERATING EFFECTS FIGURE 17. STEPS FOR DEVELOPING MEASUREMENTS FIGURE 18. RESEARCH RESULTS FOR FULL EFFECTS FIGURE 19. RESEARCH RESULTS FOR MODERATING EFFECTS

65

66

69

100

105

.......................................................

...........................................

.......................................................

.......................................................

..........................................

vi

Acknowledgment

I would like to gratefully and sincerely thank Professor Nallan Suresh for his continuous

guidance, understanding, help, and endless support. He has provided me with such an ample

opportunity to explore the issues that I have always interested me—to be exact, purchasing in

supply chain management, and in turn, he has helped me structure the scope of this issue in the

realm of supply chain risk management. I am so blessed to have him as my advisor and mentor.

This work could not have been done without the questions, criticisms, and advice from my

dissertation committee, Professor Natalie Simpson and Professor Charles Wang. They helped me

to shape the dissertation as it is now.

I thank Dr. Sangmi Chai, my wife and the most important colleague throughout my

doctorial study. I know that this dissertation would have never been completed without her

support, help, guidance and endless devotion. I would like to thank her with my heart for her

strong and loving support, her advice and encouragement, her companionship, and the many

interesting and thought-provoking conversations during this journey.

Finally, I would like to express very sincere and deepest thanks to my parents who have

supported me and believed in me. I also would like to show my heartfelt appreciation to my

parents-in-law. They always have been my supporters and helped me to make this work possible.

For this, I remain ever grateful to them.

vii

Abstract

Supply chain risk management has emerged as an important issue for researchers and

practitioners because mitigating supply chain risk helps to improve firms’ as well as supply

chains’ performance. However, managers are not adequately prepared to manage supply chain

risks and most organizations do not have effective supply chain risk management policies. The

main objective of this research is to investigate impact of strategic sourcing, e-business

technologies and supply chain integration on supply chain risk mitigation. More importantly, this

study examines the role of business environment, organizational culture and other business

characteristics in influencing supply chain practices and supply chain risk mitigation.

Based on the theoretical background of dynamic capabilities, this study attempts to fill

the gap in supply chain risk management literature by examining businesses environments. In

addition to business environments, this study reflects business characteristics and organizational

culture. This research establishes a research framework of mitigating supply chain risk based on

the literature review of supply chain risk management. By studying previous literature on the

supply chain risk management, this study found three common themes of risk mitigating

strategies in the supply chain: collaboration and cooperation, information sharing and flexibility.

Thus, this research investigates the impact of three supply chain practices, strategic sourcing, e-

business technologies in supply chain, and supply chain integration which enable firms to have

collaboration, information sharing and flexibility with suppliers.

Supply chain risks are categorized in three ways depending upon the sources of supply

chain risks. The first set of sources is from the internal risk within firms. The second sources

stem from internal risk within the supply chain. The third set of sources is from the external risk

viii

outsides of the supply chain. Because supply chain risks have very broad areas, this research

focuses on inbound perspective of supply chain risks.

The conceptual model of this research is based on mitigating supply chain risks by

implementing supply chain practices such as strategic sourcing, e-business technologies and

supply chain integration. On this main conceptual model, this research reflects organizational

culture as an internal factor of supply chain risk management, and business environments as an

external factor of supply chain risk management. This research framework is composed of

supply chain practices which mitigate supply chain risks, business environments which influence

supply chain practices as well as supply chain risks, organizational culture which affects supply

chain risks, the impact of business characteristics on the relationship between supply chain

practices and supply chain risks, and the relationship between supply chain risks and

performance.

This research applied the survey methodology to empirically validate the research

framework. In order to improve the quality of the survey, this research conducted a three- step

approach. First, the survey measurement items were adapted from prior literatures. Second, by

having interviews with supply chain professionals, the content validity check was conducted.

The feedbacks and comments on the survey were reflected to make a revised version of the

survey. Finally, the pilot study was conducted. Thirty three supply professionals completed the

survey. The statistical testing of examining the reliability on the measurement indicators was

conducted to eliminate low reliability items. The feedbacks and comments were also received to

improve the quality of the survey. Since this research investigated the supply risks, the finalized

surveys were distributed to the members of Institute of Supply Management.

ix

Collecting 152 surveys from purchasing and supply management executives from the US

manufacturing industry, this research uses partial least squares methodology for data analysis.

This research results empirically confirm that strategic sourcing mitigates the supply chain risk.

Strategic sourcing is engaged in not only emphasizing the purchasing function on aligning firms’

strategy but also improving the relationships with suppliers by sharing the information and

developing the suppliers. Thus, supply chain members can reduce the probability of supply

disruptions. Even if disruptions occur in the supply chain, supply chain members can minimize

the magnitude of the supply disruptions. E-business technologies were also found to mitigate

supply chain risks. E-business technologies enable supply chain members to share the

information in the real time and communicate frequently. Therefore, e-business technologies

enable supply chain members to be flexible to react quickly to disruptions in supplies, resulting

in advantages for mitigating the supply chain risks.

The results also support that supply chain integration mitigates supply chain risk. Supply

chain integration has been a widely applied supply chain management practice in order to

improve the performance. It encourages the firms to collaborate together and share information.

Like other supply chain practices such as strategic sourcing and e-business technologies in this

research, supply chain integration is a key element in the risk mitigating strategy of the supply

chain. Thus, supply chain integration plays an important role in mitigating supply chain risks.

This research empirically confirms strategic sourcing, e-business technologies and supply chain

integration mitigate supply chain risks. However, the in this research organizational culture is not

found to make a statistically significant impact on mitigating supply chain risks.

Next, this research considers the business environments and characteristics in supply

chain risk management. The business environments reflect competitive and dynamic markets and

x

business characteristics indicate manufacturing approach, suppliers and market location and firm

size. Competitive and dynamic business environments have a direct influence on strategic

sourcing, e-business technologies and supply chain integration. If business environments become

competitive and dynamic, firms implement strategic sourcing in order to strengthen their

relationships with suppliers, e-business technologies to share the real time information, and

supply chain integration to collaborate with suppliers. However, competitive and dynamic

business environments are not found to have a significant relationship with organizational culture.

Organizational culture established with beliefs of the managers is not influenced by external

market conditions. The research results also support that considering business environments is a

key factor of implementing supply chain practices to have competitive advantages toward

dynamic and competitive markets.

Business environments have moderating effects between supply chain practices and

supply chain risk. As business environments become competitive and dynamic, the mitigating

effects of strategic sourcing, e-business technologies, supply chain integration becomes stronger.

In other words, the impact of strategic sourcing, e-business technologies and supply chain

integration grow to be very effective on mitigating the supply chain risks. Therefore, if firms

operate in dynamic and competitive markets, strategic sourcing, e-business technologies and

supply chain integration are very useful supply chain practices on setting up risk mitigating

strategy in the supply chain. However, business environments are not found to have a significant

impact on organizational culture and the relationship between organizational culture and supply

chain risks.

Business characteristics also have a moderating effect on the relationship between supply

chain practices and supply chain risks. Depending on the manufacturing approach (push and

xi

pull), in the case of firms with push approach, strategic sourcing, e-business technologies and

supply chain integration become more effective on mitigating supply chain risk comparing with

the pull approach. Depending on the suppliers’ location, if firms have suppliers outside of the US,

strategic sourcing, e-business technologies and supply chain integration have the larger impact

on mitigating supply chain risk comparing with the suppliers’ from the US. On the other hand,

firms’ market location does not have any influence on the relationship between supply chain

practices and supply chain risks.

This research also examines the relationship between supply chain risks and the

performance. Performance is measured on three dimensions: financial, operational and supply

chain performance. The results support the notion that supply chain risks have a negative

relationship with performance. If supply and purchasing managers perceive high risks in the

supply chain, then the performance is found to be low. If they perceive low risks in the supply

chain, the performance is high.

This research contributes to the supply chain management literatures by explicitly raising

issues of supply chain risks for managers, by empirically validating the conceptual framework of

supply chain practices, supply chain risks and the performance; by examining the impact of

organizational culture on supply chain risk and, finally, by filling gaps in the literature on the

relationship between supply chain risk management and business environments.

Although this study has limitations arising from the survey methodology, this research

can be extended in various ways. Because this study focuses on the manufacturing industry, the

research framework can be applied to service industries like the health care industry. Likewise,

future studies can investigate the cultural difference between the US and other Asian countries. It

xii

will be very worthwhile examining the impact of cultural differences on risk mitigating strategies

in supply chains. These are two of many possible extensions of this research.

Key Words: Supply Chain Risk Management, Business Environment and Characteristics,

Performance, Strategic Sourcing, E-business Technology, Supply Chain Integration,

Organizational Culture, Risk Mitigating Strategy

xiii

1.

Introduction

  • 1.1. The Problem

Recently, supply chain management theory and practices are receiving a great deal of attention

as effective tools for dealing with challenges that are generated by competitive and dynamic

markets. Current business trends such as the increased use of outsourcing, the globalization of

supply chains and the reduction in the supply base lead to greater exposure to risks. Other

potential risks include a more integrated process among supply chain members, a reduction in

buffer inventories, an increasing demand for on-time delivery within more limited time frames,

shorter product life cycles and time-to-market, as well as capacity limitation and relatively high

demand in the early stages of the product life cycle (Norrman and Jansson 2004). In recent years,

the structure of supply chains has become more complex due to the growing levels of risk and

uncertainty in the market as well as within the supply chain itself. Managers are not able to

control all aspects of the supply chain, which requires them to take selective actions in dealing

with the risk (Luhmann 1995). According to the McKinsey Global Survey, executives are not

adequately prepared to manage supply chain risks (McKinsey 2006). According to AMR

research, 60% of organizations in the US do not have effective supply chain risk management

policies (Hillman, 2007). High risk generates inefficiency in the supply chain (Christopher and

Lee 2004). More importantly, tangible risks in the supply chain have been confirmed to be one of

the causes for poor performance (Wilding 1998). Therefore, mitigating risk in the supply chain

has emerged as a significant issue in academia as well as in the business world because of the

unknown impact of risk on the supply chain. This research attempts to fill gaps in the literature

by investigating factors to mitigate supply chain risks.

1

However, the risks in the supply chain come from various sources. The research of

Christopher and Peck (2004) characterizes risk in three ways: 1) internal to the firm, such as

process and control; 2) external to the firm but internal to the supply chain network such as

demand and supply; and, 3) external to the network, such as environmental risks. These risks,

which are interconnected, have been categorized into several other categories, including supply

chain disruption, delay, forecast, procurement, risk, capacity and inventory risks (Chopra and

Sodhi 2004). This study focuses on managing supply risks in the supply chain from the inbound

perspective.

  • 1.2. Statement of Purpose

Supply chain risk mitigation has begun to be intensively discussed in supply chain management

literature. If disruptions occur in the supply chain, financial losses and low customers’

satisfaction result, affecting all members in the supply chain. It is very important for firms to

prevent the supply chain disruptions and minimize damages. Thus it is critical for supply chain

professionals to consider various factors in establishing risk mitigating strategies in the supply

chain. These are also important issues for supply chain management researchers to address.

In terms of mitigating supply chain risks, previous literature introduces various supply

chain strategies. First of all, it is very important for researchers to identify and understand supply

chain risk while minimizing the impact of the risk (Norrman and Jansson 2004). In order to

mitigate risk, prior studies present one common strategy, namely the significance of internal and

external integrations in a supply chain for mitigating supply chain risks (Kleindorfer and Saad

2005). Information sharing and collaborative relationships in supply chain networks also lessen

supply chain risks (Faisal, Banwet, and Shankar 2006). In supply chain risk management, the

significance of information sharing and the development of relationships has been emphasized.

2

In addition, cultural factors can also make a significant impact on supply chain risk mitigation

(Ritchie and Brindley 2007a). This research investigates supply chain management practices

such as strategic sourcing, e-business technologies, supply chain integrations as well as

organizational culture to mitigate supply chain risks.

Supply chain management practices are recognized to enable supply chain networks to

limit their risks. However, they may not be capable of controlling environmental risk, which is

considered to be one of the important sources of supply chain risks. Environmental risk can

influence organizations’ supply chains directly or indirectly (Christopher and Peck 2004). Since

there is a lack of research regarding the business environment, organizational culture and other

business characteristics, this research attempts to fill that need. Although any business

uncertainty is not well controlled by organizations, managers’ awareness of, and their quick

reactions to, dynamic and competitive business environments is critical. Environmental

uncertainty is considered a critical antecedent for supply chain management practices because

perceptions toward unpredictability in the external business climate are the foundations on which

managers make decisions affecting the supply chain (Chen and Paulraj 2004; Kocabasoglu,

Prahinski, and Klassen 2007).

The purpose of supply chain risk management is to mitigate supply chain risks, resulting

in effective and efficient supply chain performance. Cohen and Kunreuther (2007)

conceptualized supply chain risk management as supply chain hierarchies, customer supplier

relationships and market mechanisms in a real options framework. This option framework helps

allocate optimal resources, which leads to efficient supply chain performance (Cohen and

Kunreuther 2007). Failure to mitigate supply chain risks like supply chain glitches tends to

generate loss of shareholders’ value due to the economic impact of poor supply chain

3

performance (Hendricks and Singhal 2003). In other words, high perceived risk generates low

performance outcome and low perceived risk generates high performance outcome (Ritchie and

Brindley 2007b). While supply chain management practices are applied for mitigating risk, they

may also positively affect performance. Previous literature indicated that supply chain

management practices such as strategic sourcing, e-business technologies and supply chain

integration, make a positive impact on performance (Carr and Pearson 1999; Chen, Paulraj, and

Lado 2004; Wu, Mahajan, and Balasubramanian 2003; Narasimhan and Kim 2002). This

research examines the role of supply chain management practices that not only mitigate supply

chain risks but also improve performance.

  • 1.3. Motivations for Research

The motivations for this research are divided into three categories: major gaps in the supply

chain risk management literature, the application of supply chain management practices in

supply chain risk management and the lack of recognition of the significance of supply chain risk

management.

Firstly, the area of supply chain risk management is emerging as a new issue because the

supply chain network is becoming increasingly complex and vulnerable. It is difficult for

managers of supply chains to manage these risks in order to improve their organizations’

performance as well as supply chain performance. In spite of the newly found demand for

research in the field, supply chain risk management is a fairly new area for investigation,

especially in terms of empirical studies. More importantly, managing supply chain risks provides

benefits to the firms, and the failure to mitigate risk produces greater losses. However, while the

importance of supply chain risk management is recognized, there is a lack of empirical studies in

supply chain risk management, thus making such empirically grounded research necessary

4

(Juttner, Peck, and Christopher 2003). This research aims to fill that gap by empirically

examining both the mitigation of supply chain risk through adoption of supply chain

management practices as well as the role of business environments, organizational culture and

other business characteristics in the relationship between supply chain risk and supply chain

management.

Secondly, supply chain risk management introduces various approaches to handling of

the risks. The literature agrees that supply chain management practices play an important role in

supply chain risk management and performance. However, it is very important for managers to

investigate whether supply chain management practices work effectively in the real business

world. Adding the business environment and other characteristics for consideration would help

managers understand the role of supply chain management practices in specific real business

environments. This research intends to confirm the specific supply chain management practices

which need to be implemented to mitigate the risk and improve the performance of member

firms in the supply chain.

It is believed that this research concerning supply chain will make meaningful

contributions to both academia and practitioners. This motivation also has an influence on the

methodological approaches used in this research. The empirical approach became popular

because it recognizes the importance of field-based research, and reflecting the business context

in which practice happens (Malhotra and Grover 1998). Therefore, this research adopts the

survey research methodology in order to examine managerial implications for real-world

business contexts.

Finally, managers are not familiar with how to deal with supply chain risks and do not

necessarily recognize the importance of supply chain risk management. According to the

5

McKinsey Global Survey, executives are not prepared to adequately manage supply chain risks

(McKinsey 2006). Also, Mark Hillman in AMR research stated that 60% of organizations in the

US do not have an effective supply chain risk management policy (Hillman 2007). Most

organizations are not prepared to implement supply chain risk management since managers are

not familiar with the issues. This research is meant to inform managers about the significance of

supply chain risk management.

1.4.

Objectives

The major objective of this research is to investigate the impacts of strategic sourcing, e-business

technologies and supply chain integration in the context of supply chain risk mitigation. In

addition, this study examines the role of the business environment, organizational culture and

other business characteristics in supply chain management practices and supply chain risks.

Specifically, the following research questions are addressed:

What impacts do strategic sourcing, e-business technologies and supply chain integration

have on mitigating supply chain risk?

What impact does organizational culture have on supply chain risk?

What impact does the business environment and characteristics have on supply chain

management practices as well as supply chain risk?

What impact does supply chain risk management have on performance?

1.5.

Contributions of the Research

This research makes significant contributions in terms of academia as well as practice. First, this

study raises some of the issues of supply chain risks that have been overlooked by managers.

Second, this research empirically validates the conceptual framework of the relationships among

supply chain practices, supply chain risks and performance. Third, the impact of organizational

6

culture is examined in the area of supply chain risks. Finally, this research fills the gap in the

research regarding the relationships between supply chain risk management, the business

environment, and business characteristics.

  • 1.6. Organization of the Dissertation

This sub-section describes the organization of this dissertation. Section 2 provides an explanation

of the theoretical background and a review of relevant literature that examines supply chain risks,

supply chain risk management, performance, supply chain management practices, organizational

culture and business environment and characteristics. The theoretical underpinning of this

dissertation is represented by the concept of dynamic capabilities. The discussion on supply

chain risk management covers various strategies for lessening risks. The performance section

considers three dimensions performance: financial, operational and supply chain performance.

The elements of supply chain management practices are identified as strategic sourcing, e-

business technologies in supply chain and supply chain integration. The organizational culture

section is approached from a customer-orientated standpoint. The topic of business environment

and characteristics is considered and discussed from an environmental uncertainty perspective.

Section 3 establishes a conceptual model relating to supply chain risk management and

performance as they are linked to the business environment and characteristics. The various

constructs and hypothesis are developed for designing the research model. This section develops

a basic conceptual model and a research model. In the first sub-section, the conceptual model is

based on the analysis of the literature and a consideration of gaps in prior research. This model

answers questions regarding the relationships between supply chain management practices and

supply chain risk as well as between supply chain risk and performance. In the second sub-

section, a research framework is developed with full effects and moderating effects. A research

7

model with full effects describes a framework of supply chain risk management which deals with

supply chain practices, organizational culture, supply chain risk and performance. A research

model with moderating effects describes a framework of supply chain risk management with an

indirect impact from business environment and characteristics.

Section 4 presents a discussion of the proposed research methodology. The methodology

includes developing the measurement instrument, a pilot study and sample and population issues.

This section describes the research methodology to be utilized in this study. This section

discusses in detail the processes of developing the survey and measurements. This section begins

with the survey methodology, instrument development and measurements, the pilot study, the

full scale study and sample and partial least squares.

Section 5 explains data analysis and findings. This section provides the results of the data

analyses. Section 5.1 provides a profile of the survey participants in this research. Section 5.2

contains the assessment of the measurement scales, which establishes the reliability and validity

of the survey instruments in this research. Section 5.3 provides analysis of the structural model

for generating the results for full and moderating effects.

Section 6 discusses data analysis results. The main objective of this research is to

investigate the relationship between supply chain practices such as strategic sourcing, e-business

technologies and supply chain integration with supply chain risks. From the buyers’ perspective,

this research framework empirically validates that implementation of supply chain practices

mitigate supply chain risks. Since industry has become global and highly competitive,

performance emerges as a key objective for all supply chain members in order to survive in the

global marketplace. Therefore, mitigating supply chain risks to improve performance and

determining the role of supply chain practices in supply chain risk management are important

8

topics of discussion, particularly in light of the results of this study. In addition, this study

considers the internal factor of organizational culture and the external factors of business

environments and characteristics within the main research framework of supply chain risks

management. Therefore, this research shows that firms have to deal with these factors in supply

chain risks management in order to have competitive advantages and that they also need to

allocate their resources, based on dynamic capability, effectively in order to improve

performance.

Section 7 presents contributions, limitations and future research. The purpose of this

study is to establish a research framework for supply chain risk management and to empirically

investigate how supply chain practices and organizational culture influence supply chain risks

from the business environment perspective. In addition, this research also examines whether

successful supply chain risk management will improve the performance. Since this research

serves to close a gap in the literature of supply chain risk management, this research will,

hopefully, make a significant contribution to the academic and business world.

9

2.

Literature Review

The following section covers a review of the theoretical background and relevant literature. This

section begins with theoretical background, which includes dynamic capabilities, and discusses

in detail, the literature pertaining to supply chain risk, supply chain risk management, strategic

sourcing, e-business supply chain technologies, supply chain integration, organizational culture

and business environment and characteristics, in that order.

  • 2.1. Theoretical Background

    • 2.1.1. Dynamic capabilities

In recent years, the theory of resource-based view (RBV) of the firm has been applied

extensively to investigate how firms can acquire competitive advantages through managing their

routine operations successfully. The role of the operations management component has been

explored and it has been found that a firm can compete effectively in the market by adopting a

more strategic, operations management approach (Lewis 2000). According to the results, a firm

can gain a competitive advantage in the market by using a strategic operations management

approach (Lewis 2000). The relationship between strategic purchasing and a firm’s performance

based on RBV has been investigated and it has been found that strategic purchasing has a

positive impact on the firms’ performance (Carr and Pearson 2002). RBV considers a firm’s

possession of heterogeneous resources, such as financial, physical and human resources, as a

source of core competence within the firm (Halldorsson et al. 2007).

Based on the resource based view, dynamic capabilities are introduced as a more

developed theory (Teece, Pisano, and Shuen 1997) (Pandža et al. 2003). In other words, dynamic

capabilities extended the view of RBV into a competitive value corresponding to environmental

10

changes (Miller 2003). Compared to a resource-based view, a dynamic capabilities approach

focuses more on market speed and unpredictable changes in the business environment. The

dynamic capabilities approach also focuses on the dynamic process of developing capabilities

while the RBV identifies resources and capabilities as static (Pandža et al. 2003 ). The main idea

presented by dynamic capabilities is how a firm can acquire or develop firm-specific resources or

capabilities to achieve a competitive position in the dynamic business environment (Eisenhardt

and Martin 2000; Winter 2003). For this reason, a firm’s ability to configure and relocate

resources and its competence is regarded as a source of significant advantage in rapidly evolving

business conditions. Dynamic capabilities are defined as the firm’s capability to integrate, build

and reconfigure internal and external competences to achieve a competitive advantage in the

rapidly changing environments (Teece, Pisano, and Shuen 1997). The RBV has been criticized

because it cannot sufficiently explain how firms can have a competitive advantage in an

unpredictable and dynamic market environment (Eisenhardt and Martin 2000).

In very competitive as well as rapidly changing business environments, firms need to

have the ability to integrate, build and reconfigure internal and external competencies (Teece,

Pisano, and Shuen 1997) for addressing uncertainties in the business environment. In the

dynamic capabilities model, this ability offers a competitive advantage to firms (Eisenhardt and

Martin 2000). Dynamic capabilities are a firm’s processes that use resources in their processes

to integrate, reconfigure, gain and release resources—to match and even create a favorable

market change. Dynamic capabilities are the organizational and strategic routines by which firms

achieve new resource configurations as markets emerge, collide, split, evolve, and die

(Eisenhardt and Martin 2000). Dynamic capabilities enable firms to change routine operating

11

processes in response to market changes (Anand et al. 2009). Table 1 shows comparisons

between RBV and dynamic capabilities.

Table 1. Comparison of RBV and Dynamic Capabilities adapted from (Eisenhardt et al. 2000, p.1111)

 

RBV

Dynamic Capabilities

Definition

Routines to learn routines

Specific organizational and strategic processes (e.g., product innovation, strategic decision making, alliancing) by which managers alter their resource base

Heterogeneity

Idiosyncratic (i.e., firm specific)

Commonalities (i.e., best practice) with some idiosyncratic details

Pattern

Detailed, analytic routines

Depending on market dynamism, ranging from detailed, analytic routines to simple, experiential ones

Outcome

Predictable

Depending on market dynamism, predictable or unpredictable

Competitive

Sustained competitive

Competitive advantage from

Advantage

advantage from Valuable, rare, imperfectly limitable and ono- substitutable dynamic capabilities

valuable, somewhat rare, equifinal, substitutable, and fungible dynamic capabilities

Evolution

Unique path

Unique path shaped by learning mechanisms such as practice, codification, mistakes, and pacing

Two main characterizations of dynamic capabilities are extracted from the term “dynamic”

and “capabilities”. “Dynamic” indicates “the capacity to renew competences so as to achieve

congruence with the changing business environment”. The term “capabilities” refers to strategic

management of a firm’s resources including internal and external skills as well as functional

competences that respond to a rapidly changing business environment (Teece, Pisano, and

Shuen 1997). Therefore, the term dynamic capabilities entails creating higher order skills as well

12

as innovative and agile resources toward a dynamic environment that are beyond operational

functional skills, resources that are required for every-day operations (Agarwal and Selen 2009).

Due to the effectiveness of utilizing resources, dynamic capabilities affect a firm’s profitability

by improving productivity (Makadok 2001).

This research adopts dynamic capabilities as a theoretical background to explore various

factors that mitigate risks stemming from an unpredictable business environment. Dynamic

capabilities enable firms to leverage resources for establishing and maintaining relationships

with suppliers as well as customers (Perez Perez and Sanchez 2002). In the dynamic business

environment, a firm can face a variety of risks while maintaining its supply chain. Since a

strategic approach to supply chain management can be a component of a firm’s core competence,

that firm’s ability to configure and relocate resources to avoid or reduce various risks in the

supply chain will contribute to a firm’s performance. This study investigates how a firm can

utilize its’ capabilities to reduce risks in the supply chain by identifying risk mitigating factors.

  • 2.2. Supply Chain Risk

Risk has been defined in many different ways depending on the nature and perspective of various

disciplines. In the field of business management, risk is generally defined as the probability of

variation in potential results in both objective and subjective ways (Spekman and Davis 2004). In

the context of supply chain management, supply chain risks are defined as ‘‘any risks for the

information, material and product flows from original supplier to the delivery of the final product

for the end user’’ and “the possibility and effect of a mismatch between supply and demand” in

simple terms (Juttner, Peck, and Christopher 2003). Supply Chain risks are arguably divided in

two different aspects: risk and uncertainty sources and risk consequences which mean risk

impacts on business (Juttner, Peck, and Christopher 2002). The risks considered in this study are

13

risk and uncertainty sources since the consequences of risk are regarded as impacts on

performance.

Previous literature established categories of sources of supply chain risks. Sources of

supply chain risks are explained by using the risk spiral which includes four components: lack of

confidence, lack of visibility, build-up of buffers and long pipelines (Christopher and Lee 2004).

Limited visibility in supply chain flows reduces confidence, which leads to delays in decision

making and results in the building-up of buffers, which then creates long supply chain pipelines

(Christopher and Lee 2004). Six dimensions of risks are found in the supply chain, which are

physical movements of goods, the flow of information, the flow of money, the security of

internal information systems, the relationships among supply chain members, and social

responsibilities of supply chain members (Spekman and Davis 2004). Supply chain risks are

divided into five categories: physical aspects of the actual supply chain movement, flow of

money, informational flow, relational links in supply chain networks and innovational

opportunities for supply chain members (Cavinato 2004).

Three categories of supply chain risk sources have been suggested: environmental risk

stemming from uncertainty in the business environment, such as disasters; organizational risks

stemming from supply chain members, such as machine failures; and labor strikes and network

related risks stemming from interactions within the supply chain network, such as a lack of

interaction (Juttner, Peck, and Christopher 2003). Three categories of supply chain risk have also

been presented. First, the internal risk to the firm, which includes process risk and control risk

(Christopher and Peck 2004; Juttner, Peck, and Christopher 2003). Process risk relates to

disruptions in value-adding activities. The control risk is the risk that arises from the application

or misapplication of policies in governing the process. Second, the external risk to the firm, but

14

internal risk to the supply chai n network, which includes demand and supp ly. Demand risk

relates to potential or actual dis turbance in the downstream flow of the focal

firm. Supply risk

relates to potential or actual d isturbance in the upstream flow of the focal

firm. Third, the

external risk to supply chain net work includes environmental risk. Environmen tal risk relates to

all risk, which includes socio-po litical, economical and technological events as well as industry

that affects the whole supply ch ain directly and indirectly. Figure 1 shows the

five main sources

of risk in the supply chain.

internal risk to the supply chai n network, which includes demand and supp ly. Demand risk

Figure 1. Sources in R isk in the Supply Chain adapted from (Chris topher & Peck 2004, p.10)

In Johnson (2001), two c ategories of supply chain risk are identified: De mand risk, which

includes seasonality, volatility,

new product adoption and short product life c ycle, and supply

15

risk, which includes disruptions in supply, production capacity and logistics as well as long lead

time between supply and demand. This research adopts an inbound perspective of supply chain

risk.

Prior studies introduced some definitions of supply risk. Supply risk is defined as

“transpiration of significant and disappointing failures with inbound goods and services”

(Zsidisin, Panelli, and Upton 2000, p. 187). It is also defined as that which “adversely affects

inward flow of any type of resource to enable operations to take place; also termed ‘input risk’”

(Harland, Brenchley, and Walker 2003, p. 53). However, these definitions reflect a traditional

view of supply because it neglects to consider multiple dimensions of the construct. Therefore, a

new definition of supply risk is presented as “the probability of an incident associated with

inbound supply from individual supplier failures or the supply market occurring, in which its

outcomes result in the inability of the purchasing firm to meet customer demand or cause threats

to customer life and safety” (Zsidisin 2003a, p. 222). Zsidisin (2003a) also includes the supply

disruptions into the concept of supply risks. Supply disruption risk is defined as managers’

perception of the total potential loss generated from disruptions on the supply from suppliers to

buyers (Ellis, Henry, and Shockley 2010). Incorporating supply disruption risk, this study

follows the definition of Zsidisin (2003a) for supply risk.

Supply risk has two main sources: individual supplier failures, which include new

product development problems, delivery failures, relationship issues, supplier obligations to

other customers, quality problems, price/cost increases, inability to meet quantity demand,

technologically out-of-date and discontinued supply and market characteristics that include a

sole source or limitedly qualified sources, market shortages, commodity price increases,

geographic concentration of suppliers and supplier patents (Zsidisin 2003a).

16

Managers perceive supply risk characteristics in three categories: item, market and supply

(Zsidisin 2003b). Item characteristics have an impact on profitability and the nature of product

application. Market characteristics entail global sourcing, market capacity constraints, market

price increases and number of qualified suppliers (Zsidisin 2003b). Supplier characteristics

include capacity constraints, inability to reduce cost, incompatible information systems, quality

problems, unpredictable cycle times, and changes in volume and mix requirements. Due to the

uncertain supply chain environment, supply chain risk becomes broader than ever before (Barry

2005) so that this research is dealing with supply chain risk in three ways: internal risk of supply

chain members, external risk of supply chain members but internal risk within supply chain

network and the environmental risk.

  • 2.3. Supply Chain Risk Management

Supply chain risk management

can be defined

in

two

ways. One

way is to define it as

“collaborating with partners in a supply chain and apply risk management process tools to deal

with risks and uncertainties caused by, or impacting on, logistics related activities or resources”

(Norrman and Jansson 2004, p. 436). It is also defined in simple terms as ‘‘the identification and

management of risks for the supply chain, through a coordinated approach amongst supply chain

members, to reduce supply chain vulnerability as a whole’’ (Juttner, Peck, and Christopher 2003,

p. 201). In these definitions, supply chain risk management has to distinguish between supply

chain risk sources, risk consequences, risk drivers and risk mitigating strategies. This research

will focus on risk mitigating strategies in order to minimize risk consequences and improve

supply chain performance.

The research of Christopher and Lee (2004) suggests three strategies to remove the

supply chain risk spiral. First, supply chain members need to make information accurate, visible

17

and accessible. Up-to-date information is very useful for planning purposes. Second, they need to

be alerted for out-of-control conditions. Statistical process control can be conducted to reduce the

variations of a supply chain plan. Third, they need to perform responsive corrective actions. With

contingency plans, they are able to make corrective actions when some disruptions occur

(Christopher and Lee 2004).

The research of Christopher and Peck (2004) points out the importance of risk assessment

before setting up mitigating risk strategies. Before designing mitigating strategies, managers

need to understand the nature of the supply chain network and supply base strategy for their

firms. Then they emphasize the importance of supply chain collaboration, which encourages

information exchange in supply chain networks and supply chain agility, which includes supply

chain visibility, a clear view of the up- and downstream flow of the supply chain and supply

chain velocity, and the relation of end-to-end distance to time in the supply chain. They also

point out the importance of cultivating an organizational culture where people become aware of

supply chain risk and supply chain risk management so that all workers in the organization

recognize supply chain risk in their activities (Christopher and Peck 2004).

The research of Juttner et al. (2003) present four points for mitigating strategies. First,

avoidance is associated with products’ geographic markets and supplier and market

organizations. A company can drop specific products, suppliers and geographical markets due to

unreliable supply. Second, companies control contingencies from various risk sources. It

includes vertical integration, increasing inventory and maintaining excessive capacity in

production, handling, storage and transportations. Third, cooperation involves joint agreement,

which can reduce uncertainty in production. This includes joint agreement between supply chain

members to share information and prepare joint plans. Fourth, flexibility increases supply chain

18

responsiveness to unexpected events. Examples are postponement and multiple sourcing (Juttner,

Peck, and Christopher 2003).

Supply risk management uses approaches very similar to supply chain risk management.

It is confirmed that reduced supply risk can be achieved by forming alliance relationships,

making suppliers responsible for developing risk mitigation plans, maintaining common

platforms for products, connecting directly with suppliers and establishing industry standards.

They also suggest that purchasing organizations develop multiple sources for strategic items,

hold safety stocks and maintain a well-stocked supply line (Zsidisin, Panelli, and Upton 2000).

Johnson (2001) presented ways of managing supply risk in the toy industry. First, a

company can reduce capacity risks by outsourcing and building flexible partners. The company

can also conduct outsourcing as a proactive solution for mitigating risk. Second, the companies

need to use information, air freight, and warehouse consolidation to improve supply and demand

matching. Establishing an electronic supply chain by sharing information helps supply chain

members improve in matching supply and demand. Finally, companies can reduce currency and

political risk through operational hedging. Diversifying supply sources internationally is one way

to avoid currency and political risk.

Consistent with previous suggestions, Harland et al. (2003) also found similar supply risk

management strategies. First, forming a collaborative supply network strategy is very critical.

More involvement from supply network key players leads to better supply network design.

Second, implementing a supply network risk strategy is very important for the organizations

Developing new skills for managing interrelationship with other supply network members is

necessary for managers so that they can be educated about supply network risk.

19

Optimal Resource Performance Allocation in Supply Chain Supply Chain Practices Internal Risk Risk in Supply Chain
Optimal
Resource
Performance
Allocation in
Supply Chain
Supply Chain
Practices
Internal Risk
Risk in Supply
Chain
Environmental
Risk

Figure 2. A Framework for Supply Chain Risk Management

  • 2.4. Strategic Sourcing

Strategic sourcing is defined as a systematic and comprehensive process of acquiring input as

well as managing supplier relations in a manner that moves toward achieving the organization’s

long term objectives (Smeltzer, Manship, and Rossetti 2003). Strategic sourcing is viewed as the

use of supplier capabilities in the process of design, engineering and manufacturing to achieve

strategic objectives (Narasimhan and Das 1999a). It is also defined as a framework that can assist

managers in the process of making buying decisions with consideration of the following factors:

20

competitive advantage and demand flexibility as primary factors, and process capability, process

maturity and systematic risk as secondary factors (Sislian and Satir 2000). Strategic sourcing has

another definition as a procurement framework based on the concept of total cost of ownership,

which helps firms add value and improve their competitive positions (Anderson and Katz 1998).

These definitions and findings over the years have pointed out four essential dimensions

of strategic souring: 1) the strategic role of purchasing, 2) effective internal coordination of

purchasing function with other functions, 3) effective information sharing with suppliers and, 4)

supplier development and supply base management (Kocabasoglu and Suresh 2006). Figure 3

describes four dimensions of strategic sourcing to explain the concept of strategic sourcing.

competitive advantage and demand flexibility as primary factors, and process capability, process maturity and systematic risk

Figure 3. Four Dimensions of Strategic Sourcing (Kocabasoglu and Suresh 2006)

21

Strategic sourcing has been shown to have a significant impact on several aspects of firm

performance. In an early work, Carter and Narasimhan (1996) identified six strategic factors

affecting performance, measured by market position, customer satisfaction and market share.

They rank-ordered the six strategic purchasing factors as: the importance of purchasing, human

resource management, interaction with suppliers, influence over suppliers, interaction with other

departments, and the purchasing organization and structure (Carter and Narasimhan 1996).

Carr and Pearson (1999) examined the role of strategic purchasing on the firm’s financial

performance, buyer-supplier relationship as well as supplier evaluation systems. Their study

confirmed that strategic purchasing is positively associated with a firm’s financial performance.

Their study also found that strategic purchasing has a positive impact on buyer-supplier

relationships and supplier evaluation systems (Carr and Pearson 1999).

Carr and Smelzer (1999) tested the hypothesis that strategic purchasing is positively

related to supplier responsiveness, supplier communication, changes in supplier market and firm

performance. Their study showed that strategic purchasing not only affects the firm’s

performance positively but also improves the relationship with suppliers, encouraging both a

higher level of cooperation with suppliers as well as increasing responsiveness to customers

(Carr and Smeltzer 1999).

The study of Narasimhan and Das (1999a) focused on the relationship between strategic

sourcing and manufacturing flexibility. Their study results confirmed that strategic sourcing has

a positive impact on modification flexibility; however, it did not show any significant

relationship between volume flexibility and new product development flexibility. In addition,

strategic sourcing was found to have an indirect relationship with manufacturing cost reduction.

22

This study provided insights into how strategic sourcing can help improve manufacturing

flexibility and establish appropriate sourcing strategies (Narasimhan and Das 1999a).

Das and Narasimhan (2000) investigated the relationship between purchasing

competence and manufacturing performance. They found that purchasing competence has four

dimensions: supply base optimization (parts bundling), buyer-supplier relationship development,

supplier capability auditing and purchasing integration. They confirmed that buyer-supplier

relationship development, supplier capability auditing and purchasing integration are positively

related with manufacturing performance. Purchasing integration was also found to have played a

significant role in improving manufacturing performance (Das and Narasimhan 2000).

Adding to

the above results,

Narasimhan et

al.

(2001) found five

dimensions of

purchasing competence: empowerment, employee competence, interaction effectiveness-tactical,

interaction effectiveness-new product development, and buyer-seller relationship management.

Purchasing competence was related to performance, which was composed of market share, TQM

and customer satisfaction. The results showed that purchasing competence has a significant

relationship with TQM and customer satisfaction. This study emphasizes that purchasing

competence can also serve to achieve better TQM as well as better customer satisfaction,

although no significant relationship with market share was found (Narasimhan, Jayaram, and Das

2001).

Likewise, Narasimhan and Das (2001) examined the impact of purchasing integration and

practices on manufacturing performance. Three research models were tested: 1) impact of

purchasing integration and practices on manufacturing performance, 2) impact of purchasing

practices on manufacturing performance, with an additional direct relationship between

purchasing integration on purchasing practices, and 3) moderating effect of purchasing

23

integration between purchasing practices and manufacturing performance. These results provide

insights into how purchasing should be internally integrated into business process and planning

for competitive advantage.

Carr and Pearson (2002) investigated the impact of purchasing/supplier involvement on

strategic purchasing and its impact on firm’s financial performance. Their study presented that

purchasing/supplier involvement is positively associated with strategic sourcing and strategic

sourcing has a positive influence on firm’s financial performance (Carr and Pearson 2002).

Chen et al. (2004) used a different approach for examining the indirect relationship

between strategic purchasing and financial performance. In their research, strategic purchasing

affects three factors, which are communication with suppliers, limiting the number of suppliers

and the development of long-term relationships with suppliers. Their empirical research results

showed that these factors were affected positively. However, only two factors, communication

with suppliers and long-term supplier relationships are positively related to customer

responsiveness, which has a positive impact on financial performance. This research implies that

strategic sourcing promotes better supply management capability which leads to improved

customer responsiveness and financial performance (Chen, Paulraj, and Lado 2004).

Gonzalez-Benito (2007) investigated the impact of both purchasing efficacy and

purchasing strategic integration on business performance. Their results showed that both

purchasing efficacy and purchasing strategic integration have a positive relationship with two

aspects of business performance: commercial and financial. He also examined the moderating

effect of purchasing strategic integration, and the results show that the relationship between

purchasing efficacy and business performance is enhanced by purchasing strategic integration

24

(Gonzalez-Benito 2007). Table 2 presents the summary of the literature reviews on strategic

sourcing.

Table 2. Summary of literature reviews on strategic sourcing

   

Description

 

Variables

 

Findings

Carter

302

Importance

 

of

These factors positively affect the

and

responses

purchasing, Interaction

firm performance.

Narasim

from

all

with suppliers, Level of

Importance of purchasing function in

han

levels

of

interaction

with

other

the organization is a critical factor in

(1996)

purchasing

functions,

Human

success measure. Benefits of buyer-

personnel

in

resource management,

supplier relationship influences firm

NAPM

Influence over suppliers,

performance. Finally, purchasing

member

Competitive

 

focus,

does have an important role in

firms

Purchasing organization and structure, Firm performance

corporate strategy.

Carr and

739

Status

of

purchasing,

Status of purchasing function,

Smeltze

responses

Purchasing

knowledge

purchasing knowledge and skills,

r (1997)

from

high-

and

skills,

Risk

on

purchasing willingness to take risks,

level

purchasing,

Purchasing

purchasing resources are positively

purchasing

resources,

Level

of

associated with level of strategic

executives in

strategic purchasing

purchasing.

NAPM

 

member

firms

Carr and

739

surveys,

Strategic

Purchasing,

Strategic purchasing positively

Pearson

then

168

Buyer-Supplier

 

affects firm’s financial performance

(1999)

responses

Relationships,

Supplier

as it has a positive impact on buyer-

from

high-

Evaluation

Systems,

supplier relationships and supplier

level

Firm’s

financial

evaluation systems. Supplier

purchasing

performance

evaluation systems positively

executives in

 

influence buyer-supplier

NAPM

relationships that also positively

member

affect firm’s financial performance.

firms

25

Carr and

739

surveys

Level

of

Strategic

Strategic purchasing has a significant

Smeltze

received

purchasing,

Supplier

relationship with supplier

r (1999)

from

high

communication, Supplier

communication,

supplier

level

responsiveness,

Change

responsiveness, change in supplier

purchasing

in

supplier

market,

market and firm’s performance.

executives in

Firm’s performance

NAPM

Narasim

75

surveys

Strategic sourcing,

Strategic sourcing positively affects

han and

were

Advanced manufacturing

supplier responsiveness and

Das

received

strategies, Modification

assistance. Strategic sourcing has a

(1999a)

from

senior

flexibility, Volume

significant relationship with only

managers

in

flexibility, New product

modification flexibility not with

NAPM

with

development flexibility,

volume flexibility and new product

follow-up

Mfg. Cost functions

development flexibility. Since

interviews

modification flexibility is positively associated with mfg. cost reductions, strategic sourcing indirectly influences manufacturing performance.

Das and

322

surveys

Purchasing

competence,

Purchasing competence has four

Narasim

received

Parts

bundling,

Buyer-

dimensions of parts bundling, buyer-

han

from

supply

supplier

relationship

supplier relationship development

(2000)

executives in

development practices,

practices, supply capability auditing,

NAPM

Supply

capability

and purchasing integration. Supplier

auditing,

Purchasing

capability auditing and purchasing

Integration Mfg. performance

 

integration has a positive relationship with manufacturing performance.

Narasim

322

surveys

Purchasing

integration,

Purchasing integration and practices

han and

supply

Purchasing practices

are

positively

associated

with

Das

executives in

Mfg. performance

manufacturing

performance.

(2001)

NAPM

Purchasing

integration

has

a

moderating effect

between

purchasing

integration

and

manufacturing performance.

 

Car and

175

surveys

Purchasing/Supplier

Purchasing/supplier involvement has

Pearson

from

Involvement,

Strategic

a positive impact on strategic

(2002)

purchasing

Purchasing,

Firm’s

purchasing. Strategic purchasing

professionals

Financial Performance

positively affects firm’s financial performance.

26

Smeltze

29

Case

Negotiation plans

Lack of understanding exists on

r et al.

studies

from

Strategic sourcing

integrating the strategic sourcing and

(2003)

Fortune

500

firms.

negotiation plans. Thus, supply managers should emphasize on integrating these two processes.

Chen et

232

surveys

Strategic

Purchasing,

Strategic purchasing positively

al.

received

Communication, Limited

affects communication between

(2004)

from

supply

Number

of

Suppliers,

buyers and suppliers and long-term

executives in

Long-term Orientations,

orientation. Communication and

ISM

Customer Responsiveness Fin. Performance

long-term orientation have a positive impact on customer responsiveness which positively influences financial performance. However, limited number of suppliers does not have a significant relationship with customer responsiveness.

Kocabas

140

surveys

Status of purchasing,

Status of purchasing, internal

oglu and

received

Internal coordination,

coordination, information sharing

Suresh

from

supply

Information sharing and

and development of supplier are four

(2006)

executives in

Development of supplier

dimensions of strategic sourcing.

ISM

Strategic sourcing

Gonzale

141

Purchasing

Efficacy,

Purchasing efficacy and purchasing

z-Benito

companies

Purchasing

Strategic

efficacy

by

purchasing

strategic

(2007)

from Spanish

Integration, Purchasing

integration

positively

affect

both

manufacturin

Efficacy

by

Purchasing

commercial and

financial

g companies

Strategic Integration

performance.

However,

purchasing

Commercial

strategic integration does not have

performance, Financial

any

relationship

with

both

performance

commercial

and

financial

performance.

27

2.5.

E-Business Technologies in Supply Chain

There has also been a major technological transformation in purchasing, by way of e-business

technologies, which can provide organizations with a wide range of benefits such as savings in

transaction costs, inventory reduction, and the establishment of communication networks

between buyers and suppliers (Min and Galle 1999; Deeter-Schmelz et al. 2001). E-business

technology also enables firms to collect and analyze real-time information resulting in enhanced

collaboration among firms (Vakharia 2002). E-business technologies are categorized into various

forms of e-business technology into three types: e-commerce, e-procurement, and e-collaboration.

(Johnson and Whang 2002). Among these, e-procurement, referring to the use of e-business

technologies in purchasing, allows firms to purchase materials using the Internet (Presutti 2003).

In addition to Internet technologies, technologies such as electronic data interchange (EDI) as

part of e-procurement are included in this study. Figure 4 describes the e-business technologies

usage in the supply chain.

2.5. E-Business Technologies in Supply Chain There has also been a major technological transformation in purchasing,

Figure 4. E-Business technologies in a supply chain adapted from (Vakharia 2002, p.498)

28

Many studies have pointed out the potential benefits of e-procurement. four main benefits

are identified: 1) lower procurement process cost, compared to manual procurement processes, 2)

greater visibility on expenditure control, 3) increased procurement control, and 4) benefits from

managing suppliers (Croom 2000). E-procurement may also generate secondary benefits by

streamlining purchasing processes (e.g. decreased paperwork, quick and prompt order processing,

and improved order accuracy), internal cost reduction in purchasing (e.g. transparency, order

discounts and price efficiency) and external business innovations such as new market penetration

(Benton 2007). E-procurement promotes better management of suppliers’ information and

knowledge, better understanding of weaknesses, better control of supplier operations, reduced

mistakes in procurement, and optimizes inventory (Muffatto and Payaro 2004). In addition, e-

procurement may result in greater transparency in procurement, with more detailed data

(Puschmann and Alt 2005); increased speed, quantity and quality of information processing,

especially with international suppliers (Essig and Arnold 2001); and improved processing of

requests for quotes (RFQ), as it results in savings in cost of processing, increased accuracy of

quotations, and higher job satisfaction for quote analysts (Weil 2000).

Among many studies on the impact of e-procurement, Boyer and Olsen (2002) found that

purchasing performance is improved with Internet purchasing. Purchasing performance was

assessed on the two dimensions of cost performance (reduced cost of activities associated with

purchasing and cost of personnel training) and other performance aspects (billing accuracy and

availability of supplies). The broader impact on firm or supply chain performance was not

assessed. It was shown that Internet site–specific factors had a significant impact on purchasing

performance (Boyler and Olson 2002).

29

Wu, Mahajan and Balasubramanian (2003) assessed the impact of firm characteristics,

competitive environment and intensity of e-business adoption on performance. E-procurement

was considered one of the four elements of adoption intensity of e-business technology.

Performance outcomes are related to efficiency, sales performance, customer satisfaction, and

relationship development. It was shown that performance was improved due to e-business-based

communication and internal administration but not online order taking and e-procurement (Wu,

Mahajan, and Balasubramanian 2003).

Wu, Zdisin and Ross (2007) utilized the same data to analyze the impact on intensity of

e-procurement, along with the antecedents of top management emphasis, organizational learning

ability and normative pressures. The outcome measures were relationship development and

perceived efficiency gains. The use of coordination e-procurement applications was found to

have both direct and indirect effects on perceived efficiency gains, while transactional

application use can directly lead to efficiency gains (Wu, Zsidisin, and Ross 2007).

E-business technologies are utilized in a case study approach to document e-procurement

adoption and its benefits in Greek government (Panayiotou, Gayialis, and Tatsiopoulos 2004).

Johnson et al. (2007) presented the findings from a study of drivers and the outcomes of e-

business technology use in the supply chain. Their study examined the impact of the industrial

context, firm characteristics and firm-level strategic resources, such as purchasing teams, on the

exploitation of e-business technologies and the relationship between e-business technology use

and firm performance. A two-dimensional framework for e-business technology was proposed

with transactional and relational dimensions. Transactional technologies were further subdivided

into dyadic cooperation and price determination. Significant differences were found between the

two dimensions in terms of their overall levels of adoption, with dyadic coordination being the

30

most widely adopted. Finally, e-business technologies targeted at reducing dyadic coordination

costs were found to lead to improved financial performance. On the other hand, price

determination and private exchange in e-business technologies did not affect the firm’s financial

performance (Johnson et al. 2007).

In Devaraj et al. (2007), it was hypothesized that while e-business technologies may offer

no direct benefit to performance, these technologies might support customer integration and

supplier integration in the supply chain, which in turn might impact operating performance. It

was shown that there was no direct benefit of e-business technologies on performance; however,

these technologies supported customer integration and supplier integration. Furthermore,

supplier integration was found to positively impact cost, quality, flexibility, and delivery

performance; however, there was no significant relationship between customer integration and

performance (Devaraj, Krajewski, and Wei 2007).

Vaidyanathan and Devaraj (2008) explored the role of quality in e-procurement

performance. Using dynamic capabilities theory and a resource-based view, it was postulated

that online information and process act as resources that result in logistics fulfillment

capabilities. These capabilities in turn lead to satisfaction with e-procurement, which was the

performance measure. It was shown that information flow process quality, including online

information, and order procedures are positively associated with logistics fulfillment process

quality. Logistics fulfillment process quality, measured by fulfilled order accuracy and fulfilled

order timeliness, was seen to positively affect satisfaction with e-procurement performance

(Vaiduanathan and Devaraj 2008). It is found that the Internet did not increase the capability of

process efficiency, but it boosted the integration process capability in procurement (Ordanini and

31

Rubera 2008). Table 3 presents the summary of the literature reviews on e-business technologies

in a supply chain.

Table 3. Summary of literature review on e-business technologies in a supply chain

Articles

Description

Variables

Findings

Boyer

416

surveys

IV: Purchasing

Internet-specific factors had the

and

from customers

Company Factors

largest impact on purchasing

Olson

of an Internet

(Strategy and

(2002)

retailer of office supplies

Environment), Internet Factors (Internet specific and site specific) DV: Purchasing Performance

performance. Performance improved with Internet purchasing.

Wu et al.

Field interviews

IV: Firm

Intensity of e-business adoption had

(2003)

and 144

characteristics,

significant impact on performance.

responses from

Competitive

Communication in e-business

managers in

Environment,

adoption positively affected

technology

Intensity of e-

performance. Internal administration

firms

business Adoption (includes e- procurement) DV: Performance outcomes

in e-business adoption influenced customer satisfaction and relationship development.

Panayiot ou et al.

Case study of Greek

IV: E-procurement in government

The benefits of e-procurement are reduction of supply costs, reduction of

(2004)

government

purchasing DV: Outcomes and benefits

cost per tender, lead time saving and other intangible benefits.

Johnson

284

survey

IV: Purchasing

Dyadic coordination in e-business

et al.

responses from

Teams, E-Business

technologies positively affects return

(2007)

member firms of Purch. Mgt. Assoc. of Canada (PMAC)

Technologies, Purchasing Structure, Size and Sector DV: Firm performance

on assets and return on sales. However, price determination and private exchange in e-business technologies do not have significant relationship with ROA and ROS.

32

Articles

Description

Variables

Findings

Devaraj

120

responses

IV: E-business

Purchasing and collaboration in e-

et al.

from senior

capabilities

business capabilities are positively

(2007)

managers in

(customer,

associated with customer and supplier

various SIC

purchasing and

integration. Only supplier integration

codes

collaboration),

positively affects operational

Supplier

performance.

integration,

Customer

integration,

DV: Operational

performance

Vaidyan

131

surveys

IV: Information

Information flow process quality

athan

were received

flow process quality

including online information, order

and

from purchasing

(online information,

procedures is positively associated

Devaraj

managers

order procedures),

with logistics fulfillment process

(2008)

Logistics fulfillment process quality (fulfilled order accuracy, fulfilled order timeliness) DV: Satisfaction (e- proc. Performance)

quality including fulfilled order accuracy, fulfilled order timeliness. Logistics fulfillment process quality composed of fulfilled order accuracy, fulfilled order timeliness positively affects satisfaction of e-procurement performance.

  • 2.6. Supply Chain Integration

Supply chain integration has been emphasized in the past literature because it plays a critical role

in creating value for supply chain partners (Mitra and Singhal 2008; Watson and Zheng 2005).

Supply chain integration is defined as “the degree to which a manufacturer strategically

collaborates with its supply chain partners and collaboratively manages intra and inter-

organization processes” (Flynn, Huo, and Zhao 2010). The purpose of stimulating supply chain

integration is to coordinate the production process so that competitors cannot easily match the

resulting competitive advantage created (Anderson and Katz 1998; Lummus, Vokurka, and

Alber 1998). Other aspects of the benefits of supply chain integration are reduced inventory, lead

33

times, order delays and bullwhip effect as well as increased customer satisfaction (Sahin and

Robinson 2005; Mitra and Singhal 2008). Integration, information sharing and coordination

improved the ability of the supply chain to react to changes in a dynamic environment (Lee, So,

and Tang 2000). Figure 5 illustrates integration in the supply chain.

times, order delays and bullwhip effect as well as increased customer satisfaction (Sahin and Robinson 2005;

Figure 5. Integration in the supply chain adapted from (Frohlich and Westbrook 2001,

p.186)

Internal integration within the firms makes a positive, direct impact on both business and

operational performance. Customer integration affect positively and directly on operational

performance. Interestingly, supplier integration does not have a direct relationship with either

performance (Flynn, Huo, and Zhao 2010). It is important to approach internal integration and

supplier integration differently. In order to improve the performance, internal integration should

be facilitated first to promote the supplier integration (Das, Narasimhan, and Talluri 2006).

Supply chain integration has a positive influence on suppliers’ communication performance, but

not on suppliers’ operational performance (Cousins and Menguc 2006). More importantly,

internal integration affects positively the external integration with suppliers and customers. Both

internal and external integrations are significant antecedents of improving firm’s supply chain

34

agility (Braunscheidel and Suresh 2009). Figure 6 describes that extensive integration in the

supply chain improves the performance.

agility (Braunscheidel and Suresh 2009). Figure 6 describes that extensive integration in the supply chain improves

Figure 6. Arcs of the Integration adapted from (Frohlich and Westbrook 2001, p.187)

Supply chain integration is applied in a variety of contexts in manufacturing. In the

design perspective, external integration in design and internal integration in design process

positively affect firm’s performance (Droge, Jayaram, and Vickery 2004). In the integration with

global suppliers, supplier integration helps suppliers to have capabilities on process management

and performance management (Lockstrom et al. 2010). In the projects of developing new

products, integration with manufacturing and marketing helps to improve the project’s return on

investments (Swink and Song 2007). Supply chain integration has the moderating effect on the

relationship between product diversification and the performance and between international

market diversification and the performance. In other words, supply chain integration intensifies

the positive impact of product diversification on improving the performance. Supply chain

35

integration increases the positive effects of international market diversification on improving the

performance (Narasimhan and Kim 2002). In the context of joining the industry exchanges by

supply chain integration, investors in the stock markets react positively with announcements of

joining the industry exchanges. The market return shows abnormal returns, which added firm’s

values (Mitra and Singhal 2008).

In Frohlich and Westbrook (2001), supply chain integration was depicted to have three

dimensions: internal integration, customer integration and supplier integration. Supply chain

integration is divided by the supply chain integration of information and delivery in terms of

direction in flow: backward and forward. It was empirically confirmed that the greatest degree of

supply chain integration strongly relates with a higher level of performance (Frohlich and

Westbrook 2001). Likewise, in Braunscheidel and Suresh (2009), supply chain integration was

categorized into three ways: internal integration within the firms, external integration with key

suppliers, and external integration with key customers. Many factors affect internal supply chain

integration such as organizational culture and structure, informal and formal communications

among departments within the firm, facility layout, job rotation and cross functional teams

(Pagell 2004). This dissertation approached supply chain integration in terms of internal

integration of the focal firm, integration with suppliers.

Supply chain integration generates benefits on both suppliers and customer sides. On the

supplier side, greater information exchange with suppliers increased joint problem solving and

created efficient routines for accessing information (Eisenhardt and Martin 2000; Uzzi 1996).

Petersen et al. found that increased coordination with suppliers led to better design and financial

performance for both suppliers and buyers (Petersen, Handfield, and Ragatz 2005). Lawson et al.

(2008) confirmed that supplier integration promoted close personal relationships, closeness and

36

interaction as well as trust and respect with suppliers. In terms of customers, Vickery et al. (2003)

found that supply chain integration had beneficial impacts on customer service metrics. Because

integration with customers derives coordination with key customers, it is considered to be one of

the most important factors influencing competitive performance (Zhao et al. 2008).

  • 2.7. Organizational Culture

In the field of supply chain and operations management, there is a

gap in research on the

relationship between organizational culture and supply chain risk. This research examines how

organizational culture affects supply chain risk. A general definition of organizational culture is

an indoctrination of mind that distinguishes human members of one group from other groups

(Hofstede 1980). Organizational culture also refers to the beliefs and values which provide

foundations for management systems, practices as well as members’ behaviors (Denison 1990).

It is defined as “a pattern of basic assumptions—invented, discovered, or developed by a given

group as it learns to cope with its problems of external adaptation and internal integration—that

has worked well enough to be considered valid and, therefore, to be taught to new members as

the correct way to perceive, think, and feel in relation to those problems” (Schein 1985, p 9;

McDermott and Stock 1999, p 524). Obviously, organizational culture plays an important role in

affecting all aspects of organizations (Denison and Mishra 1995). Therefore, this research

anticipates that organizational cultures will influence supply chain risk and performance.

The study of Denison and Spreitzer (1991) described organizational culture in figure 1.

According to their research, organizational culture has two dimensions, represented by the

vertical and horizontal axes. At the high end of the vertical axis is flexibility, which can absorb

change in the organization, and at the low end of the vertical axis is control, which maintains

stability and order. At the left end of the horizontal axis is an internal focus, which maintains and

37

improves activities within organizations, and at the right end of the horizontal axis is an external

focus, which represents competition, adoption and interaction with the external environment.

As shown in Figure 1, these two dimensions form four major models in organizational

culture. Group culture is located in the quadrant of high flexibility and high internal focus. Its

characteristics include being open to change as well as concern and commitment to the internal

organization. Developmental culture is located in the quadrant of high flexibility and high

external focus. Its characteristics include being open to innovation, adaptation and support from

external organization. Hierarchical culture is located in the quadrant of high control and high

internal focus. Its characteristics include stability, control, measurement and information

management in internal organizations. Rational culture is located in the quadrant of high control

and high external focus. Its characteristics include accomplishment, productivity, direction and

decisiveness in external organizations (Denison and Spreitzer 1991).

38

Figure 7. The Competing Values Framework of Organizational Culture adapted from (Denison and Spreitzer 1991, p.12)

Figure 7. The Competing Values Framework of Organizational Culture adapted from (Denison and Spreitzer 1991, p.12)

Schein (1986, 1992) categorized three cultural aspects: artifacts, espoused values and

basic underlying assumptions. Artifacts are behaviors that people can see, hear and feel when

people face unfamiliar culture. Artifacts are the focus of operations management research

regarding organizational culture since they are visible. Espoused values become visible as people

think that their considered beliefs are right leading to their behaviors. These basic underlying

assumptions are perceptions and feelings that become the basis of values and actions.

39

Prior literature discussed market orientation and learning orientation as a cultural factor

in organizational performance and practices (Braunscheidel and Suresh 2009). Market

orientation focuses on creating behaviors to create the value for customers (Narver and Slater

1990). This research considers basic underlying assumptions as customer orientation because

supply managers’ perceptions and feelings based on their values and actions on serving

customers. It also focuses on espoused values of supply chain professionals to find out cultural

impact in their organizations. Because espoused values are regarded as the beliefs that members

of the organization hold, they are not visible (Nahm, Vonderembse, and Koufteros 2004). This

study investigates managers’ beliefs about supply chain.

  • 2.8. Business Environment and Characteristics

Since the business environment is viewed as an important source of organizational contingencies,

Ward et al. (1995) established three dimensions of the business environment. First,

environmental munificence represents the extent to which the business environment supports

organizational growth (Ward et al. 1995). Second, environmental dynamism represents

unexpected changes in environmental circumstances (Dess and Beard 1984). This concept is

similar to high velocity environments, which refers to discontinuous change in demand,

competitors and technology (Bourgeois and Eisenhardt 1988). Third, environmental complexity

represents the range of heterogeneity and range of organization activities (Child 1972).

Business environment is also considered part of business uncertainty, which has four

dimensions (Kocabasoglu, Prahinski, and Klassen 2007). Consistent with previous research,

munificence has a meaning of external environments which can support firms’ growth in their

industry (Dess and Beard 1984). Dynamism refers to the extent of change in design, technology

and customer preference of business environment (Achrol and Stern 1988). Hostility represents

40

the degree of competition and external control in the industry (Miller 1987). Heterogeneity refers

to the level of dissimilarity in the industry (Aldrich 1979). This study follows four dimensions of

business environment: munificence, dynamism, hostility and heterogeneity and integrate four

dimensions on two aspects: dynamic and competition. Therefore, this research focuses on

dynamic and competitive markets that firms face with and consider dynamic and competitive

markets as business environments.

Previous research has generally neglected to empirically test the influence of business

characteristics on supply chain integration and performance (Van der Vaart and Van Donk 2008).

Fischer (1997) argued that the effectiveness of supply chain management depends on various

business characteristics such as product life cycle and process. Business conditions can be

measured by market dynamics, the availability of a substitute product, changes in technology,

market maturity and product life cycle. In their study, they found that supply chain performance

differs based on the business conditions of product type (Ramdas and Spekman 2000). Other

business conditions, such as decoupling point, delivery time, process type, volume and variety

characteristics and order-winners are applied to examine the impact on supply chain integration

(Van Donk and Van der Vaart 2004). This dissertation research considers manufacturing

approaches such as pull and push, industry, globalization and firm size as business characteristics.

Business characteristics are considered as an internal factor of the firms. Because business

environment and characteristics are neglected in supply chain management, this research

emphasizes considerations of business environment and characteristics as they apply to risk

mitigating strategy. Figure 8 describes a framework of business environment and characteristics

and supply chain risks.

41

Figure 8. A Framework of Business Environment and Characteristics 42

Figure 8. A Framework of Business Environment and Characteristics

42

3.

Model Development

This section develops the basic conceptual model and a research model. In the first section, the

conceptual model is based on the analysis of the literature and a consideration of gaps in prior

research. This model is aimed at answering questions regarding the relationships between supply

chain management practices and supply chain risk as well as between supply chain risk and

performance. In the second section, a research framework is developed with full effects and

moderating effects. A research model with full effects describes a framework of supply chain

risk management which deals with supply chain practices, organizational culture, supply chain

risk and performance. A research model with moderating effects describes a framework of

supply chain risk management with an indirect impact from business environment and

characteristics.

  • 3.1. The Conceptual Model

Previous literature has suggested many strategies for mitigating supply chain risk. Because this

study identifies risk from three sources: internal risk, internal supply chain network risk and

environmental risk, this section begins with operations strategies for mitigating internal risk and

operational risk. Lewis (2003) delineate cause, control and consequences of operational risk

According to his research, every decision made by managers in operations management can

involve both beneficial and detrimental risk factors. In order to reduce adverse consequences,

operations managers needed to control all processes, which is impossible. He pointed out that too

much control can lead to fewer competitive advantages.

There are various risks existing in supply chains. Previous literature presents many

strategies to deal with supply chain risk. The study of Braunscheidel and Suresh (2009) applied

43

supply chain agility approach in order to deal with supply chain disruptions. According to their

study, supply chain agility and its antecedents give organizations the ability to respond quickly to

changes and disruptions in the market. They emphasized that internal and external supply chain

integration and external flexibility, such as mix and volume flexibility, positively affect a firm’s

supply chain agility, which can be used as an important tactic for responding to disruptions in

supply chain (Braunscheidel and Suresh 2009).

The study of Chopra and Sodhi (2004) introduced seven strategies for mitigating risk:

increasing capacity, acquiring redundant suppliers, increasing responsiveness, increasing

inventory, increasing flexibility, pool or aggregate demand and increasing capability. In their

study, they emphasized the role of managers because they had to understand and recognize

supply chain risks and determine how to adopt mitigating strategies that would work for their

organizations.

The research of Christopher and Lee (2004) suggested three strategies for eliminating

spiraling supply chain risk. First, information in supply chain should be accurate and visible.

More importantly, it should be accessible by all members of the supply chain so that they can

plan appropriately. Second, they need to be quickly informed when something is out of control.

Supply chain members can react quickly to minimize the variations of demand and supply. Third,

they need to take corrective actions in order to recover from disruptions with help of contingency

plans.

Craighead et al. (2007) suggested two mitigation capabilities: recovery capability and

warning capability. Recovery capability refers to interactions between supply chain entities and

the coordination of supply chain resources that speed recovery from disruptions. Warning

capability refers to the interaction and coordination of supply chain resources in order to detect

44

potential disruptions and give out information to supply chain entities that could help mitigate

risk.

Christopher and Peck (2004) pointed out the importance of risk assessment prior to

setting up risk mitigating strategies A good understanding of supply chain network and supply

base strategy is necessary for firms’ managers’ to have in order to set up proper strategies. They

then emphasized the importance of supply chain collaboration, such as information sharing and

supply chain agility, in supply chain networks. Figure 9 describes various approaches to mitigate

the risk in the supply chain.

45

Figure 9. Creating risk mitigating strategies in a supply chain adapted from (Chrsitoper and Peck 2004,

Figure 9. Creating risk mitigating strategies in a supply chain adapted from (Chrsitoper and Peck 2004, p.24)

The study of Faisal et al. (2006) listed eleven enablers of risk mitigation and established

an interpretive structural model for supply chain risk mitigation. In tier 1, collaborative

relationships, information sharing and trust among supply chain partners had interactive

relationships. Three enablers in tier 1 affected aligning incentives and revenue sharing policies

and knowledge about various types of risks in a supply chain in tier 2. Two enablers in tier 2

46

influenced cooperate social responsibility and strategic risk planning, which affected each other

in tier 3. Two enablers in tier 3 made an impact on risk sharing in the supply chain and

information security in the supply chain in tier 4. Two enablers in tier 4 affected continual risk

assessment analysis and agility in the supply chain in the final tier.

The research of Juttner et al. (2003) presented four mitigating strategies. The first