Stephan M. Wagner Discusses Supply Chain Risk Management
New Hot Paper Commentary, May 2011
Article: Article Title: AN EMPIRICAL EXAMINATION OF SUPPLY CHAIN PERFORMANCE ALONG SEVERAL DIMENSIONS OF RISK
Article Title: AN EMPIRICAL EXAMINATION OF SUPPLY CHAIN
PERFORMANCE ALONG SEVERAL DIMENSIONS OF RISK
Stephan M. Wagner talks with ScienceWatch.com and answers a few questions about this month's New Hot Paper in the field of Economics & Business.
Why do you think your paper is highly cited?
The interest in supply chain risk has been fuelled by two developments. On the one hand, in order to gain competitive advantage and improve financial performance, companies aimed for increasing the efficiency and responsiveness of their supply chains. To do so, firms have gradually more outsourced manufacturing and research and development to suppliers, have sought to take advantage of low-cost country sources, have implemented just-in-time delivery concepts, or lowered the inventory of raw materials, components and finished goods. As a consequence, the complexity of supply chains increased, firms became more dependent on other firms in the supply chain, and there is less slack in the system to react to uncertainties. In general, supply chains became more vulnerable.
Global supply chains were affected by infrastructure and production breakdowns subsequent to the Japan earthquake.
On the other hand, unforeseen or difficult to predict events happening within a firm, a supply chain, or the environment seem to occur more often and be more severe. These range from over- or under-estimating the customer demand or shortages on the supply market for various raw materials to supplier bankruptcies during and after the financial crisis or natural catastrophes such as the eruption of the Icelandic volcano Eyjafjallajökull or the recent Japan earthquake.
Taken together, more vulnerable supply chains and higher uncertainty to cope with has urged firms to better understand their supply chains' exposure to risk and to implement measures that help them to mitigate and manage such risks. Given that our research was one of the first (even prior to the financial crises and some recent devastating natural catastrophes) to rigorously investigate the impact of supply chain risk on performance, it has urged other scholars to study supply chain risk management from various perspectives.
Does it describe a new discovery, methodology, or synthesis of knowledge?
The research presented in this article is based on a large-scale empirical survey of 760 industrial and service firms in Germany. As such, taking a positivistic, hypotheses-testing approach, it was one of the first to go beyond the hitherto more conceptual, anecdotal or case study-based descriptions of supply chain risk management. This was an important methodological advancement.
But the method is only a means to answer the research goals we had, namely to provide an operationalization of supply chain risk sources and to examine the pertinent link between the risk sources and supply chain performance. In sum, this article co-authored with Christoph Bode provides generalizable insights to guide academic research and decisions in corporate practice.
Would you summarize the significance of your paper in layman's terms?
Supply chain risks have a negative impact on supply chain performance. Therefore, it is justified that firms pay more attention to supply chain risks, and invest time and money for supply chain risk mitigation and management. While German firms operate in a "safer" environment with respect to high-impact risks, such as natural catastrophes, firms must pay closer attention to risks that surface from the demand side and the supply side of the supply chain.
A broader implication is that the initiatives that have enhanced the efficiency and responsiveness of supply chains have gone too far in some cases, because they came along with a higher exposure to risk.
How did you become involved in this research, and how would you describe the particular challenges, setbacks, and successes that you've encountered along the way?
Ash cloud of the Icelandic volcano Eyjafjallajökull caused shut-down of air traffic.
As often in business research, the interest emerged from discussions with practitioners. When I talked to businesses over the years, I realized that they felt that risk considerations should be included more intensively in their supply chain management decisions. However, many of these decisions were based on presumptions. Therefore, we felt that insights based on more generalizable data was needed to derive appropriate decisions. A setback is that we were only able to survey German firms.
Where do you see your research leading in the future?
I and my team will continue working on supply chain risks along several lines. This includes the modeling of complex supply chain networks and the interdependencies and interaction of firms in such networks in case of major and severe disruptions. For instance, the influence of the Japan earthquake on supply chains of automotive manufacturers and high-tech firms in Europe and the United States.
In other projects we are interested in the antecedents and consequences and the management of financially distressed or insolvent suppliers. Furthermore, we aim to answer questions such as: How do firms learn from supply chain disruptions they experience? Do they change the way they operate, or do they go back to "business as usual?"
Methodologically, shedding new light on supply chain risk requires interdisciplinary approaches. This is a challenge and a chance at the same time. In particular, we draw on psychology, for example to understand managers' risk perceptions and decisions; and on finance, to investigate the interdependence of supplier defaults.
Do you foresee any social or political implications for your research?
I expect that businesses will not only be more alert when it comes to supply chain risks. They must be willing to sacrifice a little on efficiency and responsiveness in order to make their supply chains more resilient to risks.
Stephan M. Wagner
Professor and Chair of Logistics Management
Department of Management, Technology, and Economics
Swiss Federal Institute of Technology Zurich (ETH Zurich)
KEYWORDS: CONTINGENCY THEORY, PERFORMANCE, RISK MANAGEMENT, STRATEGIC CHOICE THEORY, SUPPLY CHAIN MANAGEMENT, SURVEY, STRATEGIC MANAGEMENT, PERSPECTIVES, DISRUPTIONS, DECISIONS, GLITCHES, PRODUCT, VOLCANO, ICELAND, 2011 TOHOKU EARTHQUAKE.