RESEARCH PAPER

A case study approach for understanding inbound supplyrisk assessment

Kunal Ganguly

Published online: 26 October 2013

� Indian Institute of Management Calcutta 2013

Abstract The purpose of the research was to under-

stand the inherent questions related to supply risk and

its management. The task was to investigate how

organizations discover and assess the existing supply

risk to establish the extent of losses, the likelihood of

potential losses, and the significance of potential

losses. Case studies of six purchasing organizations

were conducted to investigate how those purchasing

organizations perceive and manage supply risk. The

case organizations defined perfect order in relation to

supply risk in terms of meeting complete and correct

order, defect free, and the financial effect. The

organizations implement supply management tech-

niques that focus on quality and supplier improvement

that had a secondary purpose to discover supply risk.

The research findings can provide supply managers

insights into techniques for proactively discovering

and assessing supply risk. A combination of some or

all of these techniques can be integrated for proac-

tively understanding the supply risk that exists, and the

potential impact that risk would have.

Keywords Supply risk � Perfect order �Sourcing � Supply risk management �Case study � Procurement

Introduction

Purchase and supply managements are widely

acknowledged as strategic for companies, because

they contribute to build and maintain a competitive

advantage (Hsu et al. 2006). The purchasing function

is no longer an operational function but a strategic

level decision. Different aspects underpinning the

concepts of risk and uncertainty emerge as new

distinctive features of supply chain management

(Christopher and Holweg 2011). To make a prudent

purchasing decision, it is important to plan for

uncertainty to mitigate risk. Supply chain risk man-

agement (SCRM) has been a growing field of interest

among researchers in the area of supply chain. Risk in

this field can be defined as the probability of danger or

disruptions that could obstruct a company in achieving

its planned objectives (Zsidisin et al. 2000).

The purpose of this study is to address some of the

gaps in the existing literature by investigating how

organizations discover, assess, and manage supply

risk. Supply risk exists virtually in every organization.

Organizations can explicitly recognize and manage

supply risk, make a cursory analysis of supply risk, or

may ignore it altogether. The objective of this research

is to provide initial insights into how supply risk is

K. Ganguly (&)

Indian Institute of Management, Kashipur 244713,

Uttarakhand, India

e-mail: kunal.ganguly@iimkashipur.ac.in

123

Decision (June–September 2013) 40(1–2):85–97

DOI 10.1007/s40622-013-0012-2

defined, discovered, assessed, managed, and further to

understand its implications. Case studies were

employed with a convenient sample of six organiza-

tions who actively work on supply risk reduction to

collect data pertaining to the research questions and

propositions. Case study data collected included face-

to-face interviews with key informants and archival

records. Based on the research questions raised,

propositions were placed and tested.

Supply chain risk management

The subject of risk in supply chain is gaining

importance in the recent years (Kleindorfer and Saad

2005; Chopra and Sodhi 2004; Chistopher and Lee

2004). Supply chain managers are interested in the

area of risk management because of the many

unexpected and unpredictable events that the firm

may face. Zsidisin and Ellram’s (2003) found that a

supplier’s failure to deliver inbound goods and

services can have a detrimental effect on the purchas-

ing firm and the supply chain. Chong and Chan (2011)

highlighted that any delays in the supply would

adversely impact the credibility and business potential

of the industry. The problems that firms face from their

suppliers are common viz. product shortage, delayed

delivery, supply disruptions, lack of logistics facilities,

etc. (Lin and Zhou 2011; Thakkar et al. 2011).

Hutchins (2003) views supply chain risk as caused

by areas external to the organization. Supplier uncer-

tainty as defined by Zsidisin et al. (2000) is the chance

a detrimental incident can occur with a specific supply

source. Zsidisin et al. (2004) look at supply chain risk

mitigation from the perspective of the purchasing

organization. Zsidisin et al. (2000) discuss supply

chain risk mitigation techniques in terms of tackling

issues arising from processes external to the organi-

zation. Oehmen et al. (2009) propose a system-

oriented approach in order to deeply investigate the

behavior of the supply chain, and thus, identify

concrete decisions that are more likely to be effective

in reducing risk. Tullous and Munson (1991) catego-

rize supply uncertainty by need, market, and supplier

uncertainty. Wu et al. (2006) pointed that most of the

existing research relies on a product-focused approach

and very few on supplier-focused approach. They

generated a comprehensive list of risk factors and

classified them in a hierarchical structure to identify

supplier-oriented risk factors. Micheli and Cagno

(2008) established a missing link between the supplier

selection and supply risk management.

Tang (2005) examined the various models and

summarized the manager’s attitude toward risk and

their initiatives for managing supply chain risk. On

analyzing the model he concluded that most managers

use various quantitative models and very few quali-

tative models but are not very comfortable with using

probability estimates. In the literature dealing with

risk management, risk has been viewed in different

contexts by different researchers. Tomlin (2006) has

viewed supply chain risk as mathematical construct,

whereas it has been viewed as conceptual construct by

Giunipero and Eltanway (2004) and Zsidisin and

Smith (2005). Klibi et al. (2010) concluded that most

published models related to supply chain risk produce

static optimal solutions that may not be robust in

dynamic environments and do not take resilience and

robustness into consideration in their objective func-

tion. With the contributions by Neiger et al. (2009),

Trkman and McCormack (2009) and Oehmen et al.

(2009), the consideration of risks in supply chains has

emerged, and consequently, the need to reduce the

increased level of supply chain vulnerability. Gaud-

enzi and Borghesi (2006) have looked at supply chain

risk as part of performance creation process, repre-

senting aggregate business performance as a function

of business objective. This was driven by perfect order

index for the creation of customer value. According to

Neiger et al. (2009), incorporation of risk into business

objective structure is yet to be implemented in the field

of SCRM.

Research methodology

Research question from the literature review

After thorough review of the related literature, it can

be observed that risk/uncertainty remains unaddressed

in supplier selection. In the literature, supplier selec-

tion and supply risk management are generally studied

separately with little linkage established between the

two issues. Zsidisin et al. (2004) noted that minimal

research has been conducted on how purchasing

organizations assess and manage risks that exist with

their suppliers. Little evidence has been found from

research that specifically focuses on reducing supplier

86 Decision (June–September 2013) 40(1–2):85–97

123

risks. Some studies explored supply risk management

approaches. However, the majority of these methods

react to a negative event. While adding extra safety

nets, such as increasing the inventory of raw materials

and finished goods can mitigate the impact of supply-

side disruption, it does nothing to reduce the supply-

side risks (Waart 2006). Kern et al. (2012) pointed out

that there is a lack of research about a structured

SCRM approach that involves the identification,

assessment, controlling, and monitoring of possible

risks within the supply chain. Except for a few

valuable points by Norrman and Jansson (2004) such

as improving risky operational processes both inter-

nally and in cooperation with suppliers, methods

focusing on removing or reducing supply risks are rare

in the literature. A better understanding on the

relationships between a set of strategies for managing

risk would provide interesting insights in the field of

SCRM (Hendricks et al. 2009). In particular, SCRM

strategies are justified only if supply chain risks

interfere with companies’ performances (Wagner and

Bode 2008). All this leads to the following research

question:

How to assess supply related risk and use it for

supplier selection purpose?

The objective of this research is to provide initial

insights into how supply risk is defined, discovered,

assessed, and managed and understand its implica-

tions. The purpose of this part of the research is to

investigate the underlying questions related to supply

risk and its management:

(1) How do organizations define supply risk and a

perfect order?

(2) How do organizations discover and assess supply

risk?

(3) How do organizations consider supply risk

management as part of objective of creation of

customer value driven by perfect order?

Case study

To gain empirical data, analyze, and evaluate the

research, case study method is used. According to

Eisenhardt (1989), case study is a research strategy

which focuses on understanding the dynamics present

within single setting. Case studies are deep investiga-

tions into a specific area or phenomenon in a real life

environment. The primary ways to collect data

according to Ellram (1996) are direct observations,

recordings and interviews. Eisenhardt (1989) argues

the use of archives, interviews, questionnaires, and

observations. As a mean for data collections, the main

techniques used in this research are interviews and

administered questionnaire. The interviews have

mainly been semistructured or unstructured. In this

case, accessibility to data, not only just interviews and

documents but also insights to the various actors

thinking and reasoning provided the much needed data

in the research process. When doing a case study

research, the researcher is interpreting the phenome-

non from his own frame of reference. The main

objective is not to get a perfect match between

empirical data and research results because this is not

possible or desirable. Instead, the main objective is to

illuminate the phenomena from the researcher’s

experience, knowledge, and give proposal how to

interpret the phenomena. According to Yin (1994a, b),

what can be generalized in a case study are the

methods and techniques. Other things that can be

generalized from a case study is explaining concepts

and describing labels that facilitate it for people to use

their own ability to think and understand in similar

settings.

Yin (1994a, b) suggests that ‘‘multiple cases’’

should be regarded as ‘‘multiple experiments’’ and not

‘‘multiple respondents in a survey,’’ and so replication

logic and not sampling logic should be used for

multiple case studies. That is, representativeness is not

the criteria for case selection (Stake 1994), rather the

guarded choice of each case should be made. In brief,

for qualitative research like the case study methodol-

ogy, the selection of cases is purposeful and involves

using replication logic and largely depends on the

conceptual framework developed from prior theory.

Regardless of the case selection strategies that are

used, the underlying principle that is common to all of

these strategies is selecting information-rich cases that

are worthy of in-depth study (Patton 1990). This issue

of information richness is fundamental to deciding on

the number of cases. There are no precise guides to the

number of cases to be included. Some authorities on

case study design have used their experience to

recommend a range within which the number of cases

for any research should fall. For example, Eisenhardt

(1989) suggests between four to ten cases. There are

somewhat different views in this regard. Some

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123

advocate a minimum of two, but the usual view is that

‘‘in practice four to six cases probably form a

reasonable number for a serious project’’ (Hedges

1985).

Overview of research method and analysis

There have been few studies specifically examining

how purchasing organizations manage supply risk.

This study gathered data from purchasing organiza-

tions in process and engineering industries to gain an

understanding of how those firms define, discover,

assess, and manage supply risk. Case studies were

employed with a convenience sample of six organi-

zations who actively work on supply risk reduction to

collect data pertaining to the research questions and

propositions. Case study data collected included face-

to-face interviews with key informants and archival

records such as risk assessments and supplier certifi-

cation standards (Ellram 1996; Yin 1994a, b).Validity

and reliability were addressed throughout the entire

study by using multiple sources of evidence, having

key informants review the draft case study reports,

conducting pattern-matching and explanation build-

ing, and using the case study research protocol.

Research propositions

The research propositions were based on the

research questions of how purchasing organizations

define, discover, assess, and manage supply risk.

Defining a perfect order and supply risk was

investigated by determining how purchasing organi-

zations and supply management professionals under-

stand them. Discovering and assessing supply risk

was examined by evaluating the techniques that

purchasing organizations implement to understand

threats to inbound supply. Managing supply risk was

investigated by obtaining information into the tech-

niques purchasing organizations implement in

response to perceived supply risk. Table 1 provides

the propositions that define, discover, assess, and

manage supply risk.

Defining supply risk proposition

Proposition 1 Purchasing organizations define per-

fect order in relation to supply risk according to its

effect on firm performance.

The major objective of the firms is creation of

customer value. All firms encounter risk with supply,

whether recognized and managed, or ignored. Supply

risk can pose a recurring threat for many firms because

it can have a significant detrimental effect on a firm’s

ability to meet customer demand. Organizations define

risk in various ways according to context and industry

characteristics (Baird and Thomas 1990). Each con-

text affects the organization’s perspective of risk. For

example, marketing may define risk according to its

distribution function, and the purchasing organization

Table 1 Research questions and propositions

Research questions Proposition

number

Related propositions

How do organizations define a perfect

order with relation to supply risk?

P1 Purchasing organizations define perfect order with

relation to supply risk according to its effect on firm

performance

How do organizations discover supply

risk?

P2 Purchasing organizations use various techniques to

discover supply risk

How do organizations assess supply risk? P3 Purchasing organizations use various techniques that

measure the significance and occurrence of supply risk

How do organizations manage supply risk

as an objective of creation of customer

value driven by perfect order?

P4 The extent to which purchasing organizations manage

supply risk is positively related to the perceived

degree of supply risk. Managing supply risks

improves the accuracy of the perfect order as

measured by supply risk frequency and impact

What are the implications of supply risk

management on supplier selection?

P5 The extent to which purchasing organizations considers

supply risk while doing supplier selection is related to

the strategic importance of the items

88 Decision (June–September 2013) 40(1–2):85–97

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may define risk according to its effect on inbound

supply.

Proposition 2 Purchasing organizations use various

techniques to discover supply risk.

Purchasing organizations may use a number of

techniques to discover supply risk, such as analyzing

historical records, visiting suppliers, and monitoring

the supply market. This study examined the techniques

organizations use to discover supply risk.

Proposition 3 Purchasing organizations use various

techniques that measure the significance and occur-

rence of supply risk.

Two elements of risk are significance and uncer-

tainty. Yates and Stone (1992) have argued that one

common assumption of researchers and laypersons is

that the more significant the potential losses in a

situation, the greater the implied risk. In addition,

some degree of uncertainty is inherent in the concept

of risk. This part of the study analyzed the supply risk

assessment techniques used by purchasing

organizations.

Propositions 4 The extent to which purchasing

organizations manage supply risk is positively related

to the perceived degree of supply risk.

There are various methods that purchasing organi-

zations can implement to manage supply risk. The

management efforts proposed in this research in

response to supply risk are related to supplier

selection.

Proposition 5 The extent to which purchasing

organization considers supply risk, while doing sup-

plier selection is related to the strategic importance of

the items.

Supplier selection-based on detailed assessment of

risks requires a lot of effort on management side. So

this is proposed to only be appropriate for managing

supplier risk associated with strategic goods and

services. This management strategy often results in

process improvements (Choi and Liker 1995), either at

the supplier’s facilities or in the delivery of goods or

services. Purchasing organizations rarely have the

human or financial resources to engage in these efforts

with all their suppliers. Therefore, management efforts

were studied as a strategy for managing supplier risk

associated with strategic goods and services.

Implementing the research design

Case studies were conducted with limited set of

purchasing organizations involved in some form of

supply risk management. The execution of the case

studies is discussed first. Several units of analysis were

used in the case studies according to the research

questions.

Unit of analysis

As the goal of the first research proposition was to

investigate how purchasing organizations define per-

fect order and associated risk, the purchasing function

was the unit of analysis. Purchasing professionals

were asked how their organizations define a perfect

order and supply risk. If a formal organizational

definition of supply risk did not exist, then the

researcher asked how that individual defined them.

The unit of analysis for discovering and assessing

supply risk was the individuals or cross-functional

team perspective of conducting supply risk assess-

ments. For example, many firms may create cross-

functional teams to discover supply risk and to initiate

assessments that determine the probability and sever-

ity of that risk. Cross-functional teams for discovering

and assessing supply risk can consist of personnel

from areas such as accounting, finance, legal, manu-

facturing, materials management, marketing, product

design, and purchasing. Purchasing professionals may

or may not lead these teams. By interviewing cross-

functional team members, the researcher was able to

uncover what these teams do, who takes the lead and

when, and other information pertinent to understand-

ing how supply risk is discovered and assessed.

Purchasing organization efforts to reduce the occur-

rence and effects of supply failures were the unit of

analysis for managing supply risk. Activities such as

developing suppliers, forming strategic alliances,

determining internal inventory levels, and creating

contingency plans were investigated as supply risk

management techniques.

Sources of evidence

Multiple sources of evidence were gathered in the

research. Yin (1994a, b) has discussed six primary

sources in case study research: (1) documents, (2)

archival records, (3) interviews, (4) direct observation,

Decision (June–September 2013) 40(1–2):85–97 89

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(5) participant-observation, and (6) physical artifacts.

The primary evidence obtained in the research was: (1)

risk assessment matrices and charts, (2) archival

records such as supplier development checklists and

supplier certification standards, and (3) interviews

with key personnel from supply management, mate-

rials management, engineering, quality, and strategy.

Evidence of supply risk from direct observation,

participant observation, and physical artifacts was

not available to the researcher.

Validity and reliability

It is necessary to address construct, internal, and

external validity, and reliability, throughout the case

study research (Ellram 1996; Yin 1994a, b). Construct

validity is the degree to which both independent and

dependent variables reflect the constructs. Construct

validity tests whether the research measures what it is

supposed to measure. Internal validity focuses on the

extent to which conclusions can be drawn for causal

effects. External validity, on the other hand, deals with

whether the research results can be applied to the

populations and settings of interest. Reliability exam-

ines whether a replication of the study will achieve the

same results (Ellram 1996). Case study tactics and

brief descriptions of their implementation to address

threats to validity and reliability presented in Table 2.

Case study organizations

The earlier discussions support the contention that

identifying and developing proactive approaches is

desirable for companies to manage their supply-side

risks. In order to achieve that first hand information of

companies dealing with multiple suppliers and dealing

with supply risk is useful. Therefore, a multiple case

study approach is employed in this study. This

approach, compared to a single case study, strengthens

the results by replicating the pattern matching, thus

increasing confidence in the robustness of the research

finding. Each case study consists of a whole study in

which facts are gathered from various sources and

used in models applied.

Case studies were conducted with six purchasing

organizations. All these organizations were involved

in outsourcing of various items ranging from raw

materials, products, operating supplies etc. Many of

them were regularly facing supply related risks. All

case companies differ in sizes, product produced,

length of sourcing experience, and level of available

procurement resources. These contribute to the appli-

cability of research findings. Six case studies in a

multiple case study analysis are a manageable number

under this scaled research and are sufficient to

generate useful results. The case study method is used

to generate ideas by investigating a situation in depth.

It is not used for total generalization; otherwise, a

statistical analysis should be used, and ideas or

hypothesis are tested using a larger sample size. It

does not need all the six companies to follow the same

practice. If a result is supported by more than two of

these six companies and no contradictory results are

discovered,then the result is proven valuable and can

be considered for sharing.

Interviews were conducted in all six companies.

The interviews covered the following aspects using

open questions: sourcing strategies/methods used,

main factors and criteria used to evaluate and select

suppliers, the supplier selection process used,

Table 2 Validity and reliability

Test Tactic Implementation

Construct validity Use of multiple sources of evidence

Establish chain of evidence

Have key informants review

draft case study report

Conducted interviews with a minimum

of three personnel from each firm

Had key informants review individual

case study write-ups and draft tables

Internal validity Do pattern-matching

Do explanation building

Investigated patterns such as by

industry and unit of analysis

Examined relationships between supply risk, supply risk

management, and achievement of perfect order

External validity Use replication logic in multiple-case studies Conducted case studies with six purchasing organizations

Reliability Use case study protocol Implemented case study protocol with all firms

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problems experienced, methods developed and

applied in managing these problems, and the devel-

opment of relationships with suppliers. Three of the

companies were from process industry and three from

engineering industry. They are named here as P1, P2

and P3 for three companies from process industry, and

E1, E2 and E3 for the three companies from

engineering industry.

Analysis and findings

To address the first proposition, it was important to

understand how the case organizations define supply

risk. It was found that the majority of firms in this

study do not currently have formal definitions for

perfect order and supply risk. However, each of the

respondents from those firms had strong conceptions

of what supply risk means to their organizations and

how it hampers achievement of a perfect order. Case

study participants provided definitions of supply risk

in terms of its sources and outcomes. The sources of

supply risk were defined in terms of individual

suppliers. The outcomes of supply risk were under-

stood by the inability to meet customer requirements.

The sources of supply risk arise from individual

suppliers. The individual supplier sources that define

the scope of supply risk were the inability to handle

demand fluctuations, quality problems and inability to

stay in pace with technological changes. The scope for

defining supply risk also consists of negative out-

comes; specifically being unable to meet customer

requirements. All the firms understood supply risk in

terms of meeting customer requirements, which can

result in the loss of customer business and detrimen-

tally affect revenues and profits. The organizations did

not have formal definitions of perfect order and supply

risk which are communicated throughout their

organizations. But the two common themes of sources

and outcomes emerged in their conceptualizations of

supply risk.

The second and third proposition was related to

how the organizations discover and assess supply risk.

There are various methods that purchasing organiza-

tions pursue to discover and asses supply risk. These

formal assessment techniques were specifically cre-

ated by two purchasing organizations to understand

the impact and likelihood of supply risk occurrence.

These supply management tools not only focus on

quality, supplier improvement, and supply interrup-

tion, but also serve a secondary function of discover-

ing supply risk. The two (P2, E3) of the six firms in this

study have formally integrated supply risk assessment

procedures in their purchasing organizations. The

other four organizations do not have systematic

procedures for conducting supply risk assessments

because the concept of supply risk is just emerging. In

addition, organizations such as P1 and E2 are currently

evaluating methods for formally assessing supply risk.

Even though four of the case study organizations did

not have formal risk assessment techniques in place,

individual case study participants at these firms

indicated they do discover supply risk as a secondary

outcome of implementing supply management tools.

The supply management tools presented have a

primary focus on quality, supplier improvement, and

supply interruption. These tools have as a secondary

function of discovering supply risk. Each of these tools

is discussed below and found in Table 3.

Case study participants stated that there are several

tools focusing on supplier process improvement that is

also used to discover supply risk. The supplier process

improvement tools noted include communicating with

suppliers, developing and certifying suppliers, and

analyzing total cost of ownership information. There

are techniques used by the case study firms to avoid the

Table 3 Risk discovery tools as discussed by case study firms

P1 P2 P3 E1 E2 E3 Frequency

Having suppliers conduct self-assessments X X 2

Conducting supplier self-release audits X X 2

Certifying designated quality representatives X 1

Communicating with suppliers X X 2

Developing and certifying suppliers X X X X X 5

Analyzing total cost of ownership X 1

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effects of supply interruption. This includes creating

developing demand forecasts. There was no clear

distinction presented by the case study respondents

between supply risk discovery and supply risk assess-

ment. However, the case study data analysis revealed a

difference in the approach purchasing organizations

take for understanding inbound supply risk. The two

organizations that have formal supply risk assessment

processes in place created standardized techniques for

understanding the likelihood and impact of supply risk

and manage it accordingly. The formal assessment

processes are proactive approaches that specifically

look for supply risk. From conducting supply risk

assessments, these organizations are able to discover

in advance the supply risk that exists. The other four

purchasing organizations in this study do not have

formal risk assessment processes. By definition,

therefore, they do not conduct risk assessments.

Supply risk is discovered either ‘‘after the fact’’ or as

a by-product of the use of supply management tools. In

response to the question on how supply risk is

identified, the organizations without formal risk

assessment tools were able to describe numerous

supply management techniques used throughout their

organizations that function secondarily to discover

supply risk. The tools that are used to discover supply

risk focus on quality, supplier improvement, and

supply interruption. When supply risk is discovered,

these organizations are then able to assess that risk for

its likelihood and impact. It was observed that the risk

assessment involves the implementation of a formal

tool that purchasing organizations put into service in

order to discover and understand the significance and

impact of supply risk.

This subsection deals with various supplier risk

elements that affect the perceived supply risk associ-

ated with strategic items. In the research, it was found

that supply risk is classified by various supplier risk

elements. A list of all of the supplier risk elements and

their explanation discussed by case study participants

is provided in Table 4.

A summary of the supplier risk elements discussed

is provided in Table 5. It can be observed that the

major supplier risk elements faced by the case

organizations are Inability to reduce cost quality

problems, order completeness, delay in delivery, and

order correctness.

The fourth proposition relates to risk management

techniques and it was found that the firms involved in

case studies implement various supply risk manage-

ment techniques in response to perceived supply risk.

The management efforts frequently used to reduce

supply risk were certifying suppliers, developing

suppliers, forming strategic alliances, holding extra

inventory, establishing electronic information sys-

tems, and implementing quality management pro-

grams. The common factor underlying these

management techniques is good communication via

frequent flow of information between the buying and

supplying organizations. Certifying suppliers and

implementing quality management programs are often

used as part of an overall supplier development

program. Implementing integrated information sys-

tems facilitates communication flow and coordination,

which reduces risk. A list of all management tech-

niques discussed by case study participants in response

to supply risk is provided in Table 6.

This subsection deals with the performance impli-

cations of supply risk management. There was few

supply risk management performance measures dis-

covered in the research because most of the case study

firms have not formally developed and integrated risk

assessment and measurement processes. Most of the

risk management performance measures that were

mentioned are primarily used to measure other busi-

ness processes, such as supplier quality. Evaluating

suppliers based on risk performance is considered

when the focus is on supplier performance. Supplier

evaluations are often based on performance measured

by factors such as quality and delivery. If supplier

performance is considered poor, then the purchasing

organization can decide to either reduce the quantity

of business with that supplier or eliminate that supplier

and find an alternative supply source. For example, E3

has a formal supplier evaluation process that includes

supplier risk incidents. If suppliers have frequently

occurring risk incidents, which are noted in supplier

evaluations, then those suppliers are not retained.

Managerial implications

The research involved an empirical investigation

using case study research to understand how purchas-

ing organizations define, discover, assess, and manage

supply risk, and to examine the performance implica-

tions of those risk management efforts. Case studies

92 Decision (June–September 2013) 40(1–2):85–97

123

were used in this research to identify new empirical

relationships within a limited set of companies.

The effort was to answer the research questions in

‘‘Research question from the literature review’’ sec-

tion. The first two research questions, explored how

purchasing organizations define perfect order in

relation to supply risk, and the processes these

organizations implement to discover and assess that

risk. The third research question examines the tech-

niques purchasing organizations use to manage supply

risk and understand how these organizations are able

to use it as an objective of creation of customer value

driven by perfect order.

The research propositions section presents the

research findings regarding the way purchasing orga-

nization define, discover, assess, and manage supply

Table 4 Supplier risk elements discussed by case study firms

Risk elements Description

Capacity constraints Two of the case organizations reported that products not available due to supplier production

capacity constraints. Fluctuations in demand resulted for uncertainty of the suppliers in terms of

capacity. This was attributed either due to equipment constraint or the number of available labor.

Suppliers were not able to adjust to demand changes due to inability to obtain necessary inputs.

The change taxed the suppliers because of factors such as their plant size, capital equipment or

training personnel

Inability to reduce cost Three purchasing firms realized the risk, when their suppliers were unable or unwilling to reduce

cost. Suppliers have bottlenecks within their operations that lengthen the time from receipt of a

customer order to delivery of products. Lengthy cycle times poses risk to purchasing

organizations in terms of increase in cost

Disasters Disasters in terms of foreign supply were cited by one of the case organizations

Equipment failures Failure of key equipment of the supplier resulted in supply disruption for E1

Financial health of supplier P2 and E2 reported that the financial stability of few of their suppliers portrayed by factors like

cash flow, profit & loss statements, posed a risk for them

Incompatible information

systems

P3 and E2 cited that information systems at supplier facilities that were not compatible with their

organization created inaccuracies or barriers to information sharing. This resulted in delayed and

inaccurate transfer of relevant information, such as shipment quantities, delivery times, and

prices

Legal liabilities E3 often faced the issues of legal liabilities specially regarding import/export restrictions and tax

issues for their foreign supplies

Process technological changes E1 and E3 cited that the inability of their suppliers to stay abreast of technological changes have a

negative effect on cost, the competitiveness of products, and lead-times

Product design changes Along with process technological change, the design change in products for E1 and E3 also

necessitates that suppliers make modifications to raw materials or sub-assemblies. The inability

to do so results in supply risk for the organizations

Quality problems Most of the case organizations felt that Quality related risk causes significant detrimental effects

on their operation. This happens mainly due to failure of suppliers to maintain their capital

equipments, lack of supplier training in quality principles and techniques, and damage that

occurs in transit

Second and third tier supplier

management

Failure to manage their own suppliers well resulted in major supply problem for the suppliers of

E3

Order completeness Four of the case organizations faced the problem of shipment quantity inaccuracies which

constitute a gap between the number of items that purchasing organizations expect to obtain and

the actual quantity of items it receives from suppliers. Sometimes suppliers prefer deliberate

delivery of an incomplete order rather than being late with the full order

Delay in delivery Most of the case organizations reported problem with delayed delivery. This can be attributed to

unforeseen events that affect the process, the nature of the demand and the reliability of the

order cycle

Order correctness This was found to be a considerable problem for the case organizations in terms of billing errors,

data entry errors and delivery related errors by the suppliers. Change in volume and mix

requirements because of the change in demand were one of the major reason for this problem

Decision (June–September 2013) 40(1–2):85–97 93

123

risk, as well as the implications of those supply risk

management efforts. First, the three propositions

investigating how purchasing organizations define,

discover, and assess supply risk are discussed. The

propositions on supply risk management are then

presented.

The first proposition was related to defining perfect

order in relation to supply risk. The scope of supply risk

was defined in terms of perfect order from individual

supplier; outcomes which include the inability to meet

customer requirements in terms of quality, time, cost,

and order completeness/correctness. Therefore, the

research findings do lend support for PI. Supply risk is

a multifaceted concept, since its scope includes risk

sources and outcomes. In addition, the scope for

understanding supply risk differs according to industry.

The second proposition was related to discovering

supply risk. The case study findings indicated that

Table 5 Summary of supplier risk elements discussed by case study firms

P1 P2 P3 E1 E2 E3 Frequency

Capacity constraints X X 2

Inability to reduce cost X X X 3

Disasters X X 2

Equipment failures X 1

Financial health of supplier X X 2

Incompatible information systems X X 2

Legal liabilities X 1

Process technological changes X X 2

Product design changes X X 2

Quality problems X X X X 4

Second and third tier supplier management X 1

Order completeness X X X X 4

Delay in delivery X X X X X 5

Order correctness X X X 3

Table 6 Management techniques discussed in response to supply risk

Risk management techniques P1 P2 P3 E1 E2 E3 Frequency

Centralizing supply management X X 2

Hedging of foreign currency X X 2

Bank guarantees taken for large orders X 1

Certifying suppliers X X X X X 5

Conducting supplier performance ratings X X X 3

Insurance of deliveries X X 2

Creating contingency plans X 1

Creating contractual mechanisms X X X 3

Designating supplier quality representatives X 1

Developing suppliers X X X 3

Establishing electronic information systems X X 2

Forming strategic alliances X X X X 4

Having multiple supply sources X X X X X 5

Holding additional inventory X X X X X 5

Investing in e-procurement activities X X 2

Promising future business X X 2

94 Decision (June–September 2013) 40(1–2):85–97

123

purchasing organizations implement various supply

management tools that have a secondary purpose to

discover supply risk, thus supporting proposition P2.

These supply management tools were categorized by

quality and supplier improvement. Even though these

tools are primarily used to achieve other supply

management objectives, they also have a secondary

purpose for discovering supply risk, thus supporting

proposition P2.

The third proposition was related to assessing

supply risk. Supply risk assessments measure the

significance and uncertainty of the supply risk that can

occur, providing support for P3. Two of the organi-

zations have implemented formal risk assessment

processes that were created with the specific purpose

of assessing and eventually management of supply

risk.

The fourth proposition was related to managing

supply risk. The purchasing organizations in this study

engage various techniques for managing supply risk.

However, these risk management efforts are not

implemented as an objective of creation of customer

value driven by perfect order. There was support for

the overall supply risk management proposition (P4),

which states, ‘‘The extent to which purchasing orga-

nizations manage supply risk is related to the

perceived degree of supply risk,’’ because the case

study respondents did increase the use of several

techniques to manage a higher perceived degree

supply risk.

The fifth proposition was related to the implications

of supply risk on supplier selection. The proposition

investigating the relationship between supply risk and

supplier selection was not supported. No relationship

was found in the case studies between the measure of

risk and supplier selection. It was generally observed

that the managers considered risk related data to be

insufficient or vague specially related to relatively rare

events. Thus, reliance on such data for objective rating

of supplier was avoided.

Summary and findings

SCRM was noted to be unstructured area in most of the

case organizations. A unifying strategy laying out

organizational responsibilities, incorporating definite

supply risk identification strategies had not been

formulated in most of the organizations. However, in

order to resolve the control problems with their

suppliers, the case companies have taken certain steps.

They are now giving more emphasis on criterion like

quality, delivery, technical, financial, and capacity

levels for their supplier selection. These were reflected

by the introduction of supplier selection questionnaire

by three case organizations. The questionnaires were

supported by technical reviews and risk mitigation

plans. A special emphasis was given on increasing

communication. In terms of quality issue experienced,

three of the case companies have applied strict part

qualification process to enforce their quality require-

ments with their suppliers.

An interesting observation from the studies is that

no distinct differences were found as far as risk

management practices by process and engineering

industries are concerned. Therefore, the observations

are generalized irrespective of nature of the

organizations.

In spite of the actions taken by the case companies,

they recognized that there are risk consequences

related to quality, delivery, and lead time. The

performance of many suppliers did not meet these

purchasing companies expectation in relation to

operations performance objectives. Lower quality

level and longer lead times than initially agreed with

their suppliers leading to late delivery were experi-

enced by all these case companies. Along with other

complications, this resulted in higher costs than initial

estimates predicted. Two of the companies (E1 and

P2) emphasized that the final cost was higher than

forecasted. The cost increase was due to number of

factors including: low estimates by suppliers due to

misunderstanding of the contract; higher than

expected transportation costs; and problems experi-

enced with low quality and late delivery. The majority

of the case study companies discovered that their

suppliers experienced the following issues within their

own firms: capacity issues, technical capability issues,

and management issues of their own suppliers. The

possible reason for the pitfall was due to insufficient

investment by the case companies in supplier rela-

tionship development activities. The poor relationship

was actually due to ineffective supplier selection

process and risk management methods used for

supplier selection. All of the case study, organizations

were having the practice of ranking suppliers based on

different criteria as discussed. This was especially

important for strategic components having multiple

suppliers. Most of these ranking were based on two

Decision (June–September 2013) 40(1–2):85–97 95

123

factors: the importance weight of the attributes and

supplier’s performance with respect to these attributes.

Both these factors are decision maker specific and

have to be solicited from the individuals. Also, they

were not very comfortable to elicit risk factors in

numeric terms. The main difficulty with such an

elicitation procedure is that the subjectivity and

imprecision associated with perceptions are lost by

forcing the decision maker to use numeric scales.

Conclusions

This research used case studies to investigate how

supply risk is defined, the techniques implemented to

discover and assess risk, how supply risk is managed,

and the implications and measures for supply risk

management. The contributions are discussed in terms

of defining supply risk, discovering/assessing supply

risk, and categorizing and managing supply risk.

The study has shown how purchasing organizations

engage in supply management activities that focus on

quality, supplier improvement, and supply interrup-

tion, which have a secondary purpose to discover

supply risk. This study found several supplier risk

elements that affect supply risk perceptions. These are

important for developing an understanding when

supply can become a risk to organizations. This

research found that perceived supply risk does have an

effect on how inbound supply is managed. Different

techniques that purchasing organizations implement

to manage supply risk were discussed, such as

certifying suppliers, developing suppliers, and imple-

menting and using information systems.

There are several implications for practice from the

research findings. Three useful outcomes of this

research are the identification of assessment tech-

niques that can be used for understanding supply risk,

classification of supplier risk elements that affects

supply risk perceptions, and a framework of manage-

ment techniques in response to supply risk. The

research findings can provide supply managers

insights into techniques for proactively discovering

and assessing supply risk. The supply risk discovery

and assessment tools can provide purchasing profes-

sionals early warning indicators of potential supply

problems.

This research study has its limitations. There are

limitations in having few firms and industries to

examine. When investigating a small number of firms,

it is difficult to make strong inferences for substanti-

ating external validity. In addition the case studies

were conducted only with engineering and process

firms. Organizations that provide services to custom-

ers may also understand and manage supply risk

differently than manufacturing-based firms. A second

research limitation was that most case study respon-

dents discussed supply risk management under the

assumption that their organization had influence in

their relationships with suppliers. Different percep-

tions of supply risk may exist if purchasing organiza-

tions have lesser influence over their suppliers. A third

research limitation was that the scope of the research

was narrow. Supply risk was investigated only at one

link in the supply chain, from supplier organizations to

the purchasing firm. However, supply risk can orig-

inate from many sources in a supply chain. For

example, second-and third-tier suppliers to a purchas-

ing firm can cause supply disruptions that have a

subsequent detrimental effect on an entire supply

chain.

Future research can involve implementing a survey

instrument of supply risk management. Future

research can be done for determining if a cause–effect

relationship exists between implementing supply risk

management techniques, and the frequency and

impact of supply risk occurrence. Future research

should investigate supply risk and supply risk man-

agement specific to obtaining services. All six of the

case study firms in this research are large organiza-

tions having sufficient influence over their suppliers.

Many of the supply risk management techniques

discussed may be difficult to implement in small and

medium-sized enterprises (SMEs). Future research

should examine what activities SMEs implement in

response to perceived supply risk.

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