New research from York University’s Schulich School of Business shows how companies can anticipate – and prepare for – supply chain disruptions.
The findings are contained in the paper “The effects of tie strength and data integration with supply base on supply disruption ambiguity and its impact on inventory turnover,” which was published in the International Journal of Operations and Production Management. The paper was co-authored by M. Johnny Rungtusanatham, Canada Research Chair in Supply Chain Management and professor of operations management and information systems at the Schulich School of Business; Rahul Pandey, assistant professor of supply chain management at the University of Memphis; and Dipanjan Chatterjee, associate professor of information systems at Goodman School of Business, Brock University.
The paper introduces the concept of “supply disruption ambiguity” which the researchers describe as the inability of a sourcing firm to attach probability point estimates to the occurrence of supply disruptions and the magnitude of loss from those disruptions. The researchers analyzed survey data from 171 North American manufacturers and archival data for a subset of 88 publicly listed manufacturers.
The inquiry found that strong supply base ties decrease supply disruption ambiguity, which, in turn, increases inventory turnover. Moreover, strong supply base ties and data integration with the supply base have positive effects on inventory turnover. As sourcing firms strengthen ties and integrate data exchange with their supply base, their inventory turnover improves from access to information that allows them to effectively detect and diagnose supply disruptions.
“Research on supply disruption management has paid more attention to the ‘disruption recovery’ stage than to the ‘disruption discovery’ stage,” said Rungtusanatham. “In this paper, we add novel insights regarding the recognition and diagnosis aspects of the ‘disruption discovery’ stage. These novel insights reveal how and why sourcing firms reduce their overall ambiguity associated with detecting and assessing losses from supply disruptions through establishing strong ties with their supply base and how and why reducing such ambiguity improves inventory turnover performance.”