Schulich study examines how supply disruption influences supplier selection

A new study from York University’s Schulich School of Business has found that irrational feelings of guilt can play a larger than suspected role when it comes to selecting suppliers.

The study, titled “Supplier Selection in the Aftermath of a Supply Disruption and Guilt: Once Bitten, Twice (Not So) Shy,” showed that sourcing professionals who were responsible for selecting a supplier that had caused a supply disruption were more likely to recommend a higher-risk, higher-reward supplier next time around.

Johnny Rungtusanatham

M. Johnny Rungtusanatham

The study, which is forthcoming in the journal Decision Sciences, was co-authored by M. Johnny Rungtusanatham, Canada Research Chair in Supply Chain Management at the Schulich School of Business, together with Thomas J. Kull and Mikaella Polyviou from the W.P. Carey School of Business at Arizona State University.

As part of the study, the researchers invited sourcing professionals to participate in an experiment in which they were asked to choose between two suppliers for a new outsourcing opportunity following a consequential supply disruption for a different, previously outsourced component. Analyses of the experimental data revealed the following: sourcing professionals who were responsible for selecting the previously outsourced component that resulted in a supply disruption felt guilty and this guilt motivated them to recommend a higher-risk, higher-reward supplier over a lower-risk, lower-reward supplier.

“With data, models, and checks-and-balances in place, it is easy to fall into the trap of viewing supplier selection as a purely rational decision, unaffected by past events,” said Rungtusanatham. “But our research questions both premises. We should be mindful that decisions are still made by humans. To reduce exposure to future supply disruption risks, sourcing firms must ensure that the selection of a higher-risk, higher-reward supplier over other lower-risk, lower-reward options by a human decision-maker is not due to guilt over his or her previous supplier decision gone awry.”

Supplier selection remains a critical decision for effective supply management, added Rungtusanatham. "While there is plenty of advice on how to select suppliers, the task of supplier selection is not foolproof,” said Rungtusanatham. “Our research shows that once bitten by a disrupted supplier, sourcing professionals are not 'twice shy' about favouring riskier, more advantageous suppliers for new sourcing opportunities.”

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