Buyer perceptions of supply disruption risk: A behavioral view and empirical assessment

Abstract

As supply chains become more complex, firms face increasing risks of supply disruptions. The process through which buyers make decisions in the face of these risks, however, has not been explored. Despite research highlighting the importance of behavioral approaches to risk, there is limited research that applies these views of risk in the supply chain literature. This paper addresses this gap by drawing on behavioral risk theory to investigate the causal relationships amongst situation, representations of risk, and decision‐making within the purchasing domain. We operationalize and explore the relationship between three representations of supply disruption risk: magnitude of supply disruption, probability of supply disruption, and overall supply disruption risk. Additionally, we draw on exchange theories to identify product and market factors that impact buyers’ perceptions of the probability and magnitude of supply disruption. Finally, we look at how representations of risk affect the decision to seek alternative sources of supply. We test our model using data collected from 223 purchasing managers and buyers of direct materials. Our results show that both the probability and the magnitude of supply disruption are important to buyers’ overall perceptions of supply disruption risk. We also find that product and market situational factors impact perceptions of risk, but they are best understood through their impact on perceptions of probability and magnitude. Finally, we find that decisions are based on assessments of overall risk. These findings provide insight into the decision‐making process and show that all three representations of risk are necessary for fully understanding risky decision‐making with respect to supply disruptions.

Self-Inflicted Supply Risk: An Empirical Investigation

“…Pathak, Dilts, and Mahadevan (2003) examine issues related to the evolution of supply networks by utilizing simulation and elements of Complex Adaptive Systems Theory. Ellis et al (2010) examine elements of behavioral risk and exchange theories to investigate how product and market risk factors affect buyer perceptions of supply risk and decisions to seek alternative sources. Wagner and Bode (2013) discuss a contingency perspective on supply chain risk and acknowledge that the internal and external context of the organization affect risks.…”

“…Among the two studies that best articulate perceived risk factors, Zsidisin (2003b) examined managerial perceptions of supply risk using a case study approach, and created a classification scheme of perceived supply risk characteristics based on item, market and supplier attributes. Building upon this study, Ellis et al (2010) concluded, "The process through which buyers make decisions in the face of these risks has not been explored." Consequently they empirically examined buyer's perceptions of risks of supply disruption related to item and supplier availability, and identified four antecedents of supply disruption risk: technology uncertainty, market thinness, item customization, and item importance.…”

Towards an Integrated Model of Supply Chain Risks: An Alignment Between Supply Chain Characteristics and Risk Dimensions

“…1. This model is mainly focused on the relationship between SC characteristics ( [30], [33]) and risk dimensions and constructs ( [31], [32], [34]). In this section, the approach followed (see Fig.…”

Identifying and evaluating E-procurement in supply chain risk by Fuzzy MADM

“…Supply disruption risk is described as managers' perception of the total potential loss created from disruptions on the supply from suppliers to buyers (Ellis et al, 2010). It consists different activities such as identifying supply chain risk events, assessing the probabilities and the severity of impacts, prioritizing the risk event to be dealt with and developing actions for mitigating risks or planning for backup actions.…”