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Article Excerpt
Abstract
This research strives to identify key differentiating characteristics of firms adopting a supply chain contingency planning process from those that do not adopt. The researchers base their model on Rogers' innovation diffusion variables and supplement the model with additional variables of interest. Results of the research allow the researchers to propose a model of adoption. The results help the authors identify key predictor variables and significantly enhance the level of understanding of the adoption of supply chain contingency planning processes.
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Recent world events and related research highlight the potentially deleterious effect of unplanned supply chain disruptions on company and network performance. For example, in 2004, Chiron, one of only two companies contracted to manufacture flu vaccine for the U.S., was forced to close its only plant. The immediate impact of the plant closure was a 50 percent reduction in available vaccine, over 500,000 doses, just before the beginning of flu season (Pickett 2006).
The massive impact of hurricane Katrina is another example of the far-reaching and potentially devastating impacts an unplanned event can have on supply chain networks. Businesses well beyond the storm's initial landfall suffered the crippling economic effect of the temporary closing of the Port of New Orleans, a critical transportation hub servicing twenty-eight states and supporting nearly $37 billion in economic benefits (Skipper, Hanna, and Gibson 2007). These examples provide a practical perspective of the variety and magnitude of supply chain disruptions and their potential impacts on both company and supply chain network performance.
The complexity of modern supply chains amplifies the need for effective supply chain management disruption solutions. The importance of these solutions becomes apparent when the scope and nature of service level demands among supply chain partners are examined. As a result, organizations linked via complex supply chain networks should develop strategic contingency plans to minimize the potential negative impacts of a disruption on supply chain performance levels.
Organizations and supply chain networks may not always be able to predict or avoid a disruption, but they can reduce their risk exposure by the implementation of key strategic planning tools. If employed properly, these strategic initiatives enhance the ability of the organization or network to respond to a disruption effectively, minimizing the negative impacts of the event on overall supply chain performance levels. Contingency planning is a valuable but often underutilized strategic planning tool for many organizations (La Londe 2005). Given the relative lack of application of contingency planning to supply chain disruptions, our research treats contingency planning for a supply chain disruption as an innovation. Hence, we assess the variables that differentiate adoption from non-adoption of a contingency planning process by using the established sociological perspective of innovation diffusion. We accomplish this by using Rogers' diffusion framework and supplementing it with additional variables of interest to help identify key variables that differentiate supply chain disruption contingency plan adopters from non-adopters.
The research is organized in the following fashion. Initially, we discuss the foundation for this research effort, including a literature review of supply chain disruptions, contingency planning and risk management, and the framework of innovation diffusion. The next section details the conceptual development of the research and proposes specific hypotheses. In the final sections of the manuscript, we present the analysis, review the results, and discuss managerial implications.
LITERATURE REVIEW
Supply Chain Disruptions
In today's global business environment, organizational structures and the relationships among their components are very complex. These complex organizations may be a single entity, such as a large corporation, or may exist as a group of entities linked together by a common or shared effort. In the latter case, the group of organizations is often referred to as a supply chain network. While there are many technical definitions of a supply chain (Gibson et al. 2005; Mentzer et al. 2001), a simple definition suffices for the purposes of this study. We use the definition provided by Christopher (1992) that states a supply chain is the network of organizations involved, through upstream and downstream linkages, in the many processes and activities that produce value in the form of products and services delivered to the ultimate consumer.
One of the key characteristics of these intricate business structures is the existence of extensive interdependencies among the constituents. As a result of the interdependencies among the various parts of the supply chain network, a single disruption in one area of the supply chain presents the opportunity for a ripple effect that can dramatically impact the entire scope of operations (Peck 2005). A disruption is defined as an "unplanned event that affects the normal, expected flow of materials, information, and components" (Svensson 2004). Given the complexity of today's global networks and the uncertainty and inherent risks surrounding modern operations, the occurrence of a disruption within a supply chain is a real prospect and must be managed (Flint, Larsson, Gammelgaard, and Mentzer 2005).
Managerial efforts to combat the effects of a disruption are plentiful, but few are researched beyond their day-to-day or local application. We strive to add to the body of supply chain research by enhancing the evaluation of contingency planning processes to include key organizations within a supply chain as well as entire supply chain networks. As a result, this study strives to contribute significantly to supply chain literature and our understanding of the overall supply chain management process by identifying the characteristics that differentiate contingency plan adopters from non-adopters.
Recent studies have documented the impacts of disruptions on supply chains in nearly every industry and market segment, including transportation delays and port stoppages (Chapman, Christopher, Juttner, Peck, and Wilding 2002); accidents and natural disasters (Cooke 2002); poor communication, part shortages, and quality issues (Craighead, Blackhurst, and Handfield 2006); operational issues (Chopra and Sodhi 2004); labor disputes (Machalaba and Kim 2002); and terrorism (Sheffi 2001). While examining the above areas of literature, we concluded that many researchers have documented the impacts of disruptions on supply chain network performance levels. However, relatively few researchers have examined the application of a strategic contingency planning process to manage the disruption once it occurs.
There are many research theories that would serve as an apt lens for the inspection of the process of contingency planning. For example, contingency theory implies that firms adapt to changes in their environment by modifying their approach to competition, thereby maintaining or enhancing performance (Hoffer 1975). While the theory certainly applies to the concept of supply chain contingency planning, it fails to provide a sufficient discussion of what causes an organization to adopt a specific planning method to enhance performance levels. Similarly, Systems Theory (von Bertalanffy 1956) states that organizations, like a supply chain, are open and therefore provide and receive influence from their environment. This theory is certainly applicable to the study of supply chain disruptions, especially in cases when the network is viewed as an enterprise (Bowersox 1969), but this theoretical foundation does not focus on the organization's efforts to implement a particular planning method to combat disruptions.
Researchers from a wide range of disciplines including risk management (Finch 2004), operational strategies (Croxton, Garcia-Dastugue, Lambert, and Rogers 2001), proactive management (Sinha, Whitman, and Malzahn 2004), and supply chain design (Lowson 2002), have all contributed to the level of understanding of how to manage today's complex and interdependent supply chains. While it is clear many lenses and theories can be employed to investigate supply chain network disruption activity, our study touches directly on the four areas of research identified above. Contingency planning is a proactive strategy ideal for managing risk in a supply chain network. Therefore, extensions of research in the areas of risk management, operational strategy, proactive management, and supply chain design seem to be applicable to the adoption process of a supply chain contingency planning process. The next section will outline the importance of contingency planning as a strategic tool for risk management.
Contingency Planning and Risk Management
To prepare for disasters and disruptions similar to those indicated above, an organization and its supply chain network must continuously identify, measure, and evaluate its operating environment. This process is an important part of risk planning that should always be incorporated into the network' s strategic planning process. Contingency planning is one form of strategic planning. Specifically, contingency planning is a special type of planning that provides a blueprint for responding to the risks associated with an unknown event (La Londe 2005). A properly prepared contingency plan should detail a timely and complete response to a specific risk or a cluster of risks (La Londe 2005).
Rice and Caniato (2003) define contingency planning as developing a plan to be resilient, or prepared to respond to and restore operations after an unexpected disruption occurs. Barnes (2001) adds that this form of planning is the integration of formalized procedures and resource information that organizations can use to recover from a disaster that causes a disruption to business operations.
There is a growing body of evidence on the importance of contingency planning in supply chain management (SCM) (Alexander 2006; Aragon-Correa and Sharma 2003; Cerullo and Cerullo 2004; Chopra and Sodhi 2004; La Londe 2005). In the 2003 Bain Management Tool Survey, 70 percent of companies surveyed cited the use of contingency planning somewhere in their organizations (Rigby 2003; Rigby and Bilodeau 2005). In 2005, the number of users was once again over 50 percent. Additionally, the Deloitte and Touche/CPM 2005 Business Continuity Survey found that investments in contingency planning has increased by 53 percent in the period from 1999 to 2005 (Deloitte and Touche 2005). Given recent increased attention in industry, research involving contingency planning has also become increasingly widespread and now encompasses several supply chain functional areas, including manufacturing (Guide Jr, Jayaraman and Linton 2003; Iyer and Sarkis 1998), supply chain management (Svensson 2002, 2004), and logistics (Hale and Moberg 2005).
While many organizations reported the use of some type of contingency plan, the plan typically revolved around one area of an organization as opposed to a multi-organizational function like supply chain management. Research shows that contingency planning is common in some functional areas and within certain segments of an organization. However, the practice of contingency planning is far less common when examining its integrated application either within a complex organization or integrated throughout multiple firms participating in a supply chain network.
Research shows that today's lean supply chains are becoming increasingly fragile and less able to deal with shocks and disruptions that can have a dramatic impact on an organization (Zsidisin, Ragatz, and Melnyk 2005). This increase in risk, whether generated externally or internally, is beginning to force organizations to develop formalized plans to deal with potential disruptions. The increase in risk coupled with the potential monumental financial stakes associated with any supply chain disruption combine to make the importance of supply chain contingency planning rather obvious to most managers.
While contingency planning is an inexact science (Hauser 2003), several research studies, including Fawcett, Calantone, and Smith (1996), Goldsby and Stank (2000), Fredricks (2005), and Swafford et al. (2006), have found that organizations actively engaged in strategic planning are characterized by higher levels of flexibility, allowing them to more quickly adapt to the changes in environment. These types of entities tend to be more capable of responding to unexpected events such as a disruption in a more effective manner than their non-flexible counterparts. These types of organizations and networks are better able to manage the risks associated with an operating environment characterized by the heightened interdependency created by complex and uncertain supply chain networks.
As the levels of network complexity increase and supply chain interdependency becomes more prevalent, increased levels of risk occur (Christopher 1992). Therefore, the study of risk, interdependence, and the associated impact of a disruption on supply chain performance is a growing area of interest to many as they strive to reduce uncertainty in an attempt to better insulate their organization's supply chain from the risks of a disruption. Wagner and Bode (2008) suggest that managers pay particular attention to these risks and have issued a call for empirical research into supply chain performance, strategic choice, and the context of risk. In fact, risk exposure is broader than ever before, and evaluation of...
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