Analyzing Supply Chain Uncertainty to Deliver Sustainable Operational Performance

Read this study, which surveyed supply chain managers to understand how they address supply chain uncertainty. Section 5 identifies the study's solutions to overcoming uncertainty.


In recent years, the nature of competition has increasingly shifted toward one supply chain competing against another supply chain. Bromiley and Rau and Breton-Miller and Miller have raised the question that why, under uncertainty, some firms outperform others. Typically, supply chains serve the strategic goals through inter-reliant value-adding processes. Hult et al. have argued that the "strategic supply chain management" role is not merely moving products where they need to be, but is also a tool to enhance key outcomes. By nature, supply chain entities are interdependent through sequential, parallel, and network structures, and collaboratively transform raw materials into finished products which can be highly vulnerable to uncertain risks and disruptions.

McKinsey Global Institute (MGI, USA) commissioned a study on globalization and found that geopolitical and domestic political instability will increasingly affect global businesses and their companies. Hence, business continuity and sustainable business performance are going to be a challenge. This is a rising phenomenon and common concern shared by 84% of executives who took part in this survey, which has been part of an on-going research for the last ten years. Findings indicated that most respondents expect that severe disruptions due to geostrategic risks (characterized by geopolitical, political, and macroeconomic instability) will affect their companies, with decidedly negative implications for profits and slowing growth. At the same time, a vast majority say their organizations are not ready to address these issues. While geostrategic risks are complex issues, these risks could be a potential source of competitive advantage for companies that develop better strategic capabilities to manage them. In a related study, Culp posits that natural disasters and extreme weather conditions are not the only threats to supply chains, but that systemic vulnerability, such as oil dependence and information fragmentation, also pose serious risks, as do political unrest and cyber-crime. In addition, in a related study, Culp reported that 80% of companies worldwide see better protection of supply chains as a priority, because significant supply chain disruptions reduce the share price of affected companies by as much as 7% on average. For instance, events like the Japanese earthquake and tsunami, and the floods in Thailand have demonstrated how far the consequences of such risks can extend. The recent earthquake in Japan, for example, severely affected global electronics production and led to extended business disruptions for the automotive industry. The Thai flooding created significant shortages in the hard disk drive market that generated millions of dollars of losses for well-known electronics manufacturers. In addition to these headline events, however, the nature of supply chain risk is constantly changing. New risks and new vulnerabilities can often be better addressed if given close attention from management. Culp also found that the fragility of global supply chains is related to emerging risks and to supply and network design strategies. Volatility and uncertainty are not going away anytime soon. Risk-based, cost-effective supply chain management can be an essential element of success. This capability cannot only help prevent losses, but can also prove, for many companies, to be a lasting source of competitive advantage.

Linton et al. posit sustainability are deeply rooted in the supply chain. Since the supply chain deals with the specific product from end-to-end with initial processing of raw materials until final delivery to the customer. Sustainable operational performance (OP) is a vital element in achieving competitive advantage for the entire supply chain. When the resources are scarce and vitally important, companies are faced with uncertainty in managing the supply and demand to pursue specific supply chain strategy (SCS) to maintain sustainable OP. Firms that are capable of managing these uncertainties with appropriate strategy will thrive with sustained performance and develop a source of competitive advantage. Markley and Davis argued, in the near future, due to competitive pressure, as the sources of competitive advantage for firms become limited and they will search for new areas of excellence. This study contributes towards sustainability by analyzing the potential source of competitive advantage firms can create from the creation of a sustainable supply chain. Moreover, uncertainty about the scarcity of the environmental and natural resource for companies' will demand adopting or pursuing supply chain strategies that will continue to deliver sustainable OP.

Responding to uncertainty through managing supply chains is central to a firm's strategic success. The unpredictability of consumer demands, shorter product life cycles, price and quality fluctuations in supply markets, continuous improvement initiatives by competitors, along with market dynamics, imply that supply chains are struggling for stability. In response to this phenomenon, firms are searching for ways to overcome uncertainty. By building on contingency theory, Hult et al., have found synergies between supply chain uncertainty (SCU) and SCS, and their positive impact on OP. However, their links to OP are still unexplored. Resource dependence theory (RDT) asserts that firms facing substantial environmental uncertainty will attempt to stabilize themselves by imposing inter-organizational ties. Contingency theory emphasizes the effectiveness of realizing an intended match between an uncertain environment within which an organization operates and its strategy. Uncertainty within the supply chain arises from both upstream and downstream. In the case of downstream uncertainty, SCU stems from volatile demands, while upstream uncertainty arises from supply markets.

Hitt et al. and later on followed by Qi et al. explored this relationship have considered uncertainty as a moderator between inter-organizational relationships and performance. Hence, this study attempts to extend this stream of research by focusing on the following gaps in the literature. First, RDT is adopted to examine the direct relationship between SCU (demand and supply) and SCS due to the fact that earlier studies by Wu et al., Qi et al., Yusuf et al., Lee, and Fisher concluded SCS is a broad and multidimensional phenomenon represented by multiple strategies. Second, this research further extends on Fisher and Lee's model who introduced the concept of "strategic supply chain" in response to uncertain environments, and who also examined the context of achieving superior performance through responding to uncertainty. Taking these previous studies as our point of departure, we used RDT, as the theoretical lens to examine an appropriate strategy to achieve superior performance under uncertain supply chain conditions.

This study proceeds as follows. Next section proposes and develops some empirically testable hypotheses. Subsequent sections present the data and methodologies used in this research and explain the results. Finally, section five and six brings together the discussion, implications, limitations and future work.