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.

Literature Review and Hypotheses

Theoretical Perspectives

RDT demonstrates how aligning SCU to SCS can affect OP. RDT proposes that firms become involved in exchanges with their environment to secure resources. The underlying premises of RDT are: First, very few organizations are internally self-sufficient on strategic and critical resources, thereby leading to dependence on other firms. Secondly, firms seek opportunities to mitigate uncertainty and manage dependence by purposefully structuring their exchange relationships, establishing formal and semi-formal links with other businesses. Theoretically, establishing such inter-firm relationships is considered when addressing problems of uncertainty and dependence by increasing the level of coordination with the exchange partners.

Barney posited, RDT is in contrast to the well-established resource-based view (RBV), which is more internally focused. RDT emphasizes exclusively complementary resources that can be obtained from external sources for an organization on a contingency basis to sustain or grow under uncertainty. As supply chain partners work in close collaboration, they often become more dependent on each other. However, RDT suggests that in the case of uncertainty, firms should seek supply chain-wide integration and avoid dependencies. Thus, RDT has a high level of value in the supply chain context. In a supply chain context, the uncertainty arises from volatile demands and supply markets, and, to deal with such uncertainties, the match with a specific type of strategy will be contingent upon that condition.
We build and test an integrated model to investigate the relationships among SCU, SCS, and OP and how SCS mediates the relationship between SCU and OP. Based on the extant literature, a conceptual model (Figure 1) is proposed to display the hypothesized relationships among SCU, SCS, and OP.

Figure 1. Results of the structural model; note: * |t| ≥ 1.96 at p = 0.05 level; ** |t| ≥ 2.58 at p = 0.01 level; *** |t| ≥ 3.29 at p = 0.001 level.

The Effects of SCU on SCS

SCU relates to decision-making in situations where the decision maker is at risk due to: lack information or its environment; lack of information processing capabilities; inability to accurately predict the outcome; or, lack of effective control mechanisms. The uncertainty in the supply chain arises from the variation in demand and supply. Arbussa et al., argues that firms need to develop strategic agility to respond to such uncertainties. Demand uncertainty (DU) is characterized by the unforeseen demand variability, in turn creating problems in planning and control that jeopardize delivery performance, while supply uncertainties are the supply side actions that are manifested through late deliveries, poor quality of incoming materials or parts. On the other hand, SCS refers to coordination and commitment of many firms to implementing company strategic objectives and utilizes inter-firm coordination as the capability that facilitates achievement of targets. According to Lee, some uncertainty characteristics require supply chain strategies with initiatives and innovations that can provide a competitive edge to companies.

On the contrary, Fisher argued that functional products are characterized by predictable demand, long product life cycles, and lower profit margins. Thus, firms handling such products require lower levels of capability to respond to frequent design changes and volume fluctuations. As these are low margin products, such firms put heavy emphasis on cost efficiency. Lee has expanded on Fisher's work by incorporating levels of supply uncertainty. Lee's model emphasizes four strategic choices: efficient supply chain (ESC), responsive supply chain (RSC), risk-hedging supply chain (RHSC), and agile supply chain (ASC). ESC deals with creating the highest cost efficiencies in the supply chain. RHSC aims at pooling and sharing resources in a supply chain so that the risks of supply disruption can also be shared. Lee argued that a responsive supply chain strives to be responsive and flexible to the changing and diverse needs of the customers. The ASC is responsive and flexible to customer needs.

An ESC strategy is developed on both low demand and supply uncertainty, whereas firms that adopt an RHSC strategy hedge against supplier uncertainty. These businesses address challenges that are related to process reliability, the supply base and long lead times from source to production, although they produce functional products. Thus, a firm adopting an RHSC strategy is high in supply uncertainty, but low on-demand uncertainty due to the very nature of innovative products, which makes demand volatile, shortens the lifecycle, and provides greater profit margins. Typically, firms deploying a responsive SCS attempt to be flexible to the changing and diverse demands of their customers, reflecting a moderate degree of price and service consciousness. Such firms are focused on improving quality, delivery, modular design, and reliability performance. These improvements are beneficial to an SCS with innovative products, while they are reliable and have a stable supply base. Finally, an ASC has an evolving process in which customer demands remain unstable, and suppliers are unreliable and limited. Such firms emphasize their resources and capabilities on quality, delivery dependability, and after-sales service. Hence, firms with an ASC strategy view both supply and demand as having high uncertainty. Based on the above arguments, we propose the following hypothesis:

Hypothesis 1 (H1).  SCU positively influences the managerial decision to adopt specific SCS.

The Effects of the SCS on OP

Largely driven by globalization, in modern business practices competition has shifted from 'firm versus firm' to 'supply chain versus supply chain'. Ketchen and Hult argued that the best value of supply chain management is reflected in how firms use their supply chains as "strategic weapons" to gain an advantage over competitors. Because the supply chains span into a borderless and invisible process, cost and quality are now taken as constants, which leaves the emphasis on OP on speed and flexibility. Thus, OP refers to the time required to deliver a customer's order, and is measured regarding speed and flexibility. Speed is the elapsed time from when a customer establishes a need to order until the product is delivered and is ready for customer use. Flexibility is the ability to accommodate special situations, like unusual or unexpected customer requests. Flynn et al. posit to respond effectively, it requires a supply chain to determine the nature of uncertainty it is facing and create an alignment with appropriate strategy. Similarly, Stevens and Johnson concluded to evaluate the effectiveness of strategy the supply chain requires to measure its' OP with relevant metrics. The evaluation of the performance of adopted strategy is critical to help steer the supply chain decisions in the desired direction. Therefore, the improvement and assessment of OP are important because it will enhance efficiency across a supply chain. This discussion forms the basis of the following hypotheses:

Hypothesis 2 (H2).  SCS is positively related to a firm's OP.

Hypothesis 3 (H3).  SCS mediates the relation between SCU and a firms' OP.