The International Journal of Logistics ManagementExamining the role of stakeholder pressure and knowledge management on supply chainrisk and demand responsivenessDavid E. Cantor Jennifer Blackhurst Mengyang Pan Mike Crum

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Examining the role of stakeholderpressure and knowledge

management on supply chain riskand demand responsiveness

David E. Cantor and Jennifer BlackhurstDepartment of Supply Chain and Information Systems, Iowa State University,

Ames, Iowa, USA

Mengyang PanDepartment of Management Sciences, The Ohio State University, Columbus,

Ohio, USA, and

Mike CrumDepartment of Supply Chain and Information Systems, Iowa State University,

Ames, Iowa, USA

Abstract

Purpose The purpose of this paper is to contribute to the supply chain risk management literatureby examining how stakeholders place pressure on the firm to engage in risk management activities.Design/methodology/approach This paper utilizes a survey approach to test the nomologicalmodel. The analysis was carried out using structural equation modeling techniques.Findings The results demonstrate that stakeholders place pressure on the firm to mitigate risk andthat knowledge management (KM) and joint planning activities with suppliers serve as mediatingroles in the model. The process-oriented model reveals that these factors influence the firms ability tobe responsive to customer demand.Originality/value The research represents one of the first papers to empirically test howstakeholder theory and KM contributes to risk mitigation activities. Additionally, the paper showsthe impact of KM factors on risk mitigation activities. The paper attempts to explain from both atheoretical and empirical perspective how and why firms are engaging in risk mitigation activitiesand how the impacts demand responsiveness.

Keywords Risk management, Stakeholder pressure, Joint planning

Paper type Research paper

1. IntroductionTodays supply chains are under intense competitive pressure and face high levelsof supply chain risk. Because of the complexity and uncertainty associated withmanaging supply chain partners and processes, the potential for supply chain riskhas increased in recent years (Pettit et al., 2010; Knemeyer et al., 2009). Thus, firmsare faced with the challenge to mitigate supply chain risk (Blackhurst et al., 2011;Braunscheidel and Suresh, 2009). There is, therefore, a burgeoning amount ofinterest in examining how firms can develop effective supply chain risk mitigationstrategies.

Firms can utilize a variety of approaches to plan for and mitigate supply chainrisk. Many firms leverage their knowledge management (KM) capabilities to mitigatesupply chain risk. Indeed, there is growing interest on the role of KM in the fieldof supply chain management. A firms KM capabilities can enable the organization to

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0957-4093.htm

Received 17 October 2012Revised 10 March 201318 June 2013Accepted 30 September 2013

The International Journal of LogisticsManagementVol. 25 No. 1, 2014pp. 202-223r Emerald Group Publishing Limited0957-4093DOI 10.1108/IJLM-10-2012-0111

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mitigate a disruptive event (e.g. parts not being delivered due to a supplier strike) oruncertainty (e.g. parts not being delivered in the expected time frame) in thesupply chain. Our study builds upon prior supply chain risk and KM research.For example, Hult et al. (2007) showed how KM can play a critical role in reducinglead time uncertainty in the supply chain. Hult et al. (2004) linked knowledgedevelopment to supply chain cycle time where the supply chain members areintegrated strategically. Moorman and Miner (1997) found that an organization canenhance short-term financial performance of new products by having higher levels ofknowledge and greater dispersion of that knowledge allowing the firm to reduceuncertainty and risk in the supply chain. Craighead et al. (2009) showed that the KMcapacity in a supply chain has a positive influence on a firms responsiveness to theexternal environment.

The firm can also leverage its joint planning activities with the supply base tomitigate supply chain risk. Previous joint supply chain planning research has providedinitial insight into the mechanisms through which joint planning with suppliers maymitigate risk in the supply chain. First, trust and commitment, attained in anintegrated relationship, contributes to a reduction of opportunism from suppliers andthe willingness of suppliers to coordinate activities with their customers along thesupply chain (Pettit et al., 2010; Primo, 2010; Richey, 2009). Kovacs and Tatham (2009)discovered that strong relationship management enhanced immediate responsefor humanitarian organizations despite a lack of physical capital resources. Second,effective sharing and using information and knowledge in an integrated supply chainstrengthens a companys capability to evaluate partners and react to disruptions(Prahinski and Fan, 2007; Richey, 2009). Third, risks are mitigated by improvedteamwork, knowledge sharing, and joint problem solving in an integrated supply chain(Cheng, 2011; Braunscheidel and Suresh, 2009; Primo, 2010). Treleven and Schweikhart(1988) describe how risks can be mitigated through improved sourcing strategieswith their suppliers.

Firms are pressured by stakeholders to invest in KM to mitigate supply chain risk.Stakeholders in a supply chain may be defined as any individual or group who canaffect or is affected by the achievement of an organizations objectives (Freeman, 1984;Donaldson and Preston, 1995; Phillips et al., 2003; Sarkis et al., 2010). Supply chainstakeholders include clients, shareholders, employees, and NGOs/society (Sarkis et al.,2010). Stakeholder may exert influence and control over a firm if that stakeholder has acritical resource (Kolk and Pinkse, 2006) such as suppliers sharing knowledge. In termsof linking supply chain risk and stakeholders, Spekman and Davis (2004) illustrate thatthere are six areas of supply chain risk including responding to the corporate socialresponsibility requirements of key stakeholders. In this paper, we contend that firmsare pressured by stakeholders to invest in KM to mitigate supply chain risk. While theabove-mentioned studies, among many others, have demonstrated that KM capabilitiescan enable a firm to increase its responsiveness to changes in the external and internalenvironment, our study contends that a firms KM capabilities can also help a firmaddress risk in the supply chain. In turn, effective risk management allows a firm torespond to changes in customer demand.

This paper examines how stakeholders exert pressure on the firm to mitigatesupply chain risk. In so doing, this paper examines the KM and joint planningmediating process that enables the firm to mitigate supply chain risk. As such, thispaper builds upon Sarkis et al. (2010) and Hult et al. (2007) by examining how firmsrespond to stakeholder pressure by enhancing its KM capabilities across the supply

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chain including supply chain joint planning activities. Specific research questionsaddressed in this paper are:

RQ1. Does a firms stakeholder pressures influence risk management activities?

RQ2. What role do KM processes and joint planning activities with suppliers serveon the firms ability to engage in risk management activities?

RQ3. Does the stakeholder and KM process influence a firms demand responsiveness?

To answer these research questions, this paper draws upon stakeholder theory and theKM literature to develop a nomological model of the determinants of risk mitigationsactivities and the influence of these factors on the firms ability to be responsive tocustomer demand.

The remainder of this paper is organized as follows. In Section 2, we provide atheoretical framework and present our hypotheses. Next, we describe the methodsemployed in the study and followed by the results of the study. We then present adiscussion of our results followed by the contribution section which highlights futurework in this area.

2. Theoretical background and hypothesis development2.1 Theoretical foundations: stakeholder theory and KMStakeholder theory provides the theoretical framework of this study. Traditionally,maximizing shareholder value is perceived as the ultimate goal of a company byeconomists (Waldman and Jensen, 2001). Donaldson and Preston (1995) point outthat stakeholder theory is used to explain the connections between stakeholdermanagement and firm performance. Stakeholder theory argues that managers musttake into account the interests of all stakeholder groups who can affect (or be affectedby) the companys activity (Freeman, 1994; Phillips et al., 2003; Sarkis et al., 2010).Stakeholders include not only shareholders but also any other group related to thebusiness such as investors, employees, customers, and suppliers (Clarkson, 1995).Under stakeholder theory, two core questions are articulated by managers: what is thepurpose of the firm, and how does the firm practice responsible management activities(Freeman et al., 2004)? By answering these two questions, managers may gain a sharedsense of the value they create and the relationships they want and need to create withstakeholders.

In addition, a firm is often pressured by stakeholders to adopt organizationalstrategies. Managers incorporate stakeholder interests into their managerial decisionprocess (Phillips et al., 2003). For example, the relationship between stakeholderpressure and environmental practices was investigated by Sarkis et al. (2010).Moreover, managers are more likely to take actions when they perceive meeting theneeds of stakeholders is important to the organizations survival (Kolk and Pinkse,2006). Previous studies (Tate et al., 2010; Harrison et al., 2010; Zhu and Sarkis, 2007)have revealed that initiatives such as a companys environmental practices areenhanced by either collaboration with or pressure from stakeholder groups. In ourstudy, we focus on how stakeholder pressure may serve as the impetus to developKM and joint planning capabilities with suppliers for increased risk mitigationactivities thereby allowing the firm to effectively respond to demand signals and meetcustomer needs.

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In this research, the stakeholder theoretical model is enhanced by integratingconcepts from the KM literature. A key factor that can enable a firm to respondto stakeholder pressure to engage in risk mitigation activities is knowledge.Many organizations consider knowledge as a corporate resource that can help theorganization achieve distinctive competencies (Janz and Prasarnphanich, 2003). A firmneeds to ensure that its knowledge assets are used effectively to achieve multipleobjectives including gaining visibility of opportunities to introduce innovations in themarketplace as well as to respond to potential risks in the external environment.Hence, it is very important for a firm to acquire, share, and assimilate data andinformation with a view to create new knowledge about risks that exist in its supplychain (Du Plessis, 2007). Stated differently, a firm needs to systematically select, distill,and deploy knowledge to identify and respond to risks that exist in its supply chain(Hult, 2003). The following sections discuss the relationships that connect stakeholderpressure, KM capabilities, joint planning with suppliers, risk mitigation, and demandresponsiveness.

2.2 Hypothesis developmentStakeholder pressure on KM. The first factor in our model is stakeholder pressure.Stakeholders are both internal and external entities that influence a firms supply chainpolicies and practices. One important way that stakeholders exert pressure is byrequiring the firm to adopt certain supplier management practices (Sarkis et al., 2010).Because stakeholders can become exposed to negative publicity or harm caused bya firms actions, stakeholders will communicate that the organization shouldmaintain close management and scrutiny over the firms suppliers. MattelCorporations relationship with its suppliers serves as an illustrative example.Mattel received negative publicity when the public became aware of how Mattelssuppliers were using lead-based paint in some of the firms toy products. Even thoughMattel had previously received praise for its supplier relationship managementactivities, the public was infuriated when it became aware that Mattel lost control ofimportant monitoring and management practices of its supply base. A lack of a jointplanning effort with the supplier in this case resulted in significant financial lossbecause Mattel was not closely monitoring supplier activities (Hoyt et al., 2008).

Stakeholders place pressure on the firm to increase its knowledge of activities thatexpose the firm to increased risk. Stakeholders can influence the firm to acquireknowledge on potential risks that its suppliers are taking when manufacturing anddistributing its products (e.g. reviewing quality assessments). Firms can becomeresponsive to stakeholder demands to become more knowledgeable about its supplychain practices in several ways. First, the firm can improve its knowledge acquisitionactivities. Knowledge acquisition refers to the process by which organizations orsupply chains obtain increased visibility to internal and external forces that couldaffect the firms ability to compete in the marketplace (Hult et al., 2007). For example,executives of a firm need to acquire knowledge regarding the quality performance ofsuppliers in order to manufacture a product for the focal company (Kohli et al., 1993).Therefore, supply chain managers need to acquire knowledge in order to meetstakeholder mandates of high-quality products that do not compromise the safety ofthe firms customers.

Next, the firm can become more knowledgeable about its supply chain processesby improving achieved memory. Achieved memory is the firms familiarity andexperiences with supply chain processes that can be leveraged for future use

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(Hult et al., 2007). It helps a firm to gain a richer understanding of the processes andoperations of its supply chain partners such as suppliers. Stakeholders are increasinglydemanding that the firm have the ability to trace the origins of materials, understandthe nature of production processes, and become knowledgeable about the materialsthroughout the supply chain. By leveraging its achieved memory of supply chainprocesses, the firm can rapidly detect potential or existing points of failure should adisruption occur in the supply chain. Higher levels of achieved memory enable the firmto quickly respond to supply chain risk events.

Stakeholders may also influence the firm to increase its knowledge disseminationactivities. Knowledge dissemination can play an important role in thecommunication of historical trends, future needs, and current issues that placethe firms supply chain in a vulnerable position (Hult et al., 2007). Dissemination ofthe above mentioned types of knowledge helps a firm to mitigate potential supplychain risk. For example, a firm can leverage electronic supplier scorecard data tobecome proactively alerted to increased variability in replenishment lead timesfrom its key suppliers. The analysis of historical trend data on supplier leadtime performance should be disseminated both horizontally (e.g. other departments ofthe organization) and vertically (e.g. key members of the organization) as a wayfor a focal firm to take corrective action against poorly performing suppliers (Kohliet al., 1993). Therefore, a firm is likely to feel pressure from both internal stakeholdersand external stakeholders to disseminate knowledge regularly so that it can minimizesources of supplier risk that could negatively impact a firms operational and financialperformance. Because KM includes several dimensions, we present the followinghypotheses:

H1a. KM is positively related to knowledge acquisition.

H1b. KM is positively related to knowledge dissemination.

H1c. KM is positively related to achieved memory.

H1. The greater the stakeholder pressure, the greater the firms KM activities.

KM on joint planning with suppliers. Strong KM practices facilitate the firms ability toengage in effective joint planning efforts with its suppliers (Rungtusanatham et al.,2003). Joint planning refers to the coordination/integration required to plan howexisting competencies will be utilized to satisfy the end customer (Braunscheideland Suresh, 2009). Firms will use their knowledge about their supply chain processesto jointly plan and implement with suppliers the means to meet both partiesrequirements for an effective sourcing relationship. In fact, many scholars extol thebenefits of jointly planning with a supplier to improve a firms supply chain visibilitythrough better communication, shared information, and real-time responses to changes(Das et al., 2006; Devaraj et al., 2007; Flynn et al., 2010; Narasimhan et al., 2010; Primo,2010; Schoenherr and Swink, 2012; Swink et al., 2007; Frohlich and Westbrook, 2001;Wong et al., 2011). Firms that work closely with their suppliers, including through jointplanning activities, are able to monitor the status of how and when a product ismanufactured and distributed. In so doing, a firm can decide the appropriate inventorylevel by knowing exactly the amount of products that are being produced, transported,and unloaded. In a supply chain risk context, recent research by Meena et al. (2011)

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discuss the importance of joint planning with the supply base in managing risk in thesupply chain. Following this logic, we present our second hypothesis:

H2. The greater the KM activities, the greater the level of joint planning withsuppliers.

Joint planning with suppliers and value from risk mitigation activities. We now turnto examining how a firm that jointly plans with its suppliers has greater benefitsstemming from risk mitigation activities. In order to mange supply chain risk, itbecomes critically important for the focal firm to have access to real-time informationabout the suppliers operation in order to coordinate between supply chain partnersto meet customer demand. The focal firm will want to continuously evaluate points ofvulnerability in their supplier relationships and risk mitigation plans as a way toprevent supply chain disruptions from having a detrimental impact. Todays supplychains are more vulnerable than ever to supply chain risks (Wagner and Neshat, 2010;Wagner and Bode, 2008) and managing vulnerability is a critical task (Wagner andNeshat, 2012). Proper sharing of knowledge and joint planning enables the firm toreduce the supply chains exposure to disruptions (Craighead et al., 2007). Blackhurstet al. (2011) discuss how sharing of information among supply chain members throughjoint planning initiatives could lead to the discovery that a disruption has occurredallowing for the appropriate mitigation strategy to be implemented. Manuj andMentzer (2008a) also note the need for joint planning in order to realize the benefitof risk mitigation activities. Thus, joint planning activities with suppliers can increasethe value of risk mitigations activities.

Risk mitigation activities provide the firm with a set of strategies and policies thatcan be used to eliminate or reduce the exposure to loss in the supply chain. The focalfirm needs to take deliberate action to minimize a disruption from occurring and riskmitigation is one method that is used to do so. Risk mitigation plans provide the firmwith information that can be helpful in assessing the current level of risk that existswith the firms supply base. As pointed out in the earlier Mattel example, Mattel turnedto its suppliers for assistance in the contract manufacturing of toys in the marketplace. Unfortunately, as it turned out, Mattel did not have an adequate risk mitigationprogram in place to prevent the contract manufacturers from using lead-basedpaint and as a result a product recall situation occurred. This example points tothe increasing importance that firms need to place on risk mitigation programs as theorganization becomes more tightly integrated through joint planning efforts withsuppliers. Based on the arguments above, we propose the following hypothesis:

H3. The greater the level of joint planning with suppliers, the greater the extent ofrisk mitigation activities.

Stakeholder pressure on supply chain risk mitigation activities. We now turn todiscussing how stakeholder pressure directly affects risk mitigation activities. Thegrowing body of literature on supply chain risk management is still very muchforming and evolving (Sodhi et al., 2012). Nonetheless, firms recognize the importanceof implementing and continuously improving supply chain risk mitigation programs.Unfortunately, many firms may make only minor or partial investments of timeor resources to manage risk unless pressured to do more by key stakeholders(Tang, 2006).

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A firm may not recognize the benefits from risk mitigation programs unless it isforced to evaluate and develop an effective supply chain risk mitigation strategy asstipulated by external or internal forces. Knemeyer et al. (2009) points out thatstakeholders can require a firm to proactively plan for catastrophic risk events. In fact,Kolk and Pinkse (2006) note the influence of stakeholders should not be underestimated.However, the benefits of supply chain risk mitigation programs are only recently gainingincreased awareness as firms realize the importance of effectively managing risk in thesupply chain. As a result, a firm may make its initial investment into short-termand internally oriented risk mitigation activities before it formally develops KMand supply relationship management capabilities (e.g. directly involving its suppliers inrisk mitigation programs). The firm does so as a way to address pressure from keystakeholders who want the firm to take immediate action. Based on this logic, we presentthe following hypothesis:

H4. The greater the stakeholder involvement, the greater the extent of riskmitigation activities.

Supply chain risk mitigation activities on demand responsiveness. Recent research hasshown that disruptions or risk events in the supply chain can have an immediateimpact on the ability of a firm to meet customer demand (Juttner and Maklan, 2011).The agility and responsiveness a firm develops from its risk mitigation strategiesand practices enables the company to respond more effectively to customer demand.We contend that supply chain risk mitigation activities can enable the firm to becomeincreasingly resilient and agile. Indeed, Pettit et al. (2010) present a conceptualframework which suggests that a firm is less likely to become vulnerable to supplychain risk so long as the firm has implemented management controls and capabilitiesto respond to risk events. Risk mitigation activities are one type of management controlthat the firm can implement. Risk mitigation activities can enable the firm to becomemore responsive to customer demand and in fact Melnyk et al. (2010) and Manujand Mentzer (2008b) point out there is a need for supply chains to increase theirresponsiveness in order to meet customer requirements. In this paper, customerdemand responsiveness is conceptualized as the ability of the firm to effectively handlemarketplace changes (Braunscheidel and Suresh, 2009) which is critically important toachieving competitive advantage in the marketplace (Ponomarov and Holcomb, 2009).

In summary, when facing risk in the supply chain, firms must be able to respondquickly and effectively in order to meet customer needs. We argue that the benefitsfirms create in having strong and effective risk management activities will allow thefirm to be responsive to demand changes and ultimately the needs of the customer.Therefore, we present the following hypothesis:

H5. The greater the extent of risk mitigation activities, the greater the firmscustomer demand responsiveness.

Our theoretical model including the hypothesized relationship is shown in Figure 1.

3. Methodology3.1 Survey developmentOur survey design, methodology, and data collection efforts were explicitly implementedat the firm level. We adopted and adapted survey items from previously published

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studies to form the constructs we used in our model. Additionally, we solicited input andfeedback on the survey items from five faculty and eight supply chain practitioners(Malhotra and Grover, 1998). On the basis of this feedback, a preliminary version of thequestionnaire was developed based upon the approach that Dillman (2000) recommends.We pre-tested the survey using six MBA students with supply chain experience and sevensupply chain professionals. In doing so, we were able to confirm the internal reliabilityand validity of the survey items.

3.2 Administration of final surveysThe survey was administered by a large public, mid-western university to ensuredata confidentiality. Because recent survey response rates have been low and basedon the recommendations of Dillman (2000, p. 156), we hired and trained collegestudents to contact by phone potential survey respondents from a list derived fromDun & Bradstreet (D&B) Corporations mailing list database. In appreciation forparticipating in the project, we offered each survey respondent a summary of theresults (Dillman, 2000).

3.3 SampleThe sample for the survey consisted of supply chain management professionalswho are employed in US manufacturing industries. As mentioned above, we chose topre-alert 4,456 potential supply chain professional respondents by phone and e-mailabout our survey to address potential survey response rates problems. Of the totalrespondent pool, 2,284 supply chain professionals were unable to participate due tovarious reasons such as bad contact information provided by D&B Corporation(e.g. either incorrect telephone number and/or e-mail address), the contact is no longeremployed at the company, or company policy prohibited participation in surveys.A total of 2,172 potential respondents were e-mailed the survey; 229 respondentscompleted the survey for a 10.54 percent response rate (229/2,172). Because we wereable to identify all of the firms in our original sample, we evaluated non-responsebias by comparing financial information of those companies that did not respond toour survey to those firms which did complete the survey. We found no statisticallysignificant differences among these groups. Additionally, we evaluated non-responsebias by conducting an early vs late non-response bias test. We found that there are notany statistical differences among the early vs late respondents on all of the constructsin our model ( p40.10). We thus conclude that non-response bias is not a seriousconcern.

KnowledgeAcquisition

KnowledgeDissemination Achieved Memory

H1a

H1 KnowledgeManagementJoint Planning with

SuppliersRisk Mitigation

ActivitiesDemand

Responsiveness

Control Variables:ROAROIHHI

Market ShareFirm Size

StakeholderPressure

H1b H1c

H2 H3 H5

H4

Figure 1.Stakeholder and risk

mitigation model

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Approximately, 50 percent of the survey key informants hold the position of asupply chain manager or higher; 7 percent are in a supervisor-related position; and theremaining sample reported to hold an analyst or related position. On average, the keyinformant worked for a company that employs 8,651 employees. Industries representedin the sample include: electronics (35 percent); chemical manufacturing (14.6 percent);machinery manufacturing (8.5 percent); food, beverage, and tobacco manufacturing(8 percent); transportation equipment manufacturing (6.5 percent); and the remainingsample operate in a diverse set of industries including crop production, oil and mining,paper manufacturing, and other industrial services.

3.4 Measurement of variablesA list of all the constructs used in our study may be found in Appendix A. Ourcontrol variables are derived from the University of Pennsylvanias WRDSdatabase. We control for the firms relative strength in its industry by using theHerfindahl-Hirschman Index (HHI) and the firms market share. Relationships andactivities with suppliers may be influenced by the firms relative strength in theindustry or marketplace. For similar reasons, we utilize size of the firm as reflectedby its annual sales as a control variable. Another control variable is the companysprofitability. A firms financial resource base may influence its perception of the valueof risk mitigation activities. A summary of the variables along with the descriptivestatistics is found in Table I.

3.5 Common method bias (CMB)CMB can be a concern when both the independent and dependent variables arecollected from the same survey respondent (Podsakoff and Organ, 1986). We mitigatedCMB in several ways. First, a Harmans single factor test on all of the measurementitems was conducted (Harman, 1967). If all of the measurement items across theconstructs of interest were to load on one latent factor, CMB would be assumed to bepresent. An exploratory factor analysis was performed and the largest factoraccounted for 31 percent of the variance. Second, a latent method factor test wasalso conducted. The measurement model contains all of the original constructs plus alatent method factor (Podsakoff et al., 2003). The results of this latent method factor testconfirm that the item loadings for the factors in our study remain significant, even inthe presence of the single latent method factor (Paulraj et al., 2008; Zacharia et al., 2011).Additionally, we included secondary data in our model as a way to mitigate CMBconcerns (Boyer and Swink, 2008; Podsakoff et al., 2012). As suggested by Podsakoffet al. (2003) to mitigate CMB concerns, we used different response format in our surveymeasures. Based on the above results, we believe CMB is not of a serious concern.

4. Results4.1 Analysis of scale measurement reliability and construct validityWe now examine the reliability and discriminant validity of our measures. Table IIshows the reliability values for stakeholder pressure, knowledge acquisition,achieved memory, knowledge dissemination, joint planning with suppliers, benefitsof risk mitigation activities, and customer demand responsiveness. All of our measuresmeet the suggested AVE value of 0.50. Further, all Cronbach a values are above the 0.70threshold. Overall, our items exhibit good measurement reliability. Discriminantvalidity is further examined using the stringent test suggested by Fornell and Larcker(1981). Demonstrated in Table III, our AVE for each scale is greater than the square of

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0.84

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0.91

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Table II.Reliability

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the correlation between the scales. This result provides further evidence of discriminantvalidity. Our confirmatory factor analysis analysis reveals good measurement properties(w2/df 393.62/89 1.874; RMSEA 0.05; CFI 0.959; TLI 0.946; IFI 0.959).

We use structural equation modeling to investigate the hypothesized relationships.Our control variables are: HHI, firm profitability, firm size, and market share.Our structural model results demonstrate excellent fit (w2/df 725.764/91 2.116;RMSEA 0.056; CFI 0.916; TLI 0.901; IFI 0.917). The R2 values can be foundin Table IV.

4.2 Results of hypothesis testingWe now report the results of the testing of our hypotheses as shown in Table V.As described in Table V, all of our hypotheses are strongly supported at the p 0.01level. All b coefficients are of the expected sign and significance levels. Further, KMis conceptualized as a second order construct comprised of knowledge acquisition,achieved memory, and knowledge dissemination (Braunscheidel and Suresh, 2009).KM has standardized path weights from itself to the first order constructs and isstatistically significant at the po0.01 level, thus providing support for KM as a secondorder construct which allowed us to fully investigate our structural model. The controlvariables are not significant except for firm size. We will discuss the implication ofthese results in the discussion section.

4.3 Mediation analysisTo further examine the robustness of our results, following the Preacher and Hayes(2004) mediation approach, we conducted a formal mediation analysis. Utilizing

Fornnell and Larker Method

Stakeholder

pressure

Joint

planning

w/ suppliers

Risk

mitigation

Demand

responsiveness

Knowledge

acquisition

Knowledge

dissemination

Achieved

memory

Stakeholder pressure 0.542

Joint planning

w/ suppliers 0.321 0.616

Risk mitigation 0.451 0.482 0.823

Demand

responsiveness 0.252 0.498 0.372 0.526

Knowledge

acquisition 0.443 0.508 0.44 0.551 0.634

Knowledge

dissemination 0.283 0.519 0.402 0.532 0.877 0.614

Achieved memory 0.32 0.546 0.421 0.577 0.787 0.852 0.678

Table III.Discriminant

validity analysis

Structural path R2 values

Stakeholder pressure-knowledge management 0.161Knowledge management-joint planning with suppliers 0.335Joint planning-risk mitigation benefits 0.336Risk mitigation benefits-demand responsiveness 0.152

Table IV.R2 values

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bootstrapping, we measured the indirect effects of the mediated constructs in our model;namely, KM, joint planning with suppliers, and risk mitigation factors (Preacher andHayes, 2004; Jacobs et al., 2007). The indirect effects of the constructs in our modelare statistically significant at po0.05 and the confidence intervals around the indirecteffects did not include zero. Results of the mediation analysis are shown in Table VI.This indicates that indirect effects are present in our model and confirms that the model isproperly conceptualized (Preacher and Hayes, 2004; Zhou et al., 2011).

5. DiscussionThe purpose of our paper is to examine how stakeholder pressure influences afirms risk management activities. We then examine how this process affects a firmscustomer demand responsiveness. We build upon both stakeholder theory and the KMliterature to develop our nomological model. Clearly, supply chains are pressuredfrom multiple stakeholders to minimize risk because they have a vested interest inthe success of the firm. An important organizational strategy that firms can pursue tominimize supply chain risk is to mobilize its KM resources which can facilitateimproved collaboration with the firms supply base. In so doing, the firm can becomemore responsive to changes in customer demand. Not surprisingly, then, there isscholarly and practitioner interest in developing a better understanding of howorganizations pursue risk mitigation activities (Manuj and Mentzer, 2008b).

Stakeholder theory and theory from the KM literature is used to examine how firmsrespond to stakeholder pressure to mitigate risk in the supply chain. This study presentsa model to explain how stakeholder pressure influences a firm to mobilize internal KMresources to mitigate risk. By connecting stakeholder pressure with the firms KMcapabilities, we illustrate how stakeholder pressure is an important antecedent in the riskmanagement process. One opportunity for extending this research is to examine howstakeholders influence other types of supply chain collaboration activities. Sheffi (2005)for example, discusses disruption in supply, disruptions in internal operations as well asdisruptions in demand.

We found that stakeholders exert pressure on the firm to increase KM activities.Stakeholder pressure was found to influence how firms acquire knowledge andinformation, how firms assimilate that knowledge and then how firms disseminate or

Structural path Path coefficient Hypothesis Finding

Stakeholder pressure-knowledge management 0.401*** (0.075) H1 SupportedKnowledge management-knowledge acquisition 0.916*** (0.298) H1a SupportedKnowledge management-knowledge dissemination 0.951*** (0.659) H1b SupportedKnowledge management-achieved memory 0.881*** (0.204) H1c SupportedKnowledge management-joint planning 0.579*** (0.082) H2 SupportedStakeholder pressure-risk mitigation activities 0.349*** (0.080) H3 SupportedJoint planning-risk mitigation activities 0.389*** (0.065) H4 SupportedRisk mitigation activities-demand responsiveness 0.337*** (0.063) H5 SupportedROA-demand responsiveness 0.065 (0.323)ROI-demand responsiveness 0.144 (0.047)HHI-demand responsiveness 0.033 (0.494)Firm size-demand responsiveness 0.093*** (0.033)Market share-demand responsiveness 0.065 (0.514)Notes: Standard errors are reported in parentheses. ***Significant at 0.01 level

Table V.Results

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distribute knowledge to supply chain partners so that all parties have a richerundemanding of the information. Acquisition and dissemination of knowledge by thefirm is of critical importance as firms compete in the marketplace. In fact, the enormoustime and effort needed to collect, organize, and process knowledge has been welldocumented. Through improved KM practices, the firm will be able to engage inimproved joint planning activities with their suppliers on risk mitigation activities.

We also discovered that there is a strong relationship between the firms jointplanning efforts with its supplier and the firms ability to derive benefits from its riskmitigation activities. Firms that closely collaborate with the supplier are able to betterunderstand capacity constraints and have the capability to rapidly re-organizetheir manufacturing arrangements to use alternative sources of supply as needed.Firms who conduct joint planning activities with their suppliers are able to have accessto the information required to help assess the need for risk mitigation programs,perceive that there are benefits from risk mitigation programs, see potential gains inimplementing risk mitigation programs, and view risk mitigation programs as beingadvantageous. In both future research and practice, this has interesting implicationsfor supplier development programs where a firm may help a supplier develop strongrisk mitigation programs. In turn, the supplier may share risk management bestpractices with their own supplier.

Our findings also show that firms which perceive there are benefits from their riskmitigation programs will become more responsive to customer demand. In the end, thisis the goals of a supply chain: to be responsive to the demand requirements of the customer.Risk mitigation programs are important to firms that need to bring new products to themarket quickly and safely. Indeed, risk mitigation programs can enable the firm to quicklyswitch to contract manufacturing firms when added production and distribution capacityis needed in situations of unexpected high levels of market demand for the companysproducts. The risk mitigation programs can help the firm source, monitor and tracepotential disruptions that could occur in the manufacturing and distribution of productsfrom points of origin to point of destination. In the Mattel situation described earlier, a riskmitigation program could have been helpful to the firms executives when a contractmanufacturer was using lead-based paint in the production of a product that was intremendous demand. Early detection or warning of the poor manufacturing practices thatwas employed by the firms contractor was very much needed.

Our last finding is that there is a direct relationship between stakeholder pressureand the benefits that a firm derives from its risk mitigation activities. We find thatfirms do indeed recognize the benefits of risk mitigation activities. This correlates tothe increased interest and focus on supply chain risk research (Braunscheidel andSuresh, 2009). Shareholders want firms to become more proactive to gain marketshare (or, rather not lose market share in the event of a supply chain disruption)and differentiate themselves. We found that supply chain risk management offers amechanism to do just that. In the short run, firms may pursue risk mitigation activitieswithout putting into place formalized KM practices and joint planning activities withtheir suppliers in response to immediate pressure from stakeholders. However, over thelong run, a firm can implement internal organizational strategies to more effectivelyfacilitate a firms risk mitigation efforts.

6. Contribution and future researchThe purpose of our paper is to examine how stakeholder pressure influences a firmsrisk management activities. An important theoretical contribution of our paper is the

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application of KM theory to the topic of supply chain risk. Economists have longrecognized the vital role of knowledge in the design, manufacturing, and distributionof new products (innovation) into the marketplace. An important characteristic ofmarkets is the presence of imperfect information. Information is not fully shared withinfirms and among firms in the supply chain. Moreover, imperfect information existsbetween the firm and their customers. Our study shows that KM theory is informativeto the supply chain risk literature as well. Therefore, we integrate KM theory into ourstudy to shed light on how KM practices can improve information sharing acrossthe supply chain to minimize the information asymmetry problems that largelycontribute to poor risk management practices. Future research should examine howinformation technology practices and KM systems can be used in tandem mitigaterisk in the supply chain. Indeed, the role of information technology can serve as animportant resource in the rapid acquisition, interpretation, and dissemination ofknowledge across the supply chain to mitigate risk (Spekman and Davis, 2004).

Our research represents one of the first papers to empirically test how stakeholdertheory contributes to risk mitigation activities. Additionally, we show the impact ofKM factors on risk mitigation activities. There has been scant theoretical explanationon how and why firms are engaged in risk mitigation activity. Our paper attempts toexplain from both a theoretical and empirical perspective how and why firms areengaging in risk mitigation activities and the impact on demand responsiveness.

While our paper makes several important contributions to the literature, there areadditional opportunities for future research. Our papers theoretical and empiricalfocus is on the upstream portion of the supply chain (e.g. suppliers) and the KM andjoint planning issues with them. Clearly, the supply chain also involves customers,logistics service providers, middlemen, etc. Future research should begin to explorehow KM practices interface with downstream supply chain partners on risk mitigationactivities. Another limitation is that our sample consists of representatives frommultiple levels in their respective supply chain organization. Even though we foundthat there are not any statistically significant differences on the key constructs in ourmodel between key informants who hold a supply chain manager position or higherlevel position in the organization compared to those individuals who hold a lower levelsupply chain position ( p40.10), future research should evaluate our model using amore exhaustive sample of senior-level supply chain personnel. We evaluated non-response bias using two traditional approaches and found that there were not anystatistical effects. While there are practical limitations with conducting additionalnon-response bias tests, in the future, scholars should consider distributing a portionof their survey to a sample of firms that did not respond to the original survey requestand ask the non-responding firms to complete three to four non-demographicquestions (Wagner and Kemmerling, 2010; Mentzer and Flint, 1997).

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Appendix

Construct Derived from

Achieved memory: please complete the following set of items bycircling the number that corresponds to your level of agreement oneach of the statements below (1 strongly disagree; 7 stronglyagree)

(Moorman and Miner, 1997;Hult et al., 2007)

AC1 We have a great deal of familiarity with oursupply chain partners processes

AC2 We have a great deal of experience with theorganizations supply chain processes

AC3 We have a great deal of knowledge about thecompanys supply chain processes

Demand responsiveness: please complete the following set of items bycircling the number that corresponds to your level of agreement oneach of the statements below (1 strongly disagree; 5 stronglyagree)

(Braunscheidel and Suresh,2009)

DR1 Our supply chain is able to respond to changes indemand without overstocks or lost sales

DR2 Our supply chain is able to leverage thecompetencies of our partners to respond tomarket demands

DR3 Our supply chain is capable of responding to realmarket demand

Joint planning with suppliers: please complete the following set ofitems by circling the number that corresponds to your level ofagreement on each of the statements below (1 strongly disagree;5 strongly agree)

(Braunscheidel and Suresh,2009)

JP1 Joint planning with suppliers is important aspectof our supply chain activities

(continued )Table A1.

Measurement items

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Construct Derived from

JP2 Information integration with suppliers in thesupply chain is important

JP3 Joint planning with suppliers is an importantsupply chain activity

Knowledge acquisition: please complete the following set of items bycircling the number that corresponds to your level of agreement oneach of the statements below (1 strongly disagree; 7 stronglyagree)

(Kohli et al., 1993; Hult et al.,2007)

KA1 We conduct research with other departments todetermine their future supply chain needs

KA2 We receive feedback from members of our supplychain (internal and external) at least once a yearwhich is used to assess the quality of our supplychain services

KA3 We regularly collect data on trends in the supplychain environment

KA4 We periodically review the likely effect ofchanges in services on members of our supplychain

Knowledge dissemination: please complete the following set of itemsby circling the number that corresponds to your level of agreement oneach of the statements below (1 strongly disagree; 7 stronglyagree)

(Kohli et al., 1993; Hult et al.,2007)

KD1 We disseminate trends in supply chainmanagement with other departments

KD2 We spend time communicating and discussingfuture supply chain needs with key members ofour organization

KD3 We notify other departments when somethingimportant happens with a key supply chainmember

Risk mitigation activities: please complete the following set of items bycircling the number that corresponds to your level of agreement oneach of the statements below. To what extent does your company:(1 not at all; 5 extensive)

(Kocabasoglu et al., 2007)

RM1 Perceive that there are benefits from riskmitigation programs?

RM2 See potential gains in implementing riskmitigation programs?

RM3 Believe that risk mitigation programs provide along-term opportunity?

RM4 View risk mitigation programs as beingadvantageous?

Stakeholder pressure to implement risk mitigation programs: pleaseassess to what extent your organization feels pressure from thefollowing stakeholders to implement supply chain risk mitigationprograms (1 not at all; to 7 very strongly)

(Sarkis et al., 2010)

SP1 Government officials (local, state, or federal)SP2 ShareholdersSP3 Non-government organizations/societyTable A1.

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About the authors

Dr David E. Cantor (PhD, University of Maryland) is a Deans Faculty Fellow and AssociateProfessor of Supply Chain Management in the College of Business at the Iowa State Universityin Ames, Iowa. His primary research interest is in supply chain management and informationsystems, with a particular focus on the US motor carrier industry. Dr Cantor also is interestedin human decision making in the supply chain. His research on these topics has been publishedin many academic and managerial outlets including the Journal of Business Logistics, theJournal of Operations Management, Decision Sciences, the Transportation Journal,Transportation Research (Logistics and Transportation Review), the International Journal ofPhysical Distribution and Logistics Management and the International Journal of LogisticsManagement. Dr David E. Cantor is the corresponding author and can be contacted at:dcantor@iastate.edu

Dr Jennifer Blackhurst, PhD, is an Associate Professor of Supply Chain Management in theCollege of Business at the Iowa State University. She received her doctorate in IndustrialEngineering from the University of Iowa in 2002. Her research interests include: supplychain risk and disruption; supply chain coordination; and supplier assessment and selection.Her publications have appeared in such journals as Journal of Operations Management, Journalof Business Logistics, International Journal of Physical Distribution and Logistics Management,International Journal of Production Research, and IEEETransactions on EngineeringManagement.She is a member of DSI.

Mengyang Pan is a PhD Student in Operations Management in the Fisher College of Businessat the Ohio State University in Columbus, Ohio. She received her MBA at the Iowa StateUniversity with a specialization in logistics and supply chain management. Her primary researchinterest is in operation and supply chain risk management. She is also interested in healthcare management.

Dr Mike Crum (DBA Indiana University) is Ruan Chair in Supply Chain Management andProfessor of Logistics and Supply Chain Management at the Iowa State University. He served asco-editor of International Journal of Physical Distribution and Logistics Management. His currentresearch interests include supply chain security, transportation safety, and transportation labor.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.comOr visit our web site for further details: www.emeraldinsight.com/reprints

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