Supply Chain

A Conceptual Model of Supply Chain Risk Mitigation: The Role of Supply Chain Integration and Organizational Risk Propensity Yu, Yubing; Xiong, Wei; Cao, Yanhong . Journal of Coastal Research, suppl. Special Issue ; Fort

Lauderdale  Vol. SI, Iss. 73,  (Winter 2015): 95-98.

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ABSTRACT  

Supply chain risk management has drawn great attention from both researchers and practitioners in recent years.

Economic globalization and the resultant complexity of the supply chain network plus the uncertainty of the

environment makes risk and vulnerability a major challenge to related firms. This article aims to establish a

conceptual model for mitigating supply chain risk by introducing two variables named supply chain integration and

organizational risk propensity. Based on extensive literature review, some major propositions are proposed,

including the following four aspects: supply chain risk is negatively related to supply chain integration; supply

chain integration is positively related to company performance; organizational risk propensity moderates the

relationship between supply chain risk and supply chain integration; the integrative model is moderated-mediation.

The integrative model is theoretically valuable in further exploring the internal path and mechanism of the impact

of supply chain risk on a firm's performance. The model is also practically useful in providing suggestions and

references for supply chain risk management and supply chain integration. FULL TEXT  

Headnote

ABSTRACT

Yu, Y.; Xiong, W., and Cao, Y., 2015. A conceptual model of supply chain risk mitigation: The role of supply chain

integration and organizational risk propensity. In: Mi, W.; Lee, L.H.; Hirasawa, K., and Li, W. (eds.), Recent

Developments on Port and Ocean Engineering. Journal of Coastal Research. Special Issue, No. 73, pp. 95-98.

Coconut Creek (Florida), ISSN 0749-0208.

Supply chain risk management has drawn great attention from both researchers and practitioners in recent years.

Economic globalization and the resultant complexity of the supply chain network plus the uncertainty of the

environment makes risk and vulnerability a major challenge to related firms. This paper aims to establish a

conceptual model for mitigating supply chain risk by introducing two variables named supply chain integration and

organizational risk propensity. Based on extensive literature review, some major propositions are proposed

including the following four aspects: supply chain risk is negatively related to supply chain integration; supply

chain integration is positively related to company performance; organizational risk propensity moderates the

relationship between supply chain risk and supply chain integration; the integrative model is moderated-mediation.

The integrative model is theoretically valuable in further exploring the internal path and mechanism of the impact

of supply chain risk on a firm's performance. The model is also practically useful in providing suggestions and

references for supply chain risk management and supply chain integration. Finally, the future directions for

empirical research are also presented.

ADDITIONAL INDEX WORDS: Supply chain risk, organizational risk propensity, supply chain integration, firm

performance.

INTRODUCTION

Nowadays, as economic globalization develops, customers' demands are diversifying, information technology is

becoming more popular, and competition among firms is becoming fiercer. Competition plus unexpected market

changes make it necessary for firms to resort to supply chain to obtain complementary resources, capabilities and

technology. Therefore, supply chain is becoming a main element to forge core competence for firms, thus making

supply chain management a powerful weapon to tackle competitive challenges. When we take a close look at the

supply chain, we can see that it has undergone substantial changes for many reasons, such as the increasing

globalization, the increasing trend of outsourcing business, the significant shortening of products' life span

(Christopher et al., 2011) and the decreasing number of suppliers, etc. Moreover, as the structure of the supply

chain network is getting more complicated, the environment is becoming more changeable. This leads to an

increase in risk and vulnerability in the supply chain which is a common challenge to related firms. Empirical

studies also indicate that supply chain risk has a negative effect on company income (Hendricks and Singhal,

2005). Therefore, risk management is becoming the key issue in supply chain management.

In the global market, firms tend to cooperate with major suppliers and key customers in order to survive and

expand (Flynn, Huo, and Zhao, 2010; Frohlich and Westbrook, 2001; Zhao et al., 2008). As described in the vertical

integration theory, vertical integration can reduce uncertainty, and bring in benefits like information

communication, inner control synergy, transaction cost reduction, and relationship stabilization. Empirical studies

have showed that supply chain collaboration and integration, as the extension of vertical integration (Stonebraker

and Liao, 2006), is the key management strategy to reduce and deal with environmental uncertainty (including

risk), which plays a mediating role between supply chain risk and supply chain performance (Simangunsong,

Hendry, and Stevenson, 2012). Supply chain integration is also considered to be an effective strategy in mitigating

the risk of supply chain interruption, and has a direct positive influence on the formation of warning and recovery

capability of firms (Shao, 2013). In addition, from the perspective of organizational ability, supply chain integration,

as a key capability of firms for inner and outer coordination, has direct and indirect influence on a company's

performance (Huo, 2012). Therefore, as a mediator, supply chain integration is expected to affect the relationship

between supply chain risk and company performance. Although existing studies have discussed this to some

degree, they were not thorough enough and largely focused on discussing the relationship between concepts such

as supply chain risk and performance and supply chain integration and performance. Supply chain risk, supply

chain integration and performance as well as their relationship have not been included in a systematic framework.

Therefore, there is a need for further discussion, which is the main purpose of this study.

SUPPLY CHAIN RISK

Under the current uncertain environment, firms should improve their flexibility to overcome supply chain risk

(Braunscheidel and Suresh, 2009). The management of supply chain risk is especially important in view of the

increase in outsourcing business, global competition, stricter requirements for timely delivery, quick technological

changes and short product life span (Trkman and McCormack, 2009). The study on supply chain risk is attracting

more and more attention (Ellis, Henry, and Shockley, 2010; Zsidisin, 2003). However, most studies are conceptual

or descriptive whereas empirical study has only just begun (Christopher et al., 2011; Zsidisin, 2003). Research on

the relationship between supply chain risk and a firm's performance is rare. Most scholars believed that supply

chain risk would weaken the performance of firms and the supply chain (Chen, Sohal, and Prajogo, 2013; Ellis,

Henry, and Shockley, 2010; Hendricks and Singhal, 2005). However, (Chang and Thomas, 1989; Fiegenbaum and

Thomas, 1988; Jegers, 1991) argued that the relationship between risk and return was likened to a U-shape and

according to (Miller and Leiblein, 1996), the downside risk would bring the subsequent improvement of

performance. However, the theory set in the context of supply chain has rarely been discussed. According to the

Yerkes Dodson Law, if the supply chain is regarded as a super firm organization, the existing of supply chain risk

can bring incentive or pressure to firms within a certain range, which could motivate firms to take action, thus

improving the performance instead of hurting it. However, the firm's performance will be lower if the risk is beyond

the endurance capacity of the firm. Therefore, there is a critical point at which the influence of risk negatively

affects company performance. However, study is yet to be made to find that critical point. From the view of

organizational ability, this study tried to explain that supply chain integration also can be viewed as an advantage

which could help firms deal with risk and further improve their performance. Moreover, existing studies shows that

the coordination and collaboration among members of the supply chain can effectively ease the risk (Cheng, Yip,

and Yeung, 2011; Tang, 2006). This collaboration has also been included in the framework of risk management by

many scholars (Christopher and Peck, 2004). However, most studies were conceptual or descriptive. Only (Chen,

Sohal, and Prajogo, 2013) established and testified the conceptual model of "supply chain collaboration [arrow

right] supply chain risk [arrow right]supply chain performance". The study showed that supply chain collaboration

can effectively reduce supply chain risk. Therefore, supply chain integration is thought to be an effective strategy

in risk management, but it is yet to be uncovered how it will influence the performance of firms.

SUPPLY CHAIN INTEGRATION

Increasing global competition encourages companies to establish cooperative and reciprocal relationships with

their partners to obtain a competitive advantage (Wisner and Tan, 2000). A single firm should face new challenges

using supply chain integration (Frohlich and Westbrook, 2001; Zhao et al., 2008), which is pivotal in improving

performance and creating value (Frohlich and Westbrook, 2001) and has an important influence on the success of

firms and the supply chain (Huo, 2012; Power, 2005; Zhao et al., 2013). In general, the existing studies followed the

path of "antecedents [arrow right]supply chain integration[arrow right]performance". In the first part of the path,

many scholars pointed out that trust, commitment, information sharing, power, organizational structure and firm

culture were important positive factors for supply chain integration (Pagell, 2004; Vickery et al., 2003; Zhao et al.,

2008; Zhao et al., 2011). However, restraining factors were rarely discussed as the antecedents (Zhao et al., 2013),

which will be emphasized in this study. Only (Frohlich, 2002) studied the restraining factors of supply, demand and

internal dimensions among the implementation process of web-based supply chain integration. Reference (Richey

et al., 2009) regarded the failure of internal planning and external supervision as restraining factors. In the latter

part of the path, although many studies showed that supply chain integration was beneficial to the improvement of

firm and supply chain performance (Braunscheidel and Suresh, 2009; Flynn, Huo, and Zhao, 2010; Koufteros,

Cheng, and Lai, 2007; Swink, Narasimhan, and Wang, 2007; Zhao et al., 2011;), the results of these studies were

quite different (Flynn, Huo, and Zhao, 2010; Swink, Narasimhan, and Wang, 2007). There are many problems to be

solved in relation to the mechanism of supply chain integration (Flynn, Huo, and Zhao, 2010; Frohlich, 2002; Power,

2005; Zhao et al., 2011; Zhao et al., 2013). Reference (Zhao et al., 2013) put forward a framework of "supply chain

risk [arrow right]supply chain integration [arrow right]company performance", and found that supply delivery risk

was negatively related to supply chain integration while demand variability risk was not significantly related. The

study neglected internal risk which is one of the three focal dimensions, and the measurement of performance was

also relatively simple and not comprehensive.

ORGANIZATIONAL RISK PROPENSITY

Risk propensity is a pivotal concept in the field of risk management. It is closely related to risk decision and its

behavioral consequences. Risk propensity study on the individual level is mainly referred to as the existance of risk

and consequence that an individual is willing to bear (Sitkin and Pablo, 1992), which includes a scope of range,

from risk aversion (strong tendency to avoid uncertainty) to risk taking (strong tendency to explore uncertainty)

(Weber, Blais, and Betz, 2002). Existing studies mainly focus on testing the decision model of "risk

perception[arrow right]risk propensity[arrow right]risk behavior" (Sitkin and Pablo, 1992; Weber, Blais, and Betz,

2002). Meanwhile, some scholars proposed that study on risk decision could be extended to the organizational

level based on the firms' perception of uncertainty and decision tendency towards rewards or punishment (Sitkin

and Pablo, 1992; Weber, Blais, and Betz, 2002). So far, risk decision models on the organizational level have not

attracted much attention apart from the field of new product development (Forlani, Mullins, and Walker, 2002). In

addition, studies on the application of the risk decision model in supply chains were also difficult to find. Typically,

(Kocabasoglu, Prahinski, and Klassen, 2007) proposed the concept of an organization's risk propensity and defined

it as the likelihood of a firm's acceptance of less or more risky behavior over time. He also pointed out three key

factors on risk decision, namely, decision input (risk perception), a willingness to bear risk (risk taking) and the

result of the decision (risk behavior), which could also be applied to organizations. Reference (Ellis, Henry, and

Shockley, 2010) used risk management theory for reference to empirically test the impact path of "supply

environment[arrow right]supply interruption risk [arrow right] decision behavior" in the purchasing field. Moreover,

(Das and Joshi, 2007) found that risk propensity could moderate the relationship between differential strategy and

process innovation when the operation had strong autonomy. And (Kocabasoglu et al., 2007) figured out that

organization risk propensity played a mediating role between external environment uncertainty and supply chain

investment. To conclude, organization risk propensity had an important influence on organizational risk decision.

Although supply chain integration can help firms to deal with risk, whether firms decide to facilitate the integration

or not and its effectiveness are related to the risk propensity of firms. However, the studies obviously have not paid

enough attention to it.

CONCEPTUAL MODEL AND RESEARCH PROPOSITIONS

Based on reviews of the literature above, we propose an integrative conceptual model as shown in figure 1 and

give research propositions from the following four aspects.

First, supply chain risk is negatively related to supply chain integration. Second, supply chain integration is

positively related to company performance. Third, organizational risk propensity moderates the relationship

between supply chain risk and supply chain integration so that the negative relationship is weaker when

organizational risk propensity is high rather than low. Fourth, the integrative model is moderated-mediation. And

the mediating effect of supply chain integration on the relationship between supply chain risk and firm

performance is stronger when organizational risk propensity is stronger than weaker.

CONCLUSIONS

This study introduces the intermediate variable supply chain integration to open the black-box of the impact

mechanism of supply chain risk on company performance, and discusses the contingency relationship between

supply chain risk and supply chain integration considering the moderating effect of organizational risk propensity.

Thus, a conceptual model is established among supply chain risk, supply chain integration and firm performance,

which is theoretically valuable in exploring the internal path and mechanism of the impact of supply chain risk on

company performance. The mechanism of supply chain risk on company performance through supply chain

integration and organizational risk propensity can also help firms solve the problem of strategy choice under such

a risk. Therefore, the study provides practical suggestions and references for supply chain risk management and

supply chain integration practice.

What the study proposes is just a conceptual model based on which, follow-up studies can focus on the following

aspects: Firstly, empirically test how supply chain risk influences supply chain integration, and explore the internal

mechanism of supply chain risk on supply chain integration. Secondly, empirically test the relationship among

different dimensions of supply chain integration and firm performance, as well as between supply chain

integration and firm performance, clarifying how supply chain integration affect firm performance. Meanwhile,

according to the configuration approach, try to find the best pattern of supply chain integration through studying

the differences of influence that different integration patterns have on firm performance. Thirdly, examine the

moderating effect of organizational risk propensity on the relationship between supply chain risk and supply chain

integration as well as further clarify the relationship mechanism between supply chain risk and supply chain

integration. Lastly, verify the mediating role of supply chain integration and whether the integrative model is

moderated mediation.

ACKNOWLEDGMENTS

This work was supported by the Major Project of the National Social Science Foundation of China under Grant No.

12&ZD206.The authors are also grateful to Prof. Baofeng Huo for his continual guidance and encouragement

towards the research direction in supply chain management, and thanks for the contribution of Jing Zhao in

polishing.

References

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AuthorAffiliation

Yubing Yu[dagger], Wei Xiong[dagger], and Yanhong Cao[double dagger]*

[dagger]School of Management

Zhejiang University

Hangzhou 310000, China

[double dagger]Department of Economics and Trade

Anqing Vocational &Technical College

Anqing 246000, China

DOI: 10.2112/SI73-017.1 received 23 August 2014; accepted in revision 10 November 2014.

*Corresponding author: [email protected]

©Coastal Education &Research Foundation, Inc. 2015 DETAILS

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Subject: Supply chains; Competition; Logistics; Studies; Suppliers; Competitive advantage;

Collaboration; Globalization; Influence

Publication title: Journal of Coastal Research; Fort Lauderdale

Volume: SI

Issue: 73

Supplement: Special Issue

Pages: 95-98

Number of pages: 4

Publication year: 2015

Publication date: Winter 2015

Publisher: Allen Press Publishing Services

Place of publication: Fort Lauderdale

Country of publication: United Kingdom, Fort Lauderdale

Publication subject: Earth Sciences--Oceanography, Earth Sciences--Geology

ISSN: 07490208

Source type: Scholarly Journals

Language of publication: English

Document type: Feature

Document feature: References Diagrams

ProQuest document ID: 1668047670

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